UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A [X]
(Rule 14a-101)
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NetSol Technologies, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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NOTICE OF ANNUAL MEETING
And
PROXY STATEMENT
Annual Meeting of Shareholders
NetSol Technologies, Inc.
23975 Park Sorrento, Suite 250
Calabasas, CA 91302
June 10, 2019
NetSol Technologies, Inc.
23975 Park Sorrento, Suite 250
Calabasas, CA 91302
Phone: (818) 222-9195
Fax: (818) 222-9197
www.netsoltech.com
In addition to consistently winning new business and capitalizing on our sizeable pipeline, we also recognize the need to continue providing super quality of service to ourexisting customers as well. Nothing quite captures our commitment to this ideal like our work within the ongoing $110 million deployment with a well-known German auto manufacturing giant. To-date, we’ve now had a Go-Live event in seven of the twelve countries covered in this agreement, having most recently announced successful initial implementations in China and Japan, respectively.April 26, 2021
Looking ahead,Dear Fellow Shareholder:
Nearly a year has passed since I last wrote to you as part of our prior annual update. And what a year it has been. As we know all too well, the beginningCOVID-19 pandemic has impacted nearly every part of 2019 has represented the inflection point that will transition us into our next stage of future growth. With numerous deployments now under our belt for our flagship solution,globe, changing the way we are anticipating a more robust growth trajectory in 2019work, live and onwards. We maintain that a double-digit increase in revenue is achievable forview the year.world. Businesses went remote, and we stayed at home. Major life events were put on hold or conducted virtually. The list continues.
As our industry continues to evolve, we will alongside it. No companya global organization with footprints in the asset leasingU.S., the U.K., China, Thailand, Australia, Indonesia and finance space isPakistan, we felt this impact acutely. Moreover, we serve an international client base, spread over twenty countries. We’ve seen the different ways everyone has been impacted and ultimately pushed through. I am incredibly proud of how our Company has responded to these challenges, stepping up to remote work, continuing to care for our customers and creating solutions to navigate this new world.
Back in March, in response to the crisis, we acted swiftly, implementing both a “Business Continuity Plan” and “Emergency Response Plan” to help our more well-equipped than NETSOL1,400 employees safely transition to take advantagethe remote work environment. Those plans are largely still in place to this day. And while I’m sure I speak for many of us when I say that I’m looking forward to bringing our teams back as soon as it’s deemed safe, this process has not been without its bright spots. While working remotely, I’ve witnessed teams become closer through this shared experience. At the same time, we’ve seen overall productivity increase while our operating expenses decreased approximately 8%.
As many of you know, we have a significant number of employees in Pakistan, roughly 86% of our workforce, as well as around the globe. The economic impact of the disruptive technologiesvirus in this key market has been particularly severe. During this period, NETSOL sponsored several causes to help alleviate some of the hardships brought on by the pandemic. In addition, I and several founders have personally assisted financially through combined donations over roughly $100,000 in the last twelve months. We have done a lot in our other markets as well, and we hope to do more.
On the business side, within existing customer relationships, our back-office development and delivery teams have been able to perform their duties without missing a beat. As has been well catalogued at this point, the business development environment has been a bit more challenging. Much of our work is relationship-based and without the ability to meet in person, combined with an uncertain macroeconomic environment, major purchasing decisions have been delayed. Based on what we’re seeing in early recovering markets, we’re confident that we’re entering a return to more normalized buying patterns. Despite these challenges, we’ve continued to move forward, improving each quarter since the initial impact of the pandemic. Today, our record cash position of $32 million gives us ample resources to fund rebooted global sales and marketing activities. Longer term, the pandemic has made it clear that all businesses need to have the powera sound digital strategy, and we’re confident that we’ll continue to benefit from this transition as customers continue to transform ownership modelsprocesses.
Outside our core business, we’re also working on some exciting, new offerings. In December, we announced NXT, a COVID-aware smart workplace solution. NXT enables employees to safely return to the office by ensuring standard operating procedures are enforced. We believe its applications will be beneficial to any organization looking to meet today’s unique challenges.
More recently, we announced the planned launch of a new automotive retail platform through our Otoz subsidiary. The new platform enables automotive companies to provide consumers with a complete, end-to-end digital shopping experience. Otoz will be launching the platform with its first client, a tier one OEM through its finance arm, in the calendar second quarter of this year. Beginning in California, the solution is intended to be rolled out by over 100 dealerships across all 50 states. This pilot is a door opener for Otoz to penetrate the rapidly growing digital mobility platform movement. Based on the sizeable prospect pipeline we have today, we are well on track to continue to grow the Otoz client list by at least another few tier one mobility customers over the next twelve months.
While the broader market cautiously begins to pick up, we are continuing to execute against our near-term pipeline and current implementation schedule. We are being conservative in our cost structures, managing the business as we know it. The future is bright,owners, and will opportunistically look to deploy additional resources to high-value areas such as our goal remains the same: to one day become a global leading information technology company.Otoz Innovation Lab. In the process, we’recoming months, we’ll be looking to accelerate progress within our core initiatives, namely driving more consistent topline growth through an increased focused on generating long-term, sustainable valuehigh-margin, SaaS opportunities which should also lead to sustained profitability. We remain optimistic for you, our shareholders.the near-term recovery and even more bullish on the years ahead.
I hope you will join us at our annual meeting to be held on June 10, 201914, 2021 at the Company’s headquarters located at 23975 Park Sorrento, Suite 250, Calabasas, CA 91302 at 10:00 AM local time. AsWe are monitoring the COVID vaccine rollout efforts within California and nationwide and will comply with state and local mandates as it relates to holding in-person gatherings at the time of the event.
Regardless of the format, as we do each year, we will review our business and financial results for the fiscal year, address the voting items in the Proxy Statement and, of course, take your questions. Whether you plan to attend the meeting or not, your vote is important, and we encourage you to review the enclosed materials and submit your proxy whether it is by mail or in person.
Thank you again for your continued support of NETSOL. We hope you and your family remain safe and healthy.
Sincerely,
Najeeb Ghauri
Chairman and CEO
NETSOL Technologies, Inc.
Notice of Annual Meeting
of Shareholders of NetSol Technologies, Inc.
Annual Meeting of Shareholders
| ||
Agenda and Voting Matters
At or before our Annual Meeting, we ask that you vote on the following items:
Only shareholders of record as shown on the books of the Company at the close of business on April 22, 2019, the record date and time fixed by the Board of Directors, will be entitled to vote at the meeting and any adjournment thereof.
By order of the Board of Directors
NetSol Technologies, Inc.
Najeeb Ghauri
Chief Executive Officer
Calabasas, California
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON. SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON IF THEY DESIRE.
How to vote: Your vote is important
|
This proxy statement is available online
athttp://ir.netsoltech.com/all-sec-filings
TABLE OF CONTENTS
PROXY STATEMENT GENERAL INFORMATION
This Proxy Statement is furnished to holders of the common stock, par value $.01 per share, of NetSol Technologies, Inc., a Nevada corporation (the “Company”), in connection with the solicitation by the Company’s Board of Directors of proxies for use at the Company’s Annual Meeting of Shareholders (the “Annual Meeting”) to be held on June 10, 2019, at 10:00 A.M., local time, at the Company headquarters, located at 23975 Park Sorrento, Suite 250, Calabasas, CA 91302, and any and all adjournments thereof. The purpose of the Annual Meeting and the matters to be acted on there are set forth in the accompanying Notice of Annual Meeting of Shareholders. For overnight accommodations, Hilton Garden Inn located at 24150 Park Sorrento, Calabasas, CA 91302, telephone (818) 591-2300 is within a short walking distance of the meeting site.
The Annual Meeting has been called for the purpose of the following:
QUESTIONS AND ANSWERS ABOUT VOTING AND THE SHAREHOLDER MEETING
Record Holders:
Stock Held by Brokers, Banks and Nominees:
Important notice regarding the availability of proxy materials
for the annual shareholder meeting to be held on June 10, 2019;
Our Proxy Statement and 2018 Annual Report are available on the following Web site:
http://ir.netsoltech.com/all-sec-filings
Voting by phone or on the Internet has the same effect as submitting a properly executed proxy card.
If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote in favor of each director nominee in Proposal 1 and in favor of Proposal 2, and 3.
If you voted through your broker, please contact your broker to change or revoke your vote.
If you do not have proof that you own, or are legally authorized to act for someone who owns, shares of our common stock on the record date, you will not be admitted to the meeting.
At the entrance to the meeting, we will verify that your name appears in our stock records or will inspect your brokerage or bank statement, or proof of ownership and any written proxy you present as the representative of a shareholder. We will decide whether the documentation you present for admission to the meeting meets the requirements described above. The annual meeting will begin at 10:00 a.m., local time. Please allow ample time for the admission procedures described above.
PROPOSAL 1
ELECTION OF DIRECTORS
NetSol’s articles of incorporation and bylaws provide that directors are elected to serve a one-year term of office, expiring at the next annual meeting of shareholders. Our articles of incorporation establish up to nine directors, with the exact number to be fixed from time to time by resolution of the Board of Directors.
Directors are elected by a majority of votes, which means that the nominees receiving the most votes will be elected. Shareholders are not entitled to cumulate votes in the election of directors. In determining the votes cast for the election of a director, abstentions and broker non-votes are excluded. The Nominating and Corporate Governance Committee considers the offer of resignation and recommends to the Board whether to accept it. The policy requires the Board to act on the Nominating and Corporate Governance Committee’s recommendation within 90 days following the shareholder meeting. Board action on the matter requires the approval of a majority of the independent directors.
The Board of Directors has nominated the following directors for election to one-year terms that will expire at earlier of their removal or replacement or at the 2019 annual meeting:
Najeeb Ghauri
NaeemChairman and CEO
NetSol Technologies, Inc.
Notice of Annual Meeting
of Shareholders of NetSol Technologies, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of the holders of shares of common stock, each having a par value of $0.01 per share (“Common Stock”), of NetSol Technologies, Inc. (“NETSOL” or the “Company” will be held June 14, 2021 at 10:00 a.m.
