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Date Filed : Aug 11, 2017
SECURITIESAND EXCHANGE COMMISSION
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25Recreation Park Drive, Unit 108
NOTICEOF ANNUAL MEETING OF SHAREHOLDERS
TOBE HELD ON SEPTEMBER 12, 2017
NOTICEIS HEREBY GIVEN, that the 2017 Annual Meeting of Shareholders of Microbot Medical Inc. (the “Company”) will be heldat 11:00 A.M., Eastern Standard Time on September 12, 2017 at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,Chrysler Center, 666 Third Avenue, Floor 25, New York, NY 10017. At the Annual Meeting, you will be asked to vote on:
TheBoard of Directors has fixed the close of business on July 24, 2017 as the record date for determining shareholders who are entitledto receive notice of, and to vote at, the Annual Meeting or any adjournment or postponement thereof.
Yourvote is important to us. Whether or not you intend to be present at the meeting, please sign and date the enclosed proxy cardand return it in the enclosed envelope. Returning a proxy will not deprive you of your right to attend the Annual Meeting andvote your shares in person.
Theforegoing items of business are more fully described in the accompanying proxy statement.
ByOrder of the Board of Directors,
Chairman,President and Chief Executive Officer
Dated:August 11, 2017
2017ANNUAL MEETING OF SHAREHOLDERS
Thisproxy statement and the accompanying proxy card is furnished in connection with the solicitation by the Board of Directors (the“Board”) of Microbot Medical Inc., a Delaware corporation (the “Company”), of proxies for use at the 2017Annual Meeting of Shareholders (the “Annual Meeting”) to be held at the offices of Mintz, Levin, Cohn, Ferris, Glovskyand Popeo, P.C., Chrysler Center, 666 Third Avenue, Floor 25, New York, NY 10017 at 11:00 A.M., Eastern Standard Time, on September12, 2017, or at any adjournment or postponement thereof, for the purposes set forth in this proxy statement and the accompanyingNotice of Annual Meeting of Shareholders. This proxy statement and the accompanying proxy card is first being mailed on or aboutAugust 14, 2017 to all Shareholders of the Company entitled to vote at the Annual Meeting (the “Shareholders”).
TheCompany will bear the cost of solicitation of proxies. Directors, officers and employees of the Company may solicit proxies bytelephone, email, facsimile, in person or otherwise for no additional compensation. The Company has retained Morrow Sodali LLCto act as a proxy solicitor in conjunction with the annual stockholders meeting at an estimated cost of $10,000 plus expenses.The Company will pay the entire costs of such solicitation as well as the costs of printing and filing this proxy statement andproxy card. The Company will reimburse banks, brokerage firms, proxy solicitors, and other custodians, nominees and fiduciariesfor reasonable expenses incurred by them in sending proxy materials to the beneficial owners of shares.
TheBoard of Directors has fixed the close of business on July 24, 2017, as the record date for determining stockholders entitledto notice of, and to vote at, the Annual Meeting or at any postponement or adjournment thereof. There were 34,805,333 shares ofour common stock, $.01 par value, outstanding on July 24, 2017, each of which is entitled to one vote for each share on the mattersto be voted upon.
Stockholdersare being asked to vote on five proposals at the Company’s 2017 Annual Meeting. The proposals to be voted on and relatedrecommendations from the Board of Directors are as follows:
Inthe election of directors, which is Proposal Number 1, you may vote “FOR” both of the nominees or your vote may be“WITHHELD” with respect to one or both of the nominees. For Proposal Number 2, Proposal Number 3 and ProposalNumber 4, you may vote “FOR,” vote “AGAINST” or “ABSTAIN.” For ProposalNumber 5, you may vote for every “1 YEAR,” “2 YEARS” or “3 YEARS,” or “ABSTAIN.”If you “ABSTAIN” as to Proposal Number 2, Proposal Number 3, Proposal Number 4 and Proposal Number 5, the abstentionwill have no effect.
Sharesof our common stock represented by proxies in the form enclosed that are properly executed and returned to us and not revokedwill be voted as specified in the proxy by the stockholder. In the absence of contrary instructions, or in instances where nospecifications are made, the shares will be voted:
Anystockholder signing and delivering a proxy may revoke it at any time before it is voted by delivering to the company’s corporatesecretary a written revocation or a duly executed proxy bearing a date later than the date of the proxy being revoked. Any stockholderattending the Annual Meeting in person may revoke his, her or its proxy and vote his, her or its shares at the Annual Meeting.
Howto vote shares at our 2017 Annual Meeting.
Votingat the Annual Meeting. All Company stockholders are invited to attend the Annual Meeting in person. Any stockholder that attendsthe meeting in person may deliver a completed proxy card in person or vote by completing a ballot, which will be available atthe meeting. However, each stockholder intending to vote in person at the Annual Meeting should note that if his, her or its sharesare held in the name of a bank, broker or other nominee, such stockholder must obtain a legal proxy, executed in his, her or itsfavor, from the holder of record to be able to vote at the Annual Meeting. Stockholders should allow enough time prior to theAnnual Meeting to obtain this proxy from the holder of record, if needed.
Thisyear, registered stockholders of the Company, meaning stockholders who hold the Company’s stock directly (not through abank, broker, or other nominee) may cast their vote in any of the following ways:
Voteby Internet. Registered stockholders can vote over the Internet at www.envisionreports.com/MBOT by following the instructionson the proxy card. Internet voting facilities for registered stockholders of record will be available 24 hours a day and willclose at 10:00 a.m. (EDT) on September 12, 2017.
Voteby Mail. Registered stockholders can vote by mail by signing, dating and mailing the enclosed proxy card in the postage-paidenvelope provided. If the envelope is missing, such a stockholder can mail the completed proxy card or voting instruction cardto Proxy Services, c/o Computershare Investor Services, P.O. Box 505008, Louisville, KY 40233-9814. The completed card must bereceived no later than September 11, 2017.
Voteby Telephone. Registered stockholders can vote by telephone by calling the phone number located on the top of your proxy cardand following the voice prompts. You will need information from your proxy card to submit your proxy by telephone. Telephone votingfacilities for registered stockholders of record will be available 24 hours a day and will close at 10:00 a.m. (EDT) on September12, 2017.
Thisyear, beneficial stockholders of the Company, meaning stockholders who hold the Company’s stock in the name of a bank, broker,or other nominee (commonly referred to as holding shares in “street name”) may cast their vote in any of the followingways:
Voteby Internet. Beneficial stockholders can vote over the Internet at www.proxyvote.com by following the online instructions.Internet voting facilities for beneficial stockholders of record will be available 24 hours a day and will close at 10:00 a.m.(EDT) on September 12, 2017.
Voteby Mail. Beneficial stockholders can vote by mail by signing, dating and mailing the enclosed voting instruction form (“VIF”)in the postage-paid envelope provided. The completed card must be received no later than September 11, 2017.
Voteby Telephone. Beneficial stockholders can vote by telephone by calling the phone number located on the top of your VIF andfollowing the voice prompts. Telephone voting facilities for beneficial stockholders of record will be available 24 hours a dayand will close at 10:00 a.m. (EDT) on September 12, 2017.
Theshares voted electronically or represented by the proxy cards received, properly marked, dated, signed and not revoked, will bevoted at the Annual Meeting.
Quorum,Required Votes and Method of Tabulation
Consistentwith Delaware law and the Company’s amended and restated by-laws, a majority of the votes entitled to be cast on a particularmatter, present in person or represented by proxy, constitutes a quorum as to such matter. The Company will appoint one or moreelection inspectors for the meeting to count votes cast by proxy or in person at the Annual Meeting.
Ifyou hold shares beneficially in street name and do not provide your broker or nominee with voting instructions, your shares mayconstitute “broker non-votes.” Generally, broker non-votes occur on a matter when a broker is not permitted to voteon that matter without instructions from the beneficial owner and instructions have not been given. This year if you hold sharesbeneficially in street name and do not vote your shares, your broker or nominee can vote your shares at its discretion on ProposalNumber 2. In tabulating the voting result for any proposal for which the required vote is based on the number of shares present,shares that constitute broker non-votes are not considered entitled to vote on that proposal. However, for proposals for whichthe required vote is based on the number of shares of common stock issued and outstanding, broker non-votes have the same effectas a vote “AGAINST” the proposal. Thus, broker non-votes will not affect the outcome of Proposal Number 1 throughProposal Number 5 provided a quorum is established.
WhatVote is Required to Approve Each Item?
Electionof directors by stockholders, which is Proposal Number 1, will be determined by a plurality of the votes cast by the stockholdersentitled to vote at the election that are either present in person or represented by proxy.
ForProposal Number 2, the affirmative “FOR” vote is required by the holders of a majority of the shares present at theAnnual Meeting in person or by proxy and voting. Abstentions will have no effect on the outcome of this proposal.
ForProposal Number 3, the affirmative “FOR” vote is required by the holders of a majority of the shares present at theAnnual Meeting in person or by proxy and voting. Abstentions will have no effect on the outcome of this proposal.
ForProposal Number 4, the affirmative “FOR” vote is required by the holders of a majority of the shares present at theAnnual Meeting in person or by proxy and voting. Because this vote is advisory only, it will not be binding on the Company, theBoard or the Compensation Committee of the Board. However, the Board and the Compensation Committee will review the voting resultsand take them into consideration when making future decisions about executive compensation. Abstentions will have no effect onthe outcome of this proposal.
ForProposal Number 5, the alternative receiving the greatest number of votes will be the frequency that stockholders approve. Becauseyour vote is advisory, it will not be binding on the Company, the Board or the Compensation Committee of the Board. However, theBoard will review the voting results and take them into consideration when determining the frequency of future non-binding advisoryvotes on the compensation of our named executive officers. Abstentions will have no effect on the outcome of this proposal.
Managementdoes not know of any matters to be presented at this year’s Annual Meeting other than those set forth in this proxy statementand in the notice accompanying this proxy statement. Stockholders will have no appraisal rights under Delaware law with respectto any of the matters expected to be voted on at the Annual Meeting. If other matters should properly come before the meeting,the proxy holders will vote such matters in their discretion. Any stockholder has the right to revoke his, her or its proxy atany time until it is voted.
SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Thefollowing table shows the number of shares of our common stock beneficially owned, as of August 6, 2017, by (i) each of our directors,(ii) each of our named executive officers, (iii) all of our current directors and executive officers as a group, and (iv) allthose known by us to be to a beneficial owner of more than 5% of the Company’s common stock. In general, “beneficialownership” refers to shares that an individual or entity has the power to vote or dispose of, and any rights to acquirecommon stock that are currently exercisable or will become exercisable within 60 days of August 6, 2017. We calculated percentageownership in accordance with the rules of the SEC. The percentage of common stock beneficially owned is based on 34,805,333 sharesoutstanding as of August 6, 2017. In addition, shares issuable pursuant to options or other convertible securities that may beacquired within 60 days of August 6, 2017 are deemed to be issued and outstanding and have been treated as outstanding in calculatingand determining the beneficial ownership and percentage ownership of those persons possessing those securities, but not for anyother persons.
Thistable is based on information supplied by each prospective director, officer and principal stockholder of the Company. Exceptas indicated in footnotes to this table, the Company believes that the stockholders named in this table have sole voting and investmentpower with respect to all shares of Common Stock shown to be beneficially owned by them, based on information provided by suchstockholders. Unless otherwise indicated, the address for each director, executive officer and 5% or greater stockholders of theCompany listed is: c/o Microbot Medical Inc., 25 Recreation Park Drive, Unit 108, Hingham, MA 02043.
Wecurrently have seven directors serving on our Board. The following table lists the names, ages and positions of the individualswho serve as directors of the Company, as of August 6, 2017:
Becausewe have a classified Board, with each of our directors serving a staggered three-year term, only our Class II Directors are standingfor election at our 2016 Annual Meeting. The following table shows the current composition of the three classes of our Board:
ClassI Directors (terms scheduled to expire in 2019):
ClassIII Directors (terms scheduled to expire in 2018)
Theindependent members of our Board, as determined by the Board in accordance with the existing Nasdaq Listing rules, are Messrs.Waizer, Shoham, Bornstein, Mayer, Burell and Madden. Mr. Himelfarb would not be an independent member of our Board. The Boardheld approximately 20 regular meetings during the fiscal year ended December 31, 2016 while we were a private company and afterwe became a public company. This does not include meetings of the predecessor Board when our company was named and operating asStemCells, Inc. (“StemCells”). Each of our directors attended at least 85% of such meetings of the Board. While weencourage our directors to attend the Company’s annual Shareholder meeting, we do not have a policy requiring that theydo so. None of our directors attended the Company’s 2016 annual stockholder meeting, as all of our directors were appointedto the Board subsequent to the 2016 annual stockholder meeting.
Committeesof the Board of Directors
Presently,the Board has three standing committees — the Audit Committee, the Compensation and Stock Option Committee (the “CompensationCommittee”), and the Corporate Governance and Nominating Committee (the “Corporate Governance Committee”). Allmembers of the Audit Committee, the Compensation Committee, and the Corporate Governance Committee are, and are required by thecharters of the respective committees to be, independent as determined under Nasdaq Listing rules.
TheAudit Committee is composed of Messrs. Burell, Waizer and Bornstein. Each of the members of the Audit Committee is independent,and the Board has determined that Mr. Burell is an “audit committee financial expert,” as defined in SEC rules. TheAudit Committee did not hold any meetings during the fiscal year ended December 31, 2016, because we did not have any independentcommittees until the merger with StemCells. This does not include meetings of the AuditCommittee when our company was named and operating as StemCells. The Audit Committee acts pursuant to a written charter,which is available through our website at www.microbotmedical.com.
Theprimary function of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities. The Audit Committeedoes this primarily by reviewing the Company’s financial reports and other financial information as well as the Company’ssystems of internal controls regarding finance, accounting, legal compliance, and ethics that management and the Board have established.The Audit Committee also assesses the Company’s auditing, accounting and financial processes more generally. The Audit Committeemeets at least quarterly, and at such other times as it finds necessary. The Audit Committee recommends to the Board the appointmentof a firm of independent auditors to audit the financial statements of the Company and meets with such personnel of the Companyto review the scope and the results of the annual audit, the amount of audit fees, the Company’s internal accounting controls,the Company’s financial statements contained in this proxy statement, and other related matters.
TheCompensation Committee is composed of Messrs. Burell and Bornstein. Each of the members of the Compensation Committee is independent.The Compensation Committee did not hold any meetings during the fiscal year ended December 31, 2016, because we did not have anyindependent committees until the merger with StemCells. This does not include meetings ofthe Compensation Committee when our company was named and operating as StemCells. The Compensation Committee acts pursuantto a written charter, which is available through our website at www.microbotmedical.com. The Compensation Committee makesrecommendations to the Board and management concerning salaries in general, determines executive compensation and approves incentivecompensation for employees and consultants.
TheCorporate Governance Committee is composed of Messrs. Shoham, Waizer and Burell. The Corporate Governance Committee did not holdany meetings during the fiscal year ended December 31, 2016, because we did not have any independent committees until the mergerwith StemCells. This does not include meetings of the Corporate Governance Committee whenour company was named and operating as StemCells. Each of the members of the Corporate Governance Committee is independent.The Corporate Governance Committee acts pursuant to a written charter, which is available through our website at www.microbotmedical.com.
TheCorporate Governance Committee oversees nominations to the Board and considers the experience, ability and character of potentialnominees to serve as directors, as well as particular skills or knowledge that may be desirable in light of the Company’sposition at any time. From time to time, the Corporate Governance Committee may engage the services of a paid search firm to helpthe Corporate Governance Committee identify potential nominees to the Board. The Corporate Governance Committee and Board seekto nominate and appoint candidates to the Board who have significant business experience, technical expertise or personal attributes,or a combination of these, sufficient to suggest, in the Board’s judgment, that the candidate would have the ability tohelp direct the affairs of the Company and enhance the Board as a whole. The Corporate Governance Committee may identify potentialcandidates through any reliable means available, including recommendations of past or current members of the Board from theirknowledge of the industry and of the Company. The Corporate Governance Committee also considers past service on the Board or onthe board of directors of other publicly traded or technology focused companies. The Corporate Governance Committee has not adopteda formulaic approach to evaluating potential nominees to the Board; it does not have a formal policy concerning diversity, forexample. Rather, the Corporate Governance Committee weighs and considers the experience, expertise, intellect, and judgment ofpotential nominees irrespective of their race, gender, age, religion, or other personal characteristics. The Corporate GovernanceCommittee may look for nominees that can bring new skill sets or diverse business perspectives. At this time, the Company doesnot have a formal policy with regard to the consideration of any director nominees recommended by its stockholders. However, anyrecommendations received from stockholders will be evaluated in the same manner that potential nominees recommended by board members,management or other parties are evaluated. Any stockholder nominations proposed for consideration should include the nominee’sname and qualifications for board membership and should be addressed to: Microbot Medical Inc., 25 Recreation Park Drive, Unit108, Hingham, MA 02043; Attention: Secretary. We do not intend to treat stockholder recommendations in any manner different fromother recommendations.
Themembers of the Corporate Governance Committee have approved the nominations of the Class II directors standing for election orreelection, as the case may be, at our 2017 Annual Meeting.
