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
(Amendment
No. )
Filed
by the Registrant ☒ |
Filed
by a Party other than the Registrant ☐ |
Check
the appropriate box:
☒
Preliminary Proxy Statement
☐ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☐
Definitive Proxy Statement
☐ Definitive Additional Materials
☐ Soliciting Material under § 240.14a-12
HARBOR
CUSTOM DEVELOPMENT, INC.
(Name
of Registrant as Specified In Its Charter)
Not
Applicable
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check all boxes that apply):
☒
No fee required
☐
Fee paid previously with preliminary materials
☐
Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11
PRELIMINARY
COPY SUBJECT TO COMPLETION
HARBOR
CUSTOM DEVELOPMENT, INC.
NOTICE
OF 2022 ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON JUNE 1, 2022
April
20, 2022
Dear
Stockholder:
You
are cordially invited to attend this year’s annual meeting of stockholders of Harbor Custom Development, Inc. on Wednesday, June
1, 2022 at 10:00 a.m. Pacific Daylight Time. The Annual Meeting will be completely virtual. You may attend the virtual meeting, submit
questions, and vote your shares electronically during the Annual Meeting via live webcast by visiting https://agm.issuerdirect.com/hcdi.
We
are pleased to take advantage of the rules established by the Securities and Exchange Commission that allow companies to furnish proxy
materials primarily over the internet. We believe that this will allow us to promptly provide proxy materials to you, while lowering
the costs of distribution and reducing the environmental impact of our annual meeting.
On
or about April 22, 2022, we are mailing to our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”)
containing instructions on how to access our proxy materials, including our Proxy Statement and Annual Report to Stockholders for the
fiscal year ended December 31, 2021, over the internet. The Notice also provides instructions on how to vote online or by telephone and
includes instructions on how you can receive a paper copy of the proxy materials by mail. If you receive your proxy materials by mail,
the Annual Report, the Notice of 2022 Annual Meeting of Stockholders, the Proxy Statement, and proxy card will be enclosed.
The
matters to be acted upon are described in the Notice of 2022 Annual Meeting of Stockholders and Proxy Statement. Following the formal
business of the Annual Meeting, we will report on our operations and respond to questions from stockholders.
Whether
or not you plan to virtually attend the Annual Meeting, your vote is very important and we encourage you to vote promptly. You may vote
by proxy over the internet or by telephone, or, if you received paper copies of the proxy materials by mail, you can also vote by mail
by following the instructions on your proxy card. You can also vote at the Annual Meeting by attending the Annual Meeting virtually.
If you hold your shares through an account with a brokerage firm, bank, or other nominee, please follow the instructions you receive
from your brokerage firm, bank, or other nominee to vote your shares.
Sincerely
yours, |
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|
|
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Sterling
Griffin
Chief
Executive Officer and President |
|
HARBOR
CUSTOM DEVELOPMENT, INC.
NOTICE
OF 2022 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
JUNE
1, 2022
TO
OUR STOCKHOLDERS:
Our
2022 annual meeting of stockholders (the “Annual Meeting”) of Harbor Custom Development, Inc. will be held on June 1, 2022
at 10:00 a.m. Pacific Daylight Time. The Annual Meeting will be completely virtual. You may attend the virtual meeting, submit questions,
and vote your shares electronically during the Annual Meeting via live webcast by visiting https://agm.issuerdirect.com/hcdi.
At the Annual Meeting, our stockholders will be asked:
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1. |
To
elect seven directors to hold office until the next annual meeting and until their respective successors are elected and qualified; |
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2. |
To
ratify the appointment of Rosenberg Rich Baker Berman, P.A. as our independent registered public accounting firm for the fiscal year
ending December 31, 2022; |
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3. |
To
approve, on a non-binding advisory basis, the compensation of our named executive officers, during the fiscal year ended December
31, 2021; |
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4. |
To
approve an amendment to our Articles of Incorporation and Bylaws to reduce the quorum requirement for shareholder meetings from a
majority of the outstanding shares of common stock to 33.34% of the outstanding shares of common stock as allowed by the Washington
Business Corporations Act (the “WBCA”); |
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5. |
To
approve an amendment to our 2018 Equity Incentive Plan to increase, by 2,000,000, the authorized number of shares reserved
for issuance as options under the Plan; |
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6. |
To
approve an amendment to our 2020 Restricted Stock Plan to increase, by 2,000,000, the authorized number of shares available
for award under the Plan; and |
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7. |
To
transact such other business as may properly be brought before the Annual Meeting or any adjournment or postponement thereof. |
Our
Board of Directors recommends a vote FOR each of the seven director nominees and FOR proposals 2, 3, 4, 5 and 6 listed
above. Stockholders of record at the close of business on April 8, 2022 are entitled to notice of, and to vote on, all matters at the
Annual Meeting and any reconvened meeting following any adjournments or postponements thereof. For ten days prior to the Annual Meeting,
a complete list of stockholders entitled to vote at the Annual Meeting will be available for examination by any stockholder, for any
purpose relating to the Annual Meeting, during ordinary business hours at our principal offices located at 11505 Burnham Dr., Suite 301,
Gig Harbor, Washington 98332.
All
stockholders are invited to virtually attend the Annual Meeting. You are urged to vote or submit your proxy as soon as possible so that
your shares can be voted at the Annual Meeting in accordance with your instructions. Telephone and internet voting are available. For
specific instructions on voting, please refer to the instructions in the Notice of Internet Availability of Proxy Materials or the proxy
card. If you hold your shares through an account with a brokerage firm, bank, or other nominee, please follow the instructions you receive
from them to vote your shares.
IMPORTANT
NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING: Our Annual Report on Form 10-K, Notice, and Proxy Statement
are available electronically at https://agm.issuerdirect.com/hcdi.
|
By
Order of the Board of Directors |
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April
20, 2022 |
|
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Sterling
Griffin
Chief
Executive Officer and President |
TABLE
OF CONTENTS
HARBOR
CUSTOM DEVELOPMENT, INC.
11505
Burnham Dr., Suite 301
Gig
Harbor, Washington 98332
PROXY
STATEMENT FOR THE 2022 ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON JUNE 1, 2022
GENERAL
INFORMATION
The
accompanying proxy is solicited by the Board of Directors of Harbor Custom Development, Inc. (the “Board” or “Board
of Directors”) to be voted at the 2022 Annual Meeting of Stockholders (the “Meeting” or “Annual Meeting”)
to be held at 10:00 a.m. Pacific Daylight Time, and any adjournments or postponements thereof. The Annual Meeting will be completely
virtual. You may attend the virtual meeting, submit questions, and vote your shares electronically during the Annual Meeting via live
webcast by visiting https://agm.issuerdirect.com/hcdi. This Proxy Statement and the accompanying proxy are being made available
to our stockholders on or about April 22, 2022. References in this proxy statement to “the Company,” “we,” “Harbor,”
“our,” and “us” are to Harbor Custom Development, Inc.
In
accordance with the rules of the Securities and Exchange Commission (the “SEC”), we are permitted to furnish proxy materials,
including this Proxy Statement and our Annual Report for the fiscal year ended December 31, 2021 (the “Annual Report”) to
stockholders by providing access to these documents through the internet instead of mailing printed copies. Most stockholders will not
receive printed copies of the proxy materials unless requested. Instead, our Notice of Internet Availability of Proxy Materials provides
instructions on how to access and review the proxy materials on the internet. The Notice of Internet Availability of Proxy Materials
also provides instructions on how to cast your vote via the internet or by telephone. If you would like to receive a printed or email
copy of our proxy materials, please follow the instructions for requesting the materials in the Notice of Internet Availability of Proxy
Materials.
Record
Date
Holders
of record of our shares of Common Stock, our only class of issued and outstanding voting securities (the “Common Stock”),
at the close of business on April 8, 2022 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting.
On April 8, 2022, 13,206,165, shares of our Common Stock were issued and outstanding.
Quorum
The
presence, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the Annual
Meeting is necessary to constitute a quorum for the transaction of business at the Annual Meeting. Votes for and against, abstentions,
and “broker non-votes” will each be counted as present for purposes of determining the presence of a quorum.
The
Annual Meeting may be adjourned from time to time and at any reconvened meeting, action with respect to the matters specified in this
notice may be taken without further notice to stockholders except as required by applicable law and our charter documents.
Stockholders
of Record
You
are a “stockholder of record” if your shares are registered directly in your name with our transfer agent, Mountain Share
Transfer, Inc. As a stockholder of record, you have the right to grant your voting proxy directly to the proxies designated by us or
to vote in person at the Annual Meeting. As of the Record Date, we had six holders of record.
Shares
Held in Street Name
You
are deemed to beneficially own your shares in “street name” if your shares are held in an account at a brokerage firm, bank,
broker-dealer, trust, or other similar organization. If this is the case, you will receive a separate voting instruction form with this
Proxy Statement from such organization. As the beneficial owner, you have the right to direct your broker, bank, trustee, or nominee
how to vote your shares, and you are also invited to virtually attend the Annual Meeting. If you hold your shares in street name and
do not provide voting instructions to your broker, bank, trustee, or nominee, your shares will not be voted on any proposals on which
such party does not have discretionary authority to vote (a “broker non-vote”), as further described below under the heading
“Broker Non-Votes.”
Please
note that if your shares are held of record by a broker, bank, trustee, or nominee and you wish to vote at the Annual Meeting, you will
not be permitted to vote in person unless you first obtain a proxy issued in your name from the record holder.
Broker
Non-Votes
Broker
non-votes are shares held in street name by brokers or nominees who are present in person or represented by proxy, but which are not
voted on a particular matter because the brokers or nominees do not have discretionary authority with respect to that proposal and they
have not received voting instructions from the beneficial owner. Under the rules that govern brokers, brokers have the discretion to
vote on routine matters, but not on non-routine matters. Routine matters include the ratification of the appointment of our independent
registered public accountants. The remaining proposals to be considered at the Annual Meeting are considered to be non-routine matters,
including the election of directors, the non-binding advisory vote on the compensation of our named executive officers, the amendment
to our Articles and Bylaws and the amendments to our 2018 Equity Incentive Plan and 2020 Restricted Stock Plan. As a result, if
you do not provide your broker or nominee with voting instructions on these non-routine matters, your shares will not be voted on these
proposals.
Voting
Matters
Stockholders
are entitled to cast one vote per share of Common Stock on each matter presented for consideration by the stockholders. A list of stockholders
entitled to vote at the Annual Meeting will be available for examination by any stockholder for a proper purpose during normal business
hours at our executive offices for a period of at least ten days preceding the day of the Annual Meeting.
There
are six proposals scheduled to be voted on at the Annual Meeting:
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1. |
To
elect seven directors to hold office until the next annual meeting and until their respective successors are elected and qualified; |
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2. |
To
ratify the appointment of Rosenberg Rich Baker Berman, P.A. as our independent registered public accounting firm for the fiscal year
ending December 31, 2022; |
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3. |
To
approve, on a non-binding advisory basis, the compensation of our named executive officers, during the fiscal year ended December
31, 2021; |
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4. |
To
approve an amendment to our Articles of Incorporation and Bylaws to reduce the quorum requirement for shareholder meetings from a
majority of the outstanding shares of common stock to 33.34% of the outstanding shares of common stock as allowed by the Washington
Business Corporations Act (the “WBCA”); |
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5. |
To
approve an amendment to our 2018 Equity Incentive Plan to increase, by 2,000,000, the authorized number of shares reserved
for issuance as options under the Plan; |
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6. |
To
approve an amendment to our 2020 Restricted Stock Plan to increase, by 2,000,000, the authorized number of shares available
for award under the Plan; and |
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7. |
To
transact such other business as may properly be brought before the Annual Meeting or any adjournment or postponement thereof. |
Our
Board of Directors recommends a vote FOR each of the seven director nominees and FOR proposals 2, 3, 4, 5 and 6 listed
above.
We
are currently unaware of any matters to be raised at the Annual Meeting other than those referred to in this Proxy Statement. If other
matters are properly presented at the Annual Meeting for consideration and you are a stockholder of record and have submitted your proxy,
the persons named in your proxy will have the discretion to vote on those matters for you.