ANNUAL MEETING OF SHAREHOLDERS
Date: | Monday, June 14, 2021 | |||
Time: | 10:00 AM PDT | |||
Place: | NetSol Technologies, Inc. 23975 Park Sorrento, Suite 250 Calabasas, CA 91302 | |||
Record Date: | April 26, 2021 |
Agenda and Voting Matters
At or before our Annual Meeting, we ask that you vote on the following items:
Board Recommendation | Page Reference | |||
Item 1 Election of Directors. | FOR | 9 | ||
Item 2 Ratification of the Appointment of BF Borgers CPA PC as the Company’s Independent Auditors for Fiscal year 2021. | FOR | 10 | ||
Item 3 To approve, on an advisory basis vote on executive compensation in this Proxy Statement. | FOR | 12 | ||
Item 4 To consider such other matters as may properly come before the Annual Meeting. |
Only shareholders of record as shown on the books of the Company at the close of business on April 26, 2021, the record date and time fixed by the Board of Directors, will be entitled to vote at the meeting and any adjournment thereof.
By order of the Board of Directors
NetSol Technologies, Inc.
Najeeb Ghauri
Shahid J. BurkiChief Executive Officer
Calabasas, California
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON. SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON IF THEY DESIRE.
How to vote: Your vote is important
Internet | Telephone | In Person | ||||
Visit the website listed on your proxy card. You will need the control number that appears on your proxy card when you access the web page. | Complete and sign the proxy card and return it in the enclosed postage pre-paid envelope. | If your shares are held in the name of a broker, bank or other nominee: follow the telephone voting instructions, if any, provided on your voting instruction card. If your shares are registered in your name: In the US call toll free: (866) 829-0542 and International callers call 1- (212) 771-1133 and follow the telephone voting instructions. You will need the control number that appears on your proxy. | You may attend the Annual Meeting and vote by Ballot. |
This proxy statement is available online
at http://ir.netsoltech.com/all-sec-filings
TABLE OF CONTENTS
PROXY STATEMENT GENERAL INFORMATION
This Proxy Statement is furnished to holders of the common stock, par value $.01 per share, of NetSol Technologies, Inc., a Nevada corporation (the “Company” or “NETSOL”), in connection with the solicitation by the Company’s Board of Directors of proxies for use at the Company’s Annual Meeting of Shareholders (the “Annual Meeting”). For overnight accommodations, Hilton Garden Inn located at 24150 Park Sorrento, Calabasas, CA 91302, telephone (818) 591-2300 is within a short walking distance of the Company and meeting site. The time and place of the Annual Meeting are stated in the Notice of Proxy Materials and the Notice of Annual Meeting of Shareholders that accompanies this proxy statement.
The Annual Meeting has been called for the purpose of the following:
1. | To consider and vote on the election of directors, each to hold office for a term of one year ending in 2022 or when their successors are elected. | |
2. | To consider and vote upon the ratification of the appointment of BF Borgers CPA PC as the Company’s independent auditors for the fiscal year 2021. | |
3. | To approve, on an advisory basis, executive compensation in this Proxy Statement (“Say-on- Pay”); and, | |
4. | To consider such other matters as may properly come before the Annual Meeting. |
QUESTIONS AND ANSWERS ABOUT VOTING AND THE SHAREHOLDER MEETING
Record Holders:
● | By Mail. If you choose to vote by mail, mark your proxy card, date and sign it, and return it as soon as possible in the postage-paid envelope provided. | |
● | By Telephone. If you choose to vote by phone, please call toll free (866) 829 0542 and vote your shares; international callers please call our toll number (212) 771-1133 to vote. | |
● | By voting on the Internet. Please go on www.proxyvote.com. |
Stock Held by Brokers, Banks and Nominees:
● | If your common stock is held by a broker, bank or other nominee, such nominee will provide you with instructions that you must follow in order to have your shares voted. |
Q: | Are proxy materials available on the Internet? |
A: | Yes, please see notice below: |
Important notice regarding the availability of proxy materials
for the annual shareholder meeting to be held on June 14, 2021.
Our Proxy Statement and 2020 Annual Report are available on the following Web site:
http://ir.netsoltech.com/all-sec-filings
2 |
Q: | What are NETSOL shareholders being asked to vote on at the annual shareholder meeting? |
A: | You will vote on: |
● | Item 1: The election of directors to serve until the next annual meeting of shareholders. | |
● | Item 2: To consider and vote upon the ratification of the appointment of BF Borgers CPA PC as the Company’s independent auditors for the fiscal year 2021; and | |
● | Item 3: To approve, on an advisory basis, of the executive compensation in this Proxy Statement (“Say-on-Pay”). |
● | If you received these printed materials by mail, mark, sign, date and return your proxy card in the enclosed return envelope as soon as possible; or | |
● | Call the toll-free number on the proxy card and follow the directions provided; or | |
● | Go to the website listed on the proxy card and follow the instructions provided; or, | |
● | If a broker holds your shares in “street name,” you will need to get a legal proxy from your broker to vote in person at the meeting. |
Voting by phone or on the Internet has the same effect as submitting a properly executed proxy card.
Q: | What are my choices when voting? |
A: | When you cast your vote on: |
Item 1: You may vote in favor of electing the nominees as directors or vote against one or more nominees or you may abstain from voting. Item 2: You may cast your vote in favor of or against the proposal, or you may elect to abstain from voting your shares. Item 3: You may cast your vote in favor of or against the proposal, or you may elect to abstain from voting your shares. |
If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote in favor of each director nominee in Proposal 1 and in favor of Proposal 2 and 3.
● | calling the toll-free number on the proxy card at least 24 hours before the meeting and following the directions provided; or, | |
● | going to the website listed on the proxy card at least 24 hours before the meeting and following the instructions provided; or, | |
● | submitting a properly executed proxy prior to the meeting bearing a later date than your previous proxy. |
If you voted through your broker, please contact your broker to change or revoke your vote.
A few of our highlights for the fiscal year ended June 30, 2020 were:
● | NETSOL acquired the remaining stake in Virtual Lease Services, a UK-based portfolio and risk management servicing partner for business and consumer finance providers. By acquiring the remaining stake, NETSOL became the outright owner of the organization. | |
● | Due to the demand for the Company’s premier solution NFS Ascent’s® Wholesale Platform in Europe, NETSOL appointed Chris Mobley as Head of NFS Ascent® Wholesale Operations in Europe. Mr. Mobley brings over two decades of industry experience to NETSOL with an accomplished background and domain-specific knowledge and expertise within the wholesale finance space. | |
● | NETSOL announced the SaaS or subscription-based pricing model for our global markets in addition to its existing license options. All global contracts now provide NETSOL customers with the option for subscription-based pricing as an alternative to the traditional license model. This Software-as-a-Service (SaaS) pricing option is now available for all cloud-based NETSOL products and services, including NETSOL’s core, next-gen solution NFS Ascent®. | |
● | NETSOL signed a multi-million-dollar agreement with a large UK vehicle finance company to implement its NFS Ascent® Wholesale Platform. This agreement pertains to accessing NFS Ascent® Wholesale Finance System (WFS) via subscription-based pricing, the dynamic pricing model that NETSOL has introduced in all operating regions in response to growing demand for this model. This monumental implementation marked the first roll-out of NFS Ascent® in the United Kingdom. | |
● | NETSOL signed an agreement with a bank in the United Kingdom for NFS Ascent® on the cloud. This contract covers the implementation of NFS Ascent’s® Retail platform, including its Omni Point of Sale solution (Omni POS) and Contract Management System (CMS). Similar to the previous contract with a large independent used vehicle finance company in the United Kingdom, implementation is expected in less than six months, enabling the bank to gain value from Ascent’s technology in the shortest possible timeframe and setting a new standard for time to deployment in the industry. This major agreement not only validates increasing traction and demand for NFS Ascent® in the United Kingdom, but also its European market readiness. | |
● | NETSOL announced its first North American customer for NFS Ascent®. This was done as the company secured a contract with SCI Lease Corp, a Canadian-based national automotive leasing company, for the deployment of its NFS Ascent® Contract Management System (CMS) on the cloud. This contract represented NETSOL’s first official sale of NFS Ascent® in the North American market and also the first Software-as-a-Service (SaaS) based agreement for Ascent in this region. | |
● | A major American multinational automaker went live in China with NETSOL’s next-gen solution NFS Ascent’s® Retail Platform. This deployment covered the complete Ascent® Retail Platform, which includes its Omni-Point of Sale (Omni-POS) and Contract Management System (CMS). This multi-million-dollar contract marked the second successful implementation of NETSOL’s next-gen product NFS Ascent® in China. | |
● | NETSOL went live with its NFS Ascent® Wholesale Platform with BMW Automotive Finance in China. This second largest customer has a strong presence in China as well as the rest of the Asia-Pacific region, and this deployment was part of a previously announced $30 million contract in which NETSOL was selected as the vendor of choice after an extensive evaluation process. | |
● | NETSOL went live with its NFS Digital Mobile Collector application for a top tier multi-finance company in Indonesia. This mCollector go-live, which was part of a larger contract originally signed in 2018, was carried out to improve the client’s existing business practices through the use of new digital technology. |
● | As part of the previously announced $100 million plus contract with Daimler Financial Services, the largest signing in NETSOL’s history, for implementations in 12 countries, NFS Ascent® went live in Hong Kong. NETSOL implemented its NFS Ascent® Retail Platform, consisting of its Omni Point of Sale (Omni POS) and Contract Management System (CMS), for this existing customer. | |
● | As part of the DFS contract, the Company’s next-gen solution NFS Ascent® also went live in Malaysia. This implementation consisted of the full suite of NFS Ascent®, including its Omni Point of Sale (Omni POS) and Contract Management System (CMS), as well as its Wholesale Finance System (WFS). Malaysia marked the ninth deployment to go live following successful implementations in Japan, China, South Africa, Thailand, New Zealand, Australia, South Korea, and Hong Kong. This series of deployments constitutes the largest and most prestigious contract signing in NETSOL’s history. | |
● | Pertaining to NETSOL’s wholly-owned subsidiary Otoz, as the first in a number of planned rollouts, the new mobility technology startup announced the creation of an Ai-powered chatbot that is intended to cater to renters and car owners, which will be integrated into the current Drivemate chat application LINE. Otoz also provided further information regarding its ongoing strategic partnership with Drivemate, the leading peer-to-peer car-sharing service in Thailand. | |
● | Otoz also announced a pilot car-sharing program with an existing tier-one European auto captive finance customer in China. As part of the program, thousands of the auto captive’s employees will be eligible to use flexible car-sharing products, all of which will be deployed on the Otoz platform. Among the many use cases and trials being conducted, Otoz will enable options for flexible car rentals as well as peer-to-peer car-sharing and other subscription-based programs. |
TRANSFORMATION OF OUR BUSINESS DURING THESE UNUSUAL TIMES
We are taking sweeping actions to transform our business to preserve liquidity, sustain key investments improve performance, and position the Company to be more productive and competitive as the automotive industry rapidly changes. This ongoing effort involves a thorough review of our business, with numerous key transformational projects throughout every business until and function.
