UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to
Section 14(a)
of the
Securities Exchange Act of
1934
Filed
by the Registrant ☑
Filed
by a Party other than the Registrant ☐
Check
the appropriate box:
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Preliminary
Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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DYNATRONICS CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if
Other Than the
Registrant)
Payment
of Filing Fee (Check the appropriate box)
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No fee
required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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1.
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Title
of each class of securities to which transaction
applies: ________________________________________
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2.
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Aggregate
number of securities to which transaction applies: _______________________________________
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3.
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Per
unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was
determined): __________________
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4.
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Proposed
maximum aggregate value of transaction: _______________________________________________
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5.
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Total
fee paid: ____________________________________________________________________________
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Fee
paid previously with preliminary materials.
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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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1.
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Amount
Previously Paid: ____________________________________________________________________
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2.
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Form,
Schedule or Registration Statement No: ___________________________________________________
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Filing
Party: ______________________________________________________________________________
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Date
Filed: _______________________________________________________________________________
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Explanatory Note
This
amendment is filed to correct the date of the Annual Meeting on
page 1 of the Proxy Statement to read “December
10, 2020.”
DYNATRONICS CORPORATION
1200 Trapp Road
Eagan, MN 55121
October
27, 2020
Dear
Dynatronics Shareholders:
On
behalf of Dynatronics
Corporation, a Utah corporation, I cordially invite you to attend
the Annual Meeting of Shareholders on Thursday, December 10, 2020
at 8:00 a.m. Central Time at our principal executive offices
located at 1200 Trapp Road, Eagan, Minnesota 55121. All attendees
will be required to wear a face mask, be subject to temperature
testing upon arrival and
will also need to complete a
COVID-19 self-assessment. Social distancing will be
observed.
We will
be conducting the business outlined and described in detail in the
accompanying Notice of 2020 Annual Meeting of Shareholders and
Proxy Statement. You are entitled to receive notice of and to
attend and vote at the Annual Meeting if you were a shareholder of
record on October 5, 2020, the record date established by the Board
of Directors.
Be sure
to follow the instructions on the proxy card or voting instruction
card. Submitting your vote in any of the authorized ways will
ensure your representation at the Annual Meeting, regardless of
whether you will be attending the Annual Meeting in
person.
Your
vote is important to us and I do hope you will vote as soon as
possible.
Sincerely,
/s/
John Krier
John
Krier
President and Chief Executive Officer
NOTICE OF 2020 ANNUAL MEETING OF SHAREHOLDERS AND PROXY
STATEMENT
DYNATRONICS CORPORATION
Annual
Meeting of Shareholders
December
10, 2020
8:00
a.m. Central Time
1200
Trapp Road
Eagan,
Minnesota 55121
To the Shareholders
of Dynatronics Corporation:
Notice of Meeting – The 2020 Annual Meeting
of Shareholders of Dynatronics Corporation, a Utah corporation,
will be held on December 10, 2020, at 8:00 a.m. Central Time, at
our principal executive offices located at 1200 Trapp Road, Eagan,
Minnesota 55121.
Items of Business – At the Annual Meeting,
we will conduct the following business:
1.
Elect the four director nominees named in the
accompanying Proxy Statement to
the board of directors, each to
serve until our next annual
meeting of shareholders and until his successor is duly elected and
qualified, or until the director’s earlier resignation or
removal;
2.
Ratify the
appointment of Tanner LLC as our independent registered public
accounting firm for the fiscal
year ending June 30, 2021;
3.
Approve
the Dynatronics Corporation 2020 Equity Incentive
Plan;
4.
Approve a resolution authorizing our
board of directors to effect a
reverse stock split of our
common stock at a ratio of not less
than one-for-two and not more
than one-for-five at any time
within one year from the date of shareholder approval, in the sole
discretion of the board of
directors, pursuant to an amendment to our Articles of Incorporation; and
5.
Consider
and transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement
thereof.
The
foregoing proposals are more fully described in the Proxy
Statement.
The
board of directors recommends that you vote your shares
“FOR” each of
the director nominees included in Proposal 1 and
“FOR” Proposals
2, 3 and 4.
Record Date and Notice – Shareholders of record
holding shares of any of our common stock, Series A 8% Convertible
Preferred Stock, or Series B Convertible Preferred Stock as of the
close of business on October 5, 2020 (the record date for
determining those shareholders eligible to receive notice of and
entitled to vote at the Annual Meeting) may participate in this
year’s Annual Meeting or any adjournment or postponement
thereof and vote on the matters listed above. For 10 days prior to
the Annual Meeting, a complete list of shareholders entitled to
vote at the Annual Meeting will be available for examination by any
shareholder, for any purpose relating to the Annual Meeting, during
ordinary business hours at our principal executive offices located
at 1200 Trapp Road, Eagan, Minnesota 55121.
Voting – Telephone and Internet
voting are available. You may also vote by mail by requesting a
paper copy of our proxy materials. For specific instructions on
voting, please refer to the instructions in the Notice of Internet
Availability of Proxy Materials. If you hold your shares through an
account with a brokerage firm, bank or other nominee, please follow
the instructions you receive from them to vote your
shares.
Adjournments and Postponements – Any action on the
items of business described above may be considered at the Annual
Meeting at the time and on the date specified above or at any time
and date to which the Annual Meeting may be properly adjourned or
postponed.
Important Notice – Health and Safety
Considerations; Contingent Virtual Meeting. The health
and safety of our employees and our shareholders is of highest
priority to us. All attendees at the Annual Meeting will be
required to wear face coverings covering the nose and mouth and
observe safe physical/social distancing as directed. Anyone who
refuses or fails to cooperate will not be permitted to participate.
We are closely monitoring the developments regarding the
coronavirus (COVID-19). Although we currently intend to hold our
Annual Meeting in person and observe applicable and recommended
health guidelines, we are sensitive to the public health and travel
concerns shareholders may have as well as the protocols that
federal, state, and local governments have imposed and may continue
to impose. In the event we determine in our discretion that we need
to conduct our Annual Meeting solely by means of remote
communication, we will announce the change and provide instructions
on how shareholders can participate in the Annual Meeting. These
communications will be made via press release and by filing
additional solicitation materials with the Securities and Exchange
Commission. The press release will also be available on the
Investors section of our website at www.dynatronics.com. If you
currently plan to attend the Annual Meeting in person, please check
our website one week prior to the Annual Meeting.
By Order of the
Board of Directors,
/s/Jennifer
Keeler
Jennifer
Keeler
General Counsel and Corporate Secretary
Eagan, Minnesota
October 27, 2020
CONTENTS
NOTICE
OF 2020 ANNUAL MEETING OF SHAREHOLDERS AND PROXY
STATEMENT
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ii
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Why am
I receiving these materials?
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2
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What
is included in these materials?
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2
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What
am I voting on?
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2
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Why
did I receive a one-page notice in the mail or email notification
regarding the Internet availability of proxy materials instead of a
full set of proxy materials?
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3
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How
can I get electronic access to the proxy materials?
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3
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Who
can vote at the Annual Meeting?
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3
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What
is the difference between holding shares as a shareholder of record
and as a beneficial owner?
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4
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How do
I vote?
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4
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What
if my shares are registered in more than one person’s
name?
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4
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What
does it mean if I receive more than one Notice?
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4
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How
many votes must be present to hold the Annual Meeting?
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5
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How
many votes are needed to elect the directors (Proposal
1)?
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5
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How
many votes are needed to ratify the appointment of Tanner as our
independent registered public accounting firm for the fiscal year
ending June 30, 2021 (Proposal 2)?
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5
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How
many votes are needed to approve the 2020 Equity Incentive Plan
(Proposal 3)?
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5
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How
many votes are needed to approve the resolution and the amendment
to the Articles of Incorporation related to the reverse stock split
(Proposal 4)?
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5
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What
if I return a proxy card or otherwise vote but do not make specific
choices?
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6
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Can I
change my vote after submitting my proxy?
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6
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What
are the Recommendations of the Board of Directors?
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6
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Who is
paying for this proxy solicitation?
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7
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How
can I find out the results of the voting at the Annual
Meeting?
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Who
can answer my questions about the Annual Meeting?
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PROPOSAL
NO. 1 ELECTION OF DIRECTORS
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General
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Vote
required
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Nominees
for Director
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Business
Experience and Qualifications of Nominees
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Recommendation
of the Board
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INFORMATION
REGARDING THE BOARD OF DIRECTORS
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General
Information
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Director
Attendance at the Annual Meeting
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Preferred
Directors
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Family
Relationships
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CORPORATE
GOVERNANCE
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11
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Independence
of the Board of Directors
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11
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Board
Leadership Structure
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Role
of the Board in Risk Oversight
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11
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Communications
with the Board of Directors
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12
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Meetings
of the Board of Directors
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12
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Executive
Sessions
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12
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Information
Regarding Committees of the Board of Directors
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12
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Audit
Committee
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13
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Compensation
Committee
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13
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Nominating
and Governance Committee
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Code
of Ethics
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Corporate
Governance Guidelines
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DIRECTOR
COMPENSATION
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Director
Compensation Table 2020
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Director
Compensation – Equity
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PROPOSAL
NO. 2 – RATIFICATION OF SELECTION OF TANNER LLC AS THE
COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
FISCAL 2021
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General
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Vote
Required
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Independence
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Principal
Accountant Fees and Services
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Pre-approval
Policies and Procedures
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Recommendation
of the Board
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Report
of the Audit Committee of the Board of Directors
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PROPOSAL
NO. 3 APPROVE THE DYNATRONICS CORPORATION 2020 EQUITY INCENTIVE
PLAN
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PROPOSAL
NO. 4 –APPROVAL OF A REVERSE STOCK SPLIT
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OF THE
COMPANY’S COMMON STOCK
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EXECUTIVE
OFFICERS
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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Beneficial
Ownership Table
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EXECUTIVE
COMPENSATION
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34
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Summary
Compensation Table
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35
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Outstanding
Equity Awards at June 30, 2020
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Employment
Agreements
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Payments
upon Termination
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Retirement
Benefits
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RELATED-PARTY
TRANSACTIONS POLICY AND PROCEDURES
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SHAREHOLDER
PROPOSALS FOR 2021 ANNUAL MEETING OF SHAREHOLDERS
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HOUSEHOLDING
OF PROXY MATERIALS
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OTHER
MATTERS
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DYNATRONICS CORPORATION
1200 Trapp Road
Eagan, Minnesota 55121
PROXY STATEMENT
FOR THE 2020 ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 10, 2020
We cordially invite you to attend the 2020
Annual Meeting of Shareholders (the
“Annual
Meeting”)
for Dynatronics Corporation, a Utah corporation
(sometimes referred to as the “Company,” “we,” “us,” or “our”). The Annual Meeting will be held at 8:00
a.m. Central Time on December 10, 2020, at the Company’s
corporate headquarters, located at 1200 Trapp Road, Eagan,
Minnesota 55121.
This Proxy
Statement is being furnished by and on behalf of our board of
directors (the “Board”) in connection with the solicitation of
proxies to be voted at the Annual Meeting. This Proxy statement describes issues on which the
Company is asking you, as a shareholder, to vote and provides
information that will allow you to make an informed voting
decision.
The approximate date on which this
Proxy Statement and the enclosed form
of proxy are first being sent or given to shareholders of record is
October 20, 2020. If you hold your shares through a broker, bank or
other nominee, the Notice of
Internet Availability voting instructions are being forwarded to
you by such broker, bank or other nominee.
References in this Proxy Statement to fiscal years refer to the
fiscal year ended June 30 of the referenced year.
For example, “fiscal 2019”
refers to the fiscal year ended June 30, 2019, “fiscal
2020” refers to the fiscal year ended June 30, 2020, and
“fiscal 2021” refers to the fiscal year ending June 30,
2021.
IMPORTANT
NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS
Our
Notice of 2020 Annual Meeting of Shareholders, Proxy Statement and
Annual Report on Form 10-K are available on the Internet at
www.proxyvote.com by using
the control number provided on your proxy card. You can also review
the proxy materials on our website at www.dynatronics.com. The
Notice of Internet Availability of Proxy Materials also provides
instructions on how to view the proxy materials online, and how to
vote and participate in the Annual Meeting. If you received a
Notice of Internet Availability of Proxy Materials, you will not
receive a printed copy of the proxy materials unless you
specifically request them.
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND
VOTING
The following questions and
answers are intended to briefly address potential questions
regarding this Proxy Statement and the Annual
Meeting. They are also intended to provide our shareholders with
certain information that is required to be provided under the rules
and regulations of the Securities and Exchange Commission (the
“SEC”). These questions and
answers may not address all of the questions that are important to
you as a shareholder. If you have additional questions about
the Proxy
Statement or the Annual Meeting, please contact our
Corporate
Secretary using the contact information provided in this
Proxy
Statement.
When and where will the Annual Meeting be held?
The
date, time and place of the Annual Meeting are:
December
10, 2020
8:00
a.m. Central Time
Dynatronics
Corporation Corporate Headquarters
1200
Trapp Road
Eagan,
Minnesota 55121
Important Notice - Contingent Virtual Meeting. We are closely
monitoring the developments regarding the coronavirus (COVID-19).
Although we currently intend to hold our Annual Meeting in person,
we are sensitive to the public health and travel concerns
shareholders may have and the protocols that federal, state, and
local governments have imposed and may continue to
impose.
In the event we determine that we need to conduct our Annual
Meeting solely by means of remote communication, we will announce
the change and provide instructions on how shareholders can
participate in the Annual Meeting via press release and by filing
additional solicitation materials with the SEC. Any such press
release will also be available on the Investors section of
our website at www.dynatronics.com. If you currently plan to attend
the Annual Meeting in person, please check our website one week
prior to the Annual Meeting.
Why am I
receiving these materials?
Our
Board is making these materials available to you on the Internet,
or upon your request has delivered printed versions of these
materials to you by mail, in connection with the solicitation of
proxies by and on behalf of the Board for use at our Annual
Meeting, and any adjournment or postponement thereof. Shareholders
are invited to attend the Annual Meeting and are requested to vote
on the proposals described in this Proxy Statement. We are making
these materials available to shareholders on or about October 20,
2020.
What is included in
these materials?
These
materials include:
●
Notice
of 2020 Annual Meeting of Shareholders;
●
this Proxy
Statement for the Annual
Meeting; and
●
our Annual
Report on Form 10-K
for fiscal 2020
(“Annual
Report”), which includes
our audited consolidated financial statements for the fiscal year ended June 30,
2020.
If you request printed versions of these materials by mail, they
will also include the proxy card for the Annual Meeting.
You
will be voting on each of the following:
●
the election of four nominees to serve as
directors on our Board
for a one-year term of
office;
●
the ratification of the appointment of Tanner LLC
(“Tanner”) as our independent registered public
accounting firm for the fiscal
year ending June 30, 2021;
●
approval of the Dynatronics Corporation
2020 Equity Incentive Plan (“2020 Plan”);
●
approval of a
resolution authorizing the Board to effect a reverse stock split of
the Company’s Common Stock at a ratio of not less than
one-for-two and not more than one-for-five at any time within one
year for the date of shareholder approval, in the sole discretion
of the Board, pursuant to amendment to our Articles of
Incorporation; and
●
any
other business that may properly come before the Annual Meeting or
any adjournment or postponement thereof.
As of the date of this Proxy
Statement, the Board knows of no other matters to be brought before
the Annual Meeting.
Why did I receive a
one-page notice in the mail or
email notification regarding the Internet availability of proxy
materials instead of a full set of proxy
materials?
Pursuant to rules adopted by the SEC, we have
provided access to our proxy materials over the Internet.
Accordingly, we are sending a Notice of Internet Availability of
Proxy Materials (the
“Notice”) to shareholders. All shareholders will
have the ability to access the proxy materials on the website
referred to in the Notice (www.proxyvote.com),
free of charge, or request to receive a printed set of the proxy
materials. Instructions on how to access the proxy materials over
the Internet or to request a printed copy are found in the Notice.
In addition, shareholders may request to receive proxy materials
electronically by email on an ongoing basis.
How can I get
electronic access to the proxy materials?
The
Notice provides you with instructions regarding how
to:
●
View proxy materials for the Annual Meeting on the Internet and execute
a proxy; and
●
Instruct
us to send future proxy materials to you electronically by
email.
Choosing
to receive future proxy materials by email will save us the cost of
printing and mailing documents to you and will reduce the impact of
our Annual Meetings on the environment. If you choose to receive
future proxy materials by email, you will receive an email next
year with instructions containing a link to those materials and a
link to the proxy voting site. Your election to receive proxy
materials by email will remain in effect until you terminate
it.
Who can vote at the
Annual Meeting?
You may vote at the Annual Meeting if you owned
shares of any of our Common Stock (“Common
Stock”),
Series A 8% Convertible Preferred Stock
(“Series A
Preferred”), or
Series B Convertible Preferred Stock
(“Series B
Preferred”) as of the
close of business on October 5, 2020 (the “Record Date”). The Series A Preferred and the Series B
Preferred are sometimes referred to collectively in this
Proxy Statement as the
“Voting Convertible Preferred
Stock.”
Common Stock.
Holders of record of shares of Common Stock are entitled to one
vote for each share of Common Stock owned by them as of the Record
Date.
Voting Convertible
Preferred Stock. Holders of record of shares of Voting
Convertible Preferred Stock vote those shares on an as-converted
basis, one vote for each share of Common Stock issuable upon an
assumed conversion of the Voting Convertible Preferred Stock;
provided,
however,
that the voting rights of some holders of the Voting Convertible
Preferred Stock are subject to limitations pursuant to a rule of
The Nasdaq Stock Market (“NASDAQ”) referred to as a “Voting Cutback.” The Voting Cutback limits the number of “as-if-converted common
shares” that may be voted
by such shareholder to the number of shares of Common Stock
issuable upon conversion of the Voting Convertible Preferred Stock
held by such holder that equals the quotient of (x) the aggregate
purchase price paid by such holder of the Voting Convertible
Preferred Stock for the shares of Voting Convertible Preferred
Stock, divided by (y) the greater of (i) $2.50 and (ii) the market
price of the Common Stock on the trading day immediately prior to
the date of issuance of the holder’s Voting Convertible Preferred
Stock.
As of
the Record Date, the total number of shares of Common Stock issued
and outstanding (including as-converted Voting Convertible
Preferred Stock) entitled to vote at the Annual Meeting is
17,344,205 shares (after taking into consideration the applicable
Voting Cutback). This number includes 14,389,711 shares of Common
Stock, 1,992,000 shares of Series A Preferred (1,628,130 shares
“as-converted” voting power after the applicable Voting
Cutback), and 1,459,000 shares of Series B Preferred (1,326,364
shares “as-converted” voting power after the applicable
Voting Cutback).
We also
have issued and outstanding shares of our Series C Non-Voting
Convertible Preferred Stock (the “Series C Preferred”), which is
convertible to Common Stock, but which is non-voting stock. The
holders of the Series C Preferred are not entitled to vote such shares at the
Annual Meeting.
Cumulative voting
is not permitted, and shareholders are not entitled to appraisal or
dissenters’ rights with respect to any matter to be voted on
at the Annual Meeting.
What is
the difference between holding shares as a shareholder of record
and as a beneficial owner?
Shareholder of Record:
Shares Registered in Your
Name – If your shares were registered on the Record
Date directly in your name with our transfer agent, Interwest
Transfer Co, Inc., you are the “shareholder of record”
of those shares. As the shareholder of record, you may vote those
shares in person at the Annual Meeting or you may vote them by
proxy. Whether or not you plan to attend the meeting, we urge you
to follow the instructions for voting your shares in one of the
ways indicated in the Notice to ensure your vote is
counted.
Beneficial Owner:
Shares Registered in the
Name of a
Broker or Bank – If on the Record Date, your
shares were held on your behalf in an account at a brokerage firm,
bank, dealer or other similar organization, then you are the
“beneficial owner” of shares held in “street
name” and the Notice is being forwarded to you by that
organization. The organization holding your account is considered
to be the shareholder of record for purposes of voting the shares
held on your behalf in the account at the Annual Meeting. As a
beneficial owner, you have the right to direct your broker or other
agent regarding how to vote the shares in your account. You are
also invited to attend the Annual Meeting. However, since you are
not the shareholder of record, you may not vote your shares in
person at the Annual Meeting unless you request and obtain a valid
proxy from your broker or other agent – the shareholder of
record.
Shareholders may
vote using one of the following four methods:
●
over the Internet,
which you are encouraged to do if you have access to the
Internet;
●
by requesting a
paper or email copy of the proxy materials and completing, signing
and returning the proxy card in the mail; or
●
by attending the
Annual Meeting and voting in person.
The
Notice provides instructions on how to access your proxy materials
and how to vote via the Internet or by telephone. For shareholders
who request to receive a paper proxy card in the mail, instructions
for voting via the Internet, by telephone or by mail are set forth
on the proxy card.
If you
hold shares in street name, the organization holding your account
is considered the shareholder of record for purposes of voting at
the Annual Meeting. The shareholder of record will provide you with
instructions on how to ensure your shares are voted according to
your directions. Internet and telephone voting will be offered to
shareholders owning shares through most brokerage firms and banks.
Additionally, if you would like to vote in person at the Annual
Meeting, contact the brokerage firm, bank or other nominee who
holds your shares to obtain a proxy from them and bring it with you
to the Annual Meeting. You will not be able to vote at the Annual
Meeting unless you have a proxy from your brokerage firm, bank or
other nominee.
You may
vote “FOR” or “Withhold” your vote from any of the nominees
to the Board that you specify. For all other proposals you may vote
“FOR” or “Against” or you may “Abstain” from voting.
What if my shares are
registered in more than one person’s
name?
If you
own shares that are registered in the name of more than one person,
each person registered as a shareholder must sign the proxy. If an
attorney, executor, administrator, trustee, guardian or any other
person signs the proxy in a representative capacity, the full title
of the person signing the proxy should be given and a certificate
should be furnished showing evidence of appointment.
What does
it mean if I receive more than one Notice?
If you
receive more than one Notice, that is an indication that you have
multiple accounts with brokers or with our transfer agent. Please
vote all of these shares. We recommend that you contact your broker
or our transfer agent, as applicable, to consolidate as many
accounts as possible under the same name and address. You may
contact our transfer agent, Interwest Transfer Co, Inc., by
telephone at (877) 481-4014.
How many votes must
be present to hold the Annual Meeting?
In
order for us to conduct the Annual Meeting, the holders of a
majority of the issued and outstanding shares entitled to vote
(including the Voting Convertible Preferred Stock on an
as-converted basis, as indicated above) as of the Record Date must
be present, in person or by proxy, at the Annual Meeting. This is
referred to as a “quorum.” As of the Record Date, there
were 17,334,205 shares of Common Stock outstanding and entitled to
vote at the Annual Meeting (including shares of Series A Preferred
and Series B Preferred on an as-converted basis), held by 433
holders of record. Your shares will be counted as present for
purposes of determining the presence of a quorum at the Annual
Meeting if you do any one of the following:
●
vote via the
Internet or by telephone;
●
return a properly
executed proxy by mail (even if you do not provide voting
instructions); or
●
attend the Annual
Meeting and vote in person.
How many votes are
needed to elect the directors (Proposal 1)?
Directors are
elected by a plurality of the votes cast at the Annual Meeting,
meaning that the four nominees receiving the most votes will be
elected.
How many votes are
needed to ratify the appointment of Tanner as our independent
registered public accounting firm for the fiscal year ending June 30, 2021
(Proposal 2)?
The
approval of this proposal requires the affirmative vote of a
majority of the votes cast on the proposal at the Annual
Meeting.
How many votes are
needed to approve the 2020 Equity Incentive Plan (Proposal 3)?
The
approval of this proposal requires the affirmative vote of a
majority of the votes cast on this proposal at the Annual
Meeting.
How many votes are
needed to approve the resolution and the amendment to the Articles of Incorporation related
to the reverse stock split
(Proposal 4)?
The
approval of this proposal requires the affirmative vote of a
majority of the votes cast on this proposal at the Annual Meeting
by the holders of our Common Stock voting separately as a voting
group; and by a majority of the votes cast on this proposal at the
Annual Meeting by the holders of our Common Stock, Series A
Preferred and Series B Preferred, voting together as a single
voting group.
What happens if I do not vote?
If you
hold your shares directly in your own name and fail to vote them on
the Internet, via the telephone, or by providing a proxy, your
shares will not be considered voted. However, your shares may be
voted under certain circumstances where you do not provide a proxy
if they are held in the name of a brokerage firm. As discussed
below, brokerage firms have the authority under stock exchange
rules to vote their customers’ unvoted shares on “routine” matters. Routine matters include
the ratification of the appointment of the independent registered
public accounting firm. Accordingly, if a brokerage firm votes your
shares on these routine matters in accordance with these rules,
your shares will (a) count as present at the Annual Meeting for
purposes of establishing a quorum and (b) count as “FOR” votes or “AGAINST” votes, as voted by your brokerage
firm.
What are Broker Non-Votes?
Shares of Common Stock for which we have received proxies from a
street-name record holder, but with respect to which the beneficial
holders of those shares have chosen to abstain from voting, will be counted as present at
the Annual Meeting for
purposes of determining the
presence or absence of a quorum for the transaction of business at the Annual Meeting, but
such shares will not count as votes cast in respect of the election
of directors, or any other non-routine proposal with respect to
which the shareholder has chosen to abstain. As a result, those shares will not be
included in the vote totals for
such proposals and, therefore,
will have no effect on such proposals.
Brokers are prohibited in certain circumstances
from exercising discretionary authority for beneficial owners who have not returned
proxies to the brokers (so-called “broker non-votes”).
In these circumstances, those shares will be counted
for the purpose of determining if a
quorum is present, but such shares will not be included in the vote
totals and, therefore, will have no effect on any proposal. Under
the rules that govern brokers, brokers do not have discretionary
authority to vote on the election of directors or on executive
compensation matters; however, brokers do have discretionary
authority to vote on the ratification of our independent registered
public accounting firm and may choose to do so.
What if I
return a proxy card or otherwise vote but do not make specific
choices?
If you
return a signed and dated proxy card or otherwise vote without
marking voting selections, your shares will be voted by us
“FOR” each of
the nominees for director and “FOR”
each of the proposals according to the recommendation of the Board
as indicated in the Proxy Statement.
If any
other matter is properly presented at the meeting, your proxyholder
(one of the individuals named on your proxy card) will vote your
shares using their best judgment.
Can I
change my vote after submitting my proxy?
You can
revoke a proxy given by you at any time before the final vote at
the Annual Meeting. If you are the record holder of your shares,
you may revoke your proxy in any one of the following
ways:
●
You may submit
another properly completed proxy card with a later
date.
●
You may grant a
subsequent proxy by telephone or through the Internet.
●
You may send a
timely written notice that you are revoking your proxy to our
Corporate Secretary at 1200 Trapp Road, Eagan, Minnesota
55121.
●
You may attend the
Annual Meeting and vote in person. Simply attending the Annual
Meeting will not, by itself, revoke your proxy.
Your
most current proxy card or Internet proxy is the one that is
counted. If your shares are held by your broker or bank as a
nominee or agent, you should follow the instructions provided by
your broker or bank.
What are the
Recommendations of the Board of Directors?
The Board of
Directors has unanimously determined to recommend that shareholders
vote (i) “FOR”
each of the director nominees;
(ii) “FOR”
the ratification of the appointment of
Tanner as our independent registered public accounting firm
for the fiscal year ending June 30,
2021; (iii) “FOR”
the approval of the
Dynatronics Corporation 2020 Equity
Incentive Plan; and (iv) “FOR” the approval of the reverse stock split of the Company’s Common
Stock.
Who is paying
for this proxy
solicitation?
We will
pay for the entire cost of soliciting proxies, including any costs associated with printing and
mailing proxy materials for
those shareholders who request to receive printed versions of
them. In addition, directors,
officers and employees of Dynatronics and its subsidiaries may solicit
proxies by mail, personal interview, telephone, email or facsimile
transmission without additional compensation. We may also solicit
proxies through press releases and postings on our website
at www.dynatronics.com.
Arrangements will be made with brokerage houses, voting trustees,
banks, associations and other custodians, nominees and fiduciaries,
who are record holders of our voting stock not beneficially owned
by them, for forwarding these
proxy materials to, and obtaining proxies from, the beneficial
owners of such stock entitled to vote at the Annual Meeting. We
will reimburse these persons for their reasonable expenses incurred in
performing these services.
How can I
find out the results of the voting at the Annual
Meeting?
All
votes will be tabulated by the inspector of elections for the
Annual Meeting, who will separately tabulate affirmative and
negative votes, abstentions and broker non-votes. Preliminary
voting results will be announced at the Annual Meeting. In
addition, final voting results will be published in a Current
Report on Form 8-K that we expect to file within four business days
after the Annual Meeting. If final voting results are not available
to us in time to file a Form 8-K within four business days after
the meeting, we intend to file a Form 8-K to publish preliminary
results and, within four business days after the final results are
known to us, file an additional Form 8-K to publish the final
results.
Who can
answer my questions about the Annual Meeting?
You can
contact our Corporate Secretary, Jennifer Keeler, by telephone, at
(651) 683-8066 or by writing to Dynatronics Corporation, 1200 Trapp
Road, Eagan, Minnesota 55121, Attn: Corporate Secretary, with any
questions about the proposals described in this Proxy Statement or
how to execute your vote.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Under
our Bylaws, as amended and restated our Board may consist of up to
seven directors. Up to four of the directors (the
“Common
Directors”) may be elected annually by the holders of
our Common Stock voting as a group, including holders of the Series
A Preferred and Series B Preferred voting on an as-converted basis.
The remaining three directors are referred to as the
“Preferred
Directors” and elected and hold office at the pleasure
of the holders of the Series A Preferred.
In
2020, the Board increased the number of Board members from six
members to seven members when John Krier became Chief Executive
Officer of the Company. Currently, the Board consists of four
Common Directors and three Preferred Directors.
As a
consequence of the increase in the size of the Board, at this
year’s Annual Meeting our shareholders will elect four Common
Directors. The nominees identified below have been selected by the
Nominating and Governance Committee to serve as Common Directors
for one-year terms until the 2021 Annual Meeting of shareholders
and until their respective successors are elected or appointed, or
until such director’s earlier resignation or
termination.
Directors are
elected by a plurality of the votes cast in person or by proxy,
assuming a quorum is present. This means that the four director
nominees receiving the highest number of “FOR” votes at this year’s
Annual Meeting (even if they receive less than a majority) will be
elected to the Board. Since the nominees are running unopposed for
the same number of seats as there are nominees, a nominee only
needs one vote to be elected if there is a quorum present at the
Annual Meeting.
Shares
represented by executed proxies will be voted, if authority to do
so is not withheld, for the election of the nominees named below.
If a nominee becomes unavailable for election as a result of an
unexpected occurrence, shares that would have been voted for that
nominee instead will be voted for the election of a substitute
nominee that we may propose. If you hold your shares through a
broker and you do not instruct the broker on how to vote on this
proposal, your broker will not have authority to vote your shares.
Abstentions and broker non-votes will be counted as present for
purposes of determining the presence of a quorum, but will not have
any effect on the outcome of the election of
directors.
Four
incumbent directors are standing for re-election. Each nominee
named below has agreed to serve if elected. We have no reason to
believe that any nominee will be unable to serve. Our policy is to
encourage directors and nominees for director to attend the Annual
Meeting.
The
Board has determined that two of the nominees to be considered for
election at the Annual Meeting, Mr. Klosterman and Dr. Ward,
qualify as “independent” as defined by the rules and
regulations of NASDAQ. The other nominees include our former Chief
Executive Officer, Brian D. Baker, and our current Chief Executive
Officer, John Krier. Because of applicable NASDAQ Stock Market
Rules, Mr. Baker and Mr. Krier are not considered
independent.
Business
Experience and Qualifications of Nominees
John Krier
Director,
Chief Executive Officer
Age 43
Director Since July
2020
|
Mr.
Krier has been the Chief Executive Officer since July 2020. He
joined Dynatronics in March of 2020 and served as Chief Financial
Officer until he was named the Chief Executive Officer. Prior to
joining the Company, Mr. Krier was Vice President of Marketing at
Breg, Inc., a significant Dynatronics customer, where his work
included executive leadership for Breg’s bracing product and
technology marketing teams, including integrated applications with
healthcare systems, service solutions with third-party payer
reimbursement, and customer experience. Mr. Krier received his
bachelor’s degree from the University of South Dakota. He is
a Certified Public Accountant (inactive), and a member of the
American Institute of Certified Public Accountants and Minnesota
Society of Certified Public Accountants. We believe it is important
to have our Chief Executive Officer also serve as a member of the
Board.
|
|
|
Brian D. Baker
Director, Consultant
Age 54
Director Since August 2019
|
Mr.
Baker served as our Chief Executive Officer from August 2019 to
July 2020 and as our Chief Operating Officer from May 2019 until
August 2019. Following his resignation as Chief Executive Officer,
Mr. Baker continued as an employee of the Company until October 8,
2020 and then became a consultant to the Company. From February
2018 to May 2019, Mr. Baker served as the President of our Therapy
Products Division. Prior to joining Dynatronics, he was Vice
President of Global Operations of SeaSpine Holdings Corporation
from July 2015 to January 2018, and Vice President of Operations of
the SeaSpine business within Integra LifeSciences Corporation from
March 2015 to July 2015. From November 2013 until March 2015, he
was an industry consultant providing mergers and acquisitions and
business process optimization services. He holds a B.A. degree in
business from the University of Phoenix. We believe Mr.
Baker’s extensive industry experience and his work with
restructuring our operations qualify him to continue to serve as a
member of our Board.
|
|
|
Scott A. Klosterman
Director
Age 62
Director since 2016
Independent Director
|
Mr. Klosterman is Chief of Staff at HNI Healthcare, a technology-enabled physician
management company, since April
2020 where he previously served as Chief Financial Officer
(2018-2020) and Executive Vice
President of Financial Operations (2016-2017). From 2010 to 2015,
he was Vice President and General Manager, Post-Operative Products and Services at Hanger, Inc., a leading provider of
prosthetic, orthotic, and therapeutic solutions. From 2009 to 2010,
he was an executive consultant, providing consulting services to
healthcare businesses, advising on product development and new
product launches. He was Division President of Chattanooga Group from 2003
to 2008, where he previously served as Chief Operating Officer
(1997-2003) and Chief Financial Officer, Secretary, and Treasurer
(1994-1997). He was a licensed certified public accountant in
Pennsylvania from 1982 until 1994 and has an M.B.A. degree from
Baylor University and a B.S. degree in Accounting (with highest honors) from the
University of Delaware. Based on Mr.
Klosterman’s extensive experience in the medical industry and
as a finance executive, the Nominating and Governance Committee believes that
he is well qualified to serve on our Board of
Directors.
|
R.
Scott Ward, Ph.D.
Director
Age 64
Director since 2013
Independent Director
|
Dr.
Ward serves as the chairman of the Department of Physical Therapy
at the University of Utah. He is the past president of the American
Physical Therapy Association, a position he held from 2006 to 2012.
In addition, Dr. Ward served as chair of the rehabilitation
committee of the American Burn Association. He has published
extensive research studies related to wound care and burn
rehabilitation. Dr. Ward received a B.A. degree in Physical Therapy
and a Ph.D. degree in Physiology from the University of Utah. Based
on Dr. Ward’s prominence
in his field, and his extensive experience and expertise in
physical therapy, the Nominating and Governance Committee believes
that Dr. Ward is well qualified to serve as a member of our Board
of Directors.
|
|
|
Recommendation of the Board
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
“FOR” EACH OF THE
FOUR NOMINEES NAMED ABOVE.
INFORMATION REGARDING THE BOARD OF
DIRECTORS
Directors elected
at the Annual Meeting of shareholders serve until our next annual
meeting of shareholders and until their successors are elected and
qualified, or their earlier resignation or removal. Three members
of the Board are Preferred Directors appointed under the provisions
of the Certificate of Designations, Preferences and Rights of the
Series A Preferred (the “Series A Certificate of Designations”) as discussed in the following
section of this Proxy Statement.
Director
Attendance at the Annual Meeting
We
believe the Annual Meeting provides a good opportunity for our
directors to hear any feedback that our shareholders may desire to
share with the Board and with us. As a result, directors are
encouraged to attend the Annual Meeting if their schedules permit.
Six of our directors attended the 2019 Annual Meeting of
Shareholders. We reimburse our directors for the reasonable
expenses they may incur in attending the Annual
Meeting.
Under
our Bylaws as amended and restated, the Board can include up to
seven members. The Series A Certificate of Designations grants to
the holders of the Series A Preferred certain rights, referred to
as “Director
Rights,” to appoint up to three members of the Board
– the Preferred Directors – for as long as the original
Series A Preferred investors own or would directly or indirectly
beneficially own at least 28.6% of our Common Stock (the
“Threshold Ownership
Percentage”). This
period of ownership is known as the “Director Rights Period”. Excluded
from the calculation of the Threshold Ownership Percentage are any
shares of Common Stock issuable upon the exercise of the warrants
held by these investors. In compliance with NASDAQ Rule 5640, the
number of Preferred Directors will be reduced pro rata with any
reduction in ownership by the preferred investors below the
Threshold Ownership Percentage, so that the number of Preferred
Directors is approximately proportionate to the preferred
investors’ direct or
indirect ownership of our Common Stock. By agreement among the
Series A Preferred shareholders and Dynatronics, the Director
Rights may be exercised at the discretion of certain affiliates of
Prettybrook Partners, LLC, a private investment firm (with its
affiliates, collectively referred to as “Prettybrook”) for as long as
Prettybrook owns at least 50% of the outstanding Series A
Preferred.
The
Director Rights are not exercisable unless the preferred investors
are the beneficial owners of at least 10% of our Common Stock,
including shares issuable upon conversion of the Series A
Preferred, but excluding shares issuable upon exercise of any
warrants to purchase Common Stock. Common Stock has no voting,
nomination, election or other rights with respect to the Preferred
Directors. Each Preferred Director serves as a member of the Board
during the Director Rights Period or until his or her successor is
appointed by the holders of the Series A Preferred (or Prettybrook,
exercising such rights, as discussed above) during the Director
Rights Period.
The
current Preferred Directors are Erin S. Enright, who is also the
Chairman of the Board, David B. Holtz, and Brian M. Larkin. Their
business experience and other qualifications are as
follows:
Erin S.
Enright. Ms. Enright, 59, currently serves as a Managing
Member of Prettybrook Partners LLC, a family office dedicated to
investing in healthcare companies. Prettybrook has approximately 20
active investments in a variety of companies, typically as a
co-investor with institutional private equity. In addition to her
service as Chairman, Ms. Enright is Chair of the Nominating and
Governance Committee and a member of the Audit Committee and
Compensation Committee of the Board. She is a member of the Board
of Directors, Chair of the Investment Committee and member of the
Audit Committee of Medical Facilities Corporation (TSX: DR) and a
member of the Board and Chair of the Audit Committee of Keystone
Dental, Inc., a private company controlled by the private equity
firm Accelmed. Previously, she served on the Board of Directors and
the Audit Committee of Biolase, Inc. (NASDAQ: BIOL) during 2013,
was a member of the Board of Directors of Tigerlabs, a
Princeton-based business accelerator, from 2012 to 2018, and from
2010 to 2015 served on the Board of Directors of Ceelite
Technologies, LLC. She was the President of Lee Medical, a medical
device manufacturer based in Plainsboro, New Jersey, from 2004-13.
She was Chief Financial Officer of InfuSystem, Inc. (NASDAQ:INFU)
from 2005 to 2007. From 1993 to 2003, Ms. Enright was with
Citigroup, where she was a Managing Director in its Equity Capital
Markets group. While at Citigroup, Ms. Enright was Chairperson of
the firm’s Institutional Investors Committee, responsible for
screening and approving the firm’s participation in equity
underwritings and a member of the Citigroup Global Equity
Commitment Committee, responsible for reviewing and approving the
firm’s underwritings. From 1989 until 1993, Ms. Enright was
an attorney with Wachtell, Lipton, Rosen & Katz in the
firm’s New York office. Ms. Enright received her A.B. degree
from the School of Public and International Affairs at Princeton
University and J.D. degree from the University of Chicago Law
School.
David B.
Holtz. Mr. Holtz, 54, has been a principal of Provco Group
Ltd. (“Provco”) since 2012. Provco became a
preferred shareholder of Dynatronics in 2015. He serves as part of
Provco’s executive
management group responsible for managing investment portfolios and
the accounting function. From 2011 to 2012, Mr. Holtz was executive
manager of Grey Street Holdings, a property investment holding
company. From 2008 to 2010, he served as Chief Financial Officer
and then Interim President of Nucryst Pharmaceuticals Corp. From
1993 to 2006, Mr. Holtz worked at Integra LifeSciences in various
capacities including Vice President, Finance and Treasurer, and
Senior Vice President, Finance and Treasurer. Before joining
Integra, Mr. Holtz was an associate with Coopers & Lybrand,
L.L.P. in Philadelphia and Cono Leasing Corporation, a private
leasing company. He received a B.S. degree in Business
Administration from Susquehanna University and was a certified
public accountant in Pennsylvania until 1998.
Brian M.
Larkin. Mr. Larkin, 51,
is President and CEO of SP Industries, Inc., a privately held
manufacturer of biopharmaceutical production lines, laboratory
equipment and specialty glassware headquartered in Pennsylvania,
where he has held the position since he joined in February of 2018.
From May 2017 to February 2018, he served as the Vice President and
General Manager of the Diabetes Care business at Becton
Dickinson. From May 2015 to May 2017, he served as Senior Vice
President and General Manager for LifeCell, Inc., a
Division of Acelity L.P., Inc. Prior to joining Acelity, Mr.
Larkin was Corporate Vice President of Integra Lifesciences
Holdings Corporation, which he joined in January of 2000 and where
he served most recently as President of the Global Spine and
Orthobiologics business and Head of Strategic
Development. Mr. Larkin received a B.S. degree
in Chemistry from the University of Richmond and
completed the Advanced Management Program at Harvard Business
School.
In
addition to the Director Rights, the holders of the Series A
Preferred have the right to appoint one observer (who is not a
Preferred Director) who may attend any meetings of the Board of
Directors and participate in discussions among the Board members,
but who does not have any voting rights on any matters. So long as
Prettybrook owns at least 50% of the outstanding Series A
Preferred, Prettybrook has the right to choose this observer.
Prettybrook has appointed Stuart M. Essig as the observer to the
Board. Mr. Essig is a significant shareholder of Dynatronics and is
the husband of Ms. Enright, Chairman of our Board of Directors. Mr.
Essig and Ms. Enright are managers of Prettybrook.
There
are no family relationships among the members of the Board of
Directors and our executive officers.
Independence of the Board of
Directors
The
Board of Directors has determined that a majority of the members of
the Board should consist of “independent directors,” determined in accordance with the
applicable NASDAQ Stock Market Rules as in effect from time to
time. Directors who are also our employees are not considered to be
independent for this purpose. Our Board of Directors determines the
independence of our directors by applying the rules, regulations
and listing standards of NASDAQ and the rules and regulations of
the SEC. The NASDAQ Stock Market Rules provide that a director is
independent only if the Board affirmatively determines that the
director does not have a relationship with us that would interfere
with the exercise of his or her independent judgment in carrying
out the responsibilities of a director. They also specify certain
relationships that preclude a determination of director
independence, including certain business, professional and personal
relationships.
Our
Board annually reviews the independence of our directors according
to these standards, taking into account all relevant facts and
circumstances. In its most recent review of information collected
from our directors, the Board determined that the non-employee
members of our Board are “independent directors” under the NASDAQ standards and the
SEC’s rules. The Board
has determined that Ms. Enright, Mr. Klosterman, Mr. Holtz, Mr. Larkin and
Dr. Ward are independent and that these independent directors have
no relationship with Dynatronics that would interfere with the
exercise of their independent judgment in carrying out the
responsibilities of a director.
None of
our directors is a party to any agreement or arrangement that would
require disclosure pursuant to NASDAQ Rule 5250(b)(3).
The
Board has also determined that all members of the Compensation
Committee are independent and meet the additional independence
criteria required under NASDAQ Rule 5605(a)(2), and that each
member of the Audit Committee: (i) is independent, (ii) meets the
financial literacy requirements of the NASDAQ Stock Market Rules,
and (iii) meets the enhanced independence standards under Section
10A(m)(3) of the Securities Exchange Act of 1934, as amended
(“Exchange Act”). In connection with its
determination regarding the independence of our directors, the
Board found that none of the nominees for director had a material
or other disqualifying relationship with us.
Board Leadership
Structure
In
February 2018, our Board determined to separate the role of Chairman of the Board
from the role of Chief Executive Officer, and appointed Erin
Enright as Chairman. The Board believes that separating these roles
allows us to efficiently develop and implement corporate strategy
that is consistent with the Board’s oversight role, while facilitating
strong day-to-day leadership.
In
making the decision to separate the roles of Chief Executive
Officer and Chairman of the Board, the Board cited the demands of
and differences between each role. The Chief Executive Officer is
responsible for setting our strategic direction, with guidance from
the Board. The Chairman of the Board is responsible for leadership
and for the over-all performance of Dynatronics pursuant to the
policies of the Board, while providing guidance to the Chief
Executive Officer, and setting the agenda for Board meetings, and
presiding over meetings of the Board.
Ms.
Enright brings considerable skills and experience to the role of
Chairman. In this capacity, she has significant responsibilities,
including those described above, as well as calling and presiding
over Board meetings, including meetings of the independent
directors, setting meeting agendas and determining materials to be
distributed to the Board. As Chairman, she has substantial ability
to shape the work of the Board. We believe that having an
independent Chairman creates an environment that is more conducive
to objective evaluation and oversight of management’s performance, increases management
accountability and improves the ability of the Board to monitor
whether management’s
actions are in our best interests and those of our shareholders. As
a result, we believe that having an independent chairman and a
separate chief executive can enhance the effectiveness of the Board
as a whole. The active involvement of our independent directors,
combined with the qualifications and significant responsibilities
of our Chairman, provide balance on the Board and promote strong,
independent oversight of our management and affairs.
Role of the Board in
Risk Oversight
The
Board has an active role, both as a whole and at the committee
level, in overseeing management of our risks. The Board regularly
reviews information regarding our credit, liquidity and operations,
as well as the risks associated with each. The Audit
Committee’s charter
mandates that the committee review and discuss with management and
our independent registered public accounting firm, as appropriate,
our major financial risk exposures and the steps taken by
management to monitor and control these exposures. The Compensation
Committee is responsible for overseeing the management of risks
relating to our executive compensation plans and arrangements. The
Nominating and Governance Committee manages risks associated with
the independence of the Board and potential conflicts of interest.
While each committee is responsible for evaluating certain risks
and overseeing the management of such risks, the entire Board is
informed regularly through committee reports about such
risks.
Communications
with the Board of Directors
The
Board desires that the Board and its committees and individual
directors hear the views of shareholders and that appropriate
responses are provided to shareholders on a timely basis.
Shareholders wishing to formally communicate with the Board, the
independent directors as a group or any individual director may
send communications directly to Dynatronics Corporation, Board of
Directors, Attn: Jennifer Keeler, General Counsel, 1200 Trapp Road,
Eagan, Minnesota 55121. All clearly marked written communications,
other than unsolicited advertising or promotional materials, are
logged and copied, and forwarded to the director to whom the
communication was addressed.
Please
note that the foregoing communication procedure does not apply to:
(1) shareholder proposals pursuant to Exchange Act Rule 14a-8 and
communications made in connection with such proposals; (2) service
of process or any other notice in a legal proceeding; (3)
advertisements, promotions of a product or service, patently
offensive material or matters deemed inappropriate for the Board;
(4) items solely related to complaints with respect to ordinary
course of business, customer service and satisfaction issues; or
(5) material clearly unrelated to our business, industry,
management, Board, or related committee matters.
Meetings
of the Board of Directors
Our
Board met ten times during
fiscal year 2020. Each member of the Board attended 75% or more of
the meetings of the Board and at least 75% of the meetings of the
committees on which he or she served, during the portion of fiscal
year 2020 for which he or she was a director or
committee member.
The
Board holds regular executive sessions of the non-employee
directors without the presence of management, as required under
applicable NASDAQ Stock Market Rules. In fiscal 2020, six executive
sessions were convened at which only independent and non-employee
directors were present.
Information Regarding
Committees of the Board of Directors
The
Board has established an Audit
Committee, a Compensation Committee and a Nominating and Governance
Committee and adopted a written charter for each committee, copies
of which are available to shareholders on the Investors section of
our website at https://irdirect.net/DYNT/corporate_governance.
The
following table provides membership information for fiscal year
2020 for each of these committees of the Board:
Name
|
|
Audit
|
|
Compensation
|
|
Nominating and Governance
|
|
|
|
|
|
|
|
Brian
D. Baker(1)
|
|
|
|
|
|
|
Erin S.
Enright
|
|
X
|
|
X
|
|
*
|
David
B. Holtz
|
|
*
|
|
|
|
X
|
Scott
A. Klosterman
|
|
X
|
|
*
|
|
X
|
Brian
M. Larkin
|
|
|
|
X
|
|
X
|
R.
Scott Ward, Ph.D.
|
|
|
|
X
|
|
|
*Committee
Chair
(1)
Appointed to the
Board upon his hiring as Chief Executive Officer in August 2019.
Stepped down as Chief Executive Officer in July 2020 due to
complications from COVID-19; continues as a consultant and
Director.
Below
is a description of the Board committees. Each of the committees
has authority to engage legal counsel or other experts or
consultants as it deems appropriate to carry out its
responsibilities.
The
Audit Committee was established in accordance with requirements of
Section 3(a)(58)(A) of the Exchange Act, and is comprised of the
following independent directors: David B. Holtz (Chairman), Erin S.
Enright, and Scott A. Klosterman. The NASDAQ Stock Market Rules
regarding corporate governance require that at least one member of
the Audit Committee have past employment experience in finance or
accounting, requisite professional certification in accounting, or
comparable experience or background which results in the
individual’s “financial
sophistication.” This
financial sophistication may derive from the person being or having
been a chief executive officer, chief financial officer or other
senior officer with financial oversight responsibilities. Our Board
believes that all three members of its Audit Committee meet the
NASDAQ requirements for financial sophistication. Our Board further
believes that each of the committee members is an independent
director as defined in the NASDAQ Stock Market Rules. The Board has
also determined that the members of the Audit Committee qualify as
“audit committee financial experts”
(“Audit Committee Financial
Experts”) as defined by applicable SEC’s rules. The SEC rules define an
Audit Committee Financial Expert as a person who has all of the
following attributes:
●
Understanding of
accounting principles generally accepted in the United States of
America, or GAAP, and financial statements.
●
Ability to assess
the general application of GAAP in connection with accounting for
estimates, accruals and reserves.
●
Experience in
preparing, auditing, analyzing or evaluating financial statements
that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of
issues that can reasonably be expected to be raised by our
financial statements, or experience actively supervising one or
more persons engaged in such activities.
●
Understanding of
internal control over financial reporting.
●
Understanding of
audit committee functions.
The
Audit Committee is concerned primarily with the integrity of our
financial statements, the selection, independence, qualifications
and performance of our independent registered public accounting
firm, and our compliance with legal requirements. The Audit
Committee charter approved by the Board reflects the standards and
requirements adopted by the SEC and NASDAQ.
The
Audit Committee met six times
during fiscal year 2020. Each member of the Audit Committee
attended at least 75% of the Audit Committee’s meetings.
The
Compensation Committee is responsible for reviewing and approving
the compensation, as well as evaluating the performance, of our
principal executive officer and other executive officers, and
advising and assisting management in developing our overall
compensation strategy to assure that it promotes shareholder
interests, supports our strategic and tactical objectives, and
provides for appropriate rewards and incentives for our management
and employees. Each member of the Compensation Committee is an
“independent
director” as defined by
the federal securities laws and in Rule 5605(a)(2) of the NASDAQ Stock Market
Rules.
The
Compensation Committee is empowered to advise management and make
recommendations to the Board with respect to the compensation and
other employment benefits of our executive officers and key
employees. In exercising its responsibilities, the Compensation
Committee establishes and monitors policies governing the
compensation of executive officers, reviews the performance of and
determines salaries and incentive compensation for executive
officers, and approves option or other equity-based awards to those
individuals. Additionally, the Compensation Committee administers
our stock plans.
The
Compensation Committee meets as often as it deems necessary,
without the presence of any executive officer whose compensation it
is then approving. Neither the Compensation Committee nor the
Company engaged or received advice from any compensation consultant
during fiscal year 2020. As of the date of this Proxy Statement,
the following independent directors are members of the Compensation
Committee: Scott A. Klosterman (Chairman), Erin S. Enright, Brian
M. Larkin and R. Scott Ward. The Compensation Committee held three
meetings during fiscal year 2020. All committee members attended at
least 75% of these meetings.
The
charter of the Compensation Committee grants the committee full
access to all our books, records, facilities and personnel. In
addition, under the charter, the Compensation Committee has the
authority to obtain, at our expense, advice and assistance from
compensation consultants and internal and external legal,
accounting or other advisors and other external resources that the
Compensation Committee considers necessary or appropriate in the
performance of its duties. The Compensation Committee has direct
responsibility for the oversight of the work of any consultants or
advisers engaged for the purpose of advising the committee. In
particular, the Compensation Committee has the sole authority to
retain, in its sole discretion, compensation consultants to assist
in its evaluation of executive and
director compensation, including the authority to approve the
consultant’s reasonable
fees and other retention terms.
Nominating and Governance Committee
The
Nominating and Governance Committee is responsible for overseeing,
reviewing and making periodic recommendations concerning our
corporate governance policies, and for recommending to the full
Board candidates and nominees for election to the Board. The
committee is comprised of the following directors: Erin S. Enright
(Chairman), David B. Holtz, Brian M. Larkin and Scott A.
Klosterman. Each member of this committee is an independent
director under applicable NASDAQ Stock Market Rules. The Nominating
and Governance Committee met three times during fiscal year
2020.
Nominees to the
Board should be committed to enhancing long-term shareholder value
and must possess a high level of personal and professional ethics,
sound business judgment and integrity. The Nominating and
Governance Committee encourages selection of directors who will
contribute to our corporate governance, including: responsibility
to its shareholders, technology leadership, effective execution,
high customer satisfaction and superior employee working
environment.
The
Nominating and Governance Committee from time to time reviews the
appropriate skills and characteristics required of Board members,
including factors that it seeks in Board members such as diversity
of business experience, viewpoints and personal background, and
diversity of skills in technology, finance, marketing,
international business, financial reporting and other areas that
are expected to contribute to an effective board of directors. In
evaluating potential director candidates, the Nominating and
Governance Committee considers these factors in light of the
specific needs of the Board at that time. The brief biographical
information for each nominee set forth in the section under the
heading “Business
Experience and Qualifications of Nominees” on page 1 above,
includes the primary individual experience, qualifications,
attributes and skills of each of our directors nominated for
election at this Annual Meeting that led the Nominating and
Governance Committee to conclude that each nominee should serve as
a member of the Board.
Shareholders may
recommend a director nominee to the Nominating and Governance
Committee. In recommending candidates for election to the Board,
the committee considers nominees recommended by directors,
officers, employees, shareholders and others, using the same
criteria to evaluate all candidates. The Nominating and Governance
Committee reviews each candidate’s qualifications, including whether
a candidate possesses any of the specific qualities and skills
desirable in certain members of the Board. Evaluations of
candidates generally involve a review of background materials,
internal discussions and interviews with selected candidates as
appropriate. The Nominating and Governance Committee may, but is
not required to, engage consultants or third-party search firms to
assist in identifying and evaluating potential
nominees.
To
recommend a prospective nominee for the Nominating and
Governance Committee’s
consideration, submit the candidate’s name and qualifications to us in
writing to the following address: Dynatronics Corporation, Attn:
Jennifer Keeler, General Counsel, 1200 Trapp Road, Eagan, Minnesota
55121. When submitting candidates for nomination to be elected as
directors, shareholders must also follow the notice procedures and
provide the information required by applicable rules adopted by the
SEC and procedures adopted by our Board (see, “SHAREHOLDER PROPOSALS FOR
THE ANNUAL MEETING OF SHAREHOLDERS,” in this Proxy Statement,
below). In particular, for the Nominating and Governance Committee
to consider a candidate recommended by a shareholder for nomination
at the 2021 Annual Meeting of Shareholders, the recommendation must
be delivered or mailed to and received by us as indicated above
between July 29, 2021 and August 28, 2021 (or, if the 2021 Annual
Meeting is not held within 30 calendar days of the anniversary of
the date of the 2020 Annual Meeting, within 10 calendar days after
our public announcement of the date of the 2021 Annual Meeting).
The recommendation must include the following information for
shareholder nominees to be considered at an annual meeting,
including the following:
●
The
shareholder’s name and
address and the beneficial owner, if any, on whose behalf the
nomination is proposed;
●
The
shareholder’s reason for
making the nomination at the annual meeting, and the signed consent
of the nominee to serve if elected;
●
The number of
shares owned by, and any material interest of, the record owner and
the beneficial owner, if any, on whose behalf the record owner is
proposing the nominee;
●
A description of
any arrangements or understandings between the shareholder, the
nominee and any other person regarding the nomination;
and
●
Information
regarding the nominee that would be required to be included in our
proxy statement by the SEC’s rules, including the
nominee’s age, business
experience for the past five years and any directorships held by
the nominee, including directorships held during the past five
years.
We have
adopted a Code of Business Ethics that applies to all officers,
directors and employees. The Code of Business Ethics is available
on the Investors section of our website at https://irdirect.net/DYNT/corporate_governance. If
we make any substantive amendments to the Code of Business Ethics
or grant any waiver from a provision of our Code to any executive
officer or director, we will promptly disclose the nature of the
amendment or waiver on our website.
Corporate Governance
Guidelines
The
Board has not adopted formal written corporate governance
guidelines. Given the experience and qualifications our directors
contribute to the Board’s activities, we have implemented a
number of practices designed to encourage effective corporate
governance. These practices include:
●
the requirement
that at least a majority of the directors meet standards of
independence determined by NASDAQ and our Board;
●
holding regular
executive sessions of the independent members of the
Board;
●
holding committee
meetings which include individual sessions with representatives of
the our independent registered public accounting firm, as well as
with our Chief Financial Officer and our Chief Executive Officer;
and
●
completion of
“360” performance evaluations of each
director by the other members of the Board.
Our
Board is actively involved in the oversight and management of the
material risks that could affect us. The Board carries out its risk
oversight and management responsibilities by monitoring risk
directly as a full board and, where appropriate, through its
committees. Effective risk oversight is a priority of the Board.
These duties are accomplished through the effective use of Board
committees that function under written charters adopted by the
Board.
Our
directors play a critical role in guiding our strategic direction
and overseeing our management. Ongoing developments in corporate
governance and financial reporting have resulted in an increased
demand for such highly qualified and productive public company
directors. The many responsibilities and risks and the substantial
time commitment of being a director of a public company require
that we provide adequate incentives for our directors’
continued performance by paying compensation commensurate with our
directors’ workload. Our non-employee directors are
compensated based upon their respective levels of board
participation and responsibilities, including service on Board
committees. Our employee directors receive no separate compensation
for their service as directors.
Our
director compensation is reviewed by the Compensation Committee,
which makes recommendations to the Board on the appropriate
structure for our non-employee director compensation program and
the appropriate amount of compensation. Our Board is responsible
for final approval of our non-employee director compensation
program and the compensation paid to our non-employee directors.
Our non-employee directors are entitled to reimbursement for their
reasonable travel and lodging expenses for attending Board and
committee meetings.
In
fiscal year 2020, we authorized payment to our non-employee
directors of an annual equity retainer of 10,000 shares of Common Stock under our
2018 Equity Incentive Plan (the “2018 Plan”) plus additional
common shares with an equivalent value of $25,000.00 under the 2018
Plan, priced on the date of issue and provided in two equal
tranches on January 1st and July 1st.
Committee chairs were authorized to receive an additional retainer
of shares of Common Stock with the equivalent value of
$10,000 for the year. All
retainer payments were pro-rated for the portion of the year served
if a director’s service began after the start of the fiscal
year. The following table summarizes the total compensation paid to
the non-employee and independent directors during the fiscal year
ended June 30, 2020.
Director
Compensation Table 2020
|
|
|
Kelvyn H.
Cullimore, Jr.(1)
|
13,851
|
13,851
|
Erin S.
Enright
|
35,501
|
35,501
|
David B.
Holtz
|
35,501
|
35,501
|
Scott A.
Klosterman
|
35,501
|
35,501
|
Brian M.
Larkin
|
25,501
|
25,501
|
R.
Scott Ward, Ph.D.
|
25,501
|
25,501
|
_________________
(1)
Mr. Cullimore
served as a director during a portion of the 2020 fiscal
year.
(2)
Columns (b) and (d)
through (g) are omitted from this table as no items of compensation
referenced in those columns were paid to the directors during the
period covered by the table. Dr. von Jako, our Chief Executive
Officer until August 2019, who was also a director during a portion
of the 2020 fiscal year, received no additional compensation for
service as a director during fiscal year 2020 and is therefore
omitted from this table.
Director
Compensation – Equity
There
were no outstanding unvested restricted stock units and total
option awards held by any of our non-employee directors as of June
30, 2020.
PROPOSAL NO. 2
– RATIFICATION OF SELECTION OF TANNER LLC AS THE
COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM FOR FISCAL 2021
At the
Annual Meeting you will be asked to ratify the appointment of
Tanner LLC (“Tanner”) as our independent
registered public accounting firm for the fiscal year ending June
30, 2021. Representatives of Tanner are expected to be present at
the Annual Meeting, and will have the opportunity to make
statements if they desire to do so and to respond to appropriate
questions. Tanner has served as our independent registered public
accounting firm since October 24,
2016.
If a quorum is present, the affirmative vote of a
majority of the votes cast at the 2020 Annual Meeting on this
proposal is required for
ratification of our independent registered public accounting firm.
Abstentions will be counted as present for purposes of determining the presence of a
quorum, but will not be considered as votes cast
either “FOR” or
“AGAINST” the
proposal and will therefore have no effect on the outcome of the
vote.
Neither
our bylaws nor other governing documents or law require shareholder
ratification of the selection of Tanner as our independent
registered public accounting firm. However, the Audit Committee is
submitting the selection of Tanner to the shareholders for
ratification as a matter of good corporate practice. If the
shareholders fail to ratify the selection, the Audit Committee will
reconsider whether or not to retain that firm. Even if the
shareholders ratify the selection, the Audit Committee in its
discretion may direct the appointment of different independent
auditors at any time during the year if they determine that such a
change would be in our best interests and in the best interests of
our shareholders.
Tanner
has advised us that it has no direct or indirect financial interest
in us or in any of our subsidiaries and that during 2020, it had no
connection with us or any of our subsidiaries, other than as our
independent registered public accounting firm or in connection with
certain other services, as described below.
Principal Accountant
Fees and Services
During
fiscal year 2020, we entered into an engagement agreement with
Tanner, which sets forth the terms by which Tanner agreed to
perform audit services for us. Those services consisted of the
audit of our annual consolidated financial statements and review of
the quarterly financial statements.
During
fiscal year 2019, Tanner performed services consisting of the audit
of our annual consolidated financial statements, review of the
quarterly financial statements, and accounting consultations,
consents, and other services related to our SEC
filings.
Tanner
did not perform any financial information systems design and
implementation services for us or our subsidiaries in fiscal years
2020 or 2019.
The
following table summarizes the fees paid by us to Tanner during
fiscal years 2019 and 2020.
Type of Service and
Fee
|
|
|
Audit Fees
(1)
|
$217,050
|
$185,406
|
Audit Related Fees
(2)
|
|
$11,700
|
Tax
Fees
|
|
|
All Other
Fees
|
|
|
Total
Fees
|
$217,050
|
$197,106
|
(1)
Audit fees
represent fees for professional services provided in connection
with the audit of our financial statements and internal control
over financial reporting, the review of our quarterly financial
statements, and audit services provided in connection with other
statutory or regulatory filings.
(2)
Audit-related fees
primarily included fees related to accounting consultation and
attestation services.
Pre-approval
Policies and
Procedures
The
Audit Committee has established a policy that all audit and
permissible non-audit services provided by the independent
registered public accounting firm will be pre-approved by the Audit
Committee. These services may include audit services, audit-related
services, tax services and other services. The Audit Committee
considers whether the provision of each non-audit service is
compatible with maintaining the independence of the independent
registered public accounting firm. Pre-approval is detailed as to
the particular service or category of services and is generally
subject to a specific budget. The independent registered public
accounting firm and our management are required to periodically
report to the Audit Committee regarding the extent of services
provided in accordance with this pre-approval, and the fees for the
services performed to date.
The
Audit Committee has determined that the rendering of services other
than audit services by Tanner is compatible with maintaining the
principal accountant’s
independence.
Recommendation of the Board
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL
NO. 2 RATIFYING THE SELECTION OF TANNER AS OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING JUNE 30,
2021.
The
following is the report of the
Audit Committee with respect to the audited consolidated
financial statements for the fiscal year ended June 30, 2020
included in the Company’s Annual Report on Form
10-K.
Report of
the Audit Committee of the Board of Directors
Our
management is responsible for preparing our financial statements
and implementing our financial reporting process, including our
system of internal controls over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and has
the primary responsibility for assuring their accuracy,
effectiveness and completeness. Our independent registered public
accounting firm, Tanner LLC, is responsible for performing an
independent audit of our consolidated financial statements and
issuing opinions on the conformity of those audited financial
statements with United States generally accepted accounting
principles (“GAAP”) and the effectiveness of
our internal control over financial reporting. The role and
responsibility of the Committee is to monitor and oversee these
financial processes on behalf of the Board of
Directors.
The
Audit Committee meets periodically with the independent registered
public accountants, with and without management present, to discuss
the results of the independent registered public accountants’
examinations and evaluations of our internal controls and the
overall quality of our financial reporting, and, as appropriate,
initiates inquiries into various aspects of our financial affairs.
The members of the Audit Committee are not employees of Dynatronics
and are not, nor do they represent themselves to be, accountants or
auditors by profession, and they do not undertake to conduct
auditing or accounting reviews or procedures. Therefore, in
performing the Audit Committee’s oversight role, the Audit
Committee necessarily must rely on management’s
representations that it has maintained appropriate accounting and
financial reporting principles and policies, and appropriate
internal control over financial reporting and disclosure controls
and procedures designed to ensure compliance with accounting
standards and applicable laws and regulations, and that the
Company’s financial statements have been prepared with
integrity and objectivity and in conformity with GAAP, and on the
representations of our independent registered public accounting
firm included in its reports on the Company’s financial
statements.
The
Audit Committee currently consists of three directors, all of whom
qualify as “independent” and meet the financial
literacy and other requirements under the current NASDAQ listing
standards and SEC rules regarding audit committee membership: David
B Holtz, Erin S. Enright, and Scott A. Klosterman.
In this
context, the Audit Committee hereby reports as
follows:
(1) The Audit Committee
has reviewed and discussed our consolidated audited financial
statements with our management.
(2) The Audit Committee
has discussed with Tanner LLC the matters required to be discussed
by Auditing Standard No. 1301, “Communications with Audit
Committees,” as adopted by the Public Company Accounting
Oversight Board (the “PCAOB”).
(3) The Audit Committee
has received the written disclosures and the letter from Tanner LLC
required by the applicable requirements of the PCAOB regarding
Tanner LLC’s communications with the Audit Committee
concerning independence, and the Audit Committee has discussed with
Tanner LLC its independence.
(4) Based on the review
and discussions referred to above in (1) through (3), the
Audit Committee recommended to the Company’s Board,
and the Board approved, that the consolidated audited financial
statements be included in our Annual Report on Form 10-K for the
year ended June 30, 2020 for filing with the SEC.
Audit
Committee
David B. Holtz, Chairman
Erin S. Enright
Scott A. Klosterman
The information contained in the above report shall not be deemed
to be “soliciting material” or to be
“filed” with the SEC, nor shall such information be
incorporated by reference into any future filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, except to the extent that the Company
specifically incorporates it by reference in such
filing.
PROPOSAL NO. 3
APPROVE THE DYNATRONICS CORPORATION 2020 EQUITY INCENTIVE
PLAN
On
September 16, 2020, the Board adopted, subject to approval of our
shareholders, the Dynatronics Corporation 2020 Equity Incentive
Plan, or the “2020
Plan,” which would allow the Company to grant awards
for the issuance of up to 1,000,000 shares of Common Stock
(pre-Reverse Stock Split). The Board believes that adopting a new
plan, rather than amending our plans previously adopted by the
Board and approved by our shareholders, now consolidated in the
Dynatronics 2018 Equity Incentive Award Plan (the
“2018 Plan”),
will provide for a new framework that is aligned with the current
tax law and current status and outlook of our management and Board.
Although we are adopting the new 2020 Plan, the Board has also
determined to keep our 2018 Plan in effect and to grant awards
under that plan as prescribed by its terms until the approximately
330,656 shares available for awards and issuance under the 2018
Plan have been exhausted.
Based
on current stock prices and the number of shares available for
equity award grants under the 2018 Plan, in order to provide for
sufficient equity components for executive and director
compensation over the next three or more years, and to provide
equity compensation flexibility for employees and consultants, the
Board determined it was advisable to adopt the 2020 Plan. This
assumes that we continue to grant awards consistent with current
practices, as reflected in our burn rate discussed below, and
noting that future circumstances may require us to change our
current equity grant practices.
In an
effort to attract, retain and motivate individuals who make
important contributions to our business, we desire to have the
ability to issue securities to our officers, directors, employees
and consultants, as well as officers of our subsidiaries under the
new 2020 Plan. The principal reason for the 2020 Plan is to
increase the number of shares of Common Stock approved for issuance
to provide our Board, the Compensation Committee, and our
management with greater flexibility to provide grants of
stock-based awards. If the 2020 Plan is not approved by the
shareholders, we could continue to grant awards under the 2018 Plan
until the allocated shares are exhausted, which we estimate would
take approximately one year, assuming current practices.
Furthermore, if the 2020 Plan is not approved, we would have fewer
shares to use for awards to employees and directors. Accordingly,
the Board recommends that the shareholders approve the 2020
Plan.
Recommendation of the Board
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL
OF THE 2020 PLAN.
Purpose
The
Board believes that the 2020 Plan is necessary for us to attract,
retain, reward and motivate our employees, directors, and
consultants through the grant of stock options, stock appreciation
rights, restricted stock and restricted stock units. We believe the
2020 Plan is best designed to provide the proper incentives for our
employees, directors and consultants, to align the interests of our
management and our key personnel with our shareholders, and to
ensure our ability to make performance-based awards. In addition,
the new plan is intended to meet the requirements of applicable law
after recent tax law changes.
The
Board believes that approval of the 2020 Plan will enable us to
continue to grant equity-based awards in a manner that is
consistent with market practices, which is important to allow us to
competitively attract, retain, reward and motivate our employees,
directors and consultants, who are critical to achieving our
business goals.
The
2020 Plan will be effective upon shareholder approval and after
that date will apply to all awards made under the 2020 Plan on or
after that date. No awards have been made under the 2020 Plan prior
to the date of this Proxy Statement and no awards are contemplated
to be made at this time under the 2020 Plan prior to approval by
the shareholders. We intend to register the shares authorized under
the 2020 Plan under the Securities Act following approval by the
shareholders. If our shareholders do not approve the 2020 Plan, we
will not issue awards under the 2020 Plan. It is our intention to
use the shares authorized under the 2018 Plan before making awards
under the 2020 Plan, to the extent that is feasible or advisable,
although that is not required.
Significant Historical Award Information
Common measures of a stock plan’s cost include
“dilution” and “overhang.” Dilution
measures the degree to which the shareholders’ ownership has
been diluted by stock-based compensation awarded under our plans;
dilution that includes shares that may be awarded under 2020 Plan
in the future is commonly referred to as overhang. These metrics as
applied to our plans can be measured approximately as indicated in
the table below for each of the past three fiscal
years:
Key Equity
Metrics
|
|
|
|
Overhang(1)
|
4.8%
|
11.0%
|
5.0%
|
Dilution(2)
|
1.4%
|
1.9%
|
3.0%
|
———————
(1)
Overhang is
calculated by dividing (a) the sum of (x) the number of shares
subject to equity awards outstanding at the end of the year and (y)
the number of shares available for future grants, by (b) the number
of shares outstanding at the end of the year.
(2)
Dilution is
calculated by dividing (a) the number of shares subject to equity
awards outstanding at the end of the fiscal year by (b) the number
of shares outstanding at the end of the fiscal year.
Summary of the 2020 Plan
The
following summary is subject to the specific provisions contained
in the full text of the 2020 Plan, which is attached as
Appendix A to this
Proxy Statement.
Administration
The
Compensation Committee has full power to select, from among the
individuals eligible for awards, the individuals to whom awards
will be granted, to make any combination of awards to participants,
and to determine the specific terms and conditions of each award,
subject to the provisions of the 2020 Plan. The Compensation
Committee may delegate to our Chief Executive Officer or any other
executive officers the authority to grant awards at fair market
value to employees who are not subject to the reporting and other
provisions of Section 16 of the Exchange Act.
Limitation on Awards and Shares Available
The
maximum number of shares of stock reserved and available for
issuance under the 2020 Plan is 1,000,000 shares of Common Stock
(pre-Reverse Stock Split), plus the number of shares of Common
Stock underlying any award granted under the Company’s 2015
Equity Incentive Award Plan and the Company’s 2018 Equity
Incentive Award Plan that are forfeited, are canceled, expire or
are terminated (other than by exercise). Shares tendered or held
back upon exercise of an option or settlement of an award to cover
the exercise price or tax withholding shall not be available for
future issuance under the 2020 Plan.
Eligibility
Persons
eligible to participate in the 2020 Plan will be those full or
part-time officers, employees, non-employee directors, and other
key persons (including consultants and prospective employees) of
the Company and its subsidiaries as selected from time to time by
the Compensation Committee. As of October 1, 2020, approximately
200 individuals were eligible to participate in the 2020 Plan,
including seven directors, and five executive
officers.
Awards
The
2020 Plan provides for the grant of various types of awards,
including, for example: (i) incentive stock options; (ii)
nonqualified stock options; (iii) stock appreciation rights; (iv)
restricted stock awards; (v) deferred stock awards; and (vi) other
stock-based and cash-based awards to eligible individuals. The
terms of the awards will be set forth in an award agreement,
consistent with the terms of the 2020 Plan.
Stock Options. The 2020 Plan permits
the granting of (1) options to purchase Common Stock intended to
qualify as incentive stock options under Section 422 of the Code
and (2) options that do not so qualify. Options granted under the
2020 Plan will be non-qualified options if they fail to qualify as
incentive options or exceed the annual limit on incentive stock
options. Non-qualified options may be granted to any persons
eligible to receive incentive options and to non-employee directors
and key persons. The option exercise price of each option will be
determined by the Compensation Committee but may not be less than
100% of the fair market value of the Common Stock on the date of
grant. The 2020 Plan provides for 1,000,000 shares that can be
granted in the form of incentive stock options. No dividends or
dividend equivalents shall be paid on stock options.
The
term of each option will be fixed by the Compensation Committee and
may not exceed 10 years (or for 10% or greater shareholders
receiving an incentive stock option, five years) from the date of
grant. The Compensation Committee will determine at what time or
times each option may be exercised. Options may be made exercisable
in installments and the exercisability of options may be
accelerated by the Compensation Committee. Options may be exercised
in whole or in part with written notice to us.
Upon
exercise of options, the option exercise price must be paid in full
(1) in cash, by certified or bank check, or other instrument
acceptable to the Compensation Committee, (2) by delivery (or
attestation to the ownership) of shares of Common Stock that are
beneficially owned by the optionee, (3) subject to applicable law,
by a broker pursuant to irrevocable instructions to the broker from
the optionee, or (4) by net exercise.
To
qualify as incentive options, options must meet additional federal
tax requirements, including a $100,000 limit on the value of shares
subject to incentive options that first become exercisable by a
participant in any one calendar year.
Stock Appreciation Rights. The
Compensation Committee may award a stock appreciation right either
as a freestanding award or in tandem with a stock option. The
Compensation Committee may award stock appreciation rights subject
to such conditions and restrictions as the Compensation Committee
may determine, provided that (1) upon exercise of a stock appreciation
right granted in tandem with an option, the applicable portion of
any related option shall be surrendered, and (2) stock appreciation
rights granted in tandem with options are exercisable at such time
or times and to the extent that the related stock options are
exercisable. The grant price of a stock appreciation right will be
determined by the Compensation Committee and specified in the award
agreement; however, the grant price must be at least equal to 100%
of the fair market value of a share on the date of grant. Stock
appreciation rights may be exercised upon such terms and conditions
as are imposed by the Compensation Committee and as set forth in
the stock appreciation right award agreement.
Restricted Stock Awards. The Compensation Committee may
award shares of Common Stock to participants subject to such
conditions and restrictions as the Compensation Committee may
determine. These conditions and restrictions may include the
achievement of certain performance goals and/or continued
employment with the Company through a specified restricted period.
Cash dividends and stock dividends, if any, with respect to
restricted stock may be withheld by the Company for the
grantee’s account, and be subject to forfeiture to the same
degree as the shares of restricted stock to which such dividends
relate. Except as otherwise determined by the Committee, no
interest will accrue or be paid on the amount of any cash dividends
withheld.
Deferred Stock Awards. The Compensation
Committee may award phantom stock units as deferred stock awards to
participants. Deferred stock awards are ultimately payable in the
form of shares of Common Stock and may be subject to such
conditions and restrictions as the Compensation Committee may
determine. These conditions and restrictions may include the
achievement of certain performance goals and/or continued
employment with the Company through a specified vesting period. In
the Compensation Committee’s sole discretion and subject to
the participant’s compliance with the procedures established
by the Compensation Committee and requirements of Section 409A of
the Code, it may permit a participant to make an advance election
to receive a portion of his or her future cash compensation
otherwise due in the form of a deferred stock award. During the
deferral period, a grantee shall have no rights as a shareholder;
provided, however, that the grantee may be
credited with dividend equivalent rights with respect to the
phantom stock units underlying his deferred stock award, subject to
such terms and conditions as the Committee may determine, but shall
not be entitled to dividends, if any, or dividend equivalents prior
to settlement.
Other Awards. The Compensation
Committee may recommend grants of other types of equity-based or
equity-related awards not otherwise described by the terms of the
2020 Plan, in such amounts and subject to such terms and
conditions, as the Compensation Committee shall recommend. Such
awards may be based upon attainment of performance goals
established by the Compensation Committee and may involve the
transfer of actual shares to participants, or payment in cash or
otherwise of amounts based on the value of shares.
Detrimental Activity
The Compensation Committee may cancel, rescind,
suspend, or otherwise limit any award to a participant if the
participant engages in detrimental activities, including rendering
services to a competitor, disclosing confidential information
without permission, refusing to assign inventions to us, soliciting
our employees or customers, engaging in an activity that results in
a termination for cause,
materially violating any of our internal policies, or being
convicted of, or pleading guilty to, a crime.
Amendment and Termination
The
Board may amend the 2020 Plan at any time, subject to shareholder
approval to the extent required by applicable law or regulation or
the listing standards of NASDAQ or any other market or stock
exchange on which the Common Stock is at the time primarily traded.
Additionally, shareholder approval will be specifically required to
(i) increase the number of
shares available for issuance under the 2020 Plan, or (ii) decrease
the exercise price of any outstanding option or stock appreciation
right granted under the 2020 Plan.
Our
Board may terminate the 2020 Plan at any time. Unless sooner
terminated by the Board, the Plan will terminate on the close of
business on September 10, 2030.
Adjustment for Change in Capitalization
In the
event that the Compensation Committee shall determine that any
dividend or other distribution (whether in the form of cash, Common
Stock, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar
corporate transaction or event has occurred, then the Compensation
Committee shall make such equitable changes or adjustments as it
deems necessary or appropriate to any or all of (1) the number and
kind of shares of Common Stock that may thereafter be issued in
connection with awards, (2) the number and kind of shares of Common
Stock, securities or other property (including cash) issued or
issuable in respect of outstanding awards, (3) the exercise price,
grant price or purchase price relating to any award, and (4) the
maximum number of shares subject to awards which may be awarded to
any employee during any tax year; provided that, with respect to
incentive stock options, any such adjustment shall be made in
accordance with Section 424 of the Code; and provided further that,
no such adjustment shall cause any award hereunder that is or could
be subject to Section 409A of the Code to fail to comply with the
requirements of such section.
Tax Withholding
Participants in the
2020 Plan are responsible for the payment of any federal, state, or
local taxes that we are required by law to withhold upon any option
exercise or vesting of other awards. Subject to approval by the
Compensation Committee, depending on the withholding method, a
grantee may elect to have such grantee’s tax withholding
obligation satisfied at the minimum or other applicable withholding
rate in the grantee’s applicable jurisdiction, including
maximum applicable rates that may be utilized without creating
adverse accounting treatment under Financial Accounting Standards
Board Accounting Standards Codification Topic 718 (or any successor
pronouncement thereto) and permitted under applicable withholding
rules promulgated by the Internal Revenue Service or another
applicable governmental entity, in whole or in part, by (i)
authorizing the Company to withhold from shares of stock to be
issued pursuant to any award a number of shares with an aggregate
fair market value (as of the date the withholding is effected) that
would satisfy such withholding amount, or (ii) transferring to the
Company shares of stock owned by the grantee with an aggregate fair
market value (as of the date the withholding is effected) that
would satisfy such withholding amount.
Effect of Change in Control
Unless
otherwise provided in an award agreement, notwithstanding any
provision of the 2020 Plan to the contrary:
(a) In the event of a
participant’s termination of without cause or for good reason
(as defined in the 2020 Plan) during the 12-month period following
a change in control, notwithstanding any provision of the 2020 Plan
or any applicable award agreement to the contrary, the award shall
become immediately exercisable with respect to 100% of the shares
subject to such award, and/or the applicable restricted period
shall expire immediately with respect to 100% of the outstanding
shares of restricted stock or restricted stock units as of the date
of the termination.
(b) With respect to
performance-based awards, in the event of a change in control, all
incomplete performance periods in respect of such awards in effect
on the date the change in control occurs shall end on the date of
such change and the Committee shall (i) determine the extent to
which performance goals with respect to each such performance
period have been met based upon such audited or unaudited financial
information then available as it deems relevant and (ii) cause to
be paid to the applicable participant partial or full awards with
respect to performance goals for each such performance period based
upon the Committee’s determination of the degree of
attainment of performance goals or, if not determinable, assuming
that the applicable “target” levels of performance have
been attained, or on such other basis determined by the
Committee.
Under
the Plan, “Change in Control” is deemed to have
occurred if the event set forth in any one of the following
paragraphs shall have occurred:
(a) One person (or more
than one person acting as a group) acquires ownership of stock
of the Company that, together with the stock held by such person or
group, constitutes more than 50% of the total fair market value or
total voting power of the stock of the Company; provided, that, a Change in Control
shall not occur if any person (or more than one person acting as a
group) owns more than 50% of the total fair market value or total
voting power of the Company’s stock and acquires additional
stock;
(b) One person (or more
than one person acting as a group) acquires (or has acquired during
the twelve-month period ending on the date of the most recent
acquisition) ownership of the Company’s stock possessing 30%
or more of the total voting power of the stock of such
corporation;
(c) A majority of the
members of the Board are replaced during any twelve-month period by
directors whose appointment or election is not endorsed by a
majority of the Board before the date of appointment or election;
or
(d) One person (or more
than one person acting as a group), acquires (or has acquired
during the twelve-month period ending on the date of the most
recent acquisition) assets from the Company that have a total gross
fair market value equal to or more than 40% of the total gross fair
market value of all of the assets of the Company immediately before
such acquisition.
Miscellaneous
The
2020 Plan also contains provisions with respect to payment of
exercise prices, vesting and expiration of awards, treatment of
awards upon the sale of the Company, transferability of awards, and
tax withholding requirements. Various other terms, conditions, and
limitations apply, as further described in the 2020
Plan.
New Plan Benefits
It is
not possible to state the persons who will receive options or
awards under the 2020 Plan in the future or the amount of options
or awards that will be granted under the 2020
Plan.
EQUITY COMPENSATION PLANS AT JUNE 30, 2020
Equity Compensation Plans
As of June 30, 2020, we had equity awards
outstanding under the 2018 Plan and our Equity Incentive Award Plan adopted in 2015 (the
“2015
Plan”). Outstanding awards under these plans expire (if
not exercised) on the expiration dates indicated in the respective
awards, or, if no expiration date is indicated in such award, on
the tenth anniversary of the grant date of the award. Nonqualified
and incentive stock options and other awards have been granted
under these plans to employees, officers, directors and
consultants. The Compensation
Committee administers the plans.
The
following table sets forth information as of June 30, 2020, about
these plans and any equity compensation plans that have not been
approved by our shareholders under which our equity securities may
be issued.
Equity Compensation Plan Information
|
Number of securities to
be issued upon exercise of outstanding
options,
warrants and
rights
(a)
|
Weighted-
average
exercise
price
of outstanding
options,
warrants
and rights
(b)
|
Number of
securities
remaining
available for
future
issuance under
equity
compensation
plans (excluding securities
reflected in
column
(a))
(c)
|
Equity compensation plans approved by security holders
|
|
|
|
2015 Equity
Incentive Plan (1)
|
44,000
|
$2.67
|
0
|
2018 Equity
Incentive Plan (2)
|
105,000
|
$1.43
|
463,978
|
Total
|
149,000
|
|
463,978
|
(1)
No further awards
will be granted under the 2015 Plan. Upon the adoption of the 2018
Plan, shares remaining available under the 2015 Plan became
eligible for use under the 2018 Plan.
(2)
The 2018 Plan was
adopted and approved by our shareholders in 2018.
RELATED-PARTY TRANSACTIONS POLICY AND PROCEDURES
We have
adopted a policy that any transactions with directors, executive
officers or entities of which they are also officers or directors
or in which they have a financial interest, will only be on terms
consistent with industry standards and approved by a majority of
the disinterested members of our Board. In addition, interested
directors may be counted in determining the presence of a quorum at
a meeting of our Board or a committee thereof that approves such
transactions. If there are no disinterested directors, we shall
obtain a majority vote of the shareholders approving the
transaction.
PROPOSAL NO. 4
–APPROVAL OF A REVERSE
STOCK SPLIT
OF THE
COMPANY’S COMMON STOCK
General
The
Board has unanimously adopted a resolution approving, and
recommending that our shareholders approve, an amendment (the
“Amendment”) to
our Amended and Restated Articles of Incorporation to effect, at
the discretion of our Board, a reverse split of the outstanding
Common Stock, at any time within one year from the date of
shareholder approval, by a ratio of not less than 1-for-2 and more
than 1-for-5 shares (the “Exchange Ratio”), with the
specific ratio, timing and terms to be determined by our Board, in
its discretion (the “Reverse
Stock Split”).
If this
proposal is approved by the shareholders, the Board will be granted
the discretionary authority to select any ratio not less than 1 for
2 and not greater than 1 for 5, should it decide to proceed with
the Reverse Stock Split, and will be authorized to file the
Amendment and effect the Reverse Stock Split at any time within one
year from the date of shareholder approval. The Board’s
decision whether or not (and when) to file the Amendment and effect
the Reverse Stock Split (and at what ratio to effect the Reverse
Stock Split) will also be based on a number of factors, as further
explained herein.
If the
shareholders adopt the resolution and approve the Amendment, the
Company reserves the right not to file the Amendment and effect the
Reverse Stock Split if the Board does not deem it to be in the best
interests of the Company and our shareholders. The form of the
Amendment is provided in substantially the form attached hereto as
Appendix B. The
text of the Amendment is subject to modification to include such
changes as may be required by the Division of Corporations and
Commercial Code of the State of Utah (the “Utah Division”) and as the Board
deems necessary and advisable to effect the Reverse Stock Split,
including the Exchange Ratio.
Reasons for the Reverse Split Proposal
The
Board believes that it is in the best interests of the Company and
our shareholders to authorize the Board, in its discretion, to
effect a reverse stock split of our outstanding Common Stock for
the following reasons:
●
The primary purpose of the Reverse Stock Split is
to increase proportionately the per share trading price of our
Common Stock. Our Common Stock
is listed for trading on NASDAQ under the symbol
“DYNT”. On May 15,
2020, we were notified by NASDAQ (the “Deficiency
Notice”) that
for 30 consecutive business days, the
bid price of the Common Stock had closed below $1.00 per share, in
violation of NASDAQ Listing
Rule 5550(a)(2) (the
“Minimum Bid Price
Requirement”). The
Deficiency Notice has no effect on the listing of our Common Stock
at this time. Under NASDAQ
Listing Rule 5810(c)(3)(A), if
during the 180 calendar day period following the date of the Notice
(the “Initial Compliance
Period”), the closing bid
price of our Common Stock is at or above $1.00 for a minimum of 10 consecutive business days, we
will regain compliance with the Minimum Bid Price
Requirement and our Common Stock will continue to be
eligible for listing on
The Nasdaq Capital Market, absent noncompliance with
any other requirement for
continued listing. The Deficiency Notice states that if compliance
with the Minimum Bid Price Requirement cannot be
demonstrated by the end of the Initial Compliance Period, we may be
eligible for a second 180-day
period to regain compliance (the “Second 180 Day Compliance
Period”). To be
eligible for the Second 180 Day
Compliance Period, (i) we must meet the market value of publicly
held shares requirement for
continued listing and all other applicable standards
for initial listing on
The Nasdaq Capital Market set forth in
Marketplace Rule 5505 (except
the bid price requirement), (ii) we must provide NASDAQ
with written notice of our
intention to cure the deficiency, through
a reverse stock split,
if necessary, and (iii) NASDAQ must determine that the Company will
be able to cure the
deficiency. The Deficiency
Notice indicated that, due to extraordinary and unprecedented
turmoil in U.S. and world financial markets, NASDAQ has determined
to toll the compliance period for the minimum bid price requirement under Rule
5450(a)(1) through June 30,
2020. As a result, we were provided an Initial Compliance Period of
180 calendar days beginning July 1, 2020, and the new date by which
the Company has to gain compliance with the Minimum Bid Price
Requirement is December 31, 2020, subject to the possible Second
180 Day Compliance Period.
●
If we do not regain compliance with
the Minimum Bid Price Requirement by the end of the
Initial Compliance Period (or the Second 180 Day Compliance Period
as may be extended) our Common Stock will be subject to delisting.
At such time, we may appeal NASDAQ’s delisting determination.
Delisting could have a material adverse effect on our business,
liquidity and on the trading of our Common Stock. If our Common
Stock were delisted, our Common Stock could be quoted on the OTCQB
market or on the “pink
sheets” maintained by
the OTC Markets Group. However,
such alternatives are generally considered to be less efficient
markets. Further, delisting from NASDAQ could also have other
negative effects, including potential loss of confidence by
partners, lenders, suppliers and employees, and could also trigger
various defaults under our lending agreements and other outstanding
agreements. Delisting could make it more difficult
for the Company to attract qualified
Board candidates and potential strategic and collaborative
partners. Finally, delisting could make it harder
for us to raise capital and sell
securities as we would no longer be eligible to use
Form S-3 short form registration
statements for such
purposes.
●
The Board is asking the shareholders to grant it
the authority, at its discretion, to effect a reverse stock split, which the Board believes is
an effective way to increase the minimum bid price of our Common
Stock proportionately and put us in a position to regain compliance
with NASDAQ Listing Rule
5550(a)(2).
●
The Board believes that maintaining the listing of
the Company’s Common Stock on NASDAQ is in the best interests
of the Company and our shareholders. The Board believes that the
delisting of the Common Stock from NASDAQ would impair our ability
to raise additional funds and result in lower prices and larger
spreads in the bid and ask prices for the Common Stock, among other things. See
“Certain Risk Factors
Associated with the Reverse Stock Split” for more information.
●
If
the Common Stock is delisted from NASDAQ, it will be subject to SEC
rules governing “penny stocks,” which impose additional
disclosure requirements on broker-dealers. The regulations relating
to penny stocks, coupled with the typically higher cost per trade
to the investor of penny stocks due to factors such as broker
commissions generally representing a higher percentage of the price
of a penny stock than of a higher-priced stock, will further limit
the ability of investors to trade in the Common Stock and may limit
the willingness of individual investors and institutions to
purchase the Common Stock.
Board Discretion to Implement the Reverse Stock Split
The Board only intends to implement the Reverse
Stock Split to the extent it believes necessary to maintain our
listing on NASDAQ for the
future. The Board believes that shareholder approval of a range of
Exchange Ratios (rather than a single ratio) is in the best
interests of our shareholders because it provides the Board with
the flexibility to achieve the desired results of the Reverse Stock
Split and because it is not possible to predict market conditions
at the time the Reverse Stock Split would be implemented. If
shareholders approve this proposal, the Board would carry out a Reverse
Stock Split only upon the Board’s determination that a Reverse Stock
Split would be in the best interests of our shareholders at that
time. The Board would then select the Exchange Ratio it determines
to be advisable and in the best interests of the shareholders
considering relevant market conditions at the time the Reverse
Stock Split is to be implemented. In determining the
Exchange Ratio, following receipt of shareholder approval, the
Board may consider numerous factors including:
●
the
historical and projected performance of our Common
Stock;
●
general
economic and other related conditions prevailing in our industry
and in the marketplace;
●
the projected impact of the Reverse Stock Split
and the Exchange Ratio on trading liquidity in our Common Stock and
our ability to maintain continued listing on The Nasdaq
Capital Market;
●
our
capitalization (including the number of shares of Common Stock
issued and outstanding);
●
the
then-prevailing trading price and trading volume of our Common
Stock;
●
the
potential devaluation of our market capitalization as a result of
the Reverse Stock Split;
●
the
anticipated impact of the Reverse Stock Split on our ability to
raise additional financing; and
●
business
developments affecting the Company.
The
Board intends to select an Exchange Ratio that it believes would be
most likely to achieve the anticipated benefits of the Reverse
Stock Split.
If our Board determines that effecting the Reverse
Stock Split is in our best interest, the Reverse Stock Split will
become effective upon the filing of the Amendment with the Utah Division.
(See, “Procedure for Effecting the Reverse Split,” below.)
The Amendment filed thereby will set forth the number of shares to
be combined into one share of our Common Stock within the limits
set forth in this proposal, but will not have any effect on the
number of shares of Common Stock or preferred stock currently
authorized, the ability of our Board to designate preferred stock,
the par value of our common or preferred stock, or any series of
preferred stock previously authorized (except to the extent such
Reverse Stock Split adjusts the conversion ratio of such previously
designated preferred stock).
Effect of a Reverse Stock Split
If approved by our shareholders and implemented by
the Board, as of the effective time of the Amendment, each issued
and outstanding share of our Common Stock would immediately and
automatically be reclassified and reduced into a fewer number of
shares of our Common Stock. However, except for adjustments that may result from the treatment
of fractional shares, as described below, the Reverse Stock Split
will not affect any shareholder’s percentage ownership or
proportionate voting power. Fractional shares will not be issued.
All fractional shares that would otherwise result from the
implementation of the Reverse Stock Split shall be automatically
rounded up to the next whole share.
Except
to the extent that the Reverse Stock Split would result in any
shareholder receiving an additional whole share of Common Stock in
connection with the rounding of fractional shares or any dilution
to other shareholders in connection therewith, as described below,
the Reverse Stock Split will not:
●
affect any shareholder’s percentage ownership interest
in us;
●
affect any shareholder’s proportionate voting
power;
●
substantially
affect the voting rights or other privileges of any shareholder;
or
●
alter
the relative rights of common shareholders, preferred shareholders,
warrant holders or holders of equity compensation plan awards and
options.
Depending
upon the Exchange Ratio selected by the Board, the principal
effects of the Reverse Stock Split are:
●
the
number of shares of Common Stock issued and outstanding will be
reduced by a factor ranging between 2 and 5, notwithstanding any
rounding;
●
the per share exercise price will be increased by
a factor from and including 2 and 5, and the number of shares
issuable upon exercise or conversion shall be decreased by the same
factor, for all outstanding
options, warrants and other convertible or exercisable equity
instruments entitling the holders to purchase or acquire shares of
our Common Stock;
●
the number of shares authorized and
reserved for issuance under our
existing equity compensation plans will be reduced proportionately;
and
●
the conversion rates for holders of our preferred stock and other
outstanding securities will be adjusted
proportionately.
The following table contains approximate
information relating to our outstanding Common Stock,
Series A Preferred Stock,
Series B Preferred Stock
Series C Preferred Stock (all of which
Voting Convertible Preferred Stock, prior to the Reverse Stock
Split, is convertible into shares of Common Stock on the basis of
one share of Common Stock for each share of Voting Convertible
Preferred Stock), outstanding debentures and warrants held by
investors, and our outstanding warrants and options under our stock
plans:
Based on the Company’s capitalization as of
October 5, 2020, the principal effect of the Reverse Stock Split
(at a ratio between 1-for-2 and 1-for-5), not taking into account the treatment of
fractional shares described above, would be
that:
●
|
the number of shares of the Company’s authorized Common Stock
would remain unchanged at 100,000,000 shares;
|
●
|
the number of shares of the Company’s Common Stock issued and
outstanding would be reduced from 14,389,711 shares to between
approximately 7,194,856 shares and 2,877,942 shares;
|
●
|
The 50,000,000 shares of the Company’s authorized preferred
stock, 1,992,000 shares of which are designated as Series
APreferred, 1,459,000
shares of which are designated as Series B Preferred, and 230,000
shares of which are designated as Series C Preferred, would remain
unchanged;
|
●
|
the number of shares of Series A Preferred issued and outstanding
would remain unchanged, although the conversion price of the
1,992,000 outstanding shares of Series A Preferred would increase
and the number of shares of Common Stock issuable upon conversion
of such preferred stock would decrease in proportion to the Reverse
Stock Split from 1,992,000 shares to between approximately 996,000
shares and 398,400 shares, subject to future adjustment as provided
in the Certificate of
Designation of Preferences;
|
●
|
the number of shares of the Company’s Series B Preferred
issued and outstanding would remain unchanged, although the
conversion price of the 1,459,000 outstanding shares of Series B
Preferred would increase and the number of shares of Common Stock
issuable upon conversion of such preferred stock would decrease in
proportion to the Reverse Stock Split from 1,459,000 shares to
between approximately 729,500 shares and 291,800 shares, subject to
future adjustment as provided in the Certificate of Designation of Preferences,
Rights and Limitations of the Series B
Preferred;
|
●
|
the number of shares of the Company’s Series C Preferred
issued and outstanding would remain unchanged, although the
conversion price of the 230,000 outstanding shares of Series C
Preferred would increase and the number of shares of Common Stock
issuable upon conversion of such preferred stock would decrease in
proportion to the Reverse Stock Split from 230,000 shares to
between approximately 115,000 shares and 46,000 shares, subject to
future adjustment as provided in the Certificate of Designation of Preferences,
Rights and Limitations of the Series C
Preferred;
|
●
|
the number of shares of the Company’s Common Stock issuable
upon the exercise or vesting of outstanding warrants would be
reduced from 6,738,500 to between approximately 3,369,250 shares
and 1,377,500 shares (and the respective exercise prices of the
warrants would increase by a factor equal to the inverse of the
Exchange Ratio);
|
●
|
the number of shares of the Company’s Common Stock issuable
upon the exercise of outstanding stock options and restricted stock
units would be reduced from 227,500 to between approximately
113,750 shares and 45,500 shares (and the respective exercise
prices of the options would increase by a factor equal to the
inverse of the Exchange Ratio);
|
●
|
the aggregate number of shares of the Company’s Common Stock
reserved for issuance in
connection with future awards under the Company’s 2018 Plan
would be reduced from 330,656 to between approximately 165,328
shares and 66,131 shares; the aggregate number of shares of the
Company’s Common Stock reserved for issuance in connection
with future awards under the Company’s 2020 Plan would be
reduced from 1,000,000 to between approximately 500,000 shares and
200,000 shares; and
|
●
|
the par value of the Company’s Common Stock and preferred
stock would remain unchanged at no par value per
share, and the per-share net income or loss and net book
value of the Company’s Common Stock would be restated because
there would be fewer shares of Common Stock
outstanding.
|
The following table contains approximate
information relating to our Common Stock immediately following
the Reverse Stock Split under certain possible
exchange ratios, based on share
information as of October 5, 2020. All share numbers are rounded up
to the nearest whole share.
|
|
|
Pre-Reverse
Split
|
|
1-for-2
|
|
1-for-3
|
|
1-for-4
|
|
1-for-5
|
Number
of
authorized
shares of
Common
Stock
|
|
|
100,000,000
|
|
100,000,000
|
|
100,000,000
|
|
100,000,000
|
|
100,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
outstanding
shares of
Common
Stock
|
|
|
14,389,711
|
|
7,194,856
|
|
4,796,570
|
|
3,597,428
|
|
2,877,942
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
authorized
shares of
preferred
stock
|
|
|
50,000,000
|
|
50,000,000
|
|
50,000,000
|
|
50,000,000
|
|
50,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
of
Common Stock
issuable
upon
conversion
of outstanding shares of preferred stock
|
|
|
3,861,000
|
|
1,840,500
|
|
1,227,000
|
|
920,250
|
|
736,200
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares of Common Stock issuable upon exercise of outstanding
stock options, restricted stock units and warrants
|
|
|
6,966,000
|
|
3,483,000
|
|
2,322,000
|
|
1,741,500
|
|
1,393,200
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares of Common Stock reserved
for issuance in connection with future
awards under the Company’s 2018 Plan
|
|
|
330,656
|
|
165,328
|
|
110,219
|
|
82,664
|
|
66,131
|
Number
of shares of Common Stock reserved for issuance in connection with
future awards under the Company’s 2020 Plan
|
|
|
1,000,000
|
|
|
500,000
|
|
|
333,333
|
|
|
250,000
|
|
|
200,000
|
See also “Certain Risks Associated with the Reverse Stock
Split” below for
additional information regarding the potential impact of the
Reverse Stock Split.
If the Reverse Stock Split is implemented, the
Amendment will not reduce the number of shares of our Common Stock
or preferred stock authorized under our Articles of Incorporation, as amended, the right
of our Board to designate preferred stock, the par value of
our Common or preferred stock,
or otherwise affect our designated series of preferred stock,
except to affect the conversion prices thereof.
Our Common Stock is currently registered
under Section 12(b) of the
Exchange Act, and we are subject to the periodic reporting and
other requirements thereof. We presently do not have any intent to
seek any change in our status as a reporting company under the Exchange Act either before or after the Reverse
Stock Split.
Additionally, as of the date of this
Proxy Statement, we do not have any
current plans, agreements, or understandings with respect to the
additional authorized shares that will become available
for issuance after the Reverse Stock
Split has been implemented.
Anti-Takeover and Dilutive Effects
The total number of authorized shares of our
Common Stock and preferred stock will not be changed as a result of
the Reverse Stock Split. The Common Stock and preferred stock that
is authorized but unissued provide the Board with flexibility to
effect, among other transactions, public or private financings,
acquisitions, stock dividends, stock splits and the granting of
equity incentive awards. However, these authorized but unissued
shares may also be used by the Board, consistent with and subject
to its fiduciary duties, to deter future attempts to gain control
of the Company or make such
actions more expensive and less desirable. The Reverse Stock Split
is not being recommended in response to any specific effort to
obtain control of the Company, nor does our Board have any present
intent to use the authorized but unissued Common Stock or preferred
stock to impede a takeover attempt.
Except for the
Company’s obligation to issue Common Stock upon the exercise
of outstanding options and warrants or the conversion of our
outstanding shares of preferred stock, we have no specific plan,
commitment, arrangement, understanding or agreement, either oral or
written, regarding the issuance of Common Stock subsequent to the
Reverse Stock Split at this time, and we have not allocated any
specific portion of the authorized number of shares to any
particular purpose.
Certain Risks Associated with the Reverse Stock Split
Before voting on this Proposal 4, shareholders should consider the
following risks associated with effecting a Reverse Stock
Split:
A
reverse stock split may negatively impact the market
for our Common Stock.
Although we expect that the Reverse
Stock Split will result in an increase in the market price of our
Common Stock, we cannot assure you that a Reverse Stock Split, if
effected, will increase the market price of our Common Stock in
proportion to the reduction in the number of shares of our Common
Stock outstanding, or result in a permanent increase in the market
price. The effect that a Reverse Stock Split may have upon the
market price of our Common Stock cannot be predicted with any
certainty, and the history of similar reverse stock splits for companies
in similar circumstances to ours is varied. The market price of our
Common Stock is dependent on many factors, including our business
and financial performance, general market conditions,
prospects for future growth and
other factors detailed from time to time in the reports we file
with the SEC. Accordingly, the total market capitalization of our
Common Stock after a Reverse Stock Split may be lower than the
total market capitalization before a Reverse Stock Split and, in
the future, the market price of our Common Stock following a
Reverse Stock Split may not exceed or remain higher than the market
price prior to a Reverse Stock Split.
NASDAQ may
delist our Common Stock from its exchange which could limit your
ability to make transactions in our securities and subject us to
additional trading restrictions.
Even if our shareholders approve a
Reverse Stock Split and the Reverse Stock Split is effected, we
cannot assure you that we will continue to meet the listing
requirements of NASDAQ. We have been monitoring the
closing bid price of our Common Stock through the Initial
Compliance Period. We may request an extension of 180 days to
regain compliance with the Minimum Bid Price Requirement under
the NASDAQ Listing Rules,
however there can be no assurance that we will be granted an
extension to regain compliance.
If our Common Stock is delisted, our Common Stock
would likely then trade only in the over-the-counter market. If our
Common Stock were to trade on the over-the-counter market, selling
our Common Stock could be more difficult because smaller quantities
of shares would likely be bought and sold, transactions could be
delayed, and we could face significant material adverse
consequences, including: a limited availability of market
quotations for our securities;
reduced liquidity with respect to our securities; a determination
that our shares are a “penny stock,” which will require
brokers trading in our securities to adhere to more stringent
rules, possibly resulting in a reduced level of trading activity in
the secondary trading market for our securities; a reduced amount of news and
analyst coverage for our
Company; and a decreased ability to issue additional securities or
obtain additional financing in the future. These factors could
result in lower prices and larger spreads in the bid and
ask prices for our Common Stock
and would substantially impair our ability to raise additional
funds and could result in a loss of institutional investor interest
and fewer development opportunities for us.
In addition to the foregoing, if our Common Stock
is delisted from NASDAQ and it trades on the over-the-counter
market, the application of the “penny stock” rules
could adversely affect the market price of our Common Stock and
increase the transaction costs to sell those shares. The SEC has
adopted regulations which generally define a “penny
stock” as an equity security that has a market price of less
than $5.00 per share, subject to specific exemptions. If our Common
Stock is delisted from NASDAQ and it trades on the over-the-counter
market at a price of less than
$5.00 per share, our Common Stock would be considered a penny
stock. The SEC’s penny stock rules require a broker-dealer,
before a transaction in a penny stock not otherwise exempt from the
rules, to deliver a standardized risk disclosure document that
provides information about penny stocks and the risks in the penny
stock market. The broker-dealer must also provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and the salesperson in the transaction, and monthly
account statements showing the market value of each penny stock
held in the customer’s account. In addition, the penny stock
rules generally require that before a transaction in a penny stock
occurs, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchaser’s agreement to the transaction. If applicable in
the future, these rules may restrict the ability of brokers-dealers
to sell our Common Stock and may affect the ability of investors to
sell their shares, until our Common Stock no longer is considered a
penny stock.
You may end
up holding an “odd
lot” or less than 100 shares of Common Stock as a result of
the Reverse Stock Split, making it more difficult
for you to
sell your shares. A Reverse
Stock Split may result in some shareholders owning “odd
lots” of less than 100 shares of Common Stock on a post-split
basis. A purchase or sale of less than 100 shares of Common Stock
(an “odd lot” transaction) may result in incrementally
higher trading costs through certain brokers, particularly
“full service” brokers, and generally may be more
difficult than a “round lot” sale. Therefore, those
shareholders who own less than 100 shares of Common Stock following
the Reverse Stock Split may be required to pay
somewhat higher transaction costs and may experience some
difficulties or delays should they then determine to sell their
shares of Common Stock.
The market
price of our Common Stock may not rise after the Reverse Stock
Split.
Although the Board believes that the
decrease in the number of shares of Common Stock outstanding as a
consequence of a Reverse Stock Split and the anticipated increase
in the market price of Common Stock could encourage interest in our
Common Stock and possibly promote greater liquidity
for shareholders, such liquidity could
also be adversely affected by the reduced number of shares
outstanding after the Reverse Stock Split. It is possible that the
per share price of our Common Stock after the
Reverse Stock Split will not rise in proportion to
the reduction in the number of shares of our Common Stock
outstanding resulting from the Reverse Stock Split,
and the market price per post-Reverse Stock Split share may
not exceed or remain in excess of the $1.00 minimum bid
price for a sustained period of
time, and the Reverse Stock Split may not result in
a per share price that would attract brokers and investors who do
not trade in lower priced stocks. Even if we effect the
Reverse Stock Split, the market price of our Common Stock
may decrease due to factors unrelated to the
Reverse Stock Split. In any case, the market price of our
Common Stock may also be based on other factors which may be
unrelated to the number of shares outstanding, including our future
performance. If the Reverse Stock Split is
consummated and the trading price of the Common Stock declines, the
percentage decline as an absolute number and as a percentage of our
overall market capitalization may be greater than would occur in
the absence of the Reverse Stock Split. Even if the
market price per post-Reverse
Stock Split share of our Common Stock remains in excess of $1.00
per share, we may be delisted due to a failure to meet other
continued listing requirements, including NASDAQ requirements
related to the minimum shareholders’ equity,
the minimum number of shares that must be in the public
float, the minimum market value of the public float and
the minimum number of round lot
holders.
The
Reverse Stock Split may decrease the liquidity of
our Common Stock. The liquidity
of our Common Stock may be harmed by the
Reverse Stock Split given the reduced number of
shares of Common Stock that would be outstanding after the
Reverse Stock Split, particularly if the stock price does
not increase as a result of the Reverse Stock Split. In
addition, investors might consider the increased proportion of
unissued authorized shares of Common Stock to issued shares to have
an anti-takeover effect under certain circumstances, because the
proportion allows for dilutive
issuances which could prevent certain shareholders from changing
the composition of the Board or render tender offers
for a combination with another entity
more difficult to successfully complete. The Board does not
intend for the
Reverse Stock Split to have any anti-takeover
effects.
The number
of authorized but unissued shares will not change, while the number
of issued shares decreases, effectively increasing the number of
shares of Common Stock available for future
issuance and potential dilution to existing
shareholders. Our
Articles of Incorporation presently authorize 100,000,000 shares of
Common Stock and 50,000,000 shares of blank check preferred stock,
no par value per share. The Reverse Stock Split would not change
the number of authorized shares of the Common Stock, although the
Reverse Stock Split would decrease the number of
issued and outstanding shares of Common Stock. Therefore, because
the number of issued and outstanding shares of Common Stock would
decrease, the number of shares of Common Stock remaining
available for issuance by us in
the future would increase.
Such additional shares of Common Stock would be
available for issuance from
time to time for corporate
purposes such as issuances of Common Stock in connection with
capital-raising transactions and acquisitions of
companies or other assets, as well
as for issuance upon conversion
or exercise of securities such as convertible preferred stock,
convertible debt, warrants or options convertible into or
exercisable for Common Stock.
We believe that the availability of the additional shares of Common
Stock will provide us with the flexibility to meet business needs
as they arise, to take advantage of favorable opportunities and to
respond effectively in a changing corporate environment.
For example, we may elect to issue
shares of Common Stock to raise equity capital, to make
acquisitions through the use of stock, to establish strategic
relationships with other companies, to adopt additional employee benefit
plans or reserve additional shares of Common Stock
for issuance under such plans, where
the Board determines it advisable to do so, without the necessity
of soliciting further shareholder approval, subject to applicable
shareholder vote requirements under Utah law and NASDAQ rules. If
we issue additional shares of Common Stock for any of these purposes, the aggregate ownership
interest of our current shareholders, and the interest of each such
existing shareholder, would be diluted, possibly
substantially.
The additional shares of our Common Stock that
would become available for
issuance upon an effective Reverse Stock Split could
also be used by us to oppose a hostile takeover attempt or delay or
prevent a change of control or changes in or removal of our
management, including any transaction that may be favored by a
majority of our shareholders or in which our shareholders might
otherwise receive a premium for
their shares of Common Stock over then-current market prices or
benefit in some other manner. Although the increased proportion of
authorized but unissued shares of Common Stock to issued shares of
Common Stock could, under certain circumstances, have an
anti-takeover effect, the Reverse Stock Split is not
being proposed in order to respond to a hostile takeover attempt or
to an attempt to obtain control of the Company.
Fractional Shares
We will not issue fractional certificates
for post-Reverse Stock Split shares of
Common Stock in connection with the Reverse Stock Split.
To the extent any holders of pre-Reverse Stock Split shares of Common Stock are
entitled to fractional shares of Common Stock as a result of the
Reverse Stock Split, we will issue an additional share to all
holders of fractional shares of Common Stock.
No Dissenters’ Rights
Under
Utah law, our shareholders would not be entitled to
dissenters’ rights or rights of appraisal in connection with
the implementation of the Reverse Stock Split, and we
will not independently provide our shareholders with any such
rights.
U.S. Federal Income Tax Considerations
The following is a summary of certain United
States federal income tax consequences of the Reverse
Stock Split. It does not address any state, local or foreign
income or other tax consequences, which, depending upon the
jurisdiction and the status of the shareholder/taxpayer, may vary
from the United States federal income tax consequences. It applies
to you only if you held pre-Reverse Stock Split shares of Common
Stock as capital assets for
United States federal income tax purposes. This discussion does not
apply to you if you are a member of a class of our shareholders
subject to special rules, such as (a) a dealer in securities or
currencies, (b) a trader in securities that elects to use a
mark-to-market method of accounting for your securities holdings, (c) a bank,
(d) a life insurance
company, (e) a tax-exempt
organization, (f) a person that owns shares of Common Stock that
are a hedge, or that are hedged, against interest rate risks, (g) a person who owns shares of Common Stock as
part of a straddle or conversion transaction for tax purposes or (h) a person whose functional currency
for tax purposes is not the U.S.
dollar. The discussion is based on the Internal Revenue Code of 1986, as amended (the
“Internal Revenue
Code”), its legislative
history, existing, temporary and proposed regulations under
the Internal Revenue Code,
published rulings and court decisions, all as of the date hereof.
These laws, regulations and other guidance are subject to change,
possibly on a retroactive basis. We have not sought and will not
seek an opinion of counsel or a ruling from the Internal Revenue
Service regarding the United States federal income tax consequences
of the Reverse Stock Split.
PLEASE CONSULT YOUR OWN TAX ADVISOR
CONCERNING THE CONSEQUENCES OF THE REVERSE STOCK SPLIT IN YOUR
PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER
TAXING JURISDICTION.
Tax Consequences to United States Holders of Common
Stock.
A United States holder, as used herein, is a
shareholder who or that is, for
United States federal income tax purposes: (a) a citizen or
individual resident of the United States, (b) a domestic
corporation, (c) an estate whose income is subject to United States
federal income tax regardless of its source, or (d) a trust, if a
United States court can exercise primary supervision over the
trust’s administration and one or more United States persons
are authorized to control all substantial decisions of the trust.
This discussion applies only to United States
holders.
Except for
adjustments that may result from the treatment of fractional shares
of Common Stock as described above, no gain or loss should be
recognized by a shareholder upon such shareholder’s exchange
of pre-Reverse Stock
Split shares of Common
Stock for post-Reverse Stock
Split shares of Common Stock pursuant to the Reverse Stock
Split, and the aggregate adjusted basis of the post-Reverse Stock Split shares of Common
Stock received will be the same as the aggregate adjusted basis of
the Common Stock exchanged for
such new shares. The shareholder’s holding period
for the post-Reverse Stock Split shares of Common
Stock will include the period during which the shareholder held
the pre-Reverse Stock
Split shares of Common Stock surrendered.
Accounting Consequences
Following the Effective Date of the Reverse Stock Split (as
defined below under “Procedure for
Effecting the Reverse Stock Split”), if any, the net income
or loss and net book value per share of Common Stock will be
increased because there will be fewer shares of the Common Stock
outstanding. We do not anticipate that any other accounting
consequences would arise as a result of the Reverse Stock
Split.
Procedure for Effecting the Reverse Stock
Split
When and if the Board decides to implement
the Reverse Stock Split, the Company will promptly
file the Amendment with
the Utah Division. The Reverse Stock Split will become effective on
the date of filing the Amendment, which is referred to as the
“Effective Date”.
Beginning on the Effective
Date, each certificate representing pre-Reverse Stock Split shares will be
deemed for all corporate
purposes to evidence ownership of post-Reverse Stock
Split shares.
After the Effective Date, our Common Stock will have a new
CUSIP number, which is a number used to identify our securities,
and any stock certificates with the old CUSIP number will need to
be exchanged for stock
certificates with the new CUSIP number using the procedures
described below.
Exchange of Stock Certificates
As of the Effective Date, each certificate representing
shares of our Common Stock outstanding before the Reverse Stock
Split will be deemed, for
all corporate purposes, to evidence ownership of the reduced number
of shares of our Common Stock resulting from the Reverse Stock
Split. All shares underlying options, warrants and other securities
exchangeable or exercisable for
or convertible into Common Stock also automatically will be
adjusted on the Effective
Date.
Our transfer agent, Interwest Transfer Co,
Inc., will act as the exchange
agent for purposes of
exchanging stock certificates subsequent to the Reverse Stock
Split. Shortly after the Effective Date, shareholders of record will
receive written instructions requesting them to complete and return
a letter of transmittal and surrender their old stock
certificates for new stock
certificates reflecting the adjusted number of shares as a result
of the Reverse Stock Split. Certificates representing shares of
Common Stock issued in connection with the Reverse Stock
Split will continue to bear the same restrictive legends, if
any, set forth in the surrendered certificates representing the
shares of Common Stock outstanding prior to the Reverse Stock
Split. No new certificates will be issued until such shareholder
has surrendered any outstanding certificates, together with the
properly completed and executed letter of transmittal, to the
exchange agent. Until surrendered, each certificate representing
shares of Common Stock outstanding before the Reverse Stock
Split would continue to be valid and would represent the
adjusted number of shares of Common Stock, based on the Exchange
Ratio.
Any shareholder whose stock certificates are lost,
destroyed or stolen will be entitled to a new certificate or
certificates representing post-Reverse Stock Split shares of Common
Stock upon compliance with the requirements that we and our
transfer agent customarily apply in connection with lost, destroyed
or stolen certificates. Instructions as to lost, destroyed or
stolen certificates will be included in the letter of instructions
from the exchange agent.
Upon the Reverse Stock Split, we intend to treat
shareholders holding our Common Stock in “street name”,
through a bank, broker or other nominee, in the same manner as
registered shareholders whose shares of Common Stock are registered
in their names. Banks, brokers and other nominees will be
instructed to effect the Reverse Stock
Split for their beneficial
holders holding our Common Stock in “street name”.
However, such banks, brokers and other nominees may have different
procedures than registered shareholders for processing the Reverse Stock Split. If you
hold your shares in “street name” with a bank, broker
or other nominee, and if you have any questions in this regard, we
encourage you to contact your bank, broker or
nominee.
YOU SHOULD NOT DESTROY YOUR STOCK CERTIFICATES AND YOU SHOULD NOT
SEND THEM NOW. YOU SHOULD SEND YOUR STOCK CERTIFICATES ONLY AFTER
YOU HAVE RECEIVED INSTRUCTIONS FROM THE EXCHANGE AGENT AND IN
ACCORDANCE WITH THOSE INSTRUCTIONS.
If any certificates for shares of Common Stock are to be issued in a
name other than that in which the certificates for shares of Common Stock surrendered are
registered, the shareholder requesting the reissuance will be
required to pay to us any transfer taxes or establish to our
satisfaction that such taxes have been paid or are not payable and,
in addition, (a) the transfer must comply with all applicable
federal and state securities laws, and (b) the surrendered
certificate must be properly endorsed and otherwise be in proper
form for
transfer.
Book-Entry
The
Company’s registered shareholders may hold some or all of
their shares electronically in book-entry form with our transfer
agent. These shareholders do not have stock certificates evidencing
their ownership of Common Stock. They are, however, provided with a
statement reflecting the number of shares of Common Stock
registered in their accounts.
●
If you hold registered shares of Common Stock in
book-entry form, you do not need to take any action to receive
your post-Reverse Stock Split
shares of Common Stock in registered book-entry
form.
●
If you are entitled to post-Reverse Stock Split shares of Common Stock, a
transaction statement will automatically be sent to your address of
record by our transfer agent as soon as practicable after
the Effective Date indicating
the number of shares of Common Stock that you
hold.
Interests of Directors and Executive Officers
Our
directors and executive officers have no substantial interests,
directly or indirectly, in the matters set forth in this proposal
except to the extent of their ownership of shares of our Common
Stock, preferred stock, warrants, or equity awards granted to them
under our equity incentive plans.
Recommendation of the Board of Directors
THE BOARD RECOMMENDS THAT YOU VOTE
“FOR”
PROPOSAL NO.
4.
The
following table sets forth certain information with respect to our
executive officers as of the date of this Proxy
Statement.
Name
|
|
Age
|
|
Position
|
John A.
Krier(1)
|
|
43
|
|
President,
Chief Executive Officer, Chief Financial Officer and
Director
|
Jennifer
Keeler
|
|
50
|
|
General
Counsel and Corporate Secretary
|
Skyler
Black(2)
|
|
37
|
|
Corporate
Controller
|
|
|
|
|
|
(1)
Principal Executive Officer and Principal Finance Officer. Mr. Krier became
our President and Chief Executive Officer on July 6, 2020. He
replaced Brian Baker, who served in that capacity from August, 2019
to July 6, 2020. Mr. Krier’s biographical information and
other credentials, including his employment history, are summarized
in the section of this Proxy
Statement that discusses the nominees for director under Proposal No. 1 Election of Directors.
(2)
Principal
Accounting Officer.
Jennifer Keeler
was appointed General Counsel
and Corporate Secretary in
October 2019. She worked previously at Land O’Lakes, Inc.
where she was an Associate
General Counsel and provided counsel to the Company’s dairy
foods and international business units. While there she
attended Harvard University Executive Education Agribusiness
Seminar and provided legal counsel for acquisitions of businesses
in the United States, Kenya, China, Mexico and South Africa.
Prior to Land O’Lakes, Inc. she
worked for casino gaming and
software development companies
providing in-house services including employment law,
M&A, contract drafting & negotiation, corporate governance
and IP protection. Ms. Keeler has an undergraduate degree in
Business and Marketing from the U of MN’s Carlson School of
Management. She went on to get her law degree at William Mitchell
College of Law followed by an MBA in Finance from the University of
St. Thomas.
Skyler Black joined us
as Corporate Controller in January 2018. He was previously with
PricewaterhouseCoopers, LLP where he spent 12 years in their
assurance practice. He is a CPA in the state of Colorado and holds
a B.S. degree in Accounting from Brigham Young University
– Idaho. Mr. Black was
appointed Principal Accounting Officer in July, 2020.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the
ownership of our voting securities as of October 5, 2020, by (a) any person known by us to
be the beneficial owner of more than 5% of any class of our voting
securities, based upon their most recent filings or correspondence
with the SEC, and (b) all directors and nominees, each of our Named
Executive Officers (as defined below), and all of our directors and
executive officers as a group.
Under
SEC rules, “Named
Executive Officers”
include (i) our principal executive officer at the end of the last
completed fiscal year, regardless of compensation level; and (ii)
our two most highly compensated executive officers other than the
principal executive officer who were serving as executive officers
as of the end of the last completed fiscal year; and (iii) up to
two additional individuals who would have been deemed to be Named
Executive Officers except that they were not serving as officers at
the end of the fiscal year. Pursuant to these rules, we have
identified as our Named Executive Officers for purposes of this
Proxy Statement: (1) Mr. Baker, who was our Chief Executive Officer
at the end of fiscal 2020; (2) David A. Wirthlin, who was our
principal financial and accounting officer during fiscal year 2020
and one of our next two most highly paid executive officers as of
the end of fiscal 2020; (3) Jason Anderson, who is our Chief
Information Officer. Unless otherwise indicated in the notes below
the table, the address of each beneficial owner listed in the table
below is c/o Dynatronics Corporation, 1200 Trapp Road, Eagan,
Minnesota 55121.
Beneficial Ownership Table
NamName/Address
of Beneficial Owner(1)
|
Title of Class
|
No. of Shares of each
Class
Beneficially Owned
|
Percent of Class
Beneficially Owned
|
Total No. of Shares
Beneficially Owned
|
Percent of Total
Voting Power
|
Greater than 5% Shareholders:
|
|
|
|
|
|
Stuart
M. Essig (2)
|
Common
|
3,287,135
|
20.2%
|
4,427,135
|
13.2%
|
|
Series
A
|
880,000
|
44.2%
|
|
|
|
Series
B
|
260,000
|
17.8%
|
|
|
Stuart
M. Essig 2007 Family Trust (3)
|
Common
|
506,262
|
3.4%
|
735,062
|
2.2%
|
|
Series
A
|
188,800
|
9.5%
|
|
|
|
Series
B
|
40,000
|
2.7%
|
|
|
Provco
Ventures I, LP (4)
|
Common
|
2,089,852
|
13.4%
|
2,773,852
|
8.6%
|
|
Series
A
|
484,000
|
24.3%
|
|
|
|
Series
B
|
200,000
|
13.7%
|
|
|
|
|
|
|
|
3.4%
|
|
|
|
|
|
|
Nancy
K. Cronin (5)
|
Common
|
978,161
|
6.8%
|
978,161
|
5.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Named Executive Officers:
|
|
|
|
|
|
Brian
D. Baker (CEO/Director) (6)
|
Common
|
231,587
|
1.6%
|
327,587
|
*
|
|
Series
A
|
96,000
|
4.8%
|
|
|
Erin S. Enright (Director)(7)
|
Common
|
506,262
|
3.4%
|
735,062
|
2.2%
|
|
Series A
|
188,800
|
9.5%
|
|
|
|
Series
B
|
40,000
|
2.7%
|
|
|
David
B. Holtz (Director) (8)
|
Common
|
89,829
|
*
|
89,829
|
*
|
Scott
A. Klosterman (Director) (9)
|
Common
|
89,829
|
*
|
89,829
|
*
|
Brian M. Larkin (Director) (10)
|
Common
|
291,879
|
2.0%
|
359,879
|
1.3%
|
|
Series A
|
48,000
|
2.4%
|
|
|
|
Series
B
|
20,000
|
1.4%
|
|
|
R.
Scott Ward (Director) (11)
|
Common
|
72,078
|
*
|
72,078
|
*
|
|
|
|
|
|
|
All executive officers and directors as a group (11
persons)
|
Common
|
1,372,065
|
9.5%
|
1,764,865
|
6.37%
|
|
Series
A
|
332,800
|
16.7%
|
|
|
|
Series
B
|
60,000
|
4.1%
|
|
|
(1)
|
The
table assumes 14,389,711 shares of Common Stock issued and
outstanding as of October 5, 2020. The amount in the “Percent
of Total Voting Power” column includes the impact of any
applicable Voting Cutback as to the indicated beneficial owner.
Subject to the Voting Cutback, the Series A Preferred and the
Series B Preferred vote on an as-converted basis one vote per share
with the Common Stock. For purposes of the table, we determined the
number of shares of each class as beneficially owned by each person
under Rule 13d-3(d)(1) of the Exchange Act. Under this rule, shares
of voting stock not outstanding that are subject to issuance
pursuant to options, warrants, rights or conversion privileges
exercisable by a person within 60 days of the date indicated are
deemed outstanding for the purpose of calculating the number and
percentage beneficially owned by such person but are not deemed
outstanding for the purpose of calculating the number or percentage
beneficially owned by each any other person listed in the table.
Except where otherwise noted, we believe that each individual or
entity named has sole investment and voting power with respect to
the shares of indicated as beneficially owned by such person,
subject to community property laws, where applicable. Beneficial
ownership representing less than one percent of the outstanding
shares of a class is denoted with an asterisk (*). If an individual
or person disclaims beneficial ownership, that is noted in the
notes below the table.
|
(2)
|
Mr.
Essig is an observer to our Board and the husband of Erin Enright,
a Preferred Director and the Chairman of our Board. The amount of
Common Stock beneficially owned includes: (a) 1,378,130 shares of Common Stock
owned of record and (b) 1,909,005 shares of Common Stock issuable
upon the exercise of warrants. Mr. Essig has sole voting and
dispositive power over the shares of stock indicated. He has no
voting or dispositive power over securities that are beneficially
owned of record by The Stuart M. Essig 2007 Family Trust
(“Essig Trust,”
see, Note (3), below) or by
Ms. Enright (see,
Note (9), below). The
address for this beneficial owner is 512 West MLK Jr. Blvd #320,
Austin, Texas 78701.
|
(3)
|
Mr.
Essig is the settlor/grantor of the Essig Trust. His wife, Ms.
Enright, is Trustee of the Essig Trust. Shares of Common Stock
beneficially owned include: (a) 163,062 shares of Common Stock owned
of record and (b) 343,200
shares of Common Stock issuable upon exercise of warrants. Ms.
Enright and the Essig Trust have shared voting and dispositive
power over the shares of stock owned of record by the Essig Trust.
Amount indicated also includes 90,601 shares of Common Stock owned
of record by Ms. Enright personally, over which Ms. Enright has sole voting and
dispositive power. (See,
Note (9), below.) The address for this beneficial owner is 512 West
MLK Jr. Blvd #320, Austin, Texas 78701.
|
(4)
|
The
address of this beneficial owner is 795 E. Lancaster Ave. Suite
200, Villanova, PA 19085. The general partner of this shareholder
is Provco, LLC. The sole member of Provco, LLC is Richard E.
Caruso, Ph.D. The amount of Common Stock beneficially owned
includes: (a) 133,650
shares of Common Stock owned of record, and (b) 1,176,000 shares of Common Stock
issuable upon the exercise of warrants.
|
(5)
|
Ms.
Cronin received these shares upon conversion of shares of our
Series D Non-Voting Convertible Preferred Stock issued in
connection with our acquisition of Bird & Cronin, Inc.
(“Bird &
Cronin”), of which she was a majority beneficial
owner. The address for this beneficial owner is 6101 Mt. Normandale
Dr., Bloomington, Minnesota 55438.
|
(6)
|
Mr.
Baker became our Chief Executive Officer and a director on August
26, 2019. Amount of Common Stock beneficially owned includes (a)
27,500 exercisable options, (b) 60,087 shares of Common Stock owned
of record, and (c) 144,000 shares of
Common Stock issuable upon exercise of
warrants.
|
(7)
|
The
amount of Common Stock beneficially owned includes: (a)
90,601 shares of Common Stock
owned of record and (b) 506,262 shares of Common Stock
beneficially owned by the Essig Trust (see, Note (3), above). Ms. Enright has
no voting and dispositive power over the shares beneficially owned
by her husband; she has shared voting and dispositive power as
Trustee over the shares beneficially owned by the Essig
Trust.
|
(8)
|
Mr.
Holtz is an executive officer of Provco, LLC, the general partner
of Provco Ventures I LP. He does
not have sole voting or dispositive power of shares beneficially
owned by Provco.
|
(9)
|
All
amounts indicated are shares of Common Stock owned of record by Mr.
Klosterman.
|
(10)
|
The
amount of Common Stock beneficially owned includes: (a) 169,879 shares of Common Stock owned
of record and (b) 122,000
shares issuable upon the exercise of warrants.
|
(11)
|
All
amounts indicated are shares of Common Stock owned of record by Dr.
Ward.
|
The
Compensation Committee operates under a written charter that
establishes its responsibilities. The Compensation Committee
reviews the charter annually to ensure that its scope is consistent
with the Compensation Committee’s expected role and meets
regulatory requirements. Under the charter, the Compensation
Committee is charged with general responsibility for the oversight
and administration of our executive compensation program. The
charter gives the Compensation Committee the sole responsibility
for determining the compensation of the Chief Executive Officer
based on the Committee’s evaluation of his performance. The
charter also authorizes the committee to engage consultants and
other professionals without management approval to the extent
deemed necessary to discharge its responsibilities.
Decisions regarding
other executives are made by the Compensation Committee considering
recommendations from the Chief Executive Officer and with input
from other executive officers and management. Decisions by the
Compensation Committee with respect to compensation of the Chief
Executive Officer are ratified by the non-executive members of the
Board.
The
compensation of our executive officers includes base salary and
equity components. The ultimate goal of our compensation philosophy
is to create long-term shareholder value by rewarding performance
that furthers our strategic goals and growth. At the same time, the
Compensation Committee seeks to maintain an executive compensation
program that is competitive with comparably-sized organizations
within our industry.
Dynatronics does
not target a specific pay mix; however, each Named Executive
Officer has a significant percentage of their bonus determined by
performance goals established by the Compensation Committee. Each
executive’s compensation opportunity is designed to provide
pay below targeted pay levels if annual and/or long-term
performance goals are not achieved. The compensation program is
designed to provide pay at or above targeted pay levels if
performance meets or exceeds goals. The Company provides a
competitive base salary and benefits with limited equity awards.
There is not an expectation of future equity awards for our
executives, beyond the Chief Executive Officer.
The
following table summarizes information concerning the compensation
paid to our Named Executive Officers for the last two fiscal years
(columns (g) and (h) have been intentionally omitted):
Summary
Compensation Table
Name and principal
position
(a)
|
|
|
|
|
|
All other compensation
($)
(i)
|
Brian
Baker
|
2019
|
$166,731
|
-
|
-
|
-
|
$1,165
|
$167,896
|
President and CEO(1)
|
2020
|
$268,097
|
-
|
$69,500
|
$18,557
|
$9,730
|
$365,884
|
Christopher
R. von Jako
|
2019
|
$264,424
|
-
|
$41,700
|
-
|
$9,144
|
$332,449
|
CEO(2)
|
2020
|
$95,298
|
-
|
$69,500
|
$5,736
|
$30,574
|
$125,872
|
David
A. Wirthlin
|
2019
|
$188,000
|
-
|
-
|
-
|
$16,058
|
$204,558
|
Chief Financial Officer (3)
|
2020
|
$196,148
|
-
|
-
|
-
|
$17,140
|
$213,288
|
Jason
Anderson
|
2019
|
$173,878
|
$10,000
|
-
|
-
|
$30,084
|
$213,962
|
Chief
Information Officer
|
2020
|
$184,141
|
-
|
-
|
-
|
$10,072
|
$194,213
|
__________________
(1)
Mr. Baker was our
President and CEO from August 2019 through the end of FY
2020,
(2)
Dr. von Jako is
included in this table, which covers the last two fiscal years
because he served as our principal executive officer from June 2018
until his resignation August 2019.
(3)
Mr. Wirthlin was
our principal financial and principal accounting officer during FY
2020.
Outstanding Equity Awards at June 30,
2020
The
following table presents information regarding outstanding equity
awards held by each of the Named Executive Officers as of June 30,
2020.
|
|
|
Name
|
Number of securities underlying
unexercised options (#) exercisable
|
Number of securities underlying
unexercised options (#) unexercis-able
|
Option exercise price ($)
|
|
Number of shares or units of stock that have not vested
(#)
|
Market value of shares of units of stock that have not vested
($)
|
|
|
|
|
|
|
|
Christopher
von Jako
|
-
|
-
|
-
|
-
|
-
|
-
|
Jason
Anderson
|
-
|
-
|
-
|
-
|
-
|
-
|
David
A. Wirthlin
|
18,000
|
6,000
|
$2.65
|
|
-
|
-
|
Brian
Baker
|
27,500
|
62,500
|
$1.39 to $2.70
|
|
-
|
-
|
Brian D.
Baker. On August 26,
2019, we entered into an employment agreement Brian D. Baker as our
President and Chief Executive Officer (the “Baker Employment Agreement”).
Pursuant to the Baker Employment Agreement, Mr. Baker was paid a
salary of $275,000 per year and eligible for an annual bonus
targeted at a maximum payout of $100,000, as determined by the
Compensation Committee of the Board, based on results of operations
and Mr. Baker’s performance against goals established by the
Compensation Committee. Mr. Baker was also entitled to annual
equity grants of RSUs valued at a maximum of $100,000, as
determined by the Compensation Committee, such grants to vest 50%
upon the date of grant and 50% on the first anniversary of the date
of grant.
Upon
execution of the Baker Employment Agreement, Mr. Baker received a
grant of 50,000 RSUs, vesting in four equal annual installments
commencing on the first anniversary of the grant date. We also
granted him a stock option under the 2018 Plan to purchase 50,000
shares of Common Stock at a price of $1.39 per share, which was the
closing price of our Common Stock on the date of grant. The option
vests in four equal annual installments, commencing on the first
anniversary of the date of grant. In conjunction with Mr.
Baker’s appointment as President and Chief Executive Officer,
the Board determined that it is in the Company’s best
interests that the principal executive officer should operate from
our Eagan, Minnesota location and therefore authorized payment of
certain relocation expenses for Mr. Baker, not to exceed
$25,000.
The
Baker Employment Agreement package included non-solicitation,
non-competition and confidentiality agreements with
post-termination restrictive covenants. We also entered into an
indemnification agreement with Mr. Baker on the same terms that we
have entered into with our other directors and executive
officers.
John Krier. On July
7, 2020, we entered into an employment agreement with our new
President and Chief Executive Officer, John Krier. Pursuant to the
Agreement, we will pay Mr. Krier an annual base salary of $250,000
per year and he will be eligible for an annual bonus targeted at a
maximum payout of $75,000, and an annual equity award of restricted
stock units, or RSUs, up to a maximum value of $75,000, which
amount will be determined by the Compensation Committee of the
Board, based on results of operations and Mr. Krier’s
performance against goals established by the Compensation
Committee. On the date of his appointment, Mr. Krier received a
grant of 50,000 RSUs under the 2018 Plan, vesting in four equal
annual installments commencing on the first anniversary of the
grant date. Upon vesting, Mr. Krier will receive a number of shares
of Common Stock equal to the number of RSUs that have vested. Also
upon his appointment date, the Company granted Mr. Krier a stock
option under the 2018 Plan for the purchase of 15,000 shares of
Common Stock, vesting over a four-year period with one-fourth of
the shares vesting annually on the anniversary of the grant date.
The exercise price of the stock option is the market price of the
Common Stock on the date of grant.
The
employment agreement continues until terminated by the Company or
by Mr. Krier in accordance with the terms of the agreement. If the
Company terminates Mr. Krier’s employment during the first 12
months without cause as defined under the agreement, we must pay
Mr. Krier an amount equal to three months base salary. In addition,
in such event, one-half of the initial equity compensation awards
granted to him at the time of his appointment as CEO will
automatically vest, subject to his execution of a release of all
claims against the Company.
Mr.
Krier is also subject to a non-solicitation, non-competition and
confidentiality agreement with post-termination restrictive
covenants. We also entered into an indemnification agreement with
Mr. Krier on the same terms as the agreements entered into with our
other directors and executive officers.
Payments
upon Termination
Brian Baker. On July
7, 2020, Brian Baker, citing the need for a reduced work schedule
to allow more flexibility to address health issues relating to the
COVID-19 virus, stepped down as Chief Executive Officer. Mr. Baker
continues to serve as a member of the Board and is a nominee for
election at the Annual Meeting. Subject to the conditions and
provisions of the Company’s equity incentive plans, equity
awards held by Mr. Baker will continue to vest and be exercisable
according to their respective terms. In connection with Mr.
Baker’s resignation, the Company and Mr. Baker entered into a
Separation and Pay Continuation Agreement (“Separation Agreement”). The
Separation Agreement provides that through October 7, 2020 (the
“Separation
Date”), Mr. Baker will receive the same compensation
and benefits, including continued vesting of outstanding equity
awards, as under his existing employment agreement, effective
August 19, 2019. The Separation Agreement includes a general
release of claims and waivers customary in such agreements. Mr.
Baker’s departure was not the result of any disagreement with
us on any matter relating to the Company’s operations,
policies or practices. We also entered into a Consulting Agreement
with Mr. Baker effective October 8, 2020, pursuant to which Mr.
Baker will provide consulting services to the Company on a
part-time basis following the Separation Date for up to 20 hours
per week.
Dr. von
Jako. We
entered into a Separation and Release Agreement with Dr. von Jako
dated August 26, 2019 (the “Von Jako Release Agreement”) in
connection with his separation from Dynatronics. Under the Von Jako
Release Agreement, we paid Dr. von Jako a cash payment (less
applicable withholding taxes) equal to three months of base salary
(excluding bonus or any pro ration thereof) in installments with
our regular payroll services over the three months following his
final day of employment, September 1, 2019, in consideration of a
release of all claims against us given by Dr. von
Jako.
David Wirthlin. We
entered into a Separation and Release Agreement with David
Wirthlin, our former Chief Financial Officer on August 3, 2020.
Pursuant to this agreement, we paid Mr. Wirthlin separation pay
equal to six months of base pay, or a total of approximately
$97,100, subject to his execution of the Separation and Release
Agreement, releasing any and all claims he may have against the
Company.
We do
not provide pension arrangements or post-retirement health coverage
for executive officers or employees. Our executive officers and
other eligible employees may participate in one of our 401(k)
defined contribution plans depending on the location of their
employment. In fiscal year 2020, we maintained two separate 401(k)
plans for our employees: (1) the Dynatronics Corporation Plan (the
“Dynatronics Plan”) covers its Bird & Cronin, LLC
and Dynatronics Corporation employees; and (2) the Hausmann
Enterprises, LLC Plan (the “Hausmann Plan”) covers employees at our New Jersey
location.
Dynatronics Plan.
Under the Dynatronics Plan, employees who are 21 years of age or
older are eligible to participate on the first day of the month
following hire date. Eligible employees may contribute to the
Dynatronics Plan in the form of salary deferrals of up to $19,000,
the maximum allowable for calendar year 2020. Eligible employees
who are over 50 years old may contribute an additional $6,000 in
catchup contributions during calendar year 2020. We match employee
contributions at 50% of the first 6% of employee compensation, up
to a maximum of $3,000 per employee per year. Participants in the
Dynatronics Plan are fully vested in their salary deferral
contributions, and employer matching contributions vest 10% after
year one, 20% each year thereafter (100% vested after six
years).
Hausmann Plan. Under
the Hausmann Plan, employees who are 21 years of age or older are
eligible to participate on the first day of the month following
hire date. Eligible employees may contribute to the Dynatronics
Plan in the form of salary deferrals of up to $19,000, the maximum
allowable for calendar year 2020. Eligible employees who are over
50 years old may contribute an additional $6,000 in catchup
contributions during calendar year 2020. We match employee
contributions at 50% of the first 6% of employee compensation, up
to a maximum of $3,000 per employee per year. Participants in the
Dynatronics Plan are fully vested in their salary deferral
contributions, and employer matching contributions vest 10% after
year one, 20% each year thereafter (100% vested after six
years).
RELATED-PARTY TRANSACTIONS POLICY AND
PROCEDURES
We have
adopted a policy that any transactions with directors, executive
officers or entities of which they are also officers or directors
or in which they have a financial interest, will only be on terms
consistent with industry standards and approved by a majority of
the disinterested members of our Board. In addition, interested
directors may be counted in determining the presence of a quorum at
a meeting of our Board or a committee thereof that approves such
transactions. If there are no disinterested directors, we shall
obtain a majority vote of the shareholders approving the
transaction.
SHAREHOLDER PROPOSALS
FOR 2021 ANNUAL MEETING OF SHAREHOLDERS
Shareholders may
submit proposals on matters appropriate for shareholder action at
meetings of our shareholders in accordance with Rule 14a-8
promulgated under the Exchange Act. For such proposals to be
included in our proxy materials relating to our 2021 Annual Meeting
of Shareholders, all applicable requirements of Rule 14a-8 must be
satisfied and such proposals must be received by us no later than
June 29, 2021. Such proposals should be delivered to Dynatronics
Corporation, 1200 Trapp Road, Eagan, Minnesota 55121, Attention:
Jennifer Keeler, General Counsel and Corporate Secretary, telephone
(651) 683-8066.
Our
Board has determined that, except in the case of proposals made in
accordance with Rule 14a-8, for shareholder nominations to the
Board or other proposals to be considered at an annual meeting of
shareholders, the shareholder must have given timely notice thereof
in writing to our Corporate Secretary not less than 60 nor more
than 90 calendar days prior to the anniversary of the date on which
we first mailed our proxy materials for our immediately preceding
annual meeting of shareholders (as specified in the proxy materials
for the immediately preceding annual meeting of shareholders). To
be timely for the 2021 Annual Meeting of Shareholders, a
shareholder’s notice must
be delivered or mailed to and received by our Corporate Secretary
at our principal executive offices between July 29, 2021 and August
28, 2021. However, in the event that the 2021 Annual Meeting is
called for a date that is not within 30 calendar days of the
anniversary of the date that the 2020 Annual Meeting was called, to
be timely, notice by the shareholder must be received by us not
later than the close of business on the tenth calendar day
following the date on which public announcement of the date of the
2021 Annual Meeting is first made. In no event will the public
announcement of an adjournment of an Annual Meeting of shareholders
commence a new time period for the giving of a
shareholder’s notice as
provided above. A shareholder’s notice to our Corporate Secretary
must set forth the information required by the bylaws with respect
to each matter the shareholder proposes to bring before the Annual
Meeting.
In
addition, the proxy solicited by the Board for the 2021 Annual
Meeting of Shareholders will confer discretionary authority to vote
on (i) any proposal presented by a shareholder at that meeting for
which we have not been provided with notice on or prior to August
28, 2021, and (ii) any proposal made in accordance with the bylaw
provisions, if the 2021 Proxy Statement briefly describes the
matter and how management’s proxy holders intend to vote on
it, if the shareholder does not comply with the requirements of
Rule 14a-4(c)(2) under the Exchange Act.
HOUSEHOLDING OF PROXY MATERIALS
The SEC
has adopted rules that permit companies and intermediaries (e.g.,
brokers) to satisfy the delivery requirements for Notices of
Internet Availability of Proxy Materials or other Annual Meeting
materials with respect to two or more shareholders sharing the same
address by delivering a single Notice of Internet Availability of
Proxy Materials or other Annual Meeting materials addressed to
those shareholders. This process, which is commonly referred to as
“householding,” potentially means extra convenience
for shareholders and cost savings for companies.
This
year, a number of brokers with account holders who are Dynatronics
shareholders will be householding our proxy materials. A single
Notice of Internet Availability of Proxy Materials will be
delivered to multiple shareholders sharing an address unless
contrary instructions have been received from the affected
shareholders. Once you have received notice from your broker that
they will be householding communications to your address,
householding will continue until you are notified otherwise or
until you revoke your consent. If, at any time, you no longer wish
to participate in householding and would prefer to receive a
separate Notice of Internet Availability of Proxy Materials, please
notify your broker. Shareholders who currently receive multiple
copies of the Notices of Internet Availability of Proxy Materials
at their addresses and would like to request householding of their
communications should contact their brokers.
The
Board knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are
properly brought before the meeting, it is the intention of the
persons named in the accompanying proxy to vote on such matters in
accordance with their best judgment.
By
Order of the Board of Directors
/s/
Jennifer Keeler
Jennifer
Keeler
General
Counsel and Corporate Secretary
October
27, 2020
A copy of our Annual
Report on Form 10-K for the
fiscal year ended June 30, 2020, is available without charge upon
written request to: Attn: Corporate Secretary, Dynatronics
Corporation, 1200 Trapp Road, Eagan, Minnesota
55121.
To the extent the rules and
regulations adopted by the SEC state that certain information
included in this Proxy
Statement is not deemed “soliciting material” or
“filed” with the
SEC or subject to Regulation
14A promulgated by the SEC or to the liabilities of
Section 18 of the Exchange Act, such
information shall not be deemed incorporated by reference by any
general statement incorporating by reference this
Proxy Statement into any filing under
the Securities Act of 1933, as
amended, or under the Exchange
Act.
DYNATRONICS CORPORATION
2020 EQUITY INCENTIVE PLAN
2020
Equity Incentive Plan Dynatronics Corporation
DYNATRONICS CORPORATION 2020 EQUITY INCENTIVE PLAN
1.1. General
Purpose. The name of this plan is the Dynatronics
Corporation 2020 Equity Incentive Plan (the “Plan”). The purposes of
the Plan are to (a) enable Dynatronics Corporation, a Utah
corporation (the “Company”), and any Affiliate to
attract and retain the types of Employees, Consultants and
Directors who will contribute to the Company’s long-range
success; (b) provide incentives that align the interests of
Employees, Consultants and Directors with those of the shareholders
of the Company; and (c) promote the success of the Company’s
business.
1.2. Eligible
Award Recipients. The persons eligible to receive Awards are
the Employees, Consultants and Directors of the Company and its
Affiliates and such other individuals designated by the Committee
who are reasonably expected to become Employees, Consultants and
Directors after the receipt of Awards.
1.3. Available
Awards. Awards that may be granted under the Plan include:
(a) Incentive Stock Options, (b) Non-qualified Stock Options, (c)
Stock Appreciation Rights, (d) Restricted Awards, (e) Performance
Share Awards, (f) Cash Awards, and (g) Other Equity-Based
Awards.
“Affiliate” means a
corporation or other entity that, directly or through one or more
intermediaries, controls, is controlled by or is under common
control with, the Company.
“Applicable Laws” means
the requirements related to or implicated by the administration of
the Plan under applicable state corporate law, United States
federal and state securities laws, the Code, any stock exchange or
quotation system on which the shares of Common Stock are listed or
quoted, and the applicable laws of any foreign country or
jurisdiction where Awards are granted under the Plan.
“Award” means any right
granted under the Plan, including an Incentive Stock Option, a Non-
qualified Stock Option, a Stock Appreciation Right, a Restricted
Award, a Performance Share Award, a Cash Award, or an Other
Equity-Based Award.
“Award Agreement” means a
written agreement, contract, certificate or other instrument or
document evidencing the terms and conditions of an individual Award
granted under the Plan which may, in the discretion of the Company,
be transmitted electronically to any Participant. Each Award
Agreement shall be subject to the terms and conditions of the
Plan.
“Board” means the Board of
Directors of the Company, as constituted at any time.
“Cash Award” means an
Award denominated in cash that is granted under Section 7.4 of the
Plan.
“Cause” means
(a) With respect to any
Employee or Consultant, unless the applicable Award Agreement
states otherwise:
(i) If the Employee or
Consultant is a party to an employment or service agreement with
the Company or its Affiliates and such agreement provides for a
definition of Cause, the definition contained therein;
or
(ii)
If no such
agreement exists, or if such agreement does not define
Cause:
(1)
the commission of,
or plea of guilty or no contest to, a felony or a crime involving
moral turpitude or the commission of any other act involving
willful malfeasance or material fiduciary breach with respect to
the Company or an Affiliate; (2) conduct that results in or is
reasonably likely to result in harm to the reputation or business
of the Company or any of its Affiliates; (3) gross negligence or
willful misconduct with respect to the Company or an Affiliate; or
(4) material violation of state or federal securities
laws.
(b) With respect to any
Director, unless the applicable Award Agreement states otherwise, a
determination by a majority of the disinterested Board members that
the Director has engaged in any of the following:
(i)
malfeasance in
office;
(ii)
gross misconduct or
neglect;
(iii)
false or fraudulent misrepresentation inducing the director’s
appointment;
(iv)
willful conversion
of corporate funds; or
(v)
repeated failure to
participate in Board meetings on a regular basis despite having
received proper notice of the meetings in advance.
The
Committee, in its absolute discretion, shall determine the effect
of all matters and questions relating to whether a Participant has
been discharged for Cause.
“Change in
Control”
(a) One Person (or more
than one Person acting as a group) acquires ownership of stock of
the Company that, together with the stock held by such person or
group, constitutes more than 50% of the total fair market value or
total voting power of the stock of the Company; provided, that, a Change in Control
shall not occur if any Person (or more than one Person acting as a
group) owns more than 50% of the total fair market value or total
voting power of the Company’s stock and acquires additional
stock;
(b) One Person (or more
than one Person acting as a group) acquires (or has acquired during
the twelve-month period ending on the date of the most recent
acquisition) ownership of the Company’s stock possessing 30%
or more of the total voting power of the stock of such
corporation;
(c) A majority of the
members of the Board are replaced during any twelve-month period by
directors whose appointment or election is not endorsed by a
majority of the Board before the date of appointment or election;
or
(d) One Person (or more
than one Person acting as a group), acquires (or has acquired
during the twelve-month period ending on the date of the most
recent acquisition) assets from the Company that have a total gross
fair market value equal to or more than 40% of the total gross fair
market value of all of the assets of the Company immediately before
such acquisition.
“Code” means the Internal
Revenue Code of 1986, as it may be amended from time to time. Any
reference to a section of the Code shall be deemed to include a
reference to any regulations promulgated thereunder.
“Committee” means a
committee of one or more members of the Board appointed by the
Board to administer the Plan in accordance with Section 3.3 and Section 3.4.
“Common Stock” means the
common stock, no par value per share, of the Company, or such other
securities of the Company as may be designated by the Committee
from time to time in substitution thereof.
“Company” means
Dynatronics Corporation a Utah corporation, and any successor
thereto.
“Consultant” means any
individual or entity which performs bona fide services to the
Company or an Affiliate, other than as an Employee or Director, and
who may be offered securities registerable pursuant to a
registration statement on Form S-8 under the Securities
Act.
“Continuous Service” means
that the Participant’s service with the Company or an
Affiliate, whether as an Employee, Consultant or Director, is not
interrupted or terminated. The Participant’s Continuous
Service shall not be deemed to have terminated merely because of a
change in the capacity in which the Participant renders service to
the Company or an Affiliate as an Employee, Consultant or Director
or a change in the entity for which the Participant renders such
service, provided that
there is no interruption or termination of the Participant’s
Continuous Service; provided
further that if any Award is subject to Section 409A of the
Code, this sentence shall only be given effect to the extent
consistent with Section 409A of the Code. For example, a change in
status from an Employee of the Company to a Director of an
Affiliate will not constitute an interruption of Continuous
Service. The Committee or its delegate, in its sole discretion, may
determine whether Continuous Service shall be considered
interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal
or family leave of absence. The Committee or its delegate, in its
sole discretion, may determine whether a Company transaction, such
as a sale or spin-off of a division or subsidiary that employs a
Participant, shall be deemed to result in a termination of
Continuous Service for purposes of affected Awards, and such
decision shall be final, conclusive and binding.
“Deferred Stock Units
(DSUs)” has
the meaning set forth in Section 7.2
hereof.
“Director” means a member
of the Board.
“Disability” means, unless
the applicable Award Agreement says otherwise, that the Participant
is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental
impairment;provided,
however, for purposes of determining the term of an
Incentive Stock Option pursuant to Section 6.10 hereof, the term
Disability shall have the meaning ascribed to it under Section
22(e)(3) of the Code. The determination of whether an individual
has a Disability shall be determined under procedures established
by the Committee. Except in situations where the Committee is
determining Disability for purposes of the term of an Incentive
Stock Option pursuant to Section 6.10 hereof within the
meaning of Section 22(e)(3) of the Code, the Committee may rely on
any determination that a Participant is disabled for purposes of
benefits under any long-term disability plan maintained by the
Company or any Affiliate in which a Participant
participates.
“Disqualifying
Disposition” has the meaning set forth in Section 14.12.
“Effective Date” shall
mean the date that the Company’s shareholders approve this
Plan if such shareholder approval occurs before the first
anniversary of the date the Plan is adopted by the
Board.
“Employee” means any
person, including an Officer or Director, employed by the Company
or an Affiliate; provided,
that, for purposes of determining eligibility to receive
Incentive Stock Options, an Employee shall mean an employee of the
Company or a parent or subsidiary corporation within the meaning of
Section 424 of the Code. Mere service as a Director or payment of a
director’s fee by the Company or an Affiliate shall not be
sufficient to constitute “employment” by the Company or
an Affiliate.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended.
“Fair Market Value” means,
as of any date, the value of the Common Stock as determined below.
If the Common Stock is listed on any established stock exchange or
a national market system, including without
“Fiscal Year” means the
Company’s fiscal year, ending June 30.
“Free Standing Rights” has
the meaning set forth in Section 7.1(a).
“Good Reason” means,
unless the applicable Award Agreement states
otherwise:
(a) If an Employee or
Consultant is a party to an employment or service agreement with
the Company or its Affiliates and such agreement provides for a
definition of Good Reason, the definition contained therein;
or
(b) If no such
agreement exists or if such agreement does not define Good Reason,
the occurrence of one or more of the following without the
Participant’s express written consent, which circumstances
are not remedied by the Company within thirty (30) days of its
receipt of a written notice from the Participant describing the
applicable circumstances (which notice must be provided by the
Participant within ninety (90) days of the Participant’s
knowledge of the applicable circumstances): (i) any material,
adverse change in the Participant’s duties, responsibilities,
authority, title, status or reporting structure; (ii) a material
reduction in the Participant’s base salary or bonus
opportunity; or (iii) a geographical relocation of the
Participant’s principal office location by more than fifty
(50) miles.
“Grant Date” means the
date on which the Committee adopts a resolution, or takes other
appropriate action, expressly granting an Award to a Participant
that specifies the key terms and conditions of the Award or, if a
later date is set forth in such resolution, then such date as is
set forth in such resolution.
“Incentive Stock Option”
means an Option that is designated by the Committee as an incentive
stock option within the meaning of Section 422 of the Code and that
meets the requirements set out in the Plan.
“Non-Employee Director”
means a Director who is a “non-employee director”
within the meaning of Rule 16b-3.
“Non-qualified Stock
Option” means an Option that by its terms does not
qualify or is not intended to qualify as an Incentive Stock
Option.
“Officer” means a person
who is an officer of the Company within the meaning of Section 16
of the Exchange Act and the rules and regulations promulgated
thereunder.
“Option” means an
Incentive Stock Option or a Non-qualified Stock Option granted
pursuant to the
Plan.
“Optionholder” means a
person to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding
Option.
“Option Exercise Price”
means the price at which a share of Common Stock may be purchased
upon the exercise of an Option.
“Other Equity-Based Award”
means an Award that is not an Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, or Performance Share Award
that is granted under Section 7.4 and is payable by
delivery of Common Stock and/or which is measured by reference to
the value of Common Stock.
“Participant” means an
eligible person to whom an Award is granted pursuant to the Plan
or, if applicable, such other person who holds an outstanding
Award.
“Performance Goals” means,
for a Performance Period, the one or more goals established by the
Committee for the Performance Period based upon business criteria
or other performance measures determined by the Committee in its
discretion.
“Performance Period” means
the one or more periods of time, as the Committee may select, over
which the attainment of one or more Performance Goals will be
measured for the purpose of determining a Participant’s right
to and the payment of a Performance Share Award or a Cash
Award.
“Performance Share Award”
means any Award granted pursuant to Section 7.3
hereof.
“Performance Share” means
the grant of a right to receive a number of actual shares of Common
Stock or share units based upon the performance of the Company
during a Performance Period, as determined by the
Committee.
“Permitted Transferee”
means: (a) a member of the Optionholder’s immediate family
(child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in- law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships), any person
sharing the Optionholder’s household (other than a tenant or
employee), a trust in which these persons have more than 50% of the
beneficial interest, a foundation in which these persons (or the
Optionholder) control the management of assets, and any other
entity in which these persons (or the Optionholder) own more than
50% of the voting interests; (b) third parties designated by the
Committee in connection with a program established and approved by
the Committee pursuant to which Participants may receive a cash
payment or other consideration in consideration for the transfer of
a Non-qualified Stock Option; and (c) such other transferees as may
be permitted by the Committee in its sole discretion.
“Person” means a person as
defined in Section 13(d)(3) of the Exchange Act.
“Plan” means this
Dynatronics Corporation 2020 Equity Incentive Plan, as amended
and/or amended and restated from time to time.
“Related Rights” has the
meaning set forth in Section 7.1(a).
“Restricted Award” means
any Award granted pursuant to Section 7.2(a).
“Restricted Period” has
the meaning set forth in Section 7.2(a).
“Rule 16b-3” means Rule
16b-3 promulgated under the Exchange Act or any successor to Rule
16b-3, as in effect from time to time.
“Securities Act” means the
Securities Act of 1933, as amended.
“Stock Appreciation Right”
means the right pursuant to an Award granted under Section 7.1 to receive, upon
exercise, an amount payable in cash or shares equal to the number
of shares subject to the Stock Appreciation Right that is being
exercised multiplied by the excess of (a) the Fair Market Value of
a share of Common Stock on the date the Award is exercised, over
(b) the exercise price specified in the Stock Appreciation Right
Award Agreement.
“Stock for Stock Exchange”
has the meaning set forth in Section 6.4.
“Substitute Award” has the
meaning set forth in Section 4.6.
“Ten Percent Shareholder”
means a person who owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of
any of its Affiliates.
“Total Share Reserve” has
the meaning set forth in Section 4.1.
3.1. Authority
of Committee. The Plan shall be administered by the
Committee or, in the Board’s sole discretion, by the Board.
Subject to the terms of the Plan, the Committee’s charter and
Applicable Laws, and in addition to other express powers and
authorization conferred by the Plan, the Committee shall have the
authority:
(a)
to construe and interpret the Plan and apply its
provisions;
(b) to promulgate,
amend, and rescind rules and regulations relating to the
administration of the Plan;
(c) to authorize any
person to execute, on behalf of the Company, any instrument
required to carry out the purposes of the Plan;
(d) to delegate its
authority to one or more Officers of the Company with respect to
Awards that do not involve “insiders” within the
meaning of Section 16 of the Exchange Act;
(e)
to determine when Awards are to be granted under
the Plan and the applicable Grant
Date;
(f) from time to time
to select, subject to the limitations set forth in this Plan, those
eligible Award recipients to whom Awards shall be
granted;
(g)
to determine the number of shares of Common
Stock to be made subject to each Award;
(h)
to determine whether each Option is to be an
Incentive Stock Option or a Non-qualified Stock
Option;
(i) to prescribe the
terms and conditions of each Award, including, without limitation,
the exercise price and medium of payment and vesting provisions,
and to specify the provisions of the Award Agreement relating to
such grant;
(j) to determine the
target number of Performance Shares to be granted pursuant to a
Performance Share Award, the performance measures that will be used
to establish the Performance Goals, the Performance Period(s) and
the number of Performance Shares earned by a
Participant;
(k) to amend any
outstanding Awards, including for the purpose of modifying the time
or manner of vesting, or the term of any outstanding Award;
provided, however, that if
any such amendment impairs a Participant’s rights or
increases a Participant’s obligations under his or her Award
or creates or increases a Participant’s federal income tax
liability with respect to an Award, such amendment shall also be
subject to the Participant’s consent;
(l) to determine the
duration and purpose of leaves of absences which may be granted to
a Participant without constituting termination of their employment
for purposes of the Plan, which periods shall be no
shorter than the periods generally applicable to Employees under
the Company’s employment policies;
(m) to make decisions
with respect to outstanding Awards that may become necessary upon a
change in corporate control or an event that triggers anti-dilution
adjustments;
(n) to interpret,
administer, reconcile any inconsistency in, correct any defect in
and/or supply any omission in the Plan and any instrument or
agreement relating to, or Award granted under, the Plan;
and
(o) to exercise
discretion to make any and all other determinations which it
determines to be necessary or advisable for the administration of
the Plan.
The
Committee also may modify the purchase price or the exercise price
of any outstanding Award, provided
that if the modification
effects a repricing, shareholder approval shall be required before
the repricing is effective.
3.2. Committee
Decisions Final. All decisions made by the Committee
pursuant to the provisions of the Plan shall be final and binding
on the Company and the Participants, unless such decisions are
determined by a court having jurisdiction to be arbitrary and
capricious.
3.3. Delegation.
The Committee or, if no Committee has been appointed, the Board may
delegate administration of the Plan to a committee or committees of
one or more members of the Board, and the term “Committee” shall apply to
any person or persons to whom such authority has been delegated.
The Committee shall have the power to delegate to a subcommittee
any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board or the Committee
shall thereafter be to the committee or subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions
of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board
the administration of the Plan. The members of the Committee shall
be appointed by and serve at the pleasure of the Board. From time
to time, the Board may increase or decrease the size of the
Committee, add additional members to, remove members (with or
without cause) from, appoint new members in substitution therefor,
and fill vacancies, however caused, in the Committee. The Committee
shall act pursuant to a vote of the majority of its members or, in
the case of a Committee comprised of only two members, the
unanimous consent of its members, whether present or not, or by the
written consent of the majority of its members and minutes shall be
kept of all of its meetings and copies thereof shall be provided to
the Board. Subject to the limitations prescribed by the Plan and
the Board, the Committee may establish and follow such rules and
regulations for the conduct of its business as it may determine to
be advisable.
3.4. Committee
Composition. Except as otherwise determined by the Board,
the Committee shall consist solely of two or more Non-Employee
Directors. The Board shall have discretion to determine whether or
not it intends to comply with the exemption requirements of Rule
16b-3. However, if the Board intends to satisfy such exemption
requirements, with respect to any insider subject to Section 16 of
the Exchange Act, the Committee shall be a compensation committee
of the Board that at all times consists solely of two or more Non-
Employee Directors. Within the scope of such authority, the Board
or the Committee may delegate to a committee of one or more members
of the Board who are not Non-Employee Directors the authority to
grant Awards to eligible persons who are not then subject to
Section 16 of the Exchange Act. Nothing herein shall create an
inference that an Award is not validly granted under the Plan in
the event Awards are granted under the Plan by a compensation
committee of the Board that does not at all times consist solely of
two or more Non-Employee Directors.
3.5. Indemnification.
In addition to such other rights of indemnification as they may
have as Directors or members of the Committee, and to the extent
allowed by Applicable Laws, the Committee shall be indemnified by
the Company against the reasonable expenses, including
attorney’s fees, actually incurred in connection with any
action, suit or proceeding or in connection with any appeal
therein, to which the Committee may be party by
reason of any action taken or failure to act under or in connection
with the Plan or any Award granted under the Plan, and against all
amounts paid by the Committee in settlement thereof (provided, however, that the settlement
has been approved by the Company, which approval shall not be
unreasonably withheld) or paid by the Committee in satisfaction of
a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such Committee did not act in good
faith and in a manner which such person reasonably believed to be
in the best interests of the Company, or in the case of a criminal
proceeding, had no reason to believe that the conduct complained of
was unlawful;provided,
however, that within 60 days after the institution of any
such action, suit or proceeding, such Committee shall, in writing,
offer the Company the opportunity at its own expense to handle and
defend such action, suit or proceeding.
4.
Shares Subject to the
Plan.
4.1. Total
Share Reserve. Subject to adjustment in accordance with
Section 11, no more
than One Million (1,000,000) shares of Common Stock plus the number
of shares of Common Stock underlying any award granted under the
Dynatronics Corporation 2015 Equity Incentive Award Plan and the
Dynatronics Corporation 2018 Equity Incentive Award Plan (the
“Prior
Plans”) that expires, terminates or is canceled or
forfeited under the terms of the Prior Plans shall be available for
the grant of Awards under the Plan (the “Total Share Reserve”).
Any shares of Common Stock granted in connection with Options and
Stock Appreciation Rights shall be counted against this limit as
one (1) share for every one (1) Option or Stock Appreciation Right
awarded. Any shares of Common Stock granted in connection with
Awards other than Options and Stock Appreciation Rights shall be
counted against this limit as one (1) share of Common Stock for
every one (1) share of Common Stock granted in connection with such
Award. During the terms of the Awards, the Company shall keep
available at all times the number of shares of Common Stock
required to satisfy such Awards.
4.2. Shares
Available for Distribution. Shares of Common Stock available
for distribution under the Plan may consist, in whole or in part,
of authorized and unissued shares, treasury shares or shares
reacquired by the Company in any manner.
4.3. Incentive
Stock Option Share Limit. Subject to adjustment in
accordance with Section
11, no more than One Million (1,000,000) shares of Common
Stock may be issued in the aggregate pursuant to the exercise of
Incentive Stock Options (the “ISO Limit”).
4.4. Single
Fiscal Year Share Limit. The maximum number of shares of
Common Stock subject to Awards granted during a single Fiscal Year
to any Director, together with any cash fees paid to such Director
during the Fiscal Year shall not exceed a total value of $300,000
(calculating the value of any Awards based on the grant date fair
value for financial reporting purposes).
4.5. Treatment
of Canceled, Forfeited, or Terminated Award Shares. Any
shares of Common Stock subject to an Award that expires or is
canceled, forfeited, or terminated without issuance of the full
number of shares of Common Stock to which the Award related will
again be available for issuance under the Plan. Any shares of
Common Stock that again become available for future grants pursuant
to this Section 4.5
shall be added back as one (1) share if such shares were subject to
Options or Stock Appreciation Rights and as one (1) share if such
shares were subject to other Awards. Notwithstanding anything to
the contrary contained herein: shares subject to an Award under the
Plan shall not again be made available for issuance or delivery
under the Plan if such shares are (a) shares tendered in payment of
an Option, (b) shares delivered or withheld by the Company to
satisfy any tax withholding obligation, or (c) shares covered by a
stock-settled Stock Appreciation Right or other Awards that were
not issued upon the settlement of the Award.
4.6. Substitute
Awards. Awards may, in the sole discretion of the Committee,
be granted under the Plan in assumption of, or in substitution for,
outstanding awards previously granted by an entity acquired by the
Company or with which the Company combines (“Substitute Awards”).
Substitute Awards shall not be counted against the Total Share
Reserve; provided, that,
Substitute Awards issued in connection with the assumption of, or
in substitution for, outstanding options intended to qualify as
Incentive Stock Options shall be counted against the ISO Limit.
Subject to applicable stock exchange requirements, available shares
under a shareholder-approved plan of an entity directly or
indirectly acquired by the Company or with which the Company
combines (as appropriately adjusted to reflect such acquisition or
transaction) may be used for Awards under the Plan and shall not
count toward the Total Share Limit.
5.1. Eligibility
for Specific Awards. Incentive Stock Options may be granted
only to Employees. Awards other than Incentive Stock Options may be
granted to Employees, Consultants and Directors and those
individuals whom the Committee determines are reasonably expected
to become Employees, Consultants and Directors following the Grant
Date.
5.2. Ten
Percent Shareholders. A Ten Percent Shareholder shall not be
granted an Incentive Stock Option unless the Option Exercise Price
is at least 110% of the Fair Market Value of the Common Stock on
the Grant Date and the Option is not exercisable after the
expiration of five years from the Grant Date.
6. Option Provisions. Each Option
granted under the Plan shall be evidenced by an Award Agreement.
Each Option so granted shall be subject to the conditions set forth
in this Section 6,
and to such other conditions not inconsistent with the Plan as may
be reflected in the applicable Award Agreement. All Options shall
be separately designated Incentive Stock Options or Non-qualified
Stock Options at the time of grant, and, if certificates are
issued, a separate certificate or certificates will be issued for
shares of Common Stock purchased on exercise of each type of
Option. Notwithstanding the foregoing, the Company shall have no
liability to any Participant or any other person if an Option
designated as an Incentive Stock Option fails to qualify as such at
any time or if an Option is determined to constitute
“nonqualified deferred compensation” within the meaning
of Section 409A of the Code and the terms of such Option do not
satisfy the requirements of Section 409A of the Code. The
provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the
following provisions:
6.1. Term.
Subject to the provisions of Section 5.2 regarding Ten
Percent Shareholders, no Incentive Stock Option shall be
exercisable after the expiration of 10 years from the Grant Date.
The term of a Non-qualified Stock Option granted under the Plan
shall be determined by the Committee; provided, however, no Non-qualified
Stock Option shall be exercisable after the expiration of 10 years
from the Grant Date.
6.2. Exercise
Price of an Incentive Stock Option. Subject to the
provisions of Section
5.2 regarding Ten Percent Shareholders, the Option Exercise
Price of each Incentive Stock Option shall be not less than 100% of
the Fair Market Value of the Common Stock subject to the Option on
the Grant Date. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an Option Exercise Price lower than that
set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a
manner satisfying the provisions of Section 424(a) of the
Code.
6.3. Exercise
Price of a Non-qualified Stock Option. The Option Exercise
Price of each Non- qualified Stock Option shall be not less than
100% of the Fair Market Value of the Common Stock subject to the
Option on the Grant Date. Notwithstanding the foregoing, a
Non-qualified Stock Option may be granted with an Option Exercise
Price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section
409A of the Code.
6.4. Consideration.
The Option Exercise Price of Common Stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (a) in cash or by certified or
bank check at the time the Option is exercised or (b) in the
discretion of the Committee, upon such terms as the Committee shall
approve, the Option Exercise Price may be paid: (i) by delivery to
the Company of other Common Stock, duly endorsed for transfer to
the Company, with a Fair Market Value on the date of
delivery equal to the Option
Exercise Price (or portion thereof) due for the number of shares
being acquired, or by means of attestation whereby the Participant
identifies for delivery specific shares of Common Stock that have
an aggregate Fair Market Value on the date of attestation equal to
the Option Exercise Price (or portion thereof) and receives a
number of shares of Common Stock equal to the difference between
the number of shares thereby purchased and the number of identified
attestation shares of Common Stock (a “Stock for Stock
Exchange”); (ii) a “cashless” exercise
program established with a broker; (iii) by reduction in the number
of shares of Common Stock otherwise deliverable upon exercise of
such Option with a Fair Market Value equal to the aggregate Option
Exercise Price at the time of exercise; (iv) by any combination of
the foregoing methods; or (v) in any other form of legal
consideration that may be acceptable to the Committee. Unless
otherwise specifically provided in the Option, the exercise price
of Common Stock acquired pursuant to an Option that is paid by
delivery (or attestation) to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid
only by shares of the Common Stock of the Company that have been
held for more than six months (or such longer or shorter period of
time required to avoid a charge to earnings for financial
accounting purposes). Notwithstanding the foregoing, during any
period for which the Common Stock is publicly traded (i.e., the
Common Stock is listed on any established stock exchange or a
national market system) an exercise by a Director or Officer that
involves or may involve a direct or indirect extension of credit or
arrangement of an extension of credit by the Company, directly or
indirectly, in violation of Section 402(a) of the Sarbanes-Oxley
Act of 2002 shall be prohibited with respect to any Award under
this Plan.
6.5. Transferability
of an Incentive Stock Option. An Incentive Stock Option
shall not be transferable except by will or by the laws of descent
and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to
the Company, in a form satisfactory to the Company, designate a
third party who, in the event of the death of the Optionholder,
shall thereafter be entitled to exercise the Option.
6.6. Transferability
of a Non-qualified Stock Option. A Non-qualified Stock
Option may, in the sole discretion of the Committee, be
transferable to a Permitted Transferee, upon written approval by
the Committee to the extent provided in the Award Agreement. If the
Non-qualified Stock Option does not provide for transferability,
then the Non-qualified Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Optionholder only by the
Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory
to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise
the Option.
6.7. Vesting
of Options. Each Option may, but need not, vest and
therefore become exercisable in periodic installments that may, but
need not, be equal. The Option may be subject to such other terms
and conditions on the time or times when it may be exercised (which
may be based on performance or other criteria) as the Committee may
deem appropriate. The vesting provisions of individual Options may
vary. No Option may be exercised for a fraction of a share of
Common Stock. The Committee may, but shall not be required to,
provide for an acceleration of vesting and exercisability in the
terms of any Award Agreement upon the occurrence of a specified
event.
6.8. Termination
of Continuous Service. Unless otherwise provided in an Award
Agreement or in an employment agreement the terms of which have
been approved by the Committee, in the event an
Optionholder’s Continuous Service terminates (other than upon
the Optionholder’s death or Disability), the Optionholder may
exercise his or her Option (to the extent that the Optionholder was
entitled to exercise such Option as of the date of termination) but
only within such period of time ending on the earlier of (a) the
date three months following the termination of the
Optionholder’s Continuous Service or (b) the expiration of
the term of the Option as set forth in the Award Agreement;
provided that, if the
termination of Continuous Service is by the Company for Cause, all
outstanding Options (whether or not vested) shall immediately
terminate and cease to be exercisable. If, after termination, the
Optionholder does not exercise his or her Option within the time
specified in the Award Agreement, the Option shall
terminate.
6.9. Extension
of Termination Date. An Optionholder’s Award Agreement
may also provide that if the exercise of the Option following the
termination of the Optionholder’s Continuous Service for any
reason would be prohibited at any time because the issuance of
shares of Common Stock would violate the registration requirements
under the Securities Act or any other state or federal securities
law or the rules of any securities exchange or interdealer
quotation system, then the Option shall terminate on the earlier of
(a) the expiration of the term of the Option in accordance with
Section 6.1 or (b)
the expiration of a period after termination of the
Participant’s Continuous Service that is three months after
the end of the period during which the exercise of the Option would
be in violation of such registration or other securities law
requirements.
6.10. Disability
of Optionholder. Unless otherwise provided in an Award
Agreement, in the event that an Optionholder’s Continuous
Service terminates as a result of the Optionholder’s
Disability, the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise such Option
as of the date of termination), but only within such period of time
ending on the earlier of (a) the date 12 months following such
termination or (b) the expiration of the term of the Option as set
forth in the Award Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time
specified herein or in the Award Agreement, the Option shall
terminate.
6.11. Death
of Optionholder. Unless otherwise provided in an Award
Agreement, in the event an Optionholder’s Continuous Service
terminates as a result of the Optionholder’s death, then the
Option may be exercised (to the extent the Optionholder was
entitled to exercise such Option as of the date of death) by the
Optionholder’s estate, by a person who acquired the right to
exercise the Option by bequest or inheritance or by a person
designated to exercise the Option upon the Optionholder’s
death, but only within the period ending on the earlier of (a) the
date 12 months following the date of death or (b) the expiration of
the term of such Option as set forth in the Award Agreement. If,
after the Optionholder’s death, the Option is not exercised
within the time specified herein or in the Award Agreement, the
Option shall terminate.
6.12. Incentive
Stock Option $100,000 Limitation. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of
Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionholder during any
calendar year (under all plans of the Company and its Affiliates)
exceeds $100,000, the Options or portions thereof which exceed such
limit (according to the order in which they were granted) shall be
treated as Non-qualified Stock Options.
7.
Provisions of Awards Other Than
Options.
7.1.
Stock Appreciation
Rights.
(a) General. Each Stock
Appreciation Right granted under the Plan shall be evidenced by an
Award Agreement. Each Stock Appreciation Right so granted shall be
subject to the conditions set forth in this Section 7.1, and to such other
conditions not inconsistent with the Plan as may be reflected in
the applicable Award Agreement. Stock Appreciation Rights may be
granted alone (“Free
Standing Rights”) or in tandem with an Option granted
under the Plan (“Related
Rights”).
(b) Grant Requirements. Any Related
Right that relates to a Non-qualified Stock Option may be granted
at the same time the Option is granted or at any time thereafter
but before the exercise or expiration of the Option. Any Related
Right that relates to an Incentive Stock Option must be granted at
the same time the Incentive Stock Option is granted.
(c) Term of Stock Appreciation
Rights. The term of a Stock Appreciation Right granted under
the Plan shall be determined by the Committee;provided, however, no Stock
Appreciation Right shall be exercisable later than the tenth
anniversary of the Grant Date.
(d) Vesting of Stock Appreciation
Rights. Each Stock Appreciation Right may, but need not,
vest and therefore become exercisable in periodic installments that
may, but need not, be equal. The Stock Appreciation
Right may be subject to such other terms and conditions on the time
or times when it may be exercised as the Committee may deem
appropriate. The vesting provisions of individual Stock
Appreciation Rights may vary. No Stock Appreciation Right may be
exercised for a fraction of a share of Common Stock. The Committee
may, but shall not be required to, provide for an acceleration of
vesting and exercisability in the terms of any Stock Appreciation
Right upon the occurrence of a specified event.
(e) Exercise and Payment. Upon
exercise of a Stock Appreciation Right, the holder shall be
entitled to receive from the Company an amount equal to the number
of shares of Common Stock subject to the Stock Appreciation Right
that is being exercised multiplied by the excess of (i) the Fair
Market Value of a share of Common Stock on the date the Award is
exercised, over (ii) the exercise price specified in the Stock
Appreciation Right or related Option. Payment with respect to the
exercise of a Stock Appreciation Right shall be made on the date of
exercise. Payment shall be made in the form of shares of Common
Stock (with or without restrictions as to substantial risk of
forfeiture and transferability, as determined by the Committee in
its sole discretion), cash or a combination thereof, as determined
by the Committee.
(f) Exercise Price. The exercise
price of a Free Standing Right shall be determined by the
Committee, but shall not be less than 100% of the Fair Market Value
of one share of Common Stock on the Grant Date of such Stock
Appreciation Right. A Related Right granted simultaneously with or
subsequent to the grant of an Option and in conjunction therewith
or in the alternative thereto shall have the same exercise price as
the related Option, shall be transferable only upon the same terms
and conditions as the related Option, and shall be exercisable only
to the same extent as the related Option;provided, however, that a Stock
Appreciation Right, by its terms, shall be exercisable only when
the Fair Market Value per share of Common Stock subject to the
Stock Appreciation Right and related Option exceeds the exercise
price per share thereof and no Stock Appreciation Rights may be
granted in tandem with an Option unless the Committee determines
that the requirements of Section 7.1(b) are
satisfied.
(g) Reduction in the Underlying Option
Shares. Upon any exercise of a Related Right, the number of
shares of Common Stock for which any related Option shall be
exercisable shall be reduced by the number of shares for which the
Stock Appreciation Right has been exercised. The number of shares
of Common Stock for which a Related Right shall be exercisable
shall be reduced upon any exercise of any related Option by the
number of shares of Common Stock for which such Option has been
exercised.
(a) General. A Restricted Award is
an Award of actual shares of Common Stock (“Restricted Stock”) or
hypothetical Common Stock units (“Restricted Stock Units”)
having a value equal to the Fair Market Value of an identical
number of shares of Common Stock, which may, but need not, provide
that such Restricted Award may not be sold, assigned, transferred
or otherwise disposed of, pledged or hypothecated as collateral for
a loan or as security for the performance of any obligation or for
any other purpose for such period (the “Restricted Period”) as
the Committee shall determine. Each Restricted Award granted under
the Plan shall be evidenced by an Award Agreement. Each Restricted
Award so granted shall be subject to the conditions set forth in
this Section 7.2,
and to such other conditions not inconsistent with the Plan as may
be reflected in the applicable Award Agreement.
(b) Restricted Stock and Restricted Stock
Units.
(i) Each Participant
granted Restricted Stock shall execute and deliver to the Company
an Award Agreement with respect to the Restricted Stock setting
forth the restrictions and other terms and conditions applicable to
such Restricted Stock. If the Committee determines that the
Restricted Stock shall be held by the Company or in escrow rather
than delivered to the Participant pending the release of the
applicable restrictions, the Committee may require the Participant
to additionally execute and deliver to the Company (A) an escrow
agreement satisfactory to the Committee, if applicable and (B) the
appropriate blank stock power with respect to the Restricted Stock
covered by such agreement. If a Participant fails to execute
an agreement
evidencing an Award of Restricted Stock and, if applicable, an
escrow agreement and stock power, the Award shall be null and void.
Subject to the restrictions set forth in the Award, the Participant
generally shall have the rights and privileges of a shareholder as
to such Restricted Stock, including the right to vote such
Restricted Stock and the right to receive dividends;provided that, any cash dividends and
stock dividends with respect to the Restricted Stock shall be
withheld by the Company for the Participant’s account, and
interest may be credited on the amount of the cash dividends
withheld at a rate and subject to such terms as determined by the
Committee. The cash dividends or stock dividends so withheld by the
Committee and attributable to any particular share of Restricted
Stock (and earnings thereon, if applicable) shall be distributed to
the Participant in cash or, at the discretion of the Committee, in
shares of Common Stock having a Fair Market Value equal to the
amount of such dividends, if applicable, upon the release of
restrictions on such share and, if such share is forfeited, the
Participant shall have no right to such dividends.
(ii) The
terms and conditions of a grant of Restricted Stock Units shall be
reflected in an Award Agreement. No shares of Common Stock shall be
issued at the time a Restricted Stock Unit is granted, and the
Company will not be required to set aside funds for the payment of
any such Award. A Participant shall have no voting rights with
respect to any Restricted Stock Units granted hereunder. The
Committee may also grant Restricted Stock Units with a deferral
feature, whereby settlement is deferred beyond the vesting date
until the occurrence of a future payment date or event set forth in
an Award Agreement (“Deferred Stock Units”).
At the discretion of the Committee, each Restricted Stock Unit or
Deferred Stock Unit (representing one share of Common Stock) may be
credited with an amount equal to the cash and stock dividends paid
by the Company in respect of one share of Common Stock
(“Dividend
Equivalents”). Dividend Equivalents shall be withheld
by the Company and credited to the Participant’s account, and
interest may be credited on the amount of cash Dividend Equivalents
credited to the Participant’s account at a rate and subject
to such terms as determined by the Committee. Dividend Equivalents
credited to a Participant’s account and attributable to any
particular Restricted Stock Unit or Deferred Stock Unit (and
earnings thereon, if applicable) shall be distributed in cash or,
at the discretion of the Committee, in shares of Common Stock
having a Fair Market Value equal to the amount of such Dividend
Equivalents and earnings, if applicable, to the Participant upon
settlement of such Restricted Stock Unit or Deferred Stock Unit
and, if such Restricted Stock Unit or Deferred Stock Unit is
forfeited, the Participant shall have no right to such Dividend
Equivalents.
(i) Restricted Stock
awarded to a Participant shall be subject to the following
restrictions until the expiration of the Restricted Period, and to
such other terms and conditions as may be set forth in the
applicable Award Agreement: (A) if an escrow arrangement is used,
the Participant shall not be entitled to delivery of the stock
certificate; (B) the shares shall be subject to the restrictions on
transferability set forth in the Award Agreement; (C) the shares
shall be subject to forfeiture to the extent provided in the
applicable Award Agreement; and (D) to the extent such shares are
forfeited, the stock certificates shall be returned to the Company,
and all rights of the Participant to such shares and as a
shareholder with respect to such shares shall terminate without
further obligation on the part of the Company.
(ii) Restricted
Stock Units and Deferred Stock Units awarded to any Participant
shall be subject to (A) forfeiture until the expiration of the
Restricted Period, and satisfaction of any applicable Performance
Goals during such period, to the extent provided in the applicable
Award Agreement, and to the extent such Restricted Stock Units or
Deferred Stock Units are forfeited, all rights of the Participant
to such Restricted Stock Units or Deferred Stock Units shall
terminate without further obligation on the part of the Company and
(B) such other terms and conditions as may be set forth in the
applicable Award Agreement.
(iii) The
Committee shall have the authority to remove any or all of the
restrictions on the Restricted Stock, Restricted Stock Units and
Deferred Stock Units whenever it may determine that, by reason of
changes in Applicable Laws or other changes in circumstances
arising after the date the Restricted Stock or Restricted Stock
Units or Deferred Stock Units are granted, such action is
appropriate.
(d) Restricted Period. With respect
to Restricted Awards, the Restricted Period shall commence on the
Grant Date and end at the time or times set forth on a schedule
established by the Committee in the applicable Award Agreement. No
Restricted Award may be granted or settled for a fraction of a
share of Common Stock. The Committee may, but shall not be required
to, provide for an acceleration of vesting in the terms of any
Award Agreement upon the occurrence of a specified
event.
(e) Delivery of Restricted Stock and
Settlement of Restricted Stock Units. Upon the expiration of
the Restricted Period with respect to any shares of Restricted
Stock, the restrictions set forth in Section 7.2(c) and the
applicable Award Agreement shall be of no further force or effect
with respect to such shares, except as set forth in the applicable
Award Agreement. If an escrow arrangement is used, upon such
expiration, the Company shall deliver to the Participant, or his or
her beneficiary, without charge, the stock certificate evidencing
the shares of Restricted Stock which have not then been forfeited
and with respect to which the Restricted Period has expired (to the
nearest full share) and any cash dividends or stock dividends
credited to the Participant’s account with respect to such
Restricted Stock and the interest thereon, if any. Upon the
expiration of the Restricted Period with respect to any outstanding
Restricted Stock Units, or at the expiration of the deferral period
with respect to any outstanding Deferred Stock Units, the Company
shall deliver to the Participant, or his or her beneficiary,
without charge, one share of Common Stock for each such outstanding
vested Restricted Stock Unit or Deferred Stock Unit
(“Vested
Unit”) and cash equal to any Dividend Equivalents
credited with respect to each such Vested Unit in accordance with
Section 7.2(b)(ii)
hereof and the interest thereon or, at the discretion of the
Committee, in shares of Common Stock having a Fair Market Value
equal to such Dividend Equivalents and the interest thereon, if
any;provided, however,
that, if explicitly provided in the applicable Award Agreement, the
Committee may, in its sole discretion, elect to pay cash or part
cash and part Common Stock in lieu of delivering only shares of
Common Stock for Vested Units. If a cash payment is made in lieu of
delivering shares of Common Stock, the amount of such payment shall
be equal to the Fair Market Value of the Common Stock as of the
date on which the Restricted Period lapsed in the case of
Restricted Stock Units, or the delivery date in the case of
Deferred Stock Units, with respect to each Vested
Unit.
(f) Stock Restrictions. Each
certificate representing Restricted Stock awarded under the Plan
shall bear a legend in such form as the Company deems
appropriate.
7.3.
Performance Share
Awards.
(a) Grant of Performance Share
Awards. Each Performance Share Award granted under the Plan
shall be evidenced by an Award Agreement. Each Performance Share
Award so granted shall be subject to the conditions set forth in
this Section 7.3,
and to such other conditions not inconsistent with the Plan as may
be reflected in the applicable Award Agreement. The Committee shall
have the discretion to determine:
(i)
the number of
shares of Common Stock or stock-denominated units subject to a
Performance Share Award granted to any Participant; (ii) the
Performance Period applicable to any Award; (iii) the conditions
that must be satisfied for a Participant to earn an Award; and (iv)
the other terms, conditions and restrictions of the
Award.
(b) Earning Performance Share
Awards. The number of Performance Shares earned by a
Participant will depend on the extent to which the performance
goals established by the Committee are attained within the
applicable Performance Period, as determined by the
Committee.
7.4. Other
Equity-Based Awards and Cash Awards. The Committee may grant
Other Equity- Based Awards, either alone or in tandem with other
Awards, in such amounts and subject to such conditions as the
Committee shall determine in its sole discretion. Each Equity-Based
Award shall be evidenced by an Award Agreement and shall be subject
to such conditions, not inconsistent with the Plan, as may be
reflected in the applicable Award Agreement. The Committee may
grant Cash Awards in such amounts and subject to such Performance
Goals, other vesting conditions, and such other terms as the
Committee determines in its discretion. Cash Awards shall be
evidenced in such form as the Committee may determine.
8. Securities Law Compliance. Each
Award Agreement shall provide that no shares of Common Stock shall
be purchased or sold thereunder unless and until (a) any then
applicable requirements of state or federal laws and regulatory
agencies have been fully complied with to the satisfaction of the
Company and its counsel, and(b) if required to do so by the
Company, the Participant has executed and delivered to the Company
a letter of investment intent in such form and containing such
provisions as the Committee may require. The Company shall use
reasonable efforts to seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such
authority as may be required to grant Awards and to issue and sell
shares of Common Stock upon exercise of the Awards;provided, however, that this
undertaking shall not require the Company to register under the
Securities Act the Plan, any Award or any Common Stock issued or
issuable pursuant to any such Award. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission
or agency the authority which counsel for the Company deems
necessary for the lawful issuance and sale of Common Stock under
the Plan, the Company shall be relieved from any liability for
failure to issue and sell Common Stock upon exercise of such Awards
unless and until such authority is obtained.
9. Use of Proceeds from Stock.
Proceeds from the sale of Common Stock pursuant to Awards, or upon
exercise thereof, shall constitute general funds of the
Company.
10.1. Acceleration
of Exercisability and Vesting. The Committee shall have the
power to accelerate the time at which an Award may first be
exercised or the time during which an Award or any part thereof
will vest in accordance with the Plan, notwithstanding the
provisions in the Award stating the time at which it may first be
exercised or the time during which it will vest.
10.2. Shareholder
Rights. Except as provided in the Plan or an Award
Agreement, no Participant shall be deemed to be the holder of, or
to have any of the rights of a holder with respect to, any shares
of Common Stock subject to such Award unless and until such
Participant has satisfied all requirements for exercise of the
Award pursuant to its terms and no adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities
or other property) or distributions of other rights for which the
record date is prior to the date such Common Stock certificate is
issued, except as provided in Section 11 hereof.
10.3. No
Employment or Other Service Rights. Nothing in the Plan or
any instrument executed or Award granted pursuant thereto shall
confer upon any Participant any right to continue to serve the
Company or an Affiliate in the capacity in effect at the time the
Award was granted or shall affect the right of the Company or an
Affiliate to terminate (a) the employment of an Employee with or
without notice and with or without Cause or (b) the service of a
Director pursuant to the Bylaws of the Company or an Affiliate, and
any applicable provisions of the corporate law of the state in
which the Company or the Affiliate is incorporated, as the case may
be.
10.4. Transfer;
Approved Leave of Absence. For purposes of the Plan, no
termination of employment by an Employee shall be deemed to result
from either (a) a transfer of employment to the Company from an
Affiliate or from the Company to an Affiliate, or from one
Affiliate to another, or (b) an approved leave of absence for
military service or sickness, or for any other purpose approved by
the Company, if the Employee’s right to reemployment is
guaranteed either by a statute or by contract or under the policy
pursuant to which the leave of absence was granted or if the
Committee otherwise so provides in writing, in either case, except
to the extent inconsistent with Section 409A of the Code if the
applicable Award is subject thereto.
10.5. Withholding
Obligations. To the extent provided by the terms of an Award
Agreement and subject to the discretion of the Committee, the
Participant may satisfy any federal, state or local tax withholding
obligation relating to the exercise or acquisition of Common Stock
under an Award by any of the following means (in addition to the
Company’s right to withhold from any compensation paid to the
Participant by the Company) or by a combination of such means: (a)
tendering a cash payment; (b) authorizing the Company to withhold
shares of Common Stock from the shares of Common Stock otherwise
issuable to the Participant as a result of the
exercise or acquisition of Common Stock under the Award,
provided, however, that no
shares of Common Stock are withheld with a value exceeding the
maximum amount of tax required to be withheld by law; or (c)
delivering to the Company previously owned and unencumbered shares
of Common Stock of the Company.
11. Adjustments Upon Changes in
Stock. In the event of changes in the outstanding Common
Stock or in the capital structure of the Company by reason of any
stock or extraordinary cash dividend, stock split, reverse stock
split, an extraordinary corporate transaction such as any
recapitalization, reorganization, merger, consolidation,
combination, exchange, or other relevant change in capitalization
occurring after the Grant Date of any Award, Awards granted under
the Plan and any Award Agreements, the exercise price of Options
and Stock Appreciation Rights, the Performance Goals to which
Performance Share Awards and Cash Awards are subject, the maximum
number of shares of Common Stock subject to all Awards stated in
Section 4 will be
equitably adjusted or substituted, as to the number, price or kind
of a share of Common Stock or other consideration subject to such
Awards to the extent necessary to preserve the economic intent of
such Award. In the case of adjustments made pursuant to this
Section 11, unless
the Committee specifically determines that such adjustment is in
the best interests of the Company or its Affiliates, the Committee
shall, in the case of Incentive Stock Options, ensure that any
adjustments under this Section 11 will not constitute
a modification, extension or renewal of the Incentive Stock Options
within the meaning of Section 424(h)(3) of the Code and in the case
of Non-qualified Stock Options, ensure that any adjustments under
this Section 11
will not constitute a modification of such Non-qualified Stock
Options within the meaning of Section 409A of the Code. Any
adjustments made under this Section 11 shall be made in a
manner which does not adversely affect the exemption provided
pursuant to Rule 16b-3 under the Exchange Act. The Company shall
give each Participant notice of an adjustment hereunder and, upon
notice, such adjustment shall be conclusive and binding for all
purposes.
12.
Effect of Change in
Control.
12.1. Unless
otherwise provided in an Award Agreement, notwithstanding any
provision of the Plan to the contrary:
(a) In the event of a
Participant’s termination of Continuous Service without Cause
or for Good Reason during the 12-month period following a Change in
Control, notwithstanding any provision of the Plan or any
applicable Award Agreement to the contrary, all outstanding Options
and Stock Appreciation Rights shall become immediately exercisable
with respect to 100% of the shares subject to such Options or Stock
Appreciation Rights, and/or the Restricted Period shall expire
immediately with respect to 100% of the outstanding shares of
Restricted Stock or Restricted Stock Units as of the date of the
Participant’s termination of Continuous Service.
(b) With respect to
Performance Share Awards and Cash Awards, in the event of a Change
in Control, all incomplete Performance Periods in respect of such
Awards in effect on the date the Change in Control occurs shall end
on the date of such change and the Committee shall (i) determine
the extent to which Performance Goals with respect to each such
Performance Period have been met based upon such audited or
unaudited financial information then available as it deems relevant
and (ii) cause to be paid to the applicable Participant partial or
full Awards with respect to Performance Goals for each such
Performance Period based upon the Committee’s determination
of the degree of attainment of Performance Goals or, if not
determinable, assuming that the applicable “target”
levels of performance have been attained, or on such other basis
determined by the Committee.
To the extent
practicable, any actions taken by the Committee under the
immediately preceding clauses (a) and (b) shall occur in a manner
and at a time which allows affected Participants the ability to
participate in the Change in Control with respect to the shares of
Common Stock subject to their Awards.
12.2. In
addition, in the event of a Change in Control, the Committee may in
its discretion and upon at least 10 days’ advance notice to
the affected persons, cancel any outstanding Awards and pay to the
holders thereof, in cash or stock, or any combination thereof, the
value of such Awards based upon the price per share of Common
Stock received or to be received by other shareholders of the
Company in the event. In the case of any Option or Stock
Appreciation Right with an exercise price (or SAR Exercise Price in
the case of a Stock Appreciation Right) that equals or exceeds the
price paid for a share of Common Stock in connection with the
Change in Control, the Committee may cancel the Option or Stock
Appreciation Right without the payment of consideration
therefor.
12.3. The
obligations of the Company under the Plan shall be binding upon any
successor corporation or organization resulting from the merger,
consolidation or other reorganization of the Company, or upon any
successor corporation or organization succeeding to all or
substantially all of the assets and business of the Company and its
Affiliates, taken as a whole.
13.
Amendment of the Plan and
Awards.
13.1. Amendment
of Plan. The Board at any time, and from time to time, may
amend or terminate the Plan. However, except as provided in
Section 11 relating
to adjustments upon changes in Common Stock and Section 13.3, no amendment
shall be effective unless approved by the shareholders of the
Company to the extent shareholder approval is necessary to satisfy
any Applicable Laws and the rules of any stock exchange upon which
the Company’s Common Stock may then be listed. At the time of
such amendment, the Board shall determine, upon advice from
counsel, whether such amendment will be contingent on shareholder
approval.
13.2. Shareholder
Approval. The Board may, in its sole discretion, submit any
other amendment to the Plan for shareholder approval.
13.3. Contemplated
Amendments. It is expressly contemplated that the Board may
amend the Plan in any respect the Board deems necessary or
advisable to provide eligible Employees, Consultants and Directors
with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options or to the nonqualified deferred
compensation provisions of Section 409A of the Code and/or to bring
the Plan and/or Awards granted under it into compliance
therewith.
13.4. No
Impairment of Rights. Rights under any Award granted before
amendment of the Plan shall not be impaired by any amendment of the
Plan unless (a) the Company requests the consent of the Participant
and (b) the Participant consents in writing.
13.5. Amendment
of Awards. The Committee at any time, and from time to time,
may amend the terms of any one or more Awards;provided, however, that the Committee
may not affect any amendment which would otherwise constitute an
impairment of the rights under any Award unless (a) the Company
requests the consent of the Participant and (b) the Participant
consents in writing.
14.1. Forfeiture
Events. The Committee may specify in an Award Agreement that
the Participant’s rights, payments and benefits with respect
to an Award shall be subject to reduction, cancellation, forfeiture
or recoupment upon the occurrence of certain events, in addition to
applicable vesting conditions of an Award. Such events may include,
without limitation, breach of non-competition, non-solicitation,
confidentiality, or other restrictive covenants that are contained
in the Award Agreement or otherwise applicable to the Participant,
a termination of the Participant’s Continuous Service for
Cause, or other conduct by the Participant that is detrimental to
the business or reputation of the Company and/or its
Affiliates.
14.2. Clawback.
Notwithstanding any other provisions in this Plan, the Company may
cancel any Award, require reimbursement of any Award by a
Participant, and effect any other right of recoupment of equity or
other compensation provided under the Plan in accordance with any
Company policies that may be adopted and/or modified from time to
time (“Clawback
Policy”). In addition, a Participant may be required
to repay to the
Company previously paid compensation, whether provided pursuant to
the Plan or an Award Agreement, in accordance with the Clawback
Policy. By accepting an Award, the Participant is agreeing to be
bound by the Clawback Policy, as in effect or as may be adopted
and/or modified from time to time by the Company in its discretion
(including, without limitation, to comply with applicable law or
stock exchange listing requirements).
14.3. Other
Compensation Arrangements. Nothing contained in this Plan
shall prevent the Board from adopting other or additional
compensation arrangements, subject to shareholder approval if such
approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
14.4. Deferral
of Awards. The Committee may establish one or more programs
under the Plan to permit selected Participants the opportunity to
elect to defer receipt of consideration upon exercise of an Award,
satisfaction of performance criteria, or other event that absent
the election would entitle the Participant to payment or receipt of
shares of Common Stock or other consideration under an Award. The
Committee may establish the election procedures, the timing of such
elections, the mechanisms for payments of, and accrual of interest
or other earnings, if any, on amounts, shares or other
consideration so deferred, and such other terms, conditions, rules
and procedures that the Committee deems advisable for the
administration of any such deferral program.
14.5. Unfunded
Plan. The Plan shall be unfunded. Neither the Company, the
Board nor the Committee shall be required to establish any special
or separate fund or to segregate any assets to assure the
performance of its obligations under the Plan.
14.6. Recapitalizations.
Each Award Agreement shall contain provisions required to reflect
the provisions of Section 11.
14.7. Delivery.
Upon exercise of a right granted under this Plan, the Company shall
issue Common Stock or pay any amounts due within a reasonable
period of time thereafter. Subject to any statutory or regulatory
obligations the Company may otherwise have, for purposes of this
Plan, 30 days shall be considered a reasonable period of
time.
14.8. No
Fractional Shares. No fractional shares of Common Stock
shall be issued or delivered pursuant to the Plan. The Committee
shall determine whether cash, additional Awards or other securities
or property shall be issued or paid in lieu of fractional shares of
Common Stock or whether any fractional shares should be rounded,
forfeited or otherwise eliminated.
14.9. Other
Provisions. The Award Agreements authorized under the Plan
may contain such other provisions not inconsistent with this Plan,
including, without limitation, restrictions upon the exercise of
Awards, as the Committee may deem advisable.
14.10. Section
409A. The Plan is intended to comply with Section 409A of
the Code to the extent subject thereto, and, accordingly, to the
maximum extent permitted, the Plan shall be interpreted and
administered to be in compliance therewith. Any payments described
in the Plan that are due within the “short- term deferral
period” as defined in Section 409A of the Code shall not be
treated as deferred compensation unless Applicable Laws require
otherwise. Notwithstanding anything to the contrary in the Plan, to
the extent required to avoid accelerated taxation and tax penalties
under Section 409A of the Code, amounts that would otherwise be
payable and benefits that would otherwise be provided pursuant to
the Plan during the six (6) month period immediately following the
Participant’s termination of Continuous Service shall instead
be paid on the first payroll date after the six-month anniversary
of the Participant’s separation from service (or the
Participant’s death, if earlier). Notwithstanding the
foregoing, neither the Company nor the Committee shall have any
obligation to take any action to prevent the assessment of any
additional tax or penalty on any Participant under Section 409A of
the Code and neither the Company nor the Committee will have any
liability to any Participant for such tax or penalty.
14.11. Disqualifying
Dispositions. Any Participant who shall make a
“disposition” (as defined in Section 424 of the Code)
of all or any portion of shares of Common Stock acquired upon
exercise of an Incentive Stock Option within two years from the
Grant Date of such Incentive Stock Option or within one year after
the issuance of the shares of Common Stock acquired upon exercise
of such Incentive Stock Option (a “Disqualifying
Disposition”) shall be required to immediately advise
the Company in writing as to the occurrence of the sale and the
price realized upon the sale of such shares of Common
Stock.
14.12. Section
16. It is the intent of the Company that the Plan satisfy,
and be interpreted in a manner that satisfies, the applicable
requirements of Rule 16b-3 as promulgated under Section 16 of the
Exchange Act so that Participants will be entitled to the benefit
of Rule 16b-3, or any other rule promulgated under Section 16 of
the Exchange Act, and will not be subject to short-swing liability
under Section 16 of the Exchange Act. Accordingly, if the operation
of any provision of the Plan would conflict with the intent
expressed in this Section
14.12, such provision to the extent possible shall be
interpreted and/or deemed amended so as to avoid such
conflict.
14.13. Beneficiary
Designation. Each Participant under the Plan may from time
to time name any beneficiary or beneficiaries by whom any right
under the Plan is to be exercised in case of such
Participant’s death. Each designation will revoke all prior
designations by the same Participant, shall be in a form reasonably
prescribed by the Committee and shall be effective only when filed
by the Participant in writing with the Company during the
Participant’s lifetime.
14.14.
Expenses. The costs of
administering the Plan shall be paid by the Company.
14.15. Severability.
If any of the provisions of the Plan or any Award Agreement is held
to be invalid, illegal or unenforceable, whether in whole or in
part, such provision shall be deemed modified to the extent, but
only to the extent, of such invalidity, illegality or
unenforceability and the remaining provisions shall not be affected
thereby.
14.16. Plan
Headings. The headings in the Plan are for purposes of
convenience only and are not intended to define or limit the
construction of the provisions hereof.
14.17. Non-Uniform
Treatment. The Committee’s determinations under the
Plan need not be uniform and may be made by it selectively among
persons who are eligible to receive, or actually receive, Awards.
Without limiting the generality of the foregoing, the Committee
shall be entitled to make non-uniform and selective determinations,
amendments and adjustments, and to enter into non-uniform and
selective Award Agreements.
15. Effective Date of Plan. The
Plan shall become effective as of the Effective Date, but no Award
shall be exercised (or, in the case of a stock Award, shall be
granted) unless and until the Plan has been approved by the
shareholders of the Company, which approval shall be within twelve
(12) months before or after the date the Plan is adopted by the
Board.
16. Termination or Suspension of the
Plan. The Plan shall terminate automatically on September
10, 2028. No Award shall be granted pursuant to the Plan after such
date, but Awards theretofore granted may extend beyond that date.
The Board may suspend or terminate the Plan at any earlier date
pursuant to Section
13.1 hereof. No Awards may be granted under the Plan while
the Plan is suspended or after it is terminated.
17. Choice of Law. The law of the
State of Utah shall govern all questions concerning the
construction, validity and interpretation of this Plan, without
regard to such state’s conflict of law rules.
As
adopted by the Board of Directors of Dynatronics Corporation on
October 1, 2020.
As
approved by the shareholders of Dynatronics Corporation on
______________________.
Appendix
B to Proxy Statement
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
DYNATRONICS CORPORATION
Pursuant to and in
accordance with the provisions of Section 16-10a-1006 of the Utah
Revised Business Corporation Act, as amended (the
“Act”), the
undersigned, Dynatronics Corporation (the “Corporation”) hereby declares and
certifies the following Articles of Amendment (“Articles of Amendment”) to its
Amended and Restated Articles of Incorporation (“Articles of
Incorporation”).
|
1.
|
The
name of the Corporation is Dynatronics Corporation.
|
|
2.
|
The
text of the amendment to the Articles of Incorporation adopted is
as follows:
|
Following the final
paragraph of ARTICLE III of the Articles of Incorporation, the
following text is inserted (the “Amendment”):
“Upon the
filing of these Articles of Amendment to the Articles of
Incorporation, each share of Common Stock of the Corporation issued
and outstanding immediately prior to the filing of these Articles
of Amendment, without further action, will be automatically split
and converted into one-[_________] ([_____]) of one (1) share of
fully paid and nonassessable shares of Common Stock of the
Corporation (the “Reverse
Stock Split”). No fractional shares shall be issued
upon the Reverse Stock Split; rather, each fractional share
resulting from the Reverse Stock Split shall be rounded up to the
nearest whole number. Each outstanding stock certificate of the
Corporation, which prior to the filing of these Articles of
Amendment represented one or more shares of Common Stock, shall
immediately after such filing represent that number of shares of
Common Stock equal to the product of (i) the number of shares of
Common Stock represented on such certificates divided by (ii)
[_______] ([_____]) (such adjusted shares, the “Reclassified Shares”), with any
resulting fractional shares rounded up to the nearest whole share
as set forth above. Any options, warrants, conversion, or other
purchase or conversion rights, which prior to the filing of these
Articles of Amendment represented the right to acquire one or more
shares of the Corporation’s Common Stock, shall immediately
after such filing represent the right to acquire one-[_______]
([____]) of one (1) share of the Corporation’s Common Stock
for each share of the Corporation’s Common Stock that such
option, warrant, conversion or other purchase or conversion right
previously represented the right to acquire. The exercise or
conversion price of such options, warrants or conversion rights
shall be adjusted by multiplying the existing exercise or
conversion price by [________] ([___]).
The
number of authorized shares of Common Stock of the Corporation and
the par value of such shares will not be affected by these Articles
of Amendment.
The
Corporation shall, upon the request of each record holder of a
certificate representing shares of Common Stock issued and
outstanding immediately prior to the filing of these Articles of
Amendment to the Articles of Incorporation, issue and deliver to
such holder in exchange for such certificate a new certificate or
certificates representing the Reclassified
Shares.”
3. The
general form of the Articles of Amendment was adopted as of October
1, 2020 by Written Action of the Board of Directors of the
Corporation, and was finalized by the Board of Directors [at a
meeting of the Board held on _________, 20___,] and in accordance
with the requirements of the Act and the Bylaws of the Corporation.
The Board of Directors unanimously recommended approval of the
Amendment by the shareholders of the Corporation.
4. The
Amendment was authorized and approved pursuant to sections
16-10a-1003 and 1004 of the Act by: (i) a majority of the votes
cast at the meeting by the holders of shares of Common Stock voting
separately as a voting group and entitled to vote at the Annual
Meeting of the shareholders of the Corporation held on December 2,
2020 (the “Annual
Meeting”), and (ii) a majority of the votes cast at
the Annual Meeting by the holders of shares of Common Stock, Series
A Preferred Stock, and Series B Preferred Stock, voting together as
a single class and entitled to vote at the Annual
Meeting:
(a) The
number of issued and outstanding shares of Common Stock, Series A
Preferred Stock, and Series B Preferred Stock, voting together as a
single class and entitled to vote on the foregoing Amendment was
[____________________] of which [__________________] (or
approximately [_____]% of the issued and outstanding) voting shares
were represented in person or by proxy at the Annual Meeting,
constituting a quorum of such issued and outstanding
shares.
Appendix
B to Proxy Statement
(b) The
shares of Common Stock present at the Annual Meeting in person or
by proxy with respect to the Amendment and voting separately as a
voting group were voted as set forth in the following
table.
(c) The
shares of Common Stock, Series A Preferred Stock, and Series B
Preferred Stock present at the Annual Meeting in person or by proxy
with respect to the Amendment and voting together as a single
voting group were voted as set forth in the following
table:
DESIGNATION OF STOCK
|
NO. OF SHARES REPRESENTED AT THE ANNUAL MEETING AND ENTITLED TO
VOTE
|
VOTES CAST IN FAVOR OF AMENDMENT
|
VOTES CAST AGAINST AMENDMENT
|
VOTES ABSTAINING
|
Common
Stock voting separately as a voting group
|
[____________]
|
[____________]
|
[___________]
|
[______________]
|
Common
Stock,
Series
A Preferred, and
Series
B Preferred together as a voting group
|
[___________]
|
[____________]
|
[____________]
|
[_______________]
|
(d) Such
votes cast were sufficient for approval of the Amendment and the
filing of these Articles of Amendment.
IN
WITNESS WHEREOF, these Articles of Amendment are executed as of
[_______________________], 20[___].
|
Dynatronics
Corporation,
|
|
a Utah
corporation
|
|
|
|
|
|
By:
_________________________________________
|
|
Name:
Jennifer Keeler
|
|
Title:
General Counsel and Corporate Secretary
|
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