NOTICE
OF SPECIAL MEETING OF SHAREHOLDERS
TO
BE HELD ON March [____], 2017
TIME
11:00 a.m.,
Eastern Time, on
March
[____], 2017
PURPOSE
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To
grant the Board of Directors the authority, in its sole discretion, to approve an amendment to our Certificate of Incorporation
to effect a reverse stock split of our issued and outstanding common stock by a ratio of not less than 1-for-3 and not more
than 1-for-8 at any time prior to June 19, 2017, the exact ratio to be set at a whole number within this range as determined
by the Board of Directors.
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To
adopt the Amended and Restated Equity Incentive Plan, pursuant to which the Company’s current 2014 Equity Incentive
Plan will be amended to increase the shares of the Company’s Common Stock issuable under the plan from 1,351,000 shares
to 2,851,000 shares, and add 100,000 shares of the Company’s Series A Preferred Stock for issuance under the Amended
and Restated Equity Incentive Plan.
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To
consider and act on such other business as may properly come before the Meeting.
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DOCUMENTS
This
Notice is only an overview of the Proxy Statement and proxy card included in this mailing which is available at [ ].
The Notice of Internet Availability will be mailed to shareholders on or about [ ] , 2017.
PLACE
7
Clyde Road, Somerset, NJ 08873
RECORD
DATE
Owners
of shares of the Company’s Common Stock, as of the close of business on [ ], 2017, will receive notice of and
be entitled to vote at the Meeting and any adjournments.
VOTING
Even
if you plan to attend the Meeting, please mark, sign, date, and return the enclosed proxy card in the enclosed postage-paid envelope.
You may revoke your proxy by filing with the Secretary of the Company a written revocation or by submitting a duly executed proxy
bearing a later date. If you are present at the Meeting, you may revoke your proxy and vote in person on each matter brought before
the Meeting. You may also vote over the Internet using the Internet address on the proxy card.
Mahmud
U. Haq
Chairman
of the Board
Dated:
[ ], 2017
Table
of Contents
Questions
and Answers
Q:
When and where is the Special Meeting?
A:
The Company’s Special Meeting of Shareholders will be held at 11:00 a.m., Eastern Time, March [____], 2017, at
7 Clyde Road, Somerset, NJ 08873.
Q:
Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?
A:
In accordance with rules adopted by the SEC, we may furnish proxy materials, including this proxy statement, to our shareholders
by providing access to such documents on the Internet instead of mailing printed copies. Most shareholders will not receive printed
copies of the proxy materials unless they request them. Instead, the Notice of Internet Availability of Proxy Materials, which
was mailed to most of our shareholders, will instruct you as to how you may access and review all of the proxy materials on the
Internet. The Notice of Internet Availability also instructs you as to how you may submit your proxy on the Internet. If you would
like to receive a paper or email copy of our proxy materials, you should follow the instructions for requesting such materials
in the Notice.
Q:
Who is entitled to vote?
A:
You are entitled to vote at the Special Meeting if the Company’s records on [ ] (the “record date”)
showed that you owned the Company’s common stock, par value $.001 (the “Common Stock”). As of January 23,
2017, there were 10,423,511 shares of Common Stock outstanding.
Q:
What will I likely be voting on?
A:
There are two proposals that are expected to be voted on at the Special Meeting, which are to authorize our board of directors
to approve a reverse stock split (the “Reverse Stock Split”), and to adopt our Amended and Restated Equity Incentive
Plan. As of the date this Proxy Statement, the Company was not aware of any additional matters to be raised at the Special Meeting.
Q:
What is the Board’s recommendation?
A:
The Board of Directors recommends that you vote your shares:
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FOR
granting the Board of Directors, in its sole discretion, to approve the Reverse Stock Split.
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FOR
the adoption of the Amended and Restated Equity Incentive Plan.
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Q:
How many votes is each share entitled to?
A:
Each share of Common Stock has one vote. The enclosed proxy card shows the number of shares that you are entitled to vote.
Q:
Do I need a ticket to attend the Special Meeting?
A:
Yes. Retain the top of the proxy card as your admission ticket. One ticket will permit two persons to attend. If your shares are
held through a broker, contact your broker and request that the broker provide you with evidence of share ownership. This documentation,
when presented at the registration desk at the Special Meeting, will enable you to attend the Meeting.
Q:
How do proxies work?
A:
The Board of Directors is asking for your proxy. Giving us your proxy means that you authorize us to vote your shares at the Meeting
in the manner you direct. You may also abstain from voting. If you sign and return the enclosed proxy card but do not specify
how to vote, we will vote your shares in accordance with the Board of Directors’ recommendations.
Q:
How do I vote?
A:
You may:
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Vote
by marking, signing, dating, and returning a proxy card;
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Vote
via the Internet by following the voting instructions on the proxy card or the voting instructions provided by your broker,
bank, or other holder of record. Internet voting procedures are designed to authenticate your identity, allow you to vote
your shares, and confirm that your instructions have been properly recorded. If you submit your vote via the Internet, you
may incur costs associated with electronic access, such as usage charges from Internet access providers and telephone companies;
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Vote
in person by attending the Special Meeting. We will distribute written ballots to any shareholder who wishes to vote in person
at the Special Meeting.
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If
your shares are held in street name, your broker, bank, or other holder of record will include a voting instruction form with
this Proxy Statement. We strongly encourage you to vote your shares by following the instructions provided on the voting instruction
form. Please return your voting instruction form to your broker, bank, or other holder of record to ensure that a proxy card is
voted on your behalf.