Required
Vote
Assuming
a quorum is present, either in person or by proxy, the following vote is required for the proposals scheduled to be voted on at the Annual
Meeting:
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1. |
Election
of Directors: Directors will be elected by a plurality of the votes, which means the seven nominees who receive the greatest
number of FOR votes will be elected. If you hold your shares through a broker and you do not instruct the broker on how to
vote on this proposal, your broker will not have authority to vote your shares. Abstentions and broker non-votes will each be counted
as present for purposes of determining the presence of a quorum, but will not have any effect on the outcome of the proposal. |
|
2. |
Ratification
of Auditors: The ratification of the appointment of Rosenberg Rich Baker Berman, P.A. as our independent registered
public accounting firm for the fiscal year ending December 31, 2022 requires that a majority of the votes cast, whether in person
or represented by proxy, are voted FOR this proposal. Abstentions will be counted as present for purposes of determining the
presence of a quorum, but will have no effect on the outcome of the vote. |
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3. |
Executive
Compensation: The approval, on a non-binding advisory basis, of the compensation of our named executive officers requires
that a majority of the votes cast, whether in person or represented by proxy, are voted FOR this proposal. Abstentions and
“broker non-votes” will each be counted as present for purposes of determining the presence of a quorum, but will have
no effect on the outcome of the vote. |
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4. |
Amendment
to Articles and Bylaws to Reduce the Quorum Requirement for Shareholder Meetings: The approval of an amendment to our Articles
of Incorporation and our 2nd Amended and Restated Bylaws to reduce the quorum requirement for shareholder meetings from
a majority of outstanding common shares to 33.34% of outstanding common shares requires that a majority of the votes cast, whether
in person or represented by proxy, are voted FOR this proposal. Abstentions and “broker non-votes” will each be counted
as present for purposes of determining the presence of a quorum, but will have no effect on the outcome of the vote. |
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5. |
Increase
in Shares Authorized for Issuance as Options Pursuant to our 2018 Equity Incentive Plan: The approval of an amendment to
our 2018 Equity Incentive Plan to increase, by 2,000,000, the number of shares reserved for issuance as options under the
Plan requires that a majority of the votes cast, whether in person or represented by proxy, are voted FOR this proposal. Abstentions
and “broker non-votes” will each be counted as present for purposes of determining the presence of a quorum, but will
have no effect on the outcome of the vote. |
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6. |
Increase
in Shares Authorized for Issuance Pursuant to our 2020 Restricted Stock Plan: The approval of an amendment to out 2020 Restricted
Stock Plan to increase, by 2,000,000, the number of shares authorized for issuance under the Plan requires that a majority
of the votes cast, whether in person or represented by proxy, are voted FOR this proposal. Abstentions and “broker non-votes”
will each be counted as present for purposes of determining the presence of a quorum, but will have no effect on the outcome of the
vote. |
Voting
Instructions
If
you are a stockholder of record, you can vote in the following ways:
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By
Internet: By following the internet voting instructions included in the Notice of Internet Availability of Proxy Materials
or by following the instructions on the proxy card at any time up until 11:59 p.m., Eastern Daylight Time, on May 31, 2022. |
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By
Telephone: By following the telephone voting instructions included in the Notice of Internet Availability of Proxy Materials
or by following the instructions on the proxy card at any time up until 11:59 p.m., Eastern Daylight Time, on May 31, 2022. |
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By
Mail: You may vote by mail by marking, dating, and signing your proxy card in accordance with the instructions on it and
returning it by mail in the pre-addressed reply envelope provided with the proxy materials. The proxy card must be received prior
to the Annual Meeting. |
If
your shares are held in street name, please follow the separate voting instructions you receive from your broker, bank, trustee, or other
nominee.
Proxies
All
shares represented by a proxy will be voted at the Annual Meeting, and where a stockholder specifies a choice with respect to any matter
to be acted upon, the shares will be voted in accordance with the specification so made. If a stockholder does not indicate a choice
on the proxy card, the shares will be voted in favor of the election of each of the nominees for director contained in this Proxy Statement
and in favor of each of the other proposals considered at the Annual Meeting.
If
your shares are held by a broker, bank, or other stockholder of record, in nominee name or otherwise, exercising fiduciary powers (typically
referred to as being held in “street name”), you will receive a separate voting instruction form with your proxy materials.
Your broker may vote your shares on the proposal to ratify our independent auditors, but will not be permitted to vote your shares with
respect to the election of directors or on any of the other proposals unless you provide instructions as to how to vote your shares.
Please note that if your shares are held of record by a broker, bank, or nominee and you wish to vote at the Annual Meeting, you will
not be permitted to vote in person unless you first obtain a proxy issued in your name from the record holder.
Multiple
Proxies
If
you receive more than one set of proxy materials, it generally means you hold shares registered in multiple accounts. To ensure that
all your shares are voted, please submit proxies or voting instructions for all of your shares.
Proxy
Revocation Procedure
If
you are a stockholder of record, you may revoke your proxy: (i) by written notice of revocation mailed to and received by our Secretary
prior to the date of the Annual Meeting; (ii) voting again via the internet or by telephone at a later time before the closing of those
voting facilities at 11:59 p.m. Eastern Daylight Time on May 31, 2022; (iii) by executing and delivering to the Secretary a proxy dated
as of a later date than a previously executed and delivered proxy (provided, however, that such action must be taken prior to 11:59 p.m.
Eastern Daylight Time on May 31, 2022); or (iv) by virtually attending the Annual Meeting and voting via the virtual meeting platform.
Attendance at the Annual Meeting will not in and of itself revoke a proxy.
Solicitation
Costs
We
will bear the expenses of calling and holding the Annual Meeting and the solicitation of proxies therefor. This proxy statement and the
accompanying materials, in addition to being mailed directly to stockholders, will be distributed through brokers, custodians, nominees,
and other like parties to beneficial owners of shares of Common Stock. We will pay reasonable expenses incurred in forwarding the proxy
materials to the beneficial owners of shares and in obtaining the written instructions of such beneficial owners. We may consider the
engagement of a proxy solicitation firm. Our directors, officers, and employees may also solicit proxies by mail, telephone, and personal
contact, but they will not receive any additional compensation for these activities.
Voting
Results
We
will announce preliminary voting results at the Annual Meeting. We will report final results in a Current Report on Form 8-K report filed
with the SEC.
GOVERNANCE
OF OUR COMPANY
Overview
We
are committed to maintaining high standards of business conduct and corporate governance, which we believe are fundamental to the overall
success of our business, serving our stockholders well, and maintaining our integrity in the marketplace. As discussed below, our Board
of Directors has established three standing committees to assist it in fulfilling its responsibilities to us and our stockholders:
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1. |
The
Audit Committee; |
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2. |
The
Compensation Committee; and |
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3. |
The
Nominating and Corporate Governance Committee. |
Director
Independence
We
currently have five independent directors on our board of directors. We use Nasdaq’s definition of “independence” to
make this determination. Nasdaq provides that an “independent director” is a person other than an executive officer or employee
of the company or any other individual having a relationship with which, in the opinion of the company’s board of directors, would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The rules provide that a director
cannot be considered independent if:
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the
director is, or at any time during the past three years was, an employee of the company; |
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the
director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of
12 consecutive months within the three years preceding the independence determination (subject to certain exemptions, including,
among other things, compensation for board or board committee service); |
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the
director is a family member of an individual who is, or at any time during the past three years was, employed by the company as an
executive officer; |
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the
director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three
years, any of the executive officer of the company served on the compensation committee of such other entity; |
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the
director or a family member of the director is a partner in, controlling shareholder of, or an executive officer of an entity to
which the company made, or from which the company received, payments for property or services in the current or any of the past three
fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject
to certain exemptions); or |
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the
director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the
past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit. |
Under
such definitions, our Board has undertaken a review of the independence of each director and will review the independence of any new
directors based on information provided by each director concerning their background, employment, and affiliations, in order to make
a determination of independence. Our Board has determined that five of our seven nominated directors are independent:
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1. |
Larry
Swets; |
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2. |
Dennis
Wong; |
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3. |
Wally
Walker; |
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4. |
Karen
Bryant; and |
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5. |
Chris
Corr. |
Board
Diversity
Pursuant
to Nasdaq’s Board Diversity Rule 5605(f), which was approved by the SEC on August 6, 2021, we have taken steps to meet the diversity
objective as set out in this rule within the applicable transition period. We identified candidates for our board of directors who meet
the board diversity requirement and have appointed one female independent director to our Board of Directors. The following is our Board
Diversity Matrix as of March 21, 2022:
Board Diversity Matrix | |
| | |
| |
Total Number of Directors | |
| 7 | |
Part I: Gender Identity | |
| Female | | |
| Male | |
Directors | |
| 1 | | |
| 6 | |
Number of Directors who Identify in Any of the Categories Below: | |
| | | |
| | |
Asian (other than South Asian) | |
| 0 | | |
| 1 | |
White | |
| 1 | | |
| 5 | |
LGBTQ+ | |
| 1 | |
Meetings
of the Board of Directors
During
our last fiscal year, our Company was a public company, and our Board held five meetings. It is the policy of our Board that all
directors should attend the annual meeting of shareholders unless unavoidably prevented from doing so by unforeseen circumstances.
Board
Leadership Structure
Sterling
Griffin is our Chief Executive Officer, President, and the Chairman of the Board. Our Board believes that it is in our best interest
and the best interest of our stockholders for Mr. Griffin to serve in both roles at this time given his knowledge of our business and
the industry. We believe our board structure provides appropriate leadership and oversight of our business and facilitates effective
functioning of both management and our Board.
Role
of our Board of Directors in Risk Oversight
One
of the key functions of our Board is informed oversight of our risk management process. We have formed supporting committees, including
the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee, each of which supports the Board
by addressing risks specific to its respective areas of oversight. In particular, our Audit Committee has the responsibility to consider
and discuss our major financial risk exposures and the steps our management takes to monitor and control these exposures, including guidelines
and policies to govern the process by which risk assessment and management is undertaken. The Audit Committee also monitors compliance
with legal and regulatory requirements, in addition to oversight of the performance of our internal audit function. Our Compensation
Committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.
Our Nominating and Corporate Governance Committee provides oversight with respect to corporate governance and ethical conduct and monitors
the effectiveness of our corporate governance guidelines, including whether such guidelines are successful in preventing illegal or improper
liability-creating conduct.
Committees
of our Board of Directors
We
are required to have an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee.
Audit
Committee
Nasdaq
rules require that our Audit Committee be composed of at least three members all of whom are “independent directors” who
are “financially literate” as defined under the Nasdaq listing standards. The Nasdaq listing standards define “financially
literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income
statement and cash flow statement. In addition, we are required to certify to Nasdaq that the committee has, and will continue to have,
at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting,
or other comparable experience or background that results in the individual’s financial sophistication. As of the fiscal year ended
December 31, 2021, our Audit Committee was composed of the following, all of whom were re-appointed to serve on the Audit Committee,
subject to and effective upon their elections as directors at this Annual Meeting. Our Board has affirmatively determined that all of
the members of the Audit Committee meet the definition of “independent director” for purposes of serving on an Audit Committee
under Rule 10A-3 and Nasdaq rules, all of whom qualify as financial experts:
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1. |
Dennis
Wong |
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2. |
Wally
Walker |
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3. |
Larry
Swets |
We
have established a written charter for our Audit Committee, in which we set forth the duties of the Audit Committee that include, among
other matters, oversight responsibilities with respect to the integrity of our financial statements, our compliance with legal and regulatory
requirements, the external auditor’s qualifications, independence, and performance, and the performance of our internal audit function
as applicable. The Audit Committee’s primary duties and responsibilities are to:
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● |
oversee
our accounting and financial reporting processes and the audits of our financial statements; |
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identify
and monitor the management of the principal risks that could impact our financial reporting; |
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monitor
the integrity of our financial reporting process and system of internal controls regarding financial reporting and accounting appropriateness
and compliance; |
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provide
oversight of the qualifications, independence, and performance of our external auditors and the appointed actuary; |
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provide
an avenue of communication among the external auditors, the appointed actuary, management, and the Board; and |
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review
the annual audited and quarterly financial statements with management and the external auditors. |
The
Audit Committee is also responsible for discussing policies with respect to risk assessment and risk management, including regularly
reviewing our cybersecurity and other information technology risks, controls, and procedures and our plans to mitigate cybersecurity
risks and respond to data breaches.
Audit
committee members must meet the independence requirements of Rule 10A-3 under the Exchange Act, the independence requirements of the
Nasdaq listing standards, and all other applicable rules and regulations. The Board of Directors has determined that Dennis Wong, Larry
Swets, and Wally Walker are “audit committee financial experts” as that term is defined in SEC regulations. Each member of
the Audit Committee is independent and satisfies the applicable requirements for Audit Committee membership under Rule 10A-3 under the
Exchange Act and the Nasdaq rules.
A
copy of the code of the Audit Committee charter is available on our website at www.harborcustomhomes.com. The inclusion of our
website address does not include or incorporate by reference the information on our website into this document.
Compensation
Committee and Nominating and Corporate Governance Committee
Nasdaq’s
compensation and nominating and committee rules require that our Compensation Committee and Nominating and Corporate Governance Committee
be composed solely of independent directors. At this time, our Nominating Committee and Compensation Committee are both comprised solely
of independent directors. As of December 31, 2021, the members of each of our Nominating and Corporate Governance Committee and Compensation
Committee are:
|
1. |
Larry
Swets; |
|
|
|
|
2. |
Wally
Walker; and |
|
|
|
|
3. |
Chris
Corr. |
The
Board of Directors has appointed Larry Swets (Chair), Wally Walker, and Chris Corr to serve on the Compensation Committee, subject to
and effective upon their election as directors at this Annual Meeting. The Board of Directors has further appointed Wally Walker (chair),
Larry Swets and Chris Corr to serve on the Nominating Committee, subject to and effective upon their election as directors at this Annual
Meeting. We have also established charters for each of our Nominating Committee and Compensation Committee.
