UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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[ ] Definitive Proxy Statement
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[ ] Soliciting Materials Pursuant to Section 240.14a-12
hopTo Inc.
(Name of Registrant as Specified in its Charter)
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hopTo Inc.
1919 S. Bascom Avenue, Suite 600
Campbell, CA 95008
NOTICE OF 2015 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON September 24, 2015
NOTICE IS GIVEN that the 2015 annual meeting of stockholders of hopTo Inc. (the “Annual Meeting”) will be held at hopTo Inc. located at 1919 S. Bascom Avenue, Suite 600, Campbell, California 95008, on September 24, 2015 at 11:00 a.m., local time, for the following purposes, as more fully described in the accompanying Proxy Statement:
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1. |
To elect two Class I directors to serve for a three-year term ending as of our annual meeting of stockholders in 2018. |
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To approve an amendment of our amended and restated certificate of incorporation, as amended, to effect a reverse stock split of our common stock at a ratio of one-for-fifteen shares and a reduction in the authorized number of shares of our common stock based on one-half of the reverse stock split ratio. |
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To approve, in a non-binding advisory vote, the compensation of our named executive officers. |
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To ratify the appointment of Macias Gini & O’Connell LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2015. |
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To transact such other business as may properly come before the Annual Meeting, or any adjournment thereof. |
Our Board of Directors has fixed the close of business on July 31, 2015 as the record date for determining the stockholders entitled to notice of and to vote at our Annual Meeting, or at any adjournment thereof. The accompanying proxy statement contains additional information regarding the matters to be acted on at the Annual Meeting.
All stockholders are urged to attend the Annual Meeting in person. However, to ensure that your vote is counted at the Annual Meeting, please vote as promptly as possible by submitting your vote before the Annual Meeting. You may submit your vote by mailing the enclosed proxy card or voting instruction card, or if your shares are held in “street name,” you may also have the option to vote on the Internet or by telephone. The proxy may be revoked at any time prior to its exercise at our Annual Meeting.
By Order of the Board of Directors,
Eldad Eilam
President and Chief Executive Officer
Campbell, California
August [__], 2015
Important Notice Regarding Availability of Proxy Materials
for the 2015 Annual Meeting of Stockholders to be Held on September 24, 2015
Our Proxy Statement, Annual Report on Form 10-K, and Proxy Card are available on the Internet on our corporate website at http:// proxymaterials.hopto.com.
hopTo Inc.
1919 S. Bascom Avenue, Suite 600
Campbell, CA 95008
_____________________
PROXY STATEMENT
FOR THE 2015 ANNUAL MEETING OF STOCKHOLDERS
_____________________
GENERAL INFORMATION ABOUT THE ANNUAL MEETING
This proxy statement is being sent to you in connection with the solicitation of proxies by the Board of Directors (the "Board") of hopTo Inc. (the "Company", “we”, “us” or “our”) for the 2015 Annual Meeting of Stockholders to be held at our offices located at 1919 S. Bascom Avenue, Suite 600, Campbell, California 95008 on September 24, 2015 at 11:00 a.m., local time. We invite you to attend in person.
Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting To Be Held on September 24, 2015
We are providing you access to this proxy statement, the accompanying form of proxy card and our annual report on Form 10-K for the fiscal year ended December 31, 2014 both by sending you these proxy materials and by notifying you of the availability of these proxy materials on the Internet. These proxy materials are available on the Internet at http://proxymaterials.hopto.com.
This Proxy Statement and the accompanying Proxy Card are first being mailed to stockholders on or about August [ ], 2015. We intend to solicit proxies primarily by mail. However, our directors, officers, agents and employees may communicate with stockholders, banks, brokerage houses and others by telephone, e-mail, in person or otherwise to solicit proxies. We have no present plans to hire special employees or paid solicitors to assist in obtaining proxies, but reserve the option to do so. All expenses incurred in connection with this solicitation will be borne by us. We request that brokerage houses, nominees, custodians, fiduciaries and other like parties forward the soliciting materials to the underlying beneficial owners of our common stock. We will reimburse reasonable charges and expenses in doing so.
Voting Information
Record Date
The record date for the Annual Meeting is July 31, 2015. You may vote all shares of our common stock that you owned as of the close of business on that date. On July 31, 2015, there were [●] shares of our common stock outstanding. Each share of common stock is entitled to one vote on each matter to be voted on at the Annual Meeting.
How to Vote
You may vote by marking, signing, dating and mailing each proxy card or vote instruction card and returning it in the envelope provided. If your shares are held in “street name” (that is, they are held in the name of a broker, bank or other nominee), you will receive instructions with your proxy materials that you must follow in order to have your shares voted. Please review your proxy or vote instruction card to determine whether you will be able to vote by telephone or the Internet.
All stockholders as of the close of business on July 31, 2015 can attend the Annual Meeting. You may vote at the Annual Meeting if you are a stockholder of record (your shares are directly registered in your name on our books and not held through a broker, bank or other nominee). In order to vote at the Annual Meeting shares held in “street name,” you must obtain a valid proxy from your broker, bank, or other nominee, and bring it to the meeting. Follow the instructions from your broker, bank, or other nominee included with these proxy materials, or contact your broker, bank, or other nominee to request a proxy form.
Revoking Your Proxy
You can revoke your proxy at any time before your shares are voted at the Annual Meeting by (i) sending a written notice of revocation to Jean-Louis Casabonne, Secretary, hopTo Inc., 1919 S. Bascom Avenue, Suite 600, Campbell, CA 95008, (ii) submitting by mail, telephone or the Internet another proxy dated as of a later date, or (iii) voting in person at the Annual Meeting. Merely attending the Annual Meeting will not revoke your proxy. All revocations of your proxy must be received prior to the voting of your shares at the Annual Meeting. Voting in person at the Annual Meeting will replace any previous votes submitted by proxy.
Voting Instructions
If you complete and submit your proxy voting instructions, the persons named as proxies will follow your instructions. If you submit your proxy voting instructions but do not direct how to vote on each item, the persons named as proxies will vote your shares FOR the director nominees (Proposal 1), FOR the reverse stock split proposal (Proposal 2), FOR the advisory Say-On-Pay proposal (Proposal 3), and FOR the ratification of Macias Gini & O’Connell LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2015 (Proposal 4). The persons named as proxies will vote on any other matters properly presented at the Annual Meeting in accordance with their best judgment. We have not received notice of other matters that may be properly presented for voting at the Annual Meeting.
Quorum
The holders of a majority of our common stock issued and outstanding on July 31, 2015, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at the Annual Meeting. Abstentions and broker non-votes will be counted as present at the meeting for purposes of determining whether a quorum exists.
Withholding Your Vote, Voting to “Abstain” and “Broker non-votes”
In the election of the directors (Proposal 1), you can withhold your vote for either or both of the nominees. Withheld votes will be excluded entirely from the vote and will have no effect on the outcome. With regard to the other proposals, you can vote to “abstain.” If you vote to “abstain,” your shares will be counted as present at the meeting for purposes of determining whether a quorum exists, but such abstention will have the effect of a vote "against" the proposal.
A bank, brokerage firm or other nominee is not permitted by applicable regulatory requirements to vote on non-routine matters without instructions from the owner of the shares. An election of directors and the advisory Say-On-Pay proposal are deemed non-routine matters; consequently, absent instructions from you, your broker may not vote your shares on the election of the directors and the advisory Say-On-Pay proposal (Proposals 1 and 3). Your broker may vote your shares on the reverse stock split proposal and the ratification of the appointment of our independent registered public accounting firm (Proposals 2 and 4).
A “broker non-vote” occurs when a broker submits a proxy without voting on one or more of the non-routine matters. A broker non-vote is considered present at the meeting for purposes of determining whether a quorum exists but is not counted as a vote cast on any non-routine matter presented at the Annual Meeting. Broker non-votes will have the same effect as a vote "against" on the reverse stock split proposal (Proposal 2).
Votes Required to Elect Directors and Adopt Other Proposals
The directors will be elected by a plurality of the voting power of our common stock at the Annual Meeting (Proposal 1). The affirmative vote of a majority of the voting power of our common stock outstanding on July 31, 2015, present in person or by proxy, at the Annual Meeting is required to approve the advisory Say-On-Pay proposal, and to ratify the appointment of Macias Gini & O’Connell LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2015 (Proposals 3 and 4, respectively).
The affirmative vote of a majority of the voting power of our common stock outstanding is required to approve the reverse stock split proposal (Proposal 2). As a result, abstentions and broker non-votes will have the same effect as a vote “AGAINST” the reverse stock split proposal.
Postponement or adjournment of the Annual Meeting
If the Annual Meeting were to be postponed or adjourned, your proxy would still be valid and will be voted at the postponed or adjourned meeting. You would still be able to revoke your proxy until it was voted.
Cost of Proxy Solicitation
We will pay the expenses of the preparation of our proxy materials and our solicitation of your proxy. Our directors, officers and employees, who will receive no additional compensation for soliciting, may solicit your proxy by telephone or other means.
Voting Results of the Annual Meeting
The preliminary voting results will be announced at the Annual Meeting. The final voting results will be tallied by the Inspector of Election and published in a Current Report on Form 8-K, which we will file with the Securities and Exchange Commission (the “SEC”) within four business days after the Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
Our Board currently consists of six directors divided into three classes – Class I (Mr. Cronin and Mr. Munshi), Class II (Mr. Brochu and Mr. Auriemma), and Class III (Mr. Eilam and Mr. Verba) – with the directors in each class holding office for staggered terms of three years each and until their successors have been duly elected and qualified.
The terms of Mr. Cronin and Mr. Munshi expire at the Annual Meeting. Accordingly, two Class I directors will be elected at our Annual Meeting. The nominees for election as Class I directors are John Cronin and Ashfaq A. Munshi who will serve until our 2018 annual meeting of stockholders and until their successors are elected and qualified.
Assuming the nominees are elected, we will have six directors serving as follows:
Class I Directors: |
John Cronin and Asfaq Munshi |
Term expires as of our 2018 annual meeting of stockholders |
Class II Directors: |
Michael A. Brochu and Sam M. Auriemma |
Terms expire as of our 2016 annual meeting of stockholders |
Class III Directors: |
Eldad Eilam and Jeremy E. Verba |
Terms expire as of our 2017 annual meeting of stockholders |
The accompanying proxy card grants the proxy holders the power to vote the proxy for substitute nominees in the event that the nominees become unavailable to serve as Class I directors. Management presently has no knowledge that the nominees will refuse or be unable to serve as Class I directors for the prescribed term.