Q:
Do I have to vote?
A:
No. However, we strongly encourage you to vote.
Q:
What does it mean if I receive more than one proxy card?
A:
If you hold your shares in multiple registrations, or in both registered and street name, you will receive a proxy card for each
account. Please mark, sign, date, and return each proxy card you receive. If you choose to vote by Internet, please vote each
proxy card you receive.
Q:
Will my shares be voted if I do not sign and return my proxy card?
A:
If your shares are held in street name and you do not instruct your broker or other nominee how to vote your shares, your broker
or nominee may use its discretion to vote your shares on “routine matters. For any “non-routine matters” being
considered at the Meeting, your broker or other nominee would not be able to vote on such matters.
Q:
Can I change my vote?
A:
Yes. You may revoke your proxy and change your vote before the Special Meeting by submitting a new proxy card with a later date,
by casting a new vote via the Internet, by notifying the Company’s Corporate Secretary in writing, or by voting in person
at the Meeting. If you do not properly revoke your proxy, properly executed proxies will be voted as you specified in your earlier
proxy.
Q:
What is a quorum?
A:
A quorum is the number of shares that must be present, in person or by proxy, in order for business to be transacted at the Special
Meeting. At least a majority of the outstanding shares eligible to vote must be represented at the Meeting, either in person or
by proxy, in order to transact business.
Q:
Who will tabulate the votes?
A:
A representative from our company, Norman Roth, will tabulate the votes and act as inspector of election.
Votes
cast by proxy or in person at the Special Meeting will be tabulated by the inspector of election. The inspector will also determine
whether a quorum is present at the Special Meeting.
The
shares represented by the proxy cards received, properly marked, dated, signed, and not revoked, will be voted at the Special
Meeting. If the proxy card specifies a choice with respect to any matter to be acted on, the shares will be voted in accordance
with that specified choice. Any proxy card that is returned signed but not marked will be voted as recommended by the board of
directors.
Q:
Who will bear the costs of this solicitation?
A:
Our Board of Directors is making this solicitation, and we will pay the entire cost of preparing, assembling, printing, mailing
and distributing these proxy materials. If you choose to access the proxy materials over the Internet, however, you are responsible
for Internet access charges you may incur. The solicitation of proxies or votes may be made in person. We will also reimburse
brokerage houses and other custodians, nominees, and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy
and solicitation materials to stockholders.
Q:
What should I do now?
A:
You should read this proxy statement carefully and promptly submit your proxy card or vote by the Internet as provided on the
proxy card to ensure that your vote is counted at the Special Meeting.
Q:
How will shares in the Company’s employee benefit plans be voted?
A:
If you are or were a participant in the Company’s employee benefit plans, this Proxy Statement is being used to solicit
voting instructions from you with respect to shares of our stock that you own but which are held by the trustees of our benefit
plans for the benefit of you and other plan participants. Shares held in our benefit plans that you are entitled to vote will
be voted by the plan trustees pursuant to your instructions. Shares held in any employee benefit plan that you are entitled to
vote, but do not vote, will be voted by the plan trustees in proportion to the voting instructions received for other shares.
You must instruct the plan trustees to vote your shares by utilizing one of the voting methods described above.
Q:
How do I obtain a copy of the Company’s materials related to corporate governance?
A:
The Company’s Corporate Governance materials, charters of each standing Board committee, Code of Conduct, and other materials
related to our corporate governance can be found in the Corporate Governance section of the Company’s website at ir.mtbc.com/corporate-governance.cfm.
Compensation
Committee Interlocks and Insider Participation
During
the fiscal year ended December 31, 2016, the Compensation Committee of the Board of Directors was comprised of John N. Daly and
Cameron P. Munter. Neither of these individuals, during the fiscal year ended December 31, 2016, was an officer or employee of
the Company. Neither of these individuals was formerly an officer of the Company.
During
the fiscal year ended December 31, 2016, Mr. Daly received $30,000 in director compensation and Mr. Munter received $30,000 in
director compensation, both exclusive of stock compensation.
Executive
Employment Arrangements
We
are party to employment agreements with each of Messrs. Haq, Snyder and Korn (the “Employment Agreements”). Each of
the Employment Agreements has a two-year term unless earlier terminated, and is automatically renewed at the end of the initial
term and annually thereafter in each case, for a one-year term, unless either party provides at least ninety days’ prior
written notice of non-renewal.
Each
Employment Agreement provides for the payment of base salary and bonus, as well as customary employee benefits. Under each of
the Employment Agreements, if the executive’s employment is terminated by the Company without “cause” or by
the executive if a “material demotion,” occurs (as such terms are defined in the applicable Employment Agreement)
the executive shall receive salary continuation payments for the remainder of the contractual term, but in no event for less than
twenty-four months with respect to Mr. Haq and twelve months for each of Messrs. Snyder and Korn. In addition to salary continuation
payments, executive shall receive payment of “COBRA” premiums for the executive and his dependents as long as the
executive does not become eligible for health coverage through another employer during this severance period. Each of the Employment
Agreements also restricts the executive from engaging in a competitive business during his employment and for 12 months thereafter,
or soliciting our employees and customers during his employment and for 12 months thereafter.
