UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
SCHEDULE
14A
Consent
Revocation Statement Pursuant To Section 14(a) of the Securities Exchange Act of 1934
(Amendment
No. 1)
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Filed
by the Registrant
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[X]
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Filed
by a Party other than the Registrant
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Check
the appropriate box:
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[X]
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Preliminary
Consent Revocation Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive
Consent Revocation Statement
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Definitive
Additional Materials
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Soliciting
Material under §240.14a-12
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TARONIS
FUELS, INC.
(Name
of Registrant as Specified in its Charter)
(Name
of Person(s) Filing Consent Revocation Statement, if other than the Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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[X]
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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Party:
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(4)
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Date
Filed:
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Preliminary—Subject
to Completion, Dated March 8, 2021
March
[●], 2021
Dear
Taronis Shareholders,
On
behalf of the Board of Directors (the “Board”), we are writing you to ask for your support in this contest over the
future direction of Taronis Fuels, Inc. (“Taronis” or the “Company”). Despite the significant progress
your Board has made toward improving cash flow and creating shareholder value from the Company’s sustainable gas technology
and products, a group of shareholders is attempting to take control of Taronis. We urge you to support the Board of Taronis
Fuels in this contest for control of the Company by voting the GREEN Consent Revocation Card.
On
February 12, 2021, two shareholders, Thomas Wetherald and Tobias Welo (together, “Wetherald and Welo”), commenced
a process seeking to remove without cause all five members of your Board of the Company and replace them with five of their own
nominees. Wetherald and Welo have been joined by Mary Pat Thompson, Sergey Vasnetsov and Andrew McCormick (together with Wetherald
and Welo, the “Activist Group”). The Activist Group is trying to take over the Company without paying for it, in other
words, without paying a control premium. The Activist Group has also sought your consent to certain amendments to the Company’s
Amended and Restated Bylaws (the “Bylaws”) which, if approved, would facilitate the removal of all five members of
your Board. The Board believes you should oppose these efforts by the Activist Group by voting the GREEN Consent Revocation
Card.
If
the Activist Group’s proposals are approved by you, their handpicked candidates will take ALL of the seats of your five-member
Board and gain control of the Company – without paying a premium.
Your
Board believes that THE ACTIVIST GROUP’S proposals are not in the best interests of the Company’s shareholders
The
Activist Group has not put forth any detailed plan for Taronis and its proposed Board nominees do not have any apparent
experience in the Company’s industry, business, or technology.
In
addition, as the Company has previously disclosed, conduct by Tobias Welo and Mary Pat Thompson, two of the five Board nominees
proposed by the Activist Group (and two members of the Activist Group), prompted an investigation by a special committee of independent
members of the Board into allegations of wrongdoing, including breach of their fiduciary duties to you and to the Company when
they previously served on the Board from November 2020 to December 2020, and when Ms. Thompson previously served as the Company’s
Chief Financial Officer. The special committee engaged independent outside counsel to conduct an investigation and review evidence
of possible fiduciary duty breaches by these nominees, which investigation concluded on January 26, 2021. Ms. Thompson’s
short tenure as CFO – and her abrupt resignation that precipitated the departure of other finance executives she hired –
disrupted the Company’s business and fundraising efforts at a critical time in the Company’s development. In addition,
the investigation into possible breaches of fiduciary duties by Ms. Thompson and Mr. Welo caused the Company, the Board, management,
and Company employees to unnecessarily expend significant time and financial resources.
On
one occasion, Mr. Welo threatened independent members of the Board, stating that if they did not vote in favor of a motion by
Welo to remove senior management, he and Ms. Thompson would make a “noisy” and “loud” exit from the
Board – a threat on which they made good. Their disruptive resignations in December 2020 required the Company to file
resignation letters with the SEC containing allegations of fraudulent accounting by senior management, causing a significant
decline in the Company’s share price and destruction of shareholder value. The Activist Group’s self-serving
description of events neglects to disclose the Board’s response to Ms. Thompson and Mr. Welo’s allegations. The
Board immediately commenced an independent investigation of those allegations, assisted by independent outside counsel and an
independent registered public accounting firm.
The
Activist Group initiated its consent solicitation seeking to replace your entire Board without any attempt to communicate with
your Board or the Company following the resignations of Mr. Welo and Ms. Thompson. Despite the Activist Group’s less than
constructive behavior, your Board sought to open discussions in the interest of finding a less costly resolution, only to be told
that the Activist Group would not agree to any solution not involving the replacement of all five members of the Board.
The
negative impact of Ms. Thompson and Mr. Welo’s mere six weeks of service on the Board, and the recklessness with which the
Activist Group is seeking nothing short of replacing your entire Board without first attempting to communicate concerns and find
a less costly solution, is clear. If elected, the nominees put forth by the Activist Group would have full control of the Board,
and, although they would be subject to their fiduciary duties under Delaware law, they would be in a position to advance their
specific interests, which may not be aligned with the interests of all of our shareholders.
YOUR
BOARD SERVES THE INTERESTS OF ALL SHAREHOLDERS
Your
Board, which consists of four highly-qualified and independent directors along with CEO Scott Mahoney, has sought to engage in
a constructive dialogue with the Activist Group to avoid an expensive and disruptive proxy contest, and has made clear its interest
in reaching a mutually agreeable settlement. However, as of the time of this filing, the only response from the Activist Group
to your Board’s outreach has been that they would not accept a solution that did not include replacement of all five members
of your Board to gain control over the Company, notwithstanding the consequences to shareholder value.
We
believe that your interests will be served best if your current Board and management continue to pursue the Company’s growth
strategy and business plan to preserve shareholder value. Several of the Company’s key employees, including its Chief Technology
Officer, MagneGas business development specialists, and regional sales executives, have expressed their unwillingness to remain
with the Company in the event the Activist Group’s proposals are successful. The Company believes that the loss of any of
these key employees could materially and adversely impact our ability to generate revenues and execute our business strategy.
Without these key employees, who believe in the Company’s current growth strategy and business plan, we believe the Company
would have limited institutional knowledge and resources which would harm its future operational success and potential.
Further,
we believe based on the prior actions and statements made by certain of the Activist Group nominees that they intend to
materially alter the Company’s strategic direction, including curtailing investment in our proprietary technology,
MagneGas (which we believe is a market differentiator for the Company and a critical wedge product with the potential to
drive revenue growth and market share gains through our network of retail stores and regional distributors), and shrinking
the Company’s sales network and infrastructure. For example, during a December 16, 2020 meeting with a potential
strategic consultant introduced by Mr. Welo, Mr. Welo and Ms. Thompson were highly supportive of the consultant’s
proposals to deemphasize investment in our proprietary technology and for the potential closure of a number of our retail
locations. Additionally, shortly after her appointment as Chief Financial Officer, it became clear, based on Ms.
Thonpson’s accounting-related inquired and discussions with management and the accounting and finance staff that she
intended to effect workforce reductions that would have included termination of the key Magne Gas production personnel and
salary cuts for virtually all employees with the technical capabilities for our intellectual property, including our MagneGas
product. During earlier discussions regarding Company strategy in November 2020, Mr. Wetherald presented to Company
representatives a plan that promoted acquisitions and a reduction of the Company’s sales network and infrastructure
through store closings.
