SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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CYNERGISTEK, INC.
(Name of the Registrant as Specified in Its Charter)
N/A
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CYNERGISTEK, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 4, 201915, 2020
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 20192020 Annual Meeting of Stockholders of CynergisTek, Inc., a Delaware corporation (the “Company”), will be held on Thursday,Monday, June 4, 2019,15, 2020, at 3:00 p.m. Central Standard TimeTime. The Annual Meeting will be held at the Company’s principal executive offices, located at 11940 Jollyville Rd, Suite 300N, Austin, Texas, 78759 for the following purposes, as more fully described in the proxy statement (the “Proxy Statement”) accompanying this notice (the “Notice”):
1.To elect the following persons to serve on our Board of Directors until the next annual meeting of stockholders and/or until their successors are duly elected and qualified: John D. Abouchar, Drexel DeFord Jr., Judy F. Krandel,Caleb Barlow, Michael Loria, Robert McCashin, Michael McMillan, Theresa Meadows, Mark Roberson and Mark Roberson;Dana Sellers;
2.To consider and vote upon an advisory, non-binding resolution to approve our executive compensation as described in this Proxy Statement;
3.To considerauthorize and vote upon an advisory, non-binding proposal with respectapprove the 2020 Equity Incentive Plan (the “Plan”) in the form attached to the frequency that stockholders will vote on our executive compensation;this Proxy Statement as Annex A;
4.To ratify the appointment of Haskell & White LLP to serve as our independent registered public accountants for the fiscal year ending December 31, 2019;2020; and
5.To transact such other business as may properly come before the Annual Meeting, or any postponement(s) or adjournment(s) thereof.
All stockholders of record at the close of business on April 9, 201917, 2020 (the “Record Date”), are entitled to notice of and to vote at the Annual Meeting and any adjournment(s) or postponement(s) thereof.
The Company’s Board of Directors (the “Board of Directors” or “Board”) recommends that you vote in favor of the foregoing items of business, which are more fully described in the Proxy Statement accompanying this Notice.
We cordially invite all stockholders to attend the Annual Meeting in person. Whether or not you plan to attend, it is important that your shares are represented and voted at the Annual Meeting. As an alternative to voting in person at the Annual Meeting, you can vote your shares electronically over the Internet or by telephone, or if you receive a proxy card or a form of voting instructions in the mail, by mailing the completed proxy card or form of voting instructions. For detailed information regarding voting instructions, please refer to the section entitled “Voting Securities” beginning on page 12 of the Proxy Statement.
We currently intend to hold the Annual Meeting in person. However, we are actively monitoring the impacts and disruptions caused by the coronavirus, or COVID-19, pandemic and are sensitive to the public health and travel concerns that our stockholders may have, as well as protocols that federal, state, and local governments may impose. If it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the Annual Meeting as promptly as practicable, which may include switching to a virtual meeting format, or changing the time, date or location of the Annual Meeting. We may also announce changes to the procedures for voting your shares at the Annual Meeting. Any such changes will be announced via press release and the filing of additional proxy materials with the Securities and Exchange Commission.
For admissionTo be admitted to the Annual Meeting you may be asked to present valid picture identification, such as a driver’s license or passport, and proof of ownership of the Company’s common stock (the “Common Stock”) as of the Record Date, such as a brokerage statement, proxy card or voting instruction form reflecting stock ownership.
INTERNET AVAILABILITY OF PROXY MATERIALS
A COMPLETE SET OF PROXY MATERIALS RELATING TO OUR ANNUAL MEETING IS AVAILABLE ON THE INTERNET. THESE MATERIALS, CONSISTING OF THE NOTICE OF ANNUAL MEETING, PROXY STATEMENT, PROXY CARD AND ANNUAL REPORT TO STOCKHOLDERS, MAY BE VIEWED ATWWW.COLONIALSTOCK.COM/CYNERGISTEK2019CYNERGISTEK2020 ORWWW.SEC.GOV. INFORMATION INCLUDED ON THE COLONIAL STOCK WEBSITE OR THE COMPANY’S WEBSITE, OTHER THAN THE MATERIALS RELATED TO THE ANNUAL MEETING, IS NOT PART OF THE PROXY SOLICITING MATERIALS.
By Order of the Board of Directors,
Austin, Texas/s/ Paul T. Anthony
April 19, 201928, 2020
Paul T. Anthony
Chief Financial Officer and Secretary
CYNERGISTEK, INC.
11940 Jollyville Rd, Suite 300N, Austin, Texas, 78759
__________________________
PROXY STATEMENT
FOR THE 20192020 ANNUAL MEETING OF STOCKHOLDERS
JUNE 4, 201915, 2020
SOLICITATION, EXERCISE AND REVOCATION OF PROXIES
The accompanying proxy is solicited by and on behalf of the Board of Directors of the Company to be voted at the Annual Meeting to be held at the Company’s principal executive offices, located at 11940 Jollyville Rd, Suite 300N, Austin, Texas, 78759 on June 4,15, 2019, at 3:00 pm Central Standard Time, and any and all adjournments or postponements thereof. In addition to the original solicitation by mail or through the Internet, certain of the Company’s officers, directors and employees (who will receive no compensation in addition to their regular salaries) may solicit proxies by telephone or in person. The Company has not specially engaged employees or solicitors for proxy solicitation purposes. All expenses of this solicitation, including the costs of preparing and mailing this Proxy Statement and the reimbursement of brokerage firms and other nominees for their reasonable expenses in forwarding proxy materials to beneficial owners of Common Stock, will be borne by the Company. You may vote in person at the Annual Meeting, if you wish, even though you have previously mailed in your proxy or voted via telephone or the Internet. This Proxy Statement and the accompanying proxy are being made available to the Company’s stockholders via the Internet on or about April 19, 2019.28, 2020. The proxy solicitation materials will be first sent on or about April 19, 2019,28, 2020, to all stockholders entitled to vote at the Annual Meeting.
We currently intend to hold the Annual Meeting in person. However, we are actively monitoring the impacts and disruptions caused by the coronavirus, or COVID-19, pandemic and are sensitive to the public health and travel concerns that our stockholders may have, as well as protocols that federal, state, and local governments may impose. If it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the Annual Meeting as promptly as practicable, which may include switching to a virtual meeting format, or changing the time, date or location of the Annual Meeting. We may also announce changes to the procedures for voting your shares at the Annual Meeting. Any such changes will be announced via press release and the filing of additional proxy materials with the Securities and Exchange Commission.Unless otherwise indicated, “CynergisTek,” the “Company,” “we,” “us” and “our” shall refer to CynergisTek, Inc.
The persons named as proxies, Michael H. McMillanCaleb Barlow and Paul T. Anthony, were designated by the Board. All properly executed proxies will be voted (except to the extent that authority has been withheld), and where a choice has been specified by the stockholder as provided in the proxy it will be voted in accordance with the specifications so made. Proxies submitted without specification will be votedFOR the election of each of the nominees to our Board listed in the Proxy Statement, FOR the non-binding resolution to approve executive compensation,FORTHREE YEARS with respect to the frequency that stockholders will vote on our executive compensationapproval and adoption of the Plan andFOR the ratification of Haskell & White LLP to serve as our independent registered public accountants for the year ending December 31, 2019.2020.
Any stockholder may revoke a proxy at any time before it is voted at the meeting by a proxy bearing a later date. A proxy may also be revoked by any stockholder by delivering a written notice of revocation to the Secretary of the Company at 19400 Jollyville Rd, Suite 300N, Austin, Texas, 78759, Attn: Corporate Secretary, or by voting in person at the Annual Meeting.Meeting, although attendance at the Annual Meeting will not, by itself, revoke a proxy.
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Purpose
At the Annual Meeting, stockholders will be asked to elect sixseven directors, consider and vote upon an advisory, non-binding resolution to provide non-binding advisory votes onapprove our executive compensation, andto approve the frequency of the stockholder vote on executive compensation,Plan, to ratify the appointment of Haskell & White LLP to serve as our independent registered public accountants for the year ending December 31, 2019,2020, and to transact such other business as may properly come before the Annual Meeting. The
specific proposals to be considered and acted upon at the Annual Meeting are summarized in the preceding Notice and are described in more detail in this Proxy Statement.
Voting Securities
If, as of the Record Date, you are a registered holder (meaning that your shares of Common Stock are registered in our records as being held in your name), then you may vote on matters presented at the Annual Meeting in the following ways:
by proxy: you may complete the proxy card and mail it to the Company; or
���by Internet or telephone in accordance with the instructions in the proxy card; orcard
in person: you may attend the Annual Meeting and cast your vote there.
If, as of the Record Date, you are a beneficial owner whose shares of Common Stock are held in “street-name” by a bank, broker or other record holder, please refer to your voting instructions card and other materials forwarded by the record holder for information on how to instruct the record holder to vote on your behalf.
If you are a registered holder and vote by proxy, the individuals named on the enclosed proxy card will vote your shares of Common Stock in the way that you indicate. When completing the proxy card, you may specify whether your shares of Common Stock should be voted for or against or to abstain from voting on all, some or none of the matters presented at the Annual Meeting.
If you do not indicate how your shares of Common Stock should be voted on a matter, the shares of Company Common Stock represented by your properly submitted proxy will be voted as the Board recommends. If you choose to vote by mailing a proxy card, your proxy card must be filed with the Corporate Secretary prior to or at the commencement of the Annual Meeting.
Registered holders who vote by sending in a signed proxy will not be prevented from attending the Annual Meeting and voting in person. You have the right to revoke a proxy at any time before it is exercised by (a) executing and returning a later dated proxy, (b) giving written notice of revocation to the Company’s Corporate Secretary at 11940 Jollyville Rd, Suite 300N, Austin, Texas, 78759 or (c) attending the Annual Meeting and voting in person.person, although attendance at the Annual Meeting will not, by itself, revoke a proxy. In order to attend the Annual Meetingannual meeting and vote in person, a beneficial holder whose shares are held in “street name” by a bank, broker or other record holder must follow the instructions provided by the record holder for voting in person at the Annual Meeting. The beneficial holder also must obtain from the record holder and present at the Annual Meeting a written proxy allowing the beneficial holder to vote the shares of Common Stock in person.
IT IS IMPORTANT THAT PROXIES BE SUBMITTED PROMPTLY. THEREFORE, STOCKHOLDERS ARE REQUESTED TO SIGN, DATE AND RETURN THE PROXY CARD, OR SUBMIT THEIR VOTE VIA TELEPHONE OR THE INTERNET, AS SOON AS POSSIBLE, WHETHER OR NOT THEY EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON.
If you receive more than one proxy card because your shares are registered in different names or at different addresses, please provide voting instructions for all proxy cards you receive so that all of your shares of Common Stock will be represented at the Annual Meeting. The Company is delivering multiple Proxy Statements and Annual Reports to multiple stockholders who have requested physical delivery of the Proxy Statement and related materials and who are sharing an address unless it receives contrary instructions from one or more of the stockholders. If you are a stockholder residing at a shared address and would like to request an additional copy of the Proxy Statement or Annual Report now or with respect to future mailings (or to request to receive only one copy of the Proxy Statement or Annual Report if you are currently receiving multiple copies), please send your request to the Company, Attn: Corporate Secretary at the address noted above11940 Jollyville Rd, Suite 300N, Austin, Texas, 78759 or call us at 512-402-8550.
Record Date, Quorum and Voting Requirements
Record Date
To be able to vote, you must have been a stockholder as of April 9, 201917, 2020 (the “Record Date”). As of the Record Date, 9,723,06510,379,164 shares of Common Stock, par value $0.001 (“Common Stock”) were issued and outstanding. Each share of Common Stock is entitled to one (1) vote.
Quorum
For business to be conducted at the Annual Meeting, a quorum must be present. The presence at the Annual Meeting, either in person or by proxy, of holders of shares of the Company’s Common Stock entitled to vote and representing at least a majority of the Company’s outstanding voting power will constitute a quorum for the
transaction of business. Accordingly, holders of at least 4,861,5335,189,583 shares of the Company’s Common Stock must be present in person or by proxy at the Annual Meeting. Abstentions and “broker non-votes” will be counted for the purpose of determining whether a quorum is present for the transaction of business. If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained.
Required Vote
For purposes of the quorum and the discussion below regarding the vote necessary to take stockholder action, stockholders of record who are present at the Annual Meeting in person or by proxy and who vote for or against, abstain or withhold their vote from a matter, including broker non-votes, are considered stockholders who are present and entitled to vote and count toward the quorum. As used herein, “broker non-vote” means the votes that are not cast on the matter in question by a broker with respect to shares of Common Stock because (i) the broker has not received voting instructions from the beneficial owner on such matter and (ii) such broker lacks discretionary voting authority to vote the shares of Common Stock on such matter. Brokers holding shares of record for beneficial owners generally are entitled to exercise their discretion to vote on Proposal 4 included in this Proxy Statement unless they receive other instructions from the beneficial owners. The effect of proxies marked “withheld” as to any director nominee or “abstain” as to a particular proposal and broker non-votes is discussed under each respective proposal below.
Proposal One, Election of Directors. As explained in more detail in the Company’s bylaws, our directors will be elected by a majority of votes cast at the Annual Meeting. A “majority of the votes cast” means that the number of votes cast “for” a candidate for director must exceed the number of votes cast “against” that director. In a contested election (i.e., where the number of nominees exceeds the number of directors to be elected), directors will be elected by a plurality of votes cast. If an incumbent director is not elected by a majority of votes cast, the incumbent director will promptly tender his or her resignation to the Board for consideration. The Nominating and Corporate Governance Committee will make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. The Board, acting on such committee’s recommendation or on its own decision, as the case may be, will publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. Only votes “for” or “against” affect the outcome. Abstentions are not counted for the purposes of election of directors. Should any nominee(s) become unavailable to serve before the Annual Meeting, the proxies will be voted by the proxy holders for such other person(s) as may be designated by our Board or for such lesser number of nominees as may be prescribed by the Board. Votes cast for the election of any nominee who has become unavailable will be disregarded. Stockholders may not cumulate votes in the election of directors.
Proposal Two,Advisory Vote on Executive Compensation. An advisory, non-binding resolution to approve executive compensation as described in this Proxy Statement. The affirmative vote of a majority of the votes cast at the Annual Meeting, without regard to either broker non-votes, or shares as to which the “ABSTAIN” box has been selected on the proxy card, is required for the approval of this non-binding resolution. While this vote is required by law, it will neither be binding on the Company or the Board, nor will it create or imply any change in the fiduciary duties of, or impose additional fiduciary duty on, the Company or the Board.
Proposal Three, Advisory Vote on the FrequencyApproval of the Advisory Vote on Executive Compensation2020 Equity Incentive Plan. An advisory, non-binding vote with respect toApproval of the frequency that stockholders will vote on our executive compensation. Generally, approval of any matter presented to stockholdersPlan requires the affirmative vote of the holders of a majority of the votes cast. However, because thisshares present in person or represented by proxy and entitled to vote is advisory and non-binding, if none ofat the frequency options receive a majority of the votes cast, the option receiving the greatest number of votes will be considered the frequency recommended by the Company’s stockholders. While this vote is required by law, it will neither be binding on the Company or the Board, nor will it create or imply any change in the fiduciary duties of, or impose any additional fiduciary duty on, the Company or the Board. Although this vote is not binding, the Board will take into account the outcome of this vote in making a determination on the frequency that advisory votes on executive compensation will be included in our proxy statements.Annual Meeting.
Proposal Four, Ratification of Haskell & White LLP as our Independent Registered Public Accountants. Ratification of Haskell & White LLP requires the affirmative vote of the holders of a majority of the shares of Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting.If the
selection of Haskell & White, LLP as our independent registered public accounting firm is not ratified, the Audit Committee of the Board will reconsider its selection.
