Definitive Proxy Statement
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ____)
Filed by the Registrant þ
Filed by a Party other than the Registrant o
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
VirnetX Holding Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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VirnetX Holding Corporation
Notice of 2010 Annual Meeting and Proxy Statement
To the Stockholders of VirnetX Holding Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the Annual Meeting)
of VirnetX Holding Corporation, a Delaware corporation (the Company), will be held at
10:00 a.m., Pacific Time, on Friday, June 4, 2010, at the offices of Orrick, Herrington & Sutcliffe
LLP, 1000 Marsh Road, Menlo Park, California 94025 for the following purposes:
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to elect one Class III director to serve a term of three years, until his resignation
or until his successor is duly elected or appointed; |
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to ratify the appointment by our Audit Committee of Farber Hass Hurley LLP as our
independent registered public accounting firm for the fiscal year ending December 31, 2010;
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to transact such other business as may properly come before the Annual Meeting or any
adjournment or postponement thereof. |
Our Board of Directors has fixed the close of business on April 28, 2010 as the record date
(the Record Date) for the determination of stockholders entitled to notice of, and to
vote at, the Annual Meeting and any adjournments or postponements thereof. Only holders of record
at the close of business on the Record Date are entitled to notice of, and to vote at, the Annual
Meeting or any adjournments or postponements thereof.
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By Order of our Board of Directors |
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/s/ Lowell D. Ness |
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Lowell D. Ness |
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Secretary |
Menlo Park, California
April 29, 2010
Important Notice Regarding the Availability of Proxy Materials for the Stockholder
Meeting To Be Held on June 4, 2010.
Our proxy statement, proxy card and annual report to stockholders for the year ended December 31,
2009 are available at http://phx.corporate-ir.net/phoenix.zhtml?c=67430&p=irol-reportsAnnual.
ANNUAL MEETING OF STOCKHOLDERS
OF
VIRNETX HOLDING CORPORATION
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by the Board of
Directors of VirnetX Holding Corporation, a Delaware corporation (we, us, the
Company or VirnetX), of proxies from the holders of our common stock, par value
$0.0001 per share (the Common Stock), for use in voting at an Annual Meeting of
Stockholders (the Annual Meeting) of the Company to be held on June 4, 2010, at 10:00
a.m., Pacific Time, at the offices of Orrick, Herrington & Sutcliffe LLP, 1000 Marsh Road, Menlo
Park, California 94025, and at any adjournments or postponements thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting.
The mailing date of this Proxy Statement is on or about May 3, 2010.
The cost of preparing, assembling, printing, mailing and distributing the Notice of Annual
Meeting, this Proxy Statement and the proxies is to be borne by the Company.
It is extremely important that your shares are represented at the Annual Meeting, and,
therefore, all stockholders are cordially invited to attend the Annual Meeting. However, whether or
not you plan to attend the Annual Meeting, you are urged to, as promptly as possible, return your
proxy. If you own your shares through a broker or nominee, please follow the instructions on the
attached voter instruction form, or contact your broker or nominee. If your shares are held in your
name, you have three options for returning your proxy: (1) by mail; (2) by fax to (303) 282-4986;
or (3) by the Internet at vote.corporatestock.com, using the unique control number printed on the
proxy statement ballot. If you choose to return your proxy by mail, then mark, sign, date and mail
back the enclosed form of proxy, which requires no postage if mailed in the United States. If you
hold shares directly in your name and attend the Annual Meeting, you may vote your shares in
person, even if you previously submitted a proxy. Your proxy may be revoked at any time before it
is voted by submitting a written revocation or a proxy bearing a later date to our Secretary, or by
attending and voting in person at the Annual Meeting.
Our principal executive offices are located at 5615 Scotts Valley Drive, Suite 110, Scotts
Valley, California 95066. Our website is http://www.virnetx.com.
YOUR VOTE IS IMPORTANT!
Whether You Own One Share Or Many, Your Prompt Cooperation In Voting Your
Proxy Is Greatly Appreciated.
PURPOSE OF THE MEETING
At our Annual Meeting, our stockholders will consider and vote to (1) elect one Class III
director (Proposal I); and (2) ratify the appointment of our independent registered
public accounting firm for the fiscal year ending December 31, 2010 (Proposal II).
Unless contrary instructions are indicated on the enclosed proxy, all shares represented by
valid proxies received pursuant to this solicitation (and which have not been revoked in accordance
with the procedures set forth above) will be voted in favor of Proposal I for the Class III
director nominee and in favor of Proposal II. In the event a stockholder specifies a different
choice by means of the enclosed proxy, his or her shares will be voted in accordance with the
specification so made.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The close of business on April 28, 2010 has been fixed by our Board as the record date (the
Record Date) for the determination of stockholders entitled to notice of, and to vote at,
our Annual Meeting and any adjournments or postponements thereof. As of the Record Date there were
43,704,663 shares of Common Stock issued and outstanding. Each share of Common Stock outstanding on
the Record Date is entitled to one vote on each matter to come before our Annual Meeting. The
presence, in person or by proxy, of the holders of a majority of the outstanding shares of the
Common Stock is required to constitute a quorum for the transaction of business at the Annual
Meeting. Proxies submitted which contain abstentions will be deemed present at the Annual Meeting
for the purpose of determining the presence of a quorum.
The affirmative vote of a plurality of the aggregate number of shares of Common Stock present
in person or represented by proxy at the Annual Meeting will be required to elect the nominee to
serve on our Board pursuant to Proposal I. Shares abstaining with respect to Proposal I will be
considered as votes represented and entitled to vote for purposes of determining the presence of a
quorum. However, because an affirmative vote of a plurality of the aggregate number of shares of
the Common Stock cast at the Annual Meeting is required to elect the nominee, an abstention, with
respect to the nominee, will have the same effect as a vote AGAINST the election of such nominee.
Please see the Important Additional Voting Information for the Annual Meeting notice on page 6.
The affirmative vote of at least a majority of the outstanding shares of Common Stock present
in person or represented by proxy at the Annual Meeting will be required for approval of Proposal
II. Shares abstaining with respect to Proposal II will be considered as votes represented and
entitled to vote for purposes of determining the presence of a quorum. However, because the
affirmative vote of a majority of the outstanding shares of Common Stock is required to approve
Proposal II, abstentions will have the same effect as a vote AGAINST Proposal II.
TABLE OF CONTENTS
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General Questions and Answers about this Proxy Material and Voting
Why am I receiving these materials?
We sent you this proxy statement and the enclosed proxy card because the Board of Directors of
VirnetX Holding Corporation (the Board) is soliciting your proxy to vote at our Annual
Meeting to be held on June 4, 2010. You are invited to attend our Annual Meeting to vote on the
proposals described in this Proxy Statement. However, you do not need to attend the meeting to vote
your shares. Instead, you may simply complete, sign and return the enclosed proxy card or vote your
shares by fax or via the Internet. Even if you plan to attend our Annual Meeting, it is a good idea
to, in advance of the Annual Meeting, indicate your preferences on the enclosed proxy card, and
then date, sign and return your proxy card, or vote your shares by fax or via the Internet, just in
case your plans change and you are unable to attend the Annual Meeting. If you own your shares
through a bank or brokerage firm, please follow the instructions on the attached voter instruction
form, or contact your bank or broker.
We intend to mail this Proxy Statement and accompanying proxy card on or about May 3, 2010 to
all stockholders of record entitled to vote at the Annual Meeting.
Who pays for the expenses of soliciting the proxies and what are the means of solicitation?
The expenses of soliciting proxies for the Annual Meeting are to be paid by the Company.
Solicitation of proxies may be made by means of personal calls upon, or telephonic, facsimile or
electronic communications with, stockholders or their personal representatives by our directors,
officers and employees, who will not be specially compensated for such services.
What dissenters rights of appraisal do I have?
There are no dissenters rights of appraisal with respect to the matters to be acted upon at
the Annual Meeting.
Who can vote at the Annual Meeting?
Only stockholders of record at the close of business on April 28, 2010 will be entitled to
vote at our Annual Meeting. On this Record Date, there were 43,704,663 shares of Common Stock
outstanding and entitled to vote.
What am I voting on?
Our stockholders will vote on the following two matters at the Annual Meeting:
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election of one Class III director to serve a term of three years, until his resignation, or
until his successor is duly elected or appointed; and |
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ratification of the appointment of our independent registered public accounting firm for the
fiscal year ending December 31, 2010. |
1
How do I vote?
You may either vote FOR the nominee to the Board or you may WITHHOLD your vote for the
nominee. For each of the other matters to be voted on, you may vote FOR or AGAINST or abstain
from voting.
How many votes do I have?
On each matter to be voted upon, you have one vote for each share of Common Stock you own as
of April 28, 2010, the Record Date.
Will there be any other items of business on the agenda?
We do not know of any business to be considered at the Meeting other than the proposals
described in this Proxy Statement. However, if any other business is properly presented at the
Annual Meeting pursuant to guidelines described in our bylaws, the accompanying proxy gives
discretionary authority to the person named on the proxy with respect to any other matters that
might be brought before the meeting. That person intends to vote the proxy in accordance with his
best judgment.
What if I return a proxy card but do not make specific choices?
If you return a signed and dated proxy card without marking any voting selections, your shares
will be voted FOR the director nominee and FOR the other proposal made in this Proxy Statement.
If any other matter is properly presented at the meeting, your proxy will vote your shares using
his best judgment.
Can I change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote at our Annual Meeting. If you
are the record holder of your shares, you may revoke your proxy in any of the following three ways:
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you may submit another properly completed proxy card with a later date; |
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you may send a written notice that you are revoking your proxy to VirnetX Holding Corporation
at 5615 Scotts Valley Drive, Suite 110 Scotts Valley, California 95066; or |
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you may attend the Annual Meeting and vote in person. |
How are votes counted?
For Proposal I, you may vote FOR the director nominee or you may elect to have your vote
WITHHELD with respect to the director nominee. Votes that are withheld will be excluded entirely
and will have no effect in the election of the director. Similarly, if you hold your shares in a
brokerage account in your brokers name, or street name, and you do not vote or instruct the broker
how to vote the shares, or your broker does not have discretionary authority to vote in the
election of the director, your shares will have no effect in the election of the director.
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For Proposal II, you may vote FOR, AGAINST or ABSTAIN. If you vote to abstain on
Proposal II, your abstention will have the same effect as a vote against the proposal. If you hold
your shares in street name and you do not vote or instruct the broker how to vote the shares, or
your broker does not have discretionary authority to vote, your shares will not be counted in the
tally of the number of shares cast on Proposal II and therefore may have the effect of reducing the
number of shares needed to approve the proposal.
Finally, if you sign and return your proxy card with no further instructions, your shares will
be counted as a vote FOR the director nominee and FOR the ratification of the appointment of
Farber Hass Hurley LLP as our independent registered public accounting firm for the fiscal year
ending December 31, 2010. In addition, the proxy also delegates discretionary authority to vote
with respect to any other business which may properly come before the meeting or any adjournment or
postponement thereof.
How many votes are required for the approval of each item?
