You’re Back, Baby. ® | thejoint.com © 2020 The Joint Corp. All Rights Reserved. JYNT Notice of 2020 Annual Meeting of Stockholders & Proxy Statement
Dear Fellow Stockholder: Our mission at The Joint Corp. is to improve quality of life for the patients we serve through routine and affordable chiropractic care. We deliver that through our network of 500+ retail outlets in 34 states, supported by more than 1,500 licensed doctors who performed over seven million chiropractic adjustments last year alone. Our doctors provide patient care focused on pain relief and ongoing wellness to promote healthy, active lifestyles. Our Momentum As I reflect upon the state of the company over this past year, I’m pleased to report to you that we have materially succeeded in achieving the key financial and business goals that I consistently laid out for 2019: • Company - owned or managed clinic expansion • Improving franchise and corporate clinic performance • Increasing franchise sales and clinic count • Increasing our new patient counts • Preserving cash • Obtaining non - dilutive financing to strengthen our balance sheet The success of these focused efforts has enabled us to meet or exceed our financial and business plans, further strengthening our foundation and laying the groundwork for our continued, accelerated growth, with the ultimate result of increasing shareholder value. Our mission stated above, along with our vision and values that were established in 2016, continue to guide our organization: Our Vision • Be the premier provider of chiropractic care in wellness and health plans • Double our footprint through corporate and franchise strategy • Be the career path of choice for chiropractors • Build a world - class organizational culture • Foster a robust franchise and regional developer community • Build and maintain a world - class IT platform Our Core Values • Trust - We believe in the reliability, truth and ability of others • Integrity - We adhere to moral and ethical principles • Excellence - We drive a continuous pursuit of optimal levels of performance • Respect - We appreciate the intrinsic value of each individual • Accountability - We hold ourselves and others responsible Our mission is to improve quality of life through routine and affordable chiropractic care. The Joint Corp. Dear Fellow Stockholders JYNT Peter D. Holt President and Chief Executive Officer 25% Same - Store Sales Growth 33% Annual S y s t em - W ide Gross Sales Increase 126 Franchise Licenses Sold Dear Fellow Stockholders Letter | 1 © 2020 The Joint Corp. All Rights Reserved.
This foundation helped deliver strong financial results in 2019, including: • 33% annual system - wide gross sales increase to $220.3 million • $3.2 million improvement from net income of $147,000 in 2018 to net income of $3.3 million in 2019 • $3.3 million improvement in Adjusted EBITDA from $2.9 million in 2018 to $6.2 million in 2019 • Full - year system - wide Comp Sales 1 of 25% • 126 franchise licenses sold in 2019, up from 99 in 2018 and 37 in 2017 • 13 company - owned or managed clinics added to our corporate portfolio including five greenfields and eight buybacks from franchisees • 513 clinics in operation at December 31, 2019, a net increase of 71 clinics from December 31, 2018 1 Comp Sales refers to the amount of sales a clinic generates in the most recent accounting period, compared to sales in the comparable period of the prior year, and (i) includes sales only from clinics that have been open at least 13 full months and (ii) excludes any clinics that have closed. Current Events We are encouraged by the sustained momentum in our business, including ten consecutive quarters of positive Adjusted EBITDA. With a continuation of the previous macroeconomic environment, we would have anticipated continued growth and profitability in 2020. However, the COVID - 19 pandemic has presented a sudden, significant and unprecedented disruption, not only to our business, but to all aspects of our lives. As a result, our accelerating upward trajectory has been interrupted. We remain hopeful and confident that this interruption will be temporary; but given the unclear macro outlook for the immediate future, we felt it was prudent to withdraw our financial guidance for 2020. It’s important for shareholders to remember that our mission and concept are unique within retail. We stand with organizations such the International Chiropractors Association in our view that chiropractic care is an essential healthcare service that can be used by patients with a wide array of health conditions in times of urgent need. It’s why we have committed to keeping our system of clinics open, when and where it is possible, utilizing safety protocols guided by the World Health Organization (WHO), the U.S. Centers for Disease Control and Prevention (CDC) and local health departments. By remaining open to address our patients’ medical needs, we also help ease the burden on the medical community, and thus help protect our nation’s healthcare systems resources for the fight against COVID - 19. Given our excellent financial performance over the last several years, The Joint Corp. and our franchisees have never been in a stronger position to weather a crisis like this. We have taken the following steps to preserve liquidity and ensure the Company’s financial flexibility: • Drew down $2 million under our recently established $7.5 million revolving credit facility with J.P. Morgan Chase Bank, N.A. • Reviewing every opportunity to eliminate or reduce discretionary operating expenses, while deferring capital expenditures and put all hiring on hold. • Working closely with vendors and landlords to extend payables. • Secured $2.7 million loan under CARES Act Paycheck Protection Program, bringing total cash to $13.6 million as of April 14. We are also assisting our franchisees through this crisis by providing them with a robust platform of support, including guidance on managing liquidity and leveraging government stimulus plans. In addition, we have imposed stricter clinic sanitation protocols and have leveraged social media to increase communications with our franchisees, doctors and patients to help them navigate this unprecedented and rapidly changing environment. Dear Fellow Stockholders Letter | 2 © 2020 The Joint Corp. All Rights Reserved. The Joint Corp. Dear Fellow Stockholders JYNT
Looking Forward Despite the aforementioned challenges related to COVID - 19, we remain as confident as ever in the long - term opportunities in our business and will continue to work toward our goal stated earlier this year to have 1,000 clinics operating by the end of 2023. To reach this goal, we will: • Continue our focus on franchise sales and clinic expansion; • Further leverage our Regional Developer (RD) strategy; and • Accelerate the expansion of our corporate clinic portfolio within clustered locations. In 2018, we conducted extensive consumer research to better define the patient journey to chiropractic and developed a new brand architecture to guide our marketplace positioning for the future. From this research we identified three key pillars for connecting with consumers: • Accessibility – convenience and affordability – the very foundation of our category differentiation. • Credibility – consistent, quality chiropractic care, no matter where or when you visit one of our clinics. • Empathy – personal, intuitive treatment oriented toward helping our patients achieve their wellness goals. This architecture was brought to life for consumers in October 2019 , in a nationwide brand campaign, featuring refreshed advertising, marketing collateral, web and social platforms, with an all - new tagline, “You’re Back, Baby . ®” We will leverage our growing brand profile and robust digital marketing capabilities to establish The Joint Chiropractic as a recognized, national consumer brand and thought - leader in health and wellness . The COVID - 19 pandemic has not altered the fundamental soundness of this strategy . During 2019, our RD program continued to flourish, accelerating our franchise growth. Our RDs were responsible for 89% of our 126 franchise license sales in 2019 and 63 of our 71 new franchised clinic openings that same year. This growth reflects the power of our RD program to accelerate clinic development across the country. During 2019, we opened five greenfield corporate clinics and bought back eight franchised clinics from our existing franchisees to add a total of 13 additional clinics to our corporate portfolio. Moving into 2020, we originally had planned to accelerate our company - owned or managed clinic expansion through a combination of both greenfield openings and franchised clinic buybacks. Now, as we evaluate the impact of COVID - 19 on our business today and in the future, we are taking a more measured approach to ensure that we have the liquidity to fund and support our corporate portfolio expansion. Our Commitment to Sound Corporate Governance Speaking for management and for our Board of Directors, I wish to reiterate that we are committed to expert, objective, proactive administration on behalf of our stockholders to drive long - term value. We continue to closely examine the strategic needs of our organization and actively manage the evolution of our Board leadership to meet our emerging requirements. Heeding our core value of excellence, we strive for continuous improvement in all we do. We are resolute in advancing our governance structure as our company, our industry and our stockholder base grows. You can rely on our dedication to accountability and clear communication with stockholders as a key element of our governance processes. The Joint Corp. Dear Fellow Stockholders JYNT further Dear Fellow Stockholders Letter | 3 © 2020 The Joint Corp. All Rights Reserved.
The Joint Corp. Dear Fellow Stockholders JYNT Our Exciting Future and Your Support With the Board’s guidance we are more committed to our mission and vision than ever before. We are more focused on our patients, more aligned amongst franchisees and company employees, and better positioned to deliver operational excellence at great clinics that satisfy patients today and over the years to come. The confidence that you have placed in us is humbling and gratifying as we continue to build The Joint brand and revolutionize access to the chiropractic care across this nation. After much deliberation, the Board of the Company has decided to still hold our annual meeting as scheduled at 10:00 a.m. Mountain Standard Time on May 29, 2020, at our corporate offices in Scottsdale, Arizona (16767 N. Perimeter Dr., Suite 110, Scottsdale, AZ 85260). However, considering the serious nature and health risks from the spread of COVID - 19 in larger gatherings, we are taking the unusual step of asking that you seriously consider not attending the annual meeting. Therefore, we ask that you promptly return your proxy or vote electronically as described in the proxy materials provided to you. Your voice is essential, and I ask you to vote at your earliest convenience. The health and safety of our shareholders and employees is of utmost importance to us, and we appreciate your cooperation and support during these unusual and challenging times. We look forward to seeing you in person at next year’s annual meeting. Stay well adjusted, Dear Fellow Stockholders Letter | 4 © 2020 The Joint Corp. All Rights Reserved. Peter D. Holt President and Chief Executive Officer
© 2020 The Joint Corp. All Rights Reserved. 1 Comp sales refers to the amount of sales a clinic generates in the most recent accounting period, compared to sales in the comparable period of the prior year, and (i) includes sales only from clinics that have been open at least 13 full months and (ii) excludes any clinics that have closed. Total System - Wide Gross Sales (Millions) 77% CAGR (2010 - 2019) The Joint Corp. 2019 Financial Highlights JYNT • 76 new clinics opened, bringing total to 513 • The Company’s enhanced grand opening programs yielded 15 clinics achieving Grand Opening Elite (“GO Elite”) in 2019 • Improved net income by $3.2 million to $3.3 million • Sold 126 franchise licenses in 2019 up from 99 in 2018 and 37 in 2017 • Expanded corporate clinic portfolio by 12 , all of which were funded through strong operating cash flow • Cash flow from operations improved $2.0 million to $7.5 million The Joint reported another record year in 2019 and ended with its sixteenth consecutive quarter of financial improvement. These achievements reflect the Company’s steady, disciplined approach to system growth, the validation of its business strategy and its strengthened foundation for future growth. For 2019, gross system - wide sales reached another record level. The Company also increased operating efficiencies, further reduced new clinic time to breakeven, generated $7.5 million of cash from operations, and continued to see strong annual same - store sales growth. Total Clinics Open Franchise Clinics Company Owned/Managed Clinics 513 Locations IN 34 STATES 7.7 Million PATIENT VISITS IN 2019 $ 220.3 Million SYSTEM - WIDE GROSS SALES 33 % ANNUAL SYSTEM - WIDE GROSS SALES INCREASE 25 % ANNUAL COMP SALES 1 PERCENTAGE 19% ANNUAL COMP SALES 1 FOR CLINICS >48 MONTHS 126 FRANCHISE LICENSES SOLD 80 % OF SYSTEM - WIDE GROSS SALES FROM RECURRING MEMBERSHIPS 2 0 1 0 2 0 11 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 19 1 75 2 4 6 312 370 3 9 9 26 12 82 47 61 47 442 4 242 265 309 352 394 48 $126.9 $98.6 $70.1 $46.2 $22.3 $1.3 $2.8 $8.1 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $165 . 1 $22 0 .3 513 453 60
16767 N. Perimeter Drive, Suite 240
110
Scottsdale, AZ 85260
NOTICE OF 20182020 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 1, 2018MAY 29, 2020
Dear Stockholder:
YouWe are cordially invited to attend our 2018writing today concerning the upcoming 2020 Annual Meeting of Stockholders (the “Annual Meeting”) to, which will be held on Friday, June 1, 2018May 29, 2020, at 10:00 a.m. Mountain Standard Time at 16767 N. Perimeter Drive, Suite 240, Scottsdale, Arizona 85260.Time.
At the Annual Meeting, you will be asked to consider and vote on the following items:
| the election to the Board of the |
| approval, on an advisory basis, of the compensation of our named executive officers; |
| · | approval, on an advisory basis, of the frequency of an advisory vote on the compensation of our named executive officers; |
| · | ratification of the appointment of | |
| any other matter that properly comes before the meeting. |
Only stockholders of record at the close of business on the record date of April 16, 20182020 are entitled to vote at the Annual Meeting.
If you need directions to the meeting, please call Investor Relations at (480) 245-5960.
After much deliberation, the Board of the Company has decided to still hold our annual meeting as scheduled at our corporate offices in Scottsdale, Arizona. However, in light of the serious nature and health risks from the spread of COVID-19 in larger gatherings, we are taking the unusual step of asking that you seriously consider not attending the annual meeting. Therefore, we ask that you promptly return your proxy or vote electronically as described in the proxy materials provided to you. For the convenience of our stockholders of record who do not plan to attend the Annual Meeting in person, but who want their shares voted, we have enclosed a proxy card. If you do not plan to attend the Annual Meeting, please complete and return the proxy card in the envelope provided, or go towww.cstproxy.com/thejoint/2018 2020and follow the instructions. If you return your proxy card and later decide to attend the Annual Meeting in person, or if for any other reason you want to revoke your proxy, you may do so at any time before your proxy is voted. If you hold your shares through a broker, bank, or other nominee, please see the instructions in the General Information section on how to vote your shares, either by written instruction or in person at the meeting. Please read carefully the enclosed information and our 2019 Annual Report, which includes our Form 10-K for the year ended December 31, 2019, before voting your proxy.
This proxy statement and accompanying materials are first being made available to stockholders on or about April 24, 2020.
By Order of the Board of Directors,
Craig ColmarSecretaryScottsdale, ArizonaApril 27, 2018
Craig Colmar
Secretary
Scottsdale, Arizona
April 24, 2020
This summary highlights information contained elsewhere in this proxy statement. It does not contain all information that you should consider, and you should read the entire proxy statement carefully before voting.
Annual Meeting of Stockholders
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| Friday, | ||||
| Place: | 16767 N. Perimeter Drive, Suite | |||
| Record Date: | April 16, | |||
| Voting: | Stockholders as of the record date are entitled to vote. |
| Items of Business and Voting Recommendations | |||||
| Agenda Item | Board Recommendation | Page | |||
| 1. | Election of 7 directors | FOR EACH NOMINEE | 5 | ||
| 2. | Ratification of the appointment of EKS&H LLLP as our independent registered public accounting firm for 2018 | FOR | 24 | ||
| 3. | Approval of an amendment to the Company’s Amended and Restated 2014 Incentive Stock Plan to increase the number of shares reserved for issuance under the Plan by 700,000 shares | FOR | 25 | ||
| 4. | Consideration of a stockholder proposal to change the Company’s bylaw regarding proxy access | No Recommendation | 30 | ||
Items of Business and Voting Recommendations
| Agenda Item | Board Recommendation | Page | |||
| 1. | Election of seven directors | FOR EACH NOMINEE | 4 | ||
| 2. | Approval, on an advisory basis, of the compensation of our named executive officers | FOR | 26 | ||
| 3. | Approval, on an advisory basis, of the frequency of an advisory vote on the compensation of our named executive officers | FOR 1 YEAR | 26 | ||
| 4. | Ratification of the appointment of Plante & Moran, PLLC as our independent registered public accounting firm for 2020 | FOR | 27 | ||
Board Nominees
The following table provides summary information about the nominees for director. Each director is elected by a majority of votes cast.
| Nominee | Age | Director Since | Principal Occupation | Committees | Age | Director Since | Principal Occupation | Committees | ||||||||
| Matthew E. Rubel | 60 | 2017 | Lead Director; current director of TreeHouse Foods, Inc.; former President and CEO of Varsity Brands, Inc.; former Chairman and CEO of Collective Brands, Inc.; and Cole Haan, Inc.; former Senior Advisor with Roark Capital Group and TPG Capital, L.P. | • Compensation • Nominating and Governance | 62 | 2017 | Lead Director; Chairman, Mid Ocean Partners Private Equity Consumer Group; current director of TreeHouse Foods, Inc.; former director of Hudson’s Bay Company and HSNi; former President and CEO of Varsity Brands, Inc.; former Chairman and CEO of Collective Brands, Inc. and Cole Haan, Inc.; former Senior Advisor with Roark Capital Group & TPG Capital, L.P. | · Compensation · Nominating and Governance | ||||||||
| James H. Amos, Jr. | 71 | 2015 | Current Chairman of the advisory board of APFI, Procter and Gamble’s franchising initiatives; former Chairman and Chief Executive Officer of Mail Boxes, Etc.; former Chairman of the International Franchise Association | • Nominating and Governance (Chair) | 74 | 2015 | Current Chairman of the advisory board of APFI, Procter and Gamble’s franchising initiative; former Chairman and Chief Executive Officer of Mail Boxes, Etc.; former Chairman of the International Franchise Association | · Nominating and Governance (Chair) · Audit | ||||||||
| Ronald V. DaVella | 60 | 2014 | Former audit partner with Deloitte & Touche LLP; Chief Financial Officer of Nanoflex Power Corporation; former Chief Financial Officer of Amazing Lash Studio LLC | • Audit (Chair) | 62 | 2014 | Former Audit Partner, Deloitte & Touche LLP; former Executive Vice President of Finance, The Alkaline Water Company; former Chief Financial Officer of Nanoflex Power Corporation; former Chief Financial Officer of Amazing Lash Studio LLC | · Audit (Chair) · Nominating and Governance | ||||||||
| Suzanne M. Decker | 56 | 2017 | Chief Human Resources Officer for Aspen Dental Management, Inc. | • Compensation | 58 | 2017 | Chief Human Resources Officer for Aspen Dental Management, Inc. | · Compensation (Chair) | ||||||||
| Peter D. Holt | 59 | 2017 | President and Chief Executive Officer, The Joint Corp. | 61 | 2016 | President and Chief Executive Officer, The Joint Corp. | ||||||||||
| Abe Hong | 46 | ̶ | Executive Vice President & Chief Information Officer at Discount Tire Company. | 48 | 2018 | Former Executive Vice President & Chief Information Officer at Discount Tire Company | · Compensation | |||||||||
| Richard A. Kerley | 68 | 2015 | Former Chief Financial Officer of Peter Piper, Inc. and of Fender Musical Instruments Corporation | • Audit • Compensation (Chair) | ||||||||||||
| Glenn J. Krevlin | 60 | 2019 | Founder, Managing Partner, Principal and Portfolio Manager of Glenhill Capital Advisors LLC; current director of Centric Brands, Inc. and Design Within Reach, Inc., and former director of Restoration Hardware, Inc. | · Audit | ||||||||||||
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16767 N. Perimeter Drive, Suite 240
110
Scottsdale, AZ 85260
2018
2020 Annual Meeting of Stockholders
To Be Held on June 1, 2018May 29, 2020
We are a “smaller reporting company” under Item 10 of Regulation S-K promulgated under the Securities Exchange Act of 1934 and have elected to comply with certain of the requirements applicable to smaller reporting companies in connection with this proxy statement.
