SCHEDULE
14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed
by the Registrant ☒
Filed
by a Party other than the Registrant ☐
Check
the appropriate box:
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Preliminary
Proxy Statement
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Confidential, for
the use of the Commission only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy
Statement
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Definitive Additional
Materials
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Soliciting Material
Pursuant to §240.14a-12
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WORKHORSE
GROUP INC.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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☐
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-1l (a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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Date
Filed:
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Workhorse
Group Inc.
2017
NOTICE
OF ANNUAL MEETING
AND
PROXY
STATEMENT
August
7, 2017
at
10:00 a.m. Eastern Time
100
Commerce Drive
Loveland, Ohio 45140
Workhorse
Group Inc.
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON August 7, 2017
The
2017 Annual Meeting of Stockholders (the “Annual Meeting”) of Workhorse Group Inc. (“Workhorse” or the
“Company”) will be held at 100 Commerce Drive, Loveland, Ohio 45140, on August 7, 2017, at 10:00 a.m. Eastern Time,
to consider the following proposals:
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1.
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To
elect the five director nominees named in the Proxy Statement to hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified;
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2.
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To
ratify the appointment of Clark, Schaefer, Hackett & Co. as the Company’s independent auditors for the fiscal year
ending December 31, 2017;
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3.
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To
approve the 2017 Incentive Stock Plan (the “2017 Incentive Plan”) and to authorize 5,000,000 shares of Common
Stock for issuance thereunder;
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4.
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To
conduct a non-binding, advisory vote to approve the compensation of our named executive officers;
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5.
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To
approve an amendment of the Company’s articles of incorporation to increase the number of authorized shares of common
stock from 50,000,000 to 100,000,000 ; and
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6.
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To
act on such other matters as may properly come before the meeting or any adjournment thereof.
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BECAUSE
OF THE SIGNIFICANCE OF THESE PROPOSALS TO THE COMPANY AND ITS STOCKHOLDERS, IT IS VITAL THAT EVERY STOCKHOLDER VOTE AT THE ANNUAL
MEETING IN PERSON OR BY PROXY.
These
proposals are fully set forth in the accompanying Proxy Statement which you are urged to read thoroughly. For the reasons set
forth in the Proxy Statement, your Board of Directors recommends a vote “FOR” Proposals 1 – 5. A list of all
stockholders entitled to vote at the Annual Meeting will be available at the principal office of the Company during usual business
hours for examination by any stockholder for any purpose germane to the Annual Meeting for 10 days prior to the date thereof.
Stockholders are cordially invited to attend the Annual Meeting. If you plan to attend the Annual Meeting in person, please be
sure to bring your proxy card and photo identification. However, whether or not you plan to attend the meeting in person, your
shares should be represented and voted. After reading the enclosed Proxy Statement, please sign, date, and return promptly the
enclosed Proxy in the accompanying postpaid envelope we have provided for your convenience to ensure that your shares will be
represented.
You
may wish to provide your response by telephone or electronically through the Internet by following the instructions set out on
the enclosed Proxy card. If you do attend the meeting and wish to vote your shares personally, you may revoke your Proxy.
Important
Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held August 7, 2017. In addition
to the copies you have received, the Proxy Statement and our 2016 Annual Report on Form 10-K to Stockholders are available at:
http://
https://stocktrack.simplyvoting.com
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By
Order of the Board of Directors
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/s/
Raymond Chess
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Raymond Chess
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Chair of the
Board of Directors
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WHETHER
OR NOT YOU PLAN ON ATTENDING THE MEETING IN PERSON, PLEASE VOTE AS PROMPTLY AS POSSIBLE TO ENSURE THAT YOUR VOTE IS COUNTED.
Workhorse
Group Inc.
100 Commerce Drive
Loveland,
Ohio 45140
(513) 297-3640
PROXY
STATEMENT
This
Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Workhorse Group Inc.
(“Workhorse” or the “Company”) to be voted at the Annual Meeting of Stockholders (the “Annual Meeting”)
which will be held at our corporate offices located at 100 Commerce Drive, Loveland, Ohio 45140 on August 7, 2017, at 10:00 a.m.
Eastern Time, and at any postponements or adjournments thereof. The proxy materials will be furnished to stockholders on or about
June 23, 2017.
REVOCABILITY
OF PROXY AND SOLICITATION
Any
stockholder executing a proxy that is solicited hereby has the power to revoke it prior to the voting of the proxy. Revocation
may be made by attending the Annual Meeting and voting the shares of stock in person, or by delivering to the Chief Financial
Officer of the Company at the principal office of the Company prior to the Annual Meeting a written notice of revocation or a
later-dated, properly executed proxy. Solicitation of proxies may be made by directors, officers and other employees of the Company
by personal interview, telephone, facsimile transmittal or electronic communications. No additional compensation will be paid
for any such services. This solicitation of proxies is being made by the Company, which will bear all costs associated with the
mailing of this Proxy Statement and the solicitation of proxies.
RECORD
DATE
Stockholders
of record at the close of business on June 14, 2017, will be entitled to receive notice of, attend and vote at the Annual Meeting.
INFORMATION
ABOUT THE ANNUAL MEETING AND VOTING
Why
am I receiving these materials?
Workhorse
Group Inc. has furnished these materials to you by mail, in connection with the Company’s solicitation of proxies for use
at the Annual Meeting of Stockholders to be held on August 7, 2017, at 10:00 a.m. local time at our corporate office located at
100 Commerce Drive, Loveland, Ohio 45140. These materials have also been made available to you on the Internet. These materials
describe the proposals on which the Company would like you to vote and also give you information on these proposals so that you
can make an informed decision. We are furnishing our proxy materials on or about June 23, 2017 to all stockholders of record entitled
to vote at the Annual Meeting.
What
is included in these materials?
These
materials include:
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this
Proxy Statement for the Annual Meeting; and
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the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
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What
is the proxy card?
The
proxy card enables you to appoint Stephen S. Burns, our Chief Executive Officer, and Julio C. Rodriguez, our Chief Financial Officer,
as your representatives at the Annual Meeting. By completing and returning a proxy card, you are authorizing these individuals
to vote your shares at the Annual Meeting in accordance with your instructions on the proxy card. This way, your shares will be
voted whether or not you attend the Annual Meeting.
What
is the purpose of the Annual Meeting?
At
our Annual Meeting, stockholders will act upon the matters outlined in the Notice of Annual Meeting on the cover page of this
Proxy Statement, including (i) the election of five persons named herein as nominees for directors of the Company, to hold office
subject to the provisions of the bylaws of the Company, until the next annual meeting of stockholders and until their successors
are duly elected and qualified, (ii) ratification of the appointment of Clark, Schaefer, Hackett & Co. as the Company’s
independent auditors for the fiscal year ending December 31, 2017, (iii) approving the 2017 Incentive Stock Plan and to authorize
5,000,000 shares of Common Stock for issuance thereunder, (iv) a non-binding, advisory vote to approve the compensation of our
named executive officers and (v) to approve an amendment of the Company’s articles of incorporation to increase the number
of authorized shares of common stock from 50,000,000 to 100,000,000. In addition, management will report on the performance of
the Company during fiscal year 2016 and respond to questions from stockholders.
What
constitutes a quorum?
The
presence at the meeting, in person or by proxy, of the holders of a majority of the number of shares of common stock issued and
outstanding on the record date will constitute a quorum permitting the meeting to conduct its business. As of the record date,
there were 36,216,559 shares of Workhorse common stock issued and outstanding. Thus, the presence of the holders of common stock
representing at least 18,144,496 votes will be required to establish a quorum.
What
is the difference between a stockholder of record and a beneficial owner of shares held in street name?
Most
of our stockholders hold their shares in an account at a brokerage firm, bank or other nominee holder, rather than holding share
certificates in their own name. As summarized below, there are some distinctions between shares held of record and those owned
beneficially in street name.
How
can I get electronic access to the proxy materials?
The
Notice provides you with instructions regarding how to:
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view
the Company’s proxy materials for the Annual Meeting on the Internet;
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request
hard copies of the materials; and
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instruct
the Company to send future proxy materials to you electronically by email.
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Choosing
to receive future proxy materials by email will save the Company the cost of printing and mailing documents to you and will reduce
the impact of the Company’s annual meetings on the environment. If you choose to receive future proxy materials by email,
you will receive an email message next year with instructions containing a link to those materials and a link to the proxy voting
website. Your election to receive proxy materials by email will remain in effect until you terminate it.
Stockholder
of Record
If
on June 14, 2017, your shares were registered directly in your name with our transfer agent, Empire Stock Transfer, Inc., you
are considered a stockholder of record with respect to those shares, and the Notice of Annual Meeting and Proxy Statement was
sent directly to you by the Company. As the stockholder of record, you have the right to direct the voting of your shares by returning
the proxy card to us. Whether or not you plan to attend the Annual Meeting, if you do not vote over the Internet, please complete,
date, sign and return a proxy card to ensure that your vote is counted.
Beneficial
Owner of Shares Held in Street Name
If
on June 14, 2017, your shares were held in an account at a brokerage firm, bank, broker-dealer, or other nominee holder, then
you are considered the beneficial owner of shares held in “street name,” and the Notice of Annual Meeting & Proxy
statement was forwarded to you by that organization. The organization holding your account is considered the stockholder of record
for purposes of voting at the Annual Meeting. As the beneficial owner, you have the right to instruct that organization on how
to vote the shares held in your account. However, since you are not the stockholder of record, you may not vote these shares in
person at the Annual Meeting unless you receive a valid proxy from the organization.
How
do I vote?
Stockholders
of Record.
If you are a stockholder of record, you may vote by any of the following methods:
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Via
the Internet.
You may vote by proxy via the Internet by following the instructions provided on the enclosed Proxy Card.
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By
Telephone.
You may vote by calling the toll free number found on the Proxy Card.
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By
Mail.
You may vote by completing, signing, dating and returning your proxy card in the pre-addressed, postage-paid envelope
provided.
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In
Person.
You may attend and vote at the Annual Meeting. The Company will give you a ballot when you arrive. You must bring
valid photo identification such as your driver’s license or passport and may be requested to provide proof of stock
ownership as of the record date.
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Beneficial
Owners of Shares Held in Street Name.
If you are a beneficial owner of shares held in street name, you may vote by any
of the following methods:
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Via
the Internet.
You may vote by proxy via the Internet by following the instructions provided on the enclosed Proxy Card.
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By
Telephone.
You may vote by proxy by calling the toll free number found on the vote instruction form.
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By
Mail.
You may vote by proxy by filling out the vote instruction form and returning it in the pre-addressed, postage-paid
envelope provided.
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In
Person.
If you are a beneficial owner of shares held in street name and you wish to vote in person at the Annual Meeting,
you must obtain a legal proxy from the organization that holds your shares. You must bring valid photo identification such
as your driver’s license or passport.
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What
are abstentions and broker non-votes?
While
the inspector of elections will treat shares represented by proxies that reflect abstentions or include “broker non-votes”
as shares that are present and entitled to vote for purposes of determining the presence of a quorum, abstentions or “broker
non-votes” do not constitute a vote “for” or “against” any matter and thus will be disregarded in
any calculation of “votes cast.” However, abstentions and “broker non-votes” will have the effect of a
negative vote if an item requires the approval of a majority of a quorum or of a specified proportion of all issued and outstanding
shares.
Brokers
holding shares of record for customers generally are not entitled to vote on “non-routine” matters, unless they receive
voting instructions from their customers. As used herein, “uninstructed shares” means shares held by a broker who
has not received voting instructions from its customers on a proposal. A “broker non-vote” occurs when a nominee holding
uninstructed shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary
voting power with respect to that non-routine matter. In connection with the treatment of abstentions and broker non-votes, the
proposed ratification of Clark, Schaefer, Hackett & Co. as the Company’s independent registered public accounting firm
for the fiscal year ending December 31, 2017 is considered a “routine” matter. Accordingly, brokers are entitled to
vote uninstructed shares with respect to this proposal. All other matters are considered non-routine matters and, accordingly,
brokers do not have discretionary voting power with respect to such matters.
What
happens if I do not give specific voting instructions?
Stockholders
of Record.
If you are a stockholder of record and you:
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indicate
when voting on the Internet or by telephone that you wish to vote as recommended by the Board of Directors, or
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sign
and return a proxy card without giving specific voting instructions, then the proxy holders will vote your shares in the manner
recommended by the Board of Directors on all matters presented in this Proxy Statement and as the proxy holders may determine
in their discretion with respect to any other matters properly presented for a vote at the Annual Meeting.
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Beneficial
Owners of Shares Held in Street Name.
If you are a beneficial owner of shares held in street name and do not provide the organization
that holds your shares with specific voting instructions, under the rules of various national and regional securities exchanges,
the organization that holds your shares may generally vote on routine matters, such as the ratification of Clark, Schaefer, Hackett
& Co. as the Company’s independent registered public accounting firm for the year ending December 31, 2017, but cannot
vote on non-routine matters, such as the other proposals presented in this Proxy Statement.
