| ·5. | Proposal 3: To approve the reincorporation of the Company from the State of Minnesota to the State of Nevada. |
| · | Proposal 4: To consider and vote upon a proposal to adjourn the annual meeting, if necessary or appropriate, including to solicit additional proxies if there are insufficient votes to constitute a quorum or to approve Proposal 3. |
| · | To transact such other business as may properly come before the annual meetingAnnual Meeting or any adjournment or postponement of the meeting. |
UnderProposal 3 is conditioned on the Minnesota Business Corporation Act, shareholdersapproval of Proposal 2. Therefore, unless the Company have certain dissenters’ rights in connection withCompany’s stockholders approve Proposal 2, the proposed reincorporation of the Company from the State of Minnesotaamendment to the State2016 Plan to increase the number of Nevada. See “Dissenters’ Rights” under Proposal 3 inshares subject to the accompanying Proxy Statement and Appendix D thereto.2016 Plan will be deemed not to have passed, even if it receives enough affirmative votes to pass independently.
Only shareholdersThe Board of record atDirectors has fixed the close of business on October 6, 2017, are entitled to notice of and to vote atSeptember 21, 2020 as the annual meeting and any adjournment or postponement of the meeting.
Each of you is invited and urged to attend the annual meeting in person if possible. Whether or not you are able to attend in person, you are requested to submit your proxy or voting instructions as soon as possible to ensure that your shares are voted at the annual meeting in accordance with your instructions. For instructions on voting, please refer to the Proxy Card you received in the mail.
| By Order of the Board of Directors
/s/ Michael J. Stein
Michael J. Stein, Secretary
|
October 25, 2017
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Shareholders to Be Held on November 21, 2017:
This Proxy Statement and our Annual Report on Form 10-K, as amended,
for the fiscal year ended December 31, 2016, are available on the internet at:
http://www.arcainc.com/investors/financial-filings/
|
TABLE OF CONTENTS
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
175 Jackson Avenue North, Suite 102
Minneapolis, Minnesota 55343
PROXY STATEMENT
Solicitation of Proxies
This proxy statement contains information relating to the annual meeting of shareholders of Appliance Recycling Centers of America, Inc. (the “Company”) to be held on Tuesday, November 21, 2017, beginning at 11:00 a.m., Pacific Standard Time, at 325 East Warm Springs Road, Suite 102, Las Vegas, Nevada 89119. Your proxy is solicited on behalf of the Board of Directors of the Company for use at the 2017 annual meeting of shareholders and any adjournment or postponement of the meeting.
The Company has engaged Alliance Advisors, LLC to assist with the solicitation of proxy votesrecord date for the 2017 annual meeting of shareholders and will pay a fee for such services.
The approximate date on which this proxy statement and form of proxy will first be made available to shareholders is October 25, 2017.
About2020 Annual Meeting. Only the Meeting
What is the purpose of the annual meeting?
At the Company’s annual meeting, shareholders will act upon the matters described in the accompanying notice of annual meeting of shareholders. This includes the election of four directors, the ratification of the appointment of our independent registered public accounting firm and the approval of the reincorporation of the Company from the State of Minnesota to the State of Nevada.
Who is entitled to vote?
Only shareholdersholders of record of outstandingour common stock or preferred stockSeries A-1 Convertible Preferred Stock as of the Company at the close of business on the record date October 6, 2017, are entitled to receive notice of, and to vote at, the meeting, or2020 Annual Meeting and any postponement or adjournment thereof. We have also enclosed with this notice (i) our Annual Report on Form 10-K for the fiscal year ended December 28, 2019 and (ii) a Proxy Statement.
Your vote is extremely important regardless of the meeting. Each outstanding sharenumber of common stock entitles its holdershares you own. Whether you own a few shares or many, and whether or not you plan to cast one vote on each matter toattend the Annual Meeting in person, it is important that your shares be voted upon. Each outstanding share of Series A Convertible Preferred Stock (the “Series A Preferred Stock”) entitles its holder to cast 4.5893 votes per share pursuant to the formula described in the Certificate of Designation for the Series A Preferred Stock as filed by the Company with the Minnesota Secretary of State on August 18, 2017. The shares of common stockrepresented and Series A Preferred Stock will vote together as a single class for all proposalsvoted at the annual meeting. The holdersYou may vote your shares on the Internet, by telephone, or by completing, signing, and promptly returning a proxy card or you may vote in person at the Annual Meeting. Voting online, by telephone, or by returning your proxy card does not deprive you of outstanding common stock are entitledyour right to a total of 6,875,365 votes, andattend the holders of Series A Preferred Stock are entitled to a total of 1,324,417 votes.Annual Meeting. Who can attend the meeting?
All holders of common stock or Series A Preferred Stock as of the record date, or their duly appointed proxies, may attend the meeting.
What constitutes a quorum?
| | By Order of the Board of Directors, | | | | | | /s/ Michael J. Stein | | | Michael J. Stein, Corporate Secretary |
The presence atproxy statement is dated October 2, 2020 and is first being made available to stockholders on or about October 2, 2020. Important Notice Regarding the meeting, in person or by proxy,Availability of Proxy Materials for the holdersAnnual Meeting of a majority of the voting power of the common stock and Series A Preferred Stock outstanding on the record date will constitute a quorum. A quorum is required for businessStockholders to be conductedheld on November 4, 2020: The Proxy Statement and Annual Report are available at the meeting. As of the record date, 6,875,365 shares of common stock of the Company and 288,588 shares of Series A Preferred Stock (entitled to a total of 1,324,417 votes) were outstanding, meaning that common stock and Series A Preferred Stock representing 4,099,891 votes will constitute a quorum. You will be considered part of the quorum if you submit a properly executed proxy card, vote your proxy by using the internet voting service or vote your proxy by using the toll-free telephone number listed on the proxy card, even if you abstain from voting. Shares held in “street name” by brokers that are voted on at least one proposal to come before the meeting will be counted as present in determining whether there is a quorum.www.proxy.docs.com/JAN.
TABLE OF CONTENTS i
JanOne Inc. 325 E. Warm Springs Road, Suite 102 Las Vegas, Nevada 89119 (800) 977-6038 PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 4, 2020 This Proxy Statement relates to the 2020 Annual Meeting of Stockholders (the “Annual Meeting”) of JanOne Inc. (“JanOne” or the “Company”). The Annual Meeting will be held on Wednesday, November 4, 2020, at 10:00 a.m. Pacific Time, at our corporate offices located at 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119, or at such other time and place to which the Annual Meeting may be adjourned or postponed. The enclosed proxy is solicited by the Company’s Board of Directors (the “Board”). The proxy materials relating to the Annual Meeting are first being mailed to stockholders entitled to vote at the Annual Meeting on or about October 2, 2020. References in this Proxy Statement to “2019” or “fiscal 2019” refer to the Company’s fiscal year ended December 28, 2019. QUESTIONS AND ANSWERS About the ANNUAL Meeting Q: | 1 | What is the purpose of the Annual Meeting? |
A: | At the Annual Meeting, holders of our common stock and Series A-1 Convertible Preferred Stock (the “Series A-1 Preferred Stock”) will act upon the matters outlined in the accompanying Notice of Annual Meeting and this Proxy Statement, including the (i) election of four directors to the Board, (ii) approval of an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of our common stock from 10,000,000 to 200,000,000 shares, (iii) approval of an amendment to the Company’s 2016 Equity Incentive Plan (the “2016 Plan”) to increase the number of shares subject to the 2016 Plan from 400,000 to 800,000 shares, and (iv) ratification of the appointment of WSRP, LLC as the Company’s independent registered public accounting firm for fiscal year 2020. |
Q: | What are the Board’s recommendations? |
A: | The Board recommends a vote: |
How do I vote?
Even if you plan to attend the annual meeting you are encouraged to vote by proxy. You may vote by proxy by oneFOR election of the following ways:nominated slate of directors;
| 1) | Sign and date each proxy card you receive and return it in the prepaid envelope; |
| 2) | Vote by internet at the address listed on the proxy card; or |
| 3) | Vote by telephone using the toll-free number listed on proxy card. |
If you vote by internet or telephone, your electronic vote authorizes FOR the proxy holders inapproval of the same manner as if you signed, datedamendment to the Company’s articles of incorporation to increase the number of authorized shares of common stock (the “Charter Amendment Proposal”);
FOR the approval of the amendment to the 2016 Plan (the “2016 Plan Amendment Proposal”); and returned your proxy card. If you vote by internet or telephone, do not return your proxy card. If you return your signed proxy card or vote by internet or telephone but do not give specific instructions as to how you wish to vote, your shares will be votedFORall nominees in Proposal 1,FOR the ratification of the Audit Committee’s appointment of ourWSRP, LLC as the Company’s independent registered public accounting firm in Proposal 2,FOR approval offor the reincorporation of the Company from the State of Minnesota to the State of Nevada in Proposal 3, andFOR the grant of authority to the Board to adjourn the annual meeting if necessary or appropriate in Proposal 4.2020 fiscal year.
Can I change my vote after I return my proxy card or my internet or telephone vote?
Yes. Even after you have submitted your proxy or voted by internet or telephone, you may change your vote or revoke your proxy at any time before the proxy is exercised at the meeting. You may change or revoke it by:
| 1) | Returning a later-dated signed proxy card or re-accessing the internet voting site or telephone voting number listed on the proxy card; |
| 2) | Delivering a written notice of revocation to the Company’s Secretary at the Company’s principal executive office at 175 Jackson Avenue North, Suite 102, Minneapolis, Minnesota 55343; or |
| 3) | Attending the meeting and voting in person at the meeting (although attendance at the meeting without voting at the meeting will not, in and of itself, constitute a revocation of your proxy). |
What are the Board’s recommendations?
The Board’s recommendations are set forth after the description of each proposal in this proxy statement. In summary, the Board recommends a vote:
| · | FOR the election of each of the nominated directors (see Proposal 1 on page 7). |
| · | FOR ratification of the appointment of our independent registered public accounting firm (see Proposal 2 on page 12). |
| · | FORapproval of the reincorporation of the Company from the State of Minnesota to the State of Nevada (see Proposal 3 on page 14). |
| · | FORapproval of the adjournment of the Annual Meeting if necessary or appropriate, including to solicit additional proxies if there are insufficient votes to constitute a quorum or to approve Proposal 3 (see Proposal 4 on page 29). |
If you submit your proxy card or vote by internet or telephone, unless you give other instructions on your proxy card or your internet or telephone vote, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board.
With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by the Board or, if no recommendation is given, in their own discretion. The 2016 Plan Amendment Proposal is conditioned on the approval of Charter Amendment Proposal. Therefore, unless the Company’s stockholders approve Charter Amendment Proposal, the 2016 Plan Amendment Proposal will be deemed not to have passed, even if it receives enough affirmative votes to pass independently. Q: | 2 | Who is entitled to attend the Annual Meeting? |
What vote is required to approve each proposal?
For the election of directors, each shareholder of outstanding common stock or Series A
A: | All holders of common stock and/or Series A-1 Preferred Stock as of the record date, September 21, 2020, or their duly appointed proxies, may attend the Annual Meeting. |
Q: | Who is entitled to vote at the Annual Meeting? |
A: | Only stockholders of record of outstanding shares of common stock and/or Series A-1 Preferred Stock of the Company at the close of business on the record date are entitled to receive notice of and to vote at the Annual Meeting, or any postponement or adjournment of the Annual Meeting. Each outstanding share of common stock entitles its holder to cast one vote on each matter to be voted upon. Each outstanding share of Series A-1 Preferred Stock entitles its holder to cast 17 votes per share on each matter to be voted upon, pursuant to the formula described in the Certificate of Designation of the Preferences, Rights, and Limitations of the Series A-1 Convertible Preferred Stock of JanOne (in its former name of Appliance Recycling Centers of America, Inc.) filed by the Company with the Nevada Secretary of State on June 21, 2019. The shares of common stock and Series A-1 Preferred Stock will vote together as a single class for all proposals at the Annual Meeting. The holders of outstanding common stock are entitled to a total of 1,829,982 votes. The holders of Series A-1 Preferred Stock are entitled to a total of 4,415,393 votes. As of the date of this Proxy Statement, no holder of Series A-1 Preferred Stock has converted his or its shares of Series A-1 Preferred Stock into shares of the Company’s common stock. |
Q: | What constitutes a quorum? |
A: | The presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the voting power of the common stock and Series A-1 Preferred Stock outstanding on the record date will constitute a quorum. A quorum is required for business to be conducted at the Annual Meeting. You will be considered part of the quorum if you submit a properly executed proxy card, vote your proxy by using the internet voting service, or vote your proxy by using the toll-free telephone number listed on the proxy card, even if you abstain from voting. Shares held in “street name” by brokers that are voted on at least one proposal to come before the Annual Meeting will be counted as present in determining whether there is a quorum. |
Q: | How do I vote my shares if they are registered directly in my name? |
A: | We offer four methods for you to vote your shares at the Annual Meeting. While we offer four methods, we encourage you to vote through the Internet or by telephone, as they are the most cost-effective methods for the Company. We also recommend that you vote as soon as possible, even if you are planning to attend the Annual Meeting, so that the vote count will not be delayed. Both the Internet and the telephone provide convenient, cost-effective alternatives to returning your proxy card by mail. There is no charge to vote your shares via the Internet, though you may incur costs associated with electronic access, such as usage charges from Internet access providers. If you choose to vote your shares through the Internet or by telephone, there is no need for you to mail your proxy card. |
You may (i) vote in person at the Annual Meeting or (ii) authorize the persons named as proxies on the enclosed proxy card, Tony Isaac and Virland A. Johnson, to vote your shares by voting through the Internet or by telephone or by returning the enclosed proxy card by mail. By Internet: Go to www.proxydocs.com/JAN. Have your proxy card available when you access the web site. You will need the control number from your proxy card to vote. By telephone: Call (866) 436-6852 toll-free (in the United States, U.S. territories and Canada) on a touch-tone telephone. Have your proxy card available when you call. You will need the control number from your proxy card to vote. By mail: Complete, sign and date the proxy card, and return it in the postage paid envelope provided with the proxy material. Q: | How do I vote my shares of common stock if they are held in the name of my broker (street name)? |
A: | If your shares of common stock are held by your broker, bank or other nominee, or its agent (“Broker”) in “street name,” you will receive a voting instruction form from your Broker asking you how your shares should be voted. You should contact your Broker with questions about how to provide or revoke your instructions. Holders of shares of Series A-1 Preferred Stock will receive the Proxy Materials directly from the Company. |
If you hold your shares in “street name” and do not provide specific voting instructions to your Broker, a “broker non-vote” will result with respect to Proposals 1, 2, and 3. Therefore, it is very important to respond to your Broker’s request for voting instructions on a timely basis if you want your shares held in “street name” to be represented and voted at the Annual Meeting. Please see below for additional information if you hold your shares in “street name” and desire to attend the Annual Meeting and vote your shares in person. Q: | What if I vote and change my mind? |
A: | If you are a stockholder and do not hold your shares in “street name,” you may change your vote or revoke your proxy at any time before the proxy is exercised at the Annual Meeting. You may change or revoke it by: |
Returning a later-dated signed proxy card or re-accessing the Internet voting site or telephone voting number listed on the proxy card; Delivering a written notice of revocation to the Company’s Secretary at the Company’s principal executive office at 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119; or Attending the meeting and voting in person at the meeting (although attendance at the meeting without voting at the meeting will not, in and of itself, constitute a revocation of your proxy). If you hold your shares in “street name,” refer to the voting instructing form provided by your Broker for more information about what to do if you submit voting instructions and then change your mind in advance of the Annual Meeting. Q: | How can I get more information about attending the Annual Meeting and voting in person? |
A: | The Annual Meeting will be held on Wednesday, November 4, 2020, at 10:00 a.m., Pacific Time, at our principal executive offices located at 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119, or such other time and place to which the Annual Meeting may be adjourned or postponed. For additional details about the Annual Meeting, including directions to the Annual Meeting and information about how you may vote in person if you so desire, please contact the Company’s Secretary at (702) 997-5968. |
Q: | What vote is required to approve each item? |
A: | Election of Directors. Election of a director requires the affirmative vote of the holders of a plurality of the shares for which votes are cast at a meeting at which a quorum is present. The four persons receiving the greatest number of votes will be elected as directors. Stockholders may not cumulate votes in the election of directors. |
Amendment to the Company’s Articles of Incorporation. Approval of the Charter Amendment Proposal requires the affirmative vote of the majority of the number of shares entitled to vote for four nominees and represented at the four nominees withAnnual Meeting, present in person or by proxy, in favor of the greatestproposal. Amendment to the Company’s 2106 Equity Incentive Plan. Approval of the 2016 Plan Amendment Proposal requires the affirmative vote of the majority of the number of votes will be elected. There is no cumulative votingshares entitled to vote and represented at the Annual Meeting, present in person or by shareholders.proxy, in favor of the proposal. Ratification of Auditors. With respect to ratification of the appointment of our independent registered public accounting firm, the approval of adjournment, or any other matter that properly comes beforeproposal will be approved if the meeting,proposal receives the affirmative vote of the holders of a majority of the outstanding voting powernumber of shares entitled to vote and represented at the common stock and Series A Preferred Stock representedAnnual Meeting, present in person or by proxy, and entitled to votein favor of the proposal. The 2016 Plan Amendment Proposal is conditioned on the proposal will be required for approval. With respect to the approval of the reincorporationCharter Amendment Proposal. Therefore, unless stockholders approve the Charter Amendment Proposal, the 2016 Plan Amendment Proposal will be deemed not to have passed, even if it receives enough affirmative votes to pass independently.
Q: | Are abstentions and broker non-votes counted in the vote totals? |
A: | A broker non-vote occurs when shares held by a Broker are not voted with respect to a particular proposal because the Broker does not have discretionary authority to vote on the matter and has not received voting instructions from its clients. If your Broker holds your shares in its name and you do not instruct your Broker how to vote, your Broker will only have discretion to vote your shares on “routine” matters. Where a proposal is not “routine,” a Broker who has received no instructions from its clients does not have discretion to vote its clients’ uninstructed shares on that proposal. At the Annual Meeting, only Proposal 4 (ratifying the appointment of our independent registered public accounting firm) is considered a routine matter. Your Broker will therefore not have discretion to vote on the election of directors, the Charter Amendment Proposal, or the 2016 Plan Amendment Proposal, as these are “non-routine” matters. |
Broker non-votes and abstentions by stockholders from voting (including Brokers holding their clients’ shares of record, who cause abstentions to be recorded) will be counted towards determining whether or not a quorum is present. However, as the four nominees receiving the highest number of affirmative votes will be elected, abstentions and broker non-votes will not affect the outcome of the Company from the Stateelection of Minnesotadirectors. With regard to the State of Nevada, the affirmative vote of the holders of a majority ofshares present at the outstanding voting power of the common stock and Series A Preferred Stock entitled to vote will bemeeting required for approval. A properly executed proxy marked “ABSTAIN” with respect to any proposal will not be voted on that proposal, although it will be counted for purposes of determining the number of shares necessary for approval ofCharter Amendment Proposal and the proposal. Accordingly, an abstention2016 Plan Amendment Proposal, since they are both non-routine matters, broker non-votes and abstentions will have the effect of an “AGAINST”a vote with respect to that proposal.
If you hold your shares in “street name” through a broker or other nominee, your broker or nominee may not be permitted to exercise voting discretion with respectagainst both proposals. With regard to the proposal to be acted upon. Therefore, if you do not give your broker or nominee specific instructions, your shares may not be voted on the proposal and generally will not be counted in determining the number of shares necessary for approvalaffirmative vote of the proposal; however, sinceshares present at the proposal to reincorporate the Company from the State of Minnesota to the State of Nevada requires the approval ofmeeting required for Proposal 4, it is a majority of the outstanding voting power of the common stock and Series A Preferred Stock, a “broker non-vote”routine matter so there will be no broker non-votes, but abstentions will have the effect of an “AGAINST”a vote with respect to this proposal.
Who will count the vote?
An Inspector of Elections will be appointed for the annual meeting and will work with a representative of Broadridge Financial Solutions, Inc. to count the votes.
What does it mean if I receive more than one proxy card?
If your shares are registered differently and are in more than one account, you will receive more than one set of proxy materials, including more than one proxy card. To ensure that all your shares are voted, sign and return all proxy cards or use the internet voting service or telephone voting service for each proxy card. We encourage you to have all accounts registered in the same name and address (whenever possible). You can accomplish this by contacting our stock transfer agent, Wells Fargo Shareowner Services, at 1-800-468-9716.
How will voting on any other business be conducted?
Although we do not know of any business to be considered at the 2017 annual meeting other than the proposals described in this proxy statement, if any other business is presented at the annual meeting, your proxy gives authority to Tony Isaac, Chief Executive Officer, and Michael J. Stein, Secretary, to vote on such matters at their discretion.
against Proposal 4. Q: | 3 | Who will count the vote? |
A: | An Inspector of Elections will be appointed for the Annual Meeting to count the votes. |
Q: | Can I dissent or exercise rights of appraisal? |
A: | Under Nevada law, neither holders of our common stock nor holders of our Series A-1 Preferred Stock are entitled to dissenters’ rights in connection with any of the proposals to be presented at the Annual Meeting or to demand appraisal of their shares as a result of the approval of any of the proposals. |
Q: | How will voting on any other business be conducted? |
A: | Although we do not know of any business to be considered at the Annual Meeting other than the proposals described in this proxy statement, if any other business is presented at the Annual Meeting, your proxy gives authority to Tony Isaac, President and Chief Executive Officer, and Virland A. Johnson, Chief Financial Officer, to vote on such matters at their discretion. |
Q: | When are stockholder proposals for the 2021 Annual Meeting of stockholders due? |
A: | To be considered for inclusion in the Company’s proxy statement for the Company’s Annual Meeting to be held in 2021, stockholder proposals must be received at the Company’s office no later than June 4, 2021, or, in the event the Company changes the date of its Annual Meeting to be held in 2021 by more than 30 days from the date of this year’s meeting, a reasonable time before the Company begins to print and send its proxy materials. Proposals must be in compliance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and must be submitted in writing and delivered or mailed to the Company’s Secretary, at JanOne Inc., 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119. |
Q: | Who pays for this proxy solicitation? |
A: | The Company will bear the entire cost of this proxy solicitation, including the preparation, assembly, printing, and mailing of this Proxy Statement, the proxy card, and any additional solicitation materials furnished to the stockholders. Copies of solicitation materials will be furnished to brokerage houses, fiduciaries, and custodians holding shares in their names that are beneficially owned by others so that they may forward the solicitation material to such beneficial owners. |
Q: | Where can I access this Proxy Statement and the related materials online? |
A: | The Proxy Statement and our Annual Report to Stockholders are available at http://www.proxydocs.com/JAN. |
When are shareholder proposals for the 2018 annual meeting of shareholders due?
To be considered for inclusion in the Company’s proxy statement for the Company’s annual meeting to be held in 2018, shareholder proposals must be received at the Company’s office no later than June 27, 2018 or, in the event the Company changes the date of its annual meeting to be held in 2018 by more than 30 days from the date of this year’s meeting, a reasonable time before the Company begins to print and send its proxy materials. Proposals must be in compliance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and must be submitted in writing and delivered or mailed to the Company’s Secretary, at Appliance Recycling Centers of America, Inc., 175 Jackson Avenue North, Suite 102, Minneapolis, Minnesota 55343.
Under Rule 14a-4(c)(1) of the Securities Exchange Act of 1934, as amended, any shareholder who wishes to have a proposal considered at the 2018 annual meeting of shareholders, but not submitted for inclusion in the Company’s proxy statement, must set forth such proposal in writing and file it with the Secretary of the Company no later than September 10, 2018 or, in the event the Company changes the date of its annual meeting to be held in 2018 by more than 30 days from the date of this year’s meeting, a reasonable time before the Company sends its proxy materials. Failure to notify the Company by that date would allow the Company’s proxy holders to use their discretionary voting authority (to vote for or against the proposal) when the proposal is raised at the annual meeting without any discussion of the matter being included in the Company’s proxy statement.
Who pays the cost of this proxy solicitation?
The expense of the solicitation of proxies for this annual meeting, including the cost of mailing, has been or will be borne by the Company. Arrangements will be made with brokerage houses and other custodian nominees and fiduciaries to send proxies and proxy materials to their principals and the Company will reimburse them for their expense in so doing. In addition to solicitation of proxies over the internet and through the mail, proxies may be solicited in person or by telephone or fax by certain of the Company’s directors, officers and regular employees, without additional compensation. The Company has engaged Alliance Advisors, LLC to assist with the solicitation of proxy votes for the 2017 annual meeting of shareholders and will pay a fee in connection with such services.
Do shareholders have dissenters’ or appraisal rights?
Shareholders have the right to dissent from the proposed reincorporation from the State of Minnesota to the State of Nevada and demand payment in cash for their shares equal to the fair value of the shares as determined under Minnesota law. For a detailed description of the reincorporation and dissenters’ rights, see “Proposal 3: Approval of Reincorporation of the Company from the State of Minnesota to the State of Nevada.”
SECURITY OWNERSHIP OF CERTAIN BOwnership of Capital StockENEFICIAL OWNERS AND MANAGEMENT Beneficial Ownership of Common Stock
The following table sets forth as of October 6, 2017, the record date for the annual meeting,certain information with respect to the beneficial ownership of shares of our common stock by and Series A-1 Preferred Stock as of September 21, 2020, for: each of the Company’s directors, our named executive officers; each of the namedour current directors; all of our current executive officers and all directors and executive officers of the Company as a group, as well asgroup; and each person known to us to be the beneficial owner of more than 5% of either our common stock or Series A-1 Preferred Stock. All share information aboutin the table (including footnotes) below reflects one-for-five (1:5) reverse stock split effectuated on April 19, 2019. The business address of each beneficial ownersowner listed in the table unless otherwise noted is c/o JanOne Inc., 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119. We deem shares of 5% or more of the Company’sour common stock. Beneficial ownership includes sharesstock and Series A-1 Preferred Stock that may be acquired in the nextby an individual or group within 60 days throughof September 21, 2020 pursuant to the exercise of options or warrants.warrants or conversion of convertible securities to be outstanding for the purpose of computing the percentage ownership of such individual or group, but these shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person or group shown in the table. Percentage of ownership is based on 1,829,982 shares of common stock and 259,729 shares of Series A-1 Preferred Stock (which are the voting equivalent of 4,415,393 shares of common stock) outstanding on September 21, 2020. The information as to beneficial ownership was either (i) furnished to us by or on behalf of the persons named or (ii) determined based on a review of the beneficial owners’ Schedules 13D/G and Section 16 filings with respect to our common stock and Series A-1 Preferred Stock. As of the date of this Proxy Statement, no holder of Series A-1 Preferred Stock has converted his or its shares of Series A-1 Preferred Stock into shares of the Company’s common stock.
| | | | | | | | Name of Beneficial Owner | | Position with Company | | Number of Shares Beneficially owned (1) | | | Percentage of Outstanding Common (2) | | Named Executive Officers and Directors: | | | | | | | | | | | Tony Isaac (3) | | Director, President and Chief Executive Officer | | | 94,000 | | | | 5.0 | % | Eric Bolling (4) | | Chairman, President | | | 151,607 | | | | 8.1 | % | Virland A. Johnson | | Chief Financial Officer | | | 38,514 | | | | 2.1 | % | Richard D. Butler (3) | | Director | | | 18,000 | | | * | | John Bitar (5) | | Director | | | — | | | * | | Nael Hajjar | | Director | | | — | | | * | | All directors and executive officers as a group (6 persons) | | | | | 302,121 | | | | 16.2 | % | Other 5% stockholders: | | | | | | | | | | | Timothy M. Matula (6) | | | | | 114,000 | | | | 6.1 | % | Isaac Capital Group, LLC (7) | | | | | 392,941 | | | | 21.0 | % |
| Beneficial Owner | | Position with Company | | Number of Shares Beneficially Owned
(1) | | | Percent of Outstanding Common
(2) | | | Directors and executive officers: | | | | | | | | | | | | Tony Isaac (4) | | Director, Chief Executive Officer | | | 60,000 | | | | * | | | Virland A. Johnson | | Chief Financial Officer | | | – | | | | * | | | Edward R. Cameron (3) (4) | | Former President of ARCA Recycling, Inc. | | | 662,467 | | | | 9.3% | | | Jeffery Ostapeic | | Former Chief Financial Officer | | | – | | | | * | | | Bradley S. Bremer (4) | | President of ApplianceSmart, Inc. | | | 32,625 | | | | * | | | Richard D. Butler (4) | | Director | | | 40,000 | | | | * | | | Timothy M. Matula (4) | | Director | | | 10,000 | | | | * | | | Dennis (De) Gao (4) | | Director | | | 20,000 | | | | * | | | All directors and executive officers as a group (9 persons) (4) | | | | | 851,342 | | | | 12.1% | | | Other 5% shareholders: | | | | | | | | | | | | Isaac Capital Group, LLC (5) | | | | | 587,890 | | | | 8.6% | | | Abacab Capital Management (6) | | | | | 439,587 | | | | 6.4% | | | Energy Efficiency Investments, LLC (7) | | | | | 669,901 | | | | 9.7% | |
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* Indicates ownership of less than 1% of the outstanding shares | (1) | Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to such shares. |
(2) | (2) | Applicable percentage of ownership is based on 6,875,3651,829,982 shares of common stock outstanding as of October 6, 2017September 21, 2020 plus, for each shareholder,stockholder, all shares that such shareholderstockholder could purchaseacquire within 60 days upon the exercise of existing stock options and warrants.warrants or conversion of existing convertible securities. |
(3) | (3) | Includes 302,690 shares that are pledged to secure a personal line of credit. |
| (4) | Includes shares whichthat could be purchased within 60 days upon the exercise of existing stock options or warrants, as follows: Mr. Isaac, 10,000 shares; Mr. Cameron, 240,000 shares; Mr. Bremer, 27,500 shares;2,000 shares and Mr. Butler, 20,000 shares;4,000 shares. |
(4) | These shares are beneficially owned by the Eric Chase Foundation, Inc. Mr. Bolling has informed the Board that he will not stand for re-election at the Annual Meeting. |
(5) | Dennis Gao resigned from the Board of Directors effective January 6, 2020 and was replaced by John Bitar as disclosed in the Company’s Current Report on Form 8-K filed with the SEC on January 10, 2020. Mr. Bitar replaced Mr. Gao on the Audit Committee. |
(6) | Includes 2,000 shares that could be purchased by Mr. Matula 10,000 shares; Mr. Gao, 20,000 shares; and all directors and executive officers as a group, 353,500 shares. The address for each individual is 175 Jackson Avenue North, Suite 102, Minneapolis, Minnesota 55343.within 60 days upon the exercise of existing stock options. |
(7) | (5) | According to a Schedule 13D/A13G filed October 5, 2015,with the SEC on April 30, 2019, Isaac Capital Group, LLC (“Isaac Capital”) beneficially owned 587,890392,941 shares of common stock. Isaac Capital has sole dispositive power as to all 587,890392,941 shares and sole voting power as to 587,890350,519 shares. The address for Isaac Capital is 3525 Del Mar Heights Road, Suite 765, San Diego, CACalifornia 92130. |
| (6) | According to a Schedule 13G filed March 11, 2015, Abacab Capital Management, LLC (“Abacab”) beneficially owned 439,587 shares of common stock. Abacab has sole dispositive and voting power as to all 439,587 shares. The address for Abacab is 33 W. 38th Street, New York, NY 10018. |
| (7) | Energy Efficiency Investments, LLC (“EEI”) beneficially owns 669,901 shares of common stock, including 50,354 shares issuable upon exercise of an existing note and warrant. EEI has sole dispositive and voting power as to all 669,901 shares. The address for EEI is 600 Anton Boulevard, Suite 9000, Costa Mesa, CA 92626-7221. |
Beneficial Ownership of Series AA-1 Preferred Stock
The following table sets forth as of October 6, 2017, the record date for the annual meeting, the beneficial ownership of Series A Preferred Stock by each owner of 5% or more of the Company’s Series A Preferred Stock. No officers or directors of the Company have beneficial ownership of Series A Preferred Stock. Beneficial ownership includes shares that may be acquired in the next 60 days through the exercise of options or warrants.