We
urge you to defend against the Activist Group seizing control of the company and disrupting its positive momentum.
the
Company has made significant progress TOWARD IMPROVING CASH FLOW AND creatING shareholder value
Under
the guidance of your current Board, the Company has implemented the following actions to pursue its growth strategy and business
plan to create shareholder value:
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First,
the Company has aggressively reduced its operating expenses. Over the past seven weeks, the Company has reduced its annual
payroll and benefits expenses by approximately $8 million, or 40%. The Company also completed several critical capital expenditure
upgrades that should yield an additional $1 million in annual savings.
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Second,
the Company has successfully attracted several critical new hires in staffing across multiple retail markets, which is
expected to have a significant impact on projected revenue growth in 2021.
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Third,
the Company is executing on its plan to expand its whole industrial gas operations into California and Arizona. Retail
sales are expected to increase by more than 20% in 2021, and whole sales revenues are expected to increase by almost 50%.
Whole sales are already on a pace to increase by in excess of 20% based on accomplishments already completed in the first
two months of 2021.
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All
of these changes are projected to make the Company cash flow positive in the second quarter, and your Board remains committed
to considering all avenues to deliver enhanced shareholder value.
SUBMIT
THE GREEN CONSENT REVOCATION CARD TODAY
For
the foregoing reasons, we strongly urge you to support your Board and reject the Activist Group’s efforts to deliver control
of the Company to a new board of directors consisting of their handpicked director candidates.
This
Consent Revocation Statement contains important information as to why and how you should submit the accompanying GREEN
Consent Revocation Card to revoke any white consent card that you may have previously returned to the Activist Group. We urge
you to read this Consent Revocation Statement carefully.
Your
experienced and qualified Board and management team continue to be focused on delivering value to our shareholders. You
can defend against the Activist Group’s efforts to take control of the Company through the following steps:
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Do
not sign the Activist Group’s white consent card and do not return the white consent card in the
postage-paid envelope;
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If
you have signed the Activist Group’s white consent card, revoke that consent by signing, dating and returning the enclosed
GREEN Consent Revocation Card immediately in the pre-paid envelope provided; and
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Even
if you have not signed the Activist Group’s white consent card, you can show your support for your Board and fellow
shareholders by signing, dating and returning the enclosed GREEN Consent Revocation Card in the pre-paid envelope provided.
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Regardless
of the number of shares of common stock of Taronis that you own, your revocation of consent is critically important. Please act
today to help protect the interests of ALL shareholders. We greatly appreciate your cooperation and participation.
If
you have any questions regarding this Consent Revocation Statement or about submitting your GREEN Consent Revocation Card,
or otherwise require assistance, please contact:
MacKenzie
Partners, Inc.
1407
Broadway, 27th Floor
New
York, New York 10018
(212)
929-5500 or (800) 322-2885
Email:
TRNF@mackenziepartners.com
Sincerely,
The
Board of Directors
Taronis
Fuels, Inc.
Preliminary
Consent Revocation Statement — Subject to Completion, Dated March 8, 2021
CONSENT
REVOCATION STATEMENT
TARONIS
FUELS, INC.
24980
N. 83rd Avenue, Ste. 100
Peoria,
Arizona 85383
March
[●], 2021
CONSENT
REVOCATION STATEMENT
BY
THE BOARD OF DIRECTORS OF
TARONIS
FUELS, INC.
IN
OPPOSITION TO
AN
ACTIVIST CONSENT SOLICITATION BY
THOMAS
WETHERALD, TOBIAS WELO, MARY PAT THOMPSON, SERGEY VASNETSOV,
AND
ANDREW MCCORMICK
This
Consent Revocation Statement and the enclosed GREEN Consent Revocation Card are furnished by the Board of Directors (the
“Board”) of Taronis Fuels, Inc., a Delaware corporation (the “Company” or “Taronis”), to the
holders of outstanding shares of the Company’s common stock, par value $0.000001 per share (the “Common Stock”),
in connection with the Board’s opposition to the solicitation of written shareholder consents (the “Activist Consent
Solicitation”) by Thomas Wetherald, Tobias Welo, Mary Pat Thompson, Sergey Vasnetsov, and Andrew McCormick (collectively,
the “Activist Group”). This Consent Revocation Statement and the enclosed GREEN Consent Revocation Card are
first being mailed to shareholders on or about March [●], 2021.
As
you may be aware, the Activist Group is attempting to usurp control of your Board and the Company by asking you to remove all
five directors currently on the Board and replace them with a slate of five nominees handpicked by the Activist Group. The Activist
Group proposes to do this by soliciting your consent to five proposals, each of which is described in this Consent Revocation
Statement.
Your
Board believes, for the reasons specified in this Consent Revocation Statement, that the commencement of the Activist Consent
Solicitation is not in the best interests of shareholders. The Board believes that the Activist Group’s proposals are intended
to circumvent the Board’s business judgment and to divert the Company’s time, employees and financial resources away
from the continued execution of its business strategy to create shareholder value. Your Board remains committed to considering
any opportunities that may enhance shareholder value and acting in the best interests of all of the Company’s shareholders.
A
consent in favor of the Activist Consent Solicitation would be a consent to remove without cause all five of your experienced
directors from the Board and replace those directors with five of the Activist Group’s own nominees. In considering the
Activist Consent Solicitation, the Board believes that it is important for the Company’s shareholders to recognize that
the Activist Group has not put forward any detailed plan for the Company and has no duty to act in the best interests of the
Company’s shareholders (including when selecting potential nominees to serve on your Board). The Board also believes
that it is important for the Company’s shareholders to recognize that conduct by two of the five Board nominees
proposed by the Activist Group (Tobias Welo and Mary Pat Thompson) during their brief services as directors, and during Ms.
Thompson’s service as the Company’s Chief Financial Officer, prompted an independent investigation assisted by
outside counsel into allegations of wrongdoing, including possible breaches of their fiduciary duties to you and the Company.
The investigation into possible fiduciary duty breaches by Mr. Thompson and Ms. Welo caused the Company, the Board,
management, and Company employees to expend significant time and financial resources in connection with their breaches. The
investigation, which concluded on January 26, 2021, involved, among other things, review of evidence that Mr. Welo and Ms.
Thompson may have conveyed material non-public and/or confidential information to Thomas Wetherald in violation of Company
policy and their fiduciary duties. Your Board strongly believes that these allegations cast doubt on whether any member of
the Activist Group or its Nominees will act in the best interest of all shareholders.
We
believe that your Board is in the best position to evaluate what action is in the best interests of the Company’s shareholders
and to decide on a business strategy that will protect and enhance shareholder value. Therefore, we are soliciting the revocation
of any consents that may have been given in response to the Activist Consent Solicitation.
