*
Represents less than 1% of the outstanding shares of common stock.
(1)
1. To our best knowledge, as of the date hereof, such holders had the sole voting and investment power with respect to the voting securities beneficially owned by them, unless otherwise indicated herein. Includes the person's right to obtain additional shares of common stock within 60 days from the Record Date.
June 8, 2020.(2)
2. Unless otherwise noted, in care of SharpSpring, Inc., 550 SW 2nd Avenue,5001 Celebration Point Ave Suite 410, Gainesville, FL 32601.
32608.(3)
3. Based on8,453,655 11,533,065 shares of common stock outstanding on the Record Date.June 8, 2020. Does not include shares underlying: (i) options to purchase shares of our common stock under our 2010 and 2019 Employee Stock Plan,Plans, or (ii) outstanding warrants to purchase shares of our common stock, or (iii) shares issuable upon conversion of convertible notes.
stock.(4)
4. Represents options exercisable within 60 days from the Record Date.
June 8, 2020.(5)
5. Based solely upon a review of Schedule 13G and Form 4 filings with the SEC.
(6)
6. If a person listed on this table has the right to obtain additional shares of common stock within 60 days from the Record Date,June 8, 2020, the additional shares are deemed to be outstanding for the purpose of computing the percentage of class owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of any other person.
(7)
Consists of7. Additionally includes (i) 519,000673,244 shares of common stock held directly by Evercel Holdings LLC, a subsidiary of Evercel, Inc.Greenhaven Road Capital Fund 1, L.P.; and (ii) 1,066,667689,453 shares of common stock issuable upon conversion of a convertible note held directly by SHSP Holdings, LLC that is convertible within 60 days fromGreenhaven Road Capital Fund 2, L.P.. Mr. Miller serves as the Record Date. Mr. Allen isManaging Member of the founderGeneral Partner (for itself and manageron behalf of Corona Park Investment Partners, LLC (“CPIP”). CPIP is a member of Evercel Holdings LLC and is a member and sole manager of SHSP Holdings, LLC. Evercel, Inc. is a memberGreenhaven Fund 1, Greenhaven Fund 2 and the manager of Evercel Holdings LLC and is a member of SHSP Holdings.
(8)
Includes 1,600 shares held by Mr. Troost’s wife, for which Mr. Troost disclaims beneficial ownership.
(9)
Mr. Troost and Mr. Olivier have determined not to stand for re-election at the 2017 annual meeting.
Investment Manager)
We are not aware of any arrangements that could result in a change of control.
PROPOSAL ONE
ELECTION OF DIRECTORS
At the time of the Annual Meeting, our Board of Directors will consist of sevenfive directors: Steven A. Huey, Richard Carlson, David A. Buckel, Marietta Davis Daniel C. Allen, John L. Troost and Roy W. Olivier.Scott Miller. At the Annual Meeting, five directors are to be elected for a one (1) year term to serve until the next annual meeting of stockholders and until a successor for such director is elected and qualified, or until the death, resignation or removal of such director. Mr. John L. Troost and Mr. Roy W. Olivier have determined not to stand for re-election at the 2018 annual meeting.
Nominees
There are five nominees, all of whom currently serve on our Board of Directors. Set forth below is information regarding the nominees for election to our Board of Directors:
Name | | Position(s) with the Company | | Year First Elected Director |
Steven A. Huey | | Chair of the Board of Directors | | 2016 |
Richard Carlson | | Chief Executive Officer; Director | | 2015 |
David A. Buckel | | Director | | 2014 |
Marietta Davis | | Director | | 2017 |
Daniel C. AllenScott Miller | | Director | | 20182019 |
Each person nominated has agreed to serve if elected, and our Board of Directors has no reason to believe that any nominee will be unavailable or will decline to serve. In the event, however, that any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who is designated by the current Board of Directors to fill the vacancy.
Vote Required
Directors will be elected by a plurality of the votes cast at the Annual Meeting. A “withhold” vote with respect to any nominee will not effect the election of that nominee. Each holder of common stock is entitled to one vote for each share held.
Recommendation of the Board of Directors
The Board of Directors recommends a vote “FOR” the election of all of the above nominees.
PROPOSAL TWO
RATIFICATION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR 20182019
We are asking stockholders to ratify the appointment of Cherry Bekaert LLP to serve as our Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018. Cherry Bekaert LLP was our independent registered public accounting firm for our fiscal year ended December 31, 2017.2020. Representatives of Cherry Bekaert LLP will not be present at the Annual Meeting.
As disclosed in the Company’s Current Report on Form 8-K filed with the SEC on September 2, 2016, on September 1, 2016, the Company dismissed McConnell & Jones, LLP (“McConnell & Jones”) as its independent registered public accounting firm. The Company’s Audit Committee and Board of Directors unanimously approved the decision to dismiss McConnell & Jones. On September 1, 2016, the Company appointed Cherry Bekaert LLP (“Cherry Bekaert”) as its new independent registered public accounting firm commencing for its quarter ending September 30, 2016 and its fiscal year ending December 31, 2016. The Company’s Audit Committee and Board of Directors unanimously approved the engagement of Cherry Bekaert.
McConnell & Jones’ reports on the financial statements of the Company for the years ended December 31, 2015 and 2014 did not contain an adverse opinion or disclaimer of opinion, nor were they modified or qualified as to uncertainty, audit scope or accounting principles. There were no “disagreements” (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K) and no “reportable event” occurred (as that term is defined in Item 304(a)(1)(v) of Regulation S-K during the fiscal years ended December 31, 2015 and 2014 and the subsequent interim period up to and including the date of McConnell & Jones’ dismissal between the Company and McConnell & Jones on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction of McConnell & Jones, would have caused them to make reference to the subject matter of the disagreement in connection with their report on the Company’s financial statements for those periods. The Company provided McConnell & Jones with a copy of the Company’s Current Report on Form 8-K filed with the SEC on September 2, 2016 and requested in writing that McConnell & Jones provide a letter addressed to the Securities and Exchange Commission stating whether or not they agree with the above statements. The Company received the requested letter from McConnell & Jones and included the letter as Exhibit 16.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 2, 2016.
The Company did not consult with Cherry Bekaert during the fiscal years ended December 31, 2015 and 2014 and any subsequent interim period prior to their engagement regarding: (i) the application of accounting principles to a specific completed or proposed transaction or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report was provided to the Company nor oral advice was provided that Cherry Bekaert concluded was an important factor in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement or a reportable event as defined and described in paragraphs (a)(1)(iv) and (a)(1)(v) of Item 304 of Regulation S-K, promulgated under the Securities Exchange Act of 1934, as amended and there was neither a written report nor oral advice provided to the Company by Cherry Bekaert that Cherry Bekaert concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue.
The following table represents aggregate fees billed to the Company for the fiscal years ended December 31, 20172019 and December 31, 20162018 by the Company’s independent registered public accounting firms. The aggregate fees billed for the fiscal year ended December 31, 2017 were from Cherry Bekaert LLP and the aggregate fees billed for the fiscal year ended December 31, 2016 were from both Cherry Bekaert and McConnell & Jones, LLP.
| | |
| | |
Audit Fees | $162,447 | $232,797 |
Audit-Related Fees | 9,200 | 11,924 |
Tax Fees | — | — |
All Other Fees | — | — |
Total | $171,647 | $244,721 |
| | |
Audit Fees | $207,587 | $157,587 |
Audit-Related Fees | 7,500 | 12,000 |
Tax Fees | — | — |
All Other Fees | 25,600 | 3,500 |
Total | $240,687 | $173,087 |
Audit Fees are the fees billed during the years ended December 31, 20172019 and December 31, 20162018 for professional services rendered by our independent auditors for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-Q or services that are normally provided by the audit firm in connection with statutory and regulatory filings or engagements.
Audit-Related Fees are the aggregate fees billed during the years ended December 31, 20172019 and December 31, 20162018 for assurance and related services rendered by our independent auditors that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under the category Audit Fees described above.
Tax Fees are the fees billed during the years ended December 31, 20172019 and December 31, 20162018 fortax compliance, tax advice, and tax planningrendered by our independent auditors.
All Other Fees are the aggregate fees billed for products and services provided during the years ended December 31, 20172019 and December 31, 20162018 rendered by our independent auditors, other than the services reported in the above categories. This includes work related to the March 7, 2019 equity issuance, May 9, 2019 Note Conversion Agreement, and November 21, 2019 equity issuance. For the year ened December 31, 2018 the amount above included work related to the issuance of the Convertible Promissory Notes on March 28, 2018.
