We reimburse all directors for out-of-pocket expenses incurred by them in connection with their service on our Board and any Board committee. The following table reflects the total compensation earned by each non-employee director during the last fiscal year:
Fiscal Year 20192022 Director Compensation
Name | | Fees Earned or Paid in Cash | | | Restricted Stock Awards | | | Total Compensation | |
Thomas J. Franz (1) (2) (3) (4) | | $ | 15,350 | | | $ | - | (5)
| | $ | 15,350 | |
David E. Chymiak (7) | | $ | 3,500 | (7) | | $ | - | (5)
| | $ | 3,500 | |
James C. McGill (1) (2) (3) (4) (6) | | $ | 75,000 | (6) | | $ | 15,000 | (5) | | $ | 90,000 | |
John M. Shelnutt
| | $ | 4,250 | (6) | | $ | - | (5)
| | $ | 4,50 | |
David W. Sparkman (1) (2) (3) (4) | | $ | 15,500 | | | $ | -
| (5)
| | $ | 15,500 | |
(1) | Member of the Audit Committee. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Fees Earned or Paid in Cash | | | Restricted Stock Awards (1) (2) | | | Total Compensation |
| James C. McGill (3) | | $ | 25,000 | | | | $ | 50,000 | | | | $ | 75,000 | |
| David E. Chymiak | | 20,000 | | | | 15,000 | | | | 35,000 | |
| Timothy S. Harden | | 20,000 | | | | 50,000 | | | | 70,000 | |
| John M. Shelnutt | | 20,000 | | | | 50,000 | | | | 70,000 | |
| David W. Sparkman | | 30,000 | | | | 50,000 | | | | 80,000 | |
| | | | | | | | | |
(1) | The fair value of the stock awards are amortized over the estimated period until the next annual shareholders meeting to compensation expense in the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K. The fair value of the stock award was based on the closing market price of the stock on the date of grant. |
(2) | The directors received their fiscal 2022 awards in December, 2022, with a total fair value of $215,000 as of the original dates of the awards. |
(3) | James C. McGill and the Company entered into an amended Letter Agreement on July 16, 2020, which amended his previous agreement dated October 8, 2018. This amended agreement provides that, for serving as Chairman of the Board, Mr. McGill will receive annual compensation in the form of $25,000 in cash and $50,000 in shares of stock, which will vest over a 12-month period. |
(2) | Member of the Corporate Governance and Nominating Committee. |
(3) | Member of the Compensation Committee. |
(4) | Member of the Strategic Direction Committee. |
(5) | The directors are normally granted $15,000 of restricted stock in March each fiscal year. However, there were not enough shares available under the 2015 Incentive Stock Plan to grant the directors in March 2019. The fair value of the stock awards are amortized over the 12-month holding period to compensation
expense in the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K. The fair value of the stock award was based on the closing market price of the stock on the date of grant.
|
(6) | James C. McGill and the Company entered into a Letter Agreement on October 8, 2018, which provides that Mr. McGill will receive annual compensation in the form of $75,000 cash and $75,000 in shares of restricted stock for serving as Chairman of the Board. The shares will be delivered 20% per year over five years.
Mr. McGill received his first $15,000 of restricted stock on October 8, 2018, but he has not yet received his $15,000 of restricted stock on October 8, 2019 as the Company does not have enough stock under the 2015 Incentive Stock Plan. If Proposal #3 is approved, the shares owed to Mr. McGill will be granted to him
effective as of October 8, 2019.
|
(7) | David Chymiak’s director compensation represents his compensation when he was no longer Chief Technology Officer in July 2019 through September 2019. |
As part of the 2020 Executive Compensation Plan, the board has approved a new director compensation plan which is described on p. 20 of this Proxy Statement and has been proposed to shareholders for approval at the Annual Meeting.
SUMMARY COMPENSATION TABLE
The following table reflects theinformation relates to compensation of the named executive officers (“NEOs”) ofpaid by the Company for the fiscal years ended December 31, 2022 and September 30, 20192021 to the Company’s Chief Executive Officer, Chief Financial Officer and 2018.the next most highly compensated executive officer of the Company:
| | | | | | | | | |
| | | | | | | | | | | | | | | |
Name and Principal Position
| | Year
| | Salary
| | Bonus
|
| Restricted Stock Awards (1) | | Option Awards (2) | | Non-Equity Incentive Plan Compensation
| | All Other Compensation (3) | | Total Compensation
| |
Joseph E. Hart | Principal Executive Officer (4) | |
| 2019 2018
| | $ $
| 303,846 57,692
| | $ $
| (9) –
|
| $ $
| 15,000
| | $ $
| 84,000 –
| | $ $ | ‒ –
| | $ $ | 28,192 962
| | $ $
| 416,038 73,654
| |
| | | | | | | | | | |
| | | | | | | | | | | | | | | |
Kevin D. Brown | Principal Financial Officer (5) (6) | | | 2019 2018
| | $
$
| 123,538 ‒
| | $ $
| (9) – |
| $ $
| ‒ ‒
| | $ $
| 32,175 –
| | $ $ | | | $ $ | 53,677 ‒
| | $ $
| 209,390 ‒
| |
| | | | | | | | | | |
| | | | | | | | | | | | | | | |
Colby J. Empey | President of the Wireless Segment (7) | | | 2019 2018
| | $ $
| 165,000 ‒
| | $ $
| (9) – |
| $ $
| ‒ ‒
| | $ $
| 32,175 –
| | $ $ | ‒ – | | $ $ | 13,135 ‒
| | $ $
| 210,310 ‒
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Scott A. Francis | Vice President, Chief Accounting Officer and Secretary | | | 2019 2018
| | $ $
| 182,885 175,000
| | $ $
| (9) – |
| | 15,000
| | $ $
| 11,220 –
| | $ $ | ‒ –
| | $ $ | 15,144 12,350
| | $ $
| 209,249 202,350
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Donald E. Kinison | President of the Telco Segment | | | 2019 2018
| | $ $
| 210,769 180,000
| | $ $
| (9) – |
| $ $
| ‒ ‒
| | $ $
| 18,700 ‒
| | $ $ | ‒ –
| | $ $ | 16,538 13,375
| | $ $
| 246,007 263,375
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
David L. Humphrey | Former President and Chief Executive Officer (8) | | | 2019 2018
| | $ $
| - 429,763
| | $ $
| ‒ -
|
| $ $
| ‒ 15,000
| | $ $
| - ‒
| | $ $ | ‒ –
| | $ $ | - 13,310
| | $ $
| - 458,073
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Non-Equity | | | | |
| | | | | | | | | Stock | | Option | | Incentive Plan | | All Other | | Total |
| Name and Principal Position* | | Year | | Salary | | Bonus | | Awards | | Awards | | Compensation | | Compensation | | Compensation |
| | | | | ($) | | ($)(1) | | ($) (2) | | ($) | | ($) | | ($)(3) | | ($) |
| Joseph E. Hart | | 2022 | | 300,000 | | | — | | | — | | | — | | | — | | | 32,505 | | | 332,505 | |
| Principal Executive Officer | | 2021 | | 300,000 | | | — | | | 446,450 | | | — | | | — | | | 26,419 | | | 772,869 | |
| | | | | | | | | | | | | | | | | |
| Michael A. Rutledge | | 2022 | | 250,000 | | | — | | | — | | | — | | | — | | | 24,662 | | | 274,662 | |
| Chief Financial Officer (4) | | 2021 | | 15,050 | | | — | | | 234,000 | | | — | | | — | | | — | | | 249,050 | |
| | | | | | | | | | | | | | | | | |
| Scott A. Francis | | | | | | | | | | | | | | | | |
| Chief Accounting Officer (5) | | 2021 | | 108,632 | | | — | | | 222,858 | | | — | | | — | | | 94,660 | | | 426,150 | |
| | | | | | | | | | | | | | | | | |
| Jimmy Taylor | | 2022 | | 128,041 | | | — | | | — | | | — | | | — | | | 8,017 | | | 136,058 | |
| President, Wireless Segment (6) | | 2021 | | 235,383 | | | — | | | — | | | — | | | — | | | 14,116 | | | 249,499 | |
| | | | | | | | | | | | | | | | | |
(1) | There were no executive bonuses awarded in 2022 or 2021. |
(2) | The amounts shown are Company officer compensation and represent the total fair value of the stock awards shares on the date of the grant to officers for fiscal years 2022 and 2021. The fair value of the stock awards is amortized over the vesting period to compensation expense in the Consolidated Statements of Operations contained in this Annual Report on Form 10-K. The fair value of the stock awards was based on the closing market prices of the stock on the dates of the grants. The actual value that an executive officer will realize upon vesting of performance or time-based awards will depend upon the market price of the Company’s stock on the vesting date, so there is no assurance that the value realized by an executive officer will be at or near the value of the market price of the Company’s stock on the grant date. Mr. Hart's amount for fiscal year 2021 was inadvertently omitted from the 10-K/A and the Proxy statement filed on January 27, 2022 and August 12, 2022, respectively. Stock award values for 2022 and 2021 for Mr. Rutledge and Mr. Taylor from the 10-K filed on March 21, 2023 have been updated to display grant date values. |
(3) | Represents amounts paid by the Company on behalf of an officer for matching contributions to the Company’s qualified 401(k) plan, group term life, and auto allowance received during the year. Mr. Francis's other compensation includes severance payments. |
(4) | Mr. Rutledge's salary for 2021 represents his prorated annual salary of $250,000 as per the terms of his employment agreement from his September 2021 start date. |
(5) | Mr. Francis was the Vice President and Chief Accounting Officer of the Company until his departure in March 2021. Mr. Francis served as the interim Chief Accounting Officer through August 2021 as an independent contractor. |
(6) | Mr. Taylor retired in July, 2022. |
* | Note: Jerry D. Jones and Brian N. Davidson are not included in the table as their employment with the Company began in 2023. |
| |
(1) | The amounts shown are director and Company officer compensation and represent the total fair value of the stock award of 11,450 shares on the date of the grant to directors for fiscal 2018. The fair value of the stock awards is amortized over the 12-month holding period to compensation expense in the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the years ended September 30, 2019 and 2018 for stock awards. The fair value of the stock awards was based on the closing market prices of the stock on the dates of the grants. |
(2) | The amounts shown represent expenses recognized in the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2019 for stock option awards. There were no forfeitures of stock options in fiscal 2019. All assumptions utilized to calculate the expense amounts shown above are set forth in Note 11 of the Notes to Consolidated Financial Statements for the year ended September 30, 2019. |
(3) | Represents amounts paid by the Company on behalf of an officer for matching contributions to the Company’s qualified 401(k) plan plus an auto allowance received during the year. |
(4) | The salary of Mr. Hart for fiscal year 2018 is from his date of hire on July 2, 2018. The restricted stock award reflected in fiscal year 2018 represents restricted stock granted to Mr. Hart as a member of the Company’s Board of Directors. |
(5) | On March 1, 2019, the Company hired Mr. Brown as the Chief Financial Officer. Therefore, the salary for fiscal year 2019 is from his date of hire of March 1, 2019. |
(6) | Mr. Brown was paid $40,500 as a contractor by the Company from December 31, 2018 through February 28, 2019 which is included in all other compensation. |
(7) | On March 1, 2019, the Company named Mr. Empey as the President of the Wireless Segment. Mr. Empey transitioned as an employee to the Company from the Fulton Technologies, Inc. acquisition on January 4, 2019. Therefore, the salary for fiscal year 2019 is from his date of hire of January 4, 2019. |
(8) | On July 2, 2018, Mr. Humphrey resigned as the Company’s President and Chief Executive Officer as well as from the Company’s Board of Directors. The salary of Mr. Humphrey for fiscal year 2018 is through his resignation date of July 2, 2018 and reflects his severance payment of $180,243. |
(9) | 2019 bonuses have been earned, but not yet paid. The 2019 bonuses have been earned as follows: Mr. Hart, $105,000; Mr. Brown, $66,000; Mr. Empey, $55,000; Mr. Francis, $36,000; and Mr. Kinison, $55,000. |
Potential Payments Upon Termination or Change of Control
We have entered into employment/severance agreements with Mr. Hart, Mr. Brown,Rutledge, Mr. Empey, Mr. Francis,Jones and Mr. Kinison.Davidson. These agreements are designed to promote stability, continuity and focus for key members of leadership during periods of uncertainty that may be created by change of control situations. Additionally, the use of such agreements is a competitive practice that enhances our ability to attract and retain leadership talent.