As we transform our business, we are working to reshape our infrastructure, streamline our overhead and organizational structure, strengthen the health of our pipeline and demand operational excellence into every corner of our business.
Some of the key 2020 actions included the following:
Infrastructure | Optimizing our headquarter space as well as our technology campus, to align with reduced demand and provide new remote and virtual working opportunities for our employees worldwide. | |
Overhead and Organization | Critically evaluating cost structure, and how we operate and are organized, with an eye toward simplification and reducing bureaucracy. We expanded the role of Mr. Naeem Ghauri to include President of NETSOL as of 2021. | |
Pipeline Health | Carefully managing pipeline while recalibrating potential customers at the same time improving efficiency, quality, and cost performance. We continue to implement new tools, systems and processes, such as JIRA and Agile Framework to further enhance productivity. We offer cloud enablers for NFS Ascent® at subscription based priced models to generate additional interest from prospects. | |
Operational Excellence | Strengthening every aspect of operational excellence to improve performance, enhance quality and reduce redundancies. Even with the Covid-19 limitations, our teams recalibrated and went live remotely. NETSOL is selected as the vendor of choice for BMW Automotive Finance in China after extensive evaluation. |
7 |
ENVIRONMENTAL, SOCIAL AND GOVERNANCE HIGHLIGHTS
For decades, NETSOL’s innovations and products have helped transform leasing and finance industries. We believe in the power of technology for the greater good.
Responsible Business.
We integrate responsible and sustainable practices throughout our organization. Our products are services oriented and designed, to not harm individuals, communities, or the environment. Because privacy and security are critical for success in the technologies industry, we constantly seek to promote data protection across all our implementation processes.
Environmental Sustainability.
We work to be a positive force in protecting the environment by continually looking for ways to conserve water, reduce waste, recycle, and minimize energy consumption. As we repurpose our workspaces and operate our offices more efficiently globally, we focus on our environmental impact. Having our headquarters located in Southern California, we are at the epicenter of fires that remind us environmental sustainability is an everyday phenomenon. Globally, all our offices have developed and implemented a recycling, reducing waste and no plastics office space. All employees are encouraged to contribute to a safe and responsible work environment.
PEOPLE AND CULTURE
The Company believes it has developed a strong corporate culture that is critical to its success. Its key values are delivering world-class quality software, client-focused timely delivery, leadership, long-term relationships, creativity, openness and transparency and professional growth. The services provided by NETSOL require proficiency in many fields, such as software engineering, project management, business analysis, technical writing, sales and marketing, and communication and presentation skills.
Due to the growing demand for our core offerings and IT services, retention of technical and management personnel is essential. Our employee turnover was under 10% in 2020 with a goal to maintain the turnover level under 10% during the 2021 fiscal year and onwards. In addition, we are committed to improving key performance indicators such as efficiency, productivity and revenue per employee.
Human Capital.
In order to continue to produce innovative, breakthrough technologies, we continue to attract and retain top talent globally and we are proud of our team. To facilitate talent attraction and retention, we strive to retain a diverse, inclusive and safe workplace, with opportunities for our employees to grow and develop in their careers, supported by strong compensation, benefits and health and wellness programs, and by programs that build connections between our employees and their communities.
As of June 30, 2020, we had approximately 1,400 employee comprised of 80% software engineers, programmers, project managers, quality assurance, sales, pre-sales, business development, dedicated employees to core NFS™ and NFS Ascent® and 20% non-IT personnel, and 140 plus employees supporting the regional offerings as well as IT consulting and services. None of our employees are subject to a collective bargaining agreement.
Diversity and Inclusion. We believe that our growth and success are attributable in large part to the high caliber of our employees and our commitment to maintain the values on which our success has been based. We believe that a diverse workforce is critical to our success, and we continue to focus on the hiring, retention and advancement of women and underrepresented populations. Our female workforce overall in the Company is 20%. We provide transportation, daycare support, meal support and after school care support at our Technology Campus in Lahore, Pakistan. Some Lahore employees also receive free medical care. In addition, we provide flexible work schedules to almost all our employees and provide them with work from home opportunities. All employees, male and female, have access to gym facilities in our Pakistan and U.S. offices promoting the health and wellness of our staff.
Giving Back to our Community. NETSOL believes it should give back to the community and employees as much as possible. Certain of our subsidiaries are located in regions where basic services are not readily available. Where possible, NETSOL acts to not only improve the quality of life of its employees but also the standard of living in these regions. Examples of such programs are:
● | Humanitarian Relief: We are all aware of the devastation that can be brought by natural disasters. NETSOL has historically supported earthquake and flood relief where the need is the greatest. | |
● | Literacy Program: Launched to educate our illiterate employees, the main objective of this program is to enable these employees to acquire basic reading, writing and arithmetic skills. | |
● | Higher Education and Science and Research Institutions: In order to support higher education in Pakistan, we have contributed endowments to NUST, Forman Christian College, and a few other universities who are focused on science and engineering. | |
● | Noble Cause Fund: A noble cause fund has been established to meet medical and education expenses of the children of low paid employees. NETSOL employees voluntarily contribute a fixed amount every month to the fund and the Company matches the employee subscriptions with an equivalent contribution amount. A portion of this fund is also utilized to support social needs of certain institutions and individuals, outside NETSOL. | |
● | Day Care Facility: NETSOL’s human resources are its key assets and thus the Company takes numerous steps to ensure the provision of basic comforts to its employees. In Pakistan, the provision of outside pre-school childcare is a rarity. With this in mind, a children’s day care facility has been created near NETSOL’s offices providing employees with peace of mind knowing their children are nearby and being taken care of by qualified staff in a child friendly facility. Due to COVID-19 restrictions, the facility is temporarily closed. | |
● | Preventative Health Care Program: In addition to the comprehensive outpatient and in-patient medical benefits, preventive health care has also been introduced. This phased program focuses on vaccination of our employees against such diseases as Hepatitis – A/B, Tetanus, Typhoid and Flu on a routine basis. |
Competition. There is significant competition for employees with the skills required to perform the services we offer. The Company runs an elaborate training program for different cadre of employees to cover technical skills and business domain knowledge, as well as communication, management, and leadership skills. The Company believes that it has been successful in its efforts to attract and retain the highest level of talent available, in part because of the emphasis on core values, training and professional growth. We intend to continue to recruit, hire and promote employees who share our vision.
PROPOSAL 1
ELECTION OF DIRECTORS
NETSOL’s articles of incorporation and bylaws provide that directors are elected to serve a one-year term of office, expiring at the next annual meeting of shareholders. Our articles of incorporation establish up to nine directors, with the exact number to be fixed from time to time by resolution of the Board of Directors.
Directors are elected by a majority of votes, which means that the nominees receiving the most votes will be elected. Shareholders are not entitled to cumulate votes in the election of directors. In determining the votes cast for the election of a director, abstentions and broker non-votes are excluded. The Nominating and Corporate Governance Committee considers the offer of resignation and recommends to the Board whether to accept it. The policy requires the Board to act on the Nominating and Corporate Governance Committee’s recommendation within 90 days following the shareholder meeting. Board action on the matter requires the approval of a majority of the independent directors.
The Board of Directors has nominated the following directors for election to one-year terms that will expire at earlier of their removal or replacement or at the 2021 annual meeting:
Najeeb Ghauri
Mark Caton
Malea Farsai
Henry Tolentino
Syed
Kausar Kazmi
The individuals appointed as proxies intend to vote “FOR” the election of the nominees listed above. If any nominee is not available for election, the individuals named in the proxy intend to vote for such substitute nominee as the Board of directors may designate. Each nominee has agreed to serve on the board and we have no reason to believe any nominee will be unavailable.
For the biography of each nominee as well as for Director Compensation, please refer to Page 2221 of the Proxy.
Board Recommendation:
The Board of Directors recommends shareholders vote “FOR” the election of each of the sevenfive director nominees.
RATIFICATION OF APPOINTMENT OF KSP GROUP, INC.BF BORGERS CPA PC AS THE COMPANY’S INDEPENDENT AUDITORS FOR FISCAL YEAR 20192021
The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the Company’s independent registered public accounting firm. The Audit Committee engages in an annual evaluation of the independent public accounting firm’s qualifications, assessing a wide variety of factors.
The Audit Committee hashad appointed KSP Group, Inc. (“KSP” or “KSP Group”) as the independent registered public accounting firm to audit the Company’s financial statements for the year ending June 30, 2019. On December 23, 2019, KSP Group was dismissed as the independent registered public accounting firm of the Company. This dismissal was necessitated by the merger of KSP Group with BF Borgers CPA PC (“Borgers CPA”). The Audit Committee seeks shareholder ratification of this appointment of KSP. There is no affiliation betweenauditing team who audited and reviewed NETSOL’s financial statements will continue at Borgers CPA. Borgers CPA audited the CompanyCompany’s financial statements for the fiscal year ended June 30, 2020 and KSP its partners, associates or employees.
A representative from KSP may be present ataudited the Annual Meeting in person or via telephone and will haveCompany’s financial statements for the opportunity to make a statement if he or she desires to do so and is expected to be available to respond to appropriate questions.fiscal year ended June 30, 2019.
A majority of the votes cast, in person or by proxy, at the Annual Meeting, is required for the ratification of the appointment of the independent registered public accounting firm. Should the shareholders not ratify the selection of KSP,Borgers CPA, it is contemplated that the appointment of KSPBorgers CPA will be permitted to stand unless the Audit Committee finds other compelling reasons for making a change. Disapproval by the shareholders will be taken into consideration for the selection of the independent registered public accounting firm for the coming year.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
KSP Group,BF Borgers audited the Company’s financial statements for the fiscal yearsyear ended June 30, 2018,2020 and KSP audited the Company’s financial statements for the fiscal year ended June 30, 2017.2019. The aggregate fees billed by principal accountants for the annual audit and review of financial statements included in the Company’s Form 10-K, services related to providing an opinion in connection with our public offering of shares of common stock and/or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the year ended June 30, 20182020 was $250,000 and for the year ended June 30, 2017,2019 was $365,635. The 2018 balances are comprised of audit and review services of $250,000 for KSP Group. The 2017 balances were comprised of audit and review services of $175,000 for KSP Group, $140,635 for Squar Milner, and $50,000 for Kabani and Co. There were no Audit Related Fees.$280,000.
