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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant  ☐
Check the appropriate box:
☒ ☐
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Preliminary Proxy Statement
 ☐
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
 ☐☒
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Definitive Proxy Statement
 ☐
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Definitive Additional Materials
 ☐
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Soliciting Material Pursuant to §240.14a-11(c) or §240.14a-12§240.14a-2
VirnetX Holding Corporation
(Name of Registrant as Specified In Its Charter)
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)all boxes that apply):
☒
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No fee required.required
 ☐
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Fee paid previously with preliminary materials.materials
 ☐
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Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a6(i)14a-6(i)(1) and 0-11.0-11

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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION
VirnetX Holding Corporation
308 Dorla Court
Zephyr Cove, NV 89448
www.virnetx.com
[•], 2023April 26, 2024
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Dear Stockholder:To the Stockholders of VirnetX Holding Corporation:
You are cordially invited to attend a specialthe 2024 annual meeting of the stockholders and any adjournment or postponement thereof (the “Special“Annual Meeting”) of VirnetX Holding Corporation (“VirnetX,” the “Company,” “we,” “us,” or similar term). The Special to be held on Thursday, June 13, 2024, at 10:00 a.m. Pacific Time. This year, the Annual Meeting will be held in virtual format, on [•], 2023, at [•], Pacific Time. You may attend the Special Meeting by visiting [•], wherewhich you will be able to listen to the meeting live, vote and submit questions limited to the proposalproposals described in the proxy statement accompanying this letter (the “Proxy Statement”). 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 an objecting or non-objectinga beneficial owner (that is, if your shares are held at a brokerage), you: You must respond to this Special Meeting invitation by emailing info@virnetx.comemail admin@virnetx.com no later than Wednesday, June 12, 2024, at 11:59 p.m. Eastern Time for verification and toby the Company. Following verification, you will receive youra control identification number and a company-issued password from us topassword.
To attend the Special Meeting. Tomeeting, visit https://agm.issuerdirect.com/vhc, where you will be asked to enter the control identification number and password received from us.
Whether you attend the meeting or not, to vote, visit [•],https://central.proxyvote.com/pv/web, where you will be asked to enter the control identification number located on your Proxy Card,proxy 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 only needreceive your meeting credentials.
To 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 your Notice of Internet Availability (Notice and Access) Card, received from Issuer Direct Corporation,Corporation.
Prior to both attend the meeting by visiting [•] and vote by visiting [•].
If it is unclear whether you are an objecting or non-objecting beneficial owner or whether you are a registered stockholder,Annual Meeting, you may emailalso submit questions relating to the proposals and VirnetX’s business generally by emailing info@virnetx.com to confirm.no later than Wednesday, June 12, 2024, at 11:59 p.m. Eastern Time. We will review these questions and answer as many as possible in the time allotted for the meeting.
At the SpecialAnnual Meeting, we will ask you will be asked to approve an amendment to VirnetX’s Amended and Restated Certificateconsider the following proposals:
1.
To elect Thomas M. O’Brien and Heidy Chow, as our Class II directors;
2.
To ratify the appointment of Farber Hass Hurley LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2024;
3.
To approve, on a non-binding advisory basis, the compensation paid to our named executive officers;
4.
To approve an amendment to our Amended and Restated 2013 Equity Incentive Plan to, among other things, increase the share reserve; and
5.
To transact such other business that may properly come before the Annual Meeting.
Our board of Incorporationdirectors (the “Charter”“Board”) to effect a reverse stock splithas fixed the close of allbusiness on April 19, 2024 as the record date for the Annual Meeting (the “Record Date”). Only stockholders of record as of the shares of our common stock outstanding or held in treasury at a ratio of 1-for-[•] (the “Charter Amendment”). Upon obtaining the requisite approval of our stockholders, the Board of Directors will have the discretion to amend the Charter to effect the reverse stock split. The Board of Directors recommends that youRecord Date may vote your shares “FOR” the proposal being considered at the SpecialAnnual Meeting.
As you know, our common stock Further information regarding voting rights and matters to be voted upon is currently listed on the New York Stock Exchange (“NYSE”). In order to remain listed on NYSE, our common stock must meet certain listing standards, including an average closing price of at least $1.00 per share over a consecutive 30 trading-day period. On May 12, 2023, we received a notice of deficiency from NYSE stating that if we do not comply with the minimum closing price rules within six months following receipt of the notice, NYSE may delist our common stock. The Board of Directors has determined that, absent an increasepresented in the price of our common stock, our common stock likely will be delisted from NYSE.
We believe that the delisting of our common stock would adversely affect VirnetX and its stockholders. Among other things, we believe that delisting may negatively impact the liquidity, marketability and trading price of our common stock. The Board of Directors has determined that a reverse stock split would help regain compliance with NYSE’s minimum price requirement and potentially provide a number of other benefits to VirnetX and its existing stockholders, including, but not limited to, increasing interest by brokers and institutional investors. For these reasons and as described in greater detail in the enclosedaccompanying proxy statement, the Board of Directors is seeking your approval of the reverse stock split. You should carefully review the information contained in the proxy statement before making a decision whether to grant proxies to vote your shares in favor of the proposal set forth in the proxy statement.
On behalf of the Board of Directors, thank you for your continued interest in VirnetX.

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On or about April 26, 2024, we expect to mail to our stockholders of record as of the Record Date a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”) online.
The Notice provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials by mail. The Proxy Statement and the Annual Report can be accessed directly at www.iproxydirect.com/VHC. All you have to do is enter the control and request identification numbers located on your Notice or proxy card.
Our Proxy Statement, Proxy Card and Annual Report for the year ended December 31, 2023 are available at www.iproxydirect.com/VHC.
YOUR VOTE IS IMPORTANT TO US.

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD OR VOTING INSTRUCTION CARD
AS INSTRUCTED OR VOTE BY TELEPHONE OR USING THE INTERNET AS INSTRUCTED ON
THE PROXY CARD OR VOTING INSTRUCTION CARD.
Sincerely,

 
Kendall Larsen
Chairman of the Board of Directors
Zephyr Cove, Nevada
[•], 2023April 26, 2024

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[•], 2023
NOTICE OF SPECIALANNUAL MEETING OF THE STOCKHOLDERS
TO BE HELD ON [•], 2023JUNE 13, 2024
TO THE STOCKHOLDERS OF VIRNETX HOLDING CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders (together with any amendments, postponements or adjournments thereof, the “Special Meeting”) ofOn Thursday, June 13, 2024, VirnetX Holding Corporation will hold its Annual Meeting at 10:00 a.m. Pacific Time. How you may attend the Annual Meeting depends on whether you are a Delaware corporation (“VirnetX,”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,” “we,” “us,” or similar term),Company. Following verification, you will receive a control identification number and a company-issued password.
To attend the meeting, visit https://agm.issuerdirect.com/vhc, where you will be heldasked to enter the control identification number and password received from us.
Whether you attend the meeting or not, to vote, visit https://central.proxyvote.com/pv/web, where you will be asked to enter the control identification number located on [•], 2023,your proxy 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 [•], Pacific11:59 p.m. Eastern Time for verification by the Company. Following verification, you will receive your meeting credentials.
To 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 your Notice of Internet Availability (Notice and Access) Card, received from Issuer Direct Corporation.
Prior to the Annual Meeting, you may also submit questions relating to the proposals and VirnetX’s business generally by emailing info@virnetx.com no later than Wednesday, June 12, 2024, at 11:59 p.m. Eastern Time. We will review these questions and answer as many as possible in the time allotted for the meeting.
The SpecialAnnual Meeting will be held in virtual format for the following purposes, as more fullypurposes:
1.
To elect Thomas M. O’Brien and Heidy Chow, as our Class II directors;
2.
To ratify the appointment of Farber Hass Hurley LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2024;
3.
To approve, on a non-binding advisory basis, the compensation paid to our named executive officers;
4.
To approve an amendment to our Amended and Restated 2013 Equity Incentive Plan to, among other things, increase the share reserve; and
5.
To transact such other business that may properly come before the Annual Meeting.
The foregoing items of business are further described in the proxy statement accompanying this notice:
1.
To approve an amendment to VirnetX’s Amended and Restated Certificate of Incorporation (the “Charter”) to effect, at the discretion of the Board of Directors, a reverse stock split of all of the shares of VirnetX’s common stock outstanding or held in treasury, whereby each [•] shares would be combined into one share of common stock (the “Charter Amendment”).
2.
To transact such other business as may properly come before the Special Meeting.
The effectiveness or abandonmentnotice (the “Proxy Statement”). Included with the Proxy Statement is a copy of our Annual Report on Form 10-K for the Charter Amendment will be determined byfiscal year ended December 31, 2023, as filed with the Board of Directors as permitted under Section 242(c) ofSecurities and Exchange Commission (the “SEC”) on March 15, 2024 (the “Annual Report”). We encourage you to read the General Corporation Law of the State of Delaware.
Only stockholders of record at theAnnual Report. It includes our audited financial statements and information about our operations, markets and products. The close of business on [•], 2023 (the “Record Date”), are entitled to vote atApril 19, 2024 has been fixed by our Board as the Special Meeting. A listrecord date for the determination of stockholders entitled to notice of, and to vote at, our Annual Meeting (the “Record Date”). As of the Special Meeting will be available for inspection at our principal executive offices in accordance with applicable law.
All stockholdersRecord Date, there were 3,680,661 shares of common stock issued and outstanding. Stockholders of record as of the Record Date are cordially invited to attendmay vote at the Special Meeting; yourAnnual Meeting.

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Your vote is important to us. Whether or not you plan to attend the meeting, please complete, sign, date and return the proxy card or voting instruction card as instructed or vote by telephone or using the internet as instructed on the proxy card or voting instruction card. Returning the proxy card, voting online or voting by telephone will ensure your representation at the meeting, but does not deprive you of your right to attend the meeting and vote your shares. The Proxy Statement explains more about the proxy voting process. Please read it carefully. We look forward to your attendance at the SpecialAnnual Meeting.
Sincerely,

 
Chief Administrative Officer and Kathleen Larsen
Corporate Secretary
Zephyr Cove, Nevada
[•],April 26, 2024
Our Proxy Statement, Proxy Card and Annual Report for the year ended December 31, 2023 are available at www.iproxydirect.com/VHC.
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YOUR VOTE IS IMPORTANT TO US.