Under theseThese agreements have no stated term but provide for the payment of severance benefits will occur in most situations where the employee is terminated without cause or is terminated or resigns in connection with a Change in Control of the Company. Mr. Hart, in this event, will be paid the amount of his annual base salary immediately preceding the termination without cause or Change of Control. For the other executives, theyMr. Rutledge, Mr. Jones and Mr. Davidson will be paid the amount of 50% of their annual base salary immediately preceding the termination without cause or Change of Control. Most executive equity awards which are subject to vesting provide for accelerated vesting upon the occurrence of a change in control.
“Change of Control” as used in these agreements has a fairly customary definition designed to reflect that a fundamental change in beneficial ownership or control of the Company has occurred. Specifically, the
agreements incorporate the term a “change of control event”, as defined in United States Treasury Regulations (“Regulations”) promulgated under section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) that results from an event in which a person comes to be the owner, directly or indirectly, of 50% or more of outstanding voting securities of the Company or its parent company or the transfer or disposition of all or substantially all of the assets of the Company, its parent or their successor or a person, acquires, directly or indirectly, the voting power to elect a majority of the members of the Board of the Company or its parent (other than in the normal course) or any other similar transaction or series of related transactions.
Senior Management Incentive Compensation Plan
Historically, bonusesCompany executives have received in the past equity and non-equity (cash bonus) incentive compensation. Incentive equity compensation has been awarded based on meeting specified performance metrics; however, in 2019, the Company went through a number of significant changes that disrupted the use of traditional performance-based metrics, including the sale of the Company’s Cable Segment, the acquisition of Fulton, a services-based business, and substantial management and organizational changes in the Telco Segment. In lightform of these significant changes and accomplishments, the Compensation Committee recommended to and the Board of Directors approved the award of discretionary bonuses based generally on success in meeting these restructuring challenges.
In fiscal year 2018, the Compensation Committee set the number of company performance targets, subject to revision at the discretion of the Compensation Committee, to three within the guidelines of the existing plan. All three of the targets were based on financial targets for our operating segments and had a bonus pool potential ranging from 5% - 50% of the salaries of the named executive officers except for Mr. Don Kinison. The overall bonus pool was capped at a maximum of 50% and would be allocated as follows: David Humphrey – 40%, David Chymiak – 32% and Scott Francis – 28%. Mr. Kinison, who was hired in May 2017, was on a guaranteed commission arrangement for fiscal year 2018.
2020 Executive Compensation Plan
On December 4, 2019, the Compensation Committee unanimously approved the 2020 Executive Compensation Plan (the “2020 Executive Compensation Plan”), as described in detail below, and recommended to the Board of Directors, who adopted and approved the 2020 Executive Plan as described. The 2020 Executive Compensation Plan is designed to achieve the Company’s goal of attracting, developing and retaining global business leaders who can drive financial and strategic growth objectives that are intended to build long-term shareholder value. The 2020 Executive Compensation Plan framework includes the following elements: a base salary component, an annual cash bonus plan with both performance-based and discretionary components, and equity-based awardsrestricted stock or stock options granted under the Company’s 2015 Incentive Stock Plan primarily in the formPlan. Cash bonuses have historically been granted as a result of restricted stock grants. The goal is to have approximately 50% of the executives’meeting specified performance metrics.
performance award to be paid in cash and 50% in equity to ensure both a short- and long-term view of the Company.
Base Salaries
Base salaries of the Company’s executive officers are established by reference to average base salaries paid to executives in similar positions with similar responsibilities using information supplied by compensation surveys, reports, and research of similarly-sized companies and other sources. The Compensation Committee reviewed and considered reports generated by the NACD Director Compensation Blue Ribbon Commission and the Pearl-Meyer Director Compensation Board when making recommendations to increase Director Compensation, as contemplated by Proposal #4 in this Proxy Statement. Base salaries are generally reviewed annually with the results of eachFor fiscal year and adjustments are made effective as of January 1 following the fiscal year. From time to time, however, promotions and other events require adjustments at other points in the year. While emphasis is placed on measurable financial factors, when it determines base salaries, the Committee also considers factors such as development and execution of strategic plans, changes in areas of responsibility, potential for assuming greater responsibility and the development and management of employees. The Committee does not, however, assign specific weights to these various quantitative and qualitative factors in reaching its decisions.
The following table shows the base salary to be paid to each Named Executive Officer (“NEO”) for Fiscal Year 2020:
Named Executive | Title | Fiscal Year 2020
Base Salary
|
| | |
Joseph E Hart | CEO | $ 300,000 |
| | |
Kevin Brown | CFO | $ 240,000 |
| | |
Don Kinison | President – Telco Segment | $ 220,000 |
| | |
Colby Empey | President – Wireless Segment | $ 220,000 |
| | |
Scott Francis | Chief Accounting Officer | $ 180,000 |
Annual Bonus Plan
Bonuses are to be paid under this annual bonus plan to NEOs and other senior executives following the end of each fiscal year based on achievement in relation to objective financial goals set at the beginning of each fiscal year. These bonuses are intended to provide senior executives with an opportunity to receive additional cash compensation upon attainment of pre-established performance goals.
At the beginning of each fiscal year, the Committee determines what objective performance measures it will use to assess performance by2022, the Company overallpartially achieved the threshold performance goals and by each business unit. In addition, the Committee assigns a percentage weight to the various measures that are applied when determining the total bonus to be paid to each executive. The Committee concurrently determines specific goals for each of these performance measures. Most performance measures for business unit performance have three goals to which achievement is compared, defined as “threshold,” “target” and “maximum,” with “target” goals generally being equal to the Company’s budget for that performance measure.
Cash Bonus Compensation of Named Executive Officers
The potential fiscal year 2020 bonuses for the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer will be based on overall Company consolidated performance. Each business unit leader will typically be paid a bonus based on the performance of the business unit he/she manages. A weighting may be applied to overall Company consolidated performance and/or minimum performance triggers may be set to ensure the Company has adequate cash flow and consolidated results. Whether and to what extent bonus compensation is paid to them is determined following the end of the fiscal year. With respect to these measures, the Compensation Committee will compare annual results to goals, andawarded Mr. Hart a bonus will beof $105,000 and Mr. Rutledge a bonus of $67,500. Those amounts were included in the Company's financial statements at December 31, 2022, but have not been paid if annual performance is generally at least 80%as of the target goal for that performance measure.
Concurrent with determining and assigning weight todate of this report. For fiscal year 2021, the various performance measures, andCompany did not meet the goals against which achievement is measured, the Committee determines a “threshold”, “target” and “maximum” bonus opportunity that may be earned by each executive as a percentage of their base salary if actual performance exceeds applicable threshold performance goals. In fiscal year 2020, the “target” annual bonus opportunity for the Senior Executives ranges from 40% to 70% of their respective base salaries, and their respective “maximum” bonus opportunity are approximately 60% to 100% of their respective target bonus opportunity if actual achievement equals or exceeds maximum performance goals.
Cash Bonus Targets Pursuant to the Fiscal Year 2020 Annual Bonus Plan
The table below presents the bonus opportunity under the Annual Bonus Plan for the five NEOs as a percentage of their respective base salaries upon achievement of “target” goals for each performance measure (weighted as indicated above), the dollar value of the opportunity at target achievement, and the actual amount paid in cash to the NEOs based on actual achievement in relation to goals for performance measures under the Company’s fiscal year 2020 Annual Bonus Plan.
Named Executive (1) | Title | Fiscal Year 2020 Base Salary | Bonus Opportunity as % of 2020 Base Salary at 100% “Target” Achievement | Dollar Value of Bonus Opportunity at “Target” Achievement |
| | | | |
Joseph E. Hart | CEO | $300,000 | 70% | $210,000 |
| | | | |
Kevin Brown | CFO | $240,000 | 50% | $120,000 |
| | | | |
Don Kinison | President – Telco Segment | $220,000 | 50% | $110,000 |
| | | | |
Colby Empey | President – Wireless Segment | $220,000 | 50% | $110,000 |
| | | | |
Scott Francis | Chief Accounting Officer | $180,000 | 50% | $72,000 |
(1) In 2019, the Company entered into employment agreements with each NEO. The agreements provide for a base salary and bonus percentage. Actual bonuses will be paid as approved by the Board of Directors based on annual results. In addition, the agreement entitles each NEO to a severance benefit which is described in this Proxy Statement in the section captioned “Potential Payments Upon Termination/Change in Control.
Annual Cash Bonus Plan at Threshold, Target and Maximum Levels:
Named Executive | Title | Fiscal Year 2020 Base Salary | Bonus Opportunity as % of 2020 Base Salary at 80% “Threshold” Achievement | Dollar Value of Bonus Opportunity at “Threshold” Achievement | Bonus Opportunity as % of 2020 Base Salary at 100% “Target” Achievement | Dollar Value of Bonus Opportunity at “Target” Achievement | Bonus Opportunity as % of 2020 Base Salary at 125% “Maximum” Achievement | Dollar Value of Bonus Opportunity at “Maximum” Achievement |
| | | | | | | | |
Joseph E. Hart | CEO | $300,000 | 30% | $90,000 | 70% | $210,000 | 100% | $300,000 |
| | | | | | | | |
Kevin Brown | CFO | $240,000 | 20% | $48,000 | 50% | $120,000 | 70% | $168,000 |
| | | | | | | | |
Don Kinison | President – Telco Segment | $220,000 | 20% | $44,000 | 50% | $110,000 | 70% | $154,000 |
| | | | | | | | |
Colby Empey | President – Wireless Segment | $220,000 | 20% | $44,000 | 50% | $110,000 | 70% | $154,000 |
| | | | | | | | |
Scott Francis | Chief Accounting Officer | $180,000 | 20% | $36,000 | 50% | $90,000 | 60% | $108,000 |
Discretionary Bonuses
TheCompensation Committee and the Board believe the most appropriate approachas a result no bonuses were awarded to paying annual bonus compensation is one in which executives are measured against predetermined objective performance measures and performance goals. However, from time to time, in limited and extraordinary circumstances, the Committee and the Board also believe, it is in the best interest of the Company and its shareholders to pay discretionary bonuses to Management based on strong performance outside of the stated Targets.executive officers for fiscal year 2021.
Overview of Long-Term Incentive Compensation
Senior Executives are given the opportunity to receive long-term incentive compensation allowing them to participate in the company’s success / equity through the granting of Restricted Stock Awards (“RSAs”) under the 2015 Incentive Stock Plan (assuming shareholders vote to amend the 2015 Incentive Stock Plan to add additional shares):
RSAs will be time-vested annually over a three-year period beginning one year after each award is made. RSA’s will allow the executives to own and participate in the company’s equity performance over time.
RSAs are granted in addition to the NEO’s annual cash performance bonus in order to balance both the short-term and long-term goals of the Company. The three-year vesting of the RSAs help the Company retain key executives, as they must remain with the company for the RSAs to vest.