Tax fees for fiscal year 20182020 were $15,000 and consisted of the preparation of the Company’s federal and state tax returns for the fiscal years 2017.2019. Tax fees for fiscal year 20172019 were $15,000 and consisted of the preparation of the Company’s federal and state tax returns for the fiscal year 2016.2018.
No other fees were paid to principal accountant during the fiscal year 20182020 and 2017.2019.
Summary of Fees
Fiscal Year | Fiscal Year | |||||||
Ended | Ended | |||||||
June 30, | June 30, | |||||||
2018 | 2017 | |||||||
Audit Fees | $ | 250,000 | $ | 365,635 | ||||
Audit-Related Fees | - | - | ||||||
Tax Fees | 15,000 | 15,000 | ||||||
All other Fees | - | - | ||||||
Total | $ | 265,000 | $ | 380,635 |
The Audit Committee and the Board of Directors are responsible for the engagement of the independent auditors and for approving, in advance, all auditing services and permitted non-audit services to be provided by the independent auditors. The Audit Committee maintains a policy for the engagement of the independent auditors that is intended to maintain the independent auditor’s independence from NetSol.NETSOL. In adopting the policy, the Audit Committee considered the various services that the independent auditors have historically performed or may be needed to perform in the future. The policy, which is to be reviewed and re-adopted at least annually by the Audit Committee:
(i) Approves the performance by the independent auditors of certain types of service (principally audit-related and tax), subject to restrictions in some cases, based on the Committee’s determination that this would not be likely to impair the independent auditors’ independence from NETSOL. (ii) Requires that management obtain the specific prior approval of the Audit Committee for each engagement of the independent auditors to perform other types of permitted services; and (iii) | Prohibits the performance by the independent auditors of certain types of services due to the likelihood that their independence would be impaired. |
Any approval required under the policy must be given by the Audit Committee, by the Chairman of the Committee in office at the time, or by any other Committee member to whom the Committee has delegated that authority. The Audit Committee does not delegate its responsibilities to approve services performed by the independent auditors to any member of management.
The standard applied by the Audit Committee in determining whether to grant approval of an engagement of the independent auditors is whether the services to be performed, the compensation to be paid therefore and other related factors are consistent with the independent auditors’ independence under guidelines of the Securities and Exchange Commission and applicable professional standards. Relevant considerations include, but are not limited to, whether the work product is likely to be subject to, or implicated in, audit procedures during the audit of NetSol’sNETSOL’s financial statements; whether the independent auditors would be functioning in the role of management or in an advocacy role; whether performance of the service by the independent auditors would enhance NetSol’sNETSOL’s ability to manage or control risk or improve audit quality; whether performance of the service by the independent auditors would increase efficiency because of their familiarity with NetSol’sNETSOL’s business, personnel, culture, systems, risk profile and other factors; and whether the amount of fees involved, or the proportion of the total fees payable to the independent auditors in the period that is for tax and other non-audit services, would tend to reduce the independent auditors’ ability to exercise independent judgment in performing the audit.
Fiscal Year | Fiscal Year | |||||||
Ended | Ended | |||||||
June 30, | June 30, | |||||||
2020 | 2019 | |||||||
Audit Fees | $ | 250,000 | $ | 280,000 | ||||
Audit-Related Fees | - | - | ||||||
Tax Fees | 15,000 | 15,000 | ||||||
All other Fees | - | - | ||||||
Total | $ | 265,000 | $ | 295,000 |
Board Recommendation:
THE COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF KSP GROUP, INC.BF BORGERS CPA PC AS INDEPENDENT AUDITOR FOR FISCAL YEAR 2019.2021.
ADVISORY VOTE ON EXECUTIVE COMPENSATION
A “Say-on-Pay” advisory vote is required for all U.S. public companies under Section 14A of the Securities Exchange Act of 1934, as amended. In accordance with this law, we are asking shareholders to approve, on an advisory basis, the compensation of the Company’s named executive officers disclosed in the Compensation Discussion and Analysis section on page 27, This vote is not intended to address any specific item of compensation, but rather the overall compensation of the named executive officers and the philosophy, policies and practices described in this proxy statement.
For the reasons discussed below, the Board of Directors recommends that you vote FOR approval of the advisory vote on executive compensation because it believes that the policies and practices described in the Compensation Discussion and Analysis are effective in achieving the Company’s goals of rewarding sustained financial and operating performance and leadership excellence, aligning the executives’ long-term interests with those of the shareholders and motivating the executives to remain with the Company for long and productive careers. Named executive officer compensation of the past three years reflects amounts of cash and long-term equity awards consistent with periods of economic stress and lower earnings, and equity incentives aligning with our actions to stabilize the Company and to position it for a continued recovery.
We urge shareholders to read the Compensation Discussion and Analysis beginning on page 27 of this proxy statement, as well as the Summary Compensation Table and related compensation tables, notes and narrative, appearing on pages 2733 through 34,38, which provide detailed information on the Company’s compensation policies and practices and the compensation of our named executive officers.
Mark Caton
Malea Farsai
Henry Tolentino
Kausar Kazmi
The individuals appointed as proxies intend to vote “FOR” the election of the nominees listed above. If any nominee is not available for election, the individuals named in the proxy intend to vote for such substitute nominee as the Board of directors may designate. Each nominee has agreed to serve on the board and we have no reason to believe any nominee will be unavailable.
For the biography of each nominee as well as for Director Compensation, please refer to Page 21 of the Proxy.
Vote Required
Board Recommendation:
The Board of Directors recommends shareholders vote “FOR” the election of each of the five director nominees.
ApprovalRATIFICATION OF APPOINTMENT OF BF BORGERS CPA PC AS THE COMPANY’S INDEPENDENT AUDITORS FOR FISCAL YEAR 2021
The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the advisory vote on executive compensation requiresCompany’s independent registered public accounting firm. The Audit Committee engages in an annual evaluation of the affirmative voteindependent public accounting firm’s qualifications, assessing a wide variety of afactors.
The Audit Committee had appointed KSP Group, Inc. (“KSP” or “KSP Group”) as the independent registered public accounting firm to audit the Company’s financial statements for the year ending June 30, 2019. On December 23, 2019, KSP Group was dismissed as the independent registered public accounting firm of the Company. This dismissal was necessitated by the merger of KSP Group with BF Borgers CPA PC (“Borgers CPA”). The auditing team who audited and reviewed NETSOL’s financial statements will continue at Borgers CPA. Borgers CPA audited the Company’s financial statements for the fiscal year ended June 30, 2020 and KSP audited the Company’s financial statements for the fiscal year ended June 30, 2019.
A majority of the shares of our common stock presentvotes cast, in person or represented by proxy, and entitled to vote at the meeting. While this advisory vote on executive compensationAnnual Meeting, is non-binding,required for the Board andratification of the Compensation Committee will review and considerappointment of the voting results when evaluating our executive compensation program. Currently, the Board seeksindependent registered public accounting firm. Should the shareholders vote on Executive Compensation every year. The next timenot ratify the selection of Borgers CPA, it is contemplated that the appointment of Borgers CPA will be permitted to stand unless the Audit Committee finds other compelling reasons for making a change. Disapproval by the shareholders havewill be taken into consideration for the selection of the independent registered public accounting firm for the coming year.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
BF Borgers audited the Company’s financial statements for the fiscal year ended June 30, 2020 and KSP audited the Company’s financial statements for the fiscal year ended June 30, 2019. The aggregate fees billed by principal accountants for the annual audit and review of financial statements included in the Company’s Form 10-K, services related to providing an opportunity to vote on this matter is onopinion in connection with our public offering of shares of common stock and/or services that are normally provided by the proxyaccountant in connection with statutory and regulatory filings or engagements for the year ended June 30, 2020 was $250,000 and for the year ended June 30, 2019 was $280,000.
Tax fees for fiscal year 2020 were $15,000 and consisted of the preparation of the Company’s federal and state tax returns for the fiscal years 2019. Tax fees for fiscal year 2019 were $15,000 and consisted of the preparation of the Company’s federal and state tax returns for the fiscal year 2018.
No other fees were paid to principal accountant during the fiscal year 2020 and 2019.
Board RecommendationPre-Approval Procedures
The Audit Committee and the Board of Directors are responsible for the engagement of the independent auditors and for approving, in advance, all auditing services and permitted non-audit services to be provided by the independent auditors. The Audit Committee maintains a policy for the engagement of the independent auditors that is intended to maintain the independent auditor’s independence from NETSOL. In adopting the policy, the Audit Committee considered the various services that the independent auditors have historically performed or may be needed to perform in the future. The policy, which is to be reviewed and re-adopted at least annually by the Audit Committee:
(i) Approves the performance by the independent auditors of certain types of service (principally audit-related and tax), subject to restrictions in some cases, based on the Committee’s determination that this would not be likely to impair the independent auditors’ independence from NETSOL.
(ii) Requires that management obtain the specific prior approval of the Audit Committee for each engagement of the independent auditors to perform other types of permitted services; and
(iii) Prohibits the performance by the independent auditors of certain types of services due to the likelihood that their independence would be impaired.
Any approval required under the policy must be given by the Audit Committee, by the Chairman of the Committee in office at the time, or by any other Committee member to whom the Committee has delegated that authority. The Audit Committee does not delegate its responsibilities to approve services performed by the independent auditors to any member of management.
The standard applied by the Audit Committee in determining whether to grant approval of an engagement of the independent auditors is whether the services to be performed, the compensation to be paid therefore and other related factors are consistent with the independent auditors’ independence under guidelines of the Securities and Exchange Commission and applicable professional standards. Relevant considerations include, but are not limited to, whether the work product is likely to be subject to, or implicated in, audit procedures during the audit of NETSOL’s financial statements; whether the independent auditors would be functioning in the role of management or in an advocacy role; whether performance of the service by the independent auditors would enhance NETSOL’s ability to manage or control risk or improve audit quality; whether performance of the service by the independent auditors would increase efficiency because of their familiarity with NETSOL’s business, personnel, culture, systems, risk profile and other factors; and whether the amount of fees involved, or the proportion of the total fees payable to the independent auditors in the period that is for tax and other non-audit services, would tend to reduce the independent auditors’ ability to exercise independent judgment in performing the audit.