DirectorOversight and Qualifications
Whilemanagement is responsible for the day-to-day management of the risks the Company faces, the Board, as a whole and through itscommittees, has responsibility for the oversight of risk management. An important part of risk management is not only understandingthe risks facing the Company and what steps management is taking to manage those risks, but also understanding what level of riskis appropriate for the Company. In support of this oversight function, the Board receives regular reports from our Chief ExecutiveOfficer and members of senior management on operational, financial, legal, and regulatory issues and risks. The Audit Committeeadditionally is charged under its charter with oversight of financial risk, including the Company’s internal controls, andit receives regular reports from management, the Company’s internal auditors and the Company’s independent auditors.The chairman of the Board and independent members of the Board work together to provide strong, independent oversight of the Company’smanagement and affairs through its standing committees and, when necessary, special meetings of directors.
Webelieve each of our directors brings valuable skills, experience, judgment, and perspectives to our company. The Board took thefollowing qualifications into consideration, among other things, when nominating or appointing our current directors:
HarelGadot, became President, Chief Executive Officer and Chairman of the Company’s Board following the consummation of themerger of C&RD Israel Ltd, a wholly owned subsidiary of the Company, with and into Microbot Medical Ltd. (“MicrobotIsrael”), with Microbot Israel surviving as a wholly owned subsidiary of the Company (the “Merger”). Mr. Gadotis a co-founder of Microbot Israel and has served as Microbot Israel’s Chief Executive Officer since Microbot Israel wasfounded in November 2010. He has been the Chairman of Microbot Israel’s board of directors since July 2014. He also servesas the Chairman of XACT Robotics Ltd., an Israel-based private company seeking to develop a novel platform technology for roboticneedle steering in minimally invasive interventional procedures such as biopsies and ablations, since August 2013 and MEDX XeleratorLP since July 2016. From December 2007 to April 2010 Mr. Gadot was a Worldwide Group Marketing Director at Ethicon Inc., a Johnsonand Johnson Company, where he was responsible for the global strategic marketing of the Company. Mr. Gadot also held managementpositions, as well as leading regional strategic position for Europe, Middle-East and Africa, as well as In Israel, while at Johnsonand Johnson. Mr. Gadot served as director for ConTIPI Ltd. from August 2010 until November 2013 when ConTIPI Ltd. was acquiredby Kimberly-Clark Corporation. Mr. Gadot holds a B.Sc.in Business from Siena College, Loudonville NY, and an M.B.A. from the Universityof Manchester, UK. The Company believes that Mr. Gadot is qualified to serve as Chairman of the Board and as President and ChiefExecutive Officer of the Company due to his extensive experience in strategic marketing and general management in the medicaldevice industry.
YoavWaizer, became a director of the Company following the Merger and has served as a member of the Board of Directors of MicrobotIsrael since May 2015. Mr. Waizer is a Partner and Chief Executive Officer of Medica Venture Partners, a healthcare dedicatedventure investing out of Israel in innovative capital-starved early stage and special situation companies, since November 2005.Prior to his Tenure at Medica, Mr. Waizer served as CFO & COO at Cedar Fund, a venture capital fund focuses on investing inIsrael-related high-tech companies in the telecom, networking, Internet-infrastructure and enterprise software areas and priorto that Mr. Waizer was the CFO of Star Ventures Israel, the Israeli fund of Star Ventures, a $1 billion venture capital fund investingin all stages of development within the Telecom, Enterprise S/W, Wireless and Life Sciences sectors. Mr. Waizer is currently adirector of InterCure Ltd., a company focused on investing in medical technology companies that is traded on the Tel Aviv StockExchange, a director and a member of the investment committee of Yeda Research and Development Company Ltd., the commercial armof the Weizmann Institute of Science (Israel’s leading technological institute), and a director of XACT Robotics Ltd., anIsrael-based private company seeking to develop a novel platform technology for robotic needle steering in minimally invasiveinterventional procedures such as biopsies and ablations. Mr. Waizer holds Master of Business Administration in Information Systemsand B.Sc. in Accounting and Statistics, both from the Tel-Aviv University. The Company believes that Mr. Waizer is qualified toserve as a member of the Company’s Board due to his extensive investment experience and extensive knowledge of the lifesciences industry.
MosheShoham, D.Sc., became a director of the Company following the Merger. Professor Shoham is a co-founder of Microbot Israeland has served as Chairman of Microbot Israel’s Scientific Advisor Board and as a Director since Microbot Israel was foundedin November 2010. Prof. Shoham has been the head of the robotics laboratory at the Technion-Israel Institute of Technology, Departmentof Mechanical Engineering since October 1990 and has been a professor in the Department of Mechanical Engineering at the Technion-IsraelInstitute of Technology since October 1989. Prior to that, Professor Shoham was the director of the robotic laboratory in theDepartment of Mechanical Engineering at Columbia University from September 1986 to September 1989. Professor Shoham has servedas a foreign member of the National Academy of Engineering in the United States since October 2014. In addition, Professor Shohamfounded Mazor Surgical Technologies Ltd., a publically traded medical device company in the field of surgical robotics, and hasbeen its Chief Technology Officer since January 2003. Professor Shoham earned a B.Sc. in 1978, a M.Sc. in 1982 and a D.Sc. in1986 from the Technion-Israel Institute of Technology. The Company believes that Professor Shoham is qualified to serve as a memberof the Board due to his extensive knowledge of the Company’s technologies and the surgical robotics industry, and his extensivebusiness and academic experience in the field of surgical robotics.
YosephBornstein, became a director of the Company following the Merger. Mr. Bornstein is a co-founder of Microbot Israel and hasbeen a member of the Board of Directors since Microbot Israel was founded in November 2010. Mr. Bornstein founded Shizim Ltd.,a life science holding group in October 2000 and has served as its president since then. Mr. Bornstein is the Chairman of GCPClinical Studies Ltd., a provider of clinical research services and educational programs in Israel since January 2002. He is theChairman of Biotis Ltd., a service company for the bio-pharmaceutical industry, since June 2000. In addition, he is the Chairmanof Dolphin Medical Ltd., a service company for the medical device industry, since April 2012 and the Chairman of ASIS EnterprisesB.B.G. Ltd., a business August 2007. In October 1992, Mr. Bornstein founded Pharmateam Ltd., an Israeli company that specializedin representing international pharmaceutical companies, which was sold in 2000. Mr. Bornstein is also a founder of a number ofother privately held life-science companies. Mr. Bornstein served as the Biotechnology Committee Chairman of the Unites States-IsraelScience & Technology Commission (the “USISTF”) from September 2002 to February 2005 as well as a consultant forUSISTF from September 2002 to February 2005. He is also the founder of ILSI-Israel Life Science Industry Organization and ITTN-IsraelTech Transfer Organization. The Company believes that Mr. Bornstein is qualified to serve as a member of the Board due to hisextensive experience in, and knowledge of, the life sciences industry and international business.
SolomonMayer, became a director of the Company following the Merger. Mr. Mayer has served as a member of the Board of Directors ofMicrobot Israel since June 2014, as the designated director of Alpha Capital. Mr. Mayer has served as the President and ChiefExecutive Officer of Mooney Aviation Company since June 1999. He also serves as President of Chailife Line, an organization devotedto help restore normalcy to family life and better enable them to withstand the crises and challenges of serious pediatric illness.In addition, Mr. Mayer serves as a Director of the Laniado Hospital, International Medical Search Co. of New York and BlastgardInternational, Inc. The Company believes that Mr. Mayer is qualified to serve as a member of the Boarddue to his investment experience and extensive management experience as an executive and director of a variety of companies.
ScottR. Burell, became a director of the Company following the Merger. He is the Chief Financial Officer, Secretary and Treasurerof CombiMatrix Corporation (NASDAQ: CBMX), a family health-focused clinical molecular diagnostic laboratory specializing in pre-implantationgenetic screening, prenatal diagnosis, miscarriage analysis, and pediatric developmental disorders, since November 2006. He successfullyled the split-off of CombiMatrix in 2007 from its former parent, has led several successful public and private debt and equityfinancing transactions as well as CombiMatrix’s reorganization in 2010. Prior to this, Mr. Burell had served as CombiMatrix’sVice President of Finance since November 2001 and as its Controller from February 2001 to November 2001. From May 1999 to firstjoining CombiMatrix in February 2001, Mr. Burell was the Controller for Network Commerce, Inc., a publicly traded technology andinformation infrastructure company located in Seattle. Prior to this, Mr. Burell spent 9 years with Arthur Andersen’s Auditand Business Advisory practice in Seattle. During his tenure in public accounting, Mr. Burell worked with many clients, both publicand private, in the high-tech and healthcare markets, and was involved in numerous public offerings, spin-offs, mergers and acquisitions.Mr. Burell is also a Board member and Audit Committee Chairman of AgEagle Aerial Systems, Inc., a private agricultural drone companybased in Kansas. Mr. Burell obtained his Washington state CPA license in 1992 and is a certified public accountant (currentlyinactive). He holds Bachelor of Science degrees in Accounting and Business Finance from Central Washington University. The Companybelieves Mr. Burell’s qualifications to serve on the Board include his experience as an executive of a public life sciencescompany and knowledge of financial accounting in the medical technology field.
MartinMadden, became a director of the Company on February 6, 2017. Mr. Madden has held various positions at Johnson & Johnsonand its affiliates from 1986 to January 2017, most recently as Vice President, Research & Development of DePuy Synthes, aJohnson & Johnson Company, from February 2016 to January 2017. Prior to that, from July 2015 to February 2016, Mr. Maddenwas the Vice President, New Product Development of Johnson & Johnson Medical Devices. From January 2012 to July 2015, Mr.Madden was the Vice President, Research & Development of Johnson & Johnson’s Global Surgery Group. Mr. Madden holdsa MBA from Columbia University, a M.S. from Carnegie Mellon University in Mechanical Engineering, and a B.S. from the Universityof Dayton in Mechanical Engineering. The Company believes that Mr. Madden is qualified to serve as a member of the Board due tohis extensive experience in research and development, portfolio planning, technology assessment and assimilation, and projectmanagement and budgeting.
Shareholderswho wish to communicate with our Board of Directors or with a particular director may send a letter to our corporate secretaryat the following address: Microbot Medical Inc., 25 Recreation Park Drive, Unit 108, Hingham, MA 02043. Any communication shouldclearly specify that it is intended to be made to the entire Board or to one or more of our directors. Our corporate secretarywill review all such correspondence and forward to our Board a summary of all such correspondence and copies of all correspondencethat, in the opinion of the secretary, deals with the functions of the Board or committees thereof or that he otherwise determinesrequires their attention. The secretary maintains a log of all correspondence received by us that is addressed to members of theBoard, and any director may at any time review and request copies of any such correspondence.
Thebiography of Yehezkel (Hezi) Himelfarb, a director nominee, is set forth below under “-Executive Officers.”
Followingare the name, age and other information for our named executive officers, as of August 6, 2017. All company officers have beenappointed to serve until their successors are elected and qualified or until their earlier resignation or removal. Informationregarding Harel Gadot, our Chairman, President and Chief Executive Officer, is set forth above under “–Board of Directors.”
DavidBen Naim, became the Company’s Chief Financial Officer following the consummation of the Merger. Mr. Ben Naim is thegeneral manager of DBN Finance Services Ltd., a company which provides outsourcing financial services to public and private companies,since 2014. Through DBN Finance Services, Mr. Ben Naim has acted as the outsourced CFO for Emerald Medical Applications Corp.(OTC:MRLA), a digital health startup company engaged in the development, sale and service of imaging solutions, and TempramedInc., a private medical device company. Prior to that, Mr. Ben Naim served as Chief Financial Officer for several companies inthe biomedical and technology industries. From July 2012 to September 2014, Mr. Ben Naim served as Chief Financial Officer forInsuline Medical Ltd. (TASE: INSL), an Israel-based company focused on improving performance of insulin treatment methods. From2008 until 2011, Mr. Ben Naim served as Chief Financial Officer of Crow Technologies 1977 Ltd. (OTC:CRWTF), a company that designs,develops, manufactures and sells a broad range of security and alarm systems. From 2007 to 2008, Mr. Ben Naim served as ChiefFinancial Officer of Ilex Medical Ltd. (TASE:ILX), a leading company in the medical diagnostics field. From 2003 to 2007, Mr.Ben Naim was the Corporate Controller of Tadiran Telecom Ltd. He started his career in 1998 at Deloitte & Touche where heleft in 2003 as an Audit Senior Manager. Mr. Ben Naim holds a B.A. in social sciences from Open University, Israel, a CPA licensefrom Ramat Gan College, Israel, and an M.B.A. from Ono Academic College, Israel.
Yehezkel(Hezi) Himelfarb, became the Company’s Chief Operating Officer and General Manager of the Company’s Israeli operationson December 5, 2016. Mr. Himelfarb was the Chief Executive Officer from 2008 through November 2016 and a member of the board ofdirectors from 2008 through August 2016 of IceCure Medical Ltd., a Tel Aviv Stock Exchange listed company (TLV:ICCM) that developsadvanced cryotherapy systems (cryoablation) intended for the growing physician-office market. Prior to that, from 1999 to 2008,Mr. Himelfarb was the President, Chief Executive Officer and a member of the board of directors of Remon Medical Technologies,Inc., a venture backed US/Israeli company that developed and commercialized smart, miniature implants which enabled physiciansto assess and treat a variety of medical conditions, where he, among other things, led its acquisition by Boston Scientific. From1996 to 1999, he was the Vice President and Chief Operating Officer of Medtronic-InStent (Israel), which was part of Medtronic’svascular division. From 1982 to 1996, Mr. Himelfarb had various positions at Scitex Corporation Ltd., which was an Israeli-basedcompany specializing in specialty equipment production. Mr. Himelfarb holds a B.Sc. in Electronic Engineering and an M.B.A. inMarketing and Engineering Management, both from Tel Aviv University. The Company believes that Mr. Himelfarb is qualified to serveas a director of the Company due to his extensive experience managing medical device companies.
Section16(a) Beneficial Ownership Reporting Compliance
Section16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers, directors,and persons who own more than 10% of a registered class of our equity securities, to file with the SEC reports of ownership ofour securities and changes in reported ownership. Executive officers, directors and greater than 10% beneficial owners are requiredby SEC rules to furnish us with copies of all Section 16(a) reports they file. Based solely on a review of the copies of suchforms furnished to us, or written representations from the reporting persons that no Form 5 was required, we believe that, duringthe fiscal year ended December 31, 2016, all Section 16(a) filing requirements applicable to our officers, directors and greaterthan 10% beneficial owners have been met, with the following exceptions: Of our former executive officers and directors from priorto the Merger, Gregory T. Schiffman filed two late Form 4’s and one late Form 4 amendment; Ian J. Massey filed one lateForm 4; and George Koshy filed one late Form 4. Of our current executive officers and directors from the Merger, David Ben Naimfiled one late Form 3.
Codeof Business Conduct and Ethics
Wehave adopted a Code of Ethics and Conduct that applies to all of our directors, officers, employees, and consultants. A copy ofour code of ethics is posted on our website at www.microbotmedical.com. We intend to disclose any substantive amendment or waiversto this code on our website. There were no substantive amendments or waivers to this code in 2016.
Thefollowing table sets forth information regarding each element of compensation that was paid or awarded to the named executiveofficers of the Company for the periods indicated.
OutstandingEquity Awards at Fiscal Year-End
Thefollowing table presents the outstanding equity awards held by each of the named executive officers as of the end of the fiscalyear ended December 31, 2016.
Number of Securities Underlying Unexercised Options Exercisable
Number of Securities Underlying Unexercised Options Unexercisable
NumberofSharesor Unitsof StockThatHaveNotVested
Marketvalue ofSharesof UnitsofStockThatHaveNotVested
EquityIncentivePlanAwards:NumberofUnearnedShares,Units orOtherRightsThatHave NotVested
EquityIncentivePlanAwards:Marketor PayoutValue ofUnearnedShares,Units orOtherRightsThatHave NotVested
HarelGadot Employment Agreement
TheCompany entered into an employment agreement (the “Gadot Agreement”) with Harel Gadot on November 28, 2016, to serveas the Company’s Chairman of the Board and Chief Executive Officer, on an indefinite basis subject to the termination provisionsdescribed in the Agreement. Pursuant to the terms of the Gadot Agreement, Mr. Gadot shall receive an annual base salary of $360,000.The salary will be reviewed on an annual basis by the Compensation Committee to determine potential increases taking into accountsuch performance metrics and criteria as established by Mr. Gadot and the Company.
Mr.Gadot shall also be entitled to receive a target annual cash bonus of up to a maximum amount of 40% of base salary. On March 9,2017, the Company adopted a 2017 bonus plan (the “Bonus Plan”). The Bonus Plan provides for the payment of Mr. Gadot’sbonus based on certain milestones of the Company being satisfied, as follows:
Mr.Gadot shall be further entitled to a monthly automobile allowance and tax gross up on such allowance of $1,150, and shall be grantedoptions to purchase shares of common stock of the Company representing 5% of the issued and outstanding shares of the Company,based on vesting and other terms to be determined by the Compensation Committee subsequent to the Effective Time.
Inthe event Mr. Gadot’s employment is terminated as a result of death, Mr. Gadot’s estate would be entitled to receiveany earned annual salary, bonus, reimbursement of business expenses and accrued vacation, if any, that is unpaid up to the dateof Mr. Gadot’s death.
Inthe event Mr. Gadot’s employment is terminated as a result of disability, Mr. Gadot would be entitled to receive any earnedannual salary, bonus, and reimbursement of business expenses and accrued vacation, if any, incurred up to the date of termination.