The number of shares granted to each NEO annually is determined by dividing each NEOs LTI Target (or other amount as determined by the compensation committee) by the current share price on the grant date of the RSA. The committee can choose to defer or postpone the issuance of RSAs based on Company or NEO’s performance and is subject to the availability of shares.
The grant date and amount will be determined by the committee each year based on Company and Individual Performance, with the goal of issuing shares after the Compensation Committee’s review of the Annual financials and determination of each Executive’s award.
2021 Target RSA Example if Share Price is $3.50 per Share (Based on 2020 Performance)
Named Executive
| Title | | Salary | | | Target as % of Salary
| | | Target LTI Target Bonus Amount
| | | 2021 Grant # of Shares (assumes $3.50 Share Price
| |
Joseph E. Hart
| CEO | | $ | 300,000 | | | | 70 | % | | $ | 210,000 | | | | 60,000 | |
Kevin Brown
| CFO | | $ | 240,000 | | | | 50 | % | | $ | 120,000 | | | | 34,286 | |
Don Kinison
| President - Telco Segment
| | $ | 220,000 | | | | 50 | % | | $ | 110,000 | | | | 31,429 | |
Colby Empey
| President - Wireless Segment
| | $ | 220,000 | | | | 50 | % | | $ | 110,000 | | | | 31,429 | |
Scott Francis
| Chief Accounting Officer
| | $ | 180,000 | | | | 50 | % | | $ | 90,000 | | | | 25,714 | |
Other Compensation
In addition to participating in Company-wide plans providing health, dental and life insurance on the same basis as all our other U.S.-based employees, our Senior Executives receive other compensation in various forms, primarily the following:
An annual matching contribution of up to 5% of each executive’s personal contribution to the Company’s 401(k) Plan up to the first 5% of the personal contribution.
A company provided car or car allowance
Other forms of compensation as dictated by the needs of the business.
The Compensation Committee, as part of the 2020 Executive Compensation Planning Process also approved a director compensation plan which is described in Proposal #4 of this Proxy Statement.
Outstanding Equity Awards at September 30, 2019December 31, 2022
The named executive officers of the Company did not have any unvested stock option awards as of December 31, 2022.
The following table reflects the outstandingnumber of shares of unvested restricted stock options held by theawards of our named executive officers of the Company as of September 30, 2019. TheDecember 31, 2022:
| | | | | |
Name | Unvested Restricted Stock |
Joseph E. Hart | — | |
Michael A. Rutledge | 37,500 | |
PAY VERSUS PERFORMANCE
As required by Item 402(v) of Regulation S-K, we are providing the following information regarding the relationship between executive compensation and our financial performance for each of the last two completed calendar years. In determining the “compensation actually paid” to our named executive officers do("NEOs"), we are required to make various adjustments to amounts that have restricted stock (see the Restricted Stock Awards listedbeen previously reported in the Summary Compensation Table on page 18), and none ofin previous years, as the stock optionsSEC’s valuation methods for this section differ from those required in the Summary Compensation Table.
Pay Versus Performance Table
The table below summarizes compensation values both previously reported in our Summary Compensation Table, as well as the table are subjectadjusted values required in this section for fiscal years ended December 31, 2022 and September 30, 2021. Note that for our NEOs other than our principal executive officer (the “PEO”), compensation is reported as an average. Please refer to performance-related conditions.the Compensation of Directors and Executive Officers section for information about our executive compensation program and the ways in which we align executive compensation with performance.
Named Executive Officer | | Number of Securities Underlying Options which are Exercisable | | | Number of Securities Underlying Options which are Unexercisable | | | Option Exercise Price | | Option Expiration Date |
Joseph E. Hart | | | 200,000 | | | | – | | | $ | 1.36 | | 9/13/2028 |
Kevin D. Brown (1) | | ‒ | | | | 75,000 | | | $ | 1.31 | | 3/31/2029 |
Colby J. Empey (1) | | ‒ | | | | 75,000 | | | $ | 1.31 | | 3/31/2029 |
Scott A. Francis | | | 50,000 | | | | – | | | $ | 2.45 | | 4/2/2022 |
| | | 50,000 | | | ‒ | | | $ | 3.21 | | 4/3/2024 |
| | ‒ | | | | 30,000 | | | $ | 1.28 | | 12/27/2028 |
Donald E. Kinison | | | 33,334 | | | | 16,666 | | | $ | 1.79 | | 5/2/2027 |
| | ‒ | | | | 50,000 | | | $ | 1.28 | | 12/27/2028 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year | | Summary Compensation Table Total for PEO (1)(2) | | Compensation Actually Paid to PEO (1)(6) | | Average Summary Compensation Table Total for Non-PEO Named Executive Officers (1)(3) | | Average Compensation Actually Paid to Non-PEO Named Executive Officers (1)(7) | | Value of Initial Fixed $100 Investment Based on Total Shareholder Return (4) | | Net Income (Loss) (in thousands) (5) |
2022 | | $ | 332,505 | | | $ | 332,505 | | | $ | 205,360 | | | $ | 110,285 | | | $ | 75.40 | | | $ | 471 | |
2021 | | $ | 772,869 | | | $ | 772,869 | | | $ | 308,233 | | | $ | 280,958 | | | $ | 122.72 | | | $ | (2,029) | |
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(1) | | During the fiscal years 2022 and 2021, the PEO was Joseph E. Hart. During fiscal year 2022 the non-PEO named executive officers (NEOs) were Michael A. Rutledge and Jimmy Taylor, and during fiscal year 2021 they were Michael A. Rutledge, Scott A. Francis, and Jimmy Taylor. |
(2) | | The dollar amounts reported are the amounts of total compensation reported for Mr. Hart for the applicable fiscal year in the "Total Compensation" column of the Summary Compensation Table (SCT). |
(3) | | The dollar amounts reported represent the average of the amounts reported for the non-PEO NEOs for the applicable fiscal year in the "Total Compensation" column of the SCT. |
(4) | | The amounts reported represent the measurement period value of an investment of $100 in our stock on September 30, 2020 (the last trading day before the 2021 fiscal year), and then valued again on each of September 30, 2021 (the last trading day of the 2021 fiscal year) and December 30, 2022 (the last trading day of the 2022 fiscal year), based on the closing price per share of the Company's common stock as of such dates. No dividends were paid by the Company in 2021 or 2022. |
(5) | | The amounts reported represent net income (loss) for the applicable fiscal year calculated in accordance with generally accepted accounting principles in the United States. |
(6) | | The following table sets forth the adjustments for the applicable fiscal year which were made to the total compensation per the SCT in order to arrive at "compensation actually paid" to our PEO, as computed in accordance with Item 402(v) of Regulation S-K: |
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
SCT Total for PEO | $ | 332,505 | | | $ | 772,869 | |
| Less: Amount reported under the "Stock Awards" column in the SCT | — | | | (446,450) | |
| Add: Fair value of awards granted during the fiscal year that vested during the fiscal year | — | | | 446,450 | |
| Add: Fair value as of fiscal year-end of awards granted during the fiscal year that are outstanding and unvested as of the end of the fiscal year | — | | | — | |
| Add: Change in fair value as of fiscal year-end, compared to prior fiscal year-end, of awards granted in any prior fiscal year that are outstanding and unvested as of the end of the fiscal year | — | | | — | |
| Add: Change in fair value as of vesting date, compared to prior fiscal year-end, of awards granted in any prior fiscal year for which all vesting conditions were satisfied at fiscal year-end or during the fiscal year | — | | | — | |
| Total Adjustments | — | | | — | |
Compensation Actually Paid to PEO | $ | 332,505 | | | $ | 772,869 | |
| | | | | | | | | | | | | | |
(7) | The following table sets forth the adjustments for the applicable fiscal year which were made, on an average basis, to the average total compensation per the SCT in order to arrive at "average compensation actually paid" to our non-PEO NEOs, as computed in accordance with Item 402(v) of Regulation S-K: |
| | | | |
| | 2022 | | 2021 |
Average SCT Total for Non-PEO NEOs | $ | 205,360 | | | $ | 308,233 | |
| Less: Amount reported under the "Stock Awards" column in the SCT | — | | | (456,858) | |
| Add: Fair value of awards granted during the fiscal year that vested during the fiscal year | — | | | 267,858 | |
| Add: Fair value as of fiscal year-end of awards granted during the fiscal year that are outstanding and unvested as of the end of the fiscal year | — | | | 177,000 | |
| Add: Change in fair value as of fiscal year-end, compared to prior fiscal year-end, of awards granted in any prior fiscal year that are outstanding and unvested as of the end of the fiscal year | (40,125) | | | (8,450) | |
| Add: Change in fair value as of vesting date, compared to prior fiscal year-end, of awards granted in any prior fiscal year for which all vesting conditions were satisfied at fiscal year-end or during the fiscal year | (54,950) | | | (6,825) | |
| Total Adjustments | (95,075) | | | (27,275) | |
Average Compensation Actually Paid to Non-PEO NEOs | $ | 110,285 | | | $ | 280,958 | |
(1) | Mr. Brown and Mr. Empey are each owed an additional 25,000 options at a $1.31 option exercise price per the terms of an outstanding option agreement. These shares will be awarded assuming shareholders vote to amend the 2015 Incentive Stock Plan to add additional shares. | |
PROPOSAL NO. 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has selected the accounting firm of HoganTaylor LLP as our independent registered public accounting firm to examine our financial statements for the fiscal year ending September 30, 2020.December 31, 2023.
Representatives from HoganTaylor will attend the Annual Meeting to answer appropriate questions and make statements if they desire.
Recommendation of the Board of Directors:
The Board of Directors recommends a vote FOR the ratification of the appointment of HoganTaylor.
PRINCIPAL ACCOUNTING FEES AND SERVICES
HoganTaylor LLP audited our consolidated financial statements for the fiscal years ended December 31, 2022 and September 30, 2019 and 2018.2021. Our Audit Committee considered whether the provisions for the tax services and other services by HoganTaylor were compatible with maintaining their independence and determined that they were.
Fees Incurred by the Company for Services Performed by Audit Firms
The following table shows the fees incurred for the years ended December 31, 2022 and September 30, 2019 and 20182021 for professional services provided by HoganTaylor for the audits of our annual financial statements as well as other professional services. Included within the year ended 2022 are the fees associated with the transition period of three months ended December 31, 2021.
| | | 2019 | | | 2018 | | | 2022 | | 2021 |
Audit Fees(1) | | $ | 141,300 | | | $ | 126,500 | | Audit Fees(1) | $ | 227,800 | | | $ | 129,000 | |
Audit-Related Fees(2) | | 76,953 | | | 1,000 | | Audit-Related Fees(2) | 23,500 | | | 7,500 | |
Tax Fees(3) | | 37,250 | | | 33,045 | | Tax Fees(3) | — | | | 25,006 | |
All Other Fees | | ‒ | | | | 925 | | All Other Fees | — | | | — | |
Total | | $ | 255,503 | | | $ | 161,470 | | Total | $ | 251,300 | | | $ | 161,506 | |
1) | Audit Fees represent fees for professional services provided in connection with the audit of our annual financial statements and review of our quarterly financial statements and audit services provided in connection with the issuance of comfort letters, consents, and assistance with review of documents filed with the SEC. |
2) | Audit-Related Fees represent reimbursements of travel and other costs associated with audit services. For 2019, these fees also include audit work performed for Fulton Technologies, Inc. and travel-related expenses associated with this work as part of the due diligence process in connection with the asset acquisition of Fulton Technologies, Inc. |
(1) Audit Fees represent fees for professional services provided in connection with the audit of our annual financial statements and review of our quarterly financial statements and audit services provided in connection with the issuance of comfort letters, consents, and assistance with review of documents filed with the SEC.3) | Tax Fees represent fees for annual tax return preparation and research of tax related matters. |
(2) Audit-Related Fees represent services in connection with special reports, accounting consultations, and due diligence procedures.