YOUR
BOARD UNANIMOUSLY OPPOSES THE ACTIVIST CONSENT SOLICITATION. YOUR BOARD, WHICH IS COMPOSED PREDOMINANTLY OF INDEPENDENT DIRECTORS,
IS COMMITTED TO ACTING IN THE BEST INTERESTS OF ALL OF THE COMPANY’S SHAREHOLDERS.
YOUR
BOARD URGES THAT YOU DO NOT SIGN ANY WHITE CONSENT CARD SENT TO YOU BY THE ACTIVIST GROUP AND DO NOT RETURN THE WHITE
CONSENT CARD SENT TO YOU IN THE POSTAGE PRE-PAID ENVELOPE. YOUR BOARD URGES YOU TO SIGN, DATE AND DELIVER THE GREEN
CONSENT REVOCATION CARD INCLUDED WITH THESE MATERIALS.
If
you have previously signed and returned the Activist Group’s white consent card, you have every right to change your decision
and revoke your consent. Whether or not you have signed the white consent card, we urge you to mark the “YES, REVOKE
MY CONSENT” boxes on the enclosed GREEN Consent Revocation Card and to sign, date and mail the card in the postage-paid
envelope provided. Although submitting a consent revocation will not have any legal effect if you have not previously submitted
a consent card, it will help us keep track of the progress of the consent process. Regardless of the number of shares you own,
it is important for you to deliver a GREEN Consent Revocation Card. Please act today and have your voice heard regarding
the future of your Company.
If
your shares are held in “street name,” only your broker, bank or other nominee can exercise your right to revoke a
consent with respect to your shares. Please contact your broker, bank or other nominee and instruct it to submit a GREEN
Consent Revocation Card on your behalf today.
The
Board has fixed March 4, 2021 as the record date for the determination of the Company’s shareholders who are entitled to
execute, withhold or revoke consents relating to the Activist Consent Solicitation. However, Mr. Wetherald believes that the appropriate
record date for such determination is February 11, 2021, the date on which Wetherald and Welo first delivered to the Company a
signed written consent. On March 5, 2021, Mr. Wetherald filed a lawsuit in the Delaware Court of Chancery seeking, among other
relief, clarification from the court of the appropriate record date and the rights of certain shares of Common Stock issued after
February 12, 2021 with respect to the Activist Consent Solicitation. In any case, only holders of record as of the close of business
on the record date determined by the Delaware Court of Chancery (the “Record Date”) may execute, withhold or revoke
consents with respect to the Activist Consent Solicitation. Each share outstanding as of the Record Date will be entitled to one
vote.
If
you have any questions about giving your consent revocation or require any assistance, please contact:
MacKenzie
Partners, Inc.
1407
Broadway, 27th Floor
New
York, New York 10018
(212)
929-5500 or (800) 322-2885
Email:
TRNF@mackenziepartners.com
By
order of the Board of Directors,
Tyler
B. Wilson
Secretary
Peoria,
AZ
March
[●], 2021
Table
of Contents
TARONIS
FUELS, INC.
24980
N. 83rd Avenue, Suite 100
Peoria,
AZ 85383
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF CONSENT REVOCATION MATERIALS
The
consent revocation materials for the Company’s solicitation of consent revocations, including this Consent Revocation Statement,
are available on our website at www.taronisfuels.com. Information on our website does not constitute part of the Company’s
consent revocation materials.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
Consent Revocation Statement contains projections and other “forward-looking statements” within the meaning of the
U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements contained in this Consent Revocation Statement
include statements concerning Taronis’ plans, objectives, goals, strategies, future events or performance and underlying
assumptions that are not statements of historical fact. This Consent Revocation Statement and any other written or oral statements
made by Taronis or on its behalf may include forward-looking statements, which reflect Taronis’ current views with respect
to future events and financial performance. Taronis may, in some cases, use words such as “project,” “believe,”
“anticipate,” “plan,” “expect,” “estimate,” “intend,” “continue,”
“should,” “would,” “could,” “potentially,” “will,” “may”
or similar words and expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements.
The
forward-looking statements in this Consent Revocation Statement are based upon various assumptions, many of which are based on
management’s discussion and analysis or plan of operations. Although Taronis believes that these assumptions were reasonable
when made, these statements do not guarantee future performance and are subject to certain risks and uncertainties, some of which
are beyond the Company’s control, and are difficult to predict. Actual results could differ materially from those expressed
in forward-looking statements as a result of such risks, which include: deflation and inflation; volatility of the cost of commodity
materials; the development and commercial acceptance of our products; impact of competitive products and pricing; cost of compliance
with current and future environmental and operational safety laws and regulations; our customer relationships based on purchase
orders rather than long-term agreements; future responses to and effect of the COVID-19 pandemic or other similar events; volatility
in global economic conditions, including trade tariffs and sanctions; the protection of our proprietary information and technology;
our limited operating history; provisions of our organizational and governing documents; liabilities related to the spin-off transaction;
and the other risks and uncertainties Taronis describes in its press releases and reports it files with the Securities and Exchange
Commission (the “SEC”), including its Annual Report on Form 10-K for the year ended December 31, 2019, as updated
in its subsequent Quarterly Reports on Form 10-Q. Taronis is providing the information in this Consent Revocation Statement as
of its date and, except as expressly required by law, Taronis disclaims any intent or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or circumstances or otherwise.
DESCRIPTION
OF THE CONSENT SOLICITATION
As
set forth in its consent solicitation materials filed with the SEC, the Activist Group is soliciting consents in favor of the
following proposals:
(1)
repeal any provision of the Bylaws of the Company in effect at the time this proposal becomes effective, including any amendments
thereto, which were not included in the Bylaws that were in effect as of December 13, 2019 and were filed with the SEC as Exhibit
3.2 to the Company’s amended Form 10 on December 13, 2019 (the “Bylaw Restoration Proposal”);
(2)
amend Article IV, Section 18 of the Bylaws to declassify the Board so that all directors are elected on an annual basis (the “Declassification
Proposal”);
(3)
amend Article IV, Section 21 of the Bylaws to reduce the supermajority shareholder vote required to remove any individual director
or directors from the Board from three-fourths of the then-outstanding shares of capital stock of the Company entitled to vote
generally at an election of directors to a majority of the then-outstanding shares of capital stock of the Company entitled to
vote generally at an election of directors (the “Removal by Majority Vote Proposal”);
(4)
remove, without cause, all five members of the Board: Scott Mahoney, Robert Dingess, Kevin Pollack, William Staunton and Peter
Molloy and, in addition, any person (other than those elected by the Consent Solicitation) nominated, elected or appointed to
the Board to fill any vacancy on the Board or any newly created directorships on or after December 20, 2020 and prior to the time
that any of the actions proposed to be taken by the Consent Solicitation becomes effective (the “Removal Proposal”);
and
(5)
elect Activist Group’s five nominees: Thomas Wetherald, Tobias Welo, Sergey Vasnetsov, Mary Pat Thompson and Andrew McCormick
(each a “Nominee” and collectively, the “Nominees”), to serve as directors of the Company until the Company’s
next annual meeting of shareholders and until their successors are duly elected and qualified (or, if any such Nominee is unable
or unwilling to serve as a director of the Company, or if the Board increases the number of directorships to be greater than five,
any other person designated as a nominee by the remaining Nominee or Nominees) (the “Election Proposal” and together
with the Bylaw Restoration Proposal, the Declassification Proposal, the Removal by Majority Vote Proposal and the Removal Proposal,
the “Activist Consent Proposals”).
