☐ | Preliminary Proxy Statement | |
☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
☑ | Definitive Proxy Statement | |
☐ | Definitive Additional Materials | |
☐ | Soliciting Material Pursuant to §240.14a-12 |
DYNATRONICS CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
☑ | No fee required. | |||
☐ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
1. | Title of each class of securities to which transaction applies: ________________________________________ | |||
2. | Aggregate number of securities to which transaction applies: _______________________________________ | |||
3. | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): __________________ | |||
4. | Proposed maximum aggregate value of transaction: _______________________________________________ | |||
5. | Total fee paid: ____________________________________________________________________________ | |||
☐ | Fee paid previously with preliminary materials. | |||
☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
1. | Amount Previously Paid: ____________________________________________________________________ | |||
2. | Form, Schedule or Registration Statement No: ___________________________________________________ | |||
3. | Filing Party: ______________________________________________________________________________ | |||
4. | Date Filed: _______________________________________________________________________________ | |||
DYNATRONICS CORPORATION
October 11, 201927, 2020
Dear Dynatronics Shareholders:
On behalf of Dynatronics Corporation, a Utah corporation, I cordially invite you to attend the Annual Meeting of Shareholders on Wednesday,Thursday, December 4, 201910, 2020 at 8:00 a.m. local timeCentral Time at our principal executive offices located at 7030 Park Centre Dr., Cottonwood Heights, Utah 84121.1200 Trapp Road, Eagan, Minnesota 55121. All attendees will be required to wear a face mask, be subject to temperature testing upon arrival and will also need to complete a COVID-19 self-assessment. Social distancing will be observed.
We will be conducting the business outlined and described in detail in our proxy materials, which will include athe accompanying Notice of 2020 Annual Meeting of Shareholders and Proxy Statement. You willare entitled to receive notice of and to attend and vote at the Proxy Statement and a copy of our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, as well as instructions for voting your sharesMeeting if you were a shareholder of record on the October 4, 20195, 2020, the record date established by the Board of Directors.
Be sure to follow the instructions on the proxy card or voting instruction card. Submitting your vote in any of the authorized ways will ensure your representation at the Annual Meeting, regardless of whether you will be attending the Annual Meeting in person.
Your vote is important to us and I do hope you will vote as soon as possible.
Sincerely,
/s/ Brian D. Baker
John Krier
John Krier
John Krier
President and Chief Executive Officer
i
NOTICE OF 20192020 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
DYNATRONICS CORPORATION
Annual Meeting of Shareholders
December 4, 201910, 2020
8:00 a.m. Mountain StandardCentral Time
To the Shareholders of Dynatronics Corporation:
Items of Business – At the meeting,Annual Meeting, we will conduct the following business, as more fully described in the proxy statement (“Proxy Statement”) accompanying this Notice of Annual Meeting:business:
1.
Elect three directorsthe four director nominees named in the accompanying Proxy Statement;Statement to the board of directors, each to serve until our next annual meeting of shareholders and until his successor is duly elected and qualified, or until the director’s earlier resignation or removal;
3.
Approve on an advisory basis, the compensation of our principal executive officer and the two other most highly compensated executive officers (collectively, the “Named Executive Officers”) named in the Proxy Statement;Dynatronics Corporation 2020 Equity Incentive Plan;
4.
5.
Consider and transact such other business as may properly come before the meeting.Annual Meeting or any adjournment or postponement thereof.
The foregoing proposals are more fully described in the Proxy Statement.
The board of directors recommends that you vote your shares “FOR” each of the director nominees included in Proposal 1 and “FOR” Proposals 2, 3 and 4.
Record Date and Notice – Shareholders of record holding shares of any of our common stock, Series A 8% Convertible Preferred Stock, or Series B Convertible Preferred Stock as of the close of business on October 4, 2019 are able5, 2020 (the record date for determining those shareholders eligible to receive notice of and entitled to vote at the Annual Meeting) may participate in this year’s Annual Meeting or any adjournment or postponement thereof and to vote on the matters listed above. For 10 days prior to the Annual Meeting, a complete list of shareholders entitled to vote at the Annual Meeting will be available for examination by any shareholder, for any purpose relating to the Annual Meeting, during ordinary business hours at our corporateprincipal executive offices located at 7030 Park Centre Dr., Cottonwood Heights, Utah 84121.1200 Trapp Road, Eagan, Minnesota 55121.
Voting – Telephone and Internet voting are available. You may also vote by mail by requesting a paper copy of our proxy materials. For specific instructions on voting, please refer to the instructions in the Notice of Internet Availability of Proxy Materials. If you hold your shares through an account with a brokerage firm, bank or other nominee, please follow the instructions you receive from them to vote your shares.
Adjournments and Postponements – Any action on the items of business described above may be considered at the Annual Meeting at the time and on the date specified above or at any time and date to which the Annual Meeting may be properly adjourned or postponed.
Important Notice Regarding Availability– Health and Safety Considerations; Contingent Virtual Meeting. The health and safety of Proxy Materials forour employees and our shareholders is of highest priority to us. All attendees at the Annual Meeting: Our Notice of 2019Meeting will be required to wear face coverings covering the nose and mouth and observe safe physical/social distancing as directed. Anyone who refuses or fails to cooperate will not be permitted to participate. We are closely monitoring the developments regarding the coronavirus (COVID-19). Although we currently intend to hold our Annual Meeting in person and observe applicable and recommended health guidelines, we are sensitive to the public health and travel concerns shareholders may have as well as the protocols that federal, state, and local governments have imposed and may continue to impose. In the event we determine in our discretion that we need to conduct our Annual Meeting solely by means of Shareholders, Proxy Statementremote communication, we will announce the change and provide instructions on how shareholders can participate in the Annual ReportMeeting. These communications will be made via press release and by filing additional solicitation materials with the Securities and Exchange Commission. The press release will also be available on Form 10-K are availablethe Investors section of our website at www.proxyvote.com. Your vote is important to us. Whether or notwww.dynatronics.com. If you currently plan to attend the Annual Meeting we encourage youin person, please check our website one week prior to review the accompanying Proxy Statement for information relating to each of the proposals and to cast your vote promptly.Annual Meeting.
By Order of the Board of Directors,
/s/ David A. WirthlinJennifer Keeler
October 11, 201927, 2020
ii
CONTENTS
| NOTICE OF | ii |
| Why am I receiving these materials? | |
| What is included in these materials? | |
| What am I voting on? | |
| Why did I receive a one-page notice in the mail or email notification regarding the Internet availability of proxy materials instead of a full set of proxy materials? | |
| How can I get electronic access to the proxy materials? | |
| Who can vote at the Annual Meeting? | |
| What is the difference between holding shares as a shareholder of record and as a beneficial owner? | |
| How do I vote? | |
| What if my shares are registered in more than one person’s name? | |
| What does it mean if I receive more than one Notice? | |
| How many votes must be present to hold the Annual Meeting? | |
| How many votes are needed to elect the | |
| How many votes are needed to ratify the appointment of Tanner | |
| How many votes are needed to approve the | |
| How many votes are needed to approve the | |
| What if I return a proxy card or otherwise vote but do not make specific choices? | |
| Can I change my vote after submitting my proxy? | |
| What are the Recommendations of the Board of Directors? | 6 |
| Who is paying for this proxy solicitation? | |
| How can I find out the results of the voting at the Annual Meeting? | |
| Who can answer my questions about the Annual Meeting? | |
| 7 | |
| PROPOSAL NO. 1 ELECTION OF DIRECTORS | |
| General | |
| Vote required | |
| Nominees for Director | |
| Business Experience and Qualifications of Nominees | |
| Recommendation of the Board | 9 |
| INFORMATION REGARDING THE BOARD OF DIRECTORS | 9 |
iii
| General Information | |
| Director Attendance at the Annual Meeting | |
| Preferred Directors | |
| Family Relationships | 10 |
| CORPORATE GOVERNANCE | 11 |
| Independence of the Board of Directors | 11 |
| Board Leadership Structure | |
| Role of the Board in Risk Oversight | |
| Communications with the Board of Directors | |
| Meetings of the Board of Directors | |
| Executive Sessions | |
| Information Regarding Committees of the Board of Directors | |
| Audit Committee | 13 |
| Compensation Committee | 13 |
| Nominating and Governance Committee | 14 |
| Code of Ethics | 15 |
| Corporate Governance Guidelines | 15 |
| DIRECTOR COMPENSATION | 15 |
| Director Compensation Table 2020 | 16 |
| Director Compensation – Equity | 16 |
| PROPOSAL NO. 2 – RATIFICATION OF SELECTION OF TANNER LLC AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2021 | 16 |
| General | 16 |
| Vote Required | 16 |
| Independence | 17 |
| Principal Accountant Fees and Services | 17 |
| Pre-approval Policies and Procedures | 17 |
| Recommendation of the Board | 17 |
| Report of the Audit Committee of the Board of Directors | |
| 18 | |
| PROPOSAL NO. | |
| 19 | |
| PROPOSAL NO. | |
| EXECUTIVE OFFICERS | |
| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | |
| Beneficial Ownership Table | |
| EXECUTIVE COMPENSATION | |
| Summary Compensation Table | |
| Outstanding Equity Awards at June 30, | |
| Employment Agreements | |
| Payments upon Termination | |
| Retirement Benefits | |
| RELATED-PARTY TRANSACTIONS POLICY AND PROCEDURES | |
| SHAREHOLDER PROPOSALS FOR | |
| HOUSEHOLDING OF PROXY MATERIALS | |
| OTHER MATTERS |
iv
DYNATRONICS CORPORATION
PROXY STATEMENT
FOR THE 20192020 ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 4, 20192, 2020
This Proxy Statement is being furnished by and on behalf of our board of directors (the “Board”) in connection with the solicitation of proxies to be voted at the Annual Meeting. This Proxy statement describes issues on which the Company is asking you, as a shareholder, to vote and provides information that will allow you to make an informed voting decision.
The approximate date on which this Proxy Statement and the enclosed form of proxy are first being sent or given to shareholders of record is October 20, 2020. If you hold your shares through a broker, bank or other nominee, the Notice of Internet Availability voting instructions are being forwarded to you by such broker, bank or other nominee.
References in this Proxy Statement to fiscal years refer to the fiscal year ended June 30 of the referenced year. For example, “fiscal 2019” refers to the fiscal year ended June 30, 2019, “fiscal 2020” refers to the fiscal year ended June 30, 2020, and “fiscal 2021” refers to the fiscal year ending June 30, 2021.
IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS
Our Notice of 2020 Annual Meeting of Shareholders, Proxy Statement and Annual Report on Form 10-K are available on the Internet at www.proxyvote.com by using the control number provided on your proxy card. You can also review the proxy materials on our website at www.dynatronics.com. The Notice of Internet Availability of Proxy Materials also provides instructions on how to view the proxy materials online, and how to vote and participate in the Annual Meeting. If you received a Notice of Internet Availability of Proxy Materials, you will not receive a printed copy of the proxy materials unless you specifically request them.
GENERAL INFORMATION ABOUT THESE PROXY MATERIALSTHE ANNUAL MEETING AND VOTING
The following questions and answers are intended to briefly address potential questions regarding this Proxy Statement and the Annual Meeting. They are also intended to provide our shareholders with certain information that is required to be provided under the rules and regulations of the Securities and Exchange Commission (the “SEC”). These questions and answers may not address all of the questions that are important to you as a shareholder. If you have additional questions about the Proxy Statement or the Annual Meeting, please contact our Corporate Secretary using the contact information provided in this Proxy Statement.
When and where will the Annual Meeting be held?
The date, time and place of the Annual Meeting are:
December 2, 2020
8:00 a.m. Central Time
Dynatronics Corporation Corporate Headquarters
1200 Trapp Road
Eagan, Minnesota 55121
Important Notice - Contingent Virtual Meeting. We are closely monitoring the developments regarding the coronavirus (COVID-19). Although we currently intend to hold our Annual Meeting in person, we are sensitive to the public health and travel concerns shareholders may have and the protocols that federal, state, and local governments have imposed and may continue to impose. In the event we determine that we need to conduct our Annual Meeting solely by means of remote communication, we will announce the change and provide instructions on how shareholders can participate in the Annual Meeting via press release and by filing additional solicitation materials with the SEC. Any such press release will also be available on the Investors section of our website at www.dynatronics.com. If you currently plan to attend the Annual Meeting in person, please check our website one week prior to the Annual Meeting.