(3) Tax Fees represent fees for annual tax return preparation and research of tax related matters.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. During the year, the Audit Committee approved all of the services performed by the independent registered public accounting firm. The fees billed for these services approximated 100% of the pre-approved amounts.
Before engagement of the independent registered public accounting firm for the next year’s audit, management will submit a list of services and related fees expected to be rendered during that year within each of the following four categories of services to the Audit Committee for approval:
1.Audit services include audit work performed on the financial statements, internal control over financial reporting, as well as work that generally only the independent registered public accounting firm can reasonably be expected to provide, including comfort letters, statutory audits, and discussions surrounding the proper application of financial accounting and/or reporting standards.
2.Audit-Related services are for assurance and related services that are traditionally performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions and special procedures required to meet certain regulatory requirements.
3.Tax services include all services, except those services specifically related to the audit of the financial statements, performed by the independent registered public accounting firm’s tax personnel, including tax analysis; assisting with coordination of execution of tax related activities, primarily in the area of
corporate development; supporting other tax related regulatory requirements; and tax compliance and reporting.
4.Other Fees are those associated with services not captured in the other categories. We generally do not request such services from the independent registered public accounting firm other than the annual audit of our Defined Contribution Plan.
1. | Audit services include audit work performed on the financial statements, internal control over financial reporting, as well as work that generally only the independent registered public accounting firm can reasonably be expected to provide, including comfort letters, statutory audits, and discussions surrounding the proper application of financial accounting and/or reporting standards.
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2. | Audit-Related services are for assurance and related services that are traditionally performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions and special procedures required to meet certain regulatory requirements.
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3. | Tax services include all services, except those services specifically related to the audit of the financial statements, performed by the independent registered public accounting firm’s tax personnel, including tax analysis; assisting with coordination of execution of tax related activities, primarily in the area of corporate development; supporting other tax related regulatory requirements; and tax compliance and reporting.
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4.
| Other Fees are those associated with services not captured in the other categories. We generally do not request such services from the independent registered public accounting firm other than the annual audit of our Defined Contribution Plan.
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Before engagement, the Audit Committee pre-approves the independent registered public accounting firm’s services within each category. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval categories. In those instances, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm.
The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
APPROVAL OF OUR PROPOSED | | |
PROPOSAL NO. 3 APPROVE AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO INCREASE OUR AUTHORIZED SHARES OF COMMON STOCK FROM 35,000,000 TO 100,000,000, OF WHICH 95,000,000 SHARES SHALL BE COMMON STOCK WITH A PAR VALUE OF $0.01 PER SHARE, AND 5,000,000 SHARES SHALL BE PREFERRED STOCK WITH A PAR VALUE OF $1.00 PER SHARE |
2015 INCENTIVE STOCK PLAN
Our Board has approved, subject to stockholder approval, an amendment to our Articles of Incorporation to increase our authorized shares of common stock from 35,000,000 to 100,000,000 of which 95,000,000 shares shall be Common Stock with a par value of $0.01 per share, and 5,000,000 shares shall be Preferred Stock with a par value of $1.00 per share. The increase in our authorized shares of common stock will become effective upon the filing of the amendment to our Articles of Incorporation with the Oklahoma Secretary of State. If the amendment to increase our authorized shares of common stock is approved by stockholders at the Annual Meeting, we intend to file the amendment to our Articles of Incorporation as soon as practicable following the Annual Meeting.
The Boardform of Directorsthe text of the amendment (which would be filed with the Oklahoma Secretary of State on its then prescribed form of Certificate of Amendment) is requesting thatset forth as Appendix A to this proxy statement (subject to any changes required by applicable law).
Outstanding Shares and Purpose of the shareholders approveProposal
Our Articles of Incorporation currently authorizes us to issue a maximum of 35,000,000 shares, of which 30,000,000 shares shall be Common Stock with a par value of $0.01 per share, and 5,000,000 shares shall be Preferred Stock with a par value of $1.00 per share.
The approval of the proposed amendment (the “Amendment”) to the ADDvantage Technologies Group, Inc. 2015 Incentive Stock Plan. In January 2015,Articles of Incorporation to increase the Boardauthorized shares of Directors adoptedcommon stock is important for the 2015 Incentive Stock Planongoing business of the Company. Without additional authorized shares of common stock, (i) the Company may not be able to raise additional financing, which is needed to fund our ongoing business, (ii) the Company may not be able to attract and retain key employees, officers and directors, and (iii) the Company may not be able to make possible strategic acquisitions, although no such acquisitions are currently contemplated.
The increase in the number of authorized shares of common stock may be available for our Board to issue in future financings, to provide equity incentive to employees, officers and directors, to provide anmake stock-based acquisitions and for other general corporate purposes, and we intend to use the additional incentiveshares of common stock that will be available to each key employeeundertake any such issuances. We have no specific plan, commitment, arrangement, understanding or agreement, either oral or written, regarding the issuance of common stock subsequent to this proposed increase in the number of authorized shares at this time, and director,we have not allocated any specific portion of the proposed increase in the authorized number of shares to workany particular purpose. The Company is therefore requesting its stockholders approve this proposal to amend its Articles of Incorporation to increase the authorized shares of common stock.
Rights of Additional Authorized Shares
Any authorized shares of common stock, if and when issued, would be part of our existing class of common stock and would have the same rights and privileges as the shares of common stock currently outstanding. Our stockholders do not have pre-emptive rights with respect to the common stock, nor do they have cumulative voting rights. Accordingly, should the Board issue additional shares of common stock, existing stockholders would not have any preferential rights to purchase any of such shares, and their percentage ownership of our then outstanding common stock could be reduced.
Potential Adverse Effects of Increase in Authorized Common Stock
Future issuances of common stock or securities convertible into common stock could have a dilutive effect on our earnings per share, book value per share and the voting power and ownership interest of current stockholders. The additional shares of common stock for which authorization is sought in this proposal would be part of the existing class of common stock and, if and when issued, would have the same rights and privileges as the shares of common stock presently outstanding. We could also use the additional shares of common stock that will become available for issuance to oppose a hostile takeover attempt or to delay or prevent changes in control or management of the Company. For example, it may be possible for the Board to delay or impede a takeover or transfer of control of the Company by causing such additional authorized shares to be issued to holders who might side with the Board in opposing a takeover bid that the Board determines is not in the best interests of the Company or its stockholders. The proposed increase in authorized shares of common stock therefore may have the effect of discouraging unsolicited takeover attempts. By potentially discouraging initiation of any such unsolicited takeover attempts, the proposed increase in authorized shares of common stock may limit the opportunity for the Company’s stockholders to dispose of their shares at the higher price generally available in takeover attempts or that may be available under a merger proposal. The proposed increase in authorized shares of common stock may have the effect of permitting the Company’s current management, including the current Board, to retain its position, and place it in a better position to resist changes that stockholders may wish to make if they are dissatisfied with the conduct of the Company’s business. The Board is not aware of any attempt, or contemplated attempt, to acquire control of the Company, nor is this proposal being presented with the intent that it be used to prevent or discourage any acquisition attempt. However, nothing would prevent the Board from taking any such actions that it deems to be consistent with its fiduciary duties.
Vote Required and Board Recommendation
Approval of an amendment to our Articles of Incorporation to increase our authorized shares of common stock requires the affirmative vote of the majority of the voting power of the common stock issued and outstanding as of the Record Date, and abstentions will have the effect of a vote against this proposal.
The Board unanimously recommends a vote “FOR” the approval of an amendment to provide each key employee and directorour Articles of Incorporation to increase our authorized shares of common stock from 35,000,000 to
100,000,000of which 95,000,000 shares shall be Common Stock with a stakepar value of $0.01 per share, and 5,000,000 shares shall be Preferred Stock with a par value of $1.00 per share
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PROPOSAL NO. 4 APPROVE AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF OUR COMMON STOCK AT A REVERSE STOCK SPLIT RATIO OF RANGING FROM 2:1 TO 10:1, INCLUSIVE, AS DETERMINED BY THE CHIEF EXECUTIVE OFFICER IN HIS SOLE DISCRETION, WITH OUR AUTHORIZED CAPITAL REMAINING UNCHANGED AT 100,000,000 SHARES |
Our stockholders are being asked to approve an amendment to our Certificate of Incorporation to effect a reverse stock split of our common stock at a reverse stock split ratio ranging from 2:1 to 10:1, inclusive, as determined by the Chief Executive Officer in his sole discretion (the “Reverse Stock Split”). This means that once approved by the futurestockholders, the Chief Executive Officer will be the person to decide whether and when to effect the Reverse Stock Split without further action of the Company. Board of Directors or the stockholders who have delegated this authority to him.
The 2015 Incentive Stock Plan was approved and adopted on March 4, 2015effectiveness of this amendment or the abandonment thereof, notwithstanding stockholder approval, will be determined by the Board, at its sole option, following the Annual Meeting any time prior to the one-year anniversary of the shareholders.meeting.
Reasons for a Reverse Stock Split
To maintain our listing on Nasdaq. The Amendmentprimary purpose of the Reverse Stock Split is to raise the per share trading price of the Company’s common stock in order to maintain its listing on the Nasdaq Capital Market. Delisting from Nasdaq may adversely affect the Company’s ability to raise additional financing through the public or private sale of our equity securities, may significantly affect the ability of investors to trade in the Company’s securities and may negatively affect the value and liquidity of the Company’s common stock. Delisting may also have other negative impacts, including potential loss of employee confidence, the loss of institutional investors, the loss of analyst coverage or the loss of business development opportunities. In addition, delisting from the Nasdaq Capital Market constitutes an event of default under the Notes, in which case the Notes shall become immediately due and payable, and the Company shall pay to the 2015 IncentiveNote holder an amount equal to the principal amount then outstanding plus accrued interest multiplied by 120%, as well as all costs, including, without limitation, legal fees and expenses of collection.
To potentially improve the marketability and liquidity of our common stock. The Board believes that an increased stock price may also improve the marketability and liquidity of our common stock. For example, many brokerages, institutional investors and funds have internal policies that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers by restricting or limiting the ability to purchase such stocks on margin. Additionally, investors may be dissuaded from purchasing stocks below certain prices because brokers’ commissions, as a percentage of the total transaction value, can be higher for low-priced stocks.
To decrease the risk of market manipulation of our common stock. The Board believes that the potential increase in stock price may reduce the risk of market manipulation of our common stock, which we believe is enhanced when our stock trades below $1.00 per share. By reducing market manipulation risk, we may also thereby potentially decrease the volatility of our stock price.
To provide us with flexibility with respect to our authorized common stock. Despite the Reverse Stock PlanSplit, our number of authorized, but unissued and unreserved, shares of our common stock will remain unchanged, thus representing a higher potential for future issuances. Such higher potential shares would provide flexibility to the Company for raising capital; repurchasing debt; providing equity incentives to employees, officers, directors, consultants and advisors (including pursuant to our equity compensation plan); expanding our business through the acquisition of other businesses and for other purposes. However, at present, we do not have any specific plans, arrangements, understandings or commitments for the additional shares that would become available.
Accordingly, for these and other reasons, the Board believes that a Reverse Stock Split is in the best interests of the Company and our stockholders. A copy of the draft of the amendment to our Certificate of Incorporation providing for the Reverse Stock Split is attached hereto as Annex B.
