PROPOSAL NO. 3 — THE 2022 PLAN AMENDMENTS PROPOSAL
Background
The stockholders are being asked to approve amendments to Sections 5(a) and 5(b) of the 2022 Plan to (i) increase the number of shares of common stock reserved for issuance with respect to awards granted under the 2022 Plan from 4,000,000 shares of common stock to 10,000,000 shares of common stock and (ii) increase the maximum number of shares of common stock that may be issued pursuant to the exercise of incentive stock options under the 2022 Plan (“ISOs”) from 4,000,000 shares of common stock to 10,000,000 shares of common stock.
We believe strongly that the increase in shares of common stock reserved for issuance with respect to awards granted under the 2022 Plan and the increase in the maximum number of shares of common stock which may be issued pursuant to ISOs under the 2022 Plan is essential to our continued success and therefore is in the best interests of the Company and our stockholders. Our employees are our most valuable assets. The Board believes that grants of stock options, restricted stock units, performance-based restricted stock units and other equity awards under the 2022 Plan help create long-term equity participation in the Company and thereby assist us in attracting, retaining, motivating and rewarding employees, directors, and consultants. The Board also believes that long-term equity compensation is essential to link executive pay to long-term stockholder value creation.
As of June 18, 2024, the Record Date, there were 455,000 shares of common stock remaining available for the grant of awards under the 2022 Plan. On June 20, 2024, we entered into an offer letter with our new director, Robin Ross, agreeing to award him 1,000,000 restricted stock (“RSUs”) under the 2022 Plan. Of the 1,000,000 RSUs, 450,000 are being awarded immediately and the remaining 550,000 RSUs will be awarded, shortly after this Proposal No. 3 is approved by stockholders, if approved. Therefore, as of the date of the proxy statement there are only 5,000 shares of common stock remaining available for the grant of awards under the 2022 Plan. Without these increases, we will be limited, in the future, as to the number of shares of common stock we will have available for the granting of additional awards, including ISOs, to employees, which could make it difficult for us to retain our current employees and to also attract new highly qualified employees. Our ability to attract and retain qualified directors to serve on our Board is also contingent on our ability to provide them with compensation in the form of equity which is comparable with the equity compensation provided to directors of other public companies in our industry. This cannot be accomplished without an increase in the 4,000,000 shares of common stock currently available under the 2022 Plan. Finally, 10,000,000 shares of common stock, which is the number of shares that the Board has approved to be reserved under the 2022 Plan represents approximately 19.9% of the 50,328,328 shares of common stock issued and outstanding as of June 18, 2024, the Record Date, which the Board has determined reasonable and necessary to properly compensate our employees and directors.
The above-described amendments to the 2022 Plan to (i) increase the number of shares of common stock reserved for issuance with respect to awards granted under the 2022 Plan from 4,000,000 shares of common stock to 10,000,000 shares of common stock and (ii) increase the maximum number of shares of common stock that may be issued pursuant to the exercise of ISOs from 4,000,000 shares of common stock to 10,000,000 shares of common stock was approved by the Board by unanimous written consent dated April 30, 2024, and will not be effective unless and until it is approved by our stockholders. If our stockholders do not approve the amendments to the 2022 Plan, the amendment will not take effect, but we may continue to grant rights to purchase shares under the 2022 Plan in accordance with the current terms and conditions of the 2022 Plan; provided, however, that no awards will be made under the 2022 Plan for an aggregate number of shares of common stock in excess of 4,000,000 shares and no awards will be made in the form of ISOs to the extent that the aggregate of number of shares of common stock which can be issued under all ISOs exceeds 4,000,000 shares of common stock, unless and until the stockholders approve amendments to the 2022 Plan, with respect to such increases. The Board has determined that it is in the best interests of us and our stockholders that these amendments to the 2022 Plan be approved and is asking our stockholders for their approval of these amendments to the 2022 Plan. The form of Amendment No. 1 to the 2022 Equity Incentive Plan, which includes these amendments only is attached as Annex B to this Proxy Statement.
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Explanation of Amendments
Section 5(a) of the 2022 Plan currently provides as follows:
“(a) Subject to adjustment under Section 12 hereof, there is hereby reserved for issuance under the Plan 4,000,000 shares of Common Stock of the Company, which may be authorized but unissued or treasury shares.”
The Board of Directors has authorized and approved an increase in the number of shares of common stock reserved for issuance with respect to awards granted under the 2022 Plan from 4,000,000 shares of common stock to 10,000,000 shares of common stock. In the event that Proposal No. 3 is approved by our stockholders at the Annual Meeting, Section 5(a) of the 2022 Plan will, thereafter, read in its entirety as follows:
“(a) Subject to adjustment under Section 12 hereof, there is hereby reserved for issuance under the Plan 10,000,000 shares of Common Stock of the Company, which may be authorized but unissued or treasury shares.”
Section 5(b) of the 2022 Plan currently provides as follows:
“(b) If there is a lapse, expiration, termination or cancellation of any Stock Option granted under this Plan prior to the issuance of shares in connection with such option, or if shares are issued under the Plan in connection with an Award hereunder and thereafter such shares are reacquired by the Company, those shares may again be used for new Awards under the Plan. In addition, any shares exchanged or surrendered by a Participant as full or partial payment of the exercise price under any Stock Option exercised under this Plan, any shares retained by the Company pursuant to a Participant’s tax withholding election, and any shares covered by an Award which is settled in cash, shall be added back to the shares available for Awards under the Plan. The Board shall determine the appropriate methodology for calculating the number of Shares available for issuance pursuant to the Plan. Notwithstanding the above, the maximum number of shares that may be issued pursuant to the exercise of Incentive Stock Options during the term of the Plan shall not exceed 4,000,000 shares.”
The Board of Directors has authorized and approved an increase in the maximum number of shares of common stock that may be issued pursuant to the exercise of ISOs from 4,000,000 shares of common stock to 10,000,000 shares of common. In the event that Proposal No. 3 is approved by our stockholders at the Annual Meeting, Section 5(b) of the 2022 Plan will, thereafter, read in its entirety as follows:
“(b) If there is a lapse, expiration, termination or cancellation of any Stock Option granted under this Plan prior to the issuance of shares in connection with such option, or if shares are issued under the Plan in connection with an Award hereunder and thereafter such shares are reacquired by the Company, those shares may again be used for new Awards under the Plan. In addition, any shares exchanged or surrendered by a Participant as full or partial payment of the exercise price under any Stock Option exercised under this Plan, any shares retained by the Company pursuant to a Participant’s tax withholding election, and any shares covered by an Award which is settled in cash, shall be added back to the shares available for Awards under the Plan. The Board shall determine the appropriate methodology for calculating the number of Shares available for issuance pursuant to the Plan. Notwithstanding the above, the maximum number of shares that may be issued pursuant to the exercise of Incentive Stock Options during the term of the Plan shall not exceed 10,000,000 shares.”
Vote Required
The affirmative vote of the majority of shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote is required to approve the 2022 Plan Amendments Proposal. Abstentions will have no effect on the outcome of the vote.
Recommendation of the Board
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE 2022 PLAN AMENDMENTS PROPOSAL.
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