Our
compensation committee, currently comprised of Messrs. Daly and Munter, are tasked with discharging the Board of Directors’
responsibilities related to oversight of compensation of named executive officers and ensuring that our executive compensation
program meets our corporate objectives. The compensation committee is responsible for reviewing and approving corporate goals
and objectives relevant to the compensation of our named executive officers, as well as evaluating their performance in light
of those goals and objectives. Based on this review and evaluation, as well as on input from our Chief Executive Officer regarding
the performance of our other named executive officers and his recommendations as to their compensation, the Committee will determine
and approve each named executive officer’s compensation annually. As a public company, our named executive officers will
not play a role in their own compensation determinations.
Outstanding
Equity Awards at 2016 Fiscal Year End
The
following table provides information on the current holdings of restricted stock units (RSUs) by our named officers at December
31, 2016:
Stephen
Snyder: 33,334 shares
Bill
Korn: 16,666 shares
These
RSUs provide for annual vesting based on continued employment over three years.
Employee
Benefit Plans
2014
Equity Incentive Plan.
The purpose of the 2014 Equity Incentive Plan (the “2014 Plan”) is to promote our success
by linking the personal interests of our employees, officers, directors and consultants to those of our shareholders, and by providing
participants with an incentive for outstanding performance. The 2014 Plan authorizes the grant of awards in any of the following
forms:
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Options
to purchase shares of common stock, which may be nonstatutory stock options or incentive stock options under the Internal
Revenue Code (the “Code”). The exercise price of an option granted under the 2014 Plan may not be less than the
fair market value of our common stock on the date of grant. Stock options granted under the 2014 Plan have a term of ten years.
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Stock
appreciation rights, or SARs, which give the holder the right to receive the excess, if any, of the fair market value of one
share of common stock on the date of exercise, over the base price of the stock appreciation right. The base price of a SAR
may not be less than the fair market value of our common stock on the date of grant. SARs granted under the 2014 Plan have
a term of ten years.
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Restricted
stock, which is subject to restrictions on transferability and subject to forfeiture on terms set by the Compensation Committee.
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Restricted
stock units, which represent the right to receive shares of common stock (or an equivalent value in cash or other property)
in the future, based upon the attainment of stated vesting or performance goals set by the Compensation Committee.
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Performance
stock and cash settled awards, which represent the right to receive shares of common stock or cash, as applicable, in the
future upon the attainment of certain stated performance goals.
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Other
stock-based awards in the discretion of the Compensation Committee, including unrestricted stock grants.
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All
awards are evidenced by a written award certificate between MTBC and the participant, which include such provisions as may be
specified by the Compensation Committee. Dividend equivalent rights, which entitle the participant to payments in cash or property
calculated by reference to the amount of dividends paid on the shares of stock underlying an award, may be granted with respect
to awards other than options or SARs.
Awards
to Non-Employee Directors
. Awards granted under the 2014 Plan to non-employee directors may be made only in accordance with
the terms, conditions and parameters of a plan, program or policy for the compensation of non-employee directors as in effect
from time to time. The Committee may not make discretionary grants under the 2014 Plan to non-employee directors.
Shares
Available for Awards; Adjustments
. Subject to adjustment as provided in the 2014 Plan, the aggregate number of shares of common
stock reserved and available for issuance pursuant to awards granted under the 2014 Plan is 1,351,000. In the event of a nonreciprocal
transaction between MTBC and its shareholders that causes the per share value of the common stock to change (including, without
limitation, any stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash dividend), the share authorization
limits under the 2014 Plan will be adjusted proportionately, and the Compensation Committee must make such adjustments to the
2014 Plan and awards as it deems necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting
from such transaction.
Administration
.
The 2014 Plan will be administered by the Compensation Committee. The Committee will have the authority to grant awards; designate
participants; determine the type or types of awards to be granted to each participant and the number, terms and conditions thereof;
establish, adopt or revise any rules and regulations as it may deem advisable to administer the 2014 Plan; and make all other
decisions and determinations that may be required under the 2014 Plan. The Board of Directors may at any time administer the 2014
Plan. If it does so, it will have all the powers of the Compensation Committee under the 2014 Plan. In addition, the Board may
expressly delegate to a special committee some or all of the Compensation Committee’s authority, within specified parameters,
to grant awards to eligible participants who, at the time of grant, are not executive officers.
Limitations
on Transfer; Beneficiaries
. No award will be assignable or transferable by a participant other than by will or the laws of
descent and distribution; provided, however, that the Compensation Committee may permit other transfers (other than transfers
for value) where the Compensation Committee concludes that such transferability does not result in accelerated taxation, does
not cause any option intended to be an incentive stock option to fail to qualify as such, and is otherwise appropriate and desirable,
taking into account any factors deemed relevant, including without limitation, any state or federal tax or securities laws or
regulations applicable to transferable awards. A participant may, in the manner determined by the Compensation Committee, designate
a beneficiary to exercise the rights of the participant and to receive any distribution with respect to any award upon the participant’s
death.
Treatment
of Awards upon a Participant’s Death or Disability
. Unless otherwise provided in an award certificate or any special
plan document governing an award, upon the termination of a participant’s service due to death or disability:
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all
of that participant’s outstanding options and SARs will become exercisable to the extent the participant was entitled
to exercise such option or SAR, but only within the period ending on the earlier of (i) twelve (12) months with respect to
a termination due to disability and eighteen (18) months with respect to a termination due to death, and (ii) the term of
the option or SAR;
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shares
of common stock and outstanding awards which have not vested at the time of the termination of service may be forfeited; and
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the
payout opportunities attainable under all of that participant’s outstanding performance-based awards may be forfeited
and the awards may payout on a pro rata basis, based on the time elapsed prior to the date of termination
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Treatment
of Awards upon a Change in Control
. Unless subject to additional acceleration of vesting and exercisability as may be provided
in an award certificate or any special plan document governing an award, outstanding awards will be subject to one year acceleration
of vesting as provided in the Plan upon a change in control.