We are making these materials available to shareholders on or about October 11, 2019.20, 2020.
These materials include:
●
Notice of 2020 Annual Meeting of Shareholders;
●
this Proxy Statement for the Annual Meeting; and
●
our 2019 Annual Report to Shareholders on Form 10-K for fiscal 2020 (“Annual Report”), which includes our audited consolidated financial statements for the fiscal year ended June 30, 2019.2020.
If you request printed versions of these materials by mail, they will also include the proxy card for the Annual Meeting.
You will be voting on each of the following:
●
the election of threefour nominees to serve as directors on our Board for a one-year term of office;
●
the ratification of the appointment of Tanner LLC (“Tanner”) as our independent registered public accounting firm for the fiscal year ending June 30, 2020;2021;
●
●
approval of a resolution authorizing the approval, on an advisory basis,Board to effect a reverse stock split of the frequencyCompany’s Common Stock at a ratio of holding future advisory votes on executive compensation;not less than one-for-two and not more than one-for-five at any time within one year for the date of shareholder approval, in the sole discretion of the Board, pursuant to amendment to our Articles of Incorporation; and
●
any other business that may properly come before the Annual Meeting or any adjournment or postponement thereof.
As of the date of this Proxy Statement, the Board of Directors knows of no other matters to be brought before the Annual Meeting.
Why did I receive a one-page notice in the mail or email notification regarding the Internet availability of proxy materials instead of a full set of proxy materials?
Pursuant to rules adopted by the U.S. Securities and Exchange Commission, orSEC,, we have provided access to our proxy materials over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to shareholders. All shareholders will have the ability to access the proxy materials on the website referred to in the Notice (www.proxyvote.com), free of charge, or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy are found in the Notice. In addition, shareholders may request to receive proxy materials electronically by email on an ongoing basis.
The Notice provides you with instructions regarding how to:
●
View proxy materials for the Annual Meeting on the Internet and execute a proxy; and
●
Instruct us to send future proxy materials to you electronically by email.
Choosing to receive future proxy materials by email will save us the cost of printing and mailing documents to you and will reduce the impact of itsour Annual Meetings on the environment. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by email will remain in effect until you terminate it.
You may vote at the Annual Meeting if you owned shares of any of our common stock, ourCommon Stock (“Common Stock”), SeriesA 8% Convertible Preferred Stock (“Series A Preferred”), or our Series B Convertible Preferred Stock (“Series B Preferred”) as of the close of business on October 4, 2019,5, 2020 (the “Record Date”). The Series A Preferred and the record date forSeries B Preferred are sometimes referred to collectively in this Proxy Statement as the Annual Meeting.“Voting Convertible Preferred Stock.”
Common Stock. Holders of record of shares of common stockCommon Stock are entitled to one vote for each share of common stockCommon Stock owned by them as of the record date.Record Date.
Voting Convertible Preferred Stock. Holders of record of shares of Series AVoting Convertible Preferred and Series B PreferredStock vote those shares on an as-converted basis, one vote for each share of common stockCommon Stock issuable upon an assumed conversion of the preferred stock;Voting Convertible Preferred Stock; provided, however, that the voting rights of some holders of the Series AVoting Convertible Preferred and Series B PreferredStock are subject to limitations pursuant to a rule of The Nasdaq Stock Market (“NASDAQ”) referred to as a “Voting Cutback.” The Voting Cutback limits the number of “as-if-converted common shares” that may be voted by thesuch shareholder to the number of shares of common stockCommon Stock issuable upon conversion of the preferred stockVoting Convertible Preferred Stock held by such holder that exceedsequals the quotient of (x) the aggregate purchase price paid by such holder of the preferred stockVoting Convertible Preferred Stock for the shares of preferred stock,Voting Convertible Preferred Stock, divided by (y) the greater of (i) $2.50 and (ii) the market price of the common stockCommon Stock on the trading day immediately prior to the date of issuance of the holder’s preferred stock.Voting Convertible Preferred Stock.
As of the record date,Record Date, the total number of shares of common stockCommon Stock issued and outstanding (including as-converted Series AVoting Convertible Preferred and Series B Preferred)Stock) entitled to vote at the Annual Meeting is 11,812,43317,344,205 shares (after taking into consideration the applicable Voting Cutback). This number includes 8,849,92814,389,711 shares of common stock, 2,000,000Common Stock, 1,992,000 shares of Series A Preferred (1,636,130(1,628,130 shares “as-converted” voting power after the applicable Voting Cutback), and 1,459,000 shares of Series B Preferred (1,326,364 shares “as-converted” voting power after the applicable Voting Cutback).
We also have issued and outstanding shares of our Series C Non-Voting Convertible Preferred Stock (the “Series C Preferred”) outstanding,, which is convertible to common stock,Common Stock, but which is non-voting stock. The holders of the Series C Preferred are not entitled to vote such shares at the Annual Meeting.
Cumulative voting is not permitted, and shareholders are not entitled to appraisal or dissenters’ rights with respect to any matter to be voted on at the Annual Meeting.
Shareholder of Record: Shares Registered in Your Name – If your shares were registered on the Record Date directly in your name with our transfer agent, Interwest Transfer Co, Inc., on October 4, 2019 – the record date – then you are the “shareholder of record” of those shares. As the shareholder of record, you may vote those shares in person at the meetingAnnual Meeting or you may vote them by proxy. Whether or not you plan to attend the meeting, we urge you to fill out and returnfollow the enclosed proxy card or to voteinstructions for voting your shares in one of the ways indicated in the Notice to ensure your vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker or Bank – If on the record date,Record Date, your shares were held on your behalf in an account at a brokerage firm, bank, dealer or other similar organization, then you are the “beneficial owner” of shares held in “street name” and the Notice of the Annual Meeting is being forwarded to you by that organization. The organization holding your account is considered to be the shareholder of record for purposes of voting the shares held on your behalf in the account at the Annual Meeting. As a beneficial owner, you have the right to direct your broker or other agent regarding how to vote the shares in your account. You are also invited to attend the Annual Meeting. However, since you are not the shareholder of record, you may not vote your shares in person at the meetingAnnual Meeting unless you request and obtain a valid proxy from your broker or other agent – the shareholder of record.
Shareholders may vote using one of the following four methods:
●
over the Internet, which you are encouraged to do if you have access to the Internet;
●
by telephone;
●
by requesting a paper or email copy of thesethe proxy materials and completing, signing and returning the included proxy card in the mail; or
●
by attending the Annual Meeting and voting in person.
The Notice provides instructions on how to access your proxy which contains instructions onmaterials and how to vote via the Internet or by telephone. For shareholders who request to receive a paper proxy card in the mail, instructions for voting via the Internet, by telephone or by mail are set forth on the proxy card.
If you hold shares in street name, the organization holding your account is considered the shareholder of record for purposes of voting at the Annual Meeting. The shareholder of record will provide you with instructions on how to voteensure your shares.shares are voted according to your directions. Internet and telephone voting will be offered to shareholders owning shares through most brokerage firms and banks. Additionally, if you would like to vote in person at the Annual Meeting, contact the brokerage firm, bank or other nominee who holds your shares to obtain a proxy from them and bring it with you to the Annual Meeting. You will not be able to vote at the Annual Meeting unless you have a proxy from your brokerage firm, bank or other nominee.
You may either vote “FOR” or “Withhold” your vote from any of the nominees to the Board of Directors or you may “Withhold” your vote for any nomineethat you specify. For all other proposals you may vote “FOR” or “Against” or you may “Abstain” from voting.
If you own shares that are registered in the name of more than one person, each person registered as a shareholder must sign the proxy. If an attorney, executor, administrator, trustee, guardian or any other person signs the proxy in a representative capacity, the full title of the person signing the proxy should be given and a certificate should be furnished showing evidence of appointment.
If you receive more than one Notice, thenthat is an indication that you have multiple accounts with brokers or with our transfer agent. Please vote all of these shares. We recommend that you contact your broker or our transfer agent, as applicable, to consolidate as many accounts as possible under the same name and address. You may contact our transfer agent, Interwest Transfer Co, Inc., our transfer agent, may be contacted by telephone at (877) 481-4014.
In order for us to conduct the Annual Meeting, the holders of a majority of the shares of the common stockissued and outstanding andshares entitled to vote (including the Series AVoting Convertible Preferred and Series B PreferredStock on an as-converted basis, as indicated above) as of the record dateRecord Date must be present, in person or by proxy, at the Annual Meeting. This is referred to as a “quorum.” Your shares will be counted as present at the Annual Meeting if you do any one of the following:
●
vote via the Internet or by telephone;
●
return a quorum atproperly executed proxy by mail (even if you do not provide voting instructions); or
●
attend the Annual Meeting.Meeting and vote in person.
Directors are elected by a plurality of the votes cast at the Annual Meeting, meaning that the threefour nominees receiving the most properly cast votes will be elected as directors to the vacancies open for election at the Annual Meeting. The ratification of the appointment of Tanner as our independent registered public accounting firm and the approval of the compensation of our Named Executive Officers each requires the affirmative vote in favor of such proposal of a majority of the votes cast at the Annual Meeting in respect of such proposal. The option for the frequency of the advisory vote on compensation of our Named Executive Officers - every year, every other year or every three years - that receives the greatest number of votes cast by shareholders will be considered the shareholders’ preferred frequency with regard to how often an advisory vote regarding the compensation of the Named Executive Officers should be submitted to the shareholders in the future. If a quorum is not present at the Annual Meeting, then it is expected that the Annual Meeting will be adjourned or postponed for the Board to solicit additional proxies.
The approval of your shares, you must providethis proposal requires the record holderaffirmative vote of your shares with instructionsa majority of the votes cast on howthis proposal at the Annual Meeting.
How many votes are needed to vote your shares. If your shares are held by a brokerage firm, bank or other nominee holder, that brokerage firm, bank or nominee may allow you to deliver your voting instructions by telephone or overapprove the Internet. Shareholders whose shares are held by a brokerage firm, bank or other nominee should referresolution and the amendment to the voting instruction card forwardedArticles of Incorporation related to them by that brokerage firm, bank or nominee holding their shares.the reverse stock split (Proposal 4)?
What happens if I do not vote?
If you hold your shares directly in your own name and fail to vote them on the Internet, via the telephone, or by providing a proxy, your shares will not be considered voted. However, your shares may be voted under certain circumstances where you do not provide a proxy if they are held in the name of a brokerage firm, bank or other nominee, you may change yourfirm. As discussed below, brokerage firms have the authority under stock exchange rules to vote by submitting new voting instructions to yourtheir customers’ unvoted shares on “routine” matters. Routine matters include the ratification of the appointment of the independent registered public accounting firm. Accordingly, if a brokerage firm bank or other nominee. You must contactvotes your broker, bank or other nominee to find out how to do so. However, since you are not the shareholder of recordshares on these routine matters in that case, you may not changeaccordance with these rules, your vote by voting those shares in personwill (a) count as present at the Annual Meeting unless you receivefor purposes of establishing a valid proxy fromquorum and (b) count as “FOR” votes or “AGAINST” votes, as voted by your brokerage firm, bank or other nominee holder authorizing you to vote at the Annual Meeting.firm.
What are Broker Non-VotesNon-Votes?
Shares of common stockCommon Stock for which we have received proxies from a street-name record holder, but with respect to which the beneficial holders of those shares have chosen to abstain from voting, will be counted as present at the Annual Meeting for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting, but such shares will not count as votes cast in respect of the election of directors, or any other non-routine proposal with respect to which the shareholder has chosen to abstain. As a result, those shares will not be included in the vote totals for such proposalproposals and, therefore, will have no effect on such proposal.proposals.
Brokers are prohibited in certain circumstances from exercising discretionary authority for beneficial owners who have not returned proxies to the brokers (so-called “broker non-votes”). In these circumstances, those shares will be counted for the purpose of determining if a quorum is present, but such shares will not be included in the vote totals and, therefore, will have no effect on any proposal. Under the rules that govern brokers, brokers do not have discretionary authority to vote on the election of directors or on executive compensation matters; however, brokers do have discretionary authority to vote on the ratification of our independent registered public accounting firm and may choose to do so.
If any other matter is properly presented at the meeting, your proxyholder (one of the individuals named on your proxy card) will vote your shares using their best judgment.
