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

 

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Filed by a party other than the Registrant ☐

 

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Preliminary Proxy Statement
Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to §240.14a-12

 

WHERE FOOD COMES FROM, INC.

(Name of Registrant as Specified in its Charter)

 

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WHERE FOOD COMES FROM, INC.

202 6th Street, Suite 400

Castle Rock, Colorado 80104

 

NOTICE OF ANNUAL SHAREHOLDERS MEETING

 

DATE: Monday, May 13, 2019
TIME: 1:30 p.m. Mountain Standard Time
PLACE:

Fortis Private Bank, Main Conference Room

1550 17th Street, Suite 100

Denver, Colorado 80202

   
ITEMS OF BUSINESS:

1.

Elect Directors. To elect nine directors of Where Food Comes From, Inc. (the “Company”) to hold office until the next annual meeting of shareholders or until their successors are duly elected and qualified;

 

2.

Reverse Stock Split . To grant the Board of Directors of the Company (the “Board”) discretionary authority to amend the Company’s Articles of Incorporation by filing Articles of Amendment substantially in the form attached hereto as Appendix A (the “Amendment”) to effectuate a Reverse Stock Split of the Company’s Common Stock, $.001 par value, by a ratio of no more than one-for-four with such ratio to be determined by the sole discretion of the Board (the “Reverse Split”), with such Reverse Split to be effective at such time and date, if at all, as determined by the Board in its sole discretion;

 

3.

Ratification of Auditor. To ratify the appointment of the Company’s independent registered public accounting firm; and

       

4.

Other Business. To transact such other business as may properly come before the meeting and any adjournments or postponements thereof.

   
RECORD DATE: Holders of Where Food Comes From, Inc. common stock of record at the close of business on April 3, 2019 are entitled to vote at the meeting.
   
PROXY VOTING: It is important that your shares be represented and voted at the meeting. You can vote your shares by completing and returning the proxy card sent to you. You can revoke your proxy at any time prior to its exercise at the meeting by following the instructions in the accompanying proxy statement.

 

We have enclosed a copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, with this Notice of Annual Shareholders Meeting and accompanying proxy statement. Please read the enclosed information carefully before completing and returning the enclosed proxy card.

 

You are cordially invited to attend the meeting. Whether or not you are planning to attend the meeting, you are urged to complete, date and sign the enclosed proxy card and return it promptly. Should you have any questions or need additional information, you are urged to call the Company at (303) 895-3002.

 

  By Order of the Board of Directors
   
  /s/ John Saunders
  John Saunders
  Chief Executive Officer

 

Castle Rock, Colorado

April 22, 2019

 

     
 

 

WHERE FOOD COMES FROM, INC.

INDEX

 

 

  Page
Questions and Answers About the Meeting and Voting 3
Proposal 1 – Election of Directors 7
Proposal 2 – Reverse Stock Split 9
Proposal 3 – Ratification of Appointment of Independent Registered Public Accounting Firm 14
Information About the Board of Directors and Governance of the Company 15
Executive Officers 18
Executive Compensation 19
Report of the Audit Committee 23
Stock Ownership of Certain Persons 24
Section 16(a) Beneficial Ownership Reporting Compliance 25
Shareholder Proposals for the Next Annual Meeting of Shareholders 25
Other Matters 25

 

 

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WHERE FOOD COMES FROM, INC.

PROXY STATEMENT FOR ANNUAL MEETING OF

SHAREHOLDERS TO BE HELD ON MAY 13, 2019

 

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

 

Why did you send this proxy statement to me?

 

The Board of Directors of Where Food Comes From, Inc. (sometimes referred to here as “WFCF,” “we,” “us,” “our,” or the “Company”) is soliciting proxies for the annual meeting of shareholders on May 13, 2019 at 1:30 p.m. (MST), and at any adjournment or postponement of that meeting. The meeting will be held in the Main Conference Room of Fortis Private Bank, 1550 17th Street, Suite 100, Denver, Colorado 80202. The purpose of the meeting is to:

 

elect nine (9) directors;

 

vote on a proposal to grant the Board of Directors of the Company (the “Board”) discretionary authority to amend the Company’s articles of incorporation by filing Articles of Amendment substantially in the form attached hereto as Appendix A (the “Amendment”) to effectuate a Reverse Stock Split of the Company’s Common Stock, $.001 par value, by a ratio of no more than one-for-four with such ratio to be determined by the sole discretion of the Board (the “Reverse Split”), with such Reverse Split to be effective at such time and date, if at all, as determined by the Board in its sole discretion;

 

vote on the ratification of the appointment of Crowe LLP (“Crowe”) as our independent registered public accounting firm for the year ending December 31, 2019; and

 

conduct any other business properly brought before the meeting or any adjournment or postponement thereof.

 

How many votes do I have?

 

If we had your name on record as owning common stock in Where Food Comes From, Inc. at the close of business on April 3, 2019, then you are entitled to vote at the annual meeting. You are entitled to one vote for each share of WFCF common stock you own as of that date. At the close of business on April 3, 2019, there were 24,921,498 shares of WFCF common stock outstanding and eligible to vote.

 

How do I vote?

 

You may vote your shares either in person or by proxy. If you vote the shares in person, you must present proof that you own the shares as of the record date through brokers’ statements or similar proof and identification. To vote by proxy, review the materials and follow the instructions provided.

 

How do I attend the annual meeting in person?

 

Seating at the annual meeting will be limited to WFCF’s shareholders or their proxyholders and WFCF’s invited guests. If you are a holder of record in your own name, please bring photo identification to the annual meeting. If you hold shares through a bank, broker or other third party, please bring photo identification and a current brokerage statement. Cameras, recording equipment and other electronic devices will not be permitted at the meeting. The annual meeting will begin promptly at 1:30 p.m. (MST), so please plan to arrive accordingly.

 

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May I revoke my proxy?

 

You may change your vote or revoke your proxy any time before the annual meeting by:

 

returning another proxy card with a later date;
sending written notification of revocation to the Corporate Secretary at our principal executive offices at 202 6 th Street, Suite 400, Castle Rock, Colorado 80104; or
attending the annual meeting and voting in person.

 

You should be aware that simply attending the annual meeting will not automatically revoke your previously submitted proxy. If you desire to revoke your proxy, you must notify an authorized WFCF representative at the annual meeting of your desire to do so and then you must vote in person.

 

 

Who pays for the solicitation of proxies and how are they solicited?

 

We pay the entire cost of the solicitation of these proxies. This cost includes preparation, assembly, printing, and mailing of this proxy statement and any other information we send to you. We may supplement our efforts to solicit your proxy in the following ways:

 

(1) we may contact you using the telephone or electronic communication; or
(2) our directors, officers, or other regular employees may contact you personally.

 

We will not pay directors, officers, or other regular employees any additional compensation for their efforts to supplement our proxy solicitation.

 

Can I vote if my shares are held in “street name”?

 

If the shares you own are held in “street name” by a bank or brokerage firm, your bank or brokerage firm, as the record holder of your shares, is required to vote your shares according to your instructions. In order to vote your shares, you will need to follow the directions your bank or brokerage firm provides you. If you do not give instructions to your bank or brokerage firm, it will still be able to vote your shares with respect to certain “routine” items, but will not be allowed to vote your shares with respect to certain “non-routine” items. In the case of non-routine items, the shares will be treated as “broker non-votes,” which are not counted as cast and have no effect on the outcome of the vote. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.

 

Election of directors and approval of the Reverse Split are considered non-routine matters. We urge you to give your bank or brokerage firm instructions on all proposals in this proxy statement. To be able to vote your shares held in street name at the meeting, you will need to obtain a proxy from your bank or brokerage firm.

 

What is “householding”?

 

If you and others in your household own your shares in street name, you may receive only one copy of this proxy statement and the annual report. This practice is known as “householding.” If you hold your shares in street name and would like additional copies of these materials, please contact your bank or broker. If you receive multiple copies and would prefer to receive only one set of these materials, please also contact your bank or broker. WFCF does not currently use householding for owners of record and will send notice to all owners of record before using householding. By using this method, we give all owners of record the opportunity to continue to receive multiple copies of these materials in the same household.

 

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What constitutes a quorum?

 

In order for business to be conducted at the meeting, a quorum must be present. A quorum consists of the holders of majority of all the shares of common stock issued, outstanding and entitled to vote at the meeting. Shares of common stock represented in person or by proxy (including broker non-votes and shares that abstain or do not vote with respect to one or more of the matters to be voted upon) will be counted for the purpose of determining whether a quorum exists. If a quorum is not present, the meeting will be adjourned until a quorum is obtained.

 

What vote is required to approve each proposal?

 

Proposal 1: Elect Nine Directors - The affirmative vote by a plurality of the votes cast at the meeting is required to elect each of the nine nominees for director. Neither broker non-votes nor withheld votes will have an effect on the outcome of the voting for each of the nominees.

