Proposal
12 -
ApprovalRatification of
Amendment to CertificateAppointment of
Incorporation to Effect a Reverse Stock SplitOur Board proposes that stockholders authorize, but not require, the Board to select and file one of several possible amendments to our certificate of incorporation to effect a reverse stock split of all issued and outstanding shares of our common stock at a ratio within a range of 1-for-2 to 1-for-25, as determined by the Board in its sole discretion at any time prior to June 30, 2024 (the “Reverse Stock Split Proposal”). Our Board believes the authorization is advisable and in the best interests of Local Bounti and its stockholders. For this authorization to be effective, stockholders must approve this proposal.
A copy of the proposed form of amendment to our certificate of incorporation is included as Annex A to this proxy statement. If stockholders approve the proposed amendment and the Board determines to proceed with the reverse stock split, it will become effective upon filing of the amendment with the Delaware Secretary of State.
By approving this proposal, stockholders will approve an amendment to the certificate of incorporation pursuant to which up to 25 shares of common stock would be combined into 1 share of our common stock, and will authorize the Board, if it subsequently determines to proceed with the reverse stock split at any time prior to June 30, 2024, to file the amendment with the Delaware Secretary of State, as determined by the Board in its sole discretion in the manner described in this proposal.
Independent Registered Public Accounting Firm
The
Board believes that stockholder approval of the amendment and granting the Board discretion to subsequently determine whether to proceed with the reverse stock split and at what ratio, rather than approval of a specified reverse stock split ratio, provides the Board with maximum flexibility to react to then-current market conditions and, therefore, is advisable and in the best interests of Local Bounti and its stockholders. The Board may elect to abandon the amendment and not to effect any reverse stock split. The Board’s decision as to whether and when to effect the reverse stock split will be based on a number of factors, including market conditions, the historical, existing and expected trading price of our common stock, the anticipated impact of the reverse stock split on the trading price of our common stock, and the continued listing requirements of the NYSE. Although the stockholders may approve the reverse stock split, we will not effect the reverse stock split if the Board does not deem it to be in the best interests of Local Bounti and its stockholders.Because the reverse stock split, if effected, will decrease the number of outstanding shares of our common stock by a ratio within a range of 1-for-2 to 1-for-25, as determined by the Board, the amendment would result in a relative increase in the number of authorized and unissued shares of our common stock.
Purpose and Background of the Reverse Stock Split
On April 3, 2023, the Board approved the proposed form of amendment to the certificate of incorporation to effect the reverse stock split, if any, for the following reasons:
The Board believes that effecting the reverse stock split could be an effective means of continuing compliance with the minimum $1.00 bid price requirement for continued listing of our common stock on the NYSE. The closing price of a share of our common stock on March 31, 2023, was $0.80.
The Board believes that continued listing on the NYSE provides overall credibility to an investment in our common stock, given the stringent listing and disclosure requirements of the NYSE. Notably, some trading firms discourage investors from investing in lower priced stocks that are traded in the over-the-counter market because they are not held to the same stringent standards. Increasing visibility of our common stock among a larger pool of potential investors could result in higher trading volumes. These increases in visibility and liquidity could also help facilitate future financings.
If our common stock is delisted from the NYSE, our ability to issue shares under our current registration statement could be limited thereby preventing us from accessing the public equity markets.
The Board believes that a higher stock price, which may be achieved through a reverse stock split, could help generate investor interest in Local Bounti and help attract, retain, and motivate employees.
The Board believes that some potential employees are less likely to work for Local Bounti if we have a low stock price or are no longer listed on the NYSE, regardless of the size of our overall market capitalization.
Risks Associated with the Reverse Stock Split
There are risks associated with the reverse stock split, if effected, including that the reverse stock split may not result in a sustained increase in the per share price of our common stock. These risks include the following:
The market price per share of our common stock after the reverse stock split may not rise in proportion to the reduction in the number of shares of our common stock outstanding before the reverse stock split.
The reverse stock split may not result in a per share price that increases the level of investment in our common stock by institutional investors or increase analyst and broker interest in Local Bounti.
The reverse stock split may not result in a per share price that increases our ability to attract and retain employees and other service providers.