A
consent in favor of the Activist Consent Proposals would, among other things, be a consent to remove, without cause, all five
of your Board members and replace them with the Nominees. Your Board urges that you DO NOT provide a consent in favor
of the Activist Consent Proposals.
REASONS
TO REJECT THE ACTIVIST CONSENT PROPOSALS
The
Activist Consent Proposals would, among other things, remove all five of your highly qualified Board members and replace them
with the Nominees. The Board strongly believes that the Activist Group is conducting a distracting, value-destructive, and self-interested
activist consent solicitation campaign at a critical time in the Company’s development and that the Activist Group’s
Activist Consent Solicitation is not in the best interests of all shareholders. As outlined below, there are several reasons to
reject the Activist Consent Proposals.
Two
shareholders, Wetherald and Welo, and the other Members of the Activist Group, are Seeking to Take Control of Taronis and Their
Interests Are Not Necessarily Aligned with the Interests of the Other Shareholders.
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The
Activist Group is seeking to gain control of the Company even though, collectively, they only own approximately 11.19% of the
Company’s common stock as of March 4, 2021, the date the Board believes is the valid Record Date. Your Board believes
that control of the Company belongs to all shareholders rather than to minority shareholders such as Wetherald and
Welo and other members of the Activist Group who have no detailed strategic plan for Taronis and may have interests different
from the best interests of all of the Company’s shareholders. Further, the Company believes, based on the prior
actions and statements made by certain of the Activist Group nominees’ that they intend to materially alter the
Company’s strategic direction, including curtailing investment in our proprietary technology, MagneGas (which the
Company believes is a market differentiator and a critical wedge product with the potential to drive revenue growth and
market share gains through Taronis’s network of retail stores and regional distributors), and shrinking the
Company’s sales network and infrastructure. For example, during a December 16, 2020 meeting with a potential
strategic consultant introduced by Mr. Welo, Mr. Welo and Ms. Thompson were highly supportive of the consultant’s
proposals to deemphasize investment in Taronis’s proprietary technology and for the potential closure of a number of
its retail locations. Additionally, shortly after her appointment as Chief Financial Officer, it became clear, based on
Ms. Thompson’s accounting-related inquiries and discussions with management and the accounting and finance staff, that
she intended to effect workforce reductions that would have included termination of key ManageGas production personal and
salary for virtually all employees with the technical capabilities for the Company’s intellectual property, including
its MagneGas product. During earlier discussions regarding Company strategy in November 2020, Mr. Wetherald presented
to Company representatives a plan that promoted acquisitions and a reduction of the Company’s sales network and
infrastructure through store closings.
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The
Activist Group is not bound by a duty to act in the best interests of the Company when selecting its nominees. Although your
Board has not been able to vet all of the Nominees due to the limited amount of time since receiving the Activist Group’s
written consent notice, your Board is familiar with at least two of the Nominees – Mr. Welo and Ms. Thompson –
from their brief former service as directors and, in the case of Ms. Thompson, also as Chief Financial Officer and Treasurer.
During their previous service, allegations arose, and were the subject of an independent committee investigation involving
separate outside counsel, that Mr. Welo and Ms. Thompson breached their fiduciary duties and confidentiality obligations to
the Company and its shareholders to further Mr. Wetherald’s, Mr. Welo’s, and Ms. Thompson’s own interests.
The investigation into possible fiduciary duty breaches by Mr. Thompson and Ms. Welo, which concluded on January 26, 2021,
caused the Company, the Board, management, and Company employees to expend significant time and financial resources, and their
self-interested noisy and abrupt resignation from the Board was followed by an immediate and significant decline in the Company’s
share price, which in turn resulted in significant destruction to shareholder value. The current Board understands and takes
seriously its obligations to act in the best interests of ALL shareholders.
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As
shareholders of the Company, you are expected by the Activist Group to fund their campaign to gain control of the Company.
The Activist Group admits in its own consent solicitation statement that it intends to seek reimbursement from the Company
of all expenses they incur in connection with the Activist Consent Solicitation and does not intend to submit the question
of such reimbursement to a vote of all of the Company’s shareholders.
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Your
Board Has Sought to Constructively Engage with the Activist Group, while None of its Members has Ever Attempted to Engage with
your Board.
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For
over ten weeks from the time Mr. Welo and Ms. Thompson resigned from the Board and as CFO and Treasurer (in the case of Ms.
Thompson), until filing their consent solicitation, no member of the Activist Group even once reached out to your Board to express the concerns of its members or to
have a constructive dialogue about the strategic direction of the Company or other governance matters.
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Promptly
following the Activist Group’s filing of its consent statement, your Board in good faith attempted to engage with the
Activist Group to discuss ways to avoid a costly and distracting proxy contest and activist consent solicitation. The Activist
Group responded that it would not agree to any solution not involving the removal of all five members of your Board, notwithstanding
consequences to shareholder value of a consent solicitation campaign.
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Your
Board Believes it is in the Best Position to Serve the Interests of ALL of Taronis’ Shareholders.
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Each
of the directors that the Activist Group is seeking to remove has experience critical to the Company as well as a deep understanding
of the Company, including its products, milestones, partnerships and revenue opportunities. We believe that these directors
are in the best position to successfully commercialize our products to generate long-term value for the Company’s shareholders.
Conversely, the Nominees proposed by the Activist Group do not have any apparent experience in the Company’s
industry, business, or technology.
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We
have taken great strides recently to further execute our existing business plan. First, the Company has aggressively reduced
its operating expenses. Over the past seven weeks, the Company has reduced its annual payroll and benefits expenses by approximately
$8 million, or 40%. The Company also completed several critical capital expenditure upgrades that are expected to yield approximately
an additional $1 million in annual savings. In addition, the Company has successfully attracted several critical new hires
across multiple retail markets, which is expected to have a significant impact on projected revenue growth in 2021. Lastly,
the Company is executing on its plan to expand its wholesale industrial gas operations into California and Arizona. Retail
sales are expected to increase by more than 20% in 2021, and wholesale revenues are expected to increase by almost 50%. Wholesale
revenue is already on a pace to increase by an excess of 20% based on accomplishments completed in the first two months of
2021. Taken together, these changes are projected to make the Company cash flow positive in the second quarter.
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In
the Event All Five of the Members of Your Board are Removed and the Activist Group Takes Control of Taronis, a Change in Control
will have Occurred, and Taronis could have Significant Financial Liabilities Under Certain of Its Material Agreements.
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The
Company’s revolving credit facility, term loan, agreements with senior management, and outstanding convertible debenture
have provisions that, if triggered, could require the Company to pay in excess of $24 million in the aggregate. These provisions
could be triggered in the event the members of your Board are removed and replaced with the Nominees and the Activist Group
takes control of Taronis. The Company does not currently have sufficient cash on hand to satisfy the estimated liabilities
that may result from a change in control event. In the event a change in control were to occur and the Company is required
to make these change in control-related payments, they could cause significant financial hardship and seriously impair the
Company’s ability to continue its operations. Such an event could have a material adverse effect on shareholder value.
