SOCKET MOBILE INC

Equity awards have been, and continue to be, a key part of our incentive compensation and retention programs and are designed to motivate and reward our service providers’ efforts. We believe that to develop and market competitive products, we need to maintain competitive compensation and incentive programs.

As of March 22, 2024, the eligible options, which are held by long-term, valued employees, currently are “underwater.” The closing price of a share of our common stock on March 22, 2024 was $1.03. The per share exercise prices of the eligible options range from $1.08 to $5.92.

Additionally, some of the eligible options are approaching the expiration of their maximum term. if the optionees holding these options otherwise want to exercise before the options expire, whether because options do have value before they expire (that is, they come back “in-the-money”) or otherwise, it raises a concern that the exercise of these options and subsequent sale of even a relatively small portion of the purchased shares could cause unnatural fluctuations in our stock price, due to the high volume of shares that likely would be sold into the market as a result.

Whether the eligible options are exercised or expire by their terms, they will no longer provide the strong retention and incentive benefits we need from our equity compensation program. Additionally, the eligible options are currently “underwater,” which adds to our concerns regarding their impact on retention and incentives. As a result, to the extent that the eligible options expire before benefits can be realized, or that unusually high trading activity depresses returns on the exercise of these options and/or the sale of the shares purchased under the options, we believe there is high risk that the objectives of equity program to retain and motivate service providers and aligning their interests with those of our stockholders will not be achieved. The Company needs to retain and motivate its employees, and reinvigorating the retention and incentive value of these options through this exchange program is a key step toward that objective.

We believe that the proposed exchange program is in the best interests of our stockholders and our employees. We believe the exchange program is an important component in our strategy to align the interests of our service providers and stockholders because it will permit us to:

•Provide effective incentives for the service providers who participate in the exchange program. By issuing eligible participants new stock options which may have lower exercise prices and that are subject to a new vesting period, it encourages them to remain with us and to work to increase stockholder value. Providing effective incentives to our service providers is a key purpose of the exchange program, and we believe the exchange program will enable us to enhance long-term stockholder value by aligning the interests of our service providers more fully with the interests of our stockholders.

•Reduce the pressure to grant additional or alternative equity awards to achieve the goals that our equity incentive program is intended to accomplish. If we are unable to conduct a program in which the eligible options with low incentive values may be exchanged for new higher incentive value options, we may be compelled to grant alternative equity awards such as additional options or restricted stock awards to our service providers at current market prices in order to provide them with renewed incentive value. Any such additional grants would increase our overhang as well as our compensation expense. The exchange program as proposed, on the other hand, is a one-for-one exchange that accomplishes the retention and alignment goals of our equity incentive program without increasing the number of stock option grants outstanding.

•*Minimizes Risk of Destabilization of Our Stock Price as a Result of High-Volume Option-Related Sales.*If the eligible options that are approaching the expiration of their maximum terms become “in-the-money” (meaning our stock price is greater than the exercise price of the options) before they expire, then the eligible option holders likely would be put in the position of having to exercise their eligible options to avoid allowing those options to expire without any benefit to them.