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD OR VOTING INSTRUCTION CARD
AS INSTRUCTED OR VOTE BY TELEPHONE OR USING THE INTERNET AS INSTRUCTED ON
THE PROXY CARD OR VOTING INSTRUCTION CARD.
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WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD OR VOTING INSTRUCTION CARD AS INSTRUCTED OR VOTE BY TELEPHONE OR USING THE INTERNET AS INSTRUCTED ON THE PROXY CARD OR VOTING INSTRUCTION CARD.
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PROXY STATEMENT
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Page1
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING
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PROPOSAL ONE: APPROVAL OF A PROPOSED AMENDMENT TOIMPORTANT ADDITIONAL VOTING INFORMATION FOR THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLITANNUAL MEETING
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OverviewBOARD OF DIRECTORS
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PurposesDirector Nominees and Continuing Directors
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Role of the Reverse Stock SplitBoard
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Risks Associated with the Reverse Stock SplitBoard Leadership Structure
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1312
Effective DateRisk Oversight
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Composition of the Board
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Principal Effects of the Reverse Stock SplitBoard and Committee Meetings and Annual Meeting Attendance
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14
TreatmentCommittees of Fractional Sharesthe Board
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Effect ofCommunications with the Reverse Stock Split on Equity Awards
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16
Effect of the Reverse Stock Split on the Warrant
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16
Board Discretion to Implement the Reverse Stock Split
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17
Exchange of Stock Certificates
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Effect on Objecting or Non-Objecting Beneficial Owners
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Effect on Registered Stockholders
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Accounting Consequences
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No Appraisal RightsDirector Compensation
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Material U.S. Federal Income Tax Consequence of the Reverse Stock Split
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Required Vote
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Recommendation of the Board of Directors
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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WHERE YOU CAN FIND MORE INFORMATIONPROPOSAL I: ELECTION OF CLASS II DIRECTORS
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OTHER MATTERSPROPOSAL II: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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Appendix A – Certificate of Amendment of Amended and Restated Certificate of Incorporation of VirnetX Holding Corporation.PROPOSAL III: ADVISORY VOTE TO APPROVE COMPENSATION OF NAMED EXECUTIVE OFFICERS
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PROPOSAL IV: APPROVAL OF AN AMENDMENT TO THE AMENDED AND RESTATED 2013 EQUITY INCENTIVE PLAN
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EXECUTIVE OFFICERS
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EXECUTIVE COMPENSATION AND OTHER MATTERS
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Named Executive Officers’ Compensation Decisions for 2023
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Summary Compensation Table
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Outstanding Equity Awards at 2023 Fiscal Year End
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Potential Payments Upon Termination or Change in Control
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Pay Versus Performance
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE AND DELINQUENT 16(a) REPORTS
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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AUDIT COMMITTEE REPORT
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OTHER BUSINESS
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AVAILABILITY OF FORM 10-K
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ANNUAL MEETING INSTRUCTIONS
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ANNUAL MEETING OF STOCKHOLDERS
OF
VIRNETX HOLDING CORPORATION
308 Dorla Court
Zephyr Cove, NV 89448
PROXY STATEMENT
FOR THE SPECIAL MEETING OF THE STOCKHOLDERS
TO BE HELD ON [•], 2023
The enclosed proxy is solicited on behalf of the Board of Directors (the “Board”) of VirnetX Holding Corporation a Delaware corporation (“VirnetX,” the “Company,” “we,we,” “us,” the “Company” or similar term),“VirnetX”) is providing these proxy materials to you for use atin connection with the Special Meeting2024 annual meeting of the Stockholdersstockholders to be held on [•], 2023 (together withThursday, June 13, 2024 at 10:00 a.m. Pacific Time, and at any amendments, postponementspostponement or adjournmentsadjournment thereof the “Special(the “Annual Meeting”). For instructions on how to attend the Annual Meeting, please see the section titled “Annual Meeting Instructions.”
Stockholders of record as of April 19, 2024 (the “Record Date”) are invited to attend the Annual Meeting and are asked to vote on the proposals described in this proxy statement (the “Proxy Statement”).
The Special MeetingNotice of Internet Availability (the “Notice”) will be held virtually at [•], Pacific Time.first mailed to stockholders of record as of the Record Date on or about April 26, 2024. These proxy solicitation materials arecombined with the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”), including financial statements, were first being sent or made available online, on or about [•], 2023, to all stockholders entitled to voteApril 26, 2024. Our principal executive offices are located at our Special Meeting. This proxy statement contains important information for you to consider when deciding how to vote on the matters brought before the Special Meeting. Please read it carefully.
Record Date and Outstanding Shares
Our Board of Directors has set the close of business on [•], 2023 (the “Record Date”), as the record date for the meeting. Stockholders who owned our common stock at the close of business on the Record Date are entitled to vote at and attend the Special Meeting, with each share entitled to one vote. On the Record Date, there were [•] shares of our common stock outstanding.
Voting
The proposal to be considered and acted upon at the Special Meeting is to approve an amendment to VirnetX’s Amended and Restated Certificate of Incorporation (the “Charter”) to effect, at the discretion of the Board of Directors, a reverse stock split of all of the shares of common stock outstanding or held in treasury, whereby each [•] shares would be combined into one share of common stock (the “Charter Amendment”).
The effectiveness or abandonment of the Charter Amendment will be determined by the Board of Directors as permitted under Section 242(c) of the General Corporation Law of the State of Delaware.
At the Special Meeting, stockholders will also be asked to consider and vote on any other matters that may properly come before the Special Meeting. At this time, our Board of Directors is unaware of any matters, other than those set forth above, that may properly come before the Special Meeting.
Each stockholder is entitled to one vote for each share of common stock held by such stockholder on the Record Date. The holders of a majority of the voting power of the capital stock issued and outstanding and entitled to vote at the Special Meeting, present virtually or represented by proxy, constitutes a quorum at the Special Meeting. The affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and cast for and against the reverse stock split proposal is required to approve the Charter Amendment to effect a reverse stock split. Abstentions, broker non-votes and failure to submit a proxy or vote virtually at the Special Meeting will have no effect on this proposal. However, because this proposal is considered a routine proposal, we do not expect any broker non-votes with respect to this proposal. Abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum for the transaction of business.
Notice of Internet Availability of Proxy Materials
We have chosen to provide access to our proxy materials over the Internet. We are sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to our stockholders of record308 Dorla Court, Zephyr Cove, Nevada 89448, and our beneficial owners. All stockholders will have the option to access the proxy materials ontelephone number is (775) 548-1785. We maintain a website referred toat www.virnetx.com. The information on our website is not incorporated by reference in the Notice, or to request a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy of the proxy materials are included in the Notice. You may also request to receive the proxy materials in printed form by mail or electronically by e-mail on an ongoing basis.
Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of the Stockholders to be held on [•], 2023
Our proxy statement is available at [•].Statement.
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Proxies
If the form of proxy card is properly signed and returned or if you properly follow the instructions for telephone or Internet voting, the shares represented thereby will be voted at the Special Meeting in accordance with the instructions specified thereon. If you sign and return your proxy without specifying how the shares represented thereby are to be voted, the proxy will be voted as recommended by the Board of Directors.
If you are an objecting or non-objecting beneficial owner (that is, if your shares are held at a brokerage), you may revoke or change your proxy in any of the following ways:
Submit new voting instructions to your broker, bank or other nominee; or
If you have obtained a legal proxy from the broker, bank or other nominee that holds your shares giving you the right to vote the shares, attend the Special Meeting and vote (attendance at the Special Meeting will not by itself revoke a previously granted proxy).
If you are a registered stockholder, you may revoke or change your proxy at any time before the Special Meeting in any of the following ways:
Submit another properly completed proxy card with a later date;
Send a written notice that you are revoking your proxy to VirnetX Holding Corporation, P.O. Box 439, Zephyr Cove, Nevada 89448;
Vote again on a later date online or by telephone (only your latest online or telephone proxy submitted prior to the Special Meeting will be counted); or
Attend the Special Meeting and vote (attendance at the Special Meeting will not by itself revoke a previously granted proxy).
Costs of Proxy Solicitation
We will pay the costs and expenses of soliciting proxies from stockholders. After the date of this Proxy Statement, but prior to the date of the Special Meeting, we may engage a proxy solicitation firm at a cost to be negotiated but paid for by us. If we do, our costs for such services will be within the range of what is customary for companies with similar operations and a similar number of stockholders and are not expected to be material. Certain of our directors, officers, employees and representatives may solicit proxies from our stockholders in person or by telephone, email or other means of communication. Our directors, officers, employees and representatives will not be additionally compensated for any such solicitation, but may be reimbursed for reasonable out-of-pocket expenses they incur. Arrangements will be made with brokerage houses, custodians and other nominees for forwarding of proxy materials to beneficial owners of shares of our common stock held of record by such nominees and for reimbursement of reasonable expenses they incur.
Your vote is important. Thank you for voting.
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QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS
Although we encourage you to read the enclosed proxy statement in its entirety, we included this Question and Answer section to provide some background information and brief answers to questions that you might have about the Special Meeting.AND THE ANNUAL MEETING
Q:
Why am I receiving these materials?
A:
We have made these materials available to you online or, upon your request, have delivered versions of these materials to you by mail or email, in connection with our solicitation of proxies for use at the SpecialAnnual Meeting, which will take place virtually on [•], 2023, at [•], Pacific Time.Thursday, June 13, 2024. As a VirnetX stockholder as of the Record Date, you are invited to attend the SpecialAnnual Meeting and are entitled to and requested to vote on the items of business described in the proxy statement.Proxy Statement.
Q:
Why did I receive a one-page notice in the mail regarding the internet availability of proxy materials this year instead of a full set of proxy materials?
A:
Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), we have elected to provide access to our proxy materials online. Accordingly, the Notice containing instructions on how to access our proxy materials is first being mailed on or around [•], 2023.April 26, 2024. Instructions on how to access the proxy materials over the internet or to request a printed copy may be found in the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.
Q:
What is included in the proxy materials?
A:
The proxy materials include:
the Proxy Statement; and
the Annual Report, which includes our audited consolidated financial statements.
If you requested printed versions of these materials by mail, these materials also include the proxy card or voting instruction card for the Annual Meeting.
Q:
How can I get electronic access to the proxy materials?
A:
The Notice will provide you with instructions regarding how to view our proxy materials for the Special Meeting online. to:
view our proxy materials for the Annual Meeting online; and
instruct us to send future proxy materials to you electronically by email.
Choosing to access the proxy materials on the internet or receive future proxy materials by email will save us the cost of printing and mailing documents to you and will reduce the impact of our annual meetings on the environment. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by email will remain in effect until you terminate it.
Q:
How may I obtain the Annual Report?
A:
Stockholders may request a free copy of the Annual Report by writing to us at P.O. Box 439, Zephyr Cove, NV 89448 (Attention: Investor Relations). You may also obtain a copy free of charge from our website at www.virnetx.com. You may also obtain a copy of the Annual Report filed with the SEC on March 15, 2024 online at www.sec.gov.
Q:
Who pays for the expenses of soliciting proxies and what are the means of solicitation?
A:
The expenses associated with the Company’s solicitation of proxies for the SpecialAnnual Meeting are to be paid by the Company. Such solicitation of proxies may be made by means of personal calls to, or telephonic, facsimile or electronic communications with, stockholders or their representatives by our directors, officers and employees, who will not be specially compensated for such services. We may, on request, reimburse brokerage firms and other nominees for their expenses in forwarding proxy materials to beneficial owners.
Q:
How can I attend the SpecialAnnual Meeting?
A:
The SpecialAnnual Meeting will be a completely virtual meeting of stockholders, which we believe provides the opportunity for participation by a broader group of stockholders while reducing the environmental impact and the costs associated with in-person meetings.
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How you may attend the SpecialAnnual Meeting and vote depends on whether you are an objecting or non-objectinga beneficial owner or whether you are a registered stockholder; if your status is unclear, please email info@virnetx.com no later than [•], 2023, at 11:59 p.m., Eastern Time, to confirm.stockholder.
If you are an objecting or non-objectinga beneficial owner (that is, if your shares are held at a brokerage): You must email info@virnetx.comadmin@virnetx.com no later than [•], 2023,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 a company-issued password.
To attend the meeting, visit [•],https://agm.issuerdirect.com/vhc, where you will be asked to enter both codesthe control identification number and password received from us. To
Whether you attend the meeting or not, to vote, visit [•],https://central.proxyvote.com/pv/web, where you will be asked to enter the control identification number located on your proxy card, received from Broadridge Financial Solutions, Inc.
If you are a registered stockholder: 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.
To 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 your Notice of Internet Availability (Notice and Access) Card, received from Issuer Direct Corporation. To vote, visit [•], where you will be asked to enter the control identification number, request identification number, and password located on your Notice of Internet Availability (Notice and Access) Card, received from Issuer Direct Corporation.
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We designed the format of the virtual SpecialAnnual Meeting to ensure that our stockholders are afforded the same rights and opportunities to participate as they would at an in-person meeting and to enhance stockholder access, participation and communication through online tools. The virtual format facilitates stockholder attendance and participation by enabling stockholders to participate fully and equally from any location around the world. During the meeting, you will have the ability to submit questions real-time via the virtual meeting website. Prior to the meeting, you may also submit questions relating to the proposalproposals and VirnetX’s business generally by emailing info@virnetx.com no later than [•], 2023,Wednesday, June 12, 2024, at 11:59 p.m., Eastern Time. We will review these questions and answer as many as possible in the time allotted for the meeting.
The SpecialAnnual Meeting webcast will begin promptly at [•]10:00 a.m., Pacific Time. We encourage you to access the meeting prior to the start time. Online check-in will begin at [•],9:45 a.m. Pacific Time;Time, and you should allow ample time for the check-in procedures.
Q:
Who is entitled to vote at the SpecialAnnual Meeting?
A:
Stockholders who our records show owned shares of VirnetX as of the close of business on the Record Date may vote at the SpecialAnnual Meeting. On the Record Date, we had a total of [•]3,680,661 shares of common stock outstanding. The stock transfer books will not be closed between the Record Date and the date of the SpecialAnnual Meeting.
Q:
What is the difference between holding shares as a registered stockholder and as a street name stockholder?
A:
Registered StockholdersStockholders. . If your shares are registered directly in your name with VirnetX’s transfer agent, you are considered the stockholder of record with respect to those shares, and the proxy statementProxy Statement was provided to you directly. As a stockholder of record, you have the right to grant your voting proxy directly to the individuals listed on a proxy card or to vote at the SpecialAnnual Meeting.
Street Name Stockholders. If your shares are held by a broker, bank or other nominee, you are considered the beneficial owner of shares held in street name and the proxy statementProxy Statement should be forwarded to you by your broker, bank or other nominee, who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote your shares. Beneficial owners are also invited to attend the SpecialAnnual Meeting. However, since you are not the stockholder of record, you may not vote your shares at the SpecialAnnual Meeting unless you obtain a legal proxy from your broker, bank or other nominee. If you request a printed copy of the proxy materials by mail, your broker, bank or other nominee will provide a voting instruction card for you to use.
Q:
What is the proposal that I am being asked to consider at the upcoming Special Meeting?
A:
The proposal to be considered and acted upon at the Special Meeting is to approve the Charter Amendment to effect, at the discretion of the Board of Directors, a reverse stock split of all of the shares of VirnetX’s common stock outstanding or held in treasury, whereby each [•] shares would be combined into one share of common stock.
The effectiveness or abandonment of the Charter Amendment will be determined by the Board of Directors as permitted under Section 242(c) of the General Corporation Law of the State of Delaware.
Q:
How does the Board recommend I vote on this proposal?
A:
The Board recommends a vote “FOR” the reverse stock split of all of the shares of our common stock outstanding or held in treasury at a ratio of 1-for-[•].
Q:
If the stockholders approve the Charter Amendment, when would VirnetX implement the reverse stock split?
A:
We currently expect that the reverse stock split will be implemented as soon as practicable after the receipt of the requisite stockholder approval. However, our Board of Directors will have the discretion to abandon the reverse stock split if it does not believe it to be in the best interests of VirnetX and our stockholders.
Q:
Why is VirnetX seeking to implement a reverse stock split?
A:
The reverse stock split is being proposed to increase the market price of our common stock to satisfy the $1.00 minimum closing price required to avoid the delisting of our common stock from NYSE. In addition, a higher stock price may, among other things, increase the attractiveness of our common stock to the investment community.
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Q:
What are the consequences of being delisted from NYSE?am I voting on?
A:
If we do not implement the reverse stock split, it is likely that weOur stockholders will not be able to meet the $1.00 minimum closing price continued listing requirement of NYSE and our common stock would be delisted from NYSE. If we are delisted from NYSE, we may be forced to seek to be tradedvote on the Over-the-Counter (“OTC”) Bulletin Board orfollowing matters at the “pink sheets,” which would require our market makers to request that our common stock be so listed. There are a number of negative consequences that could result from our delisting from NYSE, including, but not limited to, the following:
the liquidity and market price of our common stock may be negatively impacted and the spread between the “bid” and “asked” prices quoted by market makers may be increased;
our access to capital may be reduced, causing us to have less flexibility in responding to our capital requirements;
our institutional investors may be less interested in or prohibited from investing in our common stock, which may cause the market price of our common stock to decline;
we will no longer be deemed a “covered security” under Section 18 of the Securities Act of 1933, as amended, and, as a result, we will lose our exemption from state securities regulations, making the granting of stock options and other equity incentives to our employees more difficult; and
if our stock is traded as a “penny stock,” transactions in our stock would be more difficult and cumbersome.
Q:
What would be the principal effects of the reverse stock split?Annual Meeting:
A:1.
The reverse stock split will have the following effects:
the market price of our common stock immediately upon effect of the reverse stock split will increase substantially over the market price of our common stock immediately prior to the reverse stock split; and
the number of shares of common stock outstanding or held in treasury will be reduced to one-[•] of the number of shares currently outstanding or held in treasury (except for the effect of eliminating fractional shares).
Q:
Are my pre-split stock certificates still good after the reverse stock split? Do I need to exchange them for new stock certificates?Election of Thomas M. O’Brien and Heidy Chow, as our Class II directors;
A:2.
AsRatification of the effective dateappointment of Farber Hass Hurley LLP as our independent registered public accounting firm for the Charter Amendment, each certificate representing pre-split shares of common stock will, until surrendered and exchanged, be deemed to represent only the relevant number of post-split shares of common stock and the right to receive the amount of cash for any fractional shares as a result and at the time of the reverse stock split. As soon as practicable after the effective date of the reverse stock split, our transfer agent, Equiniti Trust Company, LLC (“Equiniti Trust Company”), will mail you a letter of transmittal. Upon receipt of your properly completed and executed letter of transmittal and your stock certificate(s), you will be issued the appropriate number of shares of common stock (including legends, if appropriate) electronically in book-entry form, as determined by VirnetX.
You may contact our transfer agent, Equiniti Trust Company, by telephone at (866) 877-6270 if you have lost your stock certificate or need to change your mailing address.
Q:
What if I hold some or all of my shares electronically in book-entry form? Do I need to take any action to receive post-split shares?fiscal year ending December 31, 2024;
A:3.
If you hold shares ofAn advisory vote on the compensation paid to our common stock in book-entry form (that is, you do not have stock certificates evidencing your ownership of our common stock but instead received a statement reflecting the number of shares registered in your account), you do not need to take any action to receive your post-split shares or, if applicable, your cash payment in lieu of any fractional share interest. If you are entitled to post-split shares, a transaction statement will be sent automatically to your address of record indicating the number of shares you hold.named executive officers;
Q:4.
What happensApproval of an amendment to any fractional shares resulting from the reverse stock split?
A:
If you would be entitled to receive fractional shares as a result of the reverse stock split because you hold a
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number of shares of common stock before the reverse stock split that is not evenly divisible (in other words, it would result in a fractional interest following the reverse split), you will be entitled, upon surrender of certificate(s) representing your shares, to a cash payment in lieu of the fractional shares without interest.
Q:
What happens to equity awards under VirnetX’s Amended and Restated 2013 Equity Incentive Plan as a result of the reverse stock split?
A:
Each outstanding equity award (including restricted stock units, stock options and restricted stock) under VirnetX’sour Amended and Restated 2013 Equity Incentive Plan (the “Equity Plan”“Plan”) will be adjusted soto, among other things, increase the share reserve; and
5.
Any other business that may properly come before the numberAnnual Meeting.
Q:
How does the Board recommend I vote on these proposals?
A:
The Board recommends a vote:
1.
FOR the election of shares of common stock subject to such award is combined uponThomas M. O’Brien and Heidy Chow, as our Class II directors;
2.
FOR the effective dateratification of the reverse stock split into one-[•]appointment of Farber Hass Hurley LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2024;
3.
FOR the approval of the numbercompensation of such shares immediately precedingour named executive officers; and
4.
FOR the reverse stock split (rounded downapproval of an amendment to our Plan to, among other things, increase the nearest whole share as discussed in the last sentence below). In addition, the exercise price of outstanding stock options will be adjusted to [•] times the exercise price specified before the reverse stock split, rounded up to the nearest whole cent. As a result, the intrinsic value of all outstanding equity awards will remain approximately the same following the reverse stock split. No fractional shares will be issued pursuant to the Equity Plan following the reverse stock split. Therefore, if the number of shares subject to an outstanding equity award immediately before the reverse stock split is not evenly divisible so that the reverse stock split would otherwise result in a fractional interest, the number of shares of common stock issuable pursuant to such equity award will be rounded down to the nearest whole share.reserve.
Q:
How do I vote?
A:
You may either vote “FOR” or “WITHHOLD” your vote on each of the nominees to the Board. For each of the proposals related to (i) ratification of Farber Hass Hurley LLP as our independent registered public accounting firm; (ii) compensation of our named executive officers; and (iii) the approval of an amendment to our Plan to, among other things, increase the share reserve, you may vote “FOR,” “AGAINST” or “ABSTAIN” for the proposal.“ABSTAIN.”
Registered StockholdersStockholders:: Registered stockholders may vote by one of the following methods:
At the SpecialAnnual Meeting. Stockholders who attend the SpecialAnnual Meeting may vote at the Meeting. Please see “How“How can I attend the SpecialAnnual Meeting?” above for further information;
By Mail. If printed copies of the proxy materials were mailed to you, you can complete, sign and date the proxy card and return it in the prepaid envelope provided;
By Telephone. Stockholders of record as of the Record Date who live in the United States or Canada may submit proxies by following the “Vote by Phone” instructions on their proxy cards or the Notice or by following the voting instructions provided by email or over the internet; or
Online. Stockholders of record with internet access may submit proxies via the internet by following the “Vote by Internet” instructions described in the Notice.
Please note that online and telephone voting facilities for registered stockholders will close at 11:59 p.m., Eastern Time on [•], 2023.Wednesday, June 12, 2024.
Street Name Stockholders: If your shares are held by a broker, bank or other nominee, you should have received instructions from your broker, bank or other nominee on how to vote or instruct your broker, bank or other nominee to vote your shares. Please follow their instructions carefully. Also, please note that if the holder of record of your shares is a broker, bank or other nominee and you wish to vote at the SpecialAnnual Meeting, you must request and obtain a legal proxy from your broker, bank or other nominee.
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Street name stockholders may generally vote by one of the following methods:
By Mail. If printed copies of the proxy materials were mailed to you, you may vote by signing, dating and returning your voting instruction card in the enclosed pre-addressed envelope provided to you;
By Methods Listed on Voting Instruction Card. Please refer to your voting instruction card or other information provided by your bank, broker or other nominee to determine whether you may vote by telephone or electronically on the internet, and follow the instructions on the voting instruction card or other information provided by the record holder; or
At the SpecialAnnual Meeting with a Proxy from the Record Holder. A street name stockholder who wishes to vote at the SpecialAnnual Meeting will need to obtain a legal proxy from his or her broker, bank or other nominee. Please consult the voting instruction card provided to you by your broker, bank or other nominee to determine how to obtain a legal proxy in order to vote at the SpecialAnnual Meeting.
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Q:
How many votes do I have?
A:
On each matter to be voted upon, you have one vote for each share of common stock you own as of the Record Date. Stockholders may not cumulate votes.
Q:
Will there be any other items of business on the agenda?
A:
We do not know of any business to be considered at the SpecialAnnual Meeting other than the proposalproposals described in the proxy statement.Proxy Statement. However, if any other business is properly presented at the SpecialAnnual Meeting pursuant to guidelines described in our bylaws, the accompanying proxy gives discretionary authority to the persons named on the proxy with respect to any other matters that might be brought before the SpecialAnnual Meeting. Such matters include, among other things, consideration of a motion to adjourn the SpecialAnnual Meeting to another time or place, including without limitation, for the purpose of soliciting additional proxies.
Q:
If I submit a proxy, how will it be voted?
A:
When proxies are properly dated, executed and returned, the shares represented by such proxies will be voted at the SpecialAnnual Meeting in accordance with the instructions of the stockholder. If no specific instructions are given, however, and you sign and return your proxy card with no further instructions, the shares will be voted in accordance with the recommendationrecommendations of the Board, which is “FOR”as follows:
1.
FOR the reverse stock splitelection of allThomas M. O’Brien and Heidy Chow, as our Class II directors;
2.
FOR the ratification of the sharesappointment of Farber Hass Hurley LLP as our common stock outstanding or held in treasury at a ratioindependent registered public accounting firm for the fiscal year ending December 31, 2024;
3.
FOR the approval of 1-for-[•].the compensation paid to our named executive officers;
4.
FOR the approval of an amendment to our Plan to, among other things, increase the share reserve.
Q:
Can I change my vote after submitting my proxy?
A:
Yes. You can revoke your proxy at any time before the final vote at the SpecialAnnual Meeting. If you are the record holder of your shares, you may revoke your proxy in any of the following ways:
submit another properly completed proxy card with a later date;
send a written notice that you are revoking your proxy to VirnetX Holding Corporation, P.O. Box 439, Zephyr Cove, Nevada 89448;
vote again on a later date online or by telephone (only your latest online or telephone proxy submitted prior to the SpecialAnnual Meeting will be counted); or
attend the SpecialAnnual Meeting and vote (attendance at the SpecialAnnual Meeting will not by itself revoke a previously granted proxy).
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If you are a beneficial owner of shares held in street name, you may change your vote:
by submitting new voting instructions to your broker, bank or other nominee; or
if you have obtained a legal proxy from the broker, bank or other nominee that holds your shares giving you the right to vote the shares, by attending the SpecialAnnual Meeting and voting (attendance at the SpecialAnnual Meeting will not by itself revoke a previously granted proxy).
Q:
What is a proxy card?How are votes counted?
A:
The proxy card enables
For Proposal I - Election of Two Class II Directors, you may vote “FOR” any of the nominees or your vote may be “WITHHELD” with respect to appoint Kendall Larsenany of the nominees. Votes that are withheld will be excluded entirely and Greg Wood, with full powerwill have no effect in the election of substitution and resubstitution, whom we refer to as the proxyholders, asa director. If you hold your representatives at the Special Meeting. By signing, dating and returning the proxy card, you are authorizing the proxyholders toshares in street name, please note that your broker, bank or other nominee may not vote your shares at the Special Meeting. Evenfor Proposal I without instructions from you. Thus, if you planhold your shares in street name and you do not instruct your broker, bank or other nominee how to attendvote for the Special Meeting, it is a good idea to sign, date and returnelection of the Class II directors, no votes will be cast on your behalf, but your proxy card or vote by proxy viawill be counted for the Internet or telephone in advancepurpose of the Special Meeting in case your plans change. You can vote in person by ballot at the Special Meeting even if you have already sent in your proxy card.establishing a quorum.
IfDirectors shall be elected by a proposal comes up forplurality of the shares present in person (including virtually) or represented by proxy and entitled to vote on the election of directors. This means the two director nominees receiving the highest number of votes cast by the shares present (including virtually) or by proxy and entitled to vote at the SpecialAnnual Meeting on this matter will be elected to the Board. Votes that isare withheld and broker non-votes will be excluded entirely and will have no effect in the election of the director.
For Proposal II - Ratification of Farber Hass Hurley LLP as our Independent Registered Public Accounting Firm, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you abstain from voting on Proposal II, your shares will be counted as present and entitled to vote for the purpose of establishing a quorum and your abstention will have the same effect as a vote against the proposal. If you hold your shares in street name, your broker, bank or nominee will have discretionary authority to vote on Proposal II if they do not receive instructions from you.
Ratification of Farber Hass Hurley LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2024 will require 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 proxy card,same effect as a vote “against” the proxyholdersratification of Farber Hass Hurley LLP as our independent registered public accounting firm.
For Proposal III - Advisory Vote to Approve the Compensation of Named Executive Officers, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you abstain from voting on Proposal III, your shares will be counted as present and entitled to vote for the purpose of establishing a quorum and your abstention will have the same effect as a vote against the proposal. If you hold your shares in street name, your broker, bank or other nominee may not vote your shares accordingon Proposal III without instructions from you. Thus, if you hold your shares in street name and you do not instruct your broker how to their best judgment.vote with regard to Proposal III, no votes will be cast on your behalf, but your proxy will be counted for the purpose of establishing a quorum.
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.
For Proposal IV - Approval of an Amendment to the Amended and Restated 2013 Equity Incentive Plan, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you abstain from voting on Proposal IV, your shares will be counted as present and entitled to vote for the purpose of establishing a quorum and your abstention will have the same effect as a vote against the proposal. If you hold your shares in street name, your broker, bank or other nominee may not vote your shares on Proposal IV without instructions from you. Thus, if you hold your shares in street name and you do not instruct your broker how to vote with regard to Proposal IV, no votes will be cast on your behalf, but your proxy will be counted for the purpose of establishing a quorum.
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The approval of an amendment to our Plan to, among other things, increase the share reserve will require 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 same effect of a vote “against” the amendment to our Plan and broker non-votes will have no effect.
Finally, if you sign and return your proxy card with no further instructions, your shares will be counted as a vote “FOR” Thomas M. O’Brien and Heidy Chow, as Class II director nominees; “FOR” the ratification of the appointment of Farber Hass Hurley LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2024; “FOR” an advisory vote to approve the compensation of our named executive officers; and “FOR” an amendment to our Plan to, among other things, increase the share reserve. In addition, the proxy also delegates discretionary authority to vote with respect to any other business which may properly come before the Annual Meeting or any adjournment or postponement thereof.
Q:
What is the quorum requirement?
A:
A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if at least a majority of the outstanding shares of common stock are represented by stockholders as of the Record Date present at the meeting (including virtually) or by proxy.
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Your shares will be counted towards the quorum only if you submit a valid proxy or if you vote at the SpecialAnnual Meeting. Abstentions will be counted towards the quorum requirement. If there is no quorum, a majority of the votes present at the meeting may adjourn the meeting to another date.
Q:
What effect do abstentions and broker non-votes have on quorum requirements?
A:
Abstentions and broker non-votes are counted as present for establishing a quorum for the transaction of business at the SpecialAnnual Meeting. A “broker non-vote” occurs when a broker votes on a matter it does not have authority to vote on.
Under the rules that govern brokers who have record ownership of shares that are held in “street name” for their clients, the beneficial owners of the shares, brokers have discretion to vote these shares on routine matters but not on non-routine matters. If you hold common stock through a broker and you have not given voting instructions to the broker, the broker will be prevented from voting shares on non-routine matters, resulting in a “broker non-vote.” Thus, if you do not otherwise instruct your broker, the broker may turn in a proxy card voting your shares on routine matters but expressly instructing that the broker is NOT voting on non-routine matters. The proposalRatification of our independent registered public accounting firm (Proposal II) contained in this Proxy Statement is considered a routine matter. However, Proposals I, III and IV are considered non-routine matters.
Brokers do not have discretionary authority to vote on the non-routine matters, so it is very important that you instruct your broker how to vote with respect to these proposals.
Q:
I share an address with another stockholder, and we received only one copy of the Notice. How may I obtain an additional copy of the Notice or proxy materials?
A:
In an effort to reduce printing costs and postage fees, we have adopted a practice approved by the SEC called “householding.” Under this practice, stockholders who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of the Notice or our proxy materials if a full set is requested, unless one or more of these stockholders notifies us that he or she wishes to continue receiving individual copies. Stockholders who participate in householding will continue to receive separate proxy cards.
If you share an address with another stockholder and received only one Notice or set of proxy materials from us and would like to request a separate copy of these materials, please: (1) mail your written request to VirnetX Holding Corporation, P.O. Box 439, Zephyr Cove, Nevada 89448 (Attention: Investor Relations), or (2) call our Investor Relations department at (775) 548-1785. Additional copies of the proxy materials will be sent promptly after receipt of your request. Similarly, you may also contact us if you received multiple copies of our proxy materials and would prefer to receive a single copy in the future.
Q:
What does it mean if I receive more than one Notice?
A:
It means that you hold shares in more than one account. To the extent that you would like to vote all of your shares in favor of the Board’s recommendations, sign, date and return each proxy card.
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Q:
Who tabulates the votes and how will I know the results of the voting at the SpecialAnnual Meeting?
A:
The votes will be tabulated by an independent inspector of election, who will be a representative of Issuer Direct Corporation. The results of the voting at the Special Meeting will be reported on the Current Report on Form 8-K that will be filed with the SEC within four business days following the conclusion of the Special Meeting.
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Q:
How do I contact the Board?
A:
You can send written communications to the Board or any individual director in accordance with our bylaws, addressed to:
Board of Directors, Nominating and Corporate Governance Committee,
or name of individual director
c/o Corporate Secretary
VirnetX Holding Corporation
P.O. Box 439
Zephyr Cove, Nevada 89448
Our Corporate Secretary will then direct such communications (except for solicitations or other matters unrelated to us) to the relevant director(s).
Q:
Where are your principal executive offices?
A:
Our principal executive offices are located at 308 Dorla Court, Zephyr Cove, Nevada 89448. Our telephone number is (775) 548-1785.
Q:
How do I submit a stockholder proposal for the 2025 Annual Meeting of Stockholders?
A:
Stockholders may present proper proposals for inclusion in the Company’s proxy statement and for consideration at the next annual meeting of its stockholders by submitting their proposals in writing to the Company in a timely manner. In order to be included in the proxy statement for the 2025 annual meeting of stockholders (“2025 Annual Meeting”), stockholder proposals must be received by the Company no later than December 27, 2024 and must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
In addition, the Company’s bylaws establish an advance notice procedure for stockholders who wish to present certain matters, including the nomination of directors, before an annual meeting of stockholders without including those matters in the Company’s proxy statement. In general, such proposals, including the information required by the Company’s bylaws, must be received by the Company no earlier than February 13, 2025 and no later than March 15, 2025.
If the date of the stockholder meeting is moved more than 25 days from the anniversary of the prior year’s annual meeting and less than 100 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, the Company’s advance notice procedure requires that such proposal including certain information, as described in the Company’s bylaws, must be received by the Company not later than the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Our Bylaws have been publicly filed with the SEC and can be obtained online at www.sec.gov.
If a stockholder fails to give notice of a stockholder proposal as required by our bylaws or other applicable requirements, then the proposal will not be included in the proxy statement for our 2025 Annual Meeting and the stockholder will not be permitted to present the proposal to the stockholders for a vote at our 2025 Annual Meeting.
Q:
What if I have questions about lost stock certificates or need to change my mailing address?
A:
You may contact our transfer agent, Equiniti Trust Company, by telephone at (866) 877-62701-866-877-6270, or by facsimile at (866) 729-7680,1-866-729-7680, if you have lost your stock certificate or need to change your mailing address.
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IMPORTANT ADDITIONAL VOTING INFORMATION FOR THE SPECIALANNUAL MEETING
Broker Voting
Stockholders who hold shares of the Company through a broker, bank or other nominee receive proxy materials before each stockholder meeting. Your broker is not permitted to vote on your behalf on Proposal I, III and IV unless you follow the instructions provided by your broker. For your vote to be counted, you will need to communicate your voting decisions to your broker, bank or other nominee before the date of the SpecialAnnual Meeting.
Your Participation in Voting the Shares You Own Is Important
Voting your shares is important to ensure that you have a say in the governance of the Company.Company and to fulfill the objectives of the plurality voting standard that we apply in the election of directors. Please review the proxy materials and follow the instructions on the proxy card to vote your shares. We hope you will exercise your rights and fully participate as a stockholder in the Company’s future.
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PROPOSAL ONE