You can revoke a proxy given by you at any time before the final vote at the Annual Meeting. If you are the record holder of your shares, you may revoke your proxy in any one of the following ways:
●
You may submit another properly completed proxy card with a later date.
●
You may grant a subsequent proxy by telephone or through the Internet.
●
You may send a timely written notice that you are revoking your proxy to our Corporate Secretary at 1200 Trapp Road, Eagan, Minnesota 55121.
●
You may attend the Annual Meeting whoand vote in person. Simply attending the Annual Meeting will separately tabulate affirmative and negative votes, abstentions and broker non-votes.not, by itself, revoke your proxy.
The Board of Directors in connection with its solicitationhas unanimously determined to recommend that shareholders vote (i)“FOR”each of proxiesthe director nominees; (ii)“FOR”the ratification of the appointment of Tanner as our independent registered public accounting firm for the Annual Meeting, fiscal year ending June 30, 2021; (iii)“FOR”the approval of the Dynatronics Corporation 2020 Equity Incentive Plan; and (iv)“FOR”the approval of the reverse stock split of the Company’s Common Stock.
We will pay for the entire cost of soliciting proxies, including any costs associated with printing and mailing proxy materials for those shareholders who request to receive printed versions of them.
them. In addition, directors, officers and employees of Dynatronics and its subsidiaries may solicit proxies by mail, personal interview, telephone, email or facsimile transmission without additional compensation. We may also solicit proxies through press releases and postings on our website at www.dynatronics.com. Arrangements will be made with brokerage houses, voting trustees, banks, associations and other custodians, nominees and fiduciaries, who are record holders of our voting stock not beneficially owned by them, for forwarding these proxy materials to, and obtaining proxies from, the beneficial owners of such stock entitled to vote at the Annual Meeting. We will reimburse these persons for their reasonable expenses incurred in performing these services.services.
You can contact our Corporate Secretary, Jennifer Keeler, by telephone, at (651) 683-8066 or by writing to Dynatronics Corporation, 1200 Trapp Road, Eagan, Minnesota 55121, Attn: Corporate Secretary, with any matter other thanquestions about the proposals presenteddescribed in this Proxy Statement will be brought before the Annual Meeting. However, if other matters are properly presented at the Annual Meeting or any adjournment or postponement of the Annual Meeting, the persons named as proxies will vote in their discretion with respecthow to those matters.execute your vote.
Under our Bylaws, as amended and restated our Board of Directors may consist of up to seven directors. Up to four of the directors (the “Common Directors”) may be elected annually by the holders of our common stockCommon Stock voting as a group, including holders of the Series A Preferred and Series B Preferred voting on an as-converted basis. The remaining three directors are referred to as the “Preferred Directors” and elected and hold office at the pleasure of the holders of the Series A Preferred.
In 2019,2020, the Board hadincreased the number of Board members from six members to seven members withwhen John Krier became Chief Executive Officer of the Company. Currently, the Board consists of four common directorsCommon Directors and three Preferred Directors. Mr. Kelvyn H. Cullimore, Jr. informed the Nominating and Governance Committee that he will not be standing for re-election and the Committee has determined that the size of the Board will be reduced to six members, as it had been prior to June 2018. The Board and management extend their gratitude to Mr. Cullimore for his many years of service to Dynatronics since its founding, both as an executive officer and as a member of our Board.
As a consequence of the reductionincrease in the size of the Board, at this year’s Annual Meeting our shareholders will elect three common directors.four Common Directors. The nominees identified below have been selected by the Nominating and Governance Committee to serve as directorsCommon Directors for one-year terms until the 20202021 Annual Meeting of shareholders and until their respective successors are elected or appointed.appointed, or until such director’s earlier resignation or termination.
Directors are elected by a plurality of the votes cast in person or by proxy, assuming a quorum is present. This means that the threefour director nominees receiving the highest number of “FOR” votes at this year’s Annual Meeting (even if they receive less than a majority) will be elected as directors.to the Board. Since the nominees are running unopposed for the same number of seats as there are nominees, a nominee only needs one vote to be elected if there is a quorum present at the Annual Meeting.
Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the nominees named below. If a nominee becomes unavailable for election as a result of an unexpected occurrence, shares that would have been voted for that nominee instead will be voted for the election of a substitute nominee that we may propose. If you hold your shares through a broker and you do not instruct the broker on how to vote on this proposal, your broker will not have authority to vote your shares. Abstentions and broker non-votes will be counted as present for purposes of determining the presence of a quorum, but will not have any effect on the outcome of the election.election of directors.
Four incumbent directors are standing for re-election. All of our directors have one-year terms. Each person nominated for electionnominee named below has agreed to serve if elected. We have no reason to believe that any nominee will be unable to serve. Our policy is to encourage directors and nominees for director to attend the Annual Meeting.
Director, Chief Executive Officer Age Director Since July 2020 | Mr. Krier has been the Chief Executive Officer since July 2020. He joined Dynatronics in March of 2020 and served as Chief Financial Officer until he was named the Chief Executive Officer. Prior to joining the Company, Mr. Krier was Vice President of Marketing at Breg, Inc., a significant Dynatronics customer, where his work included executive leadership for Breg’s bracing product and technology marketing teams, including integrated applications with healthcare systems, service solutions with third-party payer reimbursement, and customer experience. Mr. Krier received his bachelor’s degree from the University of South Dakota. He is a Certified Public Accountant (inactive), and a member of the American Institute of Certified Public Accountants and Minnesota Society of Certified Public Accountants. We believe it is important to have our Chief Executive Officer also serve as a member of the Board. | |
Brian D. Baker Director, Consultant Age 54 Director Since August 2019 | Mr. Baker | |
Scott A. Klosterman Director Age Director since 2016 Independent Director | Mr. Klosterman is Chief | |
R. Scott Ward, Ph.D. Director Age Director since 2013 Independent Director | Dr. Ward serves as the chairman of the Department of Physical Therapy at the University of Utah. He is the past president of the American Physical Therapy Association, a position he held from 2006 to 2012. In addition, Dr. Ward served as chair of the rehabilitation committee of the American Burn Association. He has published extensive research studies related to wound care and burn rehabilitation. Dr. Ward received a B.A. degree in Physical Therapy and a Ph.D. degree in Physiology from the University of Utah. Based on Dr. Ward’s prominence in his field, and his extensive experience and expertise in physical therapy, the Nominating and Governance Committee believes that Dr. Ward is well qualified to serve as a member of our Board of Directors. | |
EACH OF THE FOUR NOMINEES NAMED ABOVE.
Directors elected at the Annual Meeting of shareholders serve until the earlierour next annual meeting of their resignation or removal, orshareholders and until their successors are elected and qualified.qualified, or their earlier resignation or removal. Three members of the Board are Preferred Directors appointed under the provisions of the Certificate of Designations, Preferences and Rights of the Series A 8% Convertible Preferred Stock (the “Series A Certificate of Designations”) as discussed in the following section of this Proxy Statement.
We believe the Annual Meeting provides a good opportunity for our directors to hear any feedback that our shareholders may desire to share with the Board and with us. As a result, directors are encouraged to attend the Annual Meeting if their schedules permit. FiveSix of our directors attended the 20182019 Annual Meeting of Shareholders. We reimburse our directors for the reasonable expenses they may incur in attending the Annual Meeting.
Under our Bylaws as amended and restated, the Board of Directors can include up to seven members. The Series A Certificate of Designations grants to the holders of the Series A Preferred certain rights, referred to as “Director Rights,”, to appoint up to three members of the Board – the Preferred Directors – for as long as the original Series A Preferred investors own or would directly or indirectly beneficially own at least 28.6% of our common stockCommon Stock (the “Threshold Ownership Percentage”). This period of ownership is known as the “Director Rights Period”. Excluded from the calculation of the Threshold Ownership Percentage are any shares of common stockCommon Stock issuable upon the exercise of the warrants held by these investors. In compliance with NASDAQ Rule 5640, the number of Preferred Directors will be reduced pro rata with any reduction in ownership by the preferred investors below the Threshold Ownership Percentage, so that the number of Preferred Directors is approximately proportionate to the preferred investors’ direct or indirect ownership of our common stock.Common Stock. By agreement among the Series A Preferred shareholders and Dynatronics, the Director Rights may be exercised at the discretion of certain affiliates of Prettybrook Partners, LLC, a private investment firm (collectively(with its affiliates, collectively referred to as “Prettybrook”) for as long as Prettybrook owns at least 50% of the outstanding Series A Preferred.
The Director Rights are not exercisable unless the preferred investors are the beneficial owners of at least 10% of our common stock,Common Stock, including shares issuable upon conversion of the Series A Preferred, but excluding shares issuable upon exercise of any warrants to purchase common stock. Common stockStock. Common Stock has no voting, nomination, election or other rights with respect to the Preferred Directors. Each Preferred Director serves as a member of the Board during the Director Rights Period or until his or her successor is appointed by the holders of the Series A Preferred (or Prettybrook, exercising such rights, as discussed above) during the Director Rights Period.
The current Preferred Directors are Erin S. Enright, who is also the Chairman of ourthe Board, of Directors, David B. Holtz, and Brian M. Larkin. Their business experience and other qualifications are as follows:
Erin S. Enright. Ms. Enright, 58,59, currently serves as a Managing Member of Prettybrook Partners LLC, a family office dedicated to investing in healthcare companies. Prettybrook has approximately 20 active investments in a variety of companies, typically as a co-investor with institutional private equity. She servesIn addition to her service as the Chairman, of the Board,Ms. Enright is Chair of the Nominating and Governance Committee and a member of the Audit Committee and Compensation Committee of Dynatronics Corporation (NASDAQ: DYNT), and asthe Board. She is a member of the Board of Directors, and AuditChair of the Investment Committee and Investmentmember of the Audit Committee of Medical Facilities Corporation (TSX: DR) and a member of the Board and Chair of the Audit Committee of Keystone Dental, Inc., a private company controlled by the private equity firm Accelmed. Previously, she served on the Board of Directors and the Audit Committee of Biolase, Inc. (NASDAQ: BIOL) during 2013, was a member of the Board of Directors of Tigerlabs, a Princeton-based business accelerator, from 2012 to 2018, and from 2010 to 2015 served on the Board of Directors of Ceelite Technologies, LLC. She was the President of Lee Medical, a medical device manufacturer based in Plainsboro, New Jersey, from 2004-13. She was Chief Financial Officer of InfuSystem, Inc. (NASDAQ:INFU) from 2005 to 2007. From 1993 to 2003, Ms. Enright was with Citigroup, most recently aswhere she was a Managing Director in its Equity Capital Markets group. While at Citigroup, Ms. Enright was Chairperson of the firm'sfirm’s Institutional Investors'Investors Committee, responsible for screening and approving the firm'sfirm’s participation in equity underwritings and a member of the Citigroup Global Equity Commitment Committee, responsible for reviewing and approving the firm'sfirm’s underwritings. From 1989 until 1993, Ms. Enright was an attorney with Wachtell, Lipton, Rosen & Katz in the firm'sfirm’s New York office. Ms. Enright received her A.B. degree from the Woodrow Wilson School of Public and International Affairs at Princeton University and J.D. degree from the University of Chicago Law School.
David B. Holtz. Mr. Holtz, 53,54, has been a principal of Provco Group Ltd. (“Provco”) since 2012. Provco became a preferred shareholder of Dynatronics in 2015. He serves as part of Provco’s executive management group responsible for managing investment portfolios and the accounting function. From 2011 to 2012, Mr. Holtz was executive manager of Grey Street Holdings, a property investment holding company. From 2008 to 2010, he served as Chief Financial Officer and then Interim President of Nucryst Pharmaceuticals Corp. From 1993 to 2006, Mr. Holtz worked at Integra LifeSciences in various capacities including Vice President, Finance and Treasurer, and Senior Vice President, Finance and Treasurer. Before joining Integra, Mr. Holtz was an associate with Coopers & Lybrand, L.L.P. in Philadelphia and Cono Leasing Corporation, a private leasing company. He received a B.S. degree in Business Administration from Susquehanna University and was a certified public accountant in Pennsylvania until 1998.