The reverse stock split may reduce the liquidity of our common stock.
The market price per share may not remain in excess of the $1.00 minimum bid price as required by the NYSE and we may not otherwise be able to meet the requirements of the NYSE for continued inclusion for trading on the NYSE.
Stockholders should note that the effect of the reverse stock split, if any, upon the market price of our common stock cannot be accurately predicted. In particular, we cannot assure you that the price for shares of our common stock after the reverse stock split, if effected, will be 2 to 25 times, as applicable, the price for shares of our common stock immediately prior to the reverse stock split. Furthermore, even if the market price of our common stock does rise following the reverse stock split, we cannot assure you that the market price of our common stock immediately after the proposed reverse stock split will be maintained for any period of time. Even if an increased per-share price can be maintained, the reverse stock split may not achieve the desired results that have been outlined above. Moreover, because some investors may view the reverse stock split negatively, we cannot assure you that the reverse stock split will not adversely impact the market price of our common stock.
The market price of our common stock will also be based on our performance and other factors, some of which are unrelated to the reverse stock split or the number of shares outstanding. If the reverse stock split is effected and the market price of our common stock declines, the 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. The total market capitalization of our common stock after implementation of the reverse stock split when and if implemented may also be lower than the total market capitalization before the reverse stock split. Furthermore, the liquidity of our common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split.
While we aim that the reverse stock split, if effected, will be sufficient to maintain our listing on the NYSE, it is possible that, even if the reverse stock split results in a bid price for our common stock that exceeds $1.00 per share, we may not be able to continue to satisfy the NYSE’s additional criteria for continued listing of our common stock.
We believe that the reverse stock split may result in greater liquidity for our stockholders. However, it is also possible that our liquidity could be adversely affected by the reduced number of shares outstanding after the reverse stock split, particularly if the price of our common stock does not increase as a result of the reverse stock split.
Principal Effects of the Reverse Stock Split
If stockholders approve this proposal and the Board determines to implement the reverse stock split, we will file an amendment to our certificate of incorporation in the form set forth in Annex A to this proxy statement. We
would also obtain a new CUSIP number for our common stock at the effective time of the reverse stock split, which number is used to identify our securities.
By approving this amendment, stockholders will approve the combination of up to 25 shares of common stock into one share of common stock.
The reverse stock split, if any, will be effected simultaneously for all issued and outstanding shares of common stock (including any shares held in treasury) and the reverse stock split ratio will be the same for all issued and outstanding shares of common stock (including any shares held in treasury). The reverse stock split will affect all of our stockholders uniformly and will not affect any stockholder’s percentage ownership interests in Local Bounti, except to the extent that the reverse stock split results in the payment of cash to any stockholder in lieu of issuing a fractional share. After the reverse stock split, the shares of our common stock will have the same voting rights and rights to dividends and distributions and will be identical in all other respects to our common stock now authorized. Common stock issued pursuant to the reverse stock split will remain fully paid and non-assessable. The reverse stock split will not affect Local Bounti continuing to be subject to the periodic reporting requirements of the Exchange Act.
Following the effectiveness of any reverse stock split approved by the stockholders and implementation by the Board, current stockholders will hold fewer shares of common stock, with the number of shares dependent on the specific ratio of the reverse stock split. For example, if the Board determines to proceed with a 1-for-10 reverse stock split, a stockholder owning a “round-lot” of 100 shares of common stock prior to the reverse stock split would hold 10 shares of common stock following the reverse stock split. The higher the reverse ratio (1-for-10 being higher than 1-for-5, for example), the greater the reduction of related shares each existing stockholder will experience after the reverse stock split. Moreover, as a result of the reverse stock split, some stockholders may own less than 100 shares of our common stock. A purchase or sale of less than 100 shares, known as an “odd lot” transaction, may result in incrementally higher trading costs through certain brokers, particularly “full service” brokers. Therefore, those stockholders who own less than 100 shares following the reverse stock split may be required to pay higher transaction costs if they sell their shares of our common stock.