What
are the Board’s recommendations?
The
Board’s recommendation is set forth together with the description of each item in this Proxy Statement. In summary, the
Board recommends a vote:
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for
election of the five director nominees named in the Proxy Statement to hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified;
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for
ratification of the appointment of Clark, Schaefer, Hackett & Co. as the Company’s independent auditors for
the fiscal year ending December 31, 2017;
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for
approval of the 2017 Incentive Stock Plan and to authorize 5,000,000 shares of Common Stock for issuance thereunder;
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for
approval, on a non-binding, advisory basis, of the compensation of our named executive officers; and
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for
approval of an amendment of the Company’s articles of incorporation to increase the number of authorized shares
of common stock from 50,000,000 to 100,000,000 .
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With
respect to any other matter that properly comes before the Annual Meeting, the proxy holders will vote as recommended by the Board
of Directors or, if no recommendation is given, in their own discretion.
How
are proxy materials delivered to households?
Only
one copy of the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2016 and this Proxy Statement
will be delivered to an address where two or more stockholders reside with the same last name or who otherwise reasonably appear
to be members of the same family based on the stockholders’ prior express or implied consent.
We
will deliver promptly upon written or oral request a separate copy of the Company’s Annual Report on Form 10-K for the fiscal
year ending December 31, 2016 and this Proxy Statement. If you share an address with at least one other stockholder, currently
receive one copy of our Annual Report on Form 10-K and Proxy Statement at your residence, and would like to receive a separate
copy of our Annual Report on Form 10-K and Proxy Statement for future stockholder meetings of the Company, please specify such
request in writing and send such written request to Workhorse Group Inc., 100 Commerce Drive, Loveland, Ohio 45140; Attention:
Chief Financial Officer.
Interest
of Officers and Directors in matters to be acted upon
Except
for the election to our Board of the five nominees set forth herein, none of our officers or directors has any interest in any
of the matters to be acted upon at the Annual Meeting. Further, on May 19, 2017, Stephen S. Burns and the Company entered into
an Executive Retention Agreement whereby Mr. Burns was retained as Chief Executive Officer in consideration of an annual salary
of $350,000. Further, the Company entered Executive Retention Agreements with Duane Hughes as Chief Operating Officer/President
at an annual salary of $275,000 and Julio Rodriguez as Chief Financial Officer at an annual salary of $225,000. Subject to the
Company adopting an equity incentive plan and increasing its authorized shares of common stock, the Company also granted stock
options exercisable at $5.28 per share to Mr. Burns, Mr. Hughes and Mr. Rodriguez Stock Options to acquire 1,000,000, 400,000
and 200,000 shares of common stock of the Company, respectively, which are exercisable for a period of ten years. The Stock Options
vest in 16 equal quarterly tranches.
How
much stock is owned by 5% stockholders, directors, and executive officers?
The
following table sets forth the number of shares known to be beneficially owned by all persons who own at least 5% of Workhorse’s
outstanding common stock, the Company’s directors, the Company’s executive officers, and the directors and executive
officers as a group as of June 14, 2017, unless otherwise noted. Unless otherwise indicated, the stockholders listed in the table
have sole voting and investment power with respect to the shares indicated.
Name of Beneficial
Owner (1)
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Common
Stock Beneficially Owned
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Percentage
of Common Stock
Owned (2)
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Joseph T. Lukens
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(3)
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6,695,335
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18.9
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%
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Stephen D. Baksa 2 Woods Lane Chatham, NJ 07928
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(4)
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3,389,442
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9.4
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%
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Stephen S. Burns *
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(5)
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1,635,627
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4.4
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%
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Benjamin Samuels *
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(6)
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1,202,856
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3.3
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%
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Raymond Chess *
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(7)
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150,000
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**
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Gerald Budde *
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(8)
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135,000
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**
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Harry DeMott *
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(9)
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50,000
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**
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Duane Hughes*
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(10)
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85,000
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**
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Julio C. Rodriguez *
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(11)
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202,933
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**
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Executive officers and directors as a group (seven
people)
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3,461,416
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9.4
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%
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*
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Executive
officer and/or director of the Company.
Less than
1%
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(1)
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Except
as otherwise indicated, the address of each beneficial owner is c/o Workhorse Group Inc, 100 Commerce Drive, Loveland, Ohio
45140.
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(2)
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Applicable
percentage ownership is based on 35,956,697 shares of common stock outstanding as of June 1, 2017. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60
days of June 1, 2017 are deemed to be beneficially owned by the person holding such securities for the purpose of computing
the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
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(3)
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Represents
(i) 3,491,888 shares of common stock held directly by Mr. Lukens; (ii) 154,871 shares of common stock held by The Joe &
Kim Lukens Foundation; (iii) 2,697,147 shares of common stock held by the US Trust Company of Delaware Administrative Trustee
of the Joe & Kim Lukens Dynasty Trust; (iv) 25,000 shares of common stock held by the Joseph T Lukens, Jr. and Gerald
Budde, Co-Trustee of the Joseph T. Lukens, Jr. Irrevocable Trust for Nathan J. Lukens U/T/A Dated 2/23/2016; (v) 25,000 shares
of common stock held by the Joseph T Lukens, Jr. and Gerald Budde, Co-Trustee of the Joseph T. Lukens, Jr. Irrevocable Trust
for Roman E. Lukens U/T/A Dated 2/23/2016; and (vi) a common stock purchase warrant to acquire 571,429 shares of common stock
at $5.28 per share.
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(4)
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Represents
(i) 3,358,421 shares of common stock held directly by the Mr. Baksa; and (ii) 31,000 shares of common stock held by the Stephen
D. Baksa 2012 Trust F/B/O Sarah E. Marra, F/B/O Brian S. Baksa.
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(5)
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Represents
(i) 796,687 shares of common stock held by Mr. Burns, (ii) 50,000 shares of common stock held by Mr. Burns’ wife, (iii)
a stock option to acquire 35,000 shares of common stock at $7.21 per share, (iv) a stock option to acquire 10,000 shares of
common stock at $7.21 per share, (v) a stock option to acquire 40,000 shares of common stock at $4.99 per share, (vi) a stock
option to acquire 50,000 shares of common stock at $1.75 per share, (vii) a stock option to acquire 50,000 shares of common
stock at $1.40 per share, (viii) a stock option to acquire 281,440 shares of common stock at $0.10 per share, (ix) a stock
option to acquire 50,000 shares of common stock at $1.75 per share, (x) a stock option to acquire 40,000 shares of common
stock at $2.90 per share, (xi) a stock option to acquire 50,000 shares of common stock at $6.00 per share, (xii) a stock option
to acquire 30,000 shares of common stock at $1.10 per share, (xiii) a stock option to acquire 30,000 shares of common stock
at $7.20 per share, (xiv) a stock option to acquire 60,000 shares of common stock at $4.00 per share and (xiv) a stock option
to acquire 62,500 shares of common stock at $5.28 per share.
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(6)
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Represents
(i) 762,532 shares of common stock held by Samuel 2012 Children’s Trust UAD 10/28/12 (the “Trust”), (ii)
a common stock purchase warrant to acquire 237,467 shares of common stock at an exercise price of $5.28 per share held by
the Trust, (iii) a common stock purchase warrant to acquire 142,857 shares of common stock at an exercise price of $5.28 per
share held by the Trust, (iv) a stock option to acquire 50,000 shares of common stock at $7.01 per share and (v) a stock option
to acquire 10,000 shares of common stock at $7.21 per share. Mr. Samuels is a trustee of the Trust.
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(7)
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Represents
(i) a stock option to acquire 10,000 shares of common stock at $2.50 per share, (ii) a stock option to acquire 50,000 shares
of common stock at $2.60 per share, (iii) a stock option to acquire 70,000 shares of common stock at $0.10 per share, (iv)
a stock option to acquire 10,000 shares of common stock at $1.40 per share and (v) a stock option to acquire 10,000 shares
of common stock at $1.75 per share.
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(8)
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Represents
(i) 75,000 shares of common stock held by the Gerald B. Budde Living Trust dated September 8, 2004 , (ii) a stock option to
acquire 50,000 shares of common stock at an exercise price of $7.01 per share and (iii) a stock option to acquire 10,000 shares
of common stock at $7.21 per share. Gerald Budde is the trustee of the Gerald B. Budde Living Trust dated September 8, 2004.
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(9)
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Represents
a stock option to acquire 50,000 shares of common stock at an exercise price of $8.20 per share.
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(10)
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Represents
(i) a stock option to acquire 25,000 shares of common stock at $5.28 per share, (ii) a stock option to acquire 20,000 shares
of common stock at $1.75 per share, (iii) a stock option to acquire 20,000 shares of common stock at $4.99 per share and (iv)
a stock option to acquire 20,000 shares of common stock at $7.21 per share.
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(11)
|
Represents
(i) a stock option to acquire 12,500 shares of common stock at $5.28 per share, (ii) a stock option to acquire 22,000 shares
of common stock at $7.21 per share, (iii) a stock option to acquire 25,000 shares of common stock at $4.99 per share, (iv)
a stock option to acquire 25,000 shares of common stock at $1.75 per share, (v) a stock option to acquire 15,000 shares of
common stock at $1.50 per share, (vi) a stock option to acquire 73,433 shares of common stock at $0.10 per share and (vii)
a stock option to acquire 30,000 shares of common stock at $4.00 per share.
|
INFORMATION
ABOUT THE BOARD OF DIRECTORS
The
Board of Directors oversees our business and affairs and monitors the performance of management. In accordance with corporate
governance principles, the Board does not involve itself in day-to-day operations. The directors keep themselves informed through
discussions with the Chief Executive Officer and other key executives, visits to the Company’s facilities, by reading the
reports and other materials that we send them and by participating in Board and committee meetings. Each director’s term
will continue until the election and qualification of his or her successor, or his or her earlier death, resignation or removal.
Biographical information about our directors is provided in “Proposal No. 1 — Proposal for the Election of Five Directors”
on page 20. Except as set forth in this Proxy Statement, none of our directors held directorships in other reporting companies
or registered investment companies at any time during the past five years. Our Board currently consists of five persons, all of
whom have been nominated by the Company to stand for re-election.
Name
|
|
Age
|
|
|
Position
|
Raymond J. Chess
(1)(2*)
|
|
58
|
|
|
Director, Chairman
|
Harry DeMott (2)(3*)
|
|
49
|
|
|
Director
|
H. Benjamin Samuels
(1)(3)
|
|
50
|
|
|
Director
|
Gerald B. Budde
(1*)(2)(3)
|
|
56
|
|
|
Director
|
Stephen S. Burns
|
|
56
|
|
|
Director, Chief
Executive Officer, Secretary and Treasurer
|
(1)
|
Audit
Committee
|
(2)
|
Nominating
and Corporate Governance Committee
|
(3)
|
Compensation
Committee
|
*
|
Committee
Chair
|
Involvement
in Certain Legal Proceedings
There
are currently no legal proceedings, and during the past 10 years there have been no legal proceedings, that are material to the
evaluation of the ability or integrity of any of our directors or director nominees.
Board
meetings during fiscal 2016
During
2016, the Board of Directors held six meetings. Each director attended all of the meetings of the Board and the all of the meetings
held by all committees on which such director served. The Board also approved certain actions by unanimous written consent.
Committees
established by the Board
The
Board of Directors has standing Audit, Compensation, and Nominating and Corporate Governance Committees. Information concerning
the function of each Board committee follows.
Audit
Committee
We
have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Our board of directors has determined that the members are all “independent
directors” as defined by the rules of The NASDAQ Stock Market, Inc. applicable to members of an audit committee and Rule
10A-3(b)(i) under the Exchange Act. In addition, Mr. Budde is an “audit committee financial expert” as defined in
Item 407(d)(5) of Regulation S-K and demonstrates “financial sophistication” as defined by the rules of The NASDAQ
Stock Market, Inc. The Audit Committee is appointed by our board of directors to assist our board of directors in monitoring (1)
the integrity of our financial statements, (2) our compliance with legal and regulatory requirements, and (3) the independence
and performance of our internal and external auditors. The Audit Committee’s principal functions include:
|
●
|
reviewing
our annual audited financial statements with management and our independent auditors, including major issues regarding accounting
and auditing principles and practices and financial reporting that could significantly affect our financial statements;
|
|
|
|
|
●
|
reviewing
our quarterly financial statements with management and our independent auditor prior to the filing of our Quarterly Reports
on Form 10-Q, including the results of the independent auditors’ reviews of the quarterly financial statements;
|
|
|
|
|
●
|
recommending
to the board of directors the appointment of, and continued evaluation of the performance of, our independent auditor;
|
|
|
|
|
●
|
approving
the fees to be paid to our independent auditor for audit services and approving the retention of our independent auditor for
non-audit services and all fees for such services;
|
|
|
|
|
●
|
reviewing
periodic reports from our independent auditor regarding our auditor’s independence, including discussion of such reports
with the auditor;
|
|
|
|
|
●
|
reviewing
the adequacy of our overall control environment, including internal financial controls and disclosure controls and procedures;
and
|
|
|
|
|
●
|
reviewing
with our management and legal counsel legal matters that may have a material impact on our financial statements or our compliance
policies and any material reports or inquiries received from regulators or governmental agencies.
|
During
2016, the audit committee met one time. A copy of the Audit Committee’s charter is posted on the Company’s website
at www.workhorse.com in the “Investors” section of the website.