Brian M. Larkin. Mr. Larkin, 50,51, is President and CEO of SP Industries, Inc., a privately held providermanufacturer of biopharmaceutical production lines, laboratory equipment supplies and specialty glassware and aseptic processing drug manufacturing solutions headquartered in Pennsylvania.Pennsylvania, where he has held the position since he joined in February of 2018. From May 2017 to February 2018, he served as the Vice President and General Manager of the Diabetes Care business at Becton Dickinson (NYSE: BDX).Dickinson. From May 2015 to May 2017, he served as Senior Vice President and General Manager for the LifeCell, Regenerative Medicine business atInc., a Division of Acelity L.P., Inc. Prior to joining Acelity, Mr. Larkin was Corporate Vice President of Integra Lifesciences Holdings Corporation, which he joined in January of 2000 and where he served most recently as President of the Global Spine and Orthobiologics businesses,business and Head of Strategic Development. His responsibilities included executive oversight and leadership of Integra’s worldwide Spine and Orthobiologics businesses, in addition to executive oversight of several of Integra’s corporate functions, including corporate marketing and strategic planning. Mr. Larkin joined Integra in January 2000, as a Regional Sales Manager. He was promoted to National Sales Manager in 2003, Vice President, North American Sales in 2005, and President of Integra’s Neurosurgery business in 2007. In 2010, he was appointed President, Global Spine & Orthobiologics, and Head of Strategic Development. Mr. Larkin has over 25 years of sales, marketing, and executive management experience in the medical technology industry. Prior to joining Integra, he was the National Sales Manager for Connell Neurosurgical. Mr. Larkin received a B.S. degree in Chemistry from the University of Richmond and completed the Advanced Management Program at Harvard Business School.
In addition to the Director Rights, the holders of the Series A Preferred have the right to appoint one observer (who is not a Preferred Director) who may attend any meetings of the Board of Directors and participate in discussions among the Board members, but who does not have any voting rights on any matters. So long as Prettybrook owns at least 50% of the outstanding Series A Preferred, Prettybrook has the right to choose this observer. Prettybrook has appointed Stuart M. Essig as the observer to the Board. Mr. Essig is a significant shareholder of Dynatronics and is the husband of Ms. Enright, Chairman of our Board of Directors. Mr. Essig and Ms. Enright are managers of Prettybrook.
There are no family relationships among the members of the Board of Directors and our executive officers.
The Board of Directors has determined that a majority of the members of the Board should consist of “independent directors,” determined in accordance with the applicable NASDAQ Stock Market Rules as in effect from time to time. Directors who are also our employees are not considered to be independent for this purpose. Our Board of Directors determines the independence of our directors by applying the rules, regulations and listing standards of NASDAQ and the rules and regulations of the SEC. The NASDAQ Stock Market Rules provide that a director is independent only if the Board affirmatively determines that the director does not have a relationship with us that would interfere with the exercise of his or her independent judgment in carrying out the responsibilities of a director. They also specify certain relationships that preclude a determination of director independence, including certain business, professional and personal relationships.
Our Board annually reviews the independence of our directors according to these standards, taking into account all relevant facts and circumstances. In its most recent review of information collected from our directors, the Board determined that the non-employee members of our Board are “independent directors” under the NASDAQ standards and the SEC’s rules. The Board has determined that Ms. Enright, Mr. Klosterman, Mr. Holtz, Mr. Larkin and Dr. Ward are independent and that these independent directors have no relationship with Dynatronics that would interfere with the exercise of their independent judgment in carrying out the responsibilities of a director.
None of our directors is a party to any agreement or arrangement that would require disclosure pursuant to NASDAQ Rule 5250(b)(3).
The Board has also determined that all members of the Compensation Committee are independent and meet the additional independence criteria required under NASDAQ Rule 5605(a)(2), and that each member of the Audit Committee: (i) is independent, (ii) meets the financial literacy requirements of the NASDAQ Stock Market Rules, and (iii) meets the enhanced independence standards under Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). In connection with its determination regarding the independence of our directors, the Board found that none of the nominees for director had a material or other disqualifying relationship with us.
In February 2018, our Board of Directors determined to separate the role of Chairman of the Board from the role of Chief Executive Officer, and appointed Erin Enright as Chairman. The Board believes that separating these roles allows us to efficiently develop and implement corporate strategy that is consistent with the Board’s oversight role, while facilitating strong day-to-day leadership.
In making the decision to separate the roles of Chief Executive Officer and Chairman of the Board, the Board cited the demands of and differences between each role. The Chief Executive Officer is responsible for setting our strategic direction, with guidance from the Board. The Chief Executive OfficerChairman of the Board is responsible for leadership and for the over-all performance of Dynatronics pursuant to the policies of the Board, while providing guidance to the Chief Executive Officer, and setting the agenda for Board meetings, and presiding over meetings of the Board.
Ms. Enright brings considerable skills and experience to the role of Chairman. In this capacity, she has significant responsibilities, including those described above, as well as calling and presiding over Board meetings, including meetings of the independent directors, setting meeting agendas and determining materials to be distributed to the Board. As Chairman, she has substantial ability to shape the work of the Board of Directors.Board. We believe that having an independent Chairman creates an environment that is more conducive to objective evaluation and oversight of management’s performance, increases management accountability and improves the ability of the Board of Directors to monitor whether management’s actions are in our best interests and those of our shareholders. As a result, we believe that having an independent chairman and a separate chief executive can enhance the effectiveness of the Board of Directors as a whole. The active involvement of our independent directors, combined with the qualifications and significant responsibilities of our Chairman, provide balance on the Board and promote strong, independent oversight of our management and affairs.
The Board of Directors has an active role, both as a whole and at the committee level, in overseeing management of our risks. The Board regularly reviews information regarding our credit, liquidity and operations, as well as the risks associated with each. The Audit Committee’s charter mandates it tothat the committee review and discuss with management and our independent registered public accounting firm, as appropriate, our major financial risk exposures and the steps taken by management to monitor and control these exposures. The Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The Nominating and Governance Committee manages risks associated with the independence of the Board of Directors and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is informed regularly through committee reports about such risks.
The Board desires that the Board and its committees and individual directors hear the views of shareholders and that appropriate responses are provided to shareholders on a timely basis. Shareholders wishing to formally communicate with the Board, the independent directors as a group or any individual director may send communications directly to Dynatronics Corporation, Board of Directors, Attn: Jim Ogilvie, Vice President of Corporate Development, 7030 Park Centre Drive, Cottonwood Heights, Utah 84121.Jennifer Keeler, General Counsel, 1200 Trapp Road, Eagan, Minnesota 55121. All clearly marked written communications, other than unsolicited advertising or promotional materials, are logged and copied, and forwarded to the director to whom the communication was addressed.
Please note that the foregoing communication procedure does not apply to: (1) shareholder proposals pursuant to Exchange Act Rule 14a-8 and communications made in connection with such proposals; (2) service of process or any other notice in a legal proceeding; (3) advertisements, promotions of a product or service, patently offensive material or matters deemed inappropriate for the Board of Directors;Board; (4) items solely related to complaints with respect to ordinary course of business, customer service and satisfaction issues; or (5) material clearly unrelated to our business, industry, management, Board, of Directors, or related committee matters.
Our Board of Directors met sixten times during fiscal year 2019.2020. Each member of the Board attended 75% or more of the meetings of the Board of Directors and at least 75% of the meetings of the committees on which he or she served, during the portion of fiscal year 20192020 for which he or she was a director or committee member.
The Board holds regular executive sessions of the non-employee directors without the presence of management, as required under applicable NASDAQ Stock Market Rules. In fiscal 2019, the independent directors met five times in2020, six executive sessions were convened at which only independent and non-employee directors were present.
The Board of Directors has established an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. The Board hasCommittee and adopted a written charter for each committee, copies of which are available to shareholders on the Investors section of our website at https://irdirect.net/DYNT/corporate_governance.
The following table provides membership information for fiscal year 20192020 for each of thethese committees of the Board:
| Name | Audit | Compensation | Nominating and Governance | |||
Brian D. Baker(1) | ||||||
| Erin S. Enright | X | X | * | |||
| David B. Holtz | * | X | ||||
| Scott A. Klosterman | X | * | X | |||
| Brian M. Larkin | X | X | ||||
| R. Scott Ward, Ph.D. | X |
*Committee Chair
(1)
Appointed to the Board in August 2019 to fill vacancy created by resignation of Christopher von Jako, Ph.D.
Below is a description of the Board committees. Each of the committees has authority to engage legal counsel or other experts or consultants as it deems appropriate to carry out its responsibilities.
The Audit Committee was established in accordance with requirements of Section 3(a)(58)(A) of the Exchange Act, and is comprised of the following independent directors: David B. Holtz (Chairman), Erin S. Enright, and Scott A. Klosterman. The NASDAQ Stock Market Rules regarding corporate governance require that at least one member of the Audit Committee have past employment experience in finance or accounting, requisite professional certification in accounting, or comparable experience or background which results in the individual’s “financial sophistication.” This financial sophistication may derive from the person being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Our Board believes that all three members of its Audit Committee meet the NASDAQ requirements for financial sophistication. Our Board further believes that each of the committee members is an independent director as defined in the NASDAQ Stock Market Rules. The Board has also determined that the members of the Audit Committee qualify as “audit committee financial experts” (“Audit Committee Financial Experts”) as defined by applicable SEC’s rules. The SEC rules define an Audit Committee Financial Expert as a person who has all of the following attributes:
●
Understanding of accounting principles generally accepted in the United States of America, or GAAP, and financial statements.
●
Ability to assess the general application of GAAP in connection with accounting for estimates, accruals and reserves.
●
Experience in preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our financial statements, or experience actively supervising one or more persons engaged in such activities.
●
Understanding of internal control over financial reporting.
●
Understanding of audit committee functions.
The Audit Committee is concerned primarily with the integrity of our financial statements, the selection, independence, qualifications and performance of our independent registered public accounting firm, and our compliance with legal requirements. The Audit Committee charter approved by the Board reflects the standards and requirements adopted by the SEC and NASDAQ.
The Audit Committee met six times during fiscal year 2020. Each member of the Audit Committee attended at least 75% of the Audit Committee’s meetings.
The Compensation Committee is responsible for reviewing and approving the compensation, as well as evaluating the performance, of our principal executive officer and other executive officers, and advising and assisting management in developing our overall compensation strategy to assure that it promotes shareholder interests, supports our strategic and tactical objectives, and provides for appropriate rewards and incentives for our management and employees. Each member of the Compensation Committee is an “independent director” as defined by the federal securities laws and in Rule 5605(a)(2) of the NASDAQ Stock Market Rules.
The Compensation Committee is empowered to advise management and make recommendations to the Board with respect to the compensation and other employment benefits of our executive officers and key employees. In exercising its responsibilities, the Compensation Committee establishes and monitors policies governing the compensation of executive officers, reviews the performance of and determines salaries and incentive compensation for executive officers, and approves option or other equity-based awards to those individuals. Additionally, the Compensation Committee administers our stock plans.
The Compensation Committee meets as often as it deems necessary, without the presence of any executive officer whose compensation it is then approving. Neither the Compensation Committee nor the Company engaged or received advice from any compensation consultant during fiscal year 2020. As of the date of this Proxy Statement, the following independent directors are members of the Compensation Committee: Scott A. Klosterman (Chairman), Erin S. Enright, Brian M. Larkin and R. Scott Ward. The Compensation Committee held three meetings during fiscal year 2020. All committee members attended at least 75% of these meetings.
The charter of the Compensation Committee grants the committee full access to all our books, records, facilities and personnel. In addition, under the charter, the Compensation Committee has the authority to obtain, at our expense, advice and assistance from compensation consultants and internal and external legal, accounting or other advisors and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties. The Compensation Committee has direct responsibility for the oversight of the work of any consultants or advisers engaged for the purpose of advising the committee. In particular, the Compensation Committee has the sole authority to retain, in its sole discretion, compensation consultants to assist in its evaluation of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms.
The Nominating and Governance Committee is responsible for overseeing, reviewing and making periodic recommendations concerning our corporate governance policies, and for recommending to the full Board candidates and nominees for election to the Board. The committee is comprised of the following directors: Erin S. Enright (Chairman), David B. Holtz, Brian M. Larkin and Scott A. Klosterman. Each member of this committee is an independent director under applicable NASDAQ Stock Market Rules. The Nominating and Governance Committee met three times during fiscal year 2020.
Nominees to the Board should be committed to enhancing long-term shareholder value and must possess a high level of personal and professional ethics, sound business judgment and integrity. The Nominating and Governance Committee encourages selection of directors who will contribute to our corporate governance, including: responsibility to its shareholders, technology leadership, effective execution, high customer satisfaction and superior employee working environment.