In deciding whether to implement the reverse stock split and the specific reverse stock split ratio to be used, the Board will consider primarily the satisfaction of the NYSE continued listing requirements. It may also consider, among other things: (1) the market price of the common stock at the time of the reverse stock split; (2) the number of shares that will be outstanding after the reverse stock split; (3) the expected number of stockholders following the reverse stock split; (4) our stockholders’ equity at that time; (5) the shares of common stock available for issuance in the future; (6) the liquidity of our common stock in the market and the improved liquidity that may result; (7) prevailing general market and economic conditions; and (8) other circumstances and factors the Board determines are advisable in its sole discretion. The Board maintains the right to abandon all of the proposed amendments to our certificate of incorporation if it determines, in its sole discretion, that we will be able to satisfy the listing requirements of the NYSE without implementing the reverse stock split or if the proposed amendments to our Certificate of incorporation are otherwise no longer in the best interests of Local Bounti and its stockholders.
If this proposal is not approved, we may be unable to maintain the listing of our common stock on the NYSE, which could adversely affect the liquidity and marketability of our common stock.
Principal Effects and Purpose of Decrease in Number of Outstanding Shares of our Common Stock (Relative Increase in Number of Authorized Shares of our Common Stock)
Because the reverse stock split, if effected, will decrease the number of outstanding shares of our common stock by a ratio within a range of 1-for-2 to 1-for-25, as determined by the Board in its sole discretion no later than June 30, 2024, each of the proposed amendments would result in a relative increase in the number of authorized and unissued shares of our common stock. The relative increase in the amount of authorized and unissued shares of our common stock will provide us with the ability to issue additional shares of common stock
in connection with future financings, public or private exchange offers, employee and director benefit programs, and other desirable corporate activities, without requiring our stockholders to approve an increase in the authorized number of shares of common stock each time such an action is contemplated. If any of the proposed amendments to our certificate of incorporation are approved and a certificate of amendment is filed with the Delaware Secretary of State, all or any of the authorized and unissued shares of common stock may be issued in the future for any corporate purposes and any consideration as the Board deems advisable from time to time, without further action by our stockholders and without first offering those shares to our stockholders. When and if additional shares of common stock are issued, these new shares would have the same voting and other rights and privileges as our currently issued and outstanding shares of common stock, including the right to cast one vote per share. Except pursuant to outstanding warrants and the 2021 Plan, we presently have no plan, commitment, arrangement, understanding, or agreement regarding the issuance of common stock. However, we regularly consider our capital requirements and growth opportunities and may conduct equity offerings in the future.
Because our stockholders have no preemptive rights to purchase or subscribe for any of our unissued common stock, the future issuance of additional shares of common stock may reduce our current stockholders’ percentage ownership interest in the total outstanding shares of common stock. In the absence of a proportionate increase in our future earnings and book value, a future increase in the number of our outstanding shares of common stock would dilute our projected future earnings per share, if any, and book value per share of all our outstanding shares of the common stock. If these factors were reflected in the price per share of our common stock, the potential realizable value of a stockholder’s investment could be adversely affected. An issuance of additional shares could therefore have an adverse effect on the potential realizable value of a stockholder’s investment.
Effects of the Reverse Stock Split on our Common Stock
If the reverse stock split is effected, after the effective time of the amendment to our certificate of incorporation, each stockholder will own fewer shares of our common stock as a result of the reverse stock split, regardless of the reverse stock split ratio chosen by the Board. Because the reverse stock split will decrease the number of outstanding shares of our common stock, each of the proposed amendments will result in a relative increase in the number of authorized and unissued shares of our common stock. All outstanding equity awards relating to our common stock, including any held by our officers and directors, would be adjusted as a result of the reverse stock split. In particular, the number of shares issuable upon the exercise or settlement of each award would be reduced, and the exercise price per share, if applicable, would be increased, in accordance with the terms of each award and based on the ratio of the reverse stock split. The chart below outlines the capital structure as described in this proposal and prior to and immediately following a possible reverse stock split at each of the proposed reverse stock split ratios. The number of shares disclosed in the column “Number of Shares of Common Stock Before Reverse Stock Split” reflects the number of shares as of March 29, 2023. The number of shares disclosed in the columns “Estimated Number of Shares of Common Stock After Reverse Stock Split” gives effect to the reverse stock split at each of the proposed ratios as of March 29, 2023, but does not give effect to any other changes, including any issuance of securities after that date.