Meetings
may be held from time to time to consider matters for which approval of our Board of Directors is desirable or is required by
law.
Compensation
Committee
Our
compensation committee consists of Harry DeMott, Gerald Budde and Benjamin Samuels. Our board of directors has determined that
each of the members are an “independent director” as defined by the rules of The NASDAQ Stock Market, Inc. applicable
to members of a compensation committee. The Compensation Committee is responsible for establishing the compensation of our senior
management, including salaries, bonuses, termination arrangements, and other executive officer benefits as well as director compensation.
The Compensation Committee also administers our equity incentive plans. During 2016, the Compensation Committee met one time.
The Compensation Committee is governed by a written charter approved by the board of directors. A copy of the Compensation Committee’s
charter is posted on the Company’s website at www.workhorse.com in the “Investors” section of the website. The
Compensation Committee works with the Chairman of the Board and Chief Executive Officer and reviews and approves compensation
decisions regarding senior management including compensation levels and equity incentive awards. The Compensation Committee also
approves employment and compensation agreements with our key personnel and directors. The Compensation Committee has the power
and authority to conduct or authorize studies, retain independent consultants, accountants or others, and obtain unrestricted
access to management, our internal auditors, human resources and accounting employees and all information relevant to its responsibilities.
The
responsibilities of the Compensation Committee, as stated in its charter, include the following:
|
●
|
review
and approve the Company’s compensation guidelines and structure;
|
|
|
|
|
●
|
review
and approve on an annual basis the corporate goals and objectives with respect to compensation for the Chief Executive Officer;
|
|
|
|
|
●
|
review
and approve on an annual basis the evaluation process and compensation structure for the Company’s other officers, including
salary, bonus, incentive and equity compensation; and
|
|
|
|
|
●
|
periodically
review and make recommendations to the Board of Directors regarding the compensation of non-management directors.
|
The
Compensation Committee is responsible for developing the executive compensation philosophy and reviewing and recommending to the
Board of Directors for approval all compensation policies and compensation programs for the executive team.
Nominating
and Corporate Governance Committee
Our
nominating and corporate governance committee consists of Raymond Chess, Gerald Budde and Harry DeMott. Our board of directors
has determined that each of the members of the Governance Committee is an “independent director” as defined by the
rules of The NASDAQ Stock Market, Inc. The Governance Committee is generally responsible for recommending to our full board of
directors policies, procedures, and practices designed to help ensure that our corporate governance policies, procedures, and
practices continue to assist the board of directors and our management in effectively and efficiently promoting the best interests
of our stockholders. The Governance Committee is also responsible for selecting and recommending for approval by our board of
directors and our stockholders a slate of director nominees for election at each of our annual meetings of stockholders, and otherwise
for determining the board committee members and chairmen, subject to board of directors ratification, as well as recommending
to the board director nominees to fill vacancies or new positions on the board of directors or its committees that may occur or
be created from time to time, all in accordance with our bylaws and applicable law. The Governance Committee’s principal
functions include:
|
●
|
developing
and maintaining our corporate governance policy guidelines;
|
|
●
|
developing
and maintaining our codes of conduct and ethics;
|
|
●
|
overseeing
the interpretation and enforcement of our Code of Conduct and our Code of Ethics for Chief Executive Officer and Senior Financial
and Accounting Officers;
|
|
●
|
evaluating
the performance of our board of directors, its committees, and committee chairmen and our directors; and
|
|
●
|
selecting
and recommending a slate of director nominees for election at each of our annual meetings of the stockholders and recommending
to the board director nominees to fill vacancies or new positions on the board of directors or its committees that may occur
from time to time.
|
During
2016, the Governance Committee met one time. The Governance Committee is governed by a written charter approved by our board of
directors. A copy of the Governance Committee’s charter is posted on the Company’s website at www.workhorse.com in
the “Investors” section of the website. In identifying potential independent board of directors’ candidates
with significant senior-level professional experience, the Governance Committee solicits candidates from the board of directors,
senior management and others and may engage a search firm in the process. The Governance Committee reviews and narrows the list
of candidates and interviews potential nominees. The final candidate is also introduced and interviewed by the board of directors
and the lead director if one has been appointed. In general, in considering whether to recommend any particular candidate for
inclusion in our board of directors’ slate of recommended director nominees, the Governance Committee will apply the criteria
set forth in our corporate governance guidelines. These criteria include the candidate’s integrity, business acumen, commitment
to understanding our business and industry, experience, conflicts of interest and the ability to act in the interests of our stockholders.
Further,
specific consideration is given to, among other things, diversity of background and experience that a candidate would bring to
our board of directors. The Governance Committee does not assign specific weights to particular criteria and no particular criterion
is a prerequisite for each prospective nominee. We believe that the backgrounds and qualifications of our directors, considered
as a group, should provide a composite mix of experience, knowledge and abilities that will allow our board of directors to fulfill
its responsibilities. Stockholders may recommend individuals to the Governance Committee for consideration as potential director
candidates by submitting their names, together with appropriate biographical information and background materials to our Governance
Committee. Assuming that appropriate biographical and background material has been provided on a timely basis, the Governance
Committee will evaluate stockholder recommended candidates by following substantially the same process, and applying substantially
the same criteria, as it follows for candidates submitted by others.
Nomination
of Directors
As
provided in its charter, the Nominating and Corporate Governance Committee is responsible for identifying individuals qualified
to become directors. The Nominating and Corporate Governance Committee seeks to identify director candidates based on input provided
by a number of sources including (1) the Nominating and Corporate Governance Committee members, (2) our other directors, (3) our
stockholders, (4) our Chief Executive Officer or Chair of the Board, and (5) third parties such as service providers. In evaluating
potential candidates for director, the Nominating and Corporate Governance Committee considers the entirety of each candidate’s
credentials.
Qualifications
for consideration as a director nominee may vary according to the particular areas of expertise being sought as a complement to
the existing composition of the Board of Directors. However, at a minimum, candidates for director must possess:
|
●
|
high
personal and professional ethics and integrity;
|
|
●
|
the
ability to exercise sound judgment;
|
|
●
|
the
ability to make independent analytical inquiries;
|
|
●
|
a
willingness and ability to devote adequate time and resources to diligently perform Board and committee duties; and
|
|
●
|
the
appropriate and relevant business experience and acumen.
|
The
Nominating and Corporate Governance Committee will consider nominees recommended by stockholders if such recommendations are made
in writing to the committee. The Nominating and Corporate Governance Committee does not plan to change the manner in which the
committee evaluates nominees for election as a director based on whether the nominee has been recommended by a stockholder or
otherwise.
The
Nominating and Corporate Governance Committee does not have a formal policy relating to diversity among directors. In considering
new nominees and whether to re-nominate existing members of the Board, the committee seeks to achieve a Board with strengths in
its collective knowledge and a broad diversity of perspectives, skills and business and professional experience. Among other items,
the committee looks for a range of experience in strategic planning, sales, finance, executive leadership, industry and similar
attributes.
At
least a majority of the directors on the Board must be Independent Directors as this term is defined in the rules of THE NASDAQ
STOCK MARKET, INC.
Board
Leadership Structure and Role in Risk Oversight
The
Company has separated the positions of Chair of the Board of Directors and Chief Executive Officer. Given the demanding nature
of these positions, the Board believes it is appropriate to separate the positions of Chair and Chief Executive Officer. Our Chair
presides over all meetings of the Board of Directors, including executive sessions of the independent directors which are held
at each Board meeting. He briefs the Chief Executive Officer on issues arising in executive sessions and communicates frequently
with him on matters of importance. He has responsibility for shaping the Board’s agenda and consults with all directors
to ensure that the board agendas and board materials provide the Board with the information needed to fulfill its responsibilities.
From time to time he may also represent the Company in interactions with external stakeholders at the discretion of the Board.
The
Board of Directors has determined that each of our current directors, except for Mr. Burns, is an “independent director”
as that term is defined in the listing standards of THE NASDAQ STOCK MARKET, INC. The Board of Directors has also determined that
each member of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee meets the independence
standards applicable to those committees prescribed by THE NASDAQ STOCK MARKET, INC. and the SEC. In making this decision, the
Board considered all relationships between the Company and the directors. The Board determined each such relationship, and the
aggregate of such relationships, to be immaterial to the applicable director’s ability to exercise independent judgment.
Our
Board has overall responsibility for risk oversight. The oversight is conducted primarily through committees of the Board of Directors,
as disclosed in each of the descriptions of each of the committees above and in the charters of each of the committees, but the
full Board of Directors has retained responsibility for general oversight of risks.
Stockholder
Communications
Stockholders
requesting communication with directors can do so by writing to Workhorse Group Inc., c/o Chief Financial Officer, 100 Commerce
Drive, Loveland, Ohio 45140 or emailing to julio.rodriguez@workhorse.com. At this time we do not screen communications received
and would forward any requests directly to the named director. If no director was named in a general inquiry, the Chief Financial
Officer would contact either the Chair of the Board of Directors or the chairperson of a particular committee, as appropriate.
We do not provide the physical address, email address, or phone numbers of directors to outside parties without a Director’s
permission.
Code
of Ethics and Business Conduct
We
have adopted a Code of Ethics and Business Conduct that applies to all of our directors, officers and employees including our
Chief Executive Officer and Chief Financial Officer and principal accounting officer. The Code of Ethics and Business Conduct
is posted on our website at http://www.workhorse.com.
COMPENSATION
OF DIRECTORS
The
following table sets forth compensation information for our non-employee directors for the year ended December 31, 2016.
Name
|
|
Fees
Earned or Paid in
Cash
$
|
|
|
Stock
Awards
$
|
|
|
Option Awards
$
|
|
|
Non-equity Incentive Plan
Compensation
$
|
|
|
Change in Pension Value and
Non-Qualified Deferred Compensation Earnings
$
|
|
|
All Other Compensation
$
|
|
|
Total
$
|
|
Raymond Chess
|
|
|
53,333
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,333
|
|
Benjamin Samuels
|
|
|
16,667
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,667
|
|
Gerald Budde
|
|
|
16,667
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,667
|
|
Stephen S. Burns
|
|
|
16,667
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,667
|
|
James Taylor *
|
|
|
56,667
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56,667
|
|
On
October 24, 2013, Raymond J. Chess was appointed as a director of the Company. Prior to joining the Board of Directors, Mr. Chess
served on our advisory board pursuant to which he received a stock option to acquire 10,000 shares of common stock at an exercise
price of $2.50 per share. On October 24, 2013, Mr. Chess entered into a letter agreement with the Company pursuant to which he
was appointed as a director of the Company in consideration of an annual fee of $40,000. Additionally, the Company granted Mr.
Chess options to purchase 50,000 shares of the Company’s common stock at $2.60 per share. The options will expire five years
from the vesting period with 10,000 options vesting upon the signing of the agreement and 4,000 every six months thereafter for
a total of 50,000 shares. In addition, for services as a director Mr. Chess has received a stock option to acquire 70,000 shares
of common stock at $0.10 per share on July 1, 2014, a stock option to acquire 10,000 shares of common stock at $1.40 per share
on December 19, 2014 and a stock option to acquire 10,000 shares of common stock at $1.75 per share on August 13, 2015.
On
December 17, 2015, Messrs. Budde and Samuels entered into letter agreements with the Company pursuant to which they were each
appointed as directors of the Company in consideration of an annual fee of $40,000. Additionally, the Company granted
Messrs. Budde and Samuels options to purchase 50,000 shares of the Company’s common stock at $7.01 per share. The
options will expire five years from the vesting period with 10,000 options vesting upon the signing of the agreement and 4,000
every June 30 and December 31 thereafter for a total of 50,000 shares. On August 16, 2016, Messrs. Budde and Samuels were each
granted options to purchase 10,000 shares of the Company’s common stock at $7.21 per share. The options will
expire five years from the vesting period with 2,500 options vesting upon the signing of the agreement and 2,500 every six months
thereafter for a total of 10,000 shares.
On
September 14, 2016, Mr. DeMott entered into a letter agreement with the Company pursuant to which he was appointed as a director
of the Company in consideration of an annual fee of $40,000. Additionally, the Company granted Mr. DeMott an option to purchase
50,000 shares of the Company’s common stock at $8.20 per share. The option will expire five (5) years from the vesting
period with 10,000 options vesting upon the signing of the agreement and 4,000 every June 30 and December 31 thereafter for a
total of 50,000 shares.
