UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed
by the Registrant /x/
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §Section 240.14a-11(c) or Section §240.14a-12
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SOCKET
MOBILE, INC.
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(Name
of Registrant as Specified in its Charter)
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SOCKET
MOBILE, INC.
NOTICE
OF 2020 ANNUAL MEETING OF STOCKHOLDERS
To
Be Held May 27, 2020
Dear
Stockholders:
You
are cordially invited to attend the Annual Meeting of Stockholders of Socket Mobile, Inc., a Delaware corporation (the "Company"),
to be held Wednesday, May 27, 2020 at 10:30 a.m., local time, at the Company's headquarters at 39700 Eureka Drive, Newark, California
94560 for the following purposes:
(1) To
elect seven directors to serve until their respective successors are elected;
(2) Advisory
vote on executive compensation policies and practices as described in the annual meeting proxy (“Say on Pay”).
(3)
To ratify the appointment of Sadler, Gibb & Associates, LLC as independent registered public accountants of the Company for
the fiscal year ending December 31, 2020.
(4) To
transact such other business as may properly come before the meeting or any adjournment thereof.
The
foregoing items of business are more fully described in the Proxy Statement accompanying this notice. Only stockholders of record
at the close of business on March 23, 2020 are entitled to notice of and to vote at the meeting. All stockholders are cordially
invited to attend the meeting in person. However, to ensure your representation at the meeting, you are urged to mark, sign, date,
and return the enclosed Proxy as promptly as possible following the instructions on your proxy ballot. Any stockholder attending
the meeting may vote in person even if he or she has returned a Proxy.
Sincerely,
Kevin
J. Mills
President
and Chief Executive Officer
Newark,
California
March
26, 2020
YOUR
VOTE IS IMPORTANT.
IN
ORDER TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING,
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE, OR VOTE BY PHONE OR BY INTERNET WHERE AVAILABLE.
SOCKET
MOBILE, INC.
PROXY
STATEMENT FOR
2020
ANNUAL MEETING OF STOCKHOLDERS
INFORMATION
CONCERNING SOLICITATION AND VOTING
GENERAL
The
enclosed proxy is solicited on behalf of the Board of Directors of Socket Mobile, Inc. (the "Company"), for use at the
2020 Annual Meeting of Stockholders to be held Wednesday, May 27, 2020 at 10:30 a.m., local time, or at any adjournment thereof,
for the purposes set forth herein and in the accompanying Notice of 2020 Annual Meeting of Stockholders. The 2020 Annual Meeting
will be held at the Company's headquarters at 39700 Eureka Drive, Newark, California 94560. The Company's telephone number at
that location is (510) 933-3000.
Notice
of the availability of these proxy solicitation materials and our Annual Report on Form 10-K for the year ended December 31, 2019,
including financial statements, will be first mailed on or about April 6, 2020 to all stockholders entitled to vote at the 2020
Annual Meeting.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
The
proxy materials are available at http://www.socketmobile.com/about-us/investor-relations/stockholder-meeting-information.
Stockholders may access the Notice of Annual Meeting and Proxy Statement, Annual Report on Form 10-K and Proxy Card at this site
to read, download the documents, and/or request a printed copy. Printed copies may also be requested by telephone at 800-856-9390.
Printed copies will be mailed within 3 business days of receipt of the request.
RECORD
DATE AND PRINCIPAL SHARE OWNERSHIP
Holders
of record of our Common Stock at the close of business on March 23, 2020 (the "Record Date") are entitled to notice
of and to vote at the 2020 Annual Meeting. At the Record Date, 6,301,474 shares of Common Stock were issued and outstanding. Each
share of Common Stock is entitled to one vote. The Company has no other class of voting securities outstanding and entitled to
be voted at the meeting.
The
only persons known by the Company to beneficially own more than five percent of the Company's Common Stock as of the Record Date
were Charlie Bass, the Chairman of the Company’s Board of Directors and Manatuck Hill Partners, LLC. Please see "Security
Ownership of Certain Beneficial Owners and Management" for more information on these holdings.
REVOCABILITY
OF PROXIES
Any
proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by delivering to the
Secretary of the Company a written notice of revocation or a duly executed proxy bearing a later date or by attending the 2020
Annual Meeting and voting in person. If voting in person, confirmation of revocation or non-submission of your proxy should be
obtained prior to the meeting from the organization where the proxy was originally filed.
VOTING
AND SOLICITATION
Generally
each stockholder is entitled to one vote for each share of Common Stock held on all matters to be voted on by the stockholders.
If, however, any stockholder at the 2020 Annual Meeting gives notice of his or her intention to cumulate votes with respect to
the election of directors (Proposal One), then each stockholder may cumulate such stockholder's votes for the election of directors
and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of shares of
Common Stock that such stockholder is entitled to vote, or may distribute such stockholder's votes on the same principle among
as many candidates as the stockholder may select, provided that votes cannot be cast for more than seven candidates. However,
no stockholder shall be entitled to cumulate votes for a candidate unless the candidate's name has been placed in nomination prior
to the voting and the stockholder, or any other stockholder, has given notice at the meeting, prior to the voting, of the intention
to cumulate votes. On all other matters, stockholders may not cumulate votes.
This
solicitation of proxies is made by the Company, and all related costs will be borne by the Company. In addition, the Company may
reimburse brokerage firms and other persons representing beneficial owners of stock for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by the Company's directors, officers and regular employees,
without additional compensation, personally or by telephone, email or facsimile.
QUORUM;
VOTE REQUIRED; ABSTENTIONS; BROKER NON-VOTES
The
presence at the 2020 Annual Meeting, either in person or by proxy, of the holders of a majority of votes entitled to be cast with
respect to the outstanding shares of Common Stock shall constitute a quorum for the transaction of business. Shares that are voted
"FOR," "AGAINST," "WITHHOLD or “ABSTAIN” on a subject matter are treated as being present
at the meeting for purpose of establishing a quorum entitled to vote on the matter. Broker non-votes will also be counted for
the purpose of determining the presence or absence of a quorum for the transaction of business.
Proposal One. Election
of Directors. Directors are elected by a plurality of the votes of the shares present in person or represented by proxy at
the meeting and entitled to vote on the election of directors. You may vote “FOR” or “WITHHOLD” on each
of the nominees for election as a director. If a quorum is present at the meeting, the seven nominees receiving the highest number
of votes will be elected to the Board of Directors. As a result, any shares not voted “for” a particular nominee (whether
as a result of “withhold” votes or broker non-votes) will not be counted in such nominee’s favor and will have
no effect on the outcome of the election. Votes withheld from any nominee and broker non-votes are, however, counted for purposes
of determining the presence or absence of a quorum.
Proposal
Two. Executive Compensation Policies and Practices (“Say on Pay”). Approval of the executive compensation
policies and practices of the Company as described in this Proxy Statement requires the affirmative vote of a majority of the
shares present in person or by proxy at the meeting and entitled to vote thereon. The vote is a non-binding advisory vote to be
considered by management and the Board of Directors. You may vote “for,” “against” or “abstain”
on this proposal. Abstentions represent shares present and entitled to vote and thus, will have the same effect as votes “against”
this proposal.
Proposal
Three. Auditor Ratification. Approval of the ratification of the appointment of Sadler, Gibb & Associates, LLC, as the
Company's independent registered public accountants for the fiscal year ending December 31, 2020, requires the affirmative vote
of a majority of the shares present in person or by proxy at the meeting and entitled to vote thereon. You may vote “for,”
“against” or “abstain” on this proposal. Abstentions represent shares present and entitled to vote and
thus, will have the same effect as votes “against” this proposal.
DEADLINE
FOR RECEIPT OF STOCKHOLDER PROPOSALS TO BE INCLUDED IN THE COMPANY'S PROXY MATERIALS
The
Company currently intends to hold its 2021 Annual Meeting of Stockholders in May 2021 and to mail proxy statements relating to
such meeting in April 2021. Proposals of stockholders of the Company that are intended to be presented by such stockholders at
the 2021 Annual Meeting must be received by the Company no later than November 15, 2020, and must otherwise be in compliance with
applicable laws and regulations, in order to be considered for inclusion in the Company's proxy statement and proxy card relating
to that meeting. In addition, stockholders must comply with the procedural requirements in the Company's bylaws. Under the Company's
bylaws, notice of any stockholder nomination to the board or proposal of business must be delivered to or mailed and received
by the Secretary of the Company not less than ninety (90) days prior to the meeting; provided, however, that in the event that
less than one-hundred (100) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting is mailed or such public disclosure is made. To be in proper form, a stockholder's
notice to the Secretary shall set forth: (i) the name and address of the stockholder who intends to make the nominations or propose
the business and, as the case may be, of the person or persons to be nominated or of the business to be proposed; (ii) representations
that the stockholder is a holder of record of stock of the Company entitled to vote at such meeting and, as applicable, that such
stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or
propose such business; (iii) if applicable, a description of all arrangements or understandings between the stockholder and each
nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder; (iv) such other information regarding each nominee or each matter of business to be proposed by such
stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed
by the Board of Directors; and (v) if applicable, the consent of each nominee to serve as director of the Company if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination of any person or the proposal of any business not made
in compliance with the foregoing procedure. Stockholders can obtain a copy of the Company's bylaws from the Company upon request.
The Company's bylaws are also on file with the Securities and Exchange Commission.
If
a stockholder intends to submit a proposal at the 2021 Annual Meeting but does not wish to have it included in the proxy statement
and proxy for that meeting, the stockholder must do so no later than January 24, 2021, or else the proxy holders will be allowed
to use their discretionary authority to vote against the proposal when it is raised at the 2021 Annual Meeting.
The
attached proxy card grants the persons named as proxies discretionary authority to vote on any matter raised at the 2020 Annual
Meeting that is not included in this Proxy Statement. The Company has not been notified by any stockholder of his or her intent
to present a stockholder proposal at the 2020 Annual Meeting.
PROPOSAL
ONE
ELECTION
OF DIRECTORS
The
proxy holders will vote to elect as directors the seven nominees named below, unless a proxy card is marked otherwise. The nominees
consist of seven current directors. If a person other than a management nominee is nominated at the 2020 Annual Meeting, the holders
of the proxies may choose to cumulate their votes and allocate them among such nominees of management as the proxy holders shall
determine in their discretion to elect as many nominees of management as possible. The seven candidates receiving the highest
number of votes will be elected. In the event any nominee is unavailable for election, which is not currently anticipated, the
proxy holders may vote in accordance with their judgment for the election of substitute nominees designated by the Board of Directors.
All
seven directors will be elected for one-year terms expiring at the 2021 Annual Meeting of Stockholders, subject to the election
and qualification of their successors or their earlier death, resignation or removal. The following table sets forth information
concerning the nominees for director. Information on committee assignments reflects current assignments to be reviewed at the
first meeting of the Board following election. Information on age is as of the record date of March 25, 2020.
Name
of Nominee (4)
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Age
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Position(s)
Currently Held With the Company
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Director
Since
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Charlie
Bass (1)(2)
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78
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Chairman
of the Board
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1992
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Kevin
J. Mills
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59
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President,
Chief Executive Officer and Director
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2000
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David
W. Dunlap
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77
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Outside Director
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2014
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Brenton
Earl MacDonald (1)(2)
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53
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Independent
Director
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2016
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Bill
Parnell (1)(2)(3)
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64
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Independent
Director
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2017
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Ivan
Lazarev (2)(3)
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61
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Independent
Director
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2019
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Lynn
Zhao
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51
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VP
Finance & Administration, CFO, Secretary and Management Director
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2019
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(1)
Member of the Audit Committee.