Audit Committee Pre-Approval Policies.Policies.
The Company’s audit committee currently does not have any pre-approval policies or procedures concerning services performed by rendered by our independent auditors. However, all the services performed by rendered by the independent auditors that are described above were pre-approved by the Company’s audit committee.
None of the hours expended on rendered by our independent auditor’s engagement to audit the Company’s financial statements for the years ended December 31, 20172019 and December 31, 20162018 were attributed to work performed by persons other than rendered by the independent auditor’s full-time, permanent employees.
Vote Required
The vote required to ratify the appointment of Cherry Bekaert LLP to serve as our Company’s independent registered public accounting firm for the fiscal year ending December 31, 20182020 is the affirmative vote of the holders of a majority of the votes cast at the Annual Meeting entitled to vote on the matter. Each holder of common stock is entitled to one vote for each share held.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote “FOR” the proposal to ratify the appointment of Cherry Bekaert LLP to serve as our Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018.2020.
PROPOSAL THREE
APPROVAL OF THE ISSUANCE OF SHARES OF THE COMPANY’S COMMON STOCK UPON THE CONVERSION OF THE NOTES PURSUANT TO NASDAQ LISTING RULE 5635(B)
Background
On March 28, 2018, the Company entered into a Convertible Note Purchase Agreement (the “Note Purchase Agreement”) with SHSP Holdings, LLC, an affiliate of Evercel, Inc. and Corona Park Investment Partners (“SHSP Holdings”), pursuant to which the Company issued to SHSP Holdings a Convertible Promissory Note in the aggregate principal amount of $8,000,000 (the “Note”). The Company intends to use the proceeds from the financing for increasing sales and marketing spend to accelerate customer acquisition and revenue growth. The Company also plans to strategically invest in research and development to further advance the functionality and features of its platform.
Pursuant to the Note Purchase Agreement, the Company issued the Note to SHSP Holdings on March 28, 2018 (the “Issuance Date”). Interest on the Note accrues at a rate of 5.0% per annum, beginning on the Issuance Date until the principal amount and all accrued but unpaid interest shall have been paid or converted into shares of the Company’s common stock.
The Note will be due and payable on the fifth anniversary of the Issuance Date (the “Maturity Date”). Interest under the Note will be due and payable on each anniversary of the Issuance Date and will be paid by the issuance of additional convertible promissory notes of like tenor to the Note (each, a “PIK Note” and, together with the Note, the “Notes”), with a principal amount equal to the accrued interest being paid by delivery of such PIK Note.
SHSP Holdings may convert the principal amount of the Note and any accrued interest thereon, in whole or in part, into shares of the Company’s common stock at any time prior to the Maturity Date at a conversion price of $7.50 per share, subject to customary adjustments (the “Conversion Price”). At the Maturity Date, the Company may elect to convert all outstanding Notes into shares of the Company’s common stock at a conversion price equal to 80% of the volume weighted average closing price of the common stock for the 30 trading days prior to and including the Maturity Date (the “VWAP”). The Company will have the right to extend the Maturity Date for up to six months on up to three separate occasions, during which time interest would accrue on the outstanding principal amount of the Note at a rate of 10% per annum.
The Note contains a “limitation on conversion” provision pursuant to which the Company and SHSP Holdings have agreed that SHSP Holdings will not attempt to convert any portion of the Note, and the Company will not issue to SHSP Holdings any common stock upon any attempted conversion of the Note, if the number of shares of common stock issuable upon such conversion, plus (i) the number of shares of common stock issued pursuant to conversions prior thereto and (ii) the number of shares of common stock beneficially owned by any affiliate of SHSP Holdings would (x) equal 20% or more of the number of the outstanding shares of common stock or (y) represent 20% or more of the total voting power of the Company’s securities outstanding immediately after giving effect to such issuance that are entitled to vote on a matter being voted on by holders of the common stock, unless and until the Company obtains stockholder approval permitting such issuance. In addition, under the limitation on conversion provision, the Company agreed to seek stockholder approval at the 2018 Annual Stockholders Meeting for the issuance of the shares of common stock issuable to SHSP Holdings upon conversion of the Note.
If SHSP Holdings were to convert all of the Notes at the Conversion Price on the Maturity Date, the Company would be required to issue 1,361,367 additional shares of common stock to SHSP Holdings. Based on the number of shares of common stock outstanding as of the Record Date, SHSP Holdings and its affiliates beneficially owned, in aggregate, 6.14% of the Company’s outstanding common stock. Assuming the issuance of shares of common stock upon full conversion of the Notes on the Maturity Date by SHSP Holdings, SHSP Holdings and its affiliates would beneficially own, in aggregate, approximately 22.26% of the number of shares of the Company’s common stock outstanding immediately prior to the Issuance Date.
Stockholder Approval Requirement
Our common stock is listed on the NASDAQ Capital Market and, accordingly, we are subject to NASDAQ’s stockholder approval rules. NASDAQ Listing Rule 5635(b) (the “change of control rule”) requires stockholder approval prior to an issuance of securities that will result in a “change of control” of a listed company, which for NASDAQ purposes is generally deemed to occur when an investor or group of investors acquires, or has the right to acquire, 20% or more of the outstanding common stock or voting power of a company and such ownership or voting power would be the largest ownership position.
SHSP Holdings may, upon conversion of all or a portion of the Notes, acquire beneficial ownership of 20% or more of the number of shares of the Company’s common stock outstanding immediately prior to the Issuance Date, thereby requiring stockholder approval under the change of control rule. As a result, and in accordance with the terms of the Note, the Company is seeking stockholder approval of the issuance of shares of the Company’s common stock upon conversion of the Notes by SHSP Holdings. Stockholder approval of this proposal is intended to satisfy the stockholder approval requirement of the change of control rule.
Consequences of Failure to Obtain Stockholder Approval
Pursuant to the limitation on conversion provision in the Note, if stockholder approval of the issuance of shares of the Company’s common stock upon the conversion of the Notes is not obtained at the 2018 Annual Meeting of Stockholders, SHSP Holdings would continue to be prohibited from converting any portion of the Note if the number of shares of common stock issuable upon such conversion, plus (i) the number of shares of common stock issued pursuant to conversions prior thereto and (ii) the number of shares of common stock beneficially owned by any affiliate of SHSP Holdings, would represent 20% or more of the total voting power of the Company’s securities outstanding immediately after giving effect to such issuance, unless and until the Company obtains stockholder approval permitting such issuance. Furthermore, the Company would be required to call a special meeting of its stockholders to be held no later than 90 days after the 2018 Annual Meeting of Stockholders at which it would again seek stockholder approval. If stockholder approval is not obtained at the special meeting, the Company would be required to continue to call special meetings of its stockholders at least quarterly until stockholder approval is obtained. If stockholder approval of the issuance of shares of the Company’s common stock upon the conversion of the Notes is not obtained within two years of the date of the Note, affiliates of SHSP Holdings may elect to sell all shares of common stock (not just those subject to conversion) held by them in order to effectuate the conversion of the Notes without exceeding the limitation on conversion, in which case the Company has agreed to reimburse them for any underwriting commissions and other transaction costs of such sales. The timing and amount of any such sale of shares by SHSP Holdings or its affiliates may cause negative pressure on our stock price and be detrimental to other stockholders as a whole.
In addition, pursuant to the Investors’ Rights Agreement entered into as of March 28, 2018 by and among the Company, SHSP Holdings, Evercel Holdings, LLC (an affiliate of SHSP Holdings) and certain management stockholders of the Company (the “Investors’ Rights Agreement”), if the Company fails to obtain stockholder approval of the issuance of shares of the Company’s common stock upon the conversion of the Notes within two years of the date of the Note, SHSP Holdings and its affiliates holding shares of common stock will have the right, in accordance with the Investors’ Rights Agreement, to demand registration under the Securities Act of 1933, as amended, of sales of up to all of the shares held by the SHSP Holdings and/or its affiliates.
The description of the terms of the Note Purchase Agreement, the Notes and the Investors’ Rights Agreement provided under “Background,” above, is intended to provide basic information regarding such terms for purposes of Proposals Three and Four. The description is qualified in all respects by the text of the Note Purchase Agreement, the Note and the Investors’ Rights Agreement, which the Company has filed as exhibits to its Current Report on Form 8-K dated March 28, 2018.
