UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment
(Amendment No. )
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☒ ☐ Definitive Proxy Statement
☐ Definitive Additional Materials
☐ Soliciting Material Pursuant to §240.14a-12Under §240.14a-12
NEUROMETRIX, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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NeuroMetrix, Inc.
4B4 Gill Street, Suite B
Woburn, Massachusetts 01801
March 16, 2021[●], 2023
Dear Stockholder,Stockholder:
You are cordially invited to attend the 2021 Annual Meetinga special meeting (the “Special Meeting”) of Stockholdersstockholders of NeuroMetrix, Inc. (the “Corporation”“Company”), to be held in a virtual format only on April 27, 2021,October 19, 2023, at 10:00 a.m., Eastern Time.
As a result of public health and travel guidance due to COVID-19, this year’s annual meetingWe will be conducted solelyhold the Special Meeting virtually via live audio webcast on the internet. We believe hosting a virtual meeting enables greater stockholder attendance and participation from any location around the world, improves meeting efficiency and our ability to communicate effectively with our stockholders, and reduces the cost and environmental impact of the Special Meeting. You will be able to attend the annual meeting,Special Meeting, vote and submit your questions during the annual meeting by first registeringpre-registering at http:https://viewproxy.com/neurometrix/2021/htype.asp.2023SM/htype.asp. You will not be able to attend the annual meetingSpecial Meeting in person.
The attached notice of annual meeting and proxy statement describeDetails regarding the Special Meeting, the business we will conductto be conducted at the annual meetingSpecial Meeting, and provide information about usthe Company that you should consider when you vote your shares.shares are described in this proxy statement. You may obtain additional information about the Company from documents we file with the Securities and Exchange Commission.
AtThe Special Meeting, is being held solely to allow the annual meeting, we will ask stockholders (i) to electconsider and vote on the persons nominated byfollowing proposals:
1.To approve a proposed amendment to the NeuroMetrix, Inc. Amended and Restated Certificate of Incorporation, as amended, in substantially the form attached to the proxy statement as Appendix A, to, at the discretion of the Board of Directors, as Class II directors to serve untileffect a reverse stock split of our 2024 annual meeting of stockholdersissued and until their respective successors are duly elected and qualified or until their earlier death, resignation or removal; (ii) to approve the Corporation’s Twelfth Amended and Restated 2004 Stock Option and Incentive Plan, which increases the number of shares of the Corporation’s common stock authorized for issuance thereunder by 500,000 shares; (iii) to approve the Corporation’s Fifth Amended and Restated 2010 Employee Stock Purchase Plan, which increases the number of shares of the Corporation’s common stock authorized for issuance thereunder by 150,000 shares and raises the plan’s annual increase to the lesser of 50,000 shares or 1% of the Corporation’s outstanding shares of common stock;stock, at a ratio of between 1:2 and (iv)1:8, inclusive; and
2.To authorize an adjournment of the Special Meeting, if necessary, if a quorum is present, to ratify the selectionsolicit additional proxies if there are not sufficient votes in favor of Moody, Famiglietti & Andronico, LLP as the Corporation’s independent auditors for fiscal 2021. OurProposal 1.
The Board of Directors (the “Board of Directors”) recommends the approval of each of proposals (i) through (iv).these proposals. Such other business will be transacted as may properly come before the annual meeting.Special Meeting or any adjournments thereof.
We hope you will be able to attend the annual meeting.Special Meeting. Whether you plan to attend the annual meetingSpecial Meeting or not, it is important that you cast your vote either virtually or by proxy. You may vote at any time before the Special Meeting over the Internet as well as by telephone or by mail. Therefore, when you have finished reading the proxy statement, you are urged to vote in accordance with the instructions set forth in this proxy statement. We encourage you to vote by proxy so that your shares will be represented and voted at the meeting, whether or not you can attend. You may vote by attending the Special Meeting as described in this proxy statement.
ThankWe hope you for your ongoing support. We look forwardwill be able to seeing you at our annual meeting.attend the Special Meeting.
Sincerely,
Sincerely,
Shai N. Gozani, M.D., Ph.D.
Chairman, Chief Executive Officer and President
PRELIMINARY PROXY STATEMENT – SUBJECT TO COMPLETION – DATED SEPTEMBER [●], 2023 NeuroMetrix, Inc.NEUROMETRIX, INC.
4B4 Gill Street, Suite B
Woburn, Massachusetts 01801
781-890-9989
NOTICE OF ANNUALSPECIAL MEETING OF STOCKHOLDERS
To the Stockholders:Stockholders of NeuroMetrix, Inc.:
The annual meetingSpecial Meeting of stockholders of NeuroMetrix, Inc., a Delaware corporation (the “Corporation”“Company”), will be held in a virtual format only on Tuesday, April 27, 2021,Monday, October 19, 2023, at 10:00 a.m., Eastern Time for the purposes listed below.
PURPOSES:
1.To approve a proposed amendment to the NeuroMetrix, Inc. Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), in substantially the form attached to the proxy statement as Appendix A, to, at the discretion of the Board of Directors, effect a reverse stock split of our issued and outstanding shares of common stock, at a ratio of between 1:2 and 1:8, inclusive (the “Reverse Split Proposal”); and
2.To authorize an adjournment of the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of the Reverse Split Proposal (the “Adjournment Proposal”).
WHO MAY VOTE:
You may vote if you were the record owner of the Company’s common stock at the close of business on August 31, 2023.
VIRTUAL MEETING:
The Special Meeting will be a virtual meeting via live audio webcast on the Internet. You will be ableStockholders who wish to attend the annual meeting, vote and submit your questions during the meeting by first registeringSpecial Meeting must pre-register at http:https://viewproxy.com/neurometrix/2021/2023SM/htype.asp by 11:59 p.m. Eastern Time, on April 22, 2021.October 18, 2023. You will receive a meeting invitation by email with your unique join link along with a password prioran event passcode to attend the meeting, date. Stockholdersand a virtual control number to vote if proper documentation is provided. The live audio webcast of the Special Meeting can be accessed by stockholders on the day of the meeting by clicking on the link you have received in your e-mail confirmations. You will not be able to listen, vote and submit questions duringattend the virtual meeting. For further information about the virtual annual meeting, please see Important Information about the AnnualSpecial Meeting and Voting beginning on page 1.in person.
Purposes:
1. to elect the persons nominated by the Board of Directors as Class II directors to serve until our 2024 annual meeting of stockholders and until their respective successors are duly elected and qualified or until their earlier death, resignation or removal;
2. to approve the Corporation’s Twelfth Amended and Restated 2004 Stock Option and Incentive Plan, which increases the number of shares of the Corporation’s common stock authorized for issuance thereunder by 500,000 shares;
3. to approve the Corporation’s Fifth Amended and Restated 2010 Employee Stock Purchase Plan, which increases the number of shares of the Corporation’s common stock authorized for issuance thereunder by 150,000 shares and raises the plan’s annual increase to the lesser of 50,000 shares or 1% of the Corporation’s outstanding shares of common stock;
4. to ratify the selection of Moody, Famiglietti & Andronico, LLP as the Corporation’s independent auditors for fiscal 2021; and
5. to transact such other business as may properly come before the meeting or any adjournments or postponements thereof.
Stockholders entitled to notice of and to vote at the meeting shall be determined as of the close of business on March 1, 2021, the record date fixed by our Board of Directors for such purpose. A list of stockholders of record will be available at the meeting and, during the ten days prior to the meeting, at the office of the Secretary at the above address.
All stockholders are cordially invited to attend the annual meeting.Special Meeting. Whether you plan to attend the annual meetingSpecial Meeting or not, we urge you to vote and submit your proxy by the Internet, telephone or mail in order to ensure the presence of a quorum.You may change or revoke your proxy at any time before it is voted at the meeting.
By Order of the Board of Directors,
Shai N. Gozani, M.D., Ph.D.
Chairman, Chief Executive Officer and President
Woburn, Massachusetts
March 16, 2021
Stockholders are requested to sign the enclosed proxy card and
and return it in the enclosed stamped envelope by return mail.
—OR—
Stockholders may also complete a proxy via the Internet or by telephone
telephone in accordance with the instructions listed on the proxy card.
March 16, 2021
NeuroMetrix, Inc.NEUROMETRIX, INC.
4B4 Gill Street, Suite B
Woburn, Massachusetts 01801
781-890-9989
PROXY STATEMENT FOR THE NEUROMETRIX, INC.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER 19, 2023
This proxy statement, along with the accompanying Notice of the Special Meeting of Stockholders, contains information about the Special Meeting of Stockholders of NeuroMetrix, Inc., including any adjournments or postponements of the Special Meeting. We are providing you with these proxy materials because the Board of Directors, on behalf of the Company, is soliciting your proxy to vote at the Special Meeting. The Special Meeting will be held at 10:00 a.m. Eastern Time, on October 19, 2023 in a virtual format by accessing the link provided in your email confirmation when you registered.
In this proxy statement, we refer to NeuroMetrix, Inc. as “NeuroMetrix,” “the Company,” “we” and “us.”
This proxy statement the attached notice of annual meeting of stockholders and the enclosed proxy card are being mailedrelates to stockholders on or about March 16, 2021 and are furnished in connection with the solicitation of proxies by the Board of Directors of NeuroMetrix, Inc. (“NeuroMetrix”, “we”, “us”, or the “Corporation”) for use at our 2021 Annualthe Special Meeting.
On or about September 11, 2023, we intend to begin sending this proxy statement, the attached Notice of Special Meeting of Stockholders and the enclosed proxy card to be held in a virtual format only on April 27, 2021,all stockholders entitled to vote at 10:00 a.m., Eastern Time, and at any adjournments or postponements thereof. Although not part of this proxy statement, we are also sending, along with this proxy statement, our 2020 annual report, which includes our financial statements for the fiscal year ended December 31, 2020.
We are holding the annual meeting virtually this year due to ongoing concerns about, and restrictions on, large public gatherings as a result of the COVID-19 pandemic.Special Meeting.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
STOCKHOLDER MEETING TO BE HELD ON APRIL 27, 2021.OCTOBER 19, 2023
This proxy statement and our 2020 annual report to stockholders areis available for viewing, printing and downloading at https://www.viewproxy.com/neurometrix/20212023SM. To view these materials, please have your proxy card available.
Additionally, you can find a copy of our 20202022 annual report on Form 10-K, which includes our financial statements, for the fiscal year ended December 31, 20202022 on the website of the Securities and Exchange Commission or the SEC,(the “SEC”) athttps://www.sec.gov, or in the “Financials and Filings” section of the “Investor Relations” section ofon our website at https://www.neurometrix.com. You may also obtain a printed copy of our annual report on Form 10-K, including our financial statements, free of charge, from us by sending a written request to: Attention: Secretary, NeuroMetrix, Inc, 4BInc. 4 Gill Street, Suite B, Woburn, MA 01801. Exhibits will be provided upon written request and payment of an appropriate processing fee.
IMPORTANT INFORMATION ABOUT THE ANNUALSPECIAL MEETING AND VOTING
Only holders of shares of our common stockholdersstock of record as of the close of business on March 1, 2021August 31, 2023 (the “Record Date”) will be entitled to vote at the meeting and any adjournments or postponements thereof. Our convertible preferred stock hasShares of our outstanding Series B Convertible Preferred Stock have no voting rights. As of that date, 3,796,147the Record Date, 8,585,019 shares of our common stock, $0.0001 par value per share (the “common stock”), were issued and outstanding. Each share of common stock outstanding as of the record dateRecord Date will be entitled to one vote, and stockholders may vote in person or by proxy. Execution of a proxy will not in any way affect a stockholder’s right to attend the meeting and vote in person, although the presence (without further action) of a stockholder at the annual meetingSpecial Meeting will not constitute revocation of a previously given proxy. Any stockholder of record delivering a proxy has the right to revoke itsuch proxy by either: (1) filingsending a timely written revocation withto our Secretary at NeuroMetrix, Inc., 4B4 Gill Street, Suite B, Woburn, Massachusetts 01801; (2) submitting a new proxy by telephone, Internet, or proxy card after the date of the previously submitted proxy; or (3) attending the meeting and voting by ballotcasting a vote at the annual meeting.Special Meeting. Your most current vote, whether by telephone, Internet or proxy card is the one that will be counted.
Whether you plan to attend the annual meetingSpecial Meeting or not, we urge you to vote by proxy. If you vote by proxy, the individuals named on the proxy card, or your “proxies,” will vote your shares of common stock in the manner you indicate. You may specify whether your shares of common stock should be voted for, against,“for”, “against” or abstain“abstain” with respect to proposals 1 through 4.each of the proposals. If you properly submit a proxy without giving specific voting instructions, your shares of common stock will be voted in accordance with the Board of Directors’ recommendations as noted below. Voting by proxy will not affect your right to attend the annual meeting.Special Meeting. If your shares of common stock are registered directly in your
name through our stock transfer agent, American Stock Transfer &and Trust Company, or you have stock certificates registered in your name, you may vote:
1.•By the Internet or by telephone. Follow the instructions included in the proxy card to vote by the Internet or telephone prior to the meeting.
•By mail. Complete and mail the enclosed proxy card in the enclosed postage prepaid envelope. Your proxy will be voted in accordance with your instructions.instructions if it is received before the Special Meeting. If you sign the proxy
card but do not specify how you want your shares voted, they will be voted as recommended by ourthe Board of Directors.
2.By Internet or by telephone. Follow the instructions attached to the proxy card to vote by Internet or telephone.
3.•Virtually at the meeting. Stockholders who wish to attend the Special Meeting must pre-register at https://viewproxy.com/neurometirx/2023SM/htype.asp by 11:59 p.m. Eastern Time, on October 18, 2023. If you attend the meeting by visiting the link provided upon registering, during the Special Meeting while the polls are open, you may vote your shares electronically at the meeting by entering the 11-digit virtual control number found on your proxy card.
card and following the instructions.
Telephone and Internet voting facilities for stockholders of record will be available 24-hours24 hours a day and will close at 11:59 p.m. Eastern Time on April 26, 2021.October 18, 2023.
If your shares are held in “street name” (held in the name of a bank, broker, or other nominee), you should have received voting instructions from that organization rather than from us. Simply follow the voting instructions to ensure that your vote is counted. To vote electronically at the Special Meeting, you must provide theobtain a valid proxy from your broker, bank broker, or other holder of record with instructions on how to vote your shares and can do so as follows:
1.By mail.agent. Follow the instructions you receive from your broker, bank or other nominee explaining how to vote your shares.
2.By Internetagent included with these proxy materials, or by telephone. Follow the instructions you receive fromcontact your broker, bank or other nomineeagent to vote by Internet or telephone.
3.Virtually at the meeting. Contact the broker or other nominee who holds your shares to obtain a broker’s proxy card, which you will need to register to attend the annual meeting. You will be assigned a virtual control number in order to vote your shares during the annual meeting. You will not be able to vote at the annual meeting unless you haverequest a proxy card from your broker.
form.
The representation virtually or by proxy of at least a majoritythird of all shares of common stock issued, outstanding, and entitled to vote at the meeting is necessary to constitute a quorum for the transaction of business. Abstentions and broker “non-votes” are counted as present or represented for purposes of determining the presence or absence of a quorum for the meeting. A “non-vote” occurs when a nominee holding shares for a beneficial owner votes on one proposal, but does not vote on another proposal because, in respect of such other proposal, the nominee does not have discretionary voting power and has not received voting instructions from the beneficial owner. An automated system administered by our transfer agent tabulates the votes. The vote on each matter submitted to stockholders is tabulated separately. A representative of Alliance Advisors (as defined below) will serve as an inspector of elections.
Each of the persons named as proxies in the proxy is one of our officers. All properly executed proxies returned in time to be cast at the meeting will be voted. With respect to Proposal 1, the election of two Class II directors, any stockholder submitting a proxy has a right to withhold authority to vote for either of the nominees to the Board of Directors in the manner provided on the proxy. The stockholders will also act upon Proposal 2, to approve the Corporation’s Twelfth Amended and Restated 2004 Stock Option and Incentive Plan (the “Twelfth Amended and Restated 2004 Stock Plan”) which increases the number of shares of the common stock authorized for issuance thereunder by 500,000 shares, Proposal 3, to approve the Corporation’s Fifth Amended and Restated 2010 Employee Stock Purchase Plan (the “Fifth Amended and Restated 2010 Employee Stock Purchase Plan”) which increases the number of shares of the common stock authorized for issuance thereunder by 150,000 shares and raises the plan’s annual increase to the lesser of 50,000 shares or 1% of the Corporation’s outstandingIf your shares of common stock and Proposal 4, to ratify the selection of Moody, Famiglietti & Andronico, LLP as the Corporation’s independent auditors for fiscal 2021.
If your shares are registered in your name, they will not be counted “for” or “against” the proposals above if you do not vote as described above. If your shares of common stock are held in street name and you do not provide voting instructions to the bank, broker or other holder of record that holds your shares, the bank, broker or other holder of record will have the authority to vote your unvoted shares only on proposal 4such proposals even if it does not receive instructions from you. We encourage you to provide voting instructions. This ensures your shares will be voted at the meeting in the manner you desire. If your broker cannot vote your shares on a particular matter because it has not received instructions from you and does not have discretionary voting authority on that matter or because your broker chooses not to vote on a matter for which it does have discretionary voting authority, this is referred to as a s “broker non-vote”.non-vote.” Under rules that govern brokers, banks, and other agents that are record holders of company stock held in brokerage accounts for their clients who beneficially own such shares, if the beneficial owner does not provide voting instructions, the broker, bank or other nominee can still vote the shares with respect to matters that are considered “routine” (discretionary matters), but cannot vote the shares with respect to “non-routine” (non-discretionary) matters.
The following sets forth the vote required to approve each proposal and how votes are counted:
| | | | | |
Proposal 1: Election of DirectorReverse Stock Split | The nominees to serve as Class II directors who receive the most votes (also known as a “plurality”affirmative vote of the votes cast) will be elected. Youholders of a majority of the shares voted at the Special Meeting by the stockholders entitled to vote on the Reverse Split Proposal is required to approve the amendment of the Certificate of Incorporation to effect a reverse stock split of our common stock. Assuming that a quorum is present, broker non-votes (if any), abstentions, and shares of common stock that are not present in person or by proxy at the special meeting would have no effect on the Reverse Split Proposal. The Reverse Split Proposal is a “routine” matter and therefore a broker may vote either FOR allon this matter without instructions from the beneficial owner as long as instructions are not given. |
Proposal 2: Approve an Adjournment of the nominees, WITHHOLD your vote from allSpecial Meeting, if Necessary, to Solicit Additional Proxies if there are not Sufficient Votes in Favor of the nominees or WITHHOLD your vote from eitherReverse Split Proposal | Approval of the nominees. Votes that are withheld will not be included in the vote tally for the electionadjournment of the directors. Brokerage firms doSpecial Meeting, if necessary, to solicit additional proxies if there are not have authoritysufficient votes in favor of the Reverse Split Proposal requires the affirmative vote of the holders of a majority of the shares of common stock present and entitled to vote customers’ unvoted shares heldon the matter either in person or by proxy at the firms in street name for this proposal. AsSpecial Meeting. A “broker non-vote” or a result, any shares not voted byfailure to submit a customer will be treated as a broker non-vote. Such broker non-votesproxy or vote at the Special Meeting will have no effect on the outcome of the electionvote for the Adjournment Proposal. For purposes of the nominees. |
vote on the Adjournment Proposal, 2: Approve Corporation’s Twelfth Amended and Restated 2004 Stock Plan | The affirmative vote of a majority of the votes cast for or against this proposal is required to approve the Corporation’s Twelfth Amended and Restated 2004 Stock Plan which increases the number of shares of the common stock authorized for issuance thereunder by 500,000 shares, thereby increasing the total reserved shares under the Twelfth Amended and Restated 2004 Stock Plan from 439,980 shares to 939,980 shares. Abstentionsan abstention will have nothe same effect on the results of this vote. Brokerage firms do not have authority to vote customers’ unvoted shares held by the firms in street name on this proposal. As a result, any shares not voted by a customer will be treated as a broker non-vote. Such broker non-votes will have no effect on the results of this vote. |
Proposal 3: Approve Corporation’s Fifth Amended and Restated 2010 Employee Stock Purchase Plan | The affirmative vote of a majority of the votes cast for or against this proposal is required to approve the Corporation’s Fifth Amended and Restated 2010 Employee Stock Purchase Plan which increases the number of shares of the common stock authorized for issuance thereunder by 150,000 shares, thereby increasing the total reserved shares under the Fifth Amended and Restated 2010 Employee Stock Purchase Plan from 24,487 shares to 174,487 shares, and raises the plan’s annual increase to the lesser of 50,000 shares or 1% of the Corporation’s outstanding shares of common stock. Abstentions will have no effect on the results of this vote. Brokerage firms do not have authority to vote customers’ unvoted shares held by the firms in street name on this“AGAINST” such proposal. As a result, any shares not voted by a customer will be treated as a broker non-vote. Such broker non-votes will have no effect on the results of this vote. |
Proposal 4: Ratify Selection of Independent Registered Public Accounting Firm | The affirmative vote of a majority of the votes cast for or against this proposal is required to ratify the selection of our independent registered public accounting firm. Abstentions will have no effect on the results of this vote. Brokerage firms have authority to vote customers’ unvoted shares held by the firms in street name for this proposal. If a broker does not exercise this authority, such broker non-votes will have no effect on the results of this vote. We are not required to obtain the approval of our stockholders to select our independent registered public accounting firm. However, if our stockholders do not ratify the selection of Moody, Famiglietti & Andronico, LLP as our independent registered public accounting firm for 2021, our Audit Committee of our Board of Directors will reconsider its selection. |
If you hold your shares in street name, it is critical that you cast your vote if you want your vote to be counted for the election of the director nominees (Proposal 1 of this proxy statement). Your bank, broker, or other nominee no longer has the ability to vote your uninstructed shares in the election of directors on a discretionary basis. Thus, if you hold your shares in street name and you do not instruct your bank, broker, or other holder of record how to vote in the election of the director nominees, no votes will be cast on this proposal on your behalf. In addition, your bank, broker or other holder of record will not have discretion to vote uninstructed shares on the Twelfth Amended and Restated 2004 Stock Plan (Proposal 2 of this proxy statement) and will not have discretion to vote uninstructed shares on the Fifth Amended and Restated 2010 Employee Stock Purchase Plan (Proposal 3 of this proxy statement). Your bank, broker, or other holder of record does, however, continue to have discretion to vote any uninstructed shares on the ratification of the selection of our independent registered public accounting firm (Proposal 4 of this proxy statement).