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FOR
THE FOREGOING REASONS, YOUR BOARD STRONGLY BELIEVES THAT THE ACTIVIST CONSENT PROPOSALS ARE NOT IN THE BEST INTERESTS OF ALL OF
THE COMPANY’S SHAREHOLDERS.
In
addition to the reasons provided above, the Board believes you should reject each proposal for the following reasons.
Proposal
1 (Bylaw Restoration Proposal): We recommend rejection of Proposal 1 because this proposal is speculative and is designed
to nullify unspecified provisions of the Bylaws that may be adopted by the Board acting in its best judgment for reasons unrelated
to the Activist Consent Solicitation. The automatic repeal of any duly adopted Bylaw amendment, irrespective of its content, could
have the undesired effect of repealing one or more properly adopted Bylaw amendments determined by the Board to be in the best
interests of the Company and its shareholders, even if unrelated to the Activist Consent Solicitation. The Board has not approved
any amendments to the Bylaws since December 13, 2019.
Proposal
2 (Declassification Proposal): The Board believes that the classified board structure continues to provide the Company and
its shareholders with important benefits, including providing stability and continuity of management. This classified Board structure
ensures that, at any given time, our Board is comprised of experienced directors who are familiar with the Company’s business,
strategic goals and objectives, history, culture and market area. In addition, our staggered director terms are tailored to enable
our existing and future directors to develop a substantive and meaningful understanding of the Company’s specific operations
and goal, which better allows them to make long-term strategic decisions that are in the best interests of the Company and its
shareholders.
In
addition, the classified Board structure reduces the Company’s vulnerability to hostile and potentially abusive takeover
tactics (such as those being undertaken by the Activist Group) and better positions the Board to negotiate effectively on behalf
of all of the Company’s shareholders. While a classified Board alone does not preclude a successful takeover offer, staggered
director terms may provide the Company with the time and opportunity to evaluate the fairness of a takeover proposal, to negotiate
on behalf of all shareholders, and to weigh alternatives with the objective of maximizing overall shareholder value. The Board
believes the classified structure is especially important in companies with burgeoning technologies that provide the potential
for rapid growth.
Our
Board of Directors believes that our current classified Board structure does not in any way diminish the accountability of directors
to our shareholders. Our directors are committed to acting in the best interests of the Company and our shareholders, and are
required by law to fulfill fiduciary duties owed to both, regardless of the length of their terms.
Proposal
3 (Removal by Majority Vote Proposal): The Board is considering action to amend the current supermajority shareholder vote
required under Article IV, Section 21 of the Bylaws in light of current Delaware law and the Board’s interest in maintaining
strong governance practices. The Company already has in place a “simple majority” voting standard for most voting
items. While the Board is considering and may adopt such an amendment to the Bylaws, the Board recommends rejection of Proposal
3 in connection with this consent solicitation to permit the Board to gather further shareholder input and take appropriate action.
Proposal
4 (Removal Proposal): We recommend rejection of Proposal 4 because shareholders such as Wetherald and Welo have no duty to
act in the best interests of all of Taronis’ shareholders in determining Taronis’ strategic direction or when selecting
potential nominees to serve on your Board. Our Nominating and Corporate Governance Committee ensures that nominations for director
are aligned with Taronis’ strategic goals and will maximize shareholder value. Each new member of the Board is selected
for nomination through a process designed to foster good corporate governance practices. In contrast, the Nominees have been selected
solely by Wetherald and Welo, without the benefit of a thorough evaluation process. Wetherald and Welo have no obligation to identify
nominees who will act in the best interests of the Company and its shareholders. In contrast, the Company’s Bylaws presently
provides an appropriate mechanism through which the Company’s shareholders may propose new directors from time to time rather
than having a new unvetted slate forced upon them.
Proposal
5 (Election Proposal): We recommend rejection of Proposal 5 because we believe that the current members of the Board targeted
by the Activist Group have a deep understanding of the Company’s business and are committed to maximizing the Company’s
value for the benefit of all shareholders, not just the members of the Activist Group. We do not believe that the election of
the Nominees will maximize value for all shareholders. Further, your Board has articulated a strategic plan based on its wide
range of expertise and experience with the Company and is committed to regularly reviewing all options that have the potential
to enhance shareholder value. Conversely, if all Nominees were to be elected, this would result in a board comprised of directors
with no significant prior experience with the Company serving on the Board.
WE
URGE SHAREHOLDERS TO REJECT THE ACTIVIST CONSENT SOLICITATION AND IMMEDIATELY REVOKE ANY CONSENT PREVIOUSLY SUBMITTED.
DO
NOT DELAY. IN ORDER TO HELP ENSURE THAT THE CURRENT BOARD IS ABLE TO ACT IN YOUR COLLECTIVE BEST INTERESTS, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED GREEN CONSENT REVOCATION CARD TODAY.
BACKGROUND
OF THE CONSENT SOLICITATION
This
section outlines material discussions and contacts the Company has had with Wetherald and Welo (and other members of the Activist
Group) and their representatives from August 2019 to the date of filing of this consent revocation statement.
Beginning
in August 2020, the Company began discussions with Mr. Wetherald and his contact at Kingswood Capital Markets, a Division of Benchmark
Investments (“Kingswood”), about a potential investment in the Company. Numerous calls were arranged with key members
of management during which the Company provided information about its business model, plans for continued acquisition and organic
based growth, its unique culture and its proprietary wedge product MagneGas. During these discussions the Company informed Wetherald
that the Company had an existing outstanding Convertible Debenture that included various transaction documents giving the holders
of the Convertible Debentures the right to participate in future financings, including but not limited to, a public offering in
connection with an up list to a national stock exchange. Mr. Wetherald became very interested in developing a financing that would
allow the Company to use proceeds to prepay the existing Convertible Debentures, so that the newly proposed Kingswood investors
would be in a position to lead the Company’s contemplated public offering in connection with an up listing and to provide
future capital to the Company. Mr. Wetherald and his colleagues convinced the Company that by mid-2021 the Company would be in
a position to do a much larger raise with large institutions.
On
October 14, 2020, following numerous discussions with the Company regarding its business and prospects, Mr. Wetherald and Mr.
Welo participated in a private placement offering and purchased from the Company 400,000 shares and 133,333 shares of Common
Stock, respectively, pursuant to a common stock purchase agreement. Of the aggregate $10.85 million of proceeds received by
the Company in the private placement offering, Mr. Wetherald invested $4 million and Mr. Welo invested $1 million. In
connection with Mr. Wetherald’s investment he required the Company to agree to certain covenants, which included
directing the Company’s Nominating and Corporate Governance Committee of the Board to add one additional seat, and to
appoint Tobias Welo, to the Board and expanding the Company’s executive team to include a chief operating officer and
certain other officers, so Mr. Wetherald could have his longtime friend and colleague Mary Pat Thompson appointed as Chief
Financial Officer (“CFO”) once the Company’s existing CFO at the time Mr. Tyler Wilson was moved to a
different role. On November 4, 2020, Mr. Wilson was asked to resign as CFO so Ms. Thompson could take his place. On November
5, 2020, Ms. Thompson was appointed to the roles of CFO and Treasurer. Mr. Wetherald also requested Ms. Thompson be appointed
to the Board in connection with her appointment as CFO and Treasurer.