Other Matters. For each other matter brought before the stockholders at the Annual Meeting for a vote, the affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy and entitled to vote on the matter at the Annual Meeting is required for approval. If you are present at the Annual Meeting but do not vote on any of these proposals, or if you have given a proxy and abstain on any of these proposals, this will have the same effect as if you voted against the proposal. If there are broker non-votes on the issue, the shares of Common Stock not voted will have no effect on the outcome of the proposal.
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to revoke it at any time before it is voted. It may be revoked by filing with the Secretary of the Company at the Company’s principal executive office, located at 11940 Jollyville Rd, Suite 300N, Austin, Texas, 78759, Attn: Corporate Secretary, a written notice of revocation or a duly executed proxy bearing a later date, or it may be revoked by attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not, by itself, revoke a proxy.
Stockholder Proposals for 20202021 Annual Meeting of Stockholders
Any stockholder desiring to submit a proposal for action at the 20202021 annual meeting of stockholders and presentation in the Company’s proxy statement with respect to such meeting pursuant to Rule 14a-8 under the Exchange Act should arrange for such proposal to be delivered to the Company’s offices,11940 Jollyville Rd, Suite 300N, Austin, Texas, 78759, no later than December 21, 201919, 2020 in order to be considered for inclusion in the Company’s proxy statement relating to the 20202021 annual meeting of stockholders. Matters pertaining to such proposals, including the number and length thereof, eligibility of persons entitled to have such proposals included and other aspects are regulated by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules and Regulations of the Securities and Exchange Commission and other laws and regulations to which interested persons should refer.
Under our bylaws, only such business shall be conducted as shall have been brought before the meeting as specified in the meeting notice, by or at the direction of the Board or by any stockholder who is a stockholder of record at the time of giving of the meeting notice, who is entitled to vote at such meeting and who complies with the notice and other procedures set forth in Section 2.14 of our bylaws. Pursuant to such procedures, a stockholder notice of a matter to be considered for the 20202021 annual meeting must be received by the Company no earlier than February 5, 20202021 and no later than March 6, 20202021 to be considered timely for the 20202021 annual meeting of stockholders.
Additionally, under Rule 14a-4, as promulgated under the Exchange Act, if a stockholder fails to notify the Company of a proposal at least 45 days prior to the month and day of mailing of the prior year’s proxy statement, then the Company will be allowed to use its discretionary voting authority when the proposal is raised at the annual meeting,without any discussion of the matter in the proxy statement. With respect to the Company’s 20202021 annual meeting of stockholders, a stockholder proposal not previously submitted for the Company’s proxy statement may be submitted until March 5, 2020;2021; thereafter, the Company will use its voting authority as described above.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board has nominated the six (6)seven (7) incumbent directors for re-election as directors. Directors are elected at each annual meeting of stockholders to hold office until the next annual meeting or until their successors are elected and have qualified. Each director nominee has consented to being named as a director nominee in this proxy statement and to serving as a director, if elected. Unless otherwise instructed, the proxy holders named in the enclosed proxy will vote the proxies received by them for the six (6)seven (7) nominees named below.
It is intended that shares represented by the proxies will be votedFOR the election to the Board of the persons named below unless authority to vote for nominees has been withheld in the proxy. Broker non-votes and proxies marked “withheld” as to one or more of the nominees will result in the respective nominees receiving fewer votes. However, the number of votes otherwise received by the nominee will not be reduced by such action. Although each of the persons named below has consented to serve as a director if elected and the Board has no reason to believe that any of the nominees named below will be unable to serve as a director, if any nominee withdraws or otherwise becomes unavailable to serve, the persons named as proxies will vote for any substitute nominee designated by the Board.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES NAMED BELOW.
Name | Age | Position |
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| Director, Chief Executive Officer and President |
Michael Loria | 62 | Director |
Michael McMillan | 63 | Director |
Robert McCashin | 73 | Director |
Theresa Meadows |
| Director, Chairwoman of the Nominating and Corporate Governance Committee |
Mark Roberson |
| Director, Chairman of the Audit Committee |
Dana Sellers | 65 | Director, Chairwoman of the Compensation Committee |
In 2018, Mr. Barlow invented the “Cyber Tactical Operations Center" which is a first-of-its-kind training, simulation, and security operations center on wheels which won an Edison award. In 2016, he built X-Force Command which is part of a $200M investment in a global incident response services, updated watch floors, the boardindustry’s first immersive cyber range, and an incident command system for responding to major cyber incidents.
External to IBM, Mr. Barlow has been in leadership roles at two successful startups, including Syncra Systems, which is now part of directorsOracle, and Ascendant Technology, which was acquired by Avent. Caleb also holds multiple patents in the field of SED International and wasUnified Communication.
Michael Loria, 62. Mr. Loria has been a member of the audit committee. From 2007Board since February 2020. Mr. Loria currently is the executive vice president of corporate development at Brightcove, a leading video platform. Prior to 2009, Mr. Aboucharthis position he was an independent directorthe Vice President of Business and chairmanCorporate Development for the IBM Security Division, where he has served from October 2011 to February 2020. As one of the audit committeefounding members of InFocus Corporation, (INFS) formerly a NASDAQ listed companythat division, Michael led the
reseller channels organization, the development of the technology partners ecosystem and a manufacturerstrategic alliances, technology licensing, and distributerwas responsible for the acquisitions made by this division.
Prior to his role in the formation of digital projectorsthe IBM Security Unit, Michael had similar roles in IBM Rational Software and LCD flat panel displays, basedIBM Lotus. Prior to his work at IBM, Michael worked for companies ranging from start-ups to large enterprises in Portland, Oregon.various marketing, product management, and business and corporate development roles. Mr. Abouchar earned a B.S. degree in Economics from Wharton School, UniversityLoria brings years of Pennsylvania.
Drexel DeFord Jr., 56.Robert McCashin, 73.Mr. DeFordMcCashin is currently a strategic advisor for the Falls River Group, a global mergers and acquisition advisor, and has been a memberin such role since January 2009. Prior to his time at Falls River Group, Mr. McCashin served on the Board of the Company’s Board sinceDirectors of Imprivata from June 2016. Mr. DeFord has been an independent consultant since 2015,2008 to January 2013, as Executive Chairman for Integrian, and prior to that had a long career as a healthcare executive, including his experiencedirector of Peerless Manufacturing Inc. from 2006 to 2015, Timelink Inc from June 2001 to August 2010 and Argon ST, Inc. from July 2004 to July 2010. Mr. McCashin was chairman and CEO at Identix from 2000 to 2004, where he moved the company to the NASDAQ and led the acquisition of Visionics, thereby positioning Identix as Co-Founderthe worldwide leader in multi-biometric security products.
Mr. McCashin held various positions at Electronic Data Systems (EDS) from 1971 to 1999, a leading global services company. His final role at EDS was president and CEO of Next Wave Connect; EVPCENTROBE, the business unit created out of the consolidation of EDS worldwide call centers and CIO at Steward Healthcare in Boston; SVPdatabase operations. During his time there, Mr. McCashin spearheaded the acquisition of Neodata and CIO at Seattle Children’s Health System and Research Institute; and Corporate VP and CIO at Scripps Health in San Diego.merged several units into CENTROBE. Prior to that, he spent 20 yearsEDS Mr. McCashin served in the US Air Force,Vietnam as a USMC infantry platoon commander where he served as regional CIO,received a medical center CIO, and Chief Technology OfficerBronze Star for the USAF Health System’s World-Wide Operations. Drex has earned a Master of Science, Health Informatics from University of Alabama-Birmingham and a Master of Public Administration from University of Oklahoma. In addition, he is a Fellow in HIMSS, CHIME and ACHE.Valor.
Mr. DeFord’s extensive background andMcCashin’s brings years of experience in Healthcare IT brings industry insightsecurity, mergers & acquisitions and public company executive and board experience to the Board. Based on his experience and background, the Board has concluded that Mr. DeFordMcCashin is qualified to serve as a director of the Company.
Judy F. Krandel 54.Ms. Krandel is a senior business development and investor relations consultant for PeerStream, Inc. (OTCQB: PEER). PeerStream is a communications software innovator developing enhanced security and privacy solutions for video, voice, and text applications and data transmission. Ms. Krandel was CFO of PeerStream from November 2016 until May 2019. Prior to taking the role as CFO, Ms. Krandel served on the board of directors of PeerStream, Inc.
Prior to joining PeerStream in November 2016, Ms. Krandel, served as a portfolio manager at the Juniper Investment Company, a small-cap hedge fund. She brings more than 20 years of capital markets experience, principally as an equity analyst and portfolio manager focusing on small-cap stocks, with a strong concentration in healthcare and technology. Throughout her career, she has worked closely with corporate management teams to help them develop strategic business plans, explore M&A and joint venture opportunities, raise capital and enhance their investor relations efforts. Prior to taking the role as CFO, Ms. Krandel served on the board of directors of PeerStream, Inc.
Ms. Krandel received her B.S. from the Wharton School of Business at the University of Pennsylvania and her M.B.A. from the University of Chicago.
Ms. Krandel’s experience in capital markets, particularly in the healthcare and technology sectors, brings financial and industry strength to the Board. Based on her experience and background, the Board has concluded that Ms. Krandel is qualified to serve as a director of the Company.
Michael McMillan, 62.63.Mr. McMillan co‐foundedCo-Founded CTEK Security, Inc. (formerly CynergisTek, Inc.) in 2004 and has served as its CEO sincefrom its inception.inception until his retirement in August of 2019. He became CynergisTek’s President and Chief Strategy Officer in January of 2017 and the Chief Executive Officerits President and CEO in October of 2017. Mr. McMillan brings nearly 40 yearsHe is recognized as a HIMSS Fellow, former Chair of combined intelligence,the HIMSS Privacy & Security Steering committee, Work Group and Policy Task Force. He is recognized as a Lifetime CHIME Fellow, served on the CHIME Board of Advisors for AEHIS, the Most Wired Advisory Board, contributed to Healthcare’s Cybersecurity Model for the Baldridge award and advised KLAS on defining its cybersecurity criteria. He has been an advisor, advocate, and role model to the HIT security countermeasures and consulting experience from positions withincommunity by sharing his passion to educate the government and private sector and has worked inindustry on the healthcare industryimportance of security since his retirement from the federal government in 2000. He is a member of CHIME's AEHIS Advisory Board, recognized as a HIMSS Fellow and former Chairthe recipient of the CHIME Foundation Industry Leader Award for Career Excellence, the Baldrige Foundation Award for Leadership Excellence in the Cybersecurity Sector and the HIMSS Privacy & Security Policy Task Force.John A Page Distinguished Fellows Service Award.
Mr. McMillan currently sitshas been a thought leader in cybersecurity and privacy issues in healthcare and has been recognized for his many contributions to the industry. He was recognized by Health Data Management as one of the Top 50 influencers in health IT, by Becker’s Hospital Review’s lists of influential healthcare IT leaders by both its writers and readers, and named one of the top 10 health information security influencers by HealthInfoSecurity. He has served on several advisory boards, includingsuch as HIT Exchange HealthTech Industry, HCPro Editorial Advisory Board, HealthInfo SecurityHealthInfoSecurity Editorial Advisory Board and HealthCare's Most Wired™ SurveyHealthcare Innovations Advisory Board. Mr. McMillan also presents regularlyHe has impacted healthcare security through broadcast and literature. This has led to his contribution in hundreds of articles, blog posts, podcasts, and news stories. He has testified in front of Congress and supported industry efforts at industry association events,congressional outreach on privacy and cybersecurity issues. These efforts helped build a strong foundation of understanding to the importance of security in healthcare and allowed him to promote many issues such as CHIME, HCCA, HIMSSmedical device security, telehealth security, and AHIMA, and wasthe shortage of cybersecurity professionals in healthcare organizations. He is a contributing author for two books on Cybersecurity and Risk Management in Healthcare.
Deeply passionate about solving the problem of the overwhelming shortage of qualified cyber professionals, he has a been a strong advocate and personal contributor to the HIMSS book, “Information SecurityCyberPatriot Program which provides
opportunities and scholarships for young people, K-12, to enter STEM programs in Healthcare: Managing Risk.” college and hopefully careers beyond. He is a strong proponent of women in cybersecurity and has supported his beliefs through his leadership at CynergisTek as well as with other organizations. He teaches and supports curriculum development at several universities in Health Administration, Health Information Management and cybersecurity programs. He is a faculty Affiliate at the University of Texas in their cybersecurity for healthcare program and member of the Texas State University MHIM Advisory Board on Cybersecurity.
Mr. McMillan has also worked in Financial sector, has served as Director of Security for two separate defense agencies,Defense Agencies and sat on numerous interagency intelligence and security countermeasures committees while serving in the U.S. government.
Mr. McMillan He holds a Master of Arts degree in National Security and Strategic Studies from the U.S. Naval War College and a Bachelor of Science degree in Education from Texas A&M University. Mr. McMillan is a retired Lt. Colonel with the USMC. He is a graduate of the Senior Officials in National Security program at the JF Kennedy School of Government at Harvard University and a 1993/4 DoD Excellence in Government Fellow.
He retired from the US Marine Corps as an Intelligence Officer after 21 years of service. As a DoD Civilian he received both the DoD Gold and Silver Medals for Distinguished Service. Mr. McMillan brings many years of entrepreneurial experience in Cybersecurity consulting. Based on his experience and background, the Board has concluded that Mr. McMillan is qualified to serve as a director of the Company.
Prior to joining Cook Children’s, her career included serving in roles as a registered nurse in a Cardiac Transplant Unit; healthcare consulting, project management, and leadership positions at a web development company and a large electronic medical record company. Ms. Meadows also served as a Regional Director for Ascension Health Information Services where she not only led software implementations but was instrumental in the development of Communities of Excellence.
Ms. Meadows currently serves as the Co-Chair for the Health and Human Services Healthcare Cybersecurity Task Force which is charged with creating recommendations in improving cybersecurity posture in the healthcare industry. Ms. Meadows currently serves on the NetApp Healthcare CXO Advisory Board and is a member of the McKesson Innovation Leadership Council. She served as chair for the North Texas Healthcare
Information and Quality Collaborative (NTHIQC). Ms. Meadows has published several articles and her organization was the first to participate in the CHIME case study publications on their successful implementation of bar-coded medication verification.
Ms. Meadows has a master’s degree in healthcare informatics from the University of Alabama at Birmingham; and a bachelor’s degree in nursing from the University of Alabama at Birmingham. She is an active member of the Children’s Hospital Association CIO Council; is a Fellow in the Healthcare Information and Management Systems Society (HIMSS); is a Fellow in the American College of Healthcare Executives (ACHE) and is an active member of the College of Health Information Management Executives (CHIME). Ms. Meadows is a graduate of CIO Bootcamp and is a credentialed by CHIME as a Certified Healthcare CIO (CHCIO).
Ms. Meadows brings years of experience in Healthcare IT. Based on her experience and background, the Board has concluded that Ms. Meadows is qualified to serve as a director of the Company.
Mark Roberson, 54.55.Mr. Roberson is a finance and operations leader who brings deep experience with microcap and public company finance and governance. Mark currently serves as the Chief FinancialExecutive Officer of Ballantyne Strong, Inc. (NYSE American: BTN). and was its Executive Vice President and Chief Financial Officer from November 2018 through April 2020. Ballantyne Strong, Inc. is a manufacturer and provider of mission critical projection solutions and services.managed services to customers in the entertainment, digital signage, and advertising industries.