Required Vote
Directors are elected by a “plurality” of the voting power of our common stock. Plurality means that the nominee with the largest number of votes is elected, up to the maximum number of directors to be chosen (in this case, two directors). Stockholders can either vote “for” the nominee or withhold authority to vote for the nominee. However, shares that are withheld will have no effect on the outcome of the election of directors. Broker non-votes also will not have any effect on the outcome of the election of the directors.
Board Recommendation
Our Board Recommends a Vote “ For ” Mr. Cronin and Mr. Munshi.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding those individuals currently serving as our directors (or nominated to serve as a director) and executive officers as of July 31, 2015:
Name |
Age |
Position |
Eldad Eilam |
37 |
Chief Executive Officer, President and Director |
Sam M. Auriemma (1) |
62 |
Director |
Michael A. Brochu (2) |
61 |
Director |
John Cronin (2) |
60 |
Director |
Jeremy E. Verba(3) |
52 |
Director |
Ashfaq A. Munshi(3) |
53 |
Director |
Jean-Louis Casabonne |
57 |
Chief Financial Officer, Secretary |
(1) Chairman of our Board and Chairman of our Audit Committee
(2) Member of our Compensation Committee
(3) Member of our Audit Committee
Each of our directors, including our current nominees, was nominated based on the assessment of our Board that he has demonstrated: an ability to make meaningful contributions to our Board; independence; strong communication and analytical skills; and a reputation for honesty and ethical conduct. Our Board consists of, and seeks to continue to include, persons whose diversity of skills, experience and background are complementary to those of our other directors.
Nominees (Class I)
John Cronin has served as a director since August 2011. Mr. Cronin is the founder, managing director and chairman of ipCapital Group, Inc., an intellectual property consulting firm, with which we have formed an alliance to deploy a range of strategic invention and intellectual tactics aimed at accelerating the growth and commercialization of our IP portfolio. We also have relationships with certain related parties to ipCapital Group, Inc. and Mr. Cronin as described under Related-Party Transactions. Prior to founding ipCapital in 1998, Mr. Cronin was an inventor at IBM for 17 years where he patented 100 inventions, published over 150 technical papers and received IBM’s “Most Distinguished Inventor Award.” Our Board has determined that Mr. Cronin is qualified to serve on our Board because of his over 30 years’ experience developing and consulting with the development of high-tech intellectual property and his extensive knowledge and understanding of the high-tech industry. Mr. Cronin is also founder and CEO of ipCreate,Inc., an invention on demand company that partners with global technology companies to create outsourced, off-budget patented inventions to complement their own internal R&D efforts.Mr. Cronin serves on the board of directors of Imageware, which is a publicly-held company.. He holds a BS in Electrical Engineering, an MS in Electrical Engineering and a BA in Psychology from the University of Vermont.
Ashfaq A. Munshi was appointed to our Board in November 2014. Mr. Munshi is a technologist with over 20 years of entrepreneurship, engineering, marketing, and senior management experience. He is currently the Chief Executive Officer of Graphite Systems, Inc. He is the Chairman and founder of Terabitz and has served as its acting CEO since 2006. Mr. Munshi has also served as the Chief Technology Officer of Yahoo! Inc., as Head of Yahoo! Labs and as interim CEO and chairman of both MSC Software (NASDAQ: MSCS) and Level5 Networks. He has also served as chairman of a number of technology startup companies. In addition to Terabitz, Mr. Munshi has founded four other Silicon Valley companies: Radiance, Vivecon, SpecialtyMD, and Commerce Engine. Mr. Munshi is qualified to serve on our Board because of his extensive senior management experience and deep technology background in both private and public companies. Earlier in his career, he served as a corporate vice president at Applied Materials and before that, Mr. Munshi was vice president and general manager of the Enterprise Business Unit at SGI. Mr. Munshi began his executive career at Oracle Corporation where he was director of development and marketing building UI toolkits and data base applications. He was as an advisor to San Francisco based UpSight and has also served as an advisor to Transitive Corporation and has been on the Dean's Leadership Council for the Division of Engineering and Applied Sciences at Harvard University. Mr. Munshi holds an A.B. in Mathematics from Harvard and has completed graduate work in computer science at Brown and the University of California, Santa Cruz. He is an alumnus of the Stanford Graduate School of Business.
Directors Whose Terms Expire in 2016 (Class II)
Michael A. Brochu has served as a director since April 2012. From November 1997 until its acquisition in November 2004 by Art Technology Group, Inc., Mr. Brochu served as president, chief executive officer and chairman of the board of directors of Primus Knowledge Solutions, Inc. Mr. Brochu was a member of the board of directors of Art Technology Group from November 2004 until its acquisition by Oracle Corporation in January 2011. Beginning in December 2003, Mr. Brochu served as a director of Loudeye Corp., and from February 2005 until October 2006, as its president and chief executive officer. In October 2006, Loudeye Corp. was acquired by Nokia Corp. Mr. Brochu left Nokia Corp. in December 2006. From June 2007 until its acquisition in September 2011 by WPP PLC, Mr. Brochu served as president, chief executive officer and a director of Global Market Insite, Inc. Our Board has determined that Mr. Brochu is qualified to serve on our Board because of his more than 20 years’ of senior-level experience as a veteran operational executive in a variety of technology companies. Mr. Brochu is currently a member of the board of directors for Centro Digital Media, Vines of Mendoza and Zotec Partners (each privately held). He is also a member of the Operating Committee of BelHealth Investment Partners, a private equity firm specializing in healthcare, and is on the advisory board of Seattle-based venture capital firm Voyager Capital. Mr. Brochu holds a BBA in Finance/Accounting from the University of Texas at El Paso.
Sam M. Auriemma has served as a director since July 2012. From April 2007 until its acquisition in October 2009 by Symphony Technology Group, a private-equity fund, Mr. Auriemma served as executive vice president and chief financial officer of MCS Software. Since the sale of MCS Software, Mr. Auriemma has served part-time as a member of the board of several not for profit and for profit organizations. Mr. Auriemma has also held executive positions at IBM/FileNet Corporation, Wonderware Corporation, Platinum Technology/Locus Computing Corporation, Distributed Logic Corporation, and Applied Circuit Technology. Our Board has determined that Mr. Auriemma is qualified to serve on our Board because of his more than 30 years’ of senior-level experience as a veteran financial executive at a variety of technology companies. Mr. Auriemma is a Certified Public Accountant and holds a BS degree from the University of Southern California.
Directors Whose Terms Expire in 2017 (Class III)
Eldad Eilam has served as our Chief Executive Officer since August 2012 and our President since January 2012, and has been a member of our Board since March 2012. Previously, Mr. Eilam served as our Acting Chief Executive Officer between March 2012 and April 2012, as our Interim Chief Executive Officer between April 2012 and August 2012, as our Chief Operating Officer from January 2012 to August 2012, and as our Chief Technology Officer from July 2011 to January 2012. In 2004, Mr. Eilam founded Elgix, Limited, a consulting firm to the high-tech industry, and served as its initial president until his appointment as our Chief Technology Officer. From July 2006 to March 2009, Mr. Eilam was president of GraphOn Research Labs, Limited, our Israeli subsidiary. From April 2009 to July 2011, in his role as President of Elgix, Limited, Mr. Eilam served as a consultant to the high-tech industry, including as a consultant to us since June 2010. Mr. Eilam is a technology expert in the Windows operating system, mobile user interfaces and advanced software technology development, and is the author of the book Reversing: Secrets of Reverse Engineering. Mr. Eilam was nominated to serve on our Board because of his experience advising high-tech companies at similar stages of development as our Company, and his technological expertise in the Windows operating system and mobile user interfaces.
Jeremy E. Verba was appointed to our Board in December 2013. Mr. Verba has served in senior positions at major internet companies. He is currently vice president and general manager of VUDU, Inc., a wholly-owned subsidiary of Wal-Mart Stores, Inc. Previously, Mr. Verba was an Entrepreneur-in-Residence at Foundation Capital in Menlo Park, CA. From August 2011 to August 2012, he was the chief executive officer of eHarmony, Inc., overseeing the number one compatibility-based relationship site in the world. Prior to eHarmony, Inc. he was the founder and general manager of Treasure Isle at Zynga, Inc. from 2009 to 2011. Mr. Verba's career focus has been on online services, communications, and digital media. Mr. Verba is qualified to serve on our Board because of his experience, skillset and network, which are accretive to that of our current Board. Additionally, Mr. Verba brings years of hands-on experience and innovative ideas in the areas of creation, marketing and monetization of consumer products, to the Board. He received his MBA from Harvard University and a BS from the Massachusetts Institute of Technology.
Executive Officers
Jean-Louis Casabonne has served as our Chief Financial Officer and Secretary since May 2014. Previously from 2002 to 2011, Mr. Casabonne has served as the Chief Financial Officer of Quova, Inc., a venture backed company which he guided to profitability prior to its successful sale to Neustar, Inc. (NYSE:NSR). Following the sale of Quova to Neustar, Mr. Casabonne continued with Neustar from 2011 to 2014 as a strategic evangelist and director of business development managing strategic relationships with key partners. From 1996 to 2002, Mr. Casabonne was a founder and controller for Inxight Software, a spin-out from Xerox Corporation. He became CFO and VP of Operations for Inxight in 1999, managing finance, administration, legal affairs, information technology and customer support. From 1992 to 1996, Mr. Casabonne served in a number of senior financial positions for Xerox Corporation’s XSoft Division. Mr. Casabonne also serves as a member of the board of trustees for Stanbridge Academy, a private K-12 school where he has been a trustee since 2011. Mr. Casabonne received his MBA and BS from Santa Clara University.
BOARD MEETINGS AND COMMITTEES
During 2014, our Board held eight meetings. Our Board has two separately designated committees: our Audit Committee and our Compensation Committee. Each member of these standing committees has been determined to meet the standards for director independence under the rules of the SEC and is an "independent director" as defined under NASDAQ listing standards.
Our Board has determined not to establish a nominating committee. Nominees for election as directors are selected by our Board. Each committee has the power to engage independent legal, financial or other advisors, as it may deem necessary, without consulting or obtaining the approval of our Board or any of our officers. Each then-director attended, either in person or by electronic means, all of the meetings of our Board and Board committees on which they served during 2014.
Committees of the Board of Directors
Audit Committee
The current members of our Audit Committee are Sam Auriemma (Chairman), Jeremy E. Verba and Ashfaq A. Munshi. Our Audit Committee held four meetings during 2014. Our Board determined that each of our Audit Committee members is “independent” for audit committee purposes and that Sam Auriemma meets the SEC definition of an “audit committee financial expert.” Information regarding our Audit Committee and its functions and responsibilities is included in this proxy statement under the caption “Report of the Audit Committee” below.