Not
long after Ms. Thompson’s appointment as CFO and Treasurer, the Company was in need of raising $3-4 million dollars to continue
operations. As Wetherald had recently participated in the Company’s approximately $10.85 million private placement led by
Kingswood Capital Markets, a Division of Benchmark Investments, Ms. Thompson unilaterally reached out to Wetherald and, according
to allegations that were the subject of the independent investigation into her conduct as CFO, allegedly described the Company’s
need for additional capital. Ms. Thompson claimed the Company needed in excess of another $10 million.
During
the third week of November 2020, the Company closed a second private placement in which Mr. Wetherald and Mr. Welo and Ms. Thompson
all participated. Mr. Wetherald invested an additional $3 million, and a trust for the benefit of Mr. Welo’s children invested
$250,000. Ms. Thompson invested $100,000. The Company raised a total of $12.4 million.
Also
during the third week of November, Mr. Wetherald met with representatives of the Company to present his outline for Company strategy.
On
December 1, 2020, Mr. Welo and Ms. Thompson were appointed to the Board.
During
the weeks that followed Ms. Thompson was advised on more than one occasion that Company policy prohibited her from sharing confidential
or material non-public information with Wetherald or any other investor. In spite of repeated verbal warnings, management and
certain independent members of the Board began to suspect Ms. Thompson and Mr. Welo were sharing confidential information with
Wetherald.
On
December 15, 2020, a majority of the independent directors met informally to discuss information they had received concerning
potential breaches of confidentiality and fiduciary duties by Ms. Thompson in her capacity as an officer and director arising
out her disclosure of confidential information and material non-public information to Mr. Wetherald. Upon review of the information,
the Board members who participated in the meeting determined they needed to consider the matter further and reconvene later in
the week.
On
December 16, 2020, Mr. Welo introduced and requested that the Board interview a potential strategic consultant for a role with
the Company. During the interview, the consultant explored a variety of operational topics, including the potential closure of
a number of the Company’s retail locations due to perceived performance issues. The consultant strongly endorsed a business
model similar to Air Liquide and Linde, two direct competitors of the Company, deemphasizing further investments in the Company’s
proprietary technology platform and any international commercial endeavors. Mr. Welo and Ms. Thompson were highly supportive of
the consultant’s recommendations. Other members of the Board and senior management expressed their concerns about the consultant’s
recommendations due to the significant strides the Company had made as of that time and became increasingly curious about the
motivations behind such a drastic and abrupt deviation from the Company’s business model. After the call, senior management
and some of the directors questioned how the consultant came into possession of such detailed information about the Company’s
retail business operations, including performance of specific branch locations.
On
December 17, 2020, a special meeting of the Board was convened for the purpose of receiving a management update regarding the
Company’s retail operations and plans for continued growth, among other matters. The meeting included a discussion
regarding management’s plan to conduct a stock offering in connection with its proposed up-listing to the national
exchange and that the Company had an alternate funding source to the investors introduced by Kingswood. The Board was
notified that a resolution would be circulated to the Board later that day to approve the filing of a Registration Statement
on Form S-1 with the objective of raising additional capital in connection with an uplist. Mr. Welo and Ms. Thompson
indicated they would like to see a copy of the Registration Statement on Form S-1. Immediately following the special meeting,
the unanimous consent resolution was circulated to the Board, along with a copy of the S-1 Registration Statement, which did
not include Kingswood as a proposed underwriter.
Later
that day, Mr. Welo, along with an attorney engaged by a “concerned shareholder” (which was later confirmed to be Mr.
Wetherald), contacted the independent directors individually (without the opportunity to have Company counsel present) and made
certain allegations against senior management alleging fraudulent accounting practices that Ms. Thompson believed she had uncovered
while serving as the Company’s CFO. This was the first time such an allegation had been raised by anyone, including Mr.
Welo and Ms. Thompson. The attorney and Mr. Welo told the independent directors that Mr. Welo and Ms. Thompson intended to call
a special meeting whereat they would be putting forth a motion for the immediate removal of senior management. Mr. Welo stated
that if the independent directors did not vote in favor of his motion, he and Ms. Thompson would make a “noisy” and
“loud” exit and resign from the Board. Mr. Welo insinuated to the independent directors that if they adopted and approved
his motion to remove senior management at the special meeting no adverse action would be taken against them personally.
In
the late afternoon of December 17, 2020, Mr. Welo and Ms. Thompson provided written notice to the Board that they were convening
a special meeting the next day to discuss the management of the Company. Mr. Welo and Ms. Thompson did not distribute such notice
to the Company’s General Counsel and Secretary, which represented a departure from the Board’s customary practice,
however Mr. Wetherald’s attorney was copied and it was suggested his firm’s conference line be used for the call.
On
the morning of December 18, 2020, the independent directors, excluding Mr. Welo, determined that the information concerning breaches
of fiduciary duties by Ms. Thompson was credible and suspended her indefinitely as the Company’s CFO and Treasurer, due
to her potential breaches of her duties of loyalty and confidentiality to the Company, pending the outcome of further investigation
into the matter. Mr. Welo, who was also suspected of breaching his fiduciary duties, was provided written notice of his alleged
breach and was reminded of his continued duties to the Company and its shareholders going forward.
During
the day of December 18, 2020, a disagreement arose between Mr. Welo and Ms. Thompson, on the one hand, and the other members of
the Board, on the other hand, regarding the use of Mr. Wetherald’s attorney’s conference line for the special meeting
and Mr. Welo’s insistence that Mr. Wetherald’s attorney’s request to participate in the Board call be granted.
The Chairman of the Board circulated a secure Company conference line and gave explicit instructions that the special meeting
was to be held on such line. This was done in an effort to preserve confidentiality and attorney-client privilege, which would
have been waived if Mr. Wetherald’s attorney had been present thereby giving Mr. Welo and Ms. Thompson the ability to freely
share their allegations publicly.
Prior
to the board call Mr. Welo circulated an email to certain of the other independents, excluding the Board Chairman, and pled with
the other independents to use his dial in number and explicitly stated that senior management and the Chairman were intentionally
limiting his and Ms. Thompson’s ability to present their allegations and threatened that he and Ms. Thompson would be going
to the SEC with their information but preferred the other independents join them as a “unified group”. The other independents
did not succumb to Mr. Welo’s request.