There are differing vote requirements for the various proposals:
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one director nominee shall be elected by a plurality of the shares of our common stock
present in person or represented by proxy at the Annual Meeting and entitled to vote on the
election of the director; and/or |
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the appointment of our independent registered public accounting firm will be approved if at
least a majority of the shares of our common stock present or represented by proxy at the
Annual Meeting, and entitled to vote on the appointment of our independent registered public
accounting firm, is cast FOR the proposal. |
What is the quorum requirement?
A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if at
least a majority of the outstanding shares of Common Stock are represented by stockholders present
at the meeting or by proxy. On the record date, there were a total of
43,704,663 shares of Common
Stock outstanding and entitled to vote. Thus, 21,852,332 shares must be represented by stockholders
present at the meeting or by proxy to have a quorum.
Your shares will be counted towards the quorum only if you submit a valid proxy or if you vote
in person at the meeting. Abstentions will be counted towards the quorum requirement. If there is
no quorum, a majority of the votes present at the meeting may adjourn the meeting to another date.
How does the Board recommend voting on the proposals?
Our Board recommends that you vote your shares FOR the Class III director nominee to the
Board; and FOR the ratification of the appointment of Farber Hass Hurley LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2010.
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I share an address with another stockholder, and we received only one paper copy of the proxy
materials. How may I obtain an additional copy of the proxy materials?
In an effort to reduce printing costs and postage fees, we have adopted a practice approved by
the United States Securities and Exchange Commission (SEC) called householding. Under
this practice, stockholders who have the same address and last name and do not participate in
electronic delivery of proxy materials will receive only one copy of our proxy materials, unless
one or more of these stockholders notifies us that he or she wishes to continue receiving
individual copies. Stockholders who participate in householding will continue to receive separate
proxy cards.
If you share an address with another stockholder and received only one set of proxy materials
and would like to request a separate copy of these materials, please: (1) mail your written request
to VirnetX Holding Corporation, 5615 Scotts Valley Drive, Suite 110, Scotts Valley, California
95066 Attn: Investor Relations, or (2) call our Investor Relations department at (831) 438-8200.
Additional copies of the proxy materials will be sent promptly after receipt of your request.
Similarly, you may also contact us if you received multiple copies of the proxy materials and would
prefer to receive a single copy in the future.
What does it mean if I receive more than one proxy card?
It means that you hold shares in more than one account. To ensure that all your shares are
voted, sign and return each card.
Who tabulates the votes and how will I know the results of the voting at the Annual Meeting?
The votes will be tabulated by an independent inspector of election, who will be a
representative of our transfer agent, Corporate Stock Transfer, Inc.
We will announce preliminary voting results at the Annual Meeting. We will publish the
preliminary, or if available, final, voting results in a Current Report on Form 8-K to be filed
with the SEC on or before the fourth business day following the date of our Annual Meeting. If not
published in an earlier Current Report on Form 8-K, we will publish the final voting results in a
Current Report on Form 8-K to be filed with the SEC within four business days after the final
voting results are known. You may obtain a copy free of charge from our Internet website at
http://www.virnetx.com, by contacting our Investor Relations Department at (831) 438-8200, or the
SEC at (800) 732-0330 for the location of the nearest public reference room, or through the online
EDGAR system at www.sec.gov.
How do I contact the Board?
You can send written communications to our Board or any individual director in accordance with
our bylaws, addressed to:
Board of Directors
(or Nominating and Corporate Governance Committee, or name of individual director)
c/o Secretary
VirnetX Holding Corporation
5615 Scotts Valley Drive, Suite 110
Scotts Valley, California 95066
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Our Secretary will then direct such communications to the relevant director(s), except for
solicitations or other matters unrelated to us.
Where are our principal executive offices?
Our principal executive offices are located at 5615 Scotts Valley Drive, Suite 110, Scotts
Valley, California 95066. Our telephone number is (831) 438-8200.
How do I submit a stockholder proposal for the 2011 Annual Meeting of Stockholders?
Stockholder proposals for our 2011 Annual Meeting of Stockholders, whether intended for
inclusion in the proxy statement for such meeting or for presentation directly at such meeting,
must be received at our principal executive offices between February 4, 2011 and March 6, 2011. In
addition, notice of any stockholder proposals must be given in accordance with our bylaws and all
other applicable requirements including the rules and regulations of the SEC. If a stockholder
fails to give notice of a stockholder proposal as required by our bylaws or other applicable
requirements, then the proposal will not be included in the proxy statement for our 2011 Annual
Meeting of Stockholders and the stockholder will not be permitted to present the proposal to the
stockholders for a vote at our 2011 Annual Meeting of Stockholders.
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IMPORTANT ADDITIONAL VOTING INFORMATION FOR THE ANNUAL
MEETING
If you hold your shares through a broker, bank or other financial institution, the SEC has
approved a New York Stock Exchange rule that changes the manner in which your vote in the election
of directors will be handled at our upcoming Annual Meeting.
Stockholders who hold shares of the Company through a broker, bank or other financial
institution receive proxy materials before each stockholder meeting. In the past, if you did not
transmit your voting instructions before the stockholder meeting, your broker was allowed to vote
on your behalf on the election of directors and other matters considered to be routine.
A New Rule for Stockholder Voting
Effective as of January 1, 2010, your broker is no longer permitted to vote on your behalf on
the election of directors unless you provide specific instructions by completing and returning the
proxy card or following the instructions provided to you to vote your shares via telephone or the
Internet. For your vote to be counted, you now will need to communicate your voting decisions to
your broker, bank or other financial institution before the date of the stockholder meeting.
Your Participation in Voting the Shares You Own Is Important
Voting your shares is important to ensure that you have a say in the governance of your
company and to fulfill the objectives of the majority voting standard that we apply in the election
of directors. Please review the proxy materials and follow the instructions on the proxy card to
vote your shares. We hope you will exercise your rights and fully participate as a stockholder in
our future.
More Information Is Available
If you have any questions about this new rule or the proxy voting process in general, please
contact the broker, bank or other financial institution where you hold your shares. The SEC also
has a website (www.sec.gov/spotlight/proxymatters.shtml) with more information about your rights as
a stockholder. Additionally, you may call our Investor Relations department at (831) 438-8200.
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Board of Directors
Our Amended and Restated Certificate of Incorporation provides that the directors of our Board
shall be divided into three classes, with the classes serving for staggered, three-year terms.
Pursuant to our bylaws, our Board has set the number of directors at five, consisting of two Class
I directors, two Class II directors and one Class III director. The Class III director elected
will hold his office until the annual meeting that is held after the fiscal year ending December
31, 2012, until his resignation, or until his successor is duly elected or appointed. The terms of
the Class I and Class II directors will similarly expire at the annual meeting of stockholders
following the fiscal years ending December 31, 2010 and December 31, 2011, respectively, until
their resignation, or until their successors are duly elected or appointed.
Unless otherwise instructed, the proxy holder, Kendall Larsen, will vote the proxies he
receives for the nominee named below. The nominee is presently one of our directors and has
consented to serve a three-year term. In the event that our nominee becomes unable or declines to
serve as a director at the time of the Annual Meeting, the proxy holder will vote the proxies for
the substitute nominee who is designated by our current Board to fill such vacancy. It is currently
expected that the nominee listed below will be able to serve as a director and will not decline to
serve as such.
Nominee and Continuing Directors
Set forth below are the names and certain information as of April 28, 2010 of the nominee for
the Class III director and the current Class I and Class II directors with unexpired terms.
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Class III Director Nominee |
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Michael F. Angelo (1)(2)(3*)
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Director
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2007 |
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Class I Directors Whose Terms
Expire at 2011 Annual Meeting |
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Kendall Larsen
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President, Chief
Executive Officer and
Chairman of the Board of
Directors
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Scott C. Taylor (1)(2*)(3)
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Director |
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2007 |
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Class II Directors Whose Terms
Expire at 2012 Annual Meeting |
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Edmund C. Munger
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Chief Technology
Officer, Director
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Thomas M. OBrien (1*)(2)(3)
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Director
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2007 |
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Member of audit committee. |
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Member of compensation committee. |
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Member of nominating and corporate governance committee. |
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Indicates Chairman of the committee. |
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Michael F. Angelo has been a director since July 5, 2007. He has been the Chief Security
Architect at NetIQ Corporation since August 2005. From October 2003 to August 2005, Mr. Angelo was
a Security Architect and Manager, Government Engagements SBU with Microsoft Corporation. From July
1989 to October 2003, Mr. Angelo was a Staff Fellow at both Hewlett Packard Company and Compaq
Computer Corp. Mr. Angelo also served as Senior Systems Programmer at the John von Neumann National
Supercomputer Center from September 1985 to July 1989. He was a Sub-Chairman of the National
Institute of Standards and Technology Board of Assessment for Programs/National Research Council
responsible for the CISD review, for fiscal years 2001 and 2002, and a technology contributor and
participant on the U.S. Commerce Departments Information Systems Technical Advisory Council
(ISTAC), from 1999 to the present. Mr. Angelo was named a distinguished lecturer for 2004 and 2005
by Sigma XI, the Scientific Research Society. He currently holds 51 patents, most in the area of
security and authentication, and was also named the 2003 Inventor of the Year for the City of
Houston by the Houston Intellectual Property Lawyers Association.
As a holder of many patents in the fields of security and authentication, and as a result of
his long and distinguished industry and scholarly background in the area of computer security and
networking, Mr. Angelo brings to the Board critical technical and industry knowledge and expertise.
With that extensive industry knowledge and having successfully served in multiple leadership
capacities in various types of organizations, Mr. Angelo is uniquely qualified to serve as chair of
the Companys nominating and governance committee.
Kendall Larsen has been Chairman of the Board of Directors, President and Chief Executive
Officer since July 5, 2007 and has held the same positions with VirnetX Inc. since its inception in
August 2005. Mr. Larsen does not hold any director positions with any other reporting or registered
investment companies. From April 2003 to July 2005, Mr. Larsen focused on pre-incorporation
activities related to VirnetX Inc. From April 2002 to April 2003, Mr. Larsen was a Limited Partner
at Osprey Ventures, L.P., a venture fund that makes investments primarily in business and consumer
technology companies. From October 2000 to April 2002, he was Senior Vice President and General
Manager of the Security Products Division of Phoenix Technologies Ltd., a software and firmware
developer. Prior to March 2003, and for a period of over 20 years, Mr. Larsen has held senior
executive positions at various leading technology companies, including RSA Security, Inc., Xerox
Corporation, Rolm/International Business Machines Corporation, Novell, Inc., General Magic, Inc.,
and Ramp Networks. Mr. Larsen holds a B.S. in Economics from the University of Utah.
With his years of managerial experience, Mr. Larsen brings to the Board demonstrated
management ability at senior levels. Mr. Larsens day-to-day leadership and intimate knowledge of
our business and operations provide the Board with Company-specific experience and expertise. Mr.
Larsens drive for innovation and excellence position him well to serve as our Chairman, President
and Chief Executive Officer.