Termination
and Amendment
. The 2014 Plan will terminate on April 3, 2024. The Board or the Compensation Committee may, at any time and
from time to time, terminate or amend the 2014 Plan, but if an amendment to the 2014 Plan would constitute a material amendment
requiring shareholder approval under applicable listing requirements, laws, policies or regulations, then such amendment will
be subject to shareholder approval. No termination or amendment of the 2014 Plan may adversely affect any award previously granted
under the 2014 Plan without the written consent of the participant. Without the prior approval of our shareholders, the 2014 Plan
may not be amended to directly or indirectly reprice, replace or repurchase “underwater” options or SARs.
Matters
to Be Acted Upon
Proposal
1: Reverse Stock Split
(Item
1 on proxy card)
Our
Board of Directors has adopted resolutions to authorize the Board, in its sole direction, to amend the Company’s Certificate
of Incorporation to effect the Reverse Stock Split of our issued and outstanding common stock, to meet the listing requirements
of Nasdaq Capital Market and directs such proposal to be submitted to the holders of our Common Stock.
The
amendment to the Company’s Certificate of Incorporation to effect the Reverse Stock Split of our issued and outstanding
common stock, if approved by the stockholders, will be substantially in the form set forth on
Appendix A
(subject to any
changes required by applicable law). If approved by the holders of our Common Stock, the Reverse Stock Split proposal would permit
(but not require) our Board of Directors to effect a reverse stock split of our issued and outstanding common stock at any time
prior to June 19, 2017 by a ratio of not less than 1-for-3 and not more than 1-for-8, with the exact ratio to be set at a whole
number within this range as determined by our Board of Directors in its sole discretion. We believe that enabling our Board of
Directors to implement the Reverse Stock Split and set the ratio within the stated range will provide us with the flexibility
to implement the Reverse Stock Split in a manner designed to maximize the anticipated benefits for our stockholders including
maintaining our listing on the Nasdaq Capital Market. In determining a ratio, the Board may consider, among other things, factors
such as:
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the
historical trading price and trading volume of our Common Stock;
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the
number of shares of our Common Stock outstanding;
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the
then-prevailing trading price and trading volume of our common stock and the anticipated
impact of the Reverse Stock Split on the trading market for our Common Stock;
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the
anticipated impact of a particular ratio on our ability to reduce administrative and
transactional costs; and
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prevailing
general market and economic conditions.
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Our
Board of Directors reserves the right to elect to abandon the Reverse Stock Split, including any or all proposed reverse stock
split ratios, if it determines, in its sole discretion, that the Reverse Stock Split is no longer in the best interests of the
Company and its stockholders.
Depending
on the ratio for the Reverse Stock Split determined by our Board of Directors, no less than three and no more than eight shares
of existing common stock, as determined by our Board of Directors, will be combined into one share of common stock. Any fractional
shares will be rounded up to the next whole number. The amendment to our Certificate of Incorporation to effect the Reverse Stock
Split, if any, will include only the Reverse Stock Split ratio determined by our Board of Directors to be in the best interests
of our stockholders and all of the other proposed amendments at different ratios will be abandoned.
Background
and Reasons for the Reverse Stock Split; Potential Consequences of the Reverse Stock Split
On
June 24, 2016, the Company received a notice from The Nasdaq Stock Market indicating that MTBC was not in compliance with the
minimum $1.00 bid price per share requirement for continued listing on the Nasdaq Capital Market and granted MTBC 180 calendar
days, or until December 21, 2016, to regain compliance. Thereafter, on December 22, 2016, the Company received a notice from the
Nasdaq Stock Market granting MTBC an additional 180 calendar days, or until June 19, 2017, to regain compliance with the minimum
$1.00 bid price per share requirement for continued listing on the Nasdaq Capital Market. The notification of noncompliance had
no immediate effect on the listing or trading of MTBC’s Common Stock on the Nasdaq Capital Market under the symbol “MTBC”.
Our
Board of Directors is submitting the Reverse Stock Split to our stockholders for approval with the primary intent of increasing
the market price of our Common Stock to enable us to meet the continued listing requirements of the Nasdaq Capital Market and
to make our Common Stock more attractive to a broader range of institutional and other investors. The Company currently does
not have any plans, arrangements or understandings, written or oral, to issue any of the authorized but unissued shares that would
become available as a result of the Reverse Stock Split. In addition to increasing the market price of our Common Stock,
the Reverse Stock Split would also reduce certain of our costs, as discussed below. Accordingly, for these and other reasons discussed
below, we believe that effecting the Reverse Stock Split is in the Company’s and our stockholders’ best interests.
We
believe that the Reverse Stock Split will enhance our ability to meet the continued listing requirements of the Nasdaq Capital
Market. The Nasdaq Capital Market requires, among other items, maintenance of a continued price of at least $1.00 per share. Reducing
the number of outstanding shares of our Common Stock should, absent other factors, increase the per share market price of
our Common Stock, although we cannot provide any assurance that our minimum bid price would remain, following the Reverse Stock
Split, over the minimum bid price requirement.