The Nominating and Governance Committee from time to time reviews the appropriate skills and characteristics required of Board members, including factors that it seeks in Board members such as diversity of business experience, viewpoints and personal background, and diversity of skills in technology, finance, marketing, international business, financial reporting and other areas that are expected to contribute to an effective board of directors. In evaluating potential director candidates, the Nominating and Governance Committee considers these factors in light of the specific needs of the Board at that time. The brief biographical information for each nominee set forth in the section under the heading “Business Experience and Qualifications of Nominees” on page1 above, includes the primary individual experience, qualifications, attributes and skills of each of our directors nominated for election at this Annual Meeting that led the Nominating and Governance Committee to conclude that each nominee should serve as a member of the Board.
Shareholders may recommend a director nominee to the Nominating and Governance Committee. In recommending candidates for election to the Board, the committee considers nominees recommended by directors, officers, employees, shareholders and others, using the same criteria to evaluate all candidates. The Nominating and Governance Committee reviews each candidate’s qualifications, including whether a candidate possesses any of the specific qualities and skills desirable in certain members of the Board. Evaluations of candidates generally involve a review of background materials, internal discussions and interviews with selected candidates as appropriate. The Nominating and Governance Committee may, but is not required to, engage consultants or third-party search firms to assist in identifying and evaluating potential nominees.
To recommend a prospective nominee for the Nominating and Governance Committee’s consideration, submit the candidate’s name and qualifications to us in writing to the following address: Dynatronics Corporation, Attn: Jennifer Keeler, General Counsel, 1200 Trapp Road, Eagan, Minnesota 55121. When submitting candidates for nomination to be elected as directors, shareholders must also follow the notice procedures and provide the information required by applicable rules adopted by the SEC and procedures adopted by our Board (see, “SHAREHOLDER PROPOSALS FOR THE ANNUAL MEETING OF SHAREHOLDERS,” in this Proxy Statement, below). In particular, for the Nominating and Governance Committee to consider a candidate recommended by a shareholder for nomination at the 2021 Annual Meeting of Shareholders, the recommendation must be delivered or mailed to and received by us as indicated above between July 29, 2021 and August 28, 2021 (or, if the 2021 Annual Meeting is not held within 30 calendar days of the anniversary of the date of the 2020 Annual Meeting, within 10 calendar days after our public announcement of the date of the 2021 Annual Meeting). The recommendation must include the following information for shareholder nominees to be considered at an annual meeting, including the following:
●
The shareholder’s name and address and the beneficial owner, if any, on whose behalf the nomination is proposed;
●
The shareholder’s reason for making the nomination at the annual meeting, and the signed consent of the nominee to serve if elected;
●
The number of shares owned by, and any material interest of, the record owner and the beneficial owner, if any, on whose behalf the record owner is proposing the nominee;
●
A description of any arrangements or understandings between the shareholder, the nominee and any other person regarding the nomination; and
●
Information regarding the nominee that would be required to be included in our proxy statement by the SEC’s rules, including the nominee’s age, business experience for the past five years and any directorships held by the nominee, including directorships held during the past five years.
We have adopted a Code of Business Ethics that applies to all officers, directors and employees. The Code of Business Ethics is available on the Investors section of our website at https://irdirect.net/DYNT/corporate_governance. If we make any substantive amendments to the Code of Business Ethics or grant any waiver from a provision of our Code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website.
The Board has not adopted formal written corporate governance guidelines. Given the experience and qualifications our directors contribute to the Board’s activities, we have implemented a number of practices designed to encourage effective corporate governance. These practices include:
●
the requirement that at least a majority of the directors meet standards of independence determined by NASDAQ and our Board;
●
holding regular executive sessions of the independent members of the Board;
●
holding committee meetings which include individual sessions with representatives of the our independent registered public accounting firm, as well as with our Chief Financial Officer and our Chief Executive Officer; and
●
completion of “360” performance evaluations of each director by the other members of the Board.
Our Board is actively involved in the oversight and management of the material risks that could affect us. The Board carries out its risk oversight and management responsibilities by monitoring risk directly as a full board and, where appropriate, through its committees. Effective risk oversight is a priority of the Board. These duties are accomplished through the effective use of Board committees that function under written charters adopted by the Board.
Our directors play a critical role in guiding our strategic direction and overseeing our management. Ongoing developments in corporate governance and financial reporting have resulted in an increased demand for such highly qualified and productive public company directors. The many responsibilities and risks and the substantial time commitment of being a director of a public company require that we provide adequate incentives for our directors’ continued performance by paying compensation commensurate with our directors’ workload. Our non-employee directors are compensated based upon their respective levels of board participation and responsibilities, including service on Board committees. Our employee directors receive no separate compensation for their service as directors.
Our director compensation is reviewed by the Compensation Committee, which makes recommendations to the Board on the appropriate structure for our non-employee director compensation program and the appropriate amount of compensation. Our Board is responsible for final approval of our non-employee director compensation program and the compensation paid to our non-employee directors. Our non-employee directors are entitled to reimbursement for their reasonable travel and lodging expenses for attending Board and committee meetings.
In fiscal year 2020, we authorized payment to our non-employee directors of an annual equity retainer of 10,000 shares of Common Stock under our 2018 Equity Incentive Plan (the “2018 Plan”) plus additional common shares with an equivalent value of $25,000.00 under the 2018 Plan, priced on the date of issue and provided in two equal tranches on January 1st and July 1st. Committee chairs were authorized to receive an additional retainer of shares of Common Stock with the equivalent value of $10,000 for the year. All retainer payments were pro-rated for the portion of the year served if a director’s service began after the start of the fiscal year. The following table summarizes the total compensation paid to the non-employee and independent directors during the fiscal year ended June 30, 2020.
Name (a) | Stock awards ($) (c) (2) | Total ($) (h) |
Kelvyn H. Cullimore, Jr.(1) | 13,851 | 13,851 |
| Erin S. Enright | 35,501 | 35,501 |
| David B. Holtz | 35,501 | 35,501 |
| Scott A. Klosterman | 35,501 | 35,501 |
| Brian M. Larkin | 25,501 | 25,501 |
| R. Scott Ward, Ph.D. | 25,501 | 25,501 |
_________________
(1)
Mr. Cullimore served as a director during a portion of the 2020 fiscal year.
(2)
Columns (b) and (d) through (g) are omitted from this table as no items of compensation referenced in those columns were paid to the directors during the period covered by the table. Dr. von Jako, our Chief Executive Officer until August 2019, who was also a director during a portion of the 2020 fiscal year, received no additional compensation for service as a director during fiscal year 2020 and is therefore omitted from this table.
There were no outstanding unvested restricted stock units and total option awards held by any of our non-employee directors as of June 30, 2020.
PROPOSAL NO. 2 – RATIFICATION OF SELECTION OF TANNER LLC AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2021
At the Annual Meeting you will be asked to ratify the appointment of Tanner LLC (“Tanner”) as our independent registered public accounting firm for the fiscal year ending June 30, 2021. Representatives of Tanner are expected to be present at the Annual Meeting, and will have the opportunity to make statements if they desire to do so and to respond to appropriate questions. Tanner has served as our independent registered public accounting firm since October 24, 2016.
If a quorum is present, the affirmative vote of a majority of the votes cast at the 2020 Annual Meeting on this proposal is required for ratification of our independent registered public accounting firm. Abstentions will be counted as present for purposes of determining the presence of a quorum, but will not be considered as votes cast either “FOR” or “AGAINST” the proposal and will therefore have no effect on the outcome of the vote.
Neither our bylaws nor other governing documents or law require shareholder ratification of the selection of Tanner as our independent registered public accounting firm. However, the Audit Committee is submitting the selection of Tanner to the shareholders for ratification as a matter of good corporate practice. If the shareholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the shareholders ratify the selection, the Audit Committee in its discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in our best interests and in the best interests of our shareholders.
Tanner has advised us that it has no direct or indirect financial interest in us or in any of our subsidiaries and that during 2020, it had no connection with us or any of our subsidiaries, other than as our independent registered public accounting firm or in connection with certain other services, as described below.
During fiscal year 2020, we entered into an engagement agreement with Tanner, which sets forth the terms by which Tanner agreed to perform audit services for us. Those services consisted of the audit of our annual consolidated financial statements and review of the quarterly financial statements.
During fiscal year 2019, Tanner performed services consisting of the audit of our annual consolidated financial statements, review of the quarterly financial statements, and accounting consultations, consents, and other services related to our SEC filings.
Tanner did not perform any financial information systems design and implementation services for us or our subsidiaries in fiscal years 2020 or 2019.
The following table summarizes the fees paid by us to Tanner during fiscal years 2019 and 2020.
Type of Service and Fee | 2019 | 2020 |
Audit Fees (1) | $217,050 | $185,406 |
Audit Related Fees (2) | $11,700 | |
| Tax Fees | ||
| All Other Fees | ||
| Total Fees | $217,050 | $197,106 |
(1)
Audit fees represent fees for professional services provided in connection with the audit of our financial statements and internal control over financial reporting, the review of our quarterly financial statements, and audit services provided in connection with other statutory or regulatory filings.
(2)
Audit-related fees primarily included fees related to accounting consultation and attestation services.
The Audit Committee has established a policy that all audit and permissible non-audit services provided by the independent registered public accounting firm will be pre-approved by the Audit Committee. These services may include audit services, audit-related services, tax services and other services. The Audit Committee considers whether the provision of each non-audit service is compatible with maintaining the independence of the independent registered public accounting firm. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and our management are required to periodically report to the Audit Committee regarding the extent of services provided in accordance with this pre-approval, and the fees for the services performed to date.
The Audit Committee has determined that the rendering of services other than audit services by Tanner is compatible with maintaining the principal accountant’s independence.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL NO. 2 RATIFYING THE SELECTION OF TANNER AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING JUNE 30, 2021.
The following is the report of the Audit Committee with respect to the audited consolidated financial statements for the fiscal year ended June 30, 2020 included in the Company’s Annual Report on Form 10-K.
Our management is responsible for preparing our financial statements and implementing our financial reporting process, including our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and has the primary responsibility for assuring their accuracy, effectiveness and completeness. Our independent registered public accounting firm, Tanner LLC, is responsible for performing an independent audit of our consolidated financial statements and issuing opinions on the conformity of those audited financial statements with United States generally accepted accounting principles (“GAAP”) and the effectiveness of our internal control over financial reporting. The role and responsibility of the Committee is to monitor and oversee these financial processes on behalf of the Board of Directors.
The Audit Committee meets periodically with the independent registered public accountants, with and without management present, to discuss the results of the independent registered public accountants’ examinations and evaluations of our internal controls and the overall quality of our financial reporting, and, as appropriate, initiates inquiries into various aspects of our financial affairs. The members of the Audit Committee are not employees of Dynatronics and are not, nor do they represent themselves to be, accountants or auditors by profession, and they do not undertake to conduct auditing or accounting reviews or procedures. Therefore, in performing the Audit Committee’s oversight role, the Audit Committee necessarily must rely on management’s representations that it has maintained appropriate accounting and financial reporting principles and policies, and appropriate internal control over financial reporting and disclosure controls and procedures designed to ensure compliance with accounting standards and applicable laws and regulations, and that the Company’s financial statements have been prepared with integrity and objectivity and in conformity with GAAP, and on the representations of our independent registered public accounting firm included in its reports on the Company’s financial statements.
The Audit Committee currently consists of three directors, all of whom qualify as “independent” and meet the financial literacy and other requirements under the current NASDAQ listing standards and SEC rules regarding audit committee membership: David B Holtz, Erin S. Enright, and Scott A. Klosterman.
In this context, the Audit Committee hereby reports as follows:
(1)The Audit Committee has reviewed and discussed our consolidated audited financial statements with our management.
(2)The Audit Committee has discussed with Tanner LLC the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board (the “PCAOB”).
(3)The Audit Committee has received the written disclosures and the letter from Tanner LLC required by the applicable requirements of the PCAOB regarding Tanner LLC’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with Tanner LLC its independence.
(4)Based on the review and discussions referred to above in (1) through (3), the Audit Committee recommended to the Company’s Board, and the Board approved, that the consolidated audited financial statements be included in our Annual Report on Form 10-K for the year ended June 30, 2020 for filing with the SEC.