The
Company’s compensation policy for the above directors was based on comparisons of other companies’ remunerations made
to their Chairman and other directors and the value of their expertise to the Company.
REPORT
OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The
Audit Committee, on behalf of our Board of Directors, serves as an independent and objective party to monitor and provide general
oversight of the integrity of our financial statements, our independent registered public accounting firm’s qualifications
and independence, the performance of our independent registered public accounting firm and our standards of business conduct.
The Audit Committee performs these oversight responsibilities in accordance with its Audit Committee Charter.
Our
management is responsible for preparing our financial statements and managing our financial reporting process. Our independent
registered public accounting firm is responsible for expressing an opinion on the conformity of our audited financial statements
to generally accepted accounting principles in the United States of America. The Audit Committee met with our independent registered
public accounting firm, with and without management present, to discuss the results of their examinations and the overall quality
of our financial reporting.
In
this context, the Audit Committee reviewed and discussed our audited financial statements for the year ended December 31, 2016
with management and with our independent registered public accounting firm. The Audit Committee has discussed with our independent
registered public accounting firm the matters required to be discussed by the statement on PCAOB AS 16 (Communications with Audit
Committees), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, which includes, among other items, matters
related to the conduct of the audit of our annual financial statements.
The
Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required
by applicable requirements of the Public Company Accounting Oversight Board regarding such independent registered public accounting
firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered
public accounting firm its independence from us and our management.
Based
on its review of the audited financial statements and the various discussions noted above, the Audit Committee recommended to
our Board of Directors that our audited financial statements be included in our Annual Report on Form 10-K for the year ended
December 31, 2016.
Respectfully
submitted by the Audit Committee,
Gerald
Budde, Chair
Raymond
Chess
Benjamin
Samuels
The
foregoing Audit Committee Report does not constitute soliciting material and shall not be deemed filed or incorporated by reference
into any other filing of our Company under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange
Act, except to the extent we specifically incorporate this Audit Committee Report by reference therein.
INFORMATION
ABOUT THE EXECUTIVE OFFICERS
The
executive officers are appointed annually by our Board of Directors and hold office until their successors are elected and duly
qualified unless otherwise specified in an individual’s employment agreement. There are no family relationships between
any of our directors or executive officers. The current executive officers of the Company, and their ages as of June 14, 2017
are as follows:
Name
|
|
Age
|
|
Position
|
Stephen S. Burns
|
|
56
|
|
Chief Executive
Officer, Treasurer and Secretary
|
Duane Hughes
|
|
53
|
|
Chief Operating
Officer and President
|
Julio C. Rodriguez
|
|
58
|
|
Chief Financial
Officer
|
Biographical
information regarding our executive officers as of June 14, 2017 is set forth below:
Stephen
S. Burns, Director, Chief Executive Officer, Treasurer and Secretary
Mr.
Burns is a Co-Founder in the Company and has served as the Company’s CEO since inception. Mr. Burns was appointed as CEO,
and Secretary of the Company on December 28, 2009. Mr. Burns had founded several companies, most recently iTookThisOnMyPhone.com,
a mobile photo and video-sharing technology company, MobileVoiceControl, Inc. a developer of high-end speech recognition software
for smartphones sold to Nuance Communications (NASDAQ:NUAN), Inc. in 2006, AskMeNow [OTC:AKMN] a mobile search and information
delivery system sold to Ocean West Holdings in 2005, PocketScript, the leading mobile electronic prescription system in the world
which was sold to ZixCorp [NASDAQ:ZIXI] in 2002, Over The Line/AdLink, sold to Gannett Co. Inc. (NYSE:GCI) in 1994 and the design
and development of Suspension Parameter Measurement Machines.
Duane
Hughes, Chief Operating Officer and President
Mr.
Hughes is a senior-level executive with more than 20 years experience including direct business relationships in the automotive,
advertising, and technology segments. Prior to joining Workhorse/AMP Electric Vehicles, Mr. Hughes served as Chief Operating Officer
for Cumulus Interactive Technologies Group. As COO, Mr. Hughes was responsible for managing the company’s day-to-day sales
and operations. He was responsible for all operations of the business unit. Prior to Cumulus ITG, Mr. Hughes spent nearly fifteen
years in senior management positions with Gannett Co., Inc., including his duties as Vice President of Sales and Operations for
Gannett Media Technologies International.
Julio
C. Rodriguez, Chief Financial Officer
Mr.
Rodriguez became the Company’s Chief Financial officer on September 14, 2016. Mr. Rodriguez is a finance executive with
over 25 years of experience in financial and operational leadership roles within various industries including the automotive industry.
Most recently, he served in various executive roles for Genuine Parts Company (“GPC”) including Director Process Improvement
for GPC corporate, and Vice President Finance & Corporate Secretary for Johnson Industries, a subsidiary of GPC. Prior to
GPC, Mr. Rodriguez served as Director of International Finance for Federal Mogul an OEM manufacturer of automotive systems, and
Director of Finance for Chiquita Brands International in the fruit ingredients manufacturing division. Mr. Rodriguez was a Certified
Public Accountant until he left public accounting working for Arthur Andersen for 8 years. Mr. Rodriguez holds a Bachelor of Science
degree in Business Administration and a Bachelor of Science degree in Accounting from Catholic University Caracas, Venezuela.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Oversight
of Executive Compensation Program
Compensation
Committee
Our
compensation committee consists of Harry DeMott, Gerald Budde and Benjamin Samuels. Our board of directors has determined that
each of the members are an “independent director” as defined by the rules of The NASDAQ Stock Market, Inc. applicable
to members of a compensation committee. The Compensation Committee is responsible for establishing the compensation of our senior
management, including salaries, bonuses, termination arrangements, and other executive officer benefits as well as director compensation.
The Compensation Committee also administers our equity incentive plans. During 2016, the Compensation Committee met one time.
The Compensation Committee is governed by a written charter approved by the board of directors. A copy of the Compensation Committee’s
charter is posted on the Company’s website at www.workhorse.com in the “Investors” section of the website. The
Compensation Committee works with the Chairman of the Board and Chief Executive Officer and reviews and approves compensation
decisions regarding senior management including compensation levels and equity incentive awards. The Compensation Committee also
approves employment and compensation agreements with our key personnel and directors. The Compensation Committee has the power
and authority to conduct or authorize studies, retain independent consultants, accountants or others, and obtain unrestricted
access to management, our internal auditors, human resources and accounting employees and all information relevant to its responsibilities.
The
responsibilities of the Compensation Committee, as stated in its charter, include the following:
|
●
|
review
and approve the Company’s compensation guidelines and structure;
|
|
|
|
|
●
|
review
and approve on an annual basis the corporate goals and objectives with respect to compensation for the Chief Executive Officer;
|
|
|
|
|
●
|
review
and approve on an annual basis the evaluation process and compensation structure for the Company’s other officers, including
salary, bonus, incentive and equity compensation; and
|
|
|
|
|
●
|
periodically
review and make recommendations to the Board of Directors regarding the compensation of non-management directors.
|
The
Compensation Committee is responsible for developing the executive compensation philosophy and reviewing and recommending to the
Board of Directors for approval all compensation policies and compensation programs for the executive team.
Overview
of Executive Compensation
The
Company recognizes that people are our primary asset and our principal source of competitive advantage. In order to recruit, motivate
and retain the most qualified individuals as senior executive officers, the Company strives to maintain an executive compensation
program that is competitive in the commercial transportation industry, which is a competitive, global labor market.
The
Compensation Committee’s compensation objective is designed to attract and retain the best available talent while efficiently
utilizing available resources. The Compensation Committee compensates executive management primarily through base salary and equity
compensation designed to be competitive with comparable companies, and to align management’s compensation with the long-term
interests of shareholders. In determining executive management’s compensation, the Compensation Committee also takes into
consideration the financial condition of the Company and discussions with the executive.
In
order to accomplish our goals and to ensure that the Company’s executive compensation program is consistent with its direction
and business strategy, the compensation program for our senior executive officers is based on the following objectives:
|
●
|
to
attract, motivate, retain and reward a knowledgeable and driven management team and to encourage them to attain and exceed
performance expectations within a calculated risk framework; and
|
|
|
|
|
●
|
to
reward each executive based on individual and corporate performance and to incentivize such executives to drive the organization’s
current growth and sustainability objectives.
|
The
following key principles guide the Company’s overall compensation philosophy:
|
●
|
compensation
is designed to align executives to the critical business issues facing the Company;
|
|
|
|
|
●
|
compensation
should be fair and reasonable to shareholders and be set with reference to the local market and similar positions in comparable
companies;
|
|
|
|
|
●
|
an
appropriate portion of total compensation should be equity-based, aligning the interests of executives with shareholders;
and
|
|
|
|
|
●
|
compensation
should be transparent to the Board of Directors, executives and shareholders.
|
Compensation
Elements and Rationale
There
are two basic components to the Company’s executive compensation program: base salary and long-term incentive equity compensation.
The Compensation Committee determined that it would continue evaluating and evolving the compensation program design against best
market practices as the Company experiences further growth. We intend to add short-term incentive cash awards in the near future.
Base
Salary
Base
salary is the foundation of the compensation program and is intended to compensate competitively relative to comparable companies
within our industry and the marketplace where we compete for talent. Base salary is a fixed component of the compensation program
and is used as the base to determine elements of incentive compensation and benefits.
Long-Term
Incentive (Equity)
The
Company’s long-term incentive program provides for the granting of stock options to executive officers to both motivate
executive performance and retention, as well as to align executive officer performance to shareholder value creation. In awarding
long-term incentives, the Company compares the long-term incentive program to that of comparable companies within our industry
and evaluates such factors as the number of options available under its Stock Incentive Plan and the number of options outstanding
relative to the number of shares outstanding. The Company has historically sought to award stock options on a competitive basis
based on a comparison with comparable companies.
Each
long-term incentive grant is based on the level of the position held and overall market competitiveness. The Compensation Committee
takes into consideration previous grants when it considers new grants of options.
The
Board of Directors fixes the exercise price of stock options at the time of the grant based on the market price on the Nasdaq.
In
Fiscal 2016, long-term equity incentive plan awards were awarded to the executive officers in the form of stock options.
Our
Board of Directors adopted the Company’s 2016 Stock Incentive Plan. On June 29, 2016 our shareholders ratified the 2016
Stock Incentive Plan.
The
following table summarizes the pay mix for the executive officers and illustrates the percentage of fixed versus at-risk pay for
the fiscal year ended December 31, 2016:
Name and Principal Position
|
|
Base Salary
|
|
|
Stock Options
(LTIP)
|
|
Stephen S. Burns
|
|
|
54
|
%
|
|
|
46
|
%
|
CEO and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duane Hughes
|
|
|
54
|
%
|
|
|
46
|
%
|
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Julio C. Rodriguez
|
|
|
55
|
%
|
|
|
45
|
%
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
Non-Cash
Compensation
The
Company provides standard health benefits to its executives, including medical, dental and disability insurance.
The
Company’s non-cash compensation is intended to provide a similar level of benefits as those provided by comparable companies
within our industry.
Review
of Executive Officer Performance
On
an annual basis, the Compensation Committee reviews the overall compensation package for our executive officers and evaluates
executive officer performance relative to corporate goals. The Compensation Committee has the opportunity to meet with the executive
officers at various times throughout the year, which assists the Compensation Committee in forming its own assessment of each
individual’s performance. The executive officers are not present during voting or deliberations of the Compensation Committee
relating to executive compensation.
In
determining the compensation for the executive officers, the Compensation Committee considers compensation paid to executive officers
of other companies within the industry, the executive’s performance in meeting goals, the complexity of the management position
and the experience of the individual. During 2016, the Company’s operations were still in development and no significant
portion of the executive’s pay was linked to performance goals. During 2017, the Company intends to set individual and/or
corporate performance goals.
Executive
and Director Compensation
Director
Compensation
On
October 24, 2013, Raymond J. Chess was appointed as a director of the Company. Prior to joining the Board of Directors, Mr. Chess
served on our advisory board pursuant to which he received a stock option to acquire 10,000 shares of common stock at an exercise
price of $2.50 per share. On October 24, 2013, Mr. Chess entered into a letter agreement with the Company pursuant to which he
was appointed as a director of the Company in consideration of an annual fee of $40,000. Additionally, the Company granted Mr.
Chess options to purchase 50,000 shares of the Company’s common stock at $2.60 per share. The options will expire five years
from the vesting period with 10,000 options vesting upon the signing of the agreement and 4,000 every six months thereafter for
a total of 50,000 shares. In addition, for services as a director Mr. Chess has received a stock option to acquire 70,000 shares
of common stock at $0.10 per share on July 1, 2014, a stock option to acquire 10,000 shares of common stock at $1.40 per share
on December 19, 2014 and a stock option to acquire 10,000 shares of common stock at $1.75 per share on August 13, 2015.