We are also an “emerging growth company” under applicable federal securities laws and therefore permitted to take advantage of certain reduced public company As a smaller reporting requirements. As an emerging growth company, we provide in this proxy statement the scaled disclosure permitted under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. In addition, as an emerging growth company, we are not required to conduct votes seeking approval, on an advisory basis, of the compensation of our named executive officers or the frequency with which such votes must be conducted. We may take advantage of these provisions until we are no longer an emerging growth company. We will remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering or, if earlier, (a) the last day of the first fiscal year in which we have total annual gross revenue of at least $1.07 billion, (b) the date that we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, or (c) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.Regulation S-K. We may choose to take advantage of some but not all of these reduced disclosure requirements.requirements until we are no longer a smaller reporting company. We will remain a smaller reporting company as long as (a) our public float is below $250 million or (b) our annual revenues are below $100 million for the last completed fiscal year and our public float is below $700 million.
In this proxy statement, “we,” “us,” “our” and the “Company” all refer to The Joint Corp.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of our common stock outstanding as of April 16, 20182020, by:
| · | each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock; |
| · | each of our directors; |
| · | each of our named executive officers; and |
| · | all of our directors and executive officers as a group. |
The percentage ownership information shown in the table is based upon 13,593,75413,933,747 shares of common stock outstanding as of April 16, 2018.2020. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (SEC). To calculate a stockholder's percentage of beneficial ownership, we include in the numerator and denominator those shares underlying options that are vested or that will vest within 60 days of April 16, 2020. Options held by other stockholders, however, are disregarded in the calculation of beneficial ownership. Therefore, the denominator used in calculating beneficial ownership among our stockholders may differ.
Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment powerbeneficial ownership with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.
| 2 |
Except as otherwise noted below, the address for each person or entity listed in the table is c/o The Joint Corp., 16767 N. Perimeter Drive, Suite 240,110, Scottsdale, AZ, 85260.
| Number of Shares Beneficially Owned | Percentage of Shares | |||||||
| Named Executive Officers, Other Executive Officers, Directors and Director Nominees | ||||||||
| Matthew E. Rubel(1) | 16,450 | * | ||||||
| James H. Amos, Jr.(2) | 67,295 | * | ||||||
| Ronald V. DaVella(3) | 60,295 | * | ||||||
| Suzanne M. Decker (4) | 9,950 | * | ||||||
| Peter D. Holt(5) | 123,823 | * | ||||||
| Abe Hong | - | * | ||||||
| Richard A. Kerley(6) | 57,580 | * | ||||||
| John P. Meloun(7) | 44,579 | * | ||||||
| Bret Sanders(8) | 55,295 | * | ||||||
| Named executive officers and directors as a group (9 persons) | 435,267 | 3.2 | % | |||||
| 5% Stockholders | ||||||||
| Sanders Morris Harris LLC (9) | 2,357,426 | 17.3 | % | |||||
| Glenn J. Krevlin (10) | 2,251,774 | 16.6 | % | |||||
| Number of Shares Beneficially Owned | Percentage of Shares | ||||
| Named Executive Officers and Directors | |||||
| Matthew E. Rubel | 24,452 | * | |||
| James H. Amos, Jr. | 94,297 | * | |||
| Ronald V. DaVella | 37,507 | * | |||
| Suzanne M. Decker | 17,952 | * | |||
| Peter D. Holt | 243,177 | 1.7% | |||
| Abe Hong | 8,002 | * | |||
| Glenn J. Krevlin | 306,272 | 2.2% | |||
| Jake Singleton | 69,136 | * | |||
| Named executive officers and directors as a group (8 persons) | 800,795 | 5.7% | |||
| Beneficial holders of 5% or more of our outstanding common stock | |||||
| Bandera Partners LLC(1) | 1,682,312 | 12.1% | |||
| BlackRock Fund Advisors(2) | 891,945 | 6.4% | |||
| Nantahala Capital Management, LLC(3) | 848,881 | 6.1% | |||
* Less than 1% of our shares
| * | Less than 1% of our shares |
| (1) | Based on Form 4 filed by Bandera Partners LLC with the SEC on March 25, 2020 |
| (2) | Based on Schedule 13G filed by BlackRock Inc., with the SEC on February 7, 2020 |
| (3) | Based on Schedule 13G filed by Nantahala Capital Management, LLC, with the SEC on February 13, 2020 |
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Table of |
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ELECTION OF DIRECTORS
Our Board of Directors is currently composed of 7seven directors. With the exception of Peter D. Holt, our President and Chief Executive Officer, all of our directors are outside directors (i.e., directors who are neither officers nor employees of ours).
Our common stock is listed on The NASDAQ Capital Market, and accordingly, we have used the definition of “independence” of the NASDAQ Stock Market to determine whether our directors are deemed to be independent. Based on that definition, we have determined that, with the exception of Peter D. Holt, our President and Chief Executive Officer, all of our directors are independent.
Each director elected at the Annual Meeting will hold office until our annual meeting of stockholders in 20192021 or until his or her successor is elected and qualified.
The election of directors is uncontested.
Voting in Uncontested Director Election
Under our bylaws, each director shall be elected by the vote of a majority of the votes cast in an uncontested election (an election in which the number of nominees for election is the same as the number of directors to be elected). In other words, the nominee must receive more “for” votes than “against” votes, with abstentions and broker non-votes not having any effect on the voting.
If a nominee for election as a director is an incumbent director and the nominee is not re-elected, Delaware law provides that the director continues to serve as a “holdover” director until his successor is elected and qualified or until he or she resigns. Under our bylaws, if an incumbent director is not re-elected, the director shall tender his or her resignation to the board of directors. The Nominating and Governance Committee shall make a recommendation to the Board whether to accept or reject the director’s resignation or whether other action should be taken. The Board shall act on the Committee's recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of certification of the election results. The director who tendered his or her resignation shall not participate in the Committee’s deliberations (if he or she is a member of the Committee) or in the Board’s decision.
The following table provides information about the nominees for election as directors.
| Nominee | ||||
| Position with the Company | Age | |||
| Matthew E. Rubel | Lead Director | |||
| James H. Amos, Jr. | Director | |||
| Ronald V. DaVella | Director | |||
| Suzanne M. Decker | Director | |||
| Peter D. Holt | President, Chief Executive Officer and Director | |||
| Abe Hong | Director | |||
| Director |
| 4 |
© 2020 The Joint Corp. All Rights Reserved. Matthew E. Rubel Chairman Consumer Group, Mid Ocean Partners Private Equity; Former Director, President and CEO, Varsity Brands, Inc.; Former President and CEO, Collective Brands, Inc.; Former Chairman, President and CEO, Cole Haan, Inc.; Former Senior Advisor with Roark Capital Group & TPG Capital, L.P. Director Since: 2017 Age: 62 Skills & Qualifications: Franchising & Industry Expertise Financial Acumen & Expertise Senior Management Leadership CEO Leadership Operations Management Expertise Public Company Board Service Corporate Finance & M&A Expertise Marketing & Branding Expertise Risk Management Expertise Independent Director The Joint Corp Committees: Compensation, Nominating and Governance Other Public Boards: TreeHouse Foods, Inc. Biography Matthew E. Rubel has served as a director since June 2017. Mr. Rubel currently serves as Chairman of the consumer group for Mid Ocean Partners Private Equity. Previously, he served as CEO, President, and Board Member of Varsity Brands, Inc. Starting in 2015, he served as a Senior Advisor at Roark Capital Group. From 2011 to March 2015, he served as Senior Advisor to both TPG Capital, L.P. and TPG Growth. Prior to his advisor roles, Mr. Rubel served as Chief Executive Officer and President of Collective Brands, Inc. from 2005 to 2011. From February 1999 to July 2005, he served as Chairman, Chief Executive Officer, and President of Cole Haan. Prior to joining Cole Haan, Mr. Rubel served as an Executive Vice President of J. Crew Group and Chief Executive Officer of Popular Club Plan from 1994 to 1999. Mr. Rubel has been a director of numerous multi - national retail companies and consumer brands. Currently, he is an Independent Director at TreeHouse Foods, Inc. In addition, Mr. Rubel has served on the Board of Hudson’s Bay Company and HSNi, the holding company of HSN and Cornerstone Brands. In 2010, Mr. Rubel became a Presidential Appointee to the House Advisory Council on Trade Policy Negotiation. Education: BS in Journalism, Ohio University; MBA in Marketing & Finance, University of Miami The Joint Corp. 2019 Board of Directors JYNT
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© 2020 The Joint Corp. All Rights Reserved. James H. Amos, Jr. Chairman of the advisory board of APFI, Procter & Gamble’s franchising initiatives; Former Chairman and Chief Executive Officer, Mail Boxes, Etc.; Former Chairman of the International Franchise Association; Director Since : 2015 Age: 73 Skills & Qualifications: Franchising & Industry Expertise Financial Acumen & Expertise Senior Management Leadership CEO Leadership Operations Management Expertise Public Company Board Service Corporate Finance & M&A Expertise Marketing & Branding Expertise Risk Management Expertise Independent Director The Joint Corp Committees: Nominating and Governance Other Boards: Agile Pursuits Franchising, Inc. (Procter & Gamble) Biography James H. Amos, Jr. has served as a director since September 2015. Mr. Amos is the former Chief Executive Officer and chairman of the board of Mail Boxes, Etc. (MBE), now The UPS Store. Under his leadership, MBE became the world’s largest and fastest growing franchisor of retail business, communication and postal service centers. Based in San Diego, the MBE Network is comprised of nearly 5,000 locations worldwide, with master licensing agreements in more than 80 countries. In 2001, Mr. Amos was instrumental in orchestrating the sale of MBE to UPS and executing the largest re - branding in history of a retail system from MBE to The UPS Store. He is past chairman of the International Franchise Association (IFA) and in 2011 was an inductee into the IFA’s Hall of Fame. Mr. Amos is currently chairman of the advisory board of APFI, a wholly owned subsidiary of Procter & Gamble dedicated to franchising. Mr. Amos has served on or is serving on the board of directors of The National Veteran’s Administration, The Marine Military Academy, The Marine Corps Heritage Foundation, Meineke Car Care Centers, Oreck Corporation, Zig Ziglar Corporation, WSI of Canada, The University of Missouri, SkinPhD, The HealthStore Foundation, Ken Blanchard’s Faith Walk Leadership Foundation, Aspen Dental, and Planet Fitness. Education: AB in Political Science and History, University of Missouri - Columbia Ronald V. DaVella Former Executive Vice President of Finance, The Alkaline Water Company; Former Chief Financial Officer, NanoFlex Power Corp.; Former Chief Financial Officer, Amazing Lash Studio Franchise, LLC; Former Audit Partner, Deloitte & Touche LLP Director Since: 2014 Age: 62 Skills & Qualifications: Franchising & Industry Expertise Financial Acumen & Expertise Senior Management Leadership Corporate Finance and M&A Expertise Independent Director The Joint Corp Committees: Audit Nominating and Governance Other Public Boards: None Biography Ronald V. DaVella has served as a director since our initial public offering in 2014. Mr. DaVella formerly served as Senior Vice President of Finance for The Alkaline Water Company, a consumer public company producing and selling alkaline water under the brand name Alkaline 88 from April 2019 to January 2020. He formerly served as Chief Financial Officer for NanoFlex Power Corporation, a public company that was commercializing two disruptive solar technologies from May 2017 to March 2019. He also formerly served as the Chief Financial Officer for Amazing Lash Studio Franchise LLC from March 2016 to May 2017 a franchisor of eyelash extension service studios with over 200 operating locations in the US. From August 2015 to February 2019, Mr. DaVella was also a franchise owner with Amazing Lash Studio LLC. Mr. DaVella was an audit partner with Deloitte & Touche LLP from June 1989 to July 2014. Mr. DaVella is a certified public accountant in the state of Arizona. He has assisted his clients with mergers and acquisitions, operational and financial controls, internal and external reporting, financings and public offerings and filings with the SEC. Education: BS in Accounting, Queens College; MBA in Finance, Pace University 74
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Suzanne M. Decker Chief Human Resources Officer, Aspen Dental Management, Inc. Director Since: 2017 Age: 58 Skills & Qualifications: Franchising & Industry Expertise Senior Management Leadership Operations Management Expertise Independent Director The Joint Corp Committees: Compensation Other Public Boards: None Biography Suzanne Decker has served as a director since June 2017. Ms. Decker is currently the Chief Human Resources Officer for Aspen Dental Management, Inc. (ADMI). ADMI supports more than 820+ dentist - owned branded dental practices in 46 U.S. states doing business as Aspen Dental. In 2016 ADMI acquired WellNow Urgent Care (formerly Five Star Urgent Care). Since 2016, Ms. Decker also supports the HR function for WellNow Urgent Care Centers. WellNow operates 43 urgent care facilities throughout two U.S. states. Ms. Decker is responsible for all HR - related activities to support ADMI’s 11,000 team members, including compensation, benefits, performance and talent management, engagement and employee relations, talent acquisition, learning & development, field HR and employment practices liability. During her tenure with ADMI, Ms. Decker joined the field operations team in 2002, supporting practice operations. Prior to joining ADMI, Ms. Decker was Director of Human Resources for the Davis Vision Companies, a vertically - integrated vision services provider. Education: BS in Childhood Education, Russell Sage College © 2020 The Joint Corp. All Rights Reserved.
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Peter D. Holt President and Chief Executive Officer, The Joint Corp. Director Since: 2016 Age: 61 Skills & Qualifications: Franchising & Industry Expertise Financial Acumen & Expertise Senior Management Leadership CEO Leadership Operations Management Expertise Corporate Finance & M&A Expertise Marketing & Branding Expertise Real Estate Expertise Non - Independent Director The Joint Corp Committees: None Other Public Boards: None Biography Peter D. Holt has served as President and Chief Executive Officer of the Company since January 2017. Mr. Holt previously served as Chief Executive Officer from August 2016, acting Chief Executive Officer from June 2016, and Chief Operating Officer from April 27, 2016. The Board also elected Mr. Holt to serve as a director of the Company, effective August 2016. Mr. Holt has had extensive operational experience in senior management with companies that have multiple store locations and franchises. Most recently, he served as President and CEO of Tasti D - Lite LLC, a retailer of lower - fat dairy desserts. He held that position from 2013 until Tasti D - Lite was purchased by Kahala Brands in June of 2015. From 2007 through 2012, he was Chief Operating Officer of Tasti D - Lite. While at Tasti D - Lite, among other achievements, he led the team to convert the licensed retail network into a business format franchise structure. He also led the acquisition of Planet Smoothie and managed the integration of the two brands. Prior to Tasti D - Lite, from 2005 until 2007, Mr. Holt served as Executive in Residence of Great Hill Partners, a Boston - based private equity firm. At Great Hill Partners, he was responsible for identifying, qualifying and assisting in the due diligence process of potential franchisor acquisitions. He was the Chief Operating Officer of 24Seven Vending (US), a subsidiary of the New Zealand publicly traded company, VTL Group Limited, from 2004 until 2005. At 24Seven Vending (US), Mr. Holt was responsible for all aspects of the implementation of an acquisition - to - franchise conversion expansion strategy in parallel with managing the financing, sales, operations, technology and training for the company. From 1997 through 2003, Mr. Holt held various positions with Mail Boxes, Etc., including Executive Vice President of Franchise Sales and Development, Senior Vice President, International, and Vice President, International. He was responsible for all franchise sales functions including domestic sales, site selection/retail center development, and the international sales and operations division. Mr. Holt also held positions at Brice Foods, Inc. (1990 - 1996) and International Franchise Association (1986 - 1990). Education: BA in Political Science, University of Washington; MA in Latin American History, University of London © 2020 The Joint Corp. All Rights Reserved.