The Board of Directors knows of no other matter to be presented at the meeting. If any other matter should be presented at the meeting upon which a vote may be properly taken, shares represented by all proxies received by the Board of Directors will be voted with respect thereto in accordance with the judgment of the persons named as proxies in the proxy.
The preliminary voting results will be announced at the annual meeting,Special Meeting, and we will publish preliminary, results, or final results, if available, in a Current Report on Form 8-K within four business days of the annual meeting.Special Meeting. If final results are unavailable at the time we file the Form 8-K, then we will file an amended report on Form 8-K to disclose the final voting results within four business days after the final voting results are known.
Electronic Delivery of Future Stockholder Communications
Most stockholders can elect to view or receive copies of future proxy materials over the Internet instead of receiving paper copies in the mail.
If you are a stockholder of record, you can choose this option and save the CorporationCompany the cost of producing and mailing these documents by going to https://www.astfinancial.com,, accessing your account information and following the instructions provided.
BOARD MATTERS AND CORPORATE GOVERNANCE
Board of Directors
Our amended and restated certificate of incorporation, as amended, provides for a classified board of directors consisting of three staggered classes of directors (Class I, Class II and Class III). The members of each class of ourHow Does the Board of Directors serveRecommend That I Vote on the Proposals?
The Board of Directors recommends that you vote as follows:
“FOR” the approval of the amendment to the Certificate of Incorporation, in substantially the form attached to the proxy statement as Appendix A, to, at the discretion of the Board of Directors, effect a reverse stock split of our issued and outstanding shares of common stock, at a ratio of between 1:2 and 1:8, inclusive; and
“FOR” the adjournment of our Special Meeting of stockholders, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Reverse Split Proposal.
If any other matter is presented at the Special Meeting, your proxy provides that your shares of common stock will be voted by the proxy holder listed in the proxy in accordance with his or her best judgment. At the time this proxy statement was first made available, we knew of no matters that needed to be acted on at the Special Meeting, other than those discussed in this proxy statement.
Why is the Company seeking approval for staggered three-year terms,the Reverse Split Proposal?
On August 8, 2023, we received a notice from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the last 31 consecutive business days, the bid price of the common stock had closed below $1.00 per share, which is the minimum price required for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). This notice has no immediate effect on our Nasdaq listing, and we have 180 calendar days, or until February 5, 2024, to regain compliance with the terms of Class I, Class II and Class III directors expiring upon the election and qualification of directors at the annual meetings of stockholders to be held in 2023, 2021 and 2022, respectively.minimum bid price requirement. As of the date thathereof, we had not regained compliance with the minimum bid price requirement since the closing bid price of our common stock was not at least $1.00 per share for a minimum of ten consecutive business days. To cure the deficiency, we may conduct the reverse stock split of our common stock for which we are seeking stockholder approval in this proxy statementstatement. On August 28, 2023, the closing price of our common stock as reported on Nasdaq was mailed to stockholders:
1.Class I is vacant until such time as a nominee is appointed by the Board;$0.70 per share.
2.our Class II directors are Shai N. Gozani, M.D., Ph.D., and David Van Avermaete; and
3.our Class III directors are David E. Goodman, M.D. and Nancy E. Katz.
OurThe Board of Directors has determined that Dr. Goodman, Ms. Katz,approved the reverse stock split as a potential means of increasing the share price of our common stock and Mr. Van Avermaetemay choose to implement it if other options are independent directors for purposes of the corporate governance rules contained in the Nasdaq Marketplace Rules,unavailable, undesirable, or the Nasdaq rules. In making the independence determination with respect to these directors, ourinsufficient. The Board of Directors has consideredbelieves that maintaining our listing on The Nasdaq Capital Market provides a broader market for our common stock and facilitate the materiality of any relationship that eachuse of our directors has with us. Our Boardcommon stock in financing and other transactions. We expect the reverse stock split, if effected, to facilitate the continuation of Directors held 6 meetings during 2020. During 2020, all our directors attended more than 75% ofsuch listing. We cannot assure you, however, that the aggregate of (i)reverse stock split, if effected, will result in an increase in the total number of meetingsper share price of our Board of Directors and (ii)common stock, or if it does, how long the total number of meetings held by any committees ofincrease would be sustained, if at all, or whether the increase will be proportional to the reverse stock split ratio.
If our Board of Directors on which such director served.
Our Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee.
Board Committees and Meetings
Audit Committee
Our Board of Directors currently has an Audit Committee consisting of Dr. Goodman, Chairman, Ms. Katz, and Mr. Van Avermaete. The Audit Committee operates pursuant to a charter that was approved by our Board of Directors, a current copy of which is available on our website at https://www.neurometrix.com understockholders approve the heading “Investor Relations” and subheading “Corporate Governance”. The role and responsibilities of our Audit Committee are set forth in the Audit Committee’s written charter and include, among other functions, assistingReverse Split Proposal, the Board of Directors in overseeingits sole discretion will determine whether to effect the operation of a comprehensive system of internal controls covering the integrity of our financial statements and reports, compliance with laws, regulations and corporate policies, and the qualifications, performance and independence of our registered public accounting firm. Dr. Goodman, Ms. Katz, and Mr. Van Avermaete are all “independent” as that term is defined in the rules of the SEC and the applicable Nasdaq rules relating to audit committee members. Our reverse stock split. The Board of Directors has concludedreserves the right to elect not to effect a reverse stock split, including any or all reverse stock split ratios within the proposed range, if it determines, in its sole discretion, that Dr. Goodman qualifies as an “audit committee financial expert” as such termimplementing a reverse stock split is definednot in SEC rules. The Audit Committee held four meetings during 2020. Please also see the reportbest interest of the Audit Committee set forthCompany and its stockholders. For more information, see “Proposal 1: Reverse Split Proposal” contained elsewhere in this proxy statement.
Compensation CommitteeWhat Are the Costs of Soliciting these Proxies?
Our Board of Directors has a Compensation Committee consisting of Dr. Goodman and Mr. Van Avermaete. Dr. Goodman and Mr. Van Avermaete are “independent directors” as that term is defined in the Nasdaq rules. The Compensation Committee operates pursuant to a charter that was approved by our Board of Directors, a current copy of which is available on our website at https://www.neurometrix.com under the heading “Investor Relations” and subheading “Corporate Governance.” The role and responsibilities of our Compensation Committee are set forth in the Compensation Committee’s written charter and include, among other functions, having direct responsibility for the oversight ofWe will pay all the compensation plans, policies, and programscosts of the Corporation in which thesoliciting these proxies. In addition, our directors and executive officers participate,employees may solicit proxies in person or by telephone or email. We will pay these employees and directors no additional compensation for these services. We will ask banks, brokers and other institutions, nominees and fiduciaries to forward these proxy materials to their principals and to obtain authority to execute proxies. We will then reimburse them for their expenses. We have engaged Alliance Advisors LLC (“Alliance”) to advise us on the solicitation of proxies and to manage the production and distribution of this proxy statement. We expect to pay Alliance approximately $43,000 for their services, plus reimbursement for certain other incentive and equity plans in which all other employeesout-of-pocket expenses incurred by Alliance.
of the Corporation participate. The Compensation Committee held one meetingIf you have any questions or require any assistance in 2020. Other Compensation Committee matters were addressed during meetings of the full Board of Directors.voting your shares, please contact:
The Compensation Committee typically meets at least two times each year in connection with the consideration and determination of executive compensation. Depending on the nature of the matter to be discussed, these meetings may occur at regularly scheduled times or may be special meetings. Specific agenda items are typically determined by the members of the Compensation Committee and our Chief Executive Officer. The Compensation Committee has the authority to determine all compensation payable to our executive officers. For annual and other compensation decisions, our Chief Executive Officer typically provides detailed information to the Compensation Committee regarding the performance of our executive officers, to the extent relevant, and makes detailed recommendations to the Compensation Committee regarding the compensation of all executive officers, excluding his own. The Compensation Committee also considers the result of the most recent shareholder advisory vote on executive compensation. The Compensation Committee ultimately made all determinations regarding compensation payable to our executive officers throughout the year.Alliance Advisors
The Compensation Committee typically utilizes an incentive compensation plan for management. This plan employs quantitative metrics established early in the fiscal year in developing a corporate performance rating. The Compensation Committee has established a process for annual assessment of corporate performance which is the foundation for decisions regarding bonus payments to executive officers. Metrics are established following approval by the Board of Directors of the annual operating budget. These are monitored quarterly during the year and assessed after the end of the year. The Compensation Committee evaluates performance against these metrics and applies judgment in arriving at an overall corporate performance rating or “factor”. In concept, the management bonus pool is activated by achievement of a single threshold or “gating” metric. Following activation, value is then created within the pool by achievement toward specific performance metrics. During 2020, as the Company continued to focus on restructuring the business for sustainability and future growth, the Compensation Committee did not establish incentive compensation goals and did not create a 2020 management bonus pool.200 Broadacres Drive, 3rd Floor
Bloomfield, NJ 07003
The Compensation Committee has the authority to directly retain the services of independent consultants and other experts to assist in fulfilling its responsibilities. The Compensation Committee relied upon informal inquiries of the Corporation’s Human Resources Consultant with respect to 2020 salaries and equity awards, bonus opportunities and bonus determinations.Toll-Free: 877-777-5603
The Compensation Committee also typically reviews our director compensation on at least an annual basis. Our Chief Executive Officer may make recommendations to the Compensation Committee regarding director compensation.E-mail: NURO@AllianceAdvisors.com
Nominating and Corporate Governance Committee
Our Board of Directors currently has a Nominating and Corporate Governance Committee consisting of Mr. Van Avermaete and Ms. Katz. Mr. Van Avermaete and Ms. Katz are “independent directors” as that term is defined in the Nasdaq rules. The Nominating and Corporate Governance Committee operates pursuant to a charter that was approved by our Board of Directors, a current copy of which is available on our website at https://www.neurometrix.com under the heading “Investor Relations” and subheading “Corporate Governance”. The role and responsibilities of our Nominating and Corporate Governance Committee are set forth in the Nominating and Corporate Governance Committee’s written charter and include, among other functions, providing leadership in shaping the corporate governance of the Corporation, leading the Board of Directors in its annual review of the Board’s performance, assisting the Board by identifying individuals, consistent with the Board’s criteria, who are qualified to become Board members, recommending to the Board the director nominees for the next annual meeting
of shareholders or for filling newly created directorships resulting from an increase in the size of the Board or vacancies, and recommending to the Board director nominees for each committee. The Nominating and Corporate Governance Committee did not meet separately during 2020. Nominating and Corporate Governance Committee matters were addressed during meetings of the full Board of Directors.
Policy Governing Director Attendance at Annual Meetings
The Board of Directors has adopted a policy that all directors are expected to attend our annual meetings of stockholders in person, unless doing so is impracticable due to unavoidable conflicts. All of our current directors in office at the time of the 2020 Annual Meeting of Stockholders were in attendance in person or via conference call.
Policies Governing Director Nominations
Securityholder Recommendations
The Nominating and Corporate Governance Committee’s current policy with regard to the consideration of director candidates recommended by securityholders is that it will review and consider any director candidates who have been recommended by one or more of our stockholders entitled to vote in the election of directors in compliance with the procedures established from time to time by the Nominating and Corporate Governance Committee. All securityholder recommendations for director candidates must be submitted to our Secretary at 4B Gill Street, Woburn, Massachusetts 01801, who will forward all recommendations to the Nominating and Corporate Governance Committee. All securityholder recommendations for director candidates for our 2022 annual meeting of stockholders must be submitted to our Secretary on or before November 15, 2021 and must include the following information:
1.the name and address of record of the stockholder;
2.a representation that the securityholder is a record holder of our stock entitled to vote in the election of directors, or if the securityholder is not a record holder, evidence of ownership in accordance with Rule 14a-8(b)(2) under the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”);
3.the name, age, business and residential address, educational background, current principal occupation or employment, and principal occupation or employment for the preceding five (5) full fiscal years of the proposed director candidate;
4.the names of other public companies in which such person holds or has held directorships during the past five years;
5.a description of the qualifications and background of the proposed director candidate which addresses the minimum qualifications and other criteria for Board membership approved by the Board of Directors from time to time;
6.a description of all arrangements or understandings between the securityholder and the proposed director candidate;
7.the consent of the proposed director candidate (1) to be named in the proxy statement relating to our annual meeting of stockholders and (2) to serve as a director if elected at such annual meeting; and
8.any other information regarding the proposed director candidate that is required to be included in a proxy statement filed pursuant to the rules of the Securities and Exchange Commission.
Board Membership Criteria
The Nominating and Corporate Governance Committee has established criteria for Board membership. These criteria include the following specific, minimum qualifications that the Nominating and Corporate Governance Committee believes must be met by a Nominating and Corporate Governance Committee-recommended nominee for a position on the Board of Directors. The nominee must have high personal and
professional integrity, must have demonstrated exceptional ability and judgment, and must be expected, in the judgment of the Nominating and Corporate Governance Committee, to be highly effective, in conjunction with the other nominees to the Board of Directors, in collectively serving the interests of our company and stockholders. In addition to the minimum qualifications for each nominee set forth above, the Nominating and Corporate Governance Committee will recommend that the Board of Directors select persons for nomination to help ensure that:
1.the Board of Directors will be comprised of a majority of “independent directors” in accordance with the Nasdaq rules;
2.each of our Audit, Compensation, and Nominating and Corporate Governance Committees shall be comprised entirely of independent directors;
3.each member of our Audit Committee is able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement; and
4.at least one member of the Audit Committee has past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer, or other senior officer with financial oversight responsibilities.
Finally, in addition to any other standards the Nominating and Corporate Governance Committee may deem appropriate from time to time for the overall structure and composition of the Board of Directors, the Nominating and Corporate Governance Committee, when recommending that the Board of Directors select persons for nomination, may consider diversity among its members and whether the nominee has direct experience in the industry or in the markets in which we operate. The Nominating and Corporate Governance Committee strives where appropriate to achieve a diverse balance of professional expertise and backgrounds, including expertise in finance, operations, and strategy and backgrounds in health care, medical devices, and other industries.
The Nominating and Corporate Governance Committee will recommend to the Board of Directors the nomination of the director candidates who it believes will, together with the existing Board members and other nominees, best serve our interests and the interests of our stockholders.
Identifying and Evaluating Nominees
The Nominating and Corporate Governance Committee may solicit recommendations for director nominees from any or all of the following sources: non-management directors, the Chief Executive Officer, other executive officers, third-party search firms, or any other source it deems appropriate. The Nominating and Corporate Governance Committee will review and evaluate the qualifications of any proposed director candidate that it is considering or that has been recommended to it by a securityholder in compliance with the Nominating and Corporate Governance Committee’s procedures for that purpose, and conduct inquiries it deems appropriate into the background of these proposed director candidates. In identifying and evaluating proposed director candidates, the Nominating and Corporate Governance Committee may consider, in addition to the minimum qualifications and other criteria for Board membership approved by the Nominating and Corporate Governance Committee from time to time, all facts and circumstances that it deems appropriate or advisable, including, among other things, the skills of each proposed director candidate, his or her depth and breadth of business experience or other background characteristics, his or her independence and the needs of the Board of Directors. Based on these considerations, the Nominating and Corporate Governance Committee will recommend to the Board of Directors the nomination of the director candidates who it believes will, together with the existing Board members and other nominees, best serve the interests of our company and stockholders. The Nominating and Corporate Governance Committee will evaluate proposed director candidates who have been recommended by securityholders in compliance with the policies and procedures established by the Nominating and Corporate Governance Committee in the same manner as all other
proposed director candidates being considered by the Nominating and Corporate Governance Committee, with no regard to the source of the initial recommendation of such proposed director candidate.
Board Leadership Structure
The positions of chairman of the Board and chief executive officer of the Corporation have historically been combined, and Dr. Gozani currently holds both positions. We believe this Board leadership structure is appropriate because of the efficiencies achieved in having the role of chief executive officer and chairman combined, and because the detailed knowledge of our day-to-day operations and business that the chief executive officer possesses greatly enhances the decision-making processes of the Board of Directors as a whole. We have a strong governance structure in place, including independent directors, to ensure the powers and duties of the dual role are handled responsibly. Furthermore, consistent with Nasdaq listing requirements, the independent directors regularly have the opportunity to meet in executive sessions without Dr. Gozani in attendance. We do not have a lead independent director.
Board’s Role in Risk Oversight
Management is responsible for managing the risks that we face. The Board of Directors is responsible for overseeing management’s approach to risk management that is designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance stockholder value. The involvement of the full Board in reviewing our strategic objectives and plans is a key part of the Board’s assessment of management’s approach and tolerance to risk. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for us. In setting our business strategy, our Board assesses the various risks being mitigated by management and determines what constitutes an appropriate level of risk for us. Our Board’s role in risk oversight has not, to date, had any effect on the Board’s leadership structure.
While the Board of Directors has ultimate oversight responsibility for overseeing management’s risk management process, the Audit Committee and Compensation Committee assist the Board of Directors in fulfilling that responsibility. The Audit Committee assists the Board of Directors in its oversight of risk management in the areas of financial reporting, internal controls, and compliance with legal and regulatory requirements, and the Compensation Committee assists the Board of Directors in its oversight of the evaluation and management of risks related to our compensation policies and practices.
Communications with the Board
If you wish to communicate with any of our directors or the Board of Directors as a group, you may do so by writing to them at Name(s) of Director(s)/Board of Directors of NeuroMetrix, Inc., c/o Secretary, NeuroMetrix, Inc., 4B Gill Street, Woburn, Massachusetts 01801.
We recommend that all correspondence be sent via certified U.S. Mail, return receipt requested. All correspondence received by the Secretary will be forwarded by the Secretary promptly to the addressee(s).
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions. A current copy of the Code of Business Conduct and Ethics is available on our website at https://www.neurometrix.com under the heading “Investor Relations” and subheading “Corporate Governance,” and we intend to disclose on this website any amendment to, or waiver of, any provision of the Code of Business Conduct and Ethics applicable to our directors or executive officers that would otherwise be required to be disclosed under SEC rules or, to the extent permitted, by Nasdaq rules. A current copy of the Code of
Business Conduct and Ethics may also be obtained, without charge, upon written request directed to us at: NeuroMetrix, Inc., 4B Gill Street, Woburn, Massachusetts 01801, Attention: Compliance Officer.
PROPOSAL 1: ELECTION OF DIRECTORS
Introduction
We have two Class II directors with terms expiring at our 2020 Annual Meeting of Stockholders: Shai N. Gozani, M.D., Ph.D. and David Van Avermaete. Our Board of Directors has nominated and recommends that Shai N. Gozani, M.D., Ph.D. and David Van Avermaete be re-elected as Class II directors, to hold office until our 2024 annual meeting of stockholders and until their respective successors are duly elected and qualified or until their earlier death, resignation or removal. Dr. Gozani and Mr. Van Avermaete have indicated their willingness to serve, if elected; however, should either nominee become unable or unwilling to serve, the proxies will be voted for the election of a substitute nominee recommended by our Board of Directors.
Vote Required
Directors are elected by a plurality of the votes cast by stockholders entitled to vote. This means that the person receiving the highest number of “FOR” votes will be elected as director. Votes may be cast for or withheld from a nominee. Broker non-votes and votes that are withheld are not included in the number of votes cast and will have no effect on the outcome of the election of the nominees.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE NOMINEES, Shai N. Gozani, M.D., Ph.D. and David Van Avermaete, AND PROPERLY AUTHORIZED PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED “FOR” THE NOMINEES UNLESS INSTRUCTIONS TO WITHHOLD OR TO THE CONTRARY ARE GIVEN.
Information Regarding the Directors and Executive Officers
The following table and biographical descriptions set forth certain information with respect to each continuing director who is not standing for election, and the executive officers who are not directors, based on information furnished to us by the directors, and executive officers, as of March 1, 2021.
| | | | | | | | | | | | | | |
Name | | Age | | Position |
Shai N. Gozani, M.D., Ph.D. | | 56 | | Chairman of the Board, Chief Executive Officer, President and Secretary |
Thomas T. Higgins | | 69 | | Senior Vice President, Chief Financial Officer and Treasurer |
David E. Goodman, M.D. (1) (2)
| | 64 | | Director |
Nancy E. Katz (1) (3)
| | 61 | | Director |
David Van Avermaete (1) (2) (3)
| | 69 | | Director |
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Nominating and Corporate Governance Committee.
Directors Nominated for Election at the Annual Meeting
Shai N. Gozani, M.D., Ph.D. founded our company in 1996 and currently serves as Chairman of our Board of Directors and as our President, Chief Executive Officer and Secretary. Since founding our company in 1996, Dr.
Gozani has served in a number of positions at our company including Chairman since 1996, President from 1996 to 1998 and from 2002 to the present, Chief Executive Officer since 1997 and Secretary since July 2008. Dr. Gozani holds a B.A. in computer science, an M.S. in Biomedical Engineering and a Ph.D. in Neurobiology, from the University of California, Berkeley. He also received an M.D. from Harvard Medical School and the Harvard-M.I.T. Division of Health Sciences at M.I.T. Prior to forming our company, Dr. Gozani completed a neurophysiology research fellowship in the laboratory of Dr. Gerald Fischbach at Harvard Medical School. Dr. Gozani has published articles in the areas of basic and clinical neurophysiology, biomedical engineering and computational chemistry. The Board has concluded that Dr. Gozani should serve as a director because Dr. Gozani’s extensive knowledge of engineering and neurophysiology, combined with the unique understanding of our technology and business he has gained as our founder and as a key executive, provides invaluable insight to our Board and to the entire organization.