 

Proposal 2: Approve the Reverse Stock Split - The proposal to grant the Board of Directors discretionary authority to amend the Company’s Articles of Incorporation by filing Articles of Amendment substantially in the form attached hereto as Appendix A to effectuate the Reverse Split will be approved if the votes cast in favor exceed the votes cast against the proposal. Neither broker non-votes nor abstentions will have an effect on the outcome of the voting on this proposal.

 

Proposal 3: Ratify the Appointment of Independent Registered Public Accounting Firm for the 2018 Fiscal Year - The appointment of the independent registered public accounting firm of the Company will be ratified if the votes cast in favor exceed the votes cast against the proposal. Neither broker non-votes nor abstentions will have an effect on the outcome of the voting on this proposal.

 

How will my proxy get voted?

 

If you vote over the Internet or by telephone, please confirm over the Internet or by telephone with Corporate Stock Transfer Inc. If you fill in and return a paper proxy card, the designated proxy (John Saunders) will vote your shares as you have directed. If you submit a paper proxy card, but do not make specific choices, the designated proxy will vote your shares as recommended by the Board of Directors as follows:

 

“FOR” election of all nine nominees for director;

 

“FOR” granting to the Board of Directors discretionary authority to file the Articles of Amendment to effectuate the Reverse Split; and

 

“FOR” ratification of the appointment of Crowe, LLP, as our independent registered public accounting firm for the year ending December 31, 2019;

 

How will voting on “any other business” be conducted?

 

Although we do not know of any business to be considered at the annual meeting other than the proposals described in this proxy statement, if any additional business is properly brought before the annual meeting, your signed or electronically transmitted proxy card gives authority to the designated proxy to vote on such matters in his discretion.

 

Who will count the votes?

 

We have hired a third party, Corporate Stock Transfer Inc., to judge voting, be responsible for determining whether or not a quorum is present and tabulate votes cast by proxy or in person at the annual meeting.

 

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Where can I find voting results of the meeting?

 

We will announce general voting results at the meeting and publish final detailed voting results in a Form 8-K to be filed with the Securities and Exchange Commission (the “SEC”) within four (4) business days following the meeting.

 

May shareholders ask questions at the annual meeting?

 

Yes, our representatives will answer your questions after the conclusion of the formal business of the meeting. In order to give a greater number of shareholders an opportunity to ask questions, we may impose certain procedural requirements, such as limiting repetitive or follow-up questions, limiting the amount of time for a question, or requiring questions to be submitted in writing.

 

How can I communicate with the Board of Directors?

 

If you or any interested party wishes to communicate with the Board of Directors, as a group, or with an individual director, such communication may be directed to the appropriate group or individual in care of the Corporate Secretary, Where Food Comes From, Inc., 202 6th Street, Suite 400, Castle Rock, Colorado 80104. The communication must be clearly addressed to the specific group or director. The Board of Directors has instructed the Corporate Secretary to review and forward such communications to the appropriate person or persons for response.

 

How can I access WFCF’s proxy materials and annual report electronically?

 

You can access the Company’s proxy statement and the 2018 Annual Report on Form 10-K at www.wherefoodcomesfrom.com . You may simply click on the “Investor Relations” tab on the bottom of the home page, and then the “SEC Filings” link in the right column; the SEC filings section of our website will be available for your us age. You may also request free copies of these documents by sending a written request to the Company’s Corporate Secretary at 202 6th Street, Suite 400, Castle Rock, Colorado, 80104. We also file and furnish our annual, quarterly and current reports and other information, including proxy statements, with the SEC. Our SEC filings are available to the public at the SEC’s website at www.sec.gov . The 2018 Annual Report on Form 10-K is accompanying this proxy statement but is not considered part of the proxy soliciting materials.

 

How long may I rely upon the information in this proxy statement? May I rely upon other materials as well regarding the annual meeting?

 

You should rely upon the information contained in this proxy statement to vote on the proposals at the annual meeting. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. This proxy statement is dated April 22, 2019. You should not assume that the information contained in this proxy statement is accurate as of any date other than such date, unless indicated otherwise in this proxy statement, and the mailing of the proxy statement to you shall not create any implication to the contrary. We would encourage you to check our website or the SEC’s website for any required updates that we may make between the date of this proxy statement and date of the annual meeting.

 

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PROPOSAL 1 - ELECTION OF DIRECTORS

 

The first proposal to be voted on is the election of directors. The Board nominees for re-election are John Saunders, Leann Saunders, Peter C. Lapaseotes, Jr., Adam Larson, Dr. Gary Smith, Robert Van Schoick II, Tom Heinen, Graeme P. Rein and Michael D. Smith. Biographical information about each of the nominees is included under “Information about the Nominees” below. If elected, each of the nominees will serve until the next annual meeting of shareholders and will be subject to re-election at such meeting along with the other directors.

 

The Board of Directors has no reason to believe that any nominee will be unable to serve or decline to serve as a director if elected. If a nominee becomes unable or unwilling to accept nomination or election, the Board of Directors will either select a substitute nominee or will reduce the size of the Board of Directors. If you have submitted a proxy and a substitute nominee is selected, your shares will be voted for the election of the substitute nominee.

 

In accordance with the Colorado Business Corporation Act, directors are elected by a plurality of the votes cast at the meeting.

 

Information About the Nominees

 

Set out below is certain information concerning our nominees for election as directors of the Company:

 

John Saunders , 47, is Chairman of the Board of Directors of the Company, serving in this position since 1998. Mr. Saunders founded our company in 1998 and has served as the Chief Executive Officer since then. Previously, Mr. Saunders was a partner and consultant for Pathfinder Consulting Services, Inc. in Parker, Colorado. An expert in both technology and the livestock industry, Mr. Saunders is a graduate of Yale University. Mr. Saunders brings to the Board of Directors over 25 years of business, finance, marketing and leadership experience in the agricultural, livestock and food industry. He also brings experience in corporate governance and board leadership as a chairman, making him a well-qualified candidate for a director of the Company.

 

Leann Saunders , 48, has been the President of the Company since 2008. Prior to 2003, Mrs. Saunders worked for PM Beef Holdings (“PM”), an integrated beef company, and developed a supply system for PM's Ranch to Retail product line and managed PM's U.S. Department of Agriculture (USDA) Process Verified program. She then served as the company's Vice President of Marketing and Communications. Prior to joining PM in 1996, Mrs. Saunders worked for McDonald's Corporation as a Purchasing Specialist, and Hudson Foods Corporation. Mrs. Saunders graduated with a B.S. in Agriculture Business and an M.S. in Beef Industry Leadership from Colorado State University. Mrs. Saunders sits on the board of directors of the International Stockmen’s Education Foundation, and was the Chair for the United States Meat Export Federation for the 2015-2016 year. Mrs. Saunders has served on our Board of Directors since January 2012 and brings to the Board over 25 years of diverse business leadership experience in supply chain management and marketing as well as extensive knowledge of executive compensation and corporate cultures. Her broad understanding of the agricultural, livestock and food industry makes her a well-qualified candidate for a director of the Company.

 

Peter C. Lapaseotes, 60, is a third-generation farmer/feeder agri-businessman from Bridgeport, Nebraska. For over 30 years, Mr. Lapaseotes has co-owned and operated Lapaseotes LTD, CPN Farms and Greenwood Ranch consisting of irrigated farming, cow-calf operation and finishing feedyards. Mr. Lapaseotes is a stockholder of 21st Century Equipment, a large John Deere dealership, 21st Century Water Technology, Dinklage Feedyards, Valley Bank and Trust/Western States Bank located in Nebraska and Colorado. Mr. Lapaseotes sits on several boards of directors including those of Dinklage Feedyards as President, Valley Bank/Western States Bank, Global South Fork Solutions, the Greek Orthodox Church, North Platte Natural Resource District, Bridgeport Community Center Foundation, TeamMates Mentoring Program and the Paul Engler Entrepreneur Program at the University of Nebraska. Mr. Lapaseotes has served on our Board of Directors since May 2006 and brings to the Board over 40 years of business, finance, marketing and leadership experience in the agricultural and retail industries, making him a well-qualified candidate for a director of the Company.

 

Adam Larson , 49, has been involved in the cattle feeding and ranching business since 1991. During that period, he has been a member and manager of eight family organizations involved in cattle ranching and cattle feeding and is primarily involved in financial preparation and management. Mr. Larson is a graduate of the University of Colorado with a degree in Business Administration - Finance. Mr. Larson has served on our Board of Directors since May 2006 and brings to the Board over 25 years of business experience in cow/calf ranch operations, as well as expertise in investments and finance, making him a well-qualified candidate for a director of the Company.