Compensation Committee
The current members of our Compensation Committee are Michael A. Brochu and John Cronin. Our Compensation Committee held one meeting during 2014. Our Compensation Committee annually reviews and determines both the cash and non-cash components of compensation paid to our directors and executive officers. In years past, the Compensation Committee has utilized information published by independent organizations, such as the American Electronics Association and Culpepper and Associates, for background information as to general compensation levels currently being offered in our industry. Our executive officers do not perform any role in determining or recommending the amount or form of executive or director compensation; however, as a member of our Board, our Chief Executive Officer reviews and participates in compensation decisions of executive officers other than himself. Our Compensation Committee also administers our stock-based compensation plans. Our Compensation Committee does not have a charter.
CORPORATE GOVERNANCE
Board Leadership Structure
The roles of Chairman and Chief Executive Officer are held by different individuals. Mr. Auriemma currently is Chairman of our Board. We believe that having a non-executive Chairman acting in a leadership position to direct the meetings and procedures of the Board is beneficial to our Company and its employees and conveys a clear, cohesive message of Board independence and leadership to our employees and industry partners. Our Board believes that this structure provides an efficient and effective leadership model for our Company, facilitates efficient and open communication between our directors and management team, and helps to involve our other independent Board members in Board activities and decision making.
Role of Board of Directors in Risk Oversight
One of the responsibilities of our Board is to review and evaluate the process used to assess major risks facing our Company and to periodically review assessments prepared by our senior management of such risks, as well as options for their mitigation. Frequent interaction between our directors and members of senior management assist in this effort. Communications between our Board and senior management regarding long-term strategic planning and short-term operational practices include matters of material risk inherent in our business.
Our Board also plays an active role, as a whole and at the committee level, in overseeing management of our risks. Our entire Board is formally apprised at least annually of our enterprise risk management efforts. Our Board regularly reviews information regarding our credit, liquidity and operations, as well as the risks associated with each. Our Audit Committee is responsible for overseeing the management of financial and accounting risks. Our Compensation Committee is responsible for overseeing the management of risk-taking relating to executive compensation plans and arrangements. While each committee is responsible for the evaluation and management of such risks, our entire Board is regularly informed through committee reports.
Director Independence
Our Board of Directors has determined that each of our non-employee directors (John Cronin, Sam M. Auriemma, Michael A. Brochu, Jeremy E. Verba and Ashfaq A. Munshi), who collectively constitute a majority of our Board, meets the general independence criteria set forth in the NASDAQ Marketplace rules. In addition, our Board has made a subjective determination as to each of the foregoing individuals that no relationships exist (including the relationship with ipCapital that are described below under “Related-Party Transactions”) that, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Related-Party Transactions
John Cronin
ipCapital Group, Inc.
John Cronin, a member of our Board since August 9, 2011, is the founder, managing director and chairman of ipCapital Group, Inc. ("ipCapital"), an intellectual property strategy firm.
On October 11, 2011, we engaged ipCapital to assist us in the execution of our strategic decision to significantly strengthen, grow and commercially exploit our intellectual property assets. Our engagement agreement with ipCapital, which has been amended three times, affords us the right to request ipCapital to perform a number of diverse services, employing its proprietary processes and methodologies, to facilitate our ability to identify and extract from our current intellectual property base new inventions, potential patent applications, and marketing and licensing opportunities.
For the fiscal years ended December 31, 2014 and 2013 we paid ipCapital an aggregate $0 and $15,000, respectively, for services performed under the engagement agreement, as amended.
In addition to the fees we agreed to pay ipCapital for its services, we issued ipCapital a five-year warrant to purchase up to 400,000 shares of our common stock at an initial price of $0.26 per share. Half of the warrant (200,000 shares) has a time-based vesting condition, with such vesting to occur in three equal annual installments. The vesting installments occurred on October 11, 2012 and October 11, 2013, and October 11, 2014, respectively.. The remaining 200,000 shares became fully vested upon the completion to our satisfaction of all services that we had requested from ipCapital under the engagement agreement, prior to the signing of the amendments. Such performance was deemed satisfactory during 2012. We believe that these fees, together with the issuance of the warrant, constitute no greater compensation than we would be required to pay an unaffiliated person for substantially similar services.
ipCapital Licensing Company I, LLC
John Cronin, a member of our Board since August 9, 2011, was a partner until December 31, 2014, and served on the board of directors, of ipCapital Licensing Company I, LLC ("ipCLC"), an intellectual property licensing firm.
On February 4, 2013, we entered into an Intellectual Property Brokerage Agreement (the "IP Agreement") with ipCLC pursuant to which we have retained its services, on a no-retainer basis, to identify and present us with candidates who may be seeking to acquire a certain limited group of our patents that are unrelated to our current business strategy. If, during the applicable term of the IP Agreement, we enter into an agreement with any candidate presented to us by ipCLC to acquire or otherwise exploit the covered patents, we will pay ipCLC a fee of ten percent (10%) of the royalties, fees, and other consideration paid over the life of such agreement.
The IP Agreement is effective as of February 4, 2013, and will end 18 months after we or ipCLC serve 60 days' written notice of termination to the other party (with earlier termination possible in the event of a material breach). The IP Agreement provides for customary confidentiality undertakings, limitations on ipCLC’s total liability and mutual indemnification provisions.
ipCreate, Inc.
John Cronin, a member of our Board since August 9, 2011, is chairman and CEO of ipCreate, Inc. (ipCreate), an intellectual property consulting firm.
In 2013, we entered into an Engagement Letter (the "Engagement Letter") with ipCreate. Pursuant to the Engagement Letter, we engaged ipCreate to assist us in the definition and execution of our intellectual property strategy. During 2013, upon completion of certain tasks we requested ipCreate to perform under the terms of the Engagement Letter, we paid ipCreate $100,000, the full amount of compensation due them under the Engagement Letter for the services performed.
We believe the terms of the Engagement Letter were fair and reasonable to us and were at least as favorable to us as those that could have been obtained on an arm’s length basis.
Director Nominations and Qualifications for Director Nominees
Our Board does not have a nominating committee. Our Board has determined that given its relatively small size, the function of a nominating committee could be performed by our Board as a whole without unduly burdening the duties and responsibilities of our Board members. The nomination of each of the Class I directors standing for election at the Annual Meeting was unanimously approved by our Board.
Our Board does not have written guidelines regarding the qualifications or diversity of properly submitted candidates for membership on our Board. Qualifications for consideration as a new director nominee may vary according to the particular areas of expertise being sought as a complement to the existing Board composition. In reviewing nominations, our Board will consider, among other things, an individual’s business experience, industry experience, financial background, breadth of knowledge about issues affecting us, time available for meetings and consultation regarding company matters and other particular skills and experience possessed by the individual.
Stockholder Nominations and Bylaw Procedures
Our amended and restated bylaws, as amended ("Bylaws") establish procedures pursuant to which a stockholder may nominate a person for election to our Board. Our Bylaws are available at our website at: http://hopto.com/investors/corp-governance.
To nominate a person for election to our Board, a stockholder must set forth all information relating to the nominee 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. Such notice must also contain information specified in the Bylaws as to the director nominee, information about the stockholder making the nomination and the beneficial owner, if any, on behalf of whom the nomination is made, including name and address, class and number of shares owned, and representations regarding the intention to make such a nomination and to solicit proxies in support of it. We may require any proposed nominee to furnish information concerning his or her eligibility to serve as an independent director or that could be material to a reasonable stockholder’s understanding of the independence of the nominee.
Deadlines to Submit Nominations
To nominate a person for election to our Board at our annual meeting of stockholders, written notice of a stockholder nomination must be delivered to our Secretary not later than the close of business 90 nor earlier than the close of business 120 days prior to the one year anniversary of the date on which we first mailed the proxy materials for the prior year’s annual meeting. However, if our annual meeting is advanced or delayed by more than 30 days from the anniversary of the previous year’s meeting, a stockholder’s written notice will be timely if it is delivered by the later of the 90th day prior to such annual meeting or the 10th day following the announcement of the date of the meeting. This year, our proxy statement is being mailed on or about August 28, 2015; therefore, notice by a stockholder, to be timely received, must be received by our Secretary not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made.
Stockholder nominations must be addressed to Jean-Louis Casabonne, Secretary, and must be mailed to him at hopTo Inc., 1919 S. Bascom Avenue, Suite 600, Campbell, CA 95008, or faxed to him at 1-408-626-9722, with a confirmation copy sent by mail.
Executive Sessions of Independent Directors
The independent members of our Board meet in executive session, without any employee directors or other members of management in attendance, at least annually and additionally, as circumstances warrant.
Code of Ethics
We have a code of ethics that applies to all of our employees, including our Chief Executive Officer and Chief Financial Officer. Our code of ethics is made available at our website at: http://hopto.com/investors/corp-governance.
Stockholder Communication with Board Members
We maintain contact information for stockholders, both telephone and email, on our website (www.hopto.com) under the heading “Contact Us” where a stockholder will find our telephone number and mailing address as well as a link for providing email correspondence to Investor/Public Relations. Communications sent to Investor/Public Relations and specifically marked as a communication for our Board will be forwarded to our Board or specific members of our Board as directed in the stockholder communication. In addition, communications for our Board received via telephone or mail are forwarded to our Board by one of our employees.