Inthe event Mr. Gadot’s employment is terminated by the Company for cause, Mr. Gadot would be entitled to receive any compensationthen due and payable incurred up to the date of termination.
Inthe event Mr. Gadot’s employment is terminated by the Company without cause, he would be entitled to receive (i) any earnedannual salary; (ii) 12 months’ pay and full benefits, (iii) a pro rata bonus equal to the maximum target bonus for thatcalendar year; (iv) the dollar value of unused and accrued vacation days; and (v) applicable premiums (inclusive of premiums forMr. Gadot’s dependents) pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended, for twelve (12)months from the date of termination for any benefits plan sponsored by the Company. In addition, 100% of any unvested portionof his stock options shall immediately vest and become exercisable.
TheGadot Agreement contains customary non-competition and non-solicitation provisions pursuant to which Mr. Gadot agrees not to competeand solicit with the Company. Mr. Gadot also agreed to customary terms regarding confidentiality and ownership of intellectualproperty.
HeziHimelfarb Employment Agreement
Weentered into an employment agreement (the “Himelfarb Agreement”) with Mr. Himelfarb on December 5, 2016, to serveas our Chief Operating Office and General Manager, on an indefinite basis subject to the termination provisions described in theHimelfarb Agreement. Pursuant to the terms of the Himelfarb Agreement, Mr. Himelfarb shall receive a base salary of 64,000 NewIsraeli Shekel (NIS) per month or NIS 768,000 per year, or the equivalent of approximately $211,624 per annum based on an exchangerate of $.28 for NIS 1.0. The salary will be reviewed on an annual basis by the Company’s Board to determine potential salaryincreases.
Mr.Himelfarb shall be entitled to grants or payments subject to the adoption by the Company at its discretion of a bonus plan orpolicy. On March 9, 2017, the Company adopted the Bonus Plan. The Bonus Plan provides for the payment of Mr. Himelfarb’sbonus of up to 25% of his base salary based on certain milestones of the Company being satisfied, as follows:
Mr.Himelfarb shall also entitled participate in the Company’s motor vehicle program and receive a motor vehicle from the Company’svehicle pool, which shall be leased or rented by the Company for use by Mr. Himelfarb. The Company shall pay an amount equal to8.33% of Mr. Himelfarb’s salary, which shall be allocated to a fund for severance pay to Mr. Himelfarb, and an additionalamount equal to 6.25% of Mr. Himelfarb’s salary (6.5% as of January 1, 2017), which shall be allocated to a pension plan,in addition to disability insurance contributions and as otherwise may be required by applicable Israeli law from time to time.The Company shall also contribute to an educational fund an amount equal to 7.5% of each monthly payment of Mr. Himelfarb’sfull salary. Mr. Himelfarb is also entitled to options to purchase 1,087,627 shares of the Company’s common stock, whichrepresents 3% of the Company’s issued and outstanding shares of common stock as of the closing of the Merger on November28, 2016. Such options have not yet been granted.
TheHimelfarb Agreement contains customary non-competition provisions pursuant to which Mr. Himelfarb agrees not to compete with theCompany. Mr. Himelfarb also agreed to customary terms regarding confidentiality and ownership of intellectual property.
DavidBen Naim Services Agreement
Weentered into a services agreement (the “Services Agreement”) with DBN Finance Services effective October 31, 2016,to provide outsourced CFO services. Pursuant to the terms of the Services Agreement, DBN Finance Services will provide its servicesexclusively through Mr. David Ben Naim, who will serve as the principal financial and accounting officer of Microbot Israel andthe Company. Mr. Ben Naim’s engagement will continue on an indefinite basis subject to the termination provisions describedin the Agreement.
Pursuantto the Agreement as amended, the Company shall pay Mr. Ben Naim a fixed fee of NIS22,000, or the equivalent of approximately $6,100per month based on an exchange rate of $.28 for NIS1.0, plus VAT per month, and the Company shall reimburse DBN Finance Servicesfor reasonable and customary out of pocket expenses incurred by it or Mr. Ben Naim connection with the performance of the dutiesunder the Services Agreement. In addition, the Company shall maintain for the benefit of Mr. Ben Naim a Directors and Officersinsurance policy, according to the Company’s policy for other directors and officers of the Company.
Boththe Company and DBN Finance Services shall have the right to terminate the Agreement for any reason or without reason at any timeby furnishing the other party with a 30-day notice of termination. The Company shall further be entitled to terminate the ServicesAgreement for “cause” without notice, in which case neither DBN Finance Services nor Mr. Ben Naim shall be entitledto any compensation due to such early termination.
DBNFinance Services and Mr. Ben Naim agreed to customary provisions regarding confidentiality and intellectual property ownership.The Services Agreement also contains customary non-competition and non-solicitation provisions pursuant to which DBN Finance Servicesand Mr. Ben Naim agree not to compete and solicit with the Company during the term of the Agreement and for a period of twelve(12) months following the termination of the Services Agreement.
Inconnection with the Merger, the Company entered into indemnification agreements with each of its outgoing directors and executiveofficers, Eric Bjerkholt, R. Scott Greer, Ricardo Levy, Ph.D., Ian Massey, D.Phil., John Schwartz, Ph.D., Alan Trounson, Ph.D.and Irving Weissman, M.D., as well as with its newly appointed directors. Pursuant to the indemnification agreements, the Companyhas agreed to indemnify and hold harmless these current and former directors and officers to the fullest extent permitted by theDelaware General Corporation Law. The agreements generally cover expenses that a director or officer incurs or amounts that adirector or officer becomes obligated to pay because of any proceeding to which he is made or threatened to be made a party orparticipant by reason of his service as a current or former director, officer, employee or agent of the Company, provided thathe acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Theagreements also provide for the advancement of expenses to the directors and officers subject to specified conditions. There arecertain exceptions to the Company’s obligation to indemnify the directors and officers, and, with certain exceptions, withrespect to proceedings that he initiates.
Limitson Liability and Indemnification
Weprovide directors and officers insurance for our current directors and officers.
Ourcertificate of incorporation eliminates the personal liability of our directors to the fullest extent permitted by law. The certificateof incorporation further provides that the Company will indemnify its officers and directors to the fullest extent permitted bylaw. We believe that this indemnification covers at least negligence on the part of the indemnified parties. Insofar as indemnificationfor liabilities under the Securities Act of 1933 (the “Act”) may be permitted to our directors, officers, and controllingpersons under the foregoing provisions or otherwise, we have been advised that in the opinion of the Securities and Exchange Commissionsuch indemnification is against public policy as expressed in the Act and is therefore unenforceable.
TheCompany adopted a compensation package for the non-management members of its Board, pursuant to which each such Board member wouldreceive for his services $12,000 per annum, $750 per duly called Board meeting and $250 per unanimous written consent. Furthermore,each member of the Audit Committee receives an additional $10,000 per annum, and other committee members receive an additional$5,000 per annum. All such Board members, provided they do not otherwise beneficially own (or represent holders who beneficiallyown) over 2.5% of the Company’s outstanding shares of common stock, are also eligible to receive stock options and otherequity incentive grants.
Thefollowing table summarizes cash-based and equity compensation information for our outside directors, including annual Board andcommittee retainer fees and meeting attendance fees, for the year ended December 31, 2016:
Mr.Gadot received compensation for his services to the Company as set forth under the summary compensation table above.
CertainRelationships and Related Transactions
Relatedparties can include any of our directors or executive officers, certain of our Shareholders and their immediate family members.Each year, we prepare and require our directors and executive officers to complete Director and Officer Questionnaires identifyingany transactions with us in which the officer or director or their family members have an interest. This helps us identify potentialconflicts of interest. A conflict of interest occurs when an individual’s private interest interferes, or appears to interfere,in any way with the interests of the Company as a whole. Our code of ethics requires all directors, officers and employees whomay have a potential or apparent conflict of interest to immediately notify our General Manager, who serves as our complianceofficer. In addition, the Corporate Governance Committee is responsible for considering and reporting to the Board any questionsof possible conflicts of interest of Board members. Our code of ethics further requires pre-clearance before any employee, officeror director engages in any personal or business activity that may raise concerns about conflict, potential conflict or apparentconflict of interest. Copies of our Code of Ethics and the Corporate Governance Committee charter are posted on the corporategovernance section of our website at www.microbotmedical.com.
InMarch 2011, Microbot Israel entered into a consulting agreement with MEDX Ventures Group LLC, of which Mr. Gadot is the ChiefExecutive Officer, Company Group Chairman and majority equity owner (the “Gadot Consulting Agreement”), pursuant towhich Mr. Gadot served as Microbot Israel’s Chief Executive Officer. Under the terms of the Gadot Consulting Agreement,MEDX Ventures Group received a monthly fee of $17,000, which amount was to increase to $25,000 per month upon the consummationof a merger or other similar transaction. Under the Gadot Consulting Agreement, MEDX Ventures Group and Mr. Gadot was subjectto customary non-competition, non-solicitation, confidentiality and intellectual property ownership provisions. In addition, MEDXVentures Group was entitled to receive reimbursement for all direct expenses in connection with the performance of services underthe Gadot Consulting Agreement. Either Microbot or MEDX Ventures Group was entitled to terminate the Gadot Consulting Agreementupon 60 days’ written notice. MEDX Ventures Group LLC is a Shareholder of Microbot. As a result of the Merger, the GadotConsulting Agreement was terminated in November 2016 and was replaced with an employment agreement between the Company and Mr.Gadot.
In2015, Microbot Israel issued convertible promissory notes, at an interest rate of 10%, in the aggregate principal amount of $411,500(the “2015 Notes”) to certain investors and Microbot Israel shareholders. The 2015 Notes matured on July 8, 2016.The principal and accrued but unpaid interest on the 2015 Notes converted into 452,650 shares of Series A Preferred Stock of MicrobotIsrael and warrants to purchase 409,750 shares of Series A Preferred Stock of Microbot Israel. The table below sets forth the2015 Notes with aggregate principal in excess of $120,000 that were purchased by Microbot’s directors, executive officersand then holders of more than 5% of its capital stock.
Principal Purchased in 2015
In2016, Microbot Israel issued convertible promissory notes, at an annual interest rate of 10%, in the aggregate principal amountof $750,000 (the “2016 Notes”) to certain investors and Microbot Israel shareholders. The principal and accrued butunpaid interest on the 2016 Notes converted, at a 20% discount, into common stock upon the consummation of the Merger. The tablebelow sets forth the 2016 Notes with aggregate principal in excess of $120,000 that were purchased by Microbot Israel’sdirectors, executive officers and then holders of more than 5% of its capital stock.
Principal Purchased in 2016
MicrobotIsrael entered into a license agreement with Technion Research and Development Foundation Ltd., or TRDF, in 2012 pursuant to whichMicrobot Israel obtained an exclusive, worldwide, royalty-bearing, sub-licensable license to certain patents and inventions relatingto the SCS and TipCAT technology platforms.
OnAugust 15, 2016, Microbot Israel and Alpha Capital Anstalt (“Alpha Capital”), a shareholder of Microbot Israel atthat time, entered into an agreement pursuant to which, among other things, Alpha Capital agreed to fund a proposed $4 millionprivate placement, which obligation would be reduced dollar-for-dollar by any third party investors investing in such privateplacement. This agreement was superseded by the Letter Agreement referred to below.
TheCompany entered into a letter agreement (the “Letter Agreement”) with Alpha Capital, dated November 18, 2016 but effectiveNovember 28, 2016 pursuant to which Alpha Capital committed to make a cash investment into the Company, no later than December31, 2016, in an amount equal to the difference between $4 million and the amount of cash released to the Company, by December31, 2016, out of escrow pursuant to the Company’s asset sale transaction with BOCO Silicon Valley, Inc., a California corporation.The Company waived Alpha Capital’s commitments under the Letter Agreement.
OnAugust 15, 2016, concurrently with the execution of the Merger Agreement, the Company (then named and operated as StemCells, Inc.)issued a 5.0% secured note (the “Secured Note”) to Alpha Capital, in the principal amount of $2 million, payable uponthe earlier of (i) 30 days following the consummation of the Merger and (ii) December 31, 2016. In addition, on August 15, 2016,the Company and Alpha Capital entered into a Security Agreement to secure the Company’s obligations under the Secured Note(the “Security Agreement”). The Company’s obligations under the Secured Note were secured by a first prioritysecurity interest in all of the Company’s intellectual property and certain other general assets. As of November 28, 2016,upon the closing of the Merger, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”)with Alpha Capital, providing for the issuance to Alpha Capital of a convertible promissory note by the Company (the “ConvertibleNote”) in a principal amount of $2,028,767, which is equal to the principal and accrued interest under the Secured Note,in exchange for (a) the full satisfaction, termination and cancellation of the Secured Note and (b) the release and terminationof the Security Agreement and the first priority security interest granted thereunder. Pursuant to the terms of the ConvertibleNote upon issuance, the Convertible Note is convertible into the Company’s common stock any time after November 28, 2017until the maturity date of November 28, 2019, based on a conversion price of $0.64, subject to adjustments as provided in theConvertible Note and the other terms and the conditions specified in the Convertible Note. Pursuant to the terms of the Note,the Company is obligated to pay interest on the outstanding principal amount owed under the Note at a fixed rate per annum of6.0%, payable at maturity or earlier conversion.
OnDecember 16, 2016, the Company entered into a Securities Exchange Agreement with Alpha Capital, pursuant to which Alpha exchangedapproximately 9,735,925 shares or rights to acquire shares of the common stock of the Company held by it, for approximately 9,736shares of a newly designated class of Series A Convertible Preferred Stock, par value $0.01 per share. The common stock and commonstock underlying the rights include all of the shares of common stock issued or issuable to Alpha Capital pursuant to the Merger.The closing of the exchange was effective as of December 27, 2016.
PrincipalAccountant Fees and Services.
Auditand Tax Fees
TheBoard, upon the recommendation of the Audit Committee, selected the independent accounting firm of Brightman Almagor Zohar& Co., a Member of Deloitte Touche Tohmatsu Limited (“Deloitte”) to audit the accounts of the Company for theyear ending December 31, 2016.
TheAudit Committee considered the tax compliance services provided by Deloitte and concluded that provision of such services is compatiblewith maintaining the independence of the independent accountants, and approved the provision by Deloitte of tax compliance serviceswith respect to the year ending December 31, 2016.
TheAudit Committee received the following information concerning the fees of the independent accountants for the years ended December31, 2016 and 2015, has considered whether the provision of these services is compatible with independence of the independent accountants,and concluded that it is:
Auditand tax fees include administrative overhead charges and reimbursement for out-of-pocket expenses.
Pre-ApprovalPolicies and Procedures
TheAudit Committee has adopted policies and procedures for pre-approving all services (audit and non-audit) performed by our independentauditors. In accordance with such policies and procedures, the Audit Committee is required to pre-approve all audit and non-auditservices to be performed by the independent auditors in order to assure that the provision of such services is in accordance withthe rules and regulations of the SEC and does not impair the auditors’ independence. Under the policy, pre-approval is generallyprovided up to one year and any pre-approval is detailed as to the particular service or category of services and is subject toa specific budget. In addition, the Audit Committee may pre-approve additional services on a case-by-case basis. During 2015 andthrough November 28, 2016, Microbot Medical Ltd., the Company’s predecessor, did not have a standing audit committee.
REPORTOF THE AUDIT COMMITTEE
TheAudit Committee oversees our accounting and financial reporting processes and the audits of our financial statements on behalfof the Board, and selects an independent public accounting firm to perform these audits. Management has the primary responsibilityfor establishing and maintaining adequate internal control over financial reporting, preparing the financial statements, and establishingand maintaining adequate controls over public reporting. Our independent registered public accounting firm for fiscal 2016, Deloitte,had responsibility for conducting an audit of our annual financial statements in accordance with the standards of the Public CompanyAccounting Oversight Board (United States) and expressing an opinion on the conformity of those audited financial statements withgenerally accepted accounting principles.
TheAudit Committee oversaw the independent public accounting firm’s qualifications and independence, as well as its performance.The Audit Committee assisted the Board in overseeing the preparation of the Company’s financial statements, the Company’scompliance with legal and regulatory requirements, and the performance of the Company’s internal audit function. The AuditCommittee met with personnel of the Company and Deloitte to review the scope and the results of the annual audit, the amount ofaudit fees, the Company’s internal accounting controls, the Company’s financial statements contained in the Company’sAnnual Report to Shareholders and other related matters.
TheAudit Committee has reviewed and discussed with management the financial statements for fiscal year 2016 audited by Deloitte,as well as management’s report on internal control over financial reporting, using the criteria set forth by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. The Audit Committeehas discussed with Deloitte various matters related to the financial statements, including those matters required to be discussedby SAS 114 (The Auditor’s Communication with Those Charged with Governance). The Audit Committee has also discussed withDeloitte its report on internal control over financial reporting, has received the written disclosures and the letter from Deloitterequired by Public Company Accounting Oversight Board (PCAOB) Ethics and Independence Rule 3526, Communication with Audit CommitteesConcerning Independence (Rule 3526), and has discussed with Deloitte its independence.
Basedupon such review and discussions, the Audit Committee recommended to the Board of Directors, and the Board approved the recommendation,that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year endingDecember 31, 2016 for filing with the SEC.