Criteria to be Used for Determining Whether to Implement a Reverse Stock Split
This Proposal gives the Company’s Chief Executive Officer the discretion to select a Reverse Stock Split ratio from within a range between and including 2:1 and 10:1 on a date selected by him based on his then-current assessment of the factors below, and in order to maximize Company and stockholder interests. In determining whether to implement the Reverse Stock Split, and which ratio to implement, if any, our Chief Executive Officer may consider, among other factors:
•the historical trading price and trading volume of our common stock;
•the then-prevailing trading price and trading volume of our common stock and the expected impact of the Reverse Stock Split on the trading market in the short- and long-term;
•The continued listing requirements for our common stock on Nasdaq or other applicable exchanges, if then applicable;
•the number of shares of common stock outstanding;
•which Reverse Stock Split ratio would result in the least administrative cost to us; and
•prevailing industry, market and economic conditions.
We cannot assure stockholders that the proposed Reverse Stock Split will sufficiently increase our stock price or, if our stock trades below $1.00 per share for 30 consecutive days, be completed before Nasdaq commences delisting procedures. The effect of a Reverse Stock Split on our stock price cannot be predicted with any certainty, and the history of reverse stock splits for other companies in various industries is varied, particularly since some investors may view a reverse stock split negatively. It is possible that our stock price after a Reverse Stock Split will not increase in the same proportion as the reduction in the number of shares outstanding, causing a reduction in the Company’s overall market capitalization. Further, even if we implement a Reverse Stock Split, our stock price may decline due to various factors, including our future performance and general industry, market and economic conditions. This percentage decline, as an absolute number and as a percentage of our overall market capitalization, may be greater than would occur in the absence of a Reverse Stock Split. If we fail to meet Nasdaq’s listing requirements, Nasdaq could suspend trading in our common stock and commence delisting proceedings.
The proposed Reverse Stock Split may decrease the liquidity of our common stock and result in higher transaction costs. The liquidity of our common stock may be negatively impacted by the reduced number of shares outstanding after the Reverse Stock Split, which would be exacerbated if the stock price does not increase following the split. In addition, a Reverse Stock Split would increase the number of stockholders owning “odd lots” of fewer than 100 shares, trading in which generally results in higher transaction costs. Accordingly, a Reverse Stock Split may not achieve the desired results of increasing marketability and liquidity as described above.
The authorized number of shares of common stock available for issuance will remain unchanged despite the implementation of the Reverse Stock Split, which would result in an effective increase for potential issuances in the future. The additional shares of common stock available for issuance could be used by the Company to oppose a hostile takeover attempt or to delay or prevent changes in control or in our management. Although the Reverse Stock Split has been prompted by business and financial considerations, and not by the threat of any hostile takeover attempt (nor is the Board currently aware of any such attempts directed at us), stockholders should be aware that approval of the Reverse Stock Split could facilitate future efforts by us to deter or prevent changes in control, including transactions in which stockholders might otherwise receive a premium for their shares over then-current market prices.
Stockholders should also keep in mind that the implementation of a Reverse Stock Split does not have an effect on the actual or intrinsic value of our business or a stockholder’s proportional ownership interest (subject to the treatment of fractional shares). However, should the overall value of our common stock decline after a Reverse Stock Split, then the actual or intrinsic value of shares held by stockholders will also proportionately decrease as a result of the overall decline in value.
Effects of a Reverse Stock Split
As of the effective date of the Reverse Stock Split:
•each 2 to 10 shares of common stock outstanding (depending on the Reverse Stock Split ratio selected by the Chief Executive Officer) will be combined, automatically and without any action on the part of the Company or its stockholders, into one new share of common stock;
•no fractional shares of common stock will be issued; instead, stockholders who would otherwise receive a fractional share will receive cash in lieu of the fractional share (as detailed below);
•proportionate adjustments will be made to the number of shares issuable upon the exercise or vesting of all then-outstanding stock options, warrants and restricted stock units, which will result in a proportional decrease in the number of shares of common stock reserved for issuance under the Incentive Stock Plan from 500,000 shares to 1,500,000 sharesupon exercise or vesting of common stock.
On December 4, 2019, the Board of Directors unanimously approved the Amendment, subject to approval by the Company’s shareholders at the Annual Meeting. In order for the Amendment of the 2015 Incentive Stock Plan to take effect, it must be approved by the Company’s shareholders. If this Amendment is not approved by the Company’s shareholders, the 2015 Incentive Stock Plan will continue to operate according to its terms. However, almost all of the shares originally reserved to the 2015 Incentive Stock Plan have been issued. Accordingly, unless the shareholders approve the Amendment, the Company will not be able to offer equity incentive compensation to its key employeessuch stock options, warrants and directors.
The Board of Directors believes that it isrestricted stock units, and, in the best interestscase of the Company and its shareholders to provide for an Amendment to the 2015 Incentive Stock Plan to continue to attract and retain key employees and directors, to provide additional incentive to each key employee and director, to work tostock options, a proportional increase the value of the Company’s stock, and to provide each key employee and director with a stake in the futureexercise price of the Company.
26all such stock options; and
Reasons for •the Proposed Amendments
The Company will utilize the increased number of shares of common stock then reserved for issuance under our equity compensation plan will be reduced proportionately; and
•notwithstanding the Reverse Stock Split, if approved, the total number of authorized shares of common stock would remain unchanged at 100,000,000 shares, of which 95,000,000 shares would be Common Stock with a par value of $0.01 per share, and 5,000,000 shares would be Preferred Stock with a par value of $1.00 per share.
The following table summarizes, for illustrative purposes only, the anticipated effects of a Reverse Stock Split on our shares available for issuance based on information as of July 24, 2023 (unless otherwise noted below) and without giving effect to attractthe treatment of fractional shares.
Assuming this Proposal Is Approved by Stockholders and retain key employees and directors and to ensure that management maintains a reasonable levelImplemented by the Board:
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Status | | Number of Shares of Common Stock Authorized | | Number of Shares of Common Stock Issued and Outstanding | | Number of Shares of Common Stock Reserved for Future Issuance | | Number of Shares of Common Stock Authorized but Unissued and Unreserved | | Hypothetical Initial Market Value of Shares of Common Stock Authorized but Unissued and Unreserved* |
Pre-Reverse Stock Split | | 30,000,000 | | | 14,982,524 | | | 8,293,813 | | | 6,723,663 | | | 4,303,144 | |
Post Reverse Stock Split | | 95,000,000 | | | 1,498,252 | | | 829,381 | | | 92,672,367 | | | 593,103,149 | |
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'* Based on a hypothetical post-split stock price calculated by multiplying the closing stock price on July 24, 2023 of $0.64 by a split ratio of 10:1. |
A Reverse Stock Split would affect all stockholders uniformly. As of the effective date of the Reverse Stock Split which shall be determined by the Chief Executive Officer in his sole discretion (“Effective Date”), each stockholder would own a reduced number of shares originally reservedof common stock. Percentage ownership interests, voting rights and other rights and preferences would not be affected, except to the 2015 Incentiveextent that the Reverse Stock Plan have been issued. Therefore,Split would result in fractional shares (as described below).
A Reverse Stock Split would not affect the approvalregistration of our common stock under Section 12(b) of the Amendment is necessary in order for the Company to be able to offer equity incentive compensation to key employees and directors in the future.
Vote Required
Approval of Proposal No. 3 requires the affirmative vote of a majority of the shares cast at the Annual Meeting. Broker non-votes are counted towards a quorum but will have no effect on the outcome of the vote for this Proposal No. 3.
Recommendation of the Board of Directors:
The Board of Directors recommends a vote FOR the approval of the amendment to the 2015 Incentive Stock Plan.
PROPOSAL TO APPROVE DIRECTOR COMPENSATION PLAN
On December 4, 2019, the Compensation Committee unanimously approved and recommended to the Board of Directors, who also approved a revised director compensation plan, as part of the 2020 Executive Compensation Plan. The Director Compensation Plan, if approved, will be effective as of April 1, 2020. If the director compensation plan is not approved by the Company’s shareholders, director compensation will continue forward at substantially current rates. If approved by the shareholders, our non-employee directors will receive compensation in the manner set forth below.
Proposed Director Compensation
Name | | Fees Earned or Paid in Cash | | | Restricted Stock Awards (4)
| | | Total Compensation | |
Thomas J. Franz | | $ | 20,000 | | | $ | 50,000 | | | $ | 70,000 | |
David E. Chymiak | | $ | 20,000 | | | $ | 50,000 | | | $ | 70,000 | |
James C. McGill, Nonexecutive Chairman (1) | | $ | 25,000 | | | $ | 50,000 | | | $ | 75,000 | |
John M. Shelnutt (2)
| | $ | 20,000 | | | $ | 50,000 | | | $ | 70,000 | |
David W. Sparkman (3)
| | $ | 30,000 | | | $ | 50,000 | | | $ | 80,000 | |
(1) | James C. McGill and the Company entered into a Letter Agreement on October 8, 2018, which provides that Mr. McGill will receive annual compensation in the form of $75,000 cash and $75,000 in shares of restricted stock for serving as Chairman of the Board. The shares will be delivered 20% per year over five years.
Mr. McGill received his first $15,000 of restricted stock on October 8, 2018, but he has not yet received his $15,000 of restricted stock on October 8, 2019 as the Company does not have enough stock under the 2015 Incentive Stock Plan. If Proposal #3 is approved, the shares owed to Mr. McGill will be granted to him
effective as of October 8, 2019.
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(2) | In addition to the annual compensation to be paid to Mr. Shelnutt in 2020 as set forth in the table above, and subject to the approval of Proposal No. 3, Mr. Shelnutt will be awarded a one-time Restricted Stock Award in the amount of 50,000 shares, vesting in equal increments over a three year period. This one-time award
is being granted to Mr. Shelnutt because of his recent addition to the Board of Directors. The purpose of this one-time award is to attract and retain quality leadership. Further, the award to Mr. Shelnutt will immediately align his individual interests with the short-term and long-term interests of the shareholders.
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(3) | Mr. Sparkman will receive a cash payment $30,000, by reason of his service as Chairman of the Audit Committee.
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(4) | The RSAs made under the proposed director compensation plan vest after one year
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Reasons for Changes to Director Compensation.
Based on the review of similarly-situated companies, the Board believes that current director compensation is substantially below that of its peer group. The Board of Directors believes that the increase in director compensation reflected in the director compensation plan is necessary in order to bring director compensation more in line with that of similarly-situated companies and to allow the Company to retain and attract qualified directors. It is also designed and proposed to bring director compensation more in line with peer groups in the microcap space. Of 298 microcap companies surveyed in the report generated by the Pearl-Meyer Director Compensation Board, the median director compensation was $120,000 per year in 2018. Median director compensation was $66,000 in 2005. The Compensation Committee is recommending an increase from approximately $30,000 to $70,000 to close the gap on competitive director compensation. The committee also recommends putting a higher percentage of director compensation in equity in order to more closely align the Board of Directors with shareholder interests.
Vote Required
Approval of Proposal No. 4 requires the affirmative vote of a majority of the shares not held by directors and employees of the Company. Accordingly, broker non-votes and abstentions will have the same effect as a vote Against Proposal No. 4.
Recommendation of the Board of Directors:
The Board of Directors recommends a vote FOR the approval of the 2020 Director Compensation Plan.
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
We believe executive compensation is an important matter for our shareholders. A fundamental principle of our executive compensation philosophy and practice continues to be pay for performance. An executive officer’s compensation package is comprised of two components: (i) a base salary, which reflects individual performance and expertise, and (ii) incentive awards, tied to the achievement of certain performance goals that the Compensation Committee establishes from time to time. We believe that this type of compensation program is consistent with our strategy, competitive practice, sound corporate governance principles, and shareholder interests and concerns. We urge you to read the “Compensation of Directors and Executive Officers” and “2020 Executive Compensation Plan” sections of this Proxy Statement for additional details on our executive compensation.