| Beneficial Owner | | Number of Shares Beneficially Owned (1) | | | Percent of Outstanding
Series A Preferred (2) | | | Gregg Sullivan (3) | | | 57,718 | | | | 20.0% | | | Juan Yunis (4) | | | 216,729 | | | | 75.1% | | | Isaac Capital Group, LLC (5) | | | 14,141 | | | | 4.9% | |
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| | | | Name of Beneficial Owner | | Number of Shares Beneficially owned (1) | | | Percentage of Outstanding Series A-1 Preferred (2) | | Isaac Capital Group, LLC (3) | | | 14,141 | | | | 5.44 | % | Gregg Sullivan (4) | | | 28,859 | | | | 11.11 | % | Juan Yunis (5) | | | 216,729 | | | | 83.44 | % |
(1) | (1) | Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to such shares. |
(2) | (2) | Applicable percentage of ownership is based on 288,588259,729 shares of Series AA-1 Preferred Stock outstanding as of October 6, 2017 plus, for each shareholder, allSeptember 21, 2020. As of the date of this Proxy Statement, no holder of Series A-1 Preferred Stock has converted his or its shares that such shareholder could purchase within 60 days uponof Series A-1 Preferred Stock into shares of the exercise of existing stock options and warrants.Company’s common stock. |
(3) | (3) | The business address for Mr. Sullivan is c/o Appliance Recycling Centers of America, Inc., 175 Jackson Avenue North, Suite 102, Minneapolis, Minnesota 55343. |
| (4) | The business address for Mr. Yunis is c/o Appliance Recycling Centers of America, Inc., 175 Jackson Avenue North, Suite 102, Minneapolis, Minnesota 55343. |
| (5) | The address for Isaac Capital is 3525 Del Mar Heights Road, Suite 765, San Diego, CACalifornia 92130. |
(4) | The last known address for Mr. Sullivan is 4565 Dean Martin Drive, #106, Las Vegas, Nevada 89103. On January 16, 2019, GeoTraq terminated the employment of Mr. Sullivan pursuant to the terms of the employment agreement dated August 18, 2017 (the “Sullivan Employment Agreement”) between GeoTraq and Mr. Sullivan. Under the terms of the Sullivan Employment Agreement, 28,859 of the shares of the Company’s Series A Preferred Stock owned by Mr. Sullivan immediately prior to the termination are deemed to have been returned to the Company’s treasury for cancellation effective as of January 16, 2019, without the requirement that either Mr. Sullivan or the Company take any further action. An equivalent number of shares of Series A Preferred Stock were exchanged by the Company for such shares of Series A-1 Preferred Stock on June 19, 2019, in conjunction with an exchange by the Company for each holder of shares of Series A Preferred Stock as of such date. |
(5) | According to a Schedule 13D filed with the SEC on April 12, 2019, Juan Yunis beneficially owns 216,729 shares of Series A-1 Preferred Stock. Mr. Yunis has sole dispositive and voting power as to all 216,729 shares of Series A-1 Preferred Stock. The address for Mr. Yunis is Carrera 44B # 96 - 67 Torre 1 Apto 1103, Barranquilla, Atlantico, 08002, Colombia. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC. Such officers, directors and 10% shareholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of such forms received by it, or written representations from certain reporting persons, the Company believes that, during the fiscal year ended December 31, 2016, its officers, directors and 10% shareholders timely complied with all Section 16(a) filing requirements, except as follows: Mr. Gao and Mr. Butler filed late Form 4s on April 13, 2017, reporting grants of stock options on December 29, 2016 upon their reelection to the Board of Directors.
Proposal 1:
Election of Directors
(proposal No. 1) General Information
The property, affairs, and business of the Company are managed under the direction of the Board of Directors. A board of four directors is to be elected at the meeting.Annual Meeting. Unless otherwise instructed, the proxy holders will vote the proxies received by them for management’sthe Board’s four nominees. The term of office for each person elected as a director will continue until the next annual meetingAnnual Meeting of shareholdersstockholders and until a successor has been elected and qualified, or until such director is removed or resigns. All of the nominees named below are presently directors of the Company and have served continuously since the year indicated. All nominees have indicated a willingness to serve if elected. The Company knows of no arrangements or understandings between a nominee and any other person pursuant to which the nominee has been selected as a director. All shares represented by proxies that have been properly executed and returned or properly voted using the internet or telephone voting service will be voted for the election of all of the nominees named below, unless other instructions are indicated thereon. In the event any one or more of such nominees should for any reason not be able to serve as a director, the proxies will be voted for such other person or persons as may be designated by the Board. The Board recommends a vote FOR allvoting “FOR” the election of each of the nominees.Director nominees as directors, each of whom shall hold office for a term of one year, expiring at the Annual Meeting in 2021, and until his successor is elected and qualified, or until his earlier death, resignation, or removal. Nominees for Election to the Board The names of the nominees are set forth in the table below. Following the table is certain information for at least the last five years regarding each nominee. | Name | | Position with Company | | Director Since | | | Age | | | Position with Company | | Director Since | | Age as of September 21, 2020 | | | Tony Isaac | | Director and Chief Executive Officer | | | 2015 | | | | 63 | | | Director, President and Chief Executive Officer | | 2015 | | | 66 | | | Richard D. Butler | | Director | | | 2015 | | | | 69 | | | Director | | 2015 | | | 72 | | | Dennis (De) Gao | | Director | | | 2015 | | | | 37 | | | | Timothy M. Matula | | Director | | | 2016 | | | | 57 | | | Nael Hajjar | | | Director | | 2018 | | | 36 | | John Bitar | | | Director | | 2020 | | | 46 | |
Tony Isaachas been a director of the Company since May 2015 and Chief Executive Officer of the Company since May 2016. He served as Interim Chief Executive Officer of the Company from February 2016 until May 2016. Mr. Isaac has served as Financial Planning and Strategist/Economist of Live Ventures Incorporated (NASDAQ:(“Live Ventures”) (Nasdaq: LIVE), a holding company providing specialized online marketing solutions to small-to-medium sized local business that boost customer awareness and merchant visibility,for diversified businesses, since July 2012. He is the Chairman and Co-Founder of Isaac Organization, a privately held investment company. Mr. Isaac has invested in various companies, both private and public from 1980 to present. Mr. Isaac’s specialty is negotiation and problem-solving of complex real estate and business transactions. Mr. Isaac has served as a director of Live Ventures Incorporated since December 2011. On December 9, 2019, ApplianceSmart, Inc. (“ApplianceSmart”), a subsidiary of Live Ventures, filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code. Mr. Isaac graduated from Ottawa University in 1981, where he majored in Commerce and Business Administration and Economics. We believe that Mr. Isaac has significant investment and financial expertise and public board experience that he brings to the Board. Richard D. Butler, Jr. has been a director of the Company since May 2015. Mr. Butler is the owner of Solution Provider Services, an advisory firm whichthat provides real estate, corporate, and financial advisory services since 1999, and is the co-Founder, Managing Director, and, since 2005, a major shareholderstockholder of Ref-Razzer Company, a whistle manufacturing and vending company, since 2005.company. Prior to this, Mr. Butler was the Co-Founder and Executive Vice President of Aspen Healthcare, Inc. from 1996 to 1999. From 1993 to 1996, Mr. Butler was a Managing Director at Landmark Financial and from 1989 to 1993 he was a Partner at Cal Ventures Real Estate Investment Group. Prior to this, Mr. Butler has also served as the President and Chief Executive Officer of Mt. Whitney Savings Bank, Chief Executive Officer of First Federal Mortgage Bank, Chief Executive Officer of Trafalgar
Mortgage, and Executive Officer and Member of the President’s Advisory Committee at State Savings & Loan Association (peak assets $14 billion) and American Savings & Loan Association (NYSE: FCA; peak assets $34 billion). Mr. Butler has served on the board of directors of Live Ventures Incorporated (NASDAQ:(Nasdaq: LIVE), a company providing specialized online marketing solutions to small-to-medium sized local business that boost customer awareness and merchant visibility, since August 2006 (including YP.com from 2006 to 2007). Mr. Butler has been2006. On December 9, 2019, ApplianceSmart, a directorsubsidiary of Dataram Corporation (NASDAQ: DRAM), an independent memory manufacturer which develops, manufactures, and markets large capacity memory products primarily usedLive Ventures, filed a voluntary petition in servers and workstations worldwide, since November 2014. the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code. Mr. Butler attended Bowling Green University in Ohio, San Joaquin Delta College in California, and Southern Oregon State College. We believe that Mr. Butler brings to the Board extensive experience in financial management and executive roles, which enable him to provide important expertise in financial, operating and strategic matters that impact our Company. Dennis (De) GaoJohn Bitar has been a director of the Company since May 2015.January 2020. Since 2012, Mr. GaoBitar has been providing consulting services to companies and clients on business and legal strategies, management, operations, and cost controls. From 2007 to 2012, Mr. Bitar co-founded and was Managing Partner of a worker’s compensation law firm. Mr. Bitar has been an attorney admitted to the California State Bar since 1999. Mr. Bitar graduated from July 2010 to March 2013, served as the CFO at Oxstones Capital Management, a privately held companyUniversity of Southern California in 1996 and a social and philanthropic enterprise, serving as an idea exchange for the global community. Prior to establishing Oxstones Capital Management, from June 2008 until July 2010, Mr. Gao was a product owner at The Procter & Gamble Company for its consolidation system and was responsible for the Procter & Gamble’s financial report consolidation process. From May 2007 to May 2008, Mr. Gao was a financial analyst at the Internal Revenue Service’s CFO division. Mr. Gao has served as a director of Live Ventures Incorporated (NASDAQ: LIVE) and as a member of the Audit Committee of Live Ventures Incorporated since January 2012. Mr. Gao has a dual major Bachelor of Science degreeearned his Juris Doctorate Degree in Computer Science and Economics1999 from University of Maryland, and an M.B.A. specializing in finance and accounting from Georgetown University’s McDonoughthe Pacific, McGeorge School of Business.Law. We believe that Mr. GaoBitar has significant finance, accounting and operationalbusiness experience and brings substantial finance and accountingoperational expertise to the Board.
Timothy M. MatulaNael Hajjar has been a director of the Company since August 2016.2018. Mr. MatulaHajjar is an independent consultantcurrently the Unit Head for the Annual Wholesale Trade Survey in Statistics Canada’s Manufacturing and advisesWholesale Trade Division. From March 2011 through May 2016, Mr. Hajjar was a numberSenior Analyst – Economist of different companies and serves onStatistics Canada’s Producer Prices Division where he developed Canada’s first ever Investment Banking Services Price Index while leading the Boarddevelopment of Directors of Spyr, Inc. a publicly traded e-gaming company. He joined Shearson Lehman Brothers as a financial consultant in 1992. In 1994 he joined Prudential Securities and when he left Prudential in 1997, he was Associate Vice President, Investments, Quantum Portfolio Manager. In April 2007, Mr. Matula entered into a consent order with the Securities Division of the Washington State Departmentvariety of Financial Institutions (the “Securities Division”), which requiredServices Price Index development projects. We believe that Mr. Matula to cease and desist from operating as an investment adviser in Washington in any manner in violation of Washington law and to pay a fine. Mr. Matula had previously been operating as an investment adviser in Washington but had not been registered as such with the Securities Division. Mr. MatulaHajjar brings to the Board extensive experience in research and analysis of financial statistics, economics, and business practices in a broad rangevariety of business experience, investors’ relationsindustries including manufacturing, logging, Wholesale Trade, and finance.financial services. We believe that Mr. MatulaHajjar also has extensive experience in SECproject management, and Sarbanes-Oxley compliance matters and accounting matters. He also has over 15 years’ experience working in Asia with privately held and publicly-held traded companies. Hehe holds a Bachelor of Social Science, degreeHonors in business administrationEconomics (which he earned in 2006), and Bachelor of Commerce, Option in Finance (which he earned in 2008), both from California Statethe University Fresno.of Ottawa.
Director Independence
There are no family relationships betweenamong any of the directors or executive officers of the Company. Of the current directors, each of Mr.Messrs. Butler, Mr. GaoBitar, and Mr. Matula areHajjar is an “independent” directorsdirector, as defined under the rules of The NASDAQNasdaq Stock Market (“NASDAQ”Nasdaq”) and haveeach has been an independent directorsdirector since each joined the Board. Mr. Isaac ceased to be “independent” on February 29, 2016, when he assumed the role of Interim Chief Executive Officer for the Company. Board Leadership Structure and Role in Risk Oversight
Mr.Tony Isaac, the Company’sour President and Chief Executive Officer, also serves as Chairman of the Board. Currently, the Board does not have a memberLead Independent Director. Although the Board reserves the right to make changes in the future, it believes that the current structure, as described in this Proxy Statement, is appropriate at this time given the size and experience of the Board, as well as the background and experience of Directors. The Company has not named a lead director or Chairman. The Company believes this is appropriate for the Company at this time because of the size of the Company, the size of the Board, and Mr. Isaac’s responsibility for the day-to-day management of the Company’s business. In view of these factors, the Board of Directors believes it makes sense for Mr. Isaac to participate in the Board’s discussions of developments in the Company’s business and business strategy and its results of operations.
. It is management’s responsibility to manage risk and bring to the attention of the Board of Directors the most material risks affecting the Company. The Board of Directors, including through committees of the Board Committees comprised solely of independent directors, regularly reviews various areas of significant risk to the Company, and advises and directs management on the scope and implementation of policies, strategic initiatives, and other actions designed to mitigate various types of risks. Specific examples of risks primarily overseen by the full Board of Directors include competition risks, industry risks, economic risks, liquidity risks, and business operations risks. The Audit Committee reviews with management and the independent auditors significant financial risk exposures and the processes management has implemented to monitor, control, and report such exposures. The Audit Committee also reviews and approves transactions with related persons. The Compensation and Benefits Committee (the “Compensation Committee”) reviews and evaluates potential risks related to the attraction and retention of talent, and risks related to the design of compensation programs established by the Compensation Committee for the Company’s executive officers.
Actions and Committees of the Board of Directors
In 2016fiscal 2019, the Board of Directors met two times and took action by unanimous written consent nine times. In 2016fiscal 2019, the Board of Directors had three standing committees: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. The Audit Committee met five times.times during fiscal 2019. The Compensation Committee did not meet during fiscal 2019. The Nominating and Corporate Governance Committee and Compensation Committee did not hold a formal meetingsmeeting during 2016.fiscal 2019 but did take one action by unanimous written consent. The Board currently has no other standing committees and has no current plans to establish additional committees. Other than Mr. Isaac who was unable to attend one of the Board meetings, eachEach person who served as a director during 2016fiscal 2019 attended allat least 75% of the meetings of the Board of Directors and of the committees on which the director served. It is the Company’s policy that all directors should attend the annual meetingAnnual Meeting of shareholders. Last year, allstockholders. Three out of thefive members of the Board of Directors who were in place at the time of last year’s annual meeting attended last year’s annual meeting of shareholders.stockholders. Audit Committee The Audit Committee of the Board of Directors is comprised entirely of non-employee directors. In fiscal 2019, the members of the Audit Committee were Mr. Gao, Mr. Butler (Chair), and Mr. Hajjar. Each of Messrs. Gao, Butler, and Hajjar was an “independent” director as defined under Nasdaq rules. The Audit Committee is responsible for selecting and approving the Company’s independent auditors, for relations with the independent auditors, for review of internal auditing functions (whether formal or informal) and internal controls, and for review of financial reporting policies to assure full disclosure of financial condition. The Audit Committee operates under a written charter adopted by the Board of Directors, which is posted on the Company’s website at www.janone.com under the caption “Investor Relations - Governance.” The Board has determined that Mr. Butler is an “audit committee financial expert” as defined in SEC rules. Mr. Gao resigned from the Board of Directors effective January 6, 2020 and was replaced by John Bitar as disclosed in the Company’s Current Report on Form 8-K filed with the SEC on January 10, 2020. Mr. Bitar replaced Mr. Gao on the Audit Committee. The Audit Committee operates under a written charter adopted by the Board of Directors, which is posted on the Company’s website at www.janone.com under the caption “Investor Relations – Governance.” Compensation and Benefits Committee
The Compensation Committee of the Board of Directors is comprised entirely of non-employee directors. In fiscal 2016,2019, the members of the Compensation Committee were Mr. Isaac (until February 29, 2016), Mr. Gao and Mr. Butler (Chairman) and Mr. Matula (commencing August 19, 2016)(Chair), each of whom was also an “independent” director as defined under NASDAQNasdaq rules. Mr. Isaac resigned from the Compensation Committee upon his appointment as Interim CEO on February 29, 2016. Mr. Matula was appointed to the board and the Compensation Committee on August 19, 2016. The Compensation Committee is responsible for review and approval of officer salaries and other compensation and benefits programs and determination of officer bonuses. Annual compensation for the Company’s executive officers, other than the CEO, is recommended by the CEO and approved by the Compensation Committee. The annual compensation for the CEO is recommended by the Compensation Committee and formally approved by the full Board of Directors. The Compensation Committee may approve grants of equity awards under the Company’s stock compensation plans. Mr. Gao resigned from the Board of Directors effective January 6, 2020 and was replaced by Mr. Bitar as disclosed in the Company’s Current Report on Form 8-K filed with the SEC on January 10, 2020. Following Mr. Gao’s resignation, Messrs. Butler (Chair) and Hajjar serve as the members of the Compensation Committee. The Compensation Committee operates under a written charter adopted by the Board of Directors, which is posted on the Company’s website at www.janone.com under the caption “Investor Relations – Governance.” In the performance of its duties, the Compensation Committee may select independent compensation consultants to advise the committee when appropriate. No compensation consultant played a role in the executive officer and director compensation for fiscal 2016.2019. In addition, the Compensation Committee may delegate authority to subcommittees where appropriate. The Compensation Committee may separately meet with management if deemed necessary and appropriate. The Compensation Committee operates under a written charter adopted by the Board of Directors in March 2011, which is posted on the Company’s website at www.arcainc.comwww.janone.com under the caption “Investors -– Corporate Governance.” Governance Committee Audit Committee
The Audit Committee of the Board of Directors is comprised entirely of non-employee directors. In fiscal 2016, the members of the Audit Committee were Mr. Isaac (until February 29, 2016), Mr. Gao, Mr. Butler and Mr. Matula (commencing August 19, 2016), each of whom was also an “independent” director as defined under NASDAQ rules. Mr. Isaac resigned from the Audit Committee upon his appointment as Interim CEO on February 29, 2016, and Mr. Butler was named Chairman of the committee. Mr. Matula was appointed to the board and the Audit Committee on August 19, 2016. The Audit Committee is responsible for selecting and approving the Company’s independent auditors, for relations with the independent auditors, for review of internal auditing functions (whether formal or informal) and internal controls, and for review of financial reporting policies to assure full disclosure of financial condition. The Audit Committee operates under a written charter adopted by the Board of Directors, which is posted on the Company’s website at www.arcainc.com under the caption “Investors - Corporate Governance.” The Board has determined that Mr. Butler is an “audit committee financial expert” as defined in SEC rules.
The Audit Committee discussed with the Company’s independent auditors the overall scope and plans for their audit. The Audit Committee meets with the independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting. The Audit Committee held five meetings during 2016, with the independent auditors present at each meeting. In addition, at the end of each quarter and year-end the chairman of the Audit Committee and/or the full Audit Committee discussed with the independent auditors their findings and procedures relative to the auditor’s quarterly reviews and annual audit.
Review, Approval or Ratification of Transactions with Related Persons
The Audit Committee, comprised of Mr. Gao, Mr. Isaac (Chairman until February 29, 2016), Mr. Matula (Member since August 19, 2016) and Mr. Butler (Chairman effective February 29, 2016), is responsible for the review and approval of all transactions in which the Company was or is to be a participant and in which any executive officer, director or director nominee of the Company, or any immediate family member of any such person (“related persons”) has or will have a material interest. In addition, all, if any, transactions with related persons that come within the disclosures required by Item 404 of the SEC’s Regulation S-K must also be approved by the Audit Committee. The policies and procedures regarding the approval of all such transactions with related persons have been approved at a meeting of the Audit Committee and are evidenced in the corporate records of the Company. Each member of the Audit Committee is an “independent” director as defined under NASDAQ rules. Mr. Isaac was independent until February 29, 2016 when he was appointed Interim CEO for the Company, at which point in time he resigned from the Audit Committee and Mr. Butler was appointed as Chairman of the Audit Committee.
Board Practice Related to Nominations of Directors
The Nominating and Corporate Governance Committee (the “Governance Committee”) is comprised entirely of non-employee directors. In fiscal 2016,2019, the members of the Governance Committee were Mr. Isaac (until February 29, 2016), Mr. Gao
(Chairman), Mr. Butler and Mr. Matula (commencing August 19, 2016),Butler, each of whom was also an “independent” director as defined under NASDAQNasdaq rules. Mr. Isaac resigned from the Governance Committee upon his appointment as Interim CEO on February 29, 2016. Mr. Matula was appointed to the board and the Governance Committee on August 19, 2016. The primary purpose of the Governance Committee is to ensure an appropriate and effective role for the Board of Directors in the governance of the Company. The principal recurring duties and responsibilities of the Governance Committee include (i) making recommendations to the Board regarding the size and composition of the Board, (ii) identifying and recommending to the Board of Directors candidates for election as directors, (iii) reviewing the Board’s committee structure, composition and membership and recommending to the Board candidates for appointment as members of the Board’s standing committees, (iv) reviewing and recommending to the Board corporate governance policies and procedures, (v) reviewing the Company’s Code of Business Ethics and Conduct and compliance therewith, and (vi) ensuring that emergency succession planning occurs for the positions of Chief Executive Officer, other key management positions, the Board chairperson and Board members. Mr. Gao resigned from the Board of Directors effective January 6, 2020 and was replaced by John Bitar as disclosed in the Company’s Current Report on Form 8-K filed with the SEC on January 10, 2020. Following Mr. Gao’s resignation, Messrs. Butler (Chair) and Bitar serve as the members of the Governance Committee. The Governance Committee operates under a written charter adopted by the Board of Directors, in March 2011, which is posted on the Company’s website at www.arcainc.comwww.janone.com under the caption “Investors“Investor Relations - Corporate Governance.” The Governance Committee will consider director candidates recommended by shareholders.stockholders. The criteria applied by the Governance Committee in the selection of director candidates is the same whether the candidate was recommended by a Board member, an executive officer, a shareholderstockholders or a third party, and accordingly, the Governance Committee has not deemed it necessary to adopt a formal policy regarding consideration of candidates recommended by shareholders. Shareholdersstockholders. Stockholders wishing to recommend candidates for Board membership should submit the recommendations in writing to the Secretary of the Company. The Governance Committee identifies director candidates primarily by considering recommendations made by directors, management, and shareholders.stockholders. The Governance Committee also has the authority to retain third parties to identify and evaluate director candidates and to approve any associated fees or expenses. Board candidates are evaluated on the basis of a number of factors, including the candidate’s background, skills, judgment, diversity, experience with companies of comparable complexity and size, the interplay of the candidate’s experience with the experience of other Board members, the candidate’s independence or lack of independence, and the candidate’s qualifications for committee membership. The Governance Committee does not assign any particular weighting or priority to any of these factors and considers each director candidate in the context of the current needs of the Board as a whole. Director candidates recommended by shareholdersstockholders are evaluated in the same manner as candidates recommended by other persons. Review, Approval or Ratification of Transactions with Related Persons The Audit Committee is responsible for the review and approval of all transactions in which the Company was or is to be a participant and in which any executive officer, director, or director nominee of the Company, or any immediate family member of any such person (“related persons”) has or will have a material interest. In addition, all, if any, transactions with related persons that come within the disclosures required by Item 404 of the SEC’s Regulation S-K must also be approved by the Audit Committee. The policies and procedures regarding the approval of all such transactions with related persons have been approved at a meeting of the Audit Committee and are evidenced in the corporate records of the Company. Each member of the Audit Committee is an “independent” director as defined under Nasdaq rules. Code of Ethics
Our Audit Committee has adopted a code of ethics applicable to our directors and officers (including our Chief Executive Officer, President, and Chief Financial Officer) and other of our senior executives and employees in accordance with applicable rules and regulations of the SEC and The NASDAQ Stock Market.Nasdaq. A copy of the code of ethics may be obtained upon request, without charge, by addressing a request to Investor Relations, ARCA,Corporate Secretary, JanOne Inc., 175 Jackson Avenue North,325 E. Warm Springs Road, Suite 102, Minneapolis, MN 55343.Las Vegas, Nevada 89119. The code of ethics is also posted on our website at www.arcainc.comwww.janone.com under “Investors —– Corporate Governance.” We intend to satisfy the disclosure requirement under Item 105.05 of Form 8-K regarding the amendment to, or waiver from, a provision of the code of ethics by posting such information on our website at the address and location specified above and, to the extent required by the listing standards of the NASDAQNasdaq Capital Market, by filing a Current Report on Form 8-K with the SEC disclosing such information.
Board Contact Information
If you would like to contact the Board or any committee of the Board, you can send an email to board@arcainc.com,board@janone.com, or write to Appliance Recycling Centers of America,JanOne Inc., c/o Corporate Secretary, 175 Jackson Avenue North,325 E. Warm Springs Road, Suite 102, Minneapolis, Minnesota 55343.Las Vegas, Nevada 89119. All communications will be compiled by the Secretary of the Company and submitted to the Board or the applicable committee or director on a periodic basis. EXECUTIVE OFFICERS Set forth below is certain information regarding each of our current executive officers as of September 21, 2020, other than Tony Isaac, whose biographical information is presented under “Nominees for Election to the Board of Directors.” Virland A. Johnson, 60 | Mr. Johnson was appointed Chief Financial Officer of the Company on August 21, 2017. Mr. Johnson had previously served the Company as a consultant beginning in February 2017. Mr. Johnson also continues to serve as Chief Financial Officer for Live Ventures. On December 9, 2019, ApplianceSmart, a subsidiary of Live Ventures, filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code. Prior to joining Live Ventures, Mr. Johnson was Sr. Director of Revenue for JDA Software from February 2010 to April 2016, where he was responsible for revenue recognition determination, sales and contract support while acting as a subject matter expert. Prior to joining JDA, Mr. Johnson provided leadership and strategic direction while serving in C-Level executive roles in public and privately held companies such as Cultural Experiences Abroad, Inc., Fender Musical Instruments Corp., Triumph Group, Inc., Unitech Industries, Inc. and Younger Brothers Group, Inc. Mr. Johnson’s more than 25 years of experience is primarily in the areas of process improvement, complex debt financings, SEC and financial reporting, turn-arounds, corporate restructuring, global finance, merger and acquisitions and returning companies to profitability and enhancing stockholder value. Mr. Johnson holds a Bachelor’s degree in Accountancy from Arizona State University which he earned in 1982. |
APPROVAL OF AN AMENDMENT TO THE COMPANY’S ARTICLES OF INCORPORATION TO INCREASE OUR AUTHORIZED COMMON STOCK (Proposal No. 2) Our Board of Directors has determined that it is in our best interest, and in the best interest of our stockholders, to amend our Articles of Incorporation to increase the total number of authorized shares of common stock from 10,000,000 shares to 200,000,000 shares (the proposed “Charter Amendment”). If approved by our stockholders, the Charter Amendment will become effective upon the filing of the Charter Amendment with the Nevada Secretary of State, which filing is expected to occur promptly after the Annual Meeting. The text of the Charter Amendment is set forth in Appendix A, and this description of the proposed amendment to our Articles of Incorporation is qualified by the full text of the Charter Amendment. Capitalization Our existing Articles of Incorporation authorizes up to 10,000,000 shares of common stock and 2,000,000 shares of preferred stock. We estimate that the following shares of common stock were issued or reserved for future issuance as of September 21, 2020: 1,829,982 shares of common stock; 259,729 shares of Series A-1 Convertible Preferred Stock, which convert into 5,194,580 shares of common stock; and 400,000 shares of common stock reserved for issuance under the 2016 Plan, of which nil shares remain available for further issuance as awards under the Plan. Accordingly, at September 21, 2020, only 2,244,191 shares of common stock remain unreserved generally and nil shares remain available for future issuance as awards under the 2016 Plan. Reason for the Amendment We believe that the additional shares of authorized common stock are necessary to provide us with appropriate flexibility to utilize equity for business and financial purposes that the Board determines to be in the Company’s best interests on a timely basis without the expense and delay of a stockholders’ meeting. The Board believes that the remaining authorized common stock is not likely to be sufficient to permit us to respond to potential business opportunities or to pursue important objectives designed to enhance stockholder value. In addition, if the 2016 Plan Amendment Proposal is approved by the Company’s stockholders, then 400,000 additional shares of common stock will be reserved for issuance under the 2016 Plan. The additional authorized shares of common stock will provide us with flexibility to use our common stock, without further stockholder approval (except to the extent such approval may be required by law or by applicable exchange listing standards) for any proper corporate purpose, including, without limitation, raising capital through one or more future public offerings or private placements of equity securities, expanding our business or acquiring assets through future transactions, entering into strategic relationships, providing equity-based compensation and/or incentives to employees, officer or directors, effective stock dividends, or for other general corporate purposes. If the Charter Amendment is approved by our stockholders, the Board does not intend to solicit further stockholder approval prior to the issuance of any additional shares of common stock or securities convertible into common stock, except as may be required by applicable, law, regulation, or exchange listing rules. We currently are not a party to any agreement that obligates us to issue additional shares of common stock.