APPROVALBOARD OF A PROPOSED AMENDMENT TO
VIRNETX’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT
OverviewDIRECTORS
The Board is presently composed of Directors has unanimously adopted resolutions approvingfive members: Michael F. Angelo, Gary W. Feiner, Kendall Larsen, Thomas M. O’Brien, and recommending to the stockholders for their approval a proposed Charter Amendment that would, at the discretionRobert D. Short III, Ph.D. Mr. Larsen serves as Chairman of the Board of Directors.
Our Amended and Restated Certificate of Incorporation provides that the directors on our Board shall be divided into three classes, with the classes serving for staggered, three-year terms. Currently, we have two Class I directors, two Class II directors and one Class III director. One class is elected each year at the annual meeting of stockholders. The term of each class of directors expires as follows: Class II at the upcoming Annual Meeting, Class III at the 2025 Annual Meeting, and Class I at the 2026 annual meeting of stockholders. Each director shall hold office until his or her successor is elected and qualified or until his or her earlier death, resignation or removal.
Director Nominees and Continuing Directors effect
Set forth below are the names and certain information about the nominees for Class II directors, the continuing directors and the non-continuing director. The names of, and certain information about, the current Class III and Class I directors with unexpired terms are also set forth below. All information is as of April 19, 2024.
Name
​​
Age
​​
Class
​​
Current
Term
Expires
​​
Position
​​
Director
Since
Director Nominees
​​
 
​​
 
​​
 
​​
 
​​
 
Thomas M. O’Brien
​​
57
​​
II
​​
2024
​​
Director
​​
2007
Heidy Chow(1)
​​
46
​​
II
​​
—
​​
Director Nominee
​​
—
Continuing Directors
​​
 
​​
 
​​
 
​​
 
​​
 
Michael F. Angelo
​​
64
​​
III
​​
2025
​​
Director
​​
2007
Kendall Larsen
​​
67
​​
I
​​
2026
​​
President, Chief Executive Officer and Chairman of the Board of Directors
​​
2007
Gary W. Feiner
​​
61
​​
I
​​
2026
​​
Director
​​
2014
Non-continuing Director
​​
 