Fiscal Year | Fiscal Year | |||||||
Ended | Ended | |||||||
June 30, | June 30, | |||||||
2020 | 2019 | |||||||
Audit Fees | $ | 250,000 | $ | 280,000 | ||||
Audit-Related Fees | - | - | ||||||
Tax Fees | 15,000 | 15,000 | ||||||
All other Fees | - | - | ||||||
Total | $ | 265,000 | $ | 295,000 |
Board Recommendation:
THE COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ADVISORY VOTE ON EXECUTIVE COMPENSATION.RATIFICATION OF BF BORGERS CPA PC AS INDEPENDENT AUDITOR FOR FISCAL YEAR 2021.
CORPORATE GOVERNANCE, BOARD OF DIRECTORSPROPOSAL 3
MEETINGS AND BOARD COMMITTEESADVISORY VOTE ON EXECUTIVE COMPENSATION
The BoardA “Say-on-Pay” advisory vote is responsiblerequired for nominating members to the Board and for filling vacancies on the Board that may occur between annual meetings of shareholders, in each case based upon the recommendationall U.S. public companies under Section 14A of the nominating and corporate governance committee. The committee seeks input from other Board members and senior management to identify and evaluate nominees for director. The committee may hire a search firm or other consultants. The committee will consider nominees recommended by shareholders for election to the Board provided the namesSecurities Exchange Act of such nominees, accompanied by relevant biographical information, and relevant information about the shareholder submitting the nominee, are provided in writing to our secretary in1934, as amended. In accordance with this law, we are asking shareholders to approve, on an advisory basis, the requirements of our bylaws. Messrs. Najeeb Ghauri & Naeem Ghauri are brothers.
The Board has determined that independent directors must have no material relationship with the Company, based on all material facts and circumstances. At a minimum, an independent director must meet eachcompensation of the standards listed below.Company’s named executive officers disclosed in the Compensation Discussion and Analysis section on page 27, This vote is not intended to address any specific item of compensation, but rather the overall compensation of the named executive officers and the philosophy, policies and practices described in this proxy statement.
For the purposes of these standards, “Company” includes all NetSol subsidiaries and other affiliates. “Immediate Family Member” includes the director’s spouse, domestic partner, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law. The independence standards for the members of the Audit Committee provide that, in addition to the foregoing standards, they may not receive any compensation other than director’s fees for Board and Audit Committee service and permitted retirement pay, or be an “affiliate” of the Company apart from their capacity as a member of the Board as defined by applicable SEC rules.
The Common Stock is listed and traded on the NASDAQ Capital Market. The corporate governance rules of the NASDAQ Capital Market requires that a majority of the Board consist of directors who are “independent” of the Company. The Board has determined each of the following directors and nominees for director qualify as “independent” in accordance with Rule 5605(a)(2)(A) and (B) of the NASDAQ listing standards for determining independence. Messrs. Eugen Beckert, Shahid J. Burki, Mark Caton, Henry Tolentino and Syed Kausar Kazmi are independent Board members as described in the listing standards.
Our Board Leadership Structure
Why our Board leadership structure is right for NetSol
Our Board and Nomination and Corporate Governance Committee regularly review and evaluate the Board’s leadership structure. Mr. Najeeb Ghauri serves as both NetSol’s CEO and Chairman of the Board, which the Board has determined is the most appropriate and effective leadership structure for the Board and the Company at this time. Mr. Ghauri has served in this dual capacity since 2006 and, as such, brings over 13 years of strategic leadership experience and an unparalleled knowledge of NetSol’s business, operations and risks to his role as Chairman of the Board. At this time, as a small-cap global corporation, the combination of these two positions is the most appropriate and suitable structure for proper, efficient and cost-effective Board functioning and communication. Mr. Najeeb Ghauri is the direct link between senior management globally and the Board members and provides critical insight to the Board, as well as feedback to senior management through his comprehensive understanding of the issues at hand. Mr. Ghauri’s travels and visits to all subsidiaries across the globe, holding meetings with heads of each subsidiary and relaying the important aspects of such meetings to the Board, justify the need for Mr. Ghauri to hold his dual leadership position. To provide the Board with autonomy, the Board maintains majority independent members whom all head and participate in all Board committees. The CEO makes quarterly reports toreasons discussed below, the Board of Directors and answers questions posed by Directors. He also discusses with the Board the reasons for certain recommendationsrecommends that you vote FOR approval of the advisory vote on executive compensation because it believes that the policies and practices described in the Compensation Discussion and Analysis are effective in achieving the Company’s executive management group.
The Board does not have a policy on whethergoals of rewarding sustained financial and operating performance and leadership excellence, aligning the rolesexecutives’ long-term interests with those of the Chairman and CEO should be separated but believes the current combination of the two roles provides NetSol with, among other things, a clear and effective leadership structure to communicate the Company’s business and long-term strategy to its clients, shareholders and motivating the public. The combined Chairman-CEO structure also provides for robust and frequent communication between the Board’s independent directors and the management of the Company.
Board Composition and Refreshment
We believe the Board benefits from a mix of new Directors who bring fresh perspectives and longer-serving Directors, who bring valuable experience, continuity and a deep understanding of the Company. The Board strivesexecutives to maintain an appropriate balance of tenure, turnover, diversity, skills and experience. Recently as long serving Board members retire, we believe new nominees bring fresh new perspective and ideas to the Board. To promote thoughtful Board refreshment, we have:
The average age of our Director nominees and our Independent Director nominees is 64 years and 69 years, respectively.
Throughout the director selection and nomination process, the Nominating and Corporate Governance Committee and the Board seek to achieve diversity within the Board with various viewpoints, perspectives and expertise that are representative of our global business. Once elected, the Directors periodically visit NetSol’s operations, globally. This provides the Directors with an opportunity to see firsthand the execution and impact of the Company’s strategy and engage with senior leaders and associates in our subsidiaries to deepen their understanding of NetSol’s business, competitive environment and corporate culture.
Last year we added two new members, Mr. Henry Tolentino and Ms. Malea Farsai to the Board of Directors. Mr. Tolentino provides a fresh perspective to the Board from the sales and marketing side in the Asian markets which have been instrumental in NetSol’s growth. Ms. Farsai provides a female perspective to the Board along with her deep knowledge of the Company as she was a member of the team that took the Company public and on Nasdaq in 1999 and has beenremain with the Company for 19 years.long and productive careers. Named executive officer compensation of the past three years reflects amounts of cash and long-term equity awards consistent with periods of economic stress and lower earnings, and equity incentives aligning with our actions to stabilize the Company and to position it for a continued recovery.
This year, our long timeWe urge shareholders to read the Compensation Discussion and valued Board member who has served since 2001, Mr. Eugen Beckert, is retiring from the Board. In his place, the Nominating and Corporate Governance Committee has nominated Mr. Syed Kausar Kazmi. Mr. Kazmi offers a breadthAnalysis beginning on page 27 of experience in finance and banking industry as head of commercial banking and business development with Habib Bank Zurich PLC, UK. With the addition of the new Board members, NetSol continues to obtain diverse viewpoints and experiences from various ages, gender, business backgrounds that come together from various parts of the world to form the Board of Directors of NetSol.
Role of Board in Oversight of Risks:
Like all companies, NetSol faces a variety of risks, both internal and external, and many factors work simultaneously to affect the Company’s overall business risk. The Board recognizes that the Company’s business risk is not static, and that it is not possible to mitigate all risk and uncertainty. The Board doesn’t have a standing risk management committee, but administers this oversight function directly through the Board as a whole,proxy statement, as well as the Summary Compensation Table and related compensation tables, notes and narrative, appearing on pages 33 through Committees of38, which provide detailed information on the Board. For example, the Audit Committee assists the Board in its risk oversight function by reviewing and discussing with management our accounting principles, financial reporting practices and system of disclosure controls and internal controls over financial reporting. The Nominating and Corporate Governance Committee assist the Board in its risk oversight function by periodically reviewing and discussing with management important corporate governance principlesCompany’s compensation policies and practices and by considering risks related to our director nominee evaluation process and legacy. This Committee also ensures that the Company maintains a positive and effective Board leadership and is up to date with internal policies such as the Company’s Code of Ethics. The Compensation Committee assists the Board in its risk oversight function by considering risks relating to the design of our executive compensation programs and arrangements. The full Board considers strategic risks and opportunities and receives reports from the committees regarding risk oversight in their areas of responsibility as necessary.
The Company believes the Board leadership structure facilitates the division of risk management oversight responsibilities among the Board committees and enhances the Board’s efficiency in fulfilling its oversight function with respect to different areas of our business risks and our risk mitigation practices. The Board of Directors and the management team are committed to continuous improvement and strengthening of the Company’s risk management practices.
During the fiscal year ended June 30, 2018, the Board of Directors of the Company met one time in person where all members were present with the exception of Mr. Burki who had flight challenges to the location of the meeting, Beijing, China. The Board also acted by written consent five times at which all Directors were available to vote.. The Company requests that all Board members attend annual meetings of the Board, however, it is not mandatory.
The Board of Directors of the Company has an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. The charters for the Audit, Compensation and Nominating and Corporate Governance Committees are posted on the Company’s web site atwww.netsoltech.com (select “About Us” then “Corporate Governance” and finally, the desired committee charter)https://ir.netsoltech.com/board-committees All committee members are appointed by the Board of Directors.
The Audit Committee met five times, the Compensation Committee met four times, and the Nominating and Corporate Governance Committee met two times during fiscal year 2018.
The Audit Committee is made up of Mr. Burki as Chairman, Mr. Caton, Mr. Beckert, and Mr. Tolentino as members. The Compensation Committee consists of Mr. Caton as its Chairman, Mr. Beckert, Mr. Burki, and Mr. Tolentino as its members. The Nominating and Corporate Governance Committee consists of Mr. Beckert as chairman and Mr. Burki, Mr. Caton and Mr. Tolentino as members.
The table below provides the membership for each of the committees during Fiscal Year 2018.
The Company has an Audit Committee whose members are the independent directors of the Company, specifically, Mr. Beckert, Mr. Burki, Mr. Tolentino and, Mr. Caton. Mr. Burki is the current chairman of the Audit Committee.