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Dr. Gary Smith, 80, serves as a University Distinguished Professor Emeritus at Colorado State University-Fort Collins and on the Graduate Faculty of Texas A&M University-College Station. In 2011, Dr. Smith retired from his position as a professor in the Department of Animal Science at Colorado State University, a position he held since 1990. Dr. Smith received his Ph.D. in Meat Science and Muscle Biology from Texas A&M University. Dr. Smith has also taught at Washington State University, Texas A&M University and FSIS-USDA National Meat Inspection Training Center. Dr. Smith is a member of multiple professional associations and societies and has received numerous academic awards. Dr. Smith has served on our Board of Directors since May 2006. He has an excellent national and international reputation as a meat, food and animal scientist with expertise in meat science and food safety. He is also recognized for the quality and quantity of his scientific publications. Dr. Smith’s advice and counsel on meat sciences and food safety are relied upon by government agencies (the USDA and U.S. Food and Drug Administration), commodity-group associations (National Cattlemen’s Beef Association, American Meat Institute, etc.), private industry (JBS S.A., Cargill Meat Solutions, Tyson, etc.) and international organizations of countries such as Australia, Uruguay, Japan and the European Union. He also has valuable corporate governance experience serving on other company boards and committees, making him a well-qualified candidate for a director of the Company.

 

Robert Van Schoick II, 68, has more than 35 years of experience in the animal health industry holding various senior executive roles in sales and marketing for Merck Animal Health and Merial. He joined Med-Pharmex Animal Health as President in 2006 and helped form Cornerstone Animal Health in 2013. His career accomplishments include several successful product launches and the effective management of the “fighting brand” strategy to defend the IVOMEC franchise. Additionally, Mr. Van Schoick is the original architect of the Sales Agency Distribution System currently used by Merial and several other manufacturers. As a result of his noted industry expertise, Bob has held numerous animal agriculture board positions including serving for the National FFA Foundation, the National Cattlemen’s Beef Association, and the International Stockmen’s Education Foundation. He holds B.A. and M.A. degrees from Austin College and a B.S. in Animal Science from Texas A&M. Mr. Van Schoick has served on our Board of Directors since May 2006 and brings to the Board diverse leadership experience in the animal health industry as well as extensive knowledge of executive compensation and corporate cultures. His valuable corporate governance experience and expertise in investments and finance makes him a well-qualified candidate for a director of the Company.

 

Tom Heinen, 63, has been a co-president of Heinen’s Fine Food Stores (“Heinen’s”) since 1994. Heinen’s specializes in offering the freshest, highest quality foods while providing world-class service in 18 neighborhood locations serving various communities throughout Northeast Ohio. Since 1994, Mr. Heinen has managed the labor relations, central manufacturing, and the overall strategic direction for the meat, foodservice and bakery areas of Heinen’s. Mr. Heinen graduated from Bucknell University in 1977 with a B.S. in Business Management. He also serves as a board member of The Boys and Girls Club of Cleveland. Mr. Heinen has served on our Board of Directors since September 2012 and brings to the Board over 40 years of retail expertise, business experience and strong management skills. His broad understanding of consumer demands within the food industry makes him a well-qualified candidate for a director of the Company.

 

Graeme P. Rein , 39, is the managing member and chief investment officer of Yorkmont Capital Management, LLC, an Austin, Texas based registered investment advisor which he founded in 2012. Prior to Yorkmont Capital, Mr. Rein worked as a research analyst at Bares Capital Management, Inc. from 2006 to 2012 and as an audit professional at Deloitte & Touche, LLP from 2004 to 2006. Mr. Rein graduated from Princeton University with a Bachelor of Arts in Economics and from the McCombs School of Business at the University of Texas with a Masters in Professional Accounting. He holds the Chartered Financial Analyst (CFA) designation and is also a Certified Public Accountant (CPA) in the state of Texas. Mr. Rein has served on our Board of Directors since May 2016 and brings to the Board more than 10 years of business-related experience, with expertise in finance, accounting, and investments, which makes him a well-qualified candidate to be a director of the Company.

Michael D. Smith , 66, has extensive expertise in all aspects of the cattle business and in trading commodities. From 1975 to 1977, Mr. Smith was a cattle buyer for JBS Swift & Company. From 1977 to 1986, he worked for Cactus Feeders as Head of Sales and on the advisory board for risk management. Since 1986, Mr. Smith has traded commodities and has formed and managed various entities that own and operate cattle feed yards and massive ranching operations. From 1991 to the present, Mr. Smith has purchased over 283,000 acres in Texas and New Mexico through the various entities that he formed and manages. Mr. Smith graduated with a B.S. in Animal Production from Texas Tech University. He was a King Ranch Scholarship recipient. Currently, he is a director of the Texas Livestock Marketing Association and National Finance Credit Corporation of Texas and serves on the executive committee of both companies. Mr. Smith has served on our Board of Directors since May 2016 and brings to the Board over 40 years of business, finance, marketing and leadership experience in the agricultural and retail industries, making him a well-qualified candidate for a director of the Company.

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES FOR DIRECTOR.

 

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PROPOSAL 2 – AMENDMENT TO THE ARTICLES TO EFFECT THE REVERSE SPLIT

 

General

 

On April 2, 2019, our Board acted by unanimous written consent to recommend to the shareholders the adoption of the Amendment to the capitalization provisions in the Articles of Incorporation effecting a Reverse Split of our Common Stock at a ratio of not more than one-for-four, with such ratio to be determined at the sole discretion of the Board, and with such Reverse Split and change to be effected at such time and date, if at all, as determined by the Board in its sole discretion. The Board is now asking you to approve this Amendment.

 

Effecting the Reverse Split requires that ARTICLE IV of our Articles of Incorporation be amended to include a reference to the Reverse Split. The additional text added to ARTICLE IV is attached as Appendix A to this Proxy Statement. If approved, the Amendment will be effective upon the filing of the Articles of Amendment (or on such date and time as specified therein) in the form attached as Appendix A with the Secretary of State of the State of Colorado with such filing to occur, if at all, at the sole discretion of the Board.

 

One principal effect of the Reverse Split would be to decrease the number of outstanding shares of our Common Stock. Except for de minimus adjustments that may result from the treatment of fractional shares as described below, the Reverse Split will not have any dilutive effect on our stockholders since each stockholder would hold the same percentage of our Common Stock outstanding immediately following the Reverse Split as such stockholder held immediately prior to the Reverse Split. The relative voting and other rights that accompany the shares of Common Stock would not be affected by the Reverse Split. The table below sets forth the number of shares of our Common Stock outstanding before and after the Reverse Split based on 24,921,498 shares of Common Stock outstanding as of the Record Date.

 

 

Prior to the

Reverse Split

Assuming a

one-for-four

Reverse Split

Aggregate Number of Shares of Common Stock 24,921,498 6,230,375

 

In the event that the reverse split is effectuated, the Amendment will not change the authorized number or the par value of our Common Stock. The Amendment will have no effect on our authorized Preferred Stock. The Reverse Split with no change in par value will mean a transfer of money from stated capital to additional paid in capital. The Reverse Split will create additional authorized but unissued shares of our Common Stock which will become available to be issued by the Board in its business judgment for all corporate purposes. In this respect, the remaining authorized shares of Common Stock and Preferred Stock may be used for various purposes, including, without limitation, raising capital, providing equity incentives to employees, officers or directors, effecting stock dividends, establishing strategic relationships with other companies and expanding our business through the acquisition of other businesses or products. We do not currently have any plans, proposals or arrangements to issue any of the newly available authorized shares that result from the Reverse Split for any purposes.

 

Reasons for the Reverse Split

 

If the Board determines to effect the Reverse Split, the intent is to increase the stock price of our Common Stock, which is currently trading on the OTCQB, to a level sufficiently above its current price range. If our Common Stock price increases in the future and various aspects of our business plan are successfully implemented which results in an increase of our revenue base, we may in the future attempt to cause our Common Stock to become listed on a national exchange. The national exchanges have minimum listing and maintenance requirements. By undertaking the Reverse Split, we believe that our opportunity to have our Common Stock listed on such a national exchange will be enhanced. However, there can be no assurances that our revenue base will increase, or that we will cause an application to be filed to list our Common Stock for trading on any national exchange, or if we do so, that our application will be accepted, despite the Reverse Split. The market price of our Common Stock is also based on factors which may be unrelated to the number of shares outstanding. These factors include performance, general economic and market conditions and other factors, many of which are beyond our control.