Code
of Business Conduct and Ethics
We
adopted a written code of business conduct and ethics that applies to our directors, officers, and employees, including our principal
executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and
agents and representatives, including consultants. A copy of the code of business conduct and ethics is available on our website at www.harborcustomhomes.com.
We intend to disclose future amendments to such code, or any waivers of its requirements, applicable to any principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions or our directors on
our website identified above. The inclusion of our website address does not include or incorporate by reference the information on our
website into this document.
Communications
with the Board of Directors
The
Board desires that the views of stockholders be heard by the Board, its Committees, or individual directors, as applicable, and that
appropriate responses be provided to stockholders on a timely basis. Stockholders wishing to formally communicate with the Board, any
Board Committee, the independent directors as a group, or any individual director, may send communications directly to us at Harbor Custom
Development, Inc., 11505 Burnham Drive, Suite 301, Gig Harbor, Washington 98332 Attention: Secretary. All clearly marked written communications,
other than unsolicited advertising or promotional materials, are logged and copied, and forwarded to the director(s) to whom the communication
is addressed. Please note that the foregoing communication procedure does not apply to (i) stockholder proposals pursuant to Exchange
Act Rule 14a-8 and communications made in connection with such proposals or (ii) service of process or any other notice in a legal proceeding.
PROPOSAL
ONE
ELECTION
OF DIRECTORS
Nominees
for Director
Our
business is managed under the oversight of our Board of Directors. Our Board accepted the recommendation of the Nominating and Corporate
Governance Committee and voted to nominate Sterling Griffin, Richard Schmidtke, Larry Swets, Dennis Wong, Wally Walker, Karen Bryant,
and Chris Corr for election at the annual meeting for a term of one year to serve until the 2023 annual meeting of shareholders, and
until their respective successors have been elected and qualified.
All
of the nominees have indicated a willingness to continue serving as directors, and we have no reason to believe that any nominee will
be unavailable or unable to serve. If any of them should decline or be unable to act as a director, the proxy holders will vote for the
election of any other person or persons the Board may nominate.
Set
forth below are the names of the persons nominated for election as directors, their ages, their offices in the Company, if any, their
principal occupations, or employment for at least the past five years, the length of their tenure as directors, and the names of other
public companies in which such persons hold or have held directorships during the past five years. Additionally, information about the
specific experience, qualifications, attributes, or skills that led to our Board’s conclusion at the time of filing this proxy
statement that each person listed below should serve as a director is set forth below:
Name |
|
Age |
|
Position
with the Company |
|
Date
Joined the Board |
Sterling
Griffin |
|
60 |
|
President,
Chief Executive Officer, and Chairman |
|
2018 |
Chris
Corr |
|
60 |
|
Director |
|
2021 |
Richard
Schmidtke |
|
60 |
|
Director |
|
2020 |
Larry
Swets |
|
47 |
|
Director |
|
2020 |
Dennis
Wong |
|
52 |
|
Director |
|
2020 |
Wally
Walker |
|
67 |
|
Director |
|
2020 |
Karen
Bryant |
|
54 |
|
Director |
|
2021 |
Sterling
Griffin. Our founder, Sterling Griffin, began his career at James S. Griffin Co. in January 1985 as a principal and Vice President
of Marketing, where he focused on the syndication of apartment properties, raw land, and retirement home facilities in the Puget Sound
region of Washington State. Beginning in June 1989, Mr. Griffin co-founded several businesses over a 12-year period, while actively self-employed
as a real estate broker, investor, and developer. In January 2012, he became the Chief Operating Officer for Hudson Homes LLC, a Washington-based
residential builder and developer focused on construction of upscale homes in Pierce and Kitsap Counties, where he was responsible for
land acquisition, construction, marketing, and sales. In 2014, Mr. Griffin founded our Company. Mr. Griffin is a lifelong Washington
resident who graduated from Colorado College with a Bachelor of Arts degree in History in 1984.
Chris
Corr. Mr. Corr has been an Independent Director on our board of directors since September 2021. Mr. Corr is a shareholder and
Executive Vice President of Kidder Mathews, the largest independent commercial real estate firm on the West Coast. Mr. Corr specializes
in selling and leasing office and industrial properties in South King County, Washington. Since joining Kidder Mathews in 1986, Mr. Corr
has managed over two million square feet of real estate as a property manager, assisted in the development and leasing of real estate
throughout the region, and, over the past 30+ years, completed over several thousand commercial sale and lease transactions. In 2001,
Mr. Corr won the Washington Chapter Society of Industrial and Office Realtors (SIOR) Broker of the Year award. He is frequently quoted
in and writes for both the Puget Sound Business Journal and Daily Journal of Commerce. Mr. Corr has also spoken on real estate trends
at the NAIOP Commercial Real Estate Development Association Forecast Breakfast. Mr. Corr graduated with honors from the University of
Washington, earning his Bachelor of Science in building construction and Bachelor of Arts in business administration. He is a former
member of the Seattle University Board of Regents and Kidder Mathews Board of Directors. In his spare time, Mr. Corr is a member of and
served as membership chair for both the Seattle Tennis Club and Broadmoor Golf Club.
Richard
Schmidtke, C.P.A. Mr. Schmidtke has been a director on our board of directors since October 2018. Mr. Schmidtke is the founder
of Schmidtke & Associates, PLLC, a full-service accounting company he founded in August 2008. Mr. Schmidtke has 30 years of public
accounting experience. Mr. Schmidtke has played an essential role in the success of numerous businesses in a wide range of industries
including tax planning, real estate, retail, and manufacturing. As a native of Tacoma, Washington, Mr. Schmidtke has established strong
relationships in the community. His past and current involvement includes past President and current Trustee and Board Member of Tacoma
Goodwill Foundation, Trustee of the Tacoma Art Museum, board member of the Tacoma Community Redevelopment Authority Board, and Tacoma
Lawn and Tennis Club. Mr. Schmidtke graduated from the University of Washington with a Bachelor of Arts degree in Economics.
Larry
Swets. Mr. Swets has been a Director on our board of directors since February 2020. Mr. Swets has over 25 years of experience
within financial services encompassing both non-executive and executive roles. Mr. Swets founded Itasca Financial LLC, an advisory and
investment firm, in 2005 and has served as its managing member since inception. Mr. Swets also founded and is the President of Itasca
Golf Managers, Inc., a management services and advisory firm focused on the real estate and hospitality industries, in August 2018. Mr.
Swets has served as the Chief Executive Officer of FG Financial Group, Inc. (Nasdaq: FGF) (formerly 1347 Property Insurance Holdings,
Inc.), which operates as a diversified reinsurance, investment management and real estate holding company, since November 2020, after
having served as Interim CEO from June 2020 to November 2020. Mr. Swets has also served as Senior Advisor to Aldel Financial Inc. (NYSE:
ADF), a special purpose acquisition company since March 2021, and as Chief Executive Officer of FG New America Acquisition II Corp.,
a special purpose acquisition company in the process of going public and focused on merging with a company in the InsureTech, FinTech,
broader financial services and insurance sectors since February 2021. Mr. Swets is a member of the board of directors of FG Financial
Group, Inc. (Nasdaq: FGF) since November 2013; GreenFirst Forest Products Inc. (TSXV: GFP), a public company focused on investments in
the forest products industry since June 2016; Ballantyne Strong, Inc. (NYSE American: BTN) since October 2021; Insurance Income Strategies
Ltd. since October 2017; Alexian Brothers Foundation since March 2018; and Unbounded Media Corporation since June 2019.
Previously,
Mr. Swets served as a Director and Chief Executive Officer of FG New America Acquisition Corp. (NYSE: FGNA), a special purpose acquisition
company which merged with OppFi Inc. (NYSE: OPFI), a leading financial technology platform that powers banks to help everyday consumers
gain access to credit, from July 2020 to July 2021. Mr. Swets served as Chief Executive Officer of GreenFirst Forest Products Inc. (TSXV:
GFP) (formerly Itasca Capital Ltd.) from June 2016 to June 2021. Mr. Swets served as the Chief Executive Officer of Kingsway Financial
Services Inc. (NYSE: KFS) from July 2010 to September 2018, including as its President from July 2010 to March 2017. He served as Chief
Executive Officer and a director of 1347 Capital Corp., a special purpose acquisition company, from April 2014 to July 2016 when the
company completed its initial business combination to form Limbach Holdings, Inc. (Nasdaq: LMB). Mr. Swets also previously served as
a member of the board of directors of Limbach Holdings, Inc. (Nasdaq: LMB) from July 2016 to August 2021; Kingsway Financial Services
Inc. (NYSE: KFS) from September 2013 to December 2018; Atlas Financial Holdings, Inc. (Nasdaq: AFH) from December 2010 to January 2018;
FMG Acquisition Corp. (Nasdaq: FMGQ) from May 2007 to September 2008; United Insurance Holdings Corp. from 2008 to March 2012; and Risk
Enterprise Management Ltd. from November 2007 to May 2012.
Prior
to founding Itasca Financial LLC, Mr. Swets served as an insurance company executive and advisor, including the role of director of investments
and fixed income portfolio manager for Lumbermens Mutual Casualty Company, formerly known as Kemper Insurance Companies. Mr. Swets began
his career in insurance as an intern in the Kemper Scholar program in 1994. Mr. Swets earned a Master’s Degree in Finance from
DePaul University in 1999 and a Bachelor’s Degree from Valparaiso University in 1997. He is a member of the Young Presidents’
Organization and holds the Chartered Financial Analyst (CFA) designation.
Dennis
A. Wong. Mr. Wong has been an Independent Director on our board of directors and Chair of our Audit Committee since October 2020.
Since 2005, Mr. Wong is the owner of and a consultant with Insurance Resolution Group, a consulting firm focused on providing strategic
advisory services to the insurance and financial services sector. From 1997 to 2005, Mr. Wong worked in a variety of corporate roles
with Kemper Insurance Companies, a leading national insurance provider, including as Chief Financial Officer of its international operations.
From 1991 to 1997, Mr. Wong worked as a public accountant with KPMG LLP, where he specialized in accounting and operational advisory
services for the insurance industry. Mr. Wong obtained a Bachelor of Arts degree in Economics with an Accountancy Cognate from the University
of Illinois. Mr. Wong is a Certified Public Accountant and has previously served as an independent member of the Board of Directors for
FG Financial Group, Inc. (Nasdaq: FGF) (formerly 1347 Property Insurance Holdings, Inc.) from August 2015 through December 2021.
Walter
(“Wally”) Walker. Mr. Walker has been an Independent Director on our board of directors since October 2020. Mr. Walker
served as a Vice President in Goldman, Sachs & Co.’s Private Client Services group from 1987 through 1994. In April 1994, Mr.
Walker formed Walker Capital, Inc., a San Francisco based money management firm. In September 1994, Mr. Walker became President and General
Manager of the Seattle SuperSonics and the Seattle Storm, and in addition to being an owner, served as Chief Executive Officer and President
of the teams until their sale in 2006. In his seven years as General Manager, the Sonics had the third best winning percentage (65.1%)
in the NBA and won the Western Conference Championship in 1996. During his entire tenure as an executive, the Sonics had the fifth best
winning percentage in the NBA and won four of the six division titles in Seattle Sonics’ 41 year history. The Seattle Storm won
the WNBA Championship in 2004. In 1998, he was voted runner-up by his peers, for NBA Executive of the Year. In late 2007, he formed Hana
Road Capital LLC, where he remains as its owner and Chief Investment Officer. Mr. Walker graduated from the University of Virginia in
1976 as an Academic All-American with a BA in psychology. He was the first ever Virginia player to win the Everett Case Award, for being
MVP of the ACC tournament. His number 41 has been retired by the University of Virginia. In 2001 he was named as one of six recipients
of the NCAA Silver Anniversary Scholar-Athlete Award. He received his Masters of Business Administration from Stanford University Graduate
School of Business in 1987. He was conferred as a Chartered Financial Analyst in 1992. He served on the Board of Visitors, at the University
of Virginia from 1997 - 2001. In addition to his investment and management experience, Mr. Walker was drafted in the first round (5th
overall) by the Portland Trailblazers in 1976 and was a member of the Portland Trailblazers 1977 Championship team. After the 1977 season,
Mr. Walker was traded to the Seattle SuperSonics, where he was a member of the SuperSonics 1979 Championship team. In 1982, Mr. Walker
was traded to the Houston Rockets. He retired from professional basketball in 1985. He received the George W. Kirchner Award for contributions
to Lancaster County sports in 1986. In 1993, he was inducted into the Pennsylvania State Sports Hall of Fame and was named the greatest
player of the 20th Century from Lancaster County, Pa. He was a member of the USA’s gold winning World University Games team in
1973, played in Russia. Since 2005, Mr. Walker has been a member of the Advisory Council of Stone Arch Capital, a Minneapolis based private
equity firm. Mr. Walker also serves as an independent trustee at Smead Capital Management, a Seattle based mutual fund. In 2018, he joined
the Governing Council of the Miller Center of Public Affairs, at The University of Virginia.
Karen
Bryant. Ms. Bryant has been an Independent Director on our board of directors since June 2021, Inc. For 25 years, Karen Bryant
has run high-profile organizations, navigating complex internal and external dynamics while driving business growth and operational excellence.