Possible Effects of the Amendment The increase in authorized shares of our common stock will not have any immediate effect on the rights of existing stockholders. Because the holders of our common stock do not have any preemptive rights, future issuance of shares of common stock or securities exercisable for or convertible into shares of common stock could have a dilutive effect on our earnings per share, book value per share, voting rights of stockholders and could have a negative effect on the price of our common stock. We are not proposing the increase in the number of authorized shares of common stock with the intent of using the additional shares to prevent or discourage any actual or threatened takeover of the Company. Under certain circumstances, however, the additional authorized shares could be used in a manner that has an anti-takeover effect. For example, the additional shares could be used to dilute the stock ownership or voting rights of persons seeking to obtain control of the Company or could be issued to persons allied with the Board or management and thereby have the effect of making it more difficult to remove directors or members of management by diluting the stock ownership or voting rights of persons seeking to effect such a removal. Accordingly, if the Charter Amendment is approved by stockholders, the additional shares of authorized common stock may render more difficult or discourage a merger, tender offer or proxy contest, the assumption of control by a holder or group of holders of a large block of common stock, or the replacement or removal of one or more directors or members of management. The following other provisions of our Articles of Incorporation and Bylaws, in combination with the additional authorized shares may also have an anti-takeover effect of preventing or discouraging a change in control of the Company: (i) ability of the Board to designate the terms of and issue shares of preferred stock without further stockholder approval; (ii) limitations on who may call a special meeting of stockholders; and (iii) the absence of cumulative voting rights in the election of directors. If the Charter Amendment Proposal is not approved, we will encounter greater difficulty in carrying out our business plans and achieving profitability because we may be unable (1) to issue additional shares of common stock to attract new employees or to award current employees for future performance, (2) to raise working capital by issuing shares of our common stock, and (3) to acquire other businesses and products in exchange for shares of our common stock. The Board recommends voting “FOR” approval of the amendment to our Articles of Incorporation.
APPROVAL OF AN AMENDMENT TO THE COMPANY’S 2016 EQUITY INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR AWARDS (Proposal No. 3) Proposed Amendment We are submitting for stockholder approval an amendment to the Company’s 2016 Equity Incentive Plan (the “2016 Plan”) to increase the number of shares available for awards under the 2016 Plan from 400,000 to 800,000 shares (the “Plan Amendment”). The number of shares available for awards under the Plan has not been changed since the adoption of the 2016 Plan in 2016. Other than the increase in shares, no other changes are being made to the terms of the 2016 Plan. The text of the 2016 Plan Amendment is set forth in Appendix B, and this description of the proposed amendment to the 2016 Plan is qualified by the full text of the Plan Amendment. Background and Reason for the Recommendation The 2016 Plan was originally adopted in 2016 to secure and retain competent personnel by furnishing equity incentives to those employees (including officers), directors, and consultants upon whose efforts the success of the Company depends. The 2016 Plan currently has 400,000 shares of our common stock reserved for issuance. As of September 21, 2020, the record date, nil shares of our common stock remain available for future awards under the 2016 Plan and 66,000 shares of our common stock are subject to outstanding awards under the 2016 Plan. The closing sale price of the Company’s common stock on of September 21, 2020 was $4.35. The Company’s continued success depends to a substantial degree on our ability to attract, retain, and motivate key personnel upon whose judgment, initiative, and effort the successful conduct of the Company’s business is largely dependent. The market for executives is extremely competitive. The Board believes the 2016 Plan Amendment is necessary to ensure that an adequate number of shares of our common stock will be available to provide appropriate incentives to our key personnel that align their interests with those of our stockholders and to remain competitive in the marketplace. Accordingly, the Board approved, subject to stockholder approval, the 2016 Plan Amendment to increase the number of shares available for awards under the 2016 Plan. If our stockholders approve the 2016 Plan Amendment, equity awards on or after November 4, 2020 will be granted under the terms of the 2016 Plan, as amended by the 2016 Plan Amendment. If our stockholders do not approve the 2016 Plan Amendment, the 2016 Plan will continue in its current (pre-amendment) form. However, the Company will not have any shares available to make future equity awards to eligible individuals and will consider alternative methods of compensating its key personnel, which may include equity-based but cash-settled incentives. Failure of the stockholders to approve this 2016 Plan Amendment Proposal will not affect the rights of existing holders or the awards previously granted under the 2016 Plan. If our stockholders approve the 2016 Plan Amendment Proposal, the Company intends to file, pursuant to the Securities Act of 1933, as amended, a registration statement on Form S-8 to register 800,000 additional shares available for issuance under the 2016 Plan, as amended by the 2016 Plan Amendment. Summary of the 2016 Plan A summary of the principal features of the 2016 Plan, as amended by the proposed 2016 Plan Amendment, is provided below. The summary below is qualified by reference to the full text of the 2016 Plan set forth as Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as amended, and 2016 Plan Amendment set forth in Appendix B to this proxy statement. Purpose and Eligible Participants. The purpose of the Plan is to secure and retain competent personnel by furnishing equity incentives to those employees (including officers), directors, and consultants upon whose efforts the success of the Company depends. As of the mailing date of this Proxy Statement, approximately 187 employees and three non-employee directors are eligible to participate in the Plan.
Types of Awards. The 2016 Plan permits the grant of the following types of awards, in the amounts and upon the terms determined by the Administrator: Options. Options may either be incentive stock options (“ISOs”) which are specifically designated as such for purposes of compliance with Section 422 of the Internal Revenue Code (the “Code”) or non-qualified stock options (“NSOs”). Options shall vest as determined by the Administrator, subject to certain statutory limitations regarding the maximum term of ISOs and the maximum value of ISOs that may vest in one year. The exercise price of each share subject to an ISO will be equal to or greater than the fair market value of a share on the date of the grant of the ISO, except in the case of an ISO grant to a stockholder who owns more than 10% of the Company’s outstanding shares, in which case the exercise price will be equal to or greater than 110% of the fair market value of a share on the grant date. The exercise price of each share subject to an NSO shall be determined by the Board at the time of grant but will be equal to or greater than the fair market value of a share on the date of grant. Recipients of options have no rights as a stockholder with respect to any shares covered by the award until the award is exercised and a stock certificate or book entry evidencing such shares is issued or made, respectively. Restricted Stock Awards. Restricted stock awards consist of shares granted to a participant that are subject to one or more risks of forfeiture. Restricted stock awards may be subject to risk of forfeiture based on the passage of time or the satisfaction of other criteria, such as continued employment or Company performance. Recipients of restricted stock awards are entitled to vote and receive dividends attributable to the shares underlying the award beginning on the grant date. Restricted Stock Units. Restricted stock units consist of a right to receive shares (or cash, in the Administrator’s discretion) on one or more vesting dates in the future. The vesting dates may be based on the passage of time or the satisfaction of other criteria, such as continued employment or Company performance. Recipients of restricted stock units have no rights as a stockholder with respect to any shares covered by the award until the date a stock certificate or book entry evidencing such shares is issued or made, respectively. Performance-Based Compensation. For any of the above awards that are intended to qualify as “Performance-Based Compensation” under Section 162(m) of the Code, the performance objectives shall be limited to any one, or a combination of (i) revenue or net sales, (ii) operating income, (iii) net income (before or after taxes), (iv) earnings per share, (v) earnings before or after taxes, interest, depreciation and/or amortization, (vi) gross profit margin, (vii) return measures (including, but not limited to, return on invested capital, assets, capital, equity, sales), (viii) increase in revenue or net sales, (ix) operating expense ratios, (x) operating expense targets, (xi) productivity ratios, (xii) gross or operating margins, (xiii) cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity and cash flow return on investment), (xiv) working capital targets, (xv) capital expenditures, (xvi) share price (including, but not limited to, growth measures and total shareholder return), (xvii) appreciation in the fair market value or book value of the common stock, (xviii) debt to equity ratio or debt levels, and (xix) market share, in all cases including, if selected by the administrator, threshold, target and maximum levels. Number of Shares. The stock to be awarded or optioned under the 2016 Plan shall consist of authorized but unissued shares of common stock. The maximum aggregate number of shares of common stock reserved and available for awards under the Plan is 400,000. The following shares of common stock shall not reduce the pool of authorized shares and shall continue to be reserved and available to be granted pursuant to the 2016 Plan: (i) all or any portion of any outstanding restricted stock award or restricted stock unit that expires or is forfeited for any reason, or that is terminated prior to the vesting or lapsing of the risks of forfeiture on such award, and (ii) shares of common stock covered by an award to the extent the award is settled in cash. Any shares of common stock withheld to satisfy tax withholding obligations on an award, shares of common stock withheld to pay the exercise price of an option, and shares of common stock subject to a broker-assisted cashless exercise of an option shall reduce the pool of authorized shares.
Annual Award Limits. For all awards intended to qualify as performance-based compensation pursuant to Section 162(m) of the Code, the following maximum annual award limits apply: (i) the maximum number of shares of common stock subject to options granted in any one calendar year to any one participant shall be, in the aggregate, 200,000 shares and (ii) the maximum grant with respect restricted stock awards and restricted stock units in any one calendar year to any one participant shall be, in the aggregate, 200,000 shares. Administration. Subject to the terms of the 2016 Plan, the Administrator (as defined in the 2016 Plan) will have the discretion to: make awards; • | determine the terms and conditions of awards, including the number of shares subject to an award, vesting criteria, performance conditions and the manner of exercise; | |
• prescribe the form of agreements to evidence awards; • interpret the 2016 Plan; and • make all other determinations necessary or advisable for the administration of the 2016 Plan or any agreement issued thereunder, to the extent permitted by law and the 2016 Plan. The 2016 Plan is currently administered by the Board of Directors of the Company; provided, however, that the Board may delegate some or all of the administration of the 2016 Plan to a Committee or Committees of non-employee directors. Amendments. The Board may from time to time, insofar as permitted by law, suspend or discontinue the 2016 Plan or revise or amend it in any respect. However, to the extent required by applicable law or regulation or as except as provided under the 2016 Plan itself, the Board may not, without stockholder approval, revise or amend the 2016 Plan (i) to materially increase the number of shares subject to the 2016 Plan, (ii) to change the designation of participants, including the class of employees, eligible to receive awards, (iii) to decrease the price at which options may be granted, (iv) cancel, regrant, repurchase for cash, or replace options that have an exercise price in excess of the fair market value of the common stock, or amend the terms of outstanding options to reduce their exercise price, or (v) make any modification that will cause incentive stock options to fail to meet the requirements of Code Section 422. Term. The Administrator may grant awards pursuant to the 2016 Plan until it is discontinued or terminated; provided, however, that ISOs may not be granted after October 28, 2026. Change of Control. Unless otherwise provided in the terms of an award, upon a change of control of the Company, as defined in the 2016 Plan, the administrator may provide for one or more of the following: (i) the acceleration of the exercisability, vesting, or lapse of the risks of forfeiture of any or all awards (or portions thereof), (ii) the complete termination of the 2016 Plan and the cancellation of any or all awards (or portions thereof) that have not been exercised, have not vested, or remain subject to risks of forfeiture, as applicable in each case as of the effective date of the change of control, (iii) that the entity succeeding the Company by reason of such change of control, or the parent of such entity, shall assume or continue any or all awards (or portions thereof) outstanding immediately prior to the change of control or substitute for any or all such awards (or portions thereof) a substantially equivalent award with respect to the securities of such successor entity, as determined in accordance with applicable laws and regulations, or (iv) that participants holding outstanding awards shall become entitled to receive, with respect to each share of common stock subject to such award (whether vested or unvested, as determined by the Administrator pursuant to the 2016 Plan) as of the effective date of any such change of control, cash in amount equal to (1) for participants holding options, the excess of the fair market value of such common stock on the date immediately preceding the effective date of such change of control over the exercise price per share of options or (2) for participants holding awards other than options, the fair market value of such common stock on the date immediately preceding the effective date of such change of control. The Administrator need not take the same action with respect to all awards (or portions thereof) or with respect to all participants.
Payment. Upon exercise of an option granted under the 2016 Plan, and as permitted in the Administrator’s discretion, the option holder may pay the exercise price in cash (or cash equivalent), by surrendering previously-acquired unencumbered shares of Company common stock, by withholding shares of Company common stock from the number of shares that would otherwise be issuable upon exercise of the option (e.g., a net share settlement), through broker-assisted cashless exercise (if compliant with applicable securities laws and any insider trading policies of the Company), another form of payment authorized by the Administrator, or a combination of any of the foregoing. If the exercise price is paid, in whole or in part, with Company common stock, the then-current fair market value of the stock delivered or withheld will be used to calculate the number of shares required to be delivered or withheld. Transfer Restrictions. Unless permitted by law and expressly permitted by the Administrator, no award made under the 2016 Plan will be transferable, other than by will or by the laws of descent and distribution. The Administrator may permit a recipient of an NSO to transfer the award by gift to his or her “immediate family” or to certain trusts or partnerships (as defined and permitted by applicable federal securities and tax laws). Federal Income Tax Matters Options. Under present law, an optionee will not recognize any taxable income on the date an NSO is granted pursuant to the 2016 Plan. Upon exercise of the option, however, the optionee must recognize, in the year of exercise, compensation taxable as ordinary income in an amount equal to the difference between the option price and the fair market value of Company common stock on the date of exercise. Upon the sale of the shares, any resulting gain or loss will be treated as capital gain or loss. The Company will receive an income tax deduction in its fiscal year in which NSOs are exercised equal to the amount of ordinary income recognized by those optionees exercising options, and must comply with applicable tax withholding requirements. ISOs granted under the 2016 Plan are intended to qualify for favorable tax treatment under Section 422 of the Code. Under Section 422, an optionee recognizes no compensation that is taxable as ordinary income when the option is granted. Further, the optionee generally will not recognize any compensation that is taxable as ordinary income when the option is exercised if he or she has at all times from the date of the option’s grant until three months before the date of exercise been an employee of the Company. The Company generally is not entitled to any income tax deduction upon the grant or exercise of an incentive stock option. Certain other favorable tax consequences may be available to the optionee if he or she does not dispose of the shares acquired upon the exercise of an incentive stock option for a period of two years from the granting of the option and one year from the receipt of the shares. Restricted Stock Awards. Generally, no income is taxable to the recipient of a restricted stock award in the year that the award is granted. Instead, the recipient will recognize compensation taxable as ordinary income equal to the fair market value of the shares in the year in which the risks of forfeiture restrictions lapse. Alternatively, if a recipient makes an election under Section 83(b) of the Code, the recipient will, in the year that the restricted stock award is granted, recognize compensation taxable as ordinary income equal to the fair market value of the shares on the date of the award. The Company normally will receive a corresponding deduction equal to the amount of compensation the recipient is required to recognize as ordinary taxable income, and must comply with applicable tax withholding requirements. Restricted Stock Units. A recipient of restricted stock units will generally recognize compensation taxable as ordinary income in an amount equal to the fair market value of the shares (or the amount of cash) distributed to settle the restricted stock units on the vesting date(s). The Company normally will receive a corresponding deduction at the time of vesting, equal to the amount of compensation the recipient is required to recognize as ordinary taxable income, and must comply with applicable tax withholding requirements. Code Section 409A. Depending in part on particular Award terms and conditions, certain Awards under the 2016 Plan, may be considered non-qualified deferred compensation subject to the requirements of Code Section 409A. If the terms of such Awards do not meet the requirements of Code Section 409A, the violation of Code Section 409A may result in an additional 20% tax obligation, plus penalties and interest for such participant.
Section 162(m) of the Code. Section 162(m) generally limits the corporate tax deduction for compensation paid to executive officers that is not “performance-based” to $1,000,000 per executive officer. “Performance based” compensation meeting certain requirements is not counted against the $1,000,000 limit and generally remains fully deductible for tax purposes. One of the requirements for compensation to be considered performance-based under the tax laws is that the Company must obtain stockholder approval every five years of the material terms of performance goals for such compensation. In accordance with Internal Revenue Service rules, the material terms that the stockholders approve constitute the framework for the Company to establish programs and awards under which compensation provided by the Company can qualify as “performance-based” compensation for purposes of the tax laws. Stockholder approval of the employees eligible to receive performance-based awards, the general performance goals specified in the 2016 Plan and the maximum amounts that may be awarded under the 2016 Plan, but not the specific targeted levels of performance, will qualify the incentive awards under the 2016 Plan as “performance-based” compensation. We anticipate that stockholder approval of the Plan will allow tax deductibility of performance-based awards granted under the 2016 Plan for the next five years, at which point Section 162(m) will require further stockholder approval of these goals. The foregoing is only a summary of the effect of U.S. federal income taxation with respect to the grant and exercise of awards under the 2016 Plan. It does not purport to be complete and does not discuss the tax consequences of an individual’s death or the provisions of the income tax laws of any municipality, state or foreign country in which any eligible individual may reside. The Board recommends voting “FOR” approval of the 2016 Plan Amendment Proposal.
Ratification of Appointment of Independent Registered Public Accounting Firm (Proposal No. 4) The Audit Committee has selected WSRP, LLC (“WSRP”) as the Company’s independent registered public accounting firm for fiscal year 2020. The Company is submitting its selection of WSRP for ratification by the stockholders at the Annual Meeting. A representative of WSRP is expected to be present at the Annual Meeting via teleconference and will be available to respond to appropriate questions. The Company’s Bylaws do not require that stockholders ratify the selection of the Company’s independent registered public accounting firm. However, the Company is submitting the selection of WSRP to stockholders for ratification as a matter of good corporate practice. If stockholders do not ratify the selection, the Audit Committee will reconsider whether to retain WSRP. Even if the selection is ratified, the Audit Committee at its discretion may change the appointment at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders. On March 23, 2018, the Audit Committee approved the appointment of SingerLewak LLP (“SingerLewak”) as the Company’s independent registered public accounting firm, effective upon the execution of an engagement letter between the Company and SingerLewak. During the Company’s fiscal years ended December 30, 2017 and December 31, 2016 and for the subsequent interim period through March 28, 2018, neither the Company, nor anyone on behalf of the Company consulted with SingerLewak regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s financial statements, or (ii) any matter that was either the subject of a disagreement as described in Item 304(a)(1)(iv) of Regulation S-K or a reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K. On October 14, 2019, SingerLewak informed the Company that it resigned as the Company’s independent registered public accounting firm. The audit report of SingerLewak on the Company’s financial statements for the fiscal years ended December 29, 2018 and December 30, 2017 contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. During the Company’s two most recent fiscal years ended December 29, 2018 and December 30, 2017, and for the subsequent interim period through the date of the Company’s Current Report on Form 8-K (the “Form 8-K”), the Company had no “disagreements” (as described in Item 304 (a)(1)(iv) of Regulation S-K) with SingerLewak on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of SingerLewak, would have caused it to make reference in connection with its opinion to the subject matter of the disagreements. During the Company’s two most recent fiscal years ended December 29, 2018 and December 30, 2017, and for the subsequent interim period through the date of such Form 8-K, there was no “reportable event” within the meaning of Item 304(a)(1)(v) of Regulation S-K other than the following material weaknesses (A) reported in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018: (i) insufficient information technology general controls (“ITGCs”) and segregation of duties. Several employees of the Company have been provided access to Company systems when their duties do not appear to require access, or which results in a lack of segregation of duties. No authorization or lack of sufficient approval was noted on some journal entry transactions; and (ii) inadequate control design or lack of sufficient controls over significant accounting processes. Inventory and purchase controls are not sufficient. The financial close process needs additional formal procedures and closing checklists and reconciliations. Revenue recognition controls regarding transactions with sales tax elements need additional process checks and controls, and (B) reported in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2019: (1) insufficient ITGC and segregation of duties. It was noted that people who were negotiating a contract, were also involved in approving invoices without proper oversight. Additional controls and procedures are necessary and are being implemented to have check and balance on significant transactions and governance with those charged with governance authority; (2) inadequate control design or lack of sufficient controls over significant accounting processes. The cutoff and reconciliation procedures were not effective with certain accrued and deferred expenses; (3) insufficient assessment of the impact of potentially significant transactions; and (4) insufficient processes and procedures related to proper recordkeeping of agreements and contracts. In addition, contract to invoice reconciliation was not effective with a certain transportation service provider.
On October 15, 2019, the Audit Committee of the Board of Directors of the Company approved the engagement of, and the Company engaged, WSRP as the Company’s new independent registered public accounting firm, effective immediately. During the Company’s two most recent fiscal years ended December 29, 2018 and December 30, 2017 and for the subsequent interim period through the date of filing the Company’s Current Report on Form 8-K, neither the Company, nor anyone on behalf of the Company consulted with WSRP regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s financial statements, or (ii) any matter that was either the subject of a disagreement as described in Item 304(a)(1)(iv) of Regulation S-K or a reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K. Fees Paid to Auditors by the Company During Most Recent Fiscal Years The following fees were billed to us by our independent registered public accounting firm, WSRP and SingerLewak for 2019 and SingerLewak for 2018. SingerLewak served as the Company’s auditor from fiscal 2017 and reviewed the Company’s quarterly financial statements for each of the first two fiscal quarters during fiscal 2019. WSRP was appointed the Company’s auditor during October 2019. Description | | December 28, 2019 | | | December 29, 2018 | | Audit fees | | $ | 219,549 | | | $ | 210,000 | | Audit-related fees | | | — | | | | 46,200 | | Tax fees | | | 79,201 | | | | — | | All other fees | | | — | | | | — | | Total | | $ | 298,750 | | | $ | 256,200 | |
Audit fees consist of fees for professional services rendered in connection with the audit of the Company’s year-end financial statements, quarterly reviews of financial statements included in the Company’s quarterly reports, services rendered relative to regulatory filings, and attendance at Audit Committee meetings. The Audit Committee of the Board of Directors has considered whether the provision of the services described above was and is compatible with maintaining the independence of WSRP. The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent auditors. All the fees and services for fiscal 2019 and fiscal 2018 were approved by the Audit Committee. The Board recommends a vote FOR ratification of the Audit Committee’s appointment of WSRP as our independent registered public accounting firm for fiscal 2020.
Executive Compensation The following table sets forth the cash and non-cash compensation for fiscal years ended December 28, 2019 and December 29, 2018, earned by each person who served as Chief Executive Officer during fiscal 2019, and our other two most highly compensated executive officers who held office as of December 28, 2019 (“named executive officers”): Summary Compensation Table for Fiscal Year Ended December 28, 2019 Name and Principal Position (1) | | Year | | Salary ($) | | | Bonus ($) | | | Stock Award ($) | | | | Option Awards ($) | | | All Other Compensation ($) | | | Total ($) | | Tony Isaac | | 2019 | | | 571,427 | | | | — | | | | — | | | | | — | | | | — | | | | 571,427 | | Chief Executive Officer | | 2018 | | | 542,719 | | | | — | | | | 262,400 | | (2) | | | — | | | | — | | | | 805,119 | | Eric Bolling | | 2019 | | | 148,077 | | | | — | | | | 500,000 | | (3) | | | — | | | | — | | | | 648,077 | | President | | 2018 | | | — | | | | — | | | | — | | | | | — | | | | — | | | | — | | Virland A. Johnson | | 2019 | | | 125,274 | | | | — | | | | — | | | | | — | | | | — | | | | 125,274 | | Chief Financial Officer (3) | | 2018 | | | 123,559 | | | | — | | | | 128,000 | | (4) | | | — | | | | 57,000 | | | | 308,559 | |
(1) | The Company only had two executive officers for the fiscal year ended December 28, 2019. |
(2) | This amount reflects the fair value of a stock grant awarded to Mr. Isaac during fiscal 2018. The shares were fully vested upon grant. |
(3) | This amount reflects the fair value of a stock grant awarded to Mr. Bolling during fiscal 2019. The shares were fully vested upon grant. Mr. Bolling has informed the Board that he will not stand for re-election at the Annual Meeting. |
(4) | This amount reflects the fair value of a stock grant awarded to Mr. Johnson during fiscal 2018. The shares were fully vested upon grant. |
Outstanding Equity Awards at December 28, 2019 The following table provides a summary of equity awards outstanding for our Named Executive Officers at December 28, 2019: Name | | Number of Securities Underlying Unexercised Options (in shares) Exercisable | | | Number of Securities Underlying Unexercised Options (in shares) Unexercisable | | | Option Exercise Price ($) | | | Option Expiration Date | Tony Isaac | | | 2,000 | | | | — | | | | 5.25 | | | 05/18/2025 | Eric Bolling (1) | | | — | | | | — | | | | — | | | | Virland A. Johnson | | | — | | | | — | | | | — | | | |
(1) | Mr. Bolling has informed the Board that he will not stand for re-election at the Annual Meeting. |
Stock Option Plans The Company uses stock options to attract and retain executives, directors, consultants and key employees. Stock options are currently outstanding under two stock option plans. The Plan was adopted by the Board of Directors in October 2016 and approved by the shareholders at the 2016 annual meeting of shareholders. Under the Plan, the Company has reserved an aggregate of 400,000 shares of its common stock for option grants. The Company’s 2011 Stock Compensation Plan (the “2011 Plan”) was adopted by the Board of Directors in March 2011 and approved by the shareholders at the 2011 annual meeting of shareholders. The 2011 Plan expired on December 29, 2016, but options granted under the 2011 Plan before it expired will continue to be exercisable in accordance with their terms. As of December 28, 2019, options to purchase an aggregate of 44,400 shares were outstanding, including options for 4,000 shares under the 2016 Plan and options for 40,400 shares under the 2011 Plan. The Plans are administered by the Compensation Committee or the full Board of Directors acting as the Committee.
The Plan permits the grant of the following types of awards, in the amounts and upon the terms determined by the Administrator: Options. Options may either be incentive stock options (“ISOs”) which are specifically designated as such for purposes of compliance with Section 422 of the Internal Revenue Code or non-qualified stock options (“NSOs”). Options shall vest as determined by the Administrator, subject to certain statutory limitations regarding the maximum term of ISOs and the maximum value of ISOs that may vest in one year. The exercise price of each share subject to an ISO will be equal to or greater than the fair market value of a share on the date of the grant of the ISO, except in the case of an ISO grant to a stockholder who owns more than 10% of the Company’s outstanding shares, in which case the exercise price will be equal to or greater than 110% of the fair market value of a share on the grant date. The exercise price of each share subject to an NSO shall be determined by the Board at the time of grant but will be equal to or greater than the fair market value of a share on the date of grant. Recipients of options have no rights as a stockholder with respect to any shares covered by the award until the award is exercised and a stock certificate or book entry evidencing such shares is issued or made, respectively. Restricted Stock Awards. Restricted stock awards consist of shares granted to a participant that are subject to one or more risks of forfeiture. Restricted stock awards may be subject to risk of forfeiture based on the passage of time or the satisfaction of other criteria, such as continued employment or Company performance. Recipients of restricted stock awards are entitled to vote and receive dividends attributable to the shares underlying the award beginning on the grant date. Restricted Stock Units. Restricted stock units consist of a right to receive shares (or cash, in the Administrator’s discretion) on one or more vesting dates in the future. The vesting dates may be based on the passage of time or the satisfaction of other criteria, such as continued employment or Company performance. Recipients of restricted stock units have no rights as a stockholder with respect to any shares covered by the award until the date a stock certificate or book entry evidencing such shares is issued or made, respectively. Compensation of Non-Employee Directors The Company uses a combination of cash and share-based incentive compensation to attract and retain qualified candidates to serve on the Board of Directors. In setting director compensation, the Company considers the significant amount of time that directors expend fulfilling their duties to the Company as well as the skill level required by the Company of members of the Board. Non-employee directors of the Company receive an annual fee of $15,000$24,000 for their service as directors and an attendance fee of $1,000 per Board meeting.directors. The ChairpersonChairman of the Audit Committee receives an additional annual fee of $10,000 and each other member of the Audit Committee receives an additional annual fee of $5,000. The Chairperson of the Compensation and Benefits Committee receives an additional annual fee of $1,500, and the Chairperson of the Nominating and Governance Committee receives an additional annual fee of $1,000.$6,000. All of the Company’s directors are reimbursed for reasonable travel expenses incurred in attending meetings. Non-employee directors also receive stock options under the 2011 Stock Compensation Plan. Each year, on the date of the Company’s annual meeting, non-employee directors receive an option to purchase 10,000 shares of common stock. In addition, upon their initial appointment or election to the Board, non-employee directors receive a one-time grant of options to purchase 10,000 shares of common stock. Generally, such options become exercisable in full six months after the date of grant and expire ten years from the date of grant.