​​
 
​​
 
​​
 
​​
 
Robert D. Short III, Ph.D.(2)
​​
72
​​
II
​​
2024
​​
Chief Scientist and Director
​​
2010
(1)
In April 2024, our Board, at the introduction by an executive officer and recommendation of our nominating and corporate governance committee, nominated Heidy Chow, currently serving as an observer on our Board, to be elected as a Class II director at the Annual Meeting.
(2)
Dr. Short’s current term will expire at the Annual Meeting. Our Board thanks Dr. Short for his distinguished service as a director.
Director Nominees
Class II Directors
Thomas M. O’Brien has been a reverse stock splitdirector since July 5, 2007. He is currently engaged in consulting with a private consulting firm and a private investor. Mr. O’Brien also serves as a director for two nonprofit entities. Until December 31, 2017, he was Chief Executive Officer and President of allTravelCenters of America LLC (NASDAQ: TA) since February 2007 and a Managing Director of TA since October 2006. Until December 31, 2017, he was an employee of The RMR Group, Inc. (NASDAQ: RMR) since May 1996 and served as an Executive Vice President of that company since September 2008, prior to which he served in various roles since May 1996, including holding various positions with public entities related to RMR. From 1988 to 1996, Mr. O’Brien was a senior manager with Arthur Andersen LLP where he served a number of public company clients. Mr. O’Brien graduated cum laude from the University of Pennsylvania, Wharton School of Business, with a B.S. in Economics.
As a former certified public accountant, chief financial officer, chief executive officer, and director of public companies listed on the New York Stock Exchange (“NYSE”) and NASDAQ, Mr. O’Brien brings to the audit committee, of which he is Chairman, and our Board, a deep understanding of complex accounting and finance issues faced by the Company and can provide critical insight into the financial and other reporting requirements of a U.S. public company. In addition, his extensive capital markets experience is an invaluable resource as the Company regularly assesses its capital and liquidity needs.
Heidy Chow has been an observer on our Board since April 2024 and is standing for election as a Class II director. She is currently and has been the Chief Financial Officer of Snail Games USA, Inc., a technology-based
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company focused on investments in the gaming, digital entertainment, and technology spaces, since September 2020, as well as the Chief Financial Officer of Snail Inc. (NASDAQ: SNAL), global developer and publisher of digital entertainment and parent company of Snail Games USA, Inc., since November 2022. Ms. Chow has also been a member of the sharesboard of common stock outstanding or held in treasury, whereby each [•] shares would be combined into one sharedirectors of common stock. VirnetX’s authorized numberSnail Games USA, Inc. and Snail, Inc. since November 2021 and January 2022, respectively. Prior to joining Snail Games USA, Inc., Ms. Chow was a partner with The Pun Group, LLP, a certified public accounting group, from August 2015 to September 2020, and from July 2014 to June 2015, Ms. Chow served as a manager of shares of common stock would remain at 100,000,000.
The par value per share of common stock would remain unchanged at $0.0001 per share after the reverse stock split. Please see the table below under the heading “Principal EffectsErnst and Young, a certified public accounting and advisory firm. Since 2019, Ms. Chow has also served as chair of the Reverse Stock Split”audit committee for an illustrationFranklin Wireless Corp., a provider of integrated wireless solutions utilizing the effectslatest in fourth generation long-term evolution and fifth generation technologies, including mobile hotspots, routers, customer premise equipment and various trackers. Ms. Chow graduated from California Polytechnic University of this proposed Charter Amendment (which is referred toPomona with a B.S. in this proxy statement2002 and has been licensed as the “reverse stock split”).a Certified Public Accountant since March 2008.
The text of the proposed form of certificate of amendment to the Charter to effect the reverse stock split is attached to this proxy statement as Appendix A. The effectiveness or abandonment of such Charter Amendment will be determined by the Board of Directors.
The Board of Directors has recommended that the proposed Charter Amendment be presented to stockholders for approval. Upon receiving stockholder approval of the proposed Charter Amendment, the Board of Directors will have the sole discretion to elect, as it determines to beWith more than 20 years’ experience in the best interestsfinance and accounting industry and as a current officer and board member of VirnetX and its stockholders, whether to effect the reverse stock split. As described in greater detail below, the reverse stock split is proposed to be effected to increase the price of the common stock to, among other things, meet the $1.00 minimum closing price requirement for continued listing on NYSE.
If the Board of Directors determines to effect the reverse stock split by causing the certificate of amendment to the Charter to be filed with the Secretary of State of the State of Delaware, the Charter would be amended accordingly. Approval of the reverse stock split will authorize the Board of Directors in its discretion to effectuate the reverse stock split. As noted, the Board of Directors will have the discretion to abandon the reverse stock split if it no longer believes it to beanother public company in the best interests of VirnetXtechnology space, Ms. Chow would bring in-depth experience overseeing complex enterprises and its stockholders, including if the Board ofextensive financial management expertise to our Board.
Continuing Directors determines that the reverse stock split will not impact VirnetX’s ability to meet the continued listing requirements of NYSE, if such objective is no longer necessary or desirable, or for any other reason in the business judgment and discretion
Class I Directors
Kendall Larsen has been Chairman of the Board, President and Chief Executive Officer since July 5, 2007 and held the same positions with VirnetX Inc. since its inception in August 2005. Mr. Larsen does not hold director positions with any other reporting or registered investment companies. From April 2003 to July 2005, Mr. Larsen focused on pre-incorporation activities related to VirnetX Inc. From April 2002 to April 2003, Mr. Larsen was a Limited Partner at Osprey Ventures, L.P., a venture fund that makes investments primarily in business and consumer technology companies. From October 2000 to April 2002, he was Senior Vice President and General Manager of Directors. VirnetX currently expects thatthe Security Products Division of Phoenix Technologies Ltd., a software and firmware developer, and he has also held senior executive positions over a period of over twenty years at various leading technology companies, including RSA Security, Inc., Xerox Corporation, Rolm/International Business Machines Corporation, Novell, Inc., General Magic, Inc., and Ramp Networks. Mr. Larsen holds a B.S. in Economics from the University of Utah.
With his years of managerial experience, Mr. Larsen brings to the Board demonstrated management ability at senior levels. Mr. Larsen’s day-to-day leadership and intimate knowledge of Directors will cause VirnetXour business and operations provide the Board with Company-specific experience and expertise. Mr. Larsen’s drive for innovation and excellence position him well to effectserve as our Chairman, President and Chief Executive Officer.
Gary W. Feiner has been a director since 2014. Mr. Feiner has served as President at Feiner Financial Inc. since 1993, an accounting and financial planning services company founded in 1977. Mr. Feiner has a wide breadth of business leadership knowledge covering tax law, audit, corporate planning, securities regulation, and finance. He advises on structuring comprehensive and creative strategies for achieving profitable growth and establishing effective relationships between companies and investment bankers. He is a recognized industry expert with a reputation for a “hands on” client-focused approach. He has provided personalized services in the reverse stock splitfields of finance, medicine, law, real estate, education and technology. Mr. Feiner was selected to serve on the Board for his unique qualifications.
Class III Director
Michael F. Angelo, CRISC CISSP CDPSE, has been a director since July 5, 2007. He is currently a Distinguished Technologist at Open Text International (formerly Micro Focus), a global, enterprise software company, and has been the Chief Security Architect at the Security Products Division there since August 2005. From October 2003 to August 2005, Mr. Angelo was a Security Architect and Manager, Government Engagements SBU with Microsoft Corporation. From July 1989 to October 2003, Mr. Angelo was a Staff Fellow at both Hewlett Packard Company and Compaq Computer Corporation. Mr. Angelo also served as soon as practicable afterSenior Systems Programmer at the receiptJohn von Neumann National Supercomputer Center from September 1985 to July 1989. He was a Sub-Chairman of the requisite stockholder approval.
If theNational Institute of Standards and Technology Board of Directors elects to effectAssessment for Programs/National Research Council responsible for the reverse stock split following stockholder approval,CISD review for fiscal years 2001 and 2002, and he has been a technology contributor and participant on the number of issued and outstanding shares of common stock would be reduced in accordance with the reverse stock split ratio. Except for adjustments that may resultU.S. Commerce Department’s Information Systems Technical Advisory Council (ISTAC) from the treatment of fractional shares, each stockholder will hold the same percentage of the outstanding common stock immediately following the reverse stock split as such stockholder held immediately prior1999 to the reverse stock split. As described in greater detail below, aspresent. Mr. Angelo was named a result ofdistinguished lecturer for 2004 and 2005 by Sigma XI, the reverse stock split, stockholders who hold less than [•] shares of common stock will no longer be stockholders of VirnetX on a post-split basis.
The Board of Directors, with input from management, regularly reviews and evaluates VirnetX’s business, strategic plans and prospects, including the performance of the common stock, with the goal of maximizing stockholder value. The Board of Directors has reviewed various paths to maximizing stockholder value, including the review and evaluation of a reverse stock split. After review and discussion, the Board of Directors determined that the proposed reverse stock split is necessary for the continued listing of the common stock on NYSE. In addition, the Board of Directors believes the reverse stock split will provide a number of other benefits to VirnetX and its stockholders, including enhancing the desirability and marketability of the common stock to the financial community and the investing public.
The Board of Directors does not intend for this transaction to be the first step in a series of plans or proposals of a “going private transaction” within the meaning of Rule 13e-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Scientific Research Society. He
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Purposescurrently holds 74 patents, most in the area of security and authentication, and was named the 2003 Inventor of the Reverse Stock SplitYear for the City of Houston by the Houston Intellectual Property Lawyers Association. Mr. Angelo is also an Information Systems Security Association (“ISSA”) Distinguished Fellow and ISSA Hall of Fame recipient.
NYSE Listing. Our common stockAs a holder of many patents in the fields of security and authentication, and as a result of his long and distinguished industry and scholarly background in the area of computer security and networking, Mr. Angelo brings to the Board critical technical and industry knowledge and expertise. With his extensive industry knowledge and having successfully served in multiple leadership capacities in various types of organizations, Mr. Angelo is currently listed on NYSEuniquely qualified to serve as chair of the Company’s nominating and corporate governance committee.
Non-continuing Director
The biography of Dr. Short is set forth under the symbol “VHC.heading “Executive Officers” Among other requirements, the listing requirements established by NYSE require the common stock to have a minimum average closing price of at least $1.00 per share over a consecutive 30 trading-day period. Pursuant to the NYSE continued listing requirements, if the average closing pricein this Proxy Statement.
Role of the common stock isBoard
Our directors are appointed to oversee the actions and results of our management. They were selected for their educational background, professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom and ability to represent the best interests of our stockholders. Their responsibilities include but are not equal to or greater than $1.00 for 30 consecutive trading days, NYSE will send a deficiency notice. We can regain compliance if, during the six-month period following receiptlimited to:
providing general oversight of the NYSE notice, on the last trading daybusiness;
approving corporate strategy;
approving major management initiatives;
providing oversight of any calendar month, the Company’s common stock has (i) a closing price per sharelegal and ethical conduct;
overseeing our management of at least $1.00cybersecurity and (ii) a 30 trading-day average closing share pricetechnology risks;
overseeing our management of at least $1.00. In the event that at the expirationsignificant business risks;
selecting, compensating, and evaluating director nominees;
evaluating Board processes and performance; and
reviewing and implementing recommendations and reports of the six-month cure period, both a $1.00 closing share price on the last daycommittees of the cure period and a $1.00 average closing share price over the 30 trading day period ending on the last trading day of the cure period are not attained, NYSE will commence suspension and delisting procedures.Board.
On May 12, 2023, VirnetX received a notice of deficiency from NYSE indicating that if VirnetX does not comply with the minimum closing price rules within six months following receipt of the notice, NYSE may delist the common stock. Consequently, the Board of Directors has determined that, absent approval by stockholders of the reverse stock split, VirnetX will likely be unable to meet the $1.00 minimum closing price requirement for continued listing on NYSE.
In the event the common stock is no longer eligible for continued listing on NYSE, VirnetX would be forced to seek alternative options to remain listed on the NYSE, including to become traded on the OTC Bulletin Board or on the “pink sheets.” These alternative markets are generally considered to be less efficient than and not as broad as NYSE and therefore less desirable. Accordingly, the Board of Directors believes delisting of the common stock would likely have a negative impact on the liquidity and market price of the common stock and may increase the spread between the “bid” and “asked” prices quoted by market makers.Leadership Structure
The Board of Directors has considered the potential harm to VirnetX of a delisting from NYSE and believes that delisting could, among other things, adversely affect (i) the trading priceCompany’s Chief Executive Officer is best situated to serve as Chairman of the common stockBoard because he is the director most familiar with the Company’s business and (ii)industry, and most capable of effectively identifying strategic priorities and leading the liquidityexecution of strategy. Independent directors and marketabilitymanagement have different perspectives and roles in strategy development. The Company’s independent directors bring experience, oversight and expertise from outside the Company and industry, while the Chief Executive Officer brings company-specific experience and expertise. The Board believes that the combined role of sharesChairman of the common stock. This could reduceBoard and Chief Executive Officer promotes strategy development and execution, and facilitates information flow between management and the ability of holdersBoard, which is essential to effective governance.
The Company does not currently have a lead independent director. To ensure effective independent oversight, the Board has designed its leadership structure so that independent directors exercise oversight of the common stockCompany’s management and key issues related to purchase or sell shares of common stock as quicklystrategy and as inexpensively as they have done historically. Delisting could also adversely affect VirnetX’s relationships with partnersrisk. Only independent directors serve on and customers who may perceive VirnetX’s business less favorably, which would have a detrimental effect on VirnetX’s relationships with these entities.
Furthermore, ifchair the common stock was no longer listed on NYSE, it may reduce VirnetX’s access to capitalaudit committee, the compensation committee and cause VirnetX to have less flexibility in responding to VirnetX’s capital requirements. Certain institutional investors may also be less interested or prohibited from investing in the common stock, which may cause the market pricenominating and corporate governance committee of the common stock to decline.
In addition, VirnetX would no longer be deemed a “covered security” under Section 18 of the Securities Act of 1933, as amended, and therefore would lose its exemption from state securities regulations.Board. As a result VirnetX would needof the Board’s committee system and majority of independent directors, the Board maintains effective oversight of our business operations, including independent oversight of our financial statements, executive compensation, selection of director candidates, and corporate governance programs. Accordingly, we believe that our current leadership structure is appropriate and enhances the Board’s ability to comply with various state securities laws with respect to issuanceseffectively carry out its roles and responsibilities on behalf of its securities, including equity award grants to employees. As a public company, VirnetX would not haveour stockholders.
Risk Oversight
Management is responsible for the benefitday-to-day management of certain exemptions applicable to privately-held entities, which would make granting equity awards to VirnetX’s employees more difficult.
Potential Increased Investor Interest. The Board of Directors believesrisks that the reverse stock split will provideCompany faces, while the Board, as a numberwhole and through its committees, has responsibility for the oversight of benefitsrisk management. In its risk oversight role, the Board has the responsibility to VirnetXsatisfy itself that the risk management processes designed and its existing stockholders, which may lead to an increase in investor interest, including:implemented
1.
Reduced Short-Term Risk of Illiquidity – The Board of Directors understands that a higher stock price may increase investor confidence by reducing the short-term risk of illiquidity and lack of marketability of the common stock that may result from the delisting of the common stock from NYSE.
2.
Decreased Transaction Costs – Investors may also be dissuaded from purchasing stocks below certain prices because the brokerage commissions, as a percentage of the total transaction value, tend to be higher for such low-priced stocks.
3.
Stock Price Requirements – The Board of Directors understands that some brokerage houses and institutional investors may have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers or by restricting or limiting the ability to purchase such stocks on margin. In addition, analysts at brokerage firms may not monitor the trading activity or otherwise provide coverage of lower priced stocks.
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Other Potential Benefits. by management are adequate and functioning, as designed. The Board of Directors believes that establishing the right “tone at the top” and full and open communication between management and the Board are essential for effective risk management and oversight. Senior management attends Board meetings quarterly and is available to address any questions or concerns raised by the Board on risk management and any other matters. Each quarter, the Board receives presentations from senior management on strategic matters involving our operations. The Board holds strategic planning sessions with senior management to discuss strategies, key challenges, risks, including risks related to product, go-to-market and sales strategies, competitive risks, financial risks, brand and reputation risks, legal, compliance, governance and geo-political risks, operational risks and cybersecurity and technology risks, and opportunities for the Company. Throughout the year, our Board and each committee spend a higher stock price would help VirnetX attractportion of their time reviewing and retain employeesdiscussing these specific risk topics.
While the Board is ultimately responsible for risk oversight for the Company, our three Board committees assist the Board in fulfilling its oversight responsibilities with respect to certain areas of risk. The audit committee assists the Board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements. Our compensation committee assists the Board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. The nominating and corporate governance committee assists the Board in fulfilling its oversight responsibilities with respect to the management of risks associated with Board organization, membership and structure, succession planning for our directors and executive officers, cybersecurity and corporate governance.
Risk Assessment of Compensation Policies
The Company notes that:
the Company’s annual incentive compensation is based on performance that promotes disciplined progress towards longer-term Company goals;
the Company does not offer significant short-term incentives that might drive high-risk investments at the expense of long-term Company value;
the Company’s compensation programs are weighted toward offering long-term incentives that reward sustainable performance; and
the Company’s compensation awards are established at reasonable and sustainable levels, as determined by a review of the Company’s economic position and prospects, as well as the compensation offered by comparable companies.
The Company’s compensation policies and practices are intended not to foster risk taking above the level of risk associated with the Company’s business model. Accordingly, the Company believes it has a balanced pay and performance program that does not promote excessive risk taking.
Risk Assessment of Cybersecurity Threats
The Company takes a comprehensive approach to cybersecurity risk management and makes securing the data that our customers and other service providers. It isstakeholders entrust to us a top priority. Our Board and our management are actively involved in the viewoversight of our cybersecurity risk management program and the nominating and corporate governance committee of the Board oversees our cybersecurity risk processes and policies. The nominating and corporate governance committee receives regular reports from senior management about the prevention, detection, mitigation and remediation of Directorscybersecurity risks and information security vulnerabilities. The Board receives regular updates from the nominating and corporate governance committee on such oversight and communications with senior management.
Corporate Governance Guidelines and Code of Ethics
We have adopted Corporate Governance Guidelines that some potentialaddress items such as the qualifications and responsibilities of our directors and director candidates and corporate governance policies and standards applicable to us in general. We have adopted a Code of Ethics for all employees and service providers are less likely to work for a companydirectors in accordance with a low stock price, regardless of the size of the company’s market capitalization. Accordingly, if the reverse stock split successfully increases the per share price of the common stock, the Board of Directors believes this increase will enhance VirnetX’s ability to attract and retain employees and service providers.
Risks Associated with the Reverse Stock Split
There are certain risks associated with a reverse stock split, including those described below, and we cannot accurately predict or assure you that the reverse stock split will produce or maintain the desired results. However, our Board of Directors believes that the benefits to us and our stockholders outweigh the risks and recommends that you vote in favor of the reverse stock split proposal.
The reverse stock split could result in a significant devaluation of VirnetX’s market capitalization and trading price of the common stock.
The Board of Directors expects that a reverse stock split of the common stock outstanding or held in treasury will increase the market price of the common stock. However, VirnetX cannot be certain whether the reverse stock split would lead to a sustained increase in the trading price or the trading market for the common stock. The history of similar stock split combinations for companies in like circumstances is varied. There is no assurance that:
the market price per share of the common stock after the reverse stock split will rise in proportion to the reduction in the number of pre-split shares of common stock outstanding before the reverse stock split;
the reverse stock split will result in a per share price that will attract brokers and investors, including institutional investors, who do not trade in lower priced stocks;
the reverse stock split will result in a per share price that will increase VirnetX’s ability to attract and retain employees and other service providers;
the market price per post-split share will remain in excess of the $1.00 minimum closing price as required by the NYSE continued listing standards or that VirnetX would otherwise meet the requirements of Item 406 of Regulation S-K and the NYSE for continued inclusion for tradingListed Company Manual. A copy of our Corporate Governance Guidelines and Code of Ethics is available on NYSE; and
our website at https://ir.virnetx.com/ under the reverse stock split will increase the trading market for the common stock, particularly if the stock price does not increase as a result of the reduction“Investors” tab in the number of shares of common stock available in the public market.
The market price of the common stock will also be based on VirnetX’s performance and other factors, some of which are unrelated“Corporate Governance” subcategory, or by writing to the number of shares outstanding. If the reverse stock split is consummated and the trading price of the common stock declines, the percentage decline as an absolute number and as a percentage of VirnetX’s overall market capitalization may be greater than would occur in the absence of the reverse stock split. Furthermore, the liquidity of the common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split and this could have an adverse effect on the market price of the common stock. If the market price of the common stock declines subsequent to the effectiveness of the reverse stock split, this will detrimentally impact VirnetX’s market capitalization and the market value of VirnetX’s public float.
The reverse stock split may result in some stockholders owning “odd lots” that may be more difficult to sell or require greater transaction costs per share to sell.
The reverse stock split may result in some stockholders owning “odd lots” of less than 100 shares of common stock on a post-split basis. These odd lots may be more difficult to sell, or require greater transaction costs per share to sell, than shares in “round lots” of even multiples of 100 shares.
Because of the reverse stock split ratio, certain stockholders may no longer have any equity interest in VirnetX.
Based on the reverse stock split ratio of 1-for-[•], certain stockholders might be fully cashed out in the reverse stock split and thus, after the reverse stock split takes effect, such stockholders would no longer have any equity interest inus at VirnetX and therefore would not participate in our future earnings or growth, if any.Holding Corporation, P.O. Box 439, Zephyr Cove, Nevada 89448 (Attention: Investor Relations).
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The reverse stock split may not help generate additional investor interest.
There can be no assurance that the reverse stock split will result inWe intend to post on our website any amendment to, or waiver from, a per share price that will attract institutional investors or investment funds or that such share price will satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading liquidityprovision of our common stock may not necessarily improve.Code of Ethics within four business days of such amendment or waiver.
Effective Date
AssumingComposition of the Board
Mix of Independent Directors exercises its discretion to effectand Officer-Directors
Under the reverse stock split, the reverse stock split will become effective aslisting standards of the date and time (the “Effective Date”) indicated in the certificateNYSE, independent directors must comprise a majority of amendment to the Charter filed with the Secretarya listed company’s board of State of the State of Delaware in accordance with the General Corporation Law of Delaware, without any further action on the part of stockholders and without regard to the date that any stockholder physically surrenders the stockholder’s certificates representing pre-split shares of common stock for certificates representing post-split shares, and the common stock will begin trading on a post-split basis as soon as the market opens on the next day. The Board of Directors, in its discretion, may delay or decide against effecting the reverse stock split and the filing of the certificate of amendment to the Charter to effect the reverse stock split without resoliciting stockholder approval. It is currently anticipated that if stockholder approval is obtained for the reverse stock split described in this proposal, the Board of Directors would cause VirnetX to effect the foregoing as soon as practicable after obtaining such stockholder approval.
Principal Effects of the Reverse Stock Split
After the Effective Date, each stockholder will own a reduced number of shares of the common stock. However, VirnetX expects that the market price of the common stock immediately after the reverse stock split will increase substantially above the market price of the common stock immediately prior to the reverse stock split. The proposed reverse stock split will be effected simultaneously for all of the common stock, and the ratio for the reverse stock split will be the same for all of the common stock. The reverse stock split will affect all stockholders uniformly and will not affect any stockholder’s percentage ownership interest in VirnetX (except to the extent that the reverse stock split would result in any of the stockholders owning a fractional share as described below). Likewise, the reverse stock split will affect all holders of outstanding equity awards under the Equity Plan substantially the same (except to the extent that the reverse stock split would result in a fractional interest as described below). Proportionate voting rights and other rights and preferences of the holders of common stock will not be affected by the proposed reverse stock split (except to the extent that the reverse stock split would result in any stockholders owning a fractional share as described below). For example, a holder of 2% of the voting power of the outstanding shares of common stock immediately prior to the reverse stock split would continue to hold approximately 2% of the voting power of the outstanding shares of common stock immediately after the reverse stock split. The number of stockholders of record also will not be affected by the proposed reverse stock split (except to the extent that the reverse stock split would result in any stockholders owning only a fractional share as described below).
The par value per share of the common stock will remain unchanged at $0.0001 per share after the reverse stock split. Based on the number of shares of the common stock issued or reserved for issuance under the Equity Plan as of August 11, 2023, [•] shares of common stock will be issued or reserved for issuance following the reverse stock split, leaving [•] shares unissued and unreserved for issuance.
The proposed reverse stock split will reduce the number of shares of common stock available for issuance under the Equity Plan. All shares of common stock subject to outstanding equity awards (including restricted stock units, stock options and restricted stock) under the Equity Plan and the number of shares of common stock which have been authorized for issuance under the Equity Plan but as to which no equity awards have yet been granted or which have been returned to the Equity Plan upon cancellation or expiration of such equity awards will be combined on the Effective Date into one-[•] of the number of such shares immediately preceding the reverse stock split (rounded down to avoid fractional interests).directors. In addition, the exercise pricelisting standards of outstanding stock optionsNYSE require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and corporate governance committees be independent. Under the listing standards of NYSE, a director will only qualify as an “independent director” if, in the opinion of that listed company’s board of directors, that director does not have a material relationship with the company (either directly or as a partner, stockholder or officer of an organization that has a relationship within the company). The Board has a majority of independent directors and has determined that it is beneficial for us and our stockholders for our Chief Executive Officer to also be adjusteda Board member. Other officers may, from time to [•] timestime, serve as Board members, but no officer other than the exercise price specified before the reverse stock split, rounded upChief Executive Officer should be expected to be elected to the nearest whole cent. This will resultBoard by virtue of his or her office.
Independence Determinations
The Board annually determines the independence of directors based on a review by the directors and the nominating and corporate governance committee. No director is considered independent unless the Board has determined that he or she has no material relationship with the Company, either directly or as a partner, stockholder, or officer of an organization that has a material relationship with the Company.
Audit committee members must also satisfy the additional independence criteria set forth in approximatelyRule 10A-3 under the same aggregate price being required to be paid as immediately precedingExchange Act, and the reverse stock split. No fractional shares will be issued pursuant tolisting standards of NYSE. Compensation committee members must also satisfy the Equity Plan followingadditional independence criteria set forth in Rule 10C-1 under the reverse stock split. Therefore, ifExchange Act and the listing standards of NYSE.
The Board has determined that Michael F. Angelo, Gary W. Feiner, Thomas M. O’Brien and Heidy Chow meet the aforementioned independence standards.
Board and Committee Meetings and Annual Meeting Attendance
The Board held a total of thirteen meetings during the fiscal year ended December 31, 2023, and no director attended fewer than 75% of the total number of shares subject to an outstanding equity award immediately before the reverse stock split is not evenly divisible so that the reverse stock split would otherwise result in a fractional interest, the number of shares of common stock issuable pursuant to such equity award will be rounded down to the nearest whole share.
The effectsmeetings of the proposed Charter AmendmentBoard and the committees of which he was a member. Since November 6, 2007, the Board has had a standing audit committee, compensation committee and nominating and corporate governance committee. Our audit committee charter, compensation committee charter, and nominating and corporate governance committee charter, each as adopted by the Board, and as may be amended from time to time, are illustratedposted on our website at https://ir.virnetx.com/ under the “Investors” tab in the below table as“Corporate Governance” subcategory.
We encourage, but do not require, the Board members to attend our annual meetings of August 11,stockholders. All of our current Board members were in attendance for our 2023 including (1) the approximate percentage reduction in the outstanding numberannual meeting of shares of common stock, (2) thestockholders (“2023 Annual Meeting”).
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approximateCommittees of the Board
The Board has the following standing committees: audit committee, compensation committee and nominating and corporate governance committee. The following table details the membership of each standing committee and the number of sharesmeetings of common stockeach standing committee conducted during 2023:
Name of Director
​​
Audit
​​
Compensation
​​
Nominating
&
Corporate
Governance
Michael F. Angelo
​​
M
​​
M
​​
C
Kendall Larsen
​​
—
​​
—
​​
—
Thomas M. O’Brien
​​
C
​​
M
​​
M
Robert D. Short III, Ph.D.
​​
—
​​
—
​​
—
Gary W. Feiner
​​
M
​​
C
​​
M
Number of Meetings in 2023
​​
6
​​
9
​​
8
M = Member
C = Chair
Nominating and Corporate Governance Committee Matters
Membership and Independence
Messrs. Angelo, Feiner and O’Brien comprise our nominating and corporate governance committee, with Mr. Angelo serving as the chairman. The Board has determined that would be (i) authorized, (ii) issuedeach of Messrs. Angelo, Feiner and outstanding, (iii) authorized but reservedO’Brien satisfies the requirements for issuance upon exercise/releaseindependence under the rules and regulations of outstanding equity awards pursuantNYSE and the SEC. Our nominating and corporate governance committee met eight times during 2023.
Responsibilities
Our nominating and corporate governance committee is responsible for, among other things:
assisting the Board in identifying prospective director nominees and recommending to the Equity Plan, (iv) authorized but reservedBoard director nominees for issuanceeach annual meeting of stockholders, vacancy, or newly created director position;
providing oversight with respect to corporate governance and ethical conduct;
developing and recommending to the Board the Code of Ethics and assessing such Code of Ethics and recommending changes;
delegating such of its authority and responsibilities as it deems proper to members of the nominating and corporate governance committee or a subcommittee thereof; and
overseeing the Company’s cybersecurity programs.
A more detailed description of our nominating and corporate governance committee’s functions can be found in our nominating and corporate governance committee charter at https://ir.virnetx.com/ under the Equity Plan (but not subject“Investors” tab in the “Corporate Governance” subcategory, or by writing to exercise/releaseus at VirnetX Holding Corporation, P.O. Box 439, Zephyr Cove, NV 89448 (Attention: Investor Relations).
Stockholder Recommendations and Nominees
The policy of outstanding equity awards),our nominating and (v) authorized but not issuedcorporate governance committee is to consider properly submitted recommendations for candidates to the Board from stockholders. In evaluating such recommendations, our nominating and corporate governance committee seeks to achieve a balance of experience, knowledge, integrity, and capability on the Board and to address the membership criteria set forth under “Director Qualifications” below. Any stockholder recommendations for consideration by our nominating and corporate governance committee should include (1) the name, age, business address and residence address of such person, (2) the principal occupation or outstanding, or reserved for issuance under the Equity Plan, andemployment of such person, (3) the approximate percentage of authorized shares not issued or outstanding, or reserved for issuance under the Equity Plan:
 