Board Member Attendance at Annual Meetings
Our Board does not have a formal policy regarding attendance of directors at our annual stockholder meetings. None of our then-directors attended our 2014 annual meeting of stockholders.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation we paid to our executive officers for the fiscal years ended December 31, 2014 and 2013:
Name and Principal Position |
Year |
Salary $ |
Bonus $ |
Stock Awards $ (1) |
Option Awards $ (1) |
All Other Compensation $ |
Total $ |
Eldad Eilam, (2) |
2014 |
275,000 |
75,000 |
— |
137,000 (3) |
2,270 (4) |
489,270 |
CEO, President |
2013 |
275,000 |
56,250 |
— |
— |
2,270 (4) |
333,520 |
Jean-Louis Casabonne (5) |
2014 |
142,800 |
45,000 |
166,000 |
— |
2,840 (6) |
356,640 |
CFO, Secretary |
2013 |
— |
— |
— |
— |
— |
— |
Christoph Berlin ** |
2014 |
64,750 |
— |
— |
— |
1,950 (7) |
66,700 |
Former COO |
2013 |
215,000 |
45,000 |
— |
— |
2,240(7) |
262,240 |
Robert Dixon, (8) ++ |
2014 |
179,900 |
— |
— |
9,010 (8) |
840 (9) |
185,970 |
Former Vice President of Finance, Secretary |
2013 |
195,000 |
— |
— |
— |
1,940 (9) |
196,940 |
** |
Mr. Berlin resigned as Chief Operating Officer on March 12, 2014. |
++ |
Mr. Dixon’s employment with the Company ended on August 5, 2014. |
(1) |
The amounts listed in the Stock Awards column and Option Awards column reflect the fair value of the stock awards granted to the named executive officers as of the grant date in accordance with FASB ASC Topic 718. The valuation assumptions used in calculating these amounts are set forth in Note 2 to our consolidated financial statements in our 2014 Form 10-K filed with the Commission on March 31, 2015. |
(2) |
Mr. Eilam has served as our President since January 2012 and as our Acting Chief Executive Officer between March 2012 and April 2012 when he was appointed Interim Chief Executive Officer. Mr. Eilam became Chief Executive Officer on August 15, 2012. Mr. Eilam served as our Chief Operating Officer from January 2012 to April 2012 and as our Chief Technology Officer from July 2011 to January 2012. |
(3) |
On December 3, 2014, we granted Mr. Eilam a performance-based stock option to purchase 1,000,000 shares of common stock at an exercise price of $0.169. The options under this grant shall vest upon the earlier to occur of (a) the seventh (7th) anniversary the date of grant or such other earlier date as the Board of Directors may determine in its sole discretion from time to time (i.e., the Board may accelerate some or all of such Options, on one or more occasions, up to the maximum number of Options), at any time and for any reason the Board deems appropriate based on its evaluation of Mr. Eilam’s performance, the Company performance or other factors the Board deems appropriate. The amount listed in the Option Awards column reflects the fair value of the option award as of the grant date in accordance with FASB ASC Topic 718. The valuation assumptions used in calculating this amount are set forth in Note 2 to our consolidated financial statements in our 2014 Form 10-K filed with the Commission on March 31, 2015. |
(4) |
Represents group life insurance premiums, $270 in each of 2013 and 2014, and our contribution to the 401(k) plan ($2,000 in each of 2013 and 2014). |
(5) |
Mr. Casabonne has served as our Chief Financial Officer and Secretary since May 2014. On May 15, 2014, Mr. Casabonne was awarded 1,000,000 shares of restricted stock with a fair market value of $0.166 per share. |
(6) |
Represents group life insurance premiums ($840 in 2014), and our contribution to the 401(k) plan ($2,000). |
(7) |
Represents group life insurance premiums ($240 in 2013 and $60 in 2014) and our contribution to the 401(k) Plan ($2,000 in 2013 and $1,890 in 2014). |
(8) |
Mr. Dixon was appointed Vice President of Finance on August 21, 2013. Previously, he had served as Interim Chief Financial Officer since May 14, 2012, and Controller since March 2000. Mr. Dixon terminated his employment with the Company on August 5, 2014. As a condition of Mr. Dixon’s termination, the Company agreed to extend the exercise date for his vested stock options until May 29, 2015. |
(9) |
Represents group life insurance premiums ($690 in 2013 and $840 in 2014), and our contribution to the 401(k) plan ($1,250 in 2013). |
See “—Outstanding Equity Awards at Fiscal Year-End,” for a discussion of the vesting and exercisability terms of options referenced above.
Mr. Berlin was employed in 2014 on an at-will basis.
Mr. Eilam also was employed during 2014 and continues to be employed on an at-will basis pursuant to the employment agreement approved by the Board of Directors and Compensation Committee on August 21, 2013. Under the employment agreement, Mr. Eilam will receive an annual base salary of $275,000 and will be eligible for an annual performance-based bonus in the discretion of the Company’s Compensation Committee. For fiscal year 2014, Mr. Eilam earned a bonus of $75,000 which was subject to the discretion of our Board and its Compensation Committee based on Mr. Eilam’s overall performance during 2014. For 2013, Mr. Eilam’s bonus was subject to the successful attainment of three milestones, with one-third of the bonus awarded for each milestone achieved. The milestones were related to the product releases of our hopTo product, user base size of hopTo and modified EBITDA. At the discretion of our Board and its Compensation Committee, the actual bonus, if any, may be increased or decreased based on over or under achievement of the applicable milestone.
Mr. Eilam had previously been granted 1,600,000 restricted shares of the Company’s common stock and stock options to acquire 2,000,000 shares of the Company’s common stock. The restricted shares are scheduled to vest over a period of 33 months. Fifty percent (50%) of the stock options are scheduled to vest over a period of 33 months and the remaining stock options are scheduled to vest and become exercisable upon the satisfaction of specified performance goals over a period of three fiscal years. The employment agreement modified the vesting provisions of the restricted shares and stock options, which previously accelerated only in connection with a termination without cause and only in certain specified change of control situations. Pursuant to the employment agreement, if Mr. Eilam’s employment is terminated as a result of death or disability, by the Company without cause, or by Mr. Eilam for good reason, or following a change of control, then all of Mr. Eilam’s unvested restricted shares and stock options shall immediately vest.
Mr. Eilam is an at-will employee, however in the event that Mr. Eilam’s employment is terminated by the Company without cause, or Mr. Eilam terminates his employment for good reason or following a change in control, then, in addition to the vesting of Mr. Eilam’s unvested restricted shares and stock options as noted above, Mr. Eilam shall receive his base salary for a period of 12 months and shall also receive payment or reimbursement for a period of 12 months of the full cost to Mr. Eilam of any Company provided health insurance that Mr. Eilam elects to obtain for Mr. Eilam and any of his eligible dependents. As a condition to Mr. Eilam receiving such payments, Mr. Eilam will have to execute and deliver to the Company a general release.
At all times that Mr. Eilam is an employee of the Company, the Company, at its own expense, shall provide life insurance on Mr. Eilam’s life with a death benefit in an amount not less than $1,000,000 and shall also maintain long-term disability insurance on Mr. Eilam.
In the event that Mr. Eilam’s employment is terminated by the Company for cause, or by Mr. Eilam without good reason, then Mr. Eilam shall receive only his compensation and benefits earned and paid time off accrued through his termination date.
The new employment agreement supercedes the Company Key Employee Severance Plan unless Mr. Eilam’s employment is terminated under circumstances that would entitle him to receive salary continuation and Company subsidized health care for a period of twelve months or more following termination under the Company Key Employee Severance Plan.
Mr. Casabonne has been employed since May, 2014 and continues to be employed on an at-will basis. Mr.Casabonne will receive an annual base salary of $225,000 and is eligible for an annual performance-based bonus up to 30% of his annual base salary that is based on goals and achievements mutually set by Mr. Casabonne and management. In 2014, Mr. Casabonne was awarded equity compensation equivalent to 1,000,000 shares of hopTo Inc. common stock.
Outstanding Equity Awards at Fiscal Year-End
Outstanding Equity Awards at December 31, 2014 | |||||
Option Awards | |||||
Name |
Number of Underlying Securities (1) |
Number of Underlying Securities unvested |
Number of Underlying Securities unearned |
Option Exercise Price $ |
Option Expiration Date |
Eldad Eilam |
1,000,000 |
— |
— |
0.280 |
09/08/21 |
Chief Executive Officer, President |
1,000,000 |
— |
333,333(2) |
0.230 |
02/22/22 |
1,000,000 |
|
1,000,000 (3) |
0.169 |
12/03/2024 | |
Jean-Louis Casabonne |
— |
— |
— |
— |
— |
CFO, Secretary |
— |
— |
— |
— |
— |
Christoph Berlin (4) |
— |
— |
— |
— |
— |
Former Chief Operating Officer |
— |
— |
— |
— |
— |
Robert Dixon (5) |
25,000 |
— |
— |
0.210 |
05/29/2015 |
Vice President of Finance, Secretary |
25,000 |
— |
— |
0.165 |
05/29/2015 |
25,000 |
— |
— |
0.050 |
05/29/2015 | |
25,000 |
— |
— |
0.060 |
05/29/2015 | |
40,000 |
— |
— |
0.050 |
05/29/2015 | |
281,818 |
— |
— |
0.230 |
05/29/2015 | |
|
145,000 |
— |
— |
0.202 |
05/29/2015 |
(1) |
All options are immediately exercisable upon grant and vest in 33 equal monthly installments beginning in the fourth month after their respective date of grant. We have the right to repurchase exercised unvested options at the exercise price of the respective option upon the optionee's cessation of service to our Company. |
(2) |
On February 22, 2012, Mr. Eilam was granted a performance-based incentive option, which vests in three equal increments at the end of each fiscal year subsequent to its grant date, assuming that the performance-based goals have been met. As of December 31, 2013 and December 31, 2014, such goals for 2013 and 2014, respectively, which included establishing an operational base in the Silicon Valley area and delivering an alternative product to our existing GO-Global product family, were met. Thus, two-thirds of the award was vested and earned. |
(3) |
On December 3, 2014, Mr. Eilam was granted a performance-based incentive option which vests upon the earlier to occur of (a) the seventh (7th) anniversary the date of grant or (b) such other earlier date as the Board of Directors may determine in its sole discretion from time to time (i.e., the Board may accelerate some or all of such Options, on one or more occasions, up to the maximum number of Options), at any time and for any reason the Board deems appropriate based on its evaluation of Mr. Eilam’s performance, the Company performance or other factors the Board deems appropriate. |
(4) |
Mr. Berlin resigned on March 12, 2014, and in accordance with the provisions of our 2008 Equity Incentive Plan, forfeited 116,667 unvested options. |
(5) |
Mr. Dixon terminated his employment with the Company on August 5, 2014, and per the termination agreement, all of his vested options were extended to expire on May 29, 2015 |
Outstanding Equity Awards at December 31, 2014 (1) |
||||||||
Stock Awards |
||||||||
Name |
Number of shares or units of stock that have not vested |
Market value of shares of units of stock that have not vested (2) |
||||||
Eldad Eilam (3) |
387,900 | $ | 54,306 | |||||
Chief Executive Officer and President |
||||||||
Jean-Louis Casabonne (4) |
878,791 | 123,031 | ||||||
Chief Financial Officer, Secretary |
||||||||
Christoph Berlin (5) |
- | $ | - | |||||
Former Chief Operating Officer |
||||||||
Robert Dixon (6) |
- | $ | - | |||||
Vice President of Finance, Secretary |
(1) |
All awards identified in this table were granted on August 15, 2012 and May 15, 2014 and vest in thirty-three equal monthly installments, beginning on December 15, 2012 and September 15, 2014, respectively. |
(2) |
The fair market value of our stock on December 31, 2014 was $0.14 per share. |
(3) |
Mr. Eilam was appointed President in January 2012 and Chief Executive Officer on August 15, 2012. |
(4) |
Mr. Casabonne was hired and appointed Chief Financial Officer on May 3, 2014. |
(5) |
Mr. Berlin resigned on March 12, 2014 and, in accordance with the provisions of the 2012 Equity Incentive Plan, forfeited 954,194 unvested shares of common stock. |
(6) |
Mr. Dixon terminated his employment with the Company on August 5, 2014, and, in accordance with the provisions of the 2012 Equity Incentive Plan, forfeited 163,300 shares. |
Compensation of Directors
During the fiscal years ended December 31, 2014 and 2013, our non-employee directors were eligible to be compensated at the rate of $1,000 for attendance at each meeting of our Board, $500 if their attendance was via telephone, $500 for attendance at each meeting of a Board committee, and a $1,500 quarterly retainer.