(2)
Member of the Nominating Committee.
(3)
Member of the Compensation Committee.
(4)
Committee assignments will be made at the first meeting of the Board following election.
Charlie
Bass co-founded the Company in March 1992 and has been the Chairman of the Board of Directors from such time to the present.
Dr. Bass served as the Company's Chief Executive Officer from April 1997 to March 2000. Dr. Bass has served as the Trustee
of The Bass Trust since April 1988. Dr. Bass holds a Ph.D. in electrical engineering from the University of Hawaii.
Kevin
J. Mills was appointed the Company's President and Chief Executive Officer and a director of the Company in March 2000. He
served as the Company's Chief Operating Officer from September 1998 to March 2000. Mr. Mills joined the Company in September
1993 as Vice President of Operations and has also served as our Vice President of Engineering. Prior to joining the Company, Mr. Mills
worked from September 1987 to August 1993 at Logitech, Inc., a computer peripherals company, serving most recently as its Director
of Operations. He holds a B.E. in Electronic Engineering with honors from the University of Limerick, Ireland.
David
W. Dunlap has been a director of the Company since May 2014. He had previously served as the Company's Vice President of Finance
and Administration, Secretary and Chief Financial Officer from February 1995 to May 2019. Mr. Dunlap previously served as
Vice President of Finance and Administration and Chief Financial Officer at several public and private companies. He is a certified
public accountant (inactive) and holds an M.B.A. and a B.A. in Business Administration from the University of California at Berkeley.
Brenton
Earl MacDonald has been a director of the Company since June 2016. In February 2018, he joined Rising Tide, a private equity
fund, as a partner. Mr. MacDonald served for over eleven years, through February 2018, with Hewlett Packard Enterprise and HP
Inc. in an array of strategic planning and business management positions that focused on business growth. His most recent assignment
was to lead the Internet of Things (IoT) marketing efforts for Hewlett Packard Enterprise (HPE) CMS division. Prior to Hewlett
Packard, Mr. MacDonald spent six years in private equity financing at Newbury Ventures where his focus was on early stage global
communication and IT companies throughout the world, and from 1997 to 2000 he worked for Alcatel-Lucent as a senior business analyst.
Mr. MacDonald is a graduate of the London School of Economics (MSc) and Carleton University (MA).
Bill
Parnell has been a director of the Company since June 2017. Mr. Parnell was President and CEO of Datalogic ADC from January
2012 thru July 2015 and President and CEO of its predecessors: 1) Datalogic Scanning from March 2006 through December 2011 (initially
known as PSC, Inc. and later including the related operations of Datalogic) and 2) Datalogic Mobile from January 2011 thru December
2011. Datalogic is a supplier of Automatic Data Capture and Industrial Automation products for the retail, manufacturing, transportation
and logistics and healthcare industries. Mr. Parnell holds an MBA from the University of Washington and a Bachelor of Science
Degree in Physics from Utah State University.
Ivan
Lazarev has served as an independent director since his appointment to the board on October 23, 2019. Mr. Lazarev is the Group
Head of Experiential Solutions at Aventri and he leads Aventri’s global strategy around onsite services and technology while
managing the team members who work on onsite services for client events. Prior to Aventri, Mr. Lazarev co-founded ITN International
in 1999 and served as its chief executive officer from 1999 through 2018 when ITN International was acquired by Aventri. ITN International
introduced the first web and contactless NFC smart card registration and information management system - the BCARD System. Prior
to ITN International, Mr. Lazarev served as Vice President of eExpo for 5 years, where he was instrumental in the company's decision
to invest in internet technology, earning eExpo the reputation as a technological leader in the U.S. event industry. Mr. Lazarev
holds a master’s degree in Mechanical Engineering from Arts & Métiers in Paris, France and an MBA in International
Business from the University of South Carolina.
Lynn
Zhao is nominated to serve as a management director. Ms. Zhao was appointed to the position of VP of Finance and Administration,
Secretary, and Chief Financial Officer in May of 2019. She had previously served as the Company’s Controller since January
2015 and was appointed Vice President and Controller in September 2017. She has served as a member of the Company’s Executive
Leadership team since her appointment as VP and Controller. Ms. Zhao previously served as general accounting manager from December
2000 through January 2015. Ms. Zhao holds an MBA degree from San Jose State University and a Bachelor of Science degree in Chemistry
from Xiamen University in China.
BOARD
MEETINGS AND COMMITTEES
The
Board of Directors has determined that all of the nominees, except Mr. Mills, Mr. Dunlap and Ms. Zhao, satisfy the definition
of "independent director," as established by Nasdaq listing standards. The Board of Directors has an Audit Committee,
a Nominating Committee and a Compensation Committee. Each committee has adopted a written charter, all of which are available
on the Company's web site at http://www.socketmobile.com/about-us/investor-relations/corporate-governance. The Board of Directors
has also determined that each member of the Audit Committee, the Nominating Committee and the Compensation Committee satisfies
the definition of "independent director," as established by Nasdaq listing standards.
The
Board of Directors held a total of four regular meetings during fiscal 2019 and approved one action by unanimous written consent.
The independent directors met separately without management or the management directors after each of the four regular Board meetings
held during 2019. The Company strongly encourages members of the Board of Directors to attend all meetings, including meetings
of committees on which they serve. No director attended fewer than 75 percent of the meetings of the Board of Directors and the
Board committees on which he served.
The
Audit Committee consists of Messrs. Bass (Chairman), Parnell and MacDonald. The members of the Audit Committee each qualify as
"independent" under the standards established by the United States Securities and Exchange Commission for members of
audit committees. The Audit Committee also includes one member, Dr. Bass, who has been determined by the Board of Directors to
meet the qualifications of an "audit committee financial expert" in accordance with Securities and Exchange Commission
rules. Stockholders should understand that this designation is a disclosure required by the Securities and Exchange Commission
relating to Dr. Bass' experience and understanding with respect to certain accounting and auditing matters. This designation does
not impose upon Dr. Bass any duties, obligations or liabilities that are greater than are generally imposed on him as a member
of the Audit Committee, and his designation as an audit committee financial expert pursuant to this SEC requirement does not affect
the duties, obligations or liabilities of any other member of the Audit Committee or Board of Directors.
The
Audit Committee met with management and the independent accountants four times by telephone during the year ended December 31,
2019 to review quarterly and annual financial information and to discuss the results of quarterly review and annual audit procedures
performed by the independent accountants before quarterly and annual financial reports were issued. The Audit Committee is responsible
for appointing, compensating and overseeing actions taken by the Company's independent accountants, and reviews the Company's
internal financial controls and financial statements. The Audit Committee also oversees management’s assessment and management
of risks. Management and the independent accountants participated in all meetings of the Audit Committee. Portions of each Audit
Committee meeting were held between the Audit Committee members and the independent accountants without the presence of management.
The Committee reviewed the financial statements and the annual audit results, including the independent accountants’ assessment
of the Company’s internal controls and procedures, and discussed with the independent accountants the matters denoted as
required communications by Auditing Standard AS1301, Communications with Audit Committees. The meetings also included a discussion
and review of auditor independence, the pre-approval of the independent accountants’ fees for 2019, and a recommendation
to the Board of Directors to approve the issuance of the financial statements for the year ended December 31, 2019. The report
of the Audit Committee for the year ended December 31, 2019 is included in this Proxy Statement. The Audit Committee Charter
is available on the Company’s website at http://www.socketmobile.com/about-us/investor-relations/corporate-governance.
The
Nominating Committee Chairman is Dr. Bass who works with the other independent directors as a committee of the whole to consider
and recommend nominations for the Board of Directors and facilitate the self-assessment of Board performance by the independent
directors. The independent directors discussed nominations at the first regular board meeting of the year and Dr. Bass followed
up with each candidate. The role of the Nominating Committee is to determine that all nominated directors are willing and able
to serve as a director for the ensuing year and recommend their nomination. In addition, the independent directors met four times
during 2019 and once in January 2020 to date following their regular board meetings to consider matters relating to board governance,
oversight and effectiveness. For 2021, the Nominating Committee will consider nominees recommended by security holders. Such nominations
should be made in writing to the Company, attention Corporate Secretary, no later than November 15, 2020 in order to be considered
for inclusion in next year’s proxy statement. The Nominating Committee Charter is available on the Corporate Governance
section of the Company’s website at http://www.socketmobile.com/about-us/investor-relations/corporate-governance.
The
Compensation Committee chairman is Mr. Parnell. The Committee held six meetings during fiscal year 2019. The Compensation Committee
is responsible for determining salaries, incentives and other forms of compensation for directors and officers of the Company,
approving stock option and other incentive award grants, approving the Company's incentive compensation and benefit plans, and
providing oversight of all matters affecting compensation including overseeing management’s assessment and management of
compensation-related risks. The report of the Compensation Committee for fiscal year 2019 is included in this Proxy Statement.
The Compensation Committee Charter is available on the Corporate Governance section of the Company's website at http://www.socketmobile.com/about-us/investor-relations/corporate-governance.
COMPENSATION
OF DIRECTORS
Regular
meetings of the Board of Directors are scheduled once per quarter. Directors who are not employees of the Company receive $6,000
per regular meeting of the Board of Directors that they attend. Outside directors are also entitled to participate in the Company's
2004 Equity Incentive Plan. Grants of options to directors are made annually as compensation for Board service, committee service
and committee and Board leadership positions, generally at the time of annual election of the Board of Directors. Additional grants
may be awarded in recognition of services beyond normal board duties. See “Director Compensation” for information
regarding stock option grants awarded in 2019.
VOTE
REQUIRED AND RECOMMENDATION OF THE BOARD
If
a quorum is present at the Annual Meeting, the seven nominees receiving the highest number of votes will be elected to the Board
of Directors.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ALL OF THE COMPANY'S NOMINEES FOR DIRECTORS.
PROPOSAL
TWO
APPROVAL
OF EXECUTIVE COMPENSATION POLICIES AND PRACTICES
(“SAY-ON-PAY”)
Each
year our stockholders have the opportunity to vote to approve, on a nonbinding advisory basis, the compensation of our named executive
officers as disclosed in this proxy statement. As described in “Compensation Discussion and Analysis” and elsewhere
in this proxy statement, we seek to closely align the interests of our executive officers with the interests of our stockholders
and to attract, motivate and retain our named executive officers who are critical to our success. Our Compensation Committee regularly
reviews named executive officer compensation to ensure such compensation is consistent with our goals.
The
base salaries paid to our named executive officers are compared to other similar smaller technology public companies set forth
in a regional compensation survey. Base salaries for executives are generally targeted between the median and 75th
percentile of compensation levels for equivalent positions in smaller public technology companies operating in the Company’s
geographic region but may be set to higher or lower levels to recognize a particular executive’s role, responsibilities,
skills, experience and performance.
Variable
performance-based incentive awards for our named executive officers are intended to motivate and reward executives to meet or
exceed financial performance goals of revenue attainment and operating profitability measured both quarterly and annually based
on actual financial results for revenue and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), a common
measure of operating performance, compared to financial targets set at the beginning of each year.
Long
term incentive awards for our named executive officers consist of stock option and restricted stock grants that are granted at
the fair market value on the date of grant and vest over a period of time, typically 4 years, through the stockholder-approved
2004 Equity Incentive Plan. The goal is to align the financial interests of the named executive officers with those of stockholders
by providing significant incentives to manage the Company from the perspective of an owner with an equity stake in the business.
The Compensation Committee determines the size of each award based on the individual’s level of responsibility, recent performance,
his or her potential for future responsibility and promotion, the number of unvested options held by the individual at the time
of the new grant, and the size of the available stock award pool.