​​
Pre-Reverse
Stock Split
​​
Charter
Amendment
(see
Appendix A)
Reverse Stock Split Ratio
​​
—
​​
1-for-[•]
Percentage Reduction of Shares Outstanding Post-Reverse Stock Split
​​
—
​​
[•]%
Authorized Shares of Common Stock
​​
100,000,000
​​
100,000,000
Shares Outstanding
​​
71,639,905
​​
[•]
Reserved for Issuance Upon Exercise of Warrant
​​
25,000
​​
[•]
Reserved for Issuance Upon Exercise/Release of Outstanding Equity Awards Under the Equity Plan
​​
[•]
​​
[•]
Reserved for Issuance Under the Equity Plan (but not Subject to Exercise/Release of Outstanding Equity Awards)
​​
[•]
​​
[•]
Authorized but not Issued, not Outstanding, and not Reserved for Issuance Under the Equity Plan
​​
[•]
​​
[•]
Percentage of Authorized Shares not Issued or Outstanding, or Reserved for Issuance Under the Equity Plan
​​
[•]%
​​
[•]%
As illustrated in the above table, the proposed reduction in the totalclass and number of shares of the common stock for the 1-for-[•] reverse stock split is designed to maintain approximately the same proportion of the total number of authorized sharesCompany that are not issued or outstanding, or reserved for issuance under the Equity Plan, following the reverse stock split.
If the proposed reverse stock splitbeneficially owned by such person, and (4) any other information relating to such person that is implemented, it may increase the number of stockholders who own “odd lots” of less than 100 shares of common stock. Brokerage commissions and other costs of transactions in odd lots may be higher than the costs of transactions of more than 100 shares of common stock.
The common stock is currently registered under Section 12(b) of the Exchange Act, and VirnetX is subject to the periodic reporting and other requirements of the Exchange Act. The proposed reverse stock split will not affect the registration of the common stock under the Exchange Act. If the proposed reverse stock split is implemented, the common stock will continuerequired to be reported on NYSE under the symbol “VHC.”
The proposed Charter Amendment will not change the termsdisclosed in solicitations of the common stock. After the reverse stock split, the shares of the common stock will have the same voting rights and rights to dividends and distributions and will be identical in all other respects to the common stock now authorized. Each stockholder’s percentage ownership of the new common stock will not be altered except for the effect of eliminating fractional shares (which is discussed in more detail below). The common stock issued pursuant to the reverse stock split will remain fully paid and non-assessable. Following the reverse stock split, VirnetX will continue to be subject to the periodic reporting requirements of the Exchange Act.
Treatment of Fractional Shares
No scrip or fractional shares would be issued if, as a result of the reverse stock split, a registered stockholder would otherwise become entitled to a fractional share. Instead, VirnetX would pay to the registered stockholder, in cash, the value of any fractional share interest arising from the reverse stock split (without interest). The cash payment would equal the fraction to which the stockholder would otherwise be entitled multiplied by the closing price of the common stock as reported on NYSE as of the Effective Date. Exact procedures for the cash payment will be determined by the officers of the Company. No transaction costs would be assessed to stockholders for the cash payment. Stockholders would not be entitled to receive interest for the period of time between the Effective Date and the date payment is made for their fractional shares. The ownership of a fractional interest will not give the holder thereof any voting, dividend or other rights except to receive payment as described herein. This cash payment merely represents a mechanical rounding off of the fractions in the exchange. For a discussion of the treatment of anyproxies
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fractional interest that may arisefor election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including, without limitation, such person’s written consent to being named in the Proxy Statement as a resultnominee and to serving as a director if elected).
Stockholder recommendations to the Board should be sent to our Corporate Secretary at VirnetX Holding Corporation, P.O. Box 439, Zephyr Cove, Nevada 89448.
In addition, our Bylaws permit stockholders to nominate directors for consideration at an annual meeting of stockholders. To nominate a director, the stockholder must provide the information required by our Bylaws, which includes information required by Rule 14a-19 under the Exchange Act. For a description of the reverse stock split relating to equity awards under the Equity Plan, pleaseprocess for nominating directors in accordance with our Bylaws, see the section below under the heading “Effect of the Reverse Stock Split on Equity Awards.”
As“How do I submit a result of the reverse stock split, stockholders who hold less than [•] shares of common stock will no longer be stockholders of VirnetX on a post-split basis. In other words, any holder of [•] or fewer shares of common stock prior to the effectiveness of the reverse stock split would only be entitled to receive cashstockholder proposal for the fractional share2025 Annual Meeting of common stock such stockholder would hold on a post-split basis. The actual numberStockholders?” of stockholders that will be eliminated will depend on the actual number of stockholders holding less than [•] shares of common stock on the Effective Date. Reducing the number of post-split stockholders, however, is not the purpose of the reverse stock split.
If you do not hold sufficient shares of pre-split common stock to receive at least one post-split share of common stockthis Proxy Statement and you want to hold common stock after the reverse stock split, you may do so by taking either of the following actions far enough in advance so that it is completed before the reverse stock split is effected:
purchase a sufficient number of shares of common stock so that you would hold at least [•] shares of common stock in your account prior to the implementation of the reverse stock split that would entitle you to receive at least one share of common stock on a post-split basis; or
if applicable, consolidate your accounts so that you hold at least [•] shares of common stock in one account prior to the reverse stock split that would entitle you to at least one share of common stock on a post-split basis. Common stock held in registered form (that is, shares held by you in your own name on VirnetX’s share register maintained by its transfer agent) and common stock held in “street name” (that is, shares held by you through a bank, broker or other nominee) for the same investor would be considered held in separate accounts and would not be aggregated when implementing the reverse stock split. Also, shares of common stock held in registered form but in separate accounts by the same investor would not be aggregated when implementing the reverse stock split.
Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where VirnetX is domiciled and where the funds for fractional shares would be deposited, sums due to stockholders in payment for fractional shares that are not timely claimed after the effective time may be required to be paid to the designated agent for each such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid.
Effect of the Reverse Stock Split on Equity Awards
On the Effective Date, the proposed reverse stock split will reduce the number of shares of common stock available for issuance under the Equity Plan. All shares of common stock subject to outstanding equity awards (including restricted stock units, stock options, and restricted stock) under the Equity Plan and the number of shares of common stockour Bylaws which have been authorizedfiled with the SEC.
Director Qualifications
Our nominating and corporate governance committee evaluates and recommends candidates for issuance undermembership on the Equity Plan butBoard consistent with criteria established by the Board. The Board has not formally established any specific, minimum qualifications that must be met by each candidate for the Board or specific qualities or skills that are necessary for one or more of the members of the Board. However, our nominating and corporate governance committee, when considering a potential candidate, will factor into its determination the following qualities of a candidate, among others: educational background, professional experience, including whether the person is a current or former chief executive officer or chief financial officer of a public company or the head of a division of a large international organization, knowledge of our business, integrity, professional reputation, independence, wisdom, and ability to represent the best interests of our stockholders, diversity, and with respect to diversity, such factors as gender, race, ethnicity and experience, area of expertise, potential conflicts of interest and other commitments and other individual qualities and attributes that contribute to the total mix of viewpoints and experience represented on the Board.
Identification and Evaluation of Nominees for Directors
Our nominating and corporate governance committee uses a variety of methods for identifying and evaluating nominees for any position on the Board. Our nominating and corporate governance committee regularly assesses the appropriate size and composition of the Board, the needs of the Board, the respective committees of the Board, and the qualifications of candidates in light of these needs. Candidates may come to the attention of the nominating and corporate governance committee through stockholders, management, current members of the Board, or third-party search firms engaged by the nominating and corporate governance committee.
Once the nominating and corporate governance committee has identified a prospective nominee, the nominating and corporate governance committee makes an initial determination as to which no equity awards have yet been granted or which have been returnedwhether to conduct a full evaluation of the candidate. This initial determination is based on the information provided to the Equity Plan upon cancellation or expiration of such equity awards will be combined onnominating and corporate governance committee concerning the Effective Date into one-[•]prospective candidate, as well as the nominating and corporate governance committee’s own knowledge of the number of such shares immediately preceding the reverse stock split (rounded down to avoid fractional interests). In addition, the exercise price of outstanding stock options willprospective candidate, which may be adjusted to [•] times the exercise price specified before the reverse stock split, rounded upsupplemented by inquiries to the nearest whole cent. This will resultperson making the recommendation or others. If the nominating and corporate governance committee determines, in approximatelyconsultation with other Board members as appropriate, that additional consideration is warranted, it may gather or request the third-party search firm to gather additional information about the prospective nominee’s background and experience. The nominating and corporate governance committee then evaluates the prospective nominee, taking into account whether the prospective nominee is independent within the meaning of the listing standards of NYSE and such other factors as it deems relevant, including the current composition of the Board, the balance of management and independent directors, the need for audit committee or compensation committee expertise, the prospective nominee’s qualifications as discussed above, the diversity of the member’s skills and experience in areas that are relevant to the Company’s businesses and activities, and its evaluations of other prospective nominees. In connection with this evaluation, the nominating and corporate governance committee determines whether to interview the prospective nominee and, if warranted, one or more members of the nominating and corporate governance committee and others, as appropriate, conduct interviews in person or by telephone. After completing this process, the nominating and corporate governance committee makes a recommendation to the full Board as to the persons who should be nominated by the Board, and the Board determines the nominees after considering the recommendation and report of the nominating and corporate governance committee. The nominating and corporate governance committee follows the same aggregate price being required to be paid as immediately precedingprocess and uses the reverse stock split. No fractional shares will be issued pursuant to the Equity Plan following the reverse stock split. Therefore, if the number of shares subject to an outstanding equity award immediately before the reverse stock split is not evenly divisible so that the reverse stock split would otherwise result in a fractional interest, the number of shares of common stock issuable pursuant to such equity award will be rounded down to the nearest whole share.
Effectsame criteria for evaluating candidates proposed by stockholders, members of the Reverse Stock Split on the Warrant
In 2020, we issued a warrant for the purchaseBoard, and members of 25,000 shares of common stock at an exercise price of $5.75 per share, exercisable on the date of grant, expiring in April 2025. Shares issuable upon exercise of this warrant are also adjustable in a reverse stock split. Where outstanding shares are combined into a lesser number of shares, the number of shares issuable upon exercise of the warrant prior to the combination will be proportionately decreased, and the exercise price will be proportionately increased. No fractional shares shall be issued upon the exercise of the rights under the warrant. In lieu of such fractional share to which the holder of the warrant would otherwise be entitled due to any partial exercise, the holder will receive a cash payment equal to the exercise price of the warrant multiplied by such fraction.management.
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Board Discretion to Implement the Reverse Stock Split
Even after the reverse stock split is approved by stockholders at the Special Meeting, the BoardThe nominating and corporate governance committee considers diversity as one of Directors will have the discretion to abandon the reverse stock split if ita number of factors in identifying nominees for director. It does not, believe ithowever, have a formal policy in this regard. The nominating and corporate governance committee views diversity broadly to beinclude diversity of experience, skills, and viewpoint as well as traditional diversity concepts such as race or gender.
Audit Committee Matters
Membership and Independence
Messrs. Angelo, Feiner and O’Brien comprise our audit committee, with Mr. O’Brien serving as the chairman. The Board has determined that each of Messrs. Angelo, Feiner and O’Brien satisfies the requirements for independence under the rules and regulations of NYSE and the SEC, including the enhanced standards for audit committee members. The Board has also determined that Mr. O’Brien qualifies as an “audit committee financial expert” as defined in the best interestsSEC rules and satisfies the financial sophistication requirements of NYSE. Our audit committee met six times in 2023.
Responsibilities
Our audit committee is responsible for, among other things:
appointment of and approval of compensation for our independent public accounting firm and overseeing its performance and independence;
overseeing our accounting and financial reporting processes;
overseeing the audits of our financial statements;
overseeing the effectiveness of our internal controls over financial reporting;
preparing the audit committee report that the SEC requires in our annual proxy statement.
A more detailed description of our audit committee’s functions can be found in our audit committee charter at https://ir.virnetx.com/ under the “Investors” tab in the “Corporate Governance” subcategory, or by writing to us at VirnetX Holding Corporation, P.O. Box 439, Zephyr Cove, Nevada 89448 (Attention: Investor Relations).
Compensation Committee Matters
Membership and Independence
Messrs. Angelo, Feiner and O’Brien comprise our compensation committee, with Mr. Feiner serving as the stockholders. Such determination will be based upon certain factors,chairman. The Board has determined that each of Messrs. Angelo, Feiner and O’Brien satisfies the requirements for independence under the rules of NYSE including existingthe enhanced standards for compensation committee members, and expected marketability and liquidityis a “non-employee director” within the meaning of Section 16 of the common stock, prevailing market conditions,Exchange Act. Our compensation committee met nine times in 2023.
Responsibilities, Processes and Procedures
Our compensation committee’s responsibilities and primary processes for establishing and overseeing executive compensation include, among other things:
exclusive authority to determine the likely effect onamount and form of compensation paid to the market priceCompany’s Chief Executive Officer;
determining the amount and form of compensation paid to the common stockCompany’s executive officers, officers, employees, consultants and the abilityadvisors;
administering our equity incentive plans;
engaging, compensating and desirability of VirnetX to satisfy the continued listing requirements for NYSEterminating compensation consultants, legal counsel and such other considerationsadvisors to assist the compensation committee;
reviewing and discussing with management to Company’s proposed disclosure under “Compensation Discussion and Analysis” as set forth in Regulation S-K and recommending to the Board of Directors, in its discretion, determines. Notwithstanding approval of the reverse stock split by the stockholders, the Board of Directors may, in its sole discretion, abandon the proposed Charter Amendment and determine prior to the effectiveness of any filing with the Secretary of State of the State of Delaware not to effect the reverse stock split, as permitted under Section 242(c) of the General Corporation Law of Delaware.
Exchange of Stock Certificates
As soon as practicable after the Effective Date, stockholders willwhether such disclosure should be notified that the reverse stock split has been effected. VirnetX’s transfer agent will act as “exchange agent” for purposes of implementing the exchange of stock certificates. If any of your shares are held in certificated form (that is, you do not hold all of your shares electronically in book-entry form), you will receive a letter of transmittal from VirnetX’s exchange agent as soon as practicable after the Effective Date, which will contain instructions on how to obtain post-split shares. You must complete, execute and submit to the exchange agent the letter of transmittal in accordance with its instructions and surrender your stock certificate(s) formerly representing shares of stock prior to the reverse stock split (or an affidavit of lost stock certificate containing an indemnification of VirnetX for claims related to such lost stock certificate). Upon receipt of your properly completed and executed letter of transmittal and your stock certificate(s), you will be issued the appropriate number of shares of common stock (including legends, if appropriate) electronically in book-entry form, as determined by VirnetX. This means that, instead of receiving a new stock certificate, you may receive a direct registration statement that indicates the number of post-split shares you own in book-entry form. If you are entitled to payment in lieu of any fractional share interest, payment will be made as described above under the heading “Treatment of Fractional Shares.” No direct registration statements or payments in lieu of fractional shares will be issued to a stockholder until such stockholder has properly completed and executed a letter of transmittal and surrendered such stockholder’s outstanding certificate(s) to the exchange agent. If you hold any or all of your shares electronically in book-entry form, please see the section below under the heading “Effect on Registered Stockholders.”
STOCKHOLDERS SHOULD NOT DESTROY ANY PRE-SPLIT STOCK CERTIFICATE AND SHOULD NOT SUBMIT ANY CERTIFICATES UNTIL THEY ARE REQUESTED TO DO SO.
In connection with the reverse stock split, the common stock will change its current CUSIP number.
Effect on Objecting or Non-Objecting Beneficial Owners
Stockholders holding common stock through a bank, broker or other nominee should note that such banks, brokers or other nominees may have different procedures for processing the reverse stock split than those that would be put in place by VirnetX for registered stockholders that hold such shares directly, and their procedures may result, for example, in differencesincluded in the precise cash amounts being paid by such nominees in lieu of a fractional share. If you hold your shares with such a bank, broker or other nominee and if you have questions in this regard, you are encouraged to contact your bank, broker or nominee.Company’s public filings, as applicable;
Effect on Registered Stockholders
VirnetX’s registered stockholders may hold some or all of their shares electronically in book-entry form under the direct registration system for securities. These stockholders will not have stock certificates evidencing their ownership of the common stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.
If you hold shares in a book-entry form, you do not need to take any action to receive your post-split shares or your cash payment in lieu of any fractional share interest, if applicable. If you are entitled to post-split shares, a transaction statement will automatically be sent to your address of record indicating the number of shares you hold.
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If you are entitled to a paymentpreparing the compensation committee report that the SEC requires in lieuour annual proxy statement, as applicable;
recommending the compensation of any fractional share interest, a check will be mailed to you at your registered address as soon as practicable after VirnetX’s transfer agent completes the aggregation and sale described above in “Treatment of Fractional Shares.” By signing and cashing this check, you will warrant that you owned the shares for which you receive a cash payment.
Accounting Consequences
The par value per share of the common stock would remain unchanged at $0.0001 per share after the reverse stock split. As a result, on the Effective Date, the par value per share on VirnetX’s balance sheet attributablenon-employee directors to the common stock will be reduced proportionally from its present amount, andBoard;
making regular reports to the additional paid in capital account shall be credited with the amount by which the par value per share is reduced. The per share common stock net income or loss and net book value will be increased because there will be fewer shares of common stock outstanding. VirnetX does not anticipate that any other accounting consequences would arise as a result of the reverse stock split.
No Appraisal Rights
Stockholders are not entitled to appraisal rights under Delaware lawBoard with respect to significant actions and determinations made by the proposed Charter Amendment to effectcompensation committee; and
approving the reverse stock split.
Material U.S. Federal Income Tax Consequencescreation or revision of the Reverse Stock SplitCompany’s compensation recovery policy (“Clawback Policy”).
The following discussion is a summary of certain material U.S. federal income tax consequencesOur Chief Executive Officer generally attends compensation committee meetings and makes recommendations to our compensation committee regarding the amount and form of the reverse stock split. This discussion is included for general information purposes only and does not purport to address all aspects of U.S. federal income tax law that may be relevant to stockholders in light of their particular circumstances. Further, this discussion does not address any state, local or non-U.S. tax consequencescompensation of the reverse stock split. This discussionother executive officers and key employees. He is based on the Internal Revenue Code of 1986, as amended (the “Code”), and current Treasury Regulations, court decisions and published rulings and administrative pronouncementsnot present for any of the Internal Revenue Service (the “IRS”) in effect as of the date of this proxy statement, all of which are subject to change, possibly on a retroactive basis, andexecutive sessions or for any such change could affect the continuing validity of this discussion. We have not sought, and will not seek, any ruling from the IRS or an opinion of tax counseldecisions regarding his own compensation.
Except with respect to determining the matters discussed herein. The discussion below regardingChief Executive Officer’s compensation, the U.S. federal income tax consequencescompensation committee may delegate its authority to a subcommittee thereof and, to the extent permitted by applicable law, the compensation committee may delegate to officers or appropriate supervisory personnel the authority to grant stock awards to non-executive, non-director employees.
A more detailed description of our compensation committee’s functions can be found in our compensation committee charter at https://ir.virnetx.com/ under the “Investors” tab in the “Corporate Governance” subcategory, or by writing to us at VirnetX Holding Corporation, P.O. Box 439, Zephyr Cove, Nevada 89448 (Attention: Investor Relations).
Compensation Committee Interlocks and Insider Participation
In 2023, Messrs. Angelo, Feiner and O’Brien served as members of our compensation committee. No member of our compensation committee was an officer or employee of VirnetX in 2023. In addition, no member of our compensation committee or executive officer of the reverse stock split isCompany served as a member of the Board or compensation committee of any entity that has an executive officer serving as a member of the Board or our compensation committee.
Communications with the Board
Any of our stockholders and other interested parties who wish to communicate with the Board, a committee of the Board, the non-management directors as a group, or any individual member of the Board, may send correspondence to our Corporate Secretary at VirnetX Holding Corporation, P.O. Box 439, Zephyr Cove, Nevada 89448.
Our Corporate Secretary will compile and submit on a periodic basis all stockholder correspondence to our entire Board, or, if and as designated in the communication, to a committee of the Board, our non-management directors as a group, or an individual Board member. The independent directors of the Board review and approve the stockholders’ communications process periodically to ensure effective communication with stockholders.
Director Compensation
Directors who are also our employees are not bindingcompensated for serving on the IRSBoard. Information regarding compensation otherwise received by our directors who are also named executive officers is provided under the heading “Executive Compensation and Other Matters.”
Our compensation committee periodically reviews director compensation in consultation with its independent compensation consultant, Compensia, Inc., or Compensia. Any recommendations for changes are made to our full Board by our compensation committee. Our compensation committee last reviewed our director compensation program with Compensia in November 2023 and determined that the courts.
All stockholders are urgedprogram should be updated to consult with their own tax advisors with respectremain competitive. In November 2023, we made certain changes to the tax consequences of the reverse stock split. This summary assumes that the pre-reverse stock split shares were, and the post-reverse stock split shares will be, heldcompensation as a “capital asset,” as defined in Section 1221 of the Code. This discussion does not address all U.S. federal income tax consequences relevant to the particular circumstances of a stockholder. In addition, it does not address the tax consequences to stockholders who are subject to special tax rules, including:
persons subject to the alternative minimum tax or Medicare contribution tax on net investment income;
persons whose functional currency is not the U.S. dollar;
persons holding our common stock as part of a hedge, straddle, or other risk reduction strategy or as part of a conversion transaction or other integrated investment;
persons who are former U.S. citizens or long-term residents;
persons who are not U.S. holders;
banks, insurance companies, and other financial institutions;
mutual funds, real estate investment trusts or regulated investment companies;
brokers, dealers, or traders in securities;
partnerships, other entities or arrangements treated as partnerships for U.S. federal income tax purposes, and other pass-through entities (and investors therein);
tax-exempt organizations or governmental organizations;
persons deemed to sell our common stock under the constructive sale provisions of the Code;
persons who hold or receive our common stock pursuant to the exercise of any employee stock options or otherwise as compensation;reflected below.
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persons who areCash Compensation of Non-employee Directors for 2023
In 2023, consistent with our compensation policy in effect for 2023 (the “Prior Compensation Policy”), we provided the following cash compensation for non-employee directors:
Annual
Retainer
​​
Additional Retainer for the
Committee Chairperson of
​​
Additional Retainer for a Non-
Chairperson Committee Member
Retainer
​​
Audit
​​
Compensation
​​
Nominating
& Corporate
Governance
​​
Audit
​​
Compensation
​​
Nominating
& Corporate
Governance
$44,000
​​
$25,150
​​
$9,900
​​
$15,500
​​
$6,600
​​
$5,500
​​
$2,200
We do not pay meeting fees for Board or committee meetings.
Stock Compensation of Non-Employee Directors for 2023
Consistent with our Prior Compensation Policy, stock compensation for non-employee directors is provided as follows:
Upon the initial election or appointment to the Board of a new non-employee director, such individual would have been granted an option to purchase 1,500 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 would vest monthly with respect to 1/36th of the total number of shares subject to special tax accounting rules under Section 451(b) of the Code;
persons who hold our common stock as “qualified small business stock” pursuant to Section 1202 of the Code; and
tax-qualified retirement plans.
As used herein, the term “U.S. holder” means a holder that is, for U.S. federal income tax purposes:
an individual who is a citizen or resident of the United States;
a corporation or other entity taxedoption, conditioned upon continued status as a corporation createdservice 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 organizedappointment to the Board; and provided further that these options automatically become fully vested immediately prior to a “change in or under the laws of the United States or any political subdivision thereof;
an estate the income of which is subject to U.S. federal income tax regardless of its source; or
a trust (A) if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more “U.S. persons”control” (as defined in the Code) have the authority to control all substantial decisionsPlan) of the trustCompany. Because no new directors were added in 2023, no directors were issued options pursuant to this part of our compensation policy.
Each existing non-employee director is automatically granted an option to purchase 625 shares of our Common Stock at each 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) that has a valid election in effect(b) the close of business on the day prior to be treatedthe following year’s annual meeting of stockholders, conditioned upon continued service as a U.S. person.director; provided that these options automatically become fully vested immediately prior to a “change in control” of the Company.
IfEach existing non-employee director will be automatically granted, under the Plan, an entity treatedaward for 416 restricted stock units (“RSUs”) at each year’s annual meeting of stockholders, which will fully vest upon the earlier of (a) the one-year 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 partnership for U.S. federal income tax purposes holds our common stock, the tax treatment ofdirector; provided that these RSUs automatically become fully vested immediately prior to a partner“change in the partnership will depend on the statuscontrol” of the partner,Company.
The following table shows the activitiescompensation earned by or paid to each of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.non-employee directors for 2023:
In addition, the following discussion does not address the tax consequences of transactions effectuated before, after or at the same time as the reverse stock split, whether or not they are in connection with the reverse stock split.
Name(1)
​​
Fees
Earned or
Paid in Cash
​​
Stock
Awards(2)
​​
Option
Awards(2)
​​
Total
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
STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAX JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
U.S. Federal Income Tax Consequences of the Reverse Stock Split. The reverse stock split is intended to constitute a “recapitalization” within the meaning of Section 368(a)(1)(E) of the Code for U.S. federal income tax purposes. If so treated, in general, other than the cash payments for fractional shares of common stock discussed above, no gain or loss should be recognized by a stockholder upon the exchange of pre-reverse stock split shares for post-reverse stock split shares. The aggregate tax basis of the post-reverse stock split shares will be the same as the aggregate tax basis of the pre-reverse stock split shares exchanged in the reverse stock split, reduced by any amount allocable to a fractional share for which cash is received. A stockholder’s holding period in the post-reverse stock split shares will include the period during which the stockholder held the pre-reverse stock split shares exchanged in the reverse stock split. Special tax basis and holding period rules may apply to holders that acquired different blocks of stock at different prices or at different times. Stockholders should consult their own tax advisors as to the applicability of these special rules to their particular circumstances.
Cash in Lieu of Fractional Shares. In general, the receipt of cash by a U.S. holder instead of a fractional share will be treated as if the U.S. holder received the fractional share pursuant to the reverse stock split and then sold such fractional share for cash, which will result in a taxable gain or loss to such holder for U.S. federal income tax purposes. The amount of the taxable gain or loss to the U.S. holder will be determined based upon the difference between the amount of cash received by such holder and the portion of the basis of the pre-reverse stock split shares allocable to such fractional interest. The gain or loss recognized will constitute capital gain or loss and will constitute long-term capital gain or loss if the holder’s holding period is greater than one year as of the Effective Date. The deductibility of net capital losses by individuals and corporations is subject to limitations. U.S. holders are advised to consult their tax advisors regarding the tax treatment of their receipt of cash in lieu of a fractional share of common stock pursuant to the reverse stock split.
Information Reporting and Backup Withholding. A U.S. holder may be subject to information reporting with respect to any cash received in exchange for a fractional share interest in a new share in the reverse stock split. U.S. holders who are subject to information reporting and who do not provide a correct taxpayer identification number and other required information (e.g., by submitting a properly completed IRS Form W-9) may also be subject
(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 6 titled “Stock-Based Compensation” in the Notes to the Financial Statements contained in the Company’s Annual Report on Form 10-K for fiscal 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:
Name
​​
Aggregate Number of
Shares Underlying
Outstanding Options
​​
Number of Shares
Underlying Unvested
Stock Awards
Thomas M. O’Brien
​​
6,250
​​
416
Michael F. Angelo
​​
6,250
​​
416
Gary W. Feiner
​​
7,125
​​
416
Changes to backup withholding, atCompensation of Non-Employee Directors for 2024
In November of 2023, the current applicable rate of 24%Board approved an amendment to our Outside Director Compensation Policy (the “Amended Compensation Policy”). Any amount withheld under such rules is not an additional tax and may be refundedEffective January 1, 2024, we began to provide the following cash compensation for our non-employee directors:
Annual
Retainer
​​
Additional Retainer for the
Committee Chairperson of
​​
Additional Retainer for a Non-
Chairperson Committee Member
Retainer
​​
Audit
​​
Compensation
​​
Nominating
& Corporate
Governance
​​
Audit
​​
Compensation
​​
Nominating
& Corporate
Governance
$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 credited against the U.S. holder’s U.S. federal income tax liability, provided that the required information is properly furnished in a timely mannerappointment to the Internal Revenue Service.
The tax treatmentBoard of a stockholder may vary depending upon the particular facts and circumstancesnew non-employee director, such individual will be granted an award of such stockholder. Each stockholder is urgednumber of shares of restricted stock (an “Initial Award”) equal to consult with such stockholder’s own tax advisorthe 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 the tax consequences1/3 of the reverse stock split.
Required Vote
The affirmative votetotal number of shares subject to the Initial Award, on each one year anniversary following the grant date, conditioned upon continued status as a majorityservice 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 ourrestricted stock (an “Annual Award”) equal to the lesser of (a) 7,500 shares of common stock, present or represented(b) that number of shares of common stock equal to the quotient obtained by proxy and entitled to vote atdividing $150,000 by the Special Meetingfair market value per share on this matter, is required for approvalthe date of the reverse stock split. You may vote “FOR,” “AGAINST,” or “ABSTAIN” on this proposal. Broker non-votes and abstentions have no effectAnnual 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 proposal. However, because this proposal is a considered a routine proposal, we do not expect any broker non-votes with respect to this proposal.
Recommendationearlier of (a) the one-year anniversary of the Boarddate the Annual Award is granted, or (b) the close of Directors
The Boardbusiness on the day prior to the date of Directors recommendsthe 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 stockholders vote “FOR” this proposal.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 August 11, 2023March 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;officers as listed in the “Summary Compensation Table” of this Proxy Statement; and
all current directors and executive officers as a group.
This table lists applicable percentage ownership based on 71,639,9053,680,661 shares of Common Stock outstanding as of August 11, 2023.March 31, 2024. Securities that a person has a right to acquire pursuant to SEC rules within 60 days of August 11, 2023March 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, P.O. Box 439, Zephyr Cove, NV, 89448.
Name and Address of Beneficial Owner
​​
Shares Beneficially Owned as
of August 11, 2023
​​
NumberAmount and Nature of
Shares of
Common
StockBeneficial Ownership(1)
​​
PercentagePercent of
Voting Power
of Common
StockClass
Name of5% or Greater than 5% StockholdersStockholders:
​​
 
