UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrantx
Filed by a Party other than the Registranto
Check the Appropriate Box:
| ¨ | Preliminary Proxy Statement |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| x | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material Pursuant to § 240.14a-12 |
Appliance Recycling Centers of America, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| x | No fee required |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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| (2) | Aggregate number of securities to which transaction applies: |
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| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
175 Jackson Avenue North, Suite 102
Minneapolis, Minnesota 55343
__________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 21, 2017TUESDAY, OCTOBER 23, 2018
__________________________
TO OUR SHAREHOLDERS:
The annual meeting of the shareholders of Appliance Recycling Centers of America, Inc. (the “Company”) will be held on Tuesday, November 21, 2017,October 23, 2018, at 11:10:00 a.m., Pacific Standard Time, at 325 East Warm Springs Road, Suite 102, Las Vegas, Nevada 89119. At the meeting, shareholders will act on the following matters:
| · | Proposal 1: To elect four directors to serve for a term expiring at the |
| · | Proposal 2: To ratify the appointment of |
| · | Proposal 3: To approve, for purposes of Nasdaq Listing Rules 5635(b) and (d), the |
| · | Proposal 4: To consider and vote upon a proposal to adjourn the annual meeting, if necessary or |
| · | To transact such other business as may properly come before the annual meeting or any adjournment or postponement of the meeting. |
Under the Minnesota Business Corporation Act, shareholders of the Company have certain dissenters’ rights in connection with the proposed reincorporation of the Company from the State of Minnesota to the State of Nevada. See “Dissenters’ Rights” under Proposal 3 in the accompanying Proxy Statement and Appendix D thereto.
Only shareholders of record at the close of business on October 6, 2017,September 11, 2018 are entitled to notice of and to vote at 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, Corporate Secretary |
October 25, 2017September 18, 2018
Important Notice Regarding the Availability of Proxy Materials This Proxy Statement and our Annual Report on Form 10-K http://
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APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
175 Jackson Avenue North, Suite 102
Minneapolis, Minnesota 55343
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,October 23, 2018, beginning at 11:10:00 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 20172018 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 votes 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.September 18, 2018.
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 Conversion Proposal (as defined below).
Why is stockholder approval of the reincorporationissuance of shares of common stock upon conversion of the Series A Preferred Stock required?
Because our common stock is listed on the NASDAQ Capital Market, we are subject to NASDAQ Marketplace Rule 5635(b) and 5635(d), which requires stockholder approval (i) prior to the issuance of securities which would result in a change of control under Nasdaq rules and (ii) for a transaction other than a public offering that involves the sale, issuance, or potential issuance by a company of common stock (or securities convertible into or exercisable for common stock) equal to 20% or more of the common stock, or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. The conversion of the Company’s shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”) into shares of the Company’s common stock is conditioned upon stockholder approval. Absent such condition, the issuance by the Company of 28,858,800 shares of the Company’s common stock upon conversion of 288,588 shares of the Series A Preferred Stock would exceed 20% of both the voting power and number of shares of Common Stock outstanding prior to such issuance. The book value of one share of the Company’s common stock is $2.85. Approval of the Conversion Proposal will constitute approval for purposes of NASDAQ Marketplace Rules 5635(b) and 5635(d) to the extent that the issuance of the shares of common stock may be deemed to result in a change of control of the Company fromand/or would be issued for less than the Stategreater of Minnesota tobook or market value of the State of Nevada.
Company’s stock.
Only shareholders of record of outstanding shares of common stock or preferred stockSeries A Preferred Stock of the Company at the close of business on the record date, October 6, 2017,September 11, 2018, are entitled to receive notice of and to vote at the meeting, or any postponement or adjournment of the 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 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 CertificateArticles of Designation for the Series A Preferred Stock asIncorporation filed by the Company with the MinnesotaNevada Secretary of State on August 18, 2017.March 12, 2018. The shares of common stock and Series A 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 6,875,3658,472,651 votes, and the holders of Series A Preferred Stock are entitled to a total of 1,324,417 votes. Holders of Series A Preferred Stock are not entitled to vote on the Conversion Proposal.
All holders of common stock orand Series A Preferred Stock as of the record date, or their duly appointed proxies, may attend the meeting.
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The presence at the meeting, in person or by proxy, of the holders 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 business to be conducted 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.
Even if you plan to attend the annual meeting you are encouraged to vote by proxy. You may vote by proxy by one of the following ways:
| 1) |
| 2) | 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. |
| 3) | By mail: Complete, sign and date |
If you vote by internet or telephone, your electronic vote authorizes the proxy holders in the same manner as if you signed, dated 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 ratification of the appointment of our independent registered public accounting firm in Proposal 2,FOR approval of the reincorporation of the Company from the State of Minnesota to the State of Nevada inConversion Proposal, 3, andFOR the grant of authority to the Board to adjourn the annual meeting if necessary or appropriate in Proposal 4.
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 |
| · | FOR the ratification of the appointment of our independent registered public accounting | |
| · | FOR the approval of the Conversion Proposal. |
| · | FOR |
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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.
What vote is required to approve each proposal?
For the election of directors, each shareholder of outstanding common stock orand Series A Preferred Stock will be entitled to vote for four nominees andnominees. A nominee will be elected if the four nominees withnominee receives a majority vote of the greatest number of votes will be elected.shares entitled to vote and represented at the meeting at which a quorum is present. There is no cumulative voting by shareholders.