Theforegoing Audit Committee Report shall not be deemed incorporated by reference into any filing under the Securities Act of 1933or the Securities Exchange Act of 1934, and shall not otherwise be deemed filed under these acts, except to the extent we specificallyincorporate by reference into such filings.
PROPOSAL1: NOMINEES FOR ELECTION OF CLASS II DIRECTORS
Thenumber of directors is currently fixed at seven. Both our restated certificate of incorporation, as amended to date, and our amendedand restated by-laws provide for the classification of the Board into three classes (Class I, Class II and Class III), as nearlyequal in number as possible, with the term of office of one class expiring each year.
Unlessotherwise instructed, the enclosed proxy will be voted to elect the nominees named below, one of whom is now a Class IIdirector and the other is now an executive officer, as Class II directors for a term of three years expiring at the 2020 AnnualMeeting of Shareholders and until their successors are duly elected and qualified. Both Class II director nominees have been recommendedby the Corporate Governance Committee because of their past experience serving on the Company’s Board or as an executiveofficer, the breadth of their business expertise, sound judgment, and demonstrated leadership, among other things. Proxies cannotbe voted for a greater number of persons than the number of nominees named below. It is expected that the nominees will be ableto serve, but if any are unable to serve, the proxy will be voted for a substitute nominee or nominees designated by the Board.
TheCorporate Governance Committee has recommended and the Board has nominated Yehezkel (Hezi) Himelfarb and Scott Burellfor election as the Company’s Class II directors to serve as Class II directors until the 2020 Annual Meetingof Shareholders.
THEBOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL 1 TO ELECT AS DIRECTORS THE TWO NOMINEES DESCRIBEDABOVE.
PROPOSAL2: RATIFICATION OF INDEPENDENT REGISTERED ACCOUNTING FIRM
TheCompany is asking the stockholders to ratify the selection of Deloitte, or its U.S. affiliate, as the Company’s independentpublic accountants for the fiscal year ending December 31, 2017. The affirmative vote of the holders of a majority of the sharesrepresented and voting at the Annual Meeting will be required to ratify the selection of Deloitte or its U.S. affiliate.
Inthe event the stockholders fail to ratify the appointment, the Audit Committee of the Board of Directors will consider it as arecommendation to select other auditors for the subsequent year, which the Audit Committee would then take under advisement. Evenif the selection is ratified, the Audit Committee of the Board at its discretion could decide to terminate the engagement of Deloitteor its U.S. affiliate and engage another firm at any time if the Audit Committee determines that such a change would be necessaryor desirable in the best interests of the Company and its stockholders.
Arepresentative of Deloitte is expected to attend the Annual Meeting telephonically and is not expected to make a statement, butwill be available to respond to appropriate questions and may make a statement if such representative desires to do so.
THEBOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL 2 TO RATIFY THE SELECTION OF DELOITTE OR ITS U.S. AFFILIATEAS THE COMPANY’S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 2017.
PROPOSAL3: APPROVAL OF THE MICROBOT MEDICAL INC. 2017 EQUITY INCENTIVE PLAN
OnAugust 10, 2017, the Board of Directors adopted the Microbot Medical Inc. 2017 Equity Incentive Plan, or the 2017 Plan, and unanimouslyrecommends that the stockholders of the Company approve the 2017 Plan.
TheBoard believes that our ability to offer our key employees, non-employee directors and certain consultants and advisers long-term,equity-based compensation will help enable us to attract, motivate and retain experienced and highly qualified employees, directorsand other service providers who will contribute to our financial success. It is the judgment of the Board that approval of the2017 Plan is in the best interests of the Company and its stockholders.
Thefollowing is a brief description of the 2017 Plan. The full text of the 2017 Plan is attached as Exhibit A to this ProxyStatement, and the following description is qualified in its entirety by reference to this Exhibit.
The2017 Plan permits the issuance of equity-based awards, including incentive stock options, or ISOs, nonqualified stock options,restricted stock and restricted stock units, or RSUs, stock options, restricted stock and RSUs that qualify under Section 102of the Israeli Tax Ordinance (New Version) 1961, or the ITO, and stock options, restricted stock and RSUs that qualify under Section3(i) of the ITO (the “Awards”).
The2017 Plan is administered by the Board, or a committee composed of two or more members of the Board (the “Committee”)which is authorized to grant Awards.
Purposeand Eligible Individuals. The purpose of the 2017 Plan is to retain the services of valued key employees and consultantsof the Company and such other persons as the Committee determines and to encourage such persons to acquire a greater proprietaryinterest in the Company, thereby strengthening their incentive to achieve the objectives of the stockholders of the Company, toserve as an aid and inducement in the hiring of new employees and to provide an equity incentive to consultants and other personsselected by the Committee. Under the 2017 Plan, Awards may be granted to our officers, directors, employees and consultants orthe officers, directors, employees and consultants of our subsidiary. Because the grant of Awards under the 2017 Plan will bewithin the discretion of the Committee, it is not possible to determine the Awards that will be made to executive officers ordirectors under the 2017 Plan.
SharesSubject to the 2017 Plan. The total number of Awards to acquire shares of Common Stock, shares of restricted stock andRSUs shall be 9,355,763. The maximum number of shares that may be subject to ISOs granted under the 2017 Plan shall be 9,355,763,subject to adjustment as provided in the 2017 Plan. The total amount of Common Stock that may be granted under the 2017 Plan toany single person in any calendar year may not exceed in the aggregate 2,500,000 shares. To the extent that an Award lapses oris forfeited, the shares subject to such Award will again become available for grant under the terms of the 2017 Plan.
Administration.Although the Board has the authority to administer the 2017 Plan, it has the right to delegate, and has in fact delegated, thisauthority to the Committee, which administers all of the Company’s equity-based compensation plans. Each member of the Committeewill be a “non-employee director” within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of1934, as amended, or the Exchange Act, and an “outside director” within the meaning of Section 162(m) of the InternalRevenue Code of 1986, as amended, or the Code.
Subjectto the terms of the 2017 Plan, the Committee’s authority includes the authority to: (1) select or approve Award recipients;(2) determine the terms and conditions of Awards, including the price to be paid by a participant for any Common Stock; and (3)interpret the 2017 Plan and prescribe rules and regulations for its administration.
StockOptions. The Committee may grant ISOs, nonqualified stock options or options under Section 102 or 3(i) of the ITO, orOptions. The Committee determines the number of shares of Common Stock subject to each Option, provided that in no event shallthe aggregate fair market value of the shares of Common Stock with respect to which ISOs are exercisable for the first time bya participant during any calendar year shall not exceed $100,000. The Committee determines the exercise price of an Option, itsduration and the manner and time of exercise. However, in no event shall an Option be exercisable more than ten years followingthe grant date thereof. ISOs may be issued only to employees of the Company or of a corporate subsidiary of ours, and the exerciseprice must be at least equal to the fair market value of the Common Stock as of the date the Option is granted. Further, an ISOmust be exercised within ten years of grant. The Committee, in its discretion, may provide the vesting terms of any Option, providedthat if no schedule is specified at the time of grant, the Option shall vest as follows: (i) on the six month anniversary of thedate of the grant, the Option shall vest and shall become exercisable with respect to 25% of the Common Stock to which it pertains;and (ii) on a quarterly basis over the next 30 months, the Option shall vest and become exercisable with respect to the remaining75% of the Common Stock to which it pertains. The vesting of one or more outstanding Options may be accelerated by the Committeeat such times and in such amounts as it shall determine in its sole discretion. Options may be exercisable for one year followingthe termination of employment or other service relationship, unless the Committee specifies otherwise, in the event the Optionis an ISO, in the event of a termination for “cause” or the expiration date of the Option.
Theexercise price of an Option may be paid in cash or by certified or cashier’s check, or, at the discretion of the Committee,in shares of Common Stock owned by the participant, or by means of a “cashless exercise” procedure in which a brokertransmits to us the exercise price in cash, either as a margin loan or against the participant’s notice of exercise andconfirmation by us that we will issue and deliver to the broker stock certificates for that number of shares of Common Stock havingan aggregate fair market value equal to the exercise price.
Optionsgranted under the 2017 Plan and the rights and privileges conferred by the 2017 Plan may not be transferred, assigned, pledgedor hypothecated in any manner (whether by operation of law or otherwise) other than by will or by applicable laws of descent anddistribution.
StockGrants. The Committee may issue shares of Common Stock to participants with restrictions, as determined by it in its discretion,as well as restricted stock units, which are contractual commitments to deliver shares of Common Stock pursuant to a vesting schedule.Restrictions may include conditions that require the participant to forfeit the shares in the event that the holder ceases toprovide services to us and/or if certain performance goals are not met (see discussion below). The recipient of a stock grant,including a stock grant subject to restrictions, unless otherwise provided for in a restricted stock agreement, has the rightsof a stockholder of ours to vote and to receive payment of dividends on our Common Stock. Holders of restricted stock units andOptions do not enjoy voting and dividend rights until the Award is settled in actual shares of Common Stock or the option is exercised,as the case may be.
Effectof Certain Corporate Transactions. If a recapitalization or similar transaction occurs that does not alter the existingproportionate ownership of the Common Stock, appropriate adjustments shall be made in the exercise price and number of outstandingOptions and in the terms of restricted stock and RSUs. In the case of a merger, acquisitive transaction, reorganization, liquidationor other transaction, or Major Transaction, that does alter such proportionate ownership, vested Options generally may be exercisedbefore such transaction and persons owning Common Stock as a result of Awards made under the 2017 Plan will participate on thesame basis as other owners of Common Stock. Alternatively, the Board may determine in the case of a Major Transaction that Options,restricted stock and RSUs will continue in effect on a basis similar to that in effect prior to such Major Transaction, includingwith respect to vesting, except that such rights shall apply with respect to the surviving entity. The Board may, in its discretion,accelerate vesting in whole or in part in connection with a Major Transaction.
PerformanceGoals. If the Committee makes a restricted stock or RSU Award intended to qualify as “performance-based compensation”under Section 162(m) of the Code, or if the Committee otherwise desires to tie an Award to performance goals, the performancegoals selected by the Committee must be based on the achievement of specified levels of one, or any combination, of the followingbusiness criteria: return on equity, return on assets, share price, market share, sales, earnings per share, costs, net earnings,net worth, inventories, cash and cash equivalents, gross margin or the Company’s performance relative to its internal businessplan. Performance objectives may be in respect of the performance of the Company as a whole (whether on a consolidated or unconsolidatedbasis), a related corporation, or a subdivision, operating unit, product or product line of either of the foregoing. Performanceobjectives may be absolute or relative and may be expressed in terms of a progression or a range. An Award that is exercisable(in full or in part) upon the achievement of one or more performance objectives may be exercised only following written noticeto the participant and the Company by the Committee that the performance objective has been achieved. After the close of the applicableperformance period, which may consist of more than one year, and generally before the close of the next year’s first quarter,the Committee will determine the extent to which the performance goals were satisfied and make a final determination with respectto an Award.
FurtherAmendments to the 2017 Plan. The Board or the Committee may, at any time, modify, amend or terminate the 2017 Plan ormodify or amend Awards granted under the 2017 Plan, including, without limitation, such modifications or amendments as are necessaryto maintain compliance with applicable laws. However, the Board or the Committee may not, without approval of the Company’sstockholders: (1) increase the total number of shares covered by the 2017 Plan, except by adjustments upon certain changes incapitalization; (2) change the aggregate number of shares of Common Stock that may be issued to any single person; (3) changethe class of persons eligible to receive Awards under the 2017 Plan; or (4) make other changes in the 2017 Plan that require stockholderapproval under applicable law (including any rules of any applicable stock exchange or stock quotation system of which the Company’sshares of Common Stock are is traded). Except as otherwise provided in the 2017 Plan or an award agreement, no amendment willadversely affect outstanding Awards without the consent of the participant. Any termination of the 2017 Plan will not terminateAwards then outstanding, without the consent of the participant.
Termof the 2017 Plan. Unless sooner terminated by the Board, the 2017 Plan will terminate on the day prior to the tenth (10th)anniversary of its adoption by the Board. No Award may be granted after such termination or during any suspension of the 2017Plan.
U.S.Tax Treatment. The following description of the federal income tax consequences of Awards is general and does not purportto be complete.
Generally,a participant incurs no federal income tax liability on either the grant or the exercise of an ISO, although a participant willgenerally have taxable income for alternative minimum tax purposes at the time of exercise equal to the excess of the fair marketvalue of the shares subject to the Option over the exercise price. Provided that the shares are held for at least one year afterthe date of exercise of the Option and at least two years after its date of grant, any gain realized on a subsequent sale of theshares will be taxed as long-term capital gain. If the shares are disposed of within a shorter period of time, the participantwill recognize ordinary compensation income in an amount equal to the difference between the fair market value of the shares onthe date of exercise (or the sale price of the shares sold, if less) over the exercise price. The Company receives no tax deductionon the grant or exercise of an ISO, but the Company is entitled to a tax deduction if the participant recognizes ordinary compensationincome on account of a premature disposition of shares acquired on exercise of an ISO, in the same amount and at the same timeas the participant recognizes income.
Aparticipant realizes no taxable income when a nonqualified stock option is granted. Instead, the difference between the fair marketvalue of the shares acquired pursuant to the exercise of the Option and the exercise price paid is taxed as ordinary compensationincome when the Option is exercised. The difference is measured and taxed as of the date of exercise, if the shares are not subjectto a “substantial risk of forfeiture,” or as of the date or dates on which the risk terminates in other cases. A participantmay elect (as described under Stock Awards below) to be taxed on the difference between the exercise price and the fair marketvalue of the shares on the date of exercise, even though some or all of the shares acquired are subject to a substantial riskof forfeiture. Once ordinary compensation income is recognized, gain on the subsequent sale of the shares is taxed as short-termor long-term capital gain, depending on the holding period after exercise. The Company receives no tax deduction on the grantof a nonqualified stock option, but it is entitled to a tax deduction when a participant recognizes ordinary compensation incomeon or after exercise of the Option, in the same amount as the income recognized by the participant.
Aperson who receives an award of shares without any restrictions will recognize ordinary compensation income equal to the fairmarket value of the shares over the amount (if any) paid. If the shares are subject to restrictions, the recipient generally willnot recognize ordinary compensation income at the time the award is received but will recognize ordinary compensation income whenrestrictions constituting a substantial risk of forfeiture lapse, including satisfying any accelerated vesting conditions as aresult of “retirement.” The amount of that income will be equal to the excess of the aggregate fair market value,as of the date the restrictions lapse, over the amount (if any) paid for the shares. Alternatively, a person may elect to be taxed,pursuant to Section 83(b) of the Code, on the excess of the fair market value of the shares at the time of grant over the amount(if any) paid for the shares, notwithstanding any restrictions. All such taxable amounts are deductible by the Company at thetime and in the amount of the ordinary compensation income recognized by the recipient.
Aperson who receives RSUs generally will not recognize ordinary compensation income at the time of grant. Rather, the recipientwill generally recognize ordinary compensation income equal to the fair market value of the shares or cash received less the pricepaid, if any, at the time the RSUs settles (generally shortly after vesting, although further deferral may be permitted). Whenany shares received are subsequently sold, the recipient generally will recognize capital gain or loss equal to the differencebetween the amount realized upon the sale of the shares and his or her tax basis in the shares (generally, the fair market valueof the shares when acquired ). The capital gain or loss will be long-term if the shares were held for more than one (1) year orshort-term if held for a shorter period. The Company will be entitled to a tax deduction when the recipient recognizes ordinarycompensation income.
Thefull amount of dividends or other distributions of property made with respect to share Awards before the lapse of any applicablerestrictions will constitute ordinary compensation income, and the Company is entitled to a deduction at the same time and inthe same amount as the income is realized by the recipient (unless an election under Section 83(b) of the Code has been made).Cash dividends are generally not available with respect to Options and RSUs until exercised or settled, respectively.
Section162(m) of the Code
Section162(m) of the Code generally disallows an income tax deduction to public companies for compensation in excess of $1,000,000 paidin any year to each of the principal executive officer and the three other most highly compensated executive officers, but notincluding the principal financial officer, to the extent that this compensation is not “performance-based” withinthe meaning of Section 162(m) of the Code. Compensation in excess of the $1,000,000 limit may be deducted if, among other matters,amounts are paid pursuant to pre-established, objective performance goals determined by a committee consisting solely of two ormore “outside directors” (within the meaning of Section 162(m) of the Code), the material terms of those goals aredisclosed to and approved by stockholders and any payment is made only after a committee of outside directors certifies that thepreestablished performance goals have been satisfied.
Optionsissued under the 2017 Plan generally satisfy the performance-based compensation exception under regulations issued pursuant toSection 162(m) of the Code if, in addition to other requirements, the 2017 Plan is approved by our stockholders, the grants aremade by the Committee (a committee presently consisting of “outside directors”) and the amount of compensation a personcan receive under the Option is based solely on an increase in the value of the stock after grant.
Restrictedstock and RSUs will generally not satisfy the requirements for the performance-based exception unless subject to performance criteriaincluded in the 2017 Plan that are ultimately determined to be satisfied by the Committee by taking certain actions on a timelybasis.
IsraeliTax Treatment. The following is a summary of the Israeli income tax consequences of certain transactions under the 2017Plan with regard to the granting of Awards to Israeli participants. It is general and does not purport to be comprehensive.