The
advisory vote on executive compensation solicited by this proposal is not intended to address any specific item of compensation,
but rather the overall compensation of our Chief Executive Officer, our Chief Financial Officer and our two other most highly-compensated
executive officers, who are collectively referred to as our “named executive officers,” which is disclosed elsewhere
in this proxy statement. The vote is advisory, which means that it is not binding on the Board of Directors, the Compensation
Committee or the Company in any way. However, the Compensation Committee will review the outcome of the vote and take it into
consideration when considering future executive compensation policies and decisions.
We
ask our stockholders to vote “FOR” the following resolution at the 2020 Annual Meeting: RESOLVED, that the stockholders
of Socket Mobile, Inc. approve, on an advisory basis, the compensation of the Company’s named executive officers for the
fiscal year ended December 31, 2019, as disclosed pursuant to Item 402 of Regulation S-K in the Company’s definitive proxy
statement for the 2020 Annual Meeting of Stockholders.
VOTE
REQUIRED AND RECOMMENDATION OF THE BOARD
Approval
of the executive compensation policies and practices of the Company as described in this Proxy Statement requires the affirmative
vote of a majority of the shares present in person or by proxy at the meeting and entitled to vote thereon.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE FOREGOING RESOLUTION.
PROPOSAL
THREE
RATIFICATION
OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
The
Audit Committee has selected Sadler, Gibb & Associates, LLC, independent registered public accountants, to audit the financial
statements of the Company for the fiscal year ending December 31, 2020 and recommends that stockholders vote for ratification
of such appointment.
Sadler,
Gibb & Associates, LLC performed the audit of the financial statements of the Company for the fiscal years ended December
31, 2019 and for the six previous years. Representatives of Sadler, Gibb & Associates, LLC are expected to be available at
the 2020 Annual Meeting. The representatives will have the opportunity to make a statement if they desire to do so, and are expected
to be available to respond to appropriate questions.
FEES
BILLED BY INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS DURING FISCAL YEARS 2019 AND 2018
Audit
Fees:
Audit
fees billed to the Company by Sadler, Gibb & Associates, LLC for their audit of the Company’s 2019 and 2018 fiscal year
financial statements totaled $80,000 in both years. Quarterly reviews of the Company's quarterly financial statements were $18,000
for fiscal 2019 and $15,000 for fiscal 2018. The Company was not deemed an accelerated filer for fiscal years 2019 and 2018, and
an audit of the Company's internal controls at December 31, 2019 and 2018 was not required.
Audit-Related
Fees:
There
were no audit-related fees billed to the Company by Sadler Gibb & Associates, LLC during the Company’s 2019 and 2018
fiscal years.
Tax
Fees:
Fees
billed to the Company by Sadler, Gibb & Associates, LLC for tax services during the Company’s 2019 and 2018 fiscal years
were $6,000 and $5,850, respectively. Tax fees are for preparation of the annual Federal and State tax returns for the previous
year.
All
Other Fees:
There
were no other fees billed to the Company during the Company's 2019 and 2018 fiscal years.
Approval
Procedures:
The
Audit Committee's policy is to pre-approve all audit and other permissible services provided by the independent accountants. These
services may include audit services, audit-related services, tax services and other services. Pre-approval is generally detailed
as to the particular service or category of services and is generally subject to a specific budget. The independent accountants
and management are required to report periodically to the Audit Committee regarding the extent of services provided by the independent
accountants in accordance with this pre-approval process and the fees for the services performed through such date. The Audit
Committee may also pre-approve particular services on a case-by-case basis. All services performed by the independent accountants
in fiscal 2019 and 2018 were preapproved by the Audit Committee. The Audit Committee has considered whether the provision of the
services described in this section is compatible with maintaining the independence of the Audit Firm and determined that it is.
VOTE
REQUIRED AND RECOMMENDATION OF THE BOARD
Ratification
of the appointment of Sadler, Gibb & Associates, LLC as the Company's independent registered public accountants for the fiscal
year ending December 31, 2020 requires the affirmative vote of a majority of the shares present in person or by proxy at the meeting
and entitled to vote thereon to be approved.
Stockholder
ratification of the appointment of Sadler, Gibb & Associates, LLC as the Company's independent registered public accountants
is not required by the Company's bylaws or other applicable legal requirement. However, the Audit Committee is submitting the
appointment of Sadler, Gibb & Associates, LLC to the stockholders for ratification as a matter of common corporate practice.
If the stockholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the appointment
is ratified, the Audit Committee at its discretion may direct the appointment of a different independent accounting firm at any
time during the year, if it determines that such a change would be in the best interests of the Company and its stockholders.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF SADLER,
GIBB & ASSOCIATES, LLC AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31,
2020.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth, as of the Record Date, certain information with respect to the beneficial ownership of the Company's
Common Stock, including on an as-exercised basis, options and warrants exercisable within 60 days of the Record Date, and on an
as-converted basis convertible notes convertible within 60 days of the Record Date, as to (i) each person known by the Company
to own beneficially more than 5 percent of the outstanding shares of Common Stock; (ii) each director of the Company; (iii) each
executive officer of the Company named in the Summary Compensation table; and (iv) all directors and executive officers of the
Company as a group. Except as set forth below, the address of record for each of the individuals listed in this table is: c/o
Socket Mobile, Inc., 39700 Eureka Drive, Newark, California 94560.
Name
of Beneficial Owner (1)
|
Number
of Shares of Common Stock
Beneficially
Owned
|
Percentage
of Shares of Common Stock Beneficially Owned (2)
|
5%
Stockholders
|
|
|
Manatuck
Hill Partners, LLC (3)
|
306,430
|
5.1%
|
Directors
and Executive Officers
|
|
|
Charlie
Bass (4)
|
1,339,501
|
20.5%
|
Kevin
J. Mills (5)
|
297,540
|
4.6%
|
Lee
A. Baillif (6)
|
164,838
|
2.6%
|
Leonard
L. Ott (8)
|
124,883
|
1.9%
|
David
W. Dunlap (7)
|
94,138
|
1.5%
|
Lynn
Zhao (9)
|
75,182
|
1.2%
|
Brenton
Earl MacDonald (9)
|
24,500
|
*
|
Bill
Parnell (9)
|
17,868
|
*
|
Ivan
Lazarev (9)
|
2,042
|
*
|
|
|
|
All
Directors and Executive Officers as a group (9 persons) (10)
|
2,140,492
|
30.0%
|
|
|
|
*Less
than 1%
|
(1)
|
To
the Company’s knowledge, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the information contained in
the footnotes to this table.
|
|
(2)
|
Percentage
ownership is based on 6,301,474 shares of Common Stock outstanding, each of which is
entitled to one vote, on the Record Date of March 23, 2020 and any shares issuable pursuant
to securities exercisable for shares of Common Stock by the person or group in question
as of the Record Date and within 60 days thereafter.
|
(3)
Shares held by Manatuck Hill Partners, LLC, 1465 Post Rd E Ste 2, Westport, CT 06880.
(4)
Includes 240,750 shares of Common Stock subject to options exercisable within 65 days of March 25, 2020.
|
(5)
|
Includes
175,649 shares of Common Stock subject to options exercisable within 65 days of March
23, 2020.
|
(6)
Includes 122,571 shares of Common Stock subject to options exercisable within 65 days of March 23, 2020.
(7) Includes
85,622 shares of Common Stock subject to options exercisable within 65 days of March 23, 2020.
(8) Includes
108,443 shares of Common Stock subject to options exercisable within 65 days of March 23, 2020.
(9)
Consists of shares of Common Stock subject to options exercisable within 65 days of March 23, 2020.
(10)
Includes 837,627 shares of Common Stock subject to options exercisable within 65 days of March 23, 2020.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities and Exchange Act of 1934, as amended, requires the Company's executive officers, directors and persons
who own more than ten percent of the Company's Common Stock to file reports of ownership and changes in ownership with the SEC
and the National Association of Securities Dealers, Inc. Executive officers, directors
and
greater than 10 percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. We prepare Section 16(a) forms on behalf of our executive officers and directors based on the
information
provided by them. Based solely on review of this information, the Company believes that during fiscal 2018 all of its executive
officers and directors complied with their Section 16(a) filing requirements.
MANAGEMENT
The
named executive officers of the Company are as follows:
Name
of Officer
|
Age
|
Position
with the Company
|
|
|
|
Kevin
J. Mills
|
59
|
President
and Chief Executive Officer and Director
|
Lynn
Zhao
|
51
|
Vice
President of Finance and Administration, Chief Financial Officer, Secretary and Director
|
Leonard
L. Ott
|
60
|
Executive
Vice President of Engineering and CTO
|
Lee
A. Baillif
|
59
|
Vice
President of Customer Experience and Quality Systems
|
For
information regarding Kevin J. Mills and Lynn Zhao, please see "Proposal One - Election of Directors" above.
Leonard
L. Ott was promoted in January 2019 to Executive Vice President and Chief Technical Officer including technical marketing.
He served as the Company's Vice President and Chief Technical Officer since October 2000 and Vice President of Engineering and
Chief Technical Officer from October 2013 to January 2019. Mr. Ott worked as an engineering consultant to the Company from
November 1993 to March 1994 and joined the Company in March 1994, serving in increasingly responsible engineering positions. Mr. Ott
holds a B.A. degree in Computer Science from the University of California at Berkeley.
Lee
A. Baillif served as the Company’s Vice President of Operations from January 2015 to January 2019. In January 2019 his
duties and role changed to Vice President Customer Experience and Quality Systems. He previously served as Controller commencing
January 1, 1999 and was promoted to Vice President and Controller on January 24, 2007. Prior to his appointment as Controller,
Mr. Baillif was a member of the accounting staff from September 1994. Mr. Baillif holds a B.S. degree in Business and Finance
from San Francisco State University.
DIRECTOR
COMPENSATION
Compensation
of Non-Employee Directors
The
following tables set forth the annual compensation paid to or accrued by the Company on behalf of the outside directors of the
Company for the fiscal year ended December 31, 2019.
Name
|
Fees
Earned or Paid in Cash ($) (1)
|
Option
Awards ($)(2)(8)
|
Total
($)
|
Charlie
Bass (3)
|
$24,000
|
$12,200(3)
|
$36,200
|
Bill
Parnell (4)
|
$24,000
|
$8,540(4)
|
$32,540
|
Brenton
MacDonald (5)
|
$24,000
|
$8,540(5)
|
$32,540
|
Nelson
C. Chan (6)
|
$18,000
|
$9,760(6)
|
$27,760
|
David
W. Dunlap
|
$12,000
|
--
|
$12,000
|
Nelson
C. Chan (7)
|
$6,000
|
$5,796(7)
|
$11,796
|
|
(1)
|
Directors
are paid a fee for preparation and attendance at four regularly scheduled board meetings
at the rate of $6,000 per meeting attended for the 4 regularly scheduled board meetings
in January, April, July and October 2018, totaling $24,000 for the year. All directors
attended all regular board meetings except for Nelson Chan and Ivan Lazarev. Mr. Chan
resigned from the board on July 25, 2019. Mr. Lazarev joined the board on October 23,
2019.
|
|
(2)
|
Amounts
shown are not intended to reflect value actually received by the directors. Instead,
the amounts shown are the total fair value of option awards granted in fiscal 2019 for
financial statement reporting purposes of $1.08 per share, as determined pursuant to
Financial Accounting Standards Board Accounting Standards Codification Topic 718, or
ASC Topic 718 (formerly Statement of Financial Accounting Standards No. 123(R). These
values are amortized as equity compensation expense over the 2-year vesting period of
the grants.
|
|
(3)
|
Mr.