Vote Required
The vote required to approve, pursuant to NASDAQ Listing Rule 5635(b), the issuance of shares of the Company’s common stock upon the conversion of the Notes is the affirmative vote of the holders of the majority of the votes cast at the Annual Meeting. Each holder of common stock is entitled to one vote for each share held.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote “FOR” approval, pursuant to NASDAQ Listing Rule 5635(b), of the issuance of shares of the Company’s common stock upon the conversion of the Notes.
PROPOSAL FOUR
APPROVAL OF THE ISSUANCE OF SHARES OF THE COMPANY’S COMMON STOCK AT THE ELECTION OF THE COMPANY UPON THE MATURITY OF THE NOTES PURSUANT TO NASDAQ LISTING RULE 5635(D)
Background
As more fully described in Proposal Three, above, on March 28, 2018, the Company entered into the Note Purchase Agreement with SHSP Holdings pursuant to which the Company issued the Note to SHSP Holdings. Interest under the Note accrues at a rate of 5.0% per annum, due and payable on each anniversary of the Issuance Date. Under the terms of the Note, the Company is required to pay the accrued interest by the issuance of PIK Notes, with a principal amount equal to the accrued interest being paid by delivery of such PIK Note.
The Note further provides that, at the Maturity Date, in lieu of paying the outstanding principal amount of, and any accrued interest on, the Notes, the Company may elect (on at least 30 days’ prior written notice to SHSP Holdings) to repay all outstanding Notes with a number of shares of the Company’s common stock equal to the outstanding principal amount of, and any accrued interest on, the Notes at the Maturity Date divided by a price equal to 80% of the VWAP.
Stockholder Approval Requirement
NASDAQ Listing Rule 5635(d) requires that we obtain stockholder approval prior to the issuance of the Company’s common stock in connection with certain non-public offerings involving the sale, issuance or potential issuance by us of our common stock equal to 20% or more of our common stock outstanding before the issuance, if the price per share is less than the greater of book value or market on the date of pricing. In the event the Company elects to repay all outstanding Notes at the Maturity Date with shares of common stock, the associated share issuance could equal or exceed 20% of the shares of the Company’s common stock outstanding immediately prior to the Issuance Date. The Company is seeking approval of this proposal to provide us with the flexibility to elect to repay the outstanding Notes, if any, at the Maturity Date by issuing up to 3,646,519 shares of the Company’s common stock if we deem such an election advisable.
Number of Shares Potentially Issuable
The exact number of shares that may be issuable at the Maturity Date if the Company elects to repay all outstanding Notes with shares of the Company’s common stock is currently indeterminable because it would be based on the VWAP and the outstanding unconverted principal amount of the Notes, if any, at the Maturity Date. The Notes are initially convertible into the Company’s common stock at $7.50 per share (subject to customary adjustments), but, under the terms of the Note, the number of shares that would be issuable at the Maturity Date upon the Company’s election to repay the Notes with stock would be calculated based on 80% of the VWAP.
The following table illustrates the number of shares of our common stock potentially issuable upon full repayment of the Notes at the Maturity Date with stock, on which date the aggregate principal amount of the Notes, including the accrued PIK Notes, would equal $10,210,253, at hypothetical VWAPs of $3.50, $4.50, $5.50 and $6.50 per share.
VWAP | $3.50 | $4.50 | $5.50 | $6.50 |
Conversion Price per Share | $2.80 | $3.60 | $4.40 | $5.20 |
Total Issuable Shares | 3,646,519 | 2,836,181 | 2,320,512 | 1,963,510 |
The Company cannot currently determine what the VWAP will be at the Maturity Date, nor can it determine the outstanding unconverted principal amount of the Notes, if any, at the Maturity Date. For purposes of this Proposal Four, we are requesting that stockholders approve the issuance of up to 3,646,519 shares of common stock if the Company, in accordance with the terms of the Note, elects to repay all outstanding Notes with shares of common stock at the Maturity Date, assuming the maximum principal amount of $10,210,253, a VWAP of $3.50 per share and a resulting conversion price of $2.80 per share. Stockholder approval of this proposal is intended to satisfy the stockholder approval requirement of NASDAQ Listing Rule 5635(d).
Consequences of Failure to Obtain Stockholder Approval
If this stockholder approval is not obtained and the Notes are not converted by SHSP Holdings, the Company will be required to seek additional capital to repay the Notes in cash, which may not be on commercially reasonable terms and may negatively impact shareholders at that time. If the Company elects to seek additional capital with the issuance of new shares, it is also likely that the Company may again need to seek stockholder approval at a future special or annual meeting of stockholders for the issuance of those shares, may need to seek alternative means to finance the payment, or may take such other actions as the Board of Directors deems advisable and in the best interests of the Company and its stockholders at that time.
The description of the terms of the Note Purchase Agreement and the Notes provided under “Background,” above, is intended to provide basic information regarding such terms for purposes of this Proposal Four. The description is qualified in all respects by the text of the Note Purchase Agreement and the Note, which the Company has filed as exhibits to its Current Report on Form 8-K dated March 28, 2018.
Vote Required
The vote required to approve the issuance of up to 3,646,519 shares of common stock at the election of the Company upon maturity of the Notes pursuant to NASDAQ Listing Rule 5635(d) is the affirmative vote of the holders of the majority of the votes cast at the Annual Meeting. Each holder of common stock is entitled to one vote for each share held.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote “FOR” approval, pursuant to NASDAQ Listing Rule 5635(d), of the issuance of up to 3,646,519 shares of common stock at the election of the Company upon maturity of the Notes.
PROPOSAL FIVE
AMENDMENT TO THE COMPANY’S 2010 EMPLOYEE STOCK
SHARPSPRING, INC. 2019 EQUITY INCENTIVE PLAN
On April 25, 2019, the Board of Directors of the Company adopted and approved the SharpSpring, Inc. 2019 Equity Incentive Plan (the “Plan”), subject to stockholder approval prior to April 25, 2020.
Purpose of the Proposal
The Board of Directors of the Company has approved and is recommending to stockholdersshareholders of the Company an amendment to our Company’s 2010 Employee Stock2019 Equity Incentive Plan as previously amended (the “Plan” or “2019 Equity Incentive Plan”) to (i) amend paragraph 4Section 4.1 of the Plan to increase the number of shares of common stock available for issuance under the Plan from 1,950,000 to 2,600,0001,025,000 so that a sufficient amount of awards are available for issuance in the future; (ii) amend paragraph 5 of the Plan to eliminate the ability of the Company to pay dividends on unearned equity awards; and (iii) amend paragraph 16 of the Plan to eliminate the ability of the Company to reduce the exercise price of awards without stockholder approval.future.
The Board of Directors approved the Plan to ensure that the Company has adequate ways in which to provide stock based compensation to its directors, officers, employees, and consultants. The Board of Directors believes that the ability to grant stock-based compensation is important to the Company’s future success.
The grant of stock-based compensation, such as stock options, can motivate high levels of performance and provide an effective means of recognizing employee and consultant contributions to the Company’s success. In addition, stock-based compensation can be valuable in recruiting and retaining highly qualified technical and other key personnel who are in great demand, as well as rewarding and providing incentives to the Company’s current employees, directors and consultants.
Additionally, due to the impact of the Covid-19 virus, as of April 1, 2020 our Company reduced by 10% all Company employee 2020 base salaries and in exchange issued all Company employees additional stock-based compensation pursuant to the Plan.
Our Board of Directors believes that:
●
that the increase in the number of common shares available for issuance under the Plan is necessary in order to continue to offer stock-based compensation programs that will allow the Company to carry out the purposes of the Plan, including attracting and retaining employees who are critical to the growth and success of the Company;
Company and providing the Company with the flexibility to make compensation adjustments during certain challenging times such as the current Covid-19 pandemic.●
eliminatingThe Board of Directors approved the Plan to ensure that the Company has adequate ways in which to provide stock based compensation to its directors, officers, employees, and consultants. The Board of Directors believes that the ability ofto grant stock-based compensation is important to the Company to pay dividends on unearned equity awards is a matter of good corporate governance; and
●
eliminating the ability of the Company to reduce the exercise price of awards without stockholder approval is a matter of good corporate governance.
Company’s future success.