On
December 17, 2015, Messrs. Budde and Samuels entered into letter agreements with the Company pursuant to which they were each
appointed as directors of the Company in consideration of an annual fee of $40,000. Additionally, the Company granted Messrs.
Budde and Samuels options to purchase 50,000 shares of the Company’s common stock at $7.01 per share. The options will expire
five years from the vesting period with 10,000 options vesting upon the signing of the agreement and 4,000 every June 30 and December
31 thereafter for a total of 50,000 shares. On August 16, 2016, Messrs. Budde and Samuels were each granted options to purchase
10,000 shares of the Company’s common stock at $7.21 per share. The options will expire five years from the vesting period
with 2,500 options vesting upon the signing of the agreement and 2,500 every six months thereafter for a total of 10,000 shares.
On
September 14, 2016, Mr. DeMott entered into a letter agreement with the Company pursuant to which he was appointed as a director
of the Company in consideration of an annual fee of $40,000. Additionally, the Company granted Mr. DeMott an option to purchase
50,000 shares of the Company’s common stock at $8.20 per share. The option will expire five (5) years from the vesting period
with 10,000 options vesting upon the signing of the agreement and 4,000 every June 30 and December 31 thereafter for a total of
50,000 shares.
The
Company’s compensation policy for the above directors was based on comparisons of other companies’ remunerations made
to their Chairman and other directors and the value of their expertise to the Company.
Executive
Compensation
Messrs
Burns, Hughes and Rodriguez are retained according to employment agreements with our Company, and each individual’s compensation
for serving as an executive officer of the Company is disclosed below in the “Summary Compensation Table”. The compensation
committee is presently contemplating amending and/or restating the employment agreements to provide for a uniform structure and
in order to appropriately update such agreements.
The
Company’s compensation policy for each of the above parties is based on comparisons of other companies’ remunerations
made to each of the respective positions and the value that each executive’s expertise to the Company.
Pension
Benefits
None.
Non-Qualified
Deferred Compensation
None.
Retirement,
Resignation or Termination Plans
Each
of the Company’s executive employment agreements with Messrs Burns, Rodriguez and Hughes contemplates the case of termination
due to various provisions whereby the named executive officers will receive severance payments, as described below.
Compensation
and Risk
We
do not believe that our compensation policies and practices are reasonably likely to have a material adverse effect on us. We
have taken steps to ensure our executive compensation program does not incentivize risk outside the Company’s risk appetite.
Some of the key ways that we currently manage compensation risk are as follows:
|
●
|
appointed
a Compensation Committee which is composed entirely of independent directors to oversee the executive compensation program;
|
|
|
|
|
●
|
the
use of deferred equity compensation in the form of stock options to encourage a focus on long-term corporate performance versus
short-term results; and
|
|
|
|
|
●
|
disclosure
of executive compensation to stakeholders;
|
Consideration
of Most Recent Shareholder Advisory Vote on Executive Compensation
As
required by Section 14A of the Exchange Act, at our 2016 Annual Meeting of Stockholders our stockholders voted, in an advisory
manner, on a proposal to approve our named executive officer compensation. This was our most recent stockholder advisory vote
to approve named executive officer compensation. The proposal was approved by our stockholders, receiving approximately 74% of
the vote of the stockholders present in person or represented by proxy and voting at the meeting. We considered this vote to be
a ratification of our current executive compensation policies and decisions and, therefore, did not make any significant changes
to our executive compensation policies and decisions based on the vote.
Compensation
Committee Interlocks and Insider Participation
No
person who served as a member of our Compensation Committee during Fiscal 2016 was a current or former officer or employee of
our Company or engaged in certain transactions with our Company required to be disclosed by regulations of the SEC. Additionally,
during Fiscal 2016 there were no Compensation Committee “interlocks,” which generally means that no executive officer
of our Company served: (a) as a member of the compensation committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of another entity which had an executive officer serving
as a member of our Company’s Compensation Committee; (b) as a director of another entity which had an executive officer
serving as a member of our Company’s Compensation Committee; or (c) as a member of the compensation committee (or other
board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another
entity which had an executive officer serving as a director of our Company.
Compensation
Committee Report
The
Compensation Committee has reviewed and discussed the foregoing compensation discussion and analysis with Company management.
Based on that review and those discussions, the Compensation Committee recommended to the Board of Directors that the compensation
discussion and analysis be included in this Annual Report. This report is provided by the following independent directors, who
comprise the Compensation Committee: Harry DeMott, Benjamin Samuels and Gerald Budde.
The
following summary compensation table sets out details of compensation paid to (a) our principal executive officer; (b) each of
our two most highly compensated executive officers who served as executive officers during the fiscal year ended December 31,
2016; and (c) up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the
individual was not serving as our executive officer at the end of the fiscal year ended December 31, 2016, except that no disclosure
is provided for any named executive officer, other than our principal executive officer, whose total compensation did not exceed
$100,000 for the fiscal year ended December 31, 2016:
Summary
Compensation Table
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-equity
Incentive Plan
Compensation
($)
|
|
|
Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Stephen S. Burns
|
|
2016
|
|
|
275,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
231,231
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
506,231
|
|
CEO and Director
|
|
2015
|
|
|
275,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
111,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
386,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duane Hughes
|
|
2016
|
|
|
144,000
|
|
|
|
|
|
|
|
|
|
|
|
125,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269,063
|
|
President
|
|
2015
|
|
|
138,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,760
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
182,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Julio C. Rodriguez
|
|
2016
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
125,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275,063
|
|
Chief Financial Officer
|
|
2015
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,950
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
205,950
|
|
Executive
Employment Agreements
On
May 19, 2017, Stephen S. Burns and the Company entered into an Executive Retention Agreement whereby Mr. Burns was retained as
Chief Executive Officer in consideration of an annual salary of $350,000. Further, the Company entered Executive Retention Agreements
with Duane Hughes as Chief Operating Officer/President at an annual salary of $275,000 and Julio Rodriguez as Chief Financial
Officer at an annual salary of $225,000. Subject to the Company adopting an equity incentive plan and increasing its authorized
shares of common stock, the Company also granted stock options exercisable at $5.28 per share to Mr. Burns, Mr. Hughes and Mr.
Rodriguez Stock Options to acquire 1,000,000, 400,000 and 200,000 shares of common stock of the Company, respectively, which are
exercisable for a period of ten years. The Stock Options vest in 16 equal quarterly tranches.
For
each executive, the Company has agreed to provide a bonus of 25% of their base salary upon the Company achieving 75% of annual
revenue targets established by the Board of Directors and management. The cash bonus will be increased to 37.5% and 50% of the
base salary in the event that 100% or 125% of the revenue target is achieved, respectively. The Company and the executives also
each entered into an Indemnification Agreement. The employment of each of the executives is at will and may be terminated at any
time, with or without formal cause.
Pursuant
to the terms of the executive retention agreements, the Company has agreed to provide specified severance and bonus amounts and
to accelerate the vesting on their equity awards upon termination upon a change of control or an involuntary termination, as each
term is defined in the agreements. In the event of a termination upon a change of control or an involuntary termination, the executives
are entitled to receive an amount equal to 12 months of their base salary and the target bonus then in effect for the executive
officer for the year in which such termination occurs, such bonus payment to be pro-rated to reflect the full number of months
the executive remained in the Company’s employ. In addition, the vesting on any equity award held by the executive officer
will be accelerated in full upon a change of control or an involuntary termination. In the event the executive is terminated for
cause, then the vesting of all equity awards shall cease and such equity awards will be terminated. In the event the executive
leaves for any reason that is not considered a good reason, then the vesting of equity award shall cease. At the election of the
executive officer, the Company will also continue to provide health related employee insurance coverage for twelve months, at
the Company’s expense upon termination upon a change of control or an involuntary termination.
In
addition to the salary and any bonus, each of the executive officers will be entitled to receive health and fringe benefits that
are generally available to the Company’s management employees in accordance with the then existing terms and conditions
of the Company’s policies. As additional compensation, prior to the entering of the executive retention agreements in May
2017, the Company has:
- granted
Mr. Burns a stock option to acquire 35,000 shares of common stock at $7.21 per share, a stock option to acquire 10,000 shares
of common stock at $7.21 per share, a stock option to acquire 40,000 shares of common stock at $4.99 per share, a stock option
to acquire 50,000 shares of common stock at $1.75 per share, a stock option to acquire 50,000 shares of common stock at $1.40
per share, a stock option to acquire 281,440 shares of common stock at $0.10 per share, a stock option to acquire 50,000 shares
of common stock at $1.75 per share, a stock option to acquire 40,000 shares of common stock at $2.90 per share, a stock option
to acquire 50,000 shares of common stock at $6.00 per share, a stock option to acquire 30,000 shares of common stock at $1.10
per share, a stock option to acquire 30,000 shares of common stock at $7.20 per share, and a stock option to acquire 60,000 shares
of common stock at $4.00 per share.
- granted
Mr. Rodriguez a stock option to acquire 22,000 shares of common stock at $7.21 per share, a stock option to acquire 25,000 shares
of common stock at $4.99 per share, (iv) a stock option to acquire 25,000 shares of common stock at $1.75 per share, (v) a stock
option to acquire 15,000 shares of common stock at $1.50 per share, (vi) a stock option to acquire 73,433 shares of common stock
at $0.10 per share and (vii) a stock option to acquire 30,000 shares of common stock at $4.00 per share.
- granted
Mr. Hughes a stock option to acquire 20,000 shares of common stock at $1.75 per share, a stock option to acquire 20,000 shares
of common stock at $4.99 per share and a stock option to acquire 20,000 shares of common stock at $7.21 per share.
Grants
of Plan Based Awards
We
granted awards to the Named Executive Officers in the fiscal year ended December 31, 2016, as follows:
Name
|
|
Grant Date
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
All
Other
Stock
Awards:
Number of
Shares of
Stock or
Units
|
|
|
All
Other Stock Awards: Number of Securities Underlying
|
|
|
Exercise
Price of Options Awards
|
|
|
Grant
Data Fair
Value of Stock
and Options
Awards
|
|
Stephen S. Burns
|
|
8/16/2016
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
7.2100
|
|
|
|
3.1766
|
|
CEO and Director
|
|
8/16/2016
|
|
|
|
|
|
|
35,000
|
|
|
|
|
|
|
|
35,000
|
|
|
|
|
|
|
|
7.2100
|
|
|
|
3.1766
|
|
|
|
2/3/2016
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
4.9900
|
|
|
|
2.2071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duane Hughes
|
|
8/16/2016
|
|
|
|
|
|
|
22,000
|
|
|
|
|
|
|
|
22,000
|
|
|
|
|
|
|
|
7.2100
|
|
|
|
3.1766
|
|
President
|
|
2/3/2016
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
4.9900
|
|
|
|
2.2071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Julio C. Rodriguez
|
|
8/16/2016
|
|
|
|
|
|
|
22,000
|
|
|
|
|
|
|
|
22,000
|
|
|
|
|
|
|
|
7.2100
|
|
|
|
3.1766
|
|
Chief Financial Officer
|
|
2/3/2016
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
4.9900
|
|
|
|
2.2071
|
|
Option
Exercises and Stock Vested
There
were no options exercised or stock vested for the year ended December 31, 2016.