 

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Our Board also has confidence that the Reverse Split and any resulting increase in the per share price of our Common Stock should enhance the acceptability and marketability of our Common Stock to the financial community and investing public. Many institutional investors have policies prohibiting them from holding lower-priced stocks in their portfolios, which reduces the number of potential buyers of our Common Stock, although we have not been told by them that is the reason for not investing in our Common Stock. Additionally, analysts at many brokerage firms are reluctant to recommend lower-priced stocks to their clients or monitor the activity of lower-priced stocks. Brokerage houses frequently have internal practices and policies that discourage individual brokers from dealing in lower-priced stocks. Further, because brokers’ commissions on lower-priced stock generally represent a higher percentage of the stock price than commissions on higher priced stock, investors in lower-priced stocks pay transaction costs which are a higher percentage of their total share value, which may limit the willingness of individual investors and institutions to purchase our Common Stock. The anticipated Reverse Split is not expected to be in connection with a going private transaction.

 

We cannot assure you that the Board will ultimately determine to effect the Reverse Split or if effected, that the Reverse Split will have any of the desired effects described above. More specifically, we cannot assure you that after the Reverse Split the market price of our Common Stock will increase proportionately to reflect the ratio for the Reverse Split, that the market price of our Common Stock will not decrease to its pre-split level, or that our market capitalization will be equal to the market capitalization before the Reverse Split.

  

Potential Disadvantages of the Reverse Split

 

As noted above, the principal purpose of the Reverse Split would be to help increase the per share market price of our Common Stock by up to a factor of four. We cannot assure you, however, that the Reverse Split will accomplish the market price objective for any meaningful period of time. While we expect that the reduction in the number of outstanding shares of Common Stock will increase the market price of our Common Stock, we cannot assure you that the Reverse Split will increase the market price of our Common Stock by an equivalent multiple, or result in any permanent increase in the market price of our Common Stock. The price of our Common Stock is dependent upon many factors, including our business and financial performance, general market conditions and prospects for future success. If the per share market price does not increase proportionately as a result of the Reverse Split, then the value of our Company as measured by our stock capitalization will be reduced, perhaps significantly.

 

The number of shares held by each individual stockholder would be reduced if the Reverse Split is implemented. This will increase the number of stockholders who hold less than a “round lot,” or 100 shares. This has a disadvantage inasmuch as the transaction costs to stockholders selling “odd lots” are typically higher on a per share basis. Consequently, the Reverse Split could increase the transaction costs to existing stockholders in the event they wish to sell all or a portion of their position.

 

Although our Board believes that the decrease in the number of shares of our Common Stock outstanding as a consequence of the Reverse Split and the anticipated increase in the market price of our Common Stock could encourage interest in our Common Stock and possibly promote greater liquidity for our stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the Reverse Split.

 

Effecting the Reverse Split

 

Upon receipt of stockholder approval for the Amendment, if our Board concludes that it is in the best interests of our Company and our stockholders to effect the Reverse Split, the Amendment will be filed with the Secretary of State of the State of Colorado. The actual timing of the filing of the Amendment with the Secretary of State of the State of Colorado to effect the Reverse Split will be determined by our Board. In addition, if for any reason our Board deems it advisable to do so, the Reverse Split may be abandoned at any time prior to the filing of the Amendment, without further action by our stockholders. The Reverse Split will be effective as of the date of filing with the Secretary of State of the State of Colorado or at such time and date as specified in the Articles of Amendment (the “Effective Time”).

 

Upon the filing of the Amendment, without further action on our part or our stockholders, the outstanding shares of Common Stock held by stockholders of record as of the Effective Time would be converted into a lesser number of shares of Common Stock based on a Reverse Split ratio as determined by the Board. For example, if you presently hold 300 shares of our Common Stock, you would hold 75 shares of our Common Stock following the Reverse Split if the ratio is one-for-four.

 

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Effect on Outstanding Shares, Options and Certain Other Securities

 

If the Reverse Split is implemented, the number of shares our Common Stock owned by each stockholder will be reduced in the same proportion as the reduction in the total number of shares outstanding, such that the percentage of our Common Stock owned by each stockholder will remain unchanged except for any de minimus change resulting from rounding up to the nearest number of whole shares so that we are not obligated to issue cash in lieu of any fractional shares that such stockholder would have received as a result of the Reverse Split. The number of shares of our Common Stock that may be purchased upon exercise of outstanding options or other securities convertible into, or exercisable or exchangeable for, shares of our Common Stock, and the exercise or conversion prices for these securities, will also be ratably adjusted in accordance with their terms as of the Effective Time.

  

   

Prior to the

Reverse

Split

 

Assuming a one-for-four

Reverse Split

Options     434,451       108,613  
Restricted shares     30,000       7,500  

 

Effect on Registration and Stock Trading

 

Our Common Stock is currently registered under Section 12(g) of the Exchange Act, and we are subject to the periodic reporting and other requirements of the Exchange Act.

 

Fractional Shares; Exchange of Stock Certificates

 

Our Board does not currently intend to issue fractional shares in connection with the Reverse Split. Therefore, we do not expect to issue certificates representing fractional shares. In lieu of any fractional shares, we will issue to stockholders of record who would otherwise hold a fractional share because the number of shares of Common Stock they hold before the Reverse Split is not evenly divisible by the Reverse Split ratio that number of shares of Common Stock as rounded up to the nearest whole share. For example, if a stockholder holds 150.25 shares of Common Stock following the Reverse Split, that stockholder will receive a certificate representing 151 shares of Common Stock. No stockholders will receive cash in lieu of fractional shares.

 

As of the Record Date, we had 119 holders of record of our Common Stock (although we have significantly more beneficial holders). We do not expect the Reverse Split and the rounding up of fractional shares to whole shares to result in a significant reduction in the number of record holders. We presently do not intend to seek any change in our status as a reporting company for federal securities law purposes, either before or after the Reverse Split.

 

On or after the Effective Time, we will mail a letter of transmittal to each stockholder. Each stockholder will be able to obtain a certificate evidencing his, her or its post-Reverse Split shares only by sending Corporate Stock Transfer, Inc., as the exchange agent, the stockholder’s old stock certificate(s), together with the properly executed and completed letter of transmittal and such evidence of ownership of the shares as we may require. Stockholders will not receive certificates for post-Reverse Split shares unless and until their old certificates are surrendered. Stockholders should not forward their certificates to the exchange agent until they receive the letter of transmittal, and they should only send in their certificates with the letter of transmittal. The exchange agent will send each stockholder a new stock certificate after receipt of that stockholder’s properly completed letter of transmittal and old stock certificate(s).

 

Stockholders who hold shares in street name through a nominee (such as a bank or broker) will be treated in the same manner as stockholders whose shares are registered in their names, and nominees will be instructed to effect the Reverse Split for their beneficial holders. However, nominees may have different procedures and stockholders holding shares in street name should contact their nominees. Stockholders will not have to pay any service charges in connection with the exchange of their certificates.

 

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Authorized Shares

 

If the Reverse Split is implemented, the Reverse Split would have no effect on the amount of the Company’s authorized stock, which would remain: 95,000,000 shares of authorized Common Stock having a par value of $0.001 and 5,000,000 shares of authorized Preferred Stock having a par value of $0.001.

 

In accordance with our Articles of Incorporation and Colorado law, our shareholders do not have any preemptive rights to purchase or subscribe for any of our unissued or treasury shares.

 

Anti-Takeover and Dilutive Effects

 

The purpose of not reducing our authorized Common Stock in connection with the Reverse Split is to facilitate our ability to raise additional capital to support our operations, not to establish any barriers to a change of control or acquisition of our Company. The shares of Common Stock that are authorized but unissued provide our Board with flexibility to effect, among other transactions, public or private refinancings, acquisitions, stock dividends, stock splits and the granting of equity incentive awards. However, these authorized but unissued shares may also be used by our Board, consistent with and subject to its fiduciary duties, to deter future attempts to gain control of us or make such actions more expensive and less desirable. The Reverse Split would give our Board authority to issue additional shares from time to time without delay or further action by the stockholders except as may be required by applicable law or the rules of the Exchanges. The Reverse Split is not being recommended in response to any specific effort of which we are aware to obtain control of us, nor does our Board have any present intent to use the authorized but unissued Common Stock to impede a takeover attempt. There are no current plans or proposals to adopt other provisions or enter into any arrangements that have material anti-takeover effects.

 

In addition, the issuance of additional shares of Common Stock for any of the corporate purposes listed above could have a dilutive effect on earnings per share and the book or market value of our outstanding Common Stock, depending on the circumstances, and would likely dilute a stockholder’s percentage voting power in us. Holders of our Common Stock are not entitled to preemptive rights or other protections against dilution. Our Board intends to take these factors into account before authorizing any new issuance of shares.

 

Accounting Consequences

 

As of the Effective Time, the stated capital attributable to Common Stock on our balance sheet will be lowered and additional paid in capital will be increased by the effect of the Reverse Split. Reported per share net income or loss will be higher because there will be fewer shares of our Common Stock outstanding.