Generally,the 2017 Plan provides for the granting of Awards to employees, directors and consultants under either Section 102 or Section3(i) of the ITO. The Awards granted under the 2017 Plan to employees and office holders, who are not controlling shareholders(as defined in the ITO) are subject to the “capital gains tax route” under Section 102 of the ITO, or the CapitalGains Tax Route, and the Awards granted to participants in the 2017 Plan who do not qualify to receive Awards under the CapitalGains Tax Route, including consultants, service providers and controlling shareholders, are subject to Section 3(i) of the ITO.
TheCapital Gains Tax Route generally provides for a reduced tax rate of 25% on gains realized upon the sale of the Award’sunderlying shares, subject to the fulfillment of certain procedures and conditions including the deposit of such Awards (or sharesissued upon their exercise or shares in case that a restricted stock was granted) for a requisite period of time with a trusteeapproved by the Israeli Tax Authority (currently, 24 months from the date of grant). Notwithstanding the above, in any event wherethe exercise price of the underlying shares subject to the Awards is less than the fair market value of the underlying sharesat the time of grant of the Awards (calculated as the average value of a company’s shares on the 30 trading days precedingthe date of grant), such amount will be deemed ordinary income of the Award holder, taxed at the applicable marginal tax rate(up to 50% in 2017) together with health insurance and social security insurance payments, on the date of sale of the underlyingshares and/or the date of the release of such underlying shares from trust. In the event the requirements of Section 102 of theITO for the allocation of Awards according to the Capital Gains Tax Route are not met, the benefit attributed to the Award holderas a result of the grant of such Awards will be taxed as ordinary work income at applicable marginal income tax rates (togetherwith health insurance and social security insurance payments). For as long as the restricted stock or the shares issued upon exerciseof Awards are registered in the name of the trustee, the voting rights with respect to such shares will remain with the trustee.Under the Capital Gains Tax Route, a company, or its Israeli subsidiary, as the case may be, is generally not entitled to recognizea deduction for Israeli tax purposes on the gain recognized by the Award holder upon sale of the shares underlying the Awards(except for such amount that will be deemed ordinary income of the Award holder as explained above). The Israeli subsidiary ofthe Company will be required to withhold applicable tax (and social security and national health insurance charges, if applicable)at source on behalf of the Award holder and may be required to pay social security and national health insurance charges.
Generally,with respect to a holder of an Award under Section 3(i) of the ITO that is not registered for trade, the taxable event shall takeplace on the date of exercise of the Award into shares, and the income will be classified as regular employment or work incomesubject to marginal tax rates (if the participant is an individual) or corporate tax rates (if the participant is a corporation).
EquityIncentive Plan Information
Thefollowing table summarizes certain information regarding our equity compensation plans as of December 31, 2016:
Weighted-average exercise price of outstanding
securities remaining available for future issuance
Pursuantto the employment agreements of Harel Gadot and Hezi Himelfarb, we are obligated to grant to such executive officers options topurchase shares of our common stock representing 5% and 3%, respectively, of our issued and outstanding shares as of the dateof the Merger. We expect to make such grants to Messrs. Gadot and Himelfarb pursuant to the 2017 Plan, if and when adopted.
Theaffirmative vote of the holders of a majority of the of the stock having voting power present in person or represented by proxyshall be sufficient for the approval of the 2017 Plan and for the approval of the performance-based criteria that will permitus to maximize our opportunities to pay tax-deductible compensation.
THEBOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL 3 TO APPROVE THE MICROBOT MEDICAL INC. 2017 EQUITYINCENTIVE PLAN.
PROPOSAL4: APPROVAL OF ADVISORY RESOLUTION SUPPORTING THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
“Sayon Pay” Vote
TheDodd-Frank Wall Street Reform and Consumer Protection Act of 2010 enables our shareholders to cast an advisory vote at the AnnualMeeting to approve the compensation of our named executive officers as disclosed in this Proxy Statement. The vote on this resolutionis not intended to address any specific element of compensation; rather the vote relates to the compensation of our named executiveofficers generally, as described in this Proxy Statement. Shareholders are urged to read carefully the information in the “ExecutiveCompensation” section of this Proxy Statement before casting their vote. For purposesof this Proxy Statement, the following Company executives are referred to collectively as the “named executive officers”:Harel Gadot, Hezi Himelfarb, and David Ben Naim.
Atthis year’s Annual Meeting, the Company is also giving Shareholders the opportunity to express a preference as to how oftensuch “say on pay” advisory votes should be conducted in the future. The Board believes that these advisory votes arean important means of obtaining feedback from our Shareholders about executive compensation, which is set by the CompensationCommittee and the independent directors and is designed to link pay with performance. Although these votes are non-binding, ourBoard and Compensation Committee value the opinions of our Shareholders and will consider the outcome of these votes when makingfuture compensation decisions affecting our executive officers.
Ourexecutive compensation program is designed to attract, reward and retain key employees, includingour named executive officers, who are critical to the Company’s long-term success. Shareholders are urged to read the “ExecutiveCompensation” section of this Proxy Statement for greater detail about the Company’s executive compensation programs,including information about the fiscal year 2016 compensation of the named executive officers.
TheCompany is asking the shareholders to indicate their support for the compensation of the Company’s named executive officersas described in this Proxy Statement by voting in favor of the following resolution:
RESOLVED,that the Shareholders approve the compensation of the named executive Officers of Microbot MedicalInc., as disclosed in the “Executive Compensation” discussion, the Summary Compensation Table and the related compensationtables, notes and narrative in the Proxy Statement for the Company’s 2017 Annual Meeting of shareholders.
Eventhough this say-on-pay vote is advisory and therefore will not be binding on the Company, theCompensation Committee and the Board of Directors value the opinions of the Company’s shareholders. Accordingly, to theextent there is a significant vote against the compensation of the named executive officers, the Board of Directors will considershareholder concerns and the Compensation Committee will evaluate what actions, if any, may be necessary or appropriate to addressthose concerns. You may vote “for,” “against,” or “abstain” from the proposal to approve onan advisory basis the compensation of our named executive officers.
THEBOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ADVISORY RESOLUTION TO APPROVE THE COMPENSATION OF THECOMPANY’S NAMED EXECUTIVE OFFICERS AS PRESENTED IN THIS PROXY STATEMENT.
PROPOSAL5: ADVISORY VOTE ON THE FREQUENCY OF FUTURE EXECUTIVE COMPENSATION ADVISORY VOTES
Inaddition to seeking our Shareholders’ advisory vote on the compensation of our named executive officers, we are asking ourShareholders to express a preference as to how frequently future advisory votes on executive compensation should take place. Althoughthe frequency vote is non-binding, the Compensation Committee and the Board appreciate receiving Shareholder input and will reviewthe results of the vote. The Shareholder vote under this proposal is not to approve the Board’s recommendation but is insteada direct advisory vote on the particular frequency at which each Shareholder would like future advisory votes on executive officercompensation to be conducted. You may cast your vote on your preferred voting frequency by choosing the option of every “1YEAR,” “2 YEARS,” or “3 YEARS,” or you may abstain from voting on this Proposal 5.
Aftercareful consideration of this proposal, our Board has determined that an advisory vote on executive compensation that occurs triennially,meaning every “3 YEARS,” would be the most appropriate alternative for the Company, and therefore our Board recommendsthat you vote for a three-year interval for the advisory vote on executive compensation.
TheBoard believes that triennial votes provide assurance that the Board and the Compensation Committee remain accountable for executivecompensation decisions on a frequent basis, but permit a more long-term approach to evaluating our executive compensation programs.
Webelieve our compensation decisions must reflect long-term strategic goals and avoid excessive focus on short-term financial resultsor short-term stock price fluctuations. Given the Company’s lengthy product development cycles, our focus on long-term performanceand the three- or four-year vesting periods for our long-term incentive compensation, we believe that a triennial vote on executivecompensation will enable Shareholders to provide the most constructive feedback on our executive compensation policies and program.Conversely, the Board believes that a more frequent vote could encourage Shareholders and the Company to take a short-term viewof both executive compensation and company performance.
Athree-year cycle for voting on executive compensation would also enable us to implement any appropriate changes to our executivecompensation program and understand the effects of those changes prior to the next advisory vote. The Board believes that advisoryvotes more frequent than three years would make it more difficult to analyze the results of prior votes in a comprehensive andtimely manner, thereby limiting the depth and completeness with which we can react and respond to any Shareholder concerns.
Whileour Board believes a triennial advisory vote on executive compensation is consistent with our corporate governance and executivecompensation philosophy, policies and practices, we understand that our Shareholders may have different views as to what is thebest approach for the Company, and we look forward to hearing from our Shareholders on this proposal.
THEBOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS SELECT EVERY “3 YEARS” ON THE PROPOSAL CONCERNING THE FREQUENCY OFFUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION.
Shareholderswho wish to present proposals for inclusion in the Company’s proxy materials for the 2018 Annual Meeting of Shareholdersmay do so by following the procedures prescribed in Rule 14a-8 under the Exchange Act. To be eligible, the Shareholder proposalsmust be received by our corporate secretary on or before April 16, 2018.
Shareholderswho wish to make a proposal at the 2018 Annual Meeting of Shareholders, other than one that will be included in our proxy materials,must notify us no later than June 30, 2018 (see Rule 14a-4 under the Exchange Act). If a Shareholder who wishes to present a proposalat the 2018 Annual Meeting of Shareholders fails to notify us by June 30, 2018, the proxies that management solicits for the meetingwill confer discretionary authority to vote on the Shareholder’s proposal if it is properly brought before the meeting.
ShareholderNominations of Directors
Ashareholder entitled to vote for the election of directors at a meeting may nominate persons for election as directors by givingtimely notice thereof in proper written form to the secretary accompanied by a petition signed by at least 100 record holdersof capital stock of the Company which shows the class and number of shares held by each person and which represent in the aggregate1% or more of the outstanding shares entitled to vote in the election of directors. The submission must be in writing and deliveredto Microbot Medical Inc., Attn: Secretary, Board of Directors, 25 Recreation Park Drive, Unit 108, Hingham, MA 02043, in accordancewith the advance notice procedures and other requirements set forth in Section 3.2 of our bylaws for nominees to be consideredfor nomination at the 2018 annual meeting. These requirements are separate from, and in addition to, the requirements discussedabove to have the shareholder nomination or other proposals included in our proxy statement and form of proxy/voting instructioncard pursuant to the SEC’s rules. Submissions must include the name, address and number of shares of common stock beneficiallyowned by each participant in the Nominating Shareholder group, a representation that the Nominating Shareholder meets the requirementsdescribed in the Board policy and will continue to meet them through the date of the annual meeting, a description of all arrangementsor understandings between or among the Nominating Shareholder group (or any participant in the Nominating Shareholder group) andthe candidate or any other person or entity regarding the candidate, all information regarding the candidate that the Companywould be required to disclose in a proxy statement under SEC rules, including whether the candidate is independent or, if not,a description of the reasons why not, the consent of the candidate to serve as a director, and representations by the candidateregarding his or her performance of the duties of a director. Full details may be obtained from the secretary of the Board atthe address above or on our website at www.microbotmedical.com. The Corporate Governance Committee will consider and evaluateup to two candidates recommended in accordance with this policy in connection with any annual meeting. The Corporate GovernanceCommittee will consider and evaluate candidates recommended by Shareholders on the same basis as candidates recommended by othersources.
Inaddition, the Company’s by-laws provide that a Shareholder entitled to vote for the election of directors at a meeting maynominate persons for election as directors by giving timely notice thereof in proper written form to the Secretary accompaniedby a petition signed by at least 100 record holders of capital stock of the Company representing in the aggregate 1% or more ofthe outstanding shares entitled to vote in the election of directors, which petition must show the class and number of sharesheld by each person. To be timely, such notice and petition must be received at the principal executive offices of the Companynot less than 60 days nor more than 90 days prior to the meeting, except if less than 70 days notice of the date of the meetingis given to Shareholders, in which case the notice and petition must be received not later than the close of business on the tenthday following the day on which notice of the date of the meeting was mailed or public disclosure of such date was made. The requestingShareholder is required to provide information with respect to the nominee(s) for director similar to that described above, asmore fully set forth in the Company’s by-laws.
Thecompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the SEC, is available withoutcharge upon request by writing to Microbot Medical Inc. at 25 Recreation Park Drive, Unit 108, Hingham, MA 02043, Attention: InvestorRelations. A copy of this report is also available through our website at www.microbotmedical.com or, alternatively, at www.sec.gov.
“Householding”of Proxy Materials
Somebanks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statementsand annual reports. This means that only one copy of our proxy statement and annual report to shareholders may have been sentto multiple shareholders in your household. The Company will promptly deliver a separate copy of either document to you if youcontact the Secretary at the following address or telephone number: Microbot Medical Inc., 25 Recreation Park Drive, Unit 108,Hingham, MA 02043; telephone: (781) 875-3605. In addition, copies of both documents may be obtained from our website (www.microbotmedical.com,click on the button “Investors” and then “Presentations and Resources”). You may also request informationfrom Morrow Sodali LLC, our proxy solicitor, at the following address and telephone number: Morrow Sodali LLC, 470 West Avenue,Stamford, CT 06902; Stockholders Call Toll Free: 800-662-5200; Microbotfirstname.lastname@example.org. If you want to receive separatecopies of the proxy statement or the annual report to shareholders in the future, or if you are receiving multiple copies andwould like to receive only one copy per household, you should contact your bank, broker or other nominee record holder, or youmay contact the Company at the above address or telephone number.
TheBoard knows of no business that will come before the meeting for action except as described in the accompanying Notice of Meeting.However, as to any such business, the persons designated as proxies will have authority to act in their discretion.
2017EQUITY INCENTIVE PLAN
This2017 Microbot Medical Inc. Equity Incentive Plan (the “Plan”) provides for the grant of restricted stock, restrictedstock units and options to acquire common shares of Common Stock in the capital of Microbot Medical Inc., a corporation formedunder the laws of the State of Delaware (the “Corporation”). Awards granted under this Plan will include:
(a)stock options that qualify and are intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the“Code”), which will be referred to in this Plan as “Incentive Stock Options”;
(b)stock options, restricted stock and restricted stock units that qualify under Section 102 of the Israeli Tax Ordinance (New Version)1961, as amended and the rules and regulations promulgated thereunder (the “Ordinance”), which will be referredto in this Plan as “102 Awards”;
(c)stock options that do not qualify under Section 422 of the Code (or which are not intended to be classified as Incentive StockOptions), which will be referred to in this Plan as “Non-Qualified Options” (and together with Incentive StockOptions and any other form of stock option issued under the Plan, “Options”);
(d)restricted stock and restricted stock units, which together with Non-Qualified Stock Options shall be referred to in this Planas “Non-Qualified Awards”; and
(e) stockoptions, restricted stock and restricted stock units under Section 3(i) of the Ordinance to consultants and Controlling Shareholders,as defined in Section 32(9) of the Ordinance (“Controlling Shareholders”) that are excluded from the term “IsraeliEmployee” as defined in Section 3.3 herein, which will be referred to in this Plan as “3(i) Awards”.
Options,102 Awards, Non-Qualified Awards and Section 3(i) Awards, granted under this Plan are collectively referred to as “Awards”.
1.1The purpose of this Plan is to retain the services of valued key employees and consultants of the Corporation and such other personsas the Committee (as hereinafter defined) shall select in accordance with Section 3 below, and to encourage such persons to acquirea greater proprietary interest in the Corporation, thereby strengthening their incentive to achieve the objectives of the shareholdersof the Corporation, and to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive toconsultants and other persons selected by the Committee.
1.2This Plan shall at all times be subject to all legal requirements relating to the administration of Awards, if any, under applicablecorporate laws, applicable United States federal and state securities laws, the Code, applicable Israeli tax laws, applicableIsraeli securities laws, applicable Israeli corporate laws, applicable Israeli foreign exchange control laws, the rules of anyapplicable stock exchange or stock quotation system, and the rules of any other foreign jurisdiction applicable to Awards grantedto residents therein (collectively, the “Applicable Laws”).
2.1This Plan shall be administered initially by the board of directors of the Corporation (the “Board”), exceptthat the Board may, in its discretion, establish a committee composed of two (2) or more members of the Board or two (2) or moreother persons to administer the Plan, which committee (the “Committee”) may be an executive, compensation orother committee, including a separate committee especially created for this purpose.
2.2If and so long as the shares of Common Stock are registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,as amended (the “Exchange Act”), or the Corporation wishes to comply with the performance based compensationexception under Section 162(m) of the Code, then the Board shall satisfy in selecting the membership of any Committee the provisionsregarding (a) “outside directors” as contemplated by Section 162(m) of the Code and (b) “Non-Employee Directors”as contemplated by Rule 16b-3 under the Exchange Act.
2.3The Committee shall have the powers and authority vested in the Board hereunder. The members of any such Committee shall serveat the pleasure of the Board. A majority of the members of the Committee shall constitute a quorum, and all actions of the Committeeshall be taken by a majority of the members present. Any action may be taken by a written instrument signed by all of the membersof the Committee and any action so taken shall be fully effective as if it had been taken at a meeting.