Ms. Bryant was at the helm of women’s professional basketball for 18 years - serving as General Manager of the Seattle Reign and
then, ultimately, as President and CEO of the Seattle Storm from 2008 through 2014. Under her leadership, the Seattle Storm won two WNBA
Championships, set multiple attendance and revenue records, and established itself as one of the WNBA’s premier franchises. In
2014, Ms. Bryant started and led a management consulting firm until one of her clients, Atavus Sports, appointed her CEO in 2016. With
Atavus, Ms. Bryant led a three-year process of market research, competitive analysis, customer discovery, product development, and sales.
In Fall 2019, Atavus was acquired by a private equity firm in a successful exit. After a successful 13-year run as CEO for two organizations,
Ms. Bryant returned to her management consulting firm in March 2020. Ms. Bryant also serves as an Executive Coach to business leaders
and entrepreneurs and is well-recognized for leading high-performing teams. Ms. Bryant’s recognition includes Seattle Sports Commission
Executive of the Year, Sports Business Journal Gamechanger, Puget Sound Business Journal Woman of Influence, Greater Seattle Business
Association Businessperson of the Year Finalist, and Girl Scouts of Western Washington Woman of Distinction. Ms. Bryant was a scholarship
athlete at Seattle University and the University of Washington, where she graduated in 1991 with a Bachelor of Arts degree in Communication.
Relationships
There
are no family relationships between any of our directors or executive officers.
Vote
Required and Board Recommendation
If
a quorum is present, either in person or by proxy, directors will be elected by a plurality of the votes, which means the seven nominees
who receive the greatest number of FOR votes will be elected. If you hold your shares through a broker and you do not instruct
the broker on how to vote on this proposal, your broker will not have authority to vote your shares. Abstentions and broker non-votes
will each be counted as present for purposes of determining the presence of a quorum, but will not have any effect on the outcome of
the proposal.
If
any nominee becomes unavailable for any reason (which event is not anticipated) to serve as a director at the time of the Annual Meeting,
then the shares represented by such proxy may be voted for such other person as may be determined by the proxy holders, unless a contrary
instruction is indicated in the proxy.
Directors
are to be elected to hold office until the next annual meeting of stockholders and until their successors are elected and qualified,
or their earlier death, resignation, or removal.
THE
BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE NOMINEES LISTED ABOVE (ITEM 1 ON THE PROXY CARD).
PROPOSAL
TWO
RATIFICATION
OF APPOINTMENT OF ROSENBERG RICH BAKER BERMAN, P.A. AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
At
the Annual Meeting, our stockholders will be asked to ratify the appointment of Rosenberg Rich Baker Berman, P.A. (“RRBB”)
as our independent registered public accounting firm for the fiscal year ending December 31, 2022. RRBB has served as our auditor since
2019. Our Audit Committee is responsible for approving the engagement of RRBB as our independent registered public accounting firm for
the year ending December 31, 2022. In the event our stockholders fail to ratify the appointment of RRBB, the Audit Committee will reconsider
its selection. In addition, even if our stockholders ratify the selection, the Audit Committee in its discretion may direct the appointment
of a different independent registered public accounting firm at any time during the year if it believes that a change would be in our
best interests and the best interests of our stockholders.
During
the two fiscal years ended December 31, 2021 and December 31, 2020, (i) there were no disagreements (as that term is described in Item
304(a)(1)(iv) of Regulation S-K) between us and RRBB on any matters of accounting principles or practices, financial statement disclosures,
auditing scope or procedures, or any other matter which, if not resolved to the satisfaction of RRBB, would have caused RRBB to make
reference to the subject matter of the disagreements in connection with the issuance of RRBB reports on the financial statements of such
periods, and (ii) there were no “reportable events” (as that term is described in Item 304(a)(1)(v) of Regulation S-K) other
than as described above.
The
Audit Committee meets with RRBB on a minimum of a quarterly basis throughout the year but often on a more frequent basis. At such times,
the Audit Committee reviews the services performed by RRBB, as well as the fees charged for such services.
Fees
Billed to the Company by its independent auditors during Fiscal Years 2021 and 2020
The
aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the annual
audit of our financial statements and review of financial statements included in our quarterly reports and services that are normally
provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
| |
For the Fiscal Year Ended | |
| |
2021 | | |
2020 | |
Audit Fees | |
$ | 138,000 | (1) | |
$ | 140,688 | |
Audit Related Fees | |
| 103,345 | (2) | |
| - | |
Tax Fees | |
| - | | |
| - | |
All Other Fees | |
| - | | |
| - | |
Total | |
$ | 241,345 | | |
$ | 140,688 | |
(1)
Audit fees for 2021 and 2020 include fees for professional services rendered by RRBB for the audit of our consolidated financial statements
included in our Annual Report on Form 10-K, and review of our condensed consolidated financial statements included in our Quarterly Reports
on Form 10-Q.
(2)
Audit-related fees for 2021 include fees related to consents and comfort letters for our public offerings
Pre-Approval
Policies and Procedures
Our
Audit Committee pre-approves all audit and permissible non-audit services. These services may include audit services, audit-related services,
tax services, and other services. Our Audit Committee approves these services on a case-by-case basis.
Interest
of Certain Persons in Matters to be Acted Upon
There
are no persons who have a direct or indirect substantial interest in the matter described under Proposal 2 above.
Vote
Required and Board Recommendation
The
ratification of the appointment of RRBB as our independent registered public accounting firm for the fiscal year ending December 31,
2022 requires a majority of the votes cast, whether in person or represented by proxy, to vote FOR this proposal. Abstentions
will be counted as present for purposes of determining the presence of a quorum, but will have no effect on the outcome of the vote.
Submission
of the appointment to stockholder approval is not required. However, if our stockholders fail to ratify the appointment, the Audit Committee
will reconsider whether to retain RRBB as our independent auditor or whether to consider the selection of a different firm. Even if the
appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent auditor at any time
during the fiscal year ending December 31, 2022.
THE
BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE RATIFICATION OF ROSENBERG RICH BAKER BERMAN, P.A. AS INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2022 (ITEM 2 ON THE PROXY CARD).
REPORT
OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The
following is the report of the Audit Committee of the Board of Directors of Harbor Custom Development, Inc. with respect to Harbor Custom
Development, Inc.’s audited financial statements for the fiscal year ended December 31, 2021, included in the Company’s Annual
Report on Form 10-K, filed with the SEC on March 24, 2022. The information contained in this report shall not be deemed to be “soliciting
material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing
under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates it by reference in such filing.
The
Audit Committee of the Board of Directors currently consists of three non-employee directors, including Messrs. Wong (Chair), Swets,
and Walker. The Board has determined that each of Messrs. Wong, Swets, and Walker are “independent directors” under the listing
standards of Nasdaq.
The
primary purpose of the Audit Committee is to assist the Board of Directors in fulfilling its general oversight of the Company’s
financial reporting process. The Audit Committee conducted its oversight activities for the Company in accordance with the duties and
responsibilities outlined in the Audit Committee charter. The Audit Committee has the authority to obtain advice and assistance from
outside legal, accounting, or other advisers as the Audit Committee deems necessary to carry out its duties and to receive appropriate
funding, as determined by the Audit Committee, from the Company for such advice and assistance.
The
Company’s management is responsible for the preparation, consistency, integrity, and fair presentation of the financial statements,
accounting, and financial reporting principles, systems of internal control and procedures designed to ensure compliance with accounting
standards, applicable laws, and regulations. The Company’s independent registered public accounting firm, RRBB, is responsible
for performing an independent audit of the Company’s financial statements.
The
Audit Committee hereby reports as follows:
|
1. |
The
Audit Committee has reviewed and discussed the audited financial statements as of and for the year ended December 31, 2021 with management. |
|
|
|
|
2. |
The
Audit Committee has discussed with RRBB, the Company’s independent auditors for the year ended December 31, 2021, the matters
required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”)
and the Securities and Exchange Commission. In addition, the Audit Committee met with RRBB, with and without management present,
to discuss the overall scope of RRBB’s audit, the results of its examinations, and the overall quality of the Company’s
financial reporting. |
|
|
|
|
3. |
The
Audit Committee has received the written disclosures and the letter from RRBB required by applicable requirements of the PCAOB regarding
RRBB’s communications with the Audit Committee concerning independence and has discussed with RRBB its independence. |
|
|
|
|
4. |
Based
upon the review and discussion referred to in paragraphs (1) through (3) above, the Audit Committee recommended to the Board of Directors,
and the Board approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2021, for filing with the Securities and Exchange Commission. |
The
Audit Committee of the Board of Directors:
PROPOSAL
THREE
ADVISORY VOTE ON EXECUTIVE COMPENSATION
Background
Our
Board of Directors and Compensation Committee are providing stockholders with the opportunity to cast an advisory vote on the compensation
of our named executive officers. This proposal, commonly known as a “Say on Pay” proposal, gives you, as a stockholder, the
opportunity to endorse or not endorse our executive compensation program and the compensation paid to our named executive officers as
reported in this Proxy Statement.
The
Say on Pay vote is advisory, and therefore not binding on the Compensation Committee or the Board. Although the vote is non-binding,
the Compensation Committee and the Board will review the voting results, seek to determine the cause, or causes of any significant negative
voting, and take the voting results into consideration when making future decisions regarding executive compensation.
The
Compensation Committee of the Board of Directors, which is comprised of a majority of independent directors, has the responsibility for
evaluating and authorizing the compensation payable to our executive officers. The goal of our executive compensation program is to is
to align the interests of our executive officers with those of our shareholders in a way that allows us to attract and retain the best
executive talent. To achieve this goal, we have adopted compensation policies with respect to, among other things, setting base salaries,
awarding bonuses, and making future grants of equity awards to our executive officers. Our Compensation Committee has designed a compensation
program that rewards, among other things, favorable stockholder returns, stock appreciation, our competitive position within the homebuilding
industry, and each executive officer’s long-term career contributions to us.
Fiscal
Year 2021
During
the fiscal year ended December 31, 2021, our “named executive officers” were:
|
1. |
Sterling
Griffin, our Chief Executive Officer, and President, |
|
|
|
|
2. |
Lance
Brown, our Chief Financial Officer (Lynda Meadows, our previous Chief Financial Officer, resigned on August 24, 2021); and |
|
|
|
|
3. |
Jeff
Habersetzer, who serves as our General Counsel, Chief Operations Officer, and Secretary. |
Elements
of Compensation
The
compensation incentives designed to further the goals described in Background above take the form of annual cash compensation and equity
awards, as well as long-term cash and/or equity incentives measured by company and/or individual performance targets to be established
by our Compensation Committee. In addition, our Compensation Committee may decide to make equity-based awards to new executive officers
in order to attract talented professionals to serve us.
Annual
Base Salary. Base salary is designed to compensate our named executive officers at a fixed level of compensation that serves as a
retention tool throughout the executive’s career. In determining base salaries, our Compensation Committee considers each executive’s
role and responsibility, unique skills, future potential with us, salary levels for similar positions in our market and internal pay
equity. The annual base salaries of our named executive officers are reflected in the Summary Compensation Table included in this Proxy
Statement.
Option
Plan. Certain executives were issued options pursuant to the 2018 Equity Incentive Plan. We plan to continue to offer option awards
to executives, in the discretion of the Board of Directors, considering the executive’s role and other compensation.
Stock
Award Plan. Certain executives were issued restricted stock units (“RSUs”) pursuant to our 2020 Restricted Stock Plan.
We plan to continue to offer RSUs awards to executives, in the discretion of the Compensation Committee, considering the executive’s
role and other compensation.
401(k)
Plan. We offer all of our employees, including executives, a 401k safe harbor match, where 100% of contributions are matched on the
first 3% of monies contributed on a pre-tax basis from payroll; and a 50% match on the next 2% that is contributed on a pre-tax basis
from payroll.
Health/Welfare
Plans. We have a health care, dental, and vision plan available to all employees, including our executives, who become eligible after
60 days of employment.
PTO
Plan. Executives may take PTO at any time, at their own reasonable discretion.
Other
Benefits. Executives are provided with car allowance and reimbursement of commuting expenses.
Stockholders
are encouraged to read the Executive Compensation section of this Proxy Statement for a more detailed discussion of our compensation
program.
Vote
Required
The
Board and Compensation Committee believe that our executive compensation program uses appropriate structures and sound pay practices
that are effective in achieving our core compensation objectives. Accordingly, the Board recommends that you vote in favor of the following
resolution:
“RESOLVED,
that the stockholders of Harbor Custom Development, Inc. hereby approve, on an advisory basis, the compensation of the Company’s
named executive officers, as disclosed in this proxy statement, under the section entitled ‘Executive Compensation.’”
If
a quorum is present, the approval, on a non-binding advisory basis, of the compensation of our named executive officers requires that
a majority of the votes cast, whether in person or represented by proxy, are voted FOR this proposal. Abstentions and “broker
non-votes” will each be counted as present for purposes of determining the presence of a quorum, but will have no effect on the
outcome of the vote.
The
approval of this proposal is not a condition to the approval of any other proposals submitted to the stockholders.