Name |
Year |
Fees Earned or Paid in Cash |
Option Awards (1) |
All Other Compensation |
Total |
||||||||||||
Sam Auriemma |
2014 |
$ | 13,500 | $ | 31,910 | $ | — | $ | 45,410 | ||||||||
Michael A. Brochu |
2014 |
$ | 11,500 | $ | 31,910 | $ | — | $ | 43,410 | ||||||||
John Cronin (2) |
2014 |
$ | 9,500 | $ | 34,400 | $ | — | $ | 43,900 | ||||||||
Jeremy E. Verba (3) |
2014 |
13,000 | 6,300 | 19,300 | |||||||||||||
Ashfaq A. Munshi (4) |
2014 |
$ | 2,500 | $ | 73,000 | $ | — | $ | 75,500 | ||||||||
Steven Ledger (5) |
2014 |
$ | 1,000 | $ | — | $ | — | $ | 1,000 |
|
(1) |
The amounts listed in the Option Awards column reflect the aggregate grant date fair value of stock options granted to the named director during 2014 calculated in accordance with FASB ASC Topic 718. The valuation assumptions used in calculating these amounts are set forth in Note 2 to our consolidated financial statements in our 2014 Form 10-K filed with the Commission on March 31, 2015 |
|
(2) |
In December, 2014, 300,000 of the shares previously granted to Mr. Cronin in December 2012 were repriced from $0.37 to $0.16. |
|
(3) |
On December 18, 2013, we granted to Mr. Verba options to purchase 700,000 shares of common stock at an exercise price of $0.365 per share. All of the options granted to Mr. Verba in 2013 were immediately exercisable upon their grant date and vest in thirty-three equal monthly installments, beginning in the fourth month after their grant date. In November 2014, these shares were repriced from $0.365 to $0.1213 per share. |
|
(4) |
All of the options granted to Mr. Munshi in 2014 were immediately exercisable upon their grant date and vest in thirty-three equal month installments, beginning in the fourth month after their grant date. |
|
(5) |
On March 17, 2014, Mr. Ledger resigned from our Board and on such date we entered into an exclusive consulting agreement with Mr. Ledger to provide consulting services to our Board. See “Corporate Governance–Related-Party Transactions–Steven Ledger” for a summary of such agreement. |
Should any director’s service cease prior to full vesting of his options, we have the right to repurchase any shares issued upon exercise of options not vested.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 2014, the Compensation Committee was comprised of Michael A. Brochu and John Cronin, each of whom is a non-employee director. See “Corporate Governance–Related-Party Transactions–John Cronin” for a summary of transactions with entities controlled by Mr. Cronin.
REPORT OF AUDIT COMMITTEE
The functions of our Audit Committee are focused on three areas:
|
● |
the adequacy of the internal controls and financial reporting process of the Company and the reliability of its consolidated financial statements; |
● |
the appointment, compensation, retention and oversight of the Company’s independent registered public accounting firm; and |
● |
the Company’s compliance with legal and regulatory requirements. |
We operate under a written charter, which has been approved by the Board. The Company has made the Audit Committee charter available on its website at www.hopTo.com/investors/corp-governace.
We meet with management periodically to consider the adequacy of the Company’s internal controls and the objectivity of the Company’s financial reporting. We discuss these matters with the Company’s independent registered public accounting firm and with appropriate financial personnel. We periodically (at least annually) meet privately with both the independent registered public accounting firm and the Company’s financial personnel, each of whom has unrestricted access to us. We also appoint the independent registered public accounting firm and review their performance and independence from management. In addition, we review the Company’s financing plans.
Management is responsible for the financial reporting process, including the system of internal control, and the preparation of consolidated financial statements in accordance with generally accepted accounting principles. The Company’s independent registered public accounting firm is responsible for auditing those financial statements. Our responsibility is to monitor and review these processes. However, we are not professionally engaged in the practice of accounting or auditing and are not experts in the fields of accounting or auditing, including with respect to auditor independence. We rely on, without independent verification, the information provided to us and on the representations made by management and the independent registered public accounting firm.
In this context, we held four meetings during 2014. The meetings were designed, among other things, to facilitate and encourage communication among us, management, the internal accountants and the Company’s independent registered public accounting firm for fiscal year 2014, Macias Gini & O’Connell LLP (“MGO”). We discussed with MGO the overall scope and plans for their audit. We also met with MGO, with and without management present, to discuss the results of their audit and quarterly reviews and the Company’s internal controls. We reviewed and discussed the audited consolidated financial statements for the fiscal year ended December 31, 2014 with management and MGO.
We also discussed with MGO matters required to be discussed with audit committees under generally accepted auditing standards, including, among other things, matters related to the conduct of the audit of the Company’s consolidated financial statements and the matters required to be discussed by Statement on Auditing Standards No. 16, Communications with Audit Committees (AS 16), as adopted by the Public Company Accounting Oversight Board.
We have received the written disclosures and the letter from MGO required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountants’ communications with us concerning independence, and we discussed with MGO their independence from the Company. When considering MGO’s independence, we considered whether their provision of services to us beyond those rendered in connection with their audit and review of the Company’s consolidated financial statements was compatible with maintaining their independence. We also reviewed, among other things, the amount of fees paid to MGO for audit and non-audit services (primarily tax services).
Based on our review and these meetings, discussions and reports, and subject to the limitations on our role and responsibilities referred to above and in the Audit Committee charter, we recommended to the Board of Directors that the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2013 be included in the Company’s annual report on Form 10-K for filing with the Securities and Exchange Commission.
The members of the Audit committee as of the filing of our annual report on Form 10-K, as amended by Amendment No. 1, for the fiscal year ended December 31, 2014 include Sam Auriemma, Jeremy E. Verba and Ashfaq A. Munshi
Dated: August [__], 2015 |
Members of the Audit Committee |
|
|
|
Sam M. Auriemma (Chairman) |
|
Jeremy E. Verba |
|
Ashfaq A. Munshi |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our common stock as of our Record Date of July 31, 2015, by (i) each of our directors and nominees; (ii) each person known by us to beneficially own 5% or more of our common stock (based upon review of the most recent Schedule 13D and 13G filings as of July 31, 2015); (iii) each executive officer named in the summary compensation table; and (iv) all directors and executive officers as a group. Unless otherwise indicated, the address for each of the following stockholders is c/o hopTo Inc., 1919 S. Bascom Avenue, Suite 600, Campbell, CA 95008.
Name and Address |
Number of Shares of Common Stock Beneficially Owned (1)(2) |
Percent of Class (%) |
Eldad Eilam (3) |
5,134,577 |
3.3 |
Michael A. Brochu (3) |
2,171,876 |
1.5 |
Sam M. Auriemma (3) |
1,552,605 |
1.0 |
John Cronin (3) |
1,242,969 |
* |
Jean-Louis Casabonne |
1,083,177 |
* |
Jeremy E. Verba (3) |
823,854 |
* |
Ashfaq A. Munshi (3) |
700,000 |
* |
Robert L. Dixon **(3) |
341,200 |
* |
All current executive officers and directors as a group (7 persons)(3) |
12,709,059 |
8.5 |
JMI Holdings LLC (4) 111 Congress Avenue, Suite 2600 Austin, TX 78701 |
14,289,076 |
9.5 |
Austin Marxe, David Greenhouse and Adam C. Stettner (5) 527 Madison Avenue, Suite 2600 New York, NY 10022 |
16,092,417 |
9.9 |
David R. Wilmerding, III (6) 2 Hamill Road, Suite 272 Baltimore, MD 21117 |
14,071,074 |
9.4 |
Jon C. Baker (7) 101 St. Johns Road Baltimore, MD 21210 |
12,912,995 |
8.6 |
Robert S. London (8) 1485 E. Valley Road, Suite F Montecito, CA 93108 |
9,285,684 |
6.2 |
Neal Goldman (9) 767 Third Avenue, 25th Floor New York, NY 10017 |
10,193,754 |
6.8 |
* Less than 1%.
** Mr. Dixon’s employment with the Company ended on August 5, 2014.
(1) |
As used in this table, beneficial ownership means the sole or shared power to vote, or direct the voting of, a security, or the sole or shared power to invest or dispose, or direct the investment or disposition, of a security. Except as otherwise indicated, based on information provided by the named individuals, all persons named herein have sole voting power and investment power with respect to their respective shares of our common stock, except to the extent that authority is shared by spouses under applicable law, and record and beneficial ownership with respect to their respective shares of our common stock. With respect to each stockholder, any shares issuable upon exercise of options held by such stockholder that are currently exercisable or will become exercisable within 60 days of July 31, 2015 are deemed outstanding for computing the percentage of the person holding such options, but are not deemed outstanding for computing the percentage of any other person. | |
(2) |
Percentage ownership of our common stock is based on 148,959,382 shares of common stock outstanding as of July 31, 2015. | |
(3) |
Includes the following shares of common stock issuable upon exercise of outstanding stock options: 1,666,667 options earned by Mr. Eilam pursuant to a performance based incentive option grant; 933,000 stock options held by each of Messrs. Auriemma, Brochu, and Cronin; and 700,000 stock options held by each of Messrs. Verba and Munshi. | |
(4) |
Based on information known to us, El Camino Advisors, LLC is the manager of JMI Holdings, LLC. Charles E. Noell, III, John J. Moores and Bryant W. Burke are members of El Camino Advisors, LLC, the manager of JMI Holdings, LLC, and may be deemed the beneficial owners (due to voting and investment power) of the shares beneficially owned by El Camino Advisors, LLC and JMI Holdings, LLC. Messrs. Noell, Moores and Burke disclaim beneficial ownership of the shares beneficially owned by El Camino Advisors, LLC and JMI Holdings, LLC, except to the extent of their respective pecuniary interests therein. Such stockholders share voting and dispositive power over these shares by virtue of being the controlling principles of JMI Holdings, LLC. JMI Holdings LLC owns 12,622,409 shares of our common stock and holds warrants to purchase 1,666,667 shares of our common stock. | |
(5) |
Based on information contained in a joint Schedule 13G/A filed by Austin Marxe, David Greenhouse and Adam Stettner on February 4, 2015 and information known to us. Such stockholders share voting and dispositive power over these shares by virtue of being the controlling principals of AWM Investment Company, Inc. ("AWM"), and the members of SST Advisers, L.L.C. ("SST"). AWM acts as investment advisor to each of Special Situations Technology Fund, L.P. ("Tech Fund") and Special Situations Technology Fund II, L.P. ("Tech Fund II"); SST is the general partner of each of Tech Fund and Tech Fund II. Tech Fund owns 2,416,492 shares of our common stock and holds warrants to purchase 190,000 shares of our common stock. Tech Fund II owns 12,300,925 shares of our common stock and holds warrants to purchase 1,185,000 shares of our common stock. | |
(6) |
Based on information contained in a Schedule 13G/A filed by David Wilmerding on February 9, 2015, and information known to us, Mr. Wilmerding has sole voting and dispositive power with respect to 12,571,074 shares of our common stock and warrants to purchase 1,500,000 shares of our common stock. | |
(7) |
Based on information contained in a Schedule 13G/A filed by Jon C. Baker on February 9, 2015, and information known to us, Mr. Baker has sole voting and dispositive power with respect to 11,662,995 shares of our common stock and warrants to purchase 1,250,000 shares of our common stock. | |
(8) |
Based on information contained in Schedule 13G/A filed on February 17, 2015, by Robert S. London, and information known to us, Mr. London has sole voting and dispositive power with respect 8,910,684 shares of our common stock and warrants to purchase 375,000 shares of our common stock. | |
(9) |
Based on information contained in a Schedule 13G filed by Goldman Capital Management Inc. on April 18, 2014, and the Form 13HR filed by their firm on February12, 2015, and information known to us, Neal Goldman has sole voting and dispositive power with respect to 8,287,087 shares of our common stock and warrants to purchase 1,916,667 shares of our common stock held by Goldman Partners, L.P. ("Goldman Partners"), by virtue of being the general partner of Goldman Partners, and the president of Goldman Capital Management, Inc., which acts as investment advisor to Goldman Partners. |
COMPLIANCE WITH SECTION 16(a) OF SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, as well as those persons who own more than 10% of our common stock, to file reports of ownership and changes in ownership with the SEC. These persons are required by SEC rule to furnish us with copies of all Section 16(a) forms they file.