With respect to ratification of the appointment of our independent registered public accounting firm, approval of the Conversion Proposal, and the approval of adjournment, or any other matter that properly comes before the meeting, the affirmative vote of the holders of a majority of the outstanding voting power of the common stock and Series A Preferred Stock represented in person or by proxy at the meeting and entitled to vote on the proposal will be required for approval.
With respect toat the approval of the reincorporation of the Company from the State of Minnesota to the State of Nevada, the affirmative vote of the holders of a majority of the outstanding voting power of the common stock and Series A Preferred Stock entitled to votemeeting will be 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 of the proposal. Accordingly, an abstention will have the effect of an “AGAINST” 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 respect 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 approval of the proposal; however, since the proposal to reincorporate the Company from the State of Minnesota to the State of Nevada requires the approval of a majority of the outstanding voting power of the common stock and Series A Preferred Stock, a “broker non-vote” will have the effect of an “AGAINST” vote with respect to this proposal.
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, EQ Shareowner Services (formerly Wells Fargo Shareowner Services,Services), at 1-800-468-9716.
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How will voting on any other business be conducted?
Although we do not know of any business to be considered at the 20172018 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,Virland A. Johnson, Chief Financial Officer, to vote on such matters at their discretion.
When are shareholder proposals for the 20182019 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 2018,2019, shareholder proposals must be received at the Company’s office no later than June 27, 2018May 21, 2019 or, in the event the Company changes the date of its annual meeting to be held in 20182019 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 20182019 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, 2018August 4, 2019 or, in the event the Company changes the date of its annual meeting to be held in 20182019 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.”
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Beneficial Ownership of Common Stock
The following table sets forth as of October 6, 2017,September 11, 2018, the record date for the annual meeting, the beneficial ownership of common stock by each of the Company’s directors, each of the named executive officers, and all directors and executive officers of the Company as a group, as well as information about beneficial owners of 5% or more of the Company’s common stock. Beneficial ownership includes shares that may be acquired in the next 60 days through the exercise of options or warrants.
| Beneficial Owner | Position with Company | Number of Shares Beneficially Owned | Percent of Outstanding Common | |||||||
| 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% | ||||||||
| Beneficial Owner | Position with Company | Number of Shares Beneficially Owned | Percent of Outstanding Common Stock | |||||||
| Directors and executive officers: | ||||||||||
| Tony Isaac (3) | Director, Chief Executive Officer | 470,000 | 5.5% | |||||||
| Virland A. Johnson | Chief Financial Officer | 260,000 | 3.1% | |||||||
| Bradley S. Bremer (3) (4) | Former President of ApplianceSmart, Inc. | 32,625 | * | |||||||
| James P. Harper (5) | Former Chief Operating Officer | |||||||||
| Richard D. Butler (3) | Director | 90,000 | 1.1% | |||||||
| Dennis (De) Gao (3) | Director | 20,000 | * | |||||||
| Nael Hajjar | Director | – | * | |||||||
| All directors and executive officers as a group (8 persons) (3) | 872,625 | 10.2% | ||||||||
| Other 5% shareholders: | ||||||||||
| Timothy M. Matula (3) (6) | 570,000 | 6.7% | ||||||||
| Energy Efficiency Investments, LLC (7) | 838,793 | 9.9% | ||||||||
| Isaac Capital Group, LLC (8) | 1,251,993 | 14.8% | ||||||||
| Abacab Capital Management (9) | 439,587 | 5.2% | ||||||||
_______________________
* 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) | Applicable percentage of ownership is based on |
| (3) |
| Includes shares which could be purchased within 60 days upon the exercise of existing stock options or warrants, as follows: Mr. Isaac, 10,000 shares; Mr. |
| (4) | Effective October 26, 2017, the Company terminated the employment of Mr. Bremer. |
| (5) | Effective May 26, 2017, the Company terminated the employment of Mr. Harper. |
| (6) | Mr. Matula resigned from the Board of Directors effective August 10, 2018. |
| (7) | According to a Schedule 13G/A filed with the U.S. Securities and Exchange Commission (“SEC”) on September 7, 2018, Energy Efficiency Investments, LLC (“EEI”) beneficially owns 838,793 shares of common stock. EEI has sole dispositive and voting power as to all 838,793 shares. The foregoing excludes 166,817 shares of common stock issuable upon exercise of a common stock purchase warrant (the “Warrant”) because the Warrant contains a blocker provision under which the holder thereof does not have the right to exercise such Warrant to the extent that such exercise would result in beneficial ownership by the holder thereof, together with any of the holder’s affiliates, of more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon exercise of the Warrant (the “Beneficial Ownership Limitation”). The holder is entitled to, among other things, upon notice to the Company, increase the Beneficial Ownership Limitation to 9.99% of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise of the Warrant, with such increase to take effect 61 days after such notice is delivered to the Issuer. EEI has elected to increase the Beneficial Ownership Limitation to 9.99% and the Company has elected to waive the 61-day notice period. The address for EEI is c/o Baker & Hostetler, LLP, 600 Anton Boulevard, Suite 9000, Costa Mesa, CA 92626-7221. |
| (8) | According to a Schedule 13D/A filed |
| 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. |
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Beneficial Ownership of Series A Preferred Stock
The following table sets forth as of October 6, 2017,September 11, 2018, 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% | ||||||
_______________________
_________________
| (1) | Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to such shares. |
| (2) | Applicable percentage of ownership is based on 288,588 shares of Series A Preferred Stock outstanding as of |
| (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, CA 92130. |
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, 2016,30, 2017, its officers, directors and 10% shareholders timely complied with all Section 16(a) filing requirements, except as follows: Mr. Gao and Mr. Butler filed a late Form 4s4 on April 13,October 12, 2017, reporting grantsthe acquisition of stock options on December 29, 2016 upon their reelection to20,000 shares of the Board of Directors.Company’s common stock.