Reducing
the number of outstanding shares of our Common Stock through the Reverse Stock Split is intended, absent other factors, to increase
the per share market price of our Common Stock. However, other factors, such as our financial results, market conditions and the
market perception of our business may adversely affect the market price of our Common Stock. As a result, there can be no assurance
that the Reverse Stock Split, if completed, will result in the intended benefits described above, that the market price of our
Common Stock will increase following the Reverse Stock Split or that the market price of our Common Stock will not decrease in
the future. Additionally, we cannot assure you that the market price per share of our Common Stock after a Reverse Stock Split
will increase in proportion to the reduction in the number of shares of our Common Stock outstanding before the Reverse Stock
Split. Accordingly, the total market capitalization of our Common Stock after the Reverse Stock Split may be lower than the total
market capitalization before the Reverse Stock Split.
Procedure
for Implementing the Reverse Stock Split
The
Reverse Stock Split, if approved by our stockholders, would become effective upon the filing (the “Effective Time”)
of a certificate of amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware. The exact
timing of the filing of the certificate of amendment that will effect the Reverse Stock Split will be determined by our Board
of Directors based on its evaluation as to when such action will be the most advantageous to the Company and our stockholders.
In addition, our Board of Directors reserves the right, notwithstanding stockholder approval and without further action by the
stockholders, to elect not to proceed with the Reverse Stock Split if, at any time prior to filing the amendment to the Company’s
Certificate of Incorporation, our Board of Directors, in its sole discretion, determines that it is no longer in our best interest
and the best interests of our stockholders to proceed with the Reverse Stock Split. If a certificate of amendment effecting the
Reverse Stock Split has not been filed with the Secretary of State of the State of Delaware by the close of business on June 19,
2017, our Board of Directors will abandon the Reverse Stock Split.
Effect
of the Reverse Stock Split on Holders of Outstanding Common Stock
Depending
on the ratio for the Reverse Stock Split determined by our Board of Directors, a minimum of three and a maximum of eight shares
of existing Common Stock will be combined into one new share of Common Stock. The table below shows, based on 10,423,511 shares
of Common Stock outstanding as of the record date, the number of outstanding shares of Common Stock (excluding Treasury shares)
that would result from the listed hypothetical reverse stock split ratios (without giving effect to the treatment of fractional
shares):
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Approximate
Number of Outstanding
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Reverse Stock Split
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Shares
of Common Stock
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Ratio
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Following
the Reverse Stock Split
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1-for-3
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3,475,000
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1-for-4
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2,606,000
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1-for-5
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2,085,000
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1-for-6
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1,738,000
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1-for-7
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1,490,000
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1-for-8
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1,303,000
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The
actual number of shares issued after giving effect to the Reverse Stock Split, if implemented, will depend on the Reverse Stock
Split ratio that is ultimately determined by our Board of Directors.
The
Reverse Stock Split will affect all holders of our Common Stock uniformly and will not affect any stockholder’s percentage
ownership interest in the Company, except that as described below in “Fractional Shares,” record holders of Common
Stock otherwise entitled to a fractional share as a result of the Reverse Stock Split will be rounded up to the next whole number.
In addition, the Reverse Stock Split will not affect any stockholder’s proportionate voting power (subject to the treatment
of fractional shares).
The
Reverse Stock Split may result in some stockholders owning “odd lots” of less than 100 shares of Common Stock. Odd
lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally
somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares.
After
the Effective Time, our common stock will have new Committee on Uniform Securities Identification Procedures (CUSIP) numbers,
which is a number used to identify our equity securities, and stock certificates with the older CUSIP numbers will need to be
exchanged for stock certificates with the new CUSIP numbers by following the procedures described below. After the Reverse Stock
Split, we will continue to be subject to the periodic reporting and other requirements of the Securities Exchange Act of 1934,
as amended. Our common stock will continue to be listed on the Nasdaq Capital Market under the symbol “MTBC”, subject
to the continued listing requirements of that exchange.
Our
Series A Preferred Stock, which is listed on the Nasdaq Capital Market under the symbol “MTBCP,” would be unaffected
by the Reverse Stock Split.
Beneficial
Holders of Common Stock (i.e. stockholders who hold in street name)
Upon
the implementation of the Reverse Stock Split, we intend to treat shares held by stockholders through a bank, broker, custodian
or other nominee in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers, custodians
or other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding our Common Stock in
street name. However, these banks, brokers, custodians or other nominees may have different procedures than registered stockholders
for processing the Reverse Stock Split. Stockholders who hold shares of our Common Stock with a bank, broker, custodian or other
nominee and who have any questions in this regard are encouraged to contact their banks, brokers, custodians or other nominees.
Registered
“Book-Entry” Holders of Common Stock (i.e. stockholders that are registered on the transfer agent’s books and
records but do not hold stock certificates)
Certain
of our registered holders of Common Stock may hold some or all of their shares electronically in book-entry form with the transfer
agent. These stockholders do not have stock certificates evidencing their ownership of the Common Stock. They are, however, provided
with a statement reflecting the number of shares registered in their accounts.
Stockholders
who hold shares electronically in book-entry form with the transfer agent will not need to take action (the exchange will be automatic)
to receive whole shares of post-Reverse Stock Split Common Stock, subject to adjustment for treatment of fractional shares.