The Audit Committee met five times during fiscal 2018. The Audit Committee was established by the Board for the purpose of overseeing the Company’s accounting and financial reporting processes and the audits of the Company’s financial statements and reviewing the financial reports and other financial information provided by the Company to any governmental body or the public and the Company’s systems of internal controls regarding finance, accounting, legal compliance, and ethics. Its primary duties and responsibilities are to: (i) serve as an independent and objective party to monitor the Company’s financial reporting process, audits of the Company’s financial statements, and the Company’s internal control system and (ii) appoint from time to time, evaluate, and, when appropriate, replace the registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review, or attest services for the Company, determine the compensation of such “outside auditors” and the other terms of their engagement, and oversee the work of the outside auditors. The Company’s outside auditors’ report directly to the Audit Committee. The Audit Committee is also charged with establishing procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters and the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. In summary, the Audit Committee is generally responsible for:our named executive officers.
The Audit Committee has reviewed and discussed the consolidated financial statements with management and KSP Group. Management is responsible for the preparation, presentation and integrity of NetSol’s financial statements; accounting and financial reporting principles; establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). KSP Group is responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States of America, as well as expressing an opinion on (i) management’s assessment of the effectiveness of internal control over financial reporting and (ii) the effectiveness of internal control over financial reporting.
The Audit Committee has discussed with KSP Group the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees” and PCAOB Auditing Standard No. 2, “An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements.” In addition, KSP Group has provided the Audit Committee with the written disclosures and the letter required by the Independence Standards Board Standard No. 1, as amended, “Independence Discussions with Audit Committees,” and the Audit Committee has discussed with KSP Group their firm’s independence.
As of April 4, 2019, the Audit Committee found it was in the best interests of the Company to engage the services of KSP Group for the Company’s auditing, accounting and tax needs for the upcoming fiscal year.
Audit Committee Financial Expert.
The Company has identified its audit chairperson, Mr. Shahid Javed Burki as its audit committee financial expert. Mr. Burki is an independent Board member as the term is defined in the Nasdaq Listing Rules. Mr. Burki’s experience as Finance Minister of Pakistan, Chief Executive Officer of EMP Financial Advisors, his various roles at the World Bank, and his tenure as both an audit committee member and chair for the Company, provides him with an understanding of generally accepted accounting principles and financial reporting. Additionally, this experience provides an ability to assess the general application of accounting principles in connection with the accounting for estimates, accruals and reserves; experience analyzing financial statements that were comparable in the breadth and complexity of issues that can be reasonably expected to be raised by the Company’s financial statements; an understanding of internal control over financial reporting; and an understanding of audit committee functions.
The Audit Committee of the Board of Directors has furnished the following report:
As noted in the committee’s charter, NetSol management is responsible for preparing the Company’s financial statements. The Company’s independent registered public accounting firm is responsible for auditing the financial statements. The activities of the committee are in no way designed to supersede or alter those traditional responsibilities. The committee’s role does not provide any special assurances with regard to NetSol’s financial statements, nor does it involve a professional evaluation of the quality of the audits performed by the independent registered public accounting firm.
The committee has reviewed and discussed with management and the independent accounting firm, as appropriate, the audited financial statements.
The committee has discussed with, KSP Group, the required communications specified by auditing standards together with guidelines established by the SEC and the Sarbanes-Oxley Act.
The committee has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board, regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with KSP Group the firm’s independence.
Based on the review and discussions referred to above, the committee recommended to the Board of Directors that the audited financial statements be included in the company’s report on Form 10-K for 2018 for filing with the SEC.
Shahid Burki, Chairman
Mark Caton
Eugen Beckert
Malea Farsai
Henry Tolentino
Kausar Kazmi
The individuals appointed as proxies intend to vote “FOR” the election of the nominees listed above. If any nominee is not available for election, the individuals named in the proxy intend to vote for such substitute nominee as the Board of directors may designate. Each nominee has agreed to serve on the board and we have no reason to believe any nominee will be unavailable.
For the biography of each nominee as well as for Director Compensation, please refer to Page 21 of the Proxy.
Board Recommendation:
The Board of Directors recommends shareholders vote “FOR” the election of each of the five director nominees.
RATIFICATION OF APPOINTMENT OF BF BORGERS CPA PC AS THE COMPANY’S INDEPENDENT AUDITORS FOR FISCAL YEAR 2021
The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the Company’s independent registered public accounting firm. The Audit Committee engages in an annual evaluation of the independent public accounting firm’s qualifications, assessing a wide variety of factors.
The Audit Committee had appointed KSP Group, Inc. (“KSP” or “KSP Group”) as the independent registered public accounting firm to audit the Company’s financial statements for the year ending June 30, 2019. On December 23, 2019, KSP Group was dismissed as the independent registered public accounting firm of the Company. This dismissal was necessitated by the merger of KSP Group with BF Borgers CPA PC (“Borgers CPA”). The auditing team who audited and reviewed NETSOL’s financial statements will continue at Borgers CPA. Borgers CPA audited the Company’s financial statements for the fiscal year ended June 30, 2020 and KSP audited the Company’s financial statements for the fiscal year ended June 30, 2019.
A majority of the votes cast, in person or by proxy, at the Annual Meeting, is required for the ratification of the appointment of the independent registered public accounting firm. Should the shareholders not ratify the selection of Borgers CPA, it is contemplated that the appointment of Borgers CPA will be permitted to stand unless the Audit Committee finds other compelling reasons for making a change. Disapproval by the shareholders will be taken into consideration for the selection of the independent registered public accounting firm for the coming year.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
BF Borgers audited the Company’s financial statements for the fiscal year ended June 30, 2020 and KSP audited the Company’s financial statements for the fiscal year ended June 30, 2019. The aggregate fees billed by principal accountants for the annual audit and review of financial statements included in the Company’s Form 10-K, services related to providing an opinion in connection with our public offering of shares of common stock and/or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the year ended June 30, 2020 was $250,000 and for the year ended June 30, 2019 was $280,000.
Tax fees for fiscal year 2020 were $15,000 and consisted of the preparation of the Company’s federal and state tax returns for the fiscal years 2019. Tax fees for fiscal year 2019 were $15,000 and consisted of the preparation of the Company’s federal and state tax returns for the fiscal year 2018.
No other fees were paid to principal accountant during the fiscal year 2020 and 2019.
The Audit Committee and the Board of Directors are responsible for the engagement of the independent auditors and for approving, in advance, all auditing services and permitted non-audit services to be provided by the independent auditors. The Audit Committee maintains a policy for the engagement of the independent auditors that is intended to maintain the independent auditor’s independence from NETSOL. In adopting the policy, the Audit Committee considered the various services that the independent auditors have historically performed or may be needed to perform in the future. The policy, which is to be reviewed and re-adopted at least annually by the Audit Committee:
(i) Approves the performance by the independent auditors of certain types of service (principally audit-related and tax), subject to restrictions in some cases, based on the Committee’s determination that this would not be likely to impair the independent auditors’ independence from NETSOL.
(ii) Requires that management obtain the specific prior approval of the Audit Committee for each engagement of the independent auditors to perform other types of permitted services; and
(iii) Prohibits the performance by the independent auditors of certain types of services due to the likelihood that their independence would be impaired.
Any approval required under the policy must be given by the Audit Committee, by the Chairman of the Committee in office at the time, or by any other Committee member to whom the Committee has delegated that authority. The Audit Committee does not delegate its responsibilities to approve services performed by the independent auditors to any member of management.
The standard applied by the Audit Committee in determining whether to grant approval of an engagement of the independent auditors is whether the services to be performed, the compensation to be paid therefore and other related factors are consistent with the independent auditors’ independence under guidelines of the Securities and Exchange Commission and applicable professional standards. Relevant considerations include, but are not limited to, whether the work product is likely to be subject to, or implicated in, audit procedures during the audit of NETSOL’s financial statements; whether the independent auditors would be functioning in the role of management or in an advocacy role; whether performance of the service by the independent auditors would enhance NETSOL’s ability to manage or control risk or improve audit quality; whether performance of the service by the independent auditors would increase efficiency because of their familiarity with NETSOL’s business, personnel, culture, systems, risk profile and other factors; and whether the amount of fees involved, or the proportion of the total fees payable to the independent auditors in the period that is for tax and other non-audit services, would tend to reduce the independent auditors’ ability to exercise independent judgment in performing the audit.
Fiscal Year | Fiscal Year | |||||||
Ended | Ended | |||||||
June 30, | June 30, | |||||||
2020 | 2019 | |||||||
Audit Fees | $ | 250,000 | $ | 280,000 | ||||
Audit-Related Fees | - | - | ||||||
Tax Fees | 15,000 | 15,000 | ||||||
All other Fees | - | - | ||||||
Total | $ | 265,000 | $ | 295,000 |
Board Recommendation:
THE COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF BF BORGERS CPA PC AS INDEPENDENT AUDITOR FOR FISCAL YEAR 2021.
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ADVISORY VOTE ON EXECUTIVE COMPENSATION
A “Say-on-Pay” advisory vote is required for all U.S. public companies under Section 14A of the Securities Exchange Act of 1934, as amended. In accordance with this law, we are asking shareholders to approve, on an advisory basis, the compensation of the Company’s named executive officers disclosed in the Compensation Discussion and Analysis section on page 27, This vote is not intended to address any specific item of compensation, but rather the overall compensation of the named executive officers and the philosophy, policies and practices described in this proxy statement.
For the reasons discussed below, the Board of Directors recommends that you vote FOR approval of the advisory vote on executive compensation because it believes that the policies and practices described in the Compensation Discussion and Analysis are effective in achieving the Company’s goals of rewarding sustained financial and operating performance and leadership excellence, aligning the executives’ long-term interests with those of the shareholders and motivating the executives to remain with the Company for long and productive careers. Named executive officer compensation of the past three years reflects amounts of cash and long-term equity awards consistent with periods of economic stress and lower earnings, and equity incentives aligning with our actions to stabilize the Company and to position it for a continued recovery.
We urge shareholders to read the Compensation Discussion and Analysis beginning on page 27 of this proxy statement, as well as the Summary Compensation Table and related compensation tables, notes and narrative, appearing on pages 33 through 38, which provide detailed information on the Company’s compensation policies and practices and the compensation of our named executive officers.
Vote Required
Approval of the advisory vote on executive compensation requires the affirmative vote of a majority of the shares of our common stock present in person or represented by proxy and entitled to vote at the meeting. While this advisory vote on executive compensation is non-binding, the Board and the Compensation Committee will review and consider the voting results when evaluating our executive compensation program. Currently, the Board seeks the shareholders vote on Executive Compensation every year. The next time the shareholders have an opportunity to vote on this matter is on the proxy for fiscal year 2021.