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Glenn J. Krevlin Founder, Managing Partner, Principal and Portfolio Manager of Contents
There are no family relationships among anyGlenhill Capital Advisors LLC; Director and Former Chairman Design Within Reach, Inc.; Former Director Centric Brands, Inc.; Former Director Restoration Hardware Director Since: 2019 Age: 60 Skills & Qualifications: Franchising & Industry Expertise Financial Acumen & Expertise Senior Management Leadership Public Company Board Expertise Independent Director The Joint Corp Committees: Audit Other Public Boards: Centric Brands, Inc. Design Within Reach, Inc. Restoration Hardware, Inc. Biography Glenn Krevlin has served as a director since June 2019. Mr. Krevlin is the Founder, Managing Partner, Principal and Portfolio Manager of our nomineesGlenhill Capital Advisors LLC (“GCA”), a fundamental equity investment manager. Mr. Krevlin founded and has worked at GCA since 2001. Previously, Mr. Krevlin was a Partner and Portfolio Manager at Cumberland Associates, Cumberland Partners, and Long View Partners (collectively, “Cumberland Associates”), an affiliated group of value oriented private investment partnerships, from 1994 to 2000. Before attaining partnership, Mr. Krevlin worked as an associate at Cumberland Associates from 1989 to 1994. Prior to that, Mr. Krevlin served as Vice President & Associate at The Goldman Sachs Group, Inc., in the Institutional Equity Sales department, from 1982 to 1989. Mr. Krevlin has served on the Board of Directors for director or executive officers.
Design Within Reach, Inc., a modern furniture design company, since August 2009 (including as Chairman from August 2009 to July 2014). Additionally, Mr. Krevlin has served on the Board of Directors of Centric Brands Inc. (f/k/a Differential Brands Group Inc.), a leading lifestyle brands collective, since October 2018. Prior to that, Mr. Krevlin served on the Board of Directors of Restoration Hardware, a home - furnishings company, from 2001 to 2012. Education: BA in Economics & Government, Wesleyan University; MBA New York University © 2020 The Joint Corp. All Rights Reserved.
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Bret Sanders has served as a director since April of 2015. Mr. Sanders has served since 1992 as Director of Equity Trading at Sanders Morris Harris Inc., member FINRA/SIPC, a Houston-based registered broker-dealer and investment advisor. Prior to joining Sanders Morris Harris, Mr. Sanders was employed in the legal and investment consulting business, advising investment firms on regulatory and compliance issues. Mr. Sanders is a founding member and has served for six years on the board of directors of R Bank Texas, a regional bank based in Round Rock and Austin, Texas. He is also an owner and has served for 15 years as a member of the Board of Directors of Ryan-Sanders Baseball, Inc., Triple A affiliate of the Texas Rangers. Mr. Sanders is a former owner and board member of the Corpus Christi Hooks, Double-A affiliate of Major League Baseball's Houston Astros. He received a B.A. in Political Science from the University of Houston in 1989.
We believe that our 7seven director nominees possess the experience, qualifications and skills that warrant their election as directors. Our directors have in common, among other qualities, a breadth of business experience, seasoned judgment and an insistence on looking beyond the next quarter or the next year in directing and supporting our management. From their service in management, on the boards of other public and private companies, and in counseling other companies and their directors, our directors also bring to us the insights that they gain from the operating policies, governance structures and growth dynamics of these other companies.
The Board regularly reviews the skills, experience, and background that it believes are desirable to be represented on the Board.
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Franchise & Industry Expertise 100% Financial Acumen and Expertise 86% Senior Management Leadership 100% CEO Leadership 43% Operations Management Expertise 71% Public Company Board Service 43% Corporate Finance and M&A Expertise 57 % Marketing or Branding Expertise 57% Real Estate Expertise 29% IT & Risk Management Expertise 29% 7 Board Members The Joint Corp. 2020 Director Skills & Qualifications JYNT Franchise & Industry Expertise Franchising expertise or experience in health or retail related industries Public Company Board Service Experience as a board member of another publicly - traded company Financial Acumen and Expertise Experience or expertise in financial accounting and reporting or the financial management of a major organization Corporate Finance and M&A Expertise Experience in corporate lending or borrowing, capital markets transactions, significant mergers or acquisitions, private equity, or investment banking Senior Management Leadership Experience serving in a senior leadership role of a major organization (e.g. CFO, General Counsel, President, or Division Head) Marketing or Branding Expertise Experience in or knowledge of brand development, consumer insight, or market research CEO Leadership Experience serving as the Chief Executive Officer of a major organization Real Estate Expertise Experience in or knowledge of retail or commercial real estate Operations Management Expertise Experience or expertise in managing the operations of a business or major organization IT & Risk Management Expertise Experience in or knowledge of information technology or risk oversight, or the development of IT and risk management policy and procedures © 2020 The Joint Corp. All Rights Reserved.
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The Board of Directors recommends that stockholders vote “FOR” each of the 7seven nominees to the Board.
Our Board of Directors has standing Compensation, Audit, and Nominating and Governance Committees. All of the members of each committee are outside directors who are independent under the applicable listing standards of the NASDAQ Capital Market.
The Compensation Committee is responsible for, among other things, determining the cash compensation and equity compensation of our executive officers. The Compensationofficers, subject to the review of our full Board of Directors and approval by the Board in the case of cash compensation only. On an annual basis, the Committee is responsible for, among other things: reviewingreviews the respective salaries of our executive officers in light of ourthe goals and objectives relevant to each officer; determiningofficer, including, as the Committee deems appropriate, consideration of (i) the individual officer’s position, scope of responsibilities and level of experience, (ii) the rate of inflation, (iii) the range of salary increases for our employees generally, and (iv) the salaries paid to comparable officers in comparable companies. On an annual basis, the Committee also determines appropriate cash bonuses, if any, for ourthe Company’s executive officers;officers (based upon an applicable percentage of base salary as determined by the Committee), after consideration of specific individual and grantingCompany performance goals and criteria. Furthermore, the Committee grants stock options and other awards under ourthe stock option plan to our executive officers and determiningother employees and determines the terms, conditions, restrictions and limitations of the optionsawards granted. In this regard, the number of shares of stock for which awards are granted are based on, as the Committee deems appropriate, each individual’s position and awards granted.our financial performance, the Committee’s assessment of the individual’s performance, initiative, contribution to our success and total compensation package. The Compensation Committee has the sole authority, at our expense, to select, retain, compensate and oversee any compensation consultant to be used to assist in its evaluation of the compensation of our directors and executive officers. The Committee also has the authority to obtain legal counsel, accountants, and other advisers of its choice to further assist the Compensation Committee in connection with its functions and to set the compensation and oversee the work of such advisers.
The Audit Committee oversees our accounting and financial reporting processes and the integrity of our financial statements. The Audit Committee’s responsibilities also include oversight of our internal accounting and financial controls, the qualifications and independence of our independent accountants, and our compliance with legal and regulatory requirements. In addition, the Audit Committee is responsible for reviewing, setting policy regarding and evaluating the effectiveness of our processes for assessing significant risk exposures and the measures that management has taken to minimize such risks. In carrying out these responsibilities, the Audit Committee is charged with, among other things: appointing, replacing, compensating, retaining, evaluating, terminating and overseeing our independent registered public accounting firm; discussing with our independent registered public accounting firm their independence from management; reviewing with our independent registered public accounting firm the scope and results of their audit; approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; discussing with management and our independent registered public accounting firm the interim and annual consolidated financial statements that we file with the SEC; reviewing periodically with our counsel and/or principal regulatory compliance officer any legal and regulatory matters that may have a material adverse effect on our financial statements, operations, compliance policies and programs; reviewing and approving procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters; reviewing and approving related person transactions; annually reviewing the Audit Committee charter and the Audit Committee’s performance; and handling such other matters that are specifically delegated to the Audit Committee by our Board of Directors from time to time.
Nominating and Governance Committee
The Nominating and Governance Committee is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the Board of Directors concerning corporate governance matters and the structure, composition and function of the Board of Directors and its committees.
The Nominating and Governance Committee is also responsible for developing and recommending to the Board of Directors criteria for identifying and evaluating candidates for directorships and making recommendations to the full Board regarding candidates for election or reelection to the Board of Directors at each annual stockholders’ meeting. In addition,
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The Nominating and Governance Committee endeavors to select nominees that possess certain basic personal and professional qualities that are necessary in order to properly discharge their fiduciary duties to stockholders, provide effective oversight of management, and monitor adherence to principles of sound corporate governance. With limited exceptions, the Committee believes that all persons nominated to serve as director should possess certain minimum qualifications consisting of:
| · | integrity and ethical character and an appreciation of these qualities in others, |
| · | an absence of conflicts of interest, |
| · | the ability to provide fair and equal representation of all stockholders, |
| · | demonstrated achievement in one or more fields of business, professional, governmental, communal, scientific or educational endeavor, |
| · | sound judgment, resulting from management or policy-making experience, that demonstrates an ability to function effectively in an oversight role, |
| · | business understanding, with a general appreciation of major issues facing public companies of a size and operational scope similar to ours, |
| · | available time to devote to the business of the Board of Directors and its committees, |
| · | competencies and skills which are complementary to those of the existing members of the Board, which skills should include experience in one or more of the following areas: franchising, small box retail, company governance, management, financial matters, marketing and branding, real estate, technology, strategy, risk management and legal affairs, and |
| · | professional background, experience, expertise, perspective, age, gender, ethnicity and country of citizenship which will promote diversity on the Board of Directors. |
We are of the view that the continuing service of qualified incumbents promotes stability and continuity in the board room, contributing to the Board of Director's ability to work as a collective body, while giving us the benefit of the familiarity and insight into our affairs that our directors have accumulated during their tenure. Accordingly, the process of the Nominating and Governance Committee for identifying nominees reflects the practice of re-nominating incumbent directors who continue to satisfy the Committee's criteria for membership on the Board and whom the Committee believes continue to make important contributions to the Board. Consistent with this policy, in considering candidates for election at annual meetings of stockholders, the Committee will first determine the incumbent directors whose terms expire at the upcoming meeting and who wish to continue their service on the Board. The Committee will then evaluate their qualifications and performance, and if the Committee determines that an incumbent director continues to be qualified and has satisfactorily performed his or her duties during the preceding term, the Committee will propose the incumbent director for re-election, absent special circumstances.
The Committee will identify and evaluate new candidates for election to the Board in order to fill vacancies on the Board when there is responsibleno qualified and available incumbent. In evaluating new candidates, the Committee will consider whether the candidates meet the minimum qualifications discussed above. These qualifications include consideration as to whether and how the candidate would contribute to the Board’s diversity, defined broadly to include gender and ethnicity as well as background and experience. The Committee will solicit recommendations for overseeingnominees from persons that the Committee believes are likely to be familiar with qualified candidates, which may include current Board members and management, and the Committee has the authority to retain a professional search firm for assistance if appropriate. The Committee will consider candidates proposed by stockholders and will evaluate any candidate proposed by a stockholder using the same criteria used to evaluate any other candidate, except that the Committee may consider, as one of the factors in its evaluation of stockholder-recommended nominees, the size and duration of the interest of the recommending stockholder in our corporate governance guidelinesequity. The Committee may also consider the extent to which the recommending stockholder intends to continue holding its interest, including, in the case of nominees recommended for election at an annual meeting, whether it intends to continue holding its interest at least through the time of such annual meeting.
Procedures for Submitting Stockholder-Recommended Nominees. Any stockholder who wants to propose a candidate should submit a written recommendation to the Nominating and reportingGovernance Committee indicating the candidate’s qualifications and making recommendationsother relevant biographical information and providing preliminary confirmation that the candidate would be willing to serve as a director. Any such recommendation should be addressed to the Board of Directors, concerning corporate governance matters. The Joint Corp., 16767 N. Perimeter Drive, Suite 110, Scottsdale, Arizona 85260.
In addition to recommending director candidates to the Nominating and Governance Committee, isstockholders may also, responsiblepursuant to procedures established in our bylaws, directly nominate one or more director candidates to stand for making recommendationselection at an annual meeting of stockholders. A stockholder wishing to make such a nomination must deliver written notice of the nomination to the full Board concerning the structure, composition and functionsecretary of the Company not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting of stockholders. If, however, the date of the annual meeting is more than 30 days before or after the first anniversary, the stockholder’s notice must be received no later than the close of business on the 90th day, and no earlier than the 120thday, prior to the annual meeting.
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Stockholders may also submit director nominees to the Board to be included in our annual proxy statement, known as “proxy access.” Stockholders who intend to submit director nominees for inclusion in our proxy materials for the 2021 Annual Meeting of Directors andStockholders must comply with the requirements of proxy access as set forth in our bylaws. The stockholder or group of stockholders who wish to submit director nominees pursuant to proxy access must deliver the required materials to the Company not less than 120 days nor more than 150 days prior to the anniversary of the date that the Company first mailed its committees.proxy materials for the annual meeting of the previous year.
The charters of the Audit, Compensation, and Nominating and Governance Committees are available on our websitewww.thejoint.com.https://ir.thejoint.com/governance-docs
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Committee Members and Meetings
The following table providestables provide information about the membership of the committees of the Board of Directors during 2017:2019:
| (1) | The Board of Directors has determined that |
Our Board of Directors held 10six meetings in person or by teleconference during 20172019 and acted without a formal meeting on a number of occasions by the unanimous written consent of the directors. The Audit Committee held fiveseven meetings during the year, the Compensation Committee held sixfour meetings during the year, and the Nominating and Governance Committee held fivefour meetings during the year.
All of our directors attended in person or participated by teleconference in all of the meetings of the Board of Directors during 2017,2019, with the exception of one directorthree directors each missing one meeting. All of the members of the Audit, Compensation, and Nominating and Governance Committees attended in person or participated by teleconference in all of the meetings of those committees during the year.year, with the exception of two directors each missing one Audit Committee meeting.
We encourage our directors to attendCommittee Members and Meetings The following tables provide information about the Annual Meetingmembership of stockholders. the committees of the Board of Directors during 2019: Audit Committee Position Ronald V. DaVella James H. Amos, Jr. Glenn J. Krevlin Chair Member Nominating and Corporate Governance Committee Position James H. Amos, Jr. Ronald V. DaVella Matthew E. Rubel - Lead Director Compensation Committee Position Suzanne M. Decker Abe Hong Matthew E. Rubel - Lead Director © 2020 The Joint Corp. All Rights Reserved.
The following table sets forth compensation paid to our non-employee directors for the year ended December 31, 2017:2019:
| Name | Fees Earned or Paid in Cash | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | Fees Earned or Paid in Cash | Stock(1)(2) Awards | Option Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||||
| Matthew E. Rubel | 26,756 | 39,974 | — | — | — | — | 66,730 | $50,000 | $40,000 | $ - | $90,000 | ||||||||||||||||||||||||
| James H. Amos, Jr. | 50,000 | 39,974 | — | — | — | — | 89,974 | 45,000 | 40,000 | - | 85,000 | ||||||||||||||||||||||||
| Ronald V. DaVella | 58,711 | 39,974 | — | — | — | — | 98,685 | 52,500 | 40,000 | - | 92,500 | ||||||||||||||||||||||||
| Suzanne M. Decker | 22,800 | 39,974 | — | — | — | — | 62,774 | 42,500 | 40,000 | - | 82,500 | ||||||||||||||||||||||||
| Richard A. Kerley | 52,708 | 39,974 | — | — | — | — | 92,682 | ||||||||||||||||||||||||||||
| Bret Sanders | 44,000 | 39,974 | — | — | — | — | 83,974 | ||||||||||||||||||||||||||||
| Abe Hong | 45,000 | 40,000 | - | 85,000 | |||||||||||||||||||||||||||||||
| Glenn J. Krevlin | 20,000 | 40,000 | - | 60,000 | |||||||||||||||||||||||||||||||
| Richard Kerley | 25,000 | - | - | 25,000 | |||||||||||||||||||||||||||||||
| (1) | The amounts in this column represent the aggregate grant date fair value of stock awards granted to the director in the applicable fiscal year, computed in accordance with FASB ASC Topic 718. For a discussion of the assumptions used in reaching this valuation, see “Restricted Stock” in Note 10 to our audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2019. |
| (2) | The aggregate number of unvested stock awards outstanding at December 31, 2019, held by each non-employee director was as follows: Mr. Rubel – 2,500; Mr. Amos – 2,500; Mr. DaVella – 2,500; Ms. Decker – 2,500; Mr. Hong – 2,500; and Mr. Krevlin – 2,500. |
Each director who is not also one of our employees, upon election or re-election to the boardBoard of directors,Directors, will receive a fee of $40,000.00$40,000 per year. Each non-employee director, upon his or her election or re-election as a director, will also receive that number of restricted shares equal to $40,000.00,$40,000, divided by the closing price of our stock on the election date. This restricted stock will be granted under The Joint Corp. 2014 Stock Plan and will vest on the first anniversary of the grant. In addition to the compensation described above, each committee chair will receive an annual committee chair stipend in the following amount:
| · | Audit Committee chair: $7,500 |
| · | Compensation Committee chair: $5,000 |
| · | Nomination and Governance Committee chair: $5,000 |
Our lead director also receives an annual stipend in the amount of $10,000.00.$10,000. The Board of Directors formed a special Information Technology Committee to oversee the selection, development and implementation of our new IT platform. Members of this Information Technology Committee receive a stipend in the amount of $5,000. All fees payable to directors shall be payable quarterly.