Information Regarding Options Granted under the Plan, Dilution
The Plan is our only active equity compensation plan. With respect to ourthe Plan, as of the Record Date:
●
1,549,4501,585,381 stock options were outstanding under the Plan
o●
The weighted average exercise price of such options was $4.97$7.28
o●
The weighted average remaining term of such options was 8.187.36 years
●
The total number of shares available for grant under the Plan was 53,022269,519
●
There were 8,453,65511,533,065 shares of our common stock were issued and outstanding
●
There were no78,706 unvested restricted stock awards were outstanding under the Plan
●
There were no16,355 unvested shares were issued in lieu of cash compensation
●
ThereNo stock appreciation rights were nooutstanding under the Plan
●
No awards were issued that will be settled solely in cash
●
ThereNo performance-contingent awards were no performance-contingent awardsissued
●
The Plan does not have fungible counting provisions
Summary of the Plan
The principal termsPlan incorporates key corporate governance practices, including the following:
●
Limits the number of shares available to 697,039, which represents approximately 6% of our issued and provisionsoutstanding common shares as of the Record Date. If the amendment to the Plan is approved by the shareholders, the Plan will limit the number of shares available to 1,025,000, which represents approximately 8.89% of our issued and outstanding common shares as of the Record Date;
●
The price of any outstanding Award may not be repriced without stockholder approval;
●
Discounted stock options are summarized below. Asnot allowed;
●
Reload options are not provided for under the Plan;
●
Performance goals may be imposed on grants;
●
The Plan does not have fungible counting provisions
●
Payment of the exercise price or applicable taxes made by delivery of shares, or withholding of shares, in satisfaction of a participant’s obligation, will not result in additional shares becoming available for subsequent awards under the Plan.
Significant Features of the Plan:
The following is a summary the description below is not a complete description of all the termscertain significant features of the PlanPlan. The information which follows is subject to, and is qualified in its entirety by reference to, the full textPlan. We urge you to read the Plan in its entirety.
Awards that may be granted include: (a) Incentive Stock Options, (b) Non-qualified Stock Options, (c) Stock Appreciation Rights, (d) Restricted Awards, (e) Performance Share Awards, (f) Cash Awards, and (g) Other Equity-Based Awards. These awards offer the Company’s officers, employees, directors and consultants the possibility of future value, depending on the long-term price appreciation of the Plan.Company’s common stock and the award holder’s continuing service with the Company.
Stock options give the option holder the right to acquire from the Company a designated number of shares of common stock at a purchase price that is fixed upon the grant of the option. The exercise price will be not less than the market price of the common stock on the date of grant. Stock options granted may be either tax-qualified stock options (so-called “incentive stock options”) or non-qualified stock options.
Types of AwardsStock Appreciation Rights (SARs), sometimes referred to as phantom equity,. Both incentive stock options, or ISOs, and nonqualified stock options, or NSOs, and stock grants and stock purchase rights may be granted alone or in tandem with options, have an economic value similar to that of options. When a SAR for a particular number of shares is exercised, the holder receives a payment equal to the difference between the market price of the shares on the date of exercise and the exercise price of the shares under the Plan. ISOs receive favorable tax treatmentSAR. The exercise price for SARs is the market price of the shares on exercise, andthe date the SAR is granted. Under the Plan, holders of SARs may receive favorable tax treatmentthis payment – the appreciation value – either in cash or shares of common stock valued at the fair market value on the date of exercise. The form of payment will be determined by the Company.
A Restricted Award is an Award of actual shares of common stock ("Restricted Stock") or hypothetical common stock units ("Restricted Stock Units") having a qualifying dispositionvalue equal to the Fair Market Value of an identical number of shares of common stock at no cost. Restricted shares are forfeitable and non-transferable until the shares vest. The vesting date or dates and other conditions for vesting are established when the shares are awarded. Restricted Stock Units with a deferral feature, whereby settlement is deferred beyond the vesting date until the occurrence of a future payment date or event set forth in an Award Agreement ("Deferred Stock Units"), may also be granted.
The Plan also provides for performance compensation awards, representing the right to receive a payment, which may be in the form of cash, shares of common stock, or a combination, based on the attainment of pre-established goals.
All of the underlying shares. However, ISOs must complypermissible types of awards under the Plan are described in more detail as follows:
Purposes of Plan: The purposes of the Plan are to: (a) enable the Company to attract and retain the types of employees, consultants and directors who will contribute to the Company's long range success; (b) provide incentives that align the interests of employees, consultants and directors with certain requirements regarding exercise price, maximum termthose of the shareholders of the Company; and post termination exercise period,(c) promote the success of the Company's business.
Administration of the Plan: The Plan is administered by a committee of one or more members of the Board of Directors appointed by the Board of Directors to administer the Plan or, in the Board's sole discretion, by the Board of Directors (the “Committee”). Among other things, the Committee has the authority to select persons who will receive awards, determine the types of awards and mustthe number of shares to be issued under a stockholder-approved plan. NSOs are not subjectcovered by awards, and to these requirements, nor may they receive this favorable tax treatment upon exercise.establish the terms, conditions, restrictions and other provisions of awards. The Committee has authority to establish, amend and rescind rules and regulations relating to the Plan.
AdministrationEligible Recipients:. The Plan is administered by either the Board of Directors of the Company or a Stock Plan Committee (“Committee”) appointed by the Board of Directors.
Eligibility. Awards Persons eligible to receive awards under the Plan may onlywill be made as follows: ISOs may be granted to any employee of the Company. Officersthose officers, employees, consultants, and directors of the Company and its subsidiaries (if any) who are not employees may not be granted ISOs underselected by the Plan. Non-Qualified Options, stock grants and authorizations to make stock purchases may be granted to any director (whetherCompany’s Board of Directors or not an employee), officer, employee or consultantthe Committee of the Company.Board administering the Plan. As of the Record Date, thereapproximately 240 individuals were seven non-employee directors and 159 employees, along with and various consultants who are eligible to participate in the Plan.
Shares Available Under the Plan: The maximum number of shares of our common stock that may be delivered to participants under the Plan is 1,025,000 (plus the number of shares of Common Stock underlying any award granted under the 2010 Restated Employee Stock Plan that expires, terminates or is canceled or forfeited under the terms of the 2010 Restated Employee Stock Plan); subject to adjustment for certain corporate changes affecting the shares, such as stock splits. Shares subject to an award under the Plan for which the award is canceled, forfeited or expires again become available for grants under the Plan. Shares subject to an award that is settled in cash will not again be made available for grants under the Plan. Payment of the exercise price or applicable taxes made by delivery of shares, or withholding of shares, in satisfaction of a participant’s obligation, will not result in additional shares becoming available for subsequent awards under the Plan.
Stock Options:
NumberGeneral. Subject to the provisions of Shares. As a result of previous amendments to the Plan, the aggregateCommittee has the authority to determine all grants of stock options. That determination will include: (i) the number of shares that may be issued pursuant to the Plan is 1,950,000, subject to adjustmentany option; (ii) the exercise price per share; (iii) the expiration date of the option; (iv) the manner, time and date of permitted exercise; (v) other restrictions, if any, on the option or the shares underlying the option; and (vi) any other terms and conditions as described below.the Committee may determine.
AdjustmentsOption Price. InThe exercise price for stock options will be determined at the eventtime of grant. Normally, the exercise price may not be less than the fair market value on the date of grant. As a subdivisionmatter of tax law, the exercise price for any incentive stock option awarded may not be less than the fair market value of the outstanding commonshares on the date of grant. However, incentive stock a declaration of a dividend payable in shares of common stock, a combinationoption grants to any person owning 10% or consolidationmore of the outstanding commonCompany’s voting stock into a lesser numbermust have an exercise price of not less than 110% of the fair market value on the grant date.
Exercise of Options. An option may be exercised only in accordance with the terms and conditions for the option agreement as established by the Committee at the time of the grant. The option must be exercised by notice to the Company, accompanied by payment of the exercise price. Payments may be made in cash or, at the option of the Committee, by actual or constructive delivery of shares of common stock a recapitalization, a reclassificationto the holder of the option based upon the fair market value of the shares on the date of exercise.
Expiration or Termination. Options, if not previously exercised, will expire on the expiration date established by the Committee at the time of grant. In the case of incentive stock options, such term cannot exceed ten years provided that in the case of holders of 10% or more of the Company’s voting stock, such term cannot exceed five years. Options will terminate before their expiration date if the holder’s service with the Company or a similar occurrence,subsidiary terminates before the expiration date. The option may remain exercisable for specified periods after certain terminations of employment, including terminations as a result of death, disability or retirement, with the precise period during which the option may be exercised to be established by the Committee shall make appropriate adjustments, subject to the limitations set forthand reflected in the Plan.grant evidencing the award.