Audit Committee
David B. Holtz, Chairman
Erin S. Enright
Scott A. Klosterman
The information contained in the above report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference in such filing.
Name (a) | Fees earned or paid in cash ($) (b) | Stock awards ($) (c) (1) | Total ($) (h) |
| Kelvyn H. Cullimore, Jr. | 7,500 | 31,100 | 38,600 |
| Erin S. Enright | 12,500 | 36,100 | 48,600 |
| David B. Holtz | 12,500 | 36,100 | 48,600 |
| Scott A. Klosterman | 12,500 | 36,100 | 48,600 |
| Brian M. Larkin | 7,500 | 31,100 | 38,600 |
| R. Scott Ward, Ph.D. | 7,500 | 31,100 | 38,600 |
Type of Service and Fee | 2018 | 2019 |
| Audit Fees | $202,000 | $217,050 |
| Audit Related Fees | 7,000 | |
| Tax Fees | - | |
| All Other Fees | 20,000 | |
| Total Fees | $229,000 | $217,050 |
Recommendation of the Board
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE 2020 PLAN.
Purpose
The Board believes that the 2020 Plan is necessary for us to attract, retain, reward and motivate our employees, directors, and consultants through the grant of stock options, stock appreciation rights, restricted stock and restricted stock units. We believe the 2020 Plan is best designed to provide the proper incentives for our employees, directors and consultants, to align the interests of our management and our key personnel with our shareholders, and to ensure our ability to make performance-based awards. In addition, the new plan is intended to meet the requirements of applicable law after recent tax law changes.
The Board believes that approval of the 2020 Plan will enable us to continue to grant equity-based awards in a manner that is consistent with market practices, which is important to allow us to competitively attract, retain, reward and motivate our employees, directors and consultants, who are critical to achieving our business goals.
The 2020 Plan will be effective upon shareholder approval and after that date will apply to all awards made under the 2020 Plan on or after that date. No awards have been made under the 2020 Plan prior to the date of this Proxy Statement and no awards are contemplated to be made at this time under the 2020 Plan prior to approval by the shareholders. We intend to register the shares authorized under the 2020 Plan under the Securities Act following approval by the shareholders. If our shareholders do not approve the 2020 Plan, we will not issue awards under the 2020 Plan. It is our intention to use the shares authorized under the 2018 Plan before making awards under the 2020 Plan, to the extent that is feasible or advisable, although that is not required.
Significant Historical Award Information
Common measures of a stock plan’s cost include “dilution” and “overhang.” Dilution measures the degree to which the shareholders’ ownership has been diluted by stock-based compensation awarded under our plans; dilution that includes shares that may be awarded under 2020 Plan in the future is commonly referred to as overhang. These metrics as applied to our plans can be measured approximately as indicated in the table below for each of the past three fiscal years:
| Key Equity Metrics | 2020 | 2019 | 2018 |
Overhang(1) | 4.8% | 11.0% | 5.0% |
Dilution(2) | 1.4% | 1.9% | 3.0% |
———————
(1)
Overhang is calculated by dividing (a) the sum of (x) the number of shares subject to equity awards outstanding at the end of the year and (y) the number of shares available for future grants, by (b) the number of shares outstanding at the end of the year.
(2)
Dilution is calculated by dividing (a) the number of shares subject to equity awards outstanding at the end of the fiscal year by (b) the number of shares outstanding at the end of the fiscal year.
Summary of the 2020 Plan
The following summary is subject to the specific provisions contained in the full text of the 2020 Plan, which is attached as Appendix A to this Proxy Statement.
Administration
The Compensation Committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2020 Plan. The Compensation Committee may delegate to our Chief Executive Officer or any other executive officers the authority to grant awards at fair market value to employees who are not subject to the reporting and other provisions of Section 16 of the Exchange Act.
Limitation on Awards and Shares Available
The maximum number of shares of stock reserved and available for issuance under the 2020 Plan is 1,000,000 shares of Common Stock (pre-Reverse Stock Split), plus the number of shares of Common Stock underlying any award granted under the Company’s 2015 Equity Incentive Award Plan and the Company’s 2018 Equity Incentive Award Plan that are forfeited, are canceled, expire or are terminated (other than by exercise). Shares tendered or held back upon exercise of an option or settlement of an award to cover the exercise price or tax withholding shall not be available for future issuance under the 2020 Plan.
Eligibility
Persons eligible to participate in the 2020 Plan will be those full or part-time officers, employees, non-employee directors, and other key persons (including consultants and prospective employees) of the Company and its subsidiaries as selected from time to time by the Compensation Committee. As of October 1, 2020, approximately 200 individuals were eligible to participate in the 2020 Plan, including seven directors, and five executive officers.
Awards
The 2020 Plan provides for the grant of various types of awards, including, for example: (i) incentive stock options; (ii) nonqualified stock options; (iii) stock appreciation rights; (iv) restricted stock awards; (v) deferred stock awards; and (vi) other stock-based and cash-based awards to eligible individuals. The terms of the awards will be set forth in an award agreement, consistent with the terms of the 2020 Plan.
Stock Options. The 2020 Plan permits the granting of (1) options to purchase Common Stock intended to qualify as incentive stock options under Section 422 of the Code and (2) options that do not so qualify. Options granted under the 2020 Plan will be non-qualified options if they fail to qualify as incentive options or exceed the annual limit on incentive stock options. Non-qualified options may be granted to any persons eligible to receive incentive options and to non-employee directors and key persons. The option exercise price of each option will be determined by the Compensation Committee but may not be less than 100% of the fair market value of the Common Stock on the date of grant. The 2020 Plan provides for 1,000,000 shares that can be granted in the form of incentive stock options. No dividends or dividend equivalents shall be paid on stock options.
The term of each option will be fixed by the Compensation Committee and may not exceed 10 years (or for 10% or greater shareholders receiving an incentive stock option, five years) from the date of grant. The Compensation Committee will determine at what time or times each option may be exercised. Options may be made exercisable in installments and the exercisability of options may be accelerated by the Compensation Committee. Options may be exercised in whole or in part with written notice to us.
Upon exercise of options, the option exercise price must be paid in full (1) in cash, by certified or bank check, or other instrument acceptable to the Compensation Committee, (2) by delivery (or attestation to the ownership) of shares of Common Stock that are beneficially owned by the optionee, (3) subject to applicable law, by a broker pursuant to irrevocable instructions to the broker from the optionee, or (4) by net exercise.
To qualify as incentive options, options must meet additional federal tax requirements, including a $100,000 limit on the value of shares subject to incentive options that first become exercisable by a participant in any one calendar year.
Stock Appreciation Rights. The Compensation Committee may award a stock appreciation right either as a freestanding award or in tandem with a stock option. The Compensation Committee may award stock appreciation rights subject to such conditions and restrictions as the Compensation Committee may determine, provided that (1) upon exercise of a stock appreciation right granted in tandem with an option, the applicable portion of any related option shall be surrendered, and (2) stock appreciation rights granted in tandem with options are exercisable at such time or times and to the extent that the related stock options are exercisable. The grant price of a stock appreciation right will be determined by the Compensation Committee and specified in the award agreement; however, the grant price must be at least equal to 100% of the fair market value of a share on the date of grant. Stock appreciation rights may be exercised upon such terms and conditions as are imposed by the Compensation Committee and as set forth in the stock appreciation right award agreement.
Restricted Stock Awards. The Compensation Committee may award shares of Common Stock to participants subject to such conditions and restrictions as the Compensation Committee may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with the Company through a specified restricted period. Cash dividends and stock dividends, if any, with respect to restricted stock may be withheld by the Company for the grantee’s account, and be subject to forfeiture to the same degree as the shares of restricted stock to which such dividends relate. Except as otherwise determined by the Committee, no interest will accrue or be paid on the amount of any cash dividends withheld.
Deferred Stock Awards. The Compensation Committee may award phantom stock units as deferred stock awards to participants. Deferred stock awards are ultimately payable in the form of shares of Common Stock and may be subject to such conditions and restrictions as the Compensation Committee may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with the Company through a specified vesting period. In the Compensation Committee’s sole discretion and subject to the participant’s compliance with the procedures established by the Compensation Committee and requirements of Section 409A of the Code, it may permit a participant to make an advance election to receive a portion of his or her future cash compensation otherwise due in the form of a deferred stock award. During the deferral period, a grantee shall have no rights as a shareholder; provided, however, that the grantee may be credited with dividend equivalent rights with respect to the phantom stock units underlying his deferred stock award, subject to such terms and conditions as the Committee may determine, but shall not be entitled to dividends, if any, or dividend equivalents prior to settlement.
Other Awards. The Compensation Committee may recommend grants of other types of equity-based or equity-related awards not otherwise described by the terms of the 2020 Plan, in such amounts and subject to such terms and conditions, as the Compensation Committee shall recommend. Such awards may be based upon attainment of performance goals established by the Compensation Committee and may involve the transfer of actual shares to participants, or payment in cash or otherwise of amounts based on the value of shares.
Detrimental Activity
The Compensation Committee may cancel, rescind, suspend, or otherwise limit any award to a participant if the participant engages in detrimental activities, including rendering services to a competitor, disclosing confidential information without permission, refusing to assign inventions to us, soliciting our employees or customers, engaging in an activity that results in a termination for cause, materially violating any of our internal policies, or being convicted of, or pleading guilty to, a crime.
Amendment and Termination
The Board may amend the 2020 Plan at any time, subject to shareholder approval to the extent required by applicable law or regulation or the listing standards of Directors recommends a vote “FOR” Proposal No. 2 ratifyingNASDAQ or any other market or stock exchange on which the selectionCommon Stock is at the time primarily traded. Additionally, shareholder approval will be specifically required to (i) increase the number of Tannershares available for issuance under the 2020 Plan, or (ii) decrease the exercise price of any outstanding option or stock appreciation right granted under the 2020 Plan.
Our Board may terminate the 2020 Plan at any time. Unless sooner terminated by the Board, the Plan will terminate on the close of business on September 10, 2030.
Adjustment for Change in Capitalization
In the event that the Compensation Committee shall determine that any dividend or other distribution (whether in the form of cash, Common Stock, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event has occurred, then the Compensation Committee shall make such equitable changes or adjustments as our independent registered public accounting firmit deems necessary or appropriate to any or all of (1) the number and kind of shares of Common Stock that may thereafter be issued in connection with awards, (2) the number and kind of shares of Common Stock, securities or other property (including cash) issued or issuable in respect of outstanding awards, (3) the exercise price, grant price or purchase price relating to any award, and (4) the maximum number of shares subject to awards which may be awarded to any employee during any tax year; provided that, with respect to incentive stock options, any such adjustment shall be made in accordance with Section 424 of the Code; and provided further that, no such adjustment shall cause any award hereunder that is or could be subject to Section 409A of the Code to fail to comply with the requirements of such section.
Tax Withholding
Participants in the 2020 Plan are responsible for the yearpayment of any federal, state, or local taxes that we are required by law to withhold upon any option exercise or vesting of other awards. Subject to approval by the Compensation Committee, depending on the withholding method, a grantee may elect to have such grantee’s tax withholding obligation satisfied at the minimum or other applicable withholding rate in the grantee’s applicable jurisdiction, including maximum applicable rates that may be utilized without creating adverse accounting treatment under Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto) and permitted under applicable withholding rules promulgated by the Internal Revenue Service or another applicable governmental entity, in whole or in part, by (i) authorizing the Company to withhold from shares of stock to be issued pursuant to any award a number of shares with an aggregate fair market value (as of the date the withholding is effected) that would satisfy such withholding amount, or (ii) transferring to the Company shares of stock owned by the grantee with an aggregate fair market value (as of the date the withholding is effected) that would satisfy such withholding amount.
Effect of Change in Control
Unless otherwise provided in an award agreement, notwithstanding any provision of the 2020 Plan to the contrary:
(a)In the event of a participant’s termination of without cause or for good reason (as defined in the 2020 Plan) during the 12-month period following a change in control, notwithstanding any provision of the 2020 Plan or any applicable award agreement to the contrary, the award shall become immediately exercisable with respect to 100% of the shares subject to such award, and/or the applicable restricted period shall expire immediately with respect to 100% of the outstanding shares of restricted stock or restricted stock units as of the date of the termination.