Holders
of Certificated Shares of Common Stock
Stockholders
holding shares of our Common Stock in certificated form will be sent a transmittal letter by our transfer agent after the Effective
Time. The letter of transmittal will contain instructions on how a stockholder should surrender his, her or its certificate(s) representing
shares of our Common Stock (the “Old Certificates”) to the transfer agent in exchange for certificates representing
the appropriate number of whole shares of post-Reverse Stock Split Common Stock (the “New Certificates”). No New Certificates
will be issued to a stockholder until such stockholder has surrendered all Old Certificates, together with a properly completed
and executed letter of transmittal, to the transfer agent. No stockholder will be required to pay a transfer or other fee to exchange
his, her or its Old Certificates. Stockholders will then receive a New Certificate(s) representing the number of whole shares
of Common Stock that they are entitled as a result of the Reverse Stock Split, subject to the treatment of fractional shares described
below. Until surrendered, we will deem outstanding Old Certificates held by stockholders to be cancelled and only to represent
the number of whole shares of post-Reverse Stock Split common stock to which these stockholders are entitled, subject to the treatment
of fractional shares. Any Old Certificates submitted for exchange, whether because of a sale, transfer or other disposition of
stock, will automatically be exchanged for New Certificates. If an Old Certificate has a restrictive legend on the back of the
Old Certificate(s), the New Certificate will be issued with the same restrictive legends that are on the back of the Old Certificate(s).
STOCKHOLDERS
SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY STOCK CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
Fractional
Shares
We
do not currently intend to issue fractional shares in connection with the Reverse Stock Split. Therefore, we will not issue certificates
representing fractional shares. In lieu of issuing fractions of shares, we will round up to the next whole number.
Effect
of the Reverse Stock Split on Employee Plans, Options, Restricted Stock Awards and Units, Warrants, and Convertible or Exchangeable
Securities
Based
upon the Reverse Stock Split ratio determined by the Board of Directors, proportionate adjustments are generally required to be
made to the per share exercise price and the number of shares issuable upon the exercise or conversion of all outstanding options,
warrants, convertible or exchangeable securities entitling the holders to purchase, exchange for, or convert into, shares of Common
Stock. This would result in approximately the same aggregate price being required to be paid under such options, warrants, convertible
or exchangeable securities upon exercise, and approximately the same value of shares of Common Stock being delivered upon such
exercise, exchange or conversion, immediately following the Reverse Stock Split as was the case immediately preceding the Reverse
Stock Split. The number of shares deliverable upon settlement or vesting of restricted stock awards will be similarly adjusted,
subject to our treatment of fractional shares. The number of shares reserved for issuance pursuant to these securities will be
proportionately based upon the Reverse Stock Split ratio determined by the Board of Directors, subject to our treatment of fractional
shares.
Accounting
Matters
The
proposed amendment to the Company’s Certificate of Incorporation will not affect the par value of our Common Stock per share,
which will remain $0.001 par value per share. As a result, as of the Effective Time, the total of the stated capital attributable
to Common Stock and the additional paid-in capital account on our balance sheet will not change due to the Reverse Stock Split.
Reported per share net income or loss will be higher because there will be fewer shares of Common Stock outstanding.
No
Going Private Transaction
Notwithstanding
the decrease in the number of outstanding shares following the implementation of the Reverse Stock Split, the Board of Directors
does not intend for this transaction to be the first step in a “going private transaction” within the meaning of Rule
13e-3 of the Securities Exchange Act of 1934, and the implementation of the proposed Reverse Stock Split will not cause the Company
to go private.
Certain
Federal Income Tax Consequences of the Reverse Stock Split
The
following summary describes certain material U.S. federal income tax consequences of the Reverse Stock Split to holders of our
common stock:
Unless
otherwise specifically indicated herein, this summary addresses the tax consequences only to a beneficial owner of our Common
Stock that is a citizen or individual resident of the United States, a corporation organized in or under the laws of the United
States or any state thereof or the District of Columbia or otherwise subject to U.S. federal income taxation on a net income basis
in respect of our common stock (a “U.S. holder”). A trust may also be a U.S. holder if (1) a U.S. court is able
to exercise primary supervision over administration of such trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person. An estate whose
income is subject to U.S. federal income taxation regardless of its source may also be a U.S. holder. This summary does not address
all of the tax consequences that may be relevant to any particular investor, including tax considerations that arise from rules of
general application to all taxpayers or to certain classes of taxpayers or that are generally assumed to be known by investors.
This summary also does not address the tax consequences to (i) persons that may be subject to special treatment under U.S.
federal income tax law, such as banks, insurance companies, thrift institutions, regulated investment companies, real estate investment
trusts, tax-exempt organizations, U.S. expatriates, persons subject to the alternative minimum tax, traders in securities that
elect to mark to market and dealers in securities or currencies, (ii) persons that hold our common stock as part of a position
in a “straddle” or as part of a “hedging,” “conversion” or other integrated investment transaction
for federal income tax purposes, or (iii) persons that do not hold our common stock as “capital assets” (generally,
property held for investment).
If
a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our
Common Stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the
partner and the activities of the partnership. Partnerships that hold our Common Stock, and partners in such partnerships, should
consult their own tax advisors regarding the U.S. federal income tax consequences of the Reverse Stock Split.
This
summary is based on the provisions of the Internal Revenue Code of 1986, as amended, U.S. Treasury regulations, administrative
rulings and judicial authority, all as in effect as of the date of this proxy statement. Subsequent developments in U.S. federal
income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material
effect on the U.S. federal income tax consequences of the Reverse Stock Split.