TransferabilityIncentive and Non-Qualified Options.. No ISO shall As described elsewhere in this summary, an incentive stock option is an option that is intended to qualify under certain provisions of the Internal Revenue Code of 1986, as amended (the “Code”) for more favorable tax treatment than applies to non-qualified stock options. Any option that does not qualify as an incentive stock option will be assignable or transferable bya non-qualified stock option. Under the grantee exceptCode, certain restrictions apply to incentive stock options. For example, the exercise price for incentive stock options may not be less than the fair market value of the shares on the grant date and the term of the option may not exceed ten years. In addition, an incentive stock option may not be transferred, other than by will or by the laws of descent and distribution, and is exercisable during the holder’s lifetime only by the holder. In addition, no incentive stock options may be granted to a holder that is first exercisable in a single year if that option, together with all incentive stock options previously granted to the holder that also first become exercisable in that year, relate to shares having an aggregate market value in excess of $100,000, measured at the grant date.
Stock Appreciation Rights: Awards of stock appreciation rights or “SARs” may be granted alone or in tandem with stock options. SARs provide the holder with the right, upon exercise, to receive a payment, in cash or shares of stock, having a value equal to the excess of the grantee each ISOfair market value on the exercise date of the shares covered by the award over the exercise price of those shares. Essentially, a holder of a SAR benefits when the market price of the common stock increases, to the same extent that the holder of an option does, but, unlike an option holder, the SAR holder need not pay an exercise price upon exercise of the award.
Stock Awards: Stock Awards can also be granted under the Plan. A stock award is a grant of shares of common stock or of a right to receive shares in the future. These awards will be subject to such conditions, restrictions and contingencies as the Committee shall determine at the date of grant. Those may include requirements for continuous service and/or the achievement of specified performance goals.
Cash Awards: A cash award is an award that may be exercisable onlyin the form of cash or shares of common stock or a combination, based on the attainment of pre-established performance goals and other conditions, restrictions and contingencies identified by him. Allthe Committee.
Other Equity-Based Awards: The Committee may grant Other Equity-Based Awards, either alone or in tandem with other Awards, in such amounts and subject to such conditions, restrictions and contingencies identified by the Committee.
Performance Goals: are the one or more goals established by the Committee for the performance period based upon business criteria or other performance measures determined by the Committee in its discretion.
Other Material Provisions: Awards will be evidenced by a written agreement, in such form as may be approved by the Committee. In the event of various changes to the capitalization of the Company, such as stock splits, stock dividends and similar re-capitalizations, an appropriate adjustment will be made by the Committee to the number of shares covered by outstanding awards or to the exercise price of such awards. The Committee is also permitted to include in the written agreement provisions that provide for certain changes in the award in the event of a change of control of the Company, including acceleration of vesting. Except as otherwise permitted by the Committee, awards will not be transferable, other than by will or the laws of descent and distribution. Prior to any award distribution, the Company is permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements. Our Board also has the authority, at any time, to discontinue the granting of awards. The Board also has the authority to alter or amend the Plan or any outstanding award or may terminate the Plan as to further grants, provided that no amendment will, without the approval of the Company’s shareholders, to the extent that such approval is required by law or the rules of an applicable exchange, increase the number of shares available under the Plan, change the persons eligible for awards under the Plan, shallextend the time within which awards may be freely transferable subject to certain limitations imposed bymade, or amend the Plan, when applicable.
Termination of Service. Each option shall set forth the extent to which the optionee shall have the right to exercise their option following termination of the optionee’s employment with the Company. Such provisions shall be determined in the sole discretion of the Board of Directors or Committee, and need not be uniform among all options issued pursuant to the Plan. Notwithstanding the foregoing, and to the extent required by applicable law, each option shall provide that the optionee shall have the right to exercise the vested portion of any option held at termination for at least ninety (90) days following termination of employment with the Company for any reason, and that the optionee shall have the right to exercise the option for at least twelve (12) months if the optionee’s employment terminates due to death or disability.
Amendment and Termination. The Plan became effective on June 15, 2010, the date of its adoption by the Board of Directors, and was approved by the holders of a majority of the outstanding shares of common stock of the Company on November 23, 2010. The Plan was subsequently amended on six other occasions pursuant to approval of both the Board of Directors and stockholders (other than the fourth Plan amendment that did not require stockholder approval). Unless sooner terminated pursuant to the terms of the Plan related to amendments. No amendment that would adversely affect any outstanding award made under the Plan will terminate on June 14, 2020. The Board of Directors may terminate or amendcan be made without the Plan at any time except that the holders of a majorityconsent of the outstanding sharesholder of common stock must approve certain amendments. Except as provided for in the Plan, neither the Board of Directors nor the stockholders can alter or impair the rights of an optionee, without his/her consent, under any award previously granted to him/her under the Plan.such award.
Tax Aspects of the Plan
Federal Income Tax ConsequencesConsequences:. The following discussion summarizesis based on current laws, regulations and interpretations, all of which are subject to change. It does not purport to be complete and does not describe the materialstate, local or foreign tax considerations or the consequences for any particular individual.
Non-qualified Options. Under current federal income tax law, the grant of a non-qualified option under the Plan will have no federal income tax consequences to us or the Company andoptionee (unless the participants in connection withoptions are publicly traded). Generally, upon exercise of a non-qualified stock option granted under the Plan, under existing applicable provisionsthe excess of the Internal Revenue Codefair market value of the stock at the date of exercise over the option price (the “CodeSpread”) and the regulations adopted pursuant to such Code. The discussion is general in nature and does not address issues relatingtaxable to the optionee as ordinary income tax circumstances of any specific individual employee or holder. The discussionand is subject to possible future changeswithholding. All such amounts taxable to an employee are deductible by us as compensation expense. The deduction will be allowed for our taxable year which includes the end of the taxable year in which the optionee includes an amount in income.
Generally, the shares received on exercise of an option under the Plan are not subject to restrictions on transfer or risks of forfeiture and, therefore, the optionee will recognize income on the date of exercise of a non-qualified stock option. However, if the optionee is subject to Section 16(b) of the Exchange Act, the Section 16(b) restriction will be considered a substantial risk of forfeiture for tax purposes. Under current law, employees who are either our directors or officers will be subject to restrictions under Section 16(b) of the Exchange Act during their term of service and for up to six months after termination of such service. SEC Rule 16b-3 provides an exemption from the restrictions of Section 16(b) for the grant of derivative securities, such as stock options, under qualifying plans. Because the Plan satisfies the requirements for exemption under SEC Rule 16b-3, the grant of options will not be considered a purchase and the exercise of the options to acquire the underlying shares of common stock will not be considered a purchase or a sale. Thus, ordinary income will be recognized and the Spread will be measured on the date of exercise.
The taxable income resulting from the exercise of a non-qualified stock option will constitute wages for employees and is generally subject to withholding. We will be required to make whatever arrangements are necessary to ensure that funds equaling the amount of tax required to be withheld, if any, are available for payment, including the deduction of required withholding amounts from the optionee’s other compensation and requiring payment of withholding amounts as part of the exercise price. The tax basis for the common stock acquired is the option price plus the taxable income recognized. An optionee will recognize gain or loss on the subsequent sale of shares acquired upon exercise of a non-qualified stock option in an amount equal to the difference between the amount realized and the tax basis of such shares. Such gain or loss will be long-term or short-term capital gain or loss, depending upon whether the shares have been held for more than one year.
Incentive Stock Options. There will be no federal income tax consequences to us or the employee as a result of the grant of an incentive stock option. The optionee also will not recognize income when the incentive stock option is exercised (subject to the alternative minimum tax rules discussed below). Generally, we receive no deduction at the time of exercise.
In the event of a disposition of shares acquired upon exercise of an incentive stock option, the tax consequences depend upon how long the employee has held the shares. If the employee does not dispose of the shares within two years after the incentive stock option was granted, or within one year after the incentive stock option was exercised and shares were purchased, then the employee must recognize only a long-term capital gain or loss. We are not entitled to any deduction under these circumstances.