Scott C. Taylor has been a Director since July 5, 2007. Mr. Taylor serves as Executive Vice
President and General Counsel for Symantec Corporation where he has been employed since February
2007. From January 2002 to February 2007, Mr. Taylor worked for Phoenix Technologies Ltd. Prior to
2002, Mr. Taylor has worked at Narus Inc., Symantec Corporation, Pillsbury Madison & Sutro LLP (now
Pillsbury Winthrop Shaw Pittman LLP), ICF Incorporated (now ICF Consulting) and the U.S. Securities
and Exchange Commission in various roles. Mr. Taylor was admitted to practice law in the State of
California in 1993. Mr. Taylor has a B.A. in International Relations from Stanford University and a
J.D. from George Washington University.
8
Having served as general counsel for two public companies, including his current service as
Executive Vice President and General Counsel for Symantec Corporation, a Delaware corporation
listed on the Nasdaq Global Select Market, Mr. Taylor brings to the Board significant knowledge and
experience with corporate governance and public company reporting requirements. In addition, as an
executive in a leading information security solutions company, Mr. Taylor has strong expertise in
issues affecting our industry generally.
Edmund C. Munger has been a director since July 5, 2007. He has been the Chief Technology
Officer of VirnetX since July 2006 and a director of VirnetX since July 2006. From July 1987 to
June 2006, Mr. Munger held various positions including Associate Division Manager, Division
Manager, Chief System Architect and Assistant Vice President at Science Applications International
Corporation (NYSE: SAI), a leading provider of services and solutions to all branches of the U.S.
military, agencies of the Department of Defense, the intelligence community, the U.S. Department of
Homeland Security and other U.S. government civil agencies, as well as to customers in selected
commercial markets. Mr. Munger is named as a co-inventor on the majority of the patents in the
VirnetX patent portfolio. Mr. Munger received a M.S. in Naval Architecture and Marine Engineering
from MIT and a B.S. in Naval Science from the United States Naval Academy.
As co-inventor on the majority of the patents in the VirnetX patent portfolio, Mr. Munger
brings to the Board extraordinary technical knowledge and a deep understanding of the Companys
business, history and organization and the field of information security.
Thomas M. OBrien has been a director since July 5, 2007. He has been Senior Vice President of
Reit Management & Research LLC, an institutional manager of real estate, public real estate
investment trusts (REITs) and other public companies, since May 2006 and served as a Vice
President of that company from May 1996 to April 2006. During the last five years, Mr. OBrien has
held various positions with public entities related to Reit Management or its affiliates, including
serving as: (1) Chief Executive Officer and President of TravelCenters of America LLC (NYSE Amex:
TA), since February 2007 and a Managing Director since October 2006; and (2) Chief Executive
Officer and President of RMR Funds, a group of publicly traded closed-end investment management
companies from 2003 to May 2007. From 1988 to 1996, Mr. OBrien was a senior manager with Arthur
Andersen LLP where he served a number of public company clients. Mr. OBrien graduated cum laude
from the University of Pennsylvania, Wharton School of Business, with a B.S. in Economics.
As a former certified public accountant and Chief Financial Officer of a public company listed
on the NYSE and a current Chief Executive Officer and director of a public company listed on the
NYSE Amex, Mr. OBrien brings to the Board and the Audit Committee, of which he is Chairman, a deep
understanding of complex accounting and finance issues faced by the Company and can provide
critical insight into the financial and other reporting requirements of a U.S. public company. In
addition, his extensive capital markets experience is an invaluable resource as the Company
regularly assesses its capital and liquidity needs.
9
Executive Officers
The following table sets forth the respective names, ages and positions of our executive
officers as of April 28, 2010.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
Kendall Larsen
|
|
|
53 |
|
|
Chairman of the Board of Directors, President and
Chief Executive Officer |
William E. Sliney
|
|
|
71 |
|
|
Chief Financial Officer (Interim) |
Kendall Larsens biography is set forth under the heading Board of Directors in this proxy
statement.
William E. Sliney has been our Chief Financial Officer on an interim and part-time basis since
July 5, 2007. Mr. Sliney previously served as our President, Chief Financial Officer and Secretary.
He also served as our Chairman of the Board from October 2000 to August 2001 and was a member of
our Board of Directors from October 2000 to July 5, 2007. From March 2004 to March 2006, he was
also a director of Enterra Energy Trust (NYSE: ENT), an oil and gas trust based in Calgary, Alberta
that acquires, operates, and exploits petroleum and natural gas assets in Canada and in the United
States. Before joining us, Mr. Sliney was the Chief Financial Officer of Legacy Software Inc. from
1995 to 1998. From 1993 to 1994, Mr. Sliney was Chief Executive Officer of Gumps, a high end
department store retailer based in San Francisco. Mr. Sliney received an M.B.A. from the Anderson
School at UCLA.
There are no family relationships among any of our directors or executive officers.
Corporate Governance
Role of the Board
Our directors are appointed to oversee the actions and results of our management. They were
selected for their educational background, professional experience, knowledge of our business,
integrity, professional reputation, independence, wisdom and ability to represent the best
interests of our stockholders. Their responsibilities include:
|
|
providing general oversight of the business; |
|
|
|
approving corporate strategy; |
|
|
|
approving major management initiatives; |
|
|
|
providing oversight of legal and ethical conduct; |
|
|
|
overseeing our management of significant business risks; |
|
|
|
selecting, compensating, and evaluating directors; |
|
|
|
evaluating Board processes and performance; and |
|
|
|
reviewing and implementing recommendations and reports of the committees of the Board. |
10
Board Leadership Structure
The Board believes that the Companys chief executive officer is best situated to serve as
Chairman of the Board because he is the director most familiar with the Companys business and
industry, and most capable of effectively identifying strategic priorities and leading the
discussion and execution of strategy. Independent directors and management have different
perspectives and roles in strategy development. The Companys independent directors bring
experience, oversight and expertise from outside the company and industry, while the chief
executive officer brings company-specific experience and expertise. The Board believes that the
combined role of Chairman of the Board and chief executive officer promotes strategy development
and execution, and facilitates information flow between management and the Board, which are
essential to effective governance.
The Company does not currently have a lead independent director. To assure effective
independent oversight, the Board has designed its leadership structure so that independent
directors exercise oversight of the Companys management and key issues related to strategy and
risk. Only independent directors serve on the audit committee, the compensation committee and the
nominating and corporate governance committee of the Board and all standing Board committees are
chaired by independent directors.
Risk Oversight
Management is responsible for the day-to-day management of risks the Company faces, while the
Board, as a whole and through its committees, has responsibility for the oversight of risk
management. In its risk oversight role, the Board has the responsibility to satisfy itself that the
risk management processes designed and implemented by management are adequate and functioning as
designed. The Board believes that establishing the right tone at the top and that full and open
communication between management and the Board are essential for effective risk management and
oversight. Senior management attends the quarterly Board meetings and is available to address any
questions or concerns raised by the Board on risk management-related and any other matters. Each
quarter, the Board receives presentations from senior management on strategic matters involving our
operations. The Board holds strategic planning sessions with senior management to discuss
strategies, key challenges, and risks and opportunities for the Company.
While the Board is ultimately responsible for risk oversight for the Company, our three Board
committees assist the Board in fulfilling its oversight responsibilities in certain areas of risk.
The audit committee assists the Board in fulfilling its oversight responsibilities with respect to
risk management in the areas of financial reporting, internal controls and compliance with legal
and regulatory requirements. The compensation committee assists the Board in fulfilling its
oversight responsibilities with respect to the management of risks arising from our compensation
policies and programs. The nominating and governance committee assists the Board in fulfilling its
oversight responsibilities with respect to the management of risks associated with Board
organization, membership and structure, succession planning for our directors and executive
officers, and corporate governance.
11
Risk Assessment of Compensation Policies
The compensation committee conducted a risk assessment of the Companys compensation policies
and practices for 2009 and concluded that they do not motivate imprudent risk taking. In this
regard, the Company notes that:
|
|
the Companys annual incentive compensation is based on performance that promotes
disciplined progress towards longer-term Company goals; |
|
|
the Company does not offer significant short-term incentives that might drive high-risk
investments at the expense of long-term Company value; |
|
|
the Companys compensation programs are weighted towards offering long-term incentives
that reward sustainable performance, especially when considering the Companys executive
share ownership and holding requirements; and |
|
|
the Companys compensation awards are capped at reasonable and sustainable levels, as
determined by a review of the Companys economic position and prospects, as well as the
compensation offered by comparable companies; |
The Companys compensation policies and practices were evaluated to ensure that they do not
foster risk taking above the level of risk associated with the Companys business model. Based on
this assessment, the Company concluded that it has a balanced pay and performance program that does
not promote excessive risk taking.
Corporate Governance Guidelines
Our Board has established guidelines that it follows in matters of corporate governance. The
following is a summary of those guidelines. A complete copy of the documents underlying our
guidelines is available online at http://www.virnetx.com in the Corporate Governance link under
the Investors tab, or in paper form upon request to our Secretary.
Code of Ethics
We have adopted a Code of Ethics for all employees and directors to prohibit conflicts of
interest between them and the Company. A copy of our Code of Ethics is available on our website at
http://www.virnetx.com in the Highlights link in the Corporate Governance subcategory under the
Investors tab, or by writing to us at VirnetX Holding Corporation, 5615 Scotts Valley Drive,
Suite 110, Scotts Valley, California 95066, Attention: Investor Relations.
We intend to post on our website any amendment to, or waiver from, a provision of our Code of
Ethics within four business days following the date of such amendment or waiver. We do not
anticipate any such amendments or waivers.
Composition of the Board of Directors
Mix of Independent Directors and Officer-Directors
Our Board has determined that it is beneficial for us and our stockholders to have a Board
with a majority of independent directors and for our chief executive officer to also be a Board
member.
Other officers may, from time to time, be Board members, but no officer other than the chief
executive officer should be expected to be elected to our Board by virtue of his or her office.
12
Selection of Director Candidates
Our Board is responsible for selecting candidates for Board membership and for establishing
the criteria to be used in identifying potential candidates. Our Board delegates the screening
process to the nominating and corporate governance committee. For more information on the director
nomination process, including the current selection criteria, see Nominating and Corporate
Governance Committee Matters starting on page 15 of this proxy statement.
Independence Determinations
Our Board annually determines the independence of directors based on a review by the directors
and the nominating and corporate governance committee. No director is considered independent unless
our Board has determined that he or she has no material relationship with the Company, either
directly or as a partner, stockholder, or officer of an organization that has a material
relationship with the Company.