All of our non-employee directors will be reimbursed for reasonable out-of-pocket expenses incurred in attending meetings of the boardBoard of directorsDirectors or the committees thereof and for other expenses reasonably incurred in their capacity as directors.
Executive Sessions of the Board
Our Board of Directors excuses Mr. Holt, our President and Chief Executive Officer, as well as any of our other executive officers who may be present by invitation, from a portion of each meeting of the Board in order to allow the Board to review Mr. Holt’s performance as President and Chief Executive Officer and to enable each director to raise any matter of interest or concern without the presence of management.
Our directors annually review the performance of the Board of Directors and its committees and the performance of their fellow directors. Typically, this is done through the completion by the directors of confidential evaluation forms, the results of which are provided to Mr. Amos as the Chairman of the Nominating and Governance Committee. At a subsequent meeting of the Board, Mr. Amos leads a discussion with the full Board of any issues and suggestions for improvement identified in these evaluation forms.
The Board of Directors has adopted a written policy requiring certain transactions with related parties to be approved in advance by the Audit Committee. A related party includes any director or executive officer, 5% or angreater stockholders, or the immediate family membermembers of any director or executive officer,the foregoing for purposes of this policy. The transactions subject to review include any transaction, arrangement or relationship (or any series of similar transactions, arrangements and relationships) in which (i) we or one of our subsidiaries will be a participant, (ii) the aggregate amount involved exceeds $100,000 (or for so long as we are a smaller reporting company, if 0.8% of the average of our total assets at the end of the last two fiscal years is less than $100,000, such lesser amount) and (iii) a related party will have a direct or indirect interest. The Audit Committee will consider the benefits to us of the proposed transaction, the potential effect of the proposed transaction on the director’s independence (if the related party is a director), and the terms of the proposed transaction and whether those terms are comparable to the terms available to an unrelated third partythird-party or to employees generally in reviewing the proposed transaction with related parties.
Stockholders who would like to communicate with the Board may do so by writing to the Board of Directors, The Joint Corp. 16767 N. Perimeter Drive, Suite 240,110, Scottsdale, Arizona 85260. Our Investor Relations department will process all communications received. Communications relating to matters within the scope of the Board’s responsibilities will be forwarded to the Lead Director and at his direction to the other directors, and communications relating to ordinary day-to-day business matters that are not within the scope of the Board’s responsibilities will be forwarded to the appropriate officer or executive. Communications addressed to a particular committee of the Board will be forwarded to the chair of that committee and at his direction to the other members of the committee.
Our Audit Committee is responsible for overseeing our risk management process. The Audit Committee focuses on our general risk management strategy and the most significant risks facing us and ensures that appropriate risk mitigation strategies are implemented by management. The Audit Committee reports any significant issues to the Board of Directors as part of the Board’s general oversight responsibility.
Our management is responsible for day-to-day risk management. This oversight includes identifying, evaluating and addressing potential risks that may exist at the enterprise, strategic, financial, operational, compliance and reporting levels. The Board is responsible for overseeing management’s development and execution of appropriate business strategies to mitigate the risk that such strategies will fail to generate long-term value for the Company and its stockholders or that such strategies will motivate management to take excessive risks. As part of its responsibilities, the Board and its standing committees also regularly review, and discuss with management, material strategic, operational, cybersecurity, financial, legal, compensation and compliance risks, as well as emerging or evolving risks as they arise, such as risks related to the COVID-19 pandemic. Each of the three committees of the Board is responsible for overseeing the management of risks that fall within the committee’s areas of responsibility, including identifying, quantifying and assisting management in mitigating risks. In performing this function, each committee has full access to management, as well as the ability to engage advisors.
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Leadership Structure of the Board of Directors
Chairman of the Board
We presently do not have a director serving in the office of Chairman of the Board. While our bylaws and corporate governance guidelines do not require the positions of Chairman and Chief Executive Officer to be separate, our Board of Directors believes that having separate positions is the appropriate leadership structure for us and demonstrates our commitment to good corporate governance. In the event we do elect a Chairman, we intend to adhere to the principle that the position of Chairman of the Board should be separate from the position of Chief Executive Officer.
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Lead Director
During 2017, and until August 2017, Ronald V. DaVella served as our Lead Director. In August 2017, our Board appointed Matthew E. Rubel as our Lead Director. The Lead Director is responsible for coordinating the scheduling and agenda of Board meetings and the preparation and distribution of agenda materials. The Lead Director presides at Board meetings and oversees the scope, quality and timeliness of the flow of information from our management to the Board and serves as an independent point of contact for stockholders wishing to communicate with the Board.
We have established stock ownership guidelines for certain of our senior officers (currently, our President and Chief Executive Officer and Chief Financial Officer) and our directors to more closely align their interests with those of our stockholders. Under these guidelines, they are required to own shares of Company stock having a value equal to or greater than the following targets within 5five years of becoming subject to the targets:
| Category | Stock Ownership Target | |||
| CEO | 3 times annual total cash compensation | |||
| Other §16 Officers | 2 times annual total cash compensation | |||
| Board of Directors | 2 times annual cash retainer |
Under the Audit Committee’s charter, the Audit Committee of the Board of Directors assists the Board in fulfilling its oversight responsibilities relating to the integrity of the Company’s financial statements, the qualifications and experience of the Company’s independent registered public accounting firm, the performance of the Company’s internal audit function and independent registered public accounting firm, and the Company’s compliance with applicable legal and regulatory requirements. The Audit Committee’s charter is available on the Company’s website,www.the joint.com.https://ir.thejoint.com/governance-docs. The members of the Audit Committee who served during 20172019 were Ronald V. DaVella (Chairman), Richard A. KerleyGlenn J. Krevlin and Bret Sanders,James H. Amos, Jr., all of whom are independent under the applicable listing standards of the NASDAQ Capital Market.
In regard to our role, we note that it is the responsibility of theThe Company’s management to prepareis responsible for preparing financial statements in accordance with accounting principles generally accepted in the United States, and that it is the responsibility of the Company’s independent registered public accounting firm to auditis responsible for auditing those financial statements. The Audit Committee’s responsibility is one of oversight, and we do not provide expert or other special assurance regarding the Company’s financial statements or the quality of the audits performed by the Company’s independent public accountants.
In carrying out our oversight responsibility, we review and discuss with both management and EKS&H LLLP,Plante & Moran, PLLC, the Company’s independent registered public accounting firm, all quarterly and annual financial statements prior to their issuance. We reviewed and discussed with both management and EKS&H LLLPPlante & Moran, PLLC the quarterly and annual financial statements for the fiscal year ended December 31, 2017.2019. Our reviews and discussions with EKS&H LLLPPlante & Moran, PLLC included executive sessions without the presence of the Company’s management. They also included discussions of the matters required to be discussed pursuant to Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended (AICPA, Professional Standards, vol. 1 AU section 380), as adopted by the applicable requirements of the Public Company Accounting Oversight Board in Rule 3200T, including the quality of the Company’s accounting principles, the reasonableness of significant judgments(PCAOB) and the clarity of disclosures in the Company’s financial statements.SEC. We also discussed with EKS&H LLLPPlante & Moran, PLLC matters relating to their independence, including a review of their audit and non-audit fees and the letter and written disclosures that the Audit Committee received from EKS&H LLLPPlante & Moran, PLLC pursuant to Rule 3526 of the Public Company Accounting Oversight Board,Communications with Audit Committees Concerning Independence.
In addition, we continued to monitor the scope and adequacy of the Company’s internal controls, including the review of measures designed to ensure that control deficiencies contributing to the material weakness are remediated and that these controls are operating effectively, programs and initiatives to strengthen the effectiveness of the Company’s internal controls and steps taken to implement recommended improvements.
On the basis of these reviews and discussions, we recommended to the Board of Directors that the Board approve the inclusion of the Company’s audited financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 20172019, for filing with the U.S. Securities and Exchange Commission.
Audit Committee
Ronald V. DaVella, ChairmanRichard A. KerleyBret Sanders
James H. Amos, Jr.
Glenn J. Krevlin
The following table provides information about our executive officers.
| Executive Officer | Position with the Company | Age | ||
| Peter D. Holt | President and Chief Executive Officer | |||
| Chief Financial Officer |
Peter D. Holt, our President and Chief Executive Officer, is listed as a nominee for director. Please see “Nominees for Director” on page 5.4.
Our executive officers are appointed by our Board of Directors.
Jake Singleton Chief Financial Officer, The Joint Corp. Officer Since: 2018 Age: 38 Skills & Qualifications: Financial Acumen & Expertise Senior Management Leadership Biography Mr. Singleton served as the Company’s controller from June 2015 until his appointment as Chief Financial Officer. As the controller, he was responsible for the full accounting operations of the Company, including the production of timely financial statements and related SEC filings and maintenance of a comprehensive set of internal controls designed to mitigate risk and enhance the accuracy of the Company’s reported financial results. Prior to his employment by the Company, Mr. Singleton served for ten years in Ernst and Young’s Assurance Services practice. At Ernst and Young, Mr. Singleton focused on serving public companies and providing assistance in raising capital through debt and equity offerings. Mr. Singleton also gained international experience in Ernst and Young’s Capital Markets transactional accounting group during a two - year rotation in the United Kingdom, where he focused on U.S. GAAP and SEC reporting compliance for foreign entities raising capital in the United States. Education: BS and MA in Accounting, University of Arizona – Eller College of Management © 2020 The Joint Corp. All Rights Reserved.
The following table shows the total compensation paid or accrued during our fiscal years ended December 31, 20172019, and 20162018 to our President and Chief Executive Officer and our Chief Financial Officer:
| Name | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||||
| Peter D. Holt(1) President and Chief Executive Officer | 2017 | 375,000 | — | — | 70,317 | — | — | — | 445,317 | |||||||||||||||||||||||||||
| 2016 | 231,308 | 46,875 | — | 187,500 | — | — | 43,536 | 509,219 | ||||||||||||||||||||||||||||
| John P. Meloun(2) Chief Financial Officer | 2017 | 188,750 | — | — | 52,935 | — | — | — | 241,685 | |||||||||||||||||||||||||||
| 2016 | 163,847 | — | — | 79,764 | — | — | — | 243,611 | ||||||||||||||||||||||||||||
| Name | Year | Salary | Bonus | Stock Awards | Option Awards(3) | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation(4) | Total | |||||||||
| Perter D. Holt(1) | 2019 | $410,000 | $256,250 | $73,803 | $172,317 | $ - | $ - | $315 | $912,685 | |||||||||
| President and Chief Executive Officer | 2018 | 409,084 | 214,997 | 24,998 | 75,622 | - | - | - | 724,701 | |||||||||
| Jake Singleton(2) | 2019 | 200,000 | 100,000 | - | - | - | - | 3,408 | 303,408 | |||||||||
| Chief Financial Officer | 2018 | 183,013 | 46,157 | 86,254 | 116,343 | - | - | 3,109 | 434,876 |
| (1) | Mr. Holt has served as our President and Chief Executive Officer since January 2017. Prior to January 2017, Mr. Holt served as Chief Executive Officer from August 2016, acting Chief Executive Officer from June 2016, and Chief Operating Officer from April 2016. |
| (2) | Mr. |
| (3) | The amounts in this column represent the share-based compensation expense recorded in our audited financial statements for the years ended December 31, 2019, and 2018, based on the option’s grant-date fair value. For a discussion of |
| (4) | The amounts in this column represent company contributions (including matching contributions), whether or not vested, on a nondiscriminatory basis to a defined contribution plan (e.g., 401(k) plan). |
Employment Agreements and Change in Control Arrangements
Current Executive Officers
On December 4, 2018, Mr. Holt’s amended and restatedHolt entered into a new employment letter agreement was(replacing an earlier employment letter agreement) with the Company for a term of one year, effective as ofon January 1, 20172019, and will end on December 31, 2018. The agreement may beautomatically renewable for successive one-year terms unless terminated at any time. Not less than 60 days beforeby either party. Under the expiration of the agreement, the Company andemployment letter, Mr. Holt will enter into good faith negotiations regardingcurrently receives a base annual salary of $410,000 and a yearly bonus under the extension or renewalCompany’s Executive Short-Term Incentive Plan (the “Executive STIP”), as described below. Mr. Holt is also eligible to participate in the Company’s incentive stock plan and any other future long-term incentive plans, subject to the terms and eligibility requirements of any such plans and at the term. On March 7, 2018,discretion of the Company’s Board of Directors votedor Compensation Committee in making awards under such plans. Mr. Holt is entitled to increase Mr. Holt’san annual award under the stock plan equal to 60% of his base salary, by 3%, effectivewhich vests in four equal annual installments on each of the first four anniversaries of the grant date. The award is granted at the same time as compensation adjustments are madethat other employees receive their long-term incentive grants. Equity awards outstanding at December 31, 2019, that have been granted to Mr. Holt in accordance with the Company’s employee review process generally.
Mr. Holt’s employment agreement provides that, in addition to his base salary, he may earn incentive compensation of up to 50% of his then-current base salary depending on the Company’s attainment of certain corporate performance goals as established by the Board of Directors and the achievement of mutually agreed-on individual performance goals. In connection with his employment Mr. Holt has received stock options as outlinedare shown in the table below.
Mr. Holt’s employment agreement shall terminate at any time prior to its expiration upon the occurrence of any one of the following events:
Upon the cessation of Mr. Holt’s employment for any reason in paragraphs (i.) – (iv.) above, the Company shall pay Mr. Holt (or his estate) his accrued salary through his last day of active employment.
Upon the Company’s termination of Mr. Holt’s employment for “cause” (as defined in the employment agreement), the Company shall have no obligation to continue to pay any base salary payments (other than as accrued through his last day of active employment) or bonus payments.
Upon the Company’s termination of Mr. Holt’s employment without “cause” (as defined in the employment agreement)letter), subject to the Company and Mr. Holt entering into a separation agreement containing customary provisions, the Company shallwill continue to pay Mr. Holt his then current base salary and earned bonus payments for a period of twelve months after the date of termination and shall pay Mr. Holt any bonus payments he shallmay have earned prior to the date of termination, and thetermination. The Company shall havehas no obligation to pay Mr. Holt any salarybonus amounts accruing in periods following the date of his termination.
In addition, the Company shall provide Mr. Holt withhas the right to continue to participate in the Company’s group health insurance program under COBRA continuation coverage during the statutory continuation period following thehis termination date, the first six months of which shallwill be paid by the Company and the balance by Mr. Holt.
In the event If termination is in connection with a Change of a pending “change of control”Control (as defined in the employment agreement) whereinletter), only the first three months will be paid by the Company.
On November 6, 2018, Mr. Singleton entered in an employment letter agreement with the Company for a term of one year, automatically renewable for successive one-year terms unless terminated by either party. Under the employment letter, Mr. Singleton received a base annual salary of $200,000, which was increased to $225,000 retroactive to January 1, 2020, pursuant to an amendment to the employment letter dated March 3, 2020. Mr. Singleton is also entitled to a yearly bonus under the Company’s Executive STIP as described below. Mr. Singleton is eligible to participate in the Company’s incentive stock plan and any other future long-term incentive plans, subject to the terms and eligibility requirements of any such plans and at the discretion of the Company’s Board of Directors or Compensation Committee in making awards under such plans. Mr. Singleton was previously entitled to an award of stock options in the amount of 35,000 shares, which under the amended employment letter was replaced with an annual award equal to 50% of his base salary, vesting in four equal annual installments on each of the first four anniversaries of the grant date. The award is granted at the same time that other employees receive their long-term incentive grants. Equity awards outstanding at December 31, 2019, that have been granted to Mr. Singleton in connection with his employment are shown in the table below.
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Upon the Company’s termination of Mr. Singleton’s employment without “cause” (as defined in the employment letter), subject to the Company and Mr. Holt have not received written notice at least five (5) business days prior to the anticipated closing of the transaction giving rise to the “change of control” from the successor to all orSingleton entering into a substantial portion of the Company’s business and/or assets that such successor is willing as of the “change of control” date to assume and agree to perform all of the Company’s obligations under Mr. Holt’s employmentseparation agreement in the same manner and to the same extent thatcontaining customary provisions, the Company is required to perform, the Company shallwill continue to pay Mr. Singleton his then current base salary payments for a period of twelvesix months after the date of the “change of control”termination and shall pay Mr. Holt any bonus payments he shallmay have earned prior to the date of “changetermination. The Company has no obligation to pay Mr. Singleton any bonus amounts accruing in periods following the date of control”. his termination.