David Van Avermaete has served as a member of our Board of Directors since September 2013. Since January 2015, Mr. Van Avermaete has served as President of Inject Safe Technologies, a privately held company that has developed a bandage specifically designed to support injections. From April 2004 to February 2013, Mr. Van Avermaete served as Chief Executive Officer of VeraLight, Inc., a medical device company he founded, that focuses on non-invasive screening for type 2 diabetes. From 2000 to 2004, Mr. Van Avermaete served as Senior Vice President Non-Invasive Technology of InLight Solutions, a Johnson & Johnson company focused on transformational technology in the diabetes field. From 1998 to 2000, Mr. Van Avermaete served as U.S. President of the LifeScan division of Johnson & Johnson and, from 1990 to 1998, in various senior level positions at LifeScan concentrating in sales and marketing. Previously, Mr. Van Avermaete served as Vice President Sales and Marketing at Biotope, Director of Marketing at Roche Diagnostics, and Director of Marketing and Sales at Syntex Medical Diagnostics. Mr. Van Avermaete received a Master of Business Administration and a Master of Science Degree in Microbiology from the University of Arizona and a Bachelor of Science Degree in medical technology and chemistry from Ball State University. The Board has concluded that Mr. Van Avermaete should serve as a director because his executive level experience in the medical device and diabetes field, as well as in entrepreneurial ventures, provides the Board with a valuable perspective in commercializing medical device products.
Directors Whose Terms Extend Beyond the Annual Meeting
David E. Goodman, M.D., M.S.E. has served as a member of our Board of Directors since June 2004. Since 2013, Dr. Goodman has been running his own independent primary care medical practice where he also manages the care of first responders (police, fire, EMS) injured in the line of duty. From 2013-2016, Dr. Goodman has served as CEO of FeetFirst, a technology-focused healthcare services company he co-founded that is committed to preventing the devastating and expensive microvascular complications of diabetes. From 2014 - 2016, Dr. Goodman served as a director of Xtant Medical (OTC QX: BONE), a comprehensive supplier of orthopedic and spine surgery products. From 2012 – 2015, Dr. Goodman served as CMO of FirstVitals, a healthcare services company focused on wellness and prevention. Since 2011, Dr. Goodman has also served as an independent consultant. During 2010, Dr. Goodman served as President and Chief Executive Officer of SEDline, Inc., a research-focused company with the mission to expand the scope and applications for neuromonitoring. From 2008 to 2009, Dr. Goodman served as Executive Vice President of Business Development for Masimo Corporation, a manufacturer of non-invasive patient monitors. From 2006 to 2008, Dr. Goodman served as an independent consultant providing product design, regulatory and analytical consulting services to medical device and biopharmaceutical companies and also served in this capacity from 2003 to 2004 and from 2001 to 2002. From 2005 to 2006, Dr. Goodman served as President and Chief Executive Officer of BaroSense, Inc., a medical device company focused on developing minimally invasive devices for the long-term treatment of obesity. From 2004 to 2005, Dr. Goodman served as President and Chief Executive Officer of Interventional Therapeutic Solutions, Inc., an implantable drug delivery systems company. From 2002 to 2003, Dr. Goodman served as Chairman, President and Chief Executive Officer of Pherin Pharmaceuticals, a pharmaceutical discovery and development company.
From 1994 to 2001, Dr. Goodman held various positions, including Chief Executive Officer, Chief Medical Officer and director, for LifeMasters Supported SelfCare, Inc., a disease management services company that Dr. Goodman founded. Dr. Goodman also served as a director of Sound Surgical Technologies LLC, a private manufacturer of aesthetic surgical tools from 2011 until its acquisition by Solta Medical (Nasdaq:SLTM) in 2013. Dr. Goodman holds a B.A.S. in applied science and bioengineering and a M.S.E. in bioengineering from the University of Pennsylvania. He also received an M.D. from Harvard Medical School and the Harvard-M.I.T. Division of Health Sciences and Technology. Dr. Goodman holds 22 issued and pending patents and is a practicing physician with licenses in California and Hawaii. The Board has concluded that Dr. Goodman should serve as a director because Dr. Goodman’s medical and engineering background and his many years of executive experience in the medical device industry provide important experience and expertise to the Board.
Nancy E. Katz has served as a member of our Board of Directors since December 2010. From May 2011 to August 2014, Ms. Katz served as Vice President, Consumer Marketing at Medtronic, Inc., a medical technology company. From July 2005 to July 2010, Ms. Katz was Senior Vice President, Bayer Diabetes Care — North America. Prior to this position, she was President and Chief Executive Officer of Calypte Biomedical Corporation, a manufacturer of HIV diagnostics, President of Zila Pharmaceutical, Inc., a manufacturer of oral care products, and held senior marketing positions with the Lifescan division of Johnson & Johnson (blood glucose diabetes products), Schering-Plough Healthcare Products, and with American Home Products. Since October 2016, Ms. Katz has served on the Board of Directors of Cyanotech Corporation (Nasdaq: CYAN). She has previously served on the Boards of Directors of Neoprobe Corporation (AMEX: NEOP), Calypte Biomedical Corporation, LXN Corporation and Pepgen Corporation. She received a B.S. in business from the University of South Florida. The Board has concluded that Ms. Katz should serve as a director because her experience in diabetes care and marketing into the diabetes sector provides valuable insight to the Board and management in our diabetes strategy.
Executive Officers Who are Not Directors
Thomas T. Higgins has served as our Senior Vice President, Chief Financial Officer and Treasurer since September 2009. Prior to joining NeuroMetrix, from January 2005 to March 2008, Mr. Higgins was Executive Vice President and Chief Financial Officer at Caliper Life Sciences, Inc., a provider of technology and services for life sciences research. Before Caliper, Mr. Higgins was Executive Vice President, Operations and Chief Financial Officer at V.I. Technologies, Inc. (Vitex), a biotechnology company addressing blood safety. Before Vitex, Mr. Higgins served at Cabot Corporation in various senior finance and operations roles. His last position at Cabot was President of Distrigas of Massachusetts Corporation, a subsidiary involved in the liquefied natural gas business, and prior to that he was Vice President and General Manager of Cabot’s Asia Pacific carbon black operations. Before joining Cabot, Mr. Higgins was with PricewaterhouseCoopers where he started his career. Mr. Higgins holds a BBA with honors from Boston University.
DIRECTORS’ COMPENSATION
As of December 31, 2020, the non-employee members of our Board of Directors were entitled to receive annual cash compensation in the amount of $15,000 for service as a member of our Board of Directors, which is paid in four quarterly installments. In addition, these non-employee directors were entitled to receive $2,000 for each board or committee meeting that they attend, provided that they are not entitled to additional compensation for attending committee meetings that occur on the same day as a board meeting which they attend. This cash compensation is in addition to any stock options or other equity compensation that we determine to grant to our directors. Dr. Gozani, the only member of our Board of Directors who is also an employee, is not separately compensated for his service on our Board of Directors.
In addition to the compensation described above, we reimburse all non-employee directors for their reasonable out-of-pocket expenses incurred in attending meetings of our Board of Directors or any committees thereof.
The following table shows compensation information with respect to services rendered to us in all capacities during the fiscal year ended December 31, 2020 for each non-employee member of the Board of Directors.
Director Compensation Table — 2020
| | | | | | | | | | | | | | | | | | | | |
| Name | | Fees Earned or Paid in Cash ($) | | Option Awards ($) | | Total Compensation ($) |
David E. Goodman, M.D. (1) | | 38,750 | | — | | 38,750 |
Nancy E. Katz (2) | | 33,000 | | — | | 33,000 |
Timothy R. Surgenor (3) | | 9,750 | | — | | 9,750 |
David Van Avermaete (4) | | 31,000 | | — | | 31,00 |
(1) As of December 31, 2020, Dr. Goodman held options to purchase 1,692 shares of common stock, 1,488 of which were vested.
(2) As of December 31, 2020, Ms. Katz held options to purchase 1,692 shares of common stock, 1,488 of which were vested.
(3) Mr. Surgenor’s term as a director expired on April 28, 2020. As of December 31, 2020, Mr. Surgenor held no options to purchase shares of common stock.
(4) As of December 31, 2020, Mr. Van Avermaete held options to purchase 1,723 shares of common stock, 1,519 of which were vested.
COMPENSATION OF EXECUTIVE OFFICERS
Summary of Executive Compensation
The following table sets forth the total compensation paid or accrued during the fiscal years ended December 31, 2020 and 2019 to (i) our Chief Executive Officer, and (ii) our next most highly compensated executive officer who earned more than $100,000 during the fiscal year ended December 31, 2020 and served as executive officer as of such date (we refer to these individuals as the “named executive officers”). As of December 31, 2020, we had one executive officer in addition to our Chief Executive Officer:
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Option Awards (1) ($) | | All Other Compensation ($) | | Total ($) |
Shai N. Gozani, M.D. Ph.D. Chairman of the Board, Chief Executive Officer, President and Secretary | | 2020 | | 35,779 | | — | | 145,634 | | — | | 181,413 |
2019
| 422,200 | — | 352,830 | — | 775,030 |
Thomas T. Higgins Senior Vice President, Chief Financial Officer and Treasurer | | 2020 | | 150,000 | | — | | 87,380 | | — | | 237,380 |
| 2019 | 325,000 | — | 176,415 | — | 501,415 |
(1)These amounts include the aggregate grant date fair value for option awards granted during fiscal years 2020 and 2019 computed in accordance with FASB ASC Topic 718. The amount of each grant is set forth below under “Discussion of Summary Compensation Table — Long-Term Incentive Compensation.” A discussion of the assumptions used in determining grant date fair value may be found in Note 3 to our Financial Statements, included in our Annual Report on Form 10-K for fiscal year 2020.
Discussion of Summary Compensation Table
The compensation paid to the named executive officers may include salary, cash incentive compensation, and equity incentive compensation. The terms of employment agreements that we have entered into with our named executive officers are described below under “Employment Agreements and Potential Payments upon Termination or Change-in-Control.”
Cash Compensation
We pay our executive officers a base salary which we review and determine annually. On December 29, 2019, the Compensation Committee approved a grant of stock options and a reduction in cash compensation for certain of our executive officers. Accordingly, for 2020, the base salaries for our executive officers were Dr. Gozani —$35,779 and Mr. Higgins —$150,000. On December 30, 2020, the Compensation Committee approved new employment agreements for our named executive officers. Effective as of January 1, 2021, Dr. Gozani’s annual base salary of $415,000 will be paid in a combination of cash and either shares of the common stock or stock options.
During 2021, Dr. Gozani’s cash compensation will be at the amount required to meet employment standards of the Commonwealth of Massachusetts and the employee’s share of medical and other insurance benefits. These are currently estimated to total approximately $35,000. Equity compensation will provide the remainder of Dr. Gozani’s base salary, in the approximate amount of $380,000, valued based on a Black-Scholes pricing model. Mr. Higgins’ annual base salary of $325,000 will be paid in a combination of cash and either shares of common stock or stock options. During 2021, Mr. Higgins’ cash compensation will be $200,000 and equity compensation will provide the remainder of his base salary, in the amount of $125,000, valued based on a Black-Scholes pricing model.
Bonus Payments
In 2020, each executive officer had an annual bonus target which is expressed as a percentage of base salary. For 2020, executive officer bonus targets as a percentage of base salary were as follows: Dr. Gozani — 62.5% and Mr. Higgins — 50%.
The Compensation Committee has established a process for annual assessment of corporate performance which is the foundation for decisions regarding bonus payments to executive officers. Metrics are established following approval by the Board of Directors of the annual operating budget. These are monitored quarterly during the year and assessed after the end of the year. The Compensation Committee evaluates performance against these metrics and applies judgment in arriving at an overall corporate performance rating or “factor”. In concept, the management bonus pool is activated by achievement of a single threshold or “gating” metric. Following activation, value is then created within the pool by achievement toward specific performance metrics. During 2020, as the Company continued to focus on restructuring the business for sustainability and future growth, the Compensation Committee did not establish incentive compensation goals and did not create a 2020 management bonus pool.
Long-Term Incentive Compensation
We grant long-term equity incentive awards in the form of stock options and restricted shares to executives as part of our total compensation package. On December 29, 2019, the Compensation Committee approved a reduction in cash compensation and a grant of stock options to certain of our executive officers under our 2004 Stock Plan in the following amounts: Dr. Gozani — 100,000 options; and Mr. Higgins — 50,000 options. These stock options expire on December 29, 2029 and vest quarterly over one year from the date of grant. On October 27, 2020, the Compensation Committee approved a grant of stock options to our executive officers under our 2004 Stock Plan in the following amounts: Dr. Gozani — 125,000 options; and Mr. Higgins — 75,000 options. These stock options expire on October 27, 2030 and vest quarterly over one year from the date of grant.
On December 30, 2020, the Compensation Committee approved new employment agreements for our named executive officers. Effective as of January 1, 2021, Dr. Gozani’s annual base salary of $415,000 will be paid in a combination of cash and either shares of the common stock or stock options. During 2021, Dr. Gozani’s cash compensation will be at the amount required to meet employment standards of the Commonwealth of Massachusetts and the employee’s share of medical and other insurance benefits. These are currently estimated to total approximately $35,000. Equity compensation will provide the remainder of Dr. Gozani’s base salary, in the approximate amount of $380,000, valued based on a Black-Scholes pricing model. Mr. Higgins’ annual base salary of $325,000 will be paid in a combination of cash and either shares of common stock or stock options. During 2021, Mr. Higgins’ cash compensation will be $200,000 and equity compensation will provide the remainder of his base salary, in the amount of $125,000, valued based on a Black-Scholes pricing model.
Generally, to the extent vested, each stock option is exercisable during the term of the option while the grantee is employed by us and for a period of three months thereafter, unless such termination is upon death or disability, in which case the grantee may continue to exercise the option for a period of 12 months, or for cause, in
which case the option terminates immediately. Vesting of stock options is also subject to acceleration in some certain circumstances in connection with a change-in-control as described below in “Employment Agreements and Potential Payments upon Termination or Change-in-Control.”
Amended and Restated Management Retention and Incentive Plan
Our Board of Directors implemented the Amended and Restated Management Retention and Incentive Plan, or the MRIP, under which a portion of the consideration payable upon a change of control transaction, as defined in the MRIP, would be paid to our executive officers and certain other key employees. The MRIP was designed to retain these individuals during the critical, early commercialization phases of our diabetes and pain initiatives while providing management with an incentive to rapidly build corporate value potentially leading to a change of control transaction.
In the event of a change of control transaction, subject to the participant’s continued employment or service with us, the participant shall receive cash consideration equal to a fixed percentage of the value of the change of control transaction to be received by the Corporation or our stockholders, net of expenses.
Outstanding Equity Awards at Fiscal Year-End
The table below sets forth information with respect to our named executive officers concerning the outstanding equity awards as of December 31, 2020.
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| Option Awards |
| Number of Securities Underlying Unexercised Options | | Option Exercise Price ($) | | Option Expiration Date |
| Exercisable (#) | | Unexercisable (#) | |
| Shai N. Gozani, M.D., Ph.D. | — | | | 125,000 | | | (1 | ) | | $1.57 | | | 10/27/2030 |
| 100,000 | | | — | | | | | | $4.58 | | | 12/29/2029 |
| Thomas T. Higgins | — | | | 75,000 | | | (2 | ) | | $1.57 | | | 10/27/2030 |
| 50,000 | | | — | | | | | | $4.58 | | | 12/29/2029 |
(1)Reflects the unexercised portion of a stock option for 125,000 shares of common stock that was granted on October 27, 2020. The option vests quarterly until fully vested.
(2)Reflects the unexercised portion of a stock option for 75,000 shares of common stock that was granted on October 27, 2020. The option vests quarterly until fully vested.
Employment Agreements and Potential Payments upon Termination or Change-in-Control
Shai N. Gozani, M.D., Ph.D.
We entered into an employment agreement with Dr. Gozani, effective as of June 21, 2004, amended on December 31, 2008 and December 31, 2019. On December 30, 2020, the Compensation Committee approved a new employment agreement with Dr. Gozani, effective January 1, 2021. Dr. Gozani’s salary for 2019 was $422,200. In 2020, his salary was $35,779. In connection with the change to Dr. Gozani’s salary in 2020, he received a grant of options to purchase 125,000 shares of our common stock. Effective January 1, 2021, Dr. Gozani’s annual salary is $415,000, to be paid in 2021 as cash compensation in the amount required to meet employment standards of the
Commonwealth of Massachusetts and the employee share of medical and other insurance benefits, which are currently estimated to total approximately $35,000, and equity compensation as the remainder of his annual salary, in the approximate amount of $380,000, valued based on Black Scholes. In 2019, Dr. Gozani was eligible to receive an annual performance bonus of up to 62.5% of his annual salary if certain performance objectives, determined by Dr. Gozani and our Compensation Committee, were met. In 2020, Dr. Gozani was eligible to receive an annual performance bonus payable in stock. Effective January 1, 2021, Dr. Gozani is eligible to receive an annual performance bonus of up to 62.5% of his base salary, payable in cash or stock.
The employment agreement may be terminated by us with or without cause or by Dr. Gozani. Under the terms of the employment agreement in effect in 2019, if (1) we terminated Dr. Gozani for any reason other than willful non-performance of his duties under the employment agreement, intentional fraud or dishonesty with respect to our business or conviction of a felony, which we refer to as a termination without cause, or (2) Dr. Gozani resigned as a result of a reduction in his responsibilities with us, reduction in his status with us, reduction of his salary, relocation of our corporate offices more than 35 miles from their current location or breach by us of the employment agreement, which we refer to as a termination for good reason, Dr. Gozani would have been entitled to his full base salary at his then-current annual rate of pay, plus benefits and applicable bonus payments, through the date of his termination. In addition, in the event of such a termination, we would have continued to pay Dr. Gozani his then-current annual base salary for one year following the termination. Additionally, Dr. Gozani would have been entitled to his full annual cash performance bonus in the year that any of the following transactions occurred:
•a sale of substantially all of our assets;
•a merger or combination with another entity, unless the merger or combination does not result in a change in ownership of our voting securities of more than 50%; or
•the sale or transfer of more than 50% of our voting securities.
Effective January 1, 2020, if (1) we terminate Dr. Gozani for cause or if he resigns for other than good reason, Dr. Gozani will not be entitled to any separation benefits; (2) we terminate Dr. Gozani’s employment without cause other than within six months prior to or 12 months following a change in control of the Corporation or Dr. Gozani resigns for good reason, he will be entitled to receive separation benefits equal to his base salary of $415,000 and continuation of health benefits for a period of twelve months from the date of such termination; (3) we terminate Dr. Gozani’s employment within six months prior to or 12 months following a change in control of the Corporation or Dr. Gozani resigns for good reason, he will be entitled to the same benefits as described in (2) above, and in addition, we will accelerate his rights to exercise shares under any stock option grants; and (4) Dr. Gozani dies or becomes totally disabled, we will accelerate the rights of his representative to exercise shares under and stock option grants.
Thomas T. Higgins
We entered into an employment agreement with Mr. Higgins on October 27, 2014, amended December 31, 2019. On December 30, 2020, the Compensation Committee approved a new employment agreement with Mr. Higgins, effective January 1, 2021, which provides for our employment of Mr. Higgins as our Senior Vice President, Chief Financial Officer and Treasurer. In 2019, Mr. Higgins’ annual salary was $325,000. In 2020, Mr. Higgins’ annual salary was $150,000. In connection with the change to Mr. Higgins’ salary in 2020, he received a grant of options to purchase 50,000 shares of our common stock. Effective January 1, 2021, Mr. Higgins’ annual salary is $325,000, to be paid in 2021 as cash compensation in the amount of $200,000 and equity compensation in the amount of $125,000. In 2020, Mr. Higgins was eligible to receive an annual performance bonus, payable in stock, of up to 50% of his annual salary. Effective January 1, 2021, Mr. Higgins is eligible to receive an annual performance bonus of up to 50% of his base salary, payable in cash or stock.
Under the terms of his employment agreement, if (1) we terminate Mr. Higgins for cause or if he resigns for other than good reason, Mr. Higgins will not be entitled to any separation benefits; (2) we terminate Mr. Higgins’ employment without cause other than within six months prior to or 12 months following a change in control of the Corporation or Mr. Higgins resigns for good reason, he will be entitled to receive separation benefits equal to his base salary of $325,000 and continuation of health benefits for a period of twelve months from the date of such termination; (3) we terminate Mr. Higgins’ employment within six months prior to or 12 months following a change in control of the Corporation or Mr. Higgins resigns for good reason, he will be entitled to the same benefits as described in (2) above, and in addition, we will accelerate his rights to exercise shares under any stock option grants; and (4) Mr. Higgins dies or becomes totally disabled, we will accelerate the rights of his representative to exercise shares under and stock option grants. In connection with his employment agreement, Mr. Higgins executed a Confidentiality & Non-Compete Agreement with the Corporation.
Confidentiality and Non-Competition Agreements
Dr. Gozani and Mr. Higgins have each entered into a confidentiality and non-competition agreement with us, which provides for protection of our confidential information, assignment to us of intellectual property developed by the executive officer and non-compete and non-solicitation obligations that are effective during, and for 12 months following termination of, the executive officer’s employment.
2004 Stock Option and Incentive Plan
Under our 2004 Stock Plan, in the event of a merger, sale or dissolution of our company, or a similar “sale event,” all outstanding awards under our 2004 Stock Plan, unless otherwise provided for in a particular award, will terminate unless the parties to the transaction, in their discretion, provide for assumption, continuation or appropriate substitutions or adjustments of these awards. In the event that the outstanding awards under our 2004 Stock Plan terminate in connection with a sale event, all stock options and stock appreciation rights granted under our 2004 Stock Plan will automatically become fully exercisable and all other awards granted under our 2004 stock plan will become fully vested and non-forfeitable as of the effective time of the sale event. The administrator may also provide for a cash payment with respect to outstanding options and stock appreciation rights in exchange for the cancellation of such awards.
Hedging Policy
We do not have a hedging policy, but our code of conduct discourages short sales and trading in our stock on a short-term basis.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerningwith respect to the beneficial ownership as of March 1, 2021, except as noted below, of our common stock by:
1.eachas of August 28, 2023, for (a) our directors;
2.each ofdirectors, (b) our named executive officers;
3.all ofofficers, (c) our directors and executive officers and directors as a group;group, and
4. (d) each stockholder known byto us to beneficially own more than five percent of our common stock.