We have adopted the following standards for director independence in compliance with the NYSE
Amex corporate governance listing standards and the rules and regulations of the SEC:
|
|
no director qualifies as independent if such person has a relationship which, in the
determination of at least a majority of the Board, would interfere with exercise of
independent judgment in carrying out the responsibilities of a director; |
|
|
a director who is an officer or employee of us or our subsidiaries, or one whose immediate
family member is an executive officer of us or our subsidiaries, is not independent until
three years after the end of such employment relationship; |
|
|
a director who accepts, or whose immediate family member accepts, more than $120,000 in
compensation from us or any of our subsidiaries during any period of twelve consecutive months
within the three years preceding the determination of independence, other than certain
permitted payments such as compensation for Board or Board committee service, payments arising
solely from investments in our securities, compensation paid to a family member who is a
non-executive employee of us or a subsidiary of ours, or benefits under a tax-qualified
retirement plan is not considered independent; |
|
|
a director who is, or who has a family member who is, a partner in, or a controlling
stockholder or an executive officer of, any organization to which we made, or from which we
received, payments for property or services that exceed 5% of the recipients consolidated
gross revenues for that year, or $200,000, whichever is more, is not independent until three
years after falling below such threshold; |
|
|
a director who is employed, or one whose immediate family member is employed, as an executive
officer of another company where any of our, or any of our subsidiaries, present executives
serve on that companys compensation committee is not independent until three years after
the end of such service or employment relationship; and |
|
|
a director who is, or who has a family member who is, a current partner of our independent
registered public accounting firm, Farber Hass Hurley LLP, or was a partner or employee of
Farber Hass Hurley LLP who worked on our audit is not independent until three years after
the end of such affiliation or employment relationship. |
13
Our Board has determined that Michael F. Angelo, Thomas M. OBrien and Scott C. Taylor meet
the aforementioned independence standards.
Director Compensation and Equity Ownership
Our compensation committee annually reviews director compensation. Any recommendations for
changes are made to our full Board by our compensation committee.
In order to align directors incentives with the creation of stockholder value, we believe
that directors should hold meaningful equity ownership positions in the Company; accordingly, a
significant portion of overall director compensation is in the form of equity of the Company.
Board Meetings and Committees and Annual Meeting Attendance
Our Board held a total of seven meetings during the calendar year ended December 31, 2009.
Every director has attended every Board meeting and the meetings of all committees of which he is a
member. Since November 6, 2007, our Board has had a standing audit committee, compensation
committee and nominating and corporate governance committee. Our audit committee charter,
compensation committee charter, and nominating and corporate governance committee charter, each as
adopted by the Board, are posted on our website at http://www.virnetx.com in the Highlights link
in the Corporate Governance subcategory under the Investors tab.
We encourage, but do not require, our Board members to attend our annual meetings of
stockholders. All of our Board members were in attendance for our 2009 Annual Meeting of
Stockholders. We expect all Board members to be present at this Annual Meeting.
Committees of the Board of Directors
|
|
|
|
|
|
|
|
|
Nominating and |
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
Governance |
|
Compensation |
|
Audit |
Director |
|
Committee |
|
Committee |
|
Committee |
Michael F. Angelo |
|
Chair |
|
X |
|
X |
Kendall Larsen |
|
|
|
|
|
|
Edmund C. Munger |
|
|
|
|
|
|
Thomas M. OBrien |
|
X |
|
X |
|
Chair |
Scott C. Taylor |
|
X |
|
Chair |
|
X |
Nominating and Corporate Governance Committee Matters
Membership and Independence
Our nominating and corporate governance committee met once during the fiscal year ended
December 31, 2009.
14
Messrs. Angelo, OBrien and Taylor, each of whom is a non-employee member of our Board,
comprise our nominating and corporate governance committee. Mr. Angelo is the chairman of our
nominating and corporate governance committee. Our Board has determined that each of Messrs.
Angelo, OBrien and Taylor meet current SEC and NYSE Amex requirements for independence. The
nominating and corporate governance committee is responsible for, among other things:
|
|
assisting our Board in identifying prospective director nominees and recommending to the
Board director nominees for each annual meeting of stockholders, vacancy or newly created
director position; |
|
|
developing and recommending to our Board governance principles applicable to us, including
the Code of Ethics; |
|
|
overseeing the evaluation of our Board and management; and |
|
|
delegating such of its authority and responsibilities as it deems proper to members of the
committee or a subcommittee. |
A more detailed description of our nominating and corporate governance committees functions
can be found in our nominating and corporate governance committee charter at http://www.virnetx.com
in the Highlights link in the Corporate Governance subcategory under the Investors tab, or by
writing to us at VirnetX Holding Corporation, 5615 Scotts Valley Drive, Suite 110, Scotts Valley,
California 95066, Attention: Investor Relations.
Stockholder Recommendations and Nominees
The policy of our nominating and corporate governance committee is to consider properly
submitted recommendations for candidates to our Board from stockholders. In evaluating such
recommendations, our nominating and corporate governance committee seeks to achieve a balance of
experience, knowledge, integrity, and capability on our Board and to address the membership
criteria set forth under Director Qualifications below. Any stockholder recommendations for
consideration by our nominating and corporate governance committee should include (1) the name,
age, business address and residence address of such person, (2) the principal occupation or
employment of such person, (3) the class and number of shares of the Corporation which are
beneficially owned by such person and (4) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934
(including, without limitation, such persons written consent to being name in the proxy statement
as a nominee and to serving as a director if elected.)
Stockholder recommendations to our Board should be sent to our Secretary at VirnetX Holding
Corporation, 5615 Scotts Valley Drive, Suite 110, Scotts Valley, California 95066.
In addition, our bylaws permit stockholders to nominate directors for consideration at an
annual meeting. For a description of the process for nominating directors in accordance with our
bylaws, see General Information How do I submit a stockholder proposal for the 2011 Annual
Meeting of Stockholders? starting on page 5 of this proxy statement.
15
Director Qualifications
Our nominating and corporate governance committee evaluates and recommends candidates for
membership on our Board consistent with criteria established by the Board. Our Board has not
formally established any specific, minimum qualifications that must be met by each candidate for
our Board or specific qualities or skills that are necessary for one or more of the members of our
Board to possess. However, our nominating and corporate governance committee, when considering a
potential non-incumbent candidate, will factor into its determination the following qualities of a
candidate: educational background, professional experience, including whether the person is a
current or former chief executive officer or chief financial officer of a public company or the
head of a division of a large international organization, knowledge of our business, integrity,
professional reputation, independence, wisdom and ability to represent the best interests of our
stockholders.
Identification and Evaluation of Nominees for Directors
Our nominating and corporate governance committee uses a variety of methods for identifying
and evaluating nominees for director. Our nominating and corporate governance committee regularly
assesses the appropriate size and composition of our Board, the needs of our Board and the
respective committees of our Board and the qualifications of candidates in light of these needs.
Candidates may come to the attention of the nominating and corporate governance committee through
stockholders, management, current members of our Board, or search firms.
Once the nominating and corporate governance committee has identified a prospective nominee,
the nominating and corporate governance committee makes an initial determination as to whether to
conduct a full evaluation of the candidate. This initial determination is based on the information
provided to the nominating and corporate governance committee concerning the prospective candidate,
as well as the nominating and corporate governance committees own knowledge of the prospective
candidate, which may be supplemented by inquiries to the person making the recommendation or
others. The preliminary determination is based primarily on the need for additional Board members
to fill vacancies or expand the size of the Board and the likelihood that the prospective nominee
can satisfy the evaluation factors described below. If the nominating and corporate governance
committee determines, in consultation with other Board members as appropriate, that additional
consideration is warranted, it may gather or request the third party search firm to gather
additional information about the prospective nominees background and experience. The nominating
and corporate governance committee then evaluates the prospective nominee, taking into account
whether the prospective nominee is independent within the meaning of the listing standards of the
NYSE Amex and such other factors as it deems relevant, including the current composition of the
Board, the balance of management and independent directors, the need for audit committee or
compensation committee expertise, the prospective nominees skills and experience, the diversity of
the members skills and experience in areas that are relevant to the Companys businesses and
activities, and the evaluations of other prospective nominees. In connection with this evaluation,
the nominating and corporate governance committee determines whether to interview the prospective
nominee and, if warranted, one or more members of the nominating and corporate governance committee
and others, as appropriate, conduct interviews in person or by telephone. After completing this
process, the nominating and corporate governance committee makes a recommendation to the full Board
as to the persons who should be nominated by the Board, and
the Board determines the nominees after considering the recommendation and report of the
nominating and corporate governance committee. The nominating and corporate governance committee
follows the same process and uses the same criteria for evaluating candidates proposed by
stockholders, members of the Board and members of management.
16
The nominating and corporate governance committee considers diversity as one of a number of
factors in identifying nominees for director. It does not, however, have a formal policy in this
regard. The committee views diversity broadly to include diversity of experience, skills and
viewpoint as well as traditional diversity concepts such as race or gender.
Audit Committee Matters
Membership and Independence
Messrs. Angelo, OBrien and Taylor, each of whom is a non-employee member of our Board,
comprise our audit committee. Mr. OBrien is the chairman of our audit committee. Our Board has
determined that Messrs. Angelo, OBrien and Taylor each satisfy the requirements for independence
under the rules and regulations of the NYSE Amex and the SEC. Our Board has also determined that
Mr. OBrien qualifies as an audit committee financial expert as defined in the SEC rules and
satisfies the financial sophistication requirements of the NYSE Amex. Our audit committee was
established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as
amended (the Exchange Act).
Our audit committee met four times during the fiscal year ended December 31, 2009.
Responsibilities
Our audit committees responsibilities include the following:
|
|
appointment of and approval of compensation for our independent public accounting firm,
including oversight of its independence; |
|
|
oversight of our accounting and financial reporting processes; |
|
|
oversight of the audits of our financial statements; |
|
|
oversight of the effectiveness of our internal control over financial reporting; and |
|
|
preparing the audit committee report that the SEC requires in our annual proxy statement. |
A more detailed description of our audit committees functions can be found in our audit
committee charter at http://www.virnetx.com in the Highlights link in the Corporate Governance
subcategory under the Investors tab, or by writing to us at VirnetX Holding Corporation, 5615
Scotts Valley Drive, Suite 110, Scotts Valley, California 95066, Attention: Investor Relations.
17
Audit Committee Report
In connection with the financial statements for the fiscal year ended December 31, 2009, our
audit committee has:
|
|
reviewed and discussed the audited financial statements with management; |
|
|
discussed with Farber Hass Hurley LLP, our independent accountants, matters required to be
discussed by the Statement on Auditing Standards No. 61, as amended; and |
|
|
received the written disclosures and letter from Farber Hass Hurley LLP discussing the
matters required by applicable requirements of the Public Company Accounting Oversight Board
regarding the independent accountants communications with the audit committee concerning
independence, and has discussed with Farber Hass Hurley LLP its independence from us. |
Based upon these reviews and discussions, our audit committee recommended to our Board that
our audited financial statements be included in our Annual Report on Form 10-K for the year ended
December 31, 2009, filed with the SEC. Our Board approved our audit committees recommendations.
Respectfully submitted,
THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Michael F. Angelo
Thomas M. OBrien
Scott C. Taylor
Notwithstanding anything to the contrary set forth in any of the Companys filings under the
Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate future
filings, including this proxy statement, in whole or in part, the Audit Committee Report shall not
be deemed to be incorporated by reference into any such filings, unless we specifically incorporate
these reports by reference in some other filed document.
Stockholders Communications Process
Any of our stockholders who wish to communicate with our Board, a committee of our Board, our
non-management directors as a group, or any individual member of our Board, may send correspondence
to our Secretary at VirnetX Holding Corporation, 5615 Scotts Valley Drive, Suite 110, Scotts
Valley, California 95066.