Bass was granted an option to purchase 10,000 shares on May 22, 2019 with a grant date
fair value of $12,200.
|
|
(4)
|
Mr.
Parnell was granted an option to purchase 7,000 shares on May 22, 2019 with a grant date
fair value of $8,540.
|
|
(5)
|
Mr.
MacDonald was granted an option to purchase 7,000 shares on June 1, 2018 with a grant
fair value of $8,540.
|
|
(6)
|
Mr.
Chan was granted an option to purchase 8,000 shares on May 22, 2018 with a grant fair
value of $9,760. Mr. Chan voluntarily resigned on July 25, 2019.
|
|
(7)
|
Mr.
Lazarev was granted an option to purchase 5,542 shares on October 23, 2019 with a grant
fair value of $5,796.
|
|
(8)
|
Aggregate
number of option awards outstanding at December 31, 2019 were as follows: Charlie Bass,
255,750; Bill Parnell, 22,000; Brenton MacDonald, 28,000; Ivan Lazarev, 5,542.
|
The
outside directors are entitled to participate in the Company's 2004 Equity Incentive Plan. Grants of options to directors for
Board and Committee service are made annually, commencing at the start of the Board term. The grants made during 2019 were determined
as follows: each Director was awarded an option to purchase 5,000 shares for participation in Board meetings. The director serving
as the Board chairperson received an option to purchase an additional 2,000 shares. Directors serving as chairpersons of the Audit
and Compensation Committees each received an option to purchase an additional 1,000 shares. Members serving on the Audit Committee
and on the Compensation Committee each received an option to purchase an additional 2,000 shares. As a result, during 2019, four
outside directors as a group were granted options to purchase an aggregate of 32,000 shares on May 22, 2019. The options vest
monthly over a two year period of board service. Options had an exercise price of $2.52 per share which was the closing market
price of the Common Stock on the date of grant. Mr. Lazarev was appointed as an independent director on October 23, 2019. He was
granted a stock option of 5,542 shares vesting monthly over 19 months commencing October 23, 2019. See also Proposal One –
Compensation of Directors.
COMPENSATION
DISCUSSION AND ANALYSIS
OVERVIEW
The
Compensation Committee of the Board of Directors establishes the general compensation policies of the Company as well as the compensation
plans and specific compensation levels for executive officers. Short term executive compensation consist of base salary and variable
incentive salary awards that are performance based. Long term executive compensation consists of stock option and restricted stock
grants that vest over time and gain in value as common stock values increase. The Committee strives to ensure that the Company's
executive compensation programs enable the Company to attract, retain, motivate and reward key people based on a pay-for-performance
approach, targeted between median and 75th percentile for equivalent positions in similar sized companies in similar
fields of business when target performance objectives are achieved, and potentially resulting in superior pay when superior performance
objectives are achieved. Within this framework, actual compensation can vary depending on each executive officer’s position,
responsibilities and overall experience. Overall, the Company strives to provide a total compensation package that is fair, reasonable
and competitive with prevailing practices in the Company's industry.
COMPENSATION
PHILOSOPHY AND OBJECTIVES
The
Company's compensation policies, plans and programs are intended to achieve the following objectives:
|
•
|
attract,
retain, motivate and reward talented executive officers and employees;
|
|
•
|
provide
executive officers with performance-based cash bonus opportunities linked to achievement
of financial objectives of revenue attainment and operating profitability; and
|
|
•
|
align
the financial interests of executive officers, directors and employees with those of
stockholders by providing each through the stock option program with an equity stake
in the Company.
|
The
Company's approach to executive compensation is to set base compensation levels between median and the 75th percentile
for similar positions in similar sized companies, reflecting the experience and performance of each individual compared to similar
positions in smaller technology based companies. Compensation may be set to higher or lower levels to recognize a particular employee's
role, responsibilities, skills, experience and performance. Variable compensation targets are tied to financial performance so
as to motivate and reward positive performance of executive officers in driving the Company to achieve key financial objectives
including revenue attainment and profitability leading to increases in stockholder value. Long term equity incentives are offered
through its stock option program with annual grants to all executives commensurate with each executive’s level of responsibility,
experience and performance, while maintaining acceptable levels of dilution.
ELEMENTS
OF EXECUTIVE COMPENSATION
The
three major components of compensation for the Company's executive officers are:
|
(ii)
|
variable
performance-based cash incentive awards; and
|
|
(iii)
|
long-term,
equity-based incentive awards.
|
The
base salaries and variable performance-based incentive award components of the Company's compensation program are compared to
other similar technology public companies as set forth in a regional compensation survey. The compensation survey is used to benchmark
the Company's executive and employee salaries, as it is a broad-based compensation survey with an emphasis on smaller companies
in the electronics industry and provides information on base salary and variable incentive awards based on size of companies operating
within the Company’s geographic region. Offering competitive salary packages to employees is an essential element of attracting
and retaining key employees in the San Francisco Bay Area including Silicon Valley, which has many electronics firms that compete
for talent and offer a variety of employment alternatives.
Base
Salaries. The Compensation Committee establishes a competitive base salary for each executive officer designed to recognize
the skills and experience the individual brings to the Company and the performance contributions he or she makes. Base salaries
for executives are generally targeted between median compensation levels and the 75th percentile for similar public
technology companies, but may be set to higher or lower levels to recognize a particular executive’s role, responsibilities,
skills, experience and performance.
The
Compensation Committee determines both the amount and timing of base salary increases for executive officers. Factors affecting
the level of base salary increases each year include the overall financial performance of the Company, changes in the base salary
compensation levels reported in a national survey for executive positions in similarly sized companies, and the individual performance
of each executive.
Variable
Performance Based Incentive Awards.
Variable
salaries for the named executive officers are entirely performance based. Variable incentive compensation targets are set
each year for each named executive officer. Target awards are allocated 15% to each quarter and 40% to an annual measurement,
split equally between revenue attainment and attainment of EBITDA profits compared to an annual financial plan approved by the
Board of Directors at the beginning of the year. Awards may only be paid from a portion of EBITDA profits earned in the measurement
period. Actual variable compensation payments as a percentage of variable compensation targets for the past three years are shown
in the following table for the Named Executive Officers.
Variable
Performance Based Incentive Awards as a percentage of Incentive targets:
Named
Executive Officer
|
Position(s)
|
2019
|
2018
|
2017
|
Kevin
J. Mills (1)
|
President
and Chief Executive Officer and Director
|
50.0%
|
zero%
|
75.0%
|
Lynn
Zhao (2)
|
Vice
President of Finance and Administration, Chief Financial Officer, Secretary and Director
|
48.8%
|
zero%
|
N/A
|
Leonard
L. Ott (3)
|
Vice
President of Engineering and Chief Technical Officer
|
47.6%
|
zero%
|
81.3%
|
Lee
A. Baillif (4)
|
Vice
President Customer Experience and Quality Systems
|
48.8%
|
zero%
|
81.3%
|
|
(1)
|
Variable
financial incentive compensation target for Mr. Mills was set at $120,000 for 2019 and
$100,000 for 2017 and 2018. In 2019, $115,000 was based on 25% of 2018’s target
and 75% was based on 2019’s target. In 2017, $80,000 was based on revenue and EBITDA
attainment, and $20,000 was allocated to attainment of market capitalization objectives
set by the Board of Directors.
|
|
(2)
|
Variable
financial incentive compensation target for Ms. Zhao was set at $48,000 for 2019 and
$35,000 for 2018. Ms. Zhao was not part of the incentive awards program in 2017.
|
|
(3)
|
Variable
financial incentive compensation target for Mr. Ott was set at $55,000 for 2019 and $35,000
for 2017 and 2018.
|
|
(4)
|
Variable
financial incentive compensation target for Mr. Baillif was set at $48,000 for 2019 and
$35,000 for 2017 and 2018.
|
Long-Term
Equity-Based Incentive Awards.
Long-Term
Equity-Based Incentive Awards are provided through the stockholder-approved 2004 Equity Incentive Plan as amended. Although the
Equity Incentive Plan provides for a variety of equity incentive awards, to date through 2020 the Compensation Committee has awarded
stock option and restricted stock grants from the Equity Incentive Plan. The goal of the Company's long-term, equity-based incentive
awards is to align the financial interests of the executive officers and employees of the Company with those of stockholders and
to provide each executive officer and employee with a significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. All equity incentives are subject to vesting provisions to encourage executive officers
and employees to remain employed with the Company. The Compensation Committee determines the size of each award based on the individual’s
level of responsibility, recent performance, his or her potential for future responsibility and promotion, the number of unvested
options held by the individual at the time of the new grant, and the size of the available stock award pool to arrive at a level
that the Committee considers appropriate to create a meaningful opportunity for equity participation by the individual.
As
of December 31, 2019, there were 308,871 shares available for grant under the 2004 Equity Incentive Plan. In addition, the 2004
Equity Incentive Plan provides for an automatic increase each January 1st equal to the lesser of (a) 400,000 shares,
(b) 4% of the outstanding shares on that date, or (c) a lesser amount as determined by the Board of Directors. The increase in
shares available for grant on January 1, 2020 was 240,707 shares. Options and restricted stocks are granted to executive officers,
employees and consultants at the discretion of the Compensation Committee. The Board of Directors itself, in consultation with
management, grants options annually to directors for service on the Board of Directors.
The
Compensation Committee, in consultation with management, prepares an annual allocation plan dividing the available stock in the
grant pool among refresher grants, new employee grants, director grants and reserves. The timing, award criteria and award procedures
are discussed more fully under Equity Incentive Grant Policies in the next section. New employee grants are typically made on
the first trading day of the month following the date of hire. Refresher grants are made annually, typically during the first
quarter of the year. Stock option grants typically vest monthly over 48 months, contingent upon continued employment with the
Company. All stock options expire ten years after the date of grant. Fully vested grants, or grants vesting over a shorter or
longer term than four years, may be awarded at the discretion of the Compensation Committee. Restricted stocks typically vest
on the schedule of 15% after year 1, 20% after year 2, 25% after year 3, and 40% after year 4, subject to continued employment
with the Company. Stock options provide a return only if the individual remains with the Company and only if the market price
of the Company’s Common Stock appreciates during the option term. Restricted stocks provide the entire value of each granted
share.
The
Compensation Committee believes that stock option and restricted stock grants are effective in attracting and retaining key employees,
and the Company provides initial grants to all new employees and annual refresher grants to all continuing employees with a weighting
reflecting the level of responsibility and performance of the employee. Many of the senior executives and employees have been
employed by the Company more than ten years and have amassed a number of annual stock option grants (grants expire 10 years after
the date of grant) with potential for substantial cumulative compensation if stock prices increase, thus aligning their interests
with those of stockholders. The Company believes stock options and restricted stocks are effective long-term incentives because
of the expectations of the management team and employees that the Company’s products and the markets they address provide
opportunities for growth that may result in share price appreciation.
Other
Compensation.
Executive
officers are entitled to participate in the same health and benefit programs and 401(k) program as are available to all employees
of the Company and do not receive any perquisites from the Company.
EQUITY
INCENTIVE GRANT POLICIES
General
option and restricted stock grant practices. All stock option and restricted stock grants are awarded by the Compensation
Committee, or by the full Board in the case of director stock option grants. All grants are priced at the closing market price
of the Company’s Common Stock on the date of grant, and the actions of the Compensation Committee are documented in minutes
that are retained in the minute book of the Company. During 2019, the Compensation Committee met one times, and stock option and
restricted stock grants were awarded at those meetings.