Mr. Roberson has over 30 years of financial and operational management experience with smallersmall public and larger privatelarge private-equity companies. Prior to Ballantyne Strong, Mark previously served as Chief Operating Officer of Chanticleer Holdings, Inc. and Chief Executive Officer and Chief Financial Officer of PokerTek, Inc. Previously he served in various financial and operations roles with Curtiss-Wright, Inc., Krispy Kreme Doughnut Corporation, and LifeStyle Furnishings International, Ltd.
Mr. Roberson is a CPA who spent seven years in public accounting with Ernst & Young and PricewaterhouseCoopers. He earned an MBA from Wake Forest University, a BS in Accounting from UNC-Greensboro and a BS in Economics from Southern Methodist University. He was named Small Public Company CFO of the Year by the Charlotte Business Journal.
Mr. Roberson brings many years of financial experience in the public sector. Based on his experience and background, the Board has concluded that Mr. Roberson is qualified to serve as a director of the Company.
Dana Sellers, 65. Dana Sellers, 65. Ms. Sellers currently serves as a Board Member to MediQuant since January 2019, a Member of the Board of Advisors to Diligent Robotics since January 2019, a Member of the Board of Advisors for Cockrell School of Engineering. The University of Texas at Austin since May 2013, and a board member for the Greater Houston Healthconnect since 2014. Ms. Sellers served as a Board Member for EMIDS a business and tech solutions company that help payers, providers and tech-enablers maximize technology to deliver care better. Prior to this she was the co-founder and CEO of Encore Health Resources from January 2009 to June 2017. Encore Health Resources was a healthcare IT consulting firm that helped its clients use IT to improve the quality and cost of patient care. She has spent her 30-year career championing the use of healthcare IT to improve patient care and outcomes. A skilled leader, she has been praised by the chief information officers she served and the staff she oversaw for her people-focused, solutions-driven approach.
Ms. Sellers has held numerous prominent positions: as president and COO of Healthlink and as CEO of Encore Health Resources in Houston, which she co-founded with Ivo Nelson in 2009. Under her leadership, Encore served more than 190 providers and completed more than 500 projects in the U.S. that advanced healthcare IT. She has also served on the boards of CHIME, the CHIME Foundation and the CHIME Education Foundation.
Ms. Sellers brings years of experience in Healthcare IT. Based on her experience and background, the Board has concluded that Ms. Sellers is qualified to serve as a director of the Company.
During fiscal year 2018,2019, our Board held sixeleven meetings in person or by telephone. Members of our Board were provided with information between Board meetings regarding the Company’s operations and were consulted on an informal basis with respect to pending business. Each director attended at least a majority75% of the total number of Board meetings and the meetings held by all committees of our Board on which such director served during the year.
Director Independence
The Board, in the exercise of its reasonable business judgment, has determined that the following nominees for election to the Board meet the definition of “independent” pursuant to the applicable NYSE American and SEC rules and regulations: John D. Abouchar, Drexel DeFord Jr., Judy F. Krandel,Michael Loria, Robert McCashin, Theresa Meadows and Mark Roberson.
Board Leadership Structure
We have chosen to split the roles of Chairman of the Board and Chief Executive Officer. Mr. McMillanBarlow serves as Chief Executive Officer while Mr. Abouchar is currently the non-executive Chairman of the Board. The Board has historically sought to ensure that a majority of its members are independent. The Board believes that this structure is appropriate for the Company and provides the appropriate level of independent oversight necessary to ensure that the Board meets its fiduciary obligations to our stockholders, that the interests of management and our
stockholders are properly aligned, and that we establish and follow sound business practices and strategies that are in the best interests of our stockholders.
Board’s Role in Risk Management
The Board provides oversight with respect to our management of risk, both as a whole and through its standing committees. The Board typically reviews and discusses with management at each of its regular quarterly
meetings, information presented by management relating to our operational results and outlook, including information regarding risks related to our business and operations, as well as risks associated with the markets we serve. Currently, we are assessing and responding to the substantial operational and commercial risks relating to the COVID-19 pandemic. At least annually, the Board reviews and discusses an overall risk assessment conducted by management and the strategies and actions developed and implemented by management to monitor, control and mitigate such risks.
The Audit Committee of our Board also provides risk oversight, focusing in particular on financial and credit risk. The Audit Committee oversees the management of such risks, generally as part of its responsibilities related to the review of our financial results and our internal control over financial reporting, and specifically in connection with its consideration of particular actions being contemplated by us, such as financing activities. Senior management reports on at least a quarterly basis to the Audit Committee on the most significant risks facing the Company from a financial reporting perspective and highlights any new risks that may have arisen since the Audit Committee last met. The Audit Committee also meets regularly in executive sessions with the Company’s independent registered public accounting firm and reports any findings or issues to the full Board. In performing its functions, the Audit Committee and each standing committee of the Board has full access to management, as well as the ability to engage advisors. The Board receives regular reports from each of its standing committees regarding each committee’s particularized areas of focus. The Compensation Committee has responsibility for overseeing the management of risk related to our compensation policies and practices. The Compensation Committee considers risks associated with our business in developing compensation policies and the components of our executive compensation program, and periodically reviews and discusses assessments conducted by management with respect to risk that may arise from our compensation policies and practices for all employees.
Compensation Committee
The Compensation Committee is presently composed of Mark Roberson,Dana Sellers, who serves as chairperson, Mark Roberson, John D. Abouchar, Drexel DeFord Jr., Judy F. KrandelTheresa Meadows and Theresa Meadows.Robert McCashin. Mr. Abouchar will be leaving the committee and the Board in June 2020 at the end of his current term. The Board has determined that all five members meet the definition of “independent” pursuant to NYSE American Rule 803. Pursuant to the authority delegated to it by the Board, the Compensation Committee reviews the performance of our executive officers and establishes overall employee compensation policies. The Compensation Committee also reviews and recommends compensation levels for our directors and our corporate officers, including salary, bonus, and stock option grants. The compensation levels recommended by the Compensation Committee are ratified by the Board. The Compensation Committee may not delegate its responsibilities, and our executive officers are not involved in determining or recommending the amount or form of executive and director compensation. The Compensation Committee met three times during the fiscal year ended December 31, 2018.2019. The Compensation Committee did not engage a compensation consultant to assist in determining the amount or form of executive and director compensation paid during the year ended December 31, 2018.2019. The Compensation Committee operates under a written charter adopted by the Board, a copy of which is available on our Company website atwww.cynergistek.com under “Investor Relations,” then “Corporate Governance.”
Audit Committee
Audit Committee met five times during the fiscal year ended December 31, 2018.2019. The Audit Committee operates under a written charter adopted by the Board, a copy of which is available on our Company website atwww.cynergistek.com under “Investor Relations,” then “Corporate Governance.”
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is composed of John D. Abouchar,Theresa Meadows, who serves as chairperson, Drexel DeFord Jr., Judy F. Krandel, Theresa MeadowsJohn D. Abouchar, Dana Sellers, Mark Roberson and Mark Roberson,Robert McCashin, all of whom meet the definition of “independent” pursuant to NYSE American Rule 803. Mr. Abouchar will be leaving the committee and the Board in June 2020 at the end of his current term. The purpose of the Nominating and Corporate Governance Committee is to (1) identify qualified individuals to become directors, (2) select the director nominees to be presented for election at each annual meeting of stockholders, (3) regularly develop, review and recommend to the Board a set of corporate governance policies applicable to the Company, and (4) provide oversight for the evaluation of the performance of the Board. The Nominating and Corporate Governance Committee operates under a written charter adopted by the Board, a copy of which is available on our Company website atwww.cynergistek.com under “Investor Relations,” then “Corporate Governance.” The Nominating and Corporate Governance Committee met three timesone time during the fiscal year ended December 31, 2018.2019.
Nomination of Directors
Nominees for the Board at the Annual Meeting were recommended by our Nominating and Corporate Governance Committee and approved by the Board. In identifying potential nominees, the Nominating and Corporate Governance Committee took into account such factors as it deemed appropriate, including the current composition of the Board, the range of talents, experiences and skills that would best complement those that are already represented on the Board, the balance of management, director independence, and the need for specialized expertise. The Nominating and Corporate Governance Committee does not have a formal diversity policy; in addition to the foregoing, it considers race and gender diversity in selection of qualified candidates. There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board.
The Nominating and Corporate Governance Committee seeks to identify director nominees through a combination of referrals, including referrals provided by management, existing members of the Board and our stockholders, and direct solicitations, where warranted. Referrals of director nominees should be sent to the Nominating and Corporate Governance Committee, c/o Chief Financial Officer,Corporate Secretary, CynergisTek, Inc., 11940 Jollyville Rd, Suite 300N, Austin, Texas, 78759. All referrals will be compiled by the Chief Financial OfficerCorporate Secretary and forwarded to the Nominating and Corporate Governance Committee for their review and consideration. Our bylaws contain provisions that address the process by which a stockholder may nominate an individual to stand for election to the Board. At a minimum, a recommendation from a stockholder should include the individual’s name, current and past business experience, professional affiliations, age, stock ownership in the Company, particular business qualifications, and such other information as the stockholder deems relevant to assist the Nominating and Corporate Governance Committee in considering the individual’s potential service as a director.
Communications with the Board
Stockholders or other interested parties may communicate with the Board, a Board committee, or any individual director or group of directors, by sending written communications addressed to the Board, or to the individual member of the Board, c/o Chief Financial Officer,Corporate Secretary, CynergisTek, Inc., 11940 Jollyville Rd, Suite 300N, Austin, Texas, 78759. These communications are compiled by the Chief Financial OfficerCorporate Secretary and forwarded to the Board or the individual director(s) accordingly.
Additionally, stockholders may communicate directly with the Board by sending an email to board@cynergistek.com. These communications will be received by both the Chairman of the Board and the Chairman of the Audit Committee and forwarded as necessary to the appropriate member(s) of the Board. Aside from this communication method, there have been no material changes to the procedures by which interested parties may communication with the Board.
Code of Ethics
We have adopted a “code of ethics” as defined in Item 406(b) of Regulation S-K that applies to all our employees, including our principal executive officer, principal financial officer and principal accounting officer. A copy of our Code of Business Conduct and Ethics is attached as Exhibit 14 to our Form 10-K for the year ended December 31, 2016, filed with the SEC on March 29, 2017, and is available upon written request to the Company’s Secretary at 11940 Jollyville Rd, Suite 300N, Austin, Texas, 78759. A copy of the Code of Business Conduct and Ethics is also available on our Company website atwww.cynergistek.com under “Investor Relations,” then “Corporate Governance.”
Review and Approval of Transactions with Related Parties
In accordance with our Audit Committee procedures, the Audit Committee of our Board reviews and approves all transactions that are required to be reported under Item 404(a) of Regulation S-K.
Director Attendance at Annual Meetings
EXECUTIVE OFFICERS
Our current executive officers are as follows:
Name | Age | Position |
|
| Chief Executive Officer and President |
Paul T. Anthony |
| Chief Financial Officer and Secretary |
All officers serve at the discretion of the Board.
For additional information with respect to Mr. McMillan,Barlow, who also serves as a member of our Board, please refer to his profile set forth above under the section titled “ELECTION OF DIRECTORS”
Paul T. Anthony, 49. Paul T. Anthony was hired as our Chief Financial Officer on January 3, 2005. Mr. Anthony also serves as our Secretary and Treasurer. Prior to joining the Company, Mr. Anthony served as Vice President, Finance and Corporate Controller with Callipso, a provider of voice-over IP based network services. During his tenure at Callipso, Mr. Anthony was responsible for all of the financial operations including accounting, finance, investor relations, treasury, and risk management. Before joining Callipso, Mr. Anthony was the Controller for IBM-Access360, a provider of enterprise software. Mr. Anthony joined Access360 from Nexgenix, Inc. where he served as Corporate Controller. Prior to this, Mr. Anthony held numerous positions in Accounting and Finance at IBM-FileNET Corporation, a provider of enterprise content management software applications. Mr. Anthony started his career at KPMG Peat Marwick LLP in Orange County in the Information, Communications & Entertainment practice. He is a certified public accountant and holds a Bachelor of Science in Accounting from Northern Illinois University.
Legal Proceedings
No director or executive officer has been involved in any legal proceeding during the past ten years that is material to an evaluation of his or her ability or integrity.
Family Relationships
There are no family relationships among any of our directors, anddirector nominees or executive officers.
SUMMARY COMPENSATION TABLE
The following table discloses the compensation received in each of the last two fiscal years by our “Named Executive Officers.” Our Named Executive Officers include persons who (i) served as our principal executive officer during the most recent fiscal year, (ii) were serving at fiscal year-end as our two most highly compensated executives, other than the principal executive officer, and (iii) if applicable, individuals for whom disclosure would have been provided as a most highly compensated executive, but for the fact that the individual was not serving as an executive at fiscal year-end.
Name and Principal Position | Year | Salary ($) | Bonuses & Commissions ($)(1) | Stock Awards ($)(2) | Option / Warrant Awards ($)(3) | All Other Compensation ($) | Total ($) |
Michael H. McMillan (4) | 2018 | $333,487 | $161,241 | $199,000 | - | $261,479 | $955,207 |
Chief Executive Officer | 2017 | $261,802 | $100,000 | - | - | $8,520 | $370,322 |
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Paul T. Anthony (5) | 2018 | $283,487 | $147,061 | $358,200 | - | $12,629 | $801,377 |
Chief Financial Officer, Secretary and Treasurer | 2017 | $254,167 | $125,000 | $248,400 | - | $27,675 | $655,242 |
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Michael McCune (6) | 2018 | $90,000 | $399,025 | - | - | $5,068 | $494,093 |
Sales Executive | 2017 | $79,972 | $120,154 | - | - | $4,902 | $205,028 |
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Sean Hughes (7) | 2018 | $262,500 | $115,478 | $69,650 | - | - | $447,628 |
Executive Vice President of Operations | 2017 | $262,500 | $72,000 | $124,800 | - | - | $459,300 |
Name and Principal Position | Year | Salary ($) | Bonuses & Commissions ($)(1) | Stock Awards ($)(2) | Option / Warrant Awards ($)(3) | All Other Compensation ($) | Total ($) |
Caleb Barlow (4) | 2019 | $145,833 | $200,000 | $146,000 | $130,664 | $2,625 | $625,122 |
Chief Executive Officer | 2018 | - | - | - | - | - | - |
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Michael H. McMillan (5) | 2019 | $359,700 | - | $29,200 | - | - | $388,900 |
Former Chief Executive Officer | 2018 | $333,487 | $161,241 | $199,000 | - | $261,479 | $955,207 |
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Paul T. Anthony (6) | 2019 | $309,700 | $41,461 | $87,600 | - | $11,200 | $449,961 |
Chief Financial Officer, Secretary and Treasurer | 2018 | $283,487 | $147,061 | $358,200 | - | $12,629 | $801,377 |
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Angela Rivera (7) | 2019 | $283,550 | $28,354 | $73,000 | - | $11,200 | $396,104 |
Executive Vice President, Operations | 2018 | $265,000 | $135,598 | $119,400 | - | $10,600 | $530,598 |
(1)Bonuses and commissions include amounts earned by the individual and accrued by the Company in the year listed but paid to the individual in the subsequent year.
(2)Represents time-based restricted stock units (“RSU”) awarded to the named executive officers as part of the long-term incentive awards. These RSU awards vest in three years from the date of grant. These values represent the aggregate grant date fair value calculated in accordance with the Financial Accounting Standards Board ASC Topic 718. For additional information relating to the assumptions made in valuing and expensing these awards refer to Note 13 in the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, as filed with the SEC.