In accordance with the requirements of Section 14A of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), and we would continue to be subject to the periodic reporting and other requirements of the Exchange Act. Barring delisting by Nasdaq, our common stock would continue to be listed on Nasdaq under the symbol “AEY,” but would have a new Committee on Uniform Securities Identification Procedures (“CUSIP”) number after the effective date.
Cash Payment In Lieu of Fractional Shares
No fractional shares of common stock will be issued as a result of the Reverse Stock Split. In lieu of any fractional shares to which a stockholder of record would otherwise be entitled, the Company will pay cash (without interest and subject to withholding taxes, as applicable) equal to such fraction multiplied by the closing price of the common stock on Nasdaq on the first business day immediately preceding the Effective Date (as adjusted in good faith by the Company to account for the reverse stock split ratio). After the Effective Date, a stockholder otherwise entitled to a fractional interest will not have any voting, dividend or other rights with respect to such fractional interest, except to receive such cash payment.
Additionally, under the escheat laws of the various jurisdictions where stockholders may reside, where the Company is domiciled or where the cash payment may be deposited, sums due for fractional interests that are not timely claimed after the Effective Date may be required to be paid to the designated agent for such jurisdiction, unless correspondence has been received by us or the transfer agent concerning ownership of such funds within the specified time period. Thereafter, stockholders otherwise entitled to receive such payments would need to seek them directly from the state to which they were paid.
As of July 24, 2023, there were 98 common stockholders of record. After the Effective Date, stockholders owning less than a whole share will no longer be stockholders. We do not intend for this transaction to be the first step in a series of plans or proposals of a “going private transaction” within the meaning of Rule 13e-3 of the Exchange Act.
Procedure for Effecting a Reverse Stock Split
Beneficial holders of common stock. Stockholders who hold their shares through a bank, broker or other nominee will be treated in the same manner as registered stockholders who hold their shares in their names. Banks, brokers and other nominees will be instructed to effect the Reverse Stock Split for beneficial owners of such shares. However, banks, brokers or other nominees may implement different procedures than those to be followed by registered stockholders for processing the Reverse Stock Split,
particularly with respect to the treatment of fractional shares. Stockholders whose shares of common stock are held in the name of a bank, broker or other nominee are encouraged to contact their bank, broker or other nominee with any questions regarding the procedures for implementing the Reverse Stock Split with respect to their shares.
Registered holders of common stock. Registered stockholders hold shares electronically in book-entry form under the direct registration system (i.e., do not have stock certificates evidencing their share ownership but instead have a statement reflecting the number of shares registered in their accounts) and, as a result, do not need to take any action to receive post-split shares. If they are entitled to receive post-split shares, they will automatically receive, at their address of record, a transaction statement indicating the number of post-split shares held following the Effective Date.
Material U.S. Federal Income Tax Consequences
The following is a summary of material U.S. federal income tax consequences of a Reverse Stock Split to stockholders. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations, administrative rulings and judicial decisions, all as in effect on the date of this filing, and all of which are subject to change or differing interpretations, possibly with retroactive effect. Any such change or differing interpretation could affect the tax consequences described below.
We have not sought and will not seek an opinion of counsel or ruling from the Internal Revenue Service (the “IRS”) with respect to the statements made and the relatedconclusions reached in the following summary, and there can be no assurance that the IRS or a court will agree with such statements and conclusions.
This summary is limited to stockholders that are U.S. holders, as defined below, and that hold our common stock as a capital asset (generally, property held for investment).
This summary is for general information only and does not address all U.S. federal income tax considerations that may be applicable to a holder’s particular circumstances or to holders that may be subject to special tax rules, such as, for example, brokers and dealers in securities, currencies or commodities, banks and financial institutions, regulated investment companies, real estate investment trusts, expatriates, tax-exempt entities, governmental organizations, traders in securities that elect to use a mark-to-market method of accounting for their securities, certain former citizens or long-term residents of the SEC, we are includingU.S., insurance companies, persons holding shares of our common stock as part of a hedging, integrated or conversion transaction or a straddle or persons deemed to sell shares of our common stock under the constructive sale provisions of the Code, persons that hold more than 5% of our common stock, persons that hold our common stock in an individual retirement account, 401(k) plan or similar tax-favored account, or partnerships or other pass-through entities for U.S. federal income tax purposes and investors in such entities.
This summary does not address any U.S. federal tax consequences other than U.S. federal income tax consequences (such as estate or gift tax consequences), the Medicare tax on net investment income, the alternative minimum tax or any U.S. state, local or foreign tax consequences. This summary also does not address any U.S. federal income tax considerations relating to any other transaction other than the Reverse Stock Split.
For purposes of this proxy statementsummary, a separate proposal, commonly known“U.S. holder” means a beneficial owner of our common stock that is, for U.S. federal income tax purposes:
•an individual who is a citizen or resident of the U.S.;
•a corporation created or organized in or under the laws of the U.S., any state thereof or the District of Columbia;
•an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
•a trust if (1) it is subject to the primary supervision of a court within the U.S. and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a “say-on-pay” proposal, which gives youU.S. person.
If an entity (or arrangement) classified as a shareholderpartnership for U.S. federal income tax purposes holds shares of our common stock, the opportunitytax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. If a holder of our common stock is a partner of a partnership holding shares of our common stock, such holder should consult his or her own tax advisor.
This summary of certain U.S. federal income tax consequences is for general information only and is not tax advice. Stockholders are urged to endorseconsult their own tax advisor with respect to the application of U.S. federal income tax laws to their particular situation as well as any tax considerations arising under other U.S. federal tax laws (such as the estate or gift tax laws) or under the laws of any state, local, foreign or other taxing jurisdiction or under any applicable tax treaty.
The Reverse Stock Split is intended to be treated as a recapitalization for U.S. federal income tax purposes. Assuming the Reverse Stock Split qualifies as a recapitalization, except as described below with respect to cash received in lieu of a fractional share, a U.S. holder will not endorserecognize any gain or loss for U.S. federal income tax purposes upon the Reverse Stock Split. In the aggregate, a U.S. holder’s tax basis in the common stock received pursuant to the Reverse Stock Split (excluding the portion of the tax basis that is allocable to any fractional share) will equal the U.S. holder’s tax basis in its common stock surrendered in the Reverse Stock Split in exchange therefor, and the holding period of the U.S. holder’s common stock received pursuant to the Reverse Stock Split will include the holding period of the common stock surrendered in the Reverse Stock Split in exchange therefor.
In general, a U.S. holder who receives a cash payment in lieu of a fractional share will recognize capital gain or loss equal to the difference between the amount of cash received in lieu of the fractional share and the portion of the U.S. holder’s tax basis of the common stock surrendered in the Reverse Stock Split that is allocable to the fractional share. Such gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period in its common stock surrendered in the Reverse Stock Split is more than one year as of the date of the Reverse Stock Split. The deductibility of net capital losses by individuals and corporations is subject to limitations. Depending on a stockholder’s individual facts and circumstances, it is possible that cash received in lieu of a fractional share could be treated as a distribution under Section 301 of the Code, so stockholders should consult their own tax advisors as to that possibility and the resulting tax consequences to them in that event.
U.S. holders that have acquired different blocks of our executive pay practices by voting forcommon stock at different times or at different prices are urged to consult their own tax advisors regarding the allocation of their aggregated adjusted basis among, and the holding period of, our common stock.
Information returns generally will be required to be filed with the IRS with respect to the payment of cash in lieu of a fractional share made pursuant to the Reverse Stock Split unless such U.S. holder is an exempt recipient and timely and properly establishes with the applicable withholding agent the exemption. In addition, payments of cash in lieu of a fractional share made pursuant to the Reverse Stock Split may, under certain circumstances, be subject to backup withholding, unless a U.S. holder timely provides to the applicable withholding agent proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with the applicable requirements of the backup withholding rules. Any amounts withheld under the backup withholding rules are not additional tax and may be refunded or credited against the resolution below. This vote is not intendedU.S. holder’s U.S. federal income tax liability, provided that the U.S. holder timely furnishes
the required information to address any specific item of compensation, but rather the overall compensationIRS. U.S. holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.
Accounting Consequences
The par value per share of our named executive officerscommon stock will remain unchanged at $0.0001 per share following a Reverse Stock Split. As a result, as of the Effective Date, the stated capital on the Company’s balance sheets attributable to common stock will be reduced proportionally based on the Reverse Stock Split ratio, and the principles, policies and practices describedadditional paid-in capital will be credited with the amount by which the capital is reduced. The net income or loss per share of common stock will be increased as a result of the fewer shares of common stock outstanding. The Reverse Stock Split will be reflected retroactively in this Proxy Statement. As an advisory vote, the result will not be binding on the Company, theour consolidated financial statements.
The Board of Directors or the Compensation Committee, although our Compensation Committee will consider the outcome of the vote when evaluating our compensation principles, design and practices. The Company currently holds its say-on-pay vote every three years. Shareholders have an opportunity to cast an advisory vote on the frequency of say-on-pay votes at least every six years. As currently scheduled, the next say-on-pay vote would take place in 2023, and the next advisory vote on the frequency of say-on-pay votes will be in 2026.
If you abstain from voting on this matter, your abstention will have the effect ofrecommends a vote against the proposal. If you hold your shares through a broker and you do not instruct the broker how to vote on this proposal, your broker does not have authority to vote your shares. Where no instructions are indicated, properly executed and unrevoked proxies will be voted “FOR” the approval of the compensationReverse Stock Split. The Board of Directors retains the discretion to abandon, and not implement, the aforementioned amendments at any time before they become effective.
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PROPOSAL NO. 5 AUTHORIZATION TO EFFECTUATE THE TRANSACTIONS CONTEMPLATED BY THE SPAs, INCLUDING THE ISSUANCE OF SHARES OF COMMON STOCK NECESSARY FOR THE CONVERSION OF THE NOTES AND EXERCISE OF THE WARRANTS |
On April 7 and April 12, 2023, the Company entered into the SPAs with Mast Hill Fund, L.P. (“Mast Hill”) for the issuance of 13% Notes in the aggregate principal amount of up to $3,000,000.00 convertible into shares of common stock of the Company, as well as the issuance of up to 72,000 shares of common stock as a commitment fee and warrants for the purchase of up to 648,000 shares of common stock of the Company. The Mast Hill transactions closed on April 7 and April 12, 2023 (each, a “Closing Date”). Revere Securities LLC acted as advisor to the Company in connection with the transactions. Additional information can be found in the Company’s Form 8-K dated April 12, 2023.
The SPAs require that the Company obtains approval of the holders of a majority of the Company’s named executive officers, as disclosed in this Proxy Statement.
Recommendationoutstanding voting common stock to effectuate the transactions contemplated by the SPAs, including the issuance of all of the common stock underlying the Notes and the Warrants in excess of 19.99% of the issued and outstanding common stock on the Closing Date. Pursuant to the SPAs, the Company shall hold a special meeting of shareholders on or before the date that is ninety (90) calendar days after the first date that the common stock has traded at a price per share of less than $1.00 during the five (5) consecutive trading days immediately preceding such date, which occurred on May 2, 2023, for the purpose of obtaining shareholder approval, with the recommendation of the Company’s Board of Directors:Directors that such proposal be approved, and the Company shall solicit proxies from its shareholders in connection therewith.
The failure to obtain shareholder approval constitutes an event of default under the Notes, in which case the Notes shall become immediately due and payable, and the Company shall pay to the Note holder an amount equal to the principal amount then outstanding plus accrued interest multiplied by 120%, as well as all costs, including, without limitation, legal fees and expenses of collection.
Our stockholders are being asked to authorize the Board to effectuate the transactions contemplated by the SPAs, including the issuance of shares of common stock necessary for the conversion of the Notes and exercise of the Warrants.