Outstanding
Equity Awards
The
following table sets forth information with respect to the outstanding equity awards of our principal executive officers and principal
financial officer during 2016, and each person who served as an executive officer of the Company as of December 31, 2016:
|
|
Outstanding Equity Awards at Fiscal Year-End
|
|
|
|
Option awards
|
|
Stock awards
|
|
Name and
principal position
|
|
Number of securities underlying
unexercised options (#)
Exercisable
|
|
|
Number of securities underlying
unexercised options (#)
Unexercisable
|
|
|
Equity incentive plan awards:
Number of securities underlying unexercised options
(#)
|
|
|
Options exercise
price
($)
|
|
|
Option expiration Date
|
|
Number
of shares
or units
of stock
that have
not vested
(#)
|
|
|
Market
value of
shares
or units
of stock
that have
not vested
($)
|
|
|
Equity incentive plan awards:
Number of unearned shares other rights that have not vested
(#)
|
|
|
Equity
incentive plan awards:
Market or
payout value
of unearned
shares, units
or other
rights that
have not
vested
($)
|
|
Stephen S. Burns
|
|
|
10,000
|
|
|
|
7,222
|
|
|
|
0
|
|
|
$
|
7.21
|
|
|
8/15/2021
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
CEO and Director
|
|
|
35,000
|
|
|
|
25,278
|
|
|
|
0
|
|
|
$
|
7.21
|
|
|
8/15/2021
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
40,000
|
|
|
|
13,333
|
|
|
|
0
|
|
|
$
|
4.99
|
|
|
2/1/2021
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
50,000
|
|
|
|
2,778
|
|
|
|
0
|
|
|
$
|
1.75
|
|
|
8/11/2020
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
1.40
|
|
|
12/18/2019
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
16,667
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0.10
|
|
|
6/30/2019
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0.10
|
|
|
6/30/2019
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0.10
|
|
|
6/30/2019
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
174,773
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0.10
|
|
|
6/30/2019
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
2.90
|
|
|
3/14/2018
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
30,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
7.20
|
|
|
12/5/2020
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
60,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
4.00
|
|
|
11/15/2020
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duane Hughes
|
|
|
22,000
|
|
|
|
15,889
|
|
|
|
0
|
|
|
$
|
7.21
|
|
|
8/15/2021
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
President
|
|
|
25,000
|
|
|
|
8,333
|
|
|
|
0
|
|
|
$
|
4.99
|
|
|
2/1/2021
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
20,000
|
|
|
|
1,111
|
|
|
|
0
|
|
|
$
|
1.75
|
|
|
8/11/2020
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Julio C. Rodriguez
|
|
|
22,000
|
|
|
|
15,889
|
|
|
|
0
|
|
|
$
|
7.21
|
|
|
8/15/2021
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
CFO
|
|
|
25,000
|
|
|
|
8,333
|
|
|
|
0
|
|
|
$
|
4.99
|
|
|
2/1/2021
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
25,000
|
|
|
|
1,389
|
|
|
|
0
|
|
|
$
|
1.75
|
|
|
8/11/2020
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
15,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
1.40
|
|
|
12/18/2019
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
49,323
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0.10
|
|
|
6/30/2019
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
4,110
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0.10
|
|
|
6/30/2019
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
20,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0.10
|
|
|
6/30/2019
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
30,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
4.00
|
|
|
8/6/2018
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
No
Pension Benefits
The
Company does not maintain any plan that provides for payments or other benefits to its executive officers at, following or in
connection with retirement and including, without limitation, any tax-qualified defined benefit plans or supplemental executive
retirement plans.
No
Nonqualified Deferred Compensation
The
Company does not maintain any defined contribution or other plan that provides for the deferral of compensation on a basis that
is not tax-qualified.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more
than 10% of the issued and outstanding shares of our common stock to file reports of initial ownership of common stock and other
equity securities and subsequent changes in that ownership with the SEC. Officers, directors and greater than ten percent stockholders
are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely
on a review of the copies of such reports furnished to us and written representations that no other reports were required, during
the fiscal year ended December 31, 2016 all Section 16(a) filing requirements applicable to our officers, directors and greater
than 10% beneficial owners were complied with.
ACTIONS
TO BE TAKEN AT THE MEETING
PROPOSAL
NO. 1
PROPOSAL
FOR ELECTION OF FIVE DIRECTORS
At
this year’s Annual Meeting, the Board of Directors proposes that the nominees listed below be elected to hold office until
the next annual meeting of stockholders and until their successors are duly elected and qualified. All of the nominees are currently
serving as directors. All nominees have consented to being named in this Proxy Statement and to serve if elected.
Assuming
a quorum is present, the five nominees receiving the highest number of affirmative votes of shares entitled to be voted for such
persons will be elected as directors of the Company to hold office until the next annual meeting of stockholders and until their
successors are duly elected and qualified. Unless marked otherwise, proxies received will be voted “FOR” the election
of the nominees named below. In the event that additional persons are nominated for election as directors, the proxy holders intend
to vote all proxies received by them in such a manner as will ensure the election of the nominees listed below, and, in such event,
the specific nominees to be voted for will be determined by the proxy holders.
Information
With Respect to Director Nominees
Listed
below are the nominees for election to our Board with information showing the principal occupation or employment of the nominees
for director, the principal business of the corporation or other organization in which such occupation or employment is carried
on, and such nominees’ business experience during the past five years. Such information has been furnished to the Company
by the director nominees.
Name
|
|
Age
|
|
Position
|
Raymond
J. Chess
|
|
58
|
|
Director,
Chairman
|
Harry DeMott
|
|
49
|
|
Director
|
H. Benjamin Samuels
|
|
50
|
|
Director
|
Gerald B. Budde
|
|
56
|
|
Director
|
Stephen S. Burns
|
|
56
|
|
Director, Chief
Executive Officer, Secretary and Treasurer
|
Raymond
J. Chess, Chairman of the Board of Directors
Prior
to joining the Company, Mr. Chess served as a Global Vehicle Line Executive for General Motors Co. (“GM”), where he
was responsible for global, cross functional general management of the GM crossover market segment from May 2009 through December
2012. Prior to this, from August 2001 until April 2009, Mr. Chess was responsible for GM’s commercial truck segment. Previous
GM assignments included leadership roles in the full size truck segment, metal fabrication and body assembly. Mr. Chess’s
background includes broad, hands-on manufacturing leadership roles with manufacturing, engineering and manufacturing floor operations.
Mr. Chess holds a Bachelor’s of Science degree in Mechanical Engineering from Kettering University and an MBA from Indiana
University. Mr. Chess’ business management and experience and knowledge in the automobile industry led to the conclusion
that he should serve on the Board of Directors, given the Company’s business and structure.
Harry
DeMott, Director
Mr.
DeMott, has more than 25 years experience in the investment community, having worked as an analyst and portfolio manager at leading
brokerage firms and investment management firms. He has also served on the boards of several companies. He is a long-time operator
and investor in the media, sports and entertainment industries. He is the co-founder of Raptor Ventures I LP, where he has been
a General Partner since February 2011. In addition, Mr. DeMott is a member of the Board of Directors of Fan Manager, SecurityPoint
Media, Signal360 and Ticket Evolution. He also serves as founder and managing partner for Hamerle Investments, a family investment
company. Prior to co-founding Raptor Ventures, Mr. DeMott served on the Board of Directors of Pandora Media, Inc. from 2006 through
2011. Earlier, he served as senior analyst at Knighthead Capital Management, analyst at King Street Capital Management, portfolio
manager at Bourgeon Capital Management and managing member and founder at Gothic Capital Management. During this 16-year period,
Mr. DeMott focused on finding, fostering and investing in disruptive technology companies. He previously spent nine years at First
Boston (now Credit Suisse), where he was a director in the equity research division specializing in radio, TV, outdoor advertising
and cell towers. He earned a bachelor of arts in economics from Princeton University in 1988 and a MBA in finance from New York
University in 1991. Mr. DeMott’s business management and financial experience and knowledge led to the conclusion that he
should serve on the Board of Directors, given the Company’s business and structure.
H.
Benjamin Samuels, Director
Mr.
Samuels served as CEO of Victory Packaging from May 2007 through 2015, during which time he led an executive team which currently
manages more than 1,500 employees. In 2015, Mr. Samuels was appointed as Co-President after Victory Packaging was acquired by
KapStone Paper and Packaging Corporation. From 1997 through 2007, Mr. Samuels served as Vice Chairman and leader of Victory Packaging’s
national accounts group, real estate, finance and legal departments, achieving a period of unprecedented growth in sales and revenues.
Mr. Samuels joined Victory Packaging in 1995 as its regional operating manager of Texas.
Mr.
Samuels is an active member in the community, where he recently served as the Chairman of the Houston Food Bank. Mr. Samuels also
served as the President of the Houston Chapter of the American Jewish Committee before joining its National Board of Governors.
Mr. Samuels served on the boards of and held leadership positions with American Leadership Forum, Serve Houston, Holocaust Museum
Houston, Jewish Federation of Greater Houston and Jewish Family Service. Mr. Samuels received a Bachelor’s degree in American
studies and economics from Amherst College in Massachusetts as well as an MBA from the Harvard Graduate School of Business Administration.
Mr. Samuels business, management and financial knowledge and experience led to the conclusion that he should serve on the Board
of Directors, given the Company’s business and structure.
Gerald
Budde, Director
From
September 2011 through the present, Mr. Budde serves as the Chief Financial Officer of AssuredPartners NL, LLC and maintains titles
for other affiliated companies. Mr. Budde was previously the Chief Financial Officer and shareholder of Neace Lukens Holding Company
and Subsidiaries from July 2003 through September 2011, when it was acquired by Assured Partners Capital, Inc. AssuredPartners
was founded in 2011 and is a national partnership of leading independent property and casualty and employee benefits brokerage
firms. Mr. Budde was the Machine Tool Group Controller of Cincinnati Milacron Inc. from April 1994 to October 1998, at which time
he was appointed as Vice President of Finance after Cincinnati Milacron’s machine tool group was acquired by UNOVA Industrial
Automation Systems, Inc. Mr. Budde remained in that role prior to joining Neace Lukens in 2003. Mr. Budde was a Certified Public
Accountant until he left public accounting Ernst & Young after 11 years of service in 1994. Mr. Budde is currently a member
of the Board of Trustees and the Finance Committee of Mt. Notre Dame high school and is also a member of the Finance Commission
of St. Margaret of York parish and school. Mr. Budde received a Bachelor’s degree in Accounting from the University of Dayton.
Mr. Budde’s business management and accounting experience and knowledge led to the conclusion that he should serve on the
Board of Directors, given the Company’s business and structure.
Stephen
S. Burns, Director, Chief Executive Officer, Treasurer and Secretary
Mr.
Burns is a Co-Founder in the Company and has served as the Company’s CEO since inception. Mr. Burns was appointed as CEO,
Treasurer and Secretary of the Company on December 28, 2009. Mr. Burns had founded several companies, most recently iTookThisOnMyPhone.com,
a mobile photo and video-sharing technology company, MobileVoiceControl, Inc. a developer of high-end speech recognition software
for smartphones sold to Nuance Communications (NASDAQ:NUAN), Inc. in 2006, AskMeNow [OTC:AKMN] a mobile search and information
delivery system sold to Ocean West Holdings in 2005, PocketScript, the leading mobile electronic prescription system in the world
which was sold to ZixCorp [NASDAQ:ZIXI] in 2002, Over The Line/AdLink, sold to Gannett Co. Inc. (NYSE:GCI) in 1994 and the design
and development of Suspension Parameter Measurement Machines. Mr. Burns’ experience as the Company’s Chief Executive
Officer and technical and business management experience, led to the conclusion that Mr. Burns should serve on the Board of Directors,
given the Company’s business and structure.
Required
Vote
The
election of the directors of the Company requires the affirmative vote of a plurality of the shares of the Company’s common
stock present in person or represented by Proxy at the Annual Meeting, which will be the nominees receiving the largest number
of votes, which may or may not constitute a majority.
RECOMMENDATION
OF THE BOARD FOR PROPOSAL NO. 1:
THE
BOARD RECOMMENDS A VOTE FOR THE ELECTION OF ALL
THE NOMINEES DESCRIBED ABOVE.
PROPOSAL
NO. 2
RATIFICATION
OF THE APPOINTMENT OF INDEPENDENT AUDITORS
Clark,
Schaefer, Hackett & Co. (“CSH”), our independent auditors, audited our financial statements for the 2016 fiscal
year. The Audit Committee selected CSH as the independent auditors of the Company for the fiscal year ending December 31, 2017.
Representatives of CSH are not expected to attend the 2017 Annual Meeting of Stockholders. CSH was first engaged by us for the
year ended December 31, 2009.
During
the years ended December 31, 2016 and 2015, neither the Company nor anyone acting on its behalf consulted with CSH regarding any
of the matters or events set forth in Item 304(a)(2) of Regulation S-K, nor did CSH receive any fees for any services during that
time period.
The
total fees charged to the Company by Clark Schaefer Hackett & Company, the Company’s independent registered public accounting
firm, are as follows ($ thousands):
|
|
Audit
|
|
|
Taxes
|
|
|
Other
|
|
|
Total
|
|
2016
|
|
|
47.0
|
|
|
|
6.1
|
|
|
|
47.2
|
|
|
|
100.4
|
|
2015
|
|
|
71.2
|
|
|
|
4.8
|
|
|
|
2.4
|
|
|
|
78.4
|
|
The
current policy of the directors, acting as the audit committee, is to approve the appointment of the principal auditing firm and
any permissible audit-related services. The audit and audit related fees include fees for the annual audit of the financial statements
and review of financial statements included in 10Q filings. Fees charged by Clark, Schaefer Hackett & Company were approved
by the Board with engagement letters signed by the Chairman of the audit committee.
The
Audit Committee is responsible for the pre-approval of audit and permitted non-audit services to be performed by the Company’s
independent auditor. The Audit Committee will, on an annual basis, consider and, if appropriate, approve the provision of audit
and non-audit services by the auditor. Thereafter, the Audit Committee will, as necessary, consider and, if appropriate, approve
the provision of additional audit and non-audit services by the auditor which are not encompassed by the Audit Committee’s
annual pre-approval and are not prohibited by law. The Audit Committee has delegated to the Chair of the Audit Committee the authority
to pre-approve, on a case-by-case basis, non-audit services to be performed by the auditor. The Audit Committee has approved all
audit services performed by the auditor for the year ended December 31, 2016.