The number of common shares “beneficially owned” by each stockholder is determined under rules issued by the SEC regarding the beneficial ownership of securities. This information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership of common stock includes (1) any shares as to which the person or entity has sole or sharedshare voting power or investment power and (2) any shares as to which the person or entity has the right to acquire beneficial ownership within 60 days after March 1, 2021,August 28, 2023, including any shares that could be purchased by the exercise of options or warrants on or within 60 days after March 1, 2021.August 28, 2023. We deem shares of common stock that may be acquired by an individual or group within 60 days of March 1, 2021August 28, 2023, pursuant to the exercise of options or warrants to be outstanding for the purpose of computing the percentage ownership of such individual or group but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Each stockholder’s percentage ownership is based on 3,796,1478,585,019 shares of our common stock outstanding as of March 1, 2021August 28, 2023, plus the number of shares of common stock that may be acquired by such stockholder upon the exercise of options or warrants that are exercisable on or within 60 days after March 1, 2021.August 28, 2023.
Unless otherwise indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them based on information provided to us by these stockholders, except to the extent authority is shared by spouses under community property laws.
| | | Amount and Nature of Beneficial Ownership | | Percent of Class of Total | | | Amount and Nature of Beneficial Ownership | |
Name and Address(1) of Beneficial Owner | Name and Address(1) of Beneficial Owner | | Common Stock | | Options(2) | | Total | | | Name and Address (1) of Beneficial Owner | | Common Stock | | Options (2) | | Restricted Stock Units (3) | | Total | | Percent of Class of Total |
| Shai N. Gozani, M.D., Ph.D. | Shai N. Gozani, M.D., Ph.D. | | 24,630 | | 162,500 | | 187,130 | | 4.6 | % | Shai N. Gozani, M.D., Ph.D. | | 69,911 | | 396,014 | | - | | 465,925 | | 5.1% |
| Thomas T. Higgins | Thomas T. Higgins | | 8,344 | | 87,500 | | 95,844 | | 2.4 | % | Thomas T. Higgins | | 54,236 | | 75,000 | | - | | 129,236 | | 1.4% |
| David E. Goodman, M.D. | David E. Goodman, M.D. | | 3 | | 525 | | 528 | | * | David E. Goodman, M.D. | | 17,649 | | 5,692 | | - | | 23,341 | | * |
| Bradley Fluegel | | Bradley Fluegel | | 12,178 | | - | | 3,434 | | 15,612 | | * |
| Nancy E. Katz | Nancy E. Katz | | 3 | | 525 | | 528 | | * | Nancy E. Katz | | 17,649 | | 5,692 | | - | | 23,341 | | * |
| David Van Avermaete | David Van Avermaete | | — | | | 556 | __] | 556 | | * | David Van Avermaete | | 17,647 | | 5,692 | | - | | 23,339 | | * |
| All Current Directors and Executive Officers as a group (5 persons) | | 32,980 | | 251,606 | | 284,586 | | 7.0 | % | |
| All Current Directors and Executive Officers as a group (7 persons) | | All Current Directors and Executive Officers as a group (7 persons) | | 189,270 | | 488,090 | | 3,434 | | 680,794 | | 7.5% |
| | * Represents less than 1% of the outstanding shares of common stock | | * Represents less than 1% of the outstanding shares of common stock | | | | |
|
* Represents less than 1% of the outstanding shares of common stock.
(1) Unless otherwise indicated, the address of each stockholder is c/o NeuroMetrix, Inc., 4B4 Gill Street, Suite B, Woburn, Massachusetts 01801.
(2) Includes all options that are exercisable on or within 60 days from March 1, 2021August 28, 2023, by the beneficial owner, except as otherwise noted.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain aggregate information with respect to all of our equity compensation plans in effect as of December 31, 2020.
Equity Compensation Plan Information as of December 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted average exercise price of outstanding options, warrants and rights | | Number of Securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) |
| | (a) | | (b) | | (c) |
Equity compensation plans approved by security holders (1) | | 361,956 | | $ | 3.68 | | | 53,356 (2) |
Equity compensation plans not approved by security holders(3) | | — | | — | | 1,250 |
| Totals | | 361,956 | | $ | 3.68 | | | 54,606 |
(1) Includes information related to our Amended and Restated 1996 Stock Option/Restricted Stock Plan, Amended and Restated 1998 Equity Incentive Plan, 2004 Stock Option and Incentive Plan, and 2010 Employee Stock Purchase Plan.
(2) As of December 31, 2020, there were 53,356 shares available for future grant under the 2004 Stock Option and Incentive Plan and no shares available under the 2010 Employee Stock Purchase Plan. No new stock grants or awards will be made under the Amended and Restated 1996 Stock Option/Restricted Stock Plan or the Amended and Restated 1998 Equity Incentive Plan.
(3) Includes information related to our Amended and Restated 2009 Non-Qualified Inducement Stock Plan, which is designed to provide equity grants to new employees. Pursuant to this plan, we were authorized to issue Non-Qualified Stock Options, Restricted Stock Awards and Unrestricted Stock Awards.all restricted stock units that will vest on or within 60 days from August 28, 2023, by the beneficial owner, except as otherwise noted.
AUDIT COMMITTEE REPORT
The undersigned members of the Audit Committee of the Board of Directors, which consists entirely of directors who meet the independence requirements of the Nasdaq Marketplace Rules, submit this report in connection with the committee’s review of the financial reports for the fiscal year ended December 31, 2020 as follows:
1. The Audit Committee has reviewed and discussed with management and Moody, Famiglietti, and Andronico, LLP, our independent registered public accounting firm, the audited financial statements for the Corporation for the fiscal year ended December 31, 2020;
2. The Audit Committee has discussed with representatives of Moody, Famiglietti, and Andronico, LLP the matters required to be discussed with them in accordance with applicable auditing standards; and
3. The Audit Committee has received the written disclosures and the letter from Moody, Famiglietti, and Andronico, LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding Moody, Famiglietti, and Andronico, LLP’s communications with the audit committee concerning independence, and has discussed with Moody, Famiglietti, and Andronico, LLP their independence. The Audit Committee also considered the status of pending litigation, taxation matters, and other areas of oversight relating to the financial reporting and audit process that the committee determined appropriate.
In performing all of these functions, the Audit Committee acts in an oversight capacity. The Audit Committee’s roles and responsibilities are set forth in our charter adopted by the Board, which is available on our website at https://www.neurometrix.com. This committee reviews and reassesses our charter annually and recommends any changes to the Board for approval. The Audit Committee is responsible for overseeing our overall financial reporting process, and for the appointment, compensation, retention, and oversight of the work of Moody, Famiglietti, and Andronico, LLP. The Audit Committee reviews NeuroMetrix’s quarterly and annual reports on Form 10-Q and Form 10-K prior to filing with the SEC. In its oversight role, the Audit Committee relies on the work and assurances of NeuroMetrix’s management, which has the primary responsibility for establishing and maintaining adequate internal control over financial reporting, and for preparing the financial statements, and of Moody, Famiglietti, and Andronico, LLP, which is engaged to audit and report on the financial statements of NeuroMetrix.
Based on the Audit Committee’s review of the audited financial statements and discussions with management and Moody, Famiglietti, and Andronico, LLP, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in NeuroMetrix’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for filing with the SEC.
Respectfully submitted by the Audit Committee:
David E. Goodman, M.D., Chair
Nancy E. Katz
David Van Avermaete
PROPOSAL 2: APPROVAL OF A TWELFTH AMENDED AND RESTATED 2004 STOCK PLAN, WHICH RESERVES AN ADDITIONAL 500,000 SHARES OF COMMON STOCK FOR ISSUANCE, THEREBY INCREASING THE TOTAL RESERVED SHARES UNDER THE 2004 STOCK PLAN FROM 439,980 SHARES TO 939,980 SHARES1
REVERSE SPLIT PROPOSAL
General
Our Twelfth Amended and Restated 2004 Stock Option and Incentive Plan, herein referredAt the Special Meeting of Stockholders, holders of our common stock will be asked to asapprove the 2004 Stock Plan, currently authorizesReverse Split Proposal to amend the grantCertificate of Incorporation to effect (a) a reverse stock options and other stock-based awards to officers, employees, non-employee directors, consultants and prospective employeessplit of the Corporationissued and its subsidiaries. Currently, 439,980outstanding shares of common stock are reserved for issuance pursuant(such split to awards granted undercombine a number of outstanding shares of our common stock between 1- for-2 to 1-for-8, inclusive, such number consisting of only whole shares, into one share of common stock). The full text of the 2004 Stock Plan. Asproposed certificate of March 1, 2021, there were 47,281 shares available for future grant underamendment to our Certificate of Incorporation is attached to this proxy statement as Appendix A (the “certificate of amendment”) and the 2004 Stock Plan. description of the changes described in this proposal is qualified by reference to the proposed amendment. On February 23, 2021,August 28, 2023, the Board of Directors unanimously approved, recommended and declared it advisable that our stockholders approve the Twelfth Amended and Restated 2004 Stock Plan,amendment to the Certificate of Incorporation to, at the discretion of the Board of Directors, effect a reverse stock split as described herein. The proposed certificate of amendment attached as Appendix A is subject to stockholder approval, which increasesrevision for such changes as may be required by the aggregateDelaware General Corporation Law and any other changes consistent with this proposal that we may deem necessary or appropriate.
If approved by the stockholders and the Board of Directors determines to implement a reverse stock split, the reverse stock split would become effective at a time, and at a ratio, to be designated by the Board of Directors. The Board of Directors may effect only one reverse stock split as a result of this authorization. The Board of Directors’ decision as to whether and when to effect the reverse stock split and the applicable reverse stock split ratio will be based on a number of shares authorizedfactors, including market conditions, existing and expected trading prices for issuance underour common stock, the 2004 Stock Plan by 500,000 shares to 939,980number of outstanding shares of common stock, (the “Plan Amendment”).
Ourthe then-prevailing trading price and trading volume of our common stock and the anticipated impact of a reverse stock split on the trading market for our common stock and the continued listing requirements of The Nasdaq Capital Market. Even if the stockholders approve the reverse stock split, the Board of Directors reserves the Compensation Committee, and management believe thatright not to effect the effective use of stock-based short-term and long-term incentive compensation is vital to our ability to achieve strong performance inreverse stock split if the future. Also, as described previously in this Proxy Statement under “Compensation of Executive Officers”, our Board of Directors has executed employment agreements with our executive officers under terms of which a substantial part of their salary willdoes not deem it to be delivered in the form of common stock or options to purchase common stock of the Company. The Twelfth Amended and Restated 2004 Stock Plan will provide the common stock or options to purchase common stock to address executive officer salary, and it will maintain and enhance the key policies and practices adopted by our management and Board of Directors to align employee and stockholder interests. In addition, our future success depends, in large part, upon our ability to maintain a competitive position in attracting, retaining and motivating key personnel. There is currently an inadequate number of shares available in the 2004 Stock Plan for executive officer salary and for future grant of incentive compensation to expand management and employee ownership in the Company. We believe that the Plan Amendment set forth above is essential to executive officer retention and to permit our management to provide short-term and long-term, equity-based incentives to present and future key employees, consultants and directors. Accordingly, our Board of Directors believes approval of the Plan Amendment set forth above is in the best interests of us and our stockholders to effect the reverse stock split. The reverse stock split, if authorized pursuant to this resolution and recommendsif deemed by the Board of Directors to be in the best interests of us and our stockholders, will be effected, if at all, at a vote “FOR” the approvaltime that is not later than August 3, 2024 (360 days after receipt of the Twelfth Amended and Restated 2004 Stock Plan. InNasdaq notice of non-compliance with the event thatminimum closing bid price requirement).
If effected, the proposed amendment to our Certificate of Incorporation to effect the reverse stock split, as more fully described below, will effect the reverse stock split. As of the date of this isproxy statement, we do not approved by our stockholders,have any current arrangements or understandings relating to the 2004 Stock Plan will continue in effect withoutissuance of any additional shares of common stock following the amendment described above and executive officer salary will be funded in cash.reverse stock split.
Purpose of the Reverse Split Proposal
The Twelfth AmendedBoard of Directors has approved the Reverse Split Proposal and Restated 2004declared it advisable primarily for the following reasons:
•the Board of Directors believes that effecting the reverse stock split may be an effective means of regaining compliance with the bid price requirement for continued listing of our common stock on The Nasdaq Capital Market; and
•the Board of Directors believes that a higher stock price may help generate investor interest in us, including interest among institutional investors.
We cannot provide assurance that a reverse stock split would achieve its intended or desired benefits, and we strongly encourage you to review the discussion below in the section titled “Risks and Potential Disadvantages Associated with a Reverse Stock PlanSplit.” If the reverse stock split successfully increases the per share price of our common stock and facilitates the continued listing of our common stock on The Nasdaq Capital Market, as to which no assurance can be given, the Board of Directors believes this increase may facilitate future financings and enhance our ability to use our securities as consideration in commercial or strategic transactions.
Nasdaq Requirements for Continued Listing
Our common stock is being submitted to you for approval atlisted on The Nasdaq Capital Market under the annual meeting in order to ensure favorable federal income tax treatment for grants of incentive stock options under Section 422symbol “NURO.” One of the Internal Revenue Coderequirements for continued listing on Nasdaq is maintenance of 1986, as amended, or the Code. Approval by our stockholdersa minimum closing bid price of the Twelfth Amended and Restated 2004 Stock Plan is also required by Nasdaq rules.
$1.00. On March 1, 2021,August 28, 2023, the closing market price per share of our common stock was $3.50,$0.70, as reported by Nasdaq.
On August 8, 2024, we received a notice from the Staff indicating that, for the last 31 consecutive business days, the bid price of our common stock had closed below $1.00 per share as required for continued listing on The Nasdaq Capital Market.
Material Features ofMarket under Nasdaq Listing Rule 5550(a)(2). This notice has no immediate effect on our Nasdaq listing and we have 180 calendar days, or until February 5,2024, to regain compliance with the Twelfth Amended and Restated 2004 Stock Plan
The following description of certain material features of the Twelfth Amended and Restated 2004 Stock Plan is intended tominimum bid price requirement, which may be a summary only. This summary is qualified in its entirety by the full text of the Twelfth Amended and Restated 2004 Stock Plan that is attached hereto as Appendix A.extended for another 180-calendar day period if
Shares Available.approved by Nasdaq. As of the date hereof, we had not regained compliance with the minimum bid price requirement since the closing bid price of our common stock had not been at least $1.00 per share for a minimum of ten consecutive business days. To cure the deficiency, we may conduct the reverse stock split of our common stock for which we are seeking stockholder approval in this proxy statement.
If we do proceed with the reverse stock split for which we are seeking stockholder approval in this proposal, we cannot assure you that the price per share of our common stock will satisfy the requirements for continued listing of our common stock on The maximum number of shares authorized for issuance underNasdaq Capital Market in the Twelfth Amended and Restated 2004 Stock Planfuture or that we will be 939,980comply with the other continued listing requirements. If our common stock is delisted from the Nasdaq Capital Market, we expect our common stock would likely trade in the over-the-counter market.
If our shares of common stock which is an increase of 500,000 shares fromwere to trade on the numberover-the-counter market, selling our common stock could be more difficult because smaller quantities of shares currently authorized for issuance under the 2004 Stock Plan.
The shares underlying any awards that are forfeited, canceled or are otherwise terminated (other than by exercise) under the Twelfth Amendedwould likely be bought and Restated 2004 Stock Plan willsold, and transactions could be added back to the shares authorized for issuance under the Twelfth Amended and Restated 2004 Stock Plan. Shares tendered or held back upon exercise of an option or settlement of an award to cover the exercise price or tax withholding will not be available for future issuance under the Twelfth Amended and Restated 2004 Stock Plan.delayed. In addition, in the event our common stock is delisted, broker-dealers have certain regulatory burdens imposed upon exercisethem, which may discourage broker-dealers from effecting transactions in our common stock, further limiting the liquidity of our common stock. These factors could result in lower prices and larger spreads in the bid and ask prices for our common stock. A delisting from Nasdaq and continued or further declines in the price of our common stock appreciation rights,could also greatly impair our ability to raise additional necessary capital through equity or debt financing, and could significantly increase the gross numberownership dilution to stockholders caused by our issuing equity in financing or other transactions.
In light of shares exercised shall be deducted from the total number of shares remaining available for issuance under the Twelfth Amended and Restated 2004 Stock Plan.
Types of Awards. The Twelfth Amended and Restated 2004 Stock Plan permits us to make grants of incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights.
Plan Administration. The Twelfth Amended and Restated 2004 Stock Plan will be administered by the Compensation Committee offactors mentioned above, the Board of Directors. The administratorDirectors approved the reverse stock split as a potential means of increasing the share price of our common stock above $1.00 per share and of maintaining the share price of our common stock above $1.00 per share in compliance with Nasdaq requirements and deemed it advisable for stockholders to approve the Reverse Split Proposal.
Potential Increased Investor Interest
In approving the proposal authorizing the reverse stock split, the Board of Directors considered that our common stock may not appeal to brokerage firms that are reluctant to recommend lower priced securities to their clients. Investors may also be dissuaded from purchasing lower priced stocks because the brokerage commissions, as a percentage of the Twelfth Amendedtotal transaction, tend to be higher for such stocks. Moreover, the analysts at many brokerage firms do not monitor the trading activity or otherwise provide coverage of lower priced stocks.
Principal Effects of the Reverse Stock Split
If the stockholders approve the Reverse Split Proposal and Restated 2004 Stock Plan has the powerBoard of Directors determines to implement the reverse stock split, we will file the certificate of amendment.
Outstanding Shares of Common Stock
Upon effectiveness of the certificate of amendment (the “Effective Time”), a minimum of two and authoritya maximum of eight shares of issued and outstanding common stock immediately prior to select the participantsEffective Time and the shares of common stock issued and held in the treasury of the Company immediately prior to whom awardsthe Effective Time will be granted;combined into one new share of common stock. Notwithstanding the immediately preceding sentence, no fractional shares shall be issued as a result of the reverse stock split. The Company shall not be obliged to determineissue certificates evidencing the timeshares of common stock outstanding as a result of the reverse stock split or timescash in lieu of grant;fractional shares, if any, unless and until the certificates evidencing the shares held by a holder prior to determinethe reverse stock split are either delivered to the Company or its transfer agent, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates.
The reverse stock split will be effected simultaneously for all issued and outstanding shares of common stock, and the exchange ratio will be the same for all issued and outstanding shares of common stock. The reverse stock split will affect all of our stockholders uniformly and will not affect any stockholder’s percentage ownership interests in the Company, except to the extent if any,that, as described below in the section titled “Fractional Shares,” cash payments will be made in lieu of fractional shares. Common stock issued pursuant to which any award or anythe reverse stock split will remain fully paid and nonassessable. A reverse stock split may result in some stockholders owning “odd lots” of less than 100 shares of common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares.
By approving this amendment, stockholders will approve the combination of awards is granted to participants; to determine theany whole number of shares of common stock between and including two and eight into one share. The certificate of amendment to be covered by any award; to acceleratefiled with the exercisability or vestingSecretary of any award; and to determine the specific terms and conditions of each award, subject to the provisionsState of the Twelfth Amended and Restated 2004 Stock Plan. The administrator may delegateState of Delaware will include only that number determined by the Board of Directors to the Chief Executive Officer the authority to grant awards to employees, other than our executive officers, provided that the administrator includes a limitation as to the number of shares that may be awarded and provides specific guidelines regarding such awards.
Eligibility and Limitations on Grants. All full-time and part-time officers, employees, non-employee directors, and other key persons are eligible to participate in the Twelfth Amended and Restated 2004 Stock Plan subject to the discretionbest interests of the administrator. Approximately 20 people are currently eligible to participate in the Twelfth AmendedCompany and Restated 2004 Stock Plan.
Stock Options.its stockholders. The exercise priceBased on 8,585,019 shares of common stock options awarded under the Twelfth Amendedissued and Restated 2004 Stock Plan may not be less than the fair market valueoutstanding as of the common stock on the date of the option grant. The term of each stock option may not exceed ten years from the date of grant. The administrator will determine at what time or times each option may be exercised and, subject to the provisions of the Twelfth Amended and Restated 2004 Stock Plan, the period of time, if any, after retirement, death, disability or termination of employment during which options may be exercised.
To qualify as incentive stock options, stock options must meet additional federal tax requirements, includingRecord Date, immediately following a $100,000 limit on the value of shares subject to incentive stock options which first become exercisable in any one calendar year, and a shorter term and higher minimum exercise price in the case of certain large stockholders.
Stock Appreciation Rights. The administrator may award a stock appreciation right independently of a stock option. The administrator may award stock appreciation rights subject to such conditions and restrictions as the administrator may determine, provided that the exercise price may not be less than the fair market value of the common stock on the date of grant and no stock appreciation right may be exercisable more than ten years after the date of grant. Additionally, all stock appreciation rights are exercisable during the participant’s lifetime only by the participant or the participant’s legal representative.
Restricted Stock.reverse stock split we would have approximately 4,292,510 shares of common stock issued and outstanding (without giving effect to the treatment of fractional shares) if the ratio for a reverse stock split is 1-for-2, and 1,073,127 shares of common stock issued and outstanding (without giving effect to the treatment of fractional shares) if the ratio for a reverse stock split is 1-for-8. Any other ratio selected within such range would result in a number of shares of common stock issued and outstanding following the reverse stock split between approximately 1,073,127 and 4,292,510 shares. The administrator may awardactual number of shares of common stock issued and outstanding after giving effect to participantsa reverse stock split, if implemented, would depend on the reverse stock split ratio that is ultimately selected by the Board of Directors.
Authorized Shares of Common Stock
A reverse stock split would not have any effect on the number of authorized shares of common stock, which would stay as 25,000,000 authorized shares of common stock, or preferred stock, which would stay as 25,000 shares designated as Series A Junior Participating Cumulative Preferred Stock, par value $0.001 per share, 1,067 shares designated as Series A-1 Convertible Preferred Stock, par value $0.001 per share, 3,371 shares designated as Series A-2 Convertible Preferred Stock, par value $0.001 per share, 2,622 shares designated as Series A-3 Convertible Preferred Stock, par value $0.001 per share, 4,023 shares as Series A-4 Convertible Preferred Stock, par value $0.001 per share, 147,000 shares designated as Series B Convertible Preferred Stock, par value $0.001 per share, 13,800 shares designated as Series C Convertible Preferred Stock, par value $0.001 per share, 21,300 shares designated as Series D Convertible Preferred Stock, 7,000 shares designated as Series E Convertible Preferred Stock, 10,621 shares designated as Series F Convertible Preferred Stock, and 4,764,196 shares of undesignated preferred stock, par value $0.001 per share.