The table below presents cash and non-cash compensation paid to non-employee directors during the prior2019 fiscal year. Non-Management Director Compensation for Fiscal Year Ended December 31, 201628, 2019 | Name (1) (2) | | Fees Earned or Paid in Cash ($) | | Option Awards ($) | | All Other Compensation ($) | | Total ($) | | | | | | | | | | | | Tony Isaac (3) | | 8,426 | | -- | | -- | | 8,426 | | Dennis (De) Gao | | 26,917 | | 8,900 (4) | | -- | | 35,817 | | Richard D. Butler | | 32,708 | | 8,900 (4) | | -- | | 41,608 | | Timothy Matula | | 9,000 | | 8,700 (4) | | -- | | 17,700 |
_______________________
Name (1) | | Fees Earned or Paid in Cash ($) | | | Option Awards ($) | | | All Other Compensation ($) | | | Total ($) | | Dennis (De) Gao (2) | | | 30,000 | | | | — | | | | — | | | | 30,000 | | Richard D. Butler, Jr. | | | 30,000 | | | | — | | | | — | | | | 30,000 | | Nael Hajjar | | | 14,400 | | | | — | | | | — | | | | 14,400 | |
| (1) | Edward R. Cameron has been omitted from this table since he received no additional compensation for serving as a director of the Company. Mr. Cameron’s compensation is described above under “Executive Compensation.” |
| (2)(1) | From January 2016 until June 2016, non-employee directors of the Company received an annual fee of $15,000 for their service as directors and an attendance fee of $1,000 per Board meeting. The ChairpersonChairman of the Audit Committee received an additional annual fee of $10,000$6,000 and each other member of the Audit Committee received an additional annual fee of $5,000. The Chairperson of the Compensation and Benefits Committee received an additional annual fee of $1,500, and the Chairperson of the Nominating and Governance Committee received an additional annual fee of $1,000.$6,000. All of the Company’s directors were reimbursed for reasonable travel expenses incurred in attending meetings. |
| (3)(2) | Tony IsaacMr. Gao resigned from the Board of Directors effective January 6, 2020 and was appointed Interim Chief Executive Officer on February 29, 2016 and Chief Executive Officer on May 13, 2016. |
| (4) | These amounts reflect the fair value of the options granted during fiscal 2016. See Note 2 toreplaced by John Bitar as disclosed in the Company’s consolidated financial statements for discussion ofCurrent Report on Form 8-K filed with the assumptions made in the valuation of option grants. At fiscal year-end, the non-management directors held options to purchase shares of common stock as follows: Mr. Gao, 20,000 shares; Mr. Butler, 20,000 shares; and Mr. Matula, 10,000 shares. |
SEC on January 10, 2020. Transactions with related persons Proposal 2:
Ratification of Appointment of Independent
Registered Public Accounting Firm
The Audit Committee has selected Anton & Chia, LLP asTony Isaac, the Company’s independent registered public accounting firm for fiscal year 2017. The CompanyChief Executive Officer, is submitting its selectionthe father of Anton & Chia, LLP for ratification byJon Isaac, President and Chief Executive Officer of Live Ventures and managing member of Isaac Capital Group LLC, a greater than 5% stockholder of the shareholders at the annual meeting. A representativeCompany. Tony Isaac, Chief Executive Officer, Virland Johnson, Chief Financial Officer, and Richard Butler, Board of Anton & Chia, LLP is expected to be present at the annual meeting, will have an opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions.
The Company’s Bylaws do not require that shareholders ratify the selection of Anton & Chia, LLP as the Company’s independent registered public accounting firm. However, the Company is submitting the selection of Anton & Chia, LLP to shareholders for ratification as a matter of good corporate practice. If shareholders do not ratify the selection, the Audit Committee will reconsider whether to retain Anton & Chia, LLP. Even if the selection is ratified, the Audit Committee at its discretion may change the appointment at any time during the year if it determines that such a change would be in the best interestsDirectors member of the Company, and its shareholders.
Baker Tilly Virchow Krause, LLP previously served as the independent auditors for the Company. On April 4, 2016, Baker Tilly Virchow Krause, LLP notified the Company that they decline to stand for re-appointment as the Company’s independent registered public accounting firm effective upon the earlier of Baker Tilly Virchow Krause, LLP’s completion of interim review procedures related to the period as of and for the three months ending April 2, 2016 or the Company’s Audit Committee appointing new auditors. On April 22, 2016, the Audit Committee approved the engagement of Anton & Chia, LLP as the Company’s new independent registered public accounting firm for fiscal year ending December 31, 2016.
The reports of Baker Tilly Virchow Krause, LLP on the Company’s consolidated financial statements for the fiscal years ended January 2, 2016 and January 3, 2015 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the Company’s two most recent fiscal years and subsequent interim period through April 4, 2016, there were no disagreements with Baker Tilly Virchow Krause, LLP on any matters of accounting principles or practices, financial statement disclosure or auditing scope and procedure which, if not resolved to the satisfaction of Baker Tilly Virchow Krause, LLP, would have caused Baker Tilly Virchow Krause, LLP to make reference to the matter in its reports on the consolidated financial statements for such years. A representative of Baker Tilly Virchow Krause, LLP is not expected to be present at the annual meeting.
During the fiscal years ended January 2, 2016 and January 3, 2015, and the subsequent interim period prior to the engagement of Anton & Chia, LLP, neither the Company nor anyone acting on its behalf has consulted with Anton & Chia, LLP with respect to (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that Anton & Chia, LLP concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue or (ii) any matter that was either the subject of a “disagreement” as that term is defined in Item 304(a)(1)(iv) of Regulation S-K or “reportable event” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
Fees Paid to Auditors by the Company During Most Recent Fiscal Years
Anton & Chia, LLP has served as the independent auditors for the Company since fiscal 2016. Baker Tilly Virchow Krause, LLP served as the independent auditors for the Company from fiscal 2005 until 2015. The Company paid fees to Anton & Chia, LLP during the fiscal year ended December 31, 2016 and to Baker Tilly Virchow Krause, LLP during the fiscal year ended January 2, 2016, respectively, for the following professional services:
| | | December 31, 2016 | | | January 2, 2016 | | | Description | | | | | | | | | | Audit fees (1) | | $ | 132,300 | | | $ | 217,287 | | | Audit-Related Fees | | | – | | | | – | | | Tax Fees | | | – | | | | – | | | All Other Fees | | | – | | | | – | |
| (1) | Audit fees consist of fees for professional services rendered in connection with the audit of the Company’s year-end financial statements, quarterly reviews of financial statements included in the Company’s quarterly reports, services rendered relative to regulatory filings, and attendance at Audit Committee meetings. |
The Audit Committee of theare Board of Directors has considered whether the provisionmember, Chief Financial Officer, Board of theDirectors member, and Board of Directors members, respectively, of Live. The Company also shares certain executive, accounting, and legal services described above waswith Live. The total services shared were $193,000 and is compatible with maintaining the independence of Anton & Chia, LLP and Baker Tilly Virchow Krause, LLP.
The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent auditors. All the fees and services$211,000 for fiscal 2016years ending December 28, 2019 and December 29, 2018, respectively. Customer Connexx rents approximately 9,879 square feet of office space from Live Ventures at its Las Vegas, Nevada office. The total rent and common area expense were $177,000 and $174,000 for fiscal 2015 were approved by the Audit Committee.
The Board recommends a vote FOR ratification of the appointment of the Company’s independent registered public accounting firm.
years ending December 28, 2019 and December 29, 2018, respectivelyProposal 3:
APPROVAL OF THE REINCORPORATION OF THE COMPANY FROM
THE STATE OF MINNESOTA TO THE STATE OF NEVADA. The Board has unanimously approved the reincorporationOn December 30, 2017, ApplianceSmart Holdings LLC (the “Purchaser”), a wholly-owned subsidiary of the Company from the State of Minnesota to the State of NevadaLive Ventures, entered into a Stock Purchase Agreement (the “Reincorporation”“Agreement”), including the adoption of Articles of Incorporation and Bylaws for the reincorporated Company, subject to approval by our shareholders. In addition, the Board has determined that the terms of the Plan of Conversion, in substantially the form attached hereto asAppendix A to this Proxy Statement, by which the Reincorporation will be effectuated are fair to, and in the best interests of, both with the Company and our shareholders.
The Reincorporation would be effected through the conversion of the Company into a Nevada corporation, which we refer to as “ARCA-Nevada,” pursuant to the Plan of Conversion. Upon completion of the conversion, ARCA-Nevada will be the converted corporation and will continue to operate our business under the name “Appliance Recycling Centers of America, Inc.” unless we subsequently change the name of the Company. In this section we refer to the Company before the Reincorporation as the “Company” and after the conversion as “ARCA-Nevada.” For the reasons set forth herein, we recommend that the shareholders approve the Reincorporation, which will also constitute approval of the Plan of Conversion, as well as the Articles of Incorporation of ARCA-Nevada and the Bylaws of ARCA-Nevada, in substantially the forms attached to this Proxy Statement asAppendices B and C, respectively.
The principal effects of the Reincorporation, if approved by our shareholders and consummated, will be that:
| · | The affairs of the Company will cease to be governed by Minnesota corporation laws pursuant to the Minnesota Business Corporation Act (“MBCA”) and will become subject to Nevada corporation laws pursuant to the Nevada Revised Statutes (the “NRS”). The Company will be governed pursuant to the Articles of Incorporation filed in Nevada and the Bylaws of ARCA-Nevada, reflecting, among other things, application of the NRS. |
| · | The resulting Nevada corporation will be the same entity as the company currently incorporated in Minnesota and there will be no change in the Company’s business, management, employees, headquarters, benefit plans, assets, liabilities or net worth (other than as a result of the costs incident to the Reincorporation, which we expect to be immaterial). |
| · | The directors and officers of the Company prior to the Reincorporation will hold the same respective positions with ARCA-Nevada following the Reincorporation, and there will be no substantive change in employment agreements for executive officers or in other direct or indirect interests of the current directors or executive officers of the Company. |
| · | When the Reincorporation becomes effective, all of our issued and outstanding shares of common stock and Series A Preferred Stock at such time will be automatically converted into an equivalent number of issued and outstanding shares of common stock of ARCA-Nevada, or Series A Preferred Stock of ARCA-Nevada, respectively, without any action on the part of our shareholders. The number of issued and outstanding shares of capital stock of ARCA-Nevada will be identical to the Company’s capital stock existing at the time of the Reincorporation. |
| · | The Reincorporation will have no effect on the listing of shares of our common stock on The NASDAQ Capital Market under the same symbol “ARCI.” YOU WILL NOT NEED TO EXCHANGE YOUR EXISTING STOCK CERTIFICATES FOR STOCK CERTIFICATES OF ARCA-NEVADA. We will continue to file periodic reports and other documents as and to the extent required by the rules and regulations of the SEC. |
| · | Shares of our common stock that are freely tradable prior to the Reincorporation will continue to be freely tradable after the Reincorporation, and shares of our common stock that are subject to restrictions prior to the Reincorporation will continue to be subject to the same restrictions after the Reincorporation. The Reincorporation will not change the respective ownership positions of our shareholders in our Company. |
Principal Reasons for Reincorporation
The Board is continually evaluating how best to position the Company to be attractive to all of its potential constituents, including shareholders, employees, officers, directors, customers, and other business partners. The Board approved the Reincorporation because it believes that the resulting change to governance under the corporate laws of the State of Nevada will directly benefit our shareholders by providing a greater measure of flexibility and simplicity in corporate governance than is available in the State of Minnesota, and may increase the marketability of our securities. Nevada has adopted, construed, and implemented comprehensive, advanced, flexible corporate laws responsive to the legal and business needs of corporations organized under its laws.
The Board is not proposing the Reincorporation to prevent a change in control of our Company and is not aware of any present attempt by any person to acquire control of our Company or to obtain representation on the Board.
Possible Disadvantages of the Reincorporation
Notwithstanding the belief of the Board as to the benefits to our shareholders of the Reincorporation, it should be noted that Nevada law has been criticized on the grounds that it does not afford minority shareholders the same substantive rights and protections as are available in a number of other states, including Minnesota. Generally, the Articles of Incorporation and Bylaws of ARCA-Nevada, in comparison to the Company’s current Minnesota Articles of Incorporation and Bylaws, also contain or eliminate certain provisions that may have the effect of reducing the rights of minority shareholders. The Reincorporation of the Company in Nevada may make it more difficult for minority shareholders to elect directors and influence our policies. Below are highlighted the main areas for which the Reincorporation could constitute a negative impact for shareholders due to differences in Minnesota and Nevada corporate law:
| · | Removal of directors.Under Minnesota law, the directors may be removed with or without cause by the affirmative vote of that proportion or number of the voting power of the shares of the classes or series the director represents which would be sufficient to elect such director. Nevada law calls for the vote of the holders of not less than two-thirds of the voting power of a corporation’s issued and outstanding stock. |
| · | Failure to hold an annual meeting.Minnesota law provides that if a regular shareholders’ meeting has not been held during the immediately preceding 15 months, a shareholder or shareholders holding 3% or more of the voting power may demand a meeting by written notice to the Company. Nevada law only allows a petition to a Nevada District Court by one or more stockholders holding at least 15% of the corporation’s voting power, after a failure of the corporation to elect directors within 18 months after the last election. |
| · | Duration of proxies.In Minnesota, a proxy is valid for a period of 11 months unless a longer time is stated therein. Nevada law only allows for six months unless otherwise provided within the proxy, and does not allow in any event for validity past a period of seven years. |
| · | Business combinations.Minnesota law restricts the ability of a company to enter into a business combination with an interested shareholder for a period of four years following the interested shareholder’s becoming such unless either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder is approved by the board of directors prior to the interested shareholder’s stock acquisition date. Nevada law applies a two year period to the same scenario. |
It should also be noted that the interests of the Board, management, and affiliated shareholders in voting on the Reincorporation proposal may not be the same as those of unaffiliated shareholders. For a summary comparison of shareholders’ rights and the power of management under Nevada law and Minnesota law, see “Significant Differences Related to State Law.”
The Board has considered the potential disadvantages of the Reincorporation and has concluded that the potential benefits outweigh the possible disadvantages.
Principal Features of the Reincorporation – The Plan of Conversion
The Reincorporation would be effected through the conversion of the Company into ARCA-Nevada. The conversion will be accomplished pursuant to a Plan of Conversion, which is attached to this proxy statement asAppendix A. Upon completion of the conversion, ARCA-Nevada will continue to maintain all of the assets and liabilities of the Company and will continue to operate our business under the name “Appliance Recycling Centers of America, Inc.” unless we subsequently change that name, which we reserve the right to do at any time.
Upon completion of the conversion, each outstanding share of common stock of the Company will be automatically converted into one share of common stock of ARCA-Nevada. Each outstanding share of Series A Preferred Stock will be converted into one share of Series A Preferred Stock of ARCA-Nevada. In addition, all outstanding warrants and options exercisable for shares of the Company’s common stock will be automatically converted into comparable warrants and options of ARCA-Nevada.
Assuming we obtain requisite shareholder approval for the Reincorporation, we currently intend to cause the Reincorporation to become effective as soon as reasonably practicable following the Annual Meeting. The Reincorporation will become effective upon the filing of Articles of Conversion with the Secretary of State of the State of Nevada and the Secretary of State of the State of Minnesota. Upon the effectiveness of the conversion, the Articles of Incorporation and the Bylaws of ARCA-Nevada, in substantially the forms attached asAppendices Band Cto this Proxy Statement, respectively, will govern corporate operations and activities of the converted corporation.
You will not have to take any action to exchange your stock certificates as a result of the conversion. The current certificates representing shares of the Company’s common stock will automatically represent an equal number of shares of ARCA-Nevada’s common stock following the Reincorporation. Similarly, option and warrant agreements representing rights to acquire shares of Company common stock will automatically represent the right to purchase an equal number of shares of ARCA-Nevada common stock following the reincorporation, and holders of options and warrants will not be required to take any action to have such agreements reissued by ARCA-Nevada.
Effect of Vote for Reincorporation
A vote in favor of the Reincorporation is a vote in favor of the Plan of Conversion and the Articles of Incorporation and the Bylaws for ARCA-Nevada, each in the forms attached to this Proxy Statement. Shareholders also should note that approval of the Reincorporation also will constitute approval of our equity and other employee benefit and incentive plans continuing as plans of the Company after the Reincorporation. We have no current arrangements or understandings providing for the issuance of any of the additional authorized and unreserved shares of our common stock or preferred stock that would be available as a result of the proposed Reincorporation.
Effect of Not Obtaining Required Vote for Reincorporation
If we fail to obtain the requisite vote of our shareholders for approval of the Reincorporation, the Reincorporation will not be consummated and we will continue to be incorporated under the laws of the State of Minnesota and governed by the MBCA and our existing Articles of Incorporation and Bylaws.
Discretion Not to Consummate Reincorporation
The Reincorporation may be delayed by the Board or the Plan of Conversion may be terminated or abandoned by action of the Board at any time prior to the effective time of the Reincorporation, whether before or after approval by our shareholders, if the Board determines for any reason that such delay or termination would be in the best interests of the Company and our shareholders.
Regulatory Approvals
The Reincorporation will not be consummated until after shareholder approval is obtained. We will obtain all required consents of governmental authorities, including the filing of the Articles of Conversion with the Secretary of State of the State of Nevada and the Secretary of State of the State of Minnesota.
Certain United States Federal Income Tax Consequences
The below only summarizes the material U.S. federal income tax consequences of the Reincorporation to shareholders. ACCORDINGLY, WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING YOUR PARTICULAR CIRCUMSTANCES AND YOUR TAX CONSEQUENCES RELATING TO THE REINCORPORATION, AS WELL AS ANY TAX CHANGES IN CONSEQUENCES ARISING UNDER THE LAWS OF THE FEDERAL OR ANY STATE, LOCAL, FOREIGN OR OTHER TAX JURISDICTION.
The Reincorporation provided for in the Plan of Conversion is intended to be a tax-free reorganization under Section 368(a) of the U.S. Internal Revenue Code. Assuming the Reincorporation qualifies as a tax-free reorganization within the meaning of Section 368(a) of the U.S. Internal Revenue Code, and subject to the qualifications and assumptions described in this Proxy Statement, our shareholders should not recognize any gain or loss as a result of the consummation of the Reincorporation and our shareholders’ basis and duration of holding our shares will be unchanged.
Accounting Consequences Associated with the Reincorporation
Because there is no change in the entity, we do not expect the Reincorporation to have a material effect on the Company from an accounting perspective. Historical financial statements of the Company, which have previously been reported to the SEC on our periodic reports, as of and for all periods through the date of this Proxy Statement, will remain the financial statements of the Company following the Reincorporation.
Significant Differences Related to State Law
We are incorporated under the laws of the State of Minnesota and ARCA-Nevada will be incorporated under the laws of the State of Nevada. The Company’s corporate affairs are currently governed by the MBCA and our Articles of Incorporation and Bylaws, which were created pursuant to Minnesota law. On the effective date of the Reincorporation, issues of corporate governance and control will be controlled by the NRS and ARCA-Nevada’s Articles of Incorporation and Bylaws, which will be created under Nevada law.
The following comparison of the NRS, Nevada Articles of Incorporation, and Nevada Bylaws with the MBCA, Minnesota Articles of Incorporation, and Minnesota Bylaws summarizes important distinctions between the respective bodies of law and organizational documents, but does not purport to be a complete statement of the respective rights of our shareholders prior and subsequent to the Reincorporation. Further, the following summary is not intended to constitute a comprehensive summary of such laws or documents. As such, the following summary is qualified in its entirety by reference to the MBCA and NRS, respectively, as well as the Nevada Articles of Incorporation, Nevada Bylaws, Minnesota Articles of Incorporation, and Minnesota Bylaws.
Shareholder Right | | Minnesota | | Nevada | Classified Board of Directors | | Both Minnesota and Nevada law permit corporations to classify their boards of directors as provided in its articles and bylaws. The Company’s Minnesota Articles of Incorporation (“Minnesota Articles”) do not contain a classified board provision. | | Nevada law requires that at least one-fourth of the total number of directors of a Nevada corporation be elected annually. The ARCA-Nevada Articles of Incorporation (“Nevada Articles”) do not contain a classified board provision. | | | | | | Quorum | | Minnesota law permits a corporation to change its quorum requirements from a majority of the voting power of the shares entitled to vote at a meeting to a larger or smaller number in the corporation’s bylaws or articles of incorporation. The Minnesota Articles and Bylaws provide that a majority of shares constitute a quorum. | | Under Nevada law, unless otherwise provided in the articles of incorporation or bylaws of a corporation, the quorum required for a corporation’s stockholders is presence in person or by proxy of a majority of the voting power of the shares entitled to vote at the meeting. The Nevada Articles and Bylaws do not modify Nevada law in this respect. |
Shareholder Right | | Minnesota | | Nevada | Removal of Directors | | Minnesota law provides that, unless otherwise provided in the articles or bylaws of the corporation or by shareholder agreement, the directors may be removed with or without cause by the affirmative vote of that proportion or number of the voting power of the shares of the classes or series the director represents which would be sufficient to elect such director (with an exception for corporations with cumulative voting). The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | Nevada law provides that any one or all of the directors of a corporation may be removed by the holders of not less than two-thirds of the voting power of a corporation’s issued and outstanding stock. Nevada law does not distinguish between removal of directors with or without cause. The Nevada Articles do not modify Nevada law in this respect. | | | | | | Vacancies | | According to Minnesota law, unless the articles of incorporation or bylaws of the company provide otherwise, vacancies resulting from the death, resignation, removal or disqualification of a director may be filled by the affirmative vote of a majority of the remaining directors, even though less than a quorum, and vacancies resulting from a newly-created directorship may be filled by the affirmative vote of a majority of the directors serving at the time of the increase. The shareholders may also elect a new director to fill a vacancy that is created by the removal of a director by the shareholders. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | Nevada law provides that all vacancies on the board of directors of a Nevada corporation may be filled by a majority of the remaining directors, though less than a quorum, for the remainder of the term of office of resigning director or directors, unless the articles of incorporation provide otherwise. The Nevada Articles do not modify Nevada law in this respect. | | | | | | Interested
Director
Transactions | | Under Minnesota law, a contract or transaction between a corporation and one or more of its directors or officers, or between a corporation and any other corporation, firm, or association in which one or more of its directors or officers are directors or officers, or have a financial interest, is not void or voidable solely for that reason, or solely because of such relationship or interest, or solely because the interested director or officer was present, participates or votes at the meeting of the board or committee that authorizes the contract or transaction, if (1) the directors establish that the transaction is “fair and reasonable” to the corporation; (2) the transaction is approved in good faith by the holders of at least two thirds of the voting power of the shares entitled to vote that are owned by persons other than the interested directors or, if all holders of shares entitled to vote are interested directors, by the holders of all outstanding shares, whether or not entitled to vote; (3) or the transaction is approved in good faith by a majority of the board or a committee, but the interested directors may not be counted in determining the presence of a quorum at the board or committee meeting and may not vote on the matter. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | Under Nevada law, a contract or transaction between a corporation and one or more of its directors or officers, or between a corporation and any other corporation, firm, or association in which one or more of its directors or officers are directors or officers, or have a financial interest, is not void or voidable solely for that reason, or solely because of such relationship or interest, or solely because the interested director or officer was present, participates or votes at the meeting of the board or committee that authorizes the contract or transaction, if (i) the director’s or officer’s interest in the contract or transaction is known to the board of directors (or committee) or stockholders and the transaction is approved or ratified by the board (or committee) or stockholders in good faith, without counting the vote(s) of the common or interested director(s) in the former case and counting such vote(s) in the latter case, (ii) the fact of the common interest is not known to the interested director(s) or officer(s) at the time the transaction is brought before the board, or (iii) the contract or transaction is fair to the corporation at the time it is authorized or approved. The Nevada Articles and Bylaws do not modify Nevada law in this respect. |
Shareholder Right | | Minnesota | | Nevada | Declaration and Payment of Dividends | | Minnesota law provides that a corporation may pay dividends or repurchase shares if the corporation will be able to pay its debts in the ordinary course of business after paying the dividend or repurchasing the shares, regardless of whether the corporation has surplus or net profits, subject to certain limitations for the benefit of certain preference shares. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | Except as otherwise provided in the articles of incorporation, a board of directors may authorize and the corporation may make distributions to its stockholders, including distributions on shares that are partially paid. However, no distribution shall be made if following said distribution: (i) the corporation would be unable to pay its debts as they become due in the usual course of business, or (ii) the distribution would leave the corporation with assets less than the sum of total liabilities (plus any amounts necessary to satisfy any preferential rights). The Nevada Articles do not modify Nevada law in this respect. | | | | | | Special Meetings of Stockholders | | Under Minnesota law, a special meeting of shareholders may be called by the chairman of the board, the chief executive officer, the chief financial officer, any two or more directors, a person authorized in the articles or bylaws to call special meetings or a shareholder or shareholders holding 10% or more of all shares entitled to vote, except that a special meeting called by a shareholder for the purpose of considering any action to facilitate, directly or indirectly, or effect a business combination, including any action to change or otherwise affect the composition of the board of directors for that purpose, must be called by 25% or more of the voting power of all shares entitled to vote. The Company’s Minnesota Bylaws provide that special meetings of the stockholders may be called by the Chief Executive Officer, two or more directors, or by written request of shareholders holding 10% or more of the capital stock entitled to vote. | | Nevada law provides that unless otherwise provided in a corporation’s articles of incorporation or bylaws, the entire board of directors, any two directors, or the president of the corporation may call a special meeting of the stockholders. The Nevada Articles and Bylaws do not modify Nevada law in this respect. | | | | | | Adjournment of Stockholder Meetings | | Under Minnesota law, notice of an adjourned meeting is not required if it is to be held no more than 120 days after the date fixed for the original meeting and the date, time, and place of the meeting were announced at the time of the original meeting or any adjournment of the original meeting, and as long as the company complies with notice requirements. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | Under Nevada law, a corporation is not required to give any notice of an adjourned meeting or of the business to be transacted at an adjourned meeting, other than by announcement at the meeting at which the adjournment is taken, unless the board fixes a new record date for the adjourned meeting. The Nevada Articles and Bylaws do not modify Nevada law in this respect. | | | | | | Failure to Hold an Annual Meeting | | Minnesota law does not require a corporation to hold an annual meeting unless required by the corporation’s articles or bylaws. If a regular shareholders’ meeting has not been held during the immediately preceding 15 months, a shareholder or shareholders holding 3% or more of the voting power may demand a meeting by written notice. At each regular shareholders’ meeting there must be an election of qualified successors for directors who serve for an indefinite term or whose terms have expired or are due to expire within six months after the date of the meeting. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | Nevada law provides that if a corporation fails to elect directors within 18 months after the last election, a Nevada district court may order an election upon the petition of one or more stockholders holding 15 percent of the corporation’s voting power. The Nevada Articles and Bylaws do not modify Nevada law in this respect. |
Shareholder Right | | Minnesota | | Nevada | Stockholder
Voting Provisions | | Under Minnesota law, except for the election of directors, the shareholders shall take action by the affirmative vote of the holders of the greater of (1) a majority of the voting power of the shares present and entitled to vote on that item of business; or (2) a majority of the voting power of the minimum number of shares entitled to vote that would constitute a quorum for the transaction of business at the meeting, except where the MBCA or the articles requires a larger proportion or number. The affirmative vote of a majority of the voting power of all shares of the company’s common stock is required to approve mergers and certain other extraordinary transactions. A company’s articles of incorporation generally can be amended if the proposed amendment is approved by the company’s board of directors and by holders of a majority of the voting power of the shares of the company’s common stock present and entitled to vote at a meeting.