Our Secretary will compile and submit on a periodic basis all stockholder correspondence to
our entire Board, or, if and as designated in the communication, to a committee of our Board, our
non-management directors as a group, or an individual Board member. The independent directors of
our Board review and approve the stockholders communications process periodically to ensure
effective communication with stockholders.
18
Principal Accountant Fees & Services
The following table sets forth the costs we incurred for services provided by Farber Hass
Hurley LLP, our independent registered public accountant, which has audited our financials for the
years ended December 31, 2009 and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
Fee Category |
|
2009 |
|
|
2008 |
|
|
|
Audit Fees |
|
$ |
149,000 |
|
|
$ |
125,000 |
|
|
|
Audit-Related Fees |
|
$ |
12,000 |
|
|
$ |
43,000 |
|
Tax Fees |
|
|
|
|
|
|
|
|
All Other Fees |
|
|
|
|
|
|
|
|
Total Fees |
|
$ |
161,000 |
|
|
$ |
168,000 |
|
Audit Fees. Consists of fees billed for professional services rendered in connection with the
audit of our consolidated financial statements, review of the interim consolidated financial
statements included in our quarterly reports, and accounting services in connection with securities
offerings.
Audit-Related Fees. Consists of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of our consolidated financial
statements and are not reported under Audit Fees. These services include consultations in
connection with financial accounting and reporting standards.
Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and
tax planning. We have nothing to report in this line item as we did not engage Farber Hass Hurley
LLP to perform tax-related services for the Company.
All Other Fees. We have nothing to report in this line item as we did not engage Farber Hass
Hurley LLP to perform services not covered by the preceding three categories.
Representatives of Farber Hass Hurley LLP will be present at our Annual Meeting, will have the
opportunity to make a statement if they desire to do so and will be available to respond to
questions from stockholders.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered
Public Accounting Firm
Our audit committees policy is to pre-approve all services provided by our independent
registered public accounting firm. For the fiscal year ended December 31, 2009, our audit committee
approved 100% of all services provided by our independent registered public accounting firm. These
services include audit services and audit-related services. Our independent registered public
accounting firm is required to periodically report to our audit committee regarding the extent of
services provided by our independent registered public accounting firm in accordance with such
pre-approval. Our audit committee may also delegate pre-approval authority to one or more of its
members. Such member(s) must report any such pre-approval to our audit committee at the next
scheduled meeting.
19
Compensation Committee Matters
Membership and Independence
Messrs. Angelo, OBrien and Taylor, each of whom is a non-employee member of our Board,
comprise our compensation committee. Mr. Taylor is the chairman of our compensation committee. Our
Board has determined that each member of our compensation committee meets the requirements for
independence under the rules of the NYSE Amex, and is a non-employee director within the meaning
of the Exchange Act, and is an outside director, within the meaning of the Code.
Scope of Authority
Our compensation committees responsibilities include the following:
|
|
exclusive authority for determining our chief executive officers compensation; |
|
|
determining for other executive officers: annual base salary, annual incentive bonus,
including the specific goals and amount, equity compensation, employment agreements, severance
arrangements and change in control agreements/provisions, and any other benefits or
compensation arrangement, including delegating its authority on these matters with regard to
our non-officer employees and consultants to appropriate supervisory personnel; |
|
|
evaluating and recommending to our Board compensation plans, policies, and programs for our
chief executive officer and other executive officers; |
|
|
|
administering our equity incentive plans; and |
|
|
preparing the compensation committee report that the SEC requires in our annual proxy
statement. |
Except with respect to determining the chief executive officers compensation, the Committee
may delegate its authority to a subcommittee of the committee and, to the extent permitted by
applicable law, the committee may delegate to officers or appropriate supervisory personnel the
authority to grant stock awards to non-executive, non-director employees.
A more detailed description of our compensation committees functions can be found in our
compensation committee charter at http://www.virnetx.com in the Highlights link in the Corporate
Governance subcategory under the Investors tab, or by writing to us at VirnetX Holding
Corporation, 5615 Scotts Valley Drive, Suite 110, Scotts Valley, California 95066, Attention:
Investor Relations.
Our Compensation Committees Processes and Procedures
Our compensation committees primary processes for establishing and overseeing executive
compensation include:
|
|
Meetings. Our compensation committee met twice during the fiscal year ended December 31,
2009. |
|
|
Role of Executive Officers. Our president and chief executive officer generally attends
compensation committee meetings and sometimes makes recommendations to our compensation
committee regarding the amount and form of the compensation of the other executive officers
and key employees. He is not present for any of the executive sessions or for any discussion
of his own compensation. |
20
Non-employee directors compensation is established by our Board upon the recommendation of
our compensation committee.
Compensation Committee Interlocks and Insider Participation
None of Messrs. Angelo, OBrien and Taylor, who comprise our compensation committee, has
served as one of our officers or employees in the past year. Other than our subsidiaries, no
executive officer currently serves, or in the past year has served, as a member of a board or
compensation committee of another entity where that entitys executive officer serves on our Board
or compensation committee.
Director Compensation
Directors who are also our employees are not paid an annual retainer, nor are they compensated
for serving on the board. Information regarding compensation otherwise received by our directors,
who are also executive officers, is provided under the heading Executive Compensation.
Cash Compensation
We provide the following cash compensation for non-employee directors:
|
|
each non-employee director will receive a quarterly cash retainer of $5,000; |
|
|
each non-employee director who serves as a member of our audit committee will receive a
quarterly cash retainer of $625; each non-employee director who serves as a member of our
compensation or nominating and corporate governance committees will receive a quarterly cash
retainer of $500 for each committee; |
|
|
each non-employee director who serves as a chair of our audit committee will receive a
quarterly cash retainer of $3,125; each non-employee director who serves as a chair of our
compensation or nominating and corporate governance committees will receive a quarterly cash
retainer of $1,250; and |
|
|
each non-employee director who attends a board meeting will receive a cash payment of $1,500
($500 for telephone participation) and each non-employee director who attends a committee
meeting will receive a cash payment of $1,000 ($500 for telephone participation), provided
that no additional committee meeting fee will be paid if the committee meeting is held on the
same day as a full board meeting. |
21
Stock Compensation
We provide the following stock compensation for non-employee directors:
|
|
each new non-employee director will be granted an option to purchase 30,000 shares of common
stock with a per-share exercise price equal to the fair market value of that stock on the date
of grant and which will vest monthly with respect to 1/36th of the total number of shares
subject to the option, conditioned upon continued service as a director; provided that these
options automatically become exercisable in full immediately prior to a change of control of
the Company; and |
|
|
each existing non-employee director will be granted a fully vested option to purchase 10,000
shares of common stock at the Annual Meeting with a per-share exercise price equal to the fair
market value of that stock on the date of grant and which will be fully vested on the date of
grant. |
The following table shows the compensation earned by or paid to each of our independent
directors during fiscal year 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
Option |
|
|
|
|
|
|
or Paid in |
|
|
Awards |
|
|
|
|
Name |
|
Cash ($) |
|
|
($)(1) |
|
|
Total($) |
|
Michael F. Angelo |
|
$ |
35,500 |
|
|
$ |
15,800 |
|
|
$ |
51,300 |
|
Thomas M. OBrien |
|
$ |
41,500 |
|
|
$ |
15,800 |
|
|
$ |
57,300 |
|
Scott C. Taylor |
|
$ |
35,500 |
|
|
$ |
15,800 |
|
|
$ |
51,300 |
|
(1) |
|
The amounts in this column reflect the aggregate grant date fair value of the stock options
computed in accordance with Financial Accounting Standards Boards Accounting Standards
Codification Topic 718, or FASB ASC Topic 718. There can be no assurance that these amounts will
ever be realized. For information on the valuation assumptions used in valuing these stock option
awards, refer to Note 7 titled Stock Based Compensation in the Note to the Financial Statements
contained in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
The number of outstanding options held by each director at 2009 year end were as follows: Mr.
Angelo (50,000), Mr. OBrien (50,000) and Mr. Taylor (50,000). |
22
Executive Compensation
Compensation Discussion and Analysis
Overview
This Compensation Discussion and Analysis describes our compensation program as it relates to
our Named Executive Officers set forth below in the Summary Compensation Table. In this
Compensation Discussion and Analysis, we first discuss the objectives and philosophy of our
executive compensation program. Next, we review the process our compensation committee follows in
deciding how to compensate our Named Executive Officers. We then provide a brief overview of the
specific elements of our compensation program. Lastly, we present a detailed discussion and
analysis of the compensation committees specific decisions about the compensation of our Named
Executive Officers for fiscal year 2009 and, to the extent that it is relevant to a fair
understanding of our Named Executive Officers fiscal year 2009 compensation, the compensation
committees approach to compensation for fiscal year 2010.
Objectives and Philosophy of Executive Compensation
The primary objectives and philosophy of our peer-based executive compensation program are:
|
|
|
attracting and retaining the most talented and dedicated executives possible; |
|
|
|
correlating annual and long-term cash and stock incentives to achievement of measurable
performance objectives; and |
|
|
|
aligning executives incentives with stockholder value creation. |
To achieve these objectives, we implement and maintain compensation plans that tie a
substantial portion of each executives overall compensation to key strategic financial and
operational goals such as the establishment and maintenance of key strategic relationships, the
development of our product candidates, the identification and advancement of additional product
candidates, and the performance of our common stock price. Our compensation committees approach
emphasizes the setting of compensation at levels the committee believes are competitive with
executives in other companies of similar size and stage of development who are operating in the
information technology industry while taking into account our relative performance and our own
strategic goals.
Executive Compensation Process
We maintain a peer-based executive compensation program comprised of multiple elements. We
typically review the elements of compensation for our Named Executive Officers annually. In
connection with our review, we analyze the compensation paid by the following peer companies:
|
|
|
Early and late stage private companies using a semi-annual survey of private,
venture-backed companies that have received at least one round of financing from a
professional U.S.-based venture capital firm. Of the companies in this survey, over
one-half are in the information technology business and the remainder are divided between
healthcare, products and services and other companies. |
23
|
|
|
A key comparable company, Medivation, Inc., which also completed a reverse merger
followed by an underwritten direct primary public offering. This company had similar market
capitalization compared to us and was similarly early stage and pre-revenue at the time of
their reverse merger, although this company is a medical device company. |
|
|
|
Public company peers using data we gathered from the SEC filings. While the
compensation committee did not formally approve a specific peer group, the compensation
committee did review the compensation data of nine public companies with the same industry
code as us and otherwise in a comparable industry and having a market capitalization of
between $31 million and $450 million. These companies include: Ciber, Inc., Computer Task
Group, Inc., Entrust, Inc., Evolving Systems, Inc., iGate Corp., Ness Technologies, Network
Engines, PDF Solutions, Inc., and Procera Networks, Inc. |
In addition to analyzing the above market data, the compensation committee reviews each
individuals qualifications, experience and relative contributions to the Company.