 

Federal Income Tax Consequences

 

The following summary describes certain material U.S. federal income tax consequences of the Reverse Split to holders of our Common Stock. This summary addresses the tax consequences only to a beneficial owner of our Common Stock that is a citizen or individual resident of the United States, a corporation organized in or under the laws of the United States or any state thereof or the District of Columbia or otherwise subject to U.S. federal income taxation on a net income basis in respect of our Common Stock (a “U.S. holder”). This summary does not address all of the tax consequences that may be relevant to any particular stockholder, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of taxpayers or that are generally assumed to be known by investors. This summary also does not address the tax consequences to persons that may be subject to special treatment under U.S. federal income tax law or persons that do not hold our Common Stock as “capital assets” (generally, property held for investment). This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, U.S. Treasury regulations, administrative rulings and judicial authority, all as in effect as of the date hereof. Subsequent developments in U.S. federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material effect on the U.S. federal income tax consequences of the Reverse Split. All shareholders are urged to consult with their own tax advisors with respect to the tax consequences of the Reverse Split. 

 

No gain or loss should be recognized by a shareholder upon the exchange of pre-Reverse Split shares for post-Reverse Split shares. The aggregate tax basis of the post-Reverse Split shares will be the same as the aggregate tax basis of the pre-Reverse Split shares exchanged in the Reverse Split. A shareholder’s holding period in the post-Reverse Split shares will include the period during which the shareholder held the pre-Reverse Split shares exchanged in the Reverse Split.

 

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The tax treatment of a shareholder may vary depending upon the particular facts and circumstances of such shareholder. Each shareholder is urged to consult with such shareholder’s own tax advisor with respect to the tax consequences of the Reverse Split.

 

Vote Required for Approval

 

The following votes of our shareholders are required for approval of this proposal: the affirmative vote of a majority of the Company’s outstanding Common Stock present in person or represented by proxy and entitled to vote at the annual meeting.

 

 

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE GRANTING TO THE BOARD OF DIRECTORS OF DISCRETIONARY AUTHORITY TO FILE THE ARTICLES OF AMENDMENT TO EFFECTUATE THE REVERSE SPLIT.

 

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PROPOSAL 3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee of the Board of Directors selected Crowe LLP as the independent registered public accounting firm of the books and accounts of the Company for the year ending December 31, 2019. Although we are not required to submit this matter to you, the Board of Directors believes that it is good corporate governance to do so. This proposal asks you to ratify this appointment. If the appointment of Crowe LLP is not ratified by you, the Audit Committee will reconsider the appointment. Representatives of Crowe LLP are expected to be present at the annual meeting. They will have the opportunity to make a statement if they wish to do so and will be available to respond to appropriate questions that you may have.

 

Audit Fees

 

The following table presents fees for professional audit services rendered by our independent registered public accounting firm for the audits of the Company’s annual financial statements for the years ended December 31, 2018 and 2017. All such fees were approved by the Audit Committee.

 

    2017   2018
Audit Fees (1)   $ 84,000     $ 170,000  
Audit Related Fees (2)     48,941       80,500  
Tax Fees     —         21,000  
All Other Fees     —         —    
    $ 132,941     $ 271,500  

(1) Includes fees and expenses related to the fiscal year audit and interim reviews, irrespective of when the fees and expenses were billed or when the services were rendered.
(2) The 2017 period represents audit fees incurred specific to the acquisition of SureHarvest Services LLC in 2016, and review of work performed related to the implementation of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606 in 2018. The 2018 period represents audit fees incurred specific to 2018 acquisitions and additional work performed in connection with the predecessor audit review and year-end internal control procedures.

 

Pre-Approval Policies and Procedures

 

The Audit Committee has established policies and procedures for the approval and pre-approval of audit services and permitted non-audit services. The Audit Committee has the responsibility to do the following:

 

to engage and terminate our independent registered public accounting firm;

to pre-approve their audit services and permitted non-audit services;

to approve all audit and non-audit fees; and

to set guidelines for permitted non-audit services and fees.

 

All of the fees for 2018 and 2017 were pre-approved by the Audit Committee or were within pre-approved guidelines for permitted non-audit services and fees established by the Audit Committee. The Audit Committee considers whether the provision of the services disclosed under the headings “Audit-Related Fees,” “Tax Fees” and “All Other Fees” is compatible with maintaining Crowe LLP’s independence.

 

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF CROWE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2019.

 

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INFORMATION ABOUT THE BOARD OF DIRECTORS AND

GOVERNANCE OF THE COMPANY

 

Leadership and Director Independence

 

John Saunders, our Chief Executive Officer and Chairman of the Board, is married to Leann Saunders, our President. Both Mr. and Mrs. Saunders serve on our Board of Directors. We believe that as a small business, we benefit from a unified chair/CEO position due to the clarity of leadership that structure provides. Additionally, our independent Board members are able to call special meetings, as deemed necessary.

 

A majority of the directors on our Board of Directors is independent.  Our common stock is traded on the OTCQB, which does not subject us to standards for director independence.  Therefore, pursuant to the regulations promulgated by the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have adopted the director independence standards of the New York Stock Exchange (“NYSE”).  Our Board of Directors has determined that Messrs. Heinen, Lapaseotes, Larson, Smith, Van Schoick, Rein and Dr. Smith each a current director and nominee at the 2019 annual meeting, qualify as “independent” directors under the rules promulgated by the SEC under the Exchange Act and the rules of the NYSE for independent directors in general and for independence related to the functions of an audit committee, compensation committee and nominating committee. 

 

Board Structure

 

The Board of Directors does not have classes where a director serves multi-year terms. Each director serves for a one-year term and is subject to re-election by you each year. Prior to recommending a director for nomination for re-election, the Board of Directors considers many factors, including:

 

the quality of past director service, and attendance at Board of Directors and committee meetings;
whether the director continues to possess the qualities and capabilities considered necessary or desirable for director service; and
the independence of the director.

 

Committees

 

Currently, we do not have nominating, executive or compensation committees or other Board committees performing equivalent functions. We believe that because the majority of our directors are independent and actively participate in all of our meetings, it is not necessary to create specific committees, other than an Audit Committee. Currently, all members of our Board of Directors, including Mr. and Mrs. Saunders, participate in discussions concerning executive officer compensation; however, Mr. and Mrs. Saunders abstain from voting concerning their compensation.

 

Adam Larson (Chairman), Dr. Gary Smith and Graeme P. Rein are the current members of the Audit Committee. Each of them is “independent,” as required by the rules promulgated by the SEC under the Exchange Act and the rules of the NYSE applicable to members of audit committees. Our Board of Directors has determined that Adam Larson qualifies as an “audit committee financial expert,” as defined by the rules promulgated by the SEC under the Exchange Act. The Audit Committee operates in accordance with a charter, which is posted on our website at www.wherefoodcomesfrom.com.

 

The Audit Committee is primarily concerned with monitoring:

 

the integrity of our financial statements;
our compliance with legal and regulatory requirements; and
the independence and performance of our registered public accounting firm.

 

The Audit Committee is also responsible for handling complaints regarding our accounting, internal accounting controls or auditing matters. Any such complaints received or submitted to the Chief Financial Officer are promptly forwarded to the Audit Committee to take such action as may be appropriate.

 

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Procedures for Review of Transactions with Related Persons

 

Any proposed transaction with a related person is subject to review, negotiation and action by a committee consisting entirely of independent and disinterested directors, which committee is appointed by the Board of Directors at the time of any proposed transaction. The committee’s purpose and authority are set forth in resolutions appointing the committee and generally include the authority to retain such consultants, advisers and attorneys as it deems advisable in order to perform its duties. The following list details certain relationships and the related transactions:

 

John Saunders, our CEO and Chairman of the Board, is married to Leann Saunders, our President. Both Mr. and Mrs. Saunders serve on our Board of Directors.

 

Board Member Meeting Attendance

 

During 2018, the Board of Directors held one formal meeting, five telephonic meetings and took action by written consent four times. There were four meetings of the Audit Committee during 2018. Except for Mr. Van Schoick, each incumbent director attended at least 75% of the aggregate total of meetings of the Board of Directors and the committee on which he or she served.

 

We had four directors who attended the 2018 annual meeting of shareholders. We do not have an official policy regarding the attendance of the members of the Board of Directors at annual meetings of shareholders.

 

Chairman of the Board

 

The business and affairs of the Company are managed under the direction of the Board of Directors. Generally, it is management’s responsibility to formalize, propose and implement strategic choices and the Board’s role to approve strategic direction and evaluate strategic results, including both the performance of the Company and the performance of the Chief Executive Officer.

 

The Chairman of the Board’s duties include, among others:

 

managing the relationship between the Board of Directors as a whole and management;
providing significant advice, counsel and guidance to the Board on strategic priorities and execution strategies;
facilitating discussions among the directors inside and outside the Board meetings;
driving practices and improvements on Board effectiveness and productivity;
presiding at all meetings of the Board of Directors;
recommending an annual schedule of Board and committee meetings;
overseeing all governance matters for the Board and shareholders;
being available for consultation and direct communication with major shareholders; and
carrying out other duties requested by the Board of Directors as a whole.