Initial
stock option grants. The Compensation Committee awards initial stock option grants to each new employee of the Company typically
on the first trading day of the month following the individual’s commencement of employment. The size of the grant is based
on the responsibilities of the employee and as agreed to in the employee’s employment offer. Grants for executive officers
are approved by the Compensation Committee in advance of offers being made. Grants to rank-and-file employees are made within
general guidelines reviewed and approved by the Compensation Committee, and the actual grant requires the approval of the Compensation
Committee at the time of grant. Initial stock option grants generally vest 25% on the one-year anniversary of employment and 1/48th
per month thereafter for a total vesting period of 48 months. The delay in initial vesting for the first twelve months of
employment provides an incentive for employee retention and ensures that the employee is familiar with the Company and its goals
and objectives prior to options vesting. During 2019 options to purchase an aggregate of 7,200 shares were awarded to 2 new employees
representing 2.1 percent of shares granted during the year.
Initial
restricted stock grants. The Compensation Committee awards initial restricted stocks to new employee of the Company typically
on the first trading day of the month following the individual’s commencement of the employment. The size of the grant is
based on the responsibilities of the employee and as agreed to in the employee’s employment offer. Grants for executive
officers are approved by the Compensation Committee in advance of offers being made. Grants to rank-and-file employees are made
within general guidelines reviewed and approved by the Compensation Committee, and the actual grant requires the approval of the
Compensation Committee at the time of grant. Initial restricted stock grants generally vest on the schedule of 15% after year
1, 20% after year 2, 25% after year 3, and 40% after year 4, subject to continued employment with the Company. During 2019, 11,821
restricted stocks were awarded to 2 new employees representing 3.4 percent of shares granted during the year.
Refresher
employee stock option grants. The Compensation Committee awards refresher stock option grants annually and supplemental grants
based on the recommendations of management reflecting the responsibilities and performance of each employee and the employee’s
contributions in meeting the Company’s goals and objectives. During 2019, the Compensation Committee awarded annual refresher
options to purchase an aggregate of 165,600 shares to 13 employees, representing 47.6 percent of options granted during the year.
Refresher
employee restricted stock grants. The Compensation Committee awards refresher stock option grants annually and supplemental
grants based on the recommendations of management reflecting the responsibilities and performance of each employee and the employee’s
contributions in meeting the Company’s goals and objectives. During 2019, the Compensation Committee awarded annual refresher
restricted stocks of 116,050 shares to 41 employees, representing 33.4 percent of grants during the year.
Director
stock option grants. A portion of the compensation of the Company’s outside directors is in the form of an annual stock
option grant. Director grants are granted by the full Board of Directors following the annual election of directors and vest monthly
over the ensuing 2 years of service. Options are awarded equally to all directors for Board service. Additional options are awarded
for Board and committee leadership positions and Committee service, as discussed under “Director Compensation”.
During 2019, the Company granted options to purchase an aggregate of 47,142 shares to the 5 outside directors of the Company,
representing 13.6 percent of options granted during the year.
ACCOUNTING
AND TAX IMPLICATIONS
Accounting
for Stock Based Compensation. On January 1, 2006, we adopted the provisions of Financial Accounting Standards Board Accounting
Standards Codification (ASC) Topic 718, Stock Compensation (formerly FASB Statement 123(R)) for the fiscal years ended December
31, 2006 and beyond. Under ASC Topic 718, the Company uses a binomial lattice valuation model to estimate fair value of stock
option grants made on or after January 1, 2006. The binomial lattice model incorporates estimates for expected volatility, risk-free
interest rates, employee exercise patterns and post-vesting employment termination behavior. These estimates affect the calculation
of the fair value of the Company’s stock option grants. The fair value of stock option grants outstanding prior to January
1, 2006 was estimated using a Black-Scholes option pricing model. The Company adopted the modified prospective recognition method
and implemented the provisions of ASC Topic 718 (formerly under FASB Statement 123(R)) beginning with the first quarter of 2006.
The restricted stock grants are valued at the closing market price on the date of grant.
Income
taxes. The Company has not provided any executive officer or director with a gross-up or other reimbursement for tax amounts
the executive might pay pursuant to Section 280G or Section 409A of the Internal Revenue Code. Although the 2004 Equity Incentive
Plan also allows for the issuance of grants qualifying as “performance-based compensation” under Section 162(m) of
the Internal Revenue Code as it was in effect during fiscal 2019, the Company has not adopted a policy that all compensation must
be deductible.
COMPENSATION
OF THE CHIEF EXECUTIVE OFFICER
The
Company’s Chief Executive Officer Kevin Mills is compensated under the same compensation structure applied to all of the
Executive Officers of the Company as described under Elements of Executive Compensation, specifically base salary, variable
performance based compensation, and long term equity incentive awards in the form of stock option grants.
Base
Salary: Mr. Mills’ annual base salary in 2019 was $277,500. Base salary was set at median levels for CEO’s of
similar sized companies based on national compensation salary survey data.
Variable
Compensation. Mr. Mills’ variable salary target of $120,000 is set above the median levels for CEO’s of similar
sized companies based on national compensation salary survey data. All variable compensation awards are performance based. During
2017, 80 percent of the variable compensation for Mr. Mills was calculated in the same manner as for the other Named Executive
Officers, with 40 percent of his variable salary target based on revenue attainment and 40 percent of his variable salary target
based on attainment of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), a traditional non-GAAP measure
of operating profitability, both measured in comparison to the annual financial plan of the Company approved at the beginning
of each year by the Board of Directors. In 2018, target compensation was allocated the same as the other Executive Officers, with
15 percent based on each of four quarterly results (total of 60%) and 40% based on annual results. Payments under the Management
Incentive Variable Compensation Plan are further limited by minimum performance thresholds, and payments to all executives under
this plan may not exceed 50 percent of EBITDA profits for the measurement period. During 2017, 20 percent of the variable compensation
target for Mr. Mills was based on attainment of market capitalization targets approved by the Board of Directors at the beginning
of the year. See Performance Based Variable Incentive Awards under Elements of Executive Compensation for attainment percentages
earned by Mr. Mills over the past three years compared to the other Named Executive Officers of the Company.
Long
term equity incentive awards. Mr. Mills received an annual employee refresher grant in 2019 of 40,000 shares vesting monthly
over a 48-month period representing 11.5 percent of total shares granted in 2019. All stock options were granted at the closing
market price on the date of grant.
Benefits.
Mr. Mills participates in the same benefit programs as all of the employees of the Company. The CEO’s employment is subject
to an employment contract which provides for six months of continuation of base salary and medical benefits in the event of involuntary
termination of services other than for cause, and payment of his variable salary entitlements had he remained employed during
this period in the event of a change in control or involuntary termination. The CEO receives no perquisites.
Summary
Compensation Table
For
Fiscal Year Ended December 31, 2018
The
following table provides fiscal 2019 compensation information and comparable information for the two preceding fiscal years for
all executive officers of the Company who were the most highly compensated in fiscal year 2019 (the “Named Executive
Officers”).
Name
and Principal Position
|
Year
|
Salary
($)(1)
|
Option
Awards ($)(2)
|
Non-Equity
Incentive
Plan Compensation ($)(3)
|
Total
($)
|
Kevin J. Mills (4)
President and Chief Executive Officer and Director
|
2019
2018
2017
|
$277,500
247,500
241,875
|
$37,600
29,225
43,360
|
$60,055
zero
75,018
|
$375,155
276,725
360,253
|
Lynn
Zhao (5)
Vice
President of Finance and Administration, Chief Financial Officer, Secretary and Director
|
2019
2018
2017
|
$160,000
140,000
138,000
|
$16,920
16,700
15,176
|
$23,407
zero
N/A
|
$200,327
156,700
153,176
|
|
|
|
|
|
|
Leonard
L. Ott (6)
Vice
President of Engineering and Chief Technical Officer
|
2019
2018
2017
|
$204,000
186,000
183,250
|
$18,800
22,545
32,520
|
$26,193
zero
28,445
|
$248,993
208,545
244,215
|
Lee
A. Baillif (7)
Vice
President of Customer Experience and Quality Systems
|
2019
2018
2017
|
$180,000
177,000
174,000
|
$11,280
20,040
32,520
|
$23,407
zero
28,445
|
$214,687
197,040
234,965
|
|
(1)
|
Represents
base salary as described under Compensation Summary and Analysis — Elements
of Executive Compensation.
|
|
(2)
|
Represents
Long-Term, Equity-Based Incentive Awards as described under Compensation Summary and
Analysis — Elements of Executive Compensation. Amounts shown do not reflect
compensation actually received by the executive officer. Instead, the amounts shown are
the total grant date valuations of stock option grants awarded during the year as determined
pursuant to ASC Topic 718. The valuations are expensed for financial reporting purposes
over the vesting period of the grant.
|
|
(3)
|
Represents
Variable Incentive Awards as described under Compensation Summary and Analysis —
Elements of Executive Compensation.
|
|
(4)
|
Mr.
Mills’ base salary was increased on April 1, 2019. His previous increase was in
April 1, 2017.
|
|
(5)
|
Ms.
Zhao’s base salary was increased on April 1, 2019. Her previous increase was on
April 1, 2017.
|
|
(6)
|
Mr.
Ott’s base salary was increased on April 1, 2019. His previous increase was in
April 1, 2017.
|
|
(7)
|
Mr.
Baillif’s base salary was increased on April 1, 2019. His previous increase was
on April 1, 2017.
|
GRANTS
OF PLAN-BASED AWARDS
For
Fiscal Year Ended December 31, 2019
The
following table shows for the fiscal year ended December 31, 2019 certain information regarding options granted to the Named Executive
Officers. Options were granted as described under
Compensation Summary and Analysis — Elements of Executive Compensation — Long-Term, Equity-Based Incentive Awards
and — Equity Incentive Grant Policies.
Name
|
|
Grant Dates
|
|
All Other Option Awards: Number of Securities Underlying Options (#)
|
|
Exercise or Base Price of Option Awards ($/share)
|
|
Grant Date Fair Value of Stock and Option Awards ($)(1)
|
Kevin
J. Mills
|
|
2/15/2019
|
|
|
40,000
|
|
|
$
|
1.90
|
|
|
$
|
37,600
|
|
Lynn
Zhao
|
|
2/15/2019
|
|
|
18,000
|
|
|
$
|
1.90
|
|
|
$
|
16,920
|
|
Leonard
L. Ott
|
|
2/15/2019
|
|
|
20,000
|
|
|
$
|
1.90
|
|
|
$
|
18,800
|
|
Lee
A. Baillif
|
|
2/15/2019
|
|
|
12,000
|
|
|
$
|
1.90
|
|
|
$
|
11,280
|
|
|
(1)
|
The
value of option awards is based on the fair value as of the grant date of such award,
determined pursuant to ASC Topic 718 (formerly Statement of Financial Accounting Standards
No. 123R). The Fair Value of options issued on February 15, 2019 was $0.94 per share.
Under ASC Topic 718, the Company uses a binomial lattice valuation model to estimate
fair value of stock option grants made on or after January 1, 2006. The binomial lattice
model incorporates estimates for expected volatility, risk-free interest rates, employee
exercise patterns and post-vesting employment termination behavior. These estimates affect
the calculation of the fair value of the Company’s stock option grants. The exercise
price for all options granted to the Named Executive Officers is equal to the closing
market price for the Company’s Common Stock on the grant date as reported on the
Nasdaq Capital Market. Regardless of whatever value is placed on a stock option on the
grant date, the actual value of the option to the recipient will depend on the market
value of the Company’s Common Stock at such date in the future when the option
is exercised.
|
OPTION
EXERCISES AND STOCK VESTED
For
Fiscal Year Ended December 31, 2019
Name
|
Option
Awards
|
Number
of Shares Acquired on Exercise
(#)
|
Value
Realized on Exercise
($)(1)
|
Leonard
L, Ott
|
494
|
$869
|
|
(1)
|
The
value realized equals the difference between the option exercise price and the fair market
value of the Company’s Common Stock on the date of exercise, multiplied by the
number of shares for which the option was exercised.
|
OUTSTANDING
EQUITY AWARDS
At
Fiscal 2019 Year-End
The
following table set forth certain information concerning outstanding equity awards held by the Named Executive Officers at the
end of the fiscal year ended December 31, 2019.