​​
 
Kendall Larsen
​​
8,6437,61188,646(2)
​​
11.94%11.70%
Directors and Named Executive Officers and DirectorsOfficers:
​​
 
​​
 
Kendall Larsen
​​
8,6437,61188,646(2)
​​
11.94%11.70%
Robert D. Short III, Ph.D.
​​
1,5679,3241,992(3)
​​
2.14%2.12%
Thomas M. O’Brien
​​
350,82717,541(4)
​​
*
Michael F. Angelo
​​
250,89212,543(5)
​​
*
Gary W. Feiner
​​
196,6649,833(6)
​​
*
Katherine Allanson
​​
97,5255,834(7)
​​
*
Heidy Chow
​​
—(8)
​​
*
All directors and current executive officers as a group (6(7 persons):
​​
11,146,546573,443(8)(9)
​​
14.96%14.95%
*(*)
Less than one percent1%.
(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 that are exercisable, convertible or to which a holder has a right to acquire within 60 days of August 11, 2023March 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) 1,125,68859,467 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of August 11, 2023,March 31, 2024, of which, 518,29227,140 are held by Kathleen Larsen, (ii) 300,00015,000 shares held of record by K2 Investment Fund, LLC, of which Mr. Larsen and Mrs. Larsen are the sole member-managers, and (iii) 810,27940,511 shares of common stock held by Mrs. Larsen. Excludes 613,53030,676 shares obtained prior to 2021 and held by the Kathleen Sheehan Revocable Trust dated 2/5/2009 and shares, stock options, and RSUs held by Mr. and Mrs. Larsen’s adult children. Mr. Larsen disclaims beneficial ownership of the excluded shares.
(3)
Includes (i) 1,318,29267,140 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of August 11, 2023March 31, 2024 and (ii) 215,55010,777 shares of common stock owned by the Short Revocable Living Trust.
(4)
Includes 112,5005,625 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of August 11, 2023.March 31, 2024.
(5)
Includes 112,5005,625 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of August 11, 2023.March 31, 2024.
(6)
Includes 130,0006,500 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of August 11, 2023.March 31, 2024.
(7)
Includes 69,3754,427 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of August 11, 2023.March 31, 2024.
(8)
Ms. Chow is a nominee for director who beneficially owns no shares in the Company and holds no rights to acquire stock within 60 days of March 31, 2024.
(9)
Includes the following securities beneficially held by our current directors and executive officers as a group: 2,868,355154,388 shares of common stock issuable upon exercise of options presently exercisable or exercisable within 60 days of August 11, 2023.March 31, 2024.
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WHERE YOU CAN FIND MORE INFORMATIONPROPOSAL I:
You may read
ELECTION OF CLASS II DIRECTORS
The Board consists of five members. In accordance with our Amended and copy any reports, statementsRestated Certificate of Incorporation, the Board is divided into three classes with staggered three-year terms. At the Annual Meeting, two Class II directors will be elected for a three-year term to serve until the 2027 annual meeting and until their respective successor is qualified and elected, or other information that we file withuntil their earlier death, resignation or removal.
Nominees
The nominating and corporate governance committee of the SEC at their public reference roomBoard recommended, and the Board approved, Thomas M. O’Brien and Heidy Chow, as our Class II director nominees for election to the Board at the following location: 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copiesAnnual Meeting. If elected, Mr. O’Brien will continue to serve, and Ms. Chow will be appointed as a director of those documentsthe Company, until our annual meeting in 2027, and until their respective successors are qualified and elected or until their earlier death, resignation or removal.
Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR Mr. O’Brien and Ms. Chow as the Class II directors. If the nominees are unable or decline to serve as a director at prescribed ratesthe time of the Annual Meeting, the proxies will be voted for another nominee designated by writingthe Board. We are not aware of any reason that the nominees would be unable or unwilling to serve as a director.
Vote Required
The two director nominees receiving the highest number of votes cast by the shares present (including virtually) or by proxy and entitled to vote at the Annual Meeting on this matter will be elected to the Public Reference SectionBoard. Votes that are withheld and broker non-votes will be excluded entirely and will have no effect in the election of the SEC atdirector.
The Board of Directors unanimously recommends that address. Please callstockholders vote “FOR” the SEC at (800) SEC-0330election of Thomas M. O’Brien and Heidy Chow, as the Class II Directors.
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PROPOSAL II:

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The audit committee has selected Farber Hass Hurley LLP as our independent registered public accounting firm for further information on the public reference room. These SEC filings are also available tofiscal year ending December 31, 2024 and recommends that stockholders vote for ratification of such selection. Although ratification by stockholders is not required by law, the public from commercial document retrieval services and at www.sec.gov.
You may obtain any of the documents we file with the SEC, without charge, by requesting them in writing or by telephone from us at the following address:
VirnetX Holding Corporation
Attn: Corporate Secretary
P.O. Box 439
Zephyr Cove, Nevada 89448
If you would likeCompany has determined that it is desirable to request documents from us, please do so as soon as possible to receive them beforeratification by the Special Meeting.stockholders of this selection. If you request any documents from us, we will mail them to you by first class mail, or another equally prompt method. Please note that all of our documents that we file with the SEC are also promptly available through the Investor Relations section of our website, https://ir.virnetx.com/.
The reports, statements or other information that we file with the SEC and the information included on our websitestockholders do not contain information that is material forratify the exercise of prudent judgment in regard to the proposal to be acted upon and thus are not incorporated by reference into this proxy statement.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT TO VOTE ON THE PROPOSAL. VIRNETX HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT.
THIS PROXY STATEMENT IS DATED [•], 2023. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND THE SENDING OR MAKING AVAILABLE OF THIS PROXY STATEMENT TO STOCKHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.
Representativesselection 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 principal accountants for the current year and for the most recently completed fiscal year, are expected toconsolidated financial statements annually since it was first appointed in 2008. We expect that representatives of Farber Hass Hurley LLP will be present at the SpecialAnnual Meeting, will have the opportunity to make a statement if they desire to do so and are expected towill be available to respond to appropriate questions.questions from stockholders.
Principal Accountant Fees & Services
The following 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.
 