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| | Number of Shares of Common Stock Before Reverse Stock Split | | | Estimated Number of Shares of Common Stock After Reverse Stock Split(3) Ratio of Reverse Stock Split | |
| 1:2 | | | 1:10 | | | 1:15 | | | 1:20 | | | 1:25 | |
Authorized | | | 400,000,000 | | | | 400,000,000 | | | | 400,000,000 | | | | 400,000,000 | | | | 400,000,000 | | | | 400,000,000 | |
Issued and Outstanding | | | 104,489,422 | | | | 52,244,711 | | | | 10,448,942 | | | | 6,965,961 | | | | 5,224,471 | | | | 4,179,576 | |
Maximum Issuable under Outstanding RSUs | | | 12,068,118 | | | | 6,034,059 | | | | 1,206,811 | | | | 804,541 | | | | 603,405 | | | | 482,724 | |
Maximum Issuable under Outstanding Warrants | | | 80,433,296 | | | | 40,216,648 | | | | 8,043,329 | | | | 5,362,219 | | | | 4,021,664 | | | | 3,217,331 | |
Reserved for Issuance(1) | | | 11,266,100 | | | | 5,633,050 | | | | 1,126,610 | | | | 751,073 | | | | 563,305 | | | | 450,644 | |
Authorized but Unissued(2) | | | 191,743,064 | | | | 295,871,532 | | | | 379,174,308 | | | | 386,116,206 | | | | 389,587,155 | | | | 391,669,725 | |
1. | Represents shares reserved for future issuance under the 2021 Plan, excluding shares issuable under outstanding RSUs.
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2. | Represents common stock available for future issuance beyond shares outstanding as of March 29, 2023, shares issuable under outstanding RSUs and warrants, and shares reserved for future issuance under the 2021 Plan.
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3. | The shares presented are an estimate as we do not know the number of fractional shares that will be required to be paid out in cash following the reverse stock split.
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Procedure for Effecting Reverse Stock Split
If the proposed amendments to our certificate of incorporation are approved by stockholders and, if at that time or at any time through May 31, 2024, the Board still believes that a reverse stock split is in the best interests of Local Bounti and its stockholders, the Board will determine the ratio, within the range approved by
stockholders, of the reverse stock split to be implemented. The reverse stock split will become effective at the time of filing of the certificate of amendment with the Delaware Secretary of State (the “Effective Time”). At the Effective Time, shares of common stock issued and outstanding immediately prior to the Effective Time will be combined, automatically and without any action on the part of the stockholders, into new shares of common stock in accordance with the reverse stock split ratio contained in the certificate of amendment.
As soon as practicable after the Effective Time, stockholders of record will be notified by our transfer agent that the reverse stock splitAudit Committee has been effected. If you hold shares of common stock in book-entry form, you will not need to take any action to receive post-reverse stock split shares of our common stock. As soon as practicable after the Effective Time, our transfer agent will send to your registered address a transmittal letter along with a statement of ownership indicating the number of post-reverse stock split shares of common stock you hold. If applicable, a check representing a cash payment in lieu of fractional shares will also be mailed to your registered address as soon as practicable after the Effective Time (see “Fractional Shares” below).
Upon the implementation of the reverse stock split, we intend to treat shares held by stockholders in “street name” (i.e., through a bank, broker, custodian or other nominee) in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers, custodians, or other nominees will be instructed to effect the reverse stock split for their beneficial holders holding our common stock in street name. However, these banks, brokers, custodians, or other nominees may have different procedures than registered stockholders for processing the reverse stock split and making payment for fractional shares. If a stockholder holds shares of our common stock with a bank, broker, custodian, or other nominee and has any questions in this regard, stockholders are encouraged to contact their bank, broker, custodian, or other nominee.