Unless otherwise required by the articles, directors are elected by a plurality of the voting power of the shares present and entitled to vote on the election of directors at a meeting at which a quorum is present. The Minnesota Articles do not modify Minnesota law in this respect. | | Under Nevada law, a majority of the voting power, which includes the voting power that is present in person or by proxy, regardless of whether the proxy has authority to vote on all matters, generally constitutes a quorum for the transaction of business at a meeting of stockholders. Generally, action by the stockholders on a matter other than the election of directors is approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, unless otherwise provided in Nevada law or the articles of incorporation or bylaws of the corporation. Generally, directors are elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on election of directors. Where a separate vote by a class or series or classes or series is required, a majority of the voting power of the class or series that is present or by proxy, regardless of whether the proxy has authority to vote on all matters, generally constitutes a quorum for the transaction of business. Generally, an act by the stockholders of each class or series is approved if a majority of the voting power of a quorum of the class or series votes for the action. The Nevada Articles do not modify Nevada law in this respect. | | | | | | Duration of Proxies | | According to Minnesota law, a proxy is valid for a period of 11 months, unless a longer period is expressly provided in the appointment. No appointment is irrevocable unless the appointment is coupled with an interest in the shares or in the corporation. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | According to Nevada law, a proxy is effective only for a period of six months, unless it is coupled with an interest or unless otherwise provided in the proxy, which may not exceed seven years. The Nevada Bylaws provide that a proxy shall not be valid for more than a period of three years unless the proxy provides otherwise. |
Cumulative
Voting | | Under Minnesota law, cumulative voting in the election of directors is permitted unless the articles of the company provide otherwise. In order to exercise cumulative voting rights for a director, the shareholder is required to give written notice of the intent to cumulate those votes as provided in the MBCA. The Minnesota Articles do not provide for cumulative voting. | | Directors of a Nevada corporation are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present, unless otherwise provided in the articles of incorporation. Nevada law permits cumulative voting in the election of directors as long as the articles of incorporation provide for cumulative voting and certain procedures for the exercise of cumulative voting are followed. The Nevada Articles do not have a provision granting cumulative voting rights in the election of its directors. | | | | | | Stockholder
Action by Written
Consent | | Minnesota law provides that any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting by written action signed by all of the shareholders entitled to vote on that action. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | Nevada law provides that, unless the articles of incorporation or bylaws provides otherwise, any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if the holders of outstanding stock having at least the minimum number of votes that would be necessary to authorize or take such action at a meeting consents to the action in writing. The Nevada Articles and Bylaws do not modify Nevada law in this respect. |
Shareholder Right | | Minnesota | | Nevada | Stockholder Vote for Mergers and Other Corporate Reorganizations | | Minnesota law requires that a resolution containing a plan of merger or exchange must be approved by the affirmative vote of a majority of the directors present at a meeting and submitted to the shareholders and approved by the affirmative vote of the holders of a majority of the voting power of all shares entitled to vote. Minnesota law does not require a corporation to submit a plan of merger to the vote of the shareholders of the surviving corporation if (a) the articles of incorporation will not be amended in the transaction; (b) each holder of shares of the corporation that were outstanding immediately before the effective time of the transaction will hold the same number of shares with identical rights immediately thereafter; (c) the voting power of the outstanding shares of the corporation entitled to vote immediately after the merger, plus the voting power of the shares of the corporation entitled to vote issuable on conversion of, or on the exercise of rights to purchase, securities issued in the transaction, will not exceed by more than 20 percent, the voting power of the outstanding shares of the corporation entitled to vote immediately before the transaction; and (d) the number of participating shares of the corporation immediately after the merger plus the number of participating shares of the corporation issuable on conversion of, or on the exercise of rights to purchase, securities issued in the transaction, will not exceed by more than 20 percent, the number of participating shares of the corporation immediately before the transaction. Minnesota law requires that any class of shares of a Minnesota corporation must be given the right to approve the plan if it contains a provision which, if contained in a proposed amendment to the corporation’s articles of incorporation, would entitle such a class to vote as a class. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | Nevada requires authorization by a majority of outstanding shares entitled to vote, as well as approval by the board of directors, with respect to the terms of a merger, conversion or a sale of substantially all of the assets of the corporation. So long as the surviving corporation is organized in Nevada, Nevada law does not generally require a stockholder vote of the surviving corporation in a merger if: (a) the plan of merger does not amend the existing Articles of Incorporation; (b) each share of stock of the surviving corporation outstanding immediately before the effective date of the merger is an identical outstanding share after the merger; (c) the number of voting shares outstanding immediately after the merger, plus the number of voting shares issued as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20 percent the total number of voting shares of the surviving corporation outstanding immediately before the merger; and (d) the number of participating shares outstanding immediately after the merger, plus the number of participating shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20 percent the total number of participating shares outstanding immediately before the merger. The Nevada Articles and Bylaws do not modify Nevada law in this respect. |
Shareholder Right | | Minnesota | | Nevada | Indemnification of Officers and Directors | | Minnesota law sets forth conditions under which a corporation may indemnify its directors, officers and employees. Minnesota law requires a corporation to indemnify any director, officer, or employee who is made or threatened to be made a party to a proceeding by reason of the former or present official capacity of the director, officer, or employee, against judgments, penalties, fines, settlements and reasonable expenses, but only if such person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. Minnesota law permits a corporation to prohibit indemnification by so providing in its articles of incorporation or bylaws. The Minnesota Articles do not modify Minnesota law in this respect. | | A Nevada corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding, if he is not liable under Nevada Revised Statute (“NRS”) 78.138 (see below Limitation on Personal Liability of Directors), acted in “good faith” and in a manner he reasonably believed to be in and not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. However, with respect to actions by or in the right of the corporation, no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. A director or officer who is successful, on the merits or otherwise, in defense of any proceeding subject to the Nevada corporate statutes’ indemnification provisions must be indemnified by the corporation for reasonable expenses incurred in connection therewith, including attorneys’ fees.
The Company’s Nevada Articles provide that the corporation shall, to the maximum extent and in the manner permitted by the NRS, as the same may be amended and supplemented, indemnify and hold harmless any and all persons whom it shall have power to indemnify under said provisions from and against any and all liabilities (including expenses) imposed upon or reasonably incurred by him or her in connection with any action, suit or other proceeding in which he or she may be involved or with which he or she may be threatened, or other matters referred to in or covered by said provisions both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer of the corporation. The Company’s Nevada Bylaws do not modify Nevada law in this respect.
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Shareholder Right | | Minnesota | | Nevada
| Advancement of Expenses | | A Minnesota corporation shall advance reasonable expenses, including attorneys’ fees, to a person entitled to payment or reimbursement of such fees, upon receipt of a written affirmation by the person of a good faith belief that the criteria for indemnification set forth in the MBCA have been satisfied and a written undertaking by the person to repay all amounts so paid or reimbursed by the corporation if it is ultimately determined that the criteria for indemnification have not been satisfied. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | Under Nevada law, the articles of incorporation, bylaws or an agreement made by the corporation may provide that the corporation must pay advancements of expenses in advance of the final disposition of the action, suit or proceedings upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined that he or she is not entitled to be indemnified by the corporation. The Nevada Articles and Bylaws do not modify Nevada law in this respect. | | | | | | Fiduciary Duties of Directors | | Under Minnesota law, the board of directors is charged with managing the business and affairs of a corporation. A director must discharge the duties of his position in good faith, in a manner the director reasonably believes to be in the best interests of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. A director may, in considering the best interests of the corporation, consider the interests of the corporation’s employees, customers, suppliers, and creditors, the economy of the state and nation, community and societal considerations, and the long-term as well as short-term interests of the corporation and its shareholders. A person who so performs those duties is not liable by reason of being or having been a director of the corporation. A director may be liable to the corporation for distributions made in violation of Minnesota law or a restriction contained in the corporation’s articles or Bylaws. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect.
| | Nevada law provides that the board of directors has the ultimate responsibility for managing the business and affairs of a corporation. In discharging this function, directors owe fiduciary duties of care and loyalty to the corporation and its stockholders. A director of a Nevada business corporation must perform his or her duties as a director in good faith and with a view to the interests of the corporation. Nevada law provides that in discharging their duties, the board of directors, committees of the board and individual directors may, in exercising their respective powers with a view to the interests of the corporation, choose, to the extent they deem appropriate, to subordinate the interests of stockholders to the interests of employees, suppliers, customers or creditors of the corporation or to the interests of the communities served by the corporation. Furthermore, the officers and directors may consider the long-term and short-term interests of the corporation and its stockholders. Under Nevada law, unless there is a breach of fiduciary duty or a lack of good faith, any act of the board of directors, any committee of the board or any individual director is presumed to be in the corporation’s best interest. No higher burden of proof or greater obligation to justify applies to any act relating to or affecting an acquisition or a potential or proposed acquisition of control of the corporation than to any other action. Nevada law imposes a heightened standard of conduct upon directors who take action to resist a change or potential change in control of a corporation, if such action impedes the exercise of the stockholders right to vote for or remove directors. The Nevada Articles and Bylaws do not modify Nevada law in this respect. |
Shareholder Right | | Minnesota | | Nevada | Limitation on Personal Liability of Directors | | Under Minnesota law, a director’s personal liability to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director may be eliminated or limited in the articles of incorporation except that the articles cannot limit the liability of a director: (1) for any breach of the director’s duty of loyalty to the corporation or its shareholders; (2) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law; (3) under Section 302A.559 of the MBCA or Section 80A.23 of the Minnesota Regulation of Securities Act which provide for liability for illegal distributions and civil liability, respectively; (4) for any transaction from which the director derived an improper benefit; or (5) for any act or omission occurring prior to the date when the provision in the articles eliminating the liability becomes effective. The Minnesota Articles eliminate a director’s personal liability to the extent permitted by the MBCA.
| | Nevada law provides that, unless the articles of incorporation provide for greater individual liability, a director or officer will not be individually liable to the corporation or its stockholders for any damages as a result of any act or failure to act in his capacity as a director or office unless it is proven that (i) his act or failure to act constituted a breach of his fiduciary duties as a director or officer and (ii) his breach of those duties involved intentional misconduct, fraud or a knowing violation of law. The Nevada Articles and Bylaws state that the personal liability of all of the directors and officers of the corporation is eliminated to the fullest extent allowed as provided by the NRS. | | | | | | Anti-Takeover
Statutes | | Minnesota law prohibits certain “business combinations” (as defined in the MBCA) between a Minnesota corporation with at least 100 shareholders, or a publicly held corporation with at least 50 shareholders, and an “interested shareholder” for a four-year period following the share acquisition date by the interested shareholder, unless certain conditions are satisfied or an exemption is found. An “interested shareholder” is generally defined to include a person who beneficially owns at least 10% of the votes that all shareholders would be entitled to cast in an election of directors of the corporation.
Minnesota law limits the ability of a shareholder who acquires beneficial ownership of more than certain thresholds of the percentage voting power of a Minnesota corporation (starting at 20%) from voting those shares in excess of the threshold unless such acquisition has been approved in advance by a majority of the voting power held by shareholders unaffiliated with such shareholder. Minnesota law includes a provision restricting certain “control share acquisitions” of Minnesota corporations.
Minnesota law also provides that during any tender offer, a publicly held corporation may not enter into or amend an agreement (whether or not subject to contingencies) that increases the current or future compensation of any officer or director. In addition, under Minnesota law, a publicly held corporation is prohibited from purchasing any voting shares owned for less than two years from a 5% shareholder for more than the market value unless the transaction has been approved by the affirmative vote of the holders of a majority of the voting power of all shares entitled to vote or unless the corporation makes a comparable offer to all holders of shares of the class or series of stock held by the 5% shareholder and to all holders of any class or series into which such securities may be converted. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | Nevada law prohibits a Nevada corporation from engaging in any business combination with any interested stockholder (any entity or person beneficially owning, directly or indirectly, 10% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any of these entities or persons) for a period of two years following the date that the stockholder became an interested stockholder, unless prior to that date: (i) the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder, or (ii) on or subsequent to the date the person became an interested stockholder, the business combination is authorized by the board of directors and a supermajority of the stockholders other than the interested stockholder.
Nevada law also provides that business combinations after the two-year period following the date that the stockholder became an interested stockholder may also be prohibited unless approved by the corporation’s directors or other stockholders or unless the price and terms of the transaction meet the criteria set forth in the statute.
Nevada’s “Acquisition of Controlling Interest” statute applies to Nevada corporations that do business in the State of Nevada directly or through an affiliate and have 200 or more stockholders of record (at least 100 of which have record addresses in Nevada), unless the articles of incorporation or bylaws specifically provide otherwise. If applicable, this statute generally provides that any person acquiring certain statutorily defined “control” percentages (20%, 33.3%, or 51%) of a corporation’s outstanding shares in the secondary market is not entitled to vote those “control shares” unless a majority of the other stockholders elects to restore such voting rights in whole or in part.
The Nevada Articles and Bylaws do not opt out of the business combination or acquisition of a controlling interest statutes and therefore, the Nevada Articles and Bylaws do not modify Nevada law in this respect.
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Shareholder Right | | Minnesota | | Nevada | Amendments to Articles of Incorporation or Bylaws | | Minnesota law provides that the power to adopt, amend or repeal bylaws is vested in the board. Minnesota law provides that the authority in the board of directors is subject to the power of the shareholders to change or repeal such bylaws by a majority vote of the shareholders at a meeting of the shareholders called for such purpose, and the board of directors shall not make or alter any bylaws fixing a quorum for meetings of shareholders, prescribing procedures for removing directors or filling vacancies in the board of directors, or fixing the number of directors or their classifications, qualifications or terms of office. Under Minnesota law, a shareholder or shareholders holding 3% or more of the voting power of all shares entitled to vote may propose a resolution to amend or repeal bylaws adopted, amended or repealed by the board, in which event such resolutions must be brought before the shareholders for their consideration pursuant to the procedures for amending the articles of incorporation. Minnesota law provides that a proposal to amend the articles of incorporation may be presented to the shareholders of a Minnesota corporation by a resolution (i) approved by the affirmative vote of a majority of the directors present or (ii) proposed by a shareholder or shareholders holding 3% or more of the voting shares entitled to vote thereon. Under Minnesota law, any such amendment must be approved by the affirmative vote of a majority of the shareholders entitled to vote thereon, except that the articles may provide for a specified proportion or number larger than a majority. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | Nevada law generally requires the approval of the holders of a majority of all outstanding shares entitled to vote to approve proposed amendments to a corporation’s articles of incorporation. Nevada law also provides that in addition to the vote described above, the vote of a majority of the outstanding shares of a class may be required to amend the articles of incorporation. Nevada does not require stockholder approval for the board of directors of a corporation to fix the voting powers, designation, preferences, limitations, restrictions and rights of a class of stock provided that the corporation’s organizational documents grant such power to its board of directors. The Nevada Articles grant such power to the Company’s Board of Directors.
Nevada law provides that, unless otherwise prohibited by any bylaws adopted by the stockholders, the Board of directors may amend any bylaw, including any bylaw adopted by the stockholders. The articles of incorporation may grant the authority to adopt, amend, or repeal bylaws exclusively to the directors. The Nevada Articles and Bylaws do not modify Nevada law in this respect. |
Shareholder Right | | Minnesota | | Nevada | Inspection of Books and Records | | Under Minnesota law, any shareholder, beneficial owner, or holder of a voting trust certificate of a publicly held corporation has, upon written demand stating the purpose and acknowledged or verified as required under Minnesota law, a right at any reasonable time to examine and copy the corporation’s share register and other corporate records reasonably related to the stated purpose and described with reasonable particularity in the written demand upon demonstrating the stated purpose to be a proper purpose. The acknowledged or verified demand must be directed to the corporation at its registered office in Minnesota or at its principal place of business. A “proper purpose” is one reasonably related to the person’s interest as a shareholder, beneficial owner, or holder of a voting trust certificate of the corporation. The Minnesota Articles and Bylaws do not modify Minnesota law in this respect. | | Under Nevada law, any person who has been a stockholder of record of a Nevada corporation for at least six months immediately preceding a demand, or any person holding or authorized in writing by the holders of, at least five percent of all of its outstanding shares, upon at least five days’ written demand is entitled to inspect and copy the following records: a copy certified by the secretary of state of the corporation’s articles of incorporation, and all amendments thereto; a copy certified by an officer of the corporation of the corporation’s bylaws and all amendments thereto; and a stock ledger, revised annually, containing the names of all persons who are stockholders of the corporation, places of residence, and number of shares held by them respectively. In addition, any stockholder of a Nevada corporation owning not less than 15 percent of all issued and outstanding shares, or who has been authorized in writing by the holders of at least 15 percent of all its issued and outstanding shares, upon at least five days written demand, is entitled to inspect the books of account and all financial records of the corporation, to make extracts therefrom, and to conduct an audit of such records. These rights may not be limited in the articles or bylaws of the corporation but may be denied to any stockholder upon the stockholder’s refusal to furnish the corporation an affidavit that such inspection, extracts or audit is not desired for any purpose not related to the stockholder’s interest in the corporation as a stockholder. However, the right to inspect and audit financial records does not apply to any corporation listed and traded on any recognized stock exchange or to any corporation that furnishes to its stockholders a detailed, annual financial statement. The Nevada Articles and Bylaws do not modify Nevada law in this respect. | | | | | | Franchise Taxes | | Neither Minnesota nor Nevada imposes any corporate franchise tax. | | |
Dissenters’ Rights
As discussed further below, holders of common stock and Series A Preferred Stock have the right to dissent from the proposed Reincorporation from the State of Minnesota to the State of Nevada and demand payment in cash for their shares equal to the fair value of the shares as determined under Minnesota law.
Action Creating Right
Section 302A.471(e) of the MBCA grants any shareholder of record of the Company, and any beneficial owner of shares of the Company, as of the record date of October 6, 2017, the right to object to the Reincorporation and obtain payment from the Company for the fair value of their shares at the effective time of the Reincorporation. The Board reserves the right to abandon the Reincorporation in the event that shareholders holding 5% or more of the Company’s outstanding shares properly exercise their right to dissent with respect to such shares.
Requirements for Exercising
TO BE ENTITLED TO PAYMENT, THE DISSENTING SHAREHOLDER MUST FILE WITH THE COMPANY, BEFORE THE VOTE FOR THE REINCORPORATION AND THE PLAN OF CONVERSION, A WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT OF THE FAIR VALUE OF THE SHARES AND MUST NOT VOTE IN FAVOR OF THE REINCORPORATION AND THE PLAN OF CONVERSION. THIS DEMAND WILL BE OF NO FORCE AND EFFECT IF THE REINCORPORATION IS NOT EFFECTED. The notice must be submitted to the Company at Appliance Recycling Centers of America, Inc., 175 Jackson Avenue North, Suite 102, Minneapolis, Minnesota 55343, attention: Secretary, and must be received before the vote for the Reincorporation. A vote against the Reincorporation is not necessary for the shareholder to exercise dissenters’ rights and require the Company to purchase their shares. A vote against the Reincorporation will not be deemed to satisfy the notice requirements of state law. The liability to the dissenting shareholder for the fair value of the shares also shall be the liability of the Company, as a Nevada corporation, when and if the Reincorporation is effective. Any shareholder contemplating the exercise of these dissenters’ rights should review carefully the provisions of Sections 302A.471 and 302A.473 of the MBCA, particularly the procedural steps required to perfect such rights. SUCH DISSENTERS’ RIGHTS WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF SECTIONS 302A.471 AND 302A.473 ARE NOT FULLY AND PRECISELY SATISFIED. A COPY OF SECTIONS 302A.471 AND 302A.473 IS ATTACHED ASAPPENDIX D TO THIS PROXY STATEMENT.
Notice of Procedure
If and when the Reincorporation is approved by shareholders of the Company and if the Reincorporation is not abandoned by the Board of Directors, the Company will deliver to all shareholders who have properly dissented from the Reincorporation a notice that: (1) lists the address to which demand for payment and certificates for shares must be sent to obtain payment for such shares and the date by which such certificates must be received; (2) describes any restriction on transfer of uncertificated shares that will apply after the demand for payment is received; (3) encloses a form to demand payment and to be used to certify the date on which the shareholder, or the beneficial owner on whose behalf the shareholder dissents, acquired the shares or an interest in them; and (4) encloses a copy of Sections 302A.471 and 302A.473 of the MBCA and a brief description of the procedures to be followed to dissent and obtain payment of fair values for shares.
Submission of Share Certificates
To receive the fair value of his, her, or its shares, a dissenting shareholder must demand payment and deposit his, her or its share certificates within 30 days after the notice is delivered by the Company, but the dissenting shareholder retains all other rights of a shareholder until the proposed action takes effect. Under Minnesota law, notice by mail is made by the Company when deposited in the United States mail. A shareholder who fails to make demand for payment and fails to deposit certificates will lose the right to receive the fair value of the shares notwithstanding the timely filing of such shareholder’s notice of intent to demand payment.
Purchase of Dissenting Shares
After the effective time of the Reincorporation, the Company shall remit to the dissenting shareholders who have complied with the above-described procedures the amount the Company estimates to be the fair value of the shares held by such shareholders, plus interest accompanied by certain financial information about the Company, an estimate of the fair value of the shares and the method used and a copy of Sections 302A.471 and 302A.473 of the MBCA, and a brief description of the procedure to be followed to demand supplemental payment.
Acceptance or Settlement of Demand
If a dissenting shareholder believes that the amount remitted by the Company is less than the fair value of the shares, with interest, then the dissenting shareholder may give written notice to the Company of his or her estimate of fair value, with interest, within 30 days after the Company mails such remittance and must demand payment of the difference. UNLESS A SHAREHOLDER MAKES SUCH A DEMAND WITHIN SUCH THIRTY-DAY PERIOD, THE SHAREHOLDER WILL BE ENTITLED ONLY TO THE AMOUNT REMITTED BY THE COMPANY. Within 60 days after the Company receives such a demand from a shareholder, it will be required either to pay the shareholder the amount demanded (or agreed to after discussion between the shareholder and the Company) or to file in court a petition requesting that the court determine the fair value of the shares, with interest.
Court Determination
All shareholders who have demanded payment for their shares, but have not reached agreement with the Company, will be made parties to such court proceeding. The court will then determine whether the dissenting shareholders have fully complied with the provisions of Section 302A.473 of the MBCA and will determine the fair value of the shares, taking into account any and all factors the court finds relevant (including the recommendation of any appraisers appointed by the court), computed by any method that the court, in its discretion, sees fit to use, whether or not such method was used by the Company or a shareholder. The expenses of the court proceeding will be assessed against the Company, except that the court may assess part or all of those costs and expenses against a shareholder whose action in demanding payment is found to be arbitrary, vexatious, or not in good faith. The fair value of the Company’s shares means the fair value of the shares immediately before the effective time of the Reincorporation. Under Section 302A.471 of the MBCA, a shareholder of the Company has no right at law or equity to set aside the effect of the Reincorporation pursuant to the Plan of Conversion, except if such consummation is fraudulent with respect to such shareholder or the Company. Any shareholder making a demand for payment of fair value for his or her shares may withdraw the demand at any time before the determination of the fair value of the shares by filing with the Company written notice of such withdrawal.
The Board recommends a vote FOR the approval of the Reincorporation of the Company from the State of Minnesota to the State of Nevada.
Proposal 4:
AUTHORITY TO ADJOURN The ANNUAL MEETING
If, at the annual meeting, our Board determines it is necessary or appropriate to adjourn the annual meeting, we intend to move to adjourn the annual meeting. For example, our Board may make such a determination in order to adjourn the meeting to solicit additional votes if the number of shares of our voting stock represented and voting in favor of Proposal 3 regarding reincorporation in Nevada is insufficient to adopt that proposal. If our Board determines that it is necessary or appropriate, we will ask our shareholders and proxies to vote only upon the proposal to adjourn the annual meeting, and not the other proposals.
In this proposal, we are asking you to authorize our Board to adjourn the annual meeting to another place, date or time if our Board believes adjournment is necessary or appropriate. If the shareholders approve the proposal to adjourn the annual meeting, we would expect to adjourn the annual meeting and use the additional time to solicit additional votes, including the solicitation of votes from shareholders that have previously voted, if necessary to approve Proposal 3.
If a quorum does not exist, the holders of a majority of the voting power of the shares of our common stock and Series A Preferred Stock present at the annual meeting, in person or by proxy, may adjourn theannual meetingto another place, date or time.
The Board recommends a vote FOR granting the Board to adjourn the Annual Meeting if the Board deems it necessary or appropriate.
Information Concerning Officers and Key Employees
who are not Directors
Virland A. Johnsonwas appointed Chief Financial Officer of the Company on August 21, 2017. Mr. Johnson had previously served the Company as a consultant beginning in February 2017. Mr. Johnson also continues to serve as Chief Financial Officer for Live Ventures Incorporated a diversified public holding company (NASDAQ symbol – LIVE). Prior to joining Live Ventures Incorporated, Mr. Johnson was Sr. Director of Revenue for JDA Software from February 2010 to April 2016, where he was responsible for revenue recognition determination, sales and contract support while acting as a subject matter expert. Prior to joining JDA, Mr. Johnson provided leadership and strategic direction while serving in C-Level executive roles in public and privately held companies such as Cultural Experiences Abroad, Inc., Fender Musical Instruments Corp., Triumph Group, Inc., Unitech Industries, Inc. and Younger Brothers Group, Inc. Mr. Johnson’s more than 25 years of experience is primarily in the areas of process improvement, complex debt financings, SEC and financial reporting, turn-arounds, corporate restructuring, global finance, merger and acquisitions and returning companies to profitability and enhancing shareholder value. Mr. Johnson holds a Bachelor’s degree in Accountancy from Arizona State University, and is a licensed Certified Public Accountant in Arizona.
Bradley S. Bremer is President of ApplianceSmart, Inc. (“ApplianceSmart”), a subsidiary of the Company. ApplianceSmart is a chain specializing in new and out-of-the-box appliances. Pursuant to the Agreement, the Purchaser purchased from the Company all the issued and outstanding shares of capital stock (the “Stock”) of ApplianceSmart in exchange for $6,500,000 (the “Purchase Price”). Effective April 1, 2018, the Purchaser issued to the Company a position he has held since February 2012. He served as Vice Presidentpromissory note (the “Purchaser Note “) with a three-year term in the original principal amount of Retail Operations from 2007 until his appointment as President of ApplianceSmart. Mr. Bremer is responsible$3,919,494 for directing all aspectsthe balance of the Purchase Price. ApplianceSmart is guaranteeing the repayment of the Purchaser Note. On December 26, 2018, the Purchaser Note was amended and restated to grant the Company a security interest in the assets of the Purchaser, ApplianceSmart, and a party related to ApplianceSmart (ApplianceSmart Contracting Inc.) in exchange for modifying the payments terms of the Purchaser Note to provide for the payment in full of all accrued interest and principal on April 1, 2021, which is the modified the maturity date of the Purchaser Note. On March 15, 2019, the Company entered into agreements with third parties, pursuant to which it agreed to subordinate the payment of indebtedness under the Purchaser Note and the Company’s retail division, includingsecurity interest in the managementassets of sales, advertisingApplianceSmart and other related parties in exchange for a prepayment of outstanding principal amount of the Purchase Note of $1,200,000. In connection with that sale, the Company has an aggregate amount of future real property lease payments of $4,167,521, which represents amounts guaranteed or which may be owed under certain lease agreements to third party landlords in which the Company either remains the counterparty, is a guarantor, or has agreed to remain contractually liable under the lease (“ApplianceSmart Leases”). There are five ApplianceSmart Leases that the Company guarantees. They terminate December 31, 2020, April 30, 2021, August 14, 2021, December 31, 2022 and June 30, 2025, respectively. As of June 29, 2019, it cannot be determined either at June 29, 2019 or on a prospective basis that the Company will incur any loss related to its’ guarantees for a maximum potential amount of future undiscounted lease payments of $4,167,521. The Company does not have any accrued amount of liability associated with these future guaranteed lease payments. The ApplianceSmart Leases either have the Company as the contract tenant only, or the contracts reflect a joint tenancy with ApplianceSmart. ApplianceSmart is the occupant of the ApplianceSmart Leases. ARCA does not have the right to use the ApplianceSmart lease assets and hence capitalization under Accounting Standards Codification 842 is not required. The ApplianceSmart Leases have historically been used by ApplianceSmart for its operations and lease payments historically were, currently are, and in the future are expected to be, paid by ApplianceSmart. Any amounts paid out for the Company’s obligations and or guarantees under ApplianceSmart stores. He also overseesLeases would be recoverable to the selection ofextent there were assets available from ApplianceSmart locations, planning for new stores, development of new markets, and implementation of retail programs and services. From 2000added to 2007, Mr. Bremer held the position of Retail Operations Manager for the Company. Mr. Bremer is a graduate of the University of Minnesota.Purchaser Note.
Rachel L. Holmes is the Executive Vice President ofOn August 28, 2019, ARCA Recycling, Inc. (the “Borrower”), a position she was appointed to in January 2016. She previously held the positionwholly-owned subsidiary of Vice President of Client Services since July 2015, Vice President of Business Development since April 2008, and Chief of Staff since April 2012. Ms. Holmes focuses on business development, including strategic planning to obtain new clients for the Company’s appliance recycling and replacement services, and management of client accounts. She directs the Company’s environmental and regulatory research; participation in industry and government initiatives; and marketing and communications. She was employed by the Company, from 1991 to 1999 in various corporate planning, marketing and advertising capacities. From 1999 until rejoining the Company in 2003, she was an independent marketing consultant for the Company. Ms. Holmes earned a B.A. from the University of Minnesota.