THE
BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE
OFFICERS (ITEM 3 ON THE PROXY CARD).
EXECUTIVE
COMPENSATION
Executive
Compensation
Summary
Compensation Table
The
following is a summary of the elements of our compensation arrangements paid to our executive officers for fiscal years 2021 and 2020.
Name and Principal Position | |
Year | |
Salary ($) | | |
Stock Awards ($) | | |
Option Awards ($) | | |
All Other Compensation ($) | | |
Total ($) | |
Sterling Griffin | |
2021 | |
| 442,750 | | |
| 31,200 | (1) | |
| - | | |
| 164,690 | (2) | |
| 638,640 | |
Chief Executive Officer and President | |
2020 | |
| 420,000 | | |
| 22,650 | (3) | |
| 35,154 | (4) | |
| 60,539 | (5) | |
| 538,343 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Jeffrey Habersetzer, | |
2021 | |
| 199,250 | | |
| - | | |
| 133,787 | (6) | |
| 19,892 | (7) | |
| 352,929 | |
Chief Operating Officer | |
2020 | |
| 123,854 | | |
| | | |
| 51,644 | (8) | |
| 3,209 | (9) | |
| 178,707 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Lance Brown, | |
2021 | |
| 43,616 | (10) | |
| 216,000 | (11) | |
| - | | |
| 17,942 | (12) | |
| 277,558 | |
Chief Financial Officer | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Lynda Meadows | |
2021 | |
| 141,192 | (13) | |
| - | | |
| 133,787 | (14) | |
| 53,054 | (15) | |
| 328,033 | |
Former Chief Financial Officer | |
2020 | |
| 56,167 | (16) | |
| - | | |
| 81,044 | (17) | |
| - | | |
| 137,211 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Tim O’Sullivan | |
2021 | |
| 143,023 | (18) | |
| - | | |
| - | | |
| 14,312 | (19) | |
| 157,335 | |
Interim Chief Financial Officer | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
(1)
On August 12, 2021, in his capacity as a member of our board, Mr. Griffin was granted 10,000 RSUs pursuant to our 2020 Restricted Stock
Plan, whereby equal installments of 2,500 RSUs vest on the last day of each calendar quarter, beginning on September 30, 2021. The grant
date fair value of the RSU Award was $3.12.
(2)
Consists of commuting expense of $7,507, 401K matching of $11,600, $25,883 of health insurance paid by us, $15,000 in director compensation,
as well as $104,700 of commissions earned by SGRE, LLC, which is 100% owned by Mr. Griffin.
(3)
On December 3, 2020, in his capacity as a member of our board, Mr. Griffin was granted 5,000 RSUs pursuant to our 2020 Restricted Stock
Plan, whereby equal installments of 1,250 RSUs vest on the last day of each calendar quarter, beginning on December 31, 2020. The grant
date fair value of the RSU Award was $4.53.
(4)
On October 13, 2020, in his capacity as a member of our board, Mr. Griffin was granted 20,000 stock options pursuant to our 2018 Equity
Incentive Plan, whereby equal installments of 5,000 stock options vest on the last day of each calendar quarter, beginning on December
31, 2020. The exercise price of the stock options is $5.15.
(5)
Consists of credit card cash back of $26,647, $21,070 of health insurance paid by us, car payments of $7,818, and cell phone expenses
of $5,004.
(6)
On June 28, 2021, Mr. Habersetzer was granted 100,000 stock options pursuant to our 2018 Equity Incentive Plan, whereby equal installments
of 4,166 stock options vest on the last day of each calendar month, beginning on June 28, 2021. The exercise price of the stock options
is $3.25.
(7)
Consists of car allowance of $5,500, 401K matching of $8,190, and $6,202 of health insurance payments.
(8)
On September 1, 2020, in his capacity as secretary, Mr. Habersetzer was granted 20,000 stock options pursuant to our 2018 Equity Incentive
Plan, whereby equal installments of 1,666 stock options vest on the last day of each calendar month, beginning on September 30, 2020.
The exercise price of the stock options is $6.50.
(9)
Consists of health insurance payments of $3,209.
(10)
Mr. Brown was hired on November 1, 2021. This amount reflects the pro-rated portion of Mr. Brown’s annual salary.
(11)
On November 8, 2021, Mr. Brown was granted 100,000 RSUs pursuant to his employment agreement, whereby 33,333 shares are vested on November
8, 2022, and the remaining 66,666 shares will vest on a quarterly basis in eight equal installments, beginning on February 8, 2023. The
grant date fair value of the RSU was $2.16.
(12)
Consists of commuting expense of $13,509, and $4,433 of health insurance paid by us.
(13)
Ms. Meadows resigned on August 24, 2021.
(14)
On June 28, 2021, Ms. Meadows was granted 100,000 stock options pursuant to our 2018 Equity Incentive Plan, whereby equal installments
of 4,166 stock options vest on the last day of each calendar month, beginning on June 28, 2021. The exercise price of the stock options
is $3.25. These options were forfeited following her resignation on August 24, 2021.
(15)
Consists of consulting fees of $41,195, 401K matching of $5,648, and $6,211 of health insurance payments.
(16)
Ms. Meadows was hired on September 21, 2020. This amount reflects the pro-rated portion of Ms. Meadows annual salary.
(17)
On September 21, 2020, Ms. Meadows was granted 40,000 stock options pursuant to our 2018 Equity Incentive Plan, whereby equal installments
of 1,667 stock options vest on the last day of each calendar month, beginning on September 30, 2020. The exercise price of the stock
options is $5.00. These options were forfeited following her resignation on August 24, 2021.
(18)
Mr. O’Sullivan was acting as interim Chief Financial Offer, effective August 24, 2021 until we appointed Mr. Brown as Chief Financial
Officer on November 1, 2021. This amount represents the annual salary paid to Mr. O’Sullivan. Mr. O’Sullivan resigned on
February 24, 2022.
(19)
Consists of 401K matching of $5,721, and $8,591 of health insurance payments for the full year.
We
believe that the primary goal of executive compensation is to align the interests of our executive officers with those of our shareholders
in a way that allows us to attract and retain the best executive talent. Additionally, in order to ensure our executive officers are
compensated within the current industry ranges for their respective duties we have engaged a national, independent, professional employee
consulting firm to evaluate and provide an assessment and recommendations for executive compensation in 2022.
The
compensation incentives designed to further these goals take the form of annual cash compensation and equity awards, as well as long-term
cash and/or equity incentives measured by Company and/or individual performance targets to be established by our Compensation Committee.
In addition, our Compensation Committee may determine to make equity-based awards to new executive officers in order to attract talented
professionals to serve us.
Annual
Base Salary. Base salary is designed to compensate our named executive officers at a fixed level of compensation that serves as a
retention tool throughout the executive’s career. In determining base salaries, our Compensation Committee considers each executive’s
role and responsibility, unique skills, future potential with us, salary levels for similar positions in our market, and internal pay
equity.
Option
Plan. Certain executives were issued options pursuant to our 2018 Equity Incentive Plan. We plan to continue to offer option awards
to executives, in the discretion of the board of directors, considering the executive’s role and other compensation.
Stock
Award Plan. Certain executives were issued restricted stock units (“RSUs”) pursuant to our 2020 Restricted Stock Plan.
We plan to continue to offer RSUs awards to executives, in the discretion of the Compensation Committee, considering the executive’s
role and other compensation.
Outstanding
Equity Awards at Year End
The
following table sets forth information regarding outstanding stock options held by our executive officers as of December 31, 2021:
Name and Principal Position | |
Grant Date | |
Number of Securities Underlying Options | | |
Vesting Commencement Date | |
Exercise Price per share | | |
Expiration Date |
Sterling Griffin, | |
12/31/2018 | |
| 67,568 | | |
1/1/2019 | (1) |
$ | 0.44 | | |
12/31/2023 |
Chief Executive Officer and President | |
10/13/2020 | |
| 20,000 | | |
12/31/2020 | (2) |
$ | 5.15 | | |
10/13/2030 |
| |
| |
| | | |
| |
| | | |
|
Jeffrey Habersetzer, | |
12/19/2019 | |
| 9,010 | | |
12/19/2019 | (3) |
$ | 0.40 | | |
12/19/2029 |
Chief Operating Officer | |
9/1/2020 | |
| 20,000 | | |
9/1/2020 | (4) |
$ | 6.50 | | |
9/1/2030 |
| |
6/28/2021 | |
| 100,000 | | |
6/28/2021 | (5) |
$ | 3.25 | | |
6/28/2031 |
| |
| |
| | | |
| |
| | | |
|
Tim O’Sullivan | |
8/12/2019 | |
| 16,217 | | |
9/1/2022 | (6) |
$ | 0.40 | | |
8/11/2029 |
Interim Chief Financial Officer | |
| |
| | | |
| |
| | | |
|
(1)
Effective January 1, 2019, Mr. Griffin was entitled to 67,568 stock options pursuant to the 2018 Equity Incentive Plan. One hundred percent
of the shares subject to this option vested immediately upon granting of the option. The exercise price of the stock options is $0.44.
(2)
On October 24, 2020, in his capacity as a member of our board. Mr. Griffin was granted 20,000 stock options pursuant to our 2018 Equity
Incentive Plan, whereby equal installments of 5,000 stock options vest on the last day of each calendar quarter, beginning on December
31, 2020. The exercise price of the stock options is $5.15.
(3)
Mr. Habersetzer was granted 9,010 stock options pursuant to our 2018 Equity Incentive Plan. One thirty-sixth of the shares subject to
this option vest each month, subject to Mr. Habersetzer continuing to be an employee. The exercise price of the stock options is $0.40.
(4)
On September 1, 2020, Mr. Habersetzer was granted 20,000 stock options pursuant to our 2018 Equity Incentive Plan, whereby equal installments
of 1,666 stock options vest on the last day of each calendar month, beginning on September 30, 2020. The exercise price of the stock
options is $6.50.
(5)
On June 28, 2021, Mr. Habersetzer was granted 100,000 stock options pursuant to our 2018 Equity Incentive Plan, whereby equal installments
of 4,166 stock options vest on the last day of each calendar month, beginning on June 28, 2021. The exercise price of the stock options
is $3.25.
(6)
Mr. O’Sullivan was granted 16,217 stock options pursuant to our 2018 Equity Incentive Plan, whereby one thirty-six of the shares
vest each month, beginning September 1, 2019. The exercise price of the stock options is $0.40.
The
following table sets forth information regarding RSUs held by our executive officers as of December 31, 2021:
Name and Principal Position | |
Grant Date | |
Number of RSUs Granted | | |
Fair Value of Stock Award | | |
Vesting Commencement Date | |
Number of Unvested RSUs | | |
Fair Value of Unvested RSUs | |
Sterling Griffin, | |
12/3/2020 | |
| 5,000 | | |
$ | 22,650 | | |
12/31/2020 | (1) |
| - | | |
$ | - | |
Chief Executive Officer and President | |
8/12/2021 | |
| 10,000 | | |
$ | 31,200 | | |
9/30/2021 | (2) |
| 5,000 | | |
$ | 15,600 | |
| |
| |
| | | |
| | | |
| |
| | | |
| | |
Lance Brown, | |
11/08/2021 | |
| 100,000 | | |
$ | 216,000 | | |
11/08/2022 | (3) |
| 100,000 | | |
$ | 216,000 | |
Chief Financial Officer | |
| |
| | | |
| | | |
| |
| | | |
| | |
(1)
On December 3, 2020, in his capacity as a member of our board, Mr. Griffin was granted 5,000 RSUs pursuant to our 2020 Restricted Stock
Plan, whereby equal installments of 1,250 RSUs vest on the last day of each calendar quarter, beginning on December 31, 2020. The grant
date fair value of the RSU Award was $4.53.
(2)
On August 12, 2021, in his capacity as a member of our board, Mr. Griffin was granted 10,000 RSUs pursuant to our 2020 Restricted Stock
Plan, whereby equal installments of 2,500 RSUs vest on the last day of each calendar quarter, beginning on September 30, 2021. The grant
date fair value of the RSU Award was $3.12.
(3)
On November 8, 2021, Mr. Brown was granted 100,000 RSUs pursuant to his employment agreement, whereby 33,333 shares are vested on November
8, 2022 and the remaining 66,666 shares will vest on a quarterly basis in eight equal installments, beginning on February 8, 2023. The
grant date fair value of the RSU was $2.16.
Other
Elements of Compensation
401(k)
Plan. We offer all of our employees, including executives, a 401k safe harbor match, where 100% of contributions are matched on the
first 3% of monies contributed on a pre-tax basis from payroll and a 50% match on the next 2% that is contributed on a pre-tax basis
from payroll.
Health/Welfare
Plans. We have a health care, dental, and vision plan available to all employees, including our executives, who become eligible after
60 days of employment.
PTO
Plan. Executives may take PTO at any time, at their own reasonable discretion.
Other
Benefits. Executives are provided with car allowance and reimbursement of commuting expenses.