(3)A discussion of the methods used in calculation of these values may be found in Notes 11 through 13and 12 to the consolidated financial statements which is in Part 2, Item 78 of our Annual Report on Form 10-K for the fiscal year ended December 31, 20182019. These values reflect the dollar amount recognized for financial statement reporting purposes with respect to the fiscal years ended December 31, 20182019 and December 31, 2017,2018, computed in accordance with ASC Topic 718.
(4) Mr. Barlow joined the Company in August of 2019 and immediately was appointed to the role as President and Chief Executive Officer. Other compensation is comprised of $200,000 in sign-on bonus and 401K match of $2,625 in 2019.
(5)Mr. McMillan joined the Company in 2017 and immediately was appointed to the role as President. In October 2017 he was appointed to the role of Chief Executive Officer. until his retirement at the end of 2019. Other compensation is comprised of $1,479 of retro pay and $260,000 in earn-out in 2018 and 401k match of $8,520 in 2017.2018.
(5)(6)Mr. Anthony joined the Company in 2005 and currently serves as Chief Financial Officer, Secretary and Treasurer. Other compensation is comprised of 401k match of $11,000$11,200 in 2019, and $1,629 of retro pay in 2018, and medical insurance reimbursement of $19,682 and 401k match of $7,993$11,000 in 2017.2018.
(6) Mr. McCune(7) Ms. Rivera joined the Company in 2017. Other compensation is comprised of 401k match of $5,068$11,200 and $4,902$10,600 in 2019 and 2018, and 2017, respectively.
(7) Mr. Hughes joined the Company in 2014.
Narrative to Summary Compensation Table
Caleb Barlow
In August 2019, we entered into an employment agreement with Caleb Barlow (the “Barlow Agreement”) pursuant to which he will serve as President and Chief Executive Officer and will have the duties and responsibilities as are commensurate with the positions of President and Chief Executive Officer. The initial term of the Barlow Agreement is 36 months and will automatically renew for subsequent 12-month terms unless either party provides written notice to the other party of a desire not to renew employment.
Mr. Barlow’s base salary is $350,000. He is entitled to incentive bonus compensation that offers the potential to receive a discretionary bonus up to 100% of his base salary. For 2019, his discretionary bonus could total up to a maximum of $85,000 of which $0 was earned. The incentive bonus plan is based on a number of factors established by the Board. In addition, he receives a retention bonus totaling $500,000, with $200,000 paid on August 1, 2019, $150,000 payable on January 1, 2020 and $150,000 payable in January 2021. Mr. Barlow also received equity compensation consisting of an option to purchase up to 500,000 shares of the Company’s common stock, subject to vesting, and 50,000 shares of restricted stock units. The options are nonqualified, and the grant was made outside of the Company's 2011 Stock Incentive Plan. We may terminate Mr. Barlow’s employment without cause at any time on thirty (30) days’ advance written notice to Mr. Barlow at which time Mr. Barlow is entitled to receive (a) his annual base salary then in effect, and full target annual bonus, each prorated to the date of termination, (b) payment of base salary compensation for an additional twelve months, payable as a lump sum, (c) acceleration and payment of the unpaid portion of the sign-on and retention bonus, and (d) the acceleration of all unvested stock options, warrants and restricted stock units then held by Mr. Barlow, subject to certain conditions set forth in the Barlow Agreement. If Mr. Barlow resigns for any reason other than Good Reason, he will be entitled to receive his base salary for the thirty (30) day written notice period, but no other amounts. The foregoing is a summary of the Barlow Agreement, and is qualified in its entirely by the actual terms thereof, a copy of which is included as Exhibit 10.1 to our Form 8-K filed with the SEC on July 16, 2019.
Michael H. McMillan
In January 2017, we entered into an employment agreement with Michael H. McMillan (“McMillan”) (the “McMillan Employment Agreement”), pursuant to which we employed McMillan as President and Chief Strategy Officer of the Company. The initial term of the McMillan Employment Agreement iswas 36 months and willwould automatically renew for subsequent 12-month terms unless either party providesprovided written notice to the other party of a desire to not renew the agreement.
Pursuant to the McMillan Employment Agreement, the Company hashad the right to terminate McMillan’s employment without cause at any time on thirty (30) days’ advance written notice to McMillan. Additionally, McMillan hashad the right to resign for “Good Reason” (as defined in the McMillan Employment Agreement) on thirty (30) days’ written notice. In the event of (i) such termination without cause, or (ii) McMillan’s inability to perform the essential functions of his position due to a mental or physical disability or his death, or (iii) McMillan’s resignation for Good Reason, McMillan iswas entitled to receive the base salary then in effect and full target annual bonus, prorated to the date of termination, and a “Severance Payment” equivalent to (a) payment of compensation for an additional twelve months, payable as a lump sum, and (b) the acceleration of all unvested stock options and warrants then held by McMillan, subject to certain conditions set forth in the McMillan Employment Agreement. If McMillan resignsresigned for other than Good Reason, he willwould be entitled to receive the base salary for the thirty (30) day written notice period, but no other amounts. On October 2, 2017, the Board appointed McMillan as Chief
Executive Officer and his base salary was increased to $325,000.
In February 2018, the Company amended the McMillan Employment Agreement to extend the term thereof through December 31, 2020 and increased his base salary to $334,700 for 2018, $359,700 for 2019, and the 2020 base salary to be determined by the Board of Directors at the end of the 2019 calendar year. He was paid a bonus of $161,241 and $0 for 2018 and will be eligible for a bonus of $242,798 for 2019. In 2020 his bonus will be up to 67.5% of his base salary.2019, respectively. The foregoing summary of the McMillan Employment Agreement is qualified in its entirety by reference to the full context of the agreement, which is found as Exhibit 99.6 to our Current Report on Form 8-K filed with the SEC on January 17, 2017, and the amendment to the McMillan Employment Agreement, which is found as Exhibit 10.44 to our Annual Report on Form 10-K filed with the SEC on March 28, 2018.
On July 15, 2019, McMillan notified the Board of Directors of his decision to retire from the Company effective December 31, 2019. In connection with his planned retirement, McMillan also submitted his resignation as President and Chief Executive Officer of the Company, effective July 31, 2019. McMillan will continue to serve as a director of the Company and remained employed by the Company through his retirement date in order to assist with the transition. Mr. McMillan was given the honorary title of President and CEO Emeritus by the Board.
Paul T. Anthony
EffectiveIn January 1, 2016, we entered into an employment agreement with Paul T. Anthony (the “Anthony Agreement”). The Anthony Agreement provides that Mr. Anthony will continue to serve as our Executive Vice President, CFO and Corporate Secretary. The Anthony Agreement has an initiala term of two years and provided for an initial annual base salary of $245,000. The Anthony Agreement will automatically renewsrenew for subsequent twelve (12) month terms unless either party provides advance written notice to the other that such party does not wish to renew the agreement for a subsequent twelve (12) months. Mr. Anthony also receives the customary employee benefits available to our employees. Mr. Anthony was also receivedentitled to receive a bonus of $123,300 for 2016 and $125,000 for 2017,up to $132,000 per year, the achievement of which wasis based on Company performance metrics. We may terminate Mr. Anthony’s employment under the Anthony Agreement without cause at any time on thirty (30) days advance written notice, at which time Mr. Anthony would receive severance pay for twelve months and be fully vested in all options and warrants granted to date. The foregoing summary of the Anthony Agreement is qualified in its entirety by reference to the full context of the employment agreement, which is found as Exhibit 10.32 to our Annual Report on Form 10-K filed with the SEC on March 30, 2016. In March 2017, the Board of Directors authorized an increase in Mr. Anthony’s base salary to $250,000 and increased his potential annual bonus amount to $150,000.
In February 2018, the Company amended the Anthony Agreement to extend the term thereof through December 31, 2020 and increased his base salary to $284,700 for 2018, and $309,700 for 2019, with the 2020 base salary to be determined by the Board of Directors at the end of the 2019 calendar year. HeMr. Anthony was paid a bonus of $147,061 for 2018, earned a bonus of $41,841 for 2019, and for his 2020 bonus he will be eligible for a bonus of up to $209,047 for 2019. In 2020 his bonus will be up to 67.5% of his base salary. The foregoing summary of the Anthony Agreement is qualified in its entirety by reference to the full context of the agreement, which is found as Exhibit 10.32 to our Annual Report on Form 10-K filed with the SEC on March 30, 2016, and the amendment to the Anthony Agreement, which is found as Exhibit 10.45 to our Annual Report on
Form 10-K filed with the SEC on March 28, 2018.
OUTSTANDING EQUITY AWARDS AT 20182019 FISCAL YEAR-END (1)
| Option and Warrant Awards |
| Stock Awards |
| Option and Warrant Awards |
| Stock Awards | ||||||||
Name |
Number of Securities Underlying Unexercised Options and Warrants Exercisable | (1) | Exercise Price ($) | Expiration Date |
| Number of Shares or Units of Stock that have not Vested |
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Number of Securities Underlying Unexercised Options and Warrants Exercisable | (1) | Exercise Price ($) | Expiration Date |
| Number of Shares or Units of Stock that have not Vested |
|
Caleb Barlow |
| - | 500,000 | $4.68 | 07/15/2029 |
| - | - | |||||||
| (2) | - | - | - | - |
| 50,000 | $ 146,000 | |||||||
Michael H McMillan | (2) - | - | - | - |
| 50,000 | $ 199,000 | (4) | - | - | - | - |
| 50,000 | $ 199,000 |
| (3) | - | - | - | - |
| 10,000 | $ 29,200 | |||||||
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Paul T. Anthony | 83,334 | - | $ 2.40 | 11/5/2019 |
| - | - |
| 50,000 | - | $3.15 | 11/4/2020 |
| - | - |
| 50,000 | - | $ 3.15 | 11/4/2020 |
| - | - |
| 16,667 | - | $3.03 | 12/31/2020 |
| - | - |
| 16,667 | - | $ 3.03 | 12/31/2020 |
| - | - |
| 16,667 | - | $2.28 | 1/3/2022 |
| - | - |
| 16,667 | - | $ 2.28 | 1/3/2022 |
| - | - |
| 25,000 | - | $3.00 | 2/3/2026 |
| - | - |
| 25,000 | - | $ 3.00 | 2/3/2026 |
| - | - | (6) | 77,779 | - | $3.03 | 12/30/2023 |
| - | - |
| (3) 77,779 | - | $ 3.03 | 12/30/2023 |
| - | - | (5) | - | - | - | - |
| 90,000 | $ 248,400 |
(4) - | - | - | - |
| 90,000 | $ 248,400 | (4) | - | - | - | - |
| 90,000 | $ 358,200 | |
| (2) - | - | - | - |
| 90,000 | $ 358,200 | (2) | - | - | - | - |
| 30,000 | $ 878,600 |
(1)Unless otherwise indicated, all options vest in cumulative annual installments of one-third of the shares commencing one year from the date of grant.
(2)These Restricted Stock Units (“RSU”) were granted on November 13, 2019 and had a grant date per share value of $2.92 and cliff vest after three years of employment.
(3)These RSUs were granted on November 13, 2019 and had a grant date per share value of $2.92 and vest after one year.
(4) These RSUs were granted on October 8, 2018 and had a grant date per share value of $3.95$3.98 and cliff vest after three years of employment.
(3) (5)These RSUs were granted on October 26, 2017 and had a grant date per share value of $2.76 and cliff vest after three years of employment.
(6)These are warrants which were granted on January 16, 2013 and vested according to financial performance measures. This compensation is further described in Note 7 to the Annual Report on Form 10-K filed with the SEC on March 28, 2017.
(4)These RSU’s were granted on October 26, 2017 and had a grant date per share value of $2.76 and cliff vest after three years of employment.
Equity Compensation Plan Information
The following table provides certain information as of December 31, 2018,2019, with respect to the Company’s equity compensation plans under which equity securities of the Company are authorized for issuance.
Plan | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuances Under Plans (excluding securities reflected in column (a)) | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuances Under Plans (excluding securities reflected in column (a)) |
| (a) | (b) | (c) | (a) | (b) | (c) |
Equity compensation plan options approved by security holders (1) | 539,926 | $2.97 | 1,208,665 | 223,215 | $2.95 | 562,919 |
Equity compensation plan restricted stock units approved by security holders (2) | 880,000 | - | - | 1,138,200 | - | - |
Equity compensation plans not approved by security holders (3) | 77,779 | $2.93 | - | 577,779 | $4.61 | - |
Total | 1,497,705 |
| 1,208,665 | 1,939,194 |
| 562,919 |
(1)These plans consist of the 2007 Stock Option Plan and the 2011 Stock Incentive Plan, each as amended.
(2)Represents restricted stock units issued under the 2011 Stock Incentive Plan. Since this plan includes option grants, number of securities remaining available for future issuances is combined.
(3)From time to time and at the discretion of the Board, we may issue warrants to our key individuals or officers as performance-based compensation.
DIRECTOR COMPENSATION FOR 20182019
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The following table shows compensation information for the individuals who served as non-employee directors during the year ended December 31, 2019.
Name | Fees Earned or Paid in Cash ($) | Restricted Stock Unit Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
John D. Abouchar | $ 62,500 | $ 86,175 | - | — | — | — | $ 148,675 |
Drexel DeFord, Jr.(3) | $ 14,583 | $ 30,641 | - | — | — | — | $ 45,224 |
Judy F. Krandel (4) | $ 25,000 | $ 34,470 | - | — | — | — | $ 59,470 |
Theresa Meadows | $ 25,000 | $ 50,722 | - | — | — | — | $ 75,722 |
Mark Roberson | $ 37,500 | $ 51,705 | - | — | — | — | $ 89,205 |
(1)A discussion of the methods used in the calculation of these values may be found in Note 13 to the consolidated financial statements of our 20182019 Annual Report on Form 10-K. These values reflect the dollar amount recognized for financial statement reporting purposes with respect to the 20182019 fiscal year.
(3)Mr. Abouchar provided investor relations support toDeFord resigned from the Company and was paid an annual fee of $75,000 for such services,Board in addition to his other director compensation.July 2019.
(4)Ms. Krandel resigned from the Board in April 2020.
Narrative to Director Compensation Table
Effective October 1, 2017 the Board adopted the following cash compensation structure:During fiscal year 2019, non-employee directors were compensated as follows:
Board role | Annual amount per recipient |
Board member unassigned to a chair | $25,000 |
| $37,500 |
Chairman of the Board | $62,500 |
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The director compensation is ordinarily paid in two payments with the first payment made in January and the second payment made at the beginning of July (assuming confirmation of board members election by the stockholders in the annual stockholder meeting). The Company intends to compensate directors in 2020 at the same levels as 2019; provided, however, that director compensation from January 1, 2020 through February 29, 2020 was reduced by half as the Board was in the process of recruiting new board members. It was determined during this recruiting effort that it was necessary to increase the board compensation back to the amounts for 2019 to attract
qualified candidates. Any additional compensation for investor relations support, special committees or other items will be determined on a case by case basis by the Compensation Committee.
The Compensation Committee evaluates and expects to grant RSU’s to each board member. The RSUs granted to the board members in 20172019 and 2018 is reflective of expected grants in future years.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board reviews and establishes compensation strategies and programs to ensure that the Company attracts, retains, properly compensates, and motivates qualified executives and other key associates. The Committee consists of Mark Roberson,Dana Sellers, who is the Chairman,Chairperson, Mark Roberson, John D. Abouchar, Drexel DeFord, Jr., Judy F. Krandel and Theresa Meadows. No member of the Compensation Committee is an employee or officer.