If the optionee fails to satisfy either of the foregoing holding periods, then he or she must recognize ordinary income in the Codeyear of disposition (referred to as a “disqualifying disposition”). The amount of such ordinary income generally is determined under the rules applicable to non-qualifiedoptions (see above) based on the Spread at the date of exercise. However, such ordinary income will in no event exceed the amount of the gain realized on the sale, provided that the disposition involves an arm’s-length sale or other relevant law. exchange with an unrelated party. Any gain in excess of the amount taxed as ordinary income will be treated as capital gain. In the year of the disqualifying disposition, we are entitled to a deduction equal to the amount of ordinary income recognized by the optionee.
The discussion doesSpread under an incentive stock option is treated as an adjustment in computing alternative minimum taxable income (“AMTI”) for the year of exercise. As a result, the Spread on an incentive stock option will be included in income for purposes of the alternative minimum tax even though it is not addressincluded in taxable income for purposes of determining the consequencesregular tax liability of state, local or foreignan optionee. A subsequent disqualifying disposition of shares acquired upon exercise of an incentive stock option will eliminate the AMTI adjustment if the disposition occurs in the same taxable year as the exercise. A disqualifying disposition in a subsequent taxable year will not affect the alternative minimum tax laws.computation in the earlier year.
NonqualifiedPayment of Option Exercise Price in Shares. To the extent an optionee pays all or part of the option exercise price of a non-qualified stock option by tendering shares of common stock owned by the optionee, the tax consequences described above apply except that the number of shares of common stock received upon such exercise which is equal to the number of shares surrendered in payment of the option price will have the same tax basis and holding periods as the shares surrendered. The additional shares of common stock received upon such exercise will have a tax basis equal to the amount of ordinary income recognized on such exercise and a holding period which commences on the day following the date of recognition of such income. Under Treasury regulations, if an optionee exercises an incentive stock option by tendering shares of common stock previously acquired by the exercise of an incentive stock option that have not satisfied statutory holding period requirements, a disqualifying disposition will occur and the optionee will recognize income and be subject to other basis allocation and holding period requirements.
Restricted Stock OptionsAwards. Stock granted under the Plan may, in the determination of the Committee, be subject to rights of repurchase and other transfer restrictions. The tax consequences of stock granted under the Plan depends on whether the stock is subject to restrictions and if so, whether the restrictions are deemed to create a “substantial risk of forfeiture” under Code Section 83 (for example, stock granted under the Plan which is subject to our right to repurchase the stock at a price that is less than fair market value which right lapses over a period of continued employment is considered a “substantial risk of forfeiture” under Code Section 83).
If stock is not subject to a “substantial risk of forfeiture,” the recipient normally will recognize taxable ordinary income equal to the value of the stock in the year in which the stock is granted less the amount paid for that stock. If the stock is subject to a “substantial risk of forfeiture,” the recipient normally will recognize taxable ordinary income as and when the “substantial risk of forfeiture” lapses in the amount of the fair market value of the shares no longer subject to the “substantial risk of forfeiture” less the amount paid for the stock. Upon disposition of the stock, the recipient will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for the stock plus any amount recognized as ordinary income upon grant or vesting of the stock. The gain or loss will be long or short-term depending on how long the recipient held the stock. In general, the holding period for the stock commences when the stock is no longer subject to a substantial risk of forfeiture.
A recipient of stock subject to a “substantial risk of forfeiture” may make an election under Code Section 83(b) to recognize ordinary income in the year the recipient purchases the restricted stock, rather than waiting until the “substantial risk of forfeiture” lapses. If the stock recipient makes a Section 83(b) election, the recipient will be required to recognize as ordinary income in the year the recipient purchases the stock the difference, if any, between the fair market value of the stock on the purchase date and the purchase price paid. If the stock recipient makes a Section 83(b) election, the recipient will not havebe required to recognize any income when the “substantial risk of forfeiture lapses.”
Generally, with respect to employees, we are required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a business expense deduction equal to the taxable ordinary income realized by the stock recipient.
Stock Appreciation Rights. Generally, the recipient of a SAR will not recognize any taxable income at the time an NSOthe SAR is granted nor willgranted. With respect to stand-alone SARs, if the Company be entitled to a deduction at that time. When an NSO is exercised,holder receives the grantee will have taxable ordinary income (whetherappreciation inherent in the option price is paidSARs in cash, or by surrender of already owned shares of common stock), and the Companycash will be entitledtaxable as ordinary compensation income to a tax deduction,the employee at the time that it is received. If the holder receives the appreciation inherent in an amountthe stand-alone SARs in stock, the holder will recognize ordinary compensation income equal to the excess of the fair market value of the shares to whichstock on the option exercise pertainsday it is received over any amounts paid by the option exercise price.holder for the stock.
The income recognized by the holder of a stand-alone SAR will generally be subject to U.S. income tax withholding and employment taxes.
In general, we will not be entitled to a federal income tax deduction upon the grant or termination of stand-alone SARs. However, upon the exercise of a stand-alone SAR, we will be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income that the holder is required to recognize as a result of the exercise, provided that the deduction is not otherwise disallowed under the Code.
Incentive Stock OptionsPerformance Compensation Awards. A granteeGenerally, the recipient of a performance compensation award will not haverecognize any taxable income at the time an ISOthe award is granted ormade but will generally recognize taxable income at the time the ISOaward is exercised.paid. If a grantee disposes of the shares acquired on exercise of an ISO after two years afterperformance compensation award is payable in cash, the grant of the ISO and one year after exercise of the ISO, the gain, if any,cash will be long-term capital gains eligible for favorable tax rates undertaxable as ordinary compensation income to the Code.participant at the time that it is received. If the grantee disposes ofholder receives the shares within two years ofperformance compensation award in stock, the grant of the ISO or within one year of exercise of the ISO, the disposition is a “disqualifying disposition,” and the granteeparticipant will have taxablerecognize ordinary compensation income in the year of the disqualifying disposition equal to the lesserexcess of (a) the difference between the fair market value of the sharesstock on the day it is received over any amounts paid by the holder for the stock.
The income recognized by the holder of a performance compensation award will generally be subject to U.S. income tax withholding and the exercise price of the shares at the time of option exercise, or (b) the difference between the sales price of the shares and the exercise price of the shares. Any gain realized from the time of option exercise to the time of the disqualifying disposition wouldemployment taxes.
In general, we will not be long-term or short-term capital gains, depending on whether the shares were sold more than one year or up to and through one year respectively, after the ISO was exercised. The Company is not entitled to a federal income tax deduction as a result ofupon the grant or exercisetermination of an ISO. If the grantee has ordinary income taxable asperformance compensation as a resultawards. However, upon payment of a disqualifying disposition, the Companyperformance compensation award, we will then be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income that the participant is required to recognize as a result of such payment, provided that the deduction is not otherwise disallowed under the Code.
Limitations on Deductions. Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain “covered employees” in a taxable year to the same amount as the grantee recognizes as ordinary income.extent that compensation to each covered employee exceeds $1 million.
New Compliance with Section 409A of the Code. Code Section 409A imposes requirements on non-qualified deferred compensation plans. The requirements include the timing of elections to defer, the timing of distributions and prohibitions on the acceleration of distributions. Failure to satisfy these requirements may result in the immediate taxation of the arrangement, the imposition of an additional 20% income tax on the participant and the possible imposition of interest and penalties on the unpaid tax. Proposed regulations generally provide that the type of equity incentives provided under the Plan will not be considered non-qualified deferred compensation. However, some awards could be covered by Section 409A of the Code. For example, the modification of a stock option or stock appreciation right with an exercise price less than fair market value of the underlying common stock could constitute non-qualified deferred compensation. In such event, the administrator normally would expect to design and administer any such award in a manner that ordinarily should avoid adverse federal income tax consequences under Section 409A of the Code to any affected participant. In the event that an award under the Plan is determined to constitute “non-qualified deferred compensation” that would be subject to additional tax under Section 409A of the Code, the Committee may impose such additional conditions as it deems necessary to avoid the imposition of the additional tax.
Recognition of Compensation Expense. In accordance with ASC 718, Compensation-Stock Compensation, the Company is required to recognize compensation expense in its income statement for the grant-date fair value of stock options and other equity-based compensation issued to its employees and directors, the amount of which can only be determined at the time of grant.
Plan Benefits
AllAwards, if any, that will be made to eligible persons under the Plan are subject to the discretion of the Committee and, therefore, we cannot currently determine the benefits or number of shares subject to awards that may be granted in the future to our employees, officers, directors and consultants under the PlanPlan.