2.4Subject to the provisions of this Plan and any Applicable Laws, and with a view to accomplishing the purpose of the Plan, theCommittee shall have sole authority, in its absolute discretion, to:
(a)construe and interpret the terms of the Plan and any Award granted pursuant to this Plan;
(b)define the terms used in the Plan;
(c)prescribe, amend and rescind the rules and regulations relating to this Plan;
(d)correct any defect, supply any omission or reconcile any inconsistency in this Plan;
(e)grant Awards under this Plan;
(f)determine the individuals to whom Awards shall be granted under this Plan and whether the Award is granted as an Incentive StockOption or a 102 Award, Non-Qualified Award or Section 3(i) Award;
(g)make an election under Section 102(b)(1) or (2) of the Ordinance;
(h)determine the time or times at which Awards shall be granted under this Plan;
(i)determine the number of shares of Common Stock subject to each Award, the exercise price of each Award, the duration of each Awardand the times at which each Award shall become vested and exercisable;
(j)determine all other terms and conditions of the Awards; and
(k)make all other determinations and interpretations necessary and advisable for the administration of the Plan.
2.5All decisions, determinations and interpretations made by the Committee shall be binding and conclusive on all participants inthe Plan and on their legal representatives, heirs and beneficiaries.
3.1Incentive Stock Options may be granted to an “Employee”, meaning any individual who, at the time such optionis granted, is an employee of the Corporation or any corporation (other than the Corporation) that is a “Parent Corporation”of the Corporation or “Subsidiary Corporation” of the Corporation, as those terms are defined in Sections 424(e) and424(f), respectively, of the Code (or any successor provisions) and the regulations thereunder (as amended from time to time)(“Related Corporation”).
3.2Non-Qualified Awards may be granted to Employees, and to such other persons who are not Employees as the Committee shall select,subject to any Applicable Laws.
3.3102 Awards may be granted to any person who is employed by the Corporation or its “employing company” within the meaningof Section 102(a) of the Ordinance (“Affiliate”) in Israel, including an individual who is serving as a directoror an office holder, but excluding a Controlling Shareholder (“Israeli Employees”) in accordance with Section4 herein.
3.4Section 3(i) Awards may be granted to consultants and Controlling Shareholders that do not qualify as Israeli Employees.
3.5Awards may be granted in substitution for outstanding Awards of another corporation in connection with the merger, consolidation,acquisition of property or stock or other reorganization between such other corporation and the Corporation or any subsidiaryof the Corporation. Awards also may be granted in exchange for outstanding Awards.
3.6Any person to whom an Award is granted under this Plan is referred to as a “Participant”.
4.DESIGNATION OF AWARDS PURSUANT TO SECTION 102 (RELEVANT ONLY TO ISRAELI EMPLOYEES)
4.1The Corporation may designate 102 Awards granted to Israeli Employees pursuant to Section 102 of the Ordinance as Unapproved 102Awards (means an Award granted pursuant to Section 102(c) of the Ordinance and not held in trust by a Trustee) or Approved 102Awards (means an Award granted pursuant to Section 102(b) of the Ordinance and held in trust by a Trustee for the benefit of theParticipant).
4.2The grant of Approved 102 Awards shall be made under this Plan adopted by the Board, and shall be conditioned upon the approvalof this Plan by the Israeli Tax Authorities (the “ITA”).
4.3Approved 102 Award may either be classified as a Capital Gain Award (“CGA”) or an Ordinary Income Award (“OIA”).
4.4Approved 102 Award elected and designated by the Corporation to qualify under the capital gain tax treatment in accordance withthe provisions of Section 102(b)(2) shall be referred to herein as CGA.
4.5Approved 102 Option elected and designated by the Corporation to qualify under the ordinary income tax treatment in accordancewith the provisions of Section 102(b)(1) shall be referred to herein as OIA.
4.6The Corporation’s election of the type of Approved 102 Awards as CGA or OIA granted to Employees (the “Election”)shall be appropriately filed with the ITA before the Date of Grant, as defined in Section 7.1(b), of an Approved 102 Award. SuchElection shall become effective beginning the first Date of Grant of an Approved 102 Award under this Plan and shall remain ineffect at least until the end of the year following the year during which the Corporation first granted Approved 102 Awards. TheElection shall obligate the Corporation to grant only the type of Approved 102 Award it has elected, and shall apply to all Participantswho were granted Approved 102 Awards during the period indicated herein, all in accordance with the provisions of Section 102(g)of the Ordinance. For the avoidance of doubt, such Election shall not prevent the Corporation from granting Unapproved 102 Awardssimultaneously.
4.7All Approved 102 Awards must be held in trust by a Trustee (means any entity appointed by the Corporation to serve as a trusteeand approved by the ITA, all in accordance with the provisions of Section 102(a) of the Ordinance, as described in Section 5 herein(the “Trustee”)).
4.8For the avoidance of doubt, the designation of Unapproved 102 Awards and Approved 102 Awards shall be subject to the terms andconditions set forth in Section 102 of the Ordinance and the regulations promulgated thereunder.
4.9With regards to Approved 102 Awards, the provisions of the Plan and/or the Award Agreement, as defined in Section 7.1 herein,shall be subject to the provisions of Section 102 and the Tax Assessing Officer’s permit, and the said provisions and permitshall be deemed an integral part of the Plan and of the Award Agreement. Any provision of Section 102 and/or the said permit thatis necessary in order to receive and/or to keep any tax benefit pursuant to Section 102, which is not expressly specified in thePlan or the Award Agreement, shall be considered binding upon the Corporation and the Participants.
5.1Approved 102 Awards that shall be granted under the Plan and/or any shares allocated or issued upon exercise of such Approved102 Awards and/or other shares received subsequently following any realization of rights, including, without limitation, bonusshares, shall be allocated or issued to the Trustee and held for the benefit of the Participants for such period of time as requiredby Section 102 or any regulations, rules or orders or procedures promulgated thereunder (the “Holding Period”).In case the requirements for Approved 102 Awards are not met, then the Approved 102 Awards may be treated as Unapproved 102 Awards,all in accordance with the provisions of Section 102 and regulations promulgated thereunder.
5.2Notwithstanding anything to the contrary, the Trustee shall not release any shares allocated or issued upon exercise of Approved102 Awards prior to the full payment of the Participant’s tax liabilities arising from Approved 102 Awards that were grantedto him and/or any shares allocated or issued upon exercise or vesting of such Awards, as the case may be.
5.3Upon receipt of Approved 102 Awards, the Participant will sign an undertaking to release the Trustee from any liability in respectof any action or decision duly taken and bona fide executed in relation with the Plan, or any Approved 102 Awards or shares grantedto him thereunder.
5.4With respect to any Approved 102 Awards, subject to the provisions of Section 102 and any rules or regulation or orders or procedurespromulgated thereunder, a Participant shall not sell or release from trust any Award and any share received upon the exerciseor vesting of an Approved 102 Award and/or any share received subsequently following any realization of rights, including withoutlimitation, bonus shares, until the lapse of the Holding Period required under Section 102 of the Ordinance. Notwithstanding theabove, if any such sale or release occurs during the Holding Period, the sanctions under Section 102 of the Ordinance and underany rules or regulation or orders or procedures promulgated thereunder shall apply to and shall be borne by such Participant.
5.5Except with respect to unexercised Options and any restricted stock units that have not settled, the Participant or the Trustee,as applicable, shall be entitled to receive ordinary dividends in accordance with the quantity of such shares, subject to theprovisions of the Corporation’s incorporation documents (and all amendments thereto) and subject to any applicable taxationon distribution of dividends, and when applicable, subject to the provisions of Section 102.
6.1The Committee is authorized to grant Awards to acquire shares of Common Stock, shares of restricted stock and restricted stockunits in a number equal to 9,355,763. The maximum number of shares that may be subject to Incentive Stock Options granted underthe Plan shall be a number equal 9,355,763, subject to adjustment as provided in Section 7.1(o). Shares of Common Stock with respectto which Awards may be granted hereunder are subject to adjustment as set forth in Section 7.1(o) herein. In the event that anyoutstanding Award expires or is terminated for any reason, the shares of Common Stock allocable to the unexercised portion ofsuch Award may again be subject to an Award granted to the same Participant or to a different person eligible under Section 3herein.
6.2The maximum number of shares of Common Stock for which an Award may be granted to any person in any calendar year shall be twomillion five hundred thousand (2,500,000).
7.TERMS AND CONDITIONS OF AWARDS
7.1Each Award granted under this Plan shall be evidenced by a written agreement approved by the Committee (each, an “AwardAgreement”). Award Agreements may contain such provisions, not inconsistent with this Plan or any Applicable Laws, asthe Committee in its discretion may deem advisable. All Awards also shall comply with the following requirements:
(a)Number of shares of Common Stock underlying the Award and Type of Award. Each Award Agreement shall state the number of sharesof Common Stock to which it pertains and whether the Award is intended to be an Incentive Stock Option, a Non-Qualified StockOption, a Section 102 Award (CGA or OIA), restricted or unrestricted stock or restricted stock units; provided that:
(i)in the absence of action to the contrary by the Committee in connection with the grant of an Award, all Awards shall be Non-QualifiedAwards, Unapproved 102 Awards or Section 3(i) Awards, as the case may be;
(ii)the aggregate fair market value (determined at the Date of Grant, as defined below) of the shares of Common Stock with respectto which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (granted underthis Plan and all other plans under which incentive stock options may be granted of the Corporation, a Related Corporation ora predecessor corporation) shall not exceed U.S. $100,000, or such other limit as may be prescribed by the Code as it may be amendedfrom time to time (the “Annual Limit”); and
(iii)any portion of an Award that exceeds the Annual Limit shall not be void but rather shall be a Non-Qualified Stock Option.
(b)Date of Grant. Each Award Agreement shall state the date the Committee has deemed to be the effective date of grant of the Awardfor purposes of this Plan (the “Date of Grant”).
(c)Exercise Price. Each Award Agreement shall state the price per share of Common Stock to which an Award is exercisable (if applicable).The Committee shall act in good faith to establish the exercise price in accordance with Applicable Laws; provided that:
(i)the per share exercise price for an Incentive Stock Option or Non-Qualified Stock Option shall not be less than the fair marketvalue per share of Common Stock at the Date of Grant as determined by the Committee in good faith;
(ii)with respect to Incentive Stock Options granted to greater-than-ten percent (10%) shareholders of the Corporation (as determinedwith reference to Section 424(d) of the Code), the exercise price per share shall not be less than one hundred ten percent (110%)of the fair market value per share of Common Stock at the Date of Grant as determined by the Committee in good faith;
(iii)Awards granted in substitution for outstanding options of another corporation in connection with the merger, consolidation, acquisitionof property or stock or other reorganization involving such other corporation and the Corporation or any subsidiary of the Corporationmay be granted with an exercise price equal to the exercise price for the substituted option of the other corporation, subjectto any adjustment consistent with the terms of the transaction pursuant to which the substitution is to occur and subject to therequirements of Sections 424 and 409A of the Code (and the regulations promulgated thereunder) to the extent such requirementsare applicable; and
(iv)solely for the purpose of determining the tax liability pursuant to Section 102(b)(3) of the Ordinance, if at the Date of Grantthe Corporation’s shares are listed on any established stock exchange or a national market system or if the Corporation’sshares will be registered for trading within ninety (90) days following the Date of Grant of the CGAs, the fair market value ofthe shares at the Date of Grant shall be determined in accordance with the average value of the Corporation’s shares onthe thirty (30) trading days preceding the Date of Grant or on the thirty (30) trading days following the date of registrationfor trading, as the case may be.
(d)Duration of Awards. At the time of the grant of the Award, the Committee shall designate, subject to Section 7.1(g) herein, theexpiration date of the Award, which date shall not be later than ten (10) years from the Date of Grant; provided that theCommittee decided otherwise in specific Award Agreements or that the expiration date of any Incentive Stock Option granted toa greater than ten percent (10%) shareholder of the Corporation (as determined with reference to Section 424(d) of the Code) shallnot be later than five (5) years from the Date of Grant. In the absence of action to the contrary by the Committee in connectionwith the grant of a particular Award, and except in the case of Incentive Stock Options as described above, all Awards grantedunder this Section 7 shall expire ten (10) years from the Date of Grant.
(e)Vesting Schedule. No Award shall be exercisable until it has vested. The vesting schedule for each Award shall be specified bythe Committee at the time of grant of the Award; provided that if no vesting schedule is specified at the time of grant,the Award shall vest as follows:
(i)on the six (6) month anniversary of the Date of Grant, the Award shall vest and shall become exercisable with respect to twentyfive percent (25%) of the Common Stock to which it pertains; and
(ii)on a quarterly basis over the next 30 months, the Option shall vest and become exercisable with respect to the remaining 75% ofthe Common Stock to which it pertains.
TheCommittee may specify a vesting schedule for all or any portion of an Award based on the achievement of performance objectivesestablished in advance of the commencement by the Participant of services related to the achievement of the performance objectives.Performance objectives shall be expressed in terms of objective criteria, including but not limited to, one or more of the following:return on equity, return on assets, share price, market share, sales, earnings per share, costs, net earnings, net worth, inventories,cash and cash equivalents, gross margin or the Corporation’s performance relative to its internal business plan. Performanceobjectives may be in respect of the performance of the Corporation as a whole (whether on a consolidated or unconsolidated basis),a Related Corporation, or a subdivision, operating unit, product or product line of either of the foregoing. Performance objectivesmay be absolute or relative and may be expressed in terms of a progression or a range. An Award that is exercisable (in full orin part) upon the achievement of one or more performance objectives may be exercised only following written notice to the Participantand the Corporation by the Committee that the performance objective has been achieved. To the extent any Award is intended tosatisfy the requirements for performance based compensation as defined under Section 162(m) of the Code (and the regulations promulgatedthereunder), the establishment and application of such performance objective shall satisfy the requirements of Section 162(m)of the Code (and the regulations promulgated thereunder) in all respects.
(f)Acceleration of Vesting. Subject to the requirements of Section 162(m) of the Code (and the regulations promulgated thereunder)the vesting of one (1) or more outstanding Award(s) may be accelerated by the Committee at such times and in such amounts as itshall determine in its sole discretion.
(g)Term of Award
(i)Subject to the terms of an Award Agreement, Vested Awards shall terminate, to the extent not previously exercised or settled,upon the occurrence of the first of the following events:
A.the expiration of the Award, as designated by the Committee in accordance with Section 7.1(d) above;
B.the date a Participant receives a notice of his termination of employment or contractual relationship with the Corporation orany Related Corporation for Cause (as hereinafter defined);
C.the one (1) year anniversary of the last day of employment with the Corporation or any Related Corporation not for Cause; or
D.the expiration of ten (10) years (or five (5) years with respect to Incentive Stock Options granted to greater-than-ten percent(10%) shareholders of the Corporation), unless otherwise determined in specific agreements by the Committee, from the date ofa Participant’s termination of employment or contractual relationship with the Corporation or any Related Corporation forany reason whatsoever other than Cause, but including death or disability, unless, in the case of a Non-Qualified Stock Option,Section 102 Option or Section 3(i) Option, the exercise period is extended by the Committee until a date not later than the expirationdate of the Award.
(ii)Notwithstanding Section 7.1(g)(i) above, any vested Awards that have been granted to a Participant in the Participant’scapacity as a director of the Corporation or any Related Corporation shall terminate upon the occurrence of the first of the followingevents:
A.the event specified in Section 7.1(g)(i)A. above;
B.the expiration of ten (10) years, unless otherwise determined in specific agreements by the Committee, from the date such Participantceases to serve as a director of the Corporation or Related Corporation, as the case may be.
(iii)Upon the death of a Participant, any vested option still in force and unexpired may be exercised by the person or persons to whomsuch Participant’s rights shall pass by the Participant’s will or by the laws of descent and distribution at the Participant’sdomicile at the time of death, within a period of twenty four (24) months after the date of the Participant’s death.
(iv)For purposes of the Plan, unless otherwise defined in the Award Agreement, termination for “Cause” shall havethe meaning of the term as expressly defined in a then-effective written agreement between the Participant and the Corporationor any Related Corporation, or in the absence of such then-effective written agreement and in the case of an Employee or an IsraeliEmployee, termination for the following reasons: (i) conviction of any felony involving moral turpitude or affecting the Corporation;(ii) any refusal to carry out a reasonable directive of the chief executive officer, the Board or the Participant’s directsupervisor, which involves the business of the Corporation or its Related Corporation and was capable of being lawfully performed;(iii) embezzlement of funds of the Corporation or its Related Corporation; (iv) any breach of the Participant’s fiduciaryduties or duties of care of the Corporation; including without limitation disclosure of confidential information of the Corporation;and (v) any conduct (other than conduct in good faith) reasonably determined by the Board to be materially detrimental to theCorporation. Unless accelerated in accordance with Section 7.1(f) above, unvested Options shall terminate immediately upon terminationof employment or contractual relationship of a Participant with the Corporation or a Related Corporation, or termination of aParticipant’s services as a director of the Corporation or a Related Corporation, for any reason whatsoever, including deathor disability.
(v)For purposes of this Plan, transfer of employment between or among the Corporation and/or any Related Corporation shall not bedeemed to constitute a termination of employment with the Corporation or any Related Corporation. Employment shall be deemed tocontinue while the Participant is on military leave, sick leave or other bona fide leave of absence (as determined by theCommittee). The foregoing notwithstanding, employment shall not be deemed to continue beyond the first ninety (90) days of suchleave, unless (to the extent permitted by Applicable Law) otherwise determined in specific agreements by the Committee and unlessthe Participant’s re-employment rights are guaranteed by statute or by contract.