PLEASE
CONSULT YOUR OWN TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE REVERSE
STOCK SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION.
U.S.
Holders
The
Reverse Stock Split should be treated as a recapitalization for U.S. federal income tax purposes. Therefore, a stockholder generally
will not recognize gain or loss on the Reverse Stock Split, except to the extent of cash, if any, received in lieu of a fractional
share interest in the post-Reverse Stock Split shares. The aggregate tax basis of the post-split shares received will be equal
to the aggregate tax basis of the pre-split shares exchanged therefore (excluding any portion of the holder’s basis allocated
to fractional shares), and the holding period of the post-split shares received will include the holding period of the pre-split
shares exchanged. A holder of the pre-split shares who receives cash will generally recognize gain or loss equal to the difference
between the portion of the tax basis of the pre-split shares allocated to the fractional share interest and the cash received.
Such gain or loss will be a capital gain or loss and will be short term if the pre-split shares were held for one year or less
and long term if held more than one year. No gain or loss will be recognized by us as a result of the Reverse Stock Split.
Vote
Required
The
affirmative vote of a majority of the shares outstanding on the record date of Common Stock is required to approve the Reverse
Stock Split.
The
Board of Directors unanimously recommends a vote FOR the approval of the Reverse Stock Split.
Proposal
2: Adoption of the Amended and Restated Equity Incentive Plan
(Item
2 on proxy card)
Background
On
January 20, 2017, the Board approved the adoption of the Amended and Restated Equity Incentive Plan (the “Amended Plan”).
We are asking our shareholders to approve the Amended Plan, which will increase the number of shares of Common Stock issuable
under our existing 2014 Equity Incentive Plan from 1,351,000 shares to 2,851,000 shares, and also add 100,000 shares of our 11%
Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”) to our existing plan. Of the
1,351,000 shares of Common Stock originally reserved for issuance under our existing plan, 1,114,000 shares of Common Stock have
been issued. In the event the Company effectuates the Reverse Stock Split, the number of shares of Common Stock issuable under
the Amended Plan shall be proportionately adjusted.
The
Board believes that it is in our and our stockholders’ interests to approve the Amended Plan because it would provide sufficient
shares remaining for issuance under the plan to allow the Compensation Committee to continue to award equity-based incentive compensation
for our current and future directors, officers and employees. Moreover, if the Amended Plan is approved, the Company intends to
pay certain performance bonuses in shares of Series A Preferred Stock, rather than their cash equivalents, namely 12,000, 11,000
and 10,000 shares of Series A Preferred Stock to our CEO, President and CFO, respectively. According to these officers’
employment agreements, these bonuses were due to be paid in cash, but the Board believes that it is in the Company’s and
our stockholders’ interests to reduce cash expenditures and pay the equivalent value in shares of Series A Preferred Stock,
which will not be dilutive to stockholders.
Description
of the Amended Plan
The
following is a summary of the Amended Plan. This summary is qualified in its entirety by reference to the Amended Plan, a copy
of which is attached to this proxy statement as
Appendix B.
The
purpose of the Amended Plan is to promote our success by linking the personal interests of our employees, officers, directors
and consultants to those of our shareholders, and by providing participants with an incentive for outstanding performance. The
Amended Plan authorizes the grant of awards in any of the following forms:
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Options
to purchase shares of Common Stock, which may be nonstatutory stock options or incentive stock options under the Code. The
exercise price of an option granted under the Amended Plan may not be less than the fair market value of our Common Stock
on the date of grant. Stock options granted under the Amended Plan have a term of ten years.
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Stock
appreciation rights, or SARs, which give the holder the right to receive the excess, if any, of the fair market value of one
share of Common Stock on the date of exercise, over the base price of the stock appreciation right. The base price of a SAR
may not be less than the fair market value of our Common Stock on the date of grant. SARs granted under the Amended Plan have
a term of ten years.
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Restricted
stock, which is subject to restrictions on transferability and subject to forfeiture on terms set by the Compensation Committee.
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Restricted
stock units, which represent the right to receive shares of Common Stock or Series A Preferred Stock (or an equivalent value
in cash or other property) in the future, based upon the attainment of stated vesting or performance goals set by the Compensation
Committee.
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Performance
stock and cash settled awards, which represent the right to receive shares of Common Stock, Series A Preferred Stock or cash,
as applicable, in the future upon the attainment of certain stated performance goals.
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Other
stock-based awards in the discretion of the Compensation Committee, including unrestricted stock grants.
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All
awards are evidenced by a written award certificate between MTBC and the participant, which include such provisions as may be
specified by the Compensation Committee. Dividend equivalent rights, which entitle the participant to payments in cash or property
calculated by reference to the amount of dividends paid on the shares of stock underlying an award, may be granted with respect
to awards other than options or SARs.
Awards
to Non-Employee Directors
. Awards granted under the Amended Plan to non-employee directors may be made only in accordance
with the terms, conditions and parameters of a plan, program or policy for the compensation of non-employee directors as in effect
from time to time. The Committee may not make discretionary grants under the Amended Plan to non-employee directors.