Compensation for our directors is discretionary and is reviewed from time to time by our Board of Directors. Any determinations with respect to Board compensation are made atby our Board of Directors. Since our second quarter of 2017, we have compensated all non-employee directors with a stipend of $7,500 per quarter ($30,000 per year), payable quarterly in stock. However, during 2019, non-employee directors received quarterly stipends, payable in stock and cash, issued in arrears. All stock granted to our directors are Stock Awards issued from the discretion of thePlan.
Typically, newly elected non-employee directors receive 16,000 stock options upon joining our Board of Directors, on a case by case basis. Therefore,which vest over four years, which will also be issued from the benefits and amounts that will be received or allocated under the Plan in the future are not determinable at this time.Plan.
Copy of Plan and Proposed Amendment
Set forth below is where you can find a complete copy of the Company’s 2010 Employee Stock2019 Equity Incentive Plan, along with all subsequent amendments and the proposed amendment:
Original 2010 Employee Stock Plan | Exhibit 10.1 to Form S-1 filed on December 2, 2010 |
First2019 Equity Incentive Plan Amendment | Appendix A to Schedule 14C filed on April 29, 2011 |
Second Plan Amendment | Appendix A to Schedule 14C filed on October 28, 2013 |
Third Plan Amendment | Appendix A to Schedule 14C filed on April 30, 2014 |
Fourth Plan Amendment | Exhibit 4.2 to Form 8-K filed on November 12, 2014 |
Fifth Plan Amendment | Appendix A to Schedule 14A filed on April 15, 2016 |
Sixth Plan Amendment | Appendix A to Schedule 14A filed on May 1, 201730, 2019 |
Proposed Amendment | Appendix A to this Schedule 14A |
Vote Required
The vote required to approve the proposed amendment to the 2019 Equity Incentive Plan is the affirmative vote of the holders of a majority of the votes cast at the Annual Meeting entitled to vote on the matter. Each holder of common stock is entitled to one vote for each share held.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote “FOR” approval of the amendment to the 2010 Employee Stock Plan.
PROPOSAL SIX
ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) added Section 14A to Securities Exchange Act of 1934, as amended (the “Exchange Act”), which enables our stockholders to vote to approve, on an advisory, non-binding basis, the compensation of our named executive officers as disclosed in this Information Statement in accordance with the SEC’s rules.
Our Compensation Committee is comprised of three independent, non-employee, outside directors. The Compensation Committee’s purpose and powers are to (a) review and approve the compensation of the chief executive officer and other executive officers of the Company, and such other employees of the Company as are assigned thereto by the Board of Directors and to make recommendations to the Board of Directors with respect to standards for setting compensation levels, (b) exercise such other powers and authority as are set forth in a charter of the Compensation Committee of the Board of Directors, and (c) exercise such other powers and authority as shall from time to time be assigned thereto by resolution of the Board of Directors.
Our named executive officer compensation program is designed to attract, motivate and retain our named executive officers, who are critical to our success, while working within the available resources. Our Company’s practice is to provide total compensation that attracts, retains and incentivizes the management talent needed to execute our business strategies, and that promotes both our short and long-term objectives. Achievement of short-term objectives is rewarded through cash bonus incentives, while equity-based incentive awards encourage our named executive officers to focus on the Company’s long-term goals. These incentives are based on business and financial objectives considered by the Compensation Committee and Board of Directors to be important to the Company and its shareholders, including execution of growth strategies, generation of earnings growth, and return on capital investments. Both our Compensation Committee and Board of Directors believe that they have taken a responsible approach to compensating our named executive officers whereby our executive compensation strikes the appropriate balance between utilizing responsible, measured pay practices and effectively incentivizing our named executive officers to dedicate themselves fully to value creation for our stockholders. Please read the “Executive Compensation” section of this Proxy Statement for additional details about our named executive compensation program.
We are asking our stockholders to indicate their support for our named executive officer compensation as described in this Proxy Statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on the compensation of our named executive officers. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement. Accordingly, we will ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2018 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission.”
The say-on-pay vote is advisory, and therefore not binding on the Company, our Compensation Committee or our Board of Directors. Our Compensation Committee and Board of Directors value the views of our stockholders and will consider the outcome of the vote when determining future compensation arrangements for our named executive officers.
Vote Required
This vote is an advisory vote and is therefore not binding on the Company, the Compensation Committee or the Board of Directors. The vote required for approval of the compensation of our named executive officers is the affirmative vote of the holders of a majority of the votes cast at the Annual Meeting entitled to vote on the matter. Each holder of common stock is entitled to one vote for each share held.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholdersshareholders vote “FOR” the approval of the compensation of our named executive officers, as disclosed in this Proxy Statement pursuantamendment to the compensation disclosure rules of the SEC.2019 Equity Incentive Plan.
PROPOSAL SEVEN
ADVISORY VOTE ON THE FREQUENCY OF THE ADVISORY VOTE ON EXECUTIVE COMPENSATION
Section 14A of the Exchange Act, as added by the Dodd-Frank Act, also enables our stockholders to indicate their preference as to how frequently we should seek an advisory vote on the compensation of our named executive officers. The ballot card provides stockholders with the opportunity to choose among four options (holding the advisory vote on executive compensation every one, two or three years, or abstain from voting) and, therefore, stockholders will not be voting to approve or disapprove the recommendation of the Board of Directors. You may cast your vote on your preferred voting frequency by choosing the option of once every year (“1 year”), once every two years (“2 years”), once every three years (“3 years”), or you may abstain from voting.
After careful consideration of this proposal, the Board of Directors has determined that an advisory vote on executive compensation that occurs every three years is the most appropriate alternative for the Company, and therefore your Board of Directors recommends that you vote for a three year (3-year) frequency for the advisory vote on executive compensation.
In formulating its recommendation, our Board of Directors considered that a triennial vote will allow stockholders to better evaluate our executive compensation program in relation to our short- and long-term Company performance. Additionally, a triennial vote will provide us with time to respond to stockholder concerns and implement appropriate revisions.
The purpose of this proposal is to assess stockholder preferences on the frequency of future advisory votes on executive compensation, and as such, there will be no approval or adoption of a resolution establishing the frequency of future advisory votes on executive compensation. The option of one year, two years or three years that receives the highest number of votes cast by stockholders will be considered the frequency for the advisory vote on executive compensation that is preferred by our stockholders. However, because this vote is advisory and not binding on the Board of Directors or the Company in any way, the Board of Directors may decide that it is in the best interests of our stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option preferred by our stockholders.
Vote Required
This vote is an advisory vote and is therefore not binding on the Company or the Board of Directors. You may choose from the following alternatives: every year, every two years, every three years or you may abstain. The option of one year, two years or three years that receives the highest number of votes cast by stockholders entitled to vote on the matter will be considered the frequency for the advisory vote on executive compensation that is preferred by our stockholders. While the Board of Directors will consider our stockholders’ preference as reflected in the vote on this proposal in determining how frequently the advisory vote on executive compensation occurs in the future, our Board of Directors will have the discretion to determine the actual frequency at which the required advisory stockholder vote on the compensation of our named executive officers will be conducted, because the vote on such frequency is only advisory and non-binding. The Board of Directors’ determination on the actual frequency of such vote will be disclosed in a Form 8-K to be filed in accordance with the rules of the SEC.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote “FOR” a three year (3-year) frequency for the advisory vote on executive compensation.
STOCKHOLDER PROPOSALS FOR 20192021 ANNUAL MEETING
In order for stockholder proposals to be included in our proxy statement for the 20192021 Annual Meeting, we must receive them at our principal executive offices, 550 SW 2nd5001 Celebration Pointe Avenue, Suite 410, Gainesville, FL 32601,32608, by January 14, 2019,February 16 2021, being 120 days prior to the date of the first anniversary of the date of our proxy statement for the 20182020 Annual Meeting of Stockholders. All other stockholder proposals, including nominations for directors, in order to be voted on at the 20192021 Annual Meeting, must be received by us not earlier than January 23, 2019March 11, 2021 and not later than February 22, 2019April 10, 2021 being, respectively, 120 days and 90 days prior to the date of the first anniversary of the 20182020 Annual Meeting of Stockholders. In the event that the 20192021 Annual Meeting is called for a date that is not within 30 days before or after the anniversary date of the 20182020 Annual Meeting of Stockholders, notice by a stockholder in order to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the 20192021 Annual Meeting is mailed or such public disclosure of the date of the 20192021 Annual Meeting is made, whichever first occurs.