Executive Compensation
The following table sets forth the cash and non-cash compensation for fiscal years ended December 31, 2016 and January 2, 2016 earned by each person who served as Chief Executive Officer during 2016, and our other two most highly compensated executive officers who held office as of December 31, 2016 (“named executive officers”):
Summary Compensation Table for Fiscal Year Ended December 31, 2016
| Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Stock Award ($) | | Option Awards ($) | | All Other Compensation ($) | | Total ($) | | | | | | | | | | | | | | | | | Tony Isaac (1) Chief Executive Officer | | 2016 | | 338,462 | | -- | | 62,000 (4) | | -- | | -- | | 400,462 | | | | | | | | | | | | | | | | | Edward R. Cameron (2) Former President of ARCA Recycling, Inc.; former Chairman of the Board; former President and CEO | | 2016 2015 | | 300,000 300,000 | | -- -- | | -- 114,000 (5) | | -- 96,000 (6) | | -- -- | | 300,000 417,528 | | | | | | | | | | | | | | | | | Jeffery Ostapeic (3) Former Chief Financial Officer | | 2016 2015 | | 93,323 180,000 | | 100,000 -- | | -- -- | | -- -- | | 3,600 7,200 | | 196,923 187,200 | | | | | | | | | | | | | | | | | Bradley S. Bremer President of ApplianceSmart, Inc. | | 2016 2015 | | 169,950 169,950 | | -- -- | | -- -- | | -- -- | | -- -- | | 169,950 169,950 |
______________________
| (1) | Mr. Isaac served as Interim Chief Executive Officer of the Company from February 29, 2016 until May 13, 2016, when he was appointed Chief Executive Officer of the Company. He was paid an annual salary of $550,000. |
| (2) | Mr. Cameron served as President and Chief Executive Officer of the Company from 1989 through August 13, 2014, and from May 18, 2015 until February 29, 2016, and as President of ARCA Recycling, Inc. from February 29, 2016 until May 31, 2017. |
| (3) | Mr. Ostapeic was appointed Chief Financial Officer of the Company effective December 18, 2014. He was paid an annual salary of $180,000 and provided a $600 per month car allowance. Mr. Ostapeic resigned as Chief Financial Officer of the Company effective July 1, 2016. In connection with his departure, the Company paid Mr. Ostapeic a bonus of $100,000. |
| (4) | This amount reflects the fair value of a stock grant awarded to Mr. Isaac during fiscal 2016. The shares were fully vested upon grant. See Note 10 to the Company’s consolidated financial statements on the Annual Report on Form 10-K, as amended (the “Annual Report on Form 10-K”), for the fiscal year ended December 31, 2016. |
| (5) | This amount reflects the fair value of a stock grant awarded to Mr. Cameron during fiscal 2015. The shares were fully vested upon grant. See Note 11 to the Company’s consolidated financial statements on the Annual Report on Form 10-K for the fiscal year ended December 31, 2016. |
| (6) | This amount reflects the fair value of the options granted to Mr. Cameron during fiscal 2015. See Note 2 to the Company’s consolidated financial statements on the Annual Report on Form 10-K for the fiscal year ended December 31, 2016 for discussion of the assumptions made in the valuation of option grants. |
Outstanding Equity Awards at December 31, 2016
The following table provides a summary of equity awards outstanding for our Named Executive Officers at December 31, 2016:
| Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($) | | Option Expiration Date | | | | | | | | | | | | Tony Isaac | | 10,000 | (1) | | -- | | 1.98 | | 05/18/2025 | | | | | | | | | | | | | Edward R. Cameron | | 35,000 | (2) | | -- | | 2.30 | | 08/16/2017 | | Edward R. Cameron | | 5,000 | (3) | | -- | | 4.25 | | 02/24/2018 | | Edward R. Cameron | | 100,000 | (4) | | -- | | 1.89 | | 05/09/2020 | | Edward R. Cameron | | 23,334 | (5) | | 11,666 (5) | | 3.00 | | 02/26/2021 | | Edward R. Cameron | | 100,000 | (6) | | -- | | 1.14 | | 09/01/2025 | | | | | | | | | | | | | Bradley S. Bremer | | 15,000 | (7) | | -- | | 3.55 | | 05/13/2017 | | Bradley S. Bremer | | 5,000 | (3) | | -- | | 4.25 | | 02/24/2018 | | Bradley S. Bremer | | 7,500 | (4) | | -- | | 1.89 | | 05/09/2020 | | Bradley S. Bremer | | 10,000 | (5) | | 5,000 (5) | | 3.00 | | 02/26/2021 |
_______________________
| (1) | Options granted May 18, 2015 and vested six months thereafter. |
| (2) | Options granted August 16, 2010 and vested twelve months thereafter. |
| (3) | Options granted February 24, 2011 and vested twelve months thereafter. |
| (4) | Options granted May 9, 2013 and vested on various dates in the twenty-four months thereafter. |
| (5) | Options granted February 26, 2014 and will vest in three equal installments on each anniversary |
| (6) | Options granted September 1, 2015 and 50,000 vested immediately and 50,000 vested on the first anniversary. |
| (7) | Options granted May 13, 2010 and vested twelve months thereafter. |
Stock Option Plans
The Company uses stock options to attract and retain executives, directors, consultants and key employees. Stock options are currently outstanding under three stock option plans. The Company’s 2016 Equity Incentive Plan (the “2016 Plan”) was adopted by the Board of Directors in October 2016 and approved by the shareholders at the 2016 annual meeting of shareholders. Under the 2016 Plan, the Company has reserved an aggregate of 2,000,000 shares of its common stock for option grants. The Company’s 2011 Stock Compensation Plan (the “2011 Plan”) was adopted by the Board of Directors in March 2011 and approved by the shareholders at the 2011 annual meeting of shareholders. Under the 2011 Plan, the Company reserved an aggregate of 700,000 shares of its common stock for option grants. The 2011 Plan expired on December 29, 2016, but options granted under the 2011 Plan before it expired will continue to be exercisable in accordance with their terms. The Company’s 2006 Stock Option Plan (the “2006 Plan”) was adopted by the Board of Directors in March 2006 and approved by the shareholders at the 2006 annual meeting of shareholders. The 2006 Plan expired on June 30, 2011, but options granted under the 2006 Plan before it expired will continue to be exercisable in accordance with their terms.
As of October 6, 2017, options to purchase an aggregate of 710,250 shares were outstanding, including options for 20,000 shares under the 2016 Plan, options for 484,500 shares under the 2011 Plan and options for 205,750 shares under the 2006 Plan. In addition, the Company had issued 220,000 shares pursuant to stock grants under the 2016 Plan. The Plans are administered by the Compensation Committee or the full Board of Directors acting as the Committee.
The 2016 Plan permits the grant of the following types of awards, in the amounts and upon the terms determined by the Administrator:
| · | Options. Options may either be incentive stock options (“ISOs”) which are specifically designated as such for purposes of compliance with Section 422 of the Internal Revenue Code or non-qualified stock options (“NSOs”). Options shall vest as determined by the Administrator, subject to certain statutory limitations regarding the maximum term of ISOs and the maximum value of ISOs that may vest in one year. The exercise price of each share subject to an ISO will be equal to or greater than the fair market value of a share on the date of the grant of the ISO, except in the case of an ISO grant to a stockholder who owns more than 10% of the Company’s outstanding shares, in which case the exercise price will be equal to or greater than 110% of the fair market value of a share on the grant date. The exercise price of each share subject to an NSO shall be determined by the Board at the time of grant but will be equal to or greater than the fair market value of a share on the date of grant. Recipients of options have no rights as a stockholder with respect to any shares covered by the award until the award is exercised and a stock certificate or book entry evidencing such shares is issued or made, respectively. |
| · | Restricted Stock Awards. Restricted stock awards consist of shares granted to a participant that are subject to one or more risks of forfeiture. Restricted stock awards may be subject to risk of forfeiture based on the passage of time or the satisfaction of other criteria, such as continued employment or Company performance. Recipients of restricted stock awards are entitled to vote and receive dividends attributable to the shares underlying the award beginning on the grant date. |
| · | Restricted Stock Units. Restricted stock units consist of a right to receive shares (or cash, in the Administrator’s discretion) on one or more vesting dates in the future. The vesting dates may be based on the passage of time or the satisfaction of other criteria, such as continued employment or Company performance. Recipients of restricted stock units have no rights as a stockholder with respect to any shares covered by the award until the date a stock certificate or book entry evidencing such shares is issued or made, respectively. |
The following table gives aggregate information under our equity compensation plans as of December 31, 2016:
| | | (a) | | | (b) | | | (c) | | | | | Number of Securities to be Issued Upon Exercise of Outstanding Options and Warrants | | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | | | Number of Securities Available for Future Issuance Under Equity Compensation Plans, Excluding Securities Reflected in Column (a) | | | Equity compensation plans approved by shareholders | | | 710,250 | | | $ | 2.62 | | | | 1,980,000 | | | Equity compensation plans not approved by shareholders | | | 23,500 | | | $ | 3.55 | | | | – | | | Total | | | 733,750 | | | $ | 2.65 | | | | 1,980,000 | |
Transactions with related persons
On August 18, 2017, the Company acquired GeoTraq, Inc. (“GeoTraq”), a development stage company that is engaged in the development, manufacture, and, ultimately, sale of cellular transceiver modules. In connection with this transaction, we tendered to the owners of GeoTraq $200,000 in cash, issued to them an aggregate of 288,588 shares of our Series A Convertible Preferred Stock, and entered into one-year unsecured promissory notes for an aggregate of $800,000.and delivered to Isaac Capital Group, LLC (“Isaac Capital”(the “Lender”), a secured revolving line of credit promissory note, whereby the Lender agreed to provide the Borrower with a $2,500,000 revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility was amended on August 25, 2020 and now matures on December 31, 2020. The Revolving Credit Facility bears interest at 8.75% per annum and provides for the payment of interest, monthly in arrears. The Borrower will pay a loan fee of 2.0% on each borrowing made under the Revolving Credit Facility. As of June 27, 2020 and December 28, 2019, $1,493,000 and $2,473,000, respectively, was outstanding on the Revolving Credit Facility. In connection with entering into the Revolving Credit Facility, the Borrower also entered into a security agreement in favor of the Lender, pursuant to which the Borrower granted a security interest in all of its assets to the Lender. The obligations of the Borrower under the Revolving Credit Facility are guaranteed by the Company. The Company may use
proceeds from the Revolving Credit Facility for general corporate purposes, including to assist in financing the operations of the Borrower and the Company’s other subsidiaries. The foregoing transaction did not include the issuance of any shares of Parent’s common stock, warrants, or other derivative securities. The Lender is a record and beneficial owner of more than 5% of the outstanding capital stock of the Company. Jon Isaac is the CEO, Managermanager and sole ownermember of Isaac Capitalthe Lender, and the son of Tony Isaac, our CEO, held a 4.9% interest in GeoTraq at the time of the acquisition and received consideration of $49,000 in cash and 14,141 shares of the Company’s Series A Preferred Stock. The value of the Series A Preferred Stock has not been determined, but we estimate the total value of the consideration received by Isaac Capital in the GeoTraq acquisition to be approximately $700,000. In November 2016, we obtained a Business Enterprise Valuation, the conclusion of which was that the transaction was valued at approximately $38 million. In anticipation of the transaction, we formed a special committee of our board to analyze the then-proposed transaction. The special committee’s conclusion was that GeoTraq’s business was valued at approximately $37 million. We also obtained a “fairness opinion,” which valued the GeoTraq transaction in excess of $35 million. Tony Isaac, through his wholly-owned consulting business Negotiart of America, Inc. provided consulting services through the filing date of this proxy in the amount of $550,000 to the Company for negotiating and facilitating the sale of the Compton California facility and the sale of the Company’s AAP equity interest.
Customer Connexx LLC, a wholly owned subsidiaryChief Executive Officer of the Company sub-leases call center space from Live Ventures Incorporated in Las Vegas, Nevada. Total amount of sub-lease rent and common area charges was $179,674 for 2017 through the filing date of this proxy statement.Borrower.
Audit Committee Report The Audit Committee operates pursuant to a charter which is reviewed withannually by the Audit Committee. Additionally, a brief description of the primary responsibilities of the Audit Committee is included in this Proxy Statement under the discussion of “The Board of Directors and Certain Governance Matters — Committee Membership — Audit Committee.” Under the Audit Committee charter, management is responsible for the audited consolidatedpreparation, presentation and integrity of the Company’s financial statements, includedthe application of accounting and financial reporting principles and our internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing our financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the Company’s Annual Report on Form 10-K, including a discussionUnited States of America. In the reasonablenessperformance of significant judgments and accounting principles. The audit committeeits oversight function, the Audit Committee reviewed and discussed the audited financial statements and internal control over financial reporting of the Company with management.management and with the independent registered public accounting firm. The audit committeeAudit Committee also discussed with the independent auditorsregistered public accounting firm the matters required to be discussed by Statement onPublic Company Accounting Oversight Board Auditing StandardsStandard No. 61, as amended, as adopted1301 “Communications with Audit Committee.” In addition, the Audit Committee received the written disclosures and the letters from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T. The audit committee has received the written disclosures and the letter from the independent accountants required by applicable requirements of the PCAOB regarding the independent accountant’sregistered public accounting firm’s communications with the audit committeeAudit Committee concerning independence and has discussed with the independent accountantregistered public accounting firm their independence.
Based upon the independent accountant’s independence. In reliance on the reviewsreview and discussions referred to above,described in the preceding paragraph, the Audit Committee recommended to the Board of Directors (and the Board approved) that the audited consolidated financial statements of the Company be included in theits Annual Report on Form 10-K for the fiscal year ended December 31, 2016, for filingSeptember 30, 2019, filed with the Securities and Exchange Commission.SEC.
October 25, 20172, 2020 | | The Audit Committee | | | | | | Richard D. Butler, Jr. (Chair) | Dennis (De) Gao
| Timothy M. Matula
| John Bitar | | | Nael Hajjar |
The information set forth above in the Audit Committee Report is not to be considered “filed” with the SEC for any purpose or “incorporated by reference” into any Securities Act or Exchange Act document of the Company for any purpose.
Other Matters At the date of this proxy statement the Company’s management knows of no other matters which may come before the annual meeting.Annual Meeting. However, if any other matters properly come before the meeting, it is the intention of the persons named in the accompanying proxy form to vote such proxies received by the Company in accordance with their judgment on such matters.
ANNUAL REPORT A copy of our Annual Report on Form 10-K for the fiscal year ended December 29, 2019 has been mailed to you with this Proxy Statement. Except as provided above, the Annual Report is not to be considered a part of these proxy soliciting materials or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act. The Notice you receivedinformation contained in the mail accompanying this Proxy Statement contains instructions on how“Audit Committee Report” shall not be deemed “filed” with the SEC or subject to access this proxy statement and our 2017 Annual ReportRegulations 14A or 14C or to Shareholders on our website. The Annual Report includes, among other things, the consolidated balance sheetsliabilities of Section 18 of the CompanyExchange Act. We will provide upon written request, without charge to each stockholder of record as of December 31, 2016 and January 2, 2016, and the related consolidated statements of comprehensive income (loss), shareholders’ equity and cash flows for fiscal years ended December 31, 2016 and January 2, 2016. If you desirerecord date, a copy of theour Annual Report or a copy of the Company’son Form 10-K for the fiscal year ended December 28, 2019 as amended, filed with the SEC, you may obtain one (excluding exhibits) without chargeSEC. Any exhibits listed in the Form 10-K also will be furnished upon request at the actual expense incurred by addressing a requestus in furnishing such exhibits. Any such requests should be directed to Investor Relations, Appliance Recycling Centers of America, Inc., 175 Jackson Avenue North,our Corporate Secretary at our principal executive offices at 325 E. Warm Springs Road, Suite 102, Minneapolis, Minnesota 55343. You may also access a copy of the Company’s Form 10-K, as amended, on the SEC’s website at www.sec.gov.Las Vegas, Nevada 89119. STOCKHOLDERS ARE URGED TO VOTE BY INTERNET OR TELEPHONE OR IMMEDIATELY MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY VIA FACSIMILE TO THE ATTENTION OF CORPORATE SECRETARY, JANONE INC., AT (702) 997-5968 OR IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOUR VOTE IS IMPORTANT. | By Order of the Board of Directors | | /s/ Michael J. Stein | | Michael J. Stein, Secretary |
October 25, 20172, 2020
APPENDIX A 
| | BARBARA K. CEGAVSKE Secretary of State 202 North Carson Street Carson City, Nevada 89701-4201 (775) 684-5708 Website: www.nvsos.gov www.nvsilverflume.gov | Instructions for Amendment/ Restated Articles/Amended
and Restated Articles Profit Corporation |
APPENDIX A:
PLAN OF CONVERSION
of
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
a Minnesota corporation
to
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
a Nevada corporationIMPORTANT: READ ALL INSTRUCTIONS CAREFULLY BEFORE COMPLETING FORM.
This Plan of Conversion (“Plan of Conversion”) is entered into by Appliance Recycling Centers of America, Inc., a Minnesota corporation, which desires to convert to Appliance Recycling Centers of America, Inc., a Nevada corporation.
TYPE or PRINT the following information and submit the filing with Customer Order Instruction Form and payment: 1. Converting Corporation. TheENTITY INFORMATION: Enter the current name of the Converting Corporation before the conversion is Appliance Recycling Centers of America, Inc., a Minnesota corporation. 2. Converted Corporation. After conversion, the name of the Converting Corporation shall be Appliance Recycling Centers of America, Inc., a Nevada corporation.
3. Organizational Documents. The Articles of Incorporation attached hereto asAttachment A shall be the Articles of Incorporation of the Converted Corporation. The Bylaws of the Converting Corporation shall terminate on the Effective Date and shall be superseded and replaced by the Bylaws of the Converted Corporation.
4. Effective Date. The Conversion shall become effective upon filing the Articles of Conversion and the Articles of Incorporationfile with the Nevada Secretary of State.State and enter the Entity or Nevada Business Identification Number (NVID).
2. RESTATED OR AMENDED AND RESTATED ARTICLES: Check the box to indicate that this form is to Accompany Restated or Amended and Restated Articles. Select only one box to indicate Restated Articles or Amended and Restated Articles. If amending and restating only: completed sections 1, 2, 3, 5 and 6. Restated or Amended and Restated Articles must be attached with this filing. 3. TYPE OF AMENDMENT FILING BEING COMPLETED: Indicate what type of amendment is being completed by selecting one box. Completed sections 1, 3, 5 and 6. Certificate of Amendment pursuant to NRS 78.380 Before issuance of Stock Must check one of the boxes to indicate the undersigned is either Incorporators or Board of Directors. Or Certificate of Amendment pursuant to NRS 78.385 and 78.390 After issuance of Stock Must indicate the vote by which the amendment was approved in the box provided. Or Officer’s Statement (foreign qualified entities only) Enter entity name in home state or if using a modified name in Nevada, indicate jurisdiction of formation and select which changes are being made by checking the appropriate box(es). Must include a certified copy or Certificate of Fact of home jurisdiction filing. 4. EFFECTIVE DATE AND TIME: This section is optional. If an effective date and time is indicated the date must not be more than 90 days after the date on which the certificate is filed. 5. INFORMATION BEING CHANGED: This section is for domestic (Nevada) corporations only. Select the appropriate box(es) to indicate what changes are being made. In the field provided indicate what is being amended, provide article number(s) if available. (If necessary, additional pages may be attached to this form.) 6. SIGNATURE(S): Must be signed by a Officer or Authorized Signer, if more than 2 signatures an additional page may be attached. Form will be returned if unsigned. 5. Conversion of Ownership Shares.As of the Effective Date, each share of the Converting Corporation that is outstanding immediately prior thereto, shall be unchanged and shall continue to represent the shares of stock of the Converted Corporation and shall remain in effect immediately after consummation of the conversion.A-1
| | BARBARA K. CEGAVSKE Secretary of State 202 North Carson Street Carson City, Nevada 89701-4201 (775) 684-5708 Website: www.nvsos.gov | |
6. Officers and Directors. The Board of Directors of the Converting Corporation holding office immediately before the Effective Date shall constitute the Board of Directors of the Converted Corporation immediately upon the Effective Date. The Officers of the Converting Corporation holding office immediately before the Effective Date shall constitute the Officers of the Converted Corporation immediately upon the Effective Date.
7. Continuation. As of the Effective Date, the Converted Corporation shall possess all rights, privileges, powers, franchises, assets, property and immunities of the Converting Corporation. The title to any real property or any interest therein vested by deed or otherwise in the Converting Corporation shall remain vested in the Converted Corporation. All rights of creditors, and all liens up on any property of the Converting Corporation, shall be preserved unimpaired, limited in lien to the property affected by such liens at the Effective Date, and all other debts, liabilities and duties of the Converting Corporation shall continue as debts, liabilities, and duties of the Converted Corporation.
8. Instruments of Further Assurance. If at any time after the Effective Date, the Converted Corporation shall determine or be advised that any instrument of further assurance is needed in order to evidence the continued vesting in it of the title of the Converting Corporation to any of the property rights of the Converting Corporation, the appropriate officers or managers of the Converted Corporation and the Converting Corporation are hereby authorized to execute, acknowledge, and deliver all such instruments of further assurance and to do all acts or things, in the name of the Converted Corporation and the Converting Corporation, as may be required or desirable to carry out the provisions of this Plan of Conversion.
| A-1 | Profit Corporation: | Certificate of Amendment (PURSUANT TO NRS 78.380 & 78.385/78.390)
Certificate to Accompany Restated Articles or Amended
and Restated Articles (PURSUANT TO NRS 78.403) | Officer's Statement (PURSUANT TO NRS 80.030) |
APPENDIX B:TYPE OR PRINT - USE DARK INK ONLY - DO NOT HIGHLIGHT
Proposed Nevada Articles of Incorporation
| | | | | | | | | | | | | | | 1. Entity information: | Name of entity as on file with the Nevada Secretary of State: | | | | | | | JanOne Inc. | | | | | | Entity or Nevada Business Identification Number (NVID): | E0123352018-3 | | | | 2. Restated or
Amended and Restated
Articles: (Select one) (If amending andrestating
only, complete section
1, 2 3, 5 and 6) | ☐ Certificate to Accompany Restated Articles or Amended and Restated Articles ☐ Restated Articles - No amendments; articles are restated only and are signed by an officer of the corporation who has been authorized to execute the certificate by resolution of the board of directors | adopted on: | | | The certificate correctly sets forth the text of the articles or certificate as amended to the date of the certificate. ☐ Amended and Restated Articles * Restated or Amended and Restated Articles must be included with this filing type. | | | 3. Type of
Amendment Filing
Being Completed:
(Select only one box) (If amending, complete
section 1, 3, 5 and 6.) | ☐ Certificate of Amendment to Articles of Incorporation (Pursuant to NRS 78.380 - Before Issuance of Stock) The undersigned declare that they constitute at least two-thirds of the following: (Check only one box) ☐ incorporators ☐ board of directors The undersigned affirmatively declare that to the date of this certificate, no stock of the corporation has been issued | | ☒ Certificate of Amendment to Articles of Incorporation (Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock) The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation* | | have voted in favor of the amendment is: | | | | | | ☐ Officer's Statement (foreign qualified entities only) - Name in home state, if using a modified name in Nevada: | | | | | | | | Jurisdiction of formation: | | | | | Changes to takes the following effect: | | ☐ The entity name has been amended. | ☐ Dissolution | | ☐ The purpose of the entity has been amended. | ☐ Merger | | ☐ The authorized shares have been amended. | ☐ Conversion | | ☐ Other: (specify changes) | | | | | | | | * Officer's Statement must be submitted with either a certified copy of or a certificate evidencing the filing of any document, amendatory or otherwise, relating to the original articles in the place of the corporations creation. |
This form must be accompanied by appropriate fees. ABOVE SPACE IS FOR OFFICE USE ONLY USE BLACK INK ONLY - DO NOT HIGHLIGHT Articles of Incorporation (PURSUANT TO NRS CHAPTER 78) Nevada Secretary of State NRS 78 Articles Revised: 1 - 5 - 15 BARBARA K. CEGAVSKE Secretary of State 202 North Carson Street Carson City, Nevada 89701 - 4201 (775) 684 - 5708 Website: www.nvsos.gov *040105* *040105* 1. Name of Corporation: Appliance Recycling Centers of America, Inc. 2. Registered 俺 Commercial Registered Agent: National Registered Agents, Inc. of NV Name Noncommercial Registered Agent OR Office or Position with Entity (name and address below) (name and address below) Name of Noncommercial Registered Agent OR Name of Title of Office or Other Position with Entity Nevada Street Address City Zip Code Nevada Mailing Address (if different from street address) City Zip Code Agent for Service of Process: (check only one box) 3. Authorized Number of Number of shares shares with Par value without par value: 52,000,000 per share: $ 0.001 par value: 0 Stock: (number of shares corporation is authorized to issue) 4. Names and 1) Tony Isaac Name 175 Jackson Ave. N., Ste. 102 Minneapolis MN 55343 Street Address City State Zip Code 2) Richard Butler Name 175 Jackson Ave. N., Ste. 102 Minneapolis MN 55343 Street Address City State Zip Code Addresses of the Board of Directors/Trustees: (each Director/Trustee A-2
| | BARBARA K. CEGAVSKE Secretary of State 202 North Carson Street Carson City, Nevada 89701-4201 (775) 684-5708 Website: www.nvsos.gov | |
| | | | | | | | | | | | | | ProfitCorporation: | | | Certificate of Amendment (PURSUANTTONRS78.380 & 78.385/78.390)
Certificate to Accompany Restated Articles or Amended
and Restated Articles (PURSUANT TO NRS 78.403) | | | Officer's Statement (PURSUANT TO NRS 80.030) | | | | 4. Effective Date and | | Date: | | | Time: | | | Time: (Optional) | | | (must not be later than 90 days after the certificate is filed) | | | | | | | 5. Information Being | | Changes to takes the following effect: | | Changed: (Domestic | | ☐ The entity name has been amended. | | corporations only) | | ☐ The registered agent has been changed. (attach Certificate of Acceptance from new registered agent) | | | | ☐ The purpose of the entity has been amended. | | | | ☒ The authorized shares have been amended. | | | | ☐ The directors, managers or general partners have been amended. | | | | ☐ IRS tax language has been added. | | | | ☐ Articles have been added. | | | | ☐ Articles have been deleted. | | | | ☐ Other. | | | | The articles have been amended as follows: (provide article numbers, if available) | | | | | Increase in the authorized number of shares of common stock to 200,000,000 per below. | | | | (attach additional page(s) if necessary) | | | | | | 6. Signature: | | ✘ | | | President & CEO | | (Required) | | | Signature of Officer or Authorized Signer | | Title | | | | | | | | | | | ✘ | | | Chief Financial Officer | | | | | Signature of Officer or Authorized Signer | | Title | | | | *If any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless to limitations or restrictions on the voting power thereof. | | Please include any required or optional information in space below: (attach additional page(s) if necessary) | The first paragraph of Article 3 (Authorized Stock), Section 3.1 (Designation of Class and Series) is amended to provide that the total number of shares of capital stock that the Corporation shall have authority to issue is 202,000,000 shares, of which (i) 200,000,000 shares shall be Common Stock, $0.001 par value per share (the ”Common Stock”) and (ii) 2,000,000 shares shall be Preferred Stock, $0.001 par value per share (the “Preferred Stock”), of which 288,588 shares are hereby designated “Series A Convertible Preferred Stock”, with the voting powers, designations, preferences, limitations, restrictions, relative rights and distinguishing designation set forth in Section 3.2. |
This form must be a natural person at least 18 years of age; attach additional page if more than two directors/trustees) 5. Purpose: (optional; The purpose of the corporation shall be: 6. Benefit Corporation: (see instructions) Yes required only if Benefit Corporation status selected) 7. Name, Address I declare, to the best of my knowledge under penalty of perjury, that the information contained herein is correct and acknowledge that pursuant to NRS 239.330, it is a category C felony to knowingly offer any false or forged instrument for filing in the Office of the Secretary of State. X Name Incorporator Signature 175 Jackson Ave. N., Ste. 102 Minneapolis MN 55343 Address City State Zip Code and Signature of Incorporator: (attach additional page if more than one incorporator) 8. Certificate of Acceptance of I hereby accept appointment as Registered Agent for the above named Entity. Appointment of X Reset accompanied by appropriate fees. CONTINUATION OF ARTICLES OF INCORPORATION OF APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
Article 3: Authorized StockAPPENDIX B
Section 3.1. DesignationFIRST AMENDMENT
TO THE
JANONE INC.
2016 EQUITY INCENTIVE PLAN
THIS FIRST AMENDMENT (this “Amendment”) is approved as of Classes and Series. The total number of shares of capital stock that the Corporation shall have authority to issue is 52,000,000 shares, of which (i) 40,000,000 shares shall be Common Stock, $0.001 par value per share (the “Common Stock”) and (ii) 2,000,000 shares shall be Preferred Stock, $0.001 par value per share (the “Preferred Stock”), of which 288,588 shares are hereby designated “Series A Convertible Preferred Stock”, with the voting powers, designations, preferences, limitations, restrictions, relative rights and distinguishing designation set forth in Section 3.2.
The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is expressly authorized to establish from the undesignated shares of Preferred Stock one or more series of Preferred Stock and to prescribe the series and the number of each such series of Preferred Stock and the voting powers, designations, preferences, limitations, restrictions and relative rights of each such series of Preferred Stock, including without limitation: the rate of dividends upon which and the times at which dividends on shares of such series shall be payable and the preference, if any, which such dividends shall have relative to dividends on shares of any other class or classes or any other series of stock of the corporation; whether such dividends shall be cumulative or noncumulative, and if cumulative, the date or dates from which dividends on shares of such series shall be cumulative; the voting rights, if any, to be provided for shares of such series; the rights, if any, which the holders of shares of such series shall have in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation; the rights, if any, which the holders of stock of the corporation, and the terms and conditions, including price and rate of exchange of such conversion or exchange; and the redemption rights (including sinking fund provisions), if any, for shares of such series; and such other voting powers, designations, preferences, limitations, restrictions, relative rights and distinguishing designation as the Board of Directors may desire to so fix. The Board of Directors is also expressly authorized to fix the number of shares constituting such series and to increase or decrease the number of shares of any series prior to the issuance of shares of that series and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not to decrease such number below the number of shares outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.
Section 3.2. Series A Convertible Preferred Stock Section
3.2.1 Definitions.
For purposes of this Section 3.2, the following definitions shall apply:
(a) “Business Day” means a day in which a majority of the banks in the State of Nevada in the United States of America are open for business.
(b) “Conversion Date” shall mean the date on which a share or shares of the Series A Convertible Preferred Stock is converted pursuant to the terms of this Section 3.2.
(c) “Distribution” shall mean the transfer of cash or other property without consideration, whether by way of dividend or otherwise (other than dividends on Common Stock payable in Common Stock), or the purchase or redemption of shares of the Corporation for cash or property other than: (i) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase, (ii) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries pursuant to rights of first refusal contained in agreements providing for such right, (iii) repurchases of capital stock of the Corporation in connection with the settlement of disputes with any shareholder, (iv) any other repurchase or redemption of capital stock of the Corporation approved by the holders of (a) a majority of the Common Stock and (b) a majority of the Preferred Stock of the Corporation voting as separate classes.
(d) “Holder” shall mean the person or entity in which the Series A Convertible Preferred Stock is registered on the books of the Corporation, which shall initially be the person or entity that subscribes for the Series A Convertible Preferred Stock, and shall thereafter be the permitted and legal assigns of which the Corporation is notified by the Holder and in respect of which the Holder has provided a valid legal opinion in connection therewith to the Corporation.
(e) “Holders” shall mean all Holders of the Series A Convertible Preferred Stock.
(f) “Junior Stock” shall mean the Common Stock and each other class of capital stock or series of preferred stock of the Corporation established prior to or after the Original Issue Date, the terms of which do not expressly provide that such class or series ranks senior to or on parity with the Series A Convertible Preferred Stock upon the liquidation, winding•up or dissolution of the Corporation.
(g) “Original Issue Date” shall mean the date upon which the shares of Series A Convertible Preferred Stock are first issued.
(h) “Recapitalization” shall mean any stock dividend, stock split, and combination of shares, reorganization, recapitalization, reclassification, or other similar event.
Section 3.2.2 Dividends.
(a) The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation unless (in addition to the obtaining of any consents required elsewhere in these Articles of Incorporation or under applicable law) the holders of the Series A Convertible Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A Convertible Preferred Stock pursuant to this Section 3.2. The holders of the Series A Convertible Preferred Stock shall be entitled to receive, as declared by the Board of Directors and out of funds legally availableNovember 4, 2020, for the purpose a dividendof amending that certain JanOne Inc. (the “Company”) 2016 Equity Incentive Plan (the “Plan”), adopted as of December 29, 2016. Capitalized terms used in this Amendment shall have the same meanings given to them in the aggregate amount of one dollar, regardlessPlan unless otherwise indicated.