The
Audit Committee pre-approves all audit and non-audit services performed by the Company’s auditor and the fees to be paid
in connection with such services in order to assure that the provision of such services does not impair the auditor’s independence.
Required
Vote
The
ratification of the appointment of the Company’s independent auditors requires the receipt of the affirmative vote of a
majority of the shares of the Company’s common stock present in person or by proxy and voting at the Annual Meeting.
RECOMMENDATION
OF THE BOARD FOR PROPOSAL NO. 2:
THE
BOARD RECOMMENDS A VOTE FOR RATIFICATION OF APPOINTMENT OF CLARK, SCHAEFER, HACKETT & CO. AS OUR INDEPENDENT AUDITORS FOR
THE YEAR ENDED DECEMBER 31, 2017.
PROPOSAL
NO. 3
APPROVAL
OF THE WORKHORSE GROUP INC. 2017 INCENTIVE STOCK PLAN AND THE RESERVATION OF 5,000,000 SHARES OF COMMON STOCK FOR ISSUANCE THEREUNDER
At
the Annual Meeting, the Company’s stockholders are being asked to approve the 2017 Incentive Stock Plan (the “2017
Incentive Plan”) and to authorize 5,000,000 shares of Common Stock for issuance thereunder. The following is a summary of
principal features of the 2017 Incentive Plan. The summary, however, does not purport to be a complete description of all the
provisions of the 2017 Incentive Plan. Any stockholder of the Company who wishes to obtain a copy of the actual plan document
may do so upon written request to the Company’s Secretary at the Company’s principal offices.
General
The
2017 Incentive Plan was adopted by the Board of Directors. The Board of Directors has reserved 5,000,000 shares of Common Stock
for issuance under the 2017 Incentive Plan. Under the Plan, options may be granted which are intended to qualify as Incentive
Stock Options (“ISOs”) under Section 422 of the Internal Revenue Code of 1986 (the “Code”) or which are
not (“Non-ISOs”) intended to qualify as Incentive Stock Options thereunder.
The
2017 Incentive Plan is not a qualified deferred compensation plan under Section 401(a) of the Internal Revenue Code and is not
subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Purpose
The
primary purpose of the 2017 Incentive Plan is to attract and retain the best available personnel for the Company in order to promote
the success of the Company’s business and to facilitate the ownership of the Company’s stock by employees. In the
event that the 2017 Incentive Plan is not adopted the Company, the Company may have considerable difficulty in attracting and
retaining qualified personnel, officers, directors and consultants.
Administration
The
2017 Incentive Plan is administered by a committee of the Board that is designated by the Board to administer the Plan, composed
of not less than two members of the Board all of whom are disinterested persons, as contemplated by Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”). All questions of interpretation of
the 2017 Incentive Plan are determined by the Committee, and its decisions are final and binding upon all participants.
Eligibility
Under
the 2017 Incentive Plan, options may be granted to key employees, officers, directors or consultants of the Company, as provided
in the 2017 Incentive Plan.
Terms
of Options
The
term of each Option granted under the Plan shall be contained in a stock option agreement between the Optionee and the Company
and such terms shall be determined by the Board of Directors consistent with the provisions of the Plan, including the following:
(a)
PURCHASE PRICE. The purchase price of the Common Shares subject to each ISO shall not be less than the fair market value (as set
forth in the 2017 Incentive Plan), or in the case of the grant of an ISO to a Principal Stockholder, not less that 110% of fair
market value of such Common Shares at the time such Option is granted. The purchase price of the Common Shares subject to each
Non-ISO shall be determined at the time such Option is granted, but in no case less than 100% of the fair market value of such
Common Shares at the time such
Option
is granted.
(b)
VESTING. The dates on which each Option (or portion thereof) shall be exercisable and the conditions precedent to such exercise,
if any, shall be fixed by the Committee, in its discretion, at the time such Option is granted.
(c)
EXPIRATION. The expiration of each Option shall be fixed by the Committee, in its discretion, at the time such Option is granted;
however, unless otherwise determined by the Committee at the time such Option is granted, an Option shall be exercisable for ten
(10) years after the date on which it was granted (the “Grant Date”). Each Option shall be subject to earlier termination
as expressly provided in the 2017 Incentive Plan or as determined by the Committee, in its discretion, at the time such Option
is granted.
(d)
TRANSFERABILITY. No Option shall be transferable, except by will or the laws of descent and distribution, and any Option may be
exercised during the lifetime of the Optionee only by him. No Option granted under the Plan shall be subject to execution, attachment
or other process.
(e)
OPTION ADJUSTMENTS. The aggregate number and class of shares as to which Options may be granted under the Plan, the number and
class shares covered by each outstanding Option and the exercise price per share thereof (but not the total price), and all such
Options, shall each be proportionately adjusted for any increase decrease in the number of issued Common Shares resulting from
split-up spin-off or consolidation of shares or any like Capital adjustment or the payment of any stock dividend.
Except
as otherwise provided in the 2017 Incentive Plan, any Option granted hereunder shall terminate in the event of a merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation of the Company. However, the Optionee shall have the
right immediately prior to any such transaction to exercise his Option in whole or in part notwithstanding any otherwise applicable
vesting requirements.
(f)
TERMINATION, MODIFICATION AND AMENDMENT. The 2017 Incentive Plan (but not Options previously granted under the Plan) shall terminate
ten (10) years from the earlier of the date of its adoption by the Board of Directors or the date on which the Plan is approved
by the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Company entitled to vote
thereon, and no Option shall be granted after termination of the Plan. Subject to certain restrictions, the Plan may at any time
be terminated and from time to time be modified or amended by the affirmative vote of the holders of a majority of the outstanding
shares of the capital stock of the Company present, or represented, and entitled to vote at a meeting duly held in accordance
with the applicable laws of the State of Delaware.
FEDERAL
INCOME TAX ASPECTS OF THE 2017 INCENTIVE PLAN
THE
FOLLOWING IS A BRIEF SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON THE PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE
PURCHASE OF SHARES UNDER THE 2017 INCENTIVE PLAN. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND DOES NOT ADDRESS THE FEDERAL
INCOME TAX CONSEQUENCES TO TAXPAYERS WITH SPECIAL TAX STATUS. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE PROVISIONS OF THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE, AND DOES NOT DISCUSS ESTATE,
GIFT OR OTHER TAX CONSEQUENCES OTHER THAN INCOME TAX CONSEQUENCES. THE COMPANY ADVISES EACH PARTICIPANT TO CONSULT HIS OR HER
OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN THE 2017 Incentive Plan AND FOR REFERENCE TO APPLICABLE PROVISIONS
OF THE CODE.
Incentive
Stock Options
The
recipient of an incentive stock option generally will not be taxed upon grant of the option. Federal income taxes are generally
imposed only when the shares of common stock from exercised incentive stock options are disposed of, by sale or otherwise. The
amount by which the fair market value of the common stock on the date of exercise exceeds the exercise price is, however, included
in determining the option recipient’s liability for the alternative minimum tax. If the incentive stock option recipient
does not sell or dispose of the shares of common stock until more than one year after the receipt of the shares and two years
after the option was granted, then, upon sale or disposition of the shares, the difference between the exercise price and the
market value of the shares of common stock as of the date of exercise will be treated as a capital gain, and not ordinary income.
If a recipient fails to hold the shares for the minimum required time the recipient will recognize ordinary income in the year
of disposition generally in an amount equal to any excess of the market value of the common stock on the date of exercise (or,
if less, the amount realized or disposition of the shares) over the exercise price paid for the shares. Any further gain (or loss)
realized by the recipient generally will be taxed as short-term or long-term gain (or loss) depending on the holding period. We
will generally be entitled to a tax deduction at the same time and in the same amount as ordinary income is recognized by the
option recipient, if any.
Nonstatutory
Stock Options
The
recipient of stock options not qualifying as incentive stock options generally will not be taxed upon the grant of the option.
Federal income taxes are generally due from a recipient of nonstatutory stock options when the stock options are exercised. The
excess of the fair market value of the common stock purchased on such date over the exercise price of the option is taxed as ordinary
income. Thereafter, the tax basis for the acquired shares is equal to the amount paid for the shares plus the amount of ordinary
income recognized by the recipient. We will generally be entitled to a tax deduction at the same time and in the same amount as
ordinary income is recognized by the option recipient by reason of the exercise of the option.
Other
Awards
Recipients
who receive restricted stock unit awards will generally recognize ordinary income when they receive shares upon settlement of
the awards, in an amount equal to the fair market value of the shares at that time. Recipients who receive awards of restricted
shares subject to a vesting requirement will generally recognize ordinary income at the time vesting occurs, in an amount equal
to the fair market value of the shares at that time minus the amount, if any, paid for the shares. However, a recipient who receives
restricted shares which are not vested may, within 30 days of the date the shares are transferred, elect in accordance with Section
83(b) of the Code to recognize ordinary compensation income at the time of transfer of the shares rather than upon the vesting
dates. Recipients who receive performance shares will generally recognize ordinary income at the time of settlement, in an amount
equal to the cash received, if any, and the fair market value of any shares received. We will generally be entitled to a tax deduction
at the same time and in the same amount as ordinary income is recognized by the recipient.
Restrictions
on Resale
Certain
officers and directors of the Company may be deemed to be “affiliates” of the Company as that term is defined under
the Securities Act. The Common Stock acquired under the 2017 Incentive Plan by an affiliate may be reoffered or resold only pursuant
to an effective registration statement or pursuant to Rule 144 under the Securities Act or another exemption from the registration
requirements of the Securities Act.
Required
Vote
The
affirmative vote of a majority of shares of common stock present in person or represented by proxy at the meeting and entitled
to vote on this proposal is required for the approval of the 2017 Plan.
RECOMMENDATION
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE ”
FOR
” THE APPROVAL OF THE WORKHORSE GROUP
INC. 2017
INCENTIVE PLAN AND THE RESERVATION OF 5,000,000 SHARES OF COMMON STOCK
FOR ISSUANCE THEREUNDER
PROPOSAL
NO. 4
NON-BINDING,
ADVISORY VOTE TO APPROVE THE COMPENSATION OF
OUR NAMED EXECUTIVE OFFICERS
The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires the Company’s stockholders
to have the opportunity to cast a non-binding, advisory vote to approve of the compensation disclosed in this Proxy Statement
of the Company’s executive officers who are named above in the Summary Compensation Table (the “named executive officers”).
The Company has disclosed the compensation of the named executive officers pursuant to rules adopted by the SEC.
Please
read the “Compensation Discussion and Analysis” beginning on page 13 for additional details about our executive compensation
program, including information about the fiscal year 2016 compensation of our named executive officers. We believe that our compensation
policies for the named executive officers are designed to attract, motivate and retain talented executive officers and are aligned
with the long-term interests of the Company’s stockholders. This advisory stockholder vote, commonly referred to as a “say-on-pay
vote,” gives you as a stockholder the opportunity to vote for or against approval of the compensation of the named executive
officers that is disclosed in this Proxy Statement by voting on the following resolution (or by abstaining with respect to the
resolution):
“RESOLVED,
that the compensation paid to the Company’s named executive officers, as disclosed in the Company’s 2017 Proxy Statement
pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative
discussion, is hereby APPROVED.”
Because
your vote is advisory, it is not binding on either the Board of Directors or the Company. Although non-binding, the Board of Directors
and the Compensation Committee value the opinions that stockholders express in their votes and will review the voting results
and take them into consideration as they deem appropriate when making future decisions regarding our executive compensation program.
Required
Vote
Adoption
of the resolution requires the receipt of the affirmative vote of a majority of the shares of the Company’s common stock
present in person or by proxy and voting at the Annual Meeting.
RECOMMENDATION
OF THE BOARD FOR PROPOSAL NO. 4:
THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE
THE COMPENSATION DISCLOSED IN THIS PROXY STATEMENT OF THE
COMPANY’S EXECUTIVE OFFICERS.
PROPOSAL
NO. 5
APPROVAL
OF AN AMENDMENT TO THE ARTICLES OF INCORPORATION TO INCREASE THE SHARES OF COMMON STOCK AUTHORIZED FROM 50,000,000 TO 100,000,000
At
the Annual Meeting, the Company’s stockholders are being asked to approve an amendment of the Company’s articles of
incorporation to increase the number of authorized shares of common stock from 50,000,000 to 100,000,000 . The following is a
summary of the proposal.