Shares
Available for Awards; Adjustments
. Subject to adjustment as provided in the Amended Plan, the aggregate number of shares of
Common Stock reserved and available for issuance pursuant to awards granted under the Amended Plan is 2,851,000 and the
aggregate number of shares of Series A Preferred Stock reserved and available for issuance is 100,000. In the event of a nonreciprocal
transaction between MTBC and its shareholders that causes the per share value of the Common Stock or Series A Preferred Stock
to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash
dividend), the share authorization limits under the Amended Plan will be adjusted proportionately, and the Compensation Committee
must make such adjustments to the Amended Plan and awards as it deems necessary, in its sole discretion, to prevent dilution or
enlargement of rights immediately resulting from such transaction.
Administration
.
The Amended Plan will be administered by the Compensation Committee. The Committee will have the authority to grant awards; designate
participants; determine the type or types of awards to be granted to each participant and the number, terms and conditions thereof;
establish, adopt or revise any rules and regulations as it may deem advisable to administer the Amended Plan; and make all other
decisions and determinations that may be required under the Amended Plan. The Board of Directors may at any time administer the
Amended Plan. If it does so, it will have all the powers of the Compensation Committee under the Amended Plan. In addition, the
Board may expressly delegate to a special committee some or all of the Compensation Committee’s authority, within specified
parameters, to grant awards to eligible participants who, at the time of grant, are not executive officers.
Limitations
on Transfer; Beneficiaries
. No award will be assignable or transferable by a participant other than by will or the laws of
descent and distribution; provided, however, that the Compensation Committee may permit other transfers (other than transfers
for value) where the Compensation Committee concludes that such transferability does not result in accelerated taxation, does
not cause any option intended to be an incentive stock option to fail to qualify as such, and is otherwise appropriate and desirable,
taking into account any factors deemed relevant, including without limitation, any state or federal tax or securities laws or
regulations applicable to transferable awards. A participant may, in the manner determined by the Compensation Committee, designate
a beneficiary to exercise the rights of the participant and to receive any distribution with respect to any award upon the participant’s
death.
Treatment
of Awards upon a Participant’s Death or Disability
. Unless otherwise provided in an award certificate or any special
plan document governing an award, upon the termination of a participant’s service due to death or disability:
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all
of that participant’s outstanding options and SARs will become exercisable to the extent the participant was entitled
to exercise such option or SAR, but only within the period ending on the earlier of (i) twelve (12) months with respect to
a termination due to disability and eighteen (18) months with respect to a termination due to death, and (ii) the term of
the option or SAR;
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shares
of Common Stock or Series A Preferred Stock and outstanding awards which have not vested at the time of the termination of
service may be forfeited; and
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the
payout opportunities attainable under all of that participant’s outstanding performance-based awards may be forfeited
and the awards may payout on a pro rata basis, based on the time elapsed prior to the date of termination.
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Treatment
of Awards upon a Change in Control
. Unless subject to additional acceleration of vesting and exercisability as may be provided
in an award certificate or any special plan document governing an award, outstanding awards will be subject to one year acceleration
of vesting as provided in the Amended Plan upon a change in control.
Termination
and Amendment
. If approved by the stockholders, the Amended Plan will terminate on January 20, 2027. The Board or the Compensation
Committee may, at any time and from time to time, terminate or amend the Amended Plan, but if an amendment to the Amended Plan
would constitute a material amendment requiring shareholder approval under applicable listing requirements, laws, policies or
regulations, then such amendment will be subject to shareholder approval. No termination or amendment of the Amended Plan may
adversely affect any award previously granted under the Amended Plan without the written consent of the participant. Without the
prior approval of our shareholders, the Amended Plan may not be amended to directly or indirectly reprice, replace or repurchase
“underwater” options or SARs.
2014
Plan Benefits
Benefits
to be received by our executive officers, directors and employees as a result of the proposed Amended Plan are not
determinable, since the amount of grants of options and restricted stock made under the proposed Amended Plan is
discretionary. Set forth in the table below are the number of equity awards since inception that have been granted under the
equity incentive plan to: (i) each of our named executive officers, (ii) our executive officers as a group,
(iii) our non-employee directors as a group and (iv) our non-executive employees as a group. Shares which were
forfeited are available to be re-granted under the Amended Plan
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Restricted Stock
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Cash-Settled
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Name
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Restricted
Stock
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Units
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Awards
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Mahmud Haq
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75,000
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-
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-
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Stephen Snyder
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75,000
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100,000
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-
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Bill Korn
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75,000
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50,000
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-
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Executive Officers as a Goup
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225,000
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150,000
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-
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Non-Executive Directors as a Goup
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220,000
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180,000
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-
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Non-Executive Officers and Employees
as a Group
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-
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338,597
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264,800
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Vote
Required
The
affirmative vote of a majority of the votes cast at the Special Meeting by the holders of shares of Common Stock is required to
approve the adoption of the Amended Plan.
The
Board of Directors unanimously recommends a vote FOR the authorization of the adoption of the Amended Plan.
Other
Business
Our
board of directors does not presently intend to bring any other business before the Special Meeting, and, so far as is known to
the board of directors, no matters are to be brought before the Special Meeting except as specified in the Notice of Special Meeting
of Shareholders. We have not been informed by any of our shareholders of any intention to propose any other matter to be acted
upon at the Special Meeting. The persons named in the accompanying Proxy are allowed to exercise their discretionary authority
to vote upon any other business as may properly come before the Special Meeting. As to any such other business that may properly
come before the meeting, it is intended that proxies, in the form enclosed, will be voted in respect thereof in accordance with
the judgment of the persons voting such proxies.