Name
|
|
Option Awards
|
|
|
Number of Securities Underlying
Unexercised Options - Exercisable (#)(1)
|
|
Number of Securities Underlying Unexercised Options - Unexercisable (#)(1)(2)
|
|
|
Option Exercise Price ($)(3)
|
|
Option Expiration Date(4)
|
Kevin J. Mills
|
|
|
19,920
|
|
|
|
|
—
|
|
|
|
|
1.82
|
|
|
|
2/22/2021
|
|
|
|
10,000
|
|
|
|
|
—
|
|
|
|
|
2.36
|
|
|
|
2/27/2022
|
|
|
|
2,000
|
|
|
|
|
—
|
|
|
|
|
1.20
|
|
|
|
8/1/2022
|
|
|
|
8,920
|
|
|
|
|
—
|
|
|
|
|
1.08
|
|
|
|
11/9/2022
|
|
|
|
15,629
|
|
|
|
|
—
|
|
|
|
|
1.04
|
|
|
|
4/1/2023
|
|
|
|
20,000
|
|
|
|
|
—
|
|
|
|
|
0.95
|
|
|
|
3/3/2024
|
|
|
|
5,000
|
|
|
|
|
—
|
|
|
|
|
1.89
|
|
|
|
6/2/2024
|
|
|
|
20,000
|
|
|
|
|
—
|
|
|
|
|
2.27
|
|
|
|
2/23/2025
|
|
|
|
23,438
|
|
|
|
|
1,562
|
|
|
,
|
|
2.75
|
|
|
|
2/22/2026
|
|
|
|
10,667
|
|
|
|
|
5,333
|
|
|
|
|
4.22
|
|
|
|
4/3/2027
|
|
|
|
6,927
|
|
|
|
|
10,57
|
|
|
|
|
2.93
|
|
|
|
5/1/2028
|
|
|
|
7,500
|
|
|
|
|
32,500
|
|
|
|
|
1.90
|
|
|
|
2/15/2029
|
|
|
|
8,225
|
|
|
|
|
90,475
|
|
|
|
|
2.32
|
|
|
|
8/30/2029
|
Leonard L. Ott
|
|
|
11,040
|
|
|
|
|
—
|
|
|
|
|
1.82
|
|
|
|
2/22/2021
|
|
|
|
8,500
|
|
|
|
|
—
|
|
|
|
|
2.36
|
|
|
|
2/27/2022
|
|
|
|
14,328
|
|
|
|
|
—
|
|
|
|
|
1.04
|
|
|
|
4/1/2023
|
|
|
|
14,000
|
|
|
|
|
—
|
|
|
|
|
0.95
|
|
|
|
3/3/2024
|
|
|
|
14,000
|
|
|
|
|
—
|
|
|
|
|
2.27
|
|
|
|
2/23/2025
|
|
|
|
16,406
|
|
|
|
|
1,094
|
|
|
|
|
2.75
|
|
|
|
2/22/2026
|
|
|
|
8,000
|
|
|
|
|
4,000
|
|
|
|
|
4.22
|
|
|
|
4/3/2027
|
|
|
|
5,344
|
|
|
|
|
8,156
|
|
|
|
|
2.93
|
|
|
|
5/1/2028
|
|
|
|
3,750
|
|
|
|
|
16,250
|
|
|
|
|
1.90
|
|
|
|
2/15/2029
|
|
|
|
3,621
|
|
|
|
|
39,829
|
|
|
|
|
2.32
|
|
|
|
8/30/2029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lee A. Baillif
|
|
|
17,240
|
|
|
|
|
—
|
|
|
|
|
1.82
|
|
|
|
2/22/2021
|
|
|
|
8,500
|
|
|
|
|
—
|
|
|
|
|
2.36
|
|
|
|
2/27/2022
|
|
|
|
2,000
|
|
|
|
|
—
|
|
|
|
|
1.20
|
|
|
|
8/1/2022
|
|
|
|
2,800
|
|
|
|
|
—
|
|
|
|
|
1.08
|
|
|
|
11/9/2022
|
|
|
|
14,914
|
|
|
|
|
—
|
|
|
|
|
1.04
|
|
|
|
4/1/2023
|
|
|
|
14,000
|
|
|
|
|
—
|
|
|
|
|
0.95
|
|
|
|
3/3/2024
|
|
|
|
17,500
|
|
|
|
|
—
|
|
|
|
|
2.27
|
|
|
|
2/23/2025
|
|
|
|
18,750
|
|
|
|
|
1,250
|
|
|
|
|
2.75
|
|
|
|
2/22/2026
|
|
|
|
8,000
|
|
|
|
|
4,000
|
|
|
|
|
4.22
|
|
|
|
4/3/2027
|
|
|
|
4,750
|
|
|
|
|
7,250
|
|
|
|
|
2.93
|
|
|
|
5/1/2028
|
|
|
|
2,250
|
|
|
|
|
9,750
|
|
|
|
|
1.90
|
|
|
|
2/15/2029
|
|
|
|
3,433
|
|
|
|
|
37,767
|
|
|
|
|
2.32
|
|
|
|
8/30/2029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lynn Zhao
|
|
|
4,120
|
|
|
|
|
—
|
|
|
|
|
1.82
|
|
|
|
2/22/2021
|
|
|
|
3,600
|
|
|
|
|
—
|
|
|
|
|
2.36
|
|
|
|
2/27/2022
|
|
|
|
2,300
|
|
|
|
|
—
|
|
|
|
|
1.08
|
|
|
|
11/9/2022
|
|
|
|
6,152
|
|
|
|
|
—
|
|
|
|
|
1.04
|
|
|
|
4/1/2023
|
|
|
|
8,000
|
|
|
|
|
—
|
|
|
|
|
0.95
|
|
|
|
3/3/2024
|
|
|
|
9,000
|
|
|
|
|
—
|
|
|
|
|
2.27
|
|
|
|
2/23/2025
|
|
|
|
9,375
|
|
|
|
|
625
|
|
|
|
|
2.75
|
|
|
|
4/22/2026
|
|
|
|
3,733
|
|
|
|
|
1,867
|
|
|
|
|
4.22
|
|
|
|
4/3/2027
|
|
|
|
3,958
|
|
|
|
|
6,042
|
|
|
|
|
2.93
|
|
|
|
5/1/2028
|
|
|
|
3,375
|
|
|
|
|
14,625
|
|
|
|
|
1.90
|
|
|
|
2/15/2029
|
|
|
|
1,222
|
|
|
|
|
13,438
|
|
|
|
|
2.32
|
|
|
|
8/30/2029
|
|
|
(1)
|
Options
were granted as described under Compensation Summary and Analysis — Elements of
Executive Compensation — Long-Term, Equity-Based Incentive Awards and — Equity
Incentive Grant Policies. The vesting period and vesting start date were established
by the Compensation Committee. Shares unexercisable were not vested at December 31, 2019.
|
|
(2)
|
Grant
dates and vesting period information for all grants not fully vested as of December 31,
2019 are as follows:
|
Grant Date
|
|
Expiration Date
|
|
Vesting Start Date
|
|
Months to fully vest
|
2/22/2016
|
|
2/22/2026
|
|
3/1/2016
|
|
|
48
|
|
4/3/2017
|
|
4/3/2027
|
|
4/1/2017
|
|
|
48
|
|
5/1/2018
|
|
5/1/2028
|
|
5/1/2018
|
|
|
48
|
|
2/15/2019
|
|
2/15/2029
|
|
3/1/2019
|
|
|
48
|
|
8/30/2019
|
|
8/30/2029
|
|
8/30/2019
|
|
|
48
|
|
|
(3)
|
Exercise
prices are set at the closing price of the Company’s Common Stock on the date of
grant (fair market value).
|
|
(4)
|
Options
expire ten years from the date of grant.
|
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides information as of December 31, 2019 about the Common Stock that may be issued under all equity compensation
plans of the Company.
|
Number
of securities to be issued upon exercise of outstanding options
|
Weighted-average
exercise price of outstanding options
|
Number
of securities remaining available for future issuance under equity compensation plans
|
Equity
compensation plans approved by security holders (1)
|
2,392,786
|
$
2.40
|
308,871
|
|
(1)
|
Consists
of the 2004 Equity Incentive Plan. The Plan was extended by the stockholders at their
annual meeting on June 5, 2013 and will expire on April 23, 2024. Pursuant to an affirmative
vote by stockholders in June 2004 as amended on June 4, 2015, an annual increase in the
number of shares authorized under the 2004 Equity Incentive Plan is added on the first
day of each fiscal year equal to the least of (a) 400,000 shares, (b) four percent of
the total outstanding shares of the Company’s Common Stock on that date, or (c)
a lesser amount as determined by the Board of Directors. As a result, a total of 240,707
shares became available for grant under the 2004 Equity Incentive Plan on January 1,
2020, in addition to those set forth in the table above.
|
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on the Compensation
Committee’s review and discussion noted above, the Compensation Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this Proxy Statement on Schedule 14A.
|
|
COMPENSATION
COMMITTEE
|
|
|
|
|
|
Bill Parnell, Chairperson
|
Dated:
March 26, 2020
|
|
|
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None
of the members of the Compensation Committee have ever been an officer or employee of the Company. No executive officer of the
Company serves as a member of the board or compensation committee of any entity that has one or more executive officers serving
as a member of the Company's Board of Directors or Compensation Committee.
POST
EMPLOYMENT AND CHANGE-IN-CONTROL COMPENSATION FOR EXECUTIVES
On
July 1, 2015 the Company updated and renewed Employment Agreements (“Agreements”) with the following officers of the
Company: Kevin J. Mills, President and Chief Executive Officer; Leonard L. Ott, Vice President of Engineering and Chief Technical
Officer; and Lee A. Baillif, Vice President of Operations (collectively the “Named Executives”). The Agreements replaced
agreements that expired on June 30, 2015. On May 4, 2017, the expiration date of the Agreements was extended as reported in a
Form 8-K as follows: Kevin J. Mills, October 1, 2020; Len Ott, December 31, 2021; and Lee Baillif, September 30, 2021.
Under
the terms of the Agreements, the Executive’s employment is at will and termination of employment of the Executive may occur
at any time. The Agreement defines termination arrangements that apply if the Executive is terminated for Cause as defined in
the Agreement, is terminated due to death or disability, voluntarily terminates employment, or is otherwise terminated involuntarily.