(h)Exercise or Settlement of Awards
(i)Options shall be exercisable, in full or in part, at any time after vesting, until termination of right to exercise. If less thanall of the shares of Common Stock included in the vested portion of an Option are purchased, the remainder may be purchased atany subsequent time prior to the expiration of the exercise period.
(ii)Options or portions thereof may be exercised by giving written notice to the Corporation, in such form and method as may be determinedby the Corporation and when applicable, by the Trustee in accordance with the requirements of Section 102 of the Ordinance, whichnotice shall specify the number of shares of Common Stock to be purchased, and be accompanied by payment in the amount of theaggregate exercise price for the Common Stock so purchased, which payment shall be in a form specified in Section 7.1(i) below.The Corporation shall not be obligated to issue, transfer or deliver a certificate representing shares of Common Stock to theParticipant, until provision has been made by the Participant, to the satisfaction of the Corporation, for the payment of theaggregate exercise or purchase price, as applicable, for all shares of Common Stock for which the Award shall have been exercisedor settled and in satisfaction of any tax withholding obligations associated with such exercise or settlement.
(iii)During the lifetime of a Participant, Options are exercisable only by the Participant.
(iv)Only a whole share of Common Stock may be issued pursuant to the exercise or settlement of an Award, and to the extent that anAward covers less than one (1) share of Common Stock, such fractional share shall be forfeited.
(v)For Israeli Employees, the above mentioned in Section 7(h)(ii) is subject to Section 102 and the trust mechanism as defined inSection 5 of this Plan.
Withrespect to an Unapproved 102 Award, if the Participant ceases to be employed by the Corporation or any Affiliate, the Participantshall extend to the Corporation and/or its Affiliate a security or guarantee for the payment of tax due at the time of sale ofshares of Common Stock, all in accordance with the provisions of Section 102 and the rules, regulation or orders promulgated thereunder.
(i)Payment upon Exercise of Option or Settlement of an Award. Upon the exercise of any Option or settlement of an Award requiringa purchase price, the aggregate exercise price or purchase price (as applicable) shall be paid to the Corporation in cash or bycertified or cashier’s check. In addition, if pre-approved in writing by the Committee who may arbitrarily withhold consent,the Participant may pay for all or any portion of the aggregate exercise price or purchase price (as applicable) by complyingwith one or more of the following alternatives:
(i)by delivering to the Corporation shares of Common Stock previously held by such Participant, or by the Corporation withholdingshares of Common Stock otherwise deliverable pursuant to exercise of an Award, which shares of Common Stock received or withheldshall have a fair market value per share of Common Stock at the date of exercise (as determined by the Committee) equal to theaggregate exercise price to be paid by the Participant upon such exercise or settlement;
(ii)by delivering a properly executed exercise notice together with irrevocable instructions to a broker promptly to sell or margina sufficient portion of the shares of Common Stock and deliver directly to the Corporation the amount of sale or margin loan proceedsto pay the exercise price or settlement price; or
(iii)by complying with any other payment mechanism approved by the Committee at the time of exercise.
(j)Restricted Stock. An Award of restricted stock, whether as a 102 Award, Non-Qualified Award or Section 3(i) Award, may be grantedby the Corporation in a specified number of shares of Common Stock of the Corporation to the Participant, which shares may ormay not be subject to forfeiture or other restrictions upon the happening of specified events (the term in which such restrictionsapply shall be referred to as the “Restriction Period”). Such an Award shall be subject to the following termsand conditions:
(i)Restricted stock shall be evidenced by an Award Agreement. The Award Agreement shall conform to the requirements of the Plan andmay contain such other provisions as the Committee shall deem advisable.
(ii)Upon determination of the number of shares of restricted stock to be granted to a Participant, the Committee shall direct thata certificate or certificates representing the number of shares of Common Stock of the Corporation be issued to the Participantwith the Participant designated as the registered owner. If any restrictions apply to such shares of restricted stock, the certificate(s)representing such shares shall be legended as to sale, transfer, assignment, pledge or other encumbrances during the RestrictionPeriod and deposited by the Participant, together with a stock power endorsed in blank, with the Corporation, to be held in escrowduring the Restriction Period.
(iii)Unless otherwise determined by the Committee at the time of an Award, during the Restriction Period the Participant shall nothave the right to receive dividends from or to vote the shares of restricted stock.
(iv)The Award Agreement shall specify the duration of the Restriction Period, if any, and the employment or other conditions (includingperformance objectives, termination of employment on account of death, disability, retirement or other cause) under which sharesof restricted stock may be forfeited by the Participant. At the end of the Restriction Period, if any, the restrictions imposedshall lapse with respect to the number of shares of restricted stock as determined by the Committee, and the legend shall be removedand such number of shares delivered to the Participant (or, where appropriate, the Participant’s legal representative).Subject to the provisions of Section 162(m) of the Code (and the regulations promulgated thereunder), the Committee may, in itssole discretion, modify or accelerate the vesting and delivery of shares of restricted stock, if those are subject to vesting.
(k)Restricted Stock Unit. The Committee is authorized to make awards of restricted stock units, whether as a 102 Award, Non-QualifiedAward or Section 3(i) Award, to any Employee or consultant in such amounts and subject to such terms and conditions as the Committeeshall deem appropriate. On the vesting date of a restricted stock unit, or, if later, on the date or dates set forth in the applicableAward Agreement(s), the Corporation shall transfer to the Participant one unrestricted, fully transferable, fully paid and non-assessableshare of Common Stock for each restricted stock unit scheduled to be paid out on such date and not previously forfeited.
(i)All Awards of restricted stock units made pursuant to this Plan will be evidenced by an Award Agreement and will comply with andbe subject to the terms and conditions of this Plan.
(ii)Unless otherwise determined by the Committee at the time of an Award, during the Restriction Period the Participant shall nothave the right to receive dividends from and to vote the shares underlying the restricted stock units.
(iii)Restricted stock units shall be subject to such terms and conditions as the Committee may impose. These terms and conditions mayinclude restrictions based upon completion of a specified period of service with the Corporation or an Affiliate and the attainmentof certain performance objectives as set out in advance in the Participant’s individual Award Agreement.
(l)No Rights as a Shareholder. A Participant shall have no rights as a shareholder of the Corporation with respect to any sharesof Common Stock covered by an Option and to any shares of Common Stock underlying a restricted stock unit until such Participantbecomes a record holder of such shares, irrespective of whether such Participant has given notice of exercise. Subject to theprovisions of Section 7.1(o) hereof, no rights shall accrue to a Participant and no adjustments shall be made on account of dividends(ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights declared on, or createdin, the shares of Common Stock for which the record date is prior to the date the Participant becomes a record holder of the sharesof Common Stock, irrespective of whether such Participant has given notice of exercise. Awards and shares of Common Stock heldby the Trustee are subject to the provisions of Section 5 of the Plan.
(m)Non-transferability. Options and unvested restricted stock and restricted stock units granted under this Plan and the rights andprivileges conferred by this Plan may not be transferred, assigned, pledged or hypothecated in any manner (whether by operationof law or otherwise) other than by will, by applicable laws of descent and distribution, and shall not be subject to execution,attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any options andunvested restricted stocks and restricted stock units or of any right or privilege conferred by this Plan contrary to the provisionshereof, or upon the sale, levy or any attachment or similar process upon the rights and privileges conferred by this Plan, suchOptions and unvested restricted stock and restricted stock units shall thereupon terminate and become null and void.
Aslong as Awards are held by the Trustee on behalf of a Participant, all rights of the Participant over the shares of Common Stockare personal and cannot be transferred, assigned, pledged or mortgaged, other than by will or pursuant to the laws of descentand distribution.
(n)Securities Regulation and Tax Withholding.
(i)Shares of Common Stock shall only be issued with respect to an Award, including the exercise of an Option, and the issuance anddelivery of such shares of Common Stock shall comply with all Applicable Laws, and such issuance shall be further subject to theapproval of counsel for the Corporation with respect to such compliance, including the availability of an exemption from prospectusand registration requirements for the issuance and sale of such shares of Common Stock. The inability of the Corporation to obtainfrom any regulatory body the authority deemed by the Corporation to be necessary for the lawful issuance and sale of any sharesof Common Stock under this Plan, or the unavailability of an exemption from prospectus and registration requirements for the issuanceand sale of any shares of Common Stock under this Plan, shall relieve the Corporation of any liability with respect to the non-issuanceor sale of such shares of Common Stock.
(ii)As a condition to the exercise of an Option or issuance of other Awards, the Committee may require the Participant to representand warrant in writing at the time of such exercise that the shares of Common Stock are being purchased only for investment andwithout any then-present intention to sell or distribute such shares of Common Stock. If necessary under Applicable Laws, theCommittee may cause a stop-transfer order against such shares of Common Stock to be placed on the stock books and records of theCorporation, and a legend indicating that the shares of Common Stock may not be pledged, sold or otherwise transferred unlessan opinion of counsel is provided stating that such transfer is not in violation of any Applicable Laws, may be stamped on thecertificates representing such shares of Common Stock in order to assure an exemption from registration. The Committee also mayrequire such other documentation as may from time to time be necessary to comply with applicable securities laws. THE CORPORATIONHAS NO OBLIGATION TO UNDERTAKE REGISTRATION OF OPTIONS OR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF OPTIONS ORISSUANCE OF OTHER AWARDS.
(iii)The Participant shall pay to the Corporation by certified or cashier’s check, promptly upon exercise of an Option or, ifsooner or later, the date that the amount of such obligations becomes determinable upon any Award, all applicable federal, state,local and foreign withholding taxes that the Committee or the Trustee, in their discretion, subject to Section 102 in case ofIsraeli Employees, determines to result upon exercise of an Option or from a transfer or other disposition of shares of CommonStock acquired upon exercise of an Option or otherwise related to an Option or shares of Common Stock acquired in connection withan Option or issuance of shares underlying a different Award. Furthermore, the Participant shall agree to indemnify the Corporationand/or its Affiliates and/or the Trustee and hold them harmless against and from any and all liability for any such tax or interestor penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, anysuch tax from any payment made to the Participant. Upon approval of the Committee, a Participant may satisfy such obligation bycomplying with one or more of the following alternatives selected by the Committee:
A.by delivering to the Corporation shares of Common Stock previously held by such Participant or by the Corporation withholdingshares of Common Stock otherwise deliverable pursuant to the exercise of the Option or issuance of shares underlying a differentAward, which shares of Common Stock received or withheld shall have a fair market value (as determined by the Committee) equalto the minimum mandatory withholding tax obligations arising as a result of such exercise, transfer or other disposition; or
B.by complying with any other payment mechanism approved by the Committee from time to time.
(iv)The issuance, transfer or delivery of certificates representing shares of Common Stock pursuant to the exercise of Options orissuance of shares underlying a different Award may be delayed, at the discretion of the Committee, until the Committee is satisfiedthat the applicable requirements of all Applicable Laws and the withholding provisions of the Code and/or the Ordinance have beenmet and that the Participant has paid or otherwise satisfied any withholding tax obligation as described in Section 7.1(n)(iii)above.
(o)Adjustments Upon Changes In Capitalization
(i)The aggregate number (in the case of Incentive Stock Options and for purposes of the limit in Section 6.2 above) and class ofshares for which Awards may be granted under this Plan, the number and class of shares covered by each outstanding Award, andthe exercise price per share thereof (but not the total price), and each such Award, shall all be proportionately adjusted forany increase or decrease in the number of issued shares of Common Stock of the Corporation resulting from:
A.a subdivision or consolidation of shares of Common Stock or any like capital adjustment, or
B.the issuance of any shares of Common Stock, or securities exchangeable for or convertible into shares of Common Stock, to theholders of all or substantially all of the outstanding shares of Common Stock by way of a stock dividend (other than the issueof shares of Common Stock, or securities exchangeable for or convertible into shares of Common Stock, to holders of shares ofCommon Stock pursuant to their exercise of Options to receive dividends in the form of shares of Common Stock, or securities convertibleinto shares of Common Stock, in lieu of dividends paid in the ordinary course on the shares of Common Stock).
(ii)Except as provided in Section 7.1(o)(iii) hereof, upon a merger (other than a merger of the Corporation in which the holders ofshares of Common Stock immediately prior to the merger have the same proportionate ownership of shares of Common Stock in thesurviving corporation immediately after the merger), consolidation, acquisition of property or stock, separation, reorganization(other than a mere re-incorporation or the creation of a holding Corporation) or liquidation of the Corporation, as a result ofwhich the shareholders of the Corporation, receive cash, shares or other property in exchange for or in connection with theirshares of Common Stock, any Award granted hereunder shall terminate, but the Participant shall have the right to exercise suchParticipant’s Award immediately prior to any such merger, consolidation, acquisition of property or shares, separation,reorganization or liquidation, and to be treated as a shareholder of record for the purposes thereof, to the extent the vestingrequirements set forth in the Award Agreement have been satisfied.
(iii)If the shareholders of the Corporation receive shares in the capital of another corporation (“Exchange Shares”)in exchange for their shares of Common Stock in any transaction involving a merger (other than a merger of the Corporation inwhich the holders of shares of Common Stock immediately prior to the merger have the same proportionate ownership of shares ofCommon Stock in the surviving corporation immediately after the merger), consolidation, acquisition of property or shares, separationor reorganization (other than a mere re-incorporation or the creation of a holding Corporation), all Awards granted hereundershall be converted into Awards to purchase Exchange Shares, unless the Corporation and the corporation issuing the Exchange Shares,in their sole discretion, determine that any or all such Awards granted hereunder shall not be converted into Awards to purchaseExchange Shares but instead shall terminate in accordance with, and subject to the Participant’s right to exercise the Participant’sAwards pursuant to the provisions of Section 7.1(o)(ii). The amount and price of converted Awards shall be determined by adjustingthe amount and price of the Awards granted hereunder in the same proportion as used for determining the number of Exchange Sharesthe holders of the shares of Common Stock receive in such merger, consolidation, acquisition or property or stock, separationor reorganization. Unless accelerated by the Board, the vesting schedule set forth in the Award Agreement shall continue to applyto the Awards granted for the Exchange Shares.
(iv)In the event of any adjustment in the number of shares of Common Stock covered by any Award, any fractional shares resulting fromsuch adjustment shall be disregarded and each such Award shall cover only the number of full shares resulting from such adjustment.
(v)All adjustments pursuant to Section 7.1(o) shall be made by the Committee, and its determination as to what adjustments shallbe made, and the extent thereof, shall be final, binding and conclusive.
(vi)The grant of an Award shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications,reorganizations or changes of its capital or business structure, to merge, consolidate or dissolve, to liquidate or to sell ortransfer all or any part of its business or assets.
(vii)All adjustments made pursuant to this Section 7.1(o) shall satisfy the requirements of Sections 424 and 409A of the Code (andthe regulations promulgated thereunder to the extent such requirements are applicable.
8.TERMINATION DATE; AMENDMENT; SHAREHOLDER APPROVAL
8.1Unless sooner terminated by the Board, this Plan shall terminate on the day prior to the tenth (10th) anniversary of its adoptionby the Board. No Award may be granted after such termination or during any suspension of this Plan.
8.2Any Incentive Stock Options granted by the Committee prior to the ratification of this Plan by the shareholders of the Corporationshall be granted subject to approval of this Plan by the shareholders of the Corporation’s outstanding voting shares, votingeither in person or by proxy at a duly held shareholders’ meeting within twelve (12) months before or after the date thisPlan is approved by the Board.
9.NO OBLIGATIONS TO EXERCISE OPTION
Thegrant of an Option shall impose no obligation upon the Participant to exercise such Option.
10.NO RIGHT TO AWARD OR TO EMPLOYMENT
Whetheror not any Awards are to be granted under this Plan shall be exclusively within the discretion of the Committee, and nothing containedin this Plan shall be construed as giving any person any right to participate under this Plan. The grant of an Award shall inno way constitute any form of agreement or understanding binding on the Corporation or any Related Corporation, express or implied,that the Corporation or any Related Corporation will employ or contract with a Participant for any length of time, nor shall itinterfere in any way with the Corporation’s or, where applicable, a Related Corporation’s right to terminate a Participant’semployment or services at any time, which right is hereby reserved.
Ifa person to whom an Award under the Plan has been made fails to execute and deliver to the Committee a related Award agreementwithin thirty (30) days after it is submitted to him, the Award shall be voidable by the Committee at its election, without furthernotice to such person.
12.APPLICATION OF FUNDS
Theproceeds received by the Corporation from the sale of shares of Common Stock issued upon the exercise of Awards shall be usedfor general corporate purposes, unless otherwise directed by the Board.
13.INDEMNIFICATION OF COMMITTEE
Inaddition to all other rights of indemnification they may have as members of the Board, members of the Committee shall be indemnifiedby the Corporation for all reasonable expenses and liabilities of any type or nature, including attorneys’ fees incurredin connection with any action, suit or proceeding to which they or any of them are a party by reason of, or in connection with,this Plan or any Award granted under this Plan, and against all amounts paid by them in settlement thereof (provided that suchsettlement is approved by independent legal counsel selected by the Corporation), except to the extent that such expenses relateto matters for which it is adjudged that such Committee member is liable for willful misconduct; provided, that within fifteen(15) days after the institution of any such action, suit or proceeding, the Committee member involved therein shall, in writing,notify the Corporation of such action, suit or proceeding, so that the Corporation may have the opportunity to make appropriatearrangements to prosecute or defend the same.