Description
of the Amendment
Recently,
our Board of Directors approved an amendment to Article 4 of our Articles of Incorporation, subject to stockholder approval, to
increase the number of shares of common stock authorized for issuance under the Articles of Incorporation from 50,000,000 to 100,000,000
shares. The proposed amendment is as follows:
Resolutions
Amending Articles of Incorporation
RESOLVED,
that the Corporation is hereby authorized to amend Article IV of the Corporation’s Articles of Incorporation by deleting
such Article IV in full and replacing it with the following:
“ARTICLE
IV
Authorized
Shares:
FOURTH:
The authorized capital stock of this Corporation is 175,000,000 shares of capital stock, consisting of 100,000,000 shares of common
stock with full voting rights and with a par value of $0.001 per share, and 75,000,000 shares of preferred stock, with a par value
of $.001 per share (the “Preferred Stock”). The Preferred Stock may be issued from time to time in one or more series
with such designations, preferences and relative participating, optional or other special rights and qualifications, limitations
or restrictions thereof, as shall be stated in the resolutions adopted by the Corporation’s Board of Directors (the “Board”)
providing for the issuance of such Preferred Stock or series thereof; and the Board is hereby vested with authority to fix such
designations, preferences and relative participating, optional or other special rights or qualifications, limitations, or restrictions
for each series, including, but not by way of limitation, the power to fix the redemption and liquidation preferences, the rate
of dividends payable and the time for and the priority of payment thereof and to determine whether such dividends shall be cumulative
or not and to provide for and fix the terms of conversion of such Preferred Stock or any series thereof into Common Stock of the
Corporation and fix the voting Power, if any, of shares of Preferred Stock or any series thereof.
Pursuant
to NRS 78.385 and NRS 78.390, and any successor statutory provisions, the Board of Directors is authorized to adopt n resolution
to increase, decrease, add, remove or otherwise alter any current or additional classes or series of this Corporation’s
capital stock by a board resolution amending these Articles, in the Board or Directors’ sole discretion for increases or
decreases of any class or series of authorized stock where applicable pursuant to NRS 78.207 and any successor statutory provision,
or otherwise subject to the approval of the holders of at least a majority or shares having voting rights, either in a special
meeting or the next annual meeting of shareholders. Notwithstanding the foregoing, where any shares of any class or series would
be materially and adversely affected by such change, shareholder approval by the holders of at least a majority of such adversely
affected shares must also be obtained before filing an amendment with the Office of the Secretary of State of Nevada. The capital
stock of this Corporation shall be non-assessable and shall not be subject to assessment to pay the debts of the Corporation.”
FURTHER
RESOLVED, that the appropriate executive officers of the Corporation are hereby authorized and directed to (i) execute Articles
of Amendment attesting to the adoption of the foregoing resolution adopting the amendment, (ii) cause such Articles of Amendment
to be filed in the office of the Secretary of State for the State of Nevada, and (iii) pay any fees and take any other action
necessary to effect the Articles of Amendment and the foregoing resolution.
The
Company shall have the right to make any additional changes to the proposed amendment as required by the Nevada Secretary of State
to complete the purpose of such filing.
If
the Amendment to the Articles of Incorporation is approved by a majority of the voting capital stock, it will become effective
upon its filing with the Nevada Secretary of State of the State. The Company expects to file the Amendment to the Articles of
Incorporation with the Nevada Secretary of State promptly after its approval by stockholders .
Purpose
of the Amendment
Since
inception, we have incurred losses. To fund operations, we may need to rely on additional financings from the sale of our securities.
In addition, we have rewarded employees, directors and consultants with stock option grants. We intend in the future to continue
this process.
As
of June 14, 2017, we have 36,216,559 shares of Common Stock issued and outstanding. In addition, we have 3,273,891 shares of common
stock reserved for issuance under stock options and 4,449,650 shares of common stock reserved for issuance under Common Stock
Purchase Warrants.
Except
as set forth below, the Company has no current plan, commitment, arrangement, understanding or agreement regarding the issuance
of the additional shares of Common Stock that will result from the Company’s adoption of the proposed amendment. In
addition to the outstanding and reserved shares described above, we may issue additional shares of Common Stock and/or securities
convertible or exercisable into Common Stock, which are necessary to finance our continuing operations. If the Board of Directors
elects to issue additional shares of Common Stock, such issuance could have a dilutive effect on the earnings per share, voting
power and holdings of current stockholders. Our current amount of authorized and unissued shares of Common Stock is not sufficient
for both (i) our current and future financing needs and (ii) our commitments under outstanding options, warrants and convertible
notes. Thus, we need to increase the shares of Common Stock authorized by our articles of incorporation. Further, on May 19, 2017,
Stephen S. Burns and the Company entered into an Executive Retention Agreement whereby Mr. Burns was retained as Chief Executive
Officer in consideration of an annual salary of $350,000. Further, the Company entered Executive Retention Agreements with Duane
Hughes as Chief Operating Officer/President at an annual salary of $275,000 and Julio Rodriguez as Chief Financial Officer at
an annual salary of $225,000. Subject to the Company adopting an equity incentive plan and increasing its authorized shares of
common stock, the Company also granted stock options exercisable at $5.28 per share to Mr. Burns, Mr. Hughes and Mr. Rodriguez
Stock Options to acquire 1,000,000, 400,000 and 200,000 shares of common stock of the Company, respectively, which are exercisable
for a period of ten years. The Stock Options vest in 16 equal quarterly tranches.
Other
Potential Effects of the Amendment
Upon
filing the Amendment to our Articles of Incorporation, the Board may cause the issuance of additional shares of common stock without
further vote of our stockholders , except as provided under applicable Nevada law or any national securities exchange on which
shares of our common stock are then listed or traded. In addition, if the Board of Directors elects to issue additional shares
of common stock, such issuance could have a dilutive effect on the earnings per share, voting power and holdings of current stockholders.
Required
Vote
Approval
of the amendment to the Certificate of Incorporation to increase the shares of common stock authorized requires the receipt of
the affirmative vote of a majority of the total possible votes represented by the Company’s common stock outstanding as
of the record date.
THE
BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE AMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED
SHARES OF COMMON STOCK FROM 50,000,000 SHARES TO 100,000,000 SHARES.
OTHER
MATTERS
The
Board of Directors knows of no other business which will be presented at the Annual Meeting. If any other matters properly come
before the meeting, the persons named in the enclosed Proxy, or their substitutes, will vote the shares represented thereby in
accordance with their judgment on such matters.
ADDITIONAL
INFORMATION
Annual
Reports on Form 10-K
Additional
copies of Workhorse’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 may be obtained without charge
by writing to the Chief Financial Officer, Workhorse Group Inc., 100 Commerce Drive, Loveland, Ohio 45140. Workhorse’s Annual
Report on Form 10-K can also be found on Workhorse’s website:
www.workhorse.com
.
Stockholders
Proposals for the 2018 Annual Meeting.
Stockholder
proposals intended to be presented at the Company’s 2018 annual meeting must be received by the Company no later than February
23, 2018 (pursuant to Rule 14a-8 of the Exchange Act, 120 days before the anniversary of the prior year’s mailing date)
to be eligible for inclusion in the Company’s proxy statement and form of proxy for next year’s meeting. Proposals
should be addressed to Workhorse Group Inc., Attn. Chief Financial Officer, 100 Commerce Drive, Loveland, Ohio 45140.
For
any proposal that is not submitted for inclusion in next year’s proxy statement (as described in the preceding paragraph),
but is instead sought to be presented directly at the 2018 annual meeting, the federal securities laws require stockholders to
give advance notice of such proposals. The required notice must (pursuant to Rule 14a-4 of the Exchange Act) be given no less
than 45 days in advance of the one year anniversary date of the date on which the Company first sent its proxy materials for the
immediately preceding annual meeting. Accordingly, with respect to the Company’s 2018 annual meeting of stockholders, notice
must be provided to Workhorse Group Inc., Attn. Chief Financial Officer, 100 Commerce Drive, Loveland, Ohio 45140 no later than
February 23, 2018. If a stockholder fails to provide timely notice of a proposal to be presented at the 2018 annual meeting, the
chair of the meeting will declare it out of order and disregard any such matter.
Proxy
Solicitation Costs
The
proxies being solicited hereby are being solicited by the Company. The Company will bear the entire cost of solicitation of proxies
including preparation, assembly, printing and mailing of the Notice, the Proxy Statement, the Proxy card and establishment of
the Internet site hosting the proxy material. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of common stock beneficially owned by others to forward to such beneficial owners.
Officers and regular employees of the Company may, but without compensation other than their regular compensation, solicit proxies
by further mailing or personal conversations, or by telephone, telex, facsimile or electronic means. We will, upon request, reimburse
brokerage firms and others for their reasonable expenses in forwarding solicitation material to the beneficial owners of stock.
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By
Order of the Board of Directors,
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/s/
Raymond Chess
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Raymond Chess
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Chair of the
Board of Directors
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YOUR
VOTE IS IMPORTANT. PLEASE VOTE TODAY.
Vote
by Internet or Telephone – QUICK ☐ EASY
IMMEDIATE – 24 Hours a Day, 7 Days a Week or by Mail
Workhorse
Group Inc.
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As
a shareholder of Workhorse Group Inc., you have the option of voting your shares electronically through the Internet or on
the telephone, eliminating the need to return the proxy card. Your electronic vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed, dated and returned the proxy card. Votes submitted electronically over
the Internet or by telephone must be received by 7:00 p.m., Eastern Time, on August 6, 2017.
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INTERNET/MOBILE
–
https://stocktrack.simplyvoting.com
Use the Internet to vote your proxy. Have your proxy card available when you access the above website. Follow the prompts
to vote your shares.
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PHONE
–
1 (702) 818-5898
Use a touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions
to vote your shares.
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PLEASE
DO NOT RETURN THE PROXY CARD IF YOU
ARE VOTING ELECTRONICALLY OR BY PHONE.
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MAIL
–
Mark, sign and date your proxy card and return it in the postage-paid envelope provided.
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☐
FOLD HERE • DO NOT SEPARATE • INSERT IN ENVELOPE PROVIDED
☐
PROXY
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THE BOARD OF
DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF THE NAMED NOMINEES AS DIRECTORS, “FOR” PROPOSALS
1, 2, 3, 4 AND 5.
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1.
Election of Directors
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3.
To approve the Company’s 2017 Incentive Stock Plan and the reservation of 5,000,000
shares of common stock for issuance thereunder.
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(1)
Raymond Chess
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FOR
☐
WITHHOLD
☐
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(2)
Harry Demott
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FOR
☐
WITHHOLD
☐
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FOR AGAINST ABSTAIN
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(3)
H. Benjamin Samuels
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FOR
☐
WITHHOLD
☐
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☐ ☐ ☐
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(4)
Gerald B.Budde
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FOR
☐
WITHHOLD
☐
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(5)
Stephen S. Burns
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FOR
☐
WITHHOLD
☐
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(6)
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2.
Proposal to ratify the appointment of CLARK, SCHAEFER, HACKETT & CO. as the Company’s
independent auditors for the fiscal year ending December 31, 2017.
FOR AGAINST ABSTAIN
☐ ☐ ☐
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4 To
recommend, by non-binding vote, the approval of the compensation disclosed in the Proxy
Statement of the Company’s executive officers, who are named in the Summary Compensation
Table.
FOR AGAINST ABSTAIN
☐ ☐ ☐
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5.
To approve the amendment of the Articles of Incorporation to increase the authorized
shares of common stock to 100,000,000.
FOR AGAINST ABSTAIN
☐ ☐ ☐
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COMPANY
ID:
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PROXY
NUMBER:
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ACCOUNT
NUMBER:
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Signature
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Signature,
if held jointly
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Date
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,
2017.
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Note:
Please sign exactly as name appears hereon. When shares are held by joint owners, both should sign. When signing as attorney,
executor, administrator, trustee, guardian, or corporate officer, please give title as such.
Important
Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on August 7, 2017
The
proxy statement and our 2016 Annual Report on Form 10-K to Stockholders are available at
https://stocktrack.simplyvoting.com
☐
FOLD HERE ● DO NOT SEPARATE ● INSERT IN ENVELOPE PROVIDED
☐
PROXY
Workhorse
Group Inc.
PROXY
FOR ANNUAL MEETING TO BE HELD ON AUGUST 7, 2017
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned shareholder hereby appoints Stephen S. Burns and Julio C. Rodriguez or either of them (each with full power to act
alone), as attorneys and proxies for the undersigned, with the power to appoint his or her substitute, to represent and to vote
all the shares of the common stock of Workhorse Group Inc. (the “Company”), which the undersigned would be entitled
to vote, at the Company’s Annual Meeting of Stockholders to be held at 100 Commerce Drive, Loveland, Ohio 45140 on, August
7, 2017, at 10:00 a.m., Eastern Time, and any adjournments thereof, subject to the directions indicated on the reverse side hereof.
In
their discretion, the Proxy is authorized to vote upon any other matter that may properly come before the meeting or any adjournments
thereof.
This
proxy, when properly executed, will be voted in the manner directed on the reverse side by the undersigned shareholder.
If
no direction is made, this proxy will be voted FOR the election of the named nominees as directors, FOR Proposals 2, 3, 4 and
5.
PLEASE
MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(IMPORTANT
— This Proxy must be signed and dated on the reverse side.)
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