Except as noted below, based solely on a review of copies of reports filed with the SEC and submitted to us and on written representations by certain of our directors and executive officers, we believe that all of our directors and executive officers complied on a timely basis during the fiscal year ended December 31, 2014 with the reporting requirements of Section 16(a) of the Exchange Act:
(a) Jeremy E. Verba filed one late Form 4 on November 24, 2014 reporting a transaction on November 19, 2014; and
(b) .Jean-Louis Casabonne filed one late Form 4 on May 18, 2014 reporting a transaction on May 14, 2014, and one late Form 4 on July 29, 2015 reporting late transactions from September 15, 2014 through July 15, 2015 related to routine stock forfeitures to cover tax liabilities.
PROPOSAL 2
REVERSE STOCK SPLIT
Last year our Board, and our stockholders, approved a proposal substantially the same as this Proposal 2 regarding a reverse stock split. The approval last year expired one year after our 2014 annual meeting. Our Board is recommending substantially the same proposal again this year, to expire on the one year anniversary of our Annul Meeting, for the reasons described below.
Our Board has unanimously approved and recommended to our stockholders an amendment to our amended and restated certificate of incorporation, as amended (“Certificate of Incorporation”), to effect a reverse stock split by a ratio of one-for-fifteen (1:15) (the “Reverse Stock Split”). If this Proposal 2 is approved, our Board intends to effect the Reverse Stock Split promptly after the Annual Meeting without further stockholder approval. Even if this Proposal 2 is approved, our Board may decide not to effect the Reverse Stock Split at all if it determines that the Reverse Stock Split is not an effective course of action to achieve corporate objectives, subject to its obligations under the Purchase Agreement described below.
The Reverse Stock Split will have no effect on the par value of our common stock. The Company will pay cash in lieu of any fractional shares resulting from the Reverse Stock Split. The proposed form of amendment to our Certificate of Incorporation to implement the Reverse Stock Split is attached to this proxy statement as Annex A.
Pursuant to a Purchase Agreement dated July 24, 2015, with certain accredited investors, and as previously disclosed in a current report on Form 8-K, we committed to use our commercially reasonable efforts to seek stockholder approval for the Reverse Stock Split at this Annual Meeting, with the terms of the Reverse Stock Split to be determined by our Board in the good faith exercise of our business judgment. Subject to our fiduciary obligations under applicable law (as determined in good faith by our Board after consultation with our outside counsel), our Board agreed to recommend to our stockholders that the stockholders vote in favor of the Reverse Stock Split and take all commercially reasonable action (including, without limitation, the hiring of a proxy solicitation firm of nationally recognized standing) to solicit the approval of our stockholders for the Reverse Stock Split unless the Board shall have modified, amended or withdrawn its recommendation pursuant to the provisions of the immediately succeeding sentence. We covenanted that our Board shall not modify, amend or withdraw its recommendation unless the Board (after consultation with our outside counsel) shall determine in the good faith exercise of our business judgment that maintaining the recommendation would violate its fiduciary duty to our stockholders. Whether or not our Board modifies, amends or withdraws the recommendation pursuant to the immediately preceding sentence, we shall in accordance with Section 146 of the Delaware General Corporation Law and the provisions of its Certificate of Incorporation and Bylaws, (i) take all action necessary to convene the annual meeting to consider and vote upon the approval of the Reverse Stock Split and (ii) submit the Reverse Stock Split to the stockholders of the Company for their approval at the annual meeting.
Reasons for the Reverse Stock Split
Our Board of Directors is submitting this Reverse Stock Split to our stockholders for approval with the primary intent of complying with the Purchase Agreement. In addition, the Reverse Stock Split is expected to increase the market price of our common stock, which would enhance our ability to meet the initial listing requirements of the NASDAQ Stock Market or NYSE MKT and make our common stock more attractive to a broader range of institutional and other investors. The Board also considered the need to adjust the number of authorized shares of our common stock and determined that an adjustment to the authorized number of shares of our common stock be made based on one-half of the Reverse Stock Split ratio . We believe that effecting the Reverse Stock Split is in our and our stockholders' best interests.
We believe that the Reverse Stock Split will enhance our ability to obtain an initial listing on the NASDAQ Stock Market or NYSE MKT. The NASDAQ Stock Market requires, among other items, an initial bid price of least $4.00 per share or if certain financial and governance standards are achieved, a closing price on the OTC Markets QB (or higher) tier of $3.00 (or $2.00 depending on the applicable listing standard) for five consecutive days and following initial listing, maintenance of a continued price of at least $1.00 per share. The NYSE MKT requires an initial listing bid price of $3.00 (or $2.00 depending on the applicable listing standard). Reducing the number of outstanding shares of our common stock should, absent other factors, increase the per share market price of our common stock, although we cannot provide any assurance that our minimum bid price would remain following the Reverse Stock Split over the minimum bid price requirement of any such stock exchange.
Additionally, we believe that the Reverse Stock Split will make our common stock more attractive to a broader range of institutional and other investors, as we have been advised that the current market price of our common stock may affect its acceptability to certain institutional investors, professional investors and other members of the investing public. Many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. In addition, some of those policies and practices may function to make the processing of trades in low-priced stocks economically unattractive to brokers. Moreover, because brokers' commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, the current average price per share of common stock can result in individual stockholders paying transaction costs representing a higher percentage of their total share value than would be the case if the share price were substantially higher. We believe that the Reverse Stock Split will make our common stock a more attractive and cost effective investment for many investors, which will enhance the liquidity of the holders of our common stock.
We are submitting this proposal with an exchange ratio of one-for-fifteen (1:15). Our Board has selected this ratio with the intent of maximizing the anticipated benefits for our stockholders. In determining whether to implement the Reverse Stock Split and selecting the exchange ratio, our Board considered factors such as:
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The initial listing standards of NASDAQ Stock Market or NYSE MKT; |
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The historical trading price and trading volume of our common stock; |
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The then prevailing trading price and trading volume for our common stock; |
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The anticipated impact of the Reverse Stock Split on the trading price of and market for our common stock; and |
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Prevailing general market and economic conditions. |
Reducing the number of outstanding shares of our common stock through a reverse stock split is intended, absent other factors, to increase the per share market price of our common stock. However, other factors, such as our financial results, market conditions and the market perception of our business may adversely affect the market price of our common stock. As a result, there can be no assurance that the Reverse Stock Split, if completed, will result in the intended benefits described above, that the market price of our common stock will increase following the Reverse Stock Split or that the market price of our common stock will not decrease in the future. Additionally, we cannot assure you that the market price per share of our common stock after a reverse stock split will increase in proportion to the reduction in the number of shares of our common stock outstanding before the Reverse Stock Split. Accordingly, the total market capitalization of our common stock after the Reverse Stock Split may be lower than the total market capitalization before the Reverse Stock Split.
Our Board may also determine that the Reverse Stock Split is no longer in the best interests of the Company and its stockholders and decide to abandon the Reverse Stock Split, at any time before, during or after the meeting and prior to its effectiveness, without further action by the stockholders, subject to our obligations under the Purchase Agreement.
Effect of the Reverse Split on Our Common Stock
The authorized number of shares of our common stock will be reduced based on one-half of the Reverse Stock Split ratio.
The table below shows, as of July 31, 2015, the number of authorized shares of common stock and the approximate number of outstanding shares of common stock (excluding Treasury shares) that would result from the selected Reverse Stock Split ratios (without giving effect to the treatment of fractional shares) based on the [●] shares of common stock issued and outstanding as of such date:
Reverse Stock Split Ratio |
Approximate Number of Outstanding |
Number of Authorized Shares of Common Stock Following the Reverse Stock Split |
1-for-15 |
9,930,625 |
26,000,000 |
The Reverse Stock Split will affect all holders of our common stock uniformly and will not affect any stockholder’s percentage ownership interest in us, except that, as described below in “— Fractional Shares,” record holders of common stock otherwise entitled to a fractional share as a result of the Reverse Stock Split will receive cash in lieu of such fractional share. In addition, the Reverse Stock Split will not affect any stockholder’s proportionate voting power (subject to the treatment of fractional shares).
The Reverse Stock Split may result in some stockholders owning “odd lots” of less than 100 shares of common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares.