Exchange Act Registration; Nasdaq Listing; CUSIP
Our common stock is currently registered under Section 12(b) of the Exchange Act, and we are subject to such conditionsperiodic reporting and restrictions asother requirements of the administrator may determine. These conditions and restrictions may includeExchange Act. The implementation of a reverse stock split would not affect the achievementregistration of certain performance goals and/our common stock under the Exchange Act or continued employment withour reporting or other requirements under the Corporation throughExchange Act.
We are currently listed on The Nasdaq Capital Market under the trading symbol “NURO.” If our common stock remains listed on The Nasdaq Capital Market up to the time of a specified restricted period.
Deferred Stock.reverse stock split, then immediately following the reverse stock split our common stock would continue to be listed on The administrator may award phantom stock unitsNasdaq Capital Market under the “NURO” symbol, although it is likely that Nasdaq would add the letter “D” to participants subject to such conditions and restrictions as the administrator may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with the Corporation through a specified restricted period. At the end of the deferraltrading symbol for a period of 20 trading days after the participants shalleffective date of the reverse stock split to indicate that the reverse stock split had occurred.
Following a reverse stock split, our common stock would have a new Committee on Uniform Securities Identification Procedures (“CUSIP”) number, which is a number used to identify our equity securities, and stock certificates with the older CUSIP number will need to be paid,exchanged for stock certificates with the new CUSIP number by following the procedures described above.
Effects on Equity Compensation Plans and Awards and Convertible Securities
If a reverse stock split is implemented, proportionate adjustments would generally be required to be made with regard to:
•the extent vested, in shares.per share exercise price of, and the number of shares issuable upon exercise of, outstanding stock options issued under our equity compensation plans;
Unrestricted Stock.• The administrator may grantthe number of shares (at par valuedeliverable upon vesting and settlement of outstanding restricted stock and restricted stock unit awards;
•the number of shares reserved for issuance under our equity compensation plans; and
•the per share conversion price, and the number of shares issuable upon conversion of, outstanding convertible securities entitling the holders to purchase or for a purchase price determined byconvert into, or otherwise acquire shares of our common stock.
In the administrator) that are free from any restrictions under the Twelfth Amended and Restated 2004 Stock Plan. Unrestricted stock may be issued to participants in recognitioncase of past servicesoptions, convertible securities or other valid consideration,rights to acquire shares of our common stock, these adjustments would result in approximately the same aggregate price required under such options, convertible securities or other rights upon exercise, conversion, or settlement, and may be issued in lieuapproximately the same value of cash compensation to be paid to such individuals.
Cash-Based Awards. The administrator may grant cash-based awards to any grantee in an amount, upon such terms, and subject to such conditions as the administrator may determine. The administrator shall determine the maximum duration of the cash-based award, the amount of cash to which the cash-based award pertains, the conditions upon which the cash-based award shall become vested or payable, and such other provisions as the administrator shall determine. Each cash-based award shall specify a cash-denominated payment amount, formula or payment ranges as determined by the administrator. Payment, if any, with respect to a cash-based award may be made in cash or in shares of common stock being delivered upon such exercise, conversion, or settlement, immediately following a reverse stock split as was the administrator determines.case immediately preceding such reverse stock split.
Dividend Equivalent Rights.The administrator may award dividend equivalent rights under the Twelfth Amended and Restated 2004 Stock Plan subject to such conditions and restrictions as the administrator may determine, provided that dividend equivalent rights may only be granted in tandem with restricted stock awards, deferred stock awards or unrestricted stock awards. Dividend equivalents credited to the holder may be paid currently or may be deemed to be reinvested in additionalnumber of shares of common stock which may thereafter accrue additional equivalents. Any such reinvestment shall be at fair market value on the date of the reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by us, if any.
Tax Withholding. Participants in the Twelfth Amended and Restated 2004 Stock Plan are responsible for the payment of any federal, state or local taxes that the Corporation is required by law to withholdissuable upon any option exercise or vesting of other awards. Subject to approval byoutstanding equity awards and options and the administrator, participants may elect to have the minimum tax withholding obligations satisfied either by authorizing the Corporation to withhold shares to be issued pursuant to an option exercise or other award,purchase price related thereto, if any, would be equitably adjusted in accordance with the terms of our 2022 Equity Incentive Plan and our Employee Stock Purchase Plan, as applicable, or by transferringsuch stock option grants, as the case may be, which may include rounding the number of shares of common stock issuable down to the Corporationnearest whole share or the payment of cash for fractional shares.
As of the Record Date, we had 200 shares having a value equal to the amountof Series B Convertible Preferred Stock outstanding. The conversion price of such taxes.
Changeconvertible preferred stock will be adjusted by multiplying the then current conversion price by a fraction of Control Provisions. Inwhich the eventnumerator shall be the number of a merger, sale or dissolutionshares of Common Stock (excluding any treasury shares of the Corporation, or a similar “sale event,” (as defined inCompany) outstanding immediately before the Twelfth Amended and Restated 2004 Stock Plan) all outstanding awards under the Twelfth Amended and Restated 2004 Stock Plan unless otherwise provided for in a particular award, will terminate unless the parties to the transaction, in their discretion, provide for assumption, continuation or appropriate substitutions or adjustments of these awards. In the event that the outstanding awards under the Twelfth Amended and Restated 2004 Stock Plan terminate in connection with a sale event, all stock options and stock appreciation rights granted under the Twelfth Amended and Restated 2004 Stock Plan will automatically become fully exercisable and all other awards granted under the Twelfth Amended and Restated 2004 Stock Plan will become fully vested and non-forfeitable as of the effective time of the sale event, except as may be otherwise provided in the relevant award agreement, and each holder of an option or a stock appreciation right will be permitted to exercise such award for a specified period prior to the consummation of the sale event. The administrator may also provide for a cash payment with respect to outstanding options and stock appreciation rights in exchange for the cancellation of such awards.
Term. No awards mayEffective Time, and of which the denominator shall be granted under the Twelfth Amended and Restated 2004 Stock Plan after the 10year anniversary of the date that the 2004 Stock Plan is approved by stockholders and no incentive stock option may be granted after the 10year anniversary of the date that the 2004 Stock Plan was approved by the Board of Directors.
Amendments. The Twelfth Amended and Restated 2004 Stock Plan may not be amended without stockholder approval to the extent required by the Nasdaq rules or necessary to ensure that incentive stock options qualify as such under the Code and compensation earned under awards qualifies as performance-based compensation under the Code. Generally, under the Nasdaq rules, all material amendments to the Twelfth Amended and Restated 2004 Stock Plan will be subject to approval by our stockholders including (1) any material increase in the number of shares of Common Stock outstanding immediately after the Effective Time.
Risks and Potential Disadvantages Associated with a Reverse Stock Split
The Board of Directors believes that a reverse stock split is a potentially effective means to increase the per share market price of our common stock and thus enable us to regain compliance with Nasdaq’s minimum bid price requirement. However, there are a number of risks and potential disadvantages associated with a reverse stock split, including the following:
•The Board of Directors cannot predict the effect of a reverse stock split upon the market price for shares of our common stock, and the success of similar reverse stock splits for companies in like circumstances has varied. Some investors may have a negative view of a reverse stock split. Recently, the market price of our common stock has declined substantially, and the equity markets have experienced and continue to experience substantial volatility due to, among other factors, the war in Ukraine, dramatic interest rate increases, high levels of inflation and the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank in the first half of 2023. The principal purpose of a reverse stock split would be issued underto increase the Twelfth Amendedtrading price of our common stock to satisfy Nasdaq’s minimum bid price requirement. However, the effect of a reverse stock split on the market price of our common stock cannot be predicted with any certainty, and Restated 2004 Stock Plan; (2)we cannot assure you that a reverse stock split will accomplish this objective for any material increasemeaningful period of time, or at all. Even if a reverse stock split has a positive effect on the market price for shares of our common stock, performance of our business and financial results, general economic conditions and the market perception of our business, and other adverse factors which may not be in benefitsour control could lead to participants under the Twelfth Amended and Restated 2004 Stock Plan including any material change to: (i) permit a repricing (or decrease in exercise price) of outstanding stock options, (ii) reduce the price at which shares of our common stock orfollowing a reverse stock options may be offered, or (iii) extend the duration of the Twelfth Amended and Restated 2004 Stock Plan; (3) any material expansion of the class of participants eligible to participate in the Twelfth Amended and Restated 2004 Stock Plan; and (4) any expansion in the types of awards provided under the Twelfth Amended and Restated 2004 Stock Plan. Otherwise,split.
•Although the Board of Directors believes that a higher stock price may amendhelp generate the interest of new investors, the reverse stock split may not result in a per-share price that will successfully attract certain types of investors and such resulting share price may not satisfy the investing guidelines of institutional investors or discontinueinvestment funds. Further, other factors, such as our financial results, market conditions and the Twelfth Amended and Restated 2004 Stock Plan at any time, provided that no such amendmentmarket perception of our business, may adversely affect the rights under any outstanding award withoutinterest of new investors in the holder’s consent.
Repricing. Except in connection withshares of our common stock. As a corporate transaction involvingresult, the Corporation (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding awards may not be amended to reduce the exercise price of outstanding stock options or stock appreciation rights, or SARs, or cancel, exchange, buyout or surrender outstanding stock options or SARs in exchange for cash, other awards or stock options or SARs with an exercise price that is less than the exercise price of the original stock options or SARs without stockholder approval.
Effective Date of the Twelfth Amended and Restated 2004 Stock Plan. On February 23, 2021, the Board of Directors approved the Twelfth Amended and Restated 2004 Stock Plan, subject to stockholder approval. The Twelfth Amended and Restated 2004 Stock Plan will become effective on the date it is approved by the stockholders. If the Twelfth Amended and Restated 2004 Stock Plan is not approved by the stockholders, the 2004 Stock Plan will continue in effect without the amendments to the 2004 Stock Plan and awards may be granted thereunder in accordance with its terms.
New Plan Benefits
No grants have been issued with respect to the additional shares to be reserved for issuance under the Twelfth Amended and Restated 2004 Stock Plan. The number of shares that may be granted to the Corporation’s Chief Executive Officer, executive officers, non-employee directors and non-executive officers under the Twelfth Amended and Restated 2004 Stock Plan is not determinable at this time, as such grants are subject to the discretion of the Compensation Committee.
Tax Aspects Under the Code
The following is a summary of the principal federal income tax consequences of certain transactions under the Twelfth Amended and Restated 2004 Stock Plan. It does not describe all federal tax consequences under the Twelfth Amended and Restated 2004 Stock Plan nor does it describe state or local tax consequences.
Incentive Stock Options. Incentive stock options are intended to qualify for treatment under Section 422 of the Code. An incentive stock option does not result in taxable income to the optionee or deduction to us at the time it
is granted or exercised, provided that no disposition is made by the optioneetrading liquidity of the shares acquired pursuant to the option within two years after the date of grant of the option nor within one year after the date of issuance of shares to the optionee (referred to as the “ISO holding period”). However, the difference between the fair market value of the shares on the date of exercise and the option price will be an item of tax preference includible in “alternative minimum taxable income” of the optionee. Upon disposition of the shares after the expiration of the ISO holding period, the optionee will generally recognize long term capital gain or loss based on the difference between the disposition proceeds and the option price paid for the shares. If the shares are disposed of prior to the expiration of the ISO holding period, the optionee generally will recognize taxable compensation, and we will have a corresponding deduction, in the year of the disposition, equal to the excess of the fair market value of the shares on the date of exercise of the option over the option price. Any additional gain realized on the disposition will normally constitute capital gain. If the amount realized upon such a disqualifying disposition is less than fair market value of the shares on the date of exercise, the amount of compensation income will be limited to the excess of the amount realized over the optionee’s adjusted basis in the shares.
Non-Qualified Options. Options otherwise qualifying as incentiveour common stock options, to the extent the aggregate fair market value of shares with respect to which such options are first exercisable by an individual in any calendar year exceeds $100,000, and options designated as non-qualified options will be treated as options that aremay not incentive stock options.
A non-qualified option ordinarily will not result in income to the optionee or deduction to us at the time of grant. The optionee will recognize compensation income at the time of exercise of such non-qualified option in an amount equal to the excess of the then value of the shares over the option price per share. Such compensation income of optionees may be subject to withholding taxes, and a deduction may then be allowable to us in an amount equal to the optionee’s compensation income.
An optionee’s initial basis in shares so acquired will be the amount paid on exercise of the non-qualified option plus the amount of any corresponding compensation income. Any gain or lossimprove as a result of a subsequent disposition of the shares so acquiredreverse stock split and there can be no assurance that a reverse stock split, if completed, will be capital gain or loss.
Stock Grants. With respect to stock grants under our Twelfth Amended and Restated 2004 Stock Plan that result in the issuance of shares that are either not restricted as to transferability or not subject tointended benefits described above.
•Even if a substantial risk of forfeiture, the grantee must generally recognize ordinary income equal to the fair market value of shares received. Thus, deferral of the time of issuance will generallyreverse stock split does result in the deferral of the time the grantee will be liable for income taxes with respect to such issuance. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee.
With respect to stock grants involving the issuance of shares that are restricted as to transferability and subject to a substantial risk of forfeiture, the grantee must generally recognize ordinary income equal to the fair market value of the shares received at the first time the shares become transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier. A grantee may elect to be taxed at the time of receipt of shares rather than upon lapse of restrictions on transferability or substantial risk of forfeiture, but if the grantee subsequently forfeits such shares, the grantee would not be entitled to any tax deduction, including as a capital loss, for the value of the shares on which he previously paid tax. The grantee must file such election with the Internal Revenue Service within 30 days of the receipt of the shares. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee.
Stock Units. The grantee recognizes no income until the issuance of the shares. At that time, the grantee must generally recognize ordinary income equal to the fair market value of the shares received. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee.
Vote Required
The Twelfth Amended and Restated 2004 Stock Plan will be approved upon the affirmative vote of a majority of the votes properly cast for and against such matter. Abstentions and broker non-votes are not included in the number of votes cast for and against a matter and therefore have no effect on the vote on such matter.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE TWELFTH AMENDED AND RESTATED 2004 STOCK PLAN WHICH RESERVES AN ADDITIONAL 500,000 SHARES OF COMMON STOCK FOR ISSUANCE, THEREBY INCREASING THE TOTAL RESERVED SHARES UNDER THE 2004 STOCK PLAN FROM 439,980 SHARES TO 939,980 SHARES. PROPERLY AUTHORIZED PROXIES SOLICITED BY THE BOARD WILL BE VOTED ���FOR” THE TWELFTH AMENDED AND RESTATED 2004 STOCK PLAN UNLESS A STOCKHOLDER INDICATES OTHERWISE ON THE PROXY.
PROPOSAL 3: APPROVAL OF A FIFTH AMENDED AND RESTATED 2010 EMPLOYEE STOCK PURCHASE PLAN, WHICH RESERVES AN ADDITIONAL 150,000 SHARES OF COMMON STOCK FOR ISSUANCE UNDER THE FIFTH AMENDED AND RESTATED 2010 EMPLOYEE STOCK PURCHASE PLAN THEREBY INCREASING THE TOTAL RESERVED SHARES UNDER THE 2010 EMPLOYEE STOCK PURCHASE PLAN FROM 24,487 SHARES TO 174,487 SHARES, SUBJECT TO FURTHER ADJUSTMENT ANNUALLY AS PROVIDED THEREIN, AND RAISES THE PLAN’S ANNUAL INCREASE TO THE LESSER OF 50,000 SHARES OR 1% OF THE CORPORATION’S OUTSTANDING SHARES OF COMMON STOCK.
General
Our Fifth Amended and Restated 2010 Employee Stock Purchase Plan, herein referred to as the 2010 ESPP, currently provides our eligible employees and those of our participating subsidiaries with the opportunity to purchase shares of our common stock at a discount, on a tax-favored basis, through regular payroll deductions in compliance with Section 423 of the Code. Currently, 24,487 shares of common stock are reserved for issuance under the 2010 ESPP. As of March 1, 2021, there were 92 shares available under the 2010 ESPP. On February 23, 2021, the Board of Directors approved the Fifth Amended and Restated 2010 Employee Stock Purchase Plan, subject to stockholder approval, which increases the aggregate number of shares authorized for issuance under the 2010 ESPP by 150,000 shares to 174,487 shares of common stock and raises the plan’s annual increase to the lesser of 50,000 shares or 1% of our outstanding shares of common stock as of December 31 of each year (the “ESPP Amendment”).
Our Board of Directors has determined that in order to continue to allow participation in the 2010 ESPP as a means to attract and retain talented employees, the number of shares available for issuance under the 2010 ESPP should be increased. Our Board of Directors, the Compensation Committee, and management believe it is in the best interest of us and our stockholders that the ESPP Amendment be approved and recommends a vote “FOR” the approval of the Fifth Amended and Restated 2010 Employee Stock Purchase Plan. In the event that this is not approved by our stockholders, the 2010 ESPP will continue in effect without the amendment described above.
The Fifth Amended and Restated 2010 Employee Stock Purchase Plan is being submitted to you for approval at the annual meeting in order to increase the aggregate number of shares authorized for issuance under the 2010 ESPP by 150,000 shares to 174,487 shares of common stock. Approval by our stockholders of the Fifth Amended and Restated 2010 Employee Stock Purchase Plan is also required by Nasdaq rules.
On March 1, 2021, the closingincreased market price per share of our common stock, was $3.50, as reported by The Nasdaq Capital Market.
Summarythe market price per share following a reverse stock split may not increase in proportion to the reduction of the Fifth Amended and Restated 2010 ESPP
The following descriptionnumber of certain material features of the Fifth Amended and Restated 2010 Employee Stock Purchase Plan is intended to be a summary only. This summary is qualified in its entirety by the full text of the Fifth Amended and Restated 2010 Employee Stock Purchase Plan that is attached hereto as Appendix B.
Administration. The Fifth Amended and Restated 2010 ESPP is administered under the direction of the Compensation Committee of the Board of Directors. The Compensation Committee has authority to interpret the Fifth Amended and Restated 2010 ESPP and to make all other determinations necessary or advisable in administering it.
Eligibility. All full-time employees and certain part-time employees are eligible to participate in the Fifth Amended and Restated 2010 ESPP. For part-time employees to be eligible, they must have customary employment of more than five months in any calendar year and more than 20 hours per week. Employees who, after exercising their rights to purchase shares under the Fifth Amended and Restated 2010 ESPP, would own shares representing 5% or more of the voting power of our common stock outstanding before the implementation of a reverse stock split. Accordingly, even with an increased market price per share, the total market capitalization of shares of our common stock after a reverse stock split could be lower than the total market capitalization before a reverse stock split. Also, even if there is an initial increase in the market price per share of our common stock after a reverse stock split, the market price many not remain at that level due to factors described in this proposal or other factors, including the risks described in our Annual Report on Form 10-K for the year ended December 31, 2022, as updated in reports we subsequently file with the SEC.
•The market price of our common stock will also be based on our performance and other factors, some of which are also ineligibleunrelated to participate. Approximately 20the number of shares outstanding. If a reverse stock split is implemented and the market price of shares of our common stock then declines, the percentage decline may be greater than would occur in the absence of a reverse stock split due to decreased liquidity in the market for our common stock. If the market price of shares of our common stock declines after a reverse stock split, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of a reverse stock split. Accordingly, the total market capitalization of our common stock following a reverse stock split could be lower than the total market capitalization before a reverse stock split.
•Because we are not reducing the number of our common stock authorized under the Certificate of Incorporation, the proportion of shares owned by our stockholders relative to the number authorized for issuance would be reduced, increasing the potential of a dilutive issuance in the future.
Procedure for Effecting Reverse Stock Split and Exchange of Stock Certificates
If the Reverse Split Proposal is approved by our stockholders, the Board of Directors will continuously evaluate whether a reverse stock split is in the best interests of the Company and its stockholders. If the Board of Directors determines, in its sole discretion, that implementing a reverse stock split would be in the best interests of the Company and its stockholders, it will determine the ratio of the reverse stock split to be implemented and will authorize the filing of the certificate of amendment with the Secretary of State of the State of Delaware at such time as the Board of Directors has determined the appropriate effective time for the reverse stock split. The Board of Directors may delay effecting the reverse stock split, if at all, until a time that is not later than August 3, 2024 (360 days after receipt of the Nasdaq notice of non-compliance with the minimum closing bid price requirement), without re-soliciting stockholder approval. The reverse stock split, at the ratio determined by the Board of Directors, will become effective on the date of filing of the certificate of amendment with the Secretary of State of the State of Delaware.
employees
Book-Entry Shares
If the reverse stock split is effected, stockholders who hold uncertificated shares (i.e., shares held in book-entry form and not represented by a physical stock certificate), either as direct or beneficial owners, will have their holdings electronically adjusted automatically by our transfer agent (and, for beneficial owners, by their brokers or banks that hold in “street name” for their benefit, as the case may be) to give effect to the reverse stock split. Stockholders who hold uncertificated shares as direct owners will be eligiblesent a statement of holding from our transfer agent that indicates the number of post-reverse stock split shares of our common stock owned in book-entry form. Upon the implementation of a reverse stock split, we intend to participatetreat shares held by stockholders through a broker, bank or other agent in the Fifth Amendedsame manner as registered stockholders whose shares are registered in their names. Brokers, banks and Restated 2010 ESPP. Participationother agents would be instructed to effect a reverse stock split for their beneficial holders holding our common stock in street name. However, these brokers, banks and other agents may have different procedures than registered stockholders for processing a reverse stock split. Stockholders who hold shares of our common stock with a broker, bank or other agent and who have any questions in this regard are strongly encouraged to contact their brokers, banks or other agents for more information.
Certificated Shares
As soon as practicable after the Effective Time, stockholders will be notified that the reverse stock split has been effected. After the Effective Time, each stock certificate that, immediately prior to the Effective Time, represented shares of common stock that were issued and outstanding immediately prior to the Effective Time shall, automatically and without the necessity of presenting the same for exchange, represent the number of whole shares of common stock after the Effective Time into which the shares of common stock formerly represented by such certificate shall have been reclassified (as well as the right to receive a cash payment in lieu of a fractional share of common stock). We expect that our transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. Holders of pre-split shares will be asked to surrender to the exchange agent certificates representing pre-split shares in exchange for certificates representing the appropriate number of post-split shares in accordance with the procedures to be set forth in a letter of transmittal to be sent by us or our exchange agent. No new certificates will be issued to a stockholder until such stockholder has surrendered such stockholder’s outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. Any pre-split shares submitted for transfer, whether pursuant to a sale or other disposition, or otherwise, will automatically be exchanged for post-split shares. STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO. STOCKHOLDERS SHOULD NOT SUBMIT ANY CERTIFICATES DIRECTLY TO THE COMPANY.