Board Recommendation
THE COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ADVISORY VOTE ON EXECUTIVE COMPENSATION.
CORPORATE GOVERNANCE, BOARD OF DIRECTORS
The Board is responsible for nominating members to the Board and for filling vacancies on the Board that may occur between annual meetings of shareholders, in each case based upon the recommendation of the nominating and corporate governance committee. The committee seeks input from other Board members and senior management to identify and evaluate nominees for director. The committee may hire a search firm or other consultants. The committee will consider nominees recommended by shareholders for election to the Board provided the names of such nominees, accompanied by relevant biographical information, and relevant information about the shareholder submitting the nominee, are provided in writing to our secretary in accordance with the requirements of our bylaws.
The Board has determined that independent directors must have no material relationship with the Company, based on all material facts and circumstances. At a minimum, an independent director must meet each of the standards listed below.
1. | The director, within the last three years, has not been employed by and has no immediate family member that has been an executive officer of the Company. |
2. | Neither the director nor any immediate family member has, in any 12-month period during the last three years, received more than $120,000 in direct compensation from the Company other than compensation for director or committee service and pension or other deferred compensation for prior service. |
3. | Neither the director nor any immediate family member is a current partner of the Company’s independent accountant’s firm, the director is not a current employee of the independent accountant’s firm, no immediate family member is a current employee of the independent accountant’s firm working in its audit, assurance or tax compliance practice, and neither the director nor any immediate family member was an employee or partner of the independent accountant’s firm within the last three years and worked on the Company’s audit within that time. |
4. | Neither the director nor any immediate family member has, within the last three years, been part of an interlocking directorate. This means that no executive officer of the Company served on the compensation committee of a company that employed the director or an immediate family member. |
5. | The director is not currently an employee of and no immediate family member is an executive officer of another company that represented at least 2% or $1 million, whichever is greater, of the Company’s gross revenues, or of which the Company represented at least 2% or $1 million, whichever is greater, of such other company’s gross revenues in any of the last three fiscal years. Charitable contributions are excluded from this calculation. |
For the purposes of these standards, “Company” includes all NETSOL subsidiaries and other affiliates. “Immediate Family Member” includes the director’s spouse, domestic partner, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law. The independence standards for the members of the Audit Committee provide that, in addition to the foregoing standards, they may not receive any compensation other than director’s fees for Board and Audit Committee service and permitted retirement pay, or be an “affiliate” of the Company apart from their capacity as a member of the Board as defined by applicable SEC rules.
The Common Stock is listed and traded on the NASDAQ Capital Market. The corporate governance rules of the NASDAQ Capital Market require that a majority of the Board consist of directors who are “independent” of the Company. The Board has determined each of the following directors and nominees for director qualify as “independent” in accordance with Rule 5605(a)(2)(A) and (B) of the NASDAQ listing standards for determining independence. Messrs. Mark Caton, Henry Tolentino and Syed Kausar Kazmi are independent Board members as described in the listing standards.
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Our Board Leadership Structure
Why our Board leadership structure is right for NETSOL
Our Board and Nomination and Corporate Governance Committee regularly review and evaluate the Board’s leadership structure. Mr. Najeeb Ghauri serves as both NETSOL’s CEO and Chairman of the Board, which the Board has determined is the most appropriate and effective leadership structure for the Board and the Company at this time. Mr. Ghauri has served in this dual capacity since 2006 and brings over 15 years of strategic leadership experience and an unparalleled knowledge of NETSOL’s business, operations and risks to his role as Chairman of the Board. At this time, as a small-cap global corporation, the combination of these two positions is the most appropriate and suitable structure for proper, efficient and cost-effective Board functioning and communication. Mr. Najeeb Ghauri is the direct link between senior management globally and the Board members and provides critical insight to the Board, as well as feedback to senior management through his comprehensive understanding of the issues at hand. Mr. Ghauri’s travels and visits to all subsidiaries across the globe, holding meetings with heads of each subsidiary and relaying the important aspects of such meetings to the Board, justify the need for Mr. Ghauri to hold his dual leadership position. To provide the Board with autonomy, the Board maintains majority independent members whom all head and participate in all Board committees. The CEO makes quarterly reports to the Board of Directors and answers questions posed by Directors. He also discusses with the Board the reasons for certain recommendations of the Company’s executive management group.
The Board does not have a policy on whether the roles of the Chairman and CEO should be separated but believes the current combination of the two roles provides NETSOL with, among other things, a clear and effective leadership structure to communicate the Company’s business and long-term strategy to its clients, shareholders and the public. The combined Chairman-CEO structure also provides for robust and frequent communication between the Board’s independent directors and the management of the Company. Recently, having Mr. Najeeb Ghauri in the dual role was extremely effective as rapid, clear, decisive decisions were made in the midst of the global COVID-19 pandemic effecting all of NETSOL’s subsidiaries.
Board Composition and Refreshment
We believe the Board benefits from a mix of new directors who bring fresh perspectives and longer-serving directors, who bring valuable experience, continuity and a deep understanding of the Company. The Board strives to maintain an appropriate balance of tenure, turnover, diversity, skills and experience. Recently as long serving Board members retire, we believe new nominees bring fresh new perspective diversity and ideas to the Board. To promote thoughtful Board refreshment, we have:
● | Developed a comprehensive, ongoing Board succession planning process; | |
● | Implemented an annual Board and Committee assessment process; and | |
● | Look to our Advisory Board for input and critique. |
The average age of our Director nominees and our Independent Director nominees is 66 years and 70 years respectively.
Throughout the director selection and nomination process, the Nominating and Corporate Governance Committee and the Board seek to achieve diversity within the Board with various viewpoints, perspectives and expertise that are representative of our global business. Once elected, the Directors periodically visit NETSOL’s operations, globally. This provides the Directors with an opportunity to see firsthand the execution and impact of the Company’s strategy and engage with senior leaders and associates in our subsidiaries to deepen their understanding of NETSOL’s business, competitive environment and corporate culture. This year, because of the Covid-19 pandemic, no visits to any of NETSOL’s operations took place.
In his first year as the Audit Committee Chair, Mr. Kazmi offers a breadth of experience in finance and banking industry as head of commercial banking and business development with Habib Bank Zurich PLC, UK. He is well versed in finances and is providing valuable insight to the audit committee. NETSOL continues to obtain diverse viewpoints and experiences from various ages, gender, business backgrounds that come together from various parts of the world to form the Board of Directors of NETSOL.
There are five members of the Board of Directors; however, only independent members serve on the key Board Committees.
Role of Board in Oversight of Risks:
Like all companies, NETSOL faces a variety of risks, both internal and external, and many factors work simultaneously to affect the Company’s overall business risk. The Board recognizes that the Company’s business risk is not static, and that it is not possible to mitigate all risk and uncertainty. The Board does not have a standing risk management committee but administers this oversight function directly through the Board as a whole, as well as through Committees of the Board. For example, the Audit Committee assists the Board in its risk oversight function by reviewing and discussing with management our accounting principles, financial reporting practices and system of disclosure controls and internal controls over financial reporting. The Nominating and Corporate Governance Committee assist the Board in its risk oversight function by periodically reviewing and discussing with management important corporate governance principles and practices and by considering risks related to our director nominee evaluation process and legacy. This Committee also ensures that the Company maintains a positive and effective Board leadership and is up to date with internal policies such as the Company’s Code of Ethics. The Compensation Committee assists the Board in its risk oversight function by considering risks relating to the design of our executive compensation programs and arrangements. The full Board considers strategic risks and opportunities and receives reports from the committees regarding risk oversight in their areas of responsibility as necessary.
The Company believes the Board leadership structure facilitates the division of risk management oversight responsibilities among the Board committees and enhances the Board’s efficiency in fulfilling its oversight function with respect to different areas of our business risks and our risk mitigation practices. The Board of Directors and the management team are committed to continuous improvement and strengthening of the Company’s risk management practices.
During the fiscal year ended June 30, 2020, the Board of Directors of the Company did not meet in person due to the global pandemic; however, they met virtually four times. The Board also acted by written consent four times at which all Directors were available to vote unanimously. The Company requests that all Board members attend annual meetings of the Board; however, it is not mandatory.
The Board of Directors of the Company has an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. The charters for the Audit, Compensation and Nominating and Corporate Governance Committees are posted on the Company’s web site at www.netsoltech.com (select “About Us” then “Corporate Governance” and finally, the desired committee charter) https://ir.netsoltech.com/board-committees All committee members are appointed by the Board of Directors and only Independent Board members serve on these committees.
The Audit Committee met four times, the Compensation Committee met one time, and the Nominating and Corporate Governance Committee met two times during fiscal year 2020.
The Audit Committee is made up of Mr. Kazmi as Chairman, with Mr. Caton, and Mr. Tolentino as members. The Compensation Committee consists of Mr. Caton as its Chairman, with Mr. Kazmi and Mr. Tolentino as its members. The Nominating and Corporate Governance Committee consists of Mr. Tolentino as Chairman, with Mr. Caton and Mr. Kazmi as members.
The table below provides the membership for each of the committees during Fiscal Year 2020.
Nominating and | ||||||||||||
Corporate | ||||||||||||
Audit | Compensation | Governance | ||||||||||
Director | Committee | Committee | Committee | |||||||||
Najeeb Ghauri (Chairman of the Board) | ||||||||||||
Malea Farsai | ||||||||||||
Mark Caton (I) | X | X(C) | X | |||||||||
Kausar Kazmi (I)(A) | X(C) | X | X | |||||||||
Henry Tolentino (I) | X | X | X(C) |
(I) | Denotes an Independent Director. |
(C) | Denotes the Chairperson of the Committee. |
(A) | Mr. Kazmi became Audit Committee Chairman as of July 2020 replacing Mr. Burki who did not stand for re-election in June 2020. |
The Company has an Audit Committee whose members are the independent directors of the Company, specifically, Mr. Kazmi as Chairman, and Mr. Caton and Mr. Tolentino.