The Reverse Stock Split will result in the number of authorized shares of common stock being reduced based on the equivalent of one-half of the Reverse Stock Split ratio. Therefore, because the number of authorized shares will not be reduced by the same equivalent proportion as the number of outstanding shares of common stock, the Reverse Stock Split will have the effect of an increase in the number of authorized but unissued shares of common stock. Authorized but unissued shares of our common stock and preferred stock are available for future issuance as may be determined by our Board without further action by our stockholders, unless stockholder approval is required by applicable law or securities exchange listing requirements in connection with a particular transaction. These additional shares may be issued in the future for a variety of corporate purposes including, but not limited to, raising additional capital, corporate acquisitions and equity incentive plans. Except for a stock split or stock dividend, future issuances of common shares will dilute the voting power and ownership of our existing stockholders and, depending on the amount of consideration received in connection with the issuance, could also reduce stockholders’ equity on a per share basis.
The Reverse Stock Split could, under certain circumstances, have an anti-takeover effect (for example, by enhancing our ability to approve future issuances that could dilute the stock ownership of a person seeking to effect a change in the composition of our Board or contemplating a tender offer or other transaction involving the Company with another company). This Proposal 2 is not being made in response to any effort of which our Board is aware to accumulate shares of our common stock or obtain control of the Company nor does the Company currently have any plans, proposals or arrangements to issue for any purpose, including future acquisitions or financings, any of the newly available authorized shares of common stock resulting from a change in the authorized shares.
Procedure for Implementing the Reverse Stock Split
The Reverse Stock Split, if approved by our stockholders, would become effective upon the filing (the “Effective Time”) of a certificate of amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware. The exact timing of the filing of the certificate of amendment that will effect the Reverse Stock Split will be determined by our Board based on its evaluation as to when such action will be the most advantageous to us and our stockholders. In addition, our Board reserves the right, notwithstanding stockholder approval and without further action by the stockholders, to elect not to proceed with the Reverse Stock Split if, at any time prior to filing the amendment to our Certificate of Incorporation, our Board, in its sole discretion, determines that it is no longer in our best interest and the best interests of our stockholders to proceed with the Reverse Stock Split, subject to our obligations under the Purchase Agreement.
After the Effective Time, our common stock will have a new Committee on Uniform Securities Identification Procedures (“CUSIP”) number, which is a number used to identify our equity securities, and stock certificates with the older CUSIP number will need to be exchanged for stock certificates with the new CUSIP number by following the procedures described below.
Beneficial Holders of Common Stock (i.e., stockholders who hold in street name)
Upon the implementation of the Reverse Stock Split, we intend to treat shares held by stockholders through a bank, broker, custodian or other nominee in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers, custodians or other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding our common stock in street name. However, these banks, brokers, custodians or other nominees may have different procedures than registered stockholders for processing the Reverse Stock Split. Stockholders who hold shares of our common stock with a bank, broker, custodian or other nominee and who have any questions in this regard are encouraged to contact their banks, brokers, custodians or other nominees.
Registered “Book-Entry” Holders of Common Stock (i.e., stockholders that are registered on the transfer agent’s books and records but do not hold stock certificates)
Certain of our registered holders of common stock may hold some or all of their shares electronically in book-entry form with the transfer agent. These stockholders do not have stock certificates evidencing their ownership of the common stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.
Stockholders who hold shares electronically in book-entry form with the transfer agent will not need to take action (the exchange will be automatic) to receive whole shares of post-Reverse Stock Split common stock, subject to adjustment for treatment of fractional shares.
Exchange of Stock Certificates and Elimination of Fractional Share Interests
As soon as practicable after filing the certificate of amendment to our Certificate of Incorporation effecting a Reverse Stock Split with the Secretary of State of Delaware, stockholders will receive instructions for the exchange of their common stock certificates for new certificates representing the appropriate number of shares of common stock after the Reverse Stock Split. However, if permitted, the Company may elect to effect the exchange in the ordinary course of trading as certificates are returned for transfer. In either event, each current certificate representing shares of common stock will until so exchanged be deemed for all corporate purposes after the filing date to evidence ownership of our common stock in the proportionately reduced number. An exchange agent may be appointed to act for stockholders in effecting the exchange of their certificates.
Stockholders should NOT destroy any stock certificates or submit their stock certificates now. You should submit them only after you receive instructions from us or our exchange agent.
No service charges, brokerage commissions or transfer taxes will be payable by any stockholder, except that if any new stock certificates are to be issued in a name other than that in which the surrendered certificate(s) are registered it will be a condition of such issuance that (1) the person requesting such issuance pays all applicable transfer taxes resulting from the transfer (or prior to transfer of such certificate, if any) or establishes to our satisfaction that such taxes have been paid or are not payable, (2) the transfer complies with all applicable federal and state securities laws, and (3) the surrendered certificate is properly endorsed and otherwise in proper form for transfer.
Fractional Shares
We do not currently intend to issue fractional shares in connection with the Reverse Stock Split. Therefore, we will not issue certificates representing fractional shares. In lieu of issuing fractions of shares, we intend to pay cash as follows:
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If a stockholder’s shares are held in street name, payment for the fractional shares will be deposited directly into the stockholder’s account with the organization holding the stockholder’s shares. |
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If the stockholder’s shares are registered directly in the stockholder’s name, payment for the fractional shares will be made by check, sent to the stockholder directly from our transfer agent upon receipt of the properly completed and executed transmittal letter and original stock certificates. |
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The amount of cash to be paid for fractional shares will be equal to the product obtained by multiplying: |
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The average closing price of our common stock as reported by the OTC Markets QB (or higher) tier for the five trading days immediately preceding the date of the Reverse Stock Split, or if our common stock is not at such time traded on the OTC Markets QB (or higher) tier, then as reported on the primary trading market for our common stock; |
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The amount of the fractional share. |
Those stockholders who hold less than the number of shares set forth in the Reverse Stock Split ratio would be eliminated as a result of the payment of fractional shares in lieu of any fractional share interest in connection with the Reverse Stock Split. The Board reserves the right to aggregate all fractional shares for cash and arrange for their sale, with the aggregate proceeds from such sale being distributed to the holders of fractional shares on a pro rata basis.
Effect of the Reverse Stock Split on Employee Plans, Options, Restricted Stock Awards and Units, Warrants, and Convertible or Exchangeable Securities
Based upon the Reverse Stock Split ratio, proportionate adjustments are generally required to be made to the per share exercise price and the number of shares issuable upon the exercise or conversion of all outstanding options, warrants, convertible or exchangeable securities entitling the holders to purchase, exchange for, or convert into, shares of common stock. This would result in approximately the same aggregate price being required to be paid under such options, warrants, convertible or exchangeable securities upon exercise, and approximately the same value of shares of common stock being delivered upon such exercise, exchange or conversion, immediately following the Reverse Stock Split as was the case immediately preceding the Reverse Stock Split. The number of shares deliverable upon settlement or vesting of restricted stock awards will be similarly adjusted, subject to our treatment of fractional shares. The number of shares reserved for issuance pursuant to these securities will be proportionately based upon the Reverse Stock Split ratio, subject to our treatment of fractional shares.
Accounting Matters
This proposed amendment to our Certificate of Incorporation will not affect the par value of our common stock per share, which will remain $0.0001 par value per share. As a result, as of the Effective Time, the stated capital attributable to common stock will be proportionately reduced based on the applicable ratio used in the Reverse Stock Split and the additional paid-in capital account on our balance sheet will not be materially affected due to the Reverse Stock Split. Reported per share net income or loss will be higher because there will be fewer shares of common stock outstanding.
Certain Federal Income Tax Consequences
The following summary describes certain material U.S. federal income tax consequences of the Reverse Stock Split to holders of our common stock.
Unless otherwise specifically indicated herein, this summary addresses the tax consequences only to a beneficial owner of our common stock that is a citizen or individual resident of the United States, a corporation organized in or under the laws of the United States or any state thereof or the District of Columbia or otherwise subject to U.S. federal income taxation on a net income basis in respect of our common stock (a “U.S. holder”). A trust may also be a U.S. holder if (1) a U.S. court is able to exercise primary supervision over administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person. An estate whose income is subject to U.S. federal income taxation regardless of its source may also be a U.S. holder.
This summary does not address all of the tax consequences that may be relevant to any particular investor, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of taxpayers or that are generally assumed to be known by investors. This summary also does not address the tax consequences to (i) persons that may be subject to special treatment under U.S. federal income tax law, such as banks, insurance companies, thrift institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, U.S. expatriates, persons subject to the alternative minimum tax, traders in securities that elect to mark to market and dealers in securities or currencies, (ii) persons that hold our common stock as part of a position in a “straddle” or as part of a “hedging,” “conversion” or other integrated investment transaction for federal income tax purposes, or (iii) persons that do not hold our common stock as “capital assets” (generally, property held for investment). If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our common stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships that hold our common stock, and partners in such partnerships, should consult their own tax advisors regarding the U.S. federal income tax consequences of the Reverse Stock Split.
This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, U.S. Treasury regulations, administrative rulings and judicial authority, all as in effect as of the date of this proxy statement. Subsequent developments in U.S. federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material effect on the U.S. federal income tax consequences of the Reverse Stock Split.
PLEASE CONSULT YOUR OWN TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION.
The Reverse Stock Split should be treated as a recapitalization for U.S. federal income tax purposes. Therefore, a stockholder generally will not recognize gain or loss on the Reverse Stock Split, except to the extent of cash, if any, received in lieu of a fractional share interest in the post-Reverse Stock Split shares. The aggregate tax basis of the post-split shares received will be equal to the aggregate tax basis of the pre-split shares exchanged therefore (excluding any portion of the holder’s basis allocated to fractional shares), and the holding period of the post-split shares received will include the holding period of the pre-split shares exchanged.
A holder of the pre-split shares who receives cash will generally recognize gain or loss equal to the difference between the portion of the tax basis of the pre-split shares allocated to the fractional share interest and the cash received. Such gain or loss will be a capital gain or loss and will be short term if the pre-split shares were held for one year or less and long term if held more than one year.
No gain or loss will be recognized by us as a result of the Reverse Stock Split.
No Appraisal Rights
Stockholders have no rights under Delaware law or under our charter documents to exercise dissenters’ rights of appraisal with respect to the Reverse Stock Split.
Vote Required
This Proposal 2 requires the affirmative vote of a majority of the outstanding shares of our common stock outstanding on July 31, 2015. Stockholders may vote “for” or “against” the proposal, or they may abstain from voting on the proposal. Abstentions and broker non-votes will have the same effect as vote “against” this Proposal 2. The proxy holders will vote your shares in accordance with your instructions. If you have not given specific instructions to the contrary, your shares will be voted “FOR” the approval of this Proposal 2.
Board Recommendation
Our Board Recommends a Vote “FOR” Amendment of our Amended and Restated Certificate of Incorporation, as Amended, to Effect a Reverse Stock Split as Described in this Proposal 2.