(b)With respect to performance-based awards, in the event of a change in control, all incomplete performance periods in respect of such awards in effect on the date the change in control occurs shall end on the date of such change and the Committee shall (i) determine the extent to which performance goals with respect to each such performance period have been met based upon such audited or unaudited financial information then available as it deems relevant and (ii) cause to be paid to the applicable participant partial or full awards with respect to performance goals for each such performance period based upon the Committee’s determination of the degree of attainment of performance goals or, if not determinable, assuming that the applicable “target” levels of performance have been attained, or on such other basis determined by the Committee.
Under the Plan, “Change in Control” is deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(a)One person (or more than one person acting as a group) acquires ownership of stock of the Company that, together with the stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company; provided, that, a Change in Control shall not occur if any person (or more than one person acting as a group) owns more than 50% of the total fair market value or total voting power of the Company’s stock and acquires additional stock;
(b)One person (or more than one person acting as a group) acquires (or has acquired during the twelve-month period ending June 30, 2020.on the date of the most recent acquisition) ownership of the Company’s stock possessing 30% or more of the total voting power of the stock of such corporation;
Miscellaneous
The 2020 Plan also contains provisions with respect to payment of exercise prices, vesting and expiration of awards, treatment of awards upon the sale of the Company, transferability of awards, and tax withholding requirements. Various other terms, conditions, and limitations apply, as further described in the 2020 Plan.
New Plan Benefits
It is not possible to state the persons who will receive options or awards under the 2020 Plan in the future or the amount of options or awards that will be granted under the 2020 Plan.
EQUITY COMPENSATION PLANS AT JUNE 30, 2020
Equity Compensation Plans
As of June 30, 2020, we had equity awards outstanding under the 2018 Plan and our Annual Meetings every three years.Equity Incentive Award Plan adopted in 2015 (the “2015 Plan”). Outstanding awards under these plans expire (if not exercised) on the expiration dates indicated in the respective awards, or, if no expiration date is indicated in such award, on the tenth anniversary of the grant date of the award. Nonqualified and incentive stock options and other awards have been granted under these plans to employees, officers, directors and consultants. The Compensation Committee administers the plans.
The Say-on-Payfollowing table sets forth information as of June 30, 2020, about these plans and any equity compensation plans that have not been approved by our shareholders under which our equity securities may be issued.
Equity Compensation Plan Information
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted- average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| Equity compensation plans approved by security holders | |||
2015 Equity Incentive Plan (1) | 44,000 | $2.67 | 0 |
2018 Equity Incentive Plan (2) | 105,000 | $1.43 | 463,978 |
| Total | 149,000 | 463,978 |
(1)
No further awards will be granted under the 2015 Plan. Upon the adoption of the 2018 Plan, shares remaining available under the 2015 Plan became eligible for use under the 2018 Plan.
(2)
The 2018 Plan was adopted and approved by our shareholders in 2018.
RELATED-PARTY TRANSACTIONS POLICY AND PROCEDURES
We have adopted a policy that any transactions with directors, executive officers or entities of which they are also officers or directors or in which they have a financial interest, will only be on terms consistent with industry standards and approved by a majority of the disinterested members of our Board. In addition, interested directors may be counted in determining the presence of a quorum at a meeting of our Board or a committee thereof that approves such transactions. If there are no disinterested directors, we shall obtain a majority vote is advisory, and therefore it is not binding onof the Compensation Committee orshareholders approving the Board. Although the vote is non-binding, the Compensation Committee and the Board will review the voting results, seek to determine the cause or causes of any significant negative voting, and take them into consideration when making future decisions regarding executive compensation.transaction.
The Board believeshas unanimously adopted a resolution approving, and recommending that our executive compensation program uses appropriate structuresshareholders approve, an amendment (the “Amendment”) to our Amended and sound pay practices that are effective in achievingRestated Articles of Incorporation to effect, at the discretion of our core compensation objectives. Accordingly, the Board, recommends that you vote in favora reverse split of the following resolution:
If a quorumthis proposal is present,approved by the proposal to approve, on an advisory basis,shareholders, the compensation of our Named Executive Officers requires the affirmative vote of a majority of the votes cast at the 2019 Annual Meeting on the proposal. Abstentions and broker non-votesBoard will be counted as presentgranted the discretionary authority to select any ratio not less than 1 for purposes of determining2 and not greater than 1 for 5, should it decide to proceed with the presence of a quorum. Abstentions and broker non-votes will not be considered as votes cast for or against the proposalReverse Stock Split, and will therefore have nobe authorized to file the Amendment and effect the Reverse Stock Split at any time within one year from the date of shareholder approval. The Board’s decision whether or not (and when) to file the Amendment and effect the Reverse Stock Split (and at what ratio to effect the Reverse Stock Split) will also be based on the outcomea number of the vote.
The Board recommendsbelieves that you vote for every three years asit is in the desired frequency for us to hold a non-binding, advisory votebest interests of the Company and our shareholders on executive compensation. We believe this frequency is appropriateto authorize the Board, in its discretion, to effect a reverse stock split of our outstanding Common Stock for the reasons set forth below:following reasons:
●
●
●
The Board is asking the shareholders to grant it the authority, at its discretion, to effect areverse stock split, which the Board believes is an effective way to increase the minimum bid price of our Common Stock proportionately and the Compensation Committeeput us in a position to regain compliance with the time to thoughtfully consider and thoroughly respond to shareholders’ sentiments and to implement any necessary changes in light of the timing required therefor. The Board and the Compensation Committee will carefully review changes to the executive compensation to maintain the effectiveness and credibility of the program, which is important for aligning interests and for motivating and retaining our Named Executive Officers.NASDAQ Listing Rule 5550(a)(2).
●
The Board believes that maintaining the listing of the Company’s Common Stock on NASDAQ is in the best interests of the Company and our shareholders. The Board believes that the delisting of the Common Stock from NASDAQ would impair our ability to raise additional funds and result in lower prices and larger spreads in the bid and ask prices for the Common Stock, among other things. See “Certain Risk Factors Associated with the Reverse Stock Split” for more information.
●
If the Common Stock is delisted from NASDAQ, it will be subject to SEC rules governing “penny stocks,” which impose additional disclosure requirements on broker-dealers. The regulations relating to penny stocks, coupled with the typically higher cost per trade to the investor of penny stocks due to factors such as broker commissions generally representing a higher percentage of the price of a penny stock than of a higher-priced stock, will further limit the ability of investors to trade in the Common Stock and may limit the willingness of individual investors and institutions to purchase the Common Stock.
Board Discretion to Implement the Reverse Stock Split
The Board only intends to implement the Reverse Stock Split to the extent it believes necessary to maintain our listing on NASDAQ for the future. The Board believes that shareholder approval of a range of Exchange Ratios (rather than a single ratio) is in the best interests of our shareholders because it provides the Board with the flexibility to achieve the desired results of the Reverse Stock Split and because it is not possible to predict market conditions at the time the Reverse Stock Split would be implemented. If shareholders approve this Proposal, the Board would carry out a Reverse Stock Split only upon the Board’s determination that a Reverse Stock Split would be in the best interests of our shareholders at that time. The Board would then select the Exchange Ratio it determines to be advisable and in the best interests of the shareholders considering relevant market conditions at the time the Reverse Stock Split is to be implemented. In determining the Exchange Ratio, following receipt of shareholder approval, the Board may consider numerous factors including:
● | the historical and projected performance of our Common Stock; |
● | general economic and other related conditions prevailing in our industry and in the marketplace; |
● | the projected impact of the Reverse Stock Split and the Exchange Ratio on trading liquidity in our Common Stock and our ability to maintain continued listing on The Nasdaq Capital Market; |
● | our capitalization (including the number of shares of Common Stock issued and outstanding); |
● | the then-prevailing trading price and trading volume of our Common Stock; |
● | the potential devaluation of our market capitalization as a result of the Reverse Stock Split; |
●
the anticipated impact of the Reverse Stock Split on our ability to raise additional financing; and
●
business developments affecting the Company.
The Board intends to select an Exchange Ratio that it believes would be most likely to achieve the anticipated benefits of the Reverse Stock Split.
If our Board determines that effecting the Reverse Stock Split is in our best interest, the Reverse Stock Split will become effective upon the filing of the Amendment with the Utah Division. (See, “Procedure for Effecting the Reverse Split,” below.) The Amendment filed thereby will set forth the number of shares to be combined into one share of our Common Stock within the limits set forth in this proposal, but will not have any effect on the number of shares of Common Stock or preferred stock currently authorized, the ability of our Board to designate preferred stock, the par value of our common or preferred stock, or any series of preferred stock previously authorized (except to the extent such Reverse Stock Split adjusts the conversion ratio of such previously designated preferred stock).
Effect of a Reverse Stock Split
If approved by our shareholders and implemented by the Board, as of the effective time of the Amendment, each issued and outstanding share of our Common Stock would immediately and automatically be reclassified and reduced into a fewer number of shares of our Common Stock. However, except for adjustments that may result from the treatment of fractional shares, as described below, the Reverse Stock Split will not affect any shareholder’s percentage ownership or proportionate voting power. Fractional shares will not be issued. All fractional shares that would otherwise result from the implementation of the Reverse Stock Split shall be automatically rounded up to the next whole share.
Except to the extent that the Reverse Stock Split would result in any shareholder receiving an additional whole share of Common Stock in connection with the rounding of fractional shares or any dilution to other shareholders in connection therewith, as described below, the Reverse Stock Split will not:
●
affect any shareholder’s percentage ownership interest in us;
●
affect any shareholder’s proportionate voting power;
●
substantially affect the voting rights or other privileges of any shareholder; or
●
alter the relative rights of common shareholders, preferred shareholders, warrant holders or holders of equity compensation plan awards and options.
Depending upon the Exchange Ratio selected by the Board, the principal effects of the Reverse Stock Split are:
●
the number of shares of Common Stock issued and outstanding will be reduced by a factor ranging between 2 and 5, notwithstanding any rounding;
●
the per share exercise price will be increased by a factor from and including 2 and 5, and the number of shares issuable upon exercise or conversion shall be decreased by the same factor, for all outstanding options, warrants and other convertible or exercisable equity instruments entitling the holders to purchase or acquire shares of our Common Stock;
●
the number of shares authorized and reserved for issuance under our existing equity compensation plans will be reduced proportionately; and
●
the conversion rates for holders of our preferred stock and other outstanding securities will be adjusted proportionately.
The following table contains approximate information relating to our outstanding Common Stock, Series A Preferred Stock, Series B Preferred Stock Series C Preferred Stock (all of which Voting Convertible Preferred Stock, prior to the Reverse Stock Split, is convertible into shares of Common Stock on the basis of one share of Common Stock for each share of Voting Convertible Preferred Stock), outstanding debentures and warrants held by investors, and our outstanding warrants and options under our stock plans:
Based on the Company’s capitalization as of October 5, 2020, the principal effect of the Reverse Stock Split (at a ratio between 1-for-2 and 1-for-5), not taking into account the treatment of fractional shares described above, would be that:
● | the number of shares of the Company’s authorized Common Stock would remain unchanged at 100,000,000 shares; |
● | the number of shares of the Company’s Common Stock issued and outstanding would be reduced from 14,389,711 shares to between approximately 7,194,856 shares and 2,877,942 shares; |
● | |
● | the number of shares of Series A Preferred issued and outstanding would remain unchanged, although the conversion price of the 1,992,000 outstanding shares of Series A Preferred would increase and the number of shares of Common Stock issuable upon conversion of such preferred stock would decrease in proportion to the Reverse Stock Split from 1,992,000 shares to between approximately 996,000 shares and 398,400 shares, subject to future adjustment as provided in the Certificate of Designation of Preferences; |
● | the number of shares of the Company’s Series B Preferred issued and outstanding would remain unchanged, although the conversion price of the 1,459,000 outstanding shares of Series B Preferred would increase and the number of shares of Common Stock issuable upon conversion of such preferred stock would decrease in proportion to the Reverse Stock Split from 1,459,000 shares to between approximately 729,500 shares and 291,800 shares, subject to future adjustment as provided in the Certificate of Designation of Preferences, Rights and Limitations of the Series B Preferred; |
● | the number of shares of the Company’s Series C Preferred issued and outstanding would remain unchanged, although the conversion price of the 230,000 outstanding shares of Series C Preferred would increase and the number of shares of Common Stock issuable upon conversion of such preferred stock would decrease in proportion to the Reverse Stock Split from 230,000 shares to between approximately 115,000 shares and 46,000 shares, subject to future adjustment as provided in the Certificate of Designation of Preferences, Rights and Limitations of the Series C Preferred; |
● | the number of shares of the Company’s Common Stock issuable upon the exercise or vesting of outstanding warrants would be reduced from 6,738,500 to between approximately 3,369,250 shares and 1,377,500 shares (and the respective exercise prices of the warrants would increase by a factor equal to the inverse of the Exchange Ratio); |
● | the number of shares of the Company’s Common Stock issuable upon the exercise of outstanding stock options and restricted stock units would be reduced from 227,500 to between approximately 113,750 shares and 45,500 shares (and the respective exercise prices of the options would increase by a factor equal to the inverse of the Exchange Ratio); |
● | the aggregate number of shares of the Company’s Common Stock reserved for issuance in connection with future awards under the Company’s 2018 Plan would be reduced from 330,656 to between approximately 165,328 shares and 66,131 shares; the aggregate number of shares of the Company’s Common Stock reserved for issuance in connection with future awards under the Company’s 2020 Plan would be reduced from 1,000,000 to between approximately 500,000 shares and 200,000 shares; and |
● | the par value of the Company’s Common Stock and preferred stock would remain unchanged at no par value per share,and the per-share net income or loss and net book value of the Company’s Common Stock would be restated because there would be fewer shares of Common Stock outstanding. |
The following table contains approximate information relating to our Common Stock immediately following the Reverse Stock Split under certain possible exchange ratios, based on share information as of October 5, 2020. All share numbers are rounded up to the nearest whole share.