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Proposal 1:
Election of Directors
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. Unless otherwise instructed, the proxy holders will vote the proxies received by them for management’s four nominees. The term of office for each person elected as a director will continue until the next annual meeting of shareholders 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 all of the nominees.
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 | ||||||||||||||
| Tony Isaac | Director and Chief Executive Officer | 2015 | 63 | Director and Chief Executive Officer | 2015 | 64 | ||||||||||||||
| Richard D. Butler | Director | 2015 | 69 | Director | 2015 | 69 | ||||||||||||||
| Dennis (De) Gao | Director | 2015 | 37 | Director | 2015 | 38 | ||||||||||||||
| Timothy M. Matula | Director | 2016 | 57 | |||||||||||||||||
| Nael Hajjar | Director | 2018 | 34 | |||||||||||||||||
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), a company providing specialized online marketing solutions to small-to-medium sized local business that boost customer awareness and merchant visibility, 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. Mr. Isaac graduated from Ottawa University in 1981, where he majored in Commerce and Business Administration and Economics. 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 which provides real estate, corporate and financial advisory services, since 1999, and is the co-Founder, Managing Director and major shareholder of Ref-Razzer Company, a whistle manufacturing and vending company, since 2005. 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: 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 been a director of Dataram Corporation (NASDAQ: DRAM), an independent memory manufacturer which develops, manufactures, and markets large capacity memory products primarily used in servers and workstations worldwide, since November 2014. Mr. Butler attended Bowling Green University in Ohio, San Joaquin Delta College in California, and Southern Oregon State College. 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.
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Dennis (De) Gao has been a director of the Company since May 2015. Mr. Gao co-founded and, from July 2010 to March 2013, served as the CFO at Oxstones Capital Management, a privately held company 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 degree in Computer Science and Economics from University of Maryland, and an M.B.A. specializing in finance and accounting from Georgetown University’s McDonough School of Business. Mr. Gao has significant finance, accounting and operational experience and brings substantial finance and accounting 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. 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. 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, and Bachelor of Commerce, Option in Finance, from California Statethe University Fresno.of Ottawa.
There are no family relationships between any of the directors or executive officers of the Company. Of the current directors, each of Mr. Butler, Mr. Gao, and Mr. MatulaHajjar are “independent” directors as defined under the rules of The NASDAQ Stock Market (“NASDAQ”) and have been independent directors 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. Isaac, the Company’s Chief Executive Officer, also serves as a member of the Board 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 20162017, the Board of Directors met twoone time and took action by unanimous written consent six times. In 20162017, 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 2017. The Compensation Committee did not hold a formal meeting during 2017 but did take one action by unanimous written consent. The Nominating and Corporate Governance Committee and Compensation Committee did not hold a formal meetingsmeeting during 2016.2017 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 20162017 attended all 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 meeting of shareholders. Last year, all of the members of the Board of Directors attended last year’s annual meeting of shareholders.
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Compensation and Benefits Committee
The Compensation Committee of the Board of Directors is comprised entirely of non-employee directors. In fiscal 2016,2017, the members of the Compensation Committee were Mr. Isaac (until February 29, 2016), Mr. Gao, Mr. Butler (Chairman) and Mr. Matula (commencing(until August 19, 2016)10, 2018), each of whom was also an “independent” director as defined under NASDAQ 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.
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 and director compensation for fiscal 2016.2017. 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.com under the caption “Investors - Corporate Governance.”
The Audit Committee of the Board of Directors is comprised entirely of non-employee directors. In fiscal 2016,2017, the members of the Audit Committee were Mr. Isaac (until February 29, 2016), Mr. Gao, Mr. Butler and Mr. Matula (commencing(until August 19, 2016), each10, 2018). Mr. Hajjar was appointed as a member of whomthe Audit Committee as of August 10, 2018. Each of Messrs. Gao, Butler, Matula, and Hajjar 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 2016,2017, the members of the Governance Committee were Mr. Isaac (until February 29, 2016), Mr. Gao (Chairman), Mr. Butler and Mr. Matula (commencing(until August 19, 2016)10, 2018), each of whom was also an “independent” director as defined under NASDAQ 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 Nominating and Corporate 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 Nominating and Corporate 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. The Nominating and Corporate 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.com under the caption “Investors - Corporate Governance.”
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The Nominating and Corporate Governance Committee will consider director candidates recommended by shareholders. The criteria applied by the Nominating and Corporate Governance Committee in the selection of director candidates is the same whether the candidate was recommended by a Board member, an executive officer, a shareholder or a third party, and accordingly, the Nominating and Corporate Governance Committee has not deemed it necessary to adopt a formal policy regarding consideration of candidates recommended by shareholders. Shareholders wishing to recommend candidates for Board membership should submit the recommendations in writing to the Secretary of the Company.
The Nominating and Corporate Governance Committee identifies director candidates primarily by considering recommendations made by directors, management and shareholders. The Nominating and Corporate 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 Nominating and Corporate 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 shareholders are evaluated in the same manner as candidates recommended by other persons.
Our Audit Committee has adopted a code of ethics applicable to our directors and officers (including our Chief Executive Officer 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. A copy of the code of ethics may be obtained upon request, without charge, by addressing a request to Investor Relations, ARCA,Appliance Recycling Centers of America, Inc., 175 Jackson Avenue North, Suite 102, Minneapolis, MN 55343. The code of ethics is also posted on our website at www.arcainc.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 NASDAQ Capital Market, by filing a Current Report on Form 8-K with the SEC disclosing such information.
If you would like to contact the Board or any committee of the Board, you can send an email to board@arcainc.com, or write to Appliance Recycling Centers of America, Inc., c/o Secretary, 175 Jackson Avenue North, Suite 102, Minneapolis, Minnesota 55343. 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.
Compensation of Non-Employee Directors
ThePrior to August 10, 2018, the Company usesused 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 considersconsidered 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 receivereceived 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 Chairperson of the Audit Committee receivesreceived 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. All of the Company’s directors are reimbursed for reasonable travel expenses incurred in attending meetings.
$6,000. Non-employee directors also receivereceived stock options under the 2011 Stock Compensation2016 Equity Incentive Plan. Each year, on the date of the Company’s annual meeting, non-employeeNon-employee directors receiveoften received an option to purchase 10,000 shares of common stock. In addition, upon their initial appointment or election to the Board, non-employee directors receivereceived a one-time grant of options to purchase 10,000 shares of common stock. Generally, such options becomebecame exercisable in full six months after the date of grant and expire ten years from the date of grant.Effective August 10, 2018, compensation for the non-employee members of the Board of Directors shall be as follows: (i) Richard Butler shall receive a monthly fee of $2,000, (ii) Dennis (De) Gao shall receive a monthly fee of $2,500, and (iii) Nael Hajjar shall receive a monthly fee of $1,500.
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The table below presents cash and non-cash compensation paid to non-employee directors during the priorlast fiscal year.
Non-Management Director Compensation for Fiscal Year Ended December 31, 201630, 2017
| Name (1) (2) | Fees Earned or Paid in Cash ($) | 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 | 25,500 | – | – | 25,500 | ||||
| Richard D. Butler | 30,000 | – | 21,800 (2) | 51,800 | ||||
| Timothy Matula (3) | 24,000 | – | – | 24,000 |
_______________________
| (1) |
| These amounts reflect the fair value of the | ||
| (3) | Mr. Matula resigned from the Board of Directors effective August 10, 2018. |
Proposal 2:
Ratification of Appointment of Independent
Registered Public Accounting Firm
The Audit Committee has selected Anton & Chia,SingerLewak LLP as the Company’s independent registered public accounting firm for fiscal year 2017.2018. The Company is submitting its selection of Anton & Chia,SingerLewak LLP for ratification by the shareholders at the annual meeting. A representative of Anton & Chia,SingerLewak 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 sovia teleconference and will be available to respond to appropriate questions.
The Company’s Bylaws do not require that shareholders ratify the selection of Anton & Chia,SingerLewak LLP as the Company’s independent registered public accounting firm. However, the Company is submitting the selection of Anton & Chia,SingerLewak 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,SingerLewak 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 interests of the Company and its shareholders.
Baker Tilly Virchow Krause,Anton & Chia, 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,March 5, 2018, the Audit Committee approved the engagementdetermined to dismiss Anton & Chia, LLP effective immediately. The audit reports 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 yearsyear ended January 2,December 31, 2016, and January 3, 2015 did not contain anthe only year for which Anton & Chia, LLP audited the Company’s financial statements, contained no adverse opinion or disclaimer of opinion and werewas not qualified or modified as to uncertainty, audit scope or accounting principles. During the Company’s two most recent fiscal yearsyear ended December 31, 2016, the only year for which Anton & Chia, LLP audited the Company’s financial statements, and for the subsequent interim period through April 4, 2016, there wereMarch 5, 2018, the Company had no disagreements“disagreements” (as described in Item 304(a)(1)(iv) of Regulation S-K) with Baker Tilly Virchow Krause,Anton & Chia, LLP on any mattersmatter of accounting principles or practices, financial statement disclosure, or auditing scope andor procedure, which disagreements, if not resolved to the satisfaction of Baker Tilly Virchow Krause, LLP,Anton, would have caused Baker Tilly Virchow Krause, LLPit to make reference in connection with its opinion to the subject matter in its reports onof the consolidateddisagreements. During the Company’s fiscal year ended December 31, 2016, the only year for which Anton & Chia, LLP audited the Company’s 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, andfor the subsequent interim period prior tothrough March 5, 2018, there was no “reportable event” within the meaning of Item 304(a)(1)(v) of Regulation S-K.
On March 5, 2018, the Audit Committee approved the engagement of AntonWeinberg & Chia, LLP,Company, P.A. as the Company’s independent registered public accounting firm for fiscal year ending December 30, 2017. During the Company’s two most recent fiscal years ended December 30, 2017 and December 31, 2016 and for the subsequent interim period through the date of filing this Current Report on Form 8-K, neither the Company, nor anyone acting on its behalf hasof the Company consulted with AntonWeinberg & Chia, LLP with respect toCompany, P.A. regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed,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”disagreement as that term is defineddescribed 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 March 22, 2018, the Audit Committee determined to dismiss Weinberg & Company, P.A. effective immediately. Weinberg & Company, P.A. did not audit nor provide an opinion on any of the Company’s financial statements. During the Company’s two most recent fiscal years ended December 30, 2017 and December 31, 2016, and for the subsequent interim period through March 22, 2018, the Company had no “disagreements” (as described in Item 304 (a)(1)(iv) of Regulation S-K) with Weinberg & Company, P.A. 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 Weinberg & Company, P.A., 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 30, 2017 and December 31, 2016, and for the subsequent interim period through March 22, 2018, there was no “reportable event” as that term is defined inwithin the meaning of Item 304(a)(1)(v) of Regulation S-K.
On March 23, 2018, the Audit Committee approved the appointment of SingerLewak LLP as the Company’s new independent registered public accounting firm, effective upon the execution of an engagement letter between the Company and SingerLewak LLP. During the Company’s two most recent fiscal years ended December 30, 2017 and December 31, 2016 and for the subsequent interim period through the date of filing this Current Report on Form 8-K neither the Company, nor anyone on behalf of the Company consulted with SingerLewak LLP 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.
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Fees Paid to Auditors by the Company During Most Recent Fiscal Years
Anton & Chia, LLP has served as the independent auditorsauditor for the Company sincefor fiscal 2016. Baker Tilly Virchow Krause,year 2016 and reviewed three quarters of fiscal year 2017. Weinberg & Company, P.A. was retained briefly and then subsequently dismissed as the Company’s independent auditor of fiscal year 2017. Weinberg & Company did not audit or provide an opinion on any of the Company’s financial statements. SingerLewak LLP served as the independent auditorsCompany’s auditor for the Company from fiscal 2005 until 2015.year 2017. The Company either paid fees or estimates that it will pay audit fees to Anton & Chia, LLP duringfor the fiscal years ended December 30, 2017 and December 31, 2016, Weinberg & Company for fiscal year ended December 31, 201630, 2017 and to Baker Tilly Virchow Krause,SingerLewak LLP during thefor fiscal year ended January 2, 2016, respectively,December 30, 2017 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 | – | – | ||||||
| Description | December 30, 2017 | December 31, 2016 | |
| Audit fees (1) | $229,000 | $132,300 | |
| ________________ |
| (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 the Board of Directors has considered whether the provision of the services described above was and is compatible with maintaining the independence of Anton & Chia, LLP, Weinberg & Company, and Baker Tilly Virchow Krause,SingerLewak LLP.
The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent auditors. All the fees and services for fiscal 20162017 and fiscal 20152016 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.
Proposal 3:APPROVAL OF THE REINCORPORATION OF THE COMPANY FROMTHE STATE OF MINNESOTA TO THE STATE OF NEVADA
The Board has unanimously approved the reincorporation of the Company from the State of Minnesota to the State of Nevada (the “Reincorporation”), 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 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:
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:
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.
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APPROVAL OF THE CONVERSION PROPOSAL
Our Board of Directors is seeking stockholder approval, as required by NASDAQ Listing Rules 5635(b) and 5635(d), of the Reincorporation – The Planissuance of Conversionup to an aggregate of 28,858,800 shares of common stock upon conversion of 288,588 shares of the Series A Preferred Stock, which will represent greater than 19.99% of the Company’s outstanding common stock upon conversion of the Series A Preferred Stock (the “Conversion Proposal”).
The Reincorporation would be effected throughOn August 18, 2017, the conversionCompany acquired GeoTraq, Inc. (“GeoTraq”). GeoTraq is engaged in the development, manufacture, and, ultimately, sale of cellular transceiver modules, also known as Cell-ID modules. As a result of this transaction, GeoTraq became a wholly-owned subsidiary 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 ofCompany. In connection with acquisition, the Company tendered to the owners of GeoTraq $200,000, issued to them an aggregate of 288,588 shares of Series A Preferred Stock, and will continue to operate our business under the name “Appliance Recycling Centersentered into one-year unsecured promissory notes for an aggregate of America, Inc.” unless we subsequently change that name, which we reserve the right to do at any time.$800,000.
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 ofThe Series A Preferred Stock will be convertedconvertible into one sharecommon stock 61 days after approval of the issuance of the common stock in this Proposal 3 by our stockholders as required by the NASDAQ Listing Rules. Pursuant to the NASDAQ Listing Rules, holders of the Series A Preferred Stock will not be entitled to cast votes as to this Proposal 3. If our stockholders approve this Proposal 3, and assuming the conversion of all of the shares of the Series A Preferred Stock, the holders of the Series A Preferred Stock will own an aggregate of 28,858,800 shares of our common stock, representing approximately 77.3% of our outstanding capital stock.
Because our common stock is traded on the NASDAQ Capital Market, we are subject to the Nasdaq Listing Rules, including Rules 5635(b) and 5635(d). Pursuant to Listing Rule 5635(b), stockholder approval is required prior to the issuance of securities when the issuance or potential issuance may result in a change of control of the issuer. Under NASDAQ rules and policies, a change of control may be deemed to occur when, as a result of an issuance, an investor or a group would own, or have the right to acquire, 20% or more of the outstanding shares of common stock or voting power of the issuer, and such ownership or voting power would be the largest ownership position of the issuer. Conversion of the Series A Preferred Stock could result in the holders of the Series A Preferred Stock owning in excess of 20% of our outstanding shares of our common stock. Pursuant to Listing Rule 5635(d), stockholder approval is required for a transaction other than a public offering that involves the sale, issuance, or potential issuance by a company of common stock (or securities convertible into or exercisable for common stock) equal to 20% or more of the common stock, or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. The book value of the Company’s common stock is $2.85 per share.
Accordingly, to comply with Listing Rules 5635(b) and 5635(d), the Company’s Articles of Incorporation prevents conversion of the Series A Preferred Stock unless and until 61 days after we receive stockholder approval for the issuances of common stock upon conversion of the Series A Preferred Stock.
Effect of Issuance of Common Stock
The issuance of the 28,858,800 shares of common stock that are the subject of this Proposal 3 will result in an increase in the number of shares of common stock outstanding, and our stockholders will incur further dilution of their percentage ownership in the Company to the extent that the holders of Series A Preferred Stock convert their shares of ARCA-Nevada. In addition, all outstanding warrantsSeries A Preferred Stock.
We are seeking your approval of this Proposal 3 in order to satisfy the stockholder approval requirements of NASDAQ, including NASDAQ Listing Rules 5635(b) and options exercisable for shares5635(d), with respect to the issuance of the common stock to the holders of the Series A Preferred Stock issuable upon conversion of the Series A Preferred Stock, which represents more than 19.99% of the Company’s outstanding common stockstock.
Stockholder approval of this Proposal 3 requires a “FOR” vote from at least a majority of shares present in person or represented by proxy and entitled to vote on this Proposal 3. Abstentions will be automatically converted into comparable warrantscounted toward the tabulation of votes cast on proposals presented to the stockholders and options of ARCA-Nevada.will have the same effect as negative votes. Broker non-votes are counted towards a quorum but are not counted for any purpose in determining whether this matter has been approved.
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 ReincorporationConsequences if Stockholder Approval 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 ReincorporationObtained
If we fail todo not obtain stockholder approval, the requisite vote of our shareholders for approvalconversion of the Reincorporation, the ReincorporationSeries A Preferred Stock into common stock will not be consummatedpermitted, and wethe holders of the Series A Preferred Stock will continue to be incorporated under the lawshold shares of the State of Minnesota and governed by the MBCA and our existing Articles of Incorporation and Bylaws.Series A Preferred Stock.
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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE CONVERSION PROPOSAL.
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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.
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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 1, 2 or 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.
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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 –(NASDAQ: 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., a subsidiary of the Company, a position he has held since February 2012. He served as Vice President of Retail Operations from 2007 until his appointment as President of ApplianceSmart. Mr. Bremer is responsible for directing all aspects of the Company’s retail division, including the management of sales, advertising and operations for the Company’s ApplianceSmart stores. He also oversees the selection of ApplianceSmart locations, planning for new stores, development of new markets, and implementation of retail programs and services. From 2000 to 2007, Mr. Bremer held the position of Retail Operations Manager for the Company. Mr. Bremer is a graduate of the University of Minnesota.
Rachel L. Holmes is the Executive Vice President of ARCA Recycling, Inc. a position she was appointed to in January 2016. She previously held the position 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.
The following table sets forth the cash and non-cash compensation for fiscal years ended December 31, 201630, 2017 and January 2,December 31, 2016 earned by each person who served as Chief Executive Officer during 2016,2017, and our other two most highly compensated executive officers who held office as of December 31, 201630, 2017 (“named executive officers”):
Summary Compensation Table for Fiscal Year Ended December 31, 201630, 2017
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Award ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | |||||||
Tony Isaac (1) Chief Executive Officer | 2016 | 338,462 | -- | 62,000 (4) | -- | -- | 400,462 | |||||||
Edward R. Cameron (2) Former President of ARCA Recycling, Inc.; former Chairman of the Board; former President and CEO | 2016 2015 | 300,000 300,000 | -- -- | -- 114,000 (5) | -- 96,000 (6) | -- -- | 300,000 417,528 | |||||||
Jeffery Ostapeic (3) Former Chief Financial Officer | 2016 2015 | 93,323 180,000 | 100,000 -- | -- -- | -- -- | 3,600 7,200 | 196,923 187,200 | |||||||
Bradley S. Bremer President of ApplianceSmart, Inc. | 2016 2015 | 169,950 169,950 | -- -- | -- -- | -- -- | -- -- | 169,950 169,950 |
______________________
| Name and Principal Position (1) | Year | Salary ($) | Bonus ($) | Stock Award ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||
| Tony Isaac (2) | 2017 | 550,253 | – | – | – | – | 550,253 | |||||||||||||||||||
| Chief Executive Officer | 2016 | 338,462 | – | 62,000 (3) | – | – | 400,462 | |||||||||||||||||||
| Virland A. Johnson (4) | 2017 | 57,802 | – | – | – | – | 57,802 | |||||||||||||||||||
| Chief Financial Officer | 2016 | – | – | – | – | – | – | |||||||||||||||||||
| Bradley S. Bremer (5) | 2017 | 162,968 | – | – | – | – | 162,968 | |||||||||||||||||||
| President of ApplianceSmart, Inc. | 2016 | 169,950 | – | – | – | – | 169,950 | |||||||||||||||||||
| James P. Harper (6) | 2017 | 127,728 | – | – | – | – | 127,728 | |||||||||||||||||||
| Chief Operating Officer | 2016 | 84,272 | – | – | – | – | 84,272 | |||||||||||||||||||
| (1) | |
| (2) | 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 $550,000. |
| (3) |
| This amount reflects the fair value of a stock grant awarded to Mr. Isaac during fiscal 2016. The shares were fully vested upon grant. See Note | ||
| (4) | Mr. Johnson was appointed Chief Financial Officer of the Company on August 21, 2017. | |
| (5) | Effective October 26, 2017, the |
| (6) |
Outstanding Equity Awards at December 31, 201630, 2017
The following table provides a summary of equity awards outstanding for our Named Executive Officers at December 31, 2016:30, 2017:
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | 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 | ||||
| Name | Number of Securities (#) Exercisable | Number of Securities (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | |||||
| Tony Isaac | 10,000 | (1) | – | 1.98 | 05/18/2025 | ||||
| Virland A. Johnson | – | – | – | – | |||||
| Bradley S. Bremer (5) | 5,000 | (2) | – | 4.25 | 02/24/2018 | ||||
| Bradley S. Bremer (5) | 7,500 | (3) | – | 1.89 | 05/09/2020 | ||||
| Bradley S. Bremer (5) | 15,000 | (4) | – | 3.00 | 02/26/2021 | ||||
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| (1) | Options granted May 18, 2015 and vested six months thereafter. |
| Options granted February 24, 2011 and vested twelve months thereafter. |
| Options granted May 9, 2013 and vested on various dates in the twenty-four months thereafter. |
| Options granted February 26, 2014 and will vest in three equal installments on each anniversary |
| (5) |
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,December 30, 2017, options to purchase an aggregate of 710,250627,500 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 205,750123,000 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. |
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 $24,000 for their service as directors. The Chairperson of the Audit Committee receives an additional annual fee of $6,000. All of the Company’s directors are reimbursed for reasonable travel expenses incurred in attending meetings.
Non-employee directors also receive stock options under the 2016 Equity Incentive Plan. Each year, on the date of the Company’s annual meeting, non-employee directors receive an option to purchase 10,000 shares of common stock. In addition, upon their initial appointment or election to the Board, non-employee directors receive a one-time grant of options to purchase 10,000 shares of common stock. Generally, such options become exercisable in full six months after the date of grant and expire ten years from the date of grant.
The table below presents cash and non-cash compensation paid to non-employee directors during the last fiscal year.
Non-Management Director Compensation for Fiscal Year Ended December 30, 2017
| Name (1) | Fees Earned or Paid in Cash ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | ||||
| Dennis (De) Gao | 25,500 | – | – | 25,500 | ||||
| Richard D. Butler | 30,000 | – | 21,800 (2) | 51,800 | ||||
| Timothy Matula (3) | 24,000 | – | – | 24,000 |
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| (1) | The Chairperson of the Audit Committee received an additional annual fee of $6,000 and each other member of the Audit Committee received an additional annual fee of $6,000. All of the Company’s directors were reimbursed for reasonable travel expenses incurred in attending meetings. |
| (2) | These amounts reflect the fair value of the stock granted during fiscal 2017. Stock grants issued in fiscal 2016 were valued at the market price of the Company’s common stock on the date of grant. 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. |
| (3) | Mr. Matula resigned from the Board of Directors effective August 10, 2018. |
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The following table gives aggregate information under our equity compensation plans as of December 31, 2016:30, 2017:
| (a) | (b) | (c) | (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) | 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 Issuance Under Equity Compensation Plans, Excluding Securities Reflected in Column (a) | |||||||||||||||||||
| Equity compensation plans approved by shareholders | 710,250 | $ | 2.62 | 1,980,000 | 627,500 | $ | 2.56 | 2,033,000 | ||||||||||||||||
| Equity compensation plans not approved by shareholders | 23,500 | $ | 3.55 | – | – | $ | – | – | ||||||||||||||||
| Total | 733,750 | $ | 2.65 | 1,980,000 | 627,500 | $ | 2.56 | 2,033,000 | ||||||||||||||||
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. Isaac Capital Group LLC (“Isaac Capital”), of which Jon Isaac is the CEO, Manager and sole owner of Isaac Capital 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 proxyDecember 30, 2017 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.
Tony Isaac, the Company’s Chief Executive Officer, is the father of Jon Isaac, Chief Executive Officer of Live Ventures Incorporated and managing member of Isaac Capital Group LLC, a 9% shareholder of the Company. Tony Isaac, Chief Executive Officer, Virland Johnson, Chief Financial Officer, Richard Butler, Board of Directors member, and Dennis Gao, Board of Directors member of the Company, are Board of Directors, Chief Financial Officer, Board of Directors member, and Board of Directors members of, respectively, Live Ventures Incorporated. The Company also shares certain executive and legal services with Live Ventures Incorporated. The total services were $30,000 for the year ending December 30, 2017. Customer Connexx rents approximately 9,879 square feet of office space from Live Ventures Incorporated at its Las Vegas, NV office. The total rent and common area expense was $213,000 for the year ending December 30, 2017.
On December 30, 2017, ApplianceSmart Holdings LLC (the “Purchaser”), a wholly owned subsidiary of the Company, sub-leases call center space from Live Ventures Incorporated, entered into a Stock Purchase Agreement (the “Agreement”) with the Company and ApplianceSmart, Inc. (“ApplianceSmart”), a subsidiary of the Company. ApplianceSmart is a 17-store chain specializing in Las Vegas, Nevada. Totalnew and out-of-the-box appliances with annualized revenues of approximately $65 million. 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 (the “Purchase Price”). Effective April 1, 2018, Purchaser issued the Company a promissory note with a three-year term in the original principal amount of sub-lease rent and common area charges was $179,674$3,919,494 (exact amount) for 2017 through the filing datebalance of the purchase price. ApplianceSmart is guaranteeing the repayment of this proxy statement.
promissory note.
| 19 |
The Audit Committee reviewed with management the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, including a discussion of the reasonableness of significant judgments and accounting principles.
The audit committee reviewed and discussed the audited financial statements with management. The audit committee discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by 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’s communications with the audit committee concerning independence and has discussed with the independent accountant the independent accountant’s independence.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board approved) that the audited consolidated financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2016,30, 2017, for filing with the Securities and Exchange Commission.
| The Audit Committee
Richard D. Butler Dennis (De) Gao Timothy M. Matula |
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.
At the date of this proxy statement the Company’s management knows of no other matters which may come before the 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.
The Notice you received in the mail accompanying this Proxy Statement contains instructions on how to access this proxy statement and our 2017 Annual Report to Shareholders on our website. The Annual Report includes, among other things, the consolidated balance sheets of the Company as of December 31, 201630, 2017 and January 2,December 31, 2016, and the related consolidated statements of comprehensive income (loss), shareholders’ equity and cash flows for fiscal years ended December 31, 201630, 2017 and January 2,December 31, 2016. If you desire a copy of the Annual Report or a copy of the Company’s Annual Report on Form 10-K, as amended, filed with the SEC, you may obtain one (excluding exhibits) without charge by addressing a request to Investor Relations, Appliance Recycling Centers of America, Inc., 175 Jackson Avenue North, 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.
By Order of the Board of Directors
/s/ Michael J. Stein Michael J. Stein, Secretary |
October 25, 2017
PLAN OF CONVERSION
of
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
a Minnesota corporation
to
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
a Nevada corporation
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.
1. Converting Corporation. The 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 Incorporation with the Nevada Secretary of State.
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.
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.
Proposed Nevada Articles of Incorporation
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 must be a natural person at leastSeptember 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
CONTINUATION OF ARTICLES OF INCORPORATION OF APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
Article 3: Authorized Stock
Section 3.1. Designation 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 available for the purpose, a dividend in the aggregate amount of one dollar, regardless of the number of then•issued and outstanding shares of Series A Convertible Preferred Stock. 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 in the usual course of business.
Section 3.2.3 No Liquidation Preference. Immediately prior to the occurrence of any liquidation, dissolution or winding up of the Corporation, whether voluntary of involuntary, all shares of Series A Convertible Preferred Stock shall automatically convert into 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.
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 share 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 have 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 that number of shares of Common Stock equivalent to 19.9% of the number of shares of Common Stock as of the date hereof;provided, however,that the Holders may effectuate any Conversion 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.
(b) Taxes. The Corporation shall not be required to pay any tax that may be payable in respect 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 required 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 shares of Common Stock into a larger number, including any such reclassification in connection with a merger, consolidation or other business combination in which the Corporation 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 lieu 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 or indirectly initiated by the Corporation’s Board of Directors through judicial action or process, including any action by the shareholders of 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) Effect an exchange, reclassification, or cancellation of all or a part of the Series A Convertible Preferred Stock, but excluding a stock split or reverse stock split or combination of 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 class 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 given to the Holders shall be deemed given if deposited in the United States mail, postage prepaid, return
receipt requested and addressed to each Holder 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, 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 the 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
2018
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 Directors for the ensuing year, and shall transact such other business as shall 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, or to receive any such dividend or allotment of rights, or to exercise the rights in respect to any change, conversion or exchange of capital stock or to give such consent, and in such case only such shareholders on the record date so fixed shall be entitled to notice of and to vote at such meeting and any adjournment thereof, or to receive such dividend or allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date so fixed. If the stock transfer books are not closed and no record date is fixed for such determination of the shareholders of record, the date on which notice of the meeting is mailed, or the date of adoption of a resolution of the Board of Directors declaring a dividend, allotment of rights, change, conversion or exchange of capital stock or to give such consent, whichever 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 adjournment of such meeting except when the date of determination or the closing of the stock transfer book is more than ninety (90) days prior to such adjourned meeting, in which event a new meeting must be called.
2.10) Presiding Officer. The appropriate officers of the corporation shall preside over all meetings of the shareholders; provided, however, that in the absence of 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. Subject to the following, meetings of shareholders generally shall follow accepted rules of parliamentary procedure:
1. The chairman of 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 advisable 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:
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 determine the number of shares outstanding, the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity 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 do such acts as may be proper to conduct the election or vote with fairness to all shareholders.
No inspector whether appointed by the Board of Directors or by the officer or person acting as chairman need be a shareholder.
ARTICLE 3. DIRECTORS
3.1) General Powers. The property, affairs, and business 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:
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. The Board of Directors of the corporation is expressly authorized to make bylaws 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) unless otherwise provided in 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 does not apply to a control share acquisition does not give rise to the right to obtain payment under this section; or
(5) eliminates the right to obtain payment under this subdivision;
(b) a sale, lease, transfer, or other disposition of property and assets of the corporation that requires shareholder approval under section 302A.661, subdivision 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, 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.402 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 or before the assertion of the rights a written consent of the shareholder.
Subd. 3. Rights 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 and 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:
(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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