Fractional Shares
No scrip or fractional shares will be issued if, as a result of the reverse stock split, a stockholder would otherwise become entitled to a fractional share. Instead, each stockholder will be entitled to receive a cash payment from our transfer agent. Our transfer agent will aggregate all fractional shares following the reverse stock split and sell them into the market in an orderly manner and time so as not to significantly depress the market price for our common stock. The total amount of cash that will be paid to holders of fractional shares following the reverse stock split will be an amount equal to the net proceeds (after customary brokerage commissions and other expenses) attributable to such sales. Holders of fractional shares as a result of the reverse stock split will be paid such proceeds on a pro rata basis, depending on the fractional amount of shares that they owed. Stockholders would not be entitled to receive interest for their fractional shares.
In the event the reverse stock split is effected, then-current stockholders would have no further interest in Local Bounti with respect to their fractional shares. A person entitled to a fractional share would not have any voting, dividend, or other rights in respect of their fractional share except to receive the cash payment as described above. The cash payments would reduce the number of post-reverse stock split stockholders to the extent that there are stockholders holding fewer than that number of pre-reverse stock split shares within the reverse stock split ratio that is determined by us as described above. Reducing the number of post-reverse stock split stockholders, however, is not the purpose of this proposal.
Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where we are domiciled and where the funds for fractional shares would be deposited, sums due to stockholders in payment for fractional shares that are not timely claimed after the Effective Time may be required to be paid to the designated agent for the appropriate jurisdiction. Thereafter, stockholders otherwise entitled to receive those funds may have to seek to obtain them directly from the state to which they were paid.
Effect on Outstanding Restricted Stock Units
Under our equity incentive plans, we have issued RSUs that are settled, if at all, in shares of our common stock. As of March 29, 2023, we had outstanding RSUs representing a maximum of 12,068,118 shares of our
common stock. In the event of a reverse stock split, our Board generally has the discretion to determine the appropriate adjustment to awards granted under our equity incentive plans. Accordingly, if the reverse stock split is approved by our stockholders and our Board decides to implement the reverse stock split, as of the Effective Time, the number of outstanding RSUs and the number of shares issuable upon the settlement of the RSUs will be proportionately adjusted based on the reverse stock split ratio selected by our Board, subject to the terms of the RSUs. Our Board has also authorized Local Bounti to effect any other changes necessary, desirable, or appropriate to give effect to the reverse stock split, if any, including any applicable technical, conforming changes.
Exchange Act Matters
Our common stock is currently registered under the Exchange Act, and we are subject to the periodic reporting and other requirements of the Exchange Act. The reverse stock split, if implemented, will not affect the registration of our common stock under the Exchange Act or our reporting or other requirements thereunder. The CUSIP number for our common stock will also change in connection with the reverse stock split and will be reflected in electronic entry systems.
Accounting Matters
The reverse stock split, if effected, will not affect the common stock capital account on our balance sheet. However, because the par value of our common stock will remain unchanged at the Effective Time of the split, the components that make up the common stock capital account will change by offsetting amounts. Depending on the size of the reverse stock split the Board decides to implement, the stated capital component will be reduced to an amount between 1-to-2 and 1-to-25 of its present amount, and the additional paid-in capital component will be increased with the amount by which the stated capital is reduced. The per share net income or loss and net book value of our common stock will be increased because there will be fewer shares of common stock outstanding. Prior period per share amounts will be restated to reflect the reverse stock split.
No Appraisal Rights
Under the Delaware General Corporation Law, stockholders will not be entitled to appraisal rights with respect to the reverse stock split, and we do not intend to independently provide stockholders with any appraisal rights.
No Going Private Transaction
Notwithstanding the decrease in the number of outstanding shares following the reverse stock split, the Board does 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.
Interests of Certain Persons in the Proposal
Our officers and directors have an interest in this proposal as a result of their ownership of shares of our common stock. However, we do not believe that our officers or directors have interests in this proposal that are different from or greater than those of any of our other stockholders.