| | | Pre-Reverse Split | | 1-for-2 | | 1-for-3 | | 1-for-4 | | 1-for-5 | |
Number of authorized shares of Common Stock | | | 100,000,000 | 100,000,000 | 100,000,000 | 100,000,000 | 100,000,000 | ||||
| | | ||||||||||
Number of outstanding shares of Common Stock | | | 14,389,711 | 7,194,856 | 4,796,570 | 3,597,428 | 2,877,942 | ||||
| | | ||||||||||
Number of authorized shares of preferred stock | | | 50,000,000 | 50,000,000 | 50,000,000 | 50,000,000 | 50,000,000 | ||||
| | | ||||||||||
Number of shares of Common Stock issuable upon conversion of outstanding shares of preferred stock | | | 3,861,000 | 1,840,500 | 1,227,000 | 920,250 | 736,200 | ||||
| | | ||||||||||
| Number of shares of Common Stock issuable upon exercise of outstanding stock options, restricted stock units and warrants | | | 6,966,000 | 3,483,000 | 2,322,000 | 1,741,500 | 1,393,200 | ||||
| | | ||||||||||
| Number of shares of Common Stock reserved for issuance in connection with future awards under the Company’s 2018 Plan | | | 330,656 | 165,328 | 110,219 | 82,664 | 66,131 |
| Number of shares of Common Stock reserved for issuance in connection with future awards under the Company’s 2020 Plan | | | 1,000,000 | 500,000 | 333,333 | 250,000 | 200,000 |
See also “Certain Risks Associated with the Reverse Stock Split” below for additional information regarding the potential impact of the Reverse Stock Split.
If the Reverse Stock Split is implemented, the Amendment will not reduce the number of shares of our Common Stock or preferred stock authorized under our Articles of Incorporation, as amended, the right of our Board to designate preferred stock, the par value of our Common or preferred stock, or otherwise affect our designated series of preferred stock, except to affect the conversion prices thereof.
Our Common Stock is currently registered under Section 12(b) of the Exchange Act, and we are subject to the periodic reporting and other requirements thereof. We presently do not have any intent to seek any change in our status as a reporting company under the Exchange Act either before or after the Reverse Stock Split.
Additionally, as of the date of this Proxy Statement, we do not have any current plans, agreements, or understandings with respect to the additional authorized shares that will become available for issuance after the Reverse Stock Split has been implemented.
Anti-Takeover and Dilutive Effects
The total number of authorized shares of our Common Stock and preferred stock will not be changed as a result of the Reverse Stock Split. The Common Stock and preferred stock that is authorized but unissued provide the Board with flexibility to effect, among other transactions, public or private financings, acquisitions, stock dividends, stock splits and the granting of equity incentive awards. However, these authorized but unissued shares may also be used by the Board, consistent with and subject to its fiduciary duties, to deter future attempts to gain control of the Company or make such actions more expensive and less desirable. The Reverse Stock Split is not being recommended in response to any specific effort to obtain control of the Company, nor does our Board have any present intent to use the authorized but unissued Common Stock or preferred stock to impede a takeover attempt.
Except for the Company’s obligation to issue Common Stock upon the exercise of outstanding options and warrants or the conversion of our outstanding shares of preferred stock, we have no specific plan, commitment, arrangement, understanding or agreement, either oral or written, regarding the issuance of Common Stock subsequent to the Reverse Stock Split at this time, and we have not allocated any specific portion of the authorized number of shares to any particular purpose.
Certain Risks Associated with the Reverse Stock Split
Before voting on this Proposal 4, shareholders should consider the following risks associated with effecting a Reverse Stock Split:
A reverse stock split may negatively impact the market for our Common Stock.Although we expect that the Reverse Stock Split will result in an increase in the market price of our Common Stock, we cannot assure you that a Reverse Stock Split, if effected, will increase the market price of our Common Stock in proportion to the reduction in the number of shares of our Common Stock outstanding, or result in a permanent increase in the market price. The effect that a Reverse Stock Split may have upon the market price of our Common Stock cannot be predicted with any certainty, and the history of similar reverse stock splits for companies in similar circumstances to ours is varied. The market price of our Common Stock is dependent on many factors, including our business and financial performance, general market conditions, prospects for future growth and other factors detailed from time to time in the reports we file with the SEC. Accordingly, the total market capitalization of our Common Stock after a Reverse Stock Split may be lower than the total market capitalization before a Reverse Stock Split and, in the future, the market price of our Common Stock following a Reverse Stock Split may not exceed or remain higher than the market price prior to a Reverse Stock Split.
NASDAQ may delist our Common Stock from its exchange which could limit your ability to make transactions in our securities and subject us to additional trading restrictions.Even if our shareholders approve a Reverse Stock Split and the Reverse Stock Split is effected, we cannot assure you that we will continue to meet the listing requirements of NASDAQ. We have been monitoring the closing bid price of our Common Stock through the Initial Compliance Period. We may request an extension of 180 days to regain compliance with the Minimum Bid Price Requirement under the NASDAQ Listing Rules, however there can be no assurance that we will be granted an extension to regain compliance.
If our Common Stock is delisted, our Common Stock would likely then trade only in the over-the-counter market. If our Common Stock were to trade on the over-the-counter market, selling our Common Stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and we could face significant material adverse consequences, including: a limited availability of market quotations for our securities; reduced liquidity with respect to our securities; a determination that our shares are opena “penny stock,” which will require brokers trading in our securities to inputadhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our securities; a reduced amount of news and analyst coverage for our Company; and a decreased ability to issue additional securities or obtain additional financing in the future. These factors could result in lower prices and larger spreads in the bid and ask prices for our Common Stock and would substantially impair our ability to raise additional funds and could result in a loss of institutional investor interest and fewer development opportunities for us.
In addition to the foregoing, if our Common Stock is delisted from NASDAQ and it trades on the over-the-counter market, the application of the “penny stock” rules could adversely affect the market price of our Common Stock and increase the transaction costs to sell those shares. The SEC has adopted regulations which generally define a “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. If our Common Stock is delisted from NASDAQ and it trades on the over-the-counter market at a price of less than $5.00 per share, our Common Stock would be considered a penny stock. The SEC’s penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that before a transaction in a penny stock occurs, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s agreement to the transaction. If applicable in the future, these rules may restrict the ability of brokers-dealers to sell our Common Stock and may affect the ability of investors to sell their shares, until our Common Stock no longer is considered a penny stock.
You may end up holding an “odd lot” or less than 100 shares of Common Stock as a result of the Reverse Stock Split, making it more difficult for you to sell your shares.A Reverse Stock Split may result in some shareholders regarding boardowning “odd lots” of less than 100 shares of Common Stock on a post-split basis. A purchase or sale of less than 100 shares of Common Stock (an “odd lot” transaction) may result in incrementally higher trading costs through certain brokers, particularly “full service” brokers, and governance matters,generally may be more difficult than a “round lot” sale. Therefore, those shareholders who own less than 100 shares of Common Stock following the Reverse Stock Split may be required to pay somewhat higher transaction costs and may experience some difficulties or delays should they then determine to sell their shares of Common Stock.
The market price of our Common Stock may not rise after the Reverse Stock Split.Although the Board believes that the decrease in the number of shares of Common Stock outstanding as a consequence of a Reverse Stock Split and the anticipated increase in the market price of Common Stock could encourage interest in our Common Stock and possibly promote greater liquidity for shareholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the Reverse Stock Split. It is possible that the per share price of our Common Stock after the Reverse Stock Split will not rise in proportion to the reduction in the number of shares of our Common Stock outstanding resulting from the Reverse Stock Split, and the market price per post-Reverse Stock Split share may not exceed or remain in excess of the $1.00 minimum bid price for a sustained period of time, and the Reverse Stock Split may not result in a per share price that would attract brokers and investors who do not trade in lower priced stocks. Even if we effect the Reverse Stock Split, the market price of our Common Stock may decrease due to factors unrelated to the Reverse Stock Split. In any case, the market price of our Common Stock may also be based on other factors which may be unrelated to the number of shares outstanding, including our future performance. If the Reverse Stock Split is consummated and the trading price of the Common Stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the Reverse Stock Split. Even if the market price per post-Reverse Stock Split share of our Common Stock remains in excess of $1.00 per share, we may be delisted due to a failure to meet other continued listing requirements, including NASDAQ requirements related to the minimum shareholders’ equity, the minimum number of shares that must be in the public float, the minimum market value of the public float and the minimum number of round lot holders.
The Reverse Stock Split may decrease the liquidity of our Common Stock.The liquidity of our Common Stock may be harmed by the Reverse Stock Split given the reduced number of shares of Common Stock that would be outstanding after the Reverse Stock Split, particularly if the stock price does not increase as a result of the Reverse Stock Split. In addition, investors might consider the increased proportion of unissued authorized shares of Common Stock to issued shares to have an anti-takeover effect under certain circumstances, because the proportion allows for dilutive issuances which could prevent certain shareholders from changing the composition of the Board or render tender offers for a combination with another entity more difficult to successfully complete. The Board does not intend for the Reverse Stock Split to have any anti-takeover effects.
The number of authorized but unissued shares will not change, while the number of issued shares decreases, effectively increasing the number of shares of Common Stock available for future issuance and potential dilution to existing shareholders. Our Articles of Incorporation presently authorize 100,000,000 shares of Common Stock and 50,000,000 shares of blank check preferred stock, no par value per share. The Reverse Stock Split would not change the number of authorized shares of the Common Stock, although the Reverse Stock Split would decrease the number of issued and outstanding shares of Common Stock. Therefore, because the number of issued and outstanding shares of Common Stock would decrease, the number of shares of Common Stock remaining available for issuance by us in the future would increase.
Such additional shares of Common Stock would be available for issuance from time to time for corporate purposes such as issuances of Common Stock in connection with capital-raising transactions and acquisitions of companies or other assets, as well as the equity compensation program.for issuance upon conversion or exercise of securities such as convertible preferred stock, convertible debt, warrants or options convertible into or exercisable for Common Stock. We believe that the shareholders’ abilityavailability of the additional shares of Common Stock will provide us with the flexibility to contact usmeet business needs as they arise, to take advantage of favorable opportunities and to respond effectively in a changing corporate environment. For example, we may elect to issue shares of Common Stock to raise equity capital, to make acquisitions through the use of stock, to establish strategic relationships with other companies, to adopt additional employee benefit plans or reserve additional shares of Common Stock for issuance under such plans, where the Board atdetermines it advisable to do so, without the necessity of soliciting further shareholder approval, subject to applicable shareholder vote requirements under Utah law and NASDAQ rules. If we issue additional shares of Common Stock for any time to express specific views on executive compensation holds us accountable to shareholders and reducesof these purposes, the need for and valueaggregate ownership interest of more frequent advisory votes on executive compensation.