 

Board’s Role in Risk Oversight

 

The Board of Directors is actively involved in oversight of risks that could affect the Company. This oversight is conducted through regular reports directly from officers responsible for oversight of particular risks within the Company such as financial matters and transactions and executive compensation programs and policies, as well as through full reports by the Audit Committee regarding the Company’s financial reporting and internal control functions.

 

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Director’s Compensation

 

We presently compensate all non-employee directors by paying them $1,500 per meeting attended in person and $500 per telephonic meeting attended in excess of fifteen minutes. The same compensation applies for any committee meetings attended. In addition, directors are reimbursed for all company travel-related expenses.

  

Name and Position   Fees Earned or Paid in Cash ($)   Stock Awards ($)(1)   Option Awards ($)(1)   Total ($)
Tom Heinen     2,000       —         9,000       11,000  
Peter C. Lapasotes     2,000       —         9,000       11,000  
Adam Larson     4,500       —         9,000       13,500  
Dr. Gary Smith     3,000       —         9,000       12,000  
Robert Van Schoick     1,000       —         9,000       10,000  
Graeme P. Rein     4,500       —         9,000       13,500  
Michael D. Smith     2,000       —         9,000       11,000  

 

(1) Amounts in this column represent the aggregate grant date fair value of stock awards/options granted in the reported year, determined in accordance with FASB ASC Topic 718.

 

Qualifications to Serve as Director

 

Each candidate for director must possess at least the following specific minimum qualifications:

 

1. Each candidate must be prepared to represent the best interests of all the Company’s shareholders and not just one particular constituency.
2. Each candidate must have demonstrated integrity and ethics in his or her personal and professional life and have established a record of professional accomplishment in his or her chosen field.
3. Each candidate must be prepared to participate fully in activities of the Board of Directors and not have other personal or professional commitments that would interfere with or limit his or her ability to do so.
4. In addition, candidates should possess the following qualities or skills:

(a)       Each candidate must contribute to the overall diversity of the Board of Directors—diversity being broadly construed to mean a variety of opinions, perspectives, personal and professional experiences and backgrounds, such as gender, race and ethnicity differences, as well as other differentiating characteristics.

(b)       Each candidate should contribute positively to the existing chemistry and collaborative culture among the members of the Board of Directors.

(c)       Each candidate should possess professional and personal experiences and expertise relevant to the Company’s business. Relevant experiences might include, among other things, large company CEO experience, senior-level industry experience, and relevant senior-level experience in one or more of the following areas—finance, accounting, sales and marketing, organizational development, information technology and public relations.

 

Nomination of Directors

 

Following the recommendations of our independent directors, our Board of Directors formally nominated all of the nominees for election to our Board of Directors at the annual meeting. There are no specific weights assigned to any particular criteria, and no particular criterion is necessarily applicable to all prospective director candidates. For a discussion of the specific backgrounds and qualifications of our current director nominees, see “Information About the Nominees” above.

 

  17  
 

Code of Business Conduct and Ethics

 

Our Board of Directors has adopted a Code of Business Conduct and Ethics (the “Code of Conduct”), which is posted on our website at www.wherefoodcomesfrom.com. Our Code of Conduct applies to our directors, officers and all of our employees. The Code of Conduct sets forth specific policies to guide the directors, officers and employees in their duties. The information on our website is not incorporated into this proxy statement.

 

Insider Trading Policy

 

All employees are prohibited from using confidential information for stock trading purposes. To use material, non-public information for personal financial benefit or to “tip” others who might make an investment decision on the basis of such information is not only unethical and against Company policy, it is also illegal. We maintain an insider trading policy applicable to all of our directors, officers and employees, their family members, and specially designated outsiders who have access to the Company’s material non-public information. This policy includes restrictions on the timing of transactions involving shares of WFCF common stock. Sales of common stock obtained through the exercise of stock options are subject to the restrictions of Company trading windows and blackout windows and must be pre-approved by a representative of the Company.

 

 

EXECUTIVE OFFICERS

 

John Saunders , 47, founded the Company in 1998 and has served as the Chief Executive Officer since then. Mr. Saunders is also the Chairman of the Board of Directors of the Company and has served in this position since 1998. Previously, Mr. Saunders was a partner and consultant for Pathfinder Consulting Services, Inc. in Parker, Colorado. An expert in both technology and the livestock industry, Mr. Saunders is a graduate of Yale University.

 

Leann Saunders , 48, has been the President of the Company since 2008. Mrs. Saunders is also a Director on our Board of Directors and has served in this position since January 2012. Prior to 2003, Mrs. Saunders worked for PM Beef Holdings (“PM”), an integrated beef company, and developed a supply system for PM's Ranch to Retail product line and managed PM's USDA Process Verified program. She then served as the company's Vice President of Marketing and Communications. Prior to joining PM in 1996, Mrs. Saunders worked for McDonald's Corporation as a Purchasing Specialist, and Hudson Foods Corporation. Mrs. Saunders graduated with a B.S. in Agriculture Business and an M.S. in Beef Industry Leadership from Colorado State University. Mrs. Saunders sits on the board of directors for the International Stockmen’s Education Foundation, and was the chair-elect for the United States Meat Export Federation for the 2014-2015 year.

 

Dannette Henning , 49, has been the Chief Financial Officer of the Company since January 2008. Prior to her appointment, she was engaged by the Company as a consultant beginning in November 2007. From 2004 to 2007, Mrs. Henning was the Corporate Controller for Einstein Noah Restaurant Group. From 2001 to 2003, she served as the Controller for Vari-L Company. Mrs. Henning’s previous experience includes financial management positions with KPMG Peat Marwick, DF&R Restaurant Company, and CSI/CDC Company. Mrs. Henning is a Certified Public Accountant with more than 25 years of professional experience. She received a B.B.A. degree in Accounting from the University of Texas at Arlington.

 

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis describes the material elements of compensation awarded to, earned by or paid to the principal executive officer of the Company and the two other most highly compensated individuals who were serving as executive officers during 2018 (collectively, the “Named Executive Officers”). These individuals are listed in the “Summary Compensation Table” below.

 

Our compensation program bases a significant portion of the compensation of our executives on their ability to achieve annual operational objectives that advance the Company’s long-term business goals and that are designed to create sustainable long-term shareholder value. The Company’s performance-based compensation elements are guided by long-term objectives of maintaining market competitiveness and aligning the interests of our executives with the interests of our shareholders.

 

Our independent directors are responsible for aligning our compensation programs with our compensation philosophy of rewarding performance. They achieve that goal using independent third-party data to determine competitive compensation levels based on a peer group that represents both service-based companies and those companies with whom we compete for talent.

 

Current Executive Compensation Program Elements

 

Base Salary . Base salary provides a fixed source of compensation for our executives for the services they provide to us during the year and to balance the impact of having a significant portion of their compensation “at risk” in the form of annual incentive bonuses and long-term equity-based incentive compensation. Our Board of Directors recognizes the importance of a competitive base salary as an element of compensation that helps to attract and retain our executive officers.

 

The base salaries of our Named Executive Officers were reviewed in December 2017, taking into account the officer’s position and responsibilities, performance over the past two years, the pay range for individuals in similar positions and having similar responsibilities within the Company, the compensation practices of similar-sized companies in the market and the officer’s previous base salary. Following review and approval by the independent members of our Board of Directors, the base salaries for our Named Executive Officers were increased in January 2018 in recognition of each of their respective performance and to adjust their salaries to between the 25 th and 50 th percentile for similar executives in our compensation peer group.

 

Equity-Based Compensation . In general, our Board of Directors may grant to our executives and other key employees certain equity-based awards based upon the achievement of outstanding performance. Such awards are granted on a discretionary basis by the Board of Directors not subject to any defined incentive plan. Generally, such equity awards are limited to restricted stock grants and nonqualified stock options.

 

We believe equity-based awards advance the interests of the Company and promote the Company’s success by aligning the long-term interests of participants with those of our shareholders. Equity-based awards are intended to help the Company attract, motivate and retain highly-talented and marketable employees, non-employee directors and consultants to manage and oversee the profitable operations of, and achieve the long-term strategic goals of, the Company. They align the interests of designated employees, non-employee directors and consultants with those of shareholders by facilitating increased stock ownership by such employees and non-employee directors. Additionally, equity-based awards provide us with the flexibility to develop and deliver a long-term equity incentive program that is competitive, attracts and retains key talent, and meets current and evolving compensation practices.

 

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Special Performance Bonuses . The Board of Directors may determine that an executive officer is entitled to a bonus or equity award in recognition of special services to the Company or achievements of individual performance targets or goals for the executive officer. We believe our one-time bonus or equity awards have historically been minimal.