The effectiveness of this amendment or the abandonment thereof, notwithstanding stockholder approval, will be determined by the Board, at its sole option, following the Annual Meeting any time prior to the one-year anniversary of the meeting.
The Board of Directors endorses our executive compensation program, as disclosedrecommends a vote “FOR” the authorization to effectuate the transactions contemplated by the SPAs, including the issuance of shares of common stock necessary for the conversion of the Notes and exercise of the Warrants.
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PROPOSAL NO. 6 ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY OR APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES |
We may ask stockholders to vote on a proposal to adjourn the Annual Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Annual Meeting to adopt any of the other proposals. In that event, stockholders will be asked to vote only upon this proposal and not on any other matter. If this proposal is approved, the Board may in this Proxy Statement, and recommends that our shareholders voteits discretion, if necessary or appropriate, adjourn the Annual Meeting to use the additional time to solicit additional proxies in favor of the following resolution:
“RESOLVED, that the compensationany of the Company’s named executive officers as disclosedother proposals. Even if there are a sufficient number of votes at the time of the Annual Meeting to adopt one of the other proposals, the Board may in its discretion seek to, if necessary or appropriate, adjourn the Company’s proxy statementAnnual Meeting to solicit additional proxies for the Company’s 2020proposal for which there are insufficient votes, and the Board may do so without adopting the proposal for which there are sufficient votes at the time of the Annual Meeting, pursuant to Item 402(m) through (q) of Regulation S-K, including the compensation tables and narrative discussion, be, and hereby is, APPROVED.”Meeting.
ADVISORY VOTE ON FREQUENCY OF
EXECUTIVE COMPENSATION VOTE
As discussed above in Proposal No. 5, executive compensation is an important matter for our shareholders. Companies are required to provide a separate shareholder advisory vote once every six years to determine whether the shareholders’ say-on-pay vote should occur every year, every two years or every three years. As an advisory vote, this proposal is non-binding on us. OurThe Board of Directors could, if it concluded it was in our best interests to do so, choose not to follow or implementrecommends a vote “FOR” the outcomeapproval of the advisory vote. However, we expect that our Board of Directors will consider the outcomeadjournment of the vote when determining how oftenAnnual Meeting, if necessary or appropriate, to hold a shareholder advisory vote on our executive compensation.
solicit additional proxies.Our executive compensation program is not complex and, largely due to our size, we have only five members of our executive management team. Accordingly, our Board of Directors has concluded that holding an advisory vote on executive compensation every three years should be sufficient to permit shareholders to express their opinions while, at the same time, minimizing the administrative costs of such votes.
Shareholders are not voting to approve or disapprove the recommendation of the Board that the say-on-pay vote be held every two years, but, rather, to express their own preference. The Company will take into consideration the shareholder vote on each of the alternatives set forth in the proxy card with respect to this Proposal.
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SHAREHOLDER PROPOSALS FOR 2024 ANNUAL MEETING |
Recommendation of the Board of Directors:
Our Board of Directors unanimously recommends that you vote that the shareholder vote on executive compensation to be held every “3 YEARS”. Proxies received will be so voted unless shareholders vote otherwise via the Internet or by telephone or specify otherwise in their completed and returned proxy cards.
SHAREHOLDER PROPOSALS FOR 2021 ANNUAL MEETING
If you want to include a shareholder proposal in the proxy statement for the 20212024 annual meeting, it must be delivered to our executive offices, 1430 Bradley Lane, Suite 196, Carrollton, Texas, 75007, on or before OctoberJanuary 1, 2020.2024. In addition, if you wish to present a proposal at the 20202024 annual meeting that will not be included in our proxy statement and you fail to notify us by DecemberMarch 15, 2020,2024, then the proxies solicited by our Board for the 20212024 annual meeting will include discretionary authority to vote on your proposal in the event that it is properly brought before the meeting.
At the date of mailing of this proxy statement, we are not aware of any business to be presented at the annual meeting other than the proposal discussed above. If other proposals are properly brought before the meeting, any proxies returned to us will be voted as the proxyholder sees fit.
Only one annual report and proxy statement are being delivered to multiple shareholders who share one address, unless we have received instructions to the contrary. We will promptly provide a separate copy of the annual report and proxy statement to a shareholder at a shared address to which single copies were delivered upon request sent in writing to ADDvantage Technologies Group, Inc., c/o Shareholder Relations, 1430 Bradley Lane, Suite 196, Carrollton, Texas, 75007, or by calling (918) 251-9121. If you wish to receive a separate annual report and proxy statement in the future, or if you currently receive multiple copies of the annual report and proxy statement and wish to request delivery of only single copies, you may notify us at the same address or phone number.
You can obtain a copy of our Annual Report on Form 10-K for the year ended September 30, 2019December 31, 2022 at no charge by sending your request in writing to ADDvantage Technologies Group, Inc., c/o Scott A. Francis, Vice President, Chief Accounting Officer & Secretary,Michael Rutledge, 1430 Bradley Lane, Suite 196, Carrollton, Texas, 75007. This document and other information may also be accessed from our website at www.addvantagetechnologies.com.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on March 18, 2020September 22, 2023
Our proxy statement, our form of proxy, our annual report on Form 10-K and shareholder letter are available at http://materials.proxyvote.com/006743.www.proxyvote.com.
ANNEX A
STATE OF OKLAHOMA
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION OF
ADDVANTAGE TECHNOLOGIES GROUP, INC.
TO: THE SECRETARY OF STATE OF OKLAHOMA
State Capitol Building
Oklahoma City, Oklahoma 73105
The undersigned Oklahoma corporation, for the purpose of amending its Certificate of Incorporation as originally filed on September 20, 1989, as provided by Section 1077 of the Oklahoma General Corporation Act, hereby states as follows:
The date of filing its original Certificate of Incorporation with the Secretary of State of Oklahoma was September 20, 1989. Said Certificate of Incorporation was thereafter amended on December 14, 1990, February 14, 1991, June 20, 1991, July 8, 1992, September 14, 1992, October 8, 1998, September 30, 1999, November 22, 1999, December 9, 1999 and March 2, 2000.
That at a meeting of the Board of Directors of ADDvantage Technologies Group, Inc. resolutions were duly adopted setting forth a proposed amendments of the certificate of incorporation of said corporation (the “Certificate of Incorporation”), declaring said amendments to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows:
FIRST: that authorized shares of the Company shall be increased from 35,000,000 to 100,000,000, of which 95,000,000 shares shall be Common Stock with a par value of $0.01 per share, and 5,000,000 shares shall be Preferred Stock with a par value of $1.00 per share.
SECOND: that the Certificate of Incorporation of this corporation be amended by deleting Article IV in its entirety and inserting the following:
“ARTICLE IV
CAPITALIZATION
The aggregate number of shares of all classes of stock which the Corporation shall have authority to issue is 100,000,000, of which 95,000,000 shares shall be Common Stock with a par value of $0.01 per share, and 5,000,000 shares shall be Preferred Stock with a par value of $1.00 per share.
The designations and preferences, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, conversion and other rights of the shares of each class of stock are as follows:
Preferred Stock
The Preferred Stock may be issued from time to time by the Board of Directors as shares of one or more series.
The description of shares of each series of Preferred Stock, including any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption shall
be as set forth in resolutions adopted by the Board of Directors and in a Certificate of Designations filed as required by law from time to time prior to the issuance of any shares of such series.
The Board of Directors is expressly authorized, prior to issuance, by adopting resolutions providing for the issuance of, or providing for a change in the number of, shares of any particular series of Preferred Stock and, if and to the extent from time to time required by law, by filing a Certificate of Designations to set or change the number of shares to be included in each series of Preferred Stock and to set or change in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms and conditions of redemption relating to the shares of each such series. Notwithstanding the foregoing, the Board of Directors shall not be authorized to change the right of the Common Stock of the Corporation to vote one vote per share on all matters submitted for shareholder action.
The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, setting or changing the following:
(a) the distinctive serial designation of such series and the number of shares constituting such series (provided that the aggregate number of shares constituting all series of Preferred Stock shall not exceed 5,000,000);
(b) the annual dividend rate on shares of such series, whether dividends shall be cumulative and, if so, from which date or dates;
(c) whether the shares of such series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon and after which such shares shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
(d) the obligation, if any, of the Corporation to retire shares of such series pursuant to a sinking fund;
(e) whether shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes and, if so, the terms and conditions of such conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights;
(g) the rights of the shares of such shares in the event of voluntary or involuntary liquidation, dissolution or winding-up of the Corporation; and
(h) any other relative rights, powers, preference, qualifications, limitations or restrictions thereof relating to such series.
The shares of Preferred Stock of any one series shall be identical with each other in all respects as to the dates from and after which dividends thereon shall cumulate, if cumulative.
Common Stock
Subject to all of the rights of the Preferred Stock as expressly provided herein, by law or by the Board of Directors pursuant to this ARTICLE IV, the Common Stock of the Corporation shall possess all such rights and privileges as are afforded to capital stock by applicable law in the absence of any express grant of rights or privileges herein, including, but not limited to, the following rights and privileges:
(a) dividends may be declared and paid or set apart for payment upon the Common Stock out of any assets or funds of the Corporation legally available for the payment of dividends;
(b) the holders of Common Stock shall have the right to vote for the election of directors and on all other matters requiring shareholder action, each share being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock in accordance with their respective rights and interests.
THIRD: that all other provisions of the Amended Certificate of Incorporation of the Corporation not amended hereby shall remain in full force and effect.
This Amendment to the Amended Certificate of Incorporation was set forth in a resolution duly adopted by the Board of Directors, which declared the adoption of the Amendment to be advisable and which ordered that the Amendment be considered by the shareholders of the Corporation entitled to vote thereon.
Thereafter, at the Annual Meeting of the shareholders of the Corporation duly called and held on [**], the necessary number of shares as required by statute were voted in favor of the Amendment.
Thus, this Amendment to the Amended Certificate of Incorporation was duly adopted in accordance with Sections l067 and 1077 of the 0klahoma General Corporation Act.
IN WITNESS WHEREOF, said ADDvantage Technologies Group, Inc. has caused its corporate seal to be affixed hereto and this Amendment to be signed by its President and Secretary this [**] day of [**] 2023.
ATTEST: | | | | | | | | | | | | | | |
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By: | /s/ | | By: | /s/ |
Name: | | | Name: | |
Title: | Secretary | | Title: | President |
ANNEX B
STATE OF OKLAHOMA
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION OF
ADDVANTAGE TECHNOLOGIES GROUP, INC.
TO:THE SECRETARY OF STATE OF OKLAHOMA
State Capitol Building
Oklahoma City, Oklahoma 73105
The undersigned Oklahoma corporation, for the purpose of amending its Certificate of Incorporation as originally filed on September 20, 1989, as provided by Section 1077 of the Oklahoma General Corporation Act, hereby states as follows:
The date of filing its original Certificate of Incorporation with the Secretary of State of Oklahoma was September 20, 1989. Said Certificate of Incorporation was thereafter amended on December 14, 1990, February 14, 1991, June 20, 1991, July 8, 1992, September 14, 1992, October 8, 1998, September 30, 1999, November 22, 1999, December 9, 1999 and March 2, 2000.