1. Amendment. Section 6(a) of the numberPlan is hereby amended to read in its entirety as follows: “(a)Number of then•issued and outstanding shares of Series A Convertible Preferred Stock.Shares Reserved. The remaining dividends allocated by the Board of Directors shall be distributed in an equal amount per share to the holders of outstanding Common Stock and Series A Convertible Preferred Stock (on an as•if•converted to Common Stock basis pursuant to the Conversion Ratio as defined below). (b) To the fullest extent permitted by the General Corporation Law of the State of Nevada, the Corporation shall be expressly permitted, but not required, to redeem, repurchase or make distributions on the shares of its capital stock in all circumstances other than where doing so would cause the Corporation to be unable to pay its debts as they become due inawarded or optioned under the usual coursePlan (the “Share Authorization”) shall consist of business.
Section 3.2.3 No Liquidation Preference. Immediately prior to the occurrence of any liquidation, dissolutionauthorized but unissued or winding up of the Corporation, whether voluntary of involuntary, all shares of Series A Convertible Preferred Stock shall automatically convert intoreacquired shares of Common Stock based upon the then•applicable Conversion Ratio and shall participate in the liquidation proceeds in the same manner as other shares of Common Stock.
Subject to Section 3.2.4 Conversion. The Series A Convertible Preferred Stock shall not be convertible into Common Stock and have no other conversion rights except as specifically set forth below: (a) Conversion. The “Conversion Ratio” per share13 of the Series A Convertible Preferred Stock in connection with any Conversion shall be at a ratio of 1:100, meaning every one share of Series A Convertible Preferred Stock, if and when converted into Common Stock, shall convert into 100 shares of Common Stock (the “Conversion”). Each Holder shall havePlan, the right, exercisable at any time and from time to time (unless otherwise prohibited by law, rule or regulation, or as restricted below), to convert any or all of such Holder’s shares of Series A Convertible Preferred Stock into shares of Common Stock at the Conversion Ratio. Notwithstanding anything to the contrary herein, the Holders may not effectuate any Conversion and the Corporation may not issue any shares of Common Stock in connection therewith that would trigger any NASDAQ requirement to obtain shareholder approval prior to a Conversion or any issuance of shares of Common Stock in connection therewith that would be in excess of thatmaximum aggregate number of shares of Common Stock equivalent to 19.9%reserved and available for Awards under the Plan is 800,000 shares; provided, however, that all shares of Stock reserved and available under the Plan shall constitute the maximum aggregate number of shares of Common Stock that may be issued through Incentive Stock Options.”
2. Miscellaneous. Except as ofamended hereby, the date hereof;provided, however,that the Holders may effectuate any ConversionPlan remains in full force and the Corporation shall be obligated to issue shares of Common Stock in connection therewith that would not trigger such a requirement. This restriction shall be of no further force or effect upon the approval of the shareholders in compliance with NASDAQ’s shareholder voting requirements. Notwithstanding anything to the contrary contained herein, the Holders may not effectuate any Conversion and the Corporation shall not issue any shares of Common Stock in connection therewith until the later of (x) February 28, 2019, or (y) 61 days following the date on which the shareholders of the Corporation shall have approved the voting, Conversion, and other potential rights of the holders of Series A Convertible Preferred Stock otherwise set forth in this Section 3.2 in accordance with the relevant NASDAQ requirements.effect. (b) Taxes. The Corporation shall not be required to pay any tax that may be payable in respect
JanOne® ANNUAL MEETING OF JANONE INC. Annual Meeting of any transfer involved in the issue and delivery of shares of Common Stock upon conversion in a name other than that in which the shares of the Series A Convertible Preferred Stock so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax, or has established, to the satisfaction of the Corporation, that such tax has been paid. The Corporation shall withhold from any payment due whatsoever in connection with the Series A Convertible Preferred Stock any and all required withholdings and/or taxes the Corporation, in its sole discretion deems reasonable or necessary, absent an opinion from Holder’s accountant or legal counsel, acceptable to the Corporation in its sole determination, that such withholdings and/or taxes are not requiredJanOne Inc. to be withheld by the Corporation. (c) Stock Dividends, Splits, and Reclassifications. If the Corporation shall (i) declare a dividend or other distribution payable in securities or (ii) split its outstanding sharesheld on Wednesday, November 4, 2020 for Holders as of Common Stock into a larger number, including any such reclassification in connection with a merger, consolidation or other business combination in which the CorporationSeptember 21, 2020 This proxy is the continuing entity(any such corporate event, an “Event”), then in each instance the Conversion Ratio shall be adjusted such that the number of shares issued upon conversion of one share of Series A Convertible Preferred Stock will equal the number of shares of Common Stock that would otherwise be issued but for such Event.
(d) Fractional Shares. If any Conversion of Series A Convertible Preferred Stock would result in the issuance of a fractional share of Common Stock (aggregating all shares of Series A Convertible Preferred Stock being converted pursuant to each Conversion), such fractional share shall be rounded up to the nearest whole share and the Holder shall be entitled to receive, in lieusolicited on behalf of the final fraction of a share, one additional whole share of Common Stock.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Series A Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then•outstanding shares of the Series A Convertible Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then•outstanding shares of the Series A Convertible Preferred Stock, the Corporation will within a reasonable time period make a good faith effort to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.
(f) Effect of Conversion. On any Conversion Date, all rights of any Holder with respect to the shares of the Series A Convertible Preferred Stock so converted, including the rights, if any, to receive distributions of the Corporation’s assets or notices from the Corporation, will terminate, except only for the rights of any such Holder to receive certificates (if applicable) for the number of shares of Common Stock into which such shares of the Series A Convertible Preferred Stock have been converted.
Section 3.2.5 Voting. The Holder of each share of Series A Convertible Preferred Stock shall have such number of votes as is determined by multiplying (a) the number of shares of Series A Convertible Preferred Stock held by such holder, and (b) 100. Such voting calculation is hereby authorized by the Corporation and the Corporation acknowledges such calculation may result in the total number of possible votes cast by the Series A Holders and all other classes of the Corporation’s common stock in any given voting matter exceeding the total aggregate number of shares that this Corporation shall have authority to issue. With respect to any shareholder vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any shareholders’ meeting in accordance with the Bylaws of this Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. The holders of Series A Convertible Preferred Stock shall vote together with all other classes and series of common and preferred stock of the Corporation as a single class on all actions to be taken by the Common Stock shareholders of the Corporation, except to the extent that voting as a separate class or series is required by law. Notwithstanding anything to the contrary herein, the Holders of shares of Series A Convertible Preferred Stock may not engage in any vote where the voting power would trigger any NASDAQ requirement to obtain shareholder approval; provided, however, the Holders shall have the right to vote that portion of their voting power that would not trigger such a requirement. This restriction shall lapse upon the requisite approval of the shareholders in compliance with NASDAQ’s shareholder voting requirements in effect at the time of such approval.
Section 3.2.6 Redemption. The Series A Convertible Preferred Stock shall have no redemption rights.
Section 3.2.7 Protective Provisions. In addition to any other rights provided by law, at any time any shares of Series A Convertible Preferred Stock are outstanding, as a legal party in interest, the Corporation, through action directly initiated by the Corporation’s Board of Directors Date: November 4, 2020 Time: 10:00 A.M. (Pacific Time) Place: 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119 Please separate carefully at the perforation and return just this portion in the envelope provided. Please make your marks like this: Use dark black pencil or indirectly initiated by the Corporation’spen only VOTE BY: Board of Directors through judicial action or process, includingRecommends a Vote FOR proposals 1, 2, 3, and 4. INTERNET TELEPHONE Call Go To www.proxypush.com/JAN • Cast your vote online. • View Meeting Documents. DIRECTORS RECOMMEND 1: Election of Directors 866-436-6852 Withhold For • Use any action bytouch-tone telephone. • Have your Proxy Card/Voting Instruction Form ready. • Follow the shareholderssimple recorded instructions. OR 01 Tony Isaac 02 Richard D. Butler, Jr. 03 John Bitar 04 Nael Hajjar For For MAIL For • Mark, sign and date your Proxy Card/Voting Instruction Form. • Detach your Proxy Card/Voting Instruction Form. • Return your Proxy Card/Voting Instruction Form in the postage-paid envelope provided. OR For DIRECTORS RECOMMEND For Against Abstain 2. To approve an amendment to the Company’s articles of incorporation to increase the Corporation’s Common Stock, shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, take any of the following actions without first obtaining the affirmative approval of a majority of the Holders.
(a) Increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series A Convertible Preferred Stock;
(b) Effectcommon stock from 10,000,000 to 200,000,000 shares. 3. To approve an exchange, reclassification, or cancellation of all or a part ofamendment to the Series A Convertible Preferred Stock, but excluding a stock split or reverse stock split or combination ofCompany’s 2016 Equity Incentive Plan to increase the Common Stock or Preferred Stock;
(c) Effect an exchange, or create a right of exchange, of all or part of the shares of another classnumber of shares into shares of Series A Convertible Preferred Stock; or
(d) Alter or change the rights, preferences or privileges of the shares of Series A Convertible Preferred Stock so as to affect adversely the shares of such series, including the rights set forth in this Section 3.2;provided, however, that the Corporation may, by any means authorized by law and without any vote of the Holders of shares of the Series A Convertible Preferred Stock, make technical, corrective, administrative or similar changes in this Section 3.2 that do not, individually or in the aggregate, materially adversely affect the rights or preferences of the Holders of shares of the Series A Convertible Preferred Stock.
Section 3.2.8 Preemptive Rights. Holders of Series A Convertible Preferred Stock and holders of Common Stock shall not be entitled to any preemptive, subscription or similar rights in respect to any securities of the Corporation, except as specifically set forth herein or in any other document agreed to by the Corporation.
Section 3.2.9 Reports. The Corporation shall mail to all holders of Series A Convertible Preferred Stock those reports, proxy statements and other materials that it mails to all of its holders of Common Stock.
Section 3.2.10 Notices. In addition to any other means of notice provided by law or in the Corporation’s Bylaws, any notice required by the provisions of this Section 3.2 to be givensubject to the Holders shall be deemed given if deposited inplan from 400,000 to 800,000 shares. 4. To ratify the United States mail, postage prepaid, return
receipt requested and addressed to each Holderappointment of record at such Holder’s address appearing on the books of the Corporation.
Section 3.2.11 Miscellaneous.
(a) The headings of the various sections and subsections of this Section 3.2 are for convenience of reference only and shall not affect the interpretation of any of the provisions of this Section 3.2.
(b) Whenever possible, each provision of this Section 3.2 shall be interpreted in a manner as to be effective and valid under applicable law and public policy. If any provision set forth herein is held to be invalid, unlawful, or incapable of being enforced by reason of any rule of law or public policy, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions of this Section 3.2. No provision herein set forth shall be deemed dependent upon any other provision unless so expressed herein. If a court of competent jurisdiction should determine that a provision of this Section 3.2 would be valid or enforceable if a period of time were extended or shortened, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law.
(c) The Corporation will provide to the Holders of the Series A Convertible Preferred Stock all communications sent by the Corporation to the holders of the Common Stock.
(d) Except as may otherwise be required by law, the shares of the Series A Convertible Preferred Stock shall not have any powers, designations, preferences or other special rights, other than those specifically set forth in this Section 3.2.
(e) Shares of the Series A Convertible Preferred Stock converted into Common Stock shall be retired and canceled and shall have the status of authorized but unissued shares of preferred stock of the Corporation undesignated as to any specific series and may with any and all other authorized but unissued shares of preferred stock of the Corporation be designated or re•designated and issued or reissued,WSRP, LLC as the case may be, as part of any series of preferred stock of the Corporation.
(f) Notwithstanding the above terms and conditions of this Section 3.2 and the dollar amounts and share numbers set forth herein shall be subject to adjustment, as appropriate, whenever there shall occur a stock split, stock dividend, combination, reclassification or other similar event involving shares of the Series A Convertible Preferred Stock. Such adjustments shall be made in such manner and at such time as the Board of Directors in good faith determines to be equitable in the circumstances, any such determination to be evidenced in a resolution duly adopted by the Board of Directors. Upon any such equitable adjustment, the Corporation shall promptly deliver to each Holder a notice describing in reasonable detail the event requiring the adjustment and the method of calculation thereof.
(g) With respect to any notice to a Holder required to be provided hereunder, such notice shall be mailed to theCompany’s independent registered address of such Holder, and neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular Holder shall affect the sufficiency of the notice or the validity of the proceedings referred to in such notice with respect to the other Holders or affect the legality or validity of any redemption, conversion, distribution, rights, warrant, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation, winding•up or other action, or the vote upon any action with respect to which the Holders are entitled to vote. All notice periods referred to herein shall commence on the date of the mailing of the applicable notice. Any notice that was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the Holder receives the notice.
Article 4: Names and Addresses of the Board of Directors/Trustees
175 Jackson Ave. N., Ste. 102
Minneapolis, MN 55343
175 Jackson Ave. N., Ste. 102
Minneapolis, MN 55343
Article 9: Limitation of Liability
The personal liability of the directors of the corporation is hereby eliminated to the fullest extent permitted by the General Corporation Law of the State of Nevada, as the same may be amended and supplemented.
Article 10: Indemnification
The Corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of the State of Nevada, as the same may be amended and supplemented, indemnify and hold harmless any and all persons whom it shall have power to indemnify under said provisions from and against any and all liabilities (including expenses) imposed upon or reasonably incurred by him or her in connection with any action, suit or other proceeding in which he or she may be involved or with which he or she may be threatened, or other matters referred to in or covered by said provisions both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer of the corporation.
In the matter of Nevada Secretary of State Form RA Acceptance Revised: 1 - 5 - 15 Registered Agent Acceptance (PURSUANT TO NRS 77.310) Name of Represented Business Entity Date the above named business entity. USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY Certificate of Acceptance of Appointment by Registered Agent Nevada Nevada Street Address City Zip Code Zip Code City Mailing Address (if different from street address) noncommercial registered agent with the following address for service of process: am a: and hereby state that on X Authorized Signature of R.A. or On Behalf of R.A. Company Date b) I, BARBARA K. CEGAVSKE Secretary of State 202 North Carson Street Carson City, Nevada 89701 - 4201 (775) 684 - 5708 Website: www.nvsos.gov Nevada Nevada Street Address City Zip Code City Zip Code I accepted the appointment as registered agent for Mailing Address (if different from street address) represented entity accepting own service of process at the following address: c) Title of Office or Position of Person in Represented Entity *If changing Registered Agent when reinstating, officer's signature required. X Signature of Officer Date This form may be submitted by : a Commercial Registered Agent, Noncommercial Registered Agent or Represented Entity . For more information please visit http : //www . nvsos . gov/index . aspx?page= 141 *180304* *180304* Appliance Recycling Centers of America, Inc. National Registered Agents, Inc. of NV Name of Appointed Registered Agent OR Represented Entity Serving as Own Agent* (complete only one) a) 俺 commercial registered agent listed with the Nevada Secretary of State, Reset
APPENDIX C:
Proposed Nevada Bylaws
BYLAWS
OF
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
A Nevada corporation
As adopted ____, 2017
TABLE OF CONTENTS
| | Page | | ARTICLE 1. OFFICES | 1 | | 1.1) | Registered Office | 1 | | 1.2) | Offices | 1 | | ARTICLE 2. SHAREHOLDERS | 1 | | 2.1) | Regular Meeting | 1 | | 2.2) | Frequency of Regular Meetings | 1 | | 2.3) | Special Meetings | 1 | | 2.4) | Quorum | 1 | | 2.5) | Voting | 1 | | 2.6) | Voting of Shares by Certain Holders | 1 | | 2.7) | Notice of Meeting | 2 | | 2.8) | Proxies | 2 | | 2.9) | Record Date | 2 | | 2.10) | Presiding Officer | 2 | | 2.11) | Conduct of Meetings of Shareholders | 2 | | 2.12) | Order of Business | 3 | | 2.13) | Inspectors of Election | 3 | | ARTICLE 3. DIRECTORS | 3 | | 3.1) | General Powers | 3 | | 3.2) | Number | 3 | | 3.3) | Qualifications and Term of Office | 3 | | 3.4) | Quorum | 3 | | 3.5) | Regular Meetings | 3 | | 3.6) | Special Meetings | 4 | | 3.7) | Electronic Communications | 4 | | 3.8) | Absent Director | 4 | | 3.9) | Notice | 4 | | 3.10) | Manner of Action | 4 | | 3.11) | Compensation | 4 | | 3.12) | Salaries | 4 | | 3.13) | Executive Committee | 4 | | 3.14) | Vacancies | 4 | | 3.15) | Order of Business | 5 | | 3.16) | Informal Action by Directors | 5 | | ARTICLE 4. OFFICERS | 5 | | 4.1) | Number | 5 | | 4.2) | Election, Term of Office and Qualifications | 5 | | 4.3) | The Chief Executive Officer | 5 | | 4.4) | Assistant Executive Officers | 5 | | 4.5) | Secretary | 5 | | 4.6) | Chief Financial Officer | 5 | | 4.7) | Assistant Officers | 6 | | 4.8) | Officers Shall not Lend Corporate Credit | 6 |
Table of Contents
(continued)
| ARTICLE 5. INDEMNIFICATION | 6 | | 5.1) | Authority of the Board of Directors | 6 | | 5.2) | Standard for Indemnification | 6 | | 5.3) | No Presumptions Resulting From Termination of Actions | 6 | | 5.4) | Mandatory Indemnification | 6 | | 5.5) | Determination | 6 | | 5.6) | Advance Payment | 6 | | 5.7) | Continuance of Indemnification | 7 | | 5.8) | Not Exclusive Remedy | 7 | | 5.9) | Insurance | 7 | | 5.10) | Notice of Indemnification | 7 | | ARTICLE 6. SHARES AND THEIR TRANSFER | 7 | | 6.1) | Establishment and Issuance of Shares | 7 | | 6.2) | Uncertificated Shares of Stock; Stock Certificates | 7 | | 6.3) | Transfer of Shares | 7 | | 6.4) | Stock Records; Transfer Agent and Registrar | 8 | | 6.5) | Facsimile Signature | 8 | | 6.6) | Lost Certificates | 8 | | 6.7) | Treasury Stock | 8 | | 6.8) | Inspection of Books by Shareholders | 8 | | ARTICLE 7. DIVIDENDS, DISTRIBUTIONS, ETC | 8 | | 7.1) | Dividends | 8 | | 7.2) | Other Distributions, Reserves | 8 | | ARTICLE 8. FINANCIAL AND PROPERTY MANAGEMENT | 9 | | 8.1) | Fiscal Year | 9 | | 8.2) | Audit of Books and Accounts | 9 | | 8.3) | Contracts | 9 | | 8.4) | Checks | 9 | | 8.5) | Deposits | 9 | | 8.6) | Voting Securities Held by Corporation | 9 | | ARTICLE 9. WAIVER OF NOTICE | 9 | | 9.1) | Requirement of Waiver In Writing | 9 | | ARTICLE 10. AMENDMENTS | 9 | | 10.1) | Action by Board of Directors | 9 |
BYLAWS
OF
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
ARTICLE 1. OFFICES
1.1) Registered Office. The registered office of the corporation shall be 701 S. Carson Street, Suite #200, Carson, City, Nevada 89701. The Board of Directors shall have authority to change the registered office of the corporation from time to time, and any such change shall be registered by the Secretary with the Secretary of State of Nevada.
1.2) Offices. The corporation may have such other offices, including its principal business office, either within or without the State of Minnesota, as the Board of Directors may designate or as the business of the corporation may require from time to time.
ARTICLE 2. SHAREHOLDERS
2.1) Regular Meeting. Regular meetings of the shareholders of the corporation shall be held at the principal business office of the corporation, or at such place as is designated by the Board of Directors, at which time the shareholders, voting as provided in the Articles of Incorporation, shall elect a Board of Directorspublic accounting firm for the ensuing year, and shall2020 fiscal year. 5. To transact such other business as shallmay properly come before them.
2.2) Frequency of Regular Meetings. Regular meetings which may also be referred to as annual meetings of shareholders may be called at any time by a majority of the Board of Directors. If a regular meeting of shareholders has not been held during the immediately preceding thirteen (13) months, a shareholder or shareholders holding three percent (3%) or more of all voting shares may demand a regular meeting of shareholders by written notice of demand given to the Chief Executive Officer or Secretary of the corporation. Within thirty (30) days after receipt of the demand by one of those officers, the Board shall cause a regular meeting of shareholders to be called and held on notice no later than ninety (90) days after receipt of the demand, all at the expense of the corporation.
2.3) Special Meetings. Special meetings of the shareholders may be called by the Secretary at any time upon request of the Chief Executive Officer, or two of the members of the Board of Directors, or upon a written request of shareholders holding ten percent (10%) or more of the capital stock entitled to vote. The written request shall be given to the Chief Executive Officer and shall contain the purpose of the meeting. Notice shall be given in accordance with the provisions of Section 2.7 hereof.
2.4) Quorum. The holders of a majority of the shares outstanding and entitled to vote, represented either in person or by proxy, shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting, at which a quorum of the shareholders is present, may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum. In case a quorum is not present at any meeting, those present shall have the power to adjourn the meeting from time to time, without notice or other announcement at the meeting, until the requisite number of voting shares shall be represented; any business may be transacted at such reconvened meeting which might have been transacted at the meeting which was adjourned.
2.5) Voting. At each meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person or by proxy duly appointed by an instrument in writing subscribed by such shareholder. Each shareholder shall have one (1) vote for each share having voting power standing in his name on the books of the corporation. Upon the demand of any shareholder, the vote for director, or the vote upon any question before the meeting shall be by ballot. All elections shall be had and all questions decided by a majority vote of the number of shares entitled to vote and represented at any meeting at which there is a quorum, except in such cases as shall otherwise be required or permitted by statute, the Articles of Incorporation, these Bylaws or by agreement approved by a majority of all shareholders.
2.6) Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the articles or bylaws of such corporation may prescribe, or in the absence of such provision, as that corporation’s board of directors may prescribe. Shares under control of a personal representative, administrator, guardian, conservator, attorney-in-fact, or other similar person may be voted by that person, either in person or by proxy, without registration of those shares in the name of that person. Shares under the control of a trustee in bankruptcy or a receiver may be voted by the trustee or receiver if authority to do so is contained in an appropriate order of the court by which the trustee or receiver was appointed. A shareholder whose shares are pledged may vote those shares until the shares are registered in the name of the pledgee. Shares held by a trust shall be registered in the name of a trustee, as trustee for the trust, and may be voted by that named trustee in person or by proxy.
2.7) Notice of Meeting. There shall be mailed to each shareholder shown by the books of the corporation to be a holder of record of voting shares, at his address as shown by the books of the corporation, a notice setting out the time and place of the regular meeting or any special meeting, which notice shall be mailed at least ten (10) days prior thereto. Every notice of any special meeting shall state the purpose or purposes of the proposed meeting, and the business transacted at all special meetings shall be confined to purposes stated in the call. Notice thereof may be waived in writing either before, at, or after such meeting.
2.8) Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxies shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy.
2.9) Record Date. The Board of Directors may fix in advance a date, not exceeding sixty (60) days preceding the date of any of the aforesaid events, as a record date for the determination of shareholders entitled to notice of and to vote at any such meeting and any adjournment thereof,adjournments thereof. For The undersigned hereby appoints Tony Isaac and Virland A. Johnson, and each or either of them, as the true and lawful attorneys of the undersigned, with full power of substitution and revocation, and authorizes them, and each of them, to receive any such dividend or allotment of rights, or to exercisevote all the rights in respect to any change, conversion or exchangeshares of capital stock or to give such consent, and in such case only such shareholders onof JanOne Inc. which the record date so fixed shall beundersigned is entitled to notice of and to vote at such meeting and any adjournment thereof or to receiveupon the matters specified and upon such dividend or allotment of rights, or to exercise such rights, or to give such consent,other matters as the case may be notwithstandingproperly brought before the meeting or any transfer ofadjournment thereof, conferring authority upon such true and lawful attorneys to vote in their discretion on such other matters as may properly come before the meeting and revoking any stockproxy heretofore given. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, SHARES WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS IN ITEM 1, AND FOR THE PROPOSALS IN ITEMS 2, 3, AND 4, AND AUTHORITY WILL BE DEEMED GRANTED UNDER ITEM 5. For For PROXY TABULATOR FOR JANONE INC. P.O. BOX 8016 CARY, NC 27512-9903 Proposal 3 is conditioned on the booksapproval of Proposal 2. Therefore, unless stockholders approve Proposal 2, the amendment to the Company’s 2016 Equity Incentive Plan will be deemed not to have passed, even if it receives enough affirmative votes to pass independently. Authorized Signatures - This section must becompleted for your Instructions to be executed. Please Sign Here Please Date Above Please Sign Here Please Date Above Please sign exactly as your name(s) appears on your stock certificate. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation after any such record date so fixed. Ifand title of authorized officer signing the stock transfer books are not closed and no record dateproxy.
Proxy — JanOne Inc. Annual Meeting of Stockholders November 4, 2020, 10:00 A.M. (Pacific Time) This Proxy is fixed for such determination of the shareholders of record, the dateSolicited on which notice of the meeting is mailed, or the date of adoption of a resolutionBehalf of the Board of Directors declaring a dividend, allotmentThe undersigned appoints Tony Isaac and Virland A. Johnson (the “Named Proxies”) and each or either of rights, change, conversion or exchangethem as proxies for the undersigned, with full power of substitution, to vote all of the shares of capital stock or to give such consent, whicheverof JanOne Inc., a Nevada corporation (the “Company”), the undersigned is earlier, shall be the record date for such determination of shareholders. The determination of shareholders entitled to vote at the meeting as called shall apply to any adjournmentAnnual Meeting of such meeting except when the date of determination or the closingStockholders of the stock transfer book is more than ninety (90) days priorCompany to such adjourned meeting, in which event a new meeting must be called. 2.10) Presiding Officer.held at 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119, on Wednesday, November 4, 2020, at 10:00 a.m. Pacific Time and all adjournments thereof. The appropriate officerspurpose of the corporation shall preside over all meetingsAnnual Meeting is to take action on the following: 1. Election of the shareholders; provided, however, that in the absence ofdirectors; 2. To approve an appropriate corporate officer at any meeting of the shareholders, the meeting shall choose any person present to act as presiding officer of the meeting.
2.11) Conduct of Meetings of Shareholders. Subjectamendment to the following, meetingsCompany’s articles of shareholders generally shall follow accepted rulesincorporation to increase the number of parliamentary procedure:
1. The chairmanauthorized shares of common stock from 10,000,000 to 200,000,000 shares. 3. To approve an amendment to the meeting shall have absolute authority over matters of procedure and there shall be no appeal from the ruling of the chairman. If the chairman, in his absolute discretion, deems it advisableCompany’s 2016 Equity Incentive Plan to dispense with the rules of parliamentary procedure as to any one meeting of shareholders or part thereof, the chairman shall so state and shall clearly state the rules under which the meeting or appropriate part thereof shall be conducted.
2. If disorder should arise which prevents continuation of the legitimate business of the meeting, the chairman may quit the chair and announce the adjournment of the meeting; and upon his so doing, the meeting is immediately adjourned.
3. The chairman may ask or require that anyone not a bona fide shareholder or proxy leave the meeting.
2.12) Order of Business. The suggested order of business at the annual meeting of shareholders, and so far as possible at all other meetings of the shareholders, shall be:
| 1. | Reading and disposal of any unapproved minutes. |
| 2. | Annual reports of all officers and committees. |
2.13) Inspectors of Election. The Board of Directors in advance of any meeting of shareholders may appoint Inspectors to act at such meeting or any adjournment thereof. If inspectors of election are not so appointed, the officer or person acting as chairman of any such meeting may, and on the request of any shareholder or his proxy, shall make such appointment. In case any person appointed as inspector shall fail to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting, or at the meeting by the officer or person acting as chairman. The inspectors of election shall determineincrease the number of shares outstanding,subject to the voting powerplan from 400,000 to 800,000 shares; 4. To ratify the appointment of each,WSRP, LLC as the shares represented atcompany’s independent registered public accounting firm for the meeting, the existence of a quorum, the authenticity, validity2020 fiscal year; and effect of proxies, receive votes, ballots, assents or consents, hear and determine all challenges and questions in any way arising and announce the result, and do5. To transact such actsother business as may be proper to conductproperly come before the electionAnnual Meeting or vote with fairness to all shareholders.
No inspector whether appointed by the Board of Directorsany adjournment or by the officer or person acting as chairman need be a shareholder.
ARTICLE 3. DIRECTORS
3.1) General Powers. The property, affairs, and businesspostponement of the corporation shall be managed by the Board of Directors.
3.2) Number. The number of directors shall be two (2) but the number of directors may be increased or diminished by a majority vote of the board of directors.
3.3) Qualifications and Term of Office. Directors need not be shareholders or residents of the State of Nevada. Directors shall be elected by the shareholders at a regular meeting for an indefinite term until the next regular meeting of shareholders and until a successor shall have been elected and qualified. Each of the directors of the corporation shall hold office until the regular meeting next following or closely coinciding with the expiration of his term of office and until his successor shall have been elected and shall qualify, or until he shall resign, or shall have been removed as provided by statute.
3.4) Quorum. A majority of the Board of Directors shall constitute a quorum for the transaction of business; provided, however, that if any vacancies exist by reason of death, resignation or otherwise, a majority of the remaining directors shall constitute a quorum for the conduct of business. If less than a quorum is present at any meeting, a majority of the directors present may adjourn the meeting from time to time without further notice.