Fractional Shares
No fractional shares will be issued in connection with the reverse stock split. Stockholders of record on the effective date of the split who otherwise would be entitled to receive fractional shares because they hold a number of pre-split shares not evenly divisible by the number of pre-split shares for which each post-split share is to be exchanged, will in lieu of a fractional share, be entitled upon the effectiveness of the reverse stock split (and for holders of certificated shares of common stock, surrender to the exchange agent of such certificate(s) representing such pre-split shares), if any, to receive payment in cash in lieu of any such resulting fractional shares of common stock as the post-reverse split amounts of common stock will be rounded down to the nearest full share. Such cash payment in lieu of a fractional share of common stock will be calculated by multiplying such fractional interest in one share of common stock by the closing trading price of our common stock on the trading day immediately preceding the effective date of the reverse stock split and rounded to the nearest cent. The ownership of a fractional share interest following a reverse stock split would not give the holder any voting, dividend or other rights, except to receive payment as described above.
If the Board of Directors elects to implement the proposed reverse stock split, stockholders owning, prior to the reverse stock split, less than the number of whole shares of common stock that will be combined into one share of common stock in the Fifth Amended and Restated 2010 ESPP is atreverse stock split would no longer be stockholders. The exact number by which the electionnumber of each eligible employee and the amounts received by a participant under the Fifth Amended and Restated 2010 ESPPholders of our common stock would be reduced will depend on the fair marketspecific reverse stock split ratio adopted by the Board of Directors and the number of stockholders that hold less than that ratio as of the effective date of the reverse stock split. As of the Record Date, there were approximately 47 holders of record of our common stock, of which 10 held fewer than eight shares of common stock.
Accounting Matters
The reverse stock split will not affect the common stock capital account on our balance sheet. However, because the par value of our common stock will remain unchanged on future dates; therefore, the benefits or amountseffective date of the split, the components that make up the common stock capital account will change by offsetting amounts. The stated capital component will be receivedreduced, and the additional paid-in capital component will be increased with the amount by any participant ifwhich the increasestated capital is reduced. The per share net loss and net book value of our common stock will be increased because there will be fewer weighted average shares of common stock outstanding. Prior periods’ common stock and additional paid-in capital balances and net loss per share amounts will be restated to reflect the reverse stock split.
Effect on Par Value
The proposed amendment to our Certificate of Incorporation will not affect the par value of our common stock, which will remain at $0.0001 per share.
No Going Private Transaction
Notwithstanding the anticipated decrease in the number of outstanding shares availablefollowing the proposed reverse stock split, if effected, the Board of Directors does not intend for this transaction to be the first step in a “going private transaction” within the meaning of Rule 13e-3 under the Fifth AmendedExchange Act.
Potential Anti-Takeover Effect
Although the increased proportion of unissued authorized shares to issued shares could, under certain circumstances, have an anti- takeover effect (for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of the Board of Directors or contemplating a tender offer or other transaction for the combination of the Company with another company), the Reverse Split Proposal is not being proposed in response to any effort of which we are aware to accumulate shares of our common stock or obtain control of the Company, nor is it part of a plan by management to recommend a series of similar amendments to the Board of Directors and Restated 2010 ESPP is approved bystockholders. Other than the Reverse Split Proposal, the Board of Directors does not currently contemplate recommending the adoption of any other actions that could be construed to affect the ability of third parties to take over or change control of the Company.
No Dissenters’ Rights
Under the Delaware General Corporation Law, our stockholders are not currently determinable.entitled to dissenters’ rights with respect to any of the proposals being voted on at the Special Meeting, and we will not independently provide stockholders with any such right.
Material United States Federal Income Tax Consequences of the Reverse Stock Split
The following describes certain material U.S. federal income tax considerations of a reverse stock split that would be expected to apply generally to U.S. Holders (as defined below) of our common stock. This description is based upon current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing Treasury Regulations under the Code and current administrative rulings and court decisions, all of which are subject to change or different interpretation. Any change, which may or may not be retroactive, could alter the tax consequences to us or our stockholders as described in this section. No ruling from the U.S. Internal Revenue Service (“IRS”) has been or will be requested in connection with a reverse stock split.
No attempt has been made to comment on all U.S. federal income tax consequences of a reverse stock split that may be relevant to particular U.S. Holders, including holders: (i) who are subject to special tax rules such as dealers, brokers and traders in securities, mutual funds, regulated investment companies, real estate investment trusts, insurance companies, banks or other financial institutions or tax-exempt entities; (ii) who are subject to the alternative minimum tax provisions of the Code; (iii) who acquired their shares in connection with stock options, stock purchase plans or other compensatory transactions; (iv) who hold their shares as a hedge or as part of a hedging, straddle, “conversion transaction,” “synthetic security,” integrated investment or any risk reduction strategy; (v) who are partnerships, limited liability companies that are not treated as corporations for U.S. federal income tax purposes, S corporations, or other pass-through entities or investors in such pass-through entities; (vi) who do not hold their shares as capital assets for U.S. federal income tax purposes (generally, property held for investment within the meaning of Section 1221 of the Code); (vii) who hold their shares through individual retirement or other tax-deferred accounts; (viii) whose shares constitute qualified small business stock within the meaning of Section 1202 of the Code; or (ix) who have a functional currency for U.S. federal income tax purposes other than the U.S. dollar.
In addition, the following discussion does not address the tax consequences of a reverse stock split under state, local and foreign tax laws. The discussion assumes that for U.S. federal income tax purposes, a reverse stock split would not be integrated or otherwise treated as part of a unified transaction with any other transaction. Furthermore, the following discussion does not address the tax consequences of transactions effectuated before, after or at the same time as a reverse stock split, whether or not they are in connection with a reverse stock split.
For purposes of this discussion, a “U.S. Holder” means a beneficial owner of our common stock who is: (i) an individual who is a citizen or resident of the U.S.; (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the U.S. or under the laws of the U.S. or any subdivision thereof; (iii) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or (iv) a trust (other than a grantor trust) if (A) a court within the U.S is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (B) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
HOLDERS OF OUR COMMON STOCK ARE ADVISED AND EXPECTED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF A REVERSE STOCK SPLIT IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES AND THE CONSEQUENCES OF A REVERSE STOCK SPLIT UNDER STATE, LOCAL AND FOREIGN TAX LAWS.
Based on the assumptions above, a reverse stock split will be treated as a tax-free recapitalization for U.S. federal income tax purposes. Accordingly, if a reverse stock split is adopted:
Shares Available for Issuance•. Assuming the increase in theA U.S. Holder that receives a reduced number of shares availableof our common stock pursuant to such reverse stock split will not recognize any gain or loss, except with respect to the amount of cash (if any) received in respect of a fractional share;
•A U.S. Holder’s aggregate tax basis in such holder’s shares of common stock received in such reverse stock split will equal the aggregate tax basis of such stockholder’s shares of common stock held immediately before such reverse stock split, but not including the aggregate tax basis of shares surrendered in exchange for cash received in respect of a fractional share (if any);
•A U.S. Holder’s holding period of shares of our common stock received in such reverse stock split will include the holding period of the pre-reverse stock split shares exchanged therefor; and
•A U.S. Holder that receives cash in lieu of a fractional share of common stock generally will recognize gain or loss equal to the difference (if any) between the amount of cash received and the U.S. Holder’s tax basis in the shares of common stock surrendered therefor. Such capital gain or loss generally will be long-term capital gain or loss if the U.S. Holder’s holding period for the common stock surrendered in the reverse stock split exceeds one year at the effective time of the reverse stock split. Long-term capital gains of non-corporate U.S. Holders are generally subject to preferential tax rates. There are limitations on the deductibility of capital losses under the 2010 ESPPCode.
For purposes of determining the tax basis and holding period of shares of our common stock received in a reverse stock split, U.S. Holders that acquired different blocks of shares our common stock at different times for different prices must calculate their basis and holding periods separately for each identifiable block of such stock exchanged in the reverse stock split.
Certain of our stockholders may be required to attach a statement to their tax returns for the year in which a reverse stock split is consummated that contains the information listed in applicable Treasury Regulations. All of our stockholders are advised to consult their own tax advisors with respect to the applicable reporting requirements.
Interests of Directors and Executive Officers
Our directors and executive officers have no substantial interests, directly or indirectly, in the matters set forth in the Reverse Split Proposal except to the extent of their ownership of shares of our common stock.
Reservation of Right to Abandon Reverse Stock Split
We reserve the right to not file the certificate of amendment and to abandon any reverse stock split without further action by our stockholders at any time before the effectiveness of the filing with the Secretary of the State of Delaware of the certificate of amendment, even if the authority to effect this amendments is approved by our stockholders at the annual meeting, there will be 174,487 sharesSpecial Meeting. By voting in favor of our common stock available for issuance under the Fifth Amended and Restated 2010 ESPP, subject to an annual increase on the first day of each of the Corporation’s fiscal years, equal to the lesser of (i) 50,000 shares, (ii) 1 percent of the shares of our common stock outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number of shares as is determined by the Board of Directors.
Participation. To participate in the Fifth Amended and Restated 2010 ESPP, an eligible employee authorizes payroll deductions in an amount not less than 1% nor greater than 10% of his or her “eligible earnings” (i.e., regular base pay, not including overtime pay, bonuses, employee benefit plans or other additional payments) for each full payroll period in the offering period. To ensure that IRS share limitations are not exceeded, we do not accept contributions from an individual participant in excess of $25,000 per calendar year.
Purchases. Eligible employees enroll in a six month offering period during the open enrollment period prior to the start of that offering period. A new offering period begins approximately every July 1 and January 1. At the end of each offering period, the accumulated deductions are used to purchase up to a maximum of 12,500 shares of our common stock for each employee during an offering period. Shares are purchased at a price equal to 85% of the lower of the fair market value of our common stock on the first business day or the last business day of an offering period.
Termination of Employment. If a participating employee voluntarily resigns or is terminated by us prior to the last day of an offering period, the employee’s option to purchase terminates and the amount in the employee’s account is returned to the employee.
Adjustments upon Change in Capitalization. Subject to any required action by the stockholders of the Corporation, the number of shares of common stock covered by unexercised options under the Fifth Amended and Restated 2010 ESPP and the number of shares of common stock which have been authorized for issuance under the Fifth Amended and Restated 2010 ESPP but are not yet subject to options plus any annual increase in the number of shares authorized, as well as the maximum number of shares that may be purchased by a participant and the price per share of common stock covered by each unexercised option under the Fifth Amended and Restated 2010 ESPP, shall be proportionately adjusted for any increase or decrease in the number of issued shares of common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the common stock.
Participation Adjustment. If the number of unsold shares thatyou are available for purchase under the Fifth Amended and Restated 2010 ESPP is insufficient to permit exercise of all rights deemed exercised by all participating employees, a participation adjustment will be made, and the number of shares purchasable by all participating employees is reduced proportionately. Any funds remaining in a participating employee’s account after such exercise are refunded to the employee, without interest.
Amendment. The Board of Directors may amend the Fifth Amended and Restated 2010 ESPP at any time and in any respect unless shareholder approval of the amendment in question is required under Section 423 of the Code, any national securities exchange or system on which the common stock is then listed or reported, or under any other applicable laws, rules, or regulations.
Termination. The Board of Directors may terminate the Fifth Amended and Restated 2010 ESPP at any time and for any reason or for no reason, provided that no termination shall impair any rights of participating employees that have vested at the time of termination. Without further action ofexpressly also authorizing the Board of Directors to delay, not proceed with, and abandon, the Fifth Amendedproposed amendments if it should so decide, in its sole discretion, that such action is in the best interests of our stockholders.
Vote Required and Restated 2010 ESPP shall terminate twenty years after the date of its adoption by the Board of Directors or, if earlier, at such time as all shares of common stock that may be made available for purchase under the Fifth Amended and Restated 2010 ESPP have been issued.Directors’ Recommendation
U.S. Federal Income Tax Consequences. The Fifth Amended and Restated 2010 ESPP, and the rights of participant employees to make purchases thereunder, qualify for treatment under the provisions of Sections 421 and 423affirmative votes of the Internal Revenue Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the Fifth Amended and Restated 2010 ESPP are sold or otherwise disposed of.
Upon sale or other disposition of the shares, the participant will generally be subject to tax and the amount of the tax will depend upon the holding period. If the shares are sold or otherwise disposed of more than two years from the first day of the relevant offering period (and more than one year from the date the shares are purchased), then the participant generally will recognize ordinary income measured as the lesser of:
i. the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price, or
ii. an amount equal to 15% of the fair market value of the shares as of the first day of the applicable offering period.
Any additional gain should be treated as long-term capital gain.
If the shares are sold or otherwise disposed of before the expiration of this holding period, the participant will recognize ordinary income at the time of such disposition generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on the holding period.
We are not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant except to the extent ordinary income is recognized by participants upon a sale or disposition of shares prior to the expiration of the holding period(s) described above. In all other cases, no deduction is allowed to us.
The foregoing tax discussion is a general description of certain expected federal income tax results under current law. No attempt has been made to address any state, local, foreign or estate and gift tax consequences that may arise in connection with participation in the Fifth Amended and Restated 2010 ESPP.
New Plan Benefits
Because benefits under the Fifth Amended and Restated 2010 ESPP will depend on employees’ elections to participate and to purchase shares under the Fifth Amended and Restated 2010 ESPP at various future dates, it is not possible to determine the benefits that will be received by executive officers and other employees. Non-employee directors are not eligible to participate in the Fifth Amended and Restated 2010 ESPP.
Vote Required
The Fifth Amended and Restated 2010 ESPP will be approved upon the affirmative voteholders of a majority of the votes properly cast for and against such matter. Abstentions and broker non-votes are not included inshares voted at the number of votes cast for and against a matter and therefore have no effectSpecial Meeting by the stockholders entitled to vote on the vote on such matter.
RecommendationReverse Split Proposal is required to approve the amendment of our Certificate of Incorporation to effect a reverse stock split of our common stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR”TO AUTHORIZE THE APPROVALBOARD OF DIRECTORS IN ITS DISCRETION TO AMEND THE CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF THE FIFTH AMENDEDISSUED AND RESTATED 2010 ESPP WHICH RESERVES AN ADDITIONAL 150,000 SHARES OF COMMON STOCK FOR ISSUANCE UNDER THE FIFTH AMENDED AND RESTATED 2010 EMPLOYEE STOCK PURCHASE PLAN THEREBY INCREASING THE TOTAL RESERVED SHARES UNDER THE 2010 ESPP FROM 24,487 SHARES TO 174,487 SHARES, SUBJECT TO FURTHER ADJUSTMENT ANNUALLY AS PROVIDED THEREIN, AND RAISES THE PLAN’S ANNUAL INCREASE TO THE LESSER OF 50,000 SHARES OR 1% OF THE CORPORATION’S OUTSTANDING SHARES OF OUR COMMON STOCK. PROPERLY AUTHORIZEDSTOCK (SUCH SPLIT TO COMBINE A NUMBER OF OUTSTANDING SHARES OF OUR COMMON STOCK BETWEEN TWO (2) AND EIGHT (8), INCLUSIVE, SUCH NUMBER CONSISTING OF ONLY WHOLE SHARES, INTO ONE (1) SHARE OF OUR COMMON STOCK). PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED “FOR”IN FAVOR OF THE FIFTH AMENDED AND RESTATED 2010 ESPP,REVERSE SPLIT PROPOSAL UNLESS A STOCKHOLDER INDICATES OTHERWISE ON THE PROXY.
PROPOSAL 4: RATIFICATION OF SELECTION OF AUDITORS
Introduction
The Audit Committee of the Board of Directors has selected the firm of Moody, Famiglietti, and Andronico, LLP, independent registered public accounting firm, to serve as our auditors for the year ending December 31, 2021. It is expected that a representative of Moody, Famiglietti, and Andronico, LLP will be present at the annual meeting with the opportunity to make a statement, if so desired, and will be available to respond to appropriate questions.
In deciding to appoint Moody, Famiglietti, and Andronico, LLP, the Audit Committee reviewed auditor independence issues and existing commercial relationships with Moody, Famiglietti, and Andronico, LLP and concluded that Moody, Famiglietti, and Andronico, LLP has no commercial relationship with the Corporation that would impair its independence for the fiscal year ending December 31, 2021.
Vote Required
The selection of our independent registered public accounting firm for the year ending December 31, 2021 will be ratified upon the affirmative vote of a majority of the votes properly cast for and against such matter. Abstentions will have no effect on the vote on such matter. However, brokerage firms have authority to vote customers’ unvoted shares held by the firms in street name on this proposal. If a broker does not exercise this authority, such broker non-votes will have no effect on the results of this vote. The ratification of this selection by our stockholders is not required under the laws of the State of Delaware, where we are incorporated, but the results of this vote will be considered by the Audit Committee in selecting auditors for future years.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” RATIFICATION OF THE SELECTION OF MOODY, FAMIGLIETTI, AND ANDRONICO, LLP TO SERVE AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2021. PROPERLY AUTHORIZED PROXIES SOLICITED BY THE BOARD WILL BE VOTED “FOR” THE RATIFICATION UNLESS A STOCKHOLDER INDICATES OTHERWISE ON THE PROXY.
PROPOSAL 2: APPROVAL OF THE ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF THE REVERSE SPLIT PROPOSAL.
We are asking our stockholders to vote on a proposal to approve the adjournment of the Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Reverse Split Proposal.
Vote Required and Board of Directors’ Recommendation
Approval of the Adjournment Proposal, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Reverse Split Proposal requires the affirmative vote of the holders of a majority of the shares of common stock present and entitled to vote on the matter either in person or by proxy at the Special Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ADJOURNMENT PROPOSAL.
ACCOUNTING FEESOTHER MATTERS
Aggregate fees for professional services rendered by Moody, Famiglietti, & Andronico, LLP for the years ended December 31, 2020 and 2019 are as follows:
Audit Fees
The audit fees for Moody, Famiglietti, & Andronico, LLP for professional services rendered for the 2020 audit of our annual financial statements and the reviewAs of the financial statements includeddate of this proxy statement, the Board of Directors knows of no other business which will be presented to the Special Meeting. If any other business is properly brought before the Special Meeting, proxies will be voted in our quarterly reports on Form 10-Q, issuance of consents, and review of documents filedaccordance with the SEC totaled $148,075, of which $53,075 was billed in 2020 and $95,000 was billed in 2021.
The audit fees for Moody, Famiglietti, & Andronico, LLP for professional services rendered for the 2019 audit of our annual financial statements and the reviewjudgment of the financial statements included in our quarterly reports on Form 10-Q, issuance of consents, and review of documents filed with the SEC totaled $151,708, of which $54,708 was billed in 2019 and $97,000 was billed in 2020.
Audit-Related Fees
There were no audit-related fees for Moody, Famiglietti, & Andronico, LLP in 2020 and 2019.
All Other Fees
There were no other fees for Moody, Famiglietti, & Andronico, LLP in 2020 and 2019.
Tax Fees
There were no tax fees for Moody, Famiglietti, & Andronico, LLP in 2020 and 2019.
Pre-Approval Policies and Procedures
The Audit Committee approved all audit and non-audit services provided to us by Moody, Famiglietti, & Andronico, LLP during the 2020 and 2019 fiscal years.
STOCKHOLDER PROPOSALS
Any stockholder proposals submitted pursuant to Exchange Act Rule 14a-8 for inclusion in ourthe Company’s proxy statement and form of proxy for our 2022 Annual Meetingits 2024 annual meeting of Stockholdersstockholders must be received by usthe Company on or before November 15, 2021December 1, 2023, in order to be considered for inclusion in ourits proxy statement and form of proxy. Such proposals must also comply with the requirements as to form and substance established by the SEC if such proposals are to be included in the proxy statement and form of proxy. Any such proposal should be mailed to:to our principal executive offices: NeuroMetrix, Inc., 4b4 Gill Street, Suite B, Woburn, Massachusetts 01801, Attention: Secretary.
Stockholder proposals to be presented at our 2022 Annual Meeting2024 annual meeting of Stockholders,stockholders, other than stockholder proposals submitted pursuant to Exchange Act Rule 14a-8 for inclusion in our proxy statement and form of proxy for our 2022 Annual Meeting2024 annual meeting of Stockholders,stockholders and recommendations for candidates to be considered for election to the Board of directors at our 2024 annual meeting of stockholders, must be presented and received in accordance with the provisions of our by-laws. Our by-laws state that the stockholder must provide timely written notice of any nomination or proposal and supporting documentation. A stockholder’s notice will be timely if received by us at our principal executive office not less than 90 days (or January 27, 2022)February 2, 2024) nor more than 120 days (or December 28, 2021)January 3, 2024) prior to the anniversary date of the immediately preceding annual meeting (the “Anniversary Date”); provided, however, that in the event the annual meeting is scheduled to be held on a date more than 30 days before the Anniversary Date (or March 28, 2022)April 2, 2024) or more than 60 days after the Anniversary Date (or June 27, 2022)July 1, 2024), a stockholder’s notice shall be timely if received by us at its principal executive office not later than the close of business on the later of (1) the 90th day prior to the scheduled date of such annual meeting or (2) the 10th day following the day on which public announcement of the date of such annual meeting is first made by us. In the event that the number of directors to be elected to our Board of Directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by us at least 85 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice will also be considered timely, but only with respect to nominees for any new positions created by such increase, if it is delivered to us at our principal executive offices not later than the close of business on the 10th day following the day on which such public announcement is first made by us. Proxies solicited by our Board of Directors will confer discretionary voting authority with respect to these proposals, subject to SEC rules and regulations governing the exercise of this authority. Any such proposals shall be mailed to: NeuroMetrix, Inc., 4b4 Gill Street, Suite B, Woburn, Massachusetts 01801, Attention: Secretary.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by us, and inIn addition to solicitingsatisfying all of the requirements under our by-laws, any stockholders by mail through our regular employees, we may request banks, brokers, and other custodians, nominees and fiduciarieswho intend to solicit their customers who have stockproxies in support of director nominees other than the Company’s nominees at the 2024 annual meeting of stockholders must also comply with all applicable requirements of Rule 14a-19 under the Exchange Act. The advance notice requirement under Rule 14a-19 does not override or supersede the longer advance notice requirement under our company registered in the names of a nominee and, if so, we will reimburse such banks, brokers, and other custodians, nominees and fiduciaries for their reasonable out-of-pocket costs. Solicitation by our officers and employees may also be made of some stockholders in person or by mail, telephone, e-mail, or other form of electronic communication following the original solicitation. We have engaged Alliance Advisors LLC (“Alliance”) to advise us on certain proposals and to manage the production and distribution of this proxy statement. We may engage them to assist with the solicitation of proxies for the annual meeting. We expect to pay Alliance approximately $30,000 for their services.by-laws.