Should the Executive’s employment be terminated other than for Cause, death, disability or voluntary termination, the Executive
is entitled under the Agreement to (i) receive an involuntary termination payment consisting of his regular base salary for a
period of two (2) months plus one month for each completed two years of service up to a maximum of five (5) months following termination,
(ii) receive one additional month of compensation upon signing a mutual termination agreement; (iii) receive reimbursement for
payment of his COBRA health premiums for the lesser of the amount of time of the involuntary termination payment or until he is
eligible for the health insurance benefits provided by another employer; (iv) receive the variable compensation amounts to which
he would otherwise be entitled as prescribed in the Company’s variable incentive compensation plan, and (v) purchase from
the Company at book value certain items that were purchased by the Company for his use. Stock options granted to the Executive
shall cease vesting immediately upon the date of termination of employment, and vested stock options will be exercisable after
termination for the lesser of one year or the expiration date of the grant. In the event of voluntary termination with at least
a 60 day notice by an Executive with more than ten years of consecutive service to the Company, the Executive’s vested stock
options will be exercisable after termination for the remaining life of the grants. The Agreements also provide for compensation
in the event of a Change of Control as defined in the Agreement consisting of an involuntary termination payment as described
above and a payment equal to 1% of the consideration payable in connection with a Change of Control provided that the price offered
for the Company’s common stock is equal to or greater than $5.00 per share. The foregoing description of the Employment
Agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the Form of Employment
Agreement, a copy of which was filed in a Form 8-K dated July 1, 2015 as extended in a Form 8-K dated May 4, 2017.
Payments
to be made to each of the Named Executive Officers following severance are estimated as follows:
Compensation
and
Benefits
|
|
Voluntary
Resignation
|
|
For
Cause (1)
|
|
For
Good
Reason(2)
|
|
Involuntary
Without
Cause(2)
|
|
Involuntary
or For Good
Reason After
Change-in-
Control(2)
|
|
Due
to
Death or
Disability(2)
|
Kevin J. Mills
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
Salary (3)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
138,750
|
|
|
$
|
138,750
|
|
|
$
|
138,750
|
|
|
$
|
138,750
|
|
Variable
Incentive (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
Stock Options
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
HealthCare
Benefits (6)
|
|
|
—
|
|
|
|
—
|
|
|
|
15,418
|
|
|
|
15,418
|
|
|
|
15,418
|
|
|
|
15,418
|
|
Other Perquisites
(7)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Leonard L. Ott
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
102,000
|
|
|
|
102,000
|
|
|
|
102,000
|
|
|
|
102,000
|
|
Variable
Incentive (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
5,250
|
|
|
|
5,250
|
|
|
|
5,250
|
|
|
|
5,250
|
|
Stock Options
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
HealthCare
Benefits (6)
|
|
|
—
|
|
|
|
—
|
|
|
|
5,665
|
|
|
|
5,665
|
|
|
|
5,665
|
|
|
|
5,665
|
|
Other Perquisites
(7)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Lee A. Baillif
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
90,000
|
|
|
|
90,000
|
|
|
|
90,000
|
|
|
|
90,000
|
|
Variable
Incentive (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
5,250
|
|
|
|
5,250
|
|
|
|
5,250
|
|
|
|
5,250
|
|
Stock Options
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
HealthCare
Benefits (6)
|
|
|
—
|
|
|
|
—
|
|
|
|
14,124
|
|
|
|
14,124
|
|
|
|
14,124
|
|
|
|
14,124
|
|
Other Perquisites
(7)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Lynn Zhao
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
80,000
|
|
|
|
80,000
|
|
|
|
80,000
|
|
|
|
80,000
|
|
Variable
Incentive (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
5,250
|
|
|
|
5,250
|
|
|
|
5,250
|
|
|
|
5,250
|
|
Stock Options
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
HealthCare
Benefits (6)
|
|
|
—
|
|
|
|
—
|
|
|
|
3,287
|
|
|
|
3,287
|
|
|
|
3,287
|
|
|
|
3,287
|
|
Other Perquisites
(7)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(1)
|
Cause
is defined in each executive’s employment agreement to include: willful and continuing
breach of duties; performing paid services for others without authorization; participation
in a business that is competitive; acts of dishonesty, misappropriation, embezzlement,
fraud, or insider trading; conviction for a felony; inappropriate conduct including harassment,
violation of ethics or laws, or use of controlled substances.
|
|
(2)
|
All
reasons for termination except voluntary resignation or termination by the Company for
Cause are covered under the terms of the employment agreement as either resignation by
the executive for good reason or involuntary termination by the Company without cause.
The payment amount is based on a six month payment period which presumes the Executive
has signed a mutual release agreement.
|
|
(3)
|
Except
in the case of voluntary resignation or termination for Cause, base salary is continued
from the date of termination for two months plus one month for each year of completed
service up to a maximum of six months.
|
|
(4)
|
Except
in the cases of voluntary resignation or termination for cause, scheduled variable incentive
payments are paid which equal a pro rata share of the bonus to which the executive would
have otherwise been entitled for the quarter of termination. Amounts included in this
table assume entitlements equal to 15% of the target variable compensation in effect
for 2019.
|
|
(5)
|
Except
in the cases of voluntary resignation or termination for cause, stock options vested
as of the date of termination may be exercised for a period of up to one year based on
formulas in the executive’s employment agreement. In the event of a change in control,
all options granted and outstanding become vested and fully exercisable. In the event
of termination for cause or voluntary resignation, stock options vested as of the date
of termination may be exercised for a period of 90 days following the termination date.
Executives who voluntarily terminate employment with ten years or more of continuous
service may exercise vested shares through the expiration date of each grant.
|
|
(6)
|
Except
in the cases of voluntary resignation or termination for cause, healthcare benefits are
continued up to the earlier of the expiration of the base salary continuation period
(see note 3) or securing other employment that includes such benefits.
|
|
(7)
|
There
are no perquisites in the compensation packages of any of the executive officers.
|
LIMITATION
OF LIABILITY AND INDEMNIFICATION MATTERS
Pursuant
to the Delaware General Corporation Law, the Company has adopted provisions in its Certificate of Incorporation that eliminate
the personal liability of directors to the Company or its stockholders for monetary damages for breach of the directors' fiduciary
duties in certain circumstances. In addition, the Company's bylaws require the Company to indemnify the Company's directors and
officers and authorize the Company to indemnify its employees and other agents to the fullest extent permitted by law.
The
Company has entered into indemnification agreements with each of its current directors and officers that provide for indemnification
and advancement of expenses to the fullest extent permitted by Delaware law, including circumstances in which indemnification
or the advancement of expenses is discretionary under Delaware law.
The
Company believes that the limitation of liability and indemnification provisions in its Certificate of Incorporation and bylaws
and the indemnification agreements with its directors and officers enhance its ability to continue to attract and retain qualified
individuals to serve as directors and officers. There is no pending litigation or proceeding involving a director, officer or
employee to which these provisions or agreements would apply.
CORPORATE
GOVERNANCE
The
Company and its Board of Directors are committed to high standards of corporate governance as an important component in building
and maintaining stockholder value. To this end, the Company regularly reviews its corporate governance policies and practices
to ensure that its policies are consistent with such standards. The Company closely monitors guidance issued or proposed by the
Securities Exchange Commission or the Public Company Accounting Oversight Board, the listing standards of the NASDAQ Market, the
provisions of the Sarbanes-Oxley Act, the Dodd-Frank Act and pending legislation. As a result of review of these matters, as well
as the emerging best practices of other companies, the Company has implemented the following:
Executive
Compensation Authority; Compensation Committee
|
•
|
The
Compensation Committee of the Board of Directors approves all compensation plans and
amounts for the executive officers of the Company, following consultation with management.
|
|
•
|
The
Compensation Committee reviews and approves compensation programs for all other employees
of the Company, upon the recommendation of management. These reviews consider an assessment
of whether such programs may promote excessive risk taking.
|
|
•
|
The
Compensation Committee approves all stock option grants, upon the recommendation of management,
except director grants, which are approved by the full Board of Directors.
|
|
•
|
The
charter of the Compensation Committee makes explicit:
|
-
the Committee’s
ability to retain independent consultants and experts as it sees fit, at Company expense;
-
the Compensation
Committee’s responsibilities to assess the risk associated with compensation programs
Director
Independence
|
•
|
The
Board of Directors has confirmed that a majority of the Company's directors are independent,
as defined by current SEC regulations and Nasdaq rules.
|
|
•
|
The
Company's independent directors hold formal meetings without the presence of management
and chaired by an independent director.
|
|
•
|
The
Audit, Compensation and Nominating Committees consist solely of independent directors.
Each Committee is tasked to establish goals, evaluate performance, review the adequacy
of its Charter, and recommend changes to the Board of Directors.
|
Audit
Committee
|
•
|
All
Audit Committee members possess the required level of financial literacy, as required
by SEC regulations.
|
|
•
|
Dr.
Bass, a member of the Audit Committee, possesses the qualifications of an “audit
committee financial expert,” as required by SEC regulations.
|
|
•
|
The
Audit Committee’s charter formalizes and makes explicit the following:
|
|
o
|
The
Audit Committee's ability to retain independent consultants and experts as it sees fit,
at Company expense;
|
|
o
|
The
Audit Committee's authority to appoint, review and assess the performance of the Company's
independent auditors;
|
|
o
|
The
Audit Committee's ability to hold regular executive sessions with the Company's independent
auditors and with the Company’s Chief Financial Officer, Controller and other Company
officers directly, as it considers appropriate;
|
|
o
|
The
requirement that the Audit Committee review and approve in advance non-audit services
by the Company's independent auditors, as well as related party transactions;
|
|
o
|
The
Audit Committee's duty to maintain a formal complaint monitoring procedure (a “whistleblower”
policy) to enable confidential and anonymous reporting to the Audit Committee;
|
|
o
|
The
Audit Committee's authority over the independent auditors' rotation policy; and
|
|
o
|
The
Audit Committee’s responsibilities to oversee the Company’s risk management
policies and practices.
|
Other
Governance Matters
|
•
|
The
Company has a formal Code of Business Conduct and Ethics that applies to all officers,
directors and employees.
|
|
•
|
The
Company has a requirement that any waiver or amendment to the Code of Business Conduct
and Ethics involving a director or officer be reviewed by the Nominating Committee and
disclosed to the Company's stockholders.
|
|
•
|
Each
of the Compensation Committee, Audit and Nominating Committees has a written charter.
|
|
•
|
The
Company has an Insider Trading Policy, including control procedures to comply with current
SEC regulations and Nasdaq rules.
|
|
•
|
The
Company has a policy that the Board of Directors reviews its own performance on an at
least annual basis.
|
|
•
|
The
Company prohibits loans to its officers and directors.
|
Board
Leadership
The
Company is focused on its corporate governance practices and values independent board oversight as an essential component of strong
corporate performance to enhance stockholder value. Our commitment to independent oversight is demonstrated by the fact that all
of our directors, except for Mr. Mills, Mr. Dunlap and director nominee Ms. Zhao, are independent. In addition, all of the members
of our Board’s committees are independent. Our Board of Directors acts independently of management and regularly holds independent
director sessions without members of management present. In addition, the Company has a separate position of Chairman of the Board
which is held by Dr. Bass, an independent director, who provides additional oversight to the management of the Company. Our Board
believes that the current board leadership structure is best for the Company and its stockholders at this time as it allows the
recommendations and decisions of the President and Chief Executive Officer, who views such recommendations and decisions from
a management perspective, to be reviewed and discussed with the Chairman of the Board, who views such recommendations and decisions
from the perspective of an independent director.
Risk
Management
|
•
|
The
Company has designated its Chief Financial and Administrative Officer as its Risk Management Officer with responsibility for
identifying, assessing, monitoring and reporting risks that could potentially impact the business.
|
|
•
|
The
Company summarizes the primary risks associated with the business in its quarterly and annual reports on Forms 10-Q and 10-K,
respectively.
|
|
•
|
The
Audit Committee has primary responsibility for Board oversight of risk management. The Audit Committee meets as necessary,
at least quarterly, and matters involving risk are included in the Audit Committee’s agenda. The Chairman of the Audit
Committee who is also Chairman of the Board and the President and Chief Executive Officer conduct a call at least weekly to
review Company operations and such discussions include a review of risk matters as appropriate.
|
Compensation
Risk Considerations
The
Compensation Committee has responsibility for oversight of risk management associated with compensation matters and risks relating
to compensation policies and practices are considered at each meeting of the Committee. The Committee does not believe that the
Company’s compensation policies and practices promote risky behavior on the part of its employees as discussed below.