Our compensation committee exclusively makes all compensation decisions with regard to our
chief executive officer and the Companys other Named Executive Officers. Our president and chief
executive officer generally attends compensation committee meetings and sometimes makes
recommendations to our compensation committee regarding the amount and form of the compensation of
the other Named Executive Officers and key employees. He is not present for any of the executive
sessions or for any discussion of his own compensation.
Our compensation committee considers the possible tax consequences to the Company and to its
executives of our compensation programs, the accounting consequences to the Company of different
compensation decisions and the impact of such decisions on stockholder dilution. With respect to
the tax consequences to the Company, the compensation committee considers the potential future
effects of Section 162(m) of the Internal Revenue Code on the compensation paid to our Named
Executive Officers. Section 162(m) disallows a tax deduction for any publicly held corporation for
individual compensation exceeding $1.0 million in any taxable year for any of the Named Executive
Officers in the proxy statement, unless compensation is qualified performance based compensation
within the meaning of Section 162(m). In approving the amount and form of compensation for our
Named Executive Officers, our compensation committee will continue to consider all elements of the
cost to us of providing such compensation, including the potential impact of Section 162(m).
However, to maintain maximum flexibility in designing compensation programs, the compensation
committee will not limit compensation to those levels or types of compensation that are intended to
be deductible or that lead to a particular accounting result or level of stockholder dilution.
Our compensation committee structures our executive compensation program in a manner that it
believes does not promote inappropriate risk taking by our executives, but rather encourages
management to take a balanced approach, focused on achieving our corporate goals.
Our compensation committee reports to our board on the major items covered at each
compensation committee meeting.
24
Elements of Executive Compensation
Our executive compensation program consists of the following elements:
|
|
Base Salary. Base salaries for our Named Executive Officers are established based on the
scope of their responsibilities, taking into account competitive market compensation paid by
other companies for similar positions. Generally, the program is designed to deliver executive
base salaries within the range of salaries for executives with the requisite skills in similar
positions with similar responsibilities at comparable companies, in line with our compensation
philosophy. Executives with more experience, critical skills, and/or considered key performers
may be compensated above the range as part of our strategy for attracting, motivating and
retaining highly experienced and high performing employees. Base salaries are reviewed
annually and adjusted from time to time to realign salaries with market levels after taking
into account individual responsibilities, performance, and experience. This review generally
occurs each year in the fourth quarter and adjustments are made from time to time to ensure
market competitiveness. |
|
|
Discretionary Annual Incentive Bonus. Each year, our compensation committee establishes a
target discretionary annual incentive bonus amount for each Named Executive Officer based on a
percentage of the executives base salary. No performance goals are specifically established
or communicated to our Named Executive Officers and our compensation committee has the sole
discretion to determine following the end of the fiscal year whether and the extent to which
the discretionary annual incentive bonuses will be paid. Our compensation committee generally
utilizes the discretionary annual incentive bonuses to compensate officers for achieving
financial and operational goals and for individual performance. Performance factors considered
when determining bonuses typically include strategic factors such as establishment and
maintenance of key strategic relationships, development and implementation of our licensing
strategy, development of our product, identification and advancement of additional products,
and financial factors such as raising capital, improving our results of operations, and
increasing the price per share of our common stock. |
|
|
Long-Term Incentive Program. We believe that long-term performance is achieved through an
ownership culture that encourages high performance by our Named Executive Officers through the
use of stock and stock-based awards. Our 2007 Stock Plan was established to provide our
employees, including our Named Executive Officers, with incentives to help align those
employees interests with the interests of stockholders. Our compensation committee believes
that the use of stock and stock-based awards offers the best approach to achieving our
compensation goals. We have historically elected to use stock options as the primary long-term
equity incentive vehicle. |
25
Stock option grants are made at the commencement of employment, may be made annually based
upon performance and, occasionally, following a significant change in job responsibilities or to
meet other special retention objectives. Our compensation committee reviews and approves stock
option awards to Named Executive Officers based upon a review of competitive compensation data, its
assessment of individual performance, a review of each executives existing long-term incentives,
and retention considerations. In determining the number of stock options to be granted to our Named
Executive Officers, we take into account the individuals
position, scope of responsibility, ability to affect profits and stockholder value, the
individuals historic and recent performance, the value of stock options in relation to other
elements of the individual executives total compensation, and the individuals potential ownership
as a percentage of our total outstanding shares relative to comparable companies. We expect to
continue to use stock options as a long-term incentive vehicle because:
|
|
|
stock options align the interests of executives with those of the
stockholders, support a pay-for-performance culture, foster employee stock ownership,
and focus the management team on increasing value for the stockholders; |
|
|
|
stock options are performance based and all the value received by the
recipient of a stock option is based on the growth of the stock price; |
|
|
|
stock options help to provide a balance to the overall executive compensation
program as base salary and our discretionary annual bonus program focus on short-term
compensation, while the vesting of stock options increases stockholder value over the
longer term; and |
|
|
|
the vesting period of stock options encourages executive retention and the
preservation of stockholder value. |
Named Executive Officers Fiscal Year 2009 Compensation
Base Salary
Mr. Larsen is our president and chief executive officer, as well as a director. Relative to
the benchmarking surveys described above, his base salary is between the median and the 75th
percentile for early and late stage private companies, below our key comparable company and below
the median and the 75th percentile of our public company peers. Mr. Larsen, a founder of VirnetX
Inc., has driven the organizations performance, leading it from inception, through the early
start-up phase and through several rounds of financing. Mr. Larsen is critical to our ability to
pursue our licensing strategy going forward.
Mr. Sliney is our chief financial officer and his base salary is below the median and the 75th
percentile of early stage private companies, below the median for late stage private companies and
our public company peers, and below our key comparable company. In establishing Mr. Slineys base
salary, our compensation committee primarily considered Mr. Slineys experience in public company
work, his transactional and strategic skills, his level of responsibility, past contributions to
our performance and expected contributions to our further success.
Due to the state of the market and the position of the Company, our compensation committee
decided to maintain the annual base salaries of our Named Executive Officers for fiscal year 2009
at their fiscal year 2008 levels (Mr. Larsen $275,000 and Mr. Sliney $43,752).
Discretionary Annual Incentive Bonus
Due to the state of the market and the position of the Company, our compensation committee
decided not to award any discretionary annual incentive bonuses to our Named Executive Officers for
fiscal year 2008.
26
Long-Term Incentive Program
In light of the fact that base salaries were not going to be increased for fiscal year 2009
and no discretionary annual incentive bonuses were going to be paid with respect to fiscal year
2008 performance, our compensation committee determined that it was necessary and appropriate to
award Mr. Larsen a stock option pursuant to our 2007 Stock Plan to purchase 585,425 shares of
Company common stock. In making this determination, the compensation committee reviewed market
data and stockholder dilution and considered whether this grant would be an appropriate retention
and incentive mechanism for Mr. Larsen. Our compensation committee did not award stock options to
any of our other Named Executive Officers.
Perquisites
Our Named Executive Officers participate in the same group insurance and employee benefit
plans as our other salaried employees. At this time we do not provide special benefits or other
perquisites to our Named Executive Officers.
Change of Control Arrangements
Our 2007 Stock Plan allows our Board to determine the terms and condition of awards issued
thereunder. Our Board has made the determination that all options issued under our 2007 Stock Plan
will include the provision that in the event of a Change of Control (as defined in our 2007 Stock
Plan), all unvested shares underlying the option will vest and become exercisable immediately prior
to the consummation of such Change of Control transaction.
Approach to Fiscal Year 2010 Compensation
|
|
Base SalariesFor fiscal year 2010, our compensation committee reviewed the historical base
salary, performance of each of our Named Executive Officers, the performance of the Company
and other factors. Set forth below are the fiscal year 2010 base salaries for our Named
Executive Officers: |
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
|
2010 Base Salary |
|
|
% Increase |
|
Kendall Larsen |
|
Chief Executive Officer, President and Director |
|
$ |
302,500 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
William E. Sliney |
|
Chief Financial Officer |
|
$ |
48,127 |
1 |
|
|
10 |
% |
|
|
|
(1) |
|
Mr. Slineys base salary has been pro-rated to reflect the fact that Mr. Sliney works for the
Company on a part-time basis. |
|
|
Discretionary Annual Incentive BonusOur compensation committee approved the following
target bonus amounts for each of our Named Executive Officers for fiscal year 2010. The
target bonus amount is represented as a percentage of base salary. Payment of actual bonuses
will be determined following the end of fiscal year 2010 in the compensation committees sole
discretion and based on the compensation committees review of the Companys performance, the
performance of each Named Executive Officer, and other factors. |
27
|
|
|
|
|
|
|
Name |
|
|
|
Target Bonus |
|
Kendall Larsen |
|
Chief Executive Officer, President and Director |
|
|
35 |
% |
William E. Sliney |
|
Chief Financial Officer |
|
|
35 |
% |
|
|
Long-Term IncentivesOur compensation committee approved the following stock option grants
pursuant to our 2007 Stock Plan for each of our Named Executive Officers for fiscal year
2010, each of which vests monthly over 4 years from the date of grant. |
|
|
|
|
|
|
|
Name |
|
|
|
Stock Options |
|
Kendall Larsen |
|
Chief Executive Officer, President and Director |
|
|
35,000 |
|
William E. Sliney |
|
Chief Financial Officer |
|
|
8,750 |
1 |
|
|
|
(1) |
|
Mr. Slineys stock option grant represents a 35,000 share option grant that was pro-rated to
take into account the fact that Mr. Sliney works for the Company on a part-time basis. |
Stock Ownership Guidelines
We have not adopted stock ownership guidelines and our 2007 Stock Plan has provided the
principal method for our executive officers to acquire equity in the Company. We currently do not
require our directors or executive officers to own a particular amount of our common stock. Our
compensation committee is satisfied that stock and option holdings among our directors and
executive officers are sufficient at this time to provide motivation and to align this groups
interests with those of our stockholders.
Compensation Committee Report
The compensation committee has reviewed and discussed with management the Compensation
Discussion and Analysis contained in this proxy statement. Based on this review and discussion, the
compensation committee has recommended to the Board that the Compensation Discussion and Analysis
be included in this proxy statement and incorporated into our Annual Report on Form 10-K for the
fiscal year ended December 31, 2009.
Respectfully Submitted By:
The Compensation Committee
Scott C. Taylor
Michael F. Angelo
Thomas M. OBrien
Notwithstanding anything to the contrary set forth in any of the Companys filings under the
Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate future
filings, including this proxy statement, in whole or in part, the Compensation Committee Report
shall not be deemed to be incorporated by reference into any such filings, unless we specifically
incorporate these reports by reference in some other filed document.