That at a meeting of the Board of Directors of ADDvantage Technologies Group, Inc. resolutions were duly adopted setting forth a proposed amendments of the certificate of incorporation of said corporation (the “Certificate of Incorporation”), declaring said amendments to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows:
FIRST: that effective as of 12:01 a.m. Eastern Time on [**] (the “Effective Time”), each [*] shares of the Corporation’s Common Stock issued and outstanding immediately prior to the Effective Time shall, automatically and without any action on the part of the Corporation or the respective holders thereof, be combined and converted into one share of Common Stock without increasing or decreasing the par value of each share of Common Stock (the “Reverse Stock Split”). No fractional shares of Common Stock shall be issued as a result of the Reverse Stock Split and, in lieu thereof, upon surrender after the Effective Time of a certificate or book entry position which formerly represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time, any person who would otherwise be entitled to a fractional share of Common Stock as a result of the Reverse Stock Split, following the Effective Time, shall be entitled to receive a cash payment (without interest and subject to withholding taxes, as applicable) equal to the fraction of a share of Common Stock to which such holder would otherwise be entitled multiplied by the closing price of Common Stock on the Nasdaq Stock Market on the first business day immediately preceding the Effective Time (as adjusted in good faith by the Corporation to account for the reverse stock split ratio). The Reverse Stock Split shall occur whether or not the certificates representing such shares of Common Stock are surrendered to the Corporation or its transfer agent. Each certificate or book entry position that immediately prior to the Effective Time represented shares of Common Stock shall thereafter represent the number of shares of Common Stock into which the shares of Common Stock represented by such certificate or book entry position has been combined, subject to the elimination of fractional interests set forth above. Notwithstanding the Reverse Stock Split, the authorized capital of the Company shall remain unchanged at 100,000,000 shares, of which 95,000,000 shares shall be Common Stock with a par value of $0.01 per share, and 5,000,000 shares shall be Preferred Stock with a par value of $1.00 per share.
SECOND: that the Certificate of Incorporation of this corporation be amended by deleting Article IV in its entirety and inserting the following:
“ARTICLE IV
CAPITALIZATION
The aggregate number of shares of all classes of stock which the Corporation shall have authority to issue is 100,000,000, of which 95,000,000 shares shall be Common Stock with a par value of $0.01 per share, and 5,000,000 shares shall be Preferred Stock with a par value of $1.00 per share.
The designations and preferences, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, conversion and other rights of the shares of each class of stock are as follows:
Preferred Stock
The Preferred Stock may be issued from time to time by the Board of Directors as shares of one or more series.
The description of shares of each series of Preferred Stock, including any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption shall be as set forth in resolutions adopted by the Board of Directors and in a Certificate of Designations filed as required by law from time to time prior to the issuance of any shares of such series.
The Board of Directors is expressly authorized, prior to issuance, by adopting resolutions providing for the issuance of, or providing for a change in the number of, shares of any particular series of Preferred Stock and, if and to the extent from time to time required by law, by filing a Certificate of Designations to set or change the number of shares to be included in each series of Preferred Stock and to set or change in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms and conditions of redemption relating to the shares of each such series. Notwithstanding the foregoing, the Board of Directors shall not be authorized to change the right of the Common Stock of the Corporation to vote one vote per share on all matters submitted for shareholder action.
The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, setting or changing the following:
(a) the distinctive serial designation of such series and the number of shares constituting such series (provided that the aggregate number of shares constituting all series of Preferred Stock shall not exceed 5,000,000);
(b) the annual dividend rate on shares of such series, whether dividends shall be cumulative and, if so, from which date or dates;
(c) whether the shares of such series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon and after which such shares shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
(d) the obligation, if any, of the Corporation to retire shares of such series pursuant to a sinking fund;
(e) whether shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes and, if so, the terms and conditions of such conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights;
(g) the rights of the shares of such shares in the event of voluntary or involuntary liquidation, dissolution or winding-up of the Corporation; and
(h) any other relative rights, powers, preference, qualifications, limitations or restrictions thereof relating to such series.
The shares of Preferred Stock of any one series shall be identical with each other in all respects as to the dates from and after which dividends thereon shall cumulate, if cumulative.
Common Stock
Subject to all of the rights of the Preferred Stock as expressly provided herein, by law or by the Board of Directors pursuant to this ARTICLE IV, the Common Stock of the Corporation shall possess all such rights and privileges as are afforded to capital stock by applicable law in the absence of any express grant of rights or privileges herein, including, but not limited to, the following rights and privileges:
(a) dividends may be declared and paid or set apart for payment upon the Common Stock out of any assets or funds of the Corporation legally available for the payment of dividends;
(b) the holders of Common Stock shall have the right to vote for the election of directors and on all other matters requiring shareholder action, each share being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock in accordance with their respective rights and interests.
Reverse Stock Split. Effective as of 12:01 a.m. Eastern Time on [**] (the “Effective Time”), each [**] shares of the Corporation’s Common Stock issued and outstanding immediately prior to the Effective Time shall, automatically and without any action on the part of the Corporation or the respective holders thereof, be combined and converted into one share of Common Stock without increasing or decreasing the par value of each share of Common Stock (the “Reverse Stock Split”). No fractional shares of Common Stock shall be issued as a result of the Reverse Stock Split and, in lieu thereof, upon surrender after the Effective Time of a certificate or book entry position which formerly represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time, any person who would otherwise be entitled to a fractional share of Common Stock as a result of the Reverse Stock Split, following the Effective Time, shall be entitled to receive a cash payment (without interest and subject to withholding taxes, as applicable) equal to the fraction of a share of Common Stock to which such holder would otherwise be entitled multiplied by the closing price of Common Stock on the Nasdaq Stock Market on the first business day immediately preceding the Effective Time (as adjusted in good faith by the Corporation to account for the reverse stock split ratio). The Reverse Stock Split shall occur whether or not the certificates representing such shares of Common Stock are surrendered to the Corporation or its transfer agent. Each certificate or book entry position that immediately prior to the Effective Time represented shares of Common Stock shall thereafter represent the number of shares of Common Stock into which the shares of Common Stock represented by such certificate or book entry position has been combined, subject to the elimination of fractional interests set forth above. Notwithstanding the Reverse Stock Split, the authorized capital of the Company shall remain unchanged.”
THIRD: that all other provisions of the Amended Certificate of Incorporation of the Corporation not amended hereby shall remain in full force and effect.
This Amendment to the Amended Certificate of Incorporation was set forth in a resolution duly adopted by the Board of Directors, which declared the adoption of the Amendment to be advisable and which ordered that the Amendment be considered by the shareholders of the Corporation entitled to vote thereon.
Thereafter, at the Annual Meeting of the shareholders of the Corporation duly called and held on [**], the necessary number of shares as required by statute were voted in favor of the Amendment.
Thus, this Amendment to the Amended Certificate of Incorporation was duly adopted in accordance with Sections l067 and 1077 of the 0klahoma General Corporation Act.
IN WITNESS WHEREOF, said ADDvantage Technologies Group, Inc. has caused its corporate seal to be affixed hereto and this Amendment to be signed by its President and Secretary this [**] day of [**] 2023.
ATTEST: | | | | | | | | | | | | | | |
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By: | /s/ | | By: | /s/ |
Name: | | | Name: | |
Title: | Secretary | | Title: | President |
| | |
PROXY ADDVANTAGE TECHNOLOGIES GROUP, INC. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS |
The undersigned hereby appoints Joseph E. Hart, as proxy, with the power to appoint his substitute, and hereby authorizes him to represent and to vote, as designated below, all the shares of Common Stock of ADDvantage Technologies Group, Inc. (the “Company”) held of record by the undersigned on July 24, 2023 at the Annual Meeting of Shareholders of the Company to be held at 9:00 am CST on September 22, 2023, at the corporate office of ADDvantage Technologies Group, Inc., 1430 Bradley Lane, Suite 196, Carrollton, TX 75007, and at any and all adjournments or postponements thereof.
1. Election of directors.
•FOR all nominees listed below (except as indicated to the contrary below and subject to the discretion of the proxy as provided herein).
| | | | | | | | |
David E. Chymiak | Timothy S. Harden | Joseph E. Hart and Kevin D. Brown, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated below, all the shares of Common Stock of ADDvantage Technologies Group, Inc. (the “Company”) held of record by the undersigned on January 22, 2020 at the Annual Meeting of Shareholders of the Company to be held at 9:00 am CST on March 18, 2020, at the corporate office of ADDvantage Technologies Group, Inc., 1430 Bradley Lane, Carrollton, TX 75007, and at any and all adjournments or postponements thereof. |
James C. McGill | John M. Shelnutt | David W. Sparkman |
WITHHOLD AUTHORITY to vote for all the nominees above. Instructions: To withhold authority for any individual nominee or nominees, write their name(s) here:________________________________________
2. Proposal to ratify the appointment of HoganTaylor as our independent registered public accounting firm for fiscal 2023.
FOR AGAINST ABSTAIN
3. Proposal to amend our Certificate of Incorporation to increase our authorized shares of common stock from 35,000,000 to 100,000,000, of which 95,000,000 shares shall be Common Stock with a par value of $0.01 per share, and 5,000,000 shares shall be Preferred Stock with a par value of $1.00 per share.
FOR AGAINST ABSTAIN
4. Proposal to amend our Certificate of Incorporation to effect a reverse stock split of our common stock at a reverse stock split ratio ranging from 2:1 to 10:1, inclusive, as determined by the Chief Executive Officer in his sole discretion, with our authorized capital remaining unchanged at 100,000,000 shares.
FOR AGAINST ABSTAIN
5. Proposal to authorize the Board to effectuate the transactions contemplated by the SPAs, including the issuance of shares of common stock necessary for the conversion of the Notes and exercise of the Warrants.
FOR AGAINST ABSTAIN
6. Proposal to adjourn the Annual Meeting, if necessary or appropriate, to solicit additional proxies.
FOR AGAINST ABSTAIN
Note: In his discretion, the Proxy is authorized to vote upon such other business as may properly come before the meeting.
This Proxy when properly executed will be voted at the Annual Meeting or any adjournments or postponements thereof as directed herein by the undersigned shareholder. If no specifications are made, this Proxy will be voted For Proposals 1, 2, 3, 4, 5 and 6. This Proxy is revocable at any time before it is exercised.
IMPORTANT: Please date this and sign this Proxy exactly as name appears to the left. If shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please
give title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person.
| FOR all nominees listed below (except as indicated to the contrary below and subject to the discretion of the proxy as provided herein). |
David E. Chymiak | Thomas J. Franz | Joseph E. Hart |
James C. McGill | John M. Shelnutt | David W. Sparkman |
| WITHHOLD AUTHORITY to vote for all the nominees above. |
Instructions: To withhold authority for any individual nominee or nominees, write their name(s) here:
Dated: , 2023
Signature(s)
Signature(s)
PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES
2. | Proposal to ratify the appointment of HoganTaylor as our independent registered public accounting firm for fiscal 2020.
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FOR AGAINST ABSTAIN
3. | Proposal to approve an amendment to the Company’s 2015 Incentive Stock Plan increasing the authorized number of shares of common stock under the plan by 1,000,000 shares.
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FOR AGAINST ABSTAIN
4. Proposal to approve director compensation plan.
FOR AGAINST ABSTAIN
5. Proposal to approve, on an advisory basis, the compensation of our named executive officers.
FOR AGAINST ABSTAIN
6. | Proposal to approve, on an advisory basis, the frequency of seeking approval for our executive office compensation.
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1 YEAR | 2 YEARS | 3 YEARS ABSTAIN |
7. | In his discretion, the Proxy is authorized to vote upon such other business as may properly come before the meeting.
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This Proxy when properly executed will be voted at the Annual Meeting or any adjournments or postponements thereof as directed herein by the undersigned shareholder. If no specifications are made, this Proxy will be voted For Proposals 1, 2, 3, 4 and 5, and 3 YEARS for Proposal 6. This Proxy is revocable at any time before it is exercised.
IMPORTANT: Please date this and sign this Proxy exactly as name appears to the left. If shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person.
Dated: , 2020
Signature(s)
Signature(s)
PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES.