SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the Securities Exchange Act of 1934
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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 ss.240.14a-11(c) or ss.240.14a-12
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GSE SYSTEMS, INC.
(Name of Registrant as Specified in its Charter)
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GSE SYSTEMS, INC.
6940 Columbia Gateway Drive, Suite 470
Columbia, MD 21046
(410) 970-7800
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of GSE Systems, Inc. on June [•], 2024. The Annual Meeting will begin at 11:00 a.m. local time and will take place at 6724 Alexander Bell Drive,
Hub Spot Conference Center, Suite 105, Columbia, Maryland 21046.
The business to be presented for action at the Annual Meeting is described in the Proxy Statement. We urge you to read the Proxy Statement carefully.
We look forward to seeing you at the meeting.
Very truly yours,
Kathryn O’Connor Gardner
Chair of the Board
GSE SYSTEMS, INC.
6940 Columbia Gateway Drive, Suite 470
Columbia, MD 21046
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
June [•], 2024
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the “Annual Meeting”) of GSE Systems, Inc. (the “Company”) will be held on June [•], 2024, at 11:00 a.m. local time, at 6724 Alexander Bell Drive, Hub
Spot Conference Center, Suite 105, Columbia, Maryland 21046, and, thereafter, as it may from time to time be adjourned, for the purposes stated below:
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To elect one Class II director to serve until the 2027 Annual Meeting and until his or her successor is elected and qualified;
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To approve a non-binding resolution regarding the compensation of the Company’s named executive officers;
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To ratify the appointment by the Audit Committee of the Board of Directors of FORVIS LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2024;
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To approve the Company’s 1995 Long-Term Incentive Plan (as Amended and Restated effective May [13], 2024);
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To ratify and approve the issuance of certain shares of common stock to the Company's former Chief Executive Officer in lieu of his salary from June 1, 2023 to May 31, 2024;
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To authorize the issuance of Company common stock in an amount exceeding 20% of the outstanding shares of the Company’s common stock to Lind Global Fund II, LP, pursuant to the terms and conditions of (a) the Securities Purchase Agreement
dated June 23, 2023, between the Company and Lind Global Fund II, LP, (b) the Company’s Senior Convertible Promissory Note dated June 23, 2023, in favor of Lind Global Fund II LP, and (c) the Company’s Common Stock Purchase Warrant dated June
23, 2023, issued to Lind Global Fund II, LP; and
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To transact such other business as may properly come before the Annual Meeting or at any adjournments or postponements thereof.
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The Board of Directors has fixed the close of business on [•], 2024, as the record date for the Annual Meeting. Owners of the Company’s common stock at the close of business on that day are entitled to receive this
notice of and to vote at the Annual Meeting or at any adjournments or postponements thereof. Information regarding each of the matters to be voted on at the Annual Meeting is contained in the attached Proxy Statement and this Notice of Annual Meeting
of Stockholders. We urge you to read the Proxy Statement carefully.
If you plan to attend the Annual Meeting, please mark the appropriate box on the proxy card to help us plan for the Annual Meeting.
By Order of the Board of Directors
Kathryn O’Connor Gardner
Chair of the Board
Columbia, Maryland
May [•], 2024
GSE SYSTEMS, INC.
6940 Columbia Gateway Drive, Suite 470
Columbia, MD 21046
(410) 970-7800
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
To be Held on June [•], 2024
GENERAL ANNUAL MEETING INFORMATION
This proxy statement contains information related to the annual meeting (the “Annual Meeting”) of stockholders of GSE Systems, Inc. (the “Company” or “GSE Systems”) to be held on June [•], 2024, at 11:00 a.m. local
time at 6724 Alexander Bell Drive, Hub Spot Conference Center, Suite 105, Columbia, Maryland 21046. Proxies are hereby being solicited by the board of directors (“Board of Directors”) on behalf of the Company. The notice of the Annual Meeting will be
mailed to stockholders on or about May [•], 2024[, which will be the date electronic materials are first made available to the stockholders].
[Electronic Document Delivery
Why didn’t I receive paper copies of the proxy materials in the mail?
As permitted by the rules of the Securities and Exchange Commission (“SEC”), we are now primarily furnishing proxy materials and annual reports to our stockholders on the Internet, rather than mailing paper copies of
the Proxy Statement and the Annual Report to each stockholder. If you received only an Important Notice Regarding the Availability of Proxy Materials (the “Notice”) by mail, you will not receive a paper copy of these proxy materials unless you
request one. Instead, the Notice will instruct you on how to access your proxy card and cause your shares to be voted. If you received a Notice by mail or electronic mail and would like to receive a paper copy of our proxy materials, free of charge,
please follow the instructions included in the Notice.]
Annual Meeting Business
What proposals will be addressed at the Annual Meeting?
Stockholders will be asked to vote on the following proposals at the Annual Meeting:
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Election of one Class II director to serve until the 2027 Annual Meeting and until his or her successor is elected and qualified;
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A non-binding resolution to approve the compensation of the Company’s named executive officers;
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A resolution ratifying the appointment by the Audit Committee of the Board of Directors of FORVIS LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2024;
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To approve the Company’s 1995 Long-Term Incentive Plan (as Amended and Restated effective May [13], 2024);
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To ratify and approve the issuance of certain shares of common stock to the Company's former Chief Executive Officer in lieu of his salary from June 1, 2023 to May 31, 2024;
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A resolution to authorize the issuance of Company common stock in an amount exceeding 20% of the outstanding shares of the Company’s common stock to Lind Global Fund II, LP, pursuant to the terms and conditions of (a) the Securities
Purchase Agreement dated February 23, 2022, between the Company and Lind Global Fund II, LP, (b) the Company’s Senior Convertible Promissory Note due February 23, 2024, dated February 23, 2022, in favor of Lind Global Fund II LP, and (c) the
Company’s Common Stock Purchase Warrant dated February 23, 2022, issued to Lind Global Fund II, LP; and
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To transact such other business as may properly come before the Annual Meeting or at any adjournments or postponements thereof.
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Our Board unanimously recommends that the stockholders vote FOR the nominee for Class II director in Proposal 1, Ravi Khanna and FOR proposals 2, 3, 4, 5, and 6.
What vote is required to approve each proposal?
Conduct of business at the Annual Meeting requires the presence of a quorum of stockholders. A quorum is achieved if stockholders holding at least a majority of our outstanding common stock as of the close of business
on [•], 2024 (the “Record Date”) are present at the Annual Meeting, in person or by proxy. Abstentions and broker non-votes will be counted as present for purposes of determining whether a quorum is present for the conduct of business.
Proposal 1: Election of Directors. To be elected to the Board of Directors, a nominee for director must receive the affirmative vote of a majority of the sum of (a) the total
votes cast for and (b) the total votes affirmatively withheld as to such nominee. Abstentions and broker non-votes have no impact on the outcome of the election of directors as long as a quorum is present.
Proposal 2: A Non-binding Resolution to Approve the Company’s Named Executive Officer Compensation. The approval of Proposal 2 requires the affirmative vote of a majority of the
votes cast on this proposal. Abstentions and broker non-votes are not votes cast and, therefore, will not affect the outcome of the voting for this proposal as long as a quorum is present. This proposal is non-binding on the Board of Directors.
Although non-binding, the Board of Directors and the Compensation Committee will carefully review and consider the voting results.
Proposal 3: Ratification of Appointment of Independent Registered Public Accounting Firm. The approval of Proposal 3 requires the affirmative vote of a majority of the votes cast
on this proposal. Abstentions will have no effect on the results of this vote. Brokerage firms have authority to vote customers’ unvoted shares held by the firms in street names on this proposal. If a broker does not exercise this authority, such
broker non-votes will not affect the outcome of the voting for this proposal.
Proposal 4: Approval of the Company’s 1995 Long-Term Incentive Plan (as Amended and Restated effective May [13], 2024). The approval of Proposal 4 requires the affirmative vote
of a majority of the votes cast on this proposal. Abstentions and broker non-votes are not votes cast and, therefore, will not affect the outcome of the voting for this proposal as long as a quorum is present.
Proposal 5: Ratification and Approval of the issuance of certain shares of common stock to the Company's former Chief Executive Officer in lieu of his salary from June 1, 2023 to May
31, 2024. The approval of Proposal 5 requires the affirmative vote of a majority of the votes cast on the proposal. Abstentions and broker non-votes are not votes cast and, therefore, will not affect the outcome of the voting for this
proposal as long as a quorum is present.
Proposal 6: Approval of the issuance of Company Common Stock in an amount exceeding 20% of outstanding shares to Lind Global Fund II, LP. The approval of Proposal 6 requires the
affirmative vote of a majority of the votes cast as to the proposal. Abstentions and broker non-votes are not votes cast and, therefore, will not affect the outcome of the voting for this proposal as long as a quorum is present.
The Company will continue its long-standing practice of holding the votes of all stockholders in confidence from directors, officers and employees except: (a) as necessary to meet applicable legal requirements and to
assert and defend claims for or against the Company; (b) in case of a contested proxy solicitation; or (c) if a stockholder makes a written comment on the proxy card or otherwise communicates his/her vote to management.
Voting and Proxies
Who may vote at the Annual Meeting?
All stockholders of record of the Company’s common stock, par value $0.01 per share (“Common Stock”), on the Record Date will be entitled to vote at the Annual Meeting. At the close of business on the Record Date, the
Company had [3,239,355] shares of Common Stock outstanding and entitled to vote.
How many votes do I have?
You are entitled to cast one vote for each share of Common Stock owned by you on the Record Date on all matters properly brought before the Annual Meeting.
How do I vote?
If you are a holder of record (that is, if your shares are registered in your name with Continental Stock Transfer & Trust Company, our transfer agent (the “Transfer Agent”)), there are four ways to vote:
Telephone Voting: You may vote by telephone by calling the toll-free telephone number indicated on the proxy card. Please follow the voice
prompts that allow you to vote your shares and confirm that your instructions have been properly recorded.
Internet Voting: You may vote electronically over the Internet by following the instructions on the proxy card. Please follow the website
prompts that allow you to vote your shares and confirm that your instructions have been properly recorded.
Return Your Proxy Card By Mail: You may vote by completing, signing and returning the proxy card in
the postage-paid envelope provided with this proxy statement. The proxy holders will vote your shares according to your directions. If you sign and return your proxy card without specifying choices, your shares will be voted by the persons named in
the proxy in accordance with the recommendations of the Board of Directors as set forth in this proxy statement.
Vote at the Meeting: You may cast your vote in person at the Annual Meeting. Written ballots will
be passed out to anyone who wants to vote in person at the meeting.
Telephone and Internet voting for stockholders of record will be available 24 hours a day and will close at 11:59 p.m. local time on June [•], 2024. Telephone and Internet voting is convenient, provides postage and
mailing cost savings and is recorded immediately, minimizing the risk that postal delays may cause votes to arrive late and, therefore, not be counted.
Even if you plan to attend the Annual Meeting, you are encouraged to vote your shares by proxy. You may still vote your shares in person at the Annual Meeting even if you have previously voted by proxy. If you are
present at the Annual Meeting and desire to vote in person, your vote by proxy will not be counted.
How do I vote if I hold my shares in “street name?”
If you hold shares in “street name,” you should follow the voting directions provided by your broker or nominee. You may complete and mail a voting instruction card to your broker or nominee or, in most cases, submit
voting instructions by telephone or the Internet to your broker or nominee. If you provide specific voting instructions by mail, telephone or the Internet, your broker or nominee will vote your shares as you have directed.
Will my shares be voted if I do not provide my proxy?
If you are the stockholder of record and you do not vote in person or provide a proxy, your shares will not be voted.
If your shares are held in street name, your broker is permitted to cast a vote on your behalf on “routine” matters under applicable New York Stock Exchange rules governing brokers. Your broker may not vote your shares
on non-routine matters unless they have received voting instructions from you. Routine matters include the ratification of the appointment of our independent registered public accountants. Nevertheless, certain brokers may elect not to exercise their
permissive authority to vote on your behalf on “routine” matters absent voting instructions from you and, in such cases, your shares will not be voted unless you provide a proxy or vote in person.
Conversely, if your shares are held in a street name, for non-routine matters your broker is not permitted to vote your shares unless they have received voting instructions from you. The election of Directors, the
non-binding resolution to approve the Company’s executive compensation, approval of LTIP, approval of the share issuances to Kyle Loudermilk, and the approval of the issuance of shares of the Company’s Common Stock to Lind Global Fund II, LP are not
considered to be “routine” matters, and, therefore, your broker may not vote your shares with respect to these proposals absent your voting instructions.
When a broker elects to exercise its permissive authority to vote on your behalf on “routine” matters without receiving your voting instructions, but cannot vote on non-routine matters because they did not receive your
voting instructions, your shares will not be voted on the non-routine matters and will constitute broker non-votes with respect to those matters.
Can I change my mind after I vote?
Yes. If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the Annual Meeting by:
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submitting a new proxy by telephone or via the Internet after the date of the earlier voted proxy and prior to the deadline for submitting a vote by telephone or Internet;
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signing another proxy card with a later date and returning it to us prior to the Annual Meeting; or
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attending the Annual Meeting and voting in person after giving notice to the Secretary of the Annual Meeting.
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If you hold your shares in street name, you may submit new voting instructions by contacting your broker, bank or other nominee. You may also vote in person at the Annual Meeting if you obtain a legal proxy from your
broker, bank or other nominee.
Other Meeting Information
Could the Annual Meeting be postponed?
Yes. The Board of Directors may postpone the meeting to a later date. Additionally, if a quorum is not present or represented at the Annual Meeting, the chair of the meeting or the stockholders entitled to vote at the
meeting have the power to adjourn the meeting to a later date or time. The presence, in person or by proxy, of at least a majority of the shares of Common Stock outstanding as of the Record Date will constitute a quorum and is required to transact
business at the Annual Meeting.
Who bears the cost of soliciting proxies?
The Company will bear the cost of preparing, assembling and mailing the full set of proxy materials and of reimbursing brokers, nominees, fiduciaries and other custodians for out-of-pocket and clerical expenses of
transmitting the proxy materials to the beneficial owners of our shares. In addition to use of the mail, proxies may be solicited by directors, officers and other employees of the Company, without additional compensation, in person or by telephone.
The Company does not plan to employ a professional solicitation firm with respect to items to be presented at the Annual Meeting.
How can I obtain additional information about the Company?
The Company will, upon written request of any stockholder, furnish without charge a copy of its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 together with all amendments thereto (the “2023
Form 10-K”), as filed with the SEC, including financial statements and financial statement schedules required to be filed with the SEC pursuant to Rule 13a-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), but without
exhibits. A list describing the exhibits not contained in the 2023 Form 10-K will be furnished with the 2023 Form 10-K. Please address all written requests to GSE Systems, Inc., 6940 Columbia Gateway Drive, Suite 470, Columbia, Maryland 21046,
Attention: Corporate Secretary. Exhibits to the 2023 Form 10-K will be provided upon written request and payment of an appropriate processing fee which is limited to the Company’s reasonable expenses incurred in furnishing the requested exhibits. In
addition, the 2023 Form 10-K can be found on the Company’s website by navigating to the SEC filings page at www.gses.com/about/investors/financials/, and you may also view proxy materials or request paper copies online at www.proxyvote.com
using the information and instructions provided on the proxy card.
Do any of the officers or directors have a material interest in the matters to be acted upon?
In order to conserve cash for the benefit of the Company, the Board of Directors and Kyle J. Loudermilk agreed that $400,000 of Mr. Loudermilk’s salary would be paid quarterly in shares of Common Stock rather than in
cash on the Company’s regular pay cycle. If Proposal 5 is not approved at the Annual Meeting, the Company will be required to repurchase [•] shares of Common Stock from Mr. Loudermilk at fair market value within thirty (30) days of the annual
meeting. Otherwise, to the best of our knowledge, other than with respect to the non-binding executive compensation proposal, no directors, officers, or any of their associates have a material interest, direct or indirect, different than any of our
other stockholders.
PROPOSALS
PROPOSAL 1: ELECTION OF CLASS II DIRECTOR
With respect to Proposal 1, the Board has nominated Ravi Khanna for election to the Board of Directors as a Class II director to serve until the 2027 annual meeting of stockholders and until his successors is elected
and qualified.
The Board is divided into three classes that serve staggered three-year terms and are as nearly equal in number as possible. Each class generally serves for a period of three years, although a director may be elected
for a shorter term in order to keep the number of directors in each class approximately equal. To be elected to the Board of Directors, a nominee for director must receive the affirmative vote of a majority of the sum of (a) the total votes cast for
and (b) the total votes affirmatively withheld as to such nominee. Abstentions and broker non-votes will not be counted for purposes of Proposal 1.
Currently there are four directors serving on the Board. Following the resignation of Kyle J. Loudermilk and appointment of Ravi Khanna as a Class II director, two directors are serving as Class I directors, one
director is serving as a Class II director and one director is serving as a Class III director. The terms of the Company’s Class I directors – Mr. Corey and Mr. Dougherty – will expire at the 2026 Annual Meeting. The term of the Company Class II
director – Mr. Khanna – will expire at the 2024 Annual Meeting. The term of the Company Class III director – Ms. Gardner – will expire at the 2025 Annual Meeting.
Directors who are also Executive Officers
Ravi Khanna - Ravi Khanna joined GSE in August 2016 and was appointed by the Board of Directors as Chief Executive Officer and President on April 30, 2024 following the
resignation of Kyle J. Loudermilk. Mr. Khanna was contemporaneously appointed as a Class II director. Previously, Mr. Khanna served as the Senior Vice President of Professional Services of the Systems & Simulation business unit of GSE Solutions.
Mr. Khanna leverages a foundation in Chemical Engineering and over 25 years of industry experience in growing technology organizations serving Defense, Satellite Telecommunications, and Management Consulting sectors. Prior to GSE, Mr. Khanna held
leadership positions in the Accenture LLP as well as ViaSat, Inc. developing complex military and commercial business lines through expansion and acquisitions, resulting in revenue growth and cost efficiencies through organizational transformation
and adoption of technology-driven solutions. Mr. Khanna joined GSE as a senior program manager to grow GSE’s simulation business line through uses of technology resulting in enhanced training capabilities for the power industry. He started his career
with Aspen Technology in cost estimation modeling for the process industry while pursuing his masters degrees before joining ViaSat supporting warfighter and commercial satcom programs through transformation initiatives utilizing cloud infrastructure
for BI and big data analytics to drive continuous improvement to products and services. Mr. Khanna joined Accenture LLP in 2015 as a Senior Manager in the Technical Architecture practice supporting technology stack development for DevOps and future
state digital solutions to Fortune 500 clients. Mr. Khanna holds a Bachelor’s of Science in Chemical Engineering at the University of Maryland, a Master’s of Science in Computer Science from Johns Hopkins University, and a Master’s in Business from
UCSD. Mr. Khanna’s experience and educational background enables him adapt to dynamic roles to add value to GSE.
Independent Directors
William S. Corey, Jr. - Mr. Corey has served as an independent director of GSE Systems since August 2020 and is Chair of the Company’s Audit Committee. He brings extensive
experience in public accounting including auditing SEC registrants, financial reporting, complex accounting, and internal controls evaluation. Mr. Corey served as an Audit, Senior Relationship and National Pursuit Team Partner for
PricewaterhouseCoopers LLP (“PwC”) from 2002 to 2020. He led the audit practice and served as office managing partner for PwC’s Baltimore office for over 11 years. Mr. Corey also is a member of the boards of directors of Stewart Information Services,
Inc. (NYSE:STC), where he serves on the Audit and Compensation Committees, and of Fundbox, Ltd., where he serves as Chair of the Audit Committee and is a member of both the Compensation and Nominating and Corporate Governance Committees. He also
serves on the LP Advisory Committee for Squadra Ventures, and the Board of Advisors for StepStone VC Global Partners, L.P., and StepStone VC Diversity, L.P., all Venture Capital Funds located in the Baltimore, Maryland area. Mr. Corey is currently on
the Board of Directors of the Port Discovery Children’s Museum and on the Board of Advisors of the James Madison University College of Business.
Mr. Corey is a certified public accountant licensed in Maryland, has over 37 years of experience in public accounting with extensive experience in auditing SEC registrants, financial reporting, complex accounting, and
internal controls evaluation. Prior to his PwC roles, he served as an audit partner at Arthur Andersen LLP from 1995 to 2002 and served in other roles in its Audit Practice from 1982 to 1995. Mr. Corey graduated with honors from James Madison
University with a B.B.A. in accounting and finance and a minor in economics in 1982.
For more than 37 years, Mr. Corey has audited public and large private companies and has advised Boards of Directors and Audit Committees on financial reporting, internal controls, internal and external investigations,
disaster recovery, regulatory reviews, and cyber-attacks. Additionally, he is highly qualified as a “Financial Expert” for all public company Audit Committee and Audit Committee chair requirements. Having traveled extensively for clients around the
world, Mr. Corey possesses a global perspective and has a proven ability to work collaboratively with management and board members. Mr. Corey’s financial insights and his expertise in risk and audit matters brings added depth and strength as a member
of the Board, as Chair of the Audit Committee, and as a member of the Compensation and Nominating and Governance Committees.
Thomas J. Dougherty - Mr. Dougherty has served as an independent director of GSE Systems since February 2022 and is Chair of the Company’s Compensation Committee. He brings more
than 40 years of experience in the nuclear industry to his service on the Company’s Board of Directors. Mr. Dougherty currently serves as chair or subcommittee lead on the Nuclear Safety Review Boards for Southern Company, Energy Northwest, and
Constellation Energy. These boards are comprised of independent experts who periodically review overall performance at U.S. nuclear power plants, including compliance with the design and licensing bases.
Mr. Dougherty retired in 2019 as the Senior Vice President of Mid-Atlantic Operations for the Exelon Corporation, the largest producer of nuclear-generated electricity in the U.S. In that role, Mr. Dougherty was
responsible for the operation and maintenance of Exelon’s six nuclear plants in Pennsylvania and New Jersey, with a combined generation portfolio of 6,300 Megawatts and an annual revenue stream in excess of $1.5 billion. During his tenure in that
role, he was the executive sponsor for Exelon Nuclear’s Talent and Leadership Development Business Imperative, including diversity and inclusion initiatives. Mr. Dougherty also spearheaded the fleetwide Nuclear Fuel Reliability initiative. Mr.
Dougherty’s career with Exelon began in 1986 following six years in the U.S. Navy Nuclear Submarine program. During his career, he served in numerous leadership roles, including Site Vice President at the Peach Bottom Atomic Power Station and at the
Limerick Generating Station, as well as the Plant Manager at Three Mile Island Unit 1 during a $200 million Steam Generator replacement project. During his career with Exelon, Mr. Dougherty was influential in industry programs, including mentoring
the Reactor Technology for Industry Executives course conducted at the Massachusetts Institute of Technology, and mentoring leadership courses at the Institute of Nuclear Power Operations (INPO).
Mr. Dougherty graduated from Widener University with a B.S. degree in Engineering. He held a Senior Reactor Operator’s (SRO) license from the U.S. Nuclear Regulatory Commission, and an SRO simulator instructor
certification. He also graduated from the Senior Nuclear Plant Management Course conducted by INPO’s National Academy for Nuclear Training.
Mr. Dougherty’s extensive experience working in the nuclear power industry, including managing major projects (>$100M) throughout his career, enables him to make valuable contributions and provide strategic insight
to GSE’s executive leadership team and as a member of Company’s Board of Directors and Audit, Compensation, and Nominating and Governance Committees.
Kathryn O’Connor Gardner - Ms. Gardner is a public and private markets investor with 25+ years of experience across distressed credit, private equity, and venture capital. She is
a General Partner and member of the Investment Committee at Kilonova Capital (“Kilonova"), which is a value-oriented, growth capital provider, focused on delivering structured financing solutions to category-defining deep technology companies. Prior
to joining Kilonova, Ms. Gardner helped launch Livello Capital, a fund focusing on deep value, event-driven situations. Previously, Ms. Gardner was a Senior Vice President and Corporate Credit Research Analyst within AllianceBernstein’s high-yield
research group, focusing on the energy sector. In this role, she oversaw all energy-related investments for traditional high yield portfolios with roughly $35 billion in assets under management. She was also an Investment Committee Member for the
Energy Opportunity Funds at AllianceBernstein. Prior to joining AllianceBernstein in 2016, Ms. Gardner was a Managing Director on the sell-side at Deutsche Bank where she covered industries including energy, automotive, and aerospace & defense.
Ms. Gardner’s Wall Street experience spans more than 25 years, and she also has experience serving as an advisor for startups on strategy, financial analysis and capital market transactions.
Ms. Gardner is a Founding Board Member of the Haas Center for Gender, Equity & Leadership, which seeks to build the economic case for supporting workplace diversity, and is a member of the Haas Dean’s Advisory
Board, which brings together the school’s next generation of leaders. Finally, she sits on the board of the CSNK2A1 Foundation, which is focused on finding a cure for an ultra-rare genetic disorder called Okur-Chung Neurodevelopmental Syndrome. Ms.
Gardner holds a B.S. in economics and a B.A. in business administration (Walter A. Haas School of Business) from the University of California, Berkeley. Her valuable experience in the finance industry enables her to provide broad financial and
investor expertise as Chair of the Board, as Chair of the Nominating and Governance Committee, as a member of the Compensation Committee, and on the Audit Committee where she also serves as a financial expert.
The proxies solicited hereby, unless directed to the contrary, will be voted FOR election of Ravi Khanna, as the nominee of the Board of Directors. The nominee has consented to being named in this Proxy Statement and
to serving if elected. The Board has no reason to believe that Mr. Khanna will not be a candidate or will be unable to serve, but if either occurs, proxies may be voted for such substituted nominee or nominees as the Board, in its discretion, may
designate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF RAVI KHANNA AS A CLASS II DIRECTOR
CORPORATE GOVERNANCE
The Board of Directors
The Board oversees the business affairs of the Company, while Management carries out the daily processes, controls, and execution of the Company’s long-term strategy. Among the Board’s most
significant responsibilities are the oversight of the Company’s long-term strategy, the selection and support of the CEO of the Company, and the annual election of the Company’s executive officers. The Board is responsible for establishing broad
corporate policies and for the Company’s overall performance. The Board recognizes the importance of ensuring that the Company’s overall business strategy is designed to create long-term value for Company stockholders. As a result, the Board
maintains an active oversight role in formulating, planning, and implementing the Company’s long-term strategy and has sought to align compensation incentives with that vision. Members of the Board are kept informed of the Company’s business and
progress in relation to this long-term strategy by regular communications with the CEO, various reports and documents sent to them, and by way of operating and financial reports made at Board and Committee meetings. The Board regularly considers the
progress of and challenges to the Company’s strategy and related risks throughout the year. At each regularly-scheduled Board meeting, the Chair leads an executive session with the non-employee members of the Board to discuss executive officer
performance, the Company’s long-term plans, and strategic and other significant business developments since the last meeting. In terms of the structure of the Board, the Company’s Certificate of Incorporation provides that the Board is divided into
three classes, as nearly equal in number as possible, that serve staggered three-year terms. The stockholders elect at least one class of directors annually. The Board believes that the Company continues to be best served by a staggered or classified
board as it promotes continuity as the Company pursues its business strategy. Nevertheless, the Board is aware of the concerns related to a staggered Board and, in recent years, has promoted Board refreshment and revitalization. Thomas J. Dougherty
was appointed to the Board in February 2022, Ravi Khanna was appointed to the Board on April 30, 2024, and the Nominating and Governance Committee of the Board continues to consider opportunities to add new Board members with diverse viewpoints and
appropriate expertise.
Board Leadership Structure
Ms. Gardner serves as Chair of the Board of Directors, having been elected to that role by the Board of Directors in June 2021 following the retirement of Mr. J. Barnie Beasley. Mr. Khanna serves
as Chief Executive Officer and President of the Company. The Company believes it is the Chair’s responsibility to lead the Board of Directors and the Chief Executive Officer’s responsibility to lead the day-to-day operations of the Company. As
directors continue to have more oversight responsibility than ever before, the Company believes it is beneficial to have a Chair whose focus and responsibility is to lead the Board, which allows the Chief Executive Officer to focus on running the
Company. This separation of responsibilities ensures that there is no duplication of effort between the Chair and the Chief Executive Officer. The Company believes this separation of leadership provides strong leadership for its Board, while also
positioning its Chief Executive Officer as the leader of the Company in the eyes of customers, employees, and stockholders.
Board’s Role in Oversight
While the Board oversees risk management, Company management is charged with managing risk. The Board and the Audit Committee monitor and evaluate the effectiveness of the Company’s internal
controls at least annually. Management communicates with the Board, committees, and individual directors on the significant risks identified and how they are being managed. Directors are free to, and indeed often do, communicate directly with senior
management. The Board implements its risk oversight function both as a whole and through Committees. The Audit Committee oversees risks related to the Company’s financial statements, the financial reporting process, and accounting matters. Further,
the Audit Committee oversees the audit function and the Company’s ethics programs. The Audit Committee members meet separately with representatives of the Company’s independent registered public accounting firm. The Compensation Committee evaluates
the risks and rewards associated with the Company’s compensation philosophy and programs. The Nominating and Governance Committee selects and recommends to the full Board nominees for election as directors. The Nominating and Governance Committee
also bears responsibility for overseeing corporate governance matters.
Board of Director Attendance
The Board held six (6) meetings during the fiscal year ended December 31, 2023. During the 2023 fiscal year, no director attended less than seventy-five percent (75%) of the aggregate of (1) the
total number of meetings of the Board (held during the period for which he or she was a director) and (2) the total number of meetings held by all committee(s) of the Board on which he or she served (during the periods that he or she served on those
committees). The Company encourages, but does not require, all of its directors to attend the Annual Meeting of Stockholders, and all directors attended the Annual Meeting in 2023.
Committees of the Board of Directors
The Board has three standing committees: the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee. The Board may form other committees from time to time. As a
Nasdaq Capital Market listed company, we are subject to the Nasdaq listing standards. The Company is required under the Nasdaq listing standards to have a majority of independent directors and all of the members of the Audit Committee are required to
comply with additional, heightened independence standards applicable to a director’s service on such committee.
Audit Committee - The Audit Committee consists of Ms. Gardner, Mr. Dougherty, and Mr. Corey (Chair), each of whom meets the general as well as the heightened
independence standards set by applicable SEC rules and the Nasdaq listing standards. In addition, the Board has determined that Mr. Corey and Ms. Gardner are “Audit Committee Financial Experts” as defined by applicable SEC and Nasdaq rules. The Audit
Committee operates under a written charter adopted by the Board. Management is responsible for the Company’s internal controls and preparing the Company’s consolidated financial statements. The Company’s independent registered public accounting firm
is responsible for performing an independent audit of the consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board and issuing a report thereon and the Committee is responsible for overseeing
the conduct of these activities. The Audit Committee appoints and engages the independent registered public accounting firm, reviews with the independent registered public accounting firm the plans and results of the audit engagement, approves
professional services provided by the independent registered public accounting firm, reviews the independence of the independent registered public accounting firm and reviews the adequacy of the Company’s internal accounting controls. The Audit
Committee met four times during fiscal year 2023. The Audit Committee Charter is available on our website at www.gses.com/about/investors/corporate-governance/.
Compensation Committee - The Compensation Committee consists of Mr. Corey, Mr. Dougherty (Chair), and Ms. Gardner. Mr. Corey, Mr. Dougherty, and Ms. Gardner
are all “independent” directors as that term is defined by applicable Nasdaq listing standards. The Compensation Committee is responsible for recommending to the full Board the compensation for the Company’s executive officers, including the granting
of awards under the Company’s 1995 Long-Term Incentive Plan, as amended (the “Long-Term Incentive Plan” or the “Plan”). The Compensation Committee met three times during fiscal year 2023, and members of the Compensation Committee provided further
advice and recommendations to the Board as a whole on Compensation Committee matters at Board meetings. The Compensation Committee operates pursuant to a written Charter which is available on our website at www.gses.com/about/investors/corporate-governance/.
Nominating and Governance Committee - The Nominating and Governance Committee consists of Ms. Gardner (Chair), Mr. Corey and Mr. Dougherty. All four members
are “independent” directors as that term is defined by applicable Nasdaq listing standards. The Nominating and Governance Committee selects and recommends to the full Board nominees for election as directors and oversees the Company’s corporate
governance generally. The Nominating and Governance Committee met three times during fiscal year 2023, and members of the Nominating and Governance Committee provided further advice and recommendations to the Board as a whole on Committee matters at
Board meetings. The Nominating and Governance Committee operates pursuant to a written Charter which is available on our website at www.gses.com/about/investors/corporate-governance/.
Diversity and Enhancements to Corporate Governance
Led by the Nominating and Governance Committee, the Board of Directors is committed to best practices in corporate governance. The Board believes that good governance enhances stockholder value and
goes beyond simply complying with the basic requirements of state law and Nasdaq and SEC rules and regulations. Good governance means taking thoughtful approach to promote integrity, accountability, transparency, and the highest ethical standards.
The Board and its Nominating and Governance Committee are committed to having an engaged and independent Board that upholds the strictest ethical standards. During 2023, the Board continued its efforts to analyze existing practices, evaluate best
practices, and make improvements through adoption of revised policies and practices to ensure effective governance.
The Company considers diversity of gender identity and demographic background to be an important strength of its Board of Directors. The Company is a smaller reporting company, and the Company’s
Board is a “Smaller Board” pursuant to Nasdaq Rule 5605(f). Between January 1 and June 12, 2023, the Company’s Board of Directors had five members. Following the resignation of Dr. Sundaram, from June 12, 2023 through the date of this Proxy Statement
the Company’s Board had four directors – though the composition of the Board changed on April 30, 2024 with the resignation of Kyle J. Loudermilk and the appointment of Ravi Khanna.
As the following Board Diversity Matrix below indicates, the Company’s Board of Directors includes two (of four) diverse directors, representing 50% of the overall Board.
|
Board Diversity Matrix (as of April 29, 2024)
|
|
Total Number of Directors
|
Four
|
| |
Female
|
Male
|
Non-Binary
|
Did Not Disclose Gender
|
|
Part I: Gender Identity
|
|
Directors
|
1
|
3
|
-
|
-
|
|
Part II: Demographic Background
|
|
African American or Black
|
-
|
-
|
-
|
-
|
|
Alaskan Native or Native American
|
-
|
-
|
-
|
-
|
|
Asian
|
-
|
1
|
-
|
-
|
|
Hispanic or Latinx
|
-
|
-
|
-
|
-
|
|
Native Hawaiian or Pacific Islander
|
-
|
-
|
-
|
-
|
|
White
|
1
|
2
|
-
|
-
|
|
Two or More Races or Ethnicities
|
-
|
-
|
-
|
-
|
|
LGBTQ+
|
-
|
|
Did Not Disclose Demographic Background
|
-
|
Self-Evaluation – As a smaller Board of Directors for a smaller reporting company, the Board regularly engages in self-assessment. For 2024, the Nominating
and Governance Committee plans to restart a survey-based self-evaluation process. The Board considers thoughtful self-evaluation to be an integral part of its commitment to continuous improvement.
Whistleblower Policy; Hotline - The Board’s internal reporting and whistleblower mechanisms operated fully during 2023 and has continued to operate during
2024, providing alternative outlets for complaints within the Company. Initially, the Company’s whistleblower hotline and email address was monitored by the Company’s general counsel. Following his departure in June 2023, the hotline and email
address were monitored by the Chairman of the Audit Committee. The Board has taken these steps to ensure that employee concerns and complaints reach the Board.
Communications with the Board of Directors
The Board desires to foster open communications with its stockholders regarding issues of a legitimate business purpose affecting the Company. Under the Board’s supervision, the Company makes a
concerted effort to engage with stockholders to ensure that the Board considers their views and address their interests. In addition to meeting with stockholders to discuss performance, strategy, and operations, the Company also engages with its
stockholders to solicit their views on matters of corporate governance and other topics. In addition to communicating with stockholders during our proxy season, Mr. Loudermilk, Mr. Pepe, and Ms. Gardner engage with many of our major stockholders to
promote a constructive dialogue.
To this end, the Board has adopted policies and procedures to facilitate written communications by stockholders to the Board. Persons wishing to write to our Board, a specific director, a committee
of the Board, the Chair of the Board of Directors, or the non-management directors as a group, should send correspondence to the Corporate Secretary at 6940 Columbia Gateway Drive, Suite 470, Columbia, Maryland 21046.
The Corporate Secretary will forward to the directors all communications that, in his judgment, are appropriate for consideration by the directors. Examples of communications that would not be
appropriate for consideration by the directors include commercial solicitations and matters not relevant to the stockholders, to the functioning of the Board, or to the affairs of the Company. Any correspondence received that is addressed generically
to the Board will be forwarded to the Chair of the Board, with a copy to the Chair of the Audit Committee.
Director Nominations
No material changes have been made to the procedures by which stockholders may recommend nominees to our Board of Directors.
Insider Trading Policy
We maintain an Insider Trading Policy that prohibits directors, officers, employees, and their family members from trading in the Company’s stock when in possession of material, non-public
information about the Company. Our Insider Trading Policy also prohibits our officers, directors, and employees, and their family members from, among other things, engaging in speculative transactions in our securities, including by way of the
purchase or sale of a put option, a call option or a short sale (including a short sale “against the box”), or engaging in hedging transactions, including prepaid variable forward contracts, equity swaps, collars and exchange funds.
Code of Business Conduct and Ethics
The Company has adopted a Code of Ethics for the directors, Principal Executive Officers, and Senior Financial Officers of the Company and its subsidiaries, and a Conduct of Business Policy for directors, officers, and employees of the Company and
its subsidiaries. It is the Company’s intention to disclose any amendments to or waivers of such Code of Ethics or Conduct of Business Policy on the Company’s website at www.gses.com/about/investors/ corporate-governance/. The Company’s Code of
Ethics and Conduct of Business Policy is available on the Company’s website at www.gses.com/about/investors/corporate-governance/.
Clawback Policy
Our Board approved and adopted a GSE Systems, Inc. Clawback Policy (the “Clawback Policy”) in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act and applicable Nasdaq
listing rules, a copy of which was filed as an exhibit to the Original 10-K. The Clawback Policy provides for the recovery or “clawback” of certain erroneously awarded incentive-based compensation in the event that the Company is required to prepare
an accounting restatement.
Certain Relationships and Related Person Transactions
It is the Company’s policy that any transactions with related parties are to be reviewed and approved by the Company’s Audit Committee, with the exception of officer compensation, which is approved by the Compensation Committee.
Indemnification Agreements
Our certificate of incorporation and our bylaws provide that we shall indemnify our directors and officers to the fullest extent permitted by law. We also maintain a directors’ and officers’ liability insurance policy. The policy insures directors
and officers against unindemnified losses arising from certain wrongful acts in their capacities as directors and officers and reimburses us for those losses for which we have lawfully indemnified the directors and officers. The policy contains
various exclusions.
Director Independence
Rule 5605 of the Nasdaq Listing Rules requires a majority of a listed company’s board of directors to be comprised of independent directors. In addition, the Nasdaq Listing Rules require that, subject to specified exceptions, each member of a
listed company’s audit, compensation, and nominating and corporate governance committees be independent under the Exchange Act. Under Rule 5605(a)(2), a director will only qualify as an “independent director” if, in the opinion of our Board of
Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other
than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its
subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.
Compensation committee members must also satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act. In order to be considered independent for purposes of Rule 10C-1, a board must consider, for each member of a compensation
committee of a listed company, all factors specifically relevant to determining whether a director has a relationship to such company which is material to that director’s ability to be independent from management in connection with the duties of a
compensation committee member, including, but not limited to: the source of compensation of the director, including any consulting advisory or other compensatory fee paid by such company to the director; and whether the director is affiliated with
the company or any of its subsidiaries or affiliates.
Our Board of Directors has reviewed the composition of our Board of Directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background,
employment and affiliations, including family relationships, our Board of Directors has determined that each of our directors, with the exception of Kyle J. Loudermilk, is an “independent director” as defined under Rule 5606(a)(2) of the Nasdaq
Listing Rules. As such, our Board of Directors determined that each of William S. Corey, Jr., Thomas J. Dougherty and Kathryn O’Connor Gardner are independent. Our Board of Directors determined that William S. Corey, Jr., Thomas J. Dougherty and
Kathryn O’Connor Gardner, who comprise our Audit Committee, Nominating and Governance Committee and Compensation Committee, satisfy the independence standards for such committees established by the SEC and the Nasdaq Listing Rules, as applicable. In
making such determinations, our Board of Directors considered the relationships that each such non-employee director has with our Company and all other facts and circumstances our Board of Directors deemed relevant in determining independence,
including the beneficial ownership of our capital stock by each non-employee director.
PROPOSAL 2: NON-BINDING RESOLUTION TO APPROVE EXECUTIVE COMPENSATION
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Securities Exchange Act of 1934, as amended, we are providing stockholders the chance to approve, in a non-binding
vote, the Company’s executive compensation as reported in this Proxy Statement. We are providing stockholders with this opportunity on an annual basis. Our executive compensation programs are designed to support the Company’s long-term success. The
Compensation Committee has structured our executive compensation program to achieve the following key objectives:
|
•
|
to attract, retain, and reward talented and productive executive officers and other employees who can contribute (both short and long-term) to the success of the Company;
|
|
•
|
provide incentives for executive officers for superior performance; and
|
|
•
|
to align compensation and interests of the executive officers with those of the Company and reward executive officers according to their contribution to the Company’s success.
|
We urge stockholders to read the “Executive Compensation” disclosure set forth in this Proxy Statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to
achieve our compensation philosophy and objectives, as well as the Summary Compensation Table and related compensation tables and narrative below which provide detailed information on the compensation of our Named Executive Officers. The Compensation
Committee and the Board of Directors believe that the policies and procedures articulated in that disclosure are effective in achieving our goals and that the compensation of our Named Executive Officers reported in this Proxy Statement has supported
and contributed to the Company’s success.
We are asking stockholders to approve the following non-binding resolution at the Annual Meeting:
RESOLVED, that the stockholders of GSE Systems, Inc. (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers
as disclosed in accordance with compensation disclosure rules of the Securities and Exchange Commission, including as set forth in the Summary Compensation Table and the related compensation tables and narrative in the Proxy Statement relating to the
Company’s Annual Meeting of Stockholders.
This advisory resolution, commonly referred to as a “say-on-pay” resolution, is non-binding on the Board of Directors. Although non-binding, the Board and the Compensation Committee will carefully review and consider
the voting results when evaluating our executive compensation program.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ADVISORY RESOLUTION APPROVING THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS SET FORTH IN THE SUMMARY COMPENSATION TABLE AND THE RELATED COMPENSATION TABLES AND NARRATIVE IN THE PROXY
STATEMENT, AND IT IS INTENDED THAT PROXIES NOT MARKED TO THE CONTRARY WILL BE SO VOTED.
EXECUTIVE COMPENSATION
Independent Directors
|
Name
|
|
Age
|
Title(s)
|
|
William S. Corey, Jr.
|
(1)
|
64
|
Director, Chair of the Audit Committee
|
|
Thomas J. Dougherty
|
(1)
|
65
|
Director, Chair of the Compensation Committee
|
|
Kathryn O’Connor Gardner
|
(1)
|
48
|
Director, Chair of the Nominating & Governance Committee
|
(1) Member of Audit Committee, Compensation Committee, and Nominating & Governance Committee
Directors who are also Executive Officers
|
Name
|
|
Age
|
Titles
|
|
Ravi Khanna
|
48
|
Chief Executive Officer, President, Director
|
Executive Officers
|
Name
|
|
Age
|
Title(s)
|
|
Kyle J. Loudermilk
|
|
56
|
Former Chief Executive Officer and President
|
|
Bahram Meyssami, Ph.D.
|
62
|
Chief Technology Officer
|
|
Emmett A. Pepe
|
59
|
Chief Financial Officer, Treasurer
|
| |
|
|
Executive Officers
Ravi Khanna - Ravi Khanna joined GSE in August 2016 and was appointed by the Board of Directors as Chief Executive Officer and President on April 30, 2024 following the
resignation of Kyle J. Loudermilk. Mr. Khanna was contemporaneously appointed as a Class II director. Previously, Mr. Khanna served as the Senior Vice President of Professional Services of the Systems & Simulation business unit of GSE Solutions.
Mr. Khanna leverages a foundation in Chemical Engineering and over 25 years of industry experience in growing technology organizations serving Defense, Satellite Telecommunications, and Management Consulting sectors. Prior to GSE, Mr. Khanna held
leadership positions in the Accenture LLP as well as ViaSat, Inc. developing complex military and commercial business lines through expansion and acquisitions, resulting in revenue growth and cost efficiencies through organizational transformation
and adoption of technology-driven solutions. Mr. Khanna joined GSE as a senior program manager to grow GSE’s simulation business line through uses of technology resulting in enhanced training capabilities for the power industry. He started his career
with Aspen Technology in cost estimation modeling for the process industry while pursuing his masters degrees before joining ViaSat supporting warfighter and commercial satcom programs through transformation initiatives utilizing cloud infrastructure
for BI and big data analytics to drive continuous improvement to products and services. Mr. Khanna joined Accenture LLP in 2015 as a Senior Manager in the Technical Architecture practice supporting technology stack development for DevOps and future
state digital solutions to Fortune 500 clients. Mr. Khanna holds a Bachelor’s of Science in Chemical Engineering at the University of Maryland, a Master’s of Science in Computer Science from Johns Hopkins University, and a Master’s in Business from
UCSD. Mr. Khanna’s experience and educational background enables him adapt to dynamic roles to add value to GSE.
Kyle J. Loudermilk - Mr. Loudermilk joined the Company in August 2015 as the CEO and President and formerly served as a member of the Board of Directors. Mr. Loudermilk resigned
on April 24, 2024 and entered into a separation agreement with the Company on April 30, 2024. His last day of employment with the Company is May 31, 2024. Mr. Loudermilk is a technology executive whose 27-year career has focused on growing technology
companies through organic growth, geographic expansion and acquisitions, creating significant stockholder value along the way. Mr. Loudermilk was the VP of Operations - Technology from 2013 to 2015 and VP of Corporate Development from 2005 to 2009 at
MicroStrategy, a company focused on business intelligence, big data, and mobile identity solutions. From 2009 to 2012 he was the VP of Product Management at Datatel, now known as Ellucian, a firm focused on higher education solutions, growing the
company significantly through new product introduction during his tenure. Mr. Loudermilk held management roles including VP of the Design and Simulation Business Unit and VP of R&D/Operations at Aspen Technology. He began his career as a Process
Engineer for Mobil Oil Corporation. He earned his B.S. and M.S. from Columbia University in chemical engineering, and is an alumnus of Harvard Business School having completed The General Manager Program.
Bahram Meyssami, Ph.D. - Dr. Meyssami joined the Company as its Chief Technology Officer in December 2015. He has over 30 years of experience in complex enterprise-level software
development and delivery for engineering, education, and analytics. From February 2012 until he joined the Company, Dr. Meyssami was the Senior Director of Data Analysis in the Office of Analytics at the University of Maryland Global Campus. He
served as Director of Software Development, Technology at Ellucian, Inc. (formerly Datatel, Inc.) from March 2010 to January 2012. Before that he was Vice President, Technology for Three Stage Media, Inc. (formerly BDMetrics) from July 2005 to
February 2010. Dr. Meyssami has held multiple technology leadership roles in several organizations developing state-of-the-art software technology and growing effective technology teams focused on delivery of customer-aligned value. He holds a B.S.,
a M.S., and a Ph.D. in chemical engineering from the University of Maryland College Park.
Emmett A. Pepe - Mr. Pepe has served as the Company’s Chief Financial Officer and Treasurer since July 2016. From 2012 to 2016, Mr. Pepe had served as Senior Vice President -
Finance and worldwide Controller of MicroStrategy, Inc., a publicly-traded enterprise-analytics, mobile, and security software company, overseeing that company’s financial activities including accounting, financial reporting, tax, and treasury. From
2007 to 2012, Mr. Pepe served as Vice President - Accounting and Corporate Controller at BroadSoft, Inc., a software and services company that enables telecommunications service providers to deliver hosted, cloud-based unified communications to their
enterprise customers. While at BroadSoft, Mr. Pepe was responsible for overall global accounting, SEC reporting, tax, treasury, human resources, and facilities, and was part of the executive management team that took BroadSoft public in 2010. Mr.
Pepe also has held a number of senior financial leadership positions with various other companies including Software AG, webMethods, Inc., British Telecom Inc., Concert Communications Company, and MCI Communications Corporation. Mr. Pepe has a B.S.
degree in Accounting from Penn State University and is a Certified Public Accountant.
Directors
Biographical information pertaining to our directors is identified above in relation to Proposal 1.
The Board and its Compensation Committee apply their experience and business judgment to (a) align Executive Compensation with the Company’s strategic goals and investment thesis, (b) use Executive Compensation as a
retention tool for its executive team, (c) reward the achievement of performance objectives, and (d) compare Executive Compensation against peer group benchmarks in order to ensure that it remains within appropriate ranges based on Company size and
financial performance.
In 2023, the Compensation Committee once again used information obtained from its prior engagement of a compensation consultant, as well as from other sources, to evaluate the compensation practice of the Company with
respect to its Named Executive Officers, benchmark that compensation against similar companies, and offer recommendations as to how the Compensation Committee could align incentive compensation with the Company’s long-term strategy. There are no
business or personal relationships among the consultant and the Named Executive Officers or members of the Compensation Committee. As a result of the compensation review process, the Board adopted certain benchmarks with regard to Company performance
in 2023 that the Board believed would best align Executive Compensation with the investment thesis and long-term plan that the Company has articulated to its stockholders.
The Board and Compensation Committee structure Executive Compensation to balance cash and equity-based compensation and to use both base and incentive compensation plans. Equity-based compensation preserves cash and
fosters executive team alignment with stockholder interests. In this regard, historically, the Board and Compensation Committee have pursued a practice of granting a mixture of time-vesting and performance-vesting RSU grants, using TRSUs as a
retention tool and PRSUs as a means of incentivizing achievement of financial goals. In 2022, the Board and Compensation Committee elected to make substantial PRSU grants with relatively long vesting periods. These awards were intended to cover
several years and align equity incentive with shareholder returns. The PRSU performance targets used are centered on Company share price improvement.
The most significant change for 2023 involved the agreement between the Board and Kyle J. Loudermilk whereby Mr. Loudermilk agreed to accept shares of Company stock in lieu of $400,000 in cash compensation over a
twelve month period from June 1, 2023 until May 30, 2024. The Board and Mr. Loudermilk amended Mr. Loudermilk’s compensation arrangements to conserve cash and demonstrate stockholder alignment with the Company’s chief executive officer.
The following table sets forth all plan and non-plan compensation awarded to, earned by or paid for all services rendered in all capacities to the Company and its subsidiaries by the Named
Executive Officers for each of the last two completed fiscal years. The Named Executive Officers listed in the following table include our principal executive officer (“PEO”) and our two most highly compensated officers other than the PEO.
|
|
|
|
Annual Compensation
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
Salary (Cash)
|
Bonus
|
Stock Awards(1)
|
Non-Equity Incentive Plan Compensation(2)
|
All Other Compensation
|
Total
|
|
Ravi Khanna
|
|
2023
|
$213,200-
|
$-
|
$11,116
|
$-
|
$6,693
|
$231,009
|
|
Chief Executive Officer
|
|
2022
|
$213,200-
|
$-
|
$42,657
|
$-
|
$6,821
|
$262,678
|
|
|
|
2021
|
$205,000
|
$-
|
$30,699
|
$15,375
|
$6,831
|
$257,905
|
|
Kyle J. Loudermilk
|
|
2023
|
$212,917
|
$-
|
$278,125
|
$-
|
$16,961
|
$508,003
|
|
Former Chief Executive Officer
|
|
2022
|
$446,250
|
$-
|
$1,370,403
|
$-
|
$23,510
|
$1,840,163
|
|
|
|
2021
|
$425,000
|
|
$504,482
|
$106,250
|
$16,278
|
$1,052,010
|
|
Emmett A. Pepe
|
|
2023
|
$315,000
|
$-
|
$41,055
|
$-
|
$11,892
|
$367,947
|
|
Chief Financial Officer
|
|
2022
|
$315,000
|
$-
|
$586,477
|
$-
|
$11,147
|
$ 912,624
|
|
|
|
2021
|
$300,00
|
$-
|
$218,437
|
$75,000
|
$10,541
|
$603,978
|
|
Bahram Meyssami, Ph.D.
|
|
2023
|
$265,200
|
$-
|
$17,282
|
$-
|
$14,762
|
$297,244
|
|
Chief Technology Officer
|
|
2022
|
$265,200
|
$-
|
$58,498
|
$-
|
$13,982
|
$337,680
|
| |
|
2021
|
$255,00
|
$-
|
$108,095
|
$20,000
|
$12,854
|
$395,949
|
|
(1)
|
The amounts in this column reflect the aggregate grant date fair value of RSU awards, as computed in accordance with generally accepted accounting principles, assuming no forfeitures, for
awards granted pursuant to the Long-Term Incentive Plan. Assumptions used in the calculation of these amounts are included in footnote 15 to the Company’s audited financial statements for the fiscal year ended December 31, 2023, included in
the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2024. For Kyle J. Loudermilk, the amount of his salary that was converted to stock awards is reported in this column.
|
|
(2)
|
Reflects amounts earned under an executive bonus plan approved by the Compensation Committee of the Board of Directors. For 2023, 2022 and 2021, each of Mr. Loudermilk and Mr. Pepe were
eligible to receive a cash bonus with a potential value up to 100% of the their salary in the event of over-achievement of financial targets, while Dr. Meyssami was eligible to receive a cash bonus with a potential value up to 80% of his
salary in the event of over-achievement of these financial targets. Upon the recommendation of the Compensation Committee, the Board of Directors determined that the Company had met some of the targets established for the 2021 executive bonus
plan and therefore authorized payment of a portion of each executive’s eligible non-equity incentive plan bonus amount. The Compensation Committee determined that no executive bonus or other non-equity incentive compensation was payable for
2023 or 2022.
|
Outstanding Equity Awards at December 31, 2023
The following tables set forth certain information with respect to unexercised options and unvested restricted share unit (“RSU”) awards held by the Named Executive Officers at the end of the
fiscal year ended December 31, 2023.
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of Securities Underlying Unexercised Options at 12/31/2023
|
|
|
|
|
Equity Incentive Plan Awards
|
|
Name
|
Exercisable
|
Un-exercisable
|
|
Option Exercise Price ($/share)
|
Option Expiration Date
|
|
Number of RSUs that have not vested
|
|
Market value of RSUs that have not vested (1)
|
|
Ravi Khanna
|
-
|
-
|
|
$ -
|
|
|
3,533
|
|
$7,101
|
|
Kyle J. Loudermilk
|
-
|
-
|
|
$ -
|
|
|
61,195.00
|
(2)
|
$123,002
|
| |
|
|
|
|
|
|
|
|
|
|
Emmett A. Pepe
|
-
|
-
|
|
$ -
|
|
|
24,942
|
(3)
|
$50,133
|
|
Bahram Meyssami
|
-
|
-
|
|
$ -
|
|
|
5,492
|
(4)
|
$11,039
|
|
(1)
|
Market value is based on the closing market price of the Common Stock on the last trading day of the year, December 29, 2023, of $2.01.
|
|
(2)
|
These stock awards vest as follows:
|
|
(a)
|
Mr. Loudermilk was granted 8,882 TRSUs on April 5, 2022 and up to 2220 TRSUs will vest on a quarterly basis each of March 31, 2024, June 30, 2024, September 30, 2024, December 31, 2024,
March 31, 2025, June 30, 2025, September 30, 2025, and December 31, 2025 if Mr. Loudermilk remains employed by the Company as of such dates.
|
|
(b)
|
Mr. Loudermilk was granted 20,000 PRSUs on March 18, 2022 and, as the performance criteria has previously been satisfied, up to 2,500 PRSUs will vest on a quarterly basis each of March 31, 2024, June 30, 2024, September 30, 2024, December
31, 2024, March 31, 2025, June 30, 2025, September 30, 2025, and December 31, 2025 if Mr. Loudermilk remains employed by the Company as of such dates.
|
|
(c)
|
Mr. Loudermilk was granted 10,000 PRSUs on March 18, 2022 and, as the performance criteria has previously been satisfied, up to 1,250 PRSUs will vest on a quarterly basis and settled in cash on each of March 31, 2024, June 30, 2024,
September 30, 2024, December 31, 2024, March 31, 2025, June 30, 2025, September 30, 2025, and December 31, 2025 if Mr. Loudermilk remains employed by the Company as of such dates.
|
|
(d)
|
Mr. Loudermilk was granted 22,313 PRSUs on April 5, 2023 and, if certain market criteria is satisfied, 1,395 will vest on a quarterly basis over 16 quarters. None of these shares have vested because the market
criteria has not been satisfied.
|
|
(3)
|
These stock awards vest as follows:
|
|
(a)
|
Mr. Pepe was granted 4,442 TRSUs on April 5, 2022 and up to 1110 TRSUs will vest on a quarterly basis each of March 31, 2024, June 30, 2024, September 30, 2024, December 31, 2024, March 31,
2025, June 30, 2025, September 30, 2025, and December 31, 2025 if Mr. Pepe remains employed by the Company as of such dates.
|
|
(b)
|
Mr. Pepe was granted 10,000 PRSUs on March 18, 2022 and, as the performance criteria has previously been satisfied, up to 1,250 PRSUs will vest on a quarterly basis each of March 31, 2024,
June 30, 2024, September 30, 2024, December 31, 2024, March 31, 2025, June 30, 2025, September 30, 2025, and December 31, 2025 if Mr. Pepe remains employed by the Company as of such dates.
|
|
(c)
|
Mr. Pepe was granted 10,500 PRSUs on April 5, 2023 and, if certain performance criteria is satisfied, 656 will vest on a quarterly basis over 16 quarters. None of these shares have vested because the market criteria has not been satisfied.
|
|
(4)
|
These stock awards vest as follows:
|
|
(a)
|
Dr. Meyssami was granted 1,072 TRSUs on April 5, 2022 and up to 258 TRSUs will vest on a quarterly basis each of March 31, 2024, June 30, 2024, September 30, 2024 and December 31, 2024 if
Dr. Meyssami remains employed by the Company as of such dates; and
|
|
(b)
|
Dr. Meyssami was granted 4,420 PRSUs on April 5, 2023 and, if certain performance criteria is satisfied, 276 will vest on a quarterly basis over 16 quarters. None of these shares have
vested because the market criteria has not been satisfied.
|
Employment Agreements - All of the Named Executive Officers have entered into employment agreements. The terms of all of such agreements are
summarized below.
Ravi Khanna Employment Agreement. Mr. Khanna and the Company are currently parties to an Employment Agreement, dated January 1, 2019, (as amended, the “Employment Agreement”), which governs
the terms of Mr. Khanna’s employment with the Company. Effective immediately, the Company has agreed to increase Mr. Khanna’s Base Salary (as defined in the Employment Agreement) to $350,000. Mr. Khanna and the Company have further agreed to revisit
the terms of the Employment Agreement in the ordinary course. These terms were memorialized in a letter agreement dated April 30, 2024.
Under Mr. Khanna’s existing Employment Agreement, Mr. Khanna serves for a term of one year with annual renewals occurring automatically if neither the Company nor Mr. Khanna notifies the other of
an intent to terminate the Employment Agreement at least sixty days prior to December 31 of the then-current year. The Company initially agreed to pay Mr. Khanna a Base Salary of $205,000 in 2019 and Mr. Khanna has received regular salary increases
during his tenure. Mr. Khanna is eligible for a bonus of up to 50% of his Base Salary and up to another 25% of his Base Salary in restricted stock units, in each case subject to achievement of annual performance goals determined by the Board. Mr.
Khanna is entitled to participate in all employee benefits available to senior executives or employees of the Company. During the term of the Employment Agreement, and for a twelve (12) month period following termination of the Employment Agreement,
Mr. Khanna shall not compete with the Company or solicit employees or customers of the Company.
If the Company terminates Mr. Khanna’s employment for a reason other than death, Disability or Cause (as defined in the Employment Agreement), or if Mr. Khanna terminates his employment for Good
Reason (as defined in the Employment Agreement), then Mr. Khanna will (subject to certain conditions) receive his Base Salary for a period of twelve (12) months and benefits for a period of six (6) months, each running from the date of termination of
his employment, payable as and when salaries are generally paid to executive officers of the Company, and he will also receive, on the date that annual bonuses are paid to similarly situated employees but no later than two and one-half months
following the end of the calendar year in which the termination occurs, a bonus equal to the sum of his bonus if he had been employed for the full year and the pro-rated amount through his date of termination. If Mr. Khanna terminates his employment
for Good Reason, or the Company terminates his employment for any reason other than Cause, in each case within twelve (12) months following a Change in Control (as defined in the Employment Agreement) of the Company, then Mr. Khanna will (subject to
certain conditions) receive his Base Salary and benefits for a period of twelve (12) months from the date of termination of his employment, payable as and when salaries are generally paid to executive officers of the Company and benefits at the same
level as available on the date of termination, and he will also receive, on the date of termination, a lump sum equal to the greater of (i) the actual amount of bonus earned by him as of such date or (ii) the target amount of bonus earned by him for
the period during which his employment terminates.
Loudermilk Employment Agreement - Mr. Loudermilk entered into an employment agreement with the Company, dated July 1, 2015, as amended July 1, 2016,
June 12, 2017, January 11, 2019 and July 28, 2023 (the “Loudermilk Employment Agreement”), which provides that he will serve as the Chief Executive Officer and President of the Company for a term ended on December 31, 2018. The term was extended, and
will automatically extend, for additional one-year periods unless either Mr. Loudermilk or the Company decides not to extend the term. Under the Loudermilk Employment Agreement, Mr. Loudermilk is entitled to a base salary of at least $350,000, which
may be increased (but not decreased) by the Compensation Committee. For the year ended December 31, 2022, Mr. Loudermilk received a base salary of $446,250 and was eligible to earn a bonus of up to $446,250; based on the Company’s financial
performance, however, the Compensation Committee determined that no executive bonus or other non-equity incentive compensation was payable to Mr. Loudermilk for 2022. For the year ended December 31, 2023, Mr. Loudermilk originally received a base
salary of $446,250 and was eligible to earn a bonus of up to $446,250. On July 28, 2023, effective June 1, 2023, Mr. Loudermilk agreed to modify his salary such that he would receive $46,250 per annum in cash and $400,000 per annum in shares of
common stock of the Company, paid quarterly. Based on the Company’s financial performance, however, the Compensation Committee determined that no executive bonus or other non-equity incentive compensation was payable to Mr. Loudermilk for 2023.
Mr. Loudermilk is entitled to participate in all employee benefits available to senior executives or employees of the Company. Benefits include a 401(k) savings plan, which is a tax-qualified
retirement savings plan pursuant to which all U.S. employees, including the Named Executive Officers, are able to contribute up to the limit prescribed by the Internal Revenue Code (a) on a before-tax basis for traditional 401(k) participants, and
(b) on a post-tax basis for Roth 401(k) participants. The Company matches 50% of contributions up to 6% of eligible compensation to all 401(k) plan participants other than certain field professionals working for the Company’s Workforce Solutions
Division, subject to IRS compensation limits.
The Loudermilk Employment Agreement will terminate prior to the end of its term if certain events occur. If the Loudermilk Employment Agreement terminates due to Mr. Loudermilk’s death, disability,
or for “Cause”, the Company will pay him through the date of termination. Termination for “Cause” includes: willful and continued failure by Mr. Loudermilk to perform his duties (other than as a result of disability) after 30 days’ notice and
opportunity to cure; his willful engaging in misconduct that materially adversely affects the Company’s business or prospects; his felony conviction or plea of no contest to a crime of moral turpitude; abuse of alcohol or drugs affecting his
performance; or material breach of a material term of the Loudermilk Employment Agreement. If the Company terminates the Loudermilk Employment Agreement for any reason other than death, disability, or Cause, or if Mr. Loudermilk terminates the
Loudermilk Employment Agreement for “Good Reason”, the Company will pay Mr. Loudermilk 12 months’ salary, payable as and when salaries are generally paid to executive officers, and he will continue to be eligible to participate in all medical,
dental, life insurance, and 401(k) plan benefits for that 12-month period. He will also receive a prorated bonus to the extent he otherwise would have earned one had he remained employed through the end of the year of termination, payable within the
first quarter of the following year. Mr. Loudermilk’s unvested restricted stock units are forfeited upon termination of his employment, except that some of the RSUs previously granted to him may vest if his employment is terminated by the Company
without Cause or by him for Good Reason. Mr. Loudermilk may terminate the Loudermilk Employment Agreement for “Good Reason” if: his duties, responsibilities or authority are materially reduced without his consent; his base salary and bonus
opportunity are reduced; his benefits are discontinued or materially reduced, in the aggregate; his primary office is moved more than fifty (50) miles from his current office; or the Company materially breaches the Loudermilk Employment Agreement.
The Loudermilk Employment Agreement provides Mr. Loudermilk with benefits in the event of a Change of Control that are different from those described above. Those benefits are triggered if he
terminates his employment for Good Reason (defined above) or the Company terminates his employment for any reason other than Cause (defined above), in each case within one year following the effective date of a Change of Control (defined below).
Those benefits are payable in lieu of any other termination benefits and consist of the following: Mr. Loudermilk will receive his base salary and benefits for a period of 12 months from the date of termination of his employment, payable as and when
salaries are generally paid to executive officers of the Company, and he will also receive, on the date of termination, a lump sum equal to the greater of (i) the actual amount of bonus earned as of the date of termination or (ii) the target amount
of bonus for the period during which his employment terminates. In addition, upon a Change of Control, some of Mr. Loudermilk’s PRSUs may vest based on whether the specified performance conditions are satisfied at that time.
A “Change of Control” occurs if either of the following events occur: (1) Any person not in control of the Company as of the date of the Loudermilk Employment Agreement (other than an employee
benefit plan of the Company, or a company owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of voting securities of the Company) becomes the beneficial owner of a majority of the
combined voting power of the Company; or (2) the stockholders of the Company approve: (x) a plan of complete liquidation of the Company; (y) an agreement for the sale or disposition of all or substantially all the Company’s assets; or (z) a merger,
consolidation, or reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least a majority of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding
immediately after such merger, consolidation, or reorganization.
Mr. Loudermilk agreed during the term of the Loudermilk Employment Agreement, and for a one-year period following termination of the Loudermilk Employment Agreement, not to compete with Company or
solicit employees or customers of the Company.
Pepe Employment Agreement - Mr. Pepe entered into an employment agreement with the Company, dated July 1, 2016, as amended June 12, 2017, and January 11, 2019 (the “Pepe Employment
Agreement”), which provides that he will serve as the Chief Financial Officer of the Company for a term that ended on December 31, 2018. The term was extended, and will automatically extend, for additional one-year periods unless either Mr. Pepe or
the Company decides not to extend the term. Under the Pepe Employment Agreement, Mr. Pepe is entitled to a base salary of at least $250,000, which may be increased (but not decreased) by the Board of Directors. For the year ended December 31, 2022,
the Compensation Committee increased Mr. Pepe’s base salary to $315,000 and Mr. Pepe was eligible to earn a bonus of up to $315,000; based on the Company’s financial performance, however, the Compensation Committee determined that no executive bonus
or other non-equity incentive compensation was payable to Mr. Pepe for 2022. For the year ended December 31, 2023, the Compensation Committee increased Mr. Pepe’s base salary to $315,000 and Mr. Pepe was eligible to earn a bonus of up to $315,000;
based on the Company’s financial performance, however, the Compensation Committee determined that no executive bonus or other non-equity incentive compensation was payable to Mr. Pepe for 2023.
Mr. Pepe is entitled to participate in all employee benefits available to senior executives or employees of the Company.
The Pepe Employment Agreement will terminate prior to the end of its term if certain events occur. If the Pepe Employment Agreement terminates due to Mr. Pepe’s death, disability, or for Cause (as
defined above for Mr. Loudermilk), the Company will pay him through the date of termination. If the Company terminates the Pepe Employment Agreement for any reason other than death, disability, or Cause, or if Mr. Pepe terminates the Pepe Employment
Agreement for Good Reason (as defined above for Mr. Loudermilk), the Company will pay Mr. Pepe twelve months’ salary, payable as and when salaries are generally paid to executive officers, and he will continue to be eligible to participate in all
medical, dental, life insurance, and 401(k) plan benefits for that 12-month period. He will also receive a prorated bonus to the extent he otherwise would have earned one had he remained employed through the end of the year of termination, payable
within the first quarter of the following year. Mr. Pepe’s unvested restricted stock units are forfeited upon his termination of employment, except that some of the RSUs previously granted to him may vest if his employment is terminated by the
Company without Cause or by him for Good Reason. The Pepe Employment Agreement provides Mr. Pepe with benefits in the event of a Change in Control that are different from those described above. Those benefits are triggered if he terminates his
employment for Good Reason (defined above) or the Company terminates his employment for any reason other than Cause (defined above), in each case within one year following the effective date of a Change of Control. Those benefits are payable in lieu
of any other termination benefits and consist of the following: Mr. Pepe will receive his base salary and benefits for a period of 12 months from the date of termination of his employment, payable as and when salaries are generally paid to executive
officers of the Company, and he will also receive, on the date of termination, a lump sum equal to greater of (i) the actual amount of bonus earned as of the date of termination or (ii) the target amount of bonus for the period during which his
employment terminates. In addition, upon a Change of Control, some of Mr. Pepe’s PRSUs may vest based on whether the specified performance conditions are satisfied at that time.
Mr. Pepe agreed during the term of the Pepe Employment Agreement, and for a one-year period following termination of the Pepe Employment Agreement, not to compete with Company or solicit employees
or customers of the Company.
Meyssami Employment Agreement - Dr. Meyssami originally entered into an employment agreement with the Company, dated December 1, 2015. This employment agreement was then amended and restated
as of January 1, 2019 (the “Meyssami Employment Agreement”). The Meyssami Employment Agreement provides that he will serve as the Chief Technology Officer of the Company for a term ending on December 31, 2019. The term automatically extends for one
year periods on each December, unless either Dr. Meyssami or the Company decides not to extend the term. Under the Meyssami Employment Agreement, Dr. Meyssami is entitled to a base salary of $255,000, which will be reviewed annually by the Board of
Directors. In 2022, Dr. Meyssami’s base compensation was increased to $265,200. In addition, Dr. Meyssami was eligible for a bonus of up to 80% of his base salary, subject to the achievement of certain performance goals, however, the Compensation
Committee determined that no executive bonus or other non-equity incentive compensation was payable to Dr. Meyssami for 2022. In 2023, Dr. Meyssami’s base compensation was increased to $265,200. In addition, Dr. Meyssami was eligible for a bonus of
up to 80% of his base salary, subject to the achievement of certain performance goals, however, the Compensation Committee determined that no executive bonus or other non-equity incentive compensation was payable to Dr. Meyssami for 2023.
Dr. Meyssami is entitled to participate in all employee benefits available to senior executives or employees of the Company, as described above with respect to Mr. Loudermilk. Each fiscal year Dr.
Meyssami will have the potential to earn 25% of his Base Salary in RSUs and will also be eligible to receive additional grants of performance vesting RSUs that, if granted, will vest based upon metrics determined by the Compensation Committee and
approved by the Board of Directors. The Meyssami Employment Agreement will terminate prior to the end of its term if certain events occur. If the Meyssami Employment Agreement terminates due to Dr. Meyssami’s death, disability or for “Cause” (as
defined above for Mr. Loudermilk), the Company will pay him through the date of termination.
If the Company terminates the Meyssami Employment Agreement for any reason other than death, disability or Cause, or if Dr. Meyssami terminates the Meyssami Employment Agreement for “Good Reason”
(as defined above for Mr. Loudermilk), the Company will pay Dr. Meyssami 12 months’ salary, payable as and when salaries are generally paid to executive officers, and he will continue to be eligible to participate in all medical, dental, life
insurance and 401(k) plan benefits for six months. He will also receive a prorated bonus to the extent he otherwise would have earned one had he remained employed through the end of the year of termination, payable within the first quarter of the
following year. Dr. Meyssami’s unvested restricted stock units are forfeited upon his termination of employment, except that some of the RSUs previously granted to him may vest if his employment is terminated by the Company without Cause or by him
for Good Reason.
The Meyssami Employment Agreement provides Dr. Meyssami with benefits in the event of a Change in Control that are different from those described above. Those benefits are triggered if he
terminates his employment for Good Reason (defined above) within one year following the effective date of a Change of Control. Those benefits are payable in lieu of any other termination benefits and consist of the following: Dr. Meyssami will
receive his base salary and benefits for a period of 12 months from the date of termination of his employment, payable as and when salaries are generally paid to executive officers of the Company, and he will also receive, on the date of termination,
a lump sum equal to the greater of (i) the actual amount of bonus earned as of the date of termination or (ii) the target amount of bonus for the period during which his employment terminates. In addition, upon a Change of Control, some of Dr.
Meyssami’s PRSUs may vest based on whether the specified performance conditions are satisfied at that time.
Dr. Meyssami agreed during the term of the Meyssami Employment Agreement, and for a one year period following termination of the Meyssami Employment Agreement, not to compete with Company or
solicit employees or customers of the Company.
COMPENSATION OF DIRECTORS
As more fully described below, during 2023, the Company (a) paid cash compensation and (b) granted time-vesting restricted stock units (TRSUs) to directors who were classified as non-employee “independent directors”
based upon the SEC and NASDAQ criteria for director independence. The Board establishes its compensation plan for non-employee directors based upon input from the Board’s independent compensation consultant, and adjusts this plan periodically to
ensure that the plan is reasonably well aligned with the Company’s peers. Each Board compensation plan generally covers the time period beginning July 1 and ending June 30 of the following year.
For the Board service during the fiscal year ended December 31, 2023, the objective of the Board compensation plan was to provide compensation to independent directors with an approximate total value ranging between
$120,000 and $149,250, as follows:
|
(a)
|
TRSUs Granted: the Board granted to each independent director a number of TRSUs from the Long-Term Incentive Plan determined by dividing $65,000 by the closing price per share of the Common Stock on
the last trading day prior to the grant, vesting at the earlier of 12 months after the date of grant or the Company’s subsequent annual meeting. For the 2023-2024 Board service year, each independent director received 13,609 TRSUs
(following the Company’s 10 for 1 stock split on October 30, 2023).
|
|
(b) |
Cash Compensation: each non-employee director was paid a base quarterly amount of cash compensation equal to $12,500 ($50,000 annualized), plus (i) additional quarterly cash compensation of $6,250 ($25,000 annualized) for the Chair
of the Board of Directors, plus (ii) additional quarterly cash compensation of $4,250 ($17,000 annualized) for the Chair of the Audit Committee, plus (iii) additional quarterly cash compensation of $3,000 ($12,000 annualized) for the Chair of
the Compensation Committee, plus (iv) additional quarterly cash compensation of $2,312.50 ($9,250 annualized) for the Chair of the Nominating and Governance Committee.
|
The table below summarizes the compensation paid by the Company to independent directors during 2023:
| |
Fees Earned
|
Stock
|
|
|
|
| |
or Paid in Cash
|
Awards(1)
|
Total
|
|
|
| |
William S. Corey, Jr.
|
|
$67,000
|
|
$64,806
|
|
$131,806
|
|
| |
Thomas J. Dougherty
|
|
$56,000
|
|
$64,806
|
|
$120,806
|
|
| |
Kathryn O’Connor Gardner
|
|
$84,250
|
|
$64,806
|
|
$149,056
|
|
| |
Suresh Sundaram, Ph.D.
|
|
$31,000
|
|
$0
|
|
$31,000
|
|
Through its Compensation Committee, the Board intends to continue assessing the manner in which it compensates its non-employee directors and to consider and implement further modifications to its compensation policies
as necessary to continue to attract high-quality individuals to serve on the Board and to align its compensation of non-employee directors with best practices observed by similar companies. Dr. Sundaram resigned on June 12, 2023.
PAY VERSUS PERFORMANCE
The Company is a smaller reporting company , and its most recent fiscal year ended December 31, 2023. Pursuant to Item 402 of Regulation S-K, the following table and disclosure present the Company’s most recent two
years of PVP information.
Pay Versus Performance Table
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
|
Year
|
Summary Compensation Table Total for PEO(1)
($)
|
Compensation Actually Paid to PEO(1)(2)
($)
|
Average Summary Compensation Table Total for Non-PEO Named Executive Officers(1)
($)
|
Average Compensation Actually Paid to Non-PEO Named Executive Officers(1)(3)
($)
|
Value of Initial Fixed $100 Investment Based on Total Shareholder Return
($)
|
Net Income
($)
(in thousands)
|
|
2023
|
508,033
|
508,033
|
332,596
|
332,596
|
15.23
|
(8,724)
|
|
2022
|
1,840,163
|
1,167,644
|
625,152
|
450,492
|
54.55
|
(15,343)
|
|
2021
|
1,052,010
|
1,053,583
|
499,963
|
500,421
|
129.55
|
10,607
|
Notes to PVP Table
| 1. |
In 2023, 2022 and 2021, Kyle J. Loudermilk was the Company's Chief Executive Officer, and the Company's remaining NEOs consisted of Emmett A. Pepe and Bahram Meyssami. While Ravi Khanna became the chief executive officer and President of
the Company on April 30, 2024, and is now a NEO, his compensation data is not included in this chart.
|
| 2. |
The following table sets forth the adjustments made during each year represented in the PVP Table to arrive at compensation "actually paid" to our PEO during each of the years in question:
|
|
Adjustments to Determine Compensation “Actually Paid” for PEO
|
2023
|
2022
|
2021
|
|
Deduction for amounts reported under the “Stock Awards” column in the Summary Compensation Table
|
$(278,125)
|
$(1,370,403)
|
$(504,482)
|
|
Increase for fair value of awards granted during year that remain unvested as of year end
|
$-
|
$451,902
|
$302,273
|
|
Increase for fair value of awards granted during year that vested during year
|
$278,125
|
$245,982
|
$203,782
|
|
Total Adjustments
|
$0
|
$(672,519)
|
$1,573
|
| 3. |
The following table sets forth the adjustments made during each year represented in the PVP Table to arrive at compensation "actually paid" to our non-PEO NEOs during each of the years in question:
|
|
Adjustments to Determine Compensation “Actually Paid” for non-PEO NEOs
|
2023
|
2022
|
2021
|
|
Deduction for amounts reported under the “Stock Awards” column in the Summary Compensation Table
|
$(29,169)
|
$(322,488)
|
$(163,266)
|
|
Increase for fair value of awards granted during year that remain unvested as of year end
|
$-
|
$93,690
|
$87,985
|
|
Increase for fair value of awards granted during year that vested during year
|
$29,169
|
$54,137
|
$75,738
|
|
Total Adjustments
|
$0
|
$(174,660)
|
$458
|
Performance Graphs
Pay Versus Performance Relationship
The Board and its Compensation Committee apply their experience and business judgment to (a) align Executive Compensation with the Company’s strategic goals and investment thesis, (b) use Executive Compensation as a
retention tool for its executive team, (c) reward the achievement of performance objectives, and (d) compare Executive Compensation against peer group benchmarks in order to ensure that it remains within appropriate ranges based on Company size and
financial performance.
The Board and Compensation Committee structure Executive Compensation to balance cash and equity-based compensation and to use both base and incentive compensation plans. For fiscal years during which performance
objectives are not satisfied, such as 2022 and 2023, non-equity incentive compensation is not paid and performance-vesting equity incentive compensation does not vest. Equity-based compensation preserves cash and fosters executive team alignment with
stockholder interests. In this regard, the Board and Compensation Committee have pursued a practice of granting a mixture of time-vesting and performance-vesting RSU grants, using TRSUs as a retention tool and PRSUs as a means of incentivizing
achievement of financial goals in the future.
The large adjustments in 2022 between the Summary Compensation Table total compensation (columns (b) and (d) of the PVP Table) and “Compensation Actually Paid” (columns (c) and (e) of the PVP Table) reflect the fact
that the Board and Compensation Committee elected to make substantial PRSU grants in 2022 with relatively long vesting periods, as a consequence of which a higher proportion of the implied compensation value of the awards shifts to later years.
Many factors affect Company financial performance, some of which - for example, the global COVID pandemic and macroscopic industry and economic trends - are beyond the ability of the executive team to influence. There
frequently is a lag or mismatch between the Company’s financial performance in a particular year and the amount or type of Executive Compensation paid during that year. As noted above, the equity-based incentive compensation granted during 2022
features a vesting period several years into the future, a fact that aligns with shareholder interests where - as here - the PRSU performance targets used are centered on Company share price improvement. The Company’s GAAP Net Income results for 2021
and 2022 (as noted in column (g) of the PVP Table) both include significant one-time events that are excluded from non-GAAP figures such as Adjusted EBITDA. In 2021, the Company’s Net Income was artificially high due to forgiveness of the Company’s
PPP loan, while in 2022, the Company wrote down the value of certain impaired assets, which caused Net Income to be artificially low.
In addition, the Company’s Common Stock is relatively thinly traded. The ten for 1 reverse stock split effectuated by the Company on October 30, 2023 further impacted the liquidity of the Common Stock by reducing the
number of shares outstanding. Thus, large fluctuations in share prices may occur within a single trading day or over a sustained period. Finally, as previously disclosed, the Company issued a material number of shares of Common Stock to Lind Global
in repayment of certain indebtedness and to Mr. Loudermilk in lieu of cash compensation. The Company believes that the dilution caused by these issuances further impacted the market performance of the Company’s Common Stock.
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has appointed the firm of FORVIS LLP (“FORVIS”) as the independent registered public accounting firm of the Company for fiscal year 2024. Representatives of FORVIS are expected to
attend the Annual Meeting and will have the opportunity to make a statement at the meeting if they desire to do so and will be available to respond to appropriate questions.
The Audit Committee pre-approves all audit and permissible non-audit services provided to the Company by its independent registered public accounting firm. These services may include audit
services, audit-related services, tax services, and other services. The Audit Committee has adopted policies and procedures for the pre-approval of services provided by the independent registered public accounting firm. Management must provide a
detailed description of each proposed service and the projected fees and costs (or a range of such fees and costs) for the service. The policies and procedures require management to provide quarterly updates to the Audit Committee regarding services
rendered to date and services yet to be performed.
As permitted under the Sarbanes-Oxley Act of 2002, the Audit Committee may delegate pre-approval authority to its Chair for audit and permitted non-audit services. Any service pre-approved by the
Audit Committee or its Chair must be reported to the Audit Committee at the next scheduled quarterly meeting. In addition, the pre-approval procedures require that all proposed engagements of the Company’s independent registered public accounting
firm for services of any kind be directed to the Company’s Chief Financial Officer before they are submitted for approval prior to the commencement of any service.
The following table presents fees for professional audit services and other related services rendered by the Company’s independent registered public accounting firm FORVIS LLP (“FORVIS”) for the
years ended December 31, 2023 and December 31, 2022. Finally, the table also presents certain audit-related convenience fees associated with credit card payments. The Audit Committee approved 100% of the services described in the following table.
|
|
2023
|
|
2022(3)
|
|
|
|
|
|
|
|
|
Audit fees (1)
|
$
|
807,870
|
|
$
|
826,826
|
|
|
|
|
|
|
|
|
|
|
Audit-related fees
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Tax fees
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
All other fees (2)
|
|
21,527
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
$
|
829,397
|
|
$
|
826,826
|
|
| |
(1)
|
Audit fees consisted of fees for the audit of the Company’s consolidated financial statements, including quarterly review services in accordance with SAS No. 100 and statutory audit
services for subsidiaries of the Company, and administrative and other expenses.
|
| |
(2)
(3)
|
All other fees consist of fees related to the Company’s Registration Statement on Form S-3 filed on December 20, 2023 and the consent obtained from FORVIS appurtenant thereto.
2022 totals include $29,252 of uninvoiced/unaccrued fees and also unaccrued/uninvoiced $216,300 of out of scope fees in addition to those fees that were previously disclosed at time of the
filing of the proxy statement for the 2023 annual meeting of stockholders.
|
Ratification of the appointment of the independent registered public accounting firm requires the affirmative vote of a majority of the votes cast by the holders of the shares of common stock voting in person or by
proxy at the annual meeting. The stockholders’ ratification of the appointment of FORVIS will not impact the Audit Committee’s responsibility pursuant to its charter to appoint, replace, and discharge the independent registered public accounting
firm. If the stockholders do not ratify the appointment of FORVIS, the Audit Committee may reconsider the appointment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF FORVIS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2024
PROPOSAL 4: APPROVAL OF THE COMPANY’S 1995 LONG-TERM INCENTIVE PLAN (AS AMENDED AND RESTATED EFFECTIVE [•]).
The Board proposes that the stockholders of the Company approve certain amendments to the Long-Term Incentive Plan. Prior to the amendment, there are 900,000 (following the October 30, 2023 reverse stock split) shares
reserved for issuance under the Plan, however, as of the Record Date, zero shares remain available for grant. The Board requests and recommends the stockholders ratify and approve the proposed 1995 Long-Term Incentive Plan as Amended and Restated
effective May [13], 2024 (the “Amended and Restated Plan”), which provides for reservation of an additional [665,000] shares of common stock for issuance thereunder in accordance with the Company’s Bylaws and Delaware General Corporation Law. The
Amended and Restated Plan also extends the term of the Plan, which is scheduled to terminate on April 4, 2032 through May [12], 2024. The Amended and Restated Plan is attached as Exhibit A.
As with prior amendments to the Plan, the purpose of increasing the number of shares of common stock available for issuance under the Amended and Restated Plan is to ensure that the Company has sufficient shares of
common stock available to continue to utilize equity incentives to attract and retain the services of key individuals and high-quality employees, officers, directors, and consultants essential to its long-term growth and financial success, through
the issuance of option grants and other awards and to provide additional incentive by permitting certain key individuals whose efforts have materially contributed to the Company’s success to be eligible to participate as owners of the Company. The
Amended and Restated Plan provides for a total of [1,565,000] shares of common stock which may be issued upon the exercise of options or other awards granted thereunder.
The Amended and Restated Plan also adds certain amendments to (a) set 75,000 shares or shares having a fair market value of $100,000 at the time of issuance as the maximum number of shares of
Common Stock of the Company that may be subject to awards of any combination granted during any one fiscal year to any one independent member of the Company’s Board of Directors, and (b) decrease from 700,000 shares to 100,000 shares as the maximum
number of shares of Common Stock of the Company subject to awards of any combination that may be granted during any one fiscal year to any one individual.
The following is a summary of the material provisions of the Amended and Restated Plan, which is qualified in its entirety by the copy of the Amended and Restated Plan that is attached to this Proxy as Exhibit A.
A copy of the Amended and Restated Plan may also be obtained from the Plan Administrator at the Company’s executive offices located at 6940 Columbia Gateway Drive, Suite 470, Columbia, Maryland, 21046.
Purpose
The purpose of the Amended and Restated Plan is to promote the long-term growth and profitability of the Company. The Amended and Restated Plan is administered by the Board or a committee of the Board (the
“Administrator”). The Amended and Restated Plan permits the grant to employees, directors or consultants of stock options (including incentive stock options and nonqualified stock options), stock appreciation rights, restricted or unrestricted stock
awards, phantom stock, performance awards, or any combination of these.
Outstanding equity awards represent potential future stock issuances that would, upon exercise or vesting (depending on the terms of the specific grant), result in diluting the percentage ownership of each investor. As
a percentage of the Company’s outstanding stock, the impact of outstanding equity awards serves as a measure of future dilution. In addition, shares reserved for future equity awards under the Company’s stock plans can eventually dilute stock
ownership as equity awards are granted and shares of Company stock are issued following exercise or vesting.
Employees often choose not to exercise vested options and hold on to them for possible future exercise. Delaying to exercise vested options can have the effect of causing relatively high levels of outstanding options.
At present there are no outstanding options, but the Amended and Restate Plan permits future grants of such equity-based awards. The Company currently has [•] restricted share units outstanding, all of which may convert into shares of outstanding
Company common stock upon vesting if they do not expire or become forfeited prior to vesting, and if the grantee does not elect to surrender a portion of the shares to cover tax obligations incurred at the time of vesting (as more fully described
below in “Shares Subject to the Plan”). The Company has reserved an appropriate number of shares for issuance upon any such future vesting events, and if issued, all of such shares would have the effect of diluting the percentage ownership of other
stockholders.
Intellectual capital, including the know-how of key employees of an acquired company, is a value component in most acquisitions. Equity awards are frequently granted to employees of an acquired company to ensure
business continuity in order to realize fully the value of the acquired company and its technologies. Thus, in addition to the Company’s use of equity-based awards under the Amended and Restated Plan for purposes of retention and reward for existing
employees, future acquisitions could result in an increase in the level of equity awards granted and outstanding, and therefore the amount of resulting dilution.
Shares Subject to the Plan
Subject to certain adjustments, the maximum number of shares of common stock that may be issued subject to awards granted under the Plan is [1,565,000] shares. The Amended and Restated Plan would increase the number of
shares reserved for issuance by [665,000] shares to a maximum of [1,565,000] shares.
If any award or portion of an award expires or terminates unexercised, becomes unexercisable, or is forfeited or otherwise terminated, surrendered, or canceled as to any shares of common stock, or if any shares are
surrendered to the Company in connection with any award (whether or not such surrendered shares were acquired pursuant to any award), the shares subject to such award and the surrendered shares will thereafter be available for further awards, except
as follows: any shares of common stock that are surrendered to the Company in connection with any award or that are otherwise forfeited after issuance will not be available for purchase pursuant to incentive stock options intended to qualify under
Section 422 of the Code.
The maximum number of shares of common stock subject to awards of any combination that may be granted during any one fiscal year of the Company to any one individual independent director under the Amended and Restated
Plan is limited to the lesser of 75,000 shares or shares having a fair market value at the time of issuance of $100,000. The maximum number of shares of common stock subject to awards of any combination that may be granted during any one fiscal year
of the Company to any one individual (other than an independent director) under the Amended and Restated Plan is limited to 100,000 shares, subject to certain exceptions. The limit on the maximum amount of cash payable for awards granted during any
one fiscal year of the Company to any one individual (other than an independent director) is the amount equal to 400,000 times the fair market value per share of common stock, subject to certain exceptions. The two limits applicable to individuals
who are not independent directors are multiplied by three in connection with a new hire or internal promotion into a new position. In addition, under the Plan, these per-individual limits will not be adjusted to effect a restoration of shares of
common stock with respect to which the related award is terminated, surrendered or canceled.
The Company’s common stock might be affected by changes resulting from a stock dividend, spin-off, split-up, recapitalization, merger, consolidation, business combination or exchange of shares and the like. If that
happens, the Administrator is required to make appropriate adjustments to the maximum number and kind of shares reserved for issuance or with respect to awards and to the number, kind and price of shares covered by outstanding awards. In addition,
the Administrator is required to make any other adjustments in outstanding awards, including but not limited to reducing the number of shares subject to awards or providing or mandating alternative settlement methods such as settlement of the awards
in cash, shares, or other securities of the Company or of any other entity, or in any other matters that relate to awards as the Administrator determines.
Administration
The Administrator has the powers vested in it by the terms of the Amended and Restated Plan, including determining the types of awards to be granted, number of shares covered by each award, the exercise price, vesting
conditions, prescribed grant agreements evidencing such awards, and the establishment of programs for granting awards. The Administrator has the authority to administer and interpret the Amended and Restated Plan and to adopt and interpret the rules,
regulations, agreements, guidelines and instruments as it determines are necessary or advisable. In making such determination, consideration may be given to the value of the services rendered by the respective individuals, their present and potential
contributions to the success of the Company and its subsidiaries, and such other factors deemed relevant in accomplishing the purposes of the Amended and Restated Plan.
Duration, Amendment, and Termination
If approved by the Company’s stockholders, the Amended and Restated Plan is effective as of May [13], 2024, and will terminate on May [12], 2034. All awards made under the Amended and Restated Plan will remain in
effect until such awards have been satisfied or terminated in accordance with the Amended and Restated Plan and the terms of such awards. The Board may terminate, amend, or modify the Plan, or any portion of the Plan, at any time.
Eligibility and Participation
All employees, officers, directors, and consultants of the Company and any affiliate is eligible to be selected by the Administrator to participate in the Plan. As of [•], approximately [•] employees and three
nonemployee directors of the Company were eligible to participate in the Plan.
Awards
The Plan authorizes the Administrator to award stock options, stock appreciation rights, restricted and unrestricted stock awards, phantom stock (or restricted stock units), and performance awards.
Stock Options. Grants of options made under the Amended and Restated Plan are intended to qualify as either incentive stock options (“ISO”) or non-qualified stock options
(“NSO”) as governed by Sections 422 and 83 of the Code, respectively. Under applicable law, however, ISOs are available only for employees of the Company or any of its subsidiaries. ISOs must have an exercise price at least equal to fair market value
on the date of grant, but NSOs may be granted with an exercise price less than fair market value. Under the Amended and Restated Plan, “fair market value” generally means the last reported sale price per share of the Company’s common stock on the
Nasdaq Capital Market. As of the close of trading on May [•], 2024, the fair market value of shares of the Company’s common stock was $[•] per share.
Stock Appreciation Rights. The Amended and Restated Plan permits the Administrator to grant stock appreciation rights. A stock appreciation right entitles the holder to receive
a payment in cash, shares of the Company’s common stock or a combination of both, as determined by the Administrator and specified in the applicable grant agreement. The amount payable upon exercise is equal to the product of (1) the excess of (a)
the fair market value on the exercise date of one share of the Company’s common stock over (b) the base price per share specified in the grant agreement, multiplied by (2) the number of shares with respect to which the stock appreciation right is
exercised.
Stock Awards. The Administrator may grant restricted or unrestricted stock awards in such amounts, on such terms and conditions, and for such consideration, including no
consideration or such minimum consideration as may be required by law. A stock award may be paid in common stock, cash, or both, as determined in the sole discretion of the Administrator.
Restricted Stock Unit Awards. Restricted stock unit awards granted to a participant are credited to a bookkeeping reserve account solely for accounting purposes and do not
require segregation of any of the Company’s assets. An award of restricted stock units may be settled in common stock, cash, or a combination of both, as determined in the sole discretion of the Administrator. Except as otherwise provided in the
applicable grant agreement, a recipient of a restricted stock unit award has none of the rights of a holder of shares of common stock represented by the restricted stock unit award solely as a result of the grant of the award.
Performance Awards. The Amended and Restated Plan provides that the Administrator may grant performance awards that become payable on account of attainment of one or more
performance goals established by the Administrator. A performance goal can be based on one or more of the following business criteria:
Earnings or Profitability: any derivative of revenue; earnings or loss (gross, operating, net, or adjusted); earnings or loss before
interest and taxes (“EBIT”); earnings or loss before interest, taxes, depreciation, and amortization (“EBITDA”); profit margin; operating margin; or expense level or ratio; in each case, as may be adjusted exclude any of the following: interest
expense, asset impairment or investment losses, or early extinguishment of debt or stock-based compensation expense;
Return: any derivative of return on investment, assets, equity, or capital (total or invested);
Investment: relative risk-adjusted investment performance or investment performance of assets under management.
Cash Flow: any derivative of operating cash flow, cash flow sufficient to achieve a financial ratio or specified cash balance, free cash
flow, cash flow return on capital, net cash provided by operating activities, cash flow per share, or working capital;
Liquidity: any derivative of debt leverage (including debt to capital, net debt to capital, debt to EBITDA or any other liquidity ratio);
Equity: any derivative of return on equity; total stockholder return; stock price; stock price appreciation; market capitalization;
earnings or loss per share (basic or diluted, before or after taxes); or
Strategic Criteria: increased market penetration or market share; growth through acquisition; optimization of profit margins; new product
or service offerings; progress toward development of internal equity-driven culture or other desired workforce characteristics; divestment of non-core business units; development of a commissioned sales force globally; or other goals that relate to
or support Company strategies.
These criteria may apply to a participant, a business unit, or the Company, and in absolute terms or relative to a base period or the performance of a comparable entity, peer group, or index of companies, over such
performance period as the Administrator may designate.
The Administrator may make one or more objectively determinable adjustments to the manner in which one or more performance goals is calculated or measured to account for, or ignore, one or more unusual or nonrecurring
items or events, changes in applicable law, accounting principles, or business conditions, as specifically listed in the Amended and Restated Plan.
Federal Income Tax Consequences
Stock Options. Generally, at the time of the grant, federal income tax is not payable by an option holder and the Company does not take a deduction. Under current tax laws, if
an option holder exercises a NSO, the option holder will have taxable income equal to the difference between the fair market price of the common stock on the exercise date and the stock option grant price.
Although no tax consequences generally result from the grant of the option, an option holder who exercises a NSO generally will realize compensation taxable as ordinary income in an amount equal to the difference
between the exercise price and the fair market value of the shares on the date of exercise. An option holder generally will have no taxable income upon exercising an ISO after the applicable holding periods have been satisfied (however, alternative
minimum tax may apply), and the Company will not receive a deduction when an ISO is exercised.
Upon exercise of an option, the tax treatment may also vary depending on the amount of time the shares were held and whether they were acquired upon exercise of an ISO or a NSO. The Company will be entitled to a deduction in the corresponding amount
on its income tax return and, if the shares were acquired under an ISO before the applicable holding periods have been satisfied, it may be entitled to a deduction.
Restricted Stock Unit Awards. A participant generally will recognize no income upon the receipt of a restricted stock unit award. Upon the settlement of such an award, participants normally will recognize
ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any substantially vested shares received. If the participant is an employee, such ordinary income generally is subject to withholding of
income and employment taxes. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the determination date will be taxed as capital gain or loss. The Company generally is
entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.
Other Considerations. Section 409A to the Code covers most programs that defer the receipt of compensation to a succeeding year. It also provides strict election deferral and payout timing rules. In the event
an employee fails to comply with Section 409A, significant penalties may be placed on the individual employee. However, Section 409A does not affect the Company’s ability to deduct deferred compensation.
The rules governing the tax treatment of options and the receipt of shares in connection with such grants are quite technical; accordingly, the above description of tax consequences is necessarily general in nature and
does not purport to be complete. Moreover, statutory provisions are subject to change, as their interpretation may vary in individual circumstances. Finally, the tax consequences under applicable state laws may not be the same as under the federal
income tax laws.
No options under the Plan have been granted since its inception to one or more director nominees, or to associates of any of the following: director nominees, current directors, or executive officers. No other person
has received or will receive five percent of all options granted or will be granted under the Plan.
Equity Compensation Plan Information
The following table sets forth the equity compensation plan information for the year ended December 31, 2023:
|
Plan category
|
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
(a)
|
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights
(b)
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
(c)
|
|
Equity compensation plans approved by security holders
|
[•]
|
(none)
|
[•]
|
|
Equity compensation plans not approved by security holders
|
65,000
|
(none)
|
65,000
|
|
Total:
|
[•]
|
(none)
|
[•]
|
Approval of the Company’s 1995 Long-Term Incentive Plan (as amended and restated effective [•]) requires the affirmative vote of a majority of the votes cast by the holders of the shares of common stock voting in
person or by proxy at the annual meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPROVAL OF THE COMPANY’S 1995 LONG-TERM INCENTIVE PLAN (AS AMENDED AND RESTATED EFFECTIVE [•])
PROPOSAL 5: RATIFICATION AND APPROVAL OF THE ISSUANCE OF CERTAIN SHARES OF COMMON STOCK TO THE COMPANY’S FORMER CHIEF EXECUTIVE OFFICER IN LIEU OF HIS SALARY FROM JUNE 1, 2023 TO MAY 31, 2024;
Following a vote of the Company’s stockholders approving the April 5, 2022 amendment and restatement of the Company’s 1995 Long-Term Incentive Plan, the plan reserved 9,000,000 for issuance under the plan. Following
the October 30, 2023 reverse stock split, where each ten issued and outstanding shares of common stock, par value $0.01 per share (“Common Stock”) were exchanged for one newly-issued share of Common Stock, the cumulative available shares reserved for
issuance under the plan was reduced to 900,000 by the administrator with [•] shares available for issuance under such date.
On July 28, 2023, the Company and Kyle J. Loudermilk entered into a letter agreement (the “Letter Agreement”) with respect to Mr. Loudermilk’s annual salary. The Letter Agreement (i) reduces Mr. Loudermilk’s annual
cash salary for the period of June 1, 2023 to May 30, 2024 (the “Effective Period”) from $446,250.00 to $46,250.00, and (ii) in lieu thereof, grants Mr. Loudermilk certain restricted stock units (“RSUs”) on a quarterly basis beginning September 30,
2023. The number of RSUs granted was determined by dividing the amount of Mr. Loudermilk’s salary reduction ($400,000.00 in the aggregate during the Effective Period) for each such period by the five-day volume weighted average price of the Company’s
common stock (calculated to two decimal places) using all trades completed on a trading day as reported by Nasdaq; or, if the Company’s common stock is not then listed on the Nasdaq, by such other exchange on which the Company lists its common stock,
immediately preceding the grant date, subject to vesting and all other terms and conditions set forth in the Company’s 1995 Long Term Incentive Plan. The foregoing description of the Letter Agreement does not purport to be complete and is qualified
in its entirety by reference to the full text of the Letter Agreement, which is filed as Exhibit 10.1 to the Current Report on Form 8-K, filed on July 28, 2023, which is incorporated by reference herein.
Due to the decline in the Company’s stock price, both prior to and at times following the reverse stock split, the shares of Common Stock available for issuance under the Company’s 1995 Long-Term Incentive Plan were
rapidly depleted by issuing shares in lieu of cash compensation to Mr. Loudermilk.
On April 30, 2024, Mr. Loudermilk and the Company entered into a separation agreement, which included an amendment to certain restricted stock units such that if stockholders do not approve the issuance of such units
at the annual 2024 meeting of stockholders, the Company would be obligated to repurchase certain units at fair market value. The foregoing description of the Separation Agreement does not purport to be complete and is qualified in its entirety by
reference to the full text of the Separation Agreement, which is filed as Exhibit 10.2 to the Current Report on Form 8-K, filed on April 30, 2024, which is incorporated by reference herein. The Company now seeks approval of the stockholders with
respect to the over-issuance of 65,000 shares of Common Stock to Mr. Loudermilk attendant to the Letter Agreement.
If this Proposal 5 is approved, and the issuance of the 65,000 shares of Common Stock issued to Mr. Loudermilk are approved, the Company intends to register those shares on Form S-8 together with any additional shares
available for issuance under the Company’s 1995 Long Term Incentive Plan (if Proposal 4 is approved by the stockholders). If Proposal 5 is NOT approved, the Company will be obligated to repurchase 65,000 shares of Common Stock from Kyle Loudermilk at
fair market value within thirty (30) days of the Annual Meeting.
Although the business is improving and the impact of the COVID-19 is subsiding, the Company believes that it remains in the best interest of the Company and its stockholders to conserve cash. Therefore, the Board of
Directors recommends that the stockholders ratify and approve the over-issuance of 65,000 shares of Common Stock to the Company’s then-Chief Executive Officer, Kyle J. Loudermilk.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
RATIFICATION AND APPROVAL OF THE ISSUANCE OF CERTAIN SHARES OF COMMON STOCK TO THE COMPANY’S FORMER CHIEF EXECUTIVE OFFICER
PROPOSAL 6: APPROVAL OF THE ISSUANCE OF COMPANY COMMON STOCK IN AN AMOUNT EXCEEDING 20% OF OUTSTANDING SHARES TO LIND GLOBAL FUND II, L.P.
The Board proposes that the stockholders of the Company approve the issuance of Common Stock to Lind Global Fund II LP in an amount that may exceed twenty percent (20%) of the number of shares issued and outstanding as
of the time of such issuance.
Initial Lind Securities Offering and Repayment
On February 23, 2022, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Lind Global Fund II LP, a Delaware limited partnership (“Lind Global”), pursuant to which we issued to Lind Global
a secured, two-year, interest free convertible promissory note in the principal amount of $5,750,000 (the “First Note”) and a common stock purchase warrant (the “First Warrant”) to acquire 1,283,732 shares of Common Stock (or 128,373 shares of
Common Stock following the October 30, 2023 reverse stock split) for a purchase price of $5,000,000. The foregoing description of the Purchase Agreement, the First Note, the First Warrant, and the transactions contemplated thereby does not purport
to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Purchase Agreement, the First Note, and the First Warrant, which are included in the Current Report, filed on February 28, 2022, as Exhibits 10.1,
10.2, and 10.3, respectively, and are incorporated herein by reference.
Based upon the foregoing with respect to the First Note, the Company sought and obtained stockholder approval pursuant to Nasdaq Rule 5635(d) (the “Nasdaq 20% Rule”) at the 2023 Annual Stockholder Meeting to issue
shares in a transaction, other than a public offering (as interpreted under the Nasdaq 20% Rule), involving the sale, issuance, or potential issuance by the Company of Common Stock, that equals 20% or more of the Common Stock or 20% or more of the
voting power outstanding before the issuance, at a price less than the lower of: (i) the closing price immediately preceding the signing of the binding agreement, or (ii) the average closing price of the Common Stock for the five trading days
immediately preceding the signing of the binding agreement for the transaction.
The Company and Lind Global amended and restated the terms of the First Note on June 23, 2023. As amended and restated, in the principal amount of $2,747,228, the First Note had a maturity date of August 23, 2024 and
was payable, commencing on July 23, 2023, in twelve (12) consecutive monthly payments of $186,343 each and two (2) final payments of $255,556 each. The remainder of the terms of the First Note, including terms around payment, prepayment, default
and conversion, were unchanged. The foregoing description of the amendment and restatement of the First Note and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by reference to,
the full text of the amended and restated First Note, which is included in the Current Report, filed on June 26, 2023, as Exhibits 10.3, and are incorporated herein by reference. The Company and Lind Global later entered into two amendments to the
amended and restated First Note on October 6, 2023, and February 12, 2024.
As of the mailing of this Proxy Statement, the Company has satisfied the First Note in full.
Second Lind Securities Offering
On June 23, 2023, the Company entered into a new securities purchase agreement with Lind Global, pursuant to which the Company issued to Lind Global that certain Senior Convertible Promissory Note, dated June 23,
2023 (the “Second Note”) and a warrant to acquire 4,264,271 shares (or 426,427 shares of Common Stock following the October 30, 2023 reverse stock split) of Common Stock (the “Second Warrant”). In addition to payment obligations, the Second Lind
Note contains covenants pertaining to the Company and our business including, but not limited to, an obligation to maintain an equity market capitalization of at least $7,000,000. Commencing one year after the issuance of the Second Note, the
Company shall pay the outstanding principal amount of the Second Note in twelve (12) consecutive monthly payments of $150,000 each. At the option of the Company, the monthly payment can be made in cash, shares of the common stock of the Company
(the “Repayment Shares”) at a price based on 90% of the average five (5) consecutive daily VWAPs during the twenty (20) days prior to the payment date, or a combination of cash and Repayment Shares, subject to the terms of the Second Note. The
Repayment Shares must either be eligible for immediate resale under Rule 144 or be registered. The number of Repayment Shares is limited such that, when added to the number of shares of common stock issued and issuable pursuant to the transactions
contemplated by the 2023 Purchase Agreement, it may not exceed [•] shares of common stock unless the Company obtains stockholder approval to issue additional Repayment Shares. The holder of the Second Note may elect with respect to no more than two
(2) of the above described monthly payments to increase the amount of such monthly payment up to $300,000 each in Repayment Shares upon notice to the Company. Any such increased payment shall be deducted from the amount of the last monthly payment
owed under the Second Note.
The Company can prepay Lind Global all the outstanding principal amount of the Note, provided that Lind Global shall have the option to convert up to one third (1/3) of the outstanding principal amount of the Second
Note at a price per share equal to the lesser of the Repayment Share price or the conversion price (as described below).
If there is a change of control of the Company, Lind Global has the right to require the Company to prepay the outstanding principal amount of the Second Note. A change of control includes a change in the composition
of a majority of the Board of Directors of the Company, at a single shareholder meeting, a change, without prior written consent of Lind Global where a majority of the individuals that were directors as of June 20, 2023 cease to be directors of the
Company (provided that any individual who is nominated by the board of directors (or a duly authorized committee thereof) as of June 20, 2023 and is elected or appointed as a director of the Company shall be deemed a member of the board of
directors of the Company for all such purposes), a shareholder acquiring beneficial ownership of more than 50% of the common stock of the Company, or the sale or other disposition of the Company of all or substantially all of its assets.
The Second Note is convertible into common stock of the Company at any time after the earlier of six (6) months from issuance or the date the registration statement is effective, provided that no such conversion may
be made that would result in beneficial ownership by Lind Global and its affiliates of more than 4.99% of the Company’s outstanding shares of common stock. The conversion price of the Second Note is equal to $5.00 following the October 30, 2023
reverse stock split (and subject to further customary adjustments).
On October 6, 2023, the Company and Lind Global entered into that First Amendment to Senior Convertible Promissory Note (“Note Amendment”), amending the Second Note. The Note Amendment amended Section 2.1 pertaining
to events of default by deleting and replacing Section 2.1(r), which previously provided for an event of default under the Note in the event that the Company’s Market Capitalization (as defined in the Note) was below $7 million for ten (10)
consecutive days. As amended, the Note provides that, at any time after January 31, 2024, an event of default will occur in the event that the Company’s Market Capitalization is below $7 million for ten (10) consecutive days.
On February 12, 2024, the Company and Lind Global entered into that certain Second Amendment to the Second Note. The amendment amended Section 2.1 pertaining to events of default by deleting and replacing Section
2.1(r), which previously provided for an event of default under the Note in the event that, after January 31, 2024, the Company’s Market Capitalization (as defined in the Note) was below $7 million for ten (10) consecutive days. As amended, the
Note provides that, at any time after June 1, 2024, an event of default will occur in the event that the Company’s Market Capitalization is below $7 million for ten (10) consecutive days. Prior to the amendment, the “Conversion Price” in the Note
meant “$0.50, and shall be subject to adjustment as provided herein.” The amendment amended the definition of “Conversion Price” to mean “the lower of (i) $5.00 and (ii) eighty-five percent (85%) of the average of the three (3) lowest daily VWAPs
during the twenty (20) Trading Days prior to the delivery by the Holder of the applicable notice of conversion.” The change from “$0.50” to “$5.00” in the amended definition of “Conversion Price” was necessary to reflect the ten-for-one reverse
stock split of the Company’s common stock, effective October 25, 2023.
The Company filed a registration statement (the “Registration Statement”) with the Securities and Exchange Commission on December 20, 2023, covering the resale of all of the shares of Company Common Stock issuable to
Lind under, among other things, the Second Lind Note and the Second Warrant.
Prior Issuances of Common Stock to Lind in Relation to the First Note
Beginning in September 2022, the Company elected to make the following payments with respect to the First Note by issuing shares of Common Stock to Lind rather than making such payments in cash (all other payments were
made in cash):
|
Payment Date
|
Shares Issued
|
Share Price
|
Total Payment ($)
|
|
September 2022
|
34,373
|
$9.290
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319,444
|
|
October 2022
|
43,168
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$7.400
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319,444
|
|
November 2022
|
21,367
|
$5.590
|
119,444
|
|
January 2023
|
53,598
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$5.960
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319,444
|
|
February 2023
|
45,635
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$7.000
|
319,444
|
|
April 2023
|
56,339
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$5.670
|
319,444
|
|
May 2023
|
41,911
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$4.530
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189,856
|
|
January 2024
|
160,779
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$1.159
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186,343
|
In addition to the foregoing, on the following dates Lind elected to voluntarily convert certain amounts owed under the First Note to shares of Common Stock:
|
Conversion Date
|
Shares Issued
|
Share Price
|
Total Value ($)
|
|
10/13/2023
|
119,048
|
$1.680
|
200,000
|
|
11/8/2023
|
123,266
|
$1.298
|
160,000
|
|
12/5/2023
|
127,889
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$1.298
|
166,000
|
|
12/15/2023
|
123,379
|
$2.468
|
304,500
|
Why We are Seeking Stockholder Approval
As a result of our listing on The Nasdaq Capital Market, issuances of shares of Common Stock are subject to the Nasdaq Marketplace Rules, including the Nasdaq Rule 5635(d) (the “Nasdaq 20% Rule”). Pursuant to Nasdaq
Listing Rule 5635(d), stockholder approval is required prior to the issuance of shares in a transaction, other than a public offering (as interpreted under Nasdaq Listing Rule 5635(d)), involving the sale, issuance or potential issuance by the
Company of Common Stock, which equals 20% or more of the Common Stock or 20% or more of the voting power outstanding before the issuance, at a price less than the lower of: (i) the closing price immediately preceding the signing of the binding
agreement, or (ii) the average closing price of the Company Common Stock for the five trading days immediately preceding the signing of the binding agreement for the transaction (the “Minimum Price”). The issuance of Repayment Shares or Conversion
Shares to Lind pursuant to the Second Note is not a public offering under Nasdaq Listing Rule 5635(d) and does not otherwise satisfying the minimum price requirements of the Nasdaq 20% Rule.
Accordingly, the Company may not issue more than [•] shares of Company Common Stock to Lind without shareholder approval and, in order to comply with the Nasdaq 20% Rule and to satisfy conditions under the Lind
Securities, we are seeking stockholder approval to permit issuance of more than 20% of our common stock to Lind pursuant to the Lind Securities.
Effect of Failure to Obtain Stockholder Approval
If the stockholders do not approve Proposal 6, we will be unable to issue shares of Company Common Stock to Lind pursuant to the Second Note in excess of [•] and would be required to repay the amounts outstanding under
the Lind Note in cash. At present, we may not have sufficient cash to repay the Second Note through its maturity date. Consequently, if Repayment Shares are not available and we are not able to refinance the Second Note, we may default on the Second
Note.
Effect of Stockholder Approval; Dilution
Upon obtaining the stockholder approval requested in this Proposal 6, we would no longer be bound by the Nasdaq 20% Rule restriction on issuances of Common Stock to Lind under the Second Note. If this Proposal 6 is
approved by our stockholders, we would be able to issue more Common Stock to Lind under the Second Note. The maximum number of shares of common stock that we may issue would fluctuate from time to time based on the price of Common Stock and the
remaining amount due under the Lind Note. Based on the closing sale price of Common Stock as reported on Nasdaq on [•], 2023, if we choose to repay the either Lind Note with Repayment Shares at this price, we could issue up to [•] shares of Company
Common Stock.
The additional shares that we could issue to Lind will result in greater dilution to existing stockholders and may result in a decline in our stock price or greater price volatility. Each addition share of Common Stock
that would be issuable to Lind would have the same rights and privileges as each share of our currently authorized Common Stock.
The approval of Proposal 6 requires the affirmative vote of a majority of the shares present in person or by proxy and entitled to vote on the matter. Broker non-votes and abstentions will not be taken into account in
determining the outcome of the proposal, and abstentions will be counted as votes against the proposal. The Board recommends that stockholders vote FOR the approval, for purposes of complying with Nasdaq Listing Rule 5635(d), of the issuance of more
than 20% of the Company’s issued and outstanding Common Stock pursuant to the Second Note.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF ISSUANCE OF COMPANY COMMON STOCK IN AN AMOUNT EXCEEDING 20% OF OUTSTANDING SHARES TO LIND GLOBAL FUND II, L.P.
STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS OF DIRECTORS
Stockholder Proposals
To be considered for inclusion in the Company’s proxy materials for next year’s annual meeting in accordance with Rule 14a-8 under the Exchange Act, a stockholder proposal must be submitted in writing by [•], 2025, to
the Company’s principal executives offices c/o Corporate Secretary at 6940 Columbia Gateway Drive, Suite 470, Columbia, Maryland 21046, and must otherwise comply with the requirements of Rule 14a-8 of the Exchange Act.
In addition, the Company’s Third Amended and Restated Bylaws (as amended, the “Bylaws”) establish an advance notice procedure for stockholders who wish to present certain matters before an annual meeting of
stockholders without including those matters in the Company’s proxy statement. Such proposals, including the information required by the Bylaws, must be received at the Company’s principal executive offices c/o Corporate Secretary, 6940 Columbia
Gateway Drive, Suite 470, Columbia, Maryland 21046, no earlier than [•], 2025, and no later than [•], 2025. If the date of the 2025annual meeting of stockholders is moved more than 30 days before or 60 days after the anniversary of the 2024 Annual
Meeting, stockholders must give notice on or before the close of business on the 10th day following the day on which the Company’s notice of the date of the meeting was mailed or other public disclosure of the annual meeting date is first made. A
stockholder’s notice to the Company must set forth, as to each matter the stockholder proposes to bring before an annual meeting, the information required by the Bylaws, which have been publicly filed with the SEC.
If a stockholder fails to give notice of a stockholder proposal as required by the Bylaws or other applicable requirements (including those attendant to the Exchange Act), then the proposal will not be included in the
proxy statement for our 2025 annual meeting of stockholders and the proposal will not be presented to the stockholders for a vote at the 2025 annual meeting of stockholders.
Copies of the Company’s Bylaws are available to stockholders without charge upon request to the Corporate Secretary at the Company’s address set forth above.
Stockholder Nominations of Directors
The Nominating and Governance Committee will consider nominees for director who are submitted by stockholders. All nominations must be made in accordance with the Bylaws. Written notice of all stockholder director
nominees proposed for election at the 2024 Annual Meeting must be received at the Company’s principal executive offices c/o Corporate Secretary, 6940 Columbia Gateway Drive, Suite 470, Columbia, Maryland 21046, no earlier than [•], 2024, and no later
than [•], 2024. If the date of the 2024 annual meeting of stockholders is moved more than 30 days before or 60 days after the anniversary of the 2024 Annual Meeting, stockholders must give notice of all stockholder director nominees on or before the
close of business on the 10th day following the day on which the Company’s notice of the date of the meeting was mailed or other public disclosure of the annual meeting date is first made. A stockholder’s nomination of a director must set forth the
information required by the Bylaws, which have been publicly filed with the SEC, including:
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•
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the name and address of the nominating stockholder as they appear on the Company’s books and of the beneficial owner, if any, on whose behalf the nomination is being made,
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|
•
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the class and number of shares of the Company that are owned by the nominating stockholder (beneficially and of record) and owned by the beneficial owner, if any, on whose behalf the nomination is being made,
as of the date of the nominating stockholder’s notice, and a representation that the nominating stockholder will notify the Company in writing of the class and number of such shares owned of record and beneficially as of the record date for
the meeting promptly following the later of the record date or the date notice of the record date is first publicly disclosed,
|
|
•
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a description of any agreement, arrangement or understanding with respect to such nomination between or among the nominating stockholder and any of its affiliates or associates, and any others (including
their names) acting in concert with any of the foregoing, and a representation that the nominating stockholder will notify the Company in writing of any such agreement, arrangement or understanding in effect as of the record date for the
meeting promptly following the later of the record date or the date notice of the record date is first publicly disclosed,
|
|
•
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a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, hedging transactions, and borrowed or loaned shares) that has been entered
into as of the date of the nominating stockholder’s notice by, or on behalf of, the nominating stockholder or any of its affiliates or associates, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price
changes for, or increase or decrease the voting power of the nominating stockholder or any of its affiliates or associates with respect to shares of stock of the Company, and a representation that the nominating stockholder will notify the
Company in writing of any such agreement, arrangement or understanding in effect as of the record date for the meeting promptly following the later of the record date or the date notice of the record date is first publicly disclosed,
|
|
•
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a representation that the nominating stockholder is a holder of record of shares of the Company entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice, and
|
|
•
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a representation whether the nominating stockholder intends to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Company’s outstanding capital stock required to
approve the nomination and/or otherwise to solicit proxies from stockholders in support of the nomination.
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The Company may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as an independent director of the Company or
that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee. The foregoing is qualified in its entirety by reference to Section 2.7 of the Bylaws, which have been publicly filed with the
SEC.
The Nominating and Governance Committee will apply the same criteria when considering stockholder nominees as it does to Company nominated candidates.
Each director nominee will be evaluated considering the relevance to the Company of the director nominee’s skills and experience, which must be complimentary to the skills and experience of the other members of the
Board and those critical attributes, experiences, qualifications, and skills identified on the Company’s skills matrix. Although the Nominating and Governance Committee does not have a formal policy regarding diversity, in considering director
candidates, the Nominating and Governance Committee considers such factors as it deems appropriate to assist in developing a board and committees that are diverse in nature and comprised of members who have various types of experience (industry,
professional, public service). Each director nominee is evaluated in the context of the Board’s qualifications, as a whole, with the objective of establishing a Board that can best perpetuate the Company’s success and represent stockholder interests
through the exercise of sound business judgment.
AUDIT COMMITTEE REPORT
The Audit Committee has:
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•
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reviewed and discussed the Company’s audited consolidated financial statements as of and for the year ended December 31, 2023, with management and with FORVIS LLP, the Company’s independent registered public
accounting firm for 2022, which is responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles and the firm’s judgment as to the quality and acceptability
of the Company’s accounting principles and consolidated financial statements for the year ended December 31, 2023;
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|
•
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discussed with FORVIS LLP the matters required under applicable professional auditing standards and regulations by the Public Company Accounting Oversight Board (“PCAOB”) Statement on Auditing Standards No.
1301, Communications with Audit Committees;
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|
•
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received the written disclosures and the letter or letters from FORVIS LLP required by the applicable requirements of the PCAOB regarding FORVIS LLP’s communications with the Audit Committee concerning
independence, including Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, and has discussed with FORVIS LLP its independence from the Company and its management;
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|
•
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discussed with FORVIS LLP the overall scope and plans of their audit, and met with FORVIS LLP with and without management present, to discuss the results of their examinations and the overall quality of the
Company’s financial reporting; and
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|
•
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recommended, based on the reviews and discussions referred to above, to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2023, for filing with the SEC.
|
By the members of the Audit Committee:
William S. Corey, Jr., Chair
Thomas J. Dougherty
Kathryn O’Connor Gardner
Other Business
As of the date of this proxy statement, the Company does not know of any matters that will be presented for action at the annual meeting other than those expressly set forth herein. If other matters properly come
before the meeting, proxies submitted on the enclosed form will be voted by the persons named in the enclosed form of proxy in accordance with their best judgment. In addition, if (i) the person named as the nominee to serve as a director is unable
to serve or for good cause will not serve and the Board of Directors designates a substitute nominee or (ii) any stockholder proposal, which is not in this proxy statement or on the proxy card or voting instructions form pursuant to Rule 14a-8 or
14a-9 of the Exchange Act, is presented for action at the meeting, or (iii) if any matters concerning the conduct of the meeting are presented for action, then stockholders present at the meeting may vote on such items. If you are represented by
proxy, your proxy will vote your shares using his discretion.
By Order of the Board of Directors
Kathryn O’Connor Gardner
Chair of the Board
Columbia, Maryland
GSE Systems, Inc.
1995 Long-Term Incentive Plan
(as Amended and Restated effective May [13], 2024)
GSE SYSTEMS, INC.
1995 LONG-TERM INCENTIVE PLAN
(as Amended and Restated effective May [13], 2024)
1. Restatement, Purpose and Types of Awards
GSE Systems, Inc., a Delaware corporation (the “Corporation”), maintained the GSE Systems, Inc. 1995 Long-Term Incentive Plan (as Amended through April 5, 2022) (the “Prior Plan”). The Prior Plan has been amended and
restated, as set forth herein, effective May [13], 2024, subject to the approval of the shareholders of the Corporation within twelve months of such effective date (the “Plan”). Notwithstanding anything herein to the contrary, nothing in this Plan
shall adversely affect the rights or obligations, under any Award granted under the Prior Plan, of any grantee or holder of the Award without such person’s approval.
The purpose of the Plan is to promote the long-term growth and profitability of the Corporation by: (i) providing key people with incentives to improve stockholder value and to contribute to the growth and financial
success of the Corporation; and (ii) enabling the Corporation to attract, retain and reward the best-available persons.
The Plan permits the granting of stock options (including incentive stock options qualifying under Code section 422 and nonqualified stock options), stock appreciation rights, restricted or unrestricted stock awards,
phantom stock, performance awards, or any combination of the foregoing.
2. Definitions
Under this Plan, except where the context otherwise indicates, the following definitions apply:
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(a)
|
“Affiliate” shall mean any entity, whether now or hereafter existing, which controls, is controlled by, or is under common control with, the Corporation (including, but not limited to, joint
ventures, limited liability companies, and partnerships). For this purpose, “control” shall mean ownership of 50% or more of the total combined voting power or value of all classes of stock or interests of the entity.
|
|
(b)
|
“Award” shall mean any stock option, stock appreciation right, stock award, phantom stock award, or performance award.
|
|
(c)
|
“Board” shall mean the Board of Directors of the Corporation.
|
|
(d)
|
“Code” shall mean the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder.
|
|
(e)
|
“Common Stock” shall mean shares of common stock of the Corporation, $.01 par value.
|
|
(f)
|
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
|
|
(g)
|
“Fair Market Value” of a share of the Corporation’s Common Stock for any purpose on a particular date shall mean the last reported sale price per share of Common Stock, regular way, on such date
or, in case no such sale takes place on such date, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or
admitted to trading on a national securities exchange or included for quotation on the Nasdaq Capital Market, or if the Common Stock is not so listed or admitted to trading or included for quotation, the last quoted price, or if the Common
Stock is not so quoted, the average of the high bid and low asked prices, regular way, in the over-the-counter market, as reported by the Nasdaq Capital Market or, if such system is no longer in use, the principal other automated quotations
system that may then be in use or, if the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices, regular way, as furnished by a professional market maker making a market in the Common Stock as
selected in good faith by the Administrator or by such other source or sources as shall be selected in good faith by the Administrator. If, as the case may be, the relevant date is not a trading day, the determination shall be made as of
the next preceding trading day. As used herein, the term “trading day” shall mean a day on which public trading of securities occurs and is reported in the principal consolidated reporting system referred to above, or if the Common Stock
is not listed or admitted to trading on a national securities exchange or included for quotation on the Nasdaq Capital Market, any business day.
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|
(h)
|
“Grant Agreement” shall mean a written document memorializing the terms and conditions of an Award granted pursuant to the Plan and shall incorporate the terms of the Plan.
|
|
(i)
|
“Parent” shall mean a corporation, whether now or hereafter existing, within the meaning of the definition of “parent corporation” provided in Code section 424(e), or any successor thereto.
|
|
(j)
|
“Subsidiary” and “subsidiaries” shall mean only a corporation or corporations, whether now or hereafter existing, within the meaning of the definition of
“subsidiary corporation” provided in Section 424(f) of the Code, or any successor thereto.
|
3. Administration
|
(a)
|
Administration of the Plan. The Plan shall be administered by the Board or by such committee or committees as may be appointed by the Board from time to time (the Board, committee or committees
hereinafter referred to as the “Administrator”).
|
|
(b)
|
Powers of the Administrator. The Administrator shall have all the powers vested in it by the terms of the Plan, such powers to include authority, in its sole and absolute discretion, to grant
Awards under the Plan, prescribe Grant Agreements evidencing such Awards and establish programs for granting Awards.
|
The Administrator shall have full power and authority to take all other actions necessary to carry out the purpose and intent of the Plan, including, but not limited to, the authority to: (i) determine
the eligible persons to whom, and the time or times at which Awards shall be granted; (ii) determine the types of Awards to be granted; (iii) determine the number of shares to be covered by or used for reference purposes for each Award; (iv) impose
such terms, limitations, restrictions and conditions upon any such Award as the Administrator shall deem appropriate; (v) modify, amend, extend or renew outstanding Awards, or accept the surrender of outstanding Awards and substitute new Awards
(provided however, that, except as provided in Section 7(d) of the Plan, any modification that would materially adversely affect any outstanding Award shall not be made without the consent of the holder); (vi) accelerate or otherwise change the time
in which an Award may be exercised or becomes payable and to waive or accelerate the lapse, in whole or in part, of any restriction or condition with respect to such Award, including, but not limited to, any restriction or condition with respect to
the vesting or exercisability of an Award following termination of any grantee’s employment or other relationship with the Corporation; and (vii) establish objectives and conditions, if any, for earning Awards and determining whether Awards will be
paid after the end of a performance period. The Administrator shall have full power and authority, in its sole and absolute discretion, to administer and interpret the Plan and to adopt and interpret such rules, regulations, agreements, guidelines
and instruments for the administration of the Plan and for the conduct of its business as the Administrator deems necessary or advisable.
|
(c)
|
Non-Uniform Determinations. The Administrator’s determinations under the Plan (including without limitation, determinations of the persons to receive Awards, the form, amount and timing of such
Awards, the terms and provisions of such Awards and the Grant Agreements evidencing such Awards) need not be uniform and may be made by the Administrator selectively among persons who receive, or are eligible to receive, Awards under the
Plan, whether or not such persons are similarly situated.
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|
(d)
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Limited Liability. To the maximum extent permitted by law, no member of the Administrator shall be liable for any action taken or decision made in good faith relating to the Plan or any Award
thereunder.
|
|
(e)
|
Indemnification. To the maximum extent permitted by law and by the Corporation’s charter and bylaws, the members of the Administrator shall be indemnified by the Corporation in respect of all
their activities under the Plan.
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|
(f)
|
Effect of Administrator’s Decision. All actions taken and decisions and determinations made by the Administrator on all matters relating to the Plan pursuant to the powers vested in it hereunder
shall be in the Administrator’s sole and absolute discretion and shall be conclusive and binding on all parties concerned, including the Corporation, its stockholders, any participants in the Plan and any other employee, consultant, or
director of the Corporation, and their respective successors in interest.
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4. Shares Available for the Plan; Maximum Awards
Subject to adjustments as provided in Section 7(d), the shares of Common Stock that may be issued with respect to Awards granted under the Plan (including, for purposes of this Section 4, the Prior Plan) shall not exceed an aggregate of 1,565,000 shares of Common Stock. The Corporation shall reserve such number of shares for Awards under the Plan, subject to adjustments as provided in Section 7(d). If any Award,
or portion of an Award, under the Plan expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares, or if any shares of Common Stock are surrendered to the Corporation in
connection with any Award (whether or not such surrendered shares were acquired pursuant to any Award), the shares subject to such Award and the surrendered shares shall thereafter be available for further Awards under the Plan; provided, however,
that any such shares that are surrendered to the Corporation in connection with any Award or that are otherwise forfeited after issuance shall not be available for purchase pursuant to incentive stock options intended to qualify under Code section
422.
Subject to adjustments as provided in Section 7(d) and at the end of this paragraph, (a) the maximum number of shares of Common Stock subject to Awards of any combination that may be granted during any one fiscal year of
the Corporation to any one independent member of the Corporation’s Board of Directors under this Plan shall be limited to the lesser of 75,000 shares or shares having a fair market value of $100,000 at the time of isuance, and (b) the maximum number
of shares of Common Stock subject to Awards of any combination that may be granted during any one fiscal year of the Corporation to any one individual (other than an independent member of the Corporation’s Board of Directors) under this Plan shall be
limited to 100,000, and (c) the maximum cash amount payable for Awards of any combination that may be granted during any one fiscal year of the Corporation to any one individual under this Plan shall be limited to the amount equal to 400,000 times
the Fair Market Value per Share of Common Stock. The foregoing per-individual limits are multiplied by three for grants awarded in connection with a new hire or internal promotion into a new position within the Corporation. Such per-individual
limit shall not be adjusted to effect a restoration of shares of Common Stock with respect to which the related Award is terminated, surrendered or canceled.
5. Participation
Participation in the Plan shall be open to all employees, officers, directors, and consultants of the Corporation, or of any Affiliate of the Corporation, as may be selected by the Administrator from time to time.
6. Awards
The Administrator, in its sole discretion, establishes the terms of all Awards granted under the Plan. Awards may be granted individually or in tandem with other types of Awards. All Awards are subject to the terms and
conditions provided in the Grant Agreement.
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(a)
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Stock Options. The Administrator may from time to time grant to eligible participants Awards of incentive stock options as that term is defined in Code section 422 or nonqualified stock options;
provided, however, that Awards of incentive stock options shall be limited to employees of the Corporation or of any Parent or Subsidiary of the Corporation. Options intended to qualify as incentive stock options under Code section 422
must have an exercise price at least equal to Fair Market Value on the date of grant, but nonqualified stock options may be granted with an exercise price less than Fair Market Value. No stock option shall be an incentive stock option
unless so designated by the Administrator at the time of grant or in the Grant Agreement evidencing such stock option.
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(b)
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Stock Appreciation Rights. The Administrator may from time to time grant to eligible participants Awards of Stock Appreciation Rights (“SAR”). An SAR entitles the grantee to receive, subject to
the provisions of the Plan and the Grant Agreement, a payment having an aggregate value equal to the product of (i) the excess of (A) the Fair Market Value on the exercise date of one share of Common Stock over (B) the base price per share
specified in the Grant Agreement, times (ii) the number of shares specified by the SAR, or portion thereof, which is exercised. Payment by the Corporation of the amount receivable upon any exercise of an SAR may be made by the delivery of
Common Stock or cash, or any combination of Common Stock and cash, as determined in the sole discretion of the Administrator. If upon settlement of the exercise of an SAR a grantee is to receive a portion of such payment in shares of
Common Stock, the number of shares shall be determined by dividing such portion by the Fair Market Value of a share of Common Stock on the exercise date. No fractional shares shall be used for such payment and the Administrator shall
determine whether cash shall be given in lieu of such fractional shares or whether such fractional shares shall be eliminated.
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(c)
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Stock Awards. The Administrator may from time to time grant restricted, performance restricted, or unrestricted stock Awards to eligible participants in such amounts, on such terms and
conditions, and for such consideration, including no consideration or such minimum consideration as may be required by law, as it shall determine. A stock Award may be paid in Common Stock, in cash, or in a combination of Common Stock and
cash, as determined in the sole discretion of the Administrator.
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(d)
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Phantom Stock. The Administrator may from time to time grant Awards to eligible participants denominated in stock-equivalent units (“phantom stock”) in such amounts and on such terms and
conditions as it shall determine. Phantom stock units granted to a participant shall be credited to a bookkeeping reserve account solely for accounting purposes and shall not require a segregation of any of the Corporation’s assets. An
Award of phantom stock may be settled in Common Stock, in cash, or in a combination of Common Stock and cash, as determined in the sole discretion of the Administrator. Except as otherwise provided in the applicable Grant Agreement, the
grantee shall not have the rights of a stockholder with respect to any shares of Common Stock represented by a phantom stock unit solely as a result of the grant of a phantom stock unit to the grantee.
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(e)
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Performance Awards. The Administrator may grant performance awards which become payable on account of attainment of one or more performance goals established by the Administrator. Performance
awards may be paid by the delivery of Common Stock or cash, or any combination of Common Stock and cash, as determined in the sole discretion of the Administrator. A performance goal can be based on one or more of the business criteria
listed below, which apply to a participant, a business unit, or the Corporation, and in absolute terms or relative to a base period or the performance of a comparable entity, peer group, or index of companies, over such performance period
as the Administrator may designate:
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(i)
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Earnings or Profitability: any derivative of revenue; earnings or loss (gross, operating, net, or adjusted); earnings or loss before interest and taxes (“EBIT”); earnings or loss before interest,
taxes, depreciation, and amortization (“EBITDA”); profit margin; operating margin; or expense level or ratio; in each case, as may be adjusted exclude any of the following: interest expense, asset impairment or investment losses, or early
extinguishment of debt or stock-based compensation expense;
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(ii)
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Return: any derivative of return on investment, assets, equity, or capital (total or invested);
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(iii)
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Investment: relative risk-adjusted investment performance or investment performance of assets under management;
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(iv)
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Cash Flow: any derivative of operating cash flow, cash flow sufficient to achieve a financial ratio or specified cash balance, free cash flow, cash flow return on capital, net cash provided by
operating activities, cash flow per share, or working capital;
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(v)
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Liquidity: any derivative of debt leverage (including debt to capital, net debt to capital, debt to EBITDA or any other liquidity ratio);
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(vi)
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Equity: any derivative of return on equity; total stockholder return; stock price; stock price appreciation; market capitalization; earnings or loss per share (basic or diluted, before or after
taxes); or
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(vii)
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Strategic Criteria: increased market penetration or market share; growth through acquisition; optimization of profit margins; new product or service offerings; progress toward development of
internal equity-driven culture or other desired workforce characteristics; divestment of non-core business units; development of a commissioned sales force globally; or other goals that relate to or support the Corporation’s strategies.
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The Administrator may make one or more objectively determinable adjustments to the manner in which one or more performance goals is calculated or measured to account for, or ignore, one or more of the
following: (1) items related to a change in accounting principle; (2) items relating to financing activities; (3) expenses for restructuring or productivity initiatives; (4) other non-operating items; (5) items related to acquisitions; (6) items
attributable to the business operations of any entity acquired by the Corporation during the Performance Period; (7) items related to the sale or disposition of a business or segment of a business; (8) items related to discontinued operations that do
not qualify as a segment of a business under U.S. generally accepted accounting principles; (9) items attributable to any stock dividend, stock split, combination or exchange of stock occurring during the Performance Period; (10) any other items of
significant income or expense which are determined to be appropriate adjustments; (11) items relating to unusual or extraordinary corporate transactions, events or developments, (12) items related to amortization of acquired intangible assets; (13)
items that are outside the scope of the Corporation’s core, on-going business activities; (14) changes in foreign currency exchange rates; (15) items relating to changes in tax laws; (16) certain identified expenses (including, but not limited to,
cash bonus expenses, incentive expenses and acquisition-related transaction and integration expenses); (17) items relating to asset impairment charges; or (18) items relating to gains or unusual or nonrecurring events or changes in applicable law,
accounting principles or business conditions.
7. Miscellaneous
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(a)
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Withholding of Taxes. Grantees and holders of Awards shall pay to the Corporation or its Affiliate, or make provision satisfactory to the Administrator for payment of, any taxes required to be
withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability. The Corporation or its Affiliate may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to the grantee or holder of an Award. In the event that payment to the Corporation or its Affiliate of such tax obligations is made in shares of Common Stock, such shares shall be valued at Fair Market Value on the applicable
date for such purposes and shall not exceed in amount the limit necessary to avoid liability-accounting treatment.
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(b)
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Loans. To the extent permitted by law, the Corporation or its Affiliate may make or guarantee loans to grantees to assist grantees in exercising Awards and satisfying any withholding tax
obligations.
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(c)
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Transferability. Except as otherwise determined by the Administrator, and in any event in the case of an incentive stock option or a stock appreciation right granted with respect to an incentive
stock option, no Award granted under the Plan shall be transferable by a grantee otherwise than by will or the laws of descent and distribution. Unless otherwise determined by the Administrator in accord with the provisions of the
immediately preceding sentence, an Award may be exercised during the lifetime of the grantee, only by the grantee or, during the period the grantee is under a legal disability, by the grantee’s guardian or legal representative.
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(d)
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Adjustments; Business Combinations. In the event of changes in the Common Stock of the Corporation by reason of any stock dividend, spin-off, split-up, recapitalization, merger, consolidation,
business combination or exchange of shares and the like, the Administrator shall make appropriate adjustments to the maximum number and kind of shares reserved for issuance or with respect to which Awards may be granted under the Plan as
provided in Section 4 of the Plan and to the number, kind and price of shares covered by outstanding Awards, and shall make any other adjustments in outstanding Awards, including but not limited to reducing the number of shares subject to
Awards or providing or mandating alternative settlement methods such as settlement of the Awards in cash or in shares of Common Stock or other securities of the Corporation or of any other entity, or in any other matters which relate to
Awards as the Administrator shall determine to be necessary or appropriate.
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The Administrator is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events affecting the Corporation, or
the financial statements of the Corporation or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Administrator determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available under the Plan; provided, however, that no adjustment shall be made to an Award subject to Code section 409A if the adjustment would violate Code section 409A.
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(e)
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Substitution of Awards in Mergers and Acquisitions. Awards may be granted under the Plan from time to time in substitution for Awards held by employees or directors of entities who become or are
about to become employees or directors of the Corporation or an Affiliate as the result of a merger or consolidation of the employing entity with the Corporation or an Affiliate, or the acquisition by the Corporation or an Affiliate of the
assets or stock of the employing entity. The terms and conditions of any substitute Awards so granted may vary from the terms and conditions set forth herein to the extent that the Administrator deems appropriate at the time of grant to
conform the substitute Awards to the provisions of the awards for which they are substituted.
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(f)
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Termination, Amendment and Modification of the Plan. The Board may terminate, amend or modify the Plan or any portion thereof at any time.
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(g)
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Non-Guarantee of Employment or Service. Nothing in the Plan or in any Grant Agreement thereunder shall confer any right on an individual to continue in the service of the Corporation or shall
interfere in any way with the right of the Corporation to terminate such service at any time with or without cause or notice.
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(h)
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No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation and a
grantee or any other person. To the extent that any grantee or other person acquires a right to receive payments from the Corporation pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of
the Corporation.
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(i)
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Governing Law. The validity, construction and effect of the Plan, of Grant Agreements entered into pursuant to the Plan, and of any rules, regulations, determinations or decisions made by the
Administrator relating to the Plan or such Grant Agreements, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with applicable federal laws and
the laws of the State of Maryland without regard to its conflict of laws principles.
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(j)
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409A Savings Clause. The Plan and all Awards granted hereunder are intended to comply with, or otherwise be exempt from, Code section 409A. The Plan and all Awards granted under the Plan shall
be administered, interpreted, and construed in a manner consistent with Code section 409A to the extent necessary to avoid the imposition of additional taxes under Code section 409A(a)(1)(B). Should any provision of the Plan, any Grant
Agreement, or any other agreement or arrangement contemplated by the Plan be found not to comply with, or otherwise be exempt from, the provisions of Code section 409A, such provision shall be modified and given effect (retroactively if
necessary), in the sole discretion of the Administrator, and without the consent of the holder of the Award, in such manner as the Administrator determines to be necessary or appropriate to comply with, or to effectuate an exemption from,
Code section 409A. Notwithstanding anything in the Plan to the contrary, in no event shall the Administrator exercise its discretion to accelerate the payment or settlement of an Award where such payment or settlement constitutes deferred
compensation within the meaning of Code section 409A unless, and solely to the extent that, such accelerated payment or settlement is permissible under Treasury Regulation section 1.409A-3(j)(4) or any successor provision.
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(k)
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Effective Date; Termination Date. The Plan is effective as of May [13], 2024, the date on which the Plan, as an amendment and restatement of the Prior Plan, was approved by the Board, subject to
the approval of the stockholders of the Corporation within twelve months of such effective date. No Award shall be granted under the Plan after the close of business on May [12], 2034. Subject to other applicable provisions of the Plan,
all Awards made under the Plan prior to such termination of the Plan shall remain in effect until such Awards have been satisfied or terminated in accordance with the Plan and the terms of such Awards.
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