Employment
Agreements with our Named Executive Officers
Employment
Agreement with Sterling Griffin
We
have an employment agreement with Sterling Griffin as our Chief Executive Officer and President, effective January 1, 2019. This employment
agreement is for a term of ten years with automatic one-year renewals unless either party gives notice of termination at least 30 days
prior to the expiration of its initial term or any renewal term. Mr. Griffin is entitled to an annual salary of $420,000, discretionary
bonuses in the discretion of the board of directors, 67,568 options pursuant to the 2018 Equity Incentive Plan, an automobile allowance
in the discretion of the board, and participation in all benefit plans, such as paid vacation and health insurance. In the event of our
termination of Mr. Griffin without cause, Mr. Griffin is entitled to 26 weeks of his then salary as severance. On June 11, 2021, Mr.
Griffin’s salary was increased to $462,000.
In
addition to the 2021 compensation listed above, Mr. Griffin received a cash bonus of $217,140 from 2021 performance on January 18, 2022,
and he was granted 28,200 common shares pursuant to the Company’s Restricted Stock Plan on January 10, 2022.
Offer
Letter with Jeff Habersetzer
On
December 18, 2019, Mr. Habersetzer was offered employment with a starting salary of $112,500, with a retention bonus of $12,500 following
a successful one-year performance review. Mr. Habersetzer was issued 20,000 options pursuant to the 2018 Equity Incentive Plan, as well
as participation in all benefit plans including paid vacation, health insurance, and our 401k program. Mr. Habersetzer’s salary
was increased to $140,000 on June 15, 2020, and $160,000 on March 22, 2021. On June 28, 2021, the Board of Directors approved new compensation
terms for Mr. Habersetzer, in connection with his promotion to Chief Operating Officer. The new terms include an annual base salary increase
to $225,000, effective July 1, 2021.
On
February 7, 2022, Mr. Habersetzer’s salary was increased to $280,000, and was awarded a cash bonus of $105,750 from 2021 performance
on January 18, 2022. He was also granted 28,200 shares of common stock pursuant to the Company’s Restricted Stock Plan on January
10, 2022.
Employment
Agreement with Lance Brown
On
November 1, 2021, the Company entered into an employment agreement with Lance Brown to serve the Company as Chief Financial Officer,
reporting to our Chief Executive Officer. The employment agreement is for a term of three years, and will automatically renew for additional
one year periods unless either party provides the other party with notice of non-renewal at least 90 days before any such anniversary.
In accordance with the terms of the employment agreement, Mr. Brown is paid an annual salary of $280,000 and has the opportunity to earn
an annual target bonus of 50% of his base salary with the actual payout determined based on the achievement of annual individual and
Company performance objectives established by the Compensation Committee of the BOD. In addition, Mr. Brown received a one-time sign
on bonus of $75,000, which was paid on January 14, 2022 and was granted 100,000 shares of common stock pursuant to the Company’s
Restricted Stock Plan, 33,333 shares of which will vest on November 8, 2022, and thereafter, the remaining 66,666 shares will vest on
a quarterly basis in eight equal installments, whereby all shares shall be vested by November 8, 2024. Mr. Brown may participate in all
benefit plans, such as paid vacation, health insurance, and our 401k program. In the event of our termination of Mr. Brown without cause,
Mr. Brown is entitled to 100% of his annual base salary plus 100% of his target annual bonus as severance. Additionally, all outstanding
restricted stock units and other previously granted awards that would have vested within 12 months of the date of termination shall become
fully vested.
On
January 14, 2022, Mr. Brown was awarded a cash bonus of $21,633 from 2021 performance and was granted 4,700 shares of common stock pursuant
to the Company’s Restricted Stock Plan on January 10, 2022.
Offer
Letter with Lynda Meadows
On
June 7, 2020, Lynda Meadows entered into an employment offer letter with us that provided for Ms. Meadows’ employment as Chief
Financial Officer, reporting to our Chief Executive Officer. In accordance with the terms of the offer letter, Ms. Meadows was paid an
annual salary of $200,000 and her annual target bonus was 60% of her annual base salary, based on objectives to be determined by the
parties. In addition, Ms. Meadows was granted options to purchase 40,000 shares of our common stock pursuant to our 2018 Equity Incentive
Plan. Ms. Meadows participated in all benefit plans, such as paid vacation, health insurance, and our 401k program. Mr. Meadows’s
salary was increased to $220,000 on June 15, 2020. On June 28, 2021, the Board of Directors approved new compensation terms for Ms. Meadows,
the Company’s Chief Financial Officer. The new terms included an annual base salary increase to $250,000, effective July 1, 2021.
Offer
Letter with Tim O’Sullivan
Tim
O’Sullivan was appointed as Chief Financial Officer on an interim basis on August 24, 2021 until Mr. Brown was appointed. In accordance
with the terms of the offer letter, Mr. O’Sullivan was paid an annual salary $180,000 until the company appointed his permanent
replacement.
Director
Compensation
The
following table sets forth information regarding the compensation earned for service on our board of directors in 2021. We reimburse
all directors for their reasonable out of pocket expenses incurred in connection with the performance of their duties as directors, including
without limitation, travel expenses in connection with their attendance in-person at board and committee meetings.
Director Name | |
Cash | | |
Fair Value of Restricted Stock Award(1) | | |
Total | |
Sterling Griffin | |
$ | 15,000 | | |
$ | 31,200 | | |
$ | 46,200 | |
Richard Schmidtke | |
$ | 15,000 | | |
$ | 31,200 | | |
$ | 46,200 | |
Larry Swets | |
$ | 25,000 | | |
$ | 31,200 | | |
$ | 56,200 | |
Dennis Wong | |
$ | 140,000 | | |
$ | 31,200 | | |
$ | 171,200 | |
Wally Walker | |
$ | 25,000 | | |
$ | 31,200 | | |
$ | 56,200 | |
Karen Bryant | |
$ | 15,000 | | |
$ | 31,200 | | |
$ | 46,200 | |
Chris Corr | |
$ | 10,000 | | |
$ | 31,200 | | |
$ | 41,200 | |
(1)
On August 12, 2021, each of our Directors was granted 10,000 RSUs pursuant to our 2020 Restricted Stock Plan, whereby equal installments
of 2,500 RSUs vest on the last day of each calendar quarter, beginning on September 30, 2021. The grant date fair value of the RSU Award
was $3.12.
We
anticipate providing cash and issuing stock options under our 2018 Equity Incentive Plan and/or Restricted Stock under our 2020 Restricted
Stock Plan to current and new directors in the future to compensate them for their service.
2018
Equity Incentive Plan
On
November 12, 2018, we adopted the 2018 Equity Incentive Plan which provides for the grant of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to our employees and the employees of any subsidiary
corporation, and for the grant of non-statutory stock options to non-employees, including directors and other service providers.
Authorized
shares. A total of 675,676 shares of our common stock has been reserved for issuance pursuant to the exercise of options issued
from the 2018 Equity Incentive Plan.
Plan
administration. Our board of directors administers our 2018 Equity Incentive Plan.
Stock
options. Stock options may be granted under our 2018 Equity Incentive Plan. The exercise price of options granted under our
2018 Equity Incentive Plan must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive
stock option may not exceed ten years, except that with respect to any participant who owns more than 10% of the voting power of all
classes of our outstanding stock, the term must not exceed five years and the exercise price must equal at least 110% of the fair market
value on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include
cash, shares, or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law.
After the termination of service of an employee, director, or consultant, he or she may exercise his or her option for the period of
time stated in his or her option agreement. Generally, if termination is due to death or disability, the option will remain exercisable
for 12 months. In all other cases, the option will generally remain exercisable for three months following the termination of service.
However, in no event may an option be exercised later than the expiration of its term. Subject to the provisions of our 2018 Equity Incentive
Plan, the administrator determines the other terms of options.
Options
granted. As of December 31, 2021 pursuant to our 2018 Equity Incentive Plan, we have issued 508,297 options to purchase
shares of our common stock to our employees, officers, and directors.
Non-transferability
of awards. Unless the administrator provides otherwise, our 2018 Equity Incentive Plan generally does not allow for the transfer
of awards and only the recipient of an award may exercise an award during his or her lifetime.
Certain
adjustments. In the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or
potential benefits available under our 2018 Equity Incentive Plan, the administrator will adjust the number and class of shares that
may be delivered under our 2018 Equity Incentive Plan and/or the number, class and price of shares covered by each outstanding award
and the numerical share limits set forth in our 2018 Equity Incentive Plan. In the event of our proposed liquidation or dissolution,
the administrator will notify participants as soon as practicable and all awards will terminate immediately prior to the consummation
of such proposed transaction.
Merger
or change in control
Our
2018 Equity Incentive Plan provides that in the event of a merger or change in control, as defined under the 2018 Equity Incentive Plan,
each outstanding award will be treated as the administrator determines, except that if a successor corporation or its parent or subsidiary
does not assume or substitute an equivalent award for any outstanding award, then such award will fully vest, all restrictions on the
shares subject to such award will lapse, all performance goals or other vesting criteria applicable to the shares subject to such award
will be deemed achieved at 100% of target levels, and all of the shares subject to such award will become fully exercisable, if applicable,
for a specified period prior to the transaction. The award will then terminate upon the expiration of the specified period of time.
Amendment,
termination. The administrator has the authority to amend, suspend, or terminate the 2018 Equity Incentive Plan provided such
action will not impair the existing rights of any participant. Our 2018 Equity Incentive Plan will automatically terminate in 2028, unless
we terminate it sooner.
2020
Restricted Stock Plan
Purpose
of the 2020 Restricted Stock Plan. The 2020 Restricted Stock Plan is intended to provide incentives which will attract, retain, motivate,
and reward officers, directors, and key employees of us or any of our Affiliates (“Participants”), by providing them opportunities
to acquire shares of our common stock (“Awards”).
Stock
subject to the Plan. The aggregate number of shares of common stock that may be subject to Awards granted under the 2020 Restricted
Stock Plan is 700,000 shares of common stock. If any shares of common stock are forfeited, retained by us as payment of tax withholding
obligations with respect to an Award, or surrendered to us to satisfy tax withholding obligations, such shares will be added back to
the shares available for Awards. The 2020 Restricted Stock Plan contains certain adjustment provisions relating to stock dividends, stock
splits, and the like.
Administration
of the 2020 Restricted Stock Plan. The 2020 Restricted Stock Plan is administered by the Compensation Committee of the board of directors.
The Compensation Committee has the full power and authority to grant Awards to the persons eligible to receive such Awards and to determine
the amount, type, terms, and conditions of each such Award.
Eligibility.
Participants consist of such officers, directors, and key employees of us or any of our Affiliates as the Compensation Committee, in
its sole discretion, determines to be significantly responsible for our success and future growth and profitability and whom the Compensation
Committee may designate from time to time to receive Awards under the 2020 Restricted Stock Plan.
Types
of awards. Stock Awards and Performance Awards may, as determined by the Compensation Committee, in its discretion,
constitute Performance-Based Awards.
Stock
Awards
The
Compensation Committee is authorized to grant Stock Awards and will, in its sole discretion, determine the recipients and the number
of shares of common stock underlying each Stock Award. Each Stock Award will be subject to such terms and conditions consistent with
the 2020 Restricted Stock Plan as determined by the Compensation Committee and as set forth in an Award agreement, including, without
limitation, restrictions on the sale or other disposition of such shares and our right to reacquire such shares for no consideration
upon termination of the Participant’s employment or membership on the board, as applicable, within specified periods.
Performance
Awards
The
Compensation Committee is authorized to grant Performance Awards and will, in its sole discretion, determine the recipients and the number
of shares of common stock that may be subject to each Performance Award. Each Performance Award will be subject to such terms and conditions
consistent with the 2020 Restricted Stock Plan as determined by the Compensation Committee and as set forth in an Award agreement. The
Compensation Committee will set performance targets at its discretion which, depending on the extent to which they are met, will determine
the number of Performance Awards that will be paid out to the Participants and may attach to such Performance Awards one or more restrictions.
Performance targets may be based upon, without limitation, Company-wide, divisional, and/or individual performance.
The
Compensation Committee has the authority to adjust performance targets. The Compensation Committee also has the authority to permit a
Participant to elect to defer the receipt of any Performance Award, subject to the 2020 Restricted Stock Plan.
Performance-Based
Awards
Certain
Stock Awards and Performance Awards granted under the 2020 Restricted Stock Plan and the compensation attributable to such Awards are
intended to (i) qualify as Performance-Based Awards or (ii) be otherwise exempt from the deduction limitation imposed by Section 162(m)
of the Code. The Compensation Committee determines whether Stock Awards and Performance Awards granted under the 2020 Restricted Stock
Plan qualify as Performance-Based Awards. The Compensation Committee will establish in writing the performance goals, the vesting period,
the performance targets, and any other terms and conditions of the Award in its sole discretion.
Vesting.
Awards granted to Participants under the 2020 Restricted Stock Plan may be subject to a vesting period, unless otherwise determined by
the Compensation Committee.
If
we have a Change in Control, all unvested Awards granted under the 2020 Restricted Stock Plan will become fully vested immediately upon
the occurrence of the Change in Control and such vested Awards will be paid out or settled, as applicable, within 60 days upon the occurrence
of the Change in Control, subject to requirements of applicable laws and regulations.