OTHER MATTERS
Our Board of Directors knows of no other matters to be presented for stockholder action at the Annual Meeting. However, if other matters do properly come before the Annual Meeting or any adjournments or postponements thereof, our Board of Directors intends that the persons named in the proxies will vote upon such matters in accordance with the best judgment of the proxy holders.
Whether or not you intend to be present at the meeting, you are urged to fill out, sign, date and return the enclosed proxy at your earliest convenience.
Gainesville, FL
May 14, 2018
June 16, 2020
APPENDIX A
AMENDMENT
Amendment No. 71
TOto
SHARPSPRING, INC. 2010 EMPLOYEE STOCK PLANSharpSpring, Inc. 2019 Equity Incentive Plan
The SharpSpring, Inc. 2010 Employee Stock2019 Equity Incentive Plan (the “Plan”) is hereby amended as follows (capitalized terms used herein and not defined herein shall have the respective meaning ascribed to such terms in the Plan):
1.
Paragraph 4Section 4.1 of the Plan shall be deleted in its entirety and replaced with the following:
4. Stock. The stock subject4.1 Subject to Options, Awards and Purchases shall be authorized but unissuedadjustment in accordance with Section 11, no more than 1,025,000 shares of Common Stock ofplus the Company, $.001 par value (the “Common Stock”), ornumber of shares of Common Stock reacquired byunderlying any award granted under the 2010 Restated Employee Stock Plan that expires, terminates or is canceled or forfeited under the terms of the 2010 Restated Employee Stock Plan shall be available for the grant of Awards under the Plan (the "Total Share Reserve"). During the terms of the Awards, the Company in any manner. The aggregate number of shares that may be issued pursuant to the Plan is 2,600,000, subject to adjustment as provided in paragraph 13. Any such shares may be issued as ISOs, Non-Qualified Options or Awards, or to persons or entities making Purchases, so long asshall keep available at all times the number of shares issued does not exceedof Common Stock required to satisfy such number, as adjusted. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, or if the Company shall reacquire any unvested shares issued pursuant to Awards or Purchases, the unpurchased shares subject to such Options and any unvested shares so reacquired by the Company shall again be available for grants of Stock Rights under the Plan.Awards.
2.
Paragraph 5 of the Plan shall be deleted in its entirety and replaced with the following:
5. Granting of Stock Rights. Stock Rights may be granted under the Plan at any time after June 16, 2010 and prior to June 15, 2020. Any Stock Right issued pursuant to subsection (iii) of paragraph 2.D. shall be held for the period of time described in that subsection. The date of grant of a Stock Right under the Plan will be the date specified by the Committee at the time it grants the Stock Right; provided, however, that such date shall not be prior to the date on which the Committee acts to approve the grant. The Committee shall have the right, with the consent of the optionee, to convert an ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph 16. Awards and the price of Purchases shall be at fair market value as determined by the Board of Directors Except as expressly provided below in paragraph 13 with respect to changes in capitalization and stock dividends, in the event the Company pays any dividend on its outstanding Common Stock, no such dividend shall be paid on any restricted Common Stock acquired on the exercise of a Stock Right prior to the vesting of such Stock Right.
3.
Paragraph 16 of the Plan shall be deleted in its entirety and replaced with the following:
16. Conversion of ISOs into Non-Qualified Options; Termination of ISOs. The Committee, at the written request of any optionee, may in its discretion take such actions as may be necessary to convert such optionee's ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a Related Corporation at the time of such conversion. Such actions may include, but not be limited to, extending the exercise period or reducing the exercise price of the appropriate installments of such options; except that any reduction in the exercise price of such options are subject to approval by the stockholders of the Company at the next Meeting of Stockholders. At the time of such conversion, the Committee (with the consent of the Optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionee's ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Committee takes appropriate action. The Committee, with the consent of the optionee, may also terminate any portion of any ISO that has not been exercised at the time of such termination.
4.
All other provisions of the Plan remain in full force and effect, other than any provision that conflicts with the terms and spirit of this amendment.
Adopted by the Board of Directors on April 27, 2018.June 15, 2020
Adopted by the Shareholders on _____________._____________
SHARPSPRING, INC.INC c/o ISSUER DIRECT CORPORATION
P.O. BOX 17136THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS – JULY 9, 2020 AT 10:00 AM LOCAL TIME | SALT LAKE CITY, UT 84117 | |
CONTROL ID:
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VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Issuer Direct Corporation, P.O. Box 17136, Salt Lake City, UT 84117.
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| VOTE BY FACSIMILE - (801) 277-3147
Mark, sign and date your proxy card and fax it to (801) 277-3147 Attention: Julie, up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date.
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| VOTE BY EMAIL - Julie.Felix@issuerdirect.com
Mark, sign and date your proxy card and email it to Julie.Felix@issuerdirect.com up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | KEEP THIS PORTION FOR YOUR RECORDS |
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| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY |
| For | Withhold | For All | To withhold authority to vote for any individual |
| All | All | Except | nominee(s), mark “For All Except” and write the |
The Board of Directors recommends you vote FOR the following: | | | | number(s) of the nominee(s) on the line below. |
| 1. | Election of Directors | ☐ | ☐ | ☐ | | |
| | Nominees:REQUEST ID:
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| | 01 Steven A. Huey | 02 Richard Carlson | 03 David A. Buckel | 04 Marietta Davis | 05 Daniel C. Allen |
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| TheThis proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors recommends you vote FOR proposals 2, 3, 4, 5 and 6 and 3 YEARS on proposal 7. | | For | Against | Abstain |
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| 2. | Ratification of the appointment of Cherry Bekaert LLP to serve as the Company’s Independent Registered Public Accounting firm for fiscal year 2018. | | ☐ | ☐ | ☐ |
| 3. | Approval of the issuance of shares of the Company’s common stock upon conversion of the Convertible Promissory Note dated March 28, 2018 pursuant to NASDAQ Listing Rule 5635(b). | | ☐ | ☐ | ☐ |
| 4. | Approval of the issuance of up to 3,646,519 shares of the Company’s common stock at the election of the Company upon the maturity of the Convertible Promissory Note dated March 28, 2018 pursuant to NASDAQ Listing Rule 5635(d). | | ☐ | ☐ | ☐ |
| 5. | recommendations. Approval of the amendment to increase the number of shares of common stock available for issuance under the 2010 Employee Stock Plan and to provide for certain other amendments. | | ☐ | ☐ | ☐ |
| 6. | Advisory vote on the compensation of our named executive officers. | | ☐ | ☐ | ☐ |
| 7. | Advisory vote on the frequency of future advisory votes on executive compensation. | ☐
1 year
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2 years
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3 years
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| NOTE: In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting
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| Please print and sign your name(s). When signing as attorney, executor,
administrator, or other fiduciary, please give full title as such. Joint owners
should each sign personally. All holders must sign. If a corporation or
partnership, please sign in full corporate or partnership name, by authorized officer.
______________________________ __________________________________
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| Print Name Print Name (Joint Owners)
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| Signature | Date | | Signature (Joint Owners) | Date | |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:The Notice & Proxy Statement, Form 10-K, as amended is/are available athttp://sharpspring.com/.
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SHARPSPRING, INC. |
Annual Meeting of Shareholders |
June 13, 2018 10:00 AM |
This proxy is solicited by the Board of Directors |
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The undersigned hereby appoint(s) Richard Carlson and/or Edward LawtonMichael Power with the power of substitution and resubstitution to vote any and all shares of capital stock of SharpSpring, Inc. (the "Company") which the undersigned would be entitled to vote as fully as the undersigned could do if personally present at the Annual Meeting of the Company, to be held on Wednesday, June 13, 2018Thursday, July 9, 2020 at 10:00 a.m. local time, and at any adjournments thereof, hereby revoking any prior proxies to vote said stock, upon the following items more fully described in the notice of any Proxy Statement for the Annual Meeting (receipt of which is hereby acknowledged). |
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This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations.(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) |
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Continued and to be signed on reverse sideVOTING INSTRUCTIONS | | | |
If you vote by phone, fax or internet, please DO NOT mail your proxy card. | | | |
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| MAIL: | Please mark, sign, date, and return this Proxy Card promptly using the enclosed envelope. | |
| FAX: | Complete the reverse portion of this Proxy Card and Fax to 202-521-3464. | |
| INTERNET: | https://www.iproxydirect.com/SHSP | |
| PHONE: | 1-866-752-VOTE(8683) | |
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