In addition, the Company shall provide Mr. Holt withSingleton has the right to continue to participate in the Company’s group health insurance program under COBRA continuation coverage during the statutory continuation period following thehis termination date, the first threesix months of which shallwill be paid by the Company and the balance by Mr. Holt.Singleton. If termination is in connection with a Change of Control (as defined in the employment letter), only the first three months will be paid by the Company.
Both Mr. Meloun’s employment agreement expired on December 31, 2017. He is not currently operating under an employment agreement. On December 14, 2017,Holt and Mr. Singleton participate in the Company’s Board of Directors voted to increaseannual Executive STIP. Participants in the annual base salary of Mr. Meloun to $215,000, effective January 1, 2018. In addition,Executive STIP receive payment only if the Company achieves its target EBITDA for the year in question, which is established by the Board of Directors approvedDirectors. The Executive STIP bonus pool is combined with the bonus pool for the Non-Executive Short-Term Incentive Plan (the “Combined Pool”). The Compensation Committee establishes the maximum amount that may be allocated to the Combined Pool, and the amount by which the actual EBITDA exceeds the target EBITDA is allocated to the Combined Pool up to the established maximum. The amount allocated to the Combined Pool is then paid to the participants in both the Executive STIP and the Non-Executive Short-Term Incentive Plan on a severancepro rata basis based on their respective eligibility, and in each case, up to their maximum targeted STIP award. Mr. Holt’s targeted STIP award may not exceed 50% of nine monthshis base salary. Mr. Singleton’s award may not exceed 40% of his base salary.
Notwithstanding the foregoing, in the event that the actual EBITDA for termination other thanthe year in question after the funding of the maximum amount allocated to the Combined Pool as described in the previous paragraph (“Revised EBITDA”) exceeds the target EBITDA, the maximum targeted STIP award for cause or disability.Mr. Holt would increase to 62.5% of his base salary and the maximum targeted STIP award for Mr. Singleton would increase to 50% of his base salary. In connection with his employment, Mr. Meloun has received stock optionsthat event, 25% of each dollar by which Revised EBITDA exceeds the budgeted EBITDA is added to the Combined Pool and allocated to the participants in both the Executive STIP and the Non-Executive Short-Term Incentive Plan on a restricted stockpro rata basis based on their respective eligibility, and in each case, up to their maximum targeted STIP award, as adjusted.
Both Mr. Holt and Mr. Singleton are also parties to confidentiality, non-solicitation and non-competition agreements with the Company, pursuant to which each of them is subject to certain restrictive covenants, including non-solicitation and non-competition covenants, during the period of employment and for a outlined inperiod of twenty-four months after termination of employment.
Please see “Part II, Item 6, Selected Financial Data” on page 29 of our Annual Report on Form 10-K for the table below.year ended December 31, 2019, filed with the SEC on March 6, 2020, for the calculation of EBITDA.
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Outstanding Equity Awards at 20172019 Year-End
The following table provides a summary of equity awards outstanding at December 31, 2017,2019, for each of our named executive officers.
| Option Awards(1) | Stock Awards(2) | Option Awards(1) | Stock Awards(2) | |||||||||||||||||||||||||||||||||||||||||||||
| Name | Number of securities underlying unexercised options exercisable | Number of securities underlying unexercised options unexercisable | Option exercise price | Option expiration date | Number of shares of stock that have not vested | Market value of shares that have not vested | Number of securities underlying unexercised options exercisable | Number of securities underlying unexercised options unexercisable | Option exercise price | Option expiration date | Number of shares of stock that have not vested | Market value of shares that have not vested | ||||||||||||||||||||||||||||||||||||
| Peter D. Holt | 23,750 | 71,250 | (3) | $ | 3.14 | 5/3/2026 | — | — | 71,250 | 23,750 | (3) | $ | 3.14 | 5/3/2026 | ||||||||||||||||||||||||||||||||||
| 12,500 | 37,500 | (4) | $ | 2.23 | 7/11/2026 | — | — | 37,500 | 12,500 | (4) | $ | 2.23 | 7/11/2026 | |||||||||||||||||||||||||||||||||||
| — | 20,003 | (5) | $ | 3.88 | 5/9/2027 | 20,003 | — | (5) | $ | 3.88 | 5/9/2027 | |||||||||||||||||||||||||||||||||||||
| �� | 15,000 | (6) | $ | 5.51 | 11/10/2027 | 7,500 | 7,500 | (6) | $ | 5.51 | 11/10/20277 | |||||||||||||||||||||||||||||||||||||
| John P. Meloun | — | — | — | — | 2,000 | (7) | $ | 9,920 | ||||||||||||||||||||||||||||||||||||||||
| 5,403 | 16,211 | (7) | $ | 8.25 | 8/7/2028 | |||||||||||||||||||||||||||||||||||||||||||
| — | 34,718 | (8) | $ | 12.02 | 3/5/2029 | |||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 8,413 | (9) | $ | 135,786 | |||||||||||||||||||||||||||||||||||||||||
| Jake Singleton | 7,500 | 2,500 | (10) | $ | 4.10 | 3/14/2026 | ||||||||||||||||||||||||||||||||||||||||||
| 2,500 | 7,500 | (8) | $ | 4.10 | 3/14/2026 | — | — | 15,000 | 5,000 | (11) | $ | 2.24 | 8/9/2026 | |||||||||||||||||||||||||||||||||||
| 5,000 | 15,000 | (9) | $ | 2.24 | 8/9/2026 | — | — | 10,473 | — | (12) | $ | 3.88 | 5/9/2027 | |||||||||||||||||||||||||||||||||||
| 8,750 | 26,250 | (10) | $ | 2.51 | 11/8/2026 | — | — | 5,000 | 5,000 | (13) | $ | 5.51 | 11/10/2027 | |||||||||||||||||||||||||||||||||||
| — | 13,907 | (11) | $ | 3.88 | 5/9/2027 | 810 | 2,432 | (14) | $ | 8.25 | 8/7/2028 | |||||||||||||||||||||||||||||||||||||
| — | 12,000 | (12) | $ | 5.51 | 11/10/2027 | 8,750 | 26,250 | (15) | $ | 7.10 | 11/6/2028 | |||||||||||||||||||||||||||||||||||||
| — | — | — | — | 7,482 | (16) | $ | 126,570 | |||||||||||||||||||||||||||||||||||||||||
| (1) | Outstanding stock options at December 31, |
| (2) | Restricted stock awards at December 31, |
| (3) | Options to acquire 95,000 shares were granted on May 3, 2016, and one-quarter (25%) of the option shares vest on each of the first four anniversaries of the grant date. |
| (4) | Options to acquire 50,000 shares were granted on July 11, 2016, and one-quarter (25%) of the option shares vest on each of the first four anniversaries of the grant date. |
| (5) | Options to acquire 20,003 shares were granted on May 9, 2017, and vested in full on March 31, 2018. |
| (6) | Options to acquire 15,000 shares were granted on November 10, 2017, and one-quarter (25%) of the option shares vest on each of the first four anniversaries of the grant date. |
| (7) | Options to acquire 21,614 shares were granted on August 7, 2018, and one-quarter (25%) of the option shares vest on each of the first four anniversaries of the grant date. |
| (8) | Options to acquire 34,718 shares were granted on March 5, 2019, and one-quarter (25%) of the option shares vest on each of the first four anniversaries of the grant date. |
| (9) | Restricted stock awards of 6,140 shares and 2,273 shares were granted on |
Options to acquire 10,000 shares were granted on March 14, 2016, and one-quarter (25%) of the option shares vest on each of the first four anniversaries of the grant date. |
Options to acquire 20,000 shares were granted on August 9, 2016, and one-quarter (25%) of the option shares vest on each of the first four anniversaries of the grant date. |
Options to acquire | ||
|
| Options to acquire |
| (14) | Options to acquire 3,242 shares were granted on August 7, 2018, and one-quarter (25%) of the option shares vest on each of the first four anniversaries of the grant date. |
| (15) | Options to acquire 35,000 shares were granted on November 6, 2018, and one-quarter (25%) of the option shares vest on each of the first four anniversaries of the grant date. |
| (16) | Restricted stock awards were granted on August 7, 2018, and one-quarter (25%) of the restricted shares vest on each of the first four anniversaries of the grant date. |
Equity Compensation Plan Information
We maintain two equity compensation plans, the 2014 Incentive Stock Plan (the “2014 Plan”) and the 2012 Stock Plan (the “2012 Plan”). The 2014 Plan replaced the 2012 Plan, but the 2012 plan remains in effect for the administration of awards made prior to its replacement by the 2014 Plan. The following table summarizes information about our equity compensation plans as of December 31, 2017.2019. All outstanding awards relate to our common stock.
| Plan Category | Number of securities to be issued upon exercise of options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 84,118 | |||||||||||
| Stock options | 1,003,916 | $ | 4.18 | |||||||||
| Restricted stock | 63,700 | n/a | ||||||||||
| Total | 1,067,616 | 84,118 | ||||||||||
| Plan Category | (a) Number of securities to be issued upon exercise of options, warrants and rights(1) | (b) Weighted-average exercise price of outstanding options, warrants and rights(2) | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column (a))(3) | |||
| Equity compensation plans approved by security holders | 949,245 | $ 5.19 | 489,892 | |||
| Equity compensation plans not approved by security holders | Nil | Nil | Nil | |||
| Total | 949,245 | $ 5.19 | 489,892 |
| (1) | This number includes the following: 3,560 shares subject to outstanding awards granted under the 2012 Plan and 945,685 shares subject to outstanding awards granted under the 2014 Plan. |
| (2) | The weighted-average exercise price is calculated based solely on the exercise prices of the outstanding stock options. |
| (3) | This number consists of 489,892 shares available for issuance under the 2014 Plan. |
Item 2
ADVISORY VOTE ON EXECUTIVE COMPENSATION
We are asking stockholders to approve an advisory resolution on the compensation of our named executive officers as reported in this proxy statement, commonly referred to as the “say-on-pay” vote. Although the say-on-pay vote is advisory and therefore non-binding, our Board and Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation program. As described above in the “Executive Compensation” section of this proxy statement, our Compensation Committee has structured our executive compensation program to achieve the following key objectives:
| · | Attract and retain highly qualified and productive executives. |
| · | Motivate executives to enhance our overall performance and profitability through the successful execution of the Company’s short-term and long-term business strategies, with an emphasis on the long-term. |
| · | Align the long-term interests of our executives and stockholders through ownership of the Company’s common stock by executives and by rewarding stockholder value creation. |
| · | Ensure that compensation opportunities are competitive. |
We encourage stockholders to read the “Executive Compensation” section of this proxy statement, which provides an overview of our executive compensation policies and procedures. The Summary Compensation Table and other related compensation tables and narrative provide detailed information on the compensation of our named executive officers. Our Board and Compensation Committee believe that the policies and procedures articulated in the “Executive Compensation” section of this proxy statement are effective in achieving our goals and that the compensation of the named executive officers reported in this proxy statement has contributed to our success.
In accordance with Section 14A of the Exchange Act and as a matter of good corporate governance, we are asking stockholders to approve the following advisory resolution at the 2020 Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on a non-binding advisory basis, the compensation of the named executive officers as disclosed pursuant to Item 402 of Regulation S-K in the Company’s proxy statement for the 2020 annual meeting of stockholders.”
As an advisory vote, this proposal is not binding on us or our Board or Compensation Committee. The outcome of this advisory vote does not overrule any decision by us or our Board or Compensation Committee, nor will it create or imply any change to our fiduciary duties or those of our Board or Compensation Committee. However, our Board and Compensation Committee value the opinions to be expressed by our stockholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for our named executive officers.
The Board of Directors recommends that stockholders vote “FOR” the approval of the compensation of our named executive officers for 2020 on an advisory basis.
ADVISORY VOTE ON THE FREQUENCY OF THE VOTE ON EXECUTIVE COMPENSATION
As required by Section 14A of the Securities Exchange Act, this proposal, commonly referred to as the “say-on-frequency” vote, provides our stockholders with the opportunity to vote on how frequently they would like to cast an advisory vote on executive compensation. In casting their advisory vote, stockholders may choose among four options: (1) an annual vote, (2) a vote every two years (biennial), (3) a vote every three years (triennial) or (4) abstain from voting on this proposal. Our Board believes that annual voting is most appropriate for the Company so that stockholders may annually express their views on our executive compensation program. Like the advisory vote on executive compensation, the advisory vote on the frequency of such vote is non-binding on our Board and Compensation Committee. Although the vote is non-binding, our Board and Compensation Committee value the opinions of our stockholders and will consider the outcome of this advisory vote when determining the frequency of the advisory vote on executive compensation. The option that receives the greatest number of votes will be considered the preferred frequency of the stockholders. Abstentions and broker non-votes will have no effect on the outcome of this advisory vote. The say-on-pay frequency vote is required to be held at least once every six years, and it is expected that the next vote on a say-on-pay frequency proposal will occur at the 2026 annual meeting of stockholders.
The Board of Directors recommends that stockholders vote to hold the advisory vote on named executive compensation every ONE YEAR.
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RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTING FIRM
We have appointed EKS&H LLLPPlante & Moran, PLLC as our independent registered public accounting firm for the fiscal year ending December 31, 2018. EKS&H LLLP2020. Plante & Moran, PLLC has served as our independent registered public accounting firm since JanuaryOctober 2018. Plante & Moran, PLLC served as our independent registered public accounting firm for the year ended December 31, 2019. They or their predecessor, EKS&H LLLP, have served as our public accounting firm since 2014, when they were retained in preparation for our initial public offering. Representatives of EKS&H LLLPPlante & Moran, PLLC are expected to be present at the Annual Meeting to respond to appropriate questions and will have the opportunity to make a statement if they desire to do so.
The aggregate fees billed by EKS&H LLLPPlante & Moran, PLLC for professional services rendered in connection with the audit of our annual financial statements during the fiscal years ended December 31, 20172019, and 20162018 were $208,726$331,860 and $210,723,$197,497, respectively.
The aggregate fees billed by Plante & Moran, PLLC for professional services rendered in connection with the audit of our 401(k) plan and other audit-related services during the fiscal year ended December 31, 2019, and 2018 were $67,000 and $11,000, respectively.
There were no aggregate fees billed by EKS&H LLLP for audit-related services during the fiscal years ended December 31, 2017 and 2016, respectively.
There were no aggregate fees billed by EKS&H LLLPPlante & Moran, PLLC for tax compliance, tax advice and tax planning services provided to us during the fiscal years ended December 31, 20172019, and 2016,2018, respectively.
EKS&H LLLPPlante & Moran, PLLC did not provide any other services to us during the fiscal year ended December 31, 2017 or December 31, 2016.2019, and 2018, respectively, other than for professional services rendered in connection with the audit of our annual financial statements and the audit related services noted above.
In accordance with policies adopted by the Audit Committee of our Board of Directors, all audit and non-audit related services to be performed for us by our independent public accountants must be approved in advance by the Committee.
Ratification of the appointment of EKS&H LLLPPlante & Moran, PLLC as our independent registered public accounting firm will require the affirmative vote of holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting. If our stockholders do not ratify the appointment of EKS&H LLLP,Plante & Moran, PLLC, our Board of Directors may reconsider their appointment.
The Board of Directors recommends that stockholders vote “FOR” ratification of the appointment of EKS&H LLLPPlante & Moran, PLLC as our independent registered public accounting firm for the fiscal year ending December 31, 2018.
Item 3
VOTE TO APPROVE INCREASE IN AVAILABLE SHARES UNDER THE AMENDED AND RESTATED 2014 INCENTIVE STOCK PLAN
Stockholders are being asked to consider and approve a proposal to increase the number of shares available for grants under the Amended and Restated 2014 Incentive Stock Plan (the “Amended Stock Plan”). The increase in the number of shares, if approved, will permit the Company to continue making equity-based incentive awards to its employees, directors, consultants and advisors in a manner intended to properly incentivize such individuals by aligning their interest with the interests of the Company’s stockholders. When the Amended Stock Plan was approved, the Company had reserved 1,513,000 shares for issuance of awards. As of the April 16, 2018 record date for the 2018 Annual Meeting, approximately 26,723 shares remained available for future grants of awards under the Amended Stock Plan. The proposal, if approved, would increase the number of shares available for future grants under the Existing Plan by 700,000 shares, for a total of 2,213,000 authorized shares.
The Company is not currently contemplating any specific grants under the Amended Stock Plan, although we anticipate that the annual grants of restricted stock awards to directors (which are currently anticipated to be similar to the annual grants for fiscal 2017 described under “Election of Directors – Director Compensation”) will be made.
The principal purpose of the proposed increase in the number of shares under the Amended Stock Plan is to facilitate our continued ability to grant awards to key employees, directors and consultants of the Company in order to incentivize employees to remain employed by the Company, recognize and reward them for their efforts on the Company’s behalf and motivate them to contribute to the Company’s attainment of its performance objectives. Our ability to make equity-based awards helps us attract, retain and motivate key employees and directors as well as foster long-term value creation.