Anti-takeover Effects of Proposed Amendment
Release No. 34-15230 of the staff of the SEC requires disclosure and discussion of the effects of any action, including the proposed amendment to our certificate of incorporation discussed in this proposal, that may be used as an anti-takeover mechanism. Because the proposed amendment to our certificate of incorporation will result in a relative increase in the number of authorized but unissued shares of our common stock vis-à-vis the number of
outstanding shares of our common stock after the reverse stock split, the reverse stock split could, under certain circumstances, have an anti-takeover effect, although this is not the purpose or intent of our Board. A relative increase in the number of our authorized shares could enable the Board to render more difficult or discourage an attempt by a party attempting to obtain control of Local Bounti by tender offer or other means. The issuance of common stock in a public or private sale, merger, or similar transaction would increase the number of outstanding shares entitled to vote, increase the number of votes required to approve a change of control of Local Bounti, and dilute the interest of a party attempting to obtain control of Local Bounti. Any such issuance could deprive stockholders of benefits that could result from an attempt to obtain control of Local Bounti, such as the realization of a premium over the market price that the attempt could cause. Moreover, the issuance of common stock to persons friendly to the Board could make it more difficult to remove incumbent officers and directors from office even if the change were favorable to stockholders generally.
As stated above, in the event of a reverse stock split, we have no present intent to use the relative increase in the number of authorized but unissued shares of our common stock for anti-takeover purposes, and the proposed amendments are not part of a plan by the Board to adopt a series of anti-takeover provisions; however, if the proposed amendments are approved by the stockholders, then a greater number of shares of our common stock would be available for this purpose than is currently available. We are not aware of any pending or threatened efforts to obtain control of Local Bounti,recommended, and the Board has no present intent to authorizeapproved, the issuanceappointment of additional shares of common stock to discourage these efforts if they were to arise.
Material U.S. Federal Income Tax ConsequencesWithumSmith+Brown, PC as our independent registered public accounting firm for the year ending December 31, 2023. WithumSmith+Brown, PC has served as our independent registered public accounting firm since 2021. We are soliciting stockholder ratification of the Reverse Stock Splitappointment of WithumSmith+Brown, PC, although stockholder ratification is not required by law. If the appointment of WithumSmith+Brown, PC is not ratified at the Annual Meeting, the Audit Committee will consider whether to appoint a different independent registered public accounting firm.
A representative of WithumSmith+Brown, PC is expected to be present at the Annual Meeting. This representative will have an opportunity to make a statement and will be available to respond to appropriate questions.
Principal Accountant Fees and Services Prior to the Business Combination, RSM US LLP, an independent registered public accounting firm, served as auditor of our predecessor entity and WithumSmith+Brown, PC, an independent registered public accounting firm, served as Leo’s auditors. Following the Business Combination, WithumSmith+Brown, PC continued as our independent registered public accounting firm.
Below are the aggregate fees billed to Local Bounti by WithumSmith+Brown, PC for professional services provided in 2022 and the aggregate fees billed to Local Bounti and Leo by WithumSmith+Brown, PC for professional services provided in 2021 (in thousands):
Audit Fees(1) | | | $266 | | | $114 |
Audit-Related Fees(2) | | | $21 | | | $43 |
Tax Fees(3) | | | — | | | — |
All Other Fees(4) | | | — | | | — |
Total | | | $287 | | | $157 |
Below are the aggregate fees billed to Local Bounti by RSM US LLP for professional services provided in 2021 (in thousands):
Audit Fees(1) | | | $612 |
Audit-Related Fees(2) | | | $543 |
Tax Fees(3) | | | — |
All Other Fees(4) | | | — |
Total | | | $1,155 |
(1)
| Audit fees consist of fees billed for professional services rendered by our independent registered public accounting firm for the audit of our annual consolidated financial statements and review of our interim consolidated financial statements or services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings or engagements. |
(2)
| Audit-related fees consist of fees billed for professional services rendered to provide consent for incorporation by reference of audit reports in certain registration statements and other forms filed with the SEC. |
(3)
| Tax fees consist of fees billed for professional services rendered by our independent registered public accounting firm for tax compliance, tax advice, and tax planning. We did not incur any tax fees. |
(4)
| All other fees consist of fees billed for all other services. We did not incur any other fees. |
Pre-Approval Policy
Under the Audit Committee’s charter, the Audit Committee is required to pre-approve all audit and permitted non-audit services performed by our independent registered public accountants to ensure that the provision of such services does not impair the public accountants’ independence. All audit and audit-related fees billed by WithumSmith+Brown, PC were approved by the Audit Committee in accordance with SEC requirements.