MULTIPLE STOCKHOLDERS SHARING THE SAME ADDRESS
SEC rules concerning the delivery of annual disclosure documents allow us or stockholders’ brokers to send a single notice or, if applicable, a single set of our proxy materials to any household at which two or more of our stockholders reside, if we or stockholders’ brokers believe that the stockholders are members of the same family. This practice, referred to as “householding,” benefits both stockholders and us. It reduces the volume of duplicate
information received by stockholders in the same household and helps to reduce our expenses. The rule applies to our notices, annual reports, proxy statements and information statements.
As such, owners of common stock in street name may receive a notice from their broker or bank stating that only one annual report or proxy statement will be delivered to multiple security holders sharing an address. However, if any stockholder residing at such an address wishes to receive a separate annual report or proxy statement, the Corporation will promptly deliver a separate copy to any stockholder upon written or oral request to the Corporation’s investor relations department at NeuroMetrix, Inc., 4b4 Gill Street, Suite B, Woburn, Massachusetts 01801 or by telephone at (781) 890-9989 or by e-mail at neurometrix.ir@neurometrix.com.neurometrix.ir@neurometrix.com
Woburn, Massachusetts
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
We did not engage in any related person transactions during the years ended December 31, 2020 and December 31, 2019. Pursuant to our audit committee charter currently in effect, the audit committee is responsible for reviewing and approving, prior to our entry into any such transaction, all transactions in which we are a participant and in which any parties related to us has or will have a direct or indirect material interest.
Appendix A
NEUROMETRIX, INC.
TWELFTH AMENDED AND RESTATED
2004 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. [GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the NeuroMetrix, Inc. Twelfth Amended and Restated 2004 Stock Option and Incentive Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors and other key persons (including consultants and prospective employees) of NeuroMetrix, Inc. (the “Company”) and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
“Act”● means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Administrator” is defined in Section 2(a).
“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Deferred Stock Awards, Restricted Stock Awards, Unrestricted Stock Awards and Dividend Equivalent Rights.
“Board” means the Board of Directors of the Company.
“Cash-Based Award” means an Award entitling the recipient to receive a cash-denominated payment.
“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.
“Committee” means the Compensation Committee of the Board or a similar committee performing the functions of the Compensation Committee and that is comprised of not less than two Non-Employee Directors who are independent.
“Covered Employee” means an employee who is a “Covered Employee” within the meaning of Section 162(m) of the Code.
“Deferred Stock Award” means Awards granted pursuant to Section 8.
“Dividend Equivalent Right” means Awards granted pursuant to Section 12.
“Effective Date” means the date on which the Plan is approved by stockholders as set forth in Section 19.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Administrator; provided, however, that if the Stock is traded on a national securities exchange the Fair Market Value of the Stock will equal the closing sales price as reported on the principal exchange or market for
the Stock on such date. If there is no trading on such date, the determination shall be made by reference to the last date preceding such date for which there was trading.
“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.
“Non-Employee Director” means a member of the Board who is not also an employee of the Company or any Subsidiary.
“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.
“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.
“Performance Cycle” means one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more performance criteria will be measured for the purpose of determining a grantee’s right to and the payment of a Restricted Stock Award or Deferred Stock Award. Each such period shall not be less than three months.
“Restricted Stock Award” means Awards granted pursuant to Section 7.
“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.
“Stock” means the Common Stock, par value $0.0001 per share, of the Company, subject to adjustments pursuant to Section 3.
“Stock Appreciation Right” means any Award granted pursuant to Section 6.
“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has a controlling interest, either directly or indirectly.
“Unrestricted Stock Award” means any Award granted pursuant to Section 9.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS
(a)Committee. The Plan shall be administered by the Compensation Committee (the “Administrator”).
(b)Powers of Administrator. The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:
(i)to select the individuals to whom Awards may from time to time be granted;
(ii)to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Deferred Stock Awards, Unrestricted Stock Awards and Dividend Equivalent Rights, or any combination of the foregoing, granted to any one or more grantees;
(iii)to determine the number of shares of Stock to be covered by any Award;
(iv)to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of written instruments evidencing the Awards;
(v)to accelerate at any time the exercisability or vesting of all or any portion of any Award;
(vi)subject to the provisions of Section 5(a)(ii)], to extend at any time the period in which Stock Options may be exercised; and
(vii)at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan grantees.
(c)Delegation of Authority to Grant Awards. The Administrator, in its discretion, may delegate to the Chief Executive Officer of the Company all or part of the Administrator’s authority and duties with respect to the granting of Awards, to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act or “covered employees” within the meaning of Section 162(m) of the Code. Any such delegation by the Administrator shall include a limitation as to the amount of Awards that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price of any Stock Option or Stock Appreciation Right, the conversion ratio or price of other Awards and the vesting criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.
(d)Indemnification. Neither the Board nor the Committee, nor any member of either or any delegatee thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegatee thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s organizational documents or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a)Stock Issuable. Subject to adjustment as provided in Section 3(b), the maximum number of shares of Stock reserved and available for issuance under the Plan shall be 939,980 shares of Stock. For purposes of this limitation, the shares of Stock underlying any Awards that are forfeited, canceled or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan. Shares tendered or held back upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall not be available for future issuance under the Plan. In addition, upon exercise of Stock Appreciation Rights, the gross number of shares exercised shall be deducted from the total number of shares remaining available for issuance under the Plan.
Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that Stock Options or Stock Appreciation Rights with respect to no more than 150,000 shares of Stock may be granted to any one individual grantee during any one calendar year period. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company.
(b)Changes in Stock. Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other
securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for a different number or kind of securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may be issued in the form of Unrestricted Stock Awards, Restricted Stock Awards or Deferred Stock Awards, (ii) the number of Stock Options or Stock Appreciation Rights that can be granted to any one individual grantee and the maximum number of shares that may be granted under a Performance-based Award, (iii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iv) the repurchase price, if any, per share subject to each outstanding Restricted Stock Award, (v) the number of Stock Options automatically granted to Non-Employee Directors, and (vi) the price for each share subject to any then outstanding Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable. The adjustment by the Administrator shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.
The Administrator shall also adjust the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration material changes in accounting practices or principles, extraordinary dividends, acquisitions or dispositions of stock or property or any other event if it is determined by the Administrator that such adjustment is appropriate to avoid distortion in the operation of the Plan, provided that no such adjustment shall be made in the case of an Incentive Stock Option, without the consent of the grantee, if it would constitute a modification, extension or renewal of the Option within the meaning of Section 424(h) of the Code.
(c)Mergers and Other Transactions. In the case of and subject to the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation in which the outstanding shares of Stock are converted into or exchanged for a different kind of securities of the successor entity and the holders of the Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the successor entity immediately upon completion of such transaction, or (iv) the sale of all of the Stock of the Company to an unrelated person or entity (in each case, a “Sale Event”), the Plan and all outstanding Awards granted hereunder shall terminate, unless provision is made in connection with the Sale Event in the sole discretion of the parties thereto for the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree. In the event of such termination, all Options and Stock Appreciation Rights that are not exercisable immediately prior to the effective time of the Sale Event shall become fully exercisable as of the effective time of the Sale Event and all other Awards shall become fully vested and nonforfeitable as of the effective time of the Sale Event, except as the Administrator may otherwise specify with respect to particular Awards in the relevant Award documentation, and each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all outstanding Options and Stock Appreciation Rights held by such grantee, including those that will become exercisable upon the consummation of the Sale Event; provided, however, that the exercise of Options and Stock Appreciation Rights not exercisable prior to the Sale Event shall be subject to the consummation of the Sale Event.
Notwithstanding anything to the contrary in this Section 3(c), in the event of a Sale Event pursuant to which holders of the Stock of the Company will receive upon consummation thereof a cash payment for each share surrendered in the Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the grantees holding Options and Stock Appreciation Rights, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Administrator of the consideration payable per share of Stock pursuant to the Sale Event (the “Sale Price”) times the number of shares of Stock subject
to outstanding Options and Stock Appreciation Rights (to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and Stock Appreciation Rights.
(d)Substitute Awards. The Administrator may grant Awards under the Plan in substitution for stock and stock based awards held by employees, directors or other key persons of another corporation in connection with the merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation. The Administrator may direct that the substitute awards be granted on such terms and conditions as the Administrator considers appropriate in the circumstances. Any substitute Awards granted under the Plan shall not count against the share limitation set forth in Section 3(a).
SECTION 4. ELIGIBILITY
Grantees under the Plan will be such full or part-time officers and other employees, Non-Employee Directors and key persons (including consultants and prospective employees) of the Company and its Subsidiaries as are selected from time to time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.
(a)Stock Options Granted to Employees and Key Persons. The Administrator in its discretion may grant Stock Options to eligible employees and key persons of the Company or any Subsidiary. Stock Options granted pursuant to this Section 5(a) shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. If the Administrator so determines, Stock Options may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Administrator may establish.
(i)Exercise Price. The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5(a) shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation and an Incentive Stock Option is granted to such employee, the option price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the grant date.
(ii)Option Term. The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than 10 years after the date the Stock Option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation and an Incentive Stock Option is granted to such employee, the term of such Stock Option shall be no more than five years from the date of grant.
(iii)Exercisability; Rights of a Stockholder. Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator at or after the grant date. The Administrator may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.
(iv)Method of Exercise. Stock Options may be exercised in whole or in part, by giving written notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods to the extent provided in the Option Award agreement:
(1)In cash, by certified or bank check or other instrument acceptable to the Administrator;
(2)Through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the optionee on the open market or that have been beneficially owned by the optionee for at least six months and are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date; or
(3)By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure.
Payment instruments will be received subject to collection. The transfer to the optionee on the records of the Company or of the transfer agent of the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award agreement or applicable provisions of laws (including the satisfaction of any withholding taxes that the Company is obligated to withhold with respect to the optionee). In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of attested shares. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Stock Options, such as a system using an Internet website or interactive voice response, then the paperless exercise of Stock Options may be permitted through the use of such an automated system.
(v)Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.
(b)Non-transferability of Options. No Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution and all Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee, or by the optionee’s legal representative or guardian in the event of the optionee’s incapacity. Notwithstanding the foregoing, the Administrator, in its sole discretion, may provide in the Award agreement regarding a given Option that the optionee may transfer his Non-Qualified Stock Options to members of his immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option.
SECTION 6. STOCK APPRECIATION RIGHTS
(a)Nature of Stock Appreciation Rights. A Stock Appreciation Right is an Award entitling the recipient to receive shares of Stock having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right, which price shall not be less than 100
percent of the Fair Market Value of the Stock on the date of grant multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.
(b)Grant and Exercise of Stock Appreciation Rights. Stock Appreciation Rights may be granted by the Administrator independently of any Stock Option granted pursuant to Section 5 of the Plan.
(c)Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined from time to time by the Administrator, provided that all Stock Appreciation Rights shall be exercisable during the grantee’s lifetime only by the grantee or the grantee’s legal representative.
(d)Stock Appreciation Rights Term. The term of each Stock Appreciation Right shall be fixed by the Administrator, but no Stock Appreciation Right shall be exercisable more than ten years after the date the Stock Appreciation Right is granted.
SECTION 7. RESTRICTED STOCK AWARDS
(a)Nature of Restricted Stock Awards. A Restricted Stock Award is an Award entitling the recipient to acquire, at such purchase price (which may be zero) as determined by the Administrator, shares of Stock subject to such restrictions and conditions as the Administrator may determine at the time of grant (“Restricted Stock”). Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The grant of a Restricted Stock Award is contingent on the grantee executing the Restricted Stock Award agreement. The terms and conditions of each such agreement shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.
(b)Rights as a Stockholder. Upon execution of a written instrument setting forth the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Stock, subject to such conditions contained in the written instrument evidencing the Restricted Stock Award. Unless the Administrator shall otherwise determine, (i) uncertificated Restricted Stock shall be accompanied by a notation on the records of the Company or the transfer agent to the effect that they are subject to forfeiture until such Restricted Stock are vested as provided in Section 7(d) below, and (ii) certificated Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company such instruments of transfer as the Administrator may prescribe.
(c)Restrictions. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award agreement. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, if any, if a grantee’s employment (or other service relationship) with the Company and its Subsidiaries terminates for any reason, any Restricted Stock that has not vested at the time of termination shall automatically and without any requirement of notice to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original purchase price from such grantee or such grantee’s legal representative simultaneously with such termination of employment (or other service relationship), and thereafter shall cease to represent any ownership of the Company by the grantee or rights of the grantee as a shareholder. Following such deemed reacquisition of unvested Restricted Stock that are represented by physical certificates, grantee shall surrender such certificates to the Company upon request without consideration.
(d)Vesting of Restricted Stock. The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Company’s right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed “vested.” Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15
below, in writing after the Award agreement is issued, a grantee’s rights in any shares of Restricted Stock that have not vested shall automatically terminate upon the grantee’s termination of employment (or other service relationship) with the Company and its Subsidiaries and such shares shall be subject to the provisions of Section 7(c) above.
SECTION 8. DEFERRED STOCK AWARDS
(a)Nature of Deferred Stock Awards. A Deferred Stock Award is an Award of phantom stock units to a grantee, subject to restrictions and conditions as the Administrator may determine at the time of grant. Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The grant of a Deferred Stock Award is contingent on the grantee executing the Deferred Stock Award agreement. The terms and conditions of each such agreement shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees. At the end of the deferral period, the Deferred Stock Award, to the extent vested, shall be paid to the grantee in the form of shares of Stock. To the extent that a Deferred Stock Award is subject to Section 409A, it may contain such additional terms and conditions as the Administrator shall determine in its sole discretion in order for such Award to comply with the requirements of Section 409A.
(b)Election to Receive Deferred Stock Awards in Lieu of Compensation. The Administrator may, in its sole discretion, permit a grantee to elect to receive a portion of the cash compensation or Restricted Stock Award otherwise due to such grantee in the form of a Deferred Stock Award. Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures established by the Administrator. The Administrator shall have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as the Administrator deems appropriate.
(c)Rights as a Stockholder. During the deferral period, a grantee shall have no rights as a stockholder; provided, however, that the grantee may be credited with Dividend Equivalent Rights with respect to the phantom stock units underlying his Deferred Stock Award, subject to such terms and conditions as the Administrator may determine.
(d)Restrictions. A Deferred Stock Award may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of during the deferral period.
(e)Termination. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, a grantee’s right in all Deferred Stock Awards that have not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.
SECTION 9. UNRESTRICTED STOCK AWARDS
Grant or Sale of Unrestricted Stock. The Administrator may, in its sole discretion, grant (or sell at par value or such higher purchase price determined by the Administrator) an Unrestricted Stock Award to any grantee pursuant to which such grantee may receive shares of Stock free of any restrictions (“Unrestricted Stock”) under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.
SECTION 10. CASH-BASED AWARDS
The Administrator may, in its sole discretion, grant Cash-Based Awards to any grantee in such number or amount and upon such terms, and subject to such conditions, as the Administrator shall determine at the time of grant. The Administrator shall determine the maximum duration of the Cash-Based Award, the amount of cash to which the Cash-Based Award pertains, the conditions upon which the Cash-Based Award shall become vested or payable, and such other provisions as the Administrator shall determine. Each Cash-Based Award shall specify a
cash-denominated payment amount, formula or payment ranges as determined by the Administrator. Payment, if any, with respect to a Cash-Based Award shall be made in accordance with the terms of the Award and may be made in cash or in shares of Stock, as the Administrator determines.
SECTION 11. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES
Notwithstanding anything to the contrary contained herein, if any Restricted Stock Award, Cash-Based Award or Deferred Stock Award granted to a Covered Employee is intended to qualify as “Performance-based Compensation” under Section 162(m) of the Code and the regulations promulgated thereunder (a “Performance-based Award”), such Award shall comply with the provisions set forth below:
(a)Performance Criteria. The Administrator shall define in an objective fashion the manner of calculating the Performance Criteria it selects to use for any Performance Cycle. The Administrator, in its discretion, may adjust or modify the calculation of Performance Goals for such Performance Cycle in order to prevent the dilution or enlargement of the rights of an individual (x) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development, (y) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or (z) in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions provided however, that the Administrator may not exercise such discretion in a manner that would increase the Performance-Based Award granted to a Covered Employee. The performance criteria used in performance goals governing Performance-based Awards granted to Covered Employees may include any or all of the following: (i) return on equity, assets, capital or investment: (ii) pre-tax or after-tax profit levels; (iii) cash flow, funds from operations or similar measure; (iv) total shareholder return; (v) changes in the market price of the Stock; (vi) revenues, sales or market share; (vii) net income (loss) or earnings per share; (viii) computer support availability; (ix) expense margins or operating efficiency (including budgeted spending limits) or (x) project development milestones, any of which may relate to the Company or any Subsidiary, division, operating unit or business segment of the Company, or any combination of the foregoing, and may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group and, for financial measures, may be based on numbers calculated in accordance with U.S. generally accepted accounting principles or on an as adjusted basis.
(b)Grant of Performance-based Awards. With respect to each Performance-based Award granted to a Covered Employee, the Committee shall select, within the first 90 days of a Performance Cycle (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) the performance criteria for such grant, and the achievement targets with respect to each performance criterion (including a threshold level of performance below which no amount will become payable with respect to such Award). Each Performance-based Award will specify the amount payable, or the formula for determining the amount payable, upon achievement of the various applicable performance targets. The performance criteria established by the Committee may be (but need not be) different for each Performance Cycle and different goals may be applicable to Performance-based Awards to different Covered Employees.
(c)Payment of Performance-based Awards. Following the completion of a Performance Cycle, the Committee shall meet to review and certify in writing whether, and to what extent, the performance criteria for the Performance Cycle have been achieved and, if so, to also calculate and certify in writing the amount of the Performance-based Awards earned for the Performance Cycle. The Committee shall then determine the actual size of each Covered Employee’s Performance-based Award, and, in doing so, may reduce or eliminate the amount of the Performance-based Award for a Covered Employee if, in its sole judgment, such reduction or elimination is appropriate.
(d)Maximum Award Payable. The maximum Performance-based Award payable to any one Covered Employee under the Plan for a Performance Cycle is 150,000 Shares (subject to adjustment as provided in Section 3(b) hereof) or $1,000,000 in the case of a Performance-Based Award that is a Cash-Based Award.
SECTION 12. DIVIDEND EQUIVALENT RIGHTS
(a)Dividend Equivalent Rights. A Dividend Equivalent Right is an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the grantee. A Dividend Equivalent Right may be granted hereunder to any grantee only as a component of an Unrestricted Stock Award, a Restricted Stock Award or a Deferred Stock Award. The terms and conditions of Dividend Equivalent Rights shall be specified in the Award agreement. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash or shares of Stock or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other award. A Dividend Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other award.
(b)Interest Equivalents. Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may provide in the grant for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant.
(c)Termination. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, a grantee’s rights in all Dividend Equivalent Rights or interest equivalents granted as a component of another Award that has not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.
SECTION 13. TAX WITHHOLDING
(a)Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver stock certificates to any grantee is subject to and conditioned on tax obligations being satisfied by the grantee.
(b)Payment in Stock. Subject to approval by the Administrator, a grantee may elect to have the minimum required tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company shares of Stock owned by the grantee with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due.
SECTION 14. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a termination of employment:
(a)a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or
(b)an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.
SECTION 15. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder’s consent. Except as provided in Section 3(b) or 3(c), in no event may the Administrator exercise its discretion to reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights or effect repricing through cancellation and re-grants or by exchanging a Stock Option or Stock Appreciation Right for any other Award. To the extent required under the rules of any securities exchange or market system on which the Stock is listed, to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or to ensure that compensation earned under Awards qualifies as performance-based compensation under Section 162(m) of the Code, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 15 shall limit the Administrator’s authority to take any action permitted pursuant to Section 3(c).
SECTION 16. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.
SECTION 17. SECTION 409A AWARDS
To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as specified by the Administrator from time to time in order to comply with Section 409A. In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is then considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. Further, the settlement of any such Award may not be accelerated except to the extent permitted by Section 409A.
SECTION 18. GENERAL PROVISIONS
(a)No Distribution; Compliance with Legal Requirements. The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Administrator may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards as it deems appropriate.
(b)Delivery of Stock Certificates. Stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the
Company. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records). Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Administrator has determined, with advice of counsel (to the extent the Administrator deems such advice necessary or advisable), that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed, quoted or traded. All Stock certificates delivered pursuant to the Plan shall be subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with federal, state or foreign jurisdiction, securities or other laws, rules and quotation system on which the Stock is listed, quoted or traded. The Administrator may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Administrator may require that an individual make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems necessary or advisable in order to comply with any such laws, regulations, or requirements. The Administrator shall have the right to require any individual to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Administrator.
(c)Stockholder Rights. Until Stock is deemed delivered in accordance with Section 18(b), no right to vote or receive dividends or any other rights of a stockholder will exist with respect to shares of Stock to be issued in connection with an Award, notwithstanding the exercise of a Stock Option or any other action by the grantee with respect to an Award.
(d)Other Compensation Arrangements; No Employment Rights. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary.
(e)Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to such Company’s insider trading policy and procedures, as in effect from time to time.
(f)Designation of Beneficiary. Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.