The Company’s Board of Directors has approved the increase in the number of shares under the Amended Stock Plan and, if the increase is approved by stockholders at the 2018 Annual Meeting, it will become immediately effective as of the date of the 2018 Annual Meeting. If stockholders do not approve the increase, the Amended Stock Plan will continue as currently in effect, but there may not be sufficient shares remaining in the Amended Stock Plan to make all of the additional grants that the Company considers advisable.
The below discussion is only a summary and does not contain all the information about the Amended Stock Plan that may be important to you. It is qualified in its entirety by the full text of the Amended Stock Plan, as set forth in Appendix A hereto, which reflects the proposed increase in available shares under the Amended Stock Plan for illustrative purposes.
Summary of Principal Terms of Amended Stock Plan
Types of Awards
The Amended Stock Plan provides for the grant of stock options, stock appreciation rights (“SARs”) (either alone or in tandem with stock options), shares of restricted stock, and restricted stock units (“RSUs”) (all of these types of grants collectively, “awards”). Stock options may be of two types: (i) incentive stock options (“ISOs”) intended to satisfy the requirements of section 422 of the Internal Revenue Code and (ii) nonstatutory stock options (i.e., options that do not qualify for special treatment under the Internal Revenue Code) (“NSOs”).
Eligibility
The Amended Stock Plan authorizes awards to be made to full-time and part-time employees of ours (or of subsidiaries of ours), to our directors and to individuals serving as consultants, with the exception that ISOs be granted only to our employees.
Number of Shares
The maximum number of shares of common stock for which awards may be granted under the Amended Stock Plan is 1,513,000 shares. If the proposed amendment is approved by our stockholders, this number will be increased to 2,213,000 shares.
In determining the shares available for awards under the plan, the shares for which stock options and SARs are granted count against this maximum on a 1-for-1 basis, and the shares for which restricted stock and RSU awards are granted count against this maximum on a 2-for-1 basis (so that each share for which a restricted stock or RSU award is granted reduces by two shares the available number of shares for which awards may be granted).
If a stock option or SAR lapses or expires unexercised or if a restricted stock or RSU award lapses, the number of shares in respect of which the stock option or SAR lapsed or expired, or twice the number of shares in respect of which the restricted stock or RSU award lapsed, is added back to the available number of shares for which awards may be granted under the plan.
Individual Limit on Awards
No person eligible for an award under the Amended Stock Plan may receive an award in any calendar year for more than 150,000 shares in the case of stock options and SARs and 150,000 shares in the case of shares of restricted stock and RSUs.
Term of the Amended Stock Plan
Our Amended Stock Plan has a 10-year term which began on May 15, 2014 and will automatically terminate in 2024, unless we terminate it sooner.
Administration
The Amended Stock Plan is administered by a committee of our Board of Directors (the “Committee”). The Committee is required to consist of two or more directors, all of whom are (i) “non-employee” directors as defined in Rule 16b-3 under the Securities Exchange Act of 1934, (ii) “independent directors” under the applicable listing standards of The NASDAQ Capital Market, and (iii) “outside directors” under §162(m) of the Internal Revenue Code. Unless the Board designates a different committee, the Compensation Committee of the Board will serve as the Committee (as long as all of the members of the Compensation Committee qualify).
Subject to the terms of the Amended Stock Plan, the Committee has the authority to select the eligible persons to whom awards are to be granted and to determine the time, type, number of shares, vesting, restrictions, limitations and other terms and conditions of each award.
Performance Goals
The Committee may condition the vesting of any award under the plan on the attainment of one or more performance goals relating to the Company as a whole or to a division or subsidiary. Performance goals may differ among employees and from award to award. The performance goals that the Committee specifies may relate to: earnings per share; earnings before interest, taxes, depreciation and amortization; revenues; income from operations; return on invested capital; return on assets; internal rate of return; return on stockholders’ equity; and total return to stockholders.
Options and SARs
Award of Options and SARs
The Amended Stock Plan permits the award of options to purchase shares of our common stock and the award of SARs. An SAR entitles the holder to receive the appreciation in value over a specified period of the number of shares of our common stock for which the SAR is awarded. The holder of the SAR receives in settlement of the SAR an amount (either in cash or shares of our stock, or a combination of the two) equal to the excess of the fair market value of a share of our stock on the date of exercise of the SAR over the base price of the SAR, multiplied by the SAR’s number of shares.
Exercise Price
The Committee determines the exercise price of each option or SAR granted under the Amended Stock Plan, but the exercise price per share may not be less than the closing price of a share of our common stock on the date of grant.
Term
The Committee determines the term of each option or SAR at the time of the grant, which may not exceed 10 years.
Vesting
The Committee specifies the time or times when each option or SAR becomes vested (i.e., exercisable). Vesting may be based on the holder’s continued service or on the satisfaction of specified performance goals or other conditions. The Committee may accelerate the vesting of an option or SAR at any time.
Any unvested portion of an option or SAR held by an employee expires on termination of employment, except if termination is due to death, in which case the option or SAR becomes fully vested.
Exercisability
Once vested, an option or SAR remains exercisable for its term, subject to early expiration in certain circumstances. A terminated recipient may exercise the vested portion of his or her option or SAR for the period of time stated in the award agreement. Generally, the option or SAR will remain exercisable for 90 days following termination, except if termination is due to death, in which case the option or SAR remains exercisable for 1 year following termination. In no event, however, may any option or SAR be exercised later than the expiration of its term.
In general, any stock options or SARs that the Committee grants to employees vest in four annual installments of 25% of the option shares or SARs on each anniversary of the option grant date.
Manner of Exercise
The holder of an option may exercise the vested portion of the option by giving written notice to the Committee, specifying the number of shares of common stock for which the option is being exercised and tendering payment of the exercise price. The exercise price is payable in cash or, if permitted by the Committee, either in the underlying award agreement or at the time of exercise, by (i) delivering shares of our stock having a fair market value equal to the exercise price, (ii) directing us to withhold, from the shares otherwise issuable upon exercise of the option, shares of stock having a fair market value equal to the exercise price, (iii) an open-market broker-assisted sale pursuant to which we receive a portion of the sales proceeds equal to the exercise price, or (iv) any combination of these methods or any other method that the Committee authorizes.
No Repricing
Options and SARs may not be repriced unless the repricing is approved by our stockholders.
Special Limitations on ISOs
To the extent that the aggregate fair market value of the underlying shares of all ISOs that become exercisable by an individual for the first time in any calendar year exceeds $100,000, the options will be treated as NSOs.
Transferability
No option or SAR may be transferred, assigned or pledged, except at death in accordance with the decedent’s will or the applicable laws of intestacy, or as provided in the underlying award agreement or as the Committee otherwise permits, or if (i) the transferee is a revocable trust that the employee established for estate planning reasons (in respect of which the employee is treated as the owner for federal income tax purposes) or (ii) the transferee is the spouse of the employee or a child, step-child, grandchild, parent, sibling or child of a sibling of the employee (each an eligible transferee), a custodian for an eligible transferee under any Uniform Transfers to Minors Act or Uniform Gifts to Minors Act or a trust for the primary benefit of one or more eligible transferees.
Award to Outside Directors
While our Amended Stock Plan provides for the automatic grant, on the election or re-election of each non-employee director to our board of directors, of a nonstatutory stock option for 10,000 shares, our Board adopted a policy on August 8, 2016, as amended on August 8, 2017, which discontinues this option grant. The policy instead provides for a grant to each non-employee director, upon his or her election or re-election as a director, of a number of shares of restricted stock equal to $40,000, divided by the closing price of our stock on his or her election or re-election date. This restricted stock vests on the first anniversary of the grant.
Restricted Stock and RSUs
Award of Restricted Shares and RSUs
Our Amended Stock Plan permits the award of restricted shares and RSUs. An award of restricted shares is an award of shares of our common stock, subject to vesting requirements, restrictions on transfer and other terms and conditions as the Committee determines. An RSU award entitles the holder to receive a payment (either in cash or shares of our stock, or a combination of the two) equal to the value of a share of our common stock at the time of payment multiplied by the number of shares subject to the award.
Vesting
The Committee specifies the time or times when the restricted shares or RSUs become vested (i.e., no longer subject to forfeiture). Vesting may be based on continued service or on the satisfaction of specified performance goals or other conditions. The Committee may accelerate the vesting of the restricted shares or RSUs at any time.
Any unvested portion of an award of restricted shares or RSUs to an employee expires on termination of employment, except if termination is due to death, in which case the restricted shares or RSUs become fully vested.
Transferability of Awards
Unless otherwise determined by the Committee, unvested restricted shares and RSU awards generally may not be transferred. After vesting, restricted shares may still remain subject to restrictions on transfer under applicable securities laws and any restrictions imposed by the award agreement.
Adjustments Upon Change in Control
Our Amended Stock Plan provides that in the event of a change in control as defined in the plan, all outstanding unvested stock options, SARs and RSU awards will immediately vest and become exercisable and all restrictions on the shares underlying restricted stock awards will lapse.
Amendment and Termination of the Amended Stock Plan
Our Board of Directors has the authority to amend, suspend or terminate the Amended Stock Plan provided it does not impair the rights of the holder of any outstanding award. Any amendment to the Amended Stock Plan that would materially increase the number of shares of our common stock for which awards may be granted requires the approval of our stockholders.
U.S. Federal Income Tax Consequences
Stock Options
The U.S. federal income tax treatment of ISOs and NSOs is significantly different.
The grant of an ISO or NSO will not result in any federal income tax consequences to the holder of the option or to us.
The exercise of an ISO will not result in any regular income tax to the holder of the option or any income tax consequences to us. The exercise of an ISO, however, may affect the holder's alternative minimum tax liability. Unless the shares acquired upon exercise of the ISO are disposed of in the same year, the holder's alternative minimum taxable income will be increased in an amount equal to the excess of (i) the fair market on the date of exercise of the shares acquired over (ii) the exercise price of the ISO.
The exercise of a NSO will result in ordinary income to the holder in an amount equal to the excess of (i) the fair market value on the date of exercise of the shares acquired over (ii) the exercise price of the NSO. We will be entitled to an income tax deduction in the same amount. If, however, payment of the exercise price of the NSO is made by delivering shares of our common stock that the holder already owns, a number of new shares equal to the number of shares delivered in payment of the exercise price will be considered to have been received in a tax-free exchange, and the holder’s basis and holding period for those new shares will be equal to holder’s basis and holding period for the shares delivered in payment. The holder will realize ordinary income equal to the fair market value on the date of exercise of the balance of the new shares received upon exercise of the NSO, and the holder’s basis in those new shares will be equal to the ordinary income realized and his or her holding period in respect of those shares will begin on the date of exercise of the NSO. In either situation, we will be entitled to an income tax deduction corresponding to the holder’s ordinary income.
2020.
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Gain on the sale of shares acquired upon the exercise of an ISO is measured by the excess of (i) the amount realized on the sale of the shares over (ii) the exercise price of the ISO. If the shares acquired upon the exercise of an ISO are not sold either within one year from the date of exercise or two years from the grant date of the ISO, the holder's gain on the sale of the shares will be treated as long-term capital gain. If the shares are sold within either of these periods, a portion of the holder's gain will be treated as ordinary income and the balance, if any, will be treated as short-term or long-term capital gain (depending upon whether the shares were held for more than one year). The portion treated as ordinary income is equal to the excess of (i) the lesser of (a) the fair market value on the date of exercise of the shares sold or (b) the amount realized on the sale of the shares, over (ii) the exercise price of the ISO. We will be entitled to an income tax deduction in the year of sale in an amount equal to the portion of the holder's gain treated as ordinary income.
Gain on the sale of shares acquired upon exercise of a NSO is measured by the excess of (i) the amount realized on the sale of the shares over (ii) the holder's adjusted basis in those shares. The holder's adjusted basis is the sum of (i) the exercise price of the NSO and (ii) the ordinary income realized upon the exercise of the NSO. The holder's gain on the sale of the shares will be treated as long-term or short-term capital gain (depending upon whether the shares were held for more than one year).
The holder of a SAR will not recognize taxable income when the SAR is granted. Upon exercise of the SAR, the amount paid in settlement, whether in cash or shares of our common stock, will be taxed as ordinary income to the holder. We will be entitled to a corresponding income tax deduction.
In the case of a tandem SAR, the tax consequences upon exercise of the SAR will be the same if the holder elects to surrender the related stock option. If the holder instead elects to exercise the tandem stock option and the SAR is automatically cancelled, the cancellation of the SAR will not be taxable to the holder.
Restricted Stock Awards
An award of shares of restricted stock is not generally a taxable event. The holder of an award of restricted shares will realize ordinary income each year in which the award vests in an amount equal to the fair market value at the time of vesting of the shares that vest. We will be entitled to a corresponding income tax deduction. The holder’s basis in those shares will be the amount of his or her ordinary income, and any gain or loss recognized on a subsequent sale of those shares will be treated as short-term or long-term capital gain (depending upon whether the shares were held for more than one year).
RSUs
An award of RSUs units is not generally a taxable event. The holder of a RSU award will realize ordinary income each year in which units vest in an amount equal to the amount paid in settlement of the vested units, whether paid in cash or shares of our common stock. We will be entitled to a corresponding income tax deduction. The holder’s basis in any shares paid in settlement will be the amount of his or her ordinary income, and any gain or loss recognized on a subsequent sale of those shares will be treated as short-term or long-term capital gain (depending upon whether the shares were held for more than one year).
The Board of Directors recommends that stockholders vote “FOR” approval of an amendment to the Company’s Amended and Restated 2014 Incentive Stock Plan to increase the number of shares reserved for issuance under the Plan by 700,000 shares.
Item 4
VOTE ON A STOCKHOLDER PROPOSAL TO AMEND OUR BYLAW REGARDING STOCKHOLDER PROXY ACCESS
In accordance with SEC rules, we have set forth below a stockholder proposal, along with the supporting statement of the stockholder proponent, Steven Colmar. The stockholder proposal and the supporting statement are included exactly as submitted to us by the stockholder proponent. The Company disclaims responsibility for the content of the stockholder proponent’s proposal and supporting statement. The stockholder proposal is required to be voted on at our annual meeting only if properly presented.
Stockholder Proposal:
RESOLVED, that the board of directors of the Corporation shall amend the Bylaws of the Corporation to provide that the Corporation shall include in its proxy statement for an annual meeting of stockholders the name of any person nominated for election to the board of directors of the Corporation by any stockholder or group of stockholders who own at least three percent (3%) of the outstanding shares of common stock of the Corporation and have owned such shares for a period of at least three years. Such stockholders shall be entitled to nominate up to 20% of the number of directors then in office.
Supporting Statement: It is good corporate governance to allow significant qualified shareholders to have the option to nominate directors they believe might be value added. The corporation exists for the benefit of shareholders. In the case of the Joint Corp, certain shareholders have significantly more shares than management and/or the board of directors combined, and therefore have a larger vested interest in the performance of the company. Currently, management and directors have a limited stake in the company, approximately 1.7% of the shares outstanding. Therefore it seems to make sense, and is good corporate governance to allow those qualified shareholders with significantly larger stakes and more at risk to have a mechanism for nominating directors they believe could have added value to the overall goals of the corporation.
The Board of Directors makes no recommendation either for or against the stockholder proposal to amend our bylaw regarding stockholder proxy access.
Why did I receive this proxy statement and other materials?
The Board of Directors of The Joint Corp. is soliciting proxies to vote shares of our stock at the 20182020 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Friday, June 1, 2018May 29, 2020, at 10:00 a.m. Mountain Standard Time at our executive offices located at 16767 N. Perimeter Drive, Suite 240,110, Scottsdale, Arizona 85260.
This proxy statement and our annual report to stockholders (which includes a copy of our Annual Report on Form 10-K for the year ended December 31, 2017)2019), were first made available to stockholders on or about April 27, 2018.24, 2020. Although both are made available together, our annual report to stockholders is not part of this proxy statement.
What will stockholders vote on at the Annual Meeting?
Stockholders will vote on the following matters at the Annual Meeting:
| the election to the Board of the |
| approval, on an advisory basis, of the compensation of our named executive officers (Proposal 2), |
| · | approval, on an advisory basis, of the frequency of an advisory vote on the compensation of our named executive officers (Proposal 3), |
| · | ratification of the appointment of | |
| any other matter that properly comes before the meeting. |
What are the Board’s voting recommendations?
The Board recommends that you vote your shares:
| FOReach of the |
| FOR the approval of the compensation of our named executive officers for 2020 on an advisory basis (Proposal 2), |
| · | For theANNUAL vote on the frequency of an advisory vote to approve executive compensation (Proposal 3), |
| · | FORratification of the appointment of | |
Who may vote at the Annual Meeting?
Only stockholders of record as of the close of business on April 16, 20182020, are entitled to vote at the Annual Meeting.
Each outstanding share of common stock as of the record date is entitled to one vote on all matters that come before the meeting. There is no cumulative voting.
As of the record date of April 16, 2018,2020, there were 13,593,75413,933,747 shares of our common stock outstanding.
What is the difference between a stockholder of record and a beneficial owner of shares held in street name?