The philosophy of the Compensation Committee is (i) to provide competitive levels of compensation that integrate pay with the individual executive’s performance and the Company’s annual and long-term performance goals; (ii) to motivate key executives to achieve strategic business goals and reward them for their achievement; (iii) to provide compensation opportunities and benefits that are comparable to those offered by other companies in the healthcare services industry, thereby allowing the Company to compete for and retain talented executives who are critical to the Company’ long-term success; and (iv) to align the interests of key executives with the long-term interests of stockholders and the enhancement of stockholder value through the granting of stock options.equity compensation. The compensation of our executive officers is currently comprised of annual base salary, a bonus plan pursuant to certain performance criteria being achieved, and long-term performance incentives in the form of stock option or restricted stock unit (RSU) grants under the stock incentive plans.
Chief Executive Officer Compensation.
In October 2017 the Board of Directors appointed Mr. McMillan as CEO. The Compensation Committee set Mr. McMillan’s annual base salary at $325,000 starting October 2, 2017. He also received a bonus of $100,000 for calendar year 2017 as previously agreed to in his employment agreement entered into in January 2017. In February 2018, the Compensation Committee extended the term Mr. McMillan’s employment agreement through December 31, 2020 and increased his base salary to $334,700 for 2018, and $359,700 for 2019, with the 2020 base salary to be determined by the Board of Directors at the end of the 2019 calendar year.2019. He was paid a bonus of $421,241 for calendar 2018; he will be eligible2018 and $0 for a bonus of up to $242,798 in 2019 and his 2020 bonus will be up to 67.5% of his base salary.2019.
In October 2018, Mr. McMillan was granted 50,000 restricted stock units of Company stock. These restricted stock units vest after three years of continuous service. Mr. McMillan retired from the Company in December of 2019 and remains a member of the Board of Directors.
In August of 2019 the Board of Directors appointed Caleb Barlow to serve as President and Chief Executive Officer. The Compensation Committee set Mr. Barlow’s base salary at $350,000. He is entitled to incentive bonus compensation that offers the potential to receive a discretionary bonus up to 100% of his base salary. For 2019, his discretionary bonus could have totaled a maximum of $85,000 of which he received $0 for 2019. The incentive bonus plan is based on a number of factors established by the Board. In addition, he received a retention bonus totaling $500,000, with $200,000 paid on August 1, 2019, $150,000 paid on January 1, 2020 and $150,000 payable in January 2021.
Mr. Barlow also received equity compensation consisting of an option to purchase up to 500,000 shares of the Company’s common stock, subject to vesting, and 50,000 shares of restricted stock units. The options are nonqualified, and the grant was made outside of the Company's 2011 Stock Incentive Plan.
By the Compensation Committee,
Dana Sellers, Chair
Mark Roberson Chair
John D. Abouchar
Drexel DeFord, Jr.
Judy F. Krandel
Theresa Meadows
Robert McCashin
Michael Loria
April 19, 201928, 2020
BENEFICIAL OWNERSHIP OF SECURITIES
The following table and the notes thereto set forth certain information regarding the beneficial ownership of our Common Stock as of March 31, 2019,2020, by (i) each current director and director nominee; (ii) each named executive officer named in the summary compensation table included herein who was serving as an executive officer at the end of the 20182019 fiscal year; (iii) all of our current directors, director nominees and executive officers as a group; and (iv) each person who is known by us to be a beneficial owner of five percent or more of our Common Stock, which is our only class of stock outstanding.Unless otherwise noted, each of the following disclaims any beneficial ownership of the shares, except to the extent of his, her or its pecuniary interest, if any, in such shares.
| Shares Beneficially Owned | |
Name and Address of Beneficial Owner (1) | Number (2) | Percent |
Directors, director nominees and executive officers: |
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John D, Abouchar (3) | 89,335 | * |
Paul T. Anthony (4) | 285,164 | 2.9 |
Drexel DeFord, Jr………………………………………………………… | 15,556 | * |
Judy F. Krandel…………………………………………………………… | 10,000 | * |
Michael McMillan………………………………………………………... | 583,334 | 6.0 |
Theresa Meadows………………………………………………………… | 10,000 | * |
Mark Roberson…………………………………………………………… | 20,556 | * |
Michael McCune…………………………………………………………. | - | * |
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All directors, director nominees and executive officers, as a group | 1,013,945 | 10.1 |
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5% Shareholders |
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Michael Vanderhoof | 497,328 | 5.2 |
Perritt Funds, Inc………………………………………………………… | 513,075 | 5.3 |
ARS Investment Partners LLC………………………………………….. | 549,563 | 5.7 |
Michael Hernandez………………………………………………………. | 583,334 | 6.0 |
| Shares Beneficially Owned | |
Name and Address of Beneficial Owner (1) | Number (2) | Percent |
Directors, director nominees and executive officers: |
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John D, Abouchar (3) | 124,335 | 1.3 |
Paul T. Anthony (4) | 263,390 | 2.7 |
Caleb Barlow | 10,000 | * |
Michael Loria | - | * |
Robert McCashin | - | * |
Michael McMillan | 583,333 | 6.0 |
Theresa Meadows (6) | 20,000 | * |
Mark Roberson (7) | 44,334 | * |
Dana Sellers | - | * |
Angela Rivera | 10,000 | * |
All directors, director nominees and executive officers, as a group | 1,555,392 | 15.0 |
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5% Shareholders |
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Horton Capital Partners, LLC (8) | 946,000 | 14.1 |
Perritt Funds, Inc. | 535,000 | 5.2 |
* Less than 1% of the outstanding shares of Common Stock.
(1)The address for all officers and directors is c/o CynergisTek, Inc., 11940 Jollyville Road, Austin, TX 78759.
(2)Unless otherwise indicated, the named persons possess sole voting and investment power with respect to the shares listed (except to the extent such authority is shared with spouses under applicable law). The percentages are based upon 9,723,06510,379,164 shares outstanding as of March 31, 2019,2020, except for certain parties who hold stock options and warrants that are presently exercisable or exercisable within 60 days and/or who hold convertible promissory notes which may be converted into Common Stock within 60 days, whose percentages are based upon the sum of shares outstanding as of March 31, 20192020 plus the number of shares subject to stock options warrants and convertible noteswarrants that are presently exercisable or exercisable within 60 days held by them, or which may be converted into Common Stock, as indicated in the following notes.
(3)Includes 2,77833,334 shares issuable upon exercise of vested restricted stock units and stock options.
(4)Includes 186,113 shares issuable upon exercise of stock options exercisable within 60 days.and warrants.
(4)(5)Includes 77,77910,000 shares issuable upon exercise of warrants.vested restricted stock units.
(6)Includes 10,000 shares issuable upon exercise of vested restricted stock units.
(7)Includes 23,334 shares issuable upon exercise of stock options and vested restricted stock units.
(8) Based solely on a Schedule 13D filed by Horton Capital Management, LLC, Horton Capital Partners, LLC and Horton Capital Partners Fund, LP (collectively, “Horton”) representing beneficial ownership as of February 14, 2020 The address for Horton is 1717 Arch Street, Suite 3920, Philadelphia, PA 19103.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and ten-percent stockholders are required by the SEC’s regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based(9) Based solely on the review of copies of such reports furnished to the Companya Schedule 13G/A filed by Perritt Capital Management, Inc. and written representations that no other reports were required, during the 2018 fiscal year, all of the Company’s officers, directors and ten-percent stockholders complied with all applicable Section 16(a) filing requirements.Perritt Funds, Inc. (collectively, “Perritt”) filed on February 10, 2020. The address for Perritt is 300 South Wacker Drive, Suite 2880, Chicago, IL 60606.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
None
PROPOSAL 2
ADVISORY APPROVAL OF THE COMPANY’S EXECUTIVE COMPENSATION
The following proposal is an advisory, non-binding vote on the compensation of the Company’s Named Executive Officers, or a “Say-on-Pay” proposal, as required by Section 14A of the Securities Exchange Act, which was added by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and by rules of the SEC. The Company presents the resolution set forth below for approval by the stockholders.
We believe that our compensation policies and procedures are competitive, are focused on pay for performance principles and are strongly aligned with the long-term interests of our stockholders. In addition, our compensation programs are designed to reward our Named Executive Officers for the achievement of short-term and long-term strategic and operational goals and the achievement of increased total stockholder return, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking.
We encourage you to closely review the compensation of our “Named Executive Officers” as described in this Proxy Statement under “Executive Compensation.” Stockholders are encouraged to read this section of the Proxy Statement, which discusses the compensation of our Named Executive Officers.
We seek to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and enhancement of stockholder value. The Board of Directors believes the Company’s compensation policies and procedures achieve this objective, and therefore recommend stockholders vote “FOR” the proposal. Specifically, stockholders are being asked to approve the following:
“RESOLVED, that the compensation paid to the Company’s Named Executive Officers, as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, is hereby APPROVED.”
Because your vote is advisory, it will not be binding upon our Board of Directors and may not be construed as overruling any decision by the Board or create or imply any additional fiduciary duty by the Board of Directors. However, the Board of Directors and Compensation Committee value constructive dialogue on executive compensation and other important governance topics with our stockholders and encourage all stockholders to vote their shares in this manner. The Board of Directors will review the voting results and take them into consideration when making future decisions regarding our executive compensation programs.
THE BOARD RECOMMENDS A VOTE “FOR” THE NON-BINDING RESOLUTION APPROVING THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS, AS DISCLOSED PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SECURITIES AND EXCHANGE COMMISSION.
APPROVAL OF THE CYNERGISTEK, INC. 2020 EQUITY INCENTIVE PLAN
We are asking you to approve the CynergisTek, Inc. 2020 Equity Incentive Plan (the “Plan”), which the Board adopted on April 21, 2020 upon the recommendation of the Compensation Committee (for purposes of this discussion, the “Committee”). The Plan will only become effective if approved by shareholders at the Annual Meeting. If approved, the effective date of the Plan will be June 15, 2020.
If approved, the Plan will enable the Company to provide stock-based incentives that align the interests of employees, consultants and directors with those of the stockholders of the Company; promote the success of the Company’s business; and to attract and retain the types of employees, consultants and directors who will contribute to the Company’s long range success.
The Company believes that equity-based compensation is a critical part of its compensation program. Stockholder approval of the Plan would allow us to continue to attract and retain talented employees, consultants and directors with equity incentives.
Material Terms of the Plan
The following summary of the material terms of the Plan is qualified in its entirety by the full text of the Plan, a copy of which is attached to this Proxy Statement as Annex A and incorporated by reference to this proposal. We encourage stockholders to read the Plan in its entirety. You also may obtain a copy of the Plan, free of charge, by writing to the Company, Attention: Corporate Secretary, at 19400 Jollyville Rd, Suite 300N, Austin, Texas, 78759.
Effective Date; Duration of the Plan
The Plan will become effective upon approval by the Company’s stockholders and will remain in effect until the tenth anniversary of the date it is approved by stockholders, unless terminated earlier by the Board.
Plan Administration
The Plan will be administered by the Committee. The Committee will have the authority to, among other things, interpret the Plan, determine who will be granted awards under the Plan, determine the terms and conditions of and number of shares subject to each award, promulgate, amend, and rescind rules relating to the administration of the Plan and take action as it determines to be necessary or advisable for the administration of the Plan.
Eligibility
The Committee may grant awards to any employee, officer, consultant or director of the Company and its affiliates or individuals reasonably expected to become an employee, officer, consultant or director of the Company or its affiliates. Only employees are eligible to receive incentive stock options. As of the record date, approximately one hundred and thirty employees (including two Named Executive Officers) and seven non-employee directors would be eligible to participate in the Plan . Non-employee directors currently receive awards as described in this proxy statement under Director Compensation For 2019 and the Company’s named executive officers receive awards as described in this proxy statement under Executive Compensation. The Company’s selection of eligible participants in the Plan will generally be based upon the Company’s evaluation of, among other considerations, retention, reward and incentive needs to stimulate the active interest of such persons in the development and financial success of the Company.
Shares Available for Awards; Limits on Awards
The Plan authorizes the issuance of up to 1,000,000 shares of common stock, plus the number of shares of common stock available for future grants under the CynergisTek, Inc. (formerly Auxilio, Inc.) 2011 Stock Incentive Plan (the “2011 Plan”) as of the effective date of the Plan, plus the number of shares of common stock underlying any award granted under the 2011 Plan that expires, terminates or is canceled or forfeited under the terms of the 2011Plan (the “Total Share Reserve”).
As of the record date, an estimated 533,075 shares of common stock remained available for awards under the 2011 Plan (without giving effect to additional shares of common stock which might terminate thereafter by expiration, termination, cancellation, or forfeiture).
The maximum number of shares of common stock subject to awards granted during a single fiscal year to any non-employee director shall not exceed 50,000 shares of common stock. Shares of common stock equal to the Total Share Reserve may be issued under the Plan pursuant to the exercise of the ISOs.
If any outstanding award expires or is canceled, forfeited, or terminated without issuance of the full number of shares of common stock to which the award related, then the shares subject to such award will again become available for future grant under the Plan.
Shares tendered in payment of the option exercise price or delivered or withheld by the Company to satisfy any tax withholding obligation, or shares covered by a stock-settled stock appreciation right or other awards that were not issued upon the settlement of the award will not again become available for future grants under the Plan.
The Committee will make appropriate adjustments to these limits in the event of certain changes in the capitalization of the Company (seeAdjustments Upon Changes in Stock).
Fair Market Value Determination
PROPOSAL 3For so long as the common stock remains listed on the NYSE American exchange or listed on any established stock exchange or a national market system, the fair market value of a share of common stock will be the closing price of a share of common stock as quoted on such exchange or system for such date as reported in theWall Street Journal. If the common stock is not listed on any established stock exchange or a national market system, the Compensation Committee shall determine the fair market value in good faith by reasonable application of a reasonable valuation method, in a manner consistent with Section 409A of the Code.
As of the record date, the closing price on the NYSE American of our common stock was $1.89.
Types of Awards That May Be Granted
Subject to the limits in the Plan, the Committee has the authority to set the size and type of award and any vesting or performance conditions. The types of awards that may be granted under the Plan are: stock options (including both incentive stock options (“ISOs”) and nonqualified stock options), stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance awards, cash awards and other stock-based awards.
Stock Options
A stock option is the right to purchase shares of common stock at a future date at a specified price per share called the exercise price. An option may be either an ISO or a nonqualified stock option. ISOs and nonqualified stock options are taxed differently, as described under Federal Income Tax Treatment of Awards Under the Plan below. Except in the case of options granted pursuant to an assumption or substitution for another option, the exercise price of a stock option may not be less than the fair market value (or in the case of an ISO granted to a ten percent stockholder, 110% of the fair market value) of a share of common stock on the grant date.
An option granted under the plan shall be evidenced by an award agreement that will set forth additional terms and conditions of the option. An option will become vested and exercisable at such times and subject to such conditions as the Compensation Committee determines but will not be exercisable later than ten years after grant, or five years after grant in the case of an ISO granted to a ten percent stockholder. Unless otherwise provided in an award agreement, upon a termination of continuous service (other than due to death or disability), an optionholder may exercise an option until the earlier of (a) three months following the optionholder’s termination of continuous service or (b) expiration of the term of the option. Unless otherwise provided in an award agreement, upon termination due to disability or disability, the option may be exercised until the earlier of (a) twelve months following the termination due to disability or death or (b) expiration of the term of the option.
Full payment of the exercise price must be made at the time of such exercise either in cash or bank check or in another manner approved by the Committee such asADVISORY VOTE ON FREQUENCY OF FUTURE STOCKHOLDERtender of shares of common stock,
a cashless exercise program established with a broker, or reduction in the number of shares of common stock otherwise deliverable on the option exercise with aVOTING ON EXECUTIVE COMPENSATIONfair market value equal to the option exercise price at the time of exercise. To the extent that the aggregate fair market value of shares of common stock determined on the date of grant with respect to
Proposal 3which ISOs are exercisable for the first time during any calendar year exceeds $100,000, the option or portions thereof which exceed such limit will be treated as a nonqualified stock option.