Subject
to the discretion of the Compensation Committee, if a Participant’s employment or membership on the board is terminated due to
death or Disability, then all unvested and/or unearned Awards will be forfeited as of such date.
Section
409A of the Code
Awards
under the 2020 Restricted Stock Plan are intended either to be exempt from the rules of Section 409A of the Code or to satisfy those
rules and shall be construed accordingly. However, we will not be liable to any Participant or other holder of an Award with respect
to any Award-related adverse tax consequences arising under Section 409A or other provision of the Code.
Transferability.
Each Award granted under the 2020 Restricted Stock Plan will not be transferable other than by a will or the laws of decent and distribution
or as otherwise decided by the Compensation Committee.
Fair
market value. For purposes of the 2020 Restricted Stock Plan, “Fair Market Value” means, as of any given
date, the closing price of a share of common stock on Nasdaq or such other public trading market on which shares of common stock are
listed or quoted on that date.
Withholding.
All payments or distributions of Awards made pursuant to the 2020 Restricted Stock Plan will be net of any amounts required to be withheld
pursuant to applicable federal, state, and local tax withholding requirements.
Amendments.
Our board or the Compensation Committee may amend the 2020 Restricted Stock Plan from time to time or suspend or terminate it at
any time. However, no amendment will be made, without approval of our shareholders to (i) increase the total number of shares which may
be issued under the 2020 Restricted Stock Plan; (ii) modify the requirements as to eligibility for Awards under the 2020 Restricted Stock
Plan; or (iii) otherwise materially amend the 2020 Restricted Stock Plan as provided in Nasdaq rules.
Term
of the 2020 Restricted Stock Plan. The 2020 Restricted Stock Plan will terminate on the seventh anniversary of its Effective Date.
Outstanding
awards. As of December 31, 2021, there were 214,000 Awards issued under the 2020 Restricted Stock Plan.
Rule
10b5-1 Sales Plan
Our
directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they would contract with a broker to buy
or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established
by the director or officer when entering into the plan, without further direction from them. The director or executive officer may amend
a Rule 10b5-1 plan in some circumstances and may terminate a plan at any time. Our directors and executive officers also may buy or sell
additional shares outside a Rule 10b5-1 plan when they are not in possession of material nonpublic information subject to compliance
with the terms of our policy on insider trading and communications with the public.
DIRECTOR
COMPENSATION
Our
directors play a critical role in guiding our strategic direction and overseeing the management of our Company. Ongoing developments
in corporate governance and financial reporting have resulted in an increased demand for such highly qualified and productive public
company directors. The many responsibilities and risks and the substantial time commitment of being a director of a public company require
that we provide adequate incentives for our directors’ continued performance by paying compensation commensurate with our directors’
workload.
Our
director compensation is overseen by the Compensation Committee, which makes recommendations to our Board of Directors on the appropriate
structure for our non-employee director compensation program and the appropriate amount of compensation to offer to our non-employee
directors. Our Board of Directors is responsible for final approval of our non-employee director compensation program and the compensation
paid to our non-employee directors.
Director
Compensation
The
following table sets forth information regarding the compensation earned for service on our board of directors in 2021. We reimburse
all directors for their reasonable out of pocket expenses incurred in connection with the performance of their duties as directors, including
without limitation, travel expenses in connection with their attendance in-person at board and committee meetings.
Director Name | |
Cash | | |
Fair Value of Restricted Stock Award(1) | | |
Total | |
Sterling Griffin | |
$ | 15,000 | | |
$ | 31,200 | | |
$ | 46,200 | |
Richard Schmidtke | |
$ | 15,000 | | |
$ | 31,200 | | |
$ | 46,200 | |
Larry Swets | |
$ | 25,000 | | |
$ | 31,200 | | |
$ | 56,200 | |
Dennis Wong | |
$ | 140,000 | | |
$ | 31,200 | | |
$ | 171,200 | |
Wally Walker | |
$ | 25,000 | | |
$ | 31,200 | | |
$ | 56,200 | |
Karen Bryant | |
$ | 15,000 | | |
$ | 31,200 | | |
$ | 46,200 | |
Chris Corr | |
$ | 10,000 | | |
$ | 31,200 | | |
$ | 41,200 | |
(1)
On August 12, 2021, each of our Directors was granted 10,000 RSUs pursuant to our 2020 Restricted Stock Plan, whereby equal installments
of 2,500 RSUs vest on the last day of each calendar quarter, beginning on September 30, 2021. The grant date fair value of the RSU Award
was $3.12.
We
anticipate issuing stock options under our 2018 Equity Incentive Plan and Restricted Stock under our 2020 Restricted Stock Plan to current
and new directors in the future to compensate them for their service.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth the beneficial ownership of our common stock as of March 21, 2022 by:
● each
director;
●
each named executive officer;
●
all of our directors and executive officers as a group; and
●
each person known by us to be the beneficial owner of 5% or more of our outstanding common stock.
The
percentage ownership information is based on 13,206,165 shares of our common stock outstanding.
We
have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of
securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the
rules include shares of common stock issuable pursuant to the exercise of stock options and warrants that are either immediately exercisable
or exercisable on or before the date which is 60 days after the date of this document. The rules also include restricted stock units
that are vested over 60 days after the date of this document. These shares are deemed to be outstanding and beneficially owned by the
person holding those options, warrants, or restrict stock units the purpose of computing the percentage ownership of that person, but
they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated,
the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially
owned by them, subject to applicable community property laws.
| |
Amount and Nature of Beneficial Ownership | |
Name and Address of Beneficial Owner(9) | |
Number of
Shares of
Common Stock | | |
Percentage of Class | |
| |
| | |
| |
Directors and Named Executive Officers: | |
| | | |
| | |
Sterling Griffin, Chief Executive Officer, President, Director | |
| 2,795,657 | (1) | |
| 21.0 | % |
| |
| | | |
| | |
Jeff Habersetzer, Chief Operating Officer | |
| 100,575 | (2) | |
| * | |
| |
| | | |
| | |
Lance Brown, Chief Financial Officer | |
| 27,003 | | |
| * | |
| |
| | | |
| | |
Richard Schmidtke, Director | |
| 168,374 | (3) | |
| 1.3 | % |
| |
| | | |
| | |
Larry Swets, Director | |
| 117,950 | (4) | |
| * | |
| |
| | | |
| | |
Dennis Wong, Director | |
| 148,166 | (5) | |
| 1.1 | % |
| |
| | | |
| | |
Wally Walker, Director | |
| 83,200 | (6) | |
| * | |
| |
| | | |
| | |
Karen Bryant, Director | |
| 7,500 | (7) | |
| * | |
| |
| | | |
| | |
Chris Corr, Director | |
| 17,460 | (8) | |
| * | |
| |
| | | |
| | |
All directors and executive officers as a group (nine persons) | |
| 3,465,885 | | |
| 25.7 | % |
*Less
than 1.0%
(1)
Includes options to purchase 87,568 shares of common stock and 2,500 restricted stock units.
(2)
Includes options to purchase 68,925 shares of common stock.
(3)
Includes options to purchase 20,000 shares of our common stock and 2,500 restricted stock units.
(4)
Includes options to purchase 53,784 shares of our common stock and 2,500 restricted stock units.
(5)
Includes options to purchase 20,000 shares of our common stock and 2,500 restricted stock units.
(6)
Includes options to purchase 20,000 shares of our common stock and 2,500 restricted stock units.
(7)
Includes 2,500 restricted stock units.
(8)
Includes 2,500 restricted stock units.
(9)
Unless otherwise indicated, the address of each beneficial owner is 11505 Burnham Drive, Suite 301, Gig Harbor, Washington 98332.
DELINQUENT
SECTION 16(a) REPORTS
Section
16(a) of the Exchange Act requires that our officers, directors, and persons who own more than 10% of our Common Stock file reports of
ownership and changes in ownership with the SEC. Based solely on our review of the SEC’s EDGAR database, copies of such forms received
by us, or written representations from certain reporting persons, we believe that during the fiscal year ended December 31, 2021, the
following delinquencies have occurred:
Name
and Affiliation |
|
No.
of Late Reports |
|
No.
of Transactions Not Filed on a Timely Basis |
|
Known
Failures to
File |
Sterling
Griffin, Chief Executive Officer, and President |
|
2 |
|
3 |
|
None |
Jeffrey
B. Habersetzer, Chief Operating Officer |
|
2 |
|
3 |
|
None |
Richard
Schmidtke, Director |
|
2 |
|
3 |
|
None |
Larry
Swets, Director |
|
2 |
|
3 |
|
None |
Dennis
Wong, Director |
|
2 |
|
3 |
|
None |
Wally
Walker, Director |
|
2 |
|
3 |
|
None |
Karen
Bryant, Director |
|
2 |
|
1 |
|
None |
Chris
Corr, Director |
|
1 |
|
1 |
|
None |
Lynda
Meadows, former Chief Financial Officer* |
|
2 |
|
1 |
|
None |
Robb
Kenyon, former Director ** |
|
1 |
|
2 |
|
None |
*Lynda
Meadows resigned as Chief Financial Officer on August 24, 2021.
**Robb
Kenyon resigned as a director on July 8, 2021.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Certain
Relationships and Related Transactions, and Director Independence
Notes
Payable
We
entered into construction loans with Sound Equity, LLC of which Robb Kenyon, a former director and minority shareholder, is a partner.
These loans were originated between April 2019 and June 2021; all of the loans have a one-year maturity with interest rates ranging between
7.99% and 12.00%. For the years ended December 31, 2021 and 2020, we incurred loan origination fees of $0.6 million and $0.4 million,
respectively. These fees are recorded as debt discount and amortized over the life of the loan. The amortization is capitalized to real
estate. As of December 31, 2021, and December 31, 2020, there were $0.2 million and $0.2 million of remaining debt discounts, respectively.
During the years ended December 31, 2021 and 2020 we incurred prepaid interest of $1.4 million and $0.7 million, respectively. This interest
is recorded as debt prepaid interest and amortized over the life of the loan. The interest is capitalized to real estate. As of December
31, 2021, and December 31, 2020 there were $0.9 million and $0.5 million of remaining prepaid interest reserves, respectively. As of
December 31, 2021, and December 31, 2020 the outstanding loan balances were $14.5 million and $6.4 million, respectively.
We
entered into a construction loan with Curb Funding, LLC of which Robb Kenyon a former director and minority shareholder, is 100% owner.
The loan originated on August 13, 2020. The loan had a 1-year maturity with an interest rate of 12%. For the years ended December 31,
2021 and December 31, 2020, we incurred loan fees of $0 and $0.004 million, respectively. These fees are recorded as debt discount and
amortized over the life of the loan. The amortization is capitalized to real estate. As of December 31, 2021, and December 31, 2020,
there were $0 and $0.001 million of remaining debt discounts, respectively. As of December 31, 2021, and December 31, 2020, the outstanding
loan balances were $0, and $0.1 million, respectively. We incurred interest expense of $0 and $0.003 million for the years ended December
31, 2021 and 2020, respectively.
Robb
Kenyon resigned as a director on July 8, 2021, at which point the above loans ceased to be related party transactions.
On
April 19, 2019, we entered into a construction loan with Olympic Views, LLC of which our Chief Executive Officer and President previously
owned a 50% interest. He currently has no ownership interest in this LLC. The loan amount was $0.4 million with an interest rate of 12%
and a maturity date of April 19, 2020. The loan was collateralized by a deed of trust on the land. The amounts outstanding were $0 and
$0 as of December 31, 2021 and December 31, 2020, respectively. The interest expense was $0 and $0.02 million for the years ended December
31, 2021 and 2020 and was capitalized as part of Real Estate. In May 2020, we entered into an agreement with Olympic Views, LLC to convert
this debt and accrued interest of $0.1 million to common stock at the Initial Public Offering price of $6.00. This conversion was effected
on August 28, 2020 simultaneous with the Initial Public Offering. This transaction resulted in 82,826 shares of common stock being issued
to Olympic Views, LLC.
Due
to Related Party
We
utilize a quarry to process waste materials from the completion of raw land into sellable/buildable lots. The quarry is located on land
owned by SGRE, LLC which is 100% owned by our Chief Executive Officer and President. The materials produced by the quarry and sold by
us to others are subject to a 25% commission payable to SGRE, LLC. On December 31, 2021 and December 31, 2020, the commission payable
was $0.01 million and $0, respectively. The commission expense for the years ended December 31, 2021 and 2020, was $0.1 million and $0.1
million, respectively.
Richard
Schmidtke, a director, also provided accounting services to us in 2021 and 2020. On December 31, 2021 and December 31, 2020, the fees
payable to Mr. Schmidtke were $0 and $0.001 million, respectively. The accounting expense we incurred for Mr. Schmidtke’s services
for the years ended December 31, 2021 and 2020 was $0.001 million and $0.05 million, respectively.
Land
Purchase from a Related Party
On
September 2, 2020, we purchased 99 undeveloped lots for $3.4 million from Olympic Views, LLC. Our Chief Executive Officer and President
owned a 50% interest in this LLC at the date of purchase. He currently has no ownership interest in this LLC.