If your shares are registered directly in your name with our stock registrar and transfer agent, Continental Stock Transfer and Trust Company, you are considered the stockholder of record for those shares and have the right to vote those shares directly. You may vote in person at the Annual Meeting or by proxy.
If your shares are held in an account at a brokerage firm, bank or other nominee (for convenient reference, a “broker”), you are considered the beneficial owner of those shares, which are said to be held in “street name,” and the broker is considered the stockholder of record for voting purposes. As the beneficial owner, you cannot vote the shares in your account directly, but you have the right to instruct the broker how to vote them.
As a beneficial owner, you are invited to attend the Annual Meeting, but because you are not a stockholder of record, you may not vote your shares at the Annual Meeting unless you obtain a valid proxy from your broker.
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If I am a stockholder of record, how do I vote?
You may vote by proxy by completing and signing the proxy card included in the materials and returning it in the postage-paid envelope provided (which must be received before those voting facilities are closed at 7:00 p.m. Eastern Daylight Time on May 31, 2018)28, 2020) or you may vote in person at the Annual Meeting.
If I am a beneficial owner of shares held in street name, how do I instruct my broker how to vote?
If you are a beneficial owner of our stock, you may instruct your broker how to vote by following the instructions in the notice provided to you by your broker.
What happens if I am a stockholder of record and sign and return the proxy card but do not make any voting choices?
The proxy holders (the persons named as proxies) will vote your shares in accordance with the Board’s voting recommendations for ItemsProposals 1, 2, 3, and 3. As the Board has made no recommendation on Item 4, the failure to make a voting choice with respect to Item 4 will be treated as an abstention, and your shares will not be voted on Item 4. See “What are the Board’s voting recommendations?” above.
We do not expect that any other matters will properly come before the Annual Meeting. If, however, any other matters do come before the meeting, the proxy holders will vote your shares in accordance with their judgment.
What happens if I am a beneficial owner of shares held in street name and do not give voting instructions to my broker?
Under the stock exchange and other rules governing brokers who are voting shares held in street name, brokers have authority to vote those shares at their discretion on routine matters but may not vote those shares on non-routine matters.
A “broker non-vote” occurs when your broker returns a proxy card for your shares held in street name but does not vote on a particular matter because (i) the broker has not received voting instructions from you and (ii) the broker does not have authority to vote on the matter without instructions because the matter is of a non-routine nature.
Which items to be voted on at the Annual Meeting are “routine” and which are “non-routine”?
The ratification of the appointment of our independent registered public accounting firm (Item 2)(Proposal 4) is considered a routine matter under the relevant rules. The election to the Board of the 7seven nominees for director (Item(Proposal 1), approvalthe advisory vote on the compensation of an increase inour named executive officers (Proposal 2), and the shares available underadvisory vote on the Company’s Amended and Restated 2014 Incentive Stock Plan (Itemfrequency of future stockholder votes on the compensation of our named executive officers (Proposal 3) and approval of a stockholder proposal to amend our bylaw regarding stockholder proxy access (Item 4) are considered non-routine matters.
What is the quorum required for the Annual Meeting?
Holders of a majority of our outstanding shares entitled to vote at the Annual Meeting who are present in person or represented by proxy will constitute a quorum to conduct business at the meeting.
If you are a stockholder of record and vote your shares by proxy, your shares will be counted for purposes of determining whether a quorum is present even if your voting choice is to abstain. Similarly, if you are a beneficial owner of shares held in street name and do not give voting instructions to your broker, your shares will be counted for purposes of determining whether a quorum is present if your broker votes your shares on any routine matter.
What are my choices in voting on the matters to be voted on at the Annual Meeting?
On ItemProposal 1, (the election of directors), you may vote “For” or “Against” each individual nominee or “Abstain” from voting on the nominee’s election.
On ItemProposal 2, (ratificationyou may vote “For” or “Against” approval, on an advisory basis, of the compensation of our named executive officers or “Abstain” from voting.
On Proposal 3, you may vote, on an advisory basis, for one of the following four options regarding the frequency of an advisory vote on executive compensation: (1) an annual vote, (2) a vote every two years (biennial), (3) a vote every three years (triennial), or (4) you may abstain from voting on this Proposal.
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On Proposal 4, you may vote “For” or “Against” the ratification of the appointment of our independent registered public accounting firm), you may vote “For” or “Against” the proposal or “Abstain” from voting on the proposal.
On Item 3 (approval of an increase in the shares available under the Company’s Amended and Restated 2014 Incentive Stock Plan), you may vote “For” or “Against” the proposal or “Abstain” from voting on the proposal.
On Item 4 (approval of a stockholder proposal to amend our bylaw regarding stockholder proxy access), you may vote “For” or “Against” the proposalfirm, or “Abstain” from voting on the proposal.
What are the voting requirements to approve the matters to be voted on at the Annual Meeting?
| · | Proposal 3 (vote, on an advisory basis, on the frequency of an advisory vote on the compensation of our named executive officers): The option that receives the greatest number of votes will be considered the preferred frequency of the stockholders. Abstentions and broker non-votes will have no effect on the outcome of this proposal. |
| · | Proposal 4 (ratification of the appointment of our independent registered public accounting firm): This proposal requires for approval the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote. Abstentions will have the same effect as a vote “Against.” Brokers will have discretionary authority to vote | |
Can I change my vote after I have voted?
If you are a stockholder of record, you may change your vote by returning a new, properly completed proxy card bearing a later date than the date of your original proxy card (before those voting facilities are closed at 7:00 p.m. Eastern Daylight Time on May 31, 2018)28, 2020).
In addition, you may revoke your proxy by attending the Annual Meeting in person and requesting to vote.
Attendance at the meeting in person will not, by itself, revoke your proxy. You may also revoke your proxy any time before the final vote at the Annual Meeting by filing a signed notice of revocation with the Secretary of the Company at 16767 N. Perimeter Drive, Suite 240,110, Scottsdale, AZ 85260.
If you are a beneficial owner of shares held in street name, you may submit new voting instructions to your broker as indicated in the notice provided to you by your broker.
How can I find out the voting results of the Annual Meeting?
The preliminary voting results will be announced at the Annual Meeting. The final voting results will be tallied by the inspector of elections and reported in a current report on Form 8-K, which we will file with the SEC within four business days following the Annual Meeting.
Who is paying for the cost of this proxy solicitation?
We will bear the cost of this proxy solicitation. Some of our officers and employees may solicit proxies by personal conversations, telephone, regular mail or email, but they will not receive any additional compensation for doing so. We will reimburse brokers and others for their reasonable charges and expenses in forwarding our proxy materials to stockholders who are beneficial owners of shares of our stock.
How can I attend the Annual Meeting?
We encourageAfter much deliberation, the Board of the Company has decided to still hold our stockholders to attend the Annual Meeting. The Annual Meeting will be held on Friday, June 1, 2018annual meeting as scheduled at 10:00 a.m. Mountain Standard Time on May 29, 2020, at 16767our corporate offices in Scottsdale, Arizona (16767 N. Perimeter Drive,Dr., Suite 240,110, Scottsdale, Arizona 85260. IfAZ 85260). However, in light of the serious nature and health risks from the spread of COVID-19 in larger gatherings, we are taking the unusual step of asking that you need directionsseriously consider not attending the annual meeting. Therefore, we ask that you promptly return your proxy or vote electronically as described in the proxy materials provided to the meeting, please call Investor Relations at (480) 245-5960.
you.
We will provide a copy of our annual report on Form 10-K for the fiscal year ended December 31, 20172019, without charge to each stockholder as of the record date who sends a written request to Investor Relations, The Joint Corp., 16767 N. Perimeter Drive, Suite 240,110, Scottsdale, Arizona 85260. Copies of this proxy statement and our Form 10-K as filed with the Securities and Exchange Commission are available in pdf format on our website,www.thejoint.com. ir.thejoint.com/sec-filings.Copies of this proxy statement and our Form 10-K also may be accessed directly from the SEC’s website,www.sec.gov.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.
Brokers with account holders who are The Joint Corp. stockholders may be “householding” our proxy materials. A single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, please notify your broker and direct your written request to The Joint Corp., Attention: Investor Relations, 16767 N. Perimeter Drive, Suite 240,110, Scottsdale, AZ, 85260, and one will be promptly provided. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their broker.
As of the date of this proxy statement, management is unaware of any matter for action by stockholders at the meeting other than those described in the accompanying notice. The enclosed proxy, however, will confer discretionary authority with respect to any other matter that may properly come before the annual meeting, or any adjournment thereof. It is the intention of the persons named in the enclosed proxy to vote in accordance with their best judgment on any such matter.
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR THE 20192021 ANNUAL MEETING
Any stockholder who wishes to present a proposal for consideration at our 20192021 Annual Meeting of Stockholders, and to have the proposal included in our proxy statement for the meeting, must submit the proposal to us byon or before December 28, 2018. In accordance with our bylaws, any stockholder who wishes to present a proposal from the floor for consideration at our 2019 Annual Meeting of Stockholders must submit the proposal to us no earlier than February 1, 2019 and no later than March 3, 2019.
25, 2020. Stockholder proposals for inclusion in our proxy statement must comply with the rules of the Securities and Exchange Commission in order to be included.
In accordance with our bylaws, any stockholder who wishes to present a proposal from the floor for consideration at our 2021 Annual Meeting of Stockholders, without inclusion of such matters in our proxy materials, must submit proper notice to us no earlier than January 29, 2021, and no later than the close of business on February 28, 2021.
Stockholders who intend to submit director nominees for inclusion in our proxy materials for the 2021 Annual Meeting of Stockholders must comply with the requirements of proxy access as set forth in our bylaws. The stockholder or group of stockholders who wishes to submit director nominees pursuant to proxy access must deliver the proper notice to the Secretary of the Company no earlier than November 25, 2020, and no later than December 25, 2020.
Stockholder proposals and notice of proxy access nominations should be sent to Investor Relations,Secretary, The Joint Corp., 16767 N. Perimeter Drive, Suite 240,110, Scottsdale, Arizona 85260. A copy of our bylaws is available athttps://www.sec.gov/Archives/edgar/data/1612630/000117184318005943/exh_3ii1.htm or may be obtained upon request directed to the Secretary at the foregoing address.
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DELINQUENT SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEREPORTS
Section 16(a) of the Securities Exchange Act requires our directors and executive officers and persons beneficially owning more than 10% of our outstanding common stock to file periodic reports of stock ownership and stock transactions with the Securities and Exchange Commission. On the basis of a review of copies of these reports, we believe that all filing requirements for 20172019 were satisfied in a timely manner, except for one late Form 4 filing on behalfwith the exception of Suzanne Decker, a director, with respect to one transaction.the following:
| Name | Number of Late Reports | Number of Transactions Not Reported on a Timely Basis | Failure to File Requested Forms |
| Jake Singleton | 2 | 2 | Nil |
The Joint Corp. Amended and Restated 2014 Incentive Stock Planshares to satisfy taxes payable in connection with the vesting of previously awarded restricted stock grants.
Article 1Purpose
The purpose of this plan is to recognize and reward participants for their efforts on the Company’s behalf, to motivate participants by appropriate incentives to contribute to the Company’s attainment of its performance objectives, and to align participants’ interests with those of the Company’s other stockholders through compensation based on the performance of the Company’s common stock.
Article 2Definitions
Annual Option is defined in Article 7.
Award means an Option, SAR Award, Restricted Stock Award or RSU Award under the Plan.
Award Agreement means a written or electronic agreement between the Company and a Participant incorporating the terms of an Award to the Participant.
Board means the Company’s Board of Directors.
Change of Control is defined in Article 8. The terms “continuing Director,” “appointed Director” and “elected Director” are also defined in Article 8.
Code means the Internal Revenue Code of 1986, as amended.
common stock means the Company’s common stock, par value $.001 per share.
Committee is defined in Paragraph 3.1. Unless the Board designates a different committee, the Compensation Committee of the Board shall serve as the Committee (as long as all of the members of the Compensation Committee qualify under Paragraph 3.1).
Company means The Joint Corp., a Delaware corporation.
Consultant means any individual who provides bona fide consulting or advisory services to the Company or a Subsidiary.
Director means a director of the Company.
Eligible Person means, in respect of all types of Awards except ISOs, any Employee, Director or Consultant and, in respect of ISOs, any Employee.
Employee means a full-time or part-time employee of the Company or a Subsidiary.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Expiration Date means the last day on which an Option or SAR may be exercised.
Fair Market Value means, for a given day, the value of a share of common stock determined as follows:
i. If the common stock is listed on The NASDAQ Stock Market, its Fair Market Value will be the last reported sales price of a share of common stock as quoted on such exchange on the day in question (or on the most recent trading day if the day in question is not a trading day);
ii. For purposes of any Awards granted on the Registration Date, the Fair Market Value will be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company’s common stock; or
iii. In the absence of an established market for the common stock, the Fair Market Value will be determined in good faith by the Administrator.
Grant Date means, in respect of an Award, the date that the Committee grants the Award or any later date that the Committee specifies as the effective date of the Award.
ISO means an incentive stock option described in §422 of the Code.
NSO means a nonstatutory stock option (i.e., any stock option other than an ISO).
Option means an award pursuant to Article 5 or Article 7 of an option to purchase shares of common stock. In the case of an award pursuant to Article 5, the Committee shall designate at the time of grant whether an Option is an ISO or a NSO.
Outside Director means a Director who is not an Employee.
Participant means an Eligible Person who holds an Award under the Plan.
Performance Goals means one or more of the following objective performance goals for the Company, a division or a Subsidiary, measured over a 12-month or longer period and specified either in absolute terms or in percentage terms relative to a target, base period, index or peer group:
Plan means this plan, as it may be amended. The name of this Plan is the “The Joint Corp. Amended and Restated 2014 Incentive Stock Plan.”
Registration Date means the effective date of the first registration statement that is filed by the Company and declared effective pursuant to Section 12(g) of the Exchange Act, with respect to the Company’s shares.
Restricted Shares means shares of common stock subject to a risk of forfeiture or other restrictions that will lapse if and when specified service requirements, Performance Goals or other conditions are satisfied.
Restricted Stock Award means an award of Restricted Shares pursuant to Article 6.
Restricted Stock Unit means a contractual right to receive one share of common stock in the future if and when specified service requirements, Performance Goals or other conditions are satisfied.
RSU Award means an award of Restricted Stock Units pursuant to Article 6.
SAR, or stock appreciation right, means a contractual right to receive a payment representing the excess of the Fair Market Value of a share of common stock on the date that the right is exercised over the exercise price per share of the right.
SAR Award means an award of a Stand-Alone SAR or Tandem SAR pursuant to Article 5.
Stand-Alone SAR means an SAR that is not related to an Option.
share means a share of the Company’s common stock.
Subsidiary means a “subsidiary corporation” as defined in §424(f) of the Code.
Tandem SAR means an SAR that is related to an Option.
Termination means, in respect of an Employee, his or her termination of service to the Company or a Subsidiary. An employee’s (i) transferring employment from the Company to a Subsidiary or from a Subsidiary to the Company or to another Subsidiary or (ii) leaving service as an Employee but continuing service as a Consultant or Director shall not be considered a termination of service. Termination means, in respect of a Director, his or her termination of service on the Board of the Company. A Director’s leaving the Board but continuing in service to the Company as an Employee or Consultant shall not be considered a termination of service. Termination means, in respect of a Consultant, his or her termination of service as a Consultant.
Termination Date means the date on which an Employee, Director or Consultant, as the case may be, incurs a Termination.
Article 3Administration
3.1 Committee
The Board shall designate a committee of the Board (the “Committee”) to administer the Plan except in respect of Directors, for whom the full Board shall administer the Plan. The Committee shall consist of two or more Directors both or all of whom shall be (i) “non-employee directors” as defined in Rule 16b-3 under the Exchange Act, (ii) “independent directors” under the applicable listing standards of The NASDAQ Stock Market and (iii) “outside directors” under §162(m) of the Code.
3.2 Authority
Subject to the terms of the Plan, the Committee shall have the authority to select the Eligible Persons to whom Awards are to be granted and to determine the time, type, number of shares, vesting, restrictions, limitations and other terms and conditions of each Award.
Awards under the Plan need not be uniform in respect of different Eligible Persons, whether or not similarly situated. The Committee may consider such factors as it deems relevant in selecting Eligible Persons for Awards and in determining their Awards.
The Committee may condition the vesting of any Award on the attainment of one or more Performance Goals. Performance Goals may differ from Participant to Participant and from Award to Award. The Committee shall specify the applicable Performance Goal or Goals in the underlying Award Agreement (but in no event later than the latest permissible date to enable the Award to qualify as performance-based compensation under §162(m) of the Code). The Committee’s evaluation of a Performance Goal’s attainment may be adjusted to exclude any extraordinary events and transactions as described in Accounting Principles Board Opinion No. 30, but in all other respects, the measurement of Performance Goals shall be determined in accordance with the Company’s financial statements and U.S. generally accepted accounting principles.
The Committee may interpret the Plan, adopt, revise and rescind policies and procedures to administer the Plan, and make all factual and other determinations required for Plan’s administration.
The Committee’s determinations, interpretations and other actions shall be final and binding. No member of the Committee shall be liable for any action of the Committee in good faith.