On
the afternoon of December 18, 2020, the special meeting called by Mr. Welo and Ms. Thompson was convened with full Board
present. The Chairman acknowledged allegations shared by Mr. Welo and Ms. Thompson immediately prior to the meeting and noted
that good corporate governance and procedure dictated that a special committee of the Board be formed to review all facts and
evidence before making a determination regarding the allegations brought against senior management, and similarly, Mr. Welo
and Ms. Thompson. The Chairman then put forth a motion proposing to form a special committee to independently investigate the
allegations of breach of fiduciary duty and confidentiality brought against Ms. Thompson and Mr. Welo and the allegations
brought by Ms. Thompson and Mr. Welo against senior management. The motion was approved to form the special committee with
Ms. Thompson and Mr. Welo refusing to participate in the vote and reiterating that they intended to take some unidentified
action. The Board also appointed Mr. Mahoney to serve as interim Chief Financial Officer and Treasurer of the Company to fill
the vacancy created by Ms. Thompson’s suspension pending the outcome of the independent investigation into the possible
breaches of fiduciary duty and confidentiality by Ms. Thompson.
By
separate letters dated December 20, 2020, Ms. Thompson and Mr. Welo informed the Board that they were resigning from the Board,
effective immediately, as a result of the Board’s response to the allegations they conveyed. Mr. Welo and Ms. Thompson again
made comments about senior management and the remaining members of the Board in their resignation letters, which are filed with
the SEC as Exhibits to the Current Report on Form 8-K filed with the SEC on December 23, 2020. Ms. Thompson also demanded the
Company remove her from the Company’s website including any references as CFO or director, which the Company promptly complied
with. The Company was required to comply with its SEC reporting obligations and was thus required to make those allegations public
and give Mr. Welo and Ms. Thompson an opportunity to comment on the Company’s 8-K disclosure; which they did not. In response
to the letters, senior management disputed all of the allegations made by Ms. Thompson and Mr. Welo. Promptly following the December
18, 2020 special meeting, the Board determined that two special committees should be formed – one to conduct each independent
investigation – to avoid any potential conflicts that could arise during the investigations.
Thereafter,
the Audit Committee of the Board formed a special committee and began investigating Ms. Thompson’s and Mr. Welo’s
fraudulent accounting allegations against senior management and retained outside counsel and an independent registered public
accounting firm to assist with the investigation. Numerous interviews were conducted with the Company’s employees, management,
and members of the Board. Outside counsel requested to interview Ms. Thompson and Mr. Welo, but they did not respond to the request.
During the investigation outside counsel and the independent registered public accounting firm were provided access to the Company’s
financials, email records, and other documents as requested.
Concurrently
with the Audit Committee’s special committee investigation, the Nominating and Corporate Governance Committee of the Board
formed a special committee and began an independent investigation into allegations of wrongdoing by Mr. Welo and Ms. Thompson,
including breaches of their fiduciary duties to you and the Company. The special committee retained separate outside counsel from
that engaged by the Audit Committee to assist with the investigation.
The
investigation included, among other things, review of evidence that Mr. Welo and Ms. Thompson conveyed material non-public and/or
confidential information to Thomas Wetherald in violation of Company policy and their fiduciary duties. Additionally, the investigation
has involved review of the circumstances surrounding Ms. Thompson’s and Mr. Welo’s “noisy” resignations,
which required the Company to file resignation letters with the SEC containing allegations of fraudulent accounting by senior
management. The Company’s share price significantly declined in the days immediately following Ms. Thompson’s and
Mr. Welo’s abrupt resignations, leading to significant destruction of shareholder value.
Between
December 20, 2020 and February 12, 2021, the Company received no communication from Wetherald and Welo. Wetherald and Welo did
not engage (or attempt to engage) in any dialogue or other discussions with the Company or members of the Board with respect to
their concerns about the Company.
On
January 26, 2021, the Nominating and Corporate Governance Committee determined to conclude the independent investigation into
independent investigation into allegations of wrongdoing by Mr. Welo and Ms. Thompson, including breaches of their fiduciary duties
to you and the Company. The Nominating and Corporate Governance Committee and the Board determined that it was not in the best
interests of the Company and its shareholders to expend resources to pursue further potential legal claims against Mr. Welo and
Ms. Thompson.
On
February 12, 2021, Wetherald and Welo filed a preliminary consent solicitation statement on Schedule 14A with the SEC, as
amended on February 25, 2021, to, among other things, solicit written consents from the Company’s shareholders to
remove all five members of Taronis’ Board and replace them with the Nominees. Wetherald and Welo’s preliminary
consent solicitation disclosed that Mr. Wetherald, Mr. Welo and Ms. Thompson, collectively, beneficially owned an aggregate
of 1,113,333 shares of Common Stock, constituting approximately 17.9% of the shares of Common Stock outstanding.
Also
on February 12, 2021, Wetherald and Welo delivered to the Secretary of the Company written notice of the Consent Proposals and
an executed written consent in support of the Consent Proposals, along with a written request that the Board, pursuant to Section
213(b) of the Delaware General Corporation Law, fix a record date for determining the Taronis shareholders entitled to act by
written consent with respect thereto. The written request asked that the Board fix the record date by February 22, 2021.
On
February 16, 2021, Wetherald and Welo filed a Schedule 13D with the SEC, reporting that as of the close of business on February
11, 2021, Wetherald and Welo, collectively, beneficially owned an aggregate of 1,099,999 shares of Common Stock, constituting
approximately 17.7% of the shares of Common Stock outstanding and describing the preliminary consent solicitation statement on
Schedule 14A.
Also
on February 16, 2021, Wetherald and Welo delivered a letter to the Company, demanding the inspection of certain books, records
and documents of the Company pursuant to Section 220 of the Delaware General Corporation Law.
On
February 17, 2021, the Company, through its outside counsel, O’Melveny & Myers LLP, initiated discussions with counsel
for Wetherald and Welo to explore whether a mutually acceptable settlement could be achieved that would allow both parties to
avoid the costly and distracting consent solicitation process. As of the date of this filing, Wetherald and Welo have responded
through their counsel that they would not be willing to consider a resolution that would not involve the replacement of the entire
Board.
On
February 22, 2021, the Board, pursuant to Section 213(b) of the Delaware General Corporation Law, and in compliance with the written
request to fix a record date delivered to the Board on February 12, 2021, fixed March 4, 2021 as the record date for determining
the Taronis shareholders entitled to act by written consent with respect to the Activist Consent Proposals.
On
February 23, 2021, the Company issued and filed with the SEC a press release notifying shareholders that the Board had fixed March
4, 2021 as the record date.
On
February 23, 2021, the Company’s counsel sent a letter to counsel for the Activist Group in response to the letter delivered
by Wetherald and Welo to the Company on February 16, 2021 pursuant to Section 220 of the Delaware General Corporation Law.
On
February 25, 2021, Wetherald and Welo filed a revised preliminary consent statement on Schedule 14A with the SEC.
On
February 25, 2021, Mr. Wetherald, Mr. Welo and Ms. Thompson, filed an Amendment No. 1 to Schedule 13D with the SEC, reporting
that as of February 24, 2021, Mr. Wetherald, Mr. Welo and Ms. Thompson, collectively, beneficially owned an aggregate of 1,113,332
shares of Common Stock, constituting approximately 17.9% of the shares of Common Stock outstanding. The Schedule 13D filed by
them, as amended, also provided that they “may in the future take such actions with respect to their investment in the [Company]
as they deem appropriate including, without limitation, engaging in communications with management and the Board of the [Company],
engaging in discussions with shareholders of the [Company] and others about the [Company] and [Mr. Wetherald, Mr. Welo and Ms.