Compensation
of Our Current Directors and Executive Officers
For
information with respect to the compensation offered to our current directors and executive officers, please see the descriptions under
the headings “Executive Compensation” and “Director Compensation” in this proxy statement.
Related
Party Transaction Policy and Procedures
All
of the above transactions were approved by the disinterested Board of Directors. All future related party transactions will be voted
upon by the disinterested Board of Directors. The Audit Committee of the Board of Directors is responsible for evaluating each related
party transaction and making a recommendation to the disinterested members of the Board of Directors as to whether the transaction at
issue is fair, reasonable and within our policy and whether it should be ratified and approved. The Audit Committee, in making its recommendation,
will consider various factors, including the benefit of the transaction to us, the terms of the transaction and whether they are at arm’s-length
and in the ordinary course of our business, the direct or indirect nature of the related person’s interest in the transaction,
the size and expected term of the transaction and other facts and circumstances that bear on the materiality of the related party transaction
under applicable law and listing standards. The Audit Committee will review, at least annually, a summary of our transactions with our
directors and officers and with firms that employ our directors, as well as any other related person transactions.
PROPOSAL
FOUR
APPROVAL
OF AMENDMENT OF COMPANY’S ARTICLES OF INCORPORATION AND AMENDMENT OF 2nd AMENDED AND RESTATED BYLAWS
TO
REDUCE THE QUORUM REQUIREMENT FOR SHAREHOLDER MEETINGS
At
the Annual Meeting, our stockholders will be asked to approve an amendment to our Articles of Incorporation (the “Articles”)
and an amendment to our Second Amended and Restated Bylaws (the “Bylaws”) for the purpose of reducing the quorum requirement
for shareholder meetings. The Board has determined it is in our and our shareholders best interests to amend, and has adopted, subject
to shareholder approval, an amendment to, our Articles (the “Articles Amendment”) and an amendment to our Bylaws (the “Bylaws
Amendment”) reducing the quorum requirement for shareholder meetings from a majority of the outstanding voting securities of the
Company to 33.34% of the outstanding voting securities of the Company. Under the WBCA, the articles of incorporation may provide for
a greater or lesser quorum, but not less than one-third of the votes entitled to be cast, for shareholders, or voting groups of shareholders,
than what is provided under the WBCA. The Board is recommending a reduction in the quorum requirement from a majority of the outstanding
voting securities to 33.34% of the outstanding voting securities so that shareholder meetings do not fail because of lack of interest
or insufficient representation, which would impede our ability to transact business at shareholder meetings as may be required or desired.
The
full text of the Articles Amendment is set forth as follows:
Upon
the close of business on the Effective Date of this Certificate of Amendment with the Washington Secretary of State, at each meeting
of Shareholders, the presence in person or by proxy of the holders of 33.34% of voting power of the outstanding shares of stock entitled
to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the Shareholders so present
may, by 33.34% of voting power thereof, adjourn the meeting from time to time until a quorum shall attend. Shares of its own stock belonging
to the Corporation or to another corporation, if 33.34% of the shares entitled to vote in the election of Directors of such other corporation
is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the Corporation or any subsidiary of the Corporation to vote stock, including
but not limited to its own stock, held by it in a fiduciary capacity.
If
shareholders approve the Articles Amendment at the Annual Meeting, we will file with the Secretary of State of the State of Washington
Articles of Amendment to our Articles of Incorporation that include the full text of the Articles Amendment, which will become effective
upon acceptance of the filing.
The
full text of the Bylaws Amendment is set forth as follows:
1.
Section 1.5 is hereby deleted and replaced as follows:
Section
1.5 Quorum. Except as otherwise provided by law, the Articles of Incorporation, or these Bylaws, at each meeting of Shareholders,
the presence in person or by proxy of the holders of 33.34% of voting power of the outstanding shares of stock entitled to vote at the
meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the Shareholders so present may, by 33.34%
of voting power thereof, adjourn the meeting from time to time in the manner provided in Section 1.4 of these Bylaws until a quorum shall
attend. Shares of its own stock belonging to the Corporation or to another corporation, if 33.34% of the shares entitled to vote in the
election of Directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote
nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation or any subsidiary
of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.
If
shareholders approve the Bylaws Amendment at the Annual Meeting, the Bylaws Amendment will become effective upon approval.
Interest
of Certain Persons in Matters to be Acted Upon
There
are no persons who have a direct or indirect substantial interest in the matter described under Proposal 4 above.
Vote
Required and Board Recommendation
Approval
of the Articles Amendment and Bylaws Amendment requires a majority of the votes cast, whether in person or represented by proxy, to vote
FOR this proposal. Abstentions and “broker non-votes” will be counted as present for purposes of determining the presence
of a quorum, but will have no effect on the outcome of the vote.
The
approval of this proposal is not a condition to the approval of any other proposals submitted to the stockholders.
THE
BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE ARTICLES AMENDMENT AND BYLAWS AMENDMENT TO REDUCE THE
QUORUM REQUIREMENT FOR SHAREHOLDER MEETINGS (ITEM 4 ON THE PROXY CARD).
PROPOSAL
FIVE
APPROVAL
OF AMENDMENT OF COMPANY’S 2018 EQUITY INCENTIVE PLAN TO INCREASE, BY 2,000,000, THE NUMBER OF SHARES OF COMMON STOCK RESERVED
FOR ISSUANCE AS OPTIONS UNDER THE PLAN
At
the Annual Meeting, stockholders will be presented with a proposal to approve an amendment to our 2018 Equity Incentive Plan for the
purpose of increasing, by 2,000,000, the number of shares of common stock available for issuance as options under the Plan.
On
April 18, 2022, the Board of Directors unanimously approved the amendment and restatement of the 2018 Equity Incentive Plan, subject
to approval by our shareholders at the Annual Meeting. In order for the amendment and restatement of the 2018 Equity Incentive Plan to
take effect, it must be approved by a majority of our shareholders. If this amendment and restatement is not approved by our shareholders,
the version of the 2018 Equity Incentive Plan as currently in effect will continue to operate according to its terms. For a description
of the purpose and administration of the 2018 Equity Incentive Plan, please refer to page 21 above.
If
our shareholders approve the amendment to the 2018 Equity Incentive Plan at the Annual Meeting, the amendment to this Plan will become
effective upon approval at the Annual Meeting.
Interest
of Certain Persons in Matters to be Acted Upon
There
are no persons who have a direct or indirect substantial interest in the matter described under Proposal 5 above.
Vote
Required and Board Recommendation
Approval
of the amendment to the 2018 Equity Incentive Plan requires a majority of the votes cast, whether in person or represented by proxy,
to vote FOR this proposal. Abstentions and “broker non-votes” will be counted as present for purposes of determining
the presence of a quorum, but will have no effect on the outcome of the vote.
The
approval of this proposal is not a condition to the approval of any other proposals submitted to the stockholders.
THE
BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE 2018 EQUITY INCENTIVE PLAN INCREASING
BY, 2,000,000, THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE AS OPTIONS UNDER THE PLAN (ITEM 5 ON THE PROXY CARD).
PROPOSAL
SIX
APPROVAL
OF AMENDMENT OF COMPANY’S 2020 RESTRICTED STOCK PLAN TO INCREASE, BY 2,000,000, THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE
FOR
AWARD UNDER THE PLAN
At
the Annual Meeting, stockholders will be presented with a proposal to approve an amendment to our 2020 Restricted Stock Plan for the
purpose of increasing, by 2,000,000, the number of shares of common stock available for award under the Plan.
On
April 18, 2022, the Board of Directors unanimously approved the amendment and restatement of the 2020 Restricted Stock Plan, subject
to approval by the Company’s shareholders at the Annual Meeting. In order for the amendment and restatement of the 2020 Restricted
Stock Plan to take effect, it must be approved by a majority of our shareholders. If this amendment and restatement is not approved by
our shareholders, the version of the 2020 Restricted Stock Plan as currently in effect will continue to operate according to its terms.
For a description of the purpose and administration of the 2020 Restricted Stock Plan, please refer to page 23 above.
If
shareholders approve the amendment to the 2020 Restricted Stock Plan at the Annual Meeting, the amendment to this Plan will become effective
upon approval at the Annual Meeting.
Interest
of Certain Persons in Matters to be Acted Upon
There
are no persons who have a direct or indirect substantial interest in the matter described under Proposal 6 above.
Vote
Required and Board Recommendation
Approval
of the amendment to the 2020 Restricted Stock Plan requires a majority of the votes cast, whether in person or represented by proxy,
to vote FOR this proposal. Abstentions and “broker non-votes” will be counted as present for purposes of determining
the presence of a quorum, but will have no effect on the outcome of the vote.
The
approval of this proposal is not a condition to the approval of any other proposals submitted to the stockholders.
THE
BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE 2020 RESTRICTED STOCK PLAN INCREASING
BY, 2,000,000, THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR AWARD UNDER THE PLAN (ITEM 6 ON THE PROXY CARD).
OTHER
MATTERS
Our
management is not aware of any matter to be acted upon at the Annual Meeting other than the matters described above. However, if any
other matter properly comes before the Annual Meeting, the proxy holders will vote the proxies thereon in accordance with their best
judgment on such matter.
STOCKHOLDER
PROPOSALS FOR 2023 ANNUAL MEETING
Stockholders
interested in submitting a proposal for consideration at our 2023 Annual Meeting of Stockholders must do so by sending such proposal
to our Secretary at Harbor Custom Development, Inc., 11505 Burnham Dr., Suite 301, Gig Harbor, Washington 98332 telephone (253) 649-0636.
Under the SEC’s proxy rules (Rule 14a-8), the deadline for submission of proposals to be included in our proxy materials for the
2023 Annual Meeting is December 29, 2022. Accordingly, in order for a stockholder proposal to be considered for inclusion in our proxy
materials for the 2023 Annual Meeting in accordance with the SEC’s proxy rules, any such stockholder proposal must be received
by our Secretary on or before December 29, 2022, and comply with the procedures and requirements set forth in Rule 14a-8 under the Securities
Exchange Act of 1934, as well as the applicable requirements of our Bylaws. Any stockholder proposal received after December 29, 2022
will be considered untimely, and will not be included in our proxy materials. In addition, stockholders interested in submitting a proposal
outside of Rule 14a-8 must properly submit such a proposal in accordance with our Bylaws.
Our
Bylaws require advance notice of business to be brought before a stockholders’ meeting, including nominations of persons for election
as directors. Pursuant to our Bylaws, the date after which notice to us of a stockholder proposal submitted outside the process of Rule
14a-8 is considered timely is as follows, provided that such notice meets the information and other requirements set forth in our Bylaws.
Our Bylaws provide that a stockholder seeking to have a proposal included in our proxy materials must deliver written notice to us of
such proposal between February 8, 2023 and March 10, 2023, unless the date of the 2023 Annual Meeting is more than 30 days before or
more than 70 days after the one-year anniversary of the Annual Meeting, in which case such notice must be delivered to us not later than
the 90th day before the date of our 2023 Annual Meeting.
If
a stockholder that has notified us of its intention to present a proposal at the 2023 Annual Meeting does not appear or send a qualified
representative to present his or her proposal at the 2023 Annual Meeting, we need not present the proposal at our 2023 Annual Meeting.
HOUSEHOLDING
OF ANNUAL MEETING MATERIALS
We
have adopted “householding,” a procedure approved by the SEC under which stockholders who share an address will receive a
single copy of the Annual Meeting materials. This procedure reduces printing costs and mailing fees, while also reducing the environmental
impact of the distribution of documents related to the Annual Meeting. If you reside at the same address as another Harbor Custom Development,
Inc. stockholder and wish to receive a separate copy of the Annual Meeting materials, you may do so by making a written or oral request
to: Attn: Secretary, Harbor Custom Development, Inc., 11505 Burnham Dr., Suite 301, Gig Harbor, Washington 98332, telephone (253) 649-0636.
Upon your request, we will promptly deliver a separate copy to you. The Proxy Statement and our Annual Report are also available at https://agm.issuerdirect.com/hcdi.
Some
brokers household proxy materials, delivering a single proxy statement or notice to multiple stockholders sharing an address unless contrary
instructions have been received from the affected stockholders.
Once
you have received notice from your broker that they will be householding materials to your address, householding will continue until
you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would
prefer to receive a separate proxy statement or notice, please notify your broker directly. Any stockholders who share the same address
and currently receive multiple copies of the Annual Meeting materials who wish to receive only one copy in the future may contact their
bank, broker, or other holder of record, or us at the contact information listed above, to request information about householding.
ANNUAL
REPORT
Our
Annual Report to Stockholders, which contains our Annual Report on Form 10-K for the year ended December 31, 2021 will also be made available
(without exhibits), free of charge, to interested stockholders upon written request to Harbor Custom Development, Inc., 11505 Burnham
Dr., Suite 301, Gig Harbor, Washington 98332, Attention: Secretary.
|
BY
ORDER OF THE BOARD OF DIRECTORS |
|
|
|
By
Order of the Board of Directors |
|
|
|
|
April
20, 2022 |
Sterling
Griffin
President
and Chief Executive Officer |
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