​​
Year Ended December 31(1)
 
​​
2023
​​
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.
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OTHER MATTERS
VirnetX knowsAudit Fees. Consists of no other matters to be submitted atfees billed for professional services rendered in connection with the Special Meeting. If any other matters properly come beforeaudit of our consolidated financial statements, including the Special Meeting, it is the intentionaudit of internal control over financial reporting, review of the proxyholders namedinterim consolidated financial statements included in our quarterly reports, and accounting services in connection with securities offerings.
Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the enclosed formperformance of proxythe audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include consultations in connection 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 votereport in this line item as we did not engage Farber Hass Hurley LLP to perform tax-related services for the shares they represent accordingCompany.
All Other Fees. We have nothing to their best judgment.report in this line item as we did not engage Farber Hass Hurley LLP to perform services not covered by the preceding three categories.
THE BOARD OF DIRECTORS OF VIRNETX HOLDING CORPORATION
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
Zephyr Cove, NevadaOur 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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APPENDIX AOur audit committee may also delegate pre-approval authority to one or more of its members. Such member(s) must report any such pre-approval to our audit committee at the next scheduled meeting.
CERTIFICATE OF AMENDMENT TO THE
Vote Required
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
VIRNETX HOLDING CORPORATION
VirnetX Holding Corporation,Ratification of Farber Hass Hurley LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2024 will require the affirmative vote of a corporation organized and existing under the lawsmajority of the Stateshares present (including virtually) or by proxy and entitled to vote at the Annual Meeting on this matter. Abstentions will have the same effect as a vote “against” the ratification of Delaware (the “Corporation”), hereby certifies that:Farber Hass Hurley LLP as our independent registered public accounting firm.
A.
The name of the Corporation is VirnetX Holding Corporation.
B.
The Corporation was originally incorporated under the name PASW, Inc., and the original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on March 30, 2007.
C.
Article IV of the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended and restated to read in its entirety as follows:
“Immediately upon the effectivenessThe Board of this Certificate of Amendment to the Amended and Restated Certificate of Incorporation (the “Effective Time”), each set of [•] sharesDirectors, on behalf of the issued Common Stock (defined below) shall, automatically and without any action onaudit committee, recommends that stockholders vote “FOR” the partratification of the respective holders thereof, be combined into one shareselection of Common Stock (the “Reverse Stock Split”). No fractional shares shall be issued in connection withFarber Hass Hurley LLP as the Reverse Stock Split.”
D.
This Certificate of Amendment to the Amended and Restated Certificate of Incorporation was duly adopted by the Board of Directors and stockholders of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law of Delaware.
E.
This Certificate of Amendment to the Amended and Restated Certificate of Incorporation shall be effective as of Eastern Time on , 2023.
* * *Company’s independent registered public accounting firm for the fiscal year ending December 31, 2024.
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PROPOSAL III:

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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PROPOSAL IV:

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 WITNESS WHEREOF, VirnetX Holding Corporation has causedWHICH 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.
Name of Individual or Group
​​
Number of
Options
Granted
​​
Weighted
Average Per
Share Exercise
Price of Options
​​
Number of
RSUs
Granted
​​
Grant Date
Value of
RSUs
​​
Number of
RSAs
Granted
​​
Grant
Date
Value
of
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 Certificatematter. Abstentions will have the same effect of Amendmenta 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 Certificate2013 Equity Incentive Plan.
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EXECUTIVE OFFICERS
The following table sets forth the respective names, ages and positions of Incorporationour named executive officers as of March 31, 2024.
Name
​​
Age
​​
Position
Kendall Larsen
​​
67
​​
Chairman of the Board of Directors, President and Chief Executive Officer
Robert D. Short III, Ph.D.
​​
72
​​
Chief Scientist and Director
Katherine Allanson
​​
63
​​
Chief Financial Officer
Darl McBride
​​
64
​​
Chief Operating Officer
The biography of Mr. Larsen is set forth under the heading “Board of Directors” in this Proxy Statement.
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 since 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 Licensed Certified Public Accountant.
Mr. McBride has been our Chief Operating Officer since January 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 facilitate the collaborative development of next-generation cybersecurity and protective artificial intelligence solutions. Prior to joining the Company, Mr. McBride served as the President and Chief Executive Officer of Shout TV Inc., a social 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 Arts in Labor & Industrial Relations from the University of Illinois at Urbana-Champaign in 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 Program Objectives
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.
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 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 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, as applicable.
Our success largely depends on the skills, experience and efforts of our key personnel, including Mr. Larsen, Dr. Short, Ms. Allanson and Mr. McBride. Generally, the compensation committee seeks to provide compensation for our executive officers that is market competitive and provides incentives for our executive officers to remain with the Company and to drive development in the Company’s business. In setting executive compensation, the compensation committee 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), current executive equity holdings and retention hold and competitive market data for executives in 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 regarding the amount and form of the compensation of the other named executive officers and 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 2023, the compensation committee engaged Compensia as its compensation 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 competitive market data previously developed by Compensia for the 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 after taking into account relevant market data, individual responsibilities, performance, and experience.
Annual Incentive Bonus. Each year, the compensation committee establishes an annual incentive bonus amount for each named executive officer based on a percentage of the executive’s base salary. The incentive 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 signedpaid. Given the Company’s rapidly evolving business model, this [•] daystructure 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, 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 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 Plan allows for stock options, RSAs, RSUs, stock appreciation rights, performance units, performance shares and performance bonus awards. In 2023, we granted RSAs under our 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-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-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-based awards as a long-term incentive vehicle because we believe that 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;
are performance-based in that the value of awards is tied directly to our stock price 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 2023
In 2023, the compensation committee undertook a full review of the compensation of our named executive officers, and following this review, in November 2023, the compensation committee made the following decisions (as described in greater detail in the sections below):
increases to the base salaries for 2023 for each of our named executive officers compared to 2022; and
change from grants of a mix of RSUs and option to RSA for 2023 compared to 2022.
The compensation for our named executive officers for 2023 is presented in the table below.
Name
​​
Base
Salary
2023
​​
Targeted
Cash
Incentive
Opportunity
for
2023(1)
​​
Actual Cash
Incentive Paid
for
2023(2)
​​
Annual
Incentive
Bonus
2023(3)
​​
Number
of Shares
Underlying
Stock
Option Grants
for
2023(4)
​​
Number of
Shares
Underlying
Stock Awards
for
2023(4)
​​
All Other
Compensation
Kendall Larsen
President & Chairman, Chief Executive Officer
​​
$789,867
​​
50%
​​
50%
​​
$394,933
​​
—
​​
2,815
​​
$887,426(5)
Robert D. Short III, Ph.D.
Chief Scientist and Director
​​
$502,554
​​
50%
​​
50%
​​
$251,277
​​
—
​​
1,407
​​
$1,437,337(6)
Katherine Allanson
Chief Financial Officer
​​
$312,936
​​
50%
​​
50%
​​
$156,468
​​
—
​​
1,407
​​
$154,072(7)
(1)
The target bonus level for cash incentive opportunities was calculated as a percentage of base salary.
(2)
The actual bonus level for cash incentive opportunities was calculated as a percentage of base salary.
(3)
The bonus amounts in this column reflect the annual incentive bonuses paid in 2023.
(4)
Stock option grants and stock awards made under the Amended 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 revenues, and achievement of operational and strategic milestones. The compensation committee believes that Mr. Larsen is critical to our ability to pursue our licensing strategy going forward. In light of these considerations and the other factors described above, in December 2022, the compensation committee increased Mr. Larsen’s base salary from $759,487 to $789,867 for 2023, an increase of approximately $30,380 or 4%, from 2022. 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. In light of these considerations and the other factors described above, in December 2022, the compensation committee increased Dr. Short’s base salary from $483,224 to $502,554 for 2023, an increase of approximately $19,330, or 4%, from 2022. The compensation committee felt this salary increase was appropriate given his long tenure with us and contributions to our business.
Ms. 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 her technical and strategic skills, her level of responsibility and expected contributions to our further success. In light of these considerations and the other factors described above, in December 2022, the compensation committee increased Ms. Allanson’s base salary from $300,900 to $312,936 an increase of approximately $12,036 or 4% from 2022. The compensation committee felt this salary increase was appropriate given her experience with us and contributions to our business.
Bonuses
2023 Annual Incentive Bonus
In 2023, the compensation committee set the 2023 target incentive opportunity percentages for Mr. Larsen, Dr. Short and Ms. Allanson to 50% of 2023 base salary. In November 2023, the compensation committee reviewed the Company’s performance in 2023 and the contributions that our named executive officers made to such performance. The compensation committee determined to pay each of Mr. Larsen, Dr. Short and Ms. Allanson 50% of their respective 2023 base salary in light of the Company’s overall performance for 2023. In making such payments, the compensation committee considered various factors, including advances in product development and their contributions in achieving this performance, the achievement of certain licensing, technical, and litigation 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 2023 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. Larsen, Dr. Short and 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
In 2023, the compensation committee approved grants of RSAs to Mr. Larsen, Dr. Short and Ms. Allanson as shown in the table below.
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In determining 2023 RSAs for Mr. Larsen, Dr. Short and Ms. Allanson, the compensation committee reviewed various factors, including the Company’s performance, each officer’s performance and perceived criticality to future success, market practices with respect to long-term incentives, and total annual equity allocations at the Company for 2023.
Name
​​
Position
​​
Grant Date
​​
Number of
Shares
Underlying
Stock
Award(1)
​​
Stock Award
Grant Date
Fair Value(2)
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, 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.
(2)
The amounts in this column reflect the aggregate grant date fair value of the stock 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 6 titled “Stock-Based Compensation” in the Notes to the Financial Statements contained in the Company’s Annual Report on Form 10-K for fiscal year ended December 31, 2023.
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 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 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.
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 to align this group’s interests with those of our stockholders.
The Company has adopted policies that prohibit employees, officers, directors, and consultants from engaging in any short sale, “sale against the box”, hedging or derivative transactions, such as “cashless” collars, forward contracts, equity swaps or other similar or related transactions involving the Company’s 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) 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 the 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 officer is required to render service in exchange for the option or other award.
In approving the amount and form of compensation for our named executive officers, our compensation committee may consider all elements of the cost to us of providing such compensation, including the potential 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 lead to a particular accounting result or level of stockholder dilution.
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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 Scientist and Chief Financial Officer.
Name and Principal Position
​​
Year
​​
Salary
​​
Bonus
​​
Stock
Awards(1)
​​
Option
Awards(1)
​​
All Other
Compensation
​​
Total
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)
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 6 titled “Stock-Based Compensation” in the Notes to the Financial Statements contained in the Company’s Annual Report on Form 10-K for fiscal 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 2023 Fiscal Year End
The following table shows all outstanding equity awards held by the named executive officers as of December 31, 2023.
 
​​
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(1)
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)
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 RSAs granted to Mrs. Larsen, which are discussed in the notes to the Beneficial Ownership Table, included in this Proxy Statement at page 21.
(3)
The shares subject to this option are fully vested and exercisable as of December 31, 2023.
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(4)
The shares subject to the option vest and become exercisable in 48 equal monthly installments beginning 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 such date.
(5)
The RSUs 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.
 
​​
Option Awards
​​
Stock Awards
Name
​​
Number of Shares
Acquired on Exercise
​​
Value Realized
on Exercise(1)
​​
Number of Shares
Acquired on Vesting
​​
Value Realized
on Vesting(2)
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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PAY VERSUS PERFORMANCE
In 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 information 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 the rules.
The following table sets forth such pay versus performance information:
Year
​​
Summary
Compensation
Table Total for
PEO(1)
​​
Compensation
Actually Paid to
PEO(4)
​​
Average
Summary
Compensation
Table for Non-
PEO NEOs(1)
​​
Average
Compensation
Actually Paid to
Non-PEO NEOs(4)
​​
Total Shareholder
Return of Fixed
$100
Investment(2)
​​
Net Income
(Loss)(3)
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)
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)
Total Shareholder Return (“TSR”) is cumulative for the measurement 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 Consolidated 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 total compensation reflected in the summary compensation table to the compensation actually paid to the PEO and non-PEO NEOs:
 
​​
2023
​​
2022
​​
2021
Adjustments
​​
PEO
​​
Average
Non-PEO
NEOs
​​
PEO
​​
Average
Non-PEO
NEOs
​​
PEO
​​
Average
Non-PEO
NEOs
Total 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
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 persons who own more than 10% of our common stock, file reports of ownership and changes of ownership with the SEC. Such 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 on our review of forms filed with the SEC, or written representations from reporting persons stating that they were not required to file these forms, we believe that during our fiscal year ended December 31, 2023, there were no untimely filed Section 16(a) reports by the Company’s Section 16(a) reporting persons, with the exception of a late Form 4 report filed for Darl McBride on April 25, 2024 to report the withholding of shares on January 31, 2024 to satisfy income tax and withholding and remittance obligations in connection with the grant of RSAs on January 1, 2024.
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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, since the beginning of our last fiscal 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 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 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.
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AUDIT COMMITTEE REPORT
The following is the report of the audit committee of the Board. In connection with the financial statements for 2023, our audit committee has:
reviewed and discussed our audited financial statements for 2023 with our management and our independent registered public accounting 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 the applicable requirements of the Public Company Accounting Oversight Board (“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 Report on Form 10-K for 2023.
 
​​
VIRNETX HOLDING CORPORATIONRespectfully submitted by:
​​
 
​​
 
 
​​
By:
​​
Thomas M. O’Brien (Chair)
 
​​
Name:
​​
Kendall LarsenMichael F. Angelo
 
​​
Title:
​​
President, Chief Executive Officer and
Chairman of the Board of DirectorsGary 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.
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OTHER BUSINESS
The Board is not aware of any other matters to be presented at the Annual Meeting. If, however, any other matter should properly come before the Annual Meeting, the enclosed proxy card confers discretionary authority with respect to such matter.
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 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, P.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 www.virnetx.com under the “SEC Filings” link in the “Investors” tab and at the SEC’s website, www.sec.gov.
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 19, 2024. Registration will begin at 9:45 a.m. Pacific Time on June 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 a company-issued password.
To attend the meeting, visit https://agm.issuerdirect.com/vhc, where you will be asked to enter the control identification number and password received from us.
Whether you attend the meeting or not, to vote, visit https://central.proxyvote.com/pv/web, where you will be asked to enter the control identification number located on your proxy 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.
To 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 your Notice of Internet Availability (Notice and Access) Card, received from Issuer Direct Corporation.
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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.
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