The
Compensation Committee considers, in establishing and reviewing the employee compensation programs, whether the programs encourage
unnecessary or excessive risk taking. The Company, after reviewing and discussing the compensation programs with the Compensation
and Audit Committees of the Board, believes that the programs are balanced and do not motivate or encourage unnecessary or excessive
risk taking. Base salaries are fixed in amount and thus do not encourage risk taking. While the performance-based awards focus
on achievement of short-term or annual goals, and short-term goals may encourage the taking of short-term risks at the expense
of long-term results, the Company’s performance-based award programs represent a small percentage of total compensation
opportunities and results are closely monitored at both management and board levels. The Company believes that the programs appropriately
balance risk and the desire to focus employees on specific short-term goals important to the Company’s success, and that
they do not encourage unnecessary or excessive risk taking.
Compensation
provided to employees in the form of long-term equity awards through stock option grants and stock grants are important to help
further align employees’ interests with those of the Company’s stockholders. The Company believes that these awards
do not encourage unnecessary or excessive risk taking since the ultimate value of the awards is tied to the Company’s stock
price, and since awards are subject to long-term vesting schedules to help ensure that executives have significant value tied
to long-term stock price performance.
More
details on the Company's corporate governance initiatives, including copies of its Code of Business Conduct and Ethics and each
of the Committee charters can be found in the "Corporate Governance" section of the Company's web site at http://www.socketmobile.com/about-us/investor-relations/corporate-governance.
Policy
for Director Recommendations and Nominations
The
Nominating Committee considers candidates for Board membership suggested by Board members, management and the Company's stockholders.
It is the policy of the Nominating Committee to consider recommendations for candidates to the Board of Directors from stockholders
holding no less than five percent of the total outstanding shares of the Company’s Common Stock who have held such shares
continuously for at least 12 months prior to the date of the submission of the recommendation. The Nominating Committee will consider
persons recommended by the Company's stockholders in the same manner as nominees recommended by members of the Board of Directors
or management.
A
stockholder who desires to recommend a candidate for election to the Board of Directors should direct the recommendation in written
correspondence by letter to the Company, addressed to:
Chairman
of the Nominating Committee
c/o
Corporate Secretary
Socket
Mobile, Inc.
39700
Eureka Drive
Newark,
CA 94560
The
notice must include:
|
•
|
the
candidate's name and home and business contact information;
|
|
•
|
detailed
biographical data and relevant qualifications;
|
|
•
|
a
signed letter from the candidate confirming his or her willingness to serve;
|
|
•
|
information
regarding any relationships between the candidate and the Company within the last three
years; and
|
|
•
|
evidence
of the required ownership of Common Stock by the recommending stockholder(s).
|
In
addition, a stockholder may nominate a person directly for election to the Board of Directors at the annual meeting of the Company's
stockholders, provided the stockholder complies with the requirements set forth in the Company's bylaws and the rules and regulations
of the Securities and Exchange Commission related to stockholder proposals. The process for properly submitting a stockholder
proposal, including a proposal to nominate a person for election to the Board of Directors at an annual meeting, is described
on Page 2 in the section entitled "Deadline for Receipt of Stockholder Proposals to be Included in the Company's Proxy
Materials."
Where
the Nominating Committee has either identified a prospective nominee or determines that an additional or replacement director
is required, the Nominating Committee may take such measures that it considers appropriate in connection with its evaluation of
a director candidate, including candidate interviews, inquiry of the person or persons making the recommendation or nomination,
engagement of an outside search firm to gather additional information, or reliance on the knowledge of the members of the committee,
the Board of Directors or management. In its evaluation of director candidates, including the members of the Board of Directors
eligible for re-election, the Nominating Committee considers a number of factors, including the following:
|
•
|
The
current size and composition of the Board of Directors and the needs of the Board of
Directors and its various committees.
|
|
•
|
Such
factors as judgment, independence, character and integrity, area of expertise, diversity
of experience, length of service and potential conflicts of interest. The Nominating
Committee recognizes that diversity in these areas brings value to the collective impact
of the Board on the Company. The Company does not consider or make its recommendations
based on race, gender, religion, age, sexual orientation or other matters the Committee
deems not relevant to effective board service.
|
|
•
|
Such
other factors as the Nominating Committee may consider appropriate.
|
The
Nominating Committee has also specified the following minimum qualifications that it believes must be met by a nominee for a position
on the Board of Directors:
|
•
|
The
highest personal and professional ethics and values.
|
|
•
|
Proven
achievement and competence in the nominee's field, and the ability to exercise sound
business judgment.
|
|
•
|
Skills
complementary to those of the existing members of the Board of Directors.
|
|
•
|
The
ability to assist and support management and make significant contributions to the Company's
success.
|
|
•
|
An
understanding of the fiduciary responsibilities required of a member of the Board of
Directors, and the commitment of time and energy necessary to carry out those responsibilities
diligently.
|
In
connection with its evaluation, the Nominating Committee determines whether it will interview potential nominees. After completing
the evaluation and interview, the Nominating Committee makes a recommendation to the full Board of Directors as to the persons
who should be nominated, and the Board of the Directors determines the nominees after considering the recommendation and report
of the Nominating Committee.
The
Nominating Committee believes that the current nominees for director all meet the general criteria for board membership as described
in this section. In addition, each nominee brings particular strengths to the Board. For example, all directors have a thorough
knowledge and understanding of the Company. Dr. Bass also has extensive experience as a former chief executive officer or senior
manager in ten companies over the past 38 years in the fields of networking, semiconductors and computing platforms. Dr. Bass
holds a doctorate degree in electrical engineering. Mr. MacDonald is an experienced senior executive both as a fund management
partner and with technology companies. Mr. Parnell has extensive senior management experience in the barcode scanning industry.
Mr. Dunlap is a certified public accountant (inactive), holds an MBA in business administration and has more than 33 years of
industry experience and 24 years with the Company, all as Chief Financial Officer. Mr. Lazarev has served in the event registration
services and lead management software industry for the past 33 years. Mr. Mills has a strong engineering background and a history
of innovative leadership and understanding of the business mobility market. Mr. Mills also has more than 25 years of experience
with the Company, the last 18 years as President and Chief Executive Officer. Ms. Zhao has served as the Company’s Controller
since January 2013 and was appointed Vice President and Controller in September 2017. Ms. Zhao previously served as general accounting
manager from December 2000 through January 2013.
Stockholder
Communications to Directors
Stockholders
may communicate directly with the members of the Board of Directors by sending an email to socketboard@socketmobile.com.
The Company's Secretary monitors these communications and ensures that summaries of all received messages are provided to the
Board of Directors at its regularly scheduled meetings or directly to the Chairman of the Board if the matter is deemed to be
urgent and to require the immediate attention of the Board. Where the nature of a communication warrants, Mr. Bass, Chairman of
the Board, may decide to obtain the more immediate attention of the appropriate committee of the Board of Directors or a non-management
director, or the Company's management or independent advisors, as appropriate. Mr. Bass also determines whether any response to
a stockholder communication is necessary or warranted and whether further action is required.
Director
Independence
In
January 2019, the Board of Directors undertook a review of the independence of its directors and considered whether any director
had a material relationship with the Company or its management that could compromise his ability to exercise independent judgment
in carrying out his responsibilities. Questions relating to director independence were included on the annual Directors and Officers
Questionnaire completed by each director and executive in March 2018. As a result of this review, the Board of Directors affirmatively
determined that all of the directors of the Company, with the exception of Mr. Mills, the Company's President and Chief Executive
Officer, and Mr. Dunlap, the Company’s Vice President of Finance and Chief Financial Officer, are independent of the Company
and its management under the corporate governance standards of the Nasdaq Market.
Code
of Business Conduct and Ethics
The
Board of Directors has a Code of Business Conduct and Ethics that is applicable to all employees, executive officers and directors
of the Company, including the Company's senior financial and other executive officers. The Code of Business Conduct and Ethics
is intended to deter wrongdoing and promote ethical conduct among the Company's directors, executive officers and employees. The
Code of Business Conduct and Ethics is available on the Company's website at http://www.socketmobile.com/about-us/investor-relations/corporate-governance.
The Company will also post any amendments to or waivers from the Code of Business Conduct and Ethics on its website. There were
no changes to the Code of Business Conduct and Ethics during 2019.
REPORT
OF THE AUDIT COMMITTEE
The
Board of Directors maintains an Audit Committee comprised of three of the Company's outside directors. The Audit Committee oversees
the Company's financial processes on behalf of the Board of Directors, although management has the primary responsibility for
preparing the financial statements and maintaining the Company's financial reporting process including the system of internal
controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed with management the audited financial statements
in the Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2019, including discussing
the quality of the accounting principles, the reasonableness of significant judgments, including the identification and assessment
of risks, and the clarity of disclosures in the financial statements. The Audit Committee has a written charter, a copy of which
is posted on the Company’s website at http://www.socketmobile.com/about-us/investor-relations/corporate-governance.
The
Audit Committee reviewed the 2019 financial statements with the Company's independent auditors, who are responsible for expressing
an opinion on the conformity of the financial statements with generally accepted accounting principles, as well as their judgment
as to the quality, not just the acceptability, of the Company's accounting principles. The Audit Committee also discussed such
other matters as the auditors are required to discuss with the Committee under generally accepted auditing standards. In addition,
the Audit Committee discussed with the independent auditors the auditors' independence from management and the Company, including
the matters in the written disclosures and the letter from the independent auditors required by the applicable requirements of
the Public Company Accounting Oversight Board regarding the independent accountants’ communications with the audit committee
concerning independence.
The
Audit Committee also discussed with the Company's independent auditors the overall scope and results of their audit of the financial
statements, including their review of internal controls. The Audit Committee met periodically with the independent auditors, with
and without management present, to discuss the results of their examination, their evaluation of the Company's internal controls,
and the overall quality of the Company's financial reporting. The Audit Committee held one meeting with the auditors regarding
their audit of the Company’s annual financial statements for the year ended December 31, 2019. In addition, a meeting among
the members of the Audit Committee, the Company’s auditors and management was held each quarter during fiscal 2019 to review
the Company’s quarterly financial reports prior to their issuance.
In
reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the
Board of Directors has concurred, that the Company’s audited financial statements be included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2019. The Audit Committee also approved the appointment of Sadler, Gibb & Associates,
LLC as the Company's independent auditors for the years ended December 31, 2012 through 2019 and has recommended approval of the
stockholders for the year ending December 31, 2020.
The
foregoing report has been submitted by the undersigned in our capacity as members of the Audit Committee of the Board of Directors.
|
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AUDIT
COMMITTEE
|
|
|
|
|
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Charlie
Bass
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|
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Bill Parnell
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Dated: March
26, 2020
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Brenton
Earl MacDonald
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OTHER
MATTERS
The
Company knows of no other matters to be submitted at the 2020 Annual Meeting of Stockholders. If any other matters properly come
before the 2020 Annual Meeting, it is the intention of the persons named in the enclosed form of proxy to vote the shares they
represent as the Board of Directors may recommend. It is important that your shares be represented at the meeting, regardless
of the number of shares that you hold. Please complete, date, execute and return, at your earliest convenience, the accompanying
proxy card in the envelope that has been enclosed or otherwise vote your shares via telephone or internet as available.
Dated: March
26, 2020
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|
THE BOARD OF DIRECTORS
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