3.3 Procedures
The members of the Committee shall elect a chairman, and the Committee shall meet as necessary at the call of the chairman or any two members of the Committee. A majority of the members of the Committee shall constitute a quorum, and all actions of the Committee at a meeting at which a quorum is present shall be taken by majority vote.
A member of the Committee may participate in any meeting of the Committee by a conference telephone call or other means that enable all persons participating in the meeting to hear one another, and participation in this manner shall constitute his or her presence in person at the meeting. The Committee also may act by the unanimous written consent of its members.
Article 4Plan Operation
4.1 Effective Date
This Plan shall become effective if and when approved by the Company’s stockholders.
4.2 Term
This Plan shall have a term of 10 years, expiring on the tenth anniversary of its approval by the Company’s stockholders (but remaining in effect, however, for outstanding Awards). No Award may be granted under the Plan after its expiration.
4.3 Maximum Number of Shares
The maximum total number of shares of common stock for which Awards may be granted under this Plan is 2,213,000 shares. This maximum shall be subject to the capitalization adjustments under Section 4.6.
The shares for which Options and SARs are granted shall count against this limit on a 1-for-1 basis, and the shares for which Restricted Stock Awards and RSU Awards are granted shall count against this limit on a 2-for-1 basis (so that each share for which a Restricted Stock Award or RSU Award is granted reduces by two shares the available number of shares for which Awards may be granted).
The shares for which Awards may be granted shall be shares currently authorized but unissued or shares that the Company currently holds or subsequently acquires as treasury shares, including shares purchased in the open market or in private transactions.
4.4 Shares Available for Awards
The determination of the number of shares of common stock available for Awards under the Plan shall take into account the following:
(a) If an Option lapses or expires unexercised, the number of shares in respect of which the Option lapsed or expired shall be added back to the available number of shares for which Awards may be granted.
(b) If a Restricted Stock Award or RSU Award lapses or is forfeited, twice the number of shares in respect of which the Award lapsed or was forfeited shall be added back to the available number of shares for which Awards may be granted.
(c) If a SAR Award or RSU Award is settled in cash, the number of shares in respect of which the Award was settled in cash shall not be added back to the available number of shares for which Awards may be granted.
(d) If the exercise price of an Option is paid by delivery of shares of common stock pursuant to Section 5.8, the number of shares issued upon exercise of the Option, without netting the shares delivered in payment of the exercise price, shall be taken into account in determining the available number of shares for which Awards may be granted.
4.5 Individual Limit on Awards
In any calendar year, the maximum number of shares for which Awards may be granted to any Eligible Person shall not exceed 150,000 shares in the case of Options and SARS and 150,000 shares in the case of Restricted Stock and RSU Awards, in each case taking into account all similar types of grants and awards under other stock option and equity compensation plans of the Company. These maximums shall be subject to the capitalization adjustments under Section 4.6.
4.6 Capitalization Adjustments
In the event of a change in the number of outstanding shares of common stock by reason of a stock dividend, stock split, recapitalization, reorganization or the like, the Committee may, and in the case of a reverse stock split, the Committee shall, equitably adjust the following in order to prevent a dilution or enlargement of the benefits or potential benefits intended to be provided under the Plan: (i) the number of shares for which Awards may be granted under the Plan, (ii) the maximum number of shares for which Awards may be granted to any Eligible Person in a calendar year, (iii) the aggregate number of shares in respect of each outstanding Award and (iv) the exercise price of each outstanding Option and SAR. The Committee may also make any other equitable adjustments that the Committee considers appropriate. Except in the case of a reverse stock split, adjustments shall be made in the Committee’s discretion, and its decisions shall be final and binding.
Article 5Stock Options and SARs
5.1 Grant
The Committee may grant an Option or SAR to any Eligible Person. Subject to the terms of this Plan, the Committee shall determine the restrictions, limitations and other terms and conditions of each Option and SAR Award.
The Committee shall designate each Option as either an ISO or NSO, and shall designate each SAR Award as either a Stand-Alone SAR or a Tandem SAR. A Tandem SAR may not be granted later than the time that its related Option is granted.
5.2 Exercise Price
The Committee shall determine the exercise price of each Option and SAR. The exercise price per share may not be less than the Fair Market Value on the Grant Date of the Option or SAR.
Except for capitalization adjustments under Section 4.6 or as approved by the Company’s stockholders, the exercise price per share of any outstanding Option or SAR may not be reduced, and the Option or SAR may not be surrendered to the Company for cash or as consideration for the grant of a new Option or SAR with a lower exercise price per share.
5.3 Vesting and Term
The Committee shall determine the time or times at which each Option and Stand-Alone SAR becomes vested. Vesting may be based on continuous service or on the attainment of Performance Goals or other conditions specified in the Award Agreement. A Tandem SAR shall vest if and to the extent that its related Option vests, and shall expire or be canceled when its related Option expires or is canceled. No Option or SAR may have an Expiration Date more than 10 years from its Grant Date. The Committee, in its discretion, at any time may accelerate the vesting of an Option or SAR or extend its Expiration Date (subject to the foregoing maximum 10-year term).
5.4 Termination of Employment or Service as a Director
Unless otherwise specified in the underlying Award Agreement, in the case of an Option or SAR held by an Employee or Director who incurs a Termination:
(a) if and to the extent that the Option or SAR is unvested as of the Employee’s or Director’s Termination Date, the Option or SAR shall lapse on the Termination Date unless the Termination is incurred by reason of his or her death, in which case the Option or SAR shall become fully vested as of the Employee’s or Director’s Termination Date; and
(b) subject to subsection (c) in the case of an Option granted to a Director under Article 7, if and to the extent that the Option or SAR is (or becomes) vested as of the Employee’s or Director’s Termination Date, the Option or SAR shall expire (i) on the earlier of 90 days after the Termination Date or the Expiration Date of the Option or SAR, or (ii) if the Termination is incurred by reason of his or her death, on the earlier of the first anniversary of the Employee’s or Director’s death or the Expiration Date of the Option or SAR.
(c) in the case of an Option granted to a Director under Article 7, if and to the extent that the Option is (or becomes) vested as of the Director’s Termination Date, the Option shall expire on its Expiration Date.
5.5 Transferability
No Option or SAR may be transferred, assigned or pledged, whether by operation of law or otherwise, except (i) as provided in the underlying Award Agreement or as the Committee otherwise permits, or (ii) as provided by will or the applicable laws of intestacy or (iii) if:
(a) the transferee is a revocable trust that the employee established for estate planning reasons (in respect of which the employee is treated as the owner for federal income tax purposes); or
(b) the transferee is (i) the spouse of the employee or a child, step-child, grandchild, parent, sibling or child of a sibling of the employee (each an “eligible transferee”), (ii) a custodian for an eligible transferee under any Uniform Transfers to Minors Act or Uniform Gifts to Minors Act or (iii) a trust for the primary benefit of one or more eligible transferees.
Transfers described in the preceding clause (b) shall be subject to any restrictions and requirements that the Committee considers appropriate (for example, the transferee’s written agreement to be bound by the terms of the Plan and the underlying Award Agreement).
No Option or SAR shall be subject to execution, attachment or similar process.
5.6 Additional ISO Rules
To the extent that the aggregate fair market value (determined in respect of each ISO on the basis of the Fair Market Value of a share of common stock on the ISO’s Grant Date) of the underlying shares of all ISOs that become exercisable by an individual for the first time in any calendar year exceeds $100,000, the Options shall be treated as NSOs. This limitation shall be applied by taking ISOs into account in the order in which they were granted.
In the case of an ISO granted to an Employee who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or any Subsidiary), the exercise price per share may not be less than 110% of the Fair Market Value on the Grant Date and the ISO may not have an Expiration Date more than five years from the Grant Date.
The Award Agreement underlying an Option that the Committee designates as an ISO may contain any additional terms, beyond those of this Plan, that the Committee considers necessary or desirable to include to assure that the Option complies with the requirements of §422 of the Code.
5.7 Manner of Exercise
A vested Option or SAR may be exercised in full or only partially (but in the case of a partial exercise, only in respect of a whole number of shares) by (i) written notice to the Committee or its designee stating the number of shares in respect of which the Option or SAR is being exercised and, in the case of an Option, (ii) full payment of the exercise price of those shares.
5.8 Payment of Exercise Price
Payment of the exercise price of an Option shall be made by check or, if permitted by the Committee (either in the underlying Award Agreement or at the time of exercise), by: (i) delivery of shares of common stock having a Fair Market Value on the date of exercise equal to the exercise price; (ii) directing the Company to withhold, from the shares otherwise issuable upon exercise of the Option, shares having a Fair Market Value on the date of exercise equal to the exercise price; (iii) by an open-market broker-assisted sale pursuant to which the Company is promptly delivered the portion of the sales proceeds necessary to pay the exercise price; (iv) any combination of these methods of payment; or (v) any other method of payment that the Committee authorizes.
5.9 Tandem SARs
A Tandem SAR shall entitle the Participant to elect to exercise either the SAR or the related Option as to all or any portion of the shares subject to the SAR and Option. The exercise of a Tandem SAR shall cause the immediate and automatic cancellation of its related Option with respect to the same number of shares, and the exercise, expiration or cancellation of the related Option (other than by reason of the exercise of the Tandem SAR) shall cause the automatic and immediate cancellation of the Tandem SAR with respect to the same number of shares.
5.10 Settlement of SARs
Settlement of a SAR may be made, in the Committee’s discretion, in shares of common stock or in cash, or in a combination of the two, subject to applicable tax withholding requirements. Any cash payment in settlement of a SAR shall be made on the basis of the Fair Market Value of a share of common stock on the date that the SAR is exercised.
Article 6Restricted Stockand Restricted Stock Units
6.1 Grant
The Committee may issue Restricted Shares or grant Restricted Stock Units to any Eligible Person. Subject to the terms of this Plan, the Committee shall determine the restrictions, limitations and other terms and conditions of each Restricted Stock Award and RSU Award.
6.2 Vesting
The Committee shall determine the time or times at which each Restricted Stock Award or RSU Award becomes vested. Vesting may be based on continuous service or on the attainment of specified Performance Goals or other conditions specified in the Award Agreement.
Each Restricted Stock Award and RSU Award held by an Employee or a Director shall become fully vested as of his or her Termination Date if the Termination is incurred by reason of his or her death.
6.3 Transferability
Prior to the vesting of a Restricted Stock Award, the Restricted Shares subject to the Award may not be transferred, assigned or pledged (except as provided in the Award Agreement or as the Committee permits) and shall not be subject to execution, attachment or similar process. After vesting, the shares may still remain subject to restrictions on transfer under applicable securities laws and any restrictions imposed by the Award Agreement. If the Restricted Shares are issued in certificated form, the Committee may require each certificate representing Restricted Shares to bear a legend making appropriate reference to the restrictions on the shares, and may also require that the certificate, together with a stock power duly endorsed in blank by the Participant, remain in the Company’s physical custody or in escrow with a third party until all restrictions have lapsed.
6.4 Rights as Stockholder
Subject to the terms of the Plan and as provided in the underlying Award Agreement, a Participant may have some or all of the rights of a stockholder in respect of unvested Restricted Shares subject to a Restricted Stock Award, including the right to vote the shares and to receive dividends and other distributions in respect of the shares. A Participant shall have all of the rights of a stockholder when Restricted Shares become vested. The Committee may provide in the Award Agreement for the payment of dividends and distributions to the Participant when dividends are paid to stockholders generally or at the time of vesting or distribution of the Restricted Shares.
A Participant shall not have any rights as a stockholder in respect of the shares of common stock subject to a RSU Award until those shares have been issued and delivered to the Participant pursuant to the terms of the Award.
6.5 Settlement of RSU Award
Settlement of a RSU Award may be made, in the Committee’s discretion, in shares of common stock or in cash, or in a combination of the two, subject to applicable tax withholding requirements. Any cash payment in settlement of a RSU Award shall be made on the basis of the Fair Market Value of a share of common stock on the date that the shares subject to the Award become issuable to the Participant.
6.6 Deferrals
The Committee may (but shall not be required to) permit a Participant to elect to defer the delivery of shares upon the vesting or settlement of a Restricted Stock Award or RSU Award. Any such election shall be for a deferral period and in a manner and on terms that the Committee approves and that comply with the requirements of §409A of the Code.
Article 7Automatic Option Grants
to Outside Directors
7.1 Grant
All grants of Options to Outside Directors pursuant to this Article will be automatic and nondiscretionary, except as otherwise provided herein, made in accordance with the provisions in this Article, and otherwise subject to the terms and conditions of the Plan.
7.2 Type of Option
All Options granted pursuant to this Article will be Nonstatutory Stock Options.
7.3 Annual Option
Each Outside Director automatically will be granted an Option to purchase 10,000 Shares (an “Annual Option”) upon his or her election or re-election as a Director.
7.4 Terms
The terms of each Option granted pursuant to this Article will be as follows:
i. The term of the Option will be ten (10) years.
ii. The exercise price per share will be 100% of its Fair Market Value on the Grant Date.
iii. The Option will vest in full on the first anniversary of its Grant Date (or on the Director’s death if the Director incurs a Termination by reason of his or her death prior to the first anniversary of the Grant Date) and is exercisable as to any (but only in respect of a whole number) or all Shares at any time after vesting until its Expiration Date.
Article 8Change of Control
Upon a Change of Control, all outstanding Awards shall become fully vested and exercisable, and all restrictions on the shares underlying Restricted Stock Awards shall lapse.
A “Change of Control” means an event or the last of a series of related events by which:
(a) any Person directly or indirectly acquires or otherwise becomes entitled to vote stock having 51% or more of the voting power in elections for Directors; or
(b) during any 24-month period, a majority of the members of the Board ceases to consist of Qualifying Directors. A Director shall be considered a “Qualifying Director” if he or she falls into any one of the following five categories:
(1) a Director at the beginning of the period (“continuing Directors”); or
(2) a Director elected to office after the start of the period by the Board with the approval of two-thirds of the incumbent continuing Directors (an “appointed Director”); or
(3) a Director elected to office after the start of the period by the Company’s stockholders following nomination for election by the Board with the approval of two-thirds of the incumbent continuing and appointed Directors (an “elected Director”); or
(4) a Director elected to office after the start of the period by the Board with the approval of two-thirds of the incumbent continuing, appointed and elected Directors; or
(5) a Director elected to office after the start of the period by the Company’s stockholders following nomination for election by the Board with the approval of two-thirds of the incumbent continuing, appointed and elected Directors; or33
(c) the Company merges or consolidates with another corporation, and holders of outstanding shares of the Company’s common stock immediately prior to the merger or consolidation do not own stock in the survivor of the merger or consolidation having more than 51% of the voting power in elections for Directors; or
(d) the Company sells all or a substantial portion of the consolidated assets of the Company and its Subsidiaries, and the Company does not own stock in the purchaser having more than 51% of the voting power in elections for Directors.
As used in this definition, a “Person” means any “person” as that term is used in sections 13(d) and 14(d) of the Exchange Act, together with all of that person’s “affiliates” and “associates” as those terms are defined in Rule 12b-2 under the Exchange Act.
Article 9Miscellaneous Provisions
9.1 Award Agreement
Each Award under the Plan shall be evidenced by an Award Agreement which shall be subject to and incorporate the terms of the Plan.
9.2 Tax Withholding
The Company may withhold an amount sufficient to satisfy its withholding tax obligations, if any, in connection with any Award under the Plan, and the Company may defer making any payment or delivery of shares pursuant to the Award unless and until the Participant indemnifies the Company to its satisfaction in respect of its withholding obligation.
9.3 Amendment and Termination
The Board may amend, suspend or terminate the Plan at any time. The Company’s stockholders shall be required to approve any amendment that would (i) materially increase the number of shares of common stock for which Awards may be granted, (ii) increase the number of shares of common stock for which ISOs may be granted (other than an amendment authorized under Section 4.6), (iii) permit any action that would be treated as a repricing of Awards under applicable stock exchange rules or (iv) otherwise require stockholder approval under any applicable laws, regulations or stock exchange rules. If the Plan is terminated, the Plan shall remain in effect for Awards outstanding as of its termination. No amendment, suspension or termination of the Plan shall adversely affect the rights of the holder of any outstanding Award without his or her consent.
9.4 Foreign Jurisdictions
The Committee may adopt, amend and terminate a supplement to the Plan to permit Employees in another country to receive Awards under the supplement (on terms not inconsistent with the terms of Awards under the Plan) in compliance with that country’s securities, tax and other laws.
9.5 No Right To Employment
Nothing in this Plan or in any Award Agreement shall give any person the right to continue in the employ of the Company or any Subsidiary or limit the right of the Company or Subsidiary to terminate his or her employment.
9.6 Notices
Notices required or permitted under this Plan shall be considered to have been duly given if sent by certified or registered mail addressed to the Committee at the Company’s principal office or to any other person at his or her address as it appears on the Company’s payroll or other records.
9.7 Severability
If any provision of this Plan is held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions, and the Plan shall be construed and administered as if the illegal or invalid provision had not been included.
9.8 Governing Law
This Plan and all Award Agreements shall be governed in accordance with the laws of the State of Delaware.