The Audit Committee met four times remotely during fiscal 2020. The Audit Committee was established by the Board for the purpose of overseeing the Company’s accounting and financial reporting processes and the audits of the Company’s financial statements and reviewing the financial reports and other financial information provided by the Company to any governmental body or the public and the Company’s systems of internal controls regarding finance, accounting, legal compliance, and ethics. Its primary duties and responsibilities are to: (i) serve as an independent and objective party to monitor the Company’s financial reporting process, audits of the Company’s financial statements, and the Company’s internal control system and (ii) appoint from time to time, evaluate, and, when appropriate, replace the registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review, or attest services for the Company, determine the compensation of such “outside auditors” and the other terms of their engagement, and oversee the work of the outside auditors. The Company’s outside auditors’ report directly to the Audit Committee. The Audit Committee is also charged with establishing procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters and the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. In summary, the Audit Committee is generally responsible for:
● | Appointing, compensating, retaining and overseeing NETSOL’s independent registered public accounting firm. | |
● | Reviewing the annual report of NETSOL’s independent registered public accounting firm related to quality control. | |
● | Reviewing NETSOL’s annual and quarterly reports to the SEC, including the financial statements and the “Management’s Discussion and Analysis” portion of those reports, and recommending appropriate action to the Board. | |
● | Reviewing NETSOL’s audit plans. | |
● | Reviewing relationships between the independent registered public accounting firm and NETSOL. | |
● | Reviewing trends in accounting policy changes that are relevant to the Company. |
The Audit Committee has reviewed and discussed the consolidated financial statements with management and Borgers CPA. Management is responsible for the preparation, presentation and integrity of NETSOL’s financial statements; accounting and financial reporting principles; establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Borgers CPA is responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States of America.
The Audit Committee has discussed with Borgers CPA, the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees”. In addition, Borgers CPA has provided the Audit Committee with the written disclosures and the letter required by the Independence Standards Board Standard No. 1, as amended, “Independence Discussions with Audit Committees,” and the Audit Committee has discussed with Borgers CPA Group their firm’s independence.
As of December 23, 2019, the Audit Committee found it was in the best interests of the Company to engage the services of Borgers CPA for the Company’s auditing, accounting and tax needs for the upcoming fiscal year.
Audit Committee Financial Expert.
The Company has identified its audit chairperson, Mr. Kausar Kazmi as its audit committee financial expert. Mr. Kazmi is an independent Board member as the term is defined in the NASDAQ Listing Rules. Mr. Kazmi offers a breadth of experience in finance and banking industry as head of commercial banking and business development with Habib Bank Zurich PLC, UK. Mr. Kazmi’s his tenure as both an Audit Committee member and Chairman of the Audit Committee as well as over 40 years in the banking and financial sector, provides him with an understanding of generally accepted accounting principles and financial reporting. Additionally, this experience provides an ability to assess the general application of accounting principles in connection with the accounting for estimates, accruals and reserves; experience analyzing financial statements that were comparable in the breadth and complexity of issues that can be reasonably expected to be raised by the Company’s financial statements; an understanding of internal control over financial reporting; and an understanding of audit committee functions.
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The Audit Committee of the Board of Directors has furnished the following report:
As noted in the Committee’s charter, NETSOL management is responsible for preparing the Company’s financial statements. The Company’s independent registered public accounting firm is responsible for auditing the financial statements. The activities of the committee are in no way designed to supersede or alter those traditional responsibilities. The Committee’s role does not provide any special assurances with regard to NETSOL’s financial statements, nor does it involve a professional evaluation of the quality of the audits performed by the independent registered public accounting firm.
The Committee has reviewed and discussed with management and the independent accounting firm, as appropriate, the audited financial statements.
The Committee has discussed with Borgers CPA, the required communications specified by auditing standards together with guidelines established by the SEC and the Sarbanes-Oxley Act.
The Committee has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board, regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence and has discussed with Borgers CPA the firm’s independence.
Based on the review and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s report on Form 10-K for 2020 for filing with the SEC.
Kausar Kazmi, Chairman
Mark Caton
Henry Tolentino
Nominating & Corporate Governance Committee.
The Nominating & Corporate Governance Committee is comprised of Messrs. BeckertTolentino (Chairman), Burki, Caton and TolentinoKazmi all of whom are independent within the meaning of the NASDAQ listing standards and Rule 10A-3(b) under the 34 Act. Mr. Beckert is the Chairperson for the Committee. This Committee met virtually twice during the 20182020 fiscal year. The primary function of the Nominating Committee is to assist the Board in fulfilling its responsibilities with respect to Board and committee membership and shareholder proposals. Its primary duties and responsibilities are to: (i) establish criteria for Board and committee membership and recommend to the Board proposed nominees for election to the Board; and (ii) make recommendations regarding proposals and nominees for director submitted by shareholder of the Company.
The Nominating & Corporate Governance Committee will consider director nominees recommended by shareholder. A shareholder who wishes to recommend a person or persons for consideration as a Company nominee for election to the Board of Directors must send a written notice by mail to: Corporate Secretary, NetSolNETSOL Technologies, Inc., 23975 Park Sorrento, Suite 250, Calabasas, CA, 91302 or by fax to: 818-222-9197, that sets forth (i) the name of each person whom the shareholder recommends be considered as a nominee; (ii) a business address and telephone number for each nominee (an e-mail address may also be included) and (iii) biographical information regarding such person, including the person’s employment and other relevant experience. Shareholder considerations will only be considered if delivered or mailed and received at the principal executive offices of the Company not less than ninety (90) days nor more than one hundred and twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of shareholder;provided, however, that in the event that the annual meeting is called for a date that is not within sixty (60) days before or after such anniversary date, notice by the shareholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.
The Company’s Nominating Committee recommends that a nominee for a position on the Company’s Board of Directors meet the following minimum qualifications:
● He or she must be over 21 years of age.
● He or she must be able to read and understand basic financial statements.
● He or she must have experience in a position with a high degree of responsibility in a business or other organization.
● He or she must possess integrity and have high moral character.
● He or she must be willing to apply sound, independent business judgment.
● He or she must have sufficient time to devote to the Company.
● | He or she must be over 21 years of age. | |
● | He or she must be able to read and understand basic financial statements. | |
● | He or she must have experience in a position with a high degree of responsibility in a business or other organization. | |
● | He or she must possess integrity and have high moral character. | |
● | He or she must be willing to apply sound, independent business judgment. | |
● | He or she must have sufficient time to devote to the Company. |
Our Nominating and Corporate Governance Committee is responsible for reviewing with the Board of Directors, on an annual basis, the appropriate characteristics, skills and experience required for the Board of Directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the nominating and corporate governance committee, in recommending candidates for election, and the Board of Directors, in approving (and, in the case of vacancies, appointing) such candidates, takes into account many factors, including the following:
● Whether the potential nominee has leadership, strategic, or policy setting experience in a complex organization, including any scientific, governmental, educational, or other non-profit organization.
●
● | Whether the potential nominee has leadership, strategic, or policy setting experience in a complex organization, including any scientific, governmental, educational, or other non-profit organization. | |
● | Whether the potential nominee has experience
| |
● | Whether the potential nominee is highly accomplished in his or her respective field. | |
● | In light of the relationship of the Company’s business to the field of technology, whether the potential nominee has received any awards or honors in the fields of technology or engineering and whether he or she is recognized as a leader in that field. | |
● | Whether the addition of the potential nominee has practical and mature business judgment including the ability to make independent analytical inquiries. | |
● | Whether the addition of the potential nominee to the Board of Directors would assist the Board of Directors in achieving a mix of Board members that represents a diversity of background and experience, including diversity with respect to age, gender, national origin, race, and competencies. | |
● | Whether the potential nominee has high ethical character and a reputation for honesty, integrity, and sound business judgment. | |
● | Whether the potential nominee can work collegially with others. | |
● | Whether the potential nominee is independent, as defined by NASDAQ listing standards, whether he or she is free of any conflict of interest or the appearance of any conflict of interest with the best interests of the Company and its shareholder, and whether he or she is willing and able to represent the interests of all shareholders of the Company. | |
● | Any factor which would prohibit the potential nominee to devote sufficient time to its business, and | |
Any other relevant qualifications, attributes, or skills. |
In addition, with respect to an incumbent director whom the nominating committee is considering as a potential nominee for re-election, the Company’s nominating committee reviews and considers the incumbent director’s service to the Company during his or her term, including the number of meetings attended, level of participation, and overall contribution to the Company. The manner in which the nominating committee evaluates a potential nominee will not differ based on whether the potential nominee is recommended by a shareholder or the Company. Our Board of Directors evaluates each individual in the context of the Board of Directors as a whole, with the objective of assembling a group that can best maximize the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas. The Nominating Chairman prepared a blind questionnaire for all board members to evaluate the Board’s current risk management, succession, autonomy, and other matrix.
The Company did not pay any fee to any third party to identify or evaluate or assist in identifying or evaluating potential nominees for director at the fiscal year 20182020 Annual Meeting of shareholders. The Company did not receive, by December 4, 2018March 1, 2021 (the 120th calendar day before the first anniversary of the date of the Company’s 20172019 proxy statement, any recommended nominee from a shareholder who beneficially owns more than 5% of the Company’s stock or from a group of shareholders who beneficially own, in the aggregate, more than 5% of the Company’s stock.
The Compensation Committee is comprised of Messrs. Caton (Chairman), Beckert, BurkiKazmi and Tolentino all of whom are independent within the meaning of the NASDAQ listing standards and Rule 10A-3(b) under the 34 Act. The Compensation Committee met four timesvirtually once during the 20182020 fiscal year. The primary function of the Compensation Committee is to assist the Board in fulfilling its oversight responsibilities relating to officer and director compensation.
Compensation Committee’s primary duties and responsibilities are to:
(i) | oversee the development and implementation of the compensation policies, strategies, plans, and programs for the Company’s executive officers and outside directors; | |
(ii) | review and determine the compensation of the executive officers of the Company; | |
(iii) | oversee the selection and performance of the Company’s executive officers and succession planning for key members of the Company’s management; and, | |
(iv) | review and ensure compliance with the compensation rules and regulations applicable to the Company under the Dodd Frank Act and certain SEC disclosure rules. |
The Compensation Committee’s report is included below under “Compensation Discussion and Analysis”.
Compensation Policies and Practices
Our commitment to design an executive compensation program that is consistent with responsible financial and risk management is reflected in the following summary of our policies and practices:
What We do:
| Review pay and performance alignment; | |
✓ | Provide Variable vesting for awards granted under the Stock Plan; | |
✓ | Maintain retention guidelines to prohibit sales during certain | |
✓ | Prohibit hedging, pledging or short selling | |
✓ | Limit perquisites; | |
✓ | Assess and mitigate compensation risk; | |
✓ | Solicit annual independent consultant advice on CEO’s compensation; and | |
✓ | Conduct a review of the independence of the compensation consultant retained by the Compensation Committee. |