Stock Appreciation Rights
A SAR is the right to receive payment of an amount equal to the excess of the fair market value of a share of common stock on the date of exercise of the SAR over the exercise price. A SAR granted under the plan shall be evidenced by an award agreement that will set forth the vesting terms and additional terms and conditions of the SAR. The exercise price of a SAR may not be less than the fair market value of a share of common stock on the grant date. SARs may be granted alone (“freestanding rights”) or in tandem with options (“related rights”). Full payment of the exercise price must be made at the time of such exercise in shares of common stock, cash, or a combination therefor, as determined by the Committee.
Restricted Stock
A restricted stock award is an advisory, non-bindingaward of actual shares of common stock which are subject to certain restrictions for a period of time determined by the Committee. A restricted stock award granted under the plan shall be evidenced by an award agreement that will set forth the vesting conditions and additional terms and conditions of the restricted stock. Restricted stock may be held by the Company in escrow or delivered to the participant pending the release of the restrictions. Participants who receive restricted stock awards generally have the rights and privileges of stockholders regarding the shares of restricted stock during the restricted period, including the right to vote and the right to receive dividends. Any cash or stock dividends paid with respect to the restricted stock shall be withheld and credited to the participant’s account and distributed to the participant in cash, or in the discretion of the Committee, shares of common stock, upon the release of the restrictions.
Restricted Stock Units
An RSU is an award of hypothetical common stock units having a value equal to the fair market value of an identical number of shares of common stock, which are subject to certain restrictions for a period of time determined by the Committee. An RSU granted under the plan shall be evidenced by an award agreement that will set forth the vesting conditions and additional terms and conditions of the RSU. No shares of common stock are issued at the time an RSU is granted, and the Company is not required to set aside any funds for the payment of any RSU award. Because no shares are outstanding, the participant does not have any rights as a stockholder. In the discretion of the Committee, each RSU may be credited with an amount equal to the cash and stock dividends (“dividend equivalents”) paid with respect to one share of common stock. Any dividend equivalents will be deemed re-invested in additional RSUs based on the frequencyfair market value of stockholder votesa share of common stock on executivethe applicable dividend payment date, and rounded down to the nearest whole share. Upon expiration of the restricted period, the Company, it its sole discretion, shall deliver to the participant (a) one share of common stock for each outstanding vested RSU and cash equal to any dividend equivalents credited with respect to such vested RSU, (b) an amount of cash equal to the fair market value of the common stock that would have been payable pursuant to (a), or (c) any combination of shares of common stock and cash.
Performance Awards
A performance award is an award of shares of common stock or units that are only earned if certain conditions are met. The Committee has the discretion to determine the number of shares of common stock or stock-denominated units subject to a performance share award, the applicable performance period, the conditions that must be satisfied for a participant to earn an award, and any other terms, conditions and restrictions of the award. Performance awards granted under the plan shall be evidenced by an award agreement that will set forth additional terms and conditions of the performance award.
Other Equity-Based Awards
The Committee may grant other equity-based awards, either alone or in tandem with other awards, in amounts and subject to conditions as determined by the Committee as set out in an award agreement.
Cash Awards
The Committee may grant cash awards that are designated performance compensation awards.
Vesting
The Committee has the authority to determine the vesting schedule of each award, and to accelerate the vesting and exercisability of any award.
Transferability
Awards are not transferable other than by will or the laws of descent and distribution. Awards requiring exercise are exercisable during the lifetime of the holder only by the holder or, in the event of the holder’s death, by the person designated by the holder to exercise the award. Notwithstanding the foregoing, the Compensation Committee may permit a participant to transfer, not for value, all or part of a nonqualified stock option to a permitted transferee (as defined in the Plan).
Adjustments Upon Changes in Stock
In the event of changes in the outstanding common stock or in the capital structure of the Company by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after the grant date of any award, awards granted under the Plan and any award agreements, the exercise price of options and SARs, the performance goals to which performance share awards and cash awards are subject, the maximum number of shares of common stock subject to all awards will be equitably adjusted or substituted, as to the number, price or kind of a share of common stock or other consideration subject to such awards to the extent necessary to preserve the economic intent of the award.
Unless the Committee specifically determines that such adjustment is in the best interests of the Company or its affiliates, the Committee will, in the case of ISOs, ensure that any adjustments made will not constitute a modification, extension or renewal of the ISO within the meaning of Section 424(h)(3) of the Internal Revenue Code (Code) and in the case of non-qualified stock options, ensure that any adjustments will not constitute a modification of such non-qualified stock options within the meaning of Section 409A of the Code. Any adjustments will be made in a manner which does not adversely affect the exemption provided under Rule 16b-3 under the Exchange Act. The Company will give participants notice of any adjustment.
Change in Control
Upon a change in control, outstanding awards can be assumed or continued by the successor corporation or replaced with equity awards that preserve the existing value, vesting, and terms of the awards. If the awards are assumed, continued, or replaced, in the event of a participant’s termination of service without cause or for good reason (as defined in the Plan or an award agreement) during the 2-year period following a change in control, all outstanding options and SARs fully vest and become exercisable, all restrictions applicable to restricted stock, restricted stock units, and other equity-based awards immediately lapse and become payable in accordance with their terms, and the performance goals for any performance-based awards are deemed to have been achieved at the “target” level of performance.
If outstanding awards are not assumed or replaced upon a change in control, the Committee, in its sole discretion, may (a) provide that outstanding options and SARs fully vest and become exercisable, all restrictions applicable to restricted stock, restricted stock units, and other equity-based awards immediately lapse and become payable in accordance with their terms, and the performance goals for any performance-based awards are deemed to have been achieved at the “target” level of performance; or (b) provide for the cancellation of outstanding awards in exchange for payment of cash, property, or a “say-on-frequency” proposal, as requiredcombination of cash and property determined by Section 14Athe Committee to be at least equal to the excess (if any) of the Securities Exchange Act, which was addedconsideration received in the change in control by Section 951the holders of the Dodd-Frank Wall Street ReformCompany’s securities, less the exercise or purchase price (if any) for such awards.
The Plan provides that a “Change in Control” occurs upon (a) the acquisition by one person or more than one person acting as a group, of Company stock representing more than 50% of the total fair market value or total voting power of the Company; (b) the incumbent directors cease for any reason to constitute at least a majority of the Board; or (c) the occurrence of any of the following events upon which the stockholders of the Company immediately before the event do not retain immediately after the event direct or indirect beneficial ownership of more than 50% of the total voting power of the Company, its successor corporation or the organization succeeding
to all or substantially all of the assets and Consumer Protection Actbusiness of the Company: (i) a sale or exchange by the stockholders in one or a series of related transactions of more than 50% of the total voting power of the Company’s stock; (ii) a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company that requires the stockholders’ approval; or (iii) the direct or indirect sale, exchange, transfer, or conveyance in one or a series of related transactions, of all or substantially all of the assets or properties of the Company and its subsidiaries to any person that is not a subsidiary of the Company.
Amendment or Termination of the Plan
The Board may amend or terminate the Plan at any time. However, except in the case of adjustments upon changes in common stock, no amendment will be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy applicable laws or the rules of the SEC. OurNYSE American exchange. Assuming the Plan is adopted by the stockholders last votedat the Annual Meeting, the Plan will terminate on June 15, 2030, unless previously terminated by the Board.
Amendment of Awards
The Committee may amend the terms of any one or more awards. However, the Committee may not amend an award that would impair a Say-on-Frequency voteparticipant’s rights under the award without the participant’s written consent.
Clawback and Recoupment
The Company may cancel any award or require the participant to reimburse any previously paid compensation provided under the Plan or an award agreement in accordance with the Company’s clawback policy.
Federal Income Tax Consequences of Awards
The following is a summary of U.S. federal income tax consequences of awards granted under the Plan, based on current U.S. federal income tax laws. This summary does not constitute legal or tax advice and does not address municipal, state or foreign income tax consequences.
Nonqualified Stock Options
The grant of a nonqualified stock option will not result in taxable income to the participant. The participant will recognize ordinary income at our 2013 annual meeting.the time of exercise equal to the excess of the fair market value of the shares on the date of exercise over the exercise price and the Company will be entitled to a corresponding deduction for tax purposes. Gains or losses realized by the participant upon the sale of the shares acquired on exercise will be treated as capital gains or losses.
A participant who has transferred a nonqualified stock option to a family member by gift will realize taxable income at the time the option is exercised by the family member. The participant will be subject to withholding of income and employment taxes at that time. The family member’s tax basis in the shares will be the fair market value of the shares on the date the option is exercised. The transfer of vested nonqualified stock options will be treated as a completed gift for gift and estate tax purposes. Once the gift is completed, neither the transferred options nor the shares of common stock acquired on exercise of the transferred options will be includable in the participant’s estate for estate tax purposes.
Incentive Stock Options (ISOs)
The grant of an ISO will not result in taxable income to the participant. The exercise of an ISO will not result in taxable income to the participant if at the time of exercise the participant has been employed by the Company or its subsidiaries at all times beginning on the date the ISO was granted and ending not more than 90 days before the date of exercise. However, the excess of the fair market value of the shares on the date of exercise over the exercise price is an adjustment that is included in the calculation of the participant’s alternative minimum tax liability for the year the shares are sold.
If the participant does not sell the shares acquired on exercise within two years from the date of grant and one year from the date of exercise then on the sale of the shares any amount realized in excess of the exercise price will be taxed as capital gain. If the amount realized in the sale is less than the exercise price, then the participant will recognize a capital loss.
If these holding requirements are not met, then the participant will generally recognize ordinary income at the time the shares are sold in an amount equal to the lesser of (a) the excess of the fair market value of the shares on
the date of exercise over the exercise price, or (b) the excess, if any, of the amount realized on the sale of the shares over the exercise price, and the Company will be entitled to a corresponding deduction.
SARs
The grant of a SAR will not result in taxable income to the participant. The participant will recognize ordinary income at the time of exercise equal to the amount of cash received or the fair market value of the shares received and the Company will be entitled to a corresponding deduction for tax purposes. If the SARs are settled in shares, then when the shares are sold the participant will recognize capital gain or loss on the difference between the sale price and the amount recognized at exercise. Whether it is a long-term or short-term gain or loss depends on how long the shares are held.
Restricted Stock and Performance Shares
Unless a participant makes an election to accelerate the recognition of income to the grant date (as described below), the grant of restricted stock or performance shares awards will not result in taxable income to the participant. When the restrictions lapse, the participant will recognize ordinary income on the excess of the fair market value of the shares on the vesting date over the amount paid for the shares, if any, and the Company will be entitled to a corresponding deduction.
If the participant makes an election under Section 83(b) of the Code within thirty days after the grant date, the participant will recognize ordinary income as of the grant date equal to the fair market value of the shares on the grant date over the amount paid, if any, and the Company will be entitled to a corresponding deduction. Any future appreciation will be taxed at capital gains rates. However, if the shares are later forfeited, the participant will not be able to recover any taxes paid.
RSUs
The grant of an RSU will not result in taxable income to the participant. When the RSU is settled, the participant will recognize ordinary income equal to the fair market value of the shares or the cash provided on settlement and the Company will be entitled to a corresponding deduction. Any future appreciation will be taxed at capital gains rates.
Section 409A
Section 409A of the Code imposes complex rules on nonqualified deferred compensation arrangements, including requirements with respect to elections to defer compensation and the timing of payment of deferred amounts. Depending on how they are structured, certain equity-based awards may be subject to Section 409A of the Code, while others are exempt. If an award is subject to Section 409A of the Code and a violation occurs, the compensation is includible in income when no longer subject to a substantial risk of forfeiture and the participant may be subject to a 20% penalty tax and, in some cases, interest penalties. The Plan and awards granted under the Plan are intended to be exempt from or conform to the requirements of Section 409A of the Code.
Section 162(m) and Limits on the Company’s Deductions
Section 162(m) of the Code denies deductions to publicly held corporations for compensation paid to certain senior executives that exceeds $1,000,000.
New Plan Benefits
Awards under the Plan will be granted in amounts and to individuals as determined by the Committee in its sole discretion. As of the date of this Proxy Statement we have not determined future awards or who might receive them. Therefore, the benefits or amounts that will be received by employees, officers, directors and consultants under the Plan are not determinable at this time. Accordingly, in lieu of providing information regarding benefits that will be received under the Plan, the following table provides information concerning the benefits that were received by the following persons and groups during 2019: each named executive officer; all current executive officers, as a group; all current directors who are not executive officers, as a group; and all current employees who are not executive officers, as a group.
Named of Individual or Group | Number of Options | Number of RSUs | Aggregate Dollar Value(1) |
Caleb Barlow | 500,000(2) | 50,000 | $997,652 |
Michael H. McMillan |
| 10,000 | $29,200 |
Paul T. Anthony |
| 30,000 | $87,600 |
Angela Rivera |
| 25,000 | $73,000 |
All executive officers as a group. |
| 90,000 | $262,800 |
All directors who are not executive officers, as a group. |
| 60,000 | $175,200 |
All employees who are not executive officers, as a group. |
| 277,000 | $956,742 |
(1)Amounts in this column do not reflect compensation actually received by the participants. The amounts in this column represent the aggregate grant date fair value of awards granted in 2019, calculated in accordance with the provisions of FASB ASC Topic 718, Stock Compensation, except that any estimate of forfeitures was disregarded.
(2)InRepresents the maximum amount that can be earned. None are currently vested.
Required Vote
Approval of this Proposal 2, we asked our stockholders3 requires the affirmative vote of a majority of the company’s shares represented at the Annual Meeting in person or by proxy and entitled to vote on the compensation ofmatter. In determining whether the Company’s Named Executive Officers. Proposal 2 is commonly called a “say-on-pay” proposal. In Proposal 3, stockholders may cast an advisory non-binding vote on how often the Company should include a say-on-pay proposal in its proxy materials for future annual stockholder meetings or other meetings of stockholders at which directorshas been approved, abstentions will be electedcounted as votes against the proposal and broker non-votes will not be counted as votes for whichor against the rules of the SEC require executive compensation disclosure pursuant to Item 402 of Regulation S-K. The vote on this proposal is not binding on the Company but will be considered by the Company as it administers its executive compensation program. Stockholders may vote for a frequency of say-on-pay votes of one, two, or three years, or may abstain from voting. The Board recommends that a non-binding advisory vote to approve the compensation of its executive officers as described in its annual proxy statements occur every three years.proposal. The Board believes that holding this vote every three years will be the most effective timeframe because it will provideproposed adoption of the BoardPlan is in the best interests of the Company and the Compensation Committee with sufficient time to evaluate the results of a say-on-pay vote, engage with its stockholders following each such vote, if appropriate, to understand any concernsfor the Company’s stockholders may have, and to implement any changes they deem appropriate in response to the vote results.reasons stated above.
Stockholders should note that their views on compensation are not binding on the Company. This vote also will not be binding on the Company’s Board of Directors and may not be construed as overruling a decision by the Board or create or imply any additional fiduciary duty on the Board. The Board may, however, take into account the outcome of the vote when considering when to present stockholders with a resolution to approve executive compensation.
Stockholders may vote for a frequency of Say-on-Pay votes of one, two, or three years, or may abstain from voting.