 

For the year ended 2017, the Board of Directors awarded, to each of the executive officers, a bonus based on the significant efforts made towards consistent organic growth and successful execution of an aggressive acquisition and integration strategy. No bonus awards were granted to the executive officers for the year ended 2018.

 

Health and Welfare Benefits . All of our salaried employees are eligible for health and welfare benefits, including the Named Executive Officers. Our salaried employees also receive term life insurance and long-term disability insurance.

 

Savings Plan. Our 401(k) Savings Plan (the “401(k) Plan”) is designed to provide the Company’s employees with a competitive tax-deferred long-term savings vehicle. The 401(k) Plan is a qualified 401(k) plan. We currently match 50% of each participant’s contribution for the first 4% of the participant’s base salary and bonus. All Company contributions vest immediately.

 

Perquisites. We provide our officers with perquisites that are generally intended to promote each officer’s efficiency. The Board of Directors reviews the perquisites annually for reasonableness and consistency with competitive practice. We currently provide our officers with a cell phone allowance. Additionally, we provide our Chief Executive Officer with access to a company car.

 

Employment Contracts

 

In January 2006, we entered into employment agreements with John Saunders, our Chief Executive Officer, and with Leann Saunders, our President. Each agreement provided for an annual salary of $90,000 subject to performance review adjustments and automatically renews annually unless a 60-day notice of non-renewal is provided by either the Company or the employee. In the event of a change in control resulting from a sale, merger or other disposition, a lump-sum payment equal to 200% of the employee’s current salary is payable on the date of sale, merger or other disposition. Each agreement also contains customary nondisclosure and non-compete clauses.

 

Change in Control

 

In addition to the change in control provisions as described in the aforementioned employment agreements, we also have change of control provisions in our incentive-based equity plans. Under our stock option program, in the event of a change in control, the unvested options are immediately accelerated.

 

Say-on-Pay Feedback from Shareholders

 

In 2017, we submitted our executive compensation program for an advisory vote to you, our shareholders, and it received the support of over 97% of the total votes cast on the proposal. Tri-annually, the Board of Directors reviews the results of the advisory vote and considers feedback as it completes its annual review of each pay element and total compensation packages for our Named Executive Officers with respect to the next fiscal year.

 

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Summary Compensation Table

 

The following table sets forth, for the last two completed fiscal years ended December 31, 2018 and 2017, the cash compensation paid by the Company, as well as certain other compensation paid with respect to those years and months, to the Chief Executive Officer and to each of the two other Named Executive Officers of the Company in all capacities in which they served:

 

       Summary Compensation Table   
Name and Position   Year  

Salary

($)(1)

  Bonus ($)  

Stock Awards

($)(2)

 

Option Awards

($)(2)

 

Other

($)(3)

  Total
John Saunders     2018       360,000       —         —         9,000       15,000       384,000  
Chief Executive Officer     2017       210,000       250,000       —         —         18,600       478,600  
                                                         
Leann Saunders     2018       360,000       —         —         9,000       15,000       384,000  
President     2017       195,000       250,000       —         —         18,400       463,400  
                                                         
Dannette Henning     2018       250,000       —         —         9,000       10,600       269,600  
Chief Financial Officer     2017       175,000       150,000       —         —         13,600       338,600  

 

(1) Amounts shown reflect all salary received during 2018 and 2017. Salaries are paid on a semi-monthly basis.
(2) Amounts in this column represent the aggregate grant date fair value of stock awards/options granted in the reported year, determined in accordance with FASB ASC Topic 718.
(3) Represents the Company matching contribution to the 401(k) Plan and the value of a phone allowance.

 

CEO Pay Ratio Disclosure

As a smaller reporting company, the Company is not required to provide pay ratio disclosure.

 

2018 Grants under our Equity Incentive Plan

 

During 2018, each of our Named Executive Officers was granted options to purchase 5,000 shares of our common stock at $1.80 per share based upon the grant date closing price of our common stock.

 

2018 Option Exercises and Stock Vested under our Equity Incentive Plan

 

During 2018, seventy-four thousand (74,000) shares of restricted stock granted to Ms. Henning in September 2015 were vested. The value realized upon vesting was $162,060. None of the Named Executive Officers exercised their right to purchase shares of WFCF common stock.

 

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Outstanding Equity Awards at Fiscal Year End

 

The following table sets forth the total number of securities underlying unexercised options held by our Named Executive Officers as of December 31, 2018:

                                         
        Option Awards     Stock Awards  
        Number of securities underlying
unexercised options (#)
    Option
Exercise
    Option
Expiration
    Number of
shares of stock
that have not
    Market value
of shares that
have not vested
 
Name Executive Officer   Grant Date   exercisable     unexercisable (1)     Price     Date     vested (#)       (2)  
John Saunders   9/9/2013     5,000       —       $ 1.23       9/9/2023       —       $ —    
    12/19/2018     —         5,000     $ 1.80       12/19/2028       —       $ —    
Leann Saunders   9/9/2013     5,000       —       $ 1.23       9/9/2023       —       $ —    
    12/19/2018     —         5,000     $ 1.80       12/19/2028       —       $ —    
Dannette Henning   4/1/2011     10,000       —       $ 0.24       4/1/2021       —       $ —    
    9/18/2012     5,000       —       $ 1.15       9/18/2022       —       $ —    
    5/30/2013     15,000       —       $ 1.10       5/30/2023       —       $ —    
    1/15/2014     3,000       —       $ 1.85       1/15/2024       —       $ —    
    12/19/2018     —         5,000     $ 1.80       12/19/2028       —       $ —    
(1) Unvested options generally vest in three annual installments beginning one year after the date of grant and have a ten-year life.

 

Benefits under Equity Compensation Plans

As of December 31, 2018, the following table sets forth securities authorized for issuance under our equity compensation plans:

 

    No. of securities
to be issued upon exercise of outstanding
options and
warrants
    Weighted
average
exercise
price of
outstanding
options and
warrants
   

No. of securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))

 

 
Plan Category     (a)       (b)       (c)    
Equity compensation plans approved by security holders:                        
2006 Equity Incentive Plan     193,751     $ 0.73       —    
2016 Equity Incentive Plan     270,700     $ 1.87       4,711,318  
Equity compensation plans not approved by security holders:     —                 —    
Total     464,451               4,711,318  
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REPORT OF THE AUDIT COMMITTEE

 

The Audit Committee of the Board of Directors consists of three non-employee independent directors, Adam Larson (Chairman), Dr. Gary Smith and Graeme P. Rein.

 

Management is responsible for our system of internal controls and the financial reporting process. The independent accountants are responsible for performing an independent audit of our consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and for issuing a report thereon. The Audit Committee is responsible for monitoring (1) the integrity of our financial statements, (2) our compliance with legal and regulatory requirements, and (3) the independence and performance of our registered public accounting firm.

 

The Audit Committee has reviewed and discussed with our management and the independent accountants the audited consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2018, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the consolidated financial statements. Management represented to the Audit Committee that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The Audit Committee discussed with the independent accountants matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T.

 

Our independent accountants also provided to the Audit Committee the written disclosure required by applicable requirements of the PCAOB regarding the independent accountants’ communications with the Audit Committee concerning independence. The Audit Committee discussed with the independent accountants their firm’s independence. The Audit Committee considered the audit-related and non-audit services provided by the independent accountants and subsequently concluded that such services were compatible with maintaining the accountants’ independence.

 

Based on the Audit Committee’s discussion with management and the independent accountants, and the Audit Committee’s review of the representation of management and the report of the independent accountants to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.

 

  Respectfully Submitted,
   
  AUDIT COMMITTEE:
  Adam Larson (Chairman)
  Dr. Gary Smith
  Graeme P. Rein

 

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STOCK OWNERSHIP OF CERTAIN PERSONS

 

The following table shows the beneficial ownership of our common stock as of April 3, 2019 by (a) all persons known by us to beneficially own more than 5% of our common stock as of such date, (b) each present director, including present directors being considered for election at the annual meeting, (c) the Named Executive Officers, and dc) all executive officers and directors as a group. The number and percent of shares of common stock of the Company beneficially owned by each such person as of April 3, 2019 includes the number of shares, which such person has the right to acquire within sixty (60) days after such date. The percentage ownership expressed for the holders below is based on 24,921,498 outstanding shares of WFCF common stock as of April 3, 2019.