28
Summary Compensation Table
The following table sets forth information concerning compensation earned for services
rendered to the Company by our chief executive officer and our chief financial officer for the
fiscal year ended December 31, 2009. Collectively, these are our Named Executive Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
|
|
|
Name & Principal Position |
|
Year |
|
|
Salary ($) |
|
|
Bonus ($) |
|
|
Awards ($) (1) |
|
|
Total ($) |
|
Kendall Larsen |
|
|
2009 |
|
|
$ |
275,000 |
|
|
|
|
|
|
$ |
690,668 |
|
|
$ |
965,668 |
|
Chief Executive Officer,
President and Director |
|
|
2008 |
|
|
|
275,000 |
|
|
|
|
|
|
|
|
|
|
|
275,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William E. Sliney |
|
|
2009 |
|
|
|
43,752 |
|
|
|
|
|
|
|
|
|
|
|
43,752 |
|
Chief Financial
Officer |
|
|
2008 |
|
|
|
98,442 |
|
|
|
|
|
|
|
|
|
|
|
98,442 |
|
|
|
|
(1) |
|
The amount in this column reflects the aggregate grant date fair value of the stock option
computed in accordance with Financial Accounting Standards Board Accounting Standards Codification
Topic 718, or Financial FASB ASC Topic 718. There can be no assurance that these amounts will ever
be realized. For information on the valuation assumptions used in valuing this stock option award,
refer to Note 7 titled Stock Based Compensation in the Note to the Financial Statements contained
in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009. |
|
(2) |
|
On April 3, 2009, Mr. Larsen was awarded options to purchase a total of 585,425 shares of the
Companys common stock under our 2007 Stock Plan. Of the total options awarded, 151,558 are
subject incentive stock options with an exercise price of $1.265 per share and expire on April 2,
2014. The remaining 433,867 options awarded are nonqualified stock options with an exercise price
of $1.15 and expire on April 2, 2019. On the first anniversary of the date of grant, 1/4th of the
options will vest and become exercisable, with 1/48th of the options vesting and becoming
exercisable each month thereafter, subject to the recipients continued service with the Company
and provided that all unvested shares will vest and become exercisable immediately prior to the
consummation of a change of control of the Company. The options exercise prices are respectively
equal to 110% of the fair market value and 100% of the fair market value of the Companys common
stock on the date of grant. The options exercise prices and expiration dates were determined in
accordance with the provisions of our 2007 Stock Plan for participants who own stock representing
more than 10% of the voting power of all classes of stock of the Company. |
29
Outstanding Equity Awards at 2009 Fiscal Year-End
The following table sets forth, the outstanding exercisable and unexercisable stock options
held by our Named Executive Officers as of the end of fiscal year 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
Option |
|
|
|
Grant |
|
|
Options |
|
|
Options |
|
|
Exercise |
|
|
Expiration |
|
Name |
|
Date (1) |
|
|
Exercisable (#) |
|
|
Unexercisable (#) |
|
|
Price ($) |
|
|
Date |
|
Kendall Larsen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive
Officer, |
|
|
03/23/2006 |
|
|
|
41,516 |
|
|
|
0 |
|
|
|
0.2408712 |
|
|
|
03/22/2016 |
|
President
and Director |
|
|
12/31/2007 |
|
|
|
106,660 |
|
|
|
106,659 |
|
|
|
6.468 |
|
|
|
12/30/2012 |
|
|
|
|
04/03/2009 |
|
|
|
0 |
|
|
|
151,558 |
|
|
|
1.265 |
|
|
|
04/02/2014 |
|
|
|
|
04/03/2009 |
|
|
|
0 |
|
|
|
433,867 |
|
|
|
1.15 |
|
|
|
04/02/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William E. Sliney |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer |
|
|
12/31/2007 |
|
|
|
191,548 |
|
|
|
191,547 |
|
|
|
5.88 |
|
|
|
12/30/2017 |
|
|
|
|
(1) |
|
All of the stock options referenced in this column vest and become exercisable with respect
to 1/4 of the shares on the first anniversary of the date of grant and 1/48th of the shares
each month thereafter, subject to the recipients continued service with the Company and
provided that all unvested shares will vest and become exercisable immediately prior to the
consummation of a change of control of the Company. |
Option Exercises and Stock Vested in Fiscal Year 2009
No options were exercised and no stock was acquired upon vesting by our Named Executive
Officers in the fiscal year 2009.
30
Equity Compensation Plan Information
The following table gives information about the Companys Common Stock that may be issued upon
the exercise of options, warrants and rights under its existing equity compensation plans as of
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
|
Number of |
|
|
|
|
|
|
Remaining |
|
|
|
Securities to |
|
|
|
|
|
|
Available for |
|
|
|
be Issued |
|
|
|
|
|
|
Future Issuance |
|
|
|
Upon |
|
|
Weighted-Average |
|
|
Under Equity |
|
|
|
Exercise of |
|
|
Exercise Price of |
|
|
Compensation |
|
|
|
Outstanding |
|
|
Outstanding |
|
|
Plans (Excluding |
|
|
|
Options, |
|
|
Options, |
|
|
Securities |
|
|
|
Warrants |
|
|
Warrants and |
|
|
Reflected in |
|
Plan Category |
|
and Rights |
|
|
Rights |
|
|
Column (a)) |
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation
plans approved by
security holders |
|
|
5,785,790 |
|
|
$ |
2.57 |
|
|
|
1,417,229 |
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,785,790 |
|
|
$ |
2.57 |
|
|
|
1,417,229 |
|
Transactions with Related Persons
Our Code of Ethics requires each of our directors, employees, officers, and consultants to
disclose any significant interest in any related party transaction and that interest must be
approved in writing by our legal department. If it is determined that the transaction is required
to be reported under SEC rules, then the transaction will be subject to the review and approval by
our audit committee of our Board. A copy of our Code of Ethics is available on our website at
http://www.virnetx.com in the Highlights link in the Corporate Governance subcategory under the
Investors tab.
The charter of our audit committee affirms that one of our audit committees responsibilities
is to review and approve material related party transactions and related party transactions that
are required to be disclosed in our public filings. We annually require each of our directors and
executive officers to complete a Questionnaire for Directors, Officers and 5% Stockholders that
elicits information about related party transactions as such term is defined by SEC rules and
regulations. These procedures are intended to determine whether any such related party transaction
impairs the independence of a director or presents a conflict of interest on the part of a
director, employee, or officer.
31
The following is a description of each transaction in the last fiscal year and each currently
proposed transaction in which:
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|
we have been or are to be a participant; |
|
|
the amount involved exceeds the lesser of $120,000 or one percent the average of our total
assets as of December 31, 2008 and 2009; and |
|
|
any of our directors, executive officers, holders of more than 5% of our capital stock, or
any immediate family member of, or person sharing the household with, any of these
individuals, had or will have a direct or indirect material interest. |
Stock Option Grants
We have granted stock options to our executive officers and certain of our directors under our
2007 Stock Plan. See Director Compensation starting on page 21 and Executive Compensation
starting on page 23 for a further description of these option awards.
Advisory Service Agreement
In connection with the consummation of the merger between VirnetX Holding Corporation and
VirnetX in 2007, we assumed certain obligations under an Advisory Service Agreement dated November
6, 2006 by and between VirnetX and MDB Capital Group LLC, as amended by the terms of that certain
Release Agreement between the same parties, which was executed on July 5, 2007. MDB Capital Group
was a stockholder of VirnetX prior to the merger and Christopher Marlett, a principal at MDB
Capital Group, is currently one of our stockholders as a result of the merger. MDB Capital Groups
affiliates include Anthony DiGiandomenico and Robert Levande, each of whom is one of our existing
stockholders as a result of the merger.
Additionally, in connection with the consummation of the merger, we entered into the following
agreements and transactions with certain of our directors, executive officers and 5% stockholders:
Indemnification Agreements
We entered into Indemnification Agreements with each person who became one of VirnetX Holding
Corporations directors or officers in connection with the consummation of the merger between
VirnetX Holding Corporation and VirnetX Inc., pursuant to which, among other things, we will
indemnify such directors and officers to the fullest extent permitted by Delaware law, and provide
for advancement of legal expenses under certain circumstances. The Indemnification Agreements are
effective as of July 5, 2007 and were filed as exhibits to our Current Report on Form 8-K filed
with the SEC on July 12, 2007.
Registration Rights Agreement
Effective as of July 5, 2007, we entered into a Registration Rights Agreement with all of the
persons who were issued shares of our common stock and securities convertible into shares of our
common stock in the merger.
Pursuant to the Registration Rights Agreement, the security holders have a right to request
that we register for resale (a) the shares of common stock issued to such persons in the merger and
(b) the shares of common stock underlying convertible notes, options and warrants issued to such
persons in the merger. We are required to cause each such registration statement filed as a
result of such requests to be declared effective under the Securities Act as promptly as
possible after the filing thereof and to keep such registration statement continuously effective
under the Securities Act until the earlier of (1) the date when all shares included in the
registration statement have been sold; (2) the date that all shares can be sold pursuant to Rule
144; and (3) one year from the effective date of such registration statement.
32
Additionally, the Registration Rights Agreement provides the security holders with piggyback
registration rights such that at any time there is not an effective registration statement covering
the common stock described above and we file a registration statement relating to an offering for
our own account or the account of others under the Securities Act, other than in connection with
any acquisition of any entity or business or equity securities issuable in connection with stock
options or other employee benefit plans and other than in connection with this offering, then we
are required to send notice to the security holders of such intended filing at least 20 days prior
to filing such registration statement and we are required to automatically include in such
registration statement all shares of common stock issued in the merger and all shares of common
stock underlying convertible notes, options and warrants issued in the merger.
Each security holder also has indemnified us, our directors, officers, agents, and certain
other control persons against damages arising out of or based upon: (1) such security holders
failure to comply with the prospectus delivery requirements of the Securities Act or (2) such
security holders provision of any untrue or alleged untrue statement of a material fact to be
contained in any registration statement or prospectus, or arising out of or relating to any such
security holders omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements contained in such registration statement or prospectus not
misleading.
Transactions Between the Company and William E. Sliney
From March 2002 until July 5, 2007, the Company utilized the office space and equipment of its
then officer, William E. Sliney, at no cost. Management estimates the value thereof to be
immaterial.
Promoters and Control Persons
Glenn Russell was a founder and owned approximately 60% of the outstanding shares of VirnetX
Holding Corporation immediately prior to the merger between VirnetX Holding Corporation and
VirnetX. Mr. Russell received no compensation in connection with the merger between VirnetX and
VirnetX Holding Corporation. Mr. Russells historical compensation from VirnetX Holding Corporation
in his capacity as its Chief Executive Officer prior to the merger has been disclosed in VirnetX
Holding Corporations reports filed with the SEC under the Securities Exchange Act of 1934, as
amended.