While our executive compensation program is designed to promote a long-term connection between compensation and performance, our Board recognizes that executive compensation decisions and disclosures are made annually. However, after careful consideration, our Board of Directors believes the presentation of a resolution to approve the compensation of our executives should be presented to stockholders for an advisory vote every three years.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR“FOR” THE “THREE YEARS” OPTION WITH RESPECTPROPOSAL TO APPROVE THE ADVISORY PROPOSAL ON THE FREQUENCY OF THE STOCKHOLDERS’ VOTE ON EXECUTIVE COMPENSATION2020 EQUITY INCENTIVE PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
The Board, acting upon the recommendation of the Audit Committee, has appointed Haskell & White LLP, independent registered public accountants, to audit the financial statements of the Company for the fiscal year ending December 31, 2019.2020. Haskell & White LLP has audited the accounts and records of the Company from 2005 to the present. In determining whether the proposal has been approved, abstentions will be counted as votes against the proposal and broker non-votes will not be counted as votes for or against the proposal or as votes present and voting on the proposal.
THE BOARD RECOMMENDS A VOTE “FOR” THE PROPOSAL TO RATIFY THE APPOINTMENT OF HASKELL & WHITE LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2019.2020.
FEES PAID TO OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Audit Fees
The aggregate fees for professional services rendered by Haskell & White LLP for the annual audit of the Company’s financial statements and the reviews of the financial statements included in the Company’s quarterly reports on Form 10-Q billed during the fiscal years ended December 31, 20172019 and 2018, were $140,185$127,200 and $156,450 respectively.
Audit-related Fees
The aggregate fees for audit-related services rendered by Haskell & White LLP for consents and other assurance services billed during the fiscal years ended December 31, 20172019 and 2018, were $10,000$50,000 and $0, respectively.
Tax Fees
The aggregate fees for tax services rendered by Haskell & White LLP billed during the fiscal years ended December 31, 20172019 and 2018, were $0 and $0, respectively. Income tax return preparation services were provided by another firm in both years.
All Other Fees
Other fees for services rendered by Haskell & White LLP during the fiscal years ended December 31, 20172019 and 2018, including acquisition-related professional services were $23,000$0 and $0, respectively.
Audit Committee Pre-Approval Policies and Procedures
Our Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm in accordance with applicable SEC rules. The Audit Committee generally pre-approves particular services or categories of services on a case-by-case basis. The independent registered public accounting firm and management periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with these pre-approvals, and the fees for the services performed to date. All of the professional services rendered by Haskell & White LLP for fiscal years 20172019 and 2018 were pre-approved by the Audit Committee of our Board in accordance with applicable SEC rules.
Attendance at Annual Meeting
We do not expect representatives of Haskell & White LLP to be present at the Annual Meeting.
AUDIT COMMITTEE REPORT
The Audit Committee’s role is to act on behalf of the Board in the oversight of all aspects of our financial reporting, internal control and audit functions. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements in the Annual Report for fiscal year 20182019 with management.
The Audit Committee also reviewed with Haskell & White LLP, our independent registered public accounting firm, their judgments as to the quality, not just the acceptability, of our accounting principles and such other matters as are required to be discussed with the Audit Committee under Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard 1301 “Communications with Audit Committees.” The independent registered public accounting firm also provided the Audit Committee with the written disclosures required by Rule 3526 of the PCAOB, “Communications with Audit Committees Concerning Independence (Rule 3526).” The Audit Committee has also considered whether the provision of non-audit services by Haskell & White LLP is compatible with their independence.
The Audit Committee discussed with the Company’s independent registered public accountants the overall scope and plans for their audit. The Audit Committee met with the independent registered public accountants, with and without management present, to discuss the results of their examinations, their evaluations of our internal controls, and the overall quality of our financial reporting.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 20182019 for filing with the SEC.
No portion of the information in this report shall be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, through any general statement incorporating by reference in its entirety the Proxy Statement in which this report appears, except to the extent that the Company specifically incorporates this report or a portion of it by reference. In addition, this report shall not be deemed to be filed under either the Securities Act or the Exchange Act.
By the Audit Committee,
Mark Roberson, Chairperson
John D. Abouchar
Drexel DeFord, Jr.
Judy F. KrandelRobert McCashin
Michael Loria
April 19, 201928, 2020
ANNUAL REPORT
The Company’s Annual Report on Form 10-K, including financial statements, for the fiscal year ended December 31, 2018,2019, accompanies this Proxy Statement or is available via the Internet atwww.colonialstock.com/CynergisTek2019CynergisTek2020 orwww.sec.gov.
IN ADDITION, THE COMPANY WILL PROVIDE WITHOUT CHARGE, AT THE WRITTEN REQUEST OF ANY BENEFICIAL OWNER OF SHARES ENTITLED TO VOTE AT THE ANNUAL MEETING OF STOCKHOLDERS, A COPY (WITHOUT EXHIBITS) OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018.2019. REQUESTS SHOULD BE MAILED TO THE SECRETARY, CYNERGISTEK, INC., 11940 JOLLYVILLE ROAD, SUITE 300N, AUSTIN, TEXAS, 78759
INTERNET AVAILABILITY OF PROXY MATERIALS
A COMPLETE SET OF PROXY MATERIALS RELATING TO OUR ANNUAL MEETING IS AVAILABLE ON THE INTERNET. THESE MATERIALS, CONSISTING OF THE NOTICE OF ANNUAL MEETING, PROXY STATEMENT, PROXY CARD AND ANNUAL REPORT TO STOCKHOLDERS, MAY BE VIEWED ATWWW.COLONIALSTOCK.COM/CYNERGISTEK2019CYNERGISTEK2020 ORWWW.SEC.GOV. INFORMATION INCLUDED ON THE COLONIAL STOCK WEBSITE OR THE COMPANY’S WEBSITE, OTHER THAN THE MATERIALS RELATED TO THE ANNUAL MEETING, IS NOT PART OF THE PROXY SOLICITING MATERIALS.
OTHER MATTERS
As of the date of this proxy statement, the Board of Directors is not aware of any matters other than those set forth herein and in the Notice of Annual Meeting of Stockholders that will come before the meeting. Should any other matters arise requiring the vote of stockholders, it is intended that proxies will be voted in respect thereto in accordance with the best judgment of the person or persons voting the proxies.
Please return your proxy as soon as possible. Unless a quorum consisting of a majority of the outstanding shares entitled to vote is represented at the meeting, no business can be transacted. Therefore,please be sure to date and sign your proxy exactly as your name appears on your stock certificate and return it in the enclosed postage prepaid return envelope. Please act promptly to ensure that you will be represented at this important meeting.
By Order of the Board of Directors,
CYNERGISTEK, INC.
/s/ John D. Abouchar
John D. Abouchar
Chairman of the Board
Austin, Texas
April 19, 201928, 2020
CynergisTek, Inc.
11940 Jollyville Road, 300N
Austin, Texas 78759
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby nominates, constitutes and appoints each of Michael H. McMillanCaleb Barlow and Paul T. Anthony the attorney, agent and proxy of the undersigned (the “Proxies”), with full power of substitution, to vote all stock of CynergisTek, Inc. which the undersigned is entitled to represent and vote at the Annual Meeting of Stockholders of the Company to be held June 4, 2019,15, 2020, at 3:00 p.m. Central Standard Time at 11940 Jollyville Road 300N, Austin, Texas, 78759 and at any and all adjournments or postponements thereof, as fully as if the undersigned were present and voting at the meeting, as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 1
1.ELECTION OF DIRECTORS:
all nominees listed below (except as marked to the contrary below) |
To vote for all nominees listed below |
Election of the following nominees as directors: John D. Abouchar, Drexel DeFord Jr., Judy F. Krandel,Caleb Barlow, Michael Loria, Robert McCashin, Michael McMillan, Theresa Meadows, Mark Roberson and Mark Roberson.Dana Sellers.
(Instructions: To withhold authority to vote for any nominee, print that nominee’s name in the space provided below.)
________________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 2
2.APPROVAL, BY NON-BINDING VOTE, OF EXECUTIVE COMPENSATION:
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Approval, by non-binding vote, of executive compensation.
_______________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR 3 YEARS ON“FOR” PROPOSAL 3
3.3.RECOMMENDATION, BY NON-BINDING VOTE, ON THE FREQUENCYAPPROVAL OF EXECUTIVE COMPENSATION VOTES:2020 EQUITY INCENTIVE PLAN:
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Recommendation, by non-binding vote, onApproval of the frequency of executive compensation votes.CynergisTek, Inc. 2020 Equity Incentive Plan
________________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 4
4.RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:
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Ratification of the appointment of Haskell & White LLP as the Company’s independent registered public accounting firm.
4.5.In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO CONTRARY INDICATION IS MADE, THIS PROXY WILL BE VOTED IN FAVOR OF ELECTING THE SIXSEVEN NOMINEES TO THE BOARD OF DIRECTORS; FOR THE APPROVAL OF EXECUTIVE COMPENSATION; THREE YEARS FOR THE FREQUENCY OF EXECUTIVE COMPENSATION VOTES; FOR THE RATIFICATION OF THE APPOINTMENT OF HASKELL & WHITE LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2019;2020; AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS THE PROXIES HEREIN ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
IMPORTANT – PLEASE SIGN, DATE AND RETURN PROMPTLY
DATED:
______________________________________, 20192020
(Signature)
Please sign exactly as the name appears above. When shares are held by joint tenants, both should sign. When signing as an attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by the President or other authorized officer. If a partnership, please sign in the partnership name by an authorized person
PLEASE SIGN THIS CARD AND RETURN PROMPTLY. IF YOUR ADDRESS IS INCORRECTLY SHOWN, PLEASE PRINT CHANGES. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
25ANNEX A
2020 EQUITY INCENTIVE PLAN
CYNERGISTEK, INC.
2020 EQUITY INCENTIVE PLAN
This CynergisTek, Inc. 2020 Equity Incentive Plan isadopted by the Board of Directors of CynergisTek, Inc. on April 21, 2020 and approved by the stockholders of CynergisTek, Inc. on _____________________, 2020.
1.Purpose; Eligibility.
2.1“Affiliate” means a corporation or other entity that, directly or through one or more intermediaries, controls, is controlled by or is under common control with, the Company.
2.2“Applicable Laws” means the requirements related to or implicated by the administration of the Plan under applicable state corporate law, United States federal and state securities laws, the Code, any stock exchange or quotation system on which the shares of Common Stock are listed or quoted, and the applicable laws of any foreign country or jurisdiction where Awards are granted under the Plan.
2.3“Award” means any right granted under the Plan, including an Incentive Stock Option, a Nonqualified Stock Option, a Stock Appreciation Right, a Restricted Award, a Performance Share Award, a Cash Award, or an Other Equity-Based Award.
2.4“Award Agreement” means a written agreement, contract, certificate or other instrument or document evidencing the terms and conditions of an individual Award granted under the Plan which may, in the discretion of the Company, be transmitted electronically to any Participant. Each Award Agreement shall be subject to the terms and conditions of the Plan.
2.5“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular Person, such Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.
2.6“Board” means the Board of Directors of the Company, as constituted at any time.
2.7“Cash Award” means an Award denominated in cash that is granted underSection10 of the Plan.
2.8“Cause” means, with respect to any Employee, Consultant, or Director, unless the applicable Award Agreement states otherwise:
(a)If the Employee, Consultant, or Director is a party to an employment or service agreement with the Company or its Affiliates and such agreement provides for a definition of Cause, the definition contained therein; or
(b)If no such agreement exists, or if such agreement does not define Cause: (i) the commission of, or plea of guilty or no contest to, a felony or a crime involving moral turpitude or the commission of any other act involving willful malfeasance or material fiduciary breach with respect to the Company or an Affiliate; (ii) conduct that brings or is reasonably likely to bring the Company or an Affiliate negative publicity or into public disgrace, embarrassment, or disrepute; (iii) gross negligence or willful misconduct with respect to the Company or an Affiliate; (iv) material violation of state or federal securities laws; (v) material violation of the Company’s written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct; (vi) any unauthorized use or disclosure of confidential information or trade secrets of the Company or an Affiliate; or (vii) refusal or omission to perform any duties required if such duties are consistent with duties customary for the position held with the Company or an Affiliate.
The Committee, in its absolute discretion, shall determine the effect of all matters and questions relating to whether a Participant has been discharged for Cause.
2.9“Change in Control” means:
(a)One Person (or more than one Person acting as a group) acquires ownership of stock of the Company that, together with the stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; provided, that, a Change in Control shall not occur if any Person (or more than one Person acting as a group) owns more than fifty percent (50%) of the total fair market value or total voting power of the Company’s stock and acquires additional stock;
(b)The Incumbent Directors cease for any reason to constitute at least a majority of the Board; or
(c)The occurrence of any of the following events upon which the stockholders of the Company immediately before the event do not retain immediately after the event direct or indirect beneficial ownership of more than fifty percent (50%) of the total voting power of the stock of the Company, its successor corporation, or organization succeeding to all or substantially all of the assets and business of the Company:
(i)a sale or exchange by the stockholders in one or a series of related transactions of more than fifty percent (50%) of the total voting power of the Company’s stock;
(ii)a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company that requires the stockholder’s approval; or
(iii)the direct or indirect sale, exchange, transfer, or conveyance in one or a series of related transactions, of all or substantially all of the assets or properties of the Company and its subsidiaries to any person that is not a subsidiary of the Company.
2.10“Code” means the Internal Revenue Code of 1986, as it may be amended from time to time. Any reference to a section of the Code shall be deemed to include a reference to any regulations promulgated thereunder.
2.11“Committee” means a committee of one or more members of the Board appointed by the Board to administer the Plan in accordance withSection3.3 andSection3.4.
2.12“Common Stock” means the common stock, $0.001 par value per share, of the Company, or such other securities of the Company as may be designated by the Committee from time to time in substitution thereof.
2.13“Company” means CynergisTek, Inc., a Delaware corporation, and any successor thereto.
2.14“Consultant” means any individual or entity which performs bona fide services to the Company or an Affiliate, other than as an Employee or Director, and who may be offered securities registerable pursuant to a registration statement on Form S-8 under the Securities Act.
2.15“Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Consultant or Director, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service,provided that there is no interruption or termination of the
Participant’s Continuous Service;provided further that if any Award is subject to Section 409A of the Code, this sentence shall only be given effect to the extent consistent with Section 409A of the Code. For example, a change in status from an Employee of the Company to a Director of an Affiliate will not constitute an interruption of Continuous Service. The Committee or its delegate, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal or family leave of absence. The Committee or its delegate, in its sole discretion, may determine whether a Company transaction, such as a sale or spin-off of a division or subsidiary that employs a Participant, shall be deemed to result in a termination of Continuous Service for purposes of affected Awards, and such decision shall be final, conclusive and binding.
2.16“Director” means a member of the Board.
2.17“Disability” means, unless the applicable Award Agreement says otherwise, that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment;provided, however, for purposes of determining the term of an Incentive Stock Option pursuant toSection6.10 hereof, the term Disability shall have the meaning ascribed to it under Section 22(e)(3) of the Code. The determination of whether an individual has a Disability shall be determined under procedures established by the Committee. Except in situations where the Committee is determining Disability for purposes of the term of an Incentive Stock Option pursuant toSection6.10 hereof within the meaning of Section 22(e)(3) of the Code, the Committee may rely on any determination that a Participant is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Affiliate in which a Participant participates.
2.18“Disqualifying Disposition” has the meaning set forth inSection17.11.
2.19“Effective Date”shall mean the date that the Company’s stockholders approve this Plan if such stockholder approval occurs before the first anniversary of the date the Plan is adopted by the Board.
2.20“Employee” means any person, including an Officer or Director, employed by the Company or an Affiliate;provided, that, for purposes of determining eligibility to receive Incentive Stock Options, an Employee shall mean an employee of the Company or a parent or subsidiary corporation within the meaning of Section 424 of the Code. Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.
2.21“Exchange Act” means the Securities Exchange Act of 1934, as amended.