3.5) Regular Meetings. As soon as practical after each regular meeting of shareholders, the Board of Directors shall meet for the purposes of organization, choosing the officers of the corporation and for the transaction of other business at the place where the shareholders meeting is held or at the place where regular meetings of the Board of Directors are held. No notice of such meeting need be given. Such first meeting may be held at any other time and place which shall be specified in a notice given as hereinafter provided for special meetings or in a consent and waiver of notice signed by all the directors.
Other regular meetings of the Board of Directors shall be held from time to time at such time and place as may from time to time be fixed by resolution adopted by a majority of the whole Board of Directors. Unless notice shall be waived by all directors entitled to notice, notice shall be given in the same manner as prescribed for notice of special meetings.
3.6) Special Meetings. Special meetings of the Board of Directors may be held at such time and place as may from time to time be designated in the notice or waiver of notice of the meeting. Special meetings of the Board of Directors may be called by the Chief Executive Officer, or by any director. Unless notice shall be waived by all directors entitled to notice, notice of the special meeting shall be given by the Secretary, who shall give at least twenty-four (24) hours’ notice thereof to each director by mail, telegraph, telephone, or in person.
3.7) Electronic Communications. A Board of Directors meeting may be had entirely or partially by any means of communication through which the directors may simultaneously hear each other, provided notice is given of the meeting pursuant to Section 3.9 and there is a sufficient number of participants to constitute a quorum.
3.8) Absent Director. A director may give advance written consent or opposition to a proposal to be acted on at a board of directors meeting. Such written consent or opposition does not constitute presence for purposes of determining the existence of a quorum. Written consent or opposition shall be counted as a vote on the proposal if the proposal acted on is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected.
3.9) Notice. Unless notice is waived by all directors entitled to notice, a regular meeting of the Board of Directors may be called by giving ten (10) days’ notice to all directors. A special meeting of the Board of Directors may be called by giving at least twenty-four (24) hours’ notice to all directors. Notice may be given by mail, telegraph, telephone, or in person. If given by mail such notice shall be deemed given when deposited in the United States mails. Notice by mail may not be used if the meeting is called less than four (4) days from the date of notice. The notice must specify the date, time and place of the meeting, and if a special meeting, the purpose of the meeting.
3.10) Manner of Action. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
3.11) Compensation. Directors and any members of any committee of the Corporation contemplated by these Bylaws or otherwise provided for by resolution of the Board of Directors, shall receive such compensation therefor as may be determined from time to time by resolution of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving proper compensation therefor.
3.12) Salaries. Salaries and other compensation of all officers of the corporation shall be fixed by the Board of Directors, which action may be taken informally without the benefit of written resolutions. Nothing herein contained shall be construed to preclude any officer from serving the corporation as a director, consultant or in any other capacity and receiving proper compensation therefor.
3.13) Executive Committee. A two-thirds (2/3) majority vote of the Board of Directors present at a meeting may pass a resolution establishing committees having the authority of the Board to the extent provided in the resolution. A committee shall consist of three or more persons who need not be members of the Board. A majority of the committee present at a meeting shall constitute a quorum for the purpose of transacting business. In all other respects committees shall conduct meetings in the same manner prescribed for the Board of Directors. Committees shall be subject at all times to the control and direction of the Board.
3.14) Vacancies. A director may resign at any time by giving written notice of same to the Board of Directors, or to the President. Such resignation shall be effective upon receipt unless a later date is specified in the notice. If at any time and for any reason, including the creation of a new directorship, a vacancy occurs in the Board of Directors, the remaining directors of the Board, though less than a quorum, may elect a successor to fill such vacancy, or the Board may leave the vacancy unfilled until the next regular meeting of the shareholders, or until an intervening special meeting of the shareholders is called and held for the purpose of electing a successor. A director elected to fill the vacancy shall hold his office for the unexpired term of his predecessor, or until his successor is duly elected and qualified.
3.15) Order of Business. The following order of business shall be observed at all meetings of the Board of Directors so far as is practicable:
| 2. | Proof of due notice of meeting, or unanimous consent, or unanimous presence and declaration by president. |
| 3. | Reading and disposal of any unapproved minutes. |
| 4. | Reports of officers and committees. |
3.16) Informal Action by Directors. Any action required to be taken at a meeting of the directors, or any other action which may be taken at a meeting of the directors, may be taken without a meeting and notice thereof if a consent in writing, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter set forth.
ARTICLE 4. OFFICERS
4.1) Number. The officers of the corporation may include a Chief Executive Officer, a Chief Financial Officer, and such other officers as may from time to time be chosen by the Board of Directors. Any number of offices may be held by one person.
4.2) Election, Term of Office and Qualifications. At any regular meeting of the Board of Directors, the board may elect a Chief Executive Officer, a Chief Financial Officer, and such other officers and assistant officers as may be deemed advisable. Such officers shall hold office until their successors are elected and qualify; provided, however, that any officer may be removed with or without cause by the affirmative vote of a majority of the whole Board of Directors.
4.3) The Chief Executive Officer. The Chief Executive Officer, who may also be referred to as the President shall: (a) have general active management of the business of the corporation; (b) when present, preside at all meetings of the Board and of the shareholders; (c) see that all orders and resolutions of the Board are carried into effect; (d) sign and deliver in the name of the corporation any deeds, mortgages, bonds, contracts or other instruments pertaining to the business of the corporation, except in cases in which the authority to sign and deliver is required by law to be exercised by another person or is expressly delegated by the articles or bylaws or by the Board to some other officer or agent of the corporation; (e) maintain records of and, whenever necessary, certify all proceedings of the Board and the shareholders; and (f) perform other duties prescribed by the Board. The Chief Executive Officer may also be referred to as the President.
4.4) Assistant Executive Officers. Each assistant executive officer shall have such powers and shall perform such duties as may be prescribed by the Board of Directors. In the event of absence or disability of the Chief Executive Officer, an assistant executive officer shall succeed to his powers and duties in the order in which they are elected or as otherwise prescribed by the Board of Directors. The Assistant Executive Officers may also be referred to as Vice Presidents.
4.5) Secretary. The Secretary shall be secretary of and shall attend all meetings of the shareholders and Board of Directors. The Secretary shall act as clerk thereof and shall record all the proceedings of such meetings in the minute book of the corporation. The Secretary shall give proper notice of meetings of shareholders and directors. The Secretary shall keep the seal of the corporation, if any, and shall affix the same to any instrument requiring it and shall attest the seal by his signature. The Secretary shall, with the Chief Executive Officer or Chief Financial Officer, acknowledge all certificates for shares of the corporation and shall perform such other duties as may be prescribed from time to time by the Board of Directors.
4.6) Chief Financial Officer. The Chief Financial Officer, who may also be referred to as the Treasurer, shall: (a) keep accurate financial records for the corporation; (b) deposit all money, drafts, and checks in the name of and to the credit of the corporation in the banks and depositories designated by the Board; (c) endorse for deposit all notes, checks, and drafts received by the corporation as ordered by the Board, making proper vouchers therefor; (d) disburse corporate funds and issue checks and drafts in the name of the corporation, as ordered by the Board; (e) render to the Chief Executive Officer and the Board, whenever requested, an account of all transactions by the Chief Financial Officer and of the financial condition of the corporation; and (f) perform other duties prescribed by the Board or by the Chief Executive Officer. The Chief Financial Officer may also be referred to as the Treasurer.
4.7) Assistant Officers. In the event of absence or disability of any officer, assistants to such officers shall succeed to the powers and duties of the absent officer in the order in which they are elected or as otherwise prescribed by the Board of Directors until such principal officer shall resume his duties or a replacement is elected by the Board of Directors. Such assistant officers shall exercise such other powers and duties as may be delegated to them from time to time by the Board of Directors, but they shall be subordinate to the principal officer they are designated to assist.
4.8) Officers Shall not Lend Corporate Credit. Except for the proper use of the corporation, no officer of this corporation shall sign or endorse in the name or on behalf of this corporation, or in his official capacity, any obligations for the accommodation of any other party or parties, nor shall any check, note, bond, stock certificate or other security or thing of value belonging to this company be signed by any officer or director as collateral for any obligation other than valid obligations of this corporation.
ARTICLE 5. INDEMNIFICATION
5.1) Authority of the Board of Directors. The corporation acting through its Board of Directors or as otherwise provided in this bylaw, shall exercise as fully as may be permitted from time to time by the statutes and decisional law of the State of Nevada or by any other applicable rules or principles of law its power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, or proceeding, wherever brought, whether civil, criminal, administrative, or investigative, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation, as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding.
5.2) Standard for Indemnification. Any person described in Section 5.1 may be indemnified by the corporation if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, had no reasonable cause to believe his conduct was unlawful.
5.3) No Presumptions Resulting From Termination of Actions. The determination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, have reasonable cause to believe that his conduct was unlawful.
5.4) Mandatory Indemnification. To the extent that any such person has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in this bylaw, or in defense of any claim, issue, or matter within this bylaw, he shall be indemnified against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection therewith.
5.5) Determination. Any indemnification under Section 5.1, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 5.2. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who are not parties to such action, suit, or proceeding or (2) if such a quorum is not obtainable, or, even if obtainable if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by a majority vote of disinterested shareholders.
5.6) Advance Payment. The expenses incurred in defending a civil or criminal action, suit, or proceeding may be paid by the corporation in advance of the final disposition of such action, suit, or proceeding as authorized by the Board of Directors in the manner provided in Section 5.5 upon receipt of an undertaking by or on behalf of the director, officer, employee, or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this bylaw.
5.7) Continuance of Indemnification. The indemnification provided by this bylaw shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.
5.8) Not Exclusive Remedy. The indemnification provided by this bylaw shall not exclude any other right to which an officer may be entitled under any agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall not imply that the corporation may not provide lawful indemnification not expressly provided for in this bylaw. Nothing contained in this bylaw shall affect any rights to indemnification to which corporate personnel other than directors and officers may be entitled by contract or otherwise under law.
5.9) Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, provided, that no indemnification shall be made under any policy of insurance for any act which could not be indemnified by the corporation under this bylaw.
5.10) Notice of Indemnification. If, under this bylaw, any expenses or other amounts are paid by way of indemnification, otherwise than by Court order or action by the shareholders, the corporation shall, not later than the next annual meeting of shareholders unless such meeting is held within three (3) months from the date of such payment, and in any event, within fifteen (15) months from the date of such payment, mail to its shareholders of record at the time entitled to vote for the election of directors a statement specifying the persons paid, the amounts paid, and the nature and status of the litigation or threatened litigation at the time of such payment.
ARTICLE 6. SHARES AND THEIR TRANSFER
6.1) Establishment and Issuance of Shares. Subject to the provisions of the Articles of Incorporation and as provided by law, the Board of Directors is authorized to designate and cause to be issued, classes and series of shares of the corporation, with designated voting rights, preferences, and other characteristics, at such times and for such consideration as the Board of Directors may determine.
6.2) Uncertificated Shares of Stock; Stock Certificates. The corporation may provide, to the extent and in the manner permitted by applicable law, that some or all of any or all classes and series of shares of capital stock in the corporation shall be issued in uncertificated form. Except as otherwise expressly provided by statute, the rights and obligations of the holders of certificated and uncertificated shares of the same class and series are identical. Any action providing for uncertificated shares shall not apply to shares then represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the foregoing, upon written request delivered to the Secretary of the Corporation, an owner of stock of the corporation shall be entitled to a certificate, to be in such form as the Board of Directors prescribes, certifying the number of shares of stock of the corporation owned by him. In the case of shares represented by certificates, the certificates for such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the corporation by the Chief Executive Officer, and by the Secretary or any other proper officer of the corporation authorized by the Board of Directors. Within a reasonable time after the issuance or transfer of uncertificated shares, the corporation shall send to the registered owner of the shares a written notice containing the information required to be set forth or stated on certificates pursuant to applicable law, unless such notice is not required by law.
6.3) Transfer of Shares. Transfer of certificated and uncertificated shares of the corporation shall be made only on the books of the corporation. The shareholder in whose name shares of stock stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation; provided, that when any transfer of shares shall be made as collateral security, and not absolutely, such facts, if known to the Secretary of the corporation, or to the transfer agent, shall be so expressed in the entry of transfer. Transfers of uncertificated shares shall be made only by the holder thereof (or his legal representative or duly authorized attorney-in-fact) upon presentment of proper evidence of authority to transfer. Transfers of certificated shares shall be made only by the stockholder named in the certificate (or his legal representative or duly authorized attorney-in-fact) and upon surrender for cancellation of the certificate or certificates for such shares, with duly executed assignment and power of transfer endorsed thereon or attached thereto, and with such proof of the authenticity of the signatures as the corporation or its transfer agent may reasonably require. Every certificate surrendered to the corporation for exchange or transfer shall be cancelled and no other certificate or certificates or evidence of uncertificated shares shall be issued in exchange for any existing certificates until such existing certificate shall have been so cancelled except in cases provided for in Section 6.6 of this Article 6.
6.4) Stock Records; Transfer Agent and Registrar. The corporation shall keep, at its principal executive office or at another place or places within the United States determined by the Board, a share register not more than one year old containing the names and addresses of the shareholders and the number and classes of shares held by each shareholder. The corporation shall also keep at its principal executive office or at another place or places within the United States determined by the Board, a record of the dates on which certificates representing shares were issued, or on which uncertificated shares were issued, and in the case of cancellation, the respective dates of cancellation. The Board of Directors may appoint one or more transfer agents or transfer clerks, and may require all certificates for shares to bear the signature or signatures of any of them.
6.5) Facsimile Signature. Where any certificate is manually signed by a transfer agent, a transfer clerk or by a registrar appointed by the Board of Directors to perform such duties, a facsimile or engraved signature of the Chief Executive Officer and Secretary or other proper officer of the corporation authorized by the Board of Directors may be inscribed on the certificate in lieu of the actual signature of such officer. The fact that a certificate bears the facsimile signature of an officer who has ceased to hold office shall not affect the validity of such certificate if otherwise validly issued.
6.6) Lost Certificates. Any shareholder claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact in such form as the Board of Directors may require, and shall, if the directors so require, give the corporation a bond of indemnity in form and with one or more sureties satisfactory to the Board, in an amount determined by the Board of Directors not exceeding double the value of the stock represented by such certificate to indemnify the corporation, against any claim that may be made of such certificate; whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to have been destroyed or lost.
6.7) Treasury Stock. Treasury stock shall be held by the corporation subject to disposal by the Board of Directors, in accordance with the Articles of Incorporation and these Bylaws, and shall not have voting rights nor participate in dividends.
6.8) Inspection of Books by Shareholders. Upon written demand shareholders shall for any purpose, as provided by statute, be permitted to examine and copy the share register; records of shareholder and Board proceedings; the articles of incorporation and amendments; the bylaws and amendments; reports made to shareholders within the last three (3) years; voting trust agreements; a statement of names and addresses of its Directors and principal officers; and financial statements prepared for distribution to the shareholders or to a government agency as a matter of public record. Shareholders shall for any proper purpose and upon written demand be permitted to examine and copy other corporate records.
ARTICLE 7. DIVIDENDS, DISTRIBUTIONS, ETC.
7.1) Dividends. Subject to the provisions of the Articles of Incorporation, these bylaws, and, the applicable laws, the Board of Directors may declare a distribution in the form of a dividend whenever, and in such amounts as, in its opinion, the condition and the affairs of the corporation shall render it advisable.
7.2) Other Distributions, Reserves. Subject to the provisions of the Articles of Incorporation and of these bylaws, the Board of Directors in its discretion may purchase or acquire any of the shares of the capital stock of this corporation in accordance with law, or any of its bonds, debentures, notes, scrip or other securities or evidences of indebtedness, or from time to time may set aside from its net assets or net profits such sum or sums as it, in its absolute discretion, may think proper as a reserve fund to meet contingencies, or for the purpose of maintaining or increasing the property or business of the corporation or for any other purpose it may think conducive to the best interests of the corporation.
ARTICLE 8. FINANCIAL AND PROPERTY MANAGEMENT
8.1) Fiscal Year. The fiscal year of the corporation shall be set by the Board of Directors.
8.2) Audit of Books and Accounts. The books and accounts of the corporation shall be audited at such times as may be ordered by the Board of Directors.
8.3) Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.
8.4) Checks. All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the corporation shall be signed by the treasurer or such other officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.
8.5) Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the Board of Directors may select.
8.6) Voting Securities Held by Corporation. The Chief Executive Officer or other agent designated by the Board of Directors, shall have full power and authority on behalf of the corporation to attend, act and vote at any meeting of security holders of other corporations in which this corporation may hold securities. At such meeting the Chief Executive Officer, or such other agent, shall possess and exercise any and all rights and powers incident to the ownership of such securities which the corporation might possess and exercise.
ARTICLE 9. WAIVER OF NOTICE
9.1) Requirement of Waiver in Writing. Whenever any notice whatever is required to be given by these bylaws or the Articles of Incorporation of the corporation or any of the corporate laws of the State of Nevada, a waiver thereof in writing, signed by the person or persons entitled to said notice, either before, at, or after the time stated therein, shall be deemed equivalent thereto. Attendance by a director at a meeting of the Board of Directors or attendance by a shareholder at a meeting of the shareholders shall constitute a waiver of the notice of said meeting.
ARTICLE 10. AMENDMENTS
10.1) Action by Board of Directors.Annual Meeting. The Board of Directors of the corporationCompany recommends a vote “FOR” all nominees for director, and “FOR” proposals 2, 3, and 4. Proposal 3 is expressly authorized to make bylawsconditioned on the approval of the corporation and from time to time to alter or repeal bylaws so made. In so acting, the Board of Directors may do so only upon vote of a majority of the entire Board of Directors then in office and present at any meeting called for that purpose, provided that notice of such proposed amendment shall have been given to the directors in the notice of such meeting. Such authority in the Board of Directors is subject to the powers of the voting shareholders to enact, change or repeal such bylaws by majority vote of the shareholders to enact, change or repeal such bylaws by majority vote of the shareholders present and represented at any annual meeting or at any special meeting called for that purpose, and the Board of Directors shall not make or alter any bylaws fixing the number, qualifications or term of office of members of the Board.
CERTIFICATION OF BYLAWS
The above Bylaws of the Corporation are certified to have been adopted by the Board of Directors of the Corporation as of ______________, 2017.
_____________________________
Secretary
APPENDIX D:
Description of Dissenters’ Rights
302A.471 Rights Of Dissenting Shareholders.
Subdivision 1.Actions creating rights.
A shareholder of a corporation may dissent from, and obtain payment for the fair value of the shareholder’s shares in the event of, any of the following corporate actions:
(a)Proposal 2. Therefore, unless otherwise provided instockholders approve Proposal 2, the articles, an amendment of the articles that materially and adversely affects the rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption of the shares, including a provision respecting a sinking fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares to acquire shares, securities other than shares, or rights to purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter, or to cumulate votes, except as the right may be excluded or limited through the authorization or issuance of securities of an existing or new class or series with similar or different voting rights; except that an amendment to the articles of an issuing public corporation that provides that section 302A.671 doesCompany’s 2016 Equity Incentive Plan will be deemed not apply to a control share acquisition does not give risehave passed, even if it receives enough affirmative votes to pass independently. This proxy, when properly executed, will be voted in the right to obtain payment undermanner directed herein. If no direction is made, this section; or
(5) eliminates the right to obtain payment under this subdivision;
(b) a sale, lease, transfer, or other disposition of propertyproxy will be voted “FOR” all nomineesfor director, and assets of the corporation that requires shareholder approval under section 302A.661, subdivision“FOR” proposals 2, but not including a disposition in dissolution described in section 302A.725, subdivision 2, or a disposition pursuant to an order of a court, or a disposition for cash on terms requiring that all or substantially all of the net proceeds of disposition be distributed to the shareholders in accordance with their respective interests within one year after the date of disposition;
(c) a plan of merger, whether under this chapter or under chapter 322B or 322C, to which the corporation is a constituent organization, except as provided in subdivision 3, and except for a plan of merger adopted under section 302A.626;
(d) a plan of exchange, whether under this chapter or under chapter 322B or 322C,4. In their discretion, the Named Proxies are authorized to which the corporation is a party as the corporation whose shares will be acquired by the acquiring organization, except as provided in subdivision 3;
(e) a plan of conversion is adopted by the corporation and becomes effective;
(f) an amendment of the articles in connection with a combination of a class or series under section 302A.402vote upon such other matters that reduces the number of shares of the class or series owned by the shareholder to a fraction of a share if the corporation exercises its right to repurchase the fractional share so created under section 302A.423; or
(g) any other corporate action taken pursuant to a shareholder vote with respect to which the articles, the bylaws, or a resolution approved by the board directs that dissenting shareholders may obtain payment for their shares.
Subd. 2.Beneficial owners.
(a) A shareholder shall not assert dissenters’ rights as to less than all of the shares registered in the name of the shareholder, unless the shareholder dissents with respect to all the shares that are beneficially owned by another person but registered in the name of the shareholder and discloses the name and address of each beneficial owner on whose behalf the shareholder dissents. In that event, the rights of the dissenter shall be determined as if the shares as to which the shareholder has dissented and the other shares were registered in the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert dissenters’ rights with respect to shares held on behalf of the beneficial owner, and shall be treated as a dissenting shareholder under the terms of this section and section 302A.473, if the beneficial owner submits to the corporation at the time of orproperly come before the assertion ofAnnual Meeting or any adjournment or postponement thereof. You are encouraged to specify your choice by marking the rights a written consent of the shareholder.
Subd. 3. Rightsappropriate box (SEE REVERSE SIDE) but you need not to apply.
(a) Unless the articles, the bylaws, or a resolution approved by the board otherwise provide, the right to obtain payment under this section does not apply to a shareholder of (1) the surviving corporation in a merger with respect to shares of the shareholder that are not entitled to be voted on the merger and are not canceled or exchanged in the merger or (2) the corporation whose shares will be acquired by the acquiring organization in a plan of exchange with respect to shares of the shareholder that are not entitled to be voted on the plan of exchange and are not exchanged in the plan of exchange.
(b) If a date is fixed according to section 302A.445, subdivision 1, for the determination of shareholders entitled to receive notice of andmark any box if you wish to vote on an action described in subdivision 1, only shareholders as of the date fixed, and beneficial owners as of the date fixed who hold through shareholders, as provided in subdivision 2, may exercise dissenters’ rights.
(c) Notwithstanding subdivision 1, the right to obtain payment under this section, other than in connection with a plan of merger adopted under section 302A.621, is limited in accordance with the following provisions:Board of Directors’ recommendations. The Named Proxies cannot vote your shares unless you sign and return this card. To attend the meeting and vote your sharesin person, please mark this box. Please separate carefully at the perforation and return just this portion in the envelope provided.
(1) The right to obtain payment under this section is not available for the holders of shares of any class or series of shares that is listed on the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Market, or the NASDAQ Global Select Market.
(2) The applicability of clause (1) is determined as of:
(i) the record date fixed to determine the shareholders entitled to receive notice of, and to vote at, the meeting of shareholders to act upon the corporate action described in subdivision 1; or
(ii) the day before the effective date of corporate action described in subdivision 1 if there is no meeting of shareholders.
(3) Clause (1) is not applicable, and the right to obtain payment under this section is available pursuant to subdivision 1, for the holders of any class or series of shares who are required by the terms of the corporate action described in subdivision 1 to accept for such shares anything other than shares, or cash in lieu of fractional shares, of any class or any series of shares of a domestic or foreign corporation, or any other ownership interest of any other organization, that satisfies the standards set forth in clause (1) at the time the corporate action becomes effective.
Subd. 4.Other rights.
The shareholders of a corporation who have a right under this section to obtain payment for their shares, or who would have the right to obtain payment for their shares absent the exception set forth in paragraph (c) of subdivision 3, do not have a right at law or in equity to have a corporate action described in subdivision 1 set aside or rescinded, except when the corporate action is fraudulent with regard to the complaining shareholder or the corporation.
302A.473 Procedures For Asserting Dissenters’ Rights.
Subdivision 1. Definitions.
(a) For purposes of this section, the terms defined in this subdivision have the meanings given them.
(b) “Corporation” means the issuer of the shares held by a dissenter before the corporate action referred to in section 302A.471, subdivision 1 or the successor by merger of that issuer.
(c) “Fair value of the shares” means the value of the shares of a corporation immediately before the effective date of the corporate action referred to in section 302A.471, subdivision 1.
(d) “Interest” means interest commencing five days after the effective date of the corporate action referred to in section 302A.471, subdivision 1, up to and including the date of payment, calculated at the rate provided in section 549.09, subdivision 1, paragraph (c), clause (1).
Subd. 2.Notice of action.
If a corporation calls a shareholder meeting at which any action described in section 302A.471, subdivision 1 is to be voted upon, the notice of the meeting shall inform each shareholder of the right to dissent and shall include a copy of section 302A.471 and this section and a brief description of the procedure to be followed under these sections.
Subd. 3.Notice of dissent.
If the proposed action must be approved by the shareholders and the corporation holds a shareholder meeting, a shareholder who is entitled to dissent under section 302A.471 and who wishes to exercise dissenters’ rights must file with the corporation before the vote on the proposed action a written notice of intent to demand the fair value of the shares owned by the shareholder and must not vote the shares in favor of the proposed action.
Subd. 4.Notice of procedure; deposit of shares.
(a) After the proposed action has been approved by the board and, if necessary, the shareholders, the corporation shall send to (i) all shareholders who have complied with subdivision 3, (ii) all shareholders who did not sign or consent to a written action that gave effect to the action creating the right to obtain payment under section 302A.471, and (iii) all shareholders entitled to dissent if no shareholder vote was required, a notice that contains:
(1) the address to which a demand for payment and certificates of certificated shares must be sent in order to obtain payment and the date by which they must be received;
(2) any restrictions on transfer of uncertificated shares that will apply after the demand for payment is received;
(3) a form to be used to certify the date on which the shareholder, or the beneficial owner on whose behalf the shareholder dissents, acquired the shares or an interest in them and to demand payment; and
(4) a copy of section 302A.471 and this section and a brief description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting shareholder must demand payment and deposit certificated shares or comply with any restrictions on transfer of uncertificated shares within 30 days after the notice required by paragraph (a) was given, but the dissenter retains all other rights of a shareholder until the proposed action takes effect.
Subd. 5.Payment; return of shares.
(a) After the corporate action takes effect, or after the corporation receives a valid demand for payment, whichever is later, the corporation shall remit to each dissenting shareholder who has complied with subdivisions 3 and 4 the amount the corporation estimates to be the fair value of the shares, plus interest, accompanied by:
(1) the corporation’s closing balance sheet and statement of income for a fiscal year ending not more than 16 months before the effective date of the corporate action, together with the latest available interim financial statements;
(2) an estimate by the corporation of the fair value of the shares and a brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief description of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a) from a person who was not a shareholder on the date the action dissented from was first announced to the public or who is dissenting on behalf of a person who was not a beneficial owner on that date. If the dissenter has complied with subdivisions 3 and 4, the corporation shall forward to the dissenter the materials described in paragraph (a), a statement of the reason for withholding the remittance, and an offer to pay to the dissenter the amount listed in the materials if the dissenter agrees to accept that amount in full satisfaction. The dissenter may decline the offer and demand payment under subdivision 6. Failure to do so entitles the dissenter only to the amount offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit of certificates or the imposition of transfer restrictions on uncertificated shares, it shall return all deposited certificates and cancel all transfer restrictions. However, the corporation may again give notice under subdivision 4 and require deposit or restrict transfer at a later time.
Subd. 6.Supplemental payment; demand.
If a dissenter believes that the amount remitted under subdivision 5 is less than the fair value of the shares plus interest, the dissenter may give written notice to the corporation of the dissenter’s own estimate of the fair value of the shares, plus interest, within 30 days after the corporation mails the remittance under subdivision 5, and demand payment of the difference. Otherwise, a dissenter is entitled only to the amount remitted by the corporation.
Subd. 7.Petition; determination.
If the corporation receives a demand under subdivision 6, it shall, within 60 days after receiving the demand, either pay to the dissenter the amount demanded or agreed to by the dissenter after discussion with the corporation or file in court a petition requesting that the court determine the fair value of the shares, plus interest. The petition shall be filed in the county in which the registered office of the corporation is located, except that a surviving foreign corporation that receives a demand relating to the shares of a constituent domestic corporation shall file the petition in the county in this state in which the last registered office of the constituent corporation was located. The petition shall name as parties all dissenters who have demanded payment under subdivision 6 and who have not reached agreement with the corporation. The corporation shall, after filing the petition, serve all parties with a summons and copy of the petition under the Rules of Civil Procedure. Nonresidents of this state may be served by registered or certified mail or by publication as provided by law. Except as otherwise provided, the Rules of Civil Procedure apply to this proceeding. The jurisdiction of the court is plenary and exclusive. The court may appoint appraisers, with powers and authorities the court deems proper, to receive evidence on and recommend the amount of the fair value of the shares. The court shall determine whether the shareholder or shareholders in question have fully complied with the requirements of this section, and shall determine the fair value of the shares, taking into account any and all factors the court finds relevant, computed by any method or combination of methods that the court, in its discretion, sees fit to use, whether or not used by the corporation or by a dissenter. The fair value of the shares as determined by the court is binding on all shareholders, wherever located. A dissenter is entitled to judgment in cash for the amount by which the fair value of the shares as determined by the court, plus interest, exceeds the amount, if any, remitted under subdivision 5, but shall not be liable to the corporation for the amount, if any, by which the amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair value of the shares as determined by the court, plus interest.
Subd. 8.Costs; fees; expenses.
(a) The court shall determine the costs and expenses of a proceeding under subdivision 7, including the reasonable expenses and compensation of any appraisers appointed by the court, and shall assess those costs and expenses against the corporation, except that the court may assess part or all of those costs and expenses against a dissenter whose action in demanding payment under subdivision 6 is found to be arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply substantially with this section, the court may assess all fees and expenses of any experts or attorneys as the court deems equitable. These fees and expenses may also be assessed against a person who has acted arbitrarily, vexatiously, or not in good faith in bringing the proceeding, and may be awarded to a party injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney for the dissenters out of the amount awarded to the dissenters, if any.
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