SECTION 19. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the holders of a majority of the votes cast at a meeting of stockholders at which a quorum is present. Subject to such approval by the stockholders and to the requirement that no Stock may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on and after adoption of this Plan by the Board. No Incentive Stock Option may be granted under the Plan after the 10-year anniversary of the most recent prior date on which the Plan was approved by the Board of Directors (provided that the Plan was approved by stockholders within one year of such date) and no other Award may be granted under the Plan after the 10-year anniversary of the most recent prior date on which the Plan was approved by stockholders.
SECTION 20. GOVERNING LAW
This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware, applied without regard to conflict of law principles.
DATE APPROVED BY BOARD OF DIRECTORS: MAY 12, 2004
DATE APPROVED BY STOCKHOLDERS: JUNE 18, 2004
DATE AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: APRIL 16, 2006
DATE AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 24, 2006
DATE SECOND AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: APRIL 10, 2008
DATE SECOND AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 22, 2008
DATE THIRD AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: APRIL 16, 2009
DATE THIRD AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 21, 2009
DATE FOURTH AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: MARCH 30, 2012
DATE FOURTH AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 14, 2012
DATE FIFTH AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: MARCH 4, 2013
DATE FIFTH AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 6, 2013
DATE SIXTH AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: MARCH 25, 2014
DATE SEVENTH AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: FEBRUARY 26, 2015
DATE SEVENTH AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 5, 2015
DATE EIGHTH AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: MARCH 11, 2016
DATE EIGHTH AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 3, 2016
DATE NINTH AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: MARCH 6, 2017
DATE NINTH AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 2, 2017
DATE TENTH AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: MARCH 1, 2018
DATE TENTH AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 1, 2018
DATE ELEVENTH AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: OCTOBER 1, 2019
DATE ELEVENTH AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: NOVEMBER 12, 2019
DATE TWELFTH AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: FEBRUARY 23, 2021
DATE TWELFTH AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: [_____], 2021
2023
Appendix B
NEUROMETRIX, INC.
FIFTH AMENDED AND RESTATED
2010 EMPLOYEE STOCK PURCHASE PLAN
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The following constitute the provisions of the Fifth Amended and Restated 2010 Employee Stock Purchase Plan (the “Plan”) of NeuroMetrix, Inc. (the “Company”). |
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1.Purpose. The purpose of the Plan is to provide Employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. It is the intention of the Company to have the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Code. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.
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2. Definitions. |
(a) “Board” shall mean the Board of Directors of the Company, or a committee of the Board of Directors named by the Board to administer the Plan. |
(b) “Code” shall mean the Internal Revenue Code of 1986, as amended. |
(c) “Common Stock” shall mean the common stock, $0.0001 par value per share, of the Company. |
(d) “Company” shall mean NeuroMetrix, Inc. a Delaware corporation. |
(e) “Compensation” shall mean total cash compensation received by the Employee from the Company or a Designated Subsidiary that is taxable income for federal income tax purposes, including, payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, commissions and other compensation received from the Company or a Designated Subsidiary, but excluding relocation, expense reimbursements, tuition or other reimbursements and income realized as a result of participation in any stock option, stock purchase or similar plan of the Company or a Designated Subsidiary. |
(f) “Continuous Status as an Employee” shall mean the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company, provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. |
(g) “Contributions” shall mean all amounts credited to the account of a participant pursuant to the Plan. |
(h) “Designated Subsidiaries” shall mean the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. |
(i) “Employee” shall mean any person who is (a) employed by the Company or one of its Designated Subsidiaries for tax purposes; (b) customarily employed for at least 20 hours per week and more than five months in a calendar year by the Company or one of its Designated Subsidiaries; and (c) has completed at least 60 days of employment with the Company or one of its Designated Subsidiaries. |
(j) “Exercise Date” shall mean the last business day of each Offering Period of the Plan. |
(k) “Exercise Price” shall mean with respect to an Offering Period, an amount equal to 85% of the fair market value (as defined in paragraph 7(b)) of a share of Common Stock on the Offering Date or on the Exercise Date, whichever is lower. |
(l) “Offering Date” shall mean the first business day of each Offering Period of the Plan. |
(m) “Offering Period” shall mean a period of six months as set forth in paragraph 4 of the Plan. |
(n) “Plan” shall mean this Second Amended and Restated NeuroMetrix, Inc. 2010 Employee Stock Purchase Plan. |
(o) “Subsidiary” shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. |
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3. Eligibility. |
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(a) Any person who has been continuously employed as an Employee for 60 days as of the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan and further, subject to the requirements of paragraph 5(a) and the limitations imposed by Section 423(b) of the Code. All Employees granted options under the Plan with respect to any Offering Period will have the same rights and privileges under the Plan except for any differences that may be permitted pursuant to Section 423. |
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary of the Company, (ii) which permits his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds $25,000 of fair market value of such stock as defined in paragraph 7(b) (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time, or (iii) to purchase more than 12,500 shares (subject to any adjustment pursuant to paragraph 18) of Common Stock in any one Offering Period. Any option granted under the Plan shall be deemed to be modified to the extent necessary to satisfy this paragraph 3(b). |
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4. Offering Periods. The Plan shall be implemented by a series of Offering Periods, with a new Offering Period commencing on January 1 and July 1 of each year or the first business day thereafter (or at such other time or times as may be determined by the Board). The initial Offering Period shall commence on July 1, 2010. |
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5. Participation. |
(a) An eligible Employee may become a participant in the Plan by completing an Enrollment Form provided by the Company and filing it with the Company or its designee prior to the applicable Offering Date, unless a later time for filing the Enrollment Form is set by the Board for all eligible Employees with respect to a given Offering Period. The Enrollment Form and its submission may be electronic as directed by the Company. The Enrollment Form shall set forth the percentage of the participant’s Compensation (which shall be not less than 1% and not more than 10%) to be paid as Contributions pursuant to the Plan. |
(b) Payroll deductions shall commence with the first payroll following the Offering Date, unless a later time is set by the Board with respect to a given Offering Period, and shall end on the last payroll paid on or prior to the Exercise Date of the Offering Period to which the Enrollment Form is applicable, unless sooner terminated as provided in paragraph 10. |
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6. Method of Payment of Contributions. |
(a) Each participant shall elect to have payroll deductions made on each payroll during the Offering Period in an amount not less than 1% and not more than 10% of such participant’s Compensation on each such payroll; provided that the aggregate of such payroll deductions during the Offering Period shall not exceed 10% of the participant’s aggregate Compensation during said Offering Period (or such other percentage as the Board may establish from time to time before an Offering Date). All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account. |
(b) A participant may discontinue his or her participation in the Plan as provided in paragraph 10, or, on one occasion only during the Offering Period, may decrease, but may not increase, the rate of his or her Contributions during the Offering Period by completing and filing with the Company a new Enrollment Form authorizing a change in the deduction rate. The change in rate shall be effective as of the beginning of the next payroll period following the date of filing of the new Enrollment Form, if the Enrollment Form is completed at least ten business days prior to such date, and, if not, as of the beginning of the next succeeding payroll period. |
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(c) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and paragraph 3(b), a participant’s payroll deductions may be decreased to 0% at such time during any Offering Period which is scheduled to end during the current calendar year that the aggregate of all payroll deductions accumulated with respect to such Offering Period and any other Offering Period ending within the same calendar year equals $21,250. Payroll deductions shall recommence at the rate provided in such participant’s Enrollment Form at the beginning of the first Offering Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in paragraph 10. |
7. Grant of Option. |
(a) On the Offering Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on the Exercise Date of such Offering Period a number of shares of the Common Stock determined by dividing such Employee’s Contributions accumulated prior to such Exercise Date and retained in the participant’s account as of the Exercise Date by the applicable Exercise Price; provided however, that such purchase shall be subject to the limitations set forth in paragraphs 3(b) and 12. The fair market value of a share of the Common Stock shall be determined as provided in paragraph 7(b). |
(b) The fair market value of the Common Stock on a given date shall be determined by the Board based on (i) if the Common Stock is listed on a national securities exchange or traded in the over-the-counter market and sales prices are regularly reported for the Common Stock, the closing or last sale price of the Common Stock for such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), on the composite tape or other comparable reporting system or (ii) if the Common Stock is not listed on a national securities exchange and such price is not regularly reported, the mean between the bid and asked prices per share of the Common Stock at the close of trading in the over-the-counter market. |
8. Exercise of Option. Unless a participant withdraws from the Plan as provided in paragraph 10, his or her option for the purchase of shares will be exercised automatically on the Exercise Date of the Offering Period, and the maximum number of full shares subject to the option will be purchased for him or her at the applicable Exercise Price with the accumulated Contributions in his or her account. If a fractional number of shares results, then such number shall be rounded down to the next whole number and any unapplied cash shall be carried forward to the next Exercise Date, unless the participant requests a cash payment. The shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Exercise Date. During a participant’s lifetime, a participant’s option to purchase shares hereunder is exercisable only by him or her. |
9. Delivery. Upon the written request of a participant, certificates representing the shares purchased upon exercise of an option will be issued as promptly as practicable after the Exercise Date of each Offering Period to participants who wish to hold their shares in certificate form. Any payroll deductions accumulated in a participant’s account which are not sufficient to purchase a full Share shall be retained in the participant’s account for the subsequent Offering Period, subject to earlier withdrawal by the participant as provided in paragraph 10 below. Any other amounts left over in a participant’s account after an Exercise Date shall be returned to the participant. |
10. Withdrawal; Termination of Employment. |
(a) A participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to the Exercise Date of the Offering Period by giving written notice to the Company or its designee. All of the participant’s Contributions credited to his or her account will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current period will be automatically terminated, and no further Contributions for the purchase of shares will be made during the Offering Period. |
(b) Upon termination of the participant’s Continuous Status as an Employee prior to the Exercise Date of the Offering Period for any reason, including retirement or death, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under paragraph 14, and his or her option will be automatically terminated. |
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(c) In the event an Employee fails to remain in Continuous Status as an Employee for at least 20 hours per week during the Offering Period in which the Employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated. |
(d) A participant’s withdrawal from an Offering Period will not have any effect upon his or her eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company. |
11. Interest. No interest shall accrue on the Contributions of a participant in the Plan. |
12. Stock. |
(a) The maximum number of shares of Common Stock which shall be made available for sale under the Plan shall be 174,487 shares, which number includes 21 shares originally reserved under the Plan in 2010, 20 shares added pursuant to the evergreen provision in 2011, 72 shares added pursuant to the evergreen provision in 2012, 52 shares added to the Plan in 2012, 52 shares added pursuant to the evergreen provision in 2013, 52 shares added to the evergreen provision in 2014, 312 shares added to the Plan in 2014, 52 shares added pursuant to the evergreen provision in 2015, 52 shares added pursuant to the evergreen provision in 2016 , 1,250 shares added to the Plan in 2016, 52 shares added pursuant to the evergreen provision in 2017, 15,000 added to the Plan in 2018, 2,500 shares added pursuant to the evergreen provision in 2019, 2,500 shares added pursuant to the evergreen provision in 2020, 2,500 added pursuant to the evergreen provision in 2021 and 150,000 added to the plan in 2021 plus an annual increase on the first day of each of the Company’s fiscal years beginning on the first day of each of the Company’s fiscal years beginning in 2022, equal to the lesser of (i) 50,000 shares, (ii) 1 percent of the shares of Common Stock outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number of shares as is determined by the Board, subject to adjustment upon changes in capitalization of the Company as provided in paragraph 18.2.1 If the total number of shares which would otherwise be subject to options granted pursuant to paragraph 7(a) on the Offering Date of an Offering Period exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised), the Company shall make a pro rata allocation of the shares remaining available for option grants in as uniform a manner as shall be practicable and as it shall determine to be equitable. Any amounts remaining in an Employee’s account not applied to the purchase of shares pursuant to this paragraph 12 shall be refunded on or promptly after the Exercise Date. In such event, the Company shall give written notice of such reduction of the number of shares subject to the option to each Employee affected thereby and shall similarly reduce the rate of Contributions, if necessary.
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(b) The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised. |
13. Administration. The Board shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. |
1The number of shares reserved and available for issuance under the Plan as well as all other share numbers in the Plan have been adjusted for the one-for-four reverse stock split on July 15, 2004, the one-for-six reverse stock split on September 1, 2011, the one-for-six reverse stock split on February 15, 2013, the one-for-four reverse stock split on December 1, 2015, the one-for-eight reverse stock split on May 11, 2017 and the one-for-ten reverse split on November 19, 2019.
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APPENDIX A
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14. Designation of Beneficiary. |
(a) A participant may designate a beneficiary who is to receive any shares and cash, if any, from the participant’s account under the Plan in the event of such participant’s death subsequent to the end of the Offering Period but prior to delivery to him or her of such shares and cash. In addition, a participant may designate a beneficiary who is to receive any cash from the participant’s account under the Plan in the event of such participant’s death prior to the Exercise Date of the Offering Period. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. Beneficiary designations shall be made either in writing or by electronic delivery as directed by the Company. |
(b) Such designation of beneficiary may be changed by the participant (and his or her spouse, if any) at any time by submission of the required notice, which may be electronic. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant’s death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. |
15. Transferability. Neither Contributions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in paragraph 14) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with paragraph 10. |
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16. Use of Funds. All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions. |
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17. Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees promptly following the Exercise Date, which statements will set forth the amounts of Contributions, the per share purchase price, the number of shares purchased and the remaining cash balance, if any. |
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18. Adjustments Upon Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by unexercised options under the Plan and the number of shares of Common Stock which have been authorized for issuance under the Plan but are not yet subject to options under paragraph 12(a), the number of shares of Common Stock set forth in paragraph 12(a)(i) (collectively, the “Reserves”), the maximum number of shares of Common Stock that may be purchased by a participant in an Offering Period set forth in paragraph 3(b), as well as the price per share of Common Stock covered by each unexercised option under the Plan, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock. Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. |
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FORM OF CERTIFICATE OF AMENDMENT TO EFFECT REVERSE STOCK SPLIT
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In the event of the proposed dissolution or liquidation of the Company, an Offering Period then in progress will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger, consolidation or other capital reorganization of the Company with or into another corporation, each option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the Offering Period then in progress by setting a new Exercise Date (the “New Exercise Date”). If the Board shortens the Offering Period then in progress in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify each participant in writing, at least ten days prior to the New Exercise Date, that the Exercise Date for his or her option has been changed to the New Exercise Date and that his or her option will be exercised automatically on the New Exercise Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in paragraph 10. For purposes of this paragraph, an option granted under the Plan shall be deemed to be assumed if, following the sale of assets, merger or other reorganization, the option confers the right to purchase, for each share of Common Stock subject to the option immediately prior to the sale of assets, merger or other reorganization, the consideration (whether stock, cash or other securities or property) received in the sale of assets, merger or other reorganization by holders of Common Stock for each share of Common Stock held on the effective date of such transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if such consideration received in such transaction was not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the option 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 sale of assets, merger or other reorganization. |
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The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. |
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19. Amendment or Termination. |
(a) The Board may at any time terminate or amend the Plan. Except as provided in paragraph 18, no such termination may affect options previously granted, nor may an amendment make any change in any option theretofore granted which adversely affects the rights of any participant provided that an Offering Period may be terminated by the Board on an Exercise Date or by the Board’s setting a new Exercise Date with respect to an Offering Period then in progress if the Board determines that termination of the Offering Period is in the best interests of the Company and the stockholders or if continuation of the Offering Period would cause the Company to incur adverse accounting charges in the generally-accepted accounting rules applicable to the Plan. In addition, to the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required. |
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(b) Without stockholder consent and without regard to whether any participant rights may be considered to have been adversely affected, the Board shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant’s Compensation, and establish such other limitations or procedures as the Board determines in its sole discretion advisable that are consistent with the Plan. |
20. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. |
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21. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. |
As a condition to the exercise of an option, the Company may require the person exercising such option 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 by any of the aforementioned applicable provisions of law. |
22. Information Regarding Disqualifying Dispositions. By electing to participate in the Plan, each participant agrees to provide any information about any transfer of shares of Common Stock acquired under the Plan that occurs within two years after the first business day of the Offering Period in which such shares were acquired as may be requested by the Company or any Subsidiaries in order to assist it in complying with the tax laws. |
23. Right to Terminate Employment. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any Employee the right to continue in the employment of the Company or any Subsidiary, or affect any right which the Company or any Subsidiary may have to terminate the employment of such Employee. |
24. Rights as a Stockholder. Neither the granting of an option nor a deduction from payroll shall constitute an Employee the owner of shares covered by an option. No Employee shall have any right as a stockholder unless and until an option has been exercised, and the shares underlying the option have been registered in the Company’s share register. |
25. Term of Plan. The Plan became effective upon its adoption by the Board on April 6, 2010 and shall continue in effect for a term of twenty years unless sooner terminated under paragraph 19. |
26. Applicable Law. This Plan shall be governed in accordance with the laws of the State of Delaware, applied without giving effect to any conflict-of-law principles. |
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DATE APPROVED BY BOARD OF DIRECTORS: APRIL 6, 2010 |
DATE APPROVED BY STOCKHOLDERS: MAY 13, 2010 |
DATE AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: MARCH 30, 2012 |
DATE AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 6, 2012 |
DATE SECOND AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: MARCH 25, 2014
DATE SECOND AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 6, 2014
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DATE THIRD AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: MARCH 11, 2016 |
DATE THIRD AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 3, 2016 |
DATE FOURTH AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: MARCH 1, 2018 |
DATE FOURTH AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: MAY 1, 2018 |
DATE FIFTH AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS: FEBRUARY 23, 2021 |
DATE FIFTH AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS: [ ], 2021 |
NeuroMetrix, Inc. (the “Corporation”), a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:
1.The name of the Corporation is NeuroMetrix, Inc.
2.The Corporation’s original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware (the “Secretary of State”) on April 25, 2001 under the name “New NeuroMetrix, Inc.” A Certificate of Merger was filed with the Secretary of State on May 14, 2001. An Amended and Restated Certificate of Incorporation was filed on December 19, 2002. Certificates of Amendment to the Amended and Restated Certificate of Incorporation were filed on March 12, 2004 and June 21, 2004. A Second Amended and Restated Certificate of Incorporation was filed on July 15, 2004. A Third Amended and Restated Certificate of Incorporation was filed on July 17, 2004. Certificates of Amendment to the Third Amended and Restated Certificate of Incorporation were filed on September 1, 2011, February 15, 2013, December 1, 2015, May 11, 2017 and November 18, 2019.
3.The Corporation’s Third Amended and Restated Certificate of Incorporation, as amended, is hereby further amended by striking out the first two paragraphs of the section titled “Capital Stock” of Article IV in their entirety and by substituting in lieu thereof the following three paragraphs:
“The total number of shares of capital stock which the Corporation shall have authority to issue is thirty million (30,000,000) shares, of which (i) twenty-five million (25,000,000) shares shall be a class designated as common stock, par value $0.0001 per share (the “Common Stock”), and (ii) five million (5,000,000) shares shall be a class designated as preferred stock, par value $0.001 per share, of which twenty-five thousand (25,000) shares shall be designated as Series A Junior Participating Cumulative Preferred Stock, par value $0.001 per share, one thousand sixty-seven (1,067) shares shall be designated as Series A-1 Convertible Preferred Stock, par value $0.001 per share, three thousand three hundred seventy-one (3,371) shares shall be designated as Series A-2 Convertible Preferred Stock, par value $0.001 per share, two thousand six hundred twenty-two (2,622) shares shall be designated as Series A-3 Convertible Preferred Stock, par value $0.001 per share, four thousand twenty-three (4,023) shares shall be designated as Series A-4 Convertible Preferred Stock, par value $0.001 per share, one hundred forty-seven thousand (147,000) shares shall be designated as Series B Convertible Preferred Stock, par value $0.001 per share, thirteen thousand eight hundred (13,800) shares shall be designated as Series C Convertible Preferred Stock, par value $0.001 per share, twenty-one hundred thousand three hundred (21,300) shares shall be designated as Series D Convertible Preferred Stock, seven thousand (7,000) shares shall be designated as Series E Convertible Preferred Stock, ten thousand six hundred and twenty-one (10,621) shares shall be designated as Series F Convertible Preferred Stock, and four million seven hundred seventy-four thousand eight hundred seventeen (4,764,196) shares shall be undesignated preferred stock, par value $0.001 per share (the “Undesignated Preferred Stock”).
Upon effectiveness of this Certificate of Amendment (the “Effective Time”), the shares of Common Stock issued and outstanding immediately prior to the Effective Time and the shares of Common Stock issued and held in the treasury of the Corporation immediately prior to the Effective Time are reclassified into a smaller number of shares such that each [•] shares of issued and outstanding Common Stock immediately prior to the Effective Time is reclassified into one validly issued, fully paid and non-assessable share of Common Stock without any further action by the Corporation or the holder thereof, subject to the treatment of fractional share interests as described below (the “Reverse Stock Split”). Notwithstanding the immediately preceding sentence, no fractional shares shall be issued as a result of the reverse stock split. Instead, any stockholder who would otherwise be entitled to a fractional share of our Common Stock as a result of the Reverse Stock Split shall be entitled to receive a cash payment (without interest), upon the submission of a transmission letter by a holder holding the shares in book-entry form and, where shares are held in certificated form, upon the surrender of the holder’s Old Certificates (as defined below), equal to the product of such resulting fractional interest in one share of our Common Stock multiplied by the closing trading price of our Common Stock as reported on the Nasdaq Capital Market on the trading day immediately preceding the effective date of the reverse stock split. Notwithstanding the foregoing, the Corporation shall not be obliged to issue certificates evidencing the shares of Common Stock outstanding as a result of the reverse stock split or cash in lieu of fractional shares, if any, unless and until the certificates evidencing the shares held by a holder prior to the reverse stock split are either delivered to the Corporation or its transfer agent, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates.
Each stock certificate that, immediately prior to the Effective Time, represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time (the “Old Certificates”) shall, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent the number of whole shares of Common Stock after the Effective Time into which the shares of Common Stock formerly represented by such certificate shall have been reclassified (as well as the right to receive a cash payment in lieu of a fractional share of Common Stock),
4.The Amendment of the Amended and Restated Certificate of Incorporation, as amended, herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
5.The Effective Time of this Certificate of Amendment shall be on [•] at [•], Eastern Time.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer on this [•] day of [•], 2023.
NEUROMETRIX, INC.
By: Shai N. Gozani, M.D., Ph.D.
Chairman, Chief Executive Officer and President