2.22“Fair Market Value” means, as of any date, the value of the Common Stock as determined below. If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the NYSE American exchange, the Fair Market Value shall be the closing price of a share of Common Stock (or if no sales were reported the closing price on the date immediately preceding such date) as quoted on such exchange or system on the day of determination, as reported in theWall Street Journal. In the
absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Committee by reasonable application of a reasonable valuation method, in a manner consistent with Section 409A of the Code, and such determination shall be conclusive and binding on all persons.
2.23“Fiscal Year” means the Company’s fiscal year.
2.24“Free Standing Rights” has the meaning set forth inSection7.
2.25“Good Reason” means, unless the applicable Award Agreement states otherwise:
(a)If an Employee or Consultant is a party to an employment or service agreement with the Company or its Affiliates and such agreement provides for a definition of Good Reason, the definition contained therein; or
(b)If no such agreement exists or if such agreement does not define Good Reason, the occurrence of one or more of the following without the Participant’s express written consent, which circumstances are not remedied by the Company within thirty (30) days of its receipt of a written notice from the Participant describing the applicable circumstances (which notice must be provided by the Participant within ninety (90) days of the Participant’s knowledge of the applicable circumstances): (i) any material, adverse change in the Participant’s duties, responsibilities, authority, title, status or reporting structure; or (iii) a geographical relocation of the Participant’s principal office location by more than fifty (50) miles.
2.26 “Grant Date” means the date on which the Committee adopts a resolution, or takes other appropriate action, expressly granting an Award to a Participant that specifies the key terms and conditions of the Award or, if a later date is set forth in such resolution, then such date as is set forth in such resolution.
2.27“Incentive Stock Option” means an Option that is designated by the Committee as an incentive stock option within the meaning of Section 422 of the Code and that meets the requirements set out in the Plan.
2.28“Incumbent Directors” means individuals who, on the Effective Date, constitute the Board,provided that any individual becoming a Director subsequent to the Effective Date whose election or nomination for election to the Board was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director without objection to such nomination) shall be an Incumbent Director. No individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to Directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director.
2.29“Non-Employee Director” means a Director who is a “non-employee director” within the meaning of Rule 16b-3.
2.30“Nonqualified Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
2.31“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
2.32“Option” means an Incentive Stock Option or a Nonqualified Stock Option granted pursuant to the Plan.
2.33“Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
2.34“Option Exercise Price” means the price at which a share of Common Stock may be purchased upon the exercise of an Option.
2.35“Other Equity-Based Award” means an Award that is not an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, or Performance Share Award that is granted underSection10 and is payable by delivery of Common Stock and/or which is measured by reference to the value of Common Stock.
2.36“Participant” means an eligible person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Award.
2.37“Performance Goals” means, for a Performance Period, 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.
2.38“Performance Period” means the one or more periods of time, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to and the payment of a Performance Share Award or a Cash Award.
2.39“Performance Share Award” means any Award granted pursuant toSection9 hereof.
2.40“Performance Share” means the grant of a right to receive a number of actual shares of Common Stock or share units based upon the performance of the Company during a Performance Period, as determined by the Committee.
2.41“Permitted Transferee” means: (a) a member of the Optionholder’s immediate family (child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships), any person sharing the Optionholder’s household (other than a tenant or employee), a trust in which these persons have more than 50% of the beneficial interest, a foundation in which these persons (or the Optionholder) control the management of assets, and any other entity in which these persons (or the Optionholder) own more than 50% of the voting interests; (b) third parties designated by the Committee in connection with a program established and approved by the Committee pursuant
to which Participants may receive a cash payment or other consideration in consideration for the transfer of a Nonqualified Stock Option; and (c) such other transferees as may be permitted by the Committee in its sole discretion
2.42“Person” means a person as defined in Section 13(d)(3) of the Exchange Act.
2.43“Plan” means this CynergisTek, Inc. 2020 Equity Incentive Plan, as amended from time.
2.44“Prior Plan” means the CynergisTek, Inc. (formerly Auxilio, Inc.) 2011 Stock Incentive Plan.
2.45“Related Rights” has the meaning set forth inSection7.
2.46“Restricted Award” means any Award granted pursuant toSection8.
2.47“Restricted Period” has the meaning set forth inSection8.
2.48“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.
2.49“Securities Act” means the Securities Act of 1933, as amended.
2.50“Stock Appreciation Right” means the right pursuant to an Award granted underSection7 to receive, upon exercise, an amount payable in cash or shares equal to the number of shares subject to the Stock Appreciation Right that is being exercised multiplied by the excess of (a) the Fair Market Value of a share of Common Stock on the date the Award is exercised, over (b) the exercise price specified in the Stock Appreciation Right Award Agreement.
2.51“Stock for Stock Exchange” has the meaning set forth inSection6.4.
2.52“Substitute Award” has the meaning set forth inSection4.6.
2.53“Ten Percent Stockholder” means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.
2.54“Total Share Reserve” has the meaning set forth inSection4.1.
(a)to construe and interpret the Plan and apply its provisions;
(e)to determine when Awards are to be granted under the Plan and the applicable Grant Date;
(g)to determine the number of shares of Common Stock to be made subject to each Award;
committee of the Board that does not at all times consist solely of two or more Non-Employee Directors.
4.1Total Share Reserve. Subject to adjustment in accordance withSection14, no more than 1,000,000 shares of Common Stock plus the number of shares of Common Stockavailable for future awards underthe CynergisTek, Inc. (formerly Auxilio, Inc.) 2011 Stock Incentive Plan (the “Prior Plan”) as of the Effective Date, plus the number of shares of Common Stock underlying any award granted under the Prior Plan that expires, terminates or is canceled or forfeited under the terms of the CynergisTek, Inc. 2011 Stock Incentive Plan shall be available for the grant of Awards under the Plan (the “Total Share Reserve”). During the terms of the Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Awards.
4.2Source of Shares. Shares of Common Stock available for distribution under the Plan may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner.
4.3Award Limitation. The maximum number of shares of Common Stock subject to Awards granted during a single Fiscal Year to any Non-Employee Director shall not exceed 50,000 shares of Common Stock.
4.4Incentive Stock Option Limit. Shares of Common Stock equal to the Total Share Reserve may be issued under the Plan pursuant to the exercise of Incentive Stock Options.
4.5Additional Shares. Any shares of Common Stock subject to an Award that expires or is canceled, forfeited, or terminated without issuance of the full number of shares of Common Stock to which the Award related will again be available for issuance under the Plan. Notwithstanding anything to the contrary contained herein: shares subject to an Award
under the Plan shall not again be made available for issuance or delivery under the Plan if such shares are (a) shares tendered in payment of an Option, (b) shares delivered or withheld by the Company to satisfy any tax withholding obligation, or (c) shares covered by a stock-settled Stock Appreciation Right or other Awards that were not issued upon the settlement of the Award.
6.1Term. Subject to the provisions ofSection5.2 regarding Ten Percent Stockholders, no Incentive Stock Option shall be exercisable after the expiration of 10 years from the Grant Date. The term of a Nonqualified Stock Option granted under the Plan shall
be determined by the Committee;provided, however, no Nonqualified Stock Option shall be exercisable after the expiration of 10 years from the Grant Date.
6.2Exercise Price of an Incentive Stock Option. Subject to the provisions ofSection5.2 regarding Ten Percent Stockholders, the Option Exercise Price of each Incentive Stock Option shall be not less than 100% of the Fair Market Value of the Common Stock subject to the Option on the Grant Date. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an Option Exercise Price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
6.9Extension of Termination Date. An Optionholder’s Award Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service for any reason would be prohibited at any time because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act or any other state or federal securities law or the rules of any securities exchange or interdealer quotation system, then the Option shall terminate on the earlier of (a) the expiration of the term of the Option in accordance withSection6.1 or (b) the expiration of a period after termination of the Participant’s Continuous Service that is three months after the end of the period during which the exercise of the Option would be in violation of such registration or other securities law requirements.
7.3Vesting. The Stock Appreciation Right may be subject to such other terms and conditions on the time or times when it may be exercised as the Committee may deem appropriate. The vesting provisions of individual Stock Appreciation Rights may vary. No
Stock Appreciation Right may be exercised for a fraction of a share of Common Stock. The Committee may, but shall not be required to, provide for an acceleration of vesting and exercisability in the terms of any Stock Appreciation Right upon the occurrence of a specified event.
8.1Restricted Stock and Restricted Stock Units
are forfeited, the stock certificates shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect to such shares shall terminate without further obligation on the part of the Company.
8.3Restricted Period. With respect to Restricted Awards, the Restricted Period shall commence on the Grant Date and end at the time or times set forth on a schedule established by the Committee in the applicable Award Agreement. No Restricted Award may be granted or settled for a fraction of a share of Common Stock. The Committee may, but shall not be required to, provide for an acceleration of vesting in the terms of any Award Agreement upon the occurrence of a specified event.
8.4Delivery of Restricted Stock and Settlement of Restricted Stock Units. Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth inSection8.2 and the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or his or her beneficiary, without charge, the stock certificate evidencing the shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (to the nearest full share) and any cash dividends or stock dividends credited to the Participant’s account with respect to such Restricted Stock and the interest thereon, if any. Upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall, in its sole discretion, deliver to the Participant, or his or her beneficiary, without charge, (a) one share of Common Stock for each such outstanding vested Restricted Stock Unit (“Vested Unit”) and cash equal to any Dividend Equivalents credited with respect to each such Vested Unit in accordance withSection8.1(b) hereof and the interest thereon (or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to such Dividend Equivalents and the interest thereon, if any); (b) an amount of cash equal to the Fair Market Value of the Common Stock that would be payable pursuant to (a); or (c) any combination of shares of Common Stock and cash, in settlement of the Restricted Stock Unit.
provisions in the Award stating the time at which it may first be exercised or the time during which it will vest.
13.2Stockholder Rights. Except as provided in the Plan or an Award Agreement, no Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Award unless and until such Participant has satisfied all requirements for exercise of the Award pursuant to its terms and no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions of other rights for which the record date is prior to the date such Common Stock certificate is issued, except as provided inSection14 hereof.
Plan and any Award Agreements, the exercise price of Options and Stock Appreciation Rights, the Performance Goals to which Performance Share Awards and Cash Awards are subject, the maximum number of shares of Common Stock subject to all Awards stated inSection4 will be equitably adjusted or substituted, as to the number, price or kind of a share of Common Stock or other consideration subject to such Awards to the extent necessary to preserve the economic intent of such Award. In the case of adjustments made pursuant to this Section 14, unless the Committee specifically determines that such adjustment is in the best interests of the Company or its Affiliates, the Committee shall, in the case of Incentive Stock Options, ensure that any adjustments under this Section 14 will not constitute a modification, extension or renewal of the Incentive Stock Options within the meaning of Section 424(h)(3) of the Code and in the case of Nonqualified Stock Options, ensure that any adjustments under this Section 14 will not constitute a modification of such Nonqualified Stock Options within the meaning of Section 409A of the Code. Any adjustments made under this Section 14 shall be made in a manner which does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.
15.1Awards Assumed, Continued, or Replaced. If and to the extent that outstanding Awards (i) are assumed by the successor corporation (or an affiliate of the successor) or continued or (ii) are replaced with equity awards that preserve the existing value of the Awards at the time of the Change in Control and provide for subsequent payout in accordance with a vesting schedule and Performance Goals, as applicable, that are the same or more favorable to the Participants than the vesting schedule and Performance Goals applicable to the Awards, then all such awards or such substitutes for them shall remain outstanding and be governed by their respective terms and the provisions of the Plan subject to Section 15.1(a).
(a)Termination of Continuous Service. If and to the extent that (i) outstanding awards are assumed, continued or replaced in accordance with Section 15.1 above and (ii) a Participant’s employment with, or performance of services for, the Company is terminated by the Company for any reasons other than Cause or by such Participant for Good Reason, in each case, within the two (2)-year period commencing on the Change in Control, then, as of the date of such Participant’s termination, the Change-in-Control Treatment set forth in Section 15.2 shall automatically apply to all assumed or replaced awards of such Participant then outstanding.
(b)Terms of Awards. Outstanding Options or Stock Appreciation Rights that are assumed, continued, or replaced in accordance with Section 15.1 may be exercised by the Participant in accordance with the applicable terms and conditions of such award as set forth in the applicable Award Agreement or elsewhere; provided, however, that Options or Stock Appreciation Rights that become exercisable in accordance with Section 15.1(a) may be exercised until the expiration of the original full term of such Option or Stock Appreciation Rights notwithstanding the other original terms and conditions of such Award.
15.2Acceleration of Vesting and Lapse of Restrictions. If and to the extent that Awards are not assumed, continued, or replaced in accordance with Section 15.1, then upon the Change in Control the Committee may, in its sole discretion, provide that: (A) outstanding Options and Stock Appreciation Rights shall immediately vest and become exercisable; and (B) the restrictions and other conditions applicable to outstanding Restricted Awards and Other Equity-Based Awards, including vesting requirements, shall immediately lapse, and any Performance Goals relevant to such Awards shall be deemed to have been achieved at the target performance level; such Awards shall be free of all restrictions and fully vested; and, with respect to Restricted Stock Units, shall be payable immediately in accordance with their terms or, if later, as of the earliest permissible date under Section 409A of the Code (collectively, the “Change in Control Treatment”);
15.3Cancellation of Awards. In addition, if and to the extent that outstanding awards under the Plan are not assumed, continued, or replaced in accordance with Section 15.1 above, then in connection with the Committee determination in Section 15.2 above, the Committee may, in its sole discretion, provide for cancellation of such outstanding Awards at the time of the Change in Control in which case a payment of cash, property, or a combination of cash and property shall be made to each such Participant upon the consummation of the Change in Control that is determined by the Committee in its sole discretion and that is at least equal to the excess (if any) of the value of the consideration that would be received in such Change in Control by the holders of the Company’s securities relating to such awards over the exercise or purchase price (if any) for such Awards (except that, in the case of an Option or Stock Appreciation Right, such payment shall be limited as necessary to prevent the Option or Stock Appreciation Right from being subject to Section 409A of the Code).
16.Amendment of the Plan and Awards.
16.1Amendment of Plan. The Board at any time, and from time to time, may amend or terminate the Plan. However, except as provided inSection14 relating to adjustments upon changes in Common Stock andSection16.3, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy any Applicable Laws. At the time of such amendment, the Board shall determine, upon advice from counsel, whether such amendment will be contingent on stockholder approval.
Incentive Stock Options or to the nonqualified deferred compensation provisions of Section 409A of the Code and/or to bring the Plan and/or Awards granted under it into compliance therewith.
shall be deemed a part of the Plan, but each sub-plan shall apply only to the Participants in the jurisdiction for which the sub-plan was designed.
17.6Recapitalizations. Each Award Agreement shall contain provisions required to reflect the provisions ofSection14.
17.11Disqualifying Dispositions. Any Participant who shall make a “disposition” (as defined in Section 424 of the Code) of all or any portion of shares of Common Stock acquired upon exercise of an Incentive Stock Option within two years from the Grant Date of such Incentive Stock Option or within one year after the issuance of the shares of Common Stock acquired upon exercise of such Incentive Stock Option (a “Disqualifying Disposition”) shall
be required to immediately advise the Company in writing as to the occurrence of the sale and the price realized upon the sale of such shares of Common Stock.
17.14Expenses. The costs of administering the Plan shall be paid by the Company.
19.Termination or Suspension of the Plan. The Plan shall terminate automatically on the ten (10) year anniversary of the Effective Date. No Award shall be granted pursuant to the Plan after such date, but Awards theretofore granted may extend beyond that date. The Board may suspend or terminate the Plan at any earlier date pursuant toSection16.1 hereof. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
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