  

Name and Address  

Number of

Shares (1)

  Percentage
Ownership
John Saunders   7,056,001 (3), (4) 28.1%
Leann Saunders   7,056,001 (3), (4) 28.1%
Tom Heinen   115,000 (3), (5) *
Peter C. Lapaseotes   784,182 (3), (6) 3.1%
Adam Larson   88,000 (3), (7) *
Graeme P. Rein   2,665,210 (2), (3) 10.6%
Dr. Gary Smith   80,000 (3) *
Michael D. Smith   2,456,230 (3) 9.8%
Robert Van Schoick   30,000 (3), (7) *
Dannette Henning   158,000 (3), (8) *
All officers and directors as a group (10 persons)   13,432,623   53.6%
* Less than 1% beneficial ownership        

 

(1) This table is based upon information obtained from our stock records. Unless otherwise indicated in the footnotes to the above table and subject to community property laws where applicable, we believe that each shareholder named in the above table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.
(2) Based on information provided by the shareholder. Shares beneficially controlled by Mr. Rein are owned directly by Yorkmont Capital Partners, LP. Mr. Rein is the managing member of Yorkmont Capital Management, LLC, which is the general partner of Yorkmont Capital Partners, LP. Mr. Rein and Yorkmont Capital Management, LLC are indirect beneficial owners of the reported securities.
(3) The address for all persons is 202 6th Street, Suite 400, Castle Rock, Colorado 80104
(4) John and Leann Saunders are husband and wife and own the shares as joint tenants. Includes options to purchase 5,000 shares of common stock which are currently exercisable.
(5) Includes options to purchase 15,000 shares of common stock which are currently exercisable.
(6) Includes options to purchase 1,667 shares of common stock which are currently exercisable.
(7) Includes options to purchase 20,000 shares of common stock which are currently exercisable.
(8) Includes options to purchase 33,000 shares of common stock which are currently exercisable.

 

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Under the securities laws of the United States, our directors and executive officers, and persons who own more than 10% of our common stock, are required to report their initial ownership of our common stock and any subsequent changes in that ownership to the SEC and to furnish us with copies of all such reports. Based on our review of the reports we received and other written communications, we believe that all filing requirements applicable to our officers, directors and greater than ten percent shareholders have been satisfied during 2018.  

SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING OF SHAREHOLDERS

 

Shareholder proposals for consideration at our 2020 annual meeting must follow the procedures set forth in Rule 14a-8 under the Exchange Act or our bylaws, as applicable. To be timely under Rule 14a-8, they must be received by our Corporate Secretary at Where Food Comes From, Inc., 202 6th Street, Suite 400, Castle Rock, Colorado, 80104 by December 15, 2019 in order to be included in the proxy statement. Under the Company’s bylaws, if a shareholder plans to propose an item of business to be considered at any annual meeting of shareholders other than under Rule 14a-8, that shareholder is required to give notice of such proposal to our Corporate Secretary between 90 days prior to the anniversary of the preceding year’s annual meeting, or February 12, 2020 for our 2020 annual meeting and 50 days prior to the anniversary of the preceding year’s annual meeting, or March 24, 2020 for our 2020 annual meeting, subject to certain exceptions, and to comply with certain other requirements. The proposals must also comply with all applicable statutes and regulations.

 

FORWARD LOOKING STATEMENTS

 

Statements contained in this Proxy Statement that are not purely historical are forward-looking statements, including, but not limited to, statements regarding our expectations, hopes, beliefs, intentions or strategies regarding the future. Actual results could differ materially from those projected in any forward-looking statements as a result of a number of factors, including, without limitation, those described in this Proxy Statement. The forward-looking statements are made as of the date of this Proxy Statement, and we undertake no obligation to update or revise the forward-looking statements, or to update the reasons why actual results could differ materially from those projected in the forward-looking statements.

 

We caution you not to place undue reliance on any forward-looking statements made by, or on behalf us in this Proxy Statement or in any of our filings with the SEC or otherwise. Additional information with respect to factors that may cause the results to differ materially from those contemplated by forward-looking statements is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, and in our other current and subsequent filings with the SEC.

 

OTHER MATTERS

 

The Board of Directors does not intend to bring any matter not presented herein before the annual meeting and has not been informed that any other matters are to be presented by others. In the event any other matter properly comes before the annual meeting, the person named in the enclosed form of proxy will vote all such proxies in accordance with his best judgment on such matters.

 

Whether or not you are planning to attend the annual meeting, you are urged to complete, date and sign the enclosed proxy and return it in the enclosed stamped envelope at your earliest convenience.

 

 

  By Order of the Board of Directors,
   
  /s/ John Saunders  
  John Saunders, Chairman
   
Castle Rock, Colorado
April 22, 2019

 

 

  25  
 

 

Appendix A

ARTICLES OF AMENDMENT

OF

ARTICLES OF INCORPORATION

OF

WHERE FOOD COMES FROM, INC.

 

Pursuant to the provisions of the Colorado Business Corporation Act, the undersigned Corporation adopts the following Articles of Amendment to its Articles of Incorporation:

 

FIRST: The name of the Corporation is From Where Food Comes From, Inc.

 

SECOND: The following amendments to the Articles of Incorporation were adopted on __________, 2019, as prescribed by the Colorado Business Corporation Act, in the following manner:

 

Such amendments were adopted by a vote of the shareholders at an annual meeting on May 13, 2019 where the number of shares voted for the amendment was sufficient for approval, and by the unanimous written consent of the Board of Directors on ____________, 2019.

 

THIRD: The Corporation hereby amends its Articles of Incorporation as follows:

 

The following subsection C is hereby added at the end of ARTICLE IV – CAPITALIZATION:

 

“C. Reverse Split of Common Stock . Each _____ issued and outstanding shares of Common Stock as of ____________, 20____ shall be combined and converted automatically, without further action, into one (1) fully paid and non-assessable share of Common Stock. No certificate representing any fractional share interest in the Corporation’s post-split shares shall be issued. In lieu of any fraction of a post-split share to which the shareholder is otherwise entitled, all fractional shares shall be rounded up and a shareholder of pre-split shares will receive an entire post-split share. No cash payment shall be made to reduce or eliminate any fractional share interest. Shareholders are not required to exchange their certificates representing shares of Common Stock held prior to the reverse stock split for new certificates representing shares of Common Stock after the reverse stock split.”

 

 

 

Dated: ____________, 20____

 

 

  Signature:  
    John Saunders, Chief Executive Officer

  26  
 

 

WHERE FOOD COMES FROM, INC.

202 6 th Street, Suite 400

Castle Rock, CO 80104

 

Proxy for Annual Meeting of Shareholders to be held on May 13, 2019

This proxy is solicited on behalf of the Board of Directors

 

The undersigned hereby appoints John Saunders as proxy with full power of substitution in the name, place and stead of the undersigned to vote at the Annual Meeting of Shareholders (the “Meeting”) of Where Food Comes From, Inc., a Colorado corporation (the “Company” or “WFCF”), on May 13, 2019 at 1:30 p.m. MST or at any adjournment or adjournments hereof, in the matters designated below, all of the shares of the Company’s common stock that the undersigned would be entitled to vote if personally present.

 

IF YOU ARE NOT VOTING ON THE INTERNET, PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY.

 

Proposal 1 – To elect all nine nominees of the Company to hold office until the next annual meeting of shareholders or until their successors are duly elected and qualified. Nominees:

 

  For   Withhold       For   Withhold  
John Saunders     Robert Van Schoick II      
Leann Saunders     Tom Heinen      
Peter C. Lapaseotes, Jr.     Graeme P. Rein      
Adam Larson     Michael D. Smith      
Dr. Gary Smith                

 

 

Proposal 2 – To grant the Board of Directors of the Company (the “Board”) discretionary authority to amend the Company’s Articles of Incorporation to effectuate a Reverse Stock Split of the Company’s Common Stock, $.001 par value, by a ratio of no more than one-for-four with such ratio to be determined by the sole discretion of the Board (the “Reverse Split”), with such Reverse Split to be effective at such time and date, if at all, as determined by the Board in its sole discretion.

 

  For Against   Abstain  

 

Proposal 3 – To ratify the appointment of Crowe, LLP as the independent registered public accounting firm of the Company for the year-ending December 31, 2019.

 

  For Against   Abstain  

 

THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ABOVE. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES AS DIRECTORS, FOR THE REVERSE STOCK SPLIT, AND FOR THE RATIFICATION OF THE APPOINTMENT OF Crowe, LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE COMPANY.

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

 

  Dated:   , 2019
   
  Signature
   
  Signature (Joint Owners)
   

  Address Changes/Comments:  
   
   
  Please date and sign name exactly as it appears hereon. Executors, administrators, trustees, etc. should so indicate when signing. If the stockholder is a corporation, the full corporate name should be inserted and the proxy signed by an officer of the corporation indicating his/her title.

 

Please indicate whether you plan to attend this meeting: ☐

 

Please return this proxy in the enclosed envelope and send to:

Corporate Stock Transfer, Inc.

3200 Cherry Creek Drive South, Suite 430

Denver, Colorado 80209

 

  27