14.AMENDMENT AND TERMINATION OF PLAN
Subjectto additional consents and approvals required under Applicable Law, the Committee may, at any time, modify, amend or terminatethis Plan or modify or amend Awards granted under this Plan, including, without limitation, such modifications or amendments asare necessary to maintain compliance with the Applicable Laws; provided that without approval of the Corporation’sshareholders there shall be no: (a) increase in the total number of shares covered by the Plan, except by operation of the provisionsof Section 7(o), or the aggregate number of shares of Common Stock that may be issued to any single person; (b) change in theclass of persons eligible to receive Awards under the Plan; or (c) other change in the Plan that requires shareholder approvalunder Applicable Law. Except as otherwise provided in the Plan or an Award Agreement, no amendment shall adversely affect outstandingAwards without the consent of the Participant. Any termination of the Plan shall not terminate Awards then outstanding, withoutthe consent of the Participant.
15.1This Plan and the related Award Agreements (collectively, for purposes of this Section 15, the “Plan”) areintended to comply with the requirements of Section 409A of the Code (“Section 409A”). Deferrals of compensationsubject to the restrictions set forth under Section 409A and the regulations promulgated thereunder (hereinafter, “Non-QualifiedDeferred Compensation”) may only be made under this Plan to a Participant subject to the provisions of Section 409A uponan event and in a manner permitted by Section 409A. Any amounts payable solely on account of an involuntary separation from serviceof the Participant within the meaning of Section 409A shall be excludible from the requirements of Section 409A, either as involuntaryseparation pay (exempt from the provisions of Section 409A under Treas. Reg. Section 1.409A-1(b)(9)) or as short-term deferralamounts (as described in Treas. Reg. Section 1.409A-1(b)(4)), to the maximum possible extent. For purposes of Section 409A, theright to a series of installment payments under this Plan shall be treated as a right to a series of separate payments.
15.2To the extent required by Section 409A, and notwithstanding any other provision of this Plan to the contrary, no payment of Non-QualifiedDeferred Compensation will be provided to, or with respect to, a Participant on account of his separation from service until thefirst to occur of (i) the date of the Participant’s death or (ii) the date which is one day after the six (6) month anniversaryof his separation from service, but in either case only if he is a “Specified Employee” (as defined under Section409A(a)(2)(B)(i) of the Code and the regulations promulgated thereunder) in the year of his separation from service. Any paymentthat is delayed pursuant to the provisions of the immediately preceding sentence shall instead be paid in a lump sum promptlyfollowing the first to occur of the two dates specified in such immediately preceding sentence.
15.3Any payment of Non-Qualified Deferred Compensation made pursuant to a voluntary or involuntary Termination of Service shall bewithheld until the Participant (who is subject to the provisions of Section 409A) incurs both (i) a termination of service and(ii) a “Separation from Service” with the Corporation and all of the Affiliates, as such term is defined inTreas. Reg. Section 1.409A-1(h).
15.4If a Participant subject to the provisions of Section 409A is permitted to elect to defer an Award or any payment under an Award,such election shall be made in accordance with the requirements of Code Section 409A. Each initial deferral election (an “InitialDeferral Election”) must be received by the Committee prior to the following dates or will have no effect whatsoever:
(a)Except as otherwise provided below or in Treas. Reg. Section 1.409A-2, the December 31st immediately preceding the year in whichthe compensation is earned;
(b)With respect to a Participant’s first year of participation in the Plan, within 30 days after the date the Participant firstbecomes eligible to participate in the Plan, but only with regard to compensation paid for services performed by the Corporationor any affiliate after the date of such election;
(c)With respect to any annual or long-term incentive pay which qualifies as “performance-based compensation” within themeaning of Code Section 409A, by the date six (6) months prior to the end of the performance measurement period applicable tosuch incentive pay provided such additional requirements set forth in Treas. Reg. Section 1.409A-2(a) are met;
(d)With respect to “Fiscal Year Compensation” as defined under Code Section 409A, by the last day of the Corporation’sfiscal year immediately preceding the year in which the fiscal year compensation is earned; or
(e)With respect to mid-year Awards or other legally binding rights to a payment of compensation in a subsequent year that is subjectto a forfeiture condition requiring the Participant’s continued service for a period of at least twelve (12) months, onor before the thirtieth (30th) day following the grant of such Award (or the date such legally binding right to a payment of compensationarises), provided that the election is made at least twelve (12) months in advance of the earliest date at which the forfeiturecondition could lapse.
15.5If the Plan so permits, the Committee may, in its sole discretion, permit Participants to submit additional deferral electionsin order to delay, but not to accelerate, a payment, or to change the form of payment of an amount of deferred compensation (a“Subsequent Deferral Election”), if, and only if, the following conditions are satisfied: (i) the SubsequentDeferral Election must not take effect until 12 months after the date on which it is made, (ii) in the case of a payment otherthan a payment attributable to the Participant’s death, disability or an unforeseeable emergency (all within the meaningof Section 409A of the Code) the Subsequent Deferral Election further defers the payment for a period of not less than five yearsfrom the date such payment would otherwise have been made and (iii) the Subsequent Deferral Election is received by the Committeeat least 12 months prior to the date the payment would otherwise have been made. In addition, such Participants may be furtherpermitted to revise the form of payment they have elected, or the number of installments elected, provided that such revisionscomply with the requirements of a Subsequent Deferral Election.
15.6To the extent the Plan provides that Non-Qualified Deferred Compensation can be paid, at the discretion of the Committee, duringa certain period (e.g., 60 days) following a permissible payment event or trigger, and if the payment period spans two taxableyears of a Participant, then such Non-Qualified Deferred Compensation shall be paid during the second of such taxable years.
15.7The preceding provisions of this Section 15 shall not be construed as a guarantee by the Corporation or by any of its affiliatesof any particular tax effect to the Participants under this Plan. The Corporation and its affiliates shall not be liable to theParticipants for any additional tax, penalty or interest imposed under Section 409A nor for reporting (or for failing to report)in good faith any payment made under this Plan as an amount includible in gross income under Section 409A.
16. TAX WITHHOLDING
TheCorporation (or the appropriate Affiliate) shall have the right to deduct and withhold from all payments hereunder the minimumstatutory required federal, state, local or foreign taxes due to be withheld with respect to such payments. In the case of theissuance or distribution of Common Stock or other securities hereunder, either directly or upon the exercise of or payment uponany Award, the Corporation, as a condition of such issuance or distribution, may require the payment (through withholding fromthe Participant’s salary, reduction of the number of shares of Common Stock or other securities to be issued, or otherwise)of any such taxes. Each Participant may satisfy the withholding obligations by paying to the Corporation (or the appropriate Affiliate)a cash amount equal to the amount required to be withheld or, subject to the Committee’s consent thereto, by tendering tothe Corporation (or to the appropriate Affiliate) a number of shares of Common Stock having a fair market value equivalent tosuch cash amount, or by use of the following procedure if approved in writing by the Committee: A procedure whereby a number ofshares of Common Stock or other securities may be withheld from the total number of shares of Common Stock or other securitiesto be issued upon exercise, vesting or payment upon an Award, as applicable. The Committee may, in its sole discretion, requirethat if any such withholding is effected by the tendering of Common Stock, such withholding shall be consummated with Common Stock(i) held by the Participant for at least six months or (ii) acquired by the Participant other than under the Plan or a similarprogram.
17. PAYMENTS DUE MISSING PERSONS
TheCorporation shall make a reasonable effort to locate all persons entitled to benefits under the Plan; however, notwithstandingany provisions of the Plan to the contrary, if, after a period of one (1) year from the date such Benefits shall be due, any suchpersons entitled to Benefits have not been located, their rights under the Plan with respect to such Benefits shall stand suspended.Before this provision becomes operative, the Corporation shall send a certified letter to all such persons at their last knownaddresses advising them that their rights under the Plan shall be suspended. Subject to all applicable state laws, any such suspendedBenefits shall be held by the Corporation for a period of one (1) additional year and thereafter such Benefits shall be forfeitedand thereafter remain the property of the Corporation.
Ifthe Committee shall receive evidence satisfactory to it that a person entitled to receive payment of, or exercise, any Award is,at the time when such benefit becomes payable or exercisable, a minor, or is physically or mentally incompetent to receive orexercise such Award and to give a valid release thereof, and that another person or an institution is then maintaining or hascustody of such person and that no guardian, committee or other representative of the estate of such person shall have been dulyappointed, the Committee may make payment of such Award otherwise payable to such person to (or permit such Award to be exercisedby) such other person or institution, including a custodian under the Uniform Gifts to Minors Act or corresponding legislation(who shall be an adult, a guardian of the minor or a trust company), and the release by such other person or institution shallbe a valid and complete discharge for the payment or exercise of such Award.
19. GOVERNING LAW
Allquestions pertaining to the validity, construction and administration of the Plan shall be determined in accordance with the lawsof the State of Delaware without regard to its principles of conflicts of law. In the event that any person is compelled to bringa claim related to the Plan, to interpret or enforce the provisions of the Plan, to recover damages as a result of a breach ofthe terms of the Plan, or from any other cause (a “Claim”), such Claim must be processed in the manner setforth below:
19.1THE SOLE AND EXCLUSIVE METHOD TO RESOLVE ANY CLAIM IS BINDING ARBITRATION, AND THE CORPORATION AND EACH PARTICIPANT (INCLUDINGFORMER PARTICIPANTS, BENEFICIARIES OF PARTICIPANTS OR OF FORMER PARTICIPANTS OR PERSONS ACTING FOR OR NON BEHALF THEREOF) WAIVETHE RIGHT TO A JURY TRIAL OR COURT TRIAL. No Participant shall initiate or prosecute any lawsuit in any way related to anyClaim covered by the terms of the Plan.
19.2Any arbitration shall be binding and conducted before a single arbitrator in accordance with the then-current JAMS ArbitrationRules and Procedures for Employment Disputes or the appropriate governing body, as modified by the terms and conditions of thisparagraph. Venue for any arbitration pursuant to the Plan will lie in the locality of the principal executive offices of the Corporation.The arbitrator will be selected by mutual agreement of the parties to such arbitration or, if the parties cannot agree, then bystriking from a list of arbitrators supplied by JAMS or the appropriate governing body. The parties to the arbitration shall eachpay an equal amount of the arbitrator’s fees and arbitration costs (recognizing that each party to the arbitration bearsthe cost of its own deposition(s), witness, expert and attorneys’ fees and other expenses as and to the same extent as ifthe matter were being heard in a court of law). Upon the conclusion of the arbitration hearing, the arbitrator shall issue a writtenopinion revealing, however briefly, the essential findings and conclusions upon which the arbitrator’s award is based. Theaward of the arbitrator shall be final and binding. Judgment upon any award may be entered in any court having jurisdiction thereof.
Eachnotice relating to the Plan shall be in writing and delivered in person, by national recognized courier service or by certifiedor express mail to the proper address, with proof of receipt requested. Except as otherwise provided in any Award Agreement, oras the Committee or Corporation shall, in writing, notify applicable Participants, former Participants, beneficiaries or otherpersons acting for or on behalf of such persons, all notices to the Corporation or the Committee shall be addressed to it at theprincipal executive offices of the Corporation, Attn: Secretary. All notices to Participants, former Participants, beneficiariesor other persons acting for or on behalf of such persons shall be addressed to such person at the last address for such personmaintained in the Corporation’s records. No such notice shall be effective until received by the addressee.
21. GOLDEN PARACHUTE RESTRICTIONS
Notwithstandingany other provisions of the Plan to the contrary, if the receipt of any payments or benefits under the Plan would subject a Participantto tax under Code Section 4999, the Committee may determine whether some amount of payments or benefits would meet the definitionof a “Reduced Amount.” If the Committee determines that there is a Reduced Amount, the total payments or benefitsto the Participant under all Awards must be reduced to such Reduced Amount, but not below zero. It is the intention of the Corporationand any such Participant to reduce the payments under the Plan only if the aggregate “Net After Tax Receipts”to such Participant would thereby be increased. If the Committee determines that the benefits and payments must be reduced tothe Reduced Amount, the Corporation must promptly notify such Participant of that determination, with a copy of the detailed calculationsby the Committee. All determinations of the Committee under this Section 21 shall be final, conclusive and binding upon the Corporationand any such Participant. As result of the uncertainty in the application of Code Section 4999 at the time of the initial determinationby the Committee under this 21), however, it is possible that amounts will have been paid under the Plan to or for the benefitof a Participant which should not have been so paid (“Overpayment”) or that additional amounts which will nothave been paid under the Plan to or for the benefit of a Participant could have been so paid (“Underpayment”),in each case consistent with the calculation of the Reduced Amount. If the Committee, based either upon the assertion of a deficiencyby the Internal Revenue Service against the Corporation or a Participant, which the Committee believes has a high probabilityof success, or controlling precedent or other substantial authority, determines that an Overpayment has been made, any such Overpaymentmust be treated for all purposes as a loan, to the extent permitted by Applicable Law, which such Participant must repay to theCorporation together with interest at the applicable federal rate under Code Section 7872(f)(2); provided, however, that no suchloan may be deemed to have been made and no amount shall be payable by a Participant to the Corporation if and to the extent suchdeemed loan and payment would not either reduce the amount on which the Participant is subject to tax under Code Sections 1, 3101or 4999 or generate a refund of such taxes. If the Committee, based upon controlling precedent or other substantial authority,determines that an Underpayment has occurred, the Committee must promptly notify the Corporation of the amount of the Underpayment,which then shall be paid promptly to the Participant but no later than the end of the Participant’s taxable year next followingthe Participant’s taxable year in which the determination is made that the Underpayment has occurred. For purposes of thisSection 21`, (i) “Net After Tax Receipts” means the Present Value of a payment under the Plan net of all taxesimposed on Participant with respect thereto under Code Sections 1, 3101 and 4999, determined by applying the highest marginalrate under Code Section 1 which applies to the Participant’s taxable income for the applicable taxable year; (ii) “PresentValue” means the value determined in accordance with Code Section 280G(d)(4); and (iii) “Reduced Amount”means the smallest aggregate amount of all payments and benefits under the Plan which (x) is less than the sum of all paymentsand benefits under the Plan and (y) results in aggregate Net After Tax Receipts which are equal to or greater than the Net AfterTax Receipts which would result if the aggregate payments and benefits under the Plan were any other amount less than the sumof all payments and benefits to be made under the Plan. If any payment or benefit is reduced under this Section 21, such reductionshall be made in the following order: (i) first, any future cash payments (if any) shall be reduced (if necessary, to zero); (ii)second, any current cash payments shall be reduced (if necessary, to zero); (iii) third, all non-cash payments (other than equityor equity derivative related payments) shall be reduced (if necessary, to zero); and (iv) fourth, all equity or equity derivativepayments shall be reduced. Any necessary reduction in each subcategory shall first be applied to the latest scheduled paymentin such subcategory and shall continue to the extent necessary until the most current payment is reduced or eliminated.
Notwithstandingany provision of the Plan to the contrary, each Participant’s benefits awarded or paid hereunder (including, but not limitedto, payments of cash, equity underlying grants, and equity released from restrictions) may be subject to recoupment by the Corporationto the extent (i) required under the applicable requirements of Section 304 of the Sarbanes-Oxley Act of 2002 and/or Section 954of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (each as in effect from time to time, any applicablerules and regulations with respect thereto that are promulgated thereunder by the Securities and Exchange Commission and the exchange(s)and/or other trading facility(ies) on which any class of securities of the Corporation is traded), (ii) required by any otherpolicy or rule adopted by the Board or the Corporation’s stockholders pursuant to a duly authorized vote or (iii) as maybe provided in a particular Award Agreement. To the extent these recoupment rules apply to any Participant, but without in anyway limiting the generality of the foregoing, the Participant’s Awards shall be subject to recoupment under the Corporation’sclawback policy, as in effect from time to time (the “Clawback Policy”), to the extent provided therein. TheCorporation intends, but the Corporation does not and cannot guarantee, that to the extent any payment under the Plan qualifiesas non-qualified deferred compensation (as defined under Section 409A of the Code and the regulations promulgated thereunder)any recoupment required under this Section 22 shall either be exempt from Section 409A of the Code or comply with the applicablerequirements of Section 409A of the Code regarding the prohibited acceleration of payments of deferred compensation.
23. CERTAIN RULES OF CONSTRUCTION
23.1The headings and subheadings set forth in the Plan are inserted for the convenience of reference only and are to be ignored inany construction of the terms set forth herein.
23.2Wherever applicable, the neuter, feminine or masculine pronoun as used herein shall also include the neuter, masculine or feminine,as the case may be.
23.3The words “hereof,” “herein,” “hereunder” and similar words refer to the Plan as a whole andnot to any particular provision of the Plan; and any subsection, Section, Schedule, Appendix or Exhibit references are to thePlan unless otherwise specified.
23.4The term “including” is not limiting and means “including without limitation.”
23.5References in the Plan to any statute or statutory provisions include a reference to such statute or statutory provisions as fromtime to time amended, modified, reenacted, extended, consolidated or replaced (whether before or after the date of the Plan) andto any subordinate legislation made from time to time under such statute or statutory provision.
23.6References to the Plan or to any other document include a reference to the Plan or to such other document as varied, amended,modified, novated or supplemented from time to time.
23.7References to “writing” or “written” include any non-transient means of representing or copying wordslegibly, including by facsimile or electronic mail.
23.8References to “$” are to United States Dollars.
23.9References to “%” are to percent.