PROPOSAL 3
ADVISORY (NON-BINDING) VOTE ON EXECUTIVE COMPENSATION
We are required to permit a separate non-binding stockholder vote to approve the compensation of our named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the compensation tables and narrative discussion). This vote is not intended to address any specific item of compensation or the compensation of any particular officer, but rather to provide stockholders with an opportunity to make an advisory vote with respect to the overall compensation of our named executive officers and our compensation practices.
This proposal, commonly known as a "Say-On-Pay" proposal permits stockholders to endorse or not endorse our executive compensation through the following resolution:
“Resolved, that the stockholders approve, on an advisory basis, the compensation paid to the Company's named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the compensation tables and narrative discussion).”
Because the stockholders’ vote is advisory, it will not be binding on the Board. However, the Board’s Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements.
Board Recommendation
Our Board Recommends a Vote “FOR” this Proposal 3.
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has appointed Macias Gini & O’Connell LLP to audit our accounts for the fiscal year ending December 31, 2015. Such firm, which has served as our independent registered public accounting firm since February 9, 2005, has reported to us that none of its members has any direct financial interest or material indirect financial interest in our Company.
A proposal will be presented at the Annual Meeting to ratify the Audit Committee’s appointment of Macias Gini & O’Connell LLP as our independent registered public accounting firm. Although stockholder ratification of the Audit Committee’s action in this respect is not required, our Board considers it desirable for stockholders to pass upon such appointment.
A representative of Macias Gini & O’Connell LLP is expected to attend the Annual Meeting and will be afforded the opportunity to make a statement and/or respond to appropriate questions from stockholders.
Fees for professional services provided by Macias Gini & O’Connell LLP for the fiscal years ended December 31, 2014 and 2013 were as follows:
Category |
2014 |
2013 |
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Audit fees |
$ | 154,700 | $ | 177,400 | ||||
Audit – related fees |
— | 11,900 | ||||||
Tax fees |
15,000 | 15,000 | ||||||
All Other fees |
— | — | ||||||
Totals |
$ | 169,700 | $ | 204,300 |
Audit fees include fees associated with our annual audit, the reviews of our quarterly reports on Form 10-Q, and assistance with and review of documents filed with the Securities and Exchange Commission. Audit-related fees include consultations regarding revenue recognition and new accounting pronouncements as they related to the financial reporting of certain transactions. Tax fees included tax compliance and tax consultations.
The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax services and other services performed by our independent registered public accounting firm. The policy provides for pre-approval by the Audit Committee of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that fiscal year, the Audit Committee must approve the permitted service before the independent registered public accounting firm is engaged to perform it.
Board Recommendation
The Board unanimously recommends a vote “FOR” ratification of the appointment of Macias Gini & O’Connell LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2015.
OTHER MATTERS
Our Board knows of no other matters to be brought before the Annual Meeting. However, if other matters should properly come before the meeting, it is the intention of each person named in the proxy to vote in accordance with his judgment on such matters.
Householding of Proxy Materials
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.
This year, a number of brokers with account holders who are hopTo stockholders will be “householding” our proxy materials. A single proxy statement and annual report will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, please notify your broker, direct your written request to Jean-Louis Casabonne, our Secretary, at our address or contact Jean-Louis Casabonne at (800) 472-7466.
Stockholders who currently receive multiple copies of the proxy statement and annual report at their address and would like to request “householding” of their communications should contact their broker.
2016 STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 of the SEC, proposals by eligible stockholders that are intended to be presented at our 2016 annual meeting of stockholders must be received by our corporate Secretary at hopTo Inc., 1919 S. Bascom Avenue, Suite 600, Campbell, CA 95008 not later than a reasonable time before we print and send our proxy materials for the 2016 annual meeting in order to be considered for inclusion in our proxy materials. We will consider a reasonable time to be the same deadline had we maintained our regularly scheduled annual meetings, which is January 31, 2016. Such proposals should be submitted, in writing, to hopTo Inc., Attn: Jean-Louis Casabonne, Secretary, 1919 S. Bascom Avenue, Suite 600, Campbell, CA 95008.
Under Rule 14a-4 promulgated under the Exchange Act, if a proponent of a proposal that is not intended to be included in the proxy statement fails to notify us of such proposal at least 45 days prior to the anniversary of the mailing date of the preceding year’s proxy statement or a reasonable time before we send our proxy materials for such meeting if the date of the meeting has changed by more than 30 days from the prior year, then we will be allowed to use our discretionary voting authority under proxies solicited by us when the proposal is raised at such annual meeting of stockholders, without any discussion of the matter in the proxy statement. We were not notified of any stockholder proposals to be addressed at our Annual Meeting, and will therefore be allowed to use our discretionary voting authority if any stockholder proposals are raised at the Annual Meeting.
ACCOMPANYING INFORMATION
Accompanying this proxy statement is a copy of our annual report to stockholders on Form 10-K, as amended by Amendment No. 1, for our fiscal year ended December 31, 2014. Such annual report includes our audited consolidated financial statements for the two fiscal years ended December 31, 2014. No part of such annual report shall be regarded as proxy-soliciting material or as a communication by means of which any solicitation is being or is to be made.
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By Order of the Board of Directors, | |
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Eldad Eilam | |
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President and Chief Executive Officer |
Campbell, California
August [__], 2014
ANNEX A
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HOPTO INC.
hopTo Inc., a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies as follows:
1. That the first paragraph of Article IV of the Amended and Restated Certificate of Incorporation of the Company is hereby amended and restated in its entirety and a new second paragraph is added to such Article IV, each as set forth below:
"The corporation is authorized to issue two classes of stock designated respectively common stock and preferred stock. The total number of shares that the corporation is authorized to issue is [*]’1 shares of which [*] shares are designated common stock, par value $0.0001 per share (the "Common Stock"), and [*] shares are designated preferred stock, par value $0.01 per share (the "Preferred Stock").
Effective upon the close of business on ___________, 201_, each fifteen (15) shares of the issued and outstanding shares of Common Stock of this corporation shall thereby and thereupon automatically be combined into one (1) validly issued, fully paid and non-assessable share of Common Stock of this corporation (the "Reverse Stock Split"). No scrip or fractional shares will be issued by reason of the Reverse Stock Split. In lieu thereof, cash shall be distributed to each stockholder of the Company who would otherwise have been entitled to receipt of a fractional share and the amount of cash to be distributed shall be based upon the average closing price of a share of Common Stock on the OTC Markets QB (or higher) tier or other primary trading market for the Common Stock for the five trading days immediately preceding the effective date of this Certificate of Amendment."
2. That the foregoing amendment has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, by approval of the board of directors of the Company by unanimous written consent dated August [__], 2015, and by the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock of the Company entitled to vote thereon at the meeting of stockholders held on September 24, 2015. There are no other classes of stock outstanding entitled to vote on this amendment.
3. That the Effective Time of the amendment herein certified shall be the close of business on ___________, 201_.
1 hopTo’s charter currently reads 200,000,000 shares authorized: 195,000,000 shares of common, par value $0.0001, and 5,000,000 shares of preferred, par value $0.01. If the Reverse Split is effectuated, the authorized common shares will be adjusted by dividing 195,000,000 by one half the reverse split ratio.
[ signature page follows ]
IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment of Amended and Restated Certificate of Incorporation to be duly executed by its authorized officer this [*] day of [*], 201_.
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hopTo Inc. | ||
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[name] |
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THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
hopTo Inc.
1919 S. Bascom Avenue, Suite 600
Campbell, CA 95008
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 24, 2015
The undersigned stockholder of hopTo, Inc., a Delaware corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each dated August [__], 2015, and hereby appoints Eldad Eilam and Jean-Louis Casabonne, or either of them, as proxy and attorney-in-fact, each with the power to appoint his substitute, on behalf and in the name of the undersigned and hereby authorizes each of them to represent the undersigned and vote, as designated on the reverse side hereof, all the shares of common stock of hopTo Inc. (the “Company”) held of record by the undersigned on July 31, 2015, at the Annual Meeting of the Stockholders to be held at 1919 S. Bascom Avenue, Suite 600, Campbell, California 95008, on September 24, 2015 at 11:00 a.m. local time, or any adjournment thereof as fully as the undersigned might do if personally present thereof, on the matters set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THE PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR NOMINEES LISTED ON THE REVERSE SIDE, FOR PROPOSAL 2, FOR PROPOSAL 3, AND FOR PROPOSAL 4. THIS PROXY ALSO CONFERS DISCRETIONARY AUTHORITY ON THE PROXIES TO VOTE AS TO ANY OTHER MATTER THAT MAY BE PROPERLY BROUGHT BEFORE THE ANNUAL MEETING OF WHICH THE BOARD OF DIRECTORS DID NOT HAVE TIMELY NOTICE.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF STOCKHOLDERS OF
hopTo Inc.
SEPTEMBER 24, 2015
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL:
The Notice of Meeting, Proxy Statement and Proxy Card are available at
http://proxymaterials.hopto.com
Please sign, date and mail your proxy card
in the envelope provided as soon as possible.
Please detach along the perforated line and mail in the envelope provided
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL NOMINEES FOR DIRECTOR,
AND "FOR" PROPOSALS 2, 3 and 4.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
THIS PROXY IS VALID ONLY WHEN PROPERLY SIGNED AND DATED.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
1. Election of two Class I Directors. |
[ ] FOR ALL NOMINEES |
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NOMINEES: John Cronin |
[ ] FOR MR. CRONIN ONLY |
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Ashfaq A. Munshi |
[ ] FOR MR. MUNSHI ONLY |
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[ ] WITHHOLD AUTHORITY FOR | |
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2. To approve a reverse stock split of our common stock and a reduction in the authorized number of shares of our common |
[ ] For | |
stock based on one-half of the reverse stock split ratio. | [ ] Against | |
[ ] Abstain | ||
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3. To approve, in a non-binding advisory vote, the compensation of our named executive officers |
[ ] For | |
[ ] Against | ||
[ ] Abstain | ||
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4. To ratify the appointment of Macias Gini & O’Connell LLP as the Company’s independent registered public accounting firm |
[ ] For | |
for the fiscal year ending December 31, 2015. |
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[ ] Against |
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[ ] Abstain |
Note: In their discretion, the proxies are authorized to act upon such other matters as may properly come before the 2015 Annual Meeting of Stockholders or any postponement(s) or adjournment(s) thereof.
Please check here [ ] if you plan to attend the meeting.
To change the address on your account, please check here [ ] and indicate your new address at below:
Changes to the registered name(s) on the account may not be submitted via this method.
Please sign exactly as your name(s) appear(s) hereon. When shares are held jointly, each holder must sign. When signing as executor, administrator, attorney trustee or guardian, please give full title as such. When signing for a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
Date ________________________, 2015
Signature |
Signature (Joint Owners) |
PLEASE MAIL IN THE ENVELOPE PROVIDED.