33
Voting Agreement
On December 12, 2007, we entered into a Voting Agreement with the following stockholders that
collectively own 4,766,666 shares of our common stock, representing approximately 12.76% of our
outstanding shares as of December 31, 2007:
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San Gabriel Fund, LLC |
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JMW Fund, LLC |
|
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John P. McGrain |
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The John P. McGrain Grantor Retained Annuity Trust u/t/d/ June 25, 2007 |
|
|
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John P. McGrain, SEP IRA |
|
|
|
John P. McGrain, 401K |
|
|
|
The Westhampton Special Situations Fund, LLC |
|
|
|
The Kirby Enterprise Fund, LLC |
|
|
|
Kearney Properties, LLC |
|
|
|
Kearney Holdings, LLC |
|
|
|
Charles F. Kirby, Roth IRA |
|
|
|
Charles F. Kirby |
The Voting Agreement requires each of the above stockholders to vote all of the shares of our
voting stock held by them from time to time in favor of the directors nominated by our Board and in
a manner proportional to all the other votes cast by shares present and voting with respect to any
other matter brought to the stockholders for a vote. This voting arrangement was an initial listing
requirement and continues to be a requirement for our common stock to be listed on the NYSE Amex.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own
more than 10% of a registered class of our equity securities, to file reports of ownership on Form
3 and changes in ownership on Form 4 or Form 5 with the SEC. Such officers, directors, and 10%
stockholders are also required by SEC rules to furnish us with copies of all Section 16(a) forms
they file. Based solely on our review of the copies of such forms we received, we believe that
during the 2009 fiscal year all Section 16(a) filing requirements applicable to our officers,
directors, and 10% stockholders were satisfied. except as indicated herein.
34
Voting Securities and Principal Holders
The following table sets forth the beneficial ownership of our common stock as of April 15,
2010 by:
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|
all persons known to us, based on statements filed by such persons pursuant to Section 13(d)
or 13(g) of the Exchange Act or in statements made to us, to be the beneficial owners of more
than 5% of our common stock and based on the records of Corporate Stock Transfer, Inc., our
transfer agent; |
|
|
each of our Named Executive Officers in the table under Executive Compensation Summary
Compensation Table on page 29 of this proxy statement; and |
|
|
all current directors and executive officers as a group. |
This table lists applicable percentage ownership based on 43,704,663 shares of common stock
outstanding as of April 15, 2010. Securities that a person has a right to acquire pursuant to SEC
rules within 60 days of April 15, 2010 are deemed to be beneficially owned by the persons holding
these options for the purpose of computing the number of shares owned by, and percentage ownership
of, that person, but are not treated as outstanding for the purpose of computing any other persons
number of shares owned or ownership percentage.
Except as indicated by footnote, and subject to applicable community property laws, each
person identified in the table possesses, to the best of our knowledge, sole voting and investment
power with respect to all capital stock shown to be held by that person. The address of each
executive officer and director, unless indicated otherwise, is c/o VirnetX Holding Corporation,
5615 Scotts Valley Drive, Suite 110, Scotts Valley, California 95066.
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature |
|
|
|
|
|
|
of Beneficial |
|
|
Percent |
|
Name and Address of Beneficial Owner |
|
Ownership (1) |
|
|
Of Class |
|
5% or Greater Stockholders: |
|
|
|
|
|
|
|
|
|
Kendall Larsen |
|
|
8,965,124 |
(2) |
|
|
20.14 |
% |
Directors and Executive Officers: |
|
|
|
|
|
|
|
|
Kendall Larsen |
|
|
8,965,124 |
(2) |
|
|
20.14 |
% |
Edmund C. Munger |
|
|
1,133,179 |
(3) |
|
|
2.53 |
% |
William E. Sliney |
|
|
236,161 |
(4) |
|
|
* |
|
Thomas M. OBrien |
|
|
142,498 |
(5) |
|
|
* |
|
Michael F. Angelo |
|
|
90,683 |
(6) |
|
|
* |
|
Scott C. Taylor |
|
|
49,167 |
(7) |
|
|
* |
|
All directors and executive officers as a
group (6 persons): |
|
|
10,616,811 |
(8) |
|
|
23.12 |
% |
|
|
|
(1) |
|
Beneficial ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Shares of common stock subject
to options and warrants which are exercisable or convertible at or within 60 days of April 15,
2010 are deemed outstanding for computing the percentage of the person holding such option or
warrant but are not deemed outstanding for computing the percentage of any other person. The
indication herein that shares are beneficially owned is not an admission on the part of the
listed stockholder that he, she or it is or will be a direct or indirect beneficial owner of
those shares. |
35
|
|
|
(2) |
|
Includes 811,932 shares of common stock issuable upon exercise of options presently
exercisable or exercisable within 60 days of April 15, 2010 as follows: 343,333 options held
by Mr. Larsen and 468,599 options held by Mrs. Larsen. Excludes 608,530 shares held by Mrs.
Larsens revocable trust and 1,478 shares held by an immediate family member who shares the
Larsen family household. Mr. Larsen disclaims beneficial ownership of the excluded shares. |
|
(3) |
|
Includes (i) 1,018,245 shares of common stock issuable upon exercise of options presently
exercisable or exercisable within 60 days of April 15, 2010, and (ii) 23,334 shares issuable
pursuant to warrants. |
|
(4) |
|
Includes (i) 232,000 shares of common stock issuable upon exercise of options presently
exercisable or exercisable within 60 days of April 15, 2010, and (ii) 2,000 shares issuable
pursuant to warrants. |
|
(5) |
|
Includes (i) 49,167 shares of common stock issuable upon exercise of options presently
exercisable or exercisable within 60 days of April 15, 2010, and (ii) 46,666 shares issuable
pursuant to warrants. |
|
(6) |
|
Includes 49,167 shares of common stock issuable upon exercise of options presently
exercisable or exercisable within 60 days of April 15, 2010. |
|
(7) |
|
Includes 49,167 shares of common stock issuable upon exercise of options presently
exercisable or exercisable within 60 days of April 15, 2010. |
|
(8) |
|
Includes 2,209,67 shares of common stock issuable upon exercise of options presently
exercisable or exercisable within 60 days of April 15, 2010 beneficially held by our directors
and executive officers as a group. |
|
(*) |
|
Less than 1%. |
36
PROPOSAL I
ELECTION OF CLASS III DIRECTOR
As of the date of this proxy statement, our Board is composed of five directors. Our Board is
divided into three classes, with the term of office of one class expiring each year. We currently
have five directors with two directors in each of Class I and Class II and one director in Class
III. The term of office of our Class III director, Michael F. Angelo, will expire at the Annual
Meeting, when he retires, or when his successor is duly elected or appointed. The terms of office
of our Class I directors, Kendall Larsen and Scott C. Taylor, will expire at the 2011 Annual
Meeting of Stockholders, when they retire, or when their respective successors are duly elected or
appointed. The terms of office of our Class II directors, Thomas M. OBrien and Edmund C. Munger,
will expire at the 2012 Annual Meeting of Stockholders, when they retire, or when their respective
successors are duly elected or appointed.
At the Annual Meeting, stockholders will elect one Class III director, for a term of three
years, or until he retires or until his successor is duly elected or appointed.
Nominee for Class III Director: Michael F. Angelo
For more information on this nominee, see Board of Directors starting on page 7 of this
proxy statement.
Your Board Recommends That Stockholders
Vote FOR the Nominee Listed Above.
37
PROPOSAL II
RATIFICATION OF APPOINTMENT OF
THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee of our Board has appointed, subject to ratification by our stockholders,
Farber Hass Hurley LLP as our independent registered public accounting firm for the fiscal year
ending December 31, 2010.
Your Board Recommends That Stockholders
Vote FOR The Ratification Of Appointment Of Farber Hass Hurley LLP As Our
Independent Registered Public Accounting Firm.
38
Other Matters
The Board is not aware of any other matters to be presented at the Annual Meeting. If,
however, any other matter should properly come before the Annual Meeting, the enclosed proxy card
confers discretionary authority with respect to such matter.
Availability of Form 10-K
We are providing without charge to each person solicited by this Proxy Statement a copy of our
Annual Report on Form 10-K for the Fiscal Year ended December 31, 2009, including our financial
statements but excluding the exhibits to Form 10-K. The Form 10-K includes a list of the exhibits
that were filed with it, and we will furnish a copy of any such exhibit to any person who requests
it upon the payment of our reasonable expenses in providing the requested exhibit. For further
information, please send a request to: Secretary, VirnetX Holding Corporation, 5615 Scotts Valley
Drive, Suite 110, Scotts Valley, California 95066, telephone (831) 438-8200. Our Annual Report on
Form 10-K and our other filings with the SEC, including exhibits, are also available for free
online at http://www.virnetx.com under the SEC Filings link in the Investors tab and at the
SECs Internet site, http://www.sec.gov.
By Order of the Board of Directors,
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/s/ Lowell D. Ness
Lowell D. Ness
|
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Secretary |
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39
PROXY
VIRNETX HOLDING CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 4, 2010
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of VIRNETX HOLDING CORPORATION hereby nominates, constitutes and
appoints Kendall Larsen the true and lawful attorney and proxy, with full power of substitution,
for me and in my name, place and stead, to act and vote all of the common stock
of VirnetX
Holding Corporation standing in my name and on its books on
April 28, 2010 at the Annual Meeting of
Stockholders to be held at
Orrick, Herrington & Sutcliffe LLPs offices at 1000 Marsh Road,
Menlo Park, California 94025 on June 4, 2010 at 10:00 a.m.,
Pacific Time, and at any adjournment
thereof, with all the powers the undersigned would possess if personally present.
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE ELECTION OF THE DIRECTOR NOMINATED BY THE BOARD OF
DIRECTORS, UNTIL HIS RESIGNATION, OR UNTIL HIS SUCCESSOR IS
DULY ELECTED OR APPOINTED. THE
BOARD ALSO RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF FARBER HASS HURLEY LLP AS
THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31,
2010. THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder
Meeting To Be Held on June 4, 2010.
You can view the proxy statement, this proxy card and the annual report to stockholders for the
year ended December 31, 2009 at
http://phx.corporate-ir.net/phoenix.zhtml?c=67430&p=irol-reportsAnnual.
PLEASE SIGN AND DATE ON REVERSE
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1. Election of
the Class III Director. A
proposal to elect the person
listed below to serve
until the Annual
Meeting of
Stockholders in the
year 2013, until
his resignation, or
until his
successor is duly
elected or appointed.
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o
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FOR THE NOMINEE
|
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o
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WITHHOLD AUTHORITY
FOR THE NOMINEE
|
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Nominee: |
|
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(1)
|
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Michael F. Angelo |
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2. Ratification of Appointment of Farber Hass Hurley LLP
as the Companys Independent Registered Public
Accounting Firm. |
|
o MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW |
o
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FOR
|
|
o
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AGAINST
|
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o
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ABSTAIN |
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This proxy also
delegates discretionary
authority to vote with
respect to any other
business which may
properly come before the
meeting or any
adjournment or
postponement thereof.
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o I/WE INTEND TO ATTEND THE MEETING IN PERSON. |
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NOTE: Signature(s)
should agree with
name(s) on VirnetX
Holding Corporation
stock certificate(s).
Executors,
administrators, trustees
and other fiduciaries,
and persons signing on
behalf of corporations
or partnerships should
so indicate when
signing. All joint
owners must sign.
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|
The undersigned hereby acknowledges receipt of
the Notice of Annual Meeting of Stockholders for
the June 4, 2010 Annual Meeting, and the accompanying documents forwarded therewith, and
ratifies all lawful action taken by the above-named attorney and
proxy. |
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Dated:
, 2010 |
PLEASE MARK, DATE, SIGN
AND RETURN THE PROXY
FORM AS SOON AS POSSIBLE
USING THE ENCLOSED
ENVELOPE.
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