Thompson’s] investment, making proposals to the [Company] concerning changes to the capitalization, ownership structure,
board structure (including board composition) or operations of the Issuer, purchasing additional shares of Common Stock, selling
some or all of their shares of Common Stock, engaging in short selling of or any hedging or similar transaction with respect to
the shares of Common Stock, or changing their intention with respect to any and all matters [described in the preliminary consent
solicitation statement on Schedule 14A].”
On
February 26, 2021, the Company filed a preliminary consent revocation statement on Schedule 14A with the SEC.
On
March 1, 2021, counsel for Mr. Wetherald sent a letter to counsel for the Company regarding Mr. Wetherald’s demand for a
copy of a list of shareholders and other related records of the Company under Section 220 of the Delaware General Corporation
Law.
On
March 2, 2021, counsel for Mr. Wetherald sent a letter to the Board of Directors of the Company regarding the record date for
the consent solicitation and other matters.
On
March 3, 2021, counsel for Mr. Wetherald and counsel for the Company discussed Mr. Wetherald’s demand for a copy of the
list of shareholders and other related records, disclosure of the Company’s share issuances in February 2021, and the record
date for the consent solicitation.
Also
on March 3, 2021, the Company’s Board of Directors announced its adoption of a Section 382 Shareholders Rights Plan to protect
the value of the Company’s net operating loss tax assets, as well as the completion of an equity financing to raise important
funding for the Company’s continued operations and working capital requirements.
On
March 4, 2021, the Activist Group filed a further revised preliminary consent statement on Schedule 14A with the SEC.
On
March 4, 2021, the Company’s counsel sent an additional letter to counsel for the Activist Group in response to Mr. Wetherald’s
demand for a copy of a list of shareholders and other related records of the Company under Section 220 of the Delaware General
Corporation Law.
On
March 5, 2021, Mr. Wetherald filed a lawsuit in the Delaware Court of Chancery seeking, among other relief, clarification from
the court of the appropriate record date (such date as determined by the Court of Chancery, the “Record Date”) and
the rights of certain shares of Common Stock issued after February 12, 2021 with respect to the consent solicitation.
Also
on March 5, 2021, the Activist Group filed a definitive consent solicitation statement with the SEC.
On
March 8, 2021, the Company filed this revised preliminary consent statement on Schedule 14A with the SEC.
QUESTIONS
AND ANSWERS ABOUT THIS CONSENT REVOCATION STATEMENT
YOUR
BOARD URGES YOU NOT TO SIGN ANY WHITE CONSENT CARD SENT TO YOU BY THE ACTIVIST GROUP BUT INSTEAD TO SIGN AND RETURN THE
GREEN CONSENT REVOCATION CARD INCLUDED WITH THESE MATERIALS.
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Q:
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WHO
IS MAKING THIS SOLICITATION FOR CONSENT REVOCATION?
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A:
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Your
Board.
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Q:
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WHAT
ARE WE ASKING YOU TO DO?
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A:
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You
are being asked to revoke any consent that you may have delivered in favor of the five (5) proposals described in the Consent
Solicitation Statement by voting the GREEN Consent Revocation Card and, by doing so, preserve the current composition of your
Board, which will continue to act in your best interests.
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Q:
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WHAT
IS A CONSENT SOLICITATION?
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A:
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Under
Delaware law and our organizational documents, shareholders may act without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action to be taken, are signed by the holders of a majority of
the outstanding shares of common stock entitled to vote thereon.
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Q:
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WHAT
IS THE BOARD’S POSITION WITH RESPECT TO THE ACTIVIST CONSENT PROPOSALS?
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A:
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Your
Board strongly believes that the solicitation being undertaken by the Activist Group is simply an attempt to disrupt the Company’s
focus at a critical time in the Company’s development by the Activist Group so that candidates selected by Wetherald
and Welo can be installed. Your Board strongly believes that the solicitation being undertaken by the Activist Group is not
in the best interests of all of the Company’s shareholders for the reasons described above in Reasons to Reject the
Consent Proposals. Your Board believes this is a follow on to Wetherland and Welo’s failed attempt to assume managerial
control of the Company in December 2020.
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Q:
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WHAT
DOES THE BOARD RECOMMEND?
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A:
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Your
Board unanimously opposes the Activist Consent Solicitation and urges shareholders to reject the solicitation and revoke any
consent previously submitted.
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Q:
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IF
I HAVE ALREADY DELIVERED A CONSENT, IS IT TOO LATE FOR ME TO CHANGE MY MIND?
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A:
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No,
it’s not too late. Until the requisite number of duly executed, unrevoked consents are delivered to the Company in accordance
with Delaware law and the Company’s organizational documents, the consents will not be effective. At any time prior
to the consents becoming effective, you have the right to revoke your consent by delivering a GREEN Consent Revocation
Card.
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Q:
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WHEN
WILL THE CONSENTS BECOME EFFECTIVE?
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A:
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Under
Delaware law, the Activist Consent Proposals will become effective if, upon certification by the independent inspector of
election, valid, unrevoked consents signed by the holders of a majority of the shares of Common Stock outstanding as of the
Record Date are delivered to the Company within 60 days of the first date on which a consent is delivered to the Company.
Wetherald and Welo delivered to the Company a signed written consent on February 12, 2021, concurrently with the filing of
the Activist Consent Solicitation Statement. Thus, the Consent Proposals will become effective if valid, unrevoked consents
signed by the holders of a majority of the shares of Common Stock outstanding as of the Record Date are delivered to the Company
no later than April 13, 2021, which is the date that is 60 days following February 12, 2021.
|
|
Q:
|
WHAT
IS THE EFFECT OF DELIVERING A GREEN CONSENT REVOCATION CARD?
|
|
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|
A:
|
By
marking the “YES, REVOKE MY CONSENT” or “ABSTAIN” boxes on the enclosed GREEN
Consent Revocation Card and signing, dating and mailing the card in the postage-paid envelope provided, you will revoke any
earlier dated consent that you may have delivered to the Activist Group. Even if you have not submitted the Activist Group’s
white consent card, we urge you to submit a GREEN Consent Revocation Card as described above. Although submitting a
GREEN Consent Revocation Card will not have any legal effect if you have not previously submitted the Activist Group’s
white consent card, we urge you to submit a GREEN Consent Revocation Card because it will help us keep track of the
consent process.
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|
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|
Q:
|
WHAT
SHOULD I DO TO REVOKE MY CONSENT?
|
|
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A:
|
Mark
the “YES, REVOKE MY CONSENT” boxes next to each proposal listed on the enclosed GREEN Consent Revocation
Card. Then, sign and date the GREEN Consent Revocation Card and return it TODAY or as soon as possible in the envelope
provided. It is important that you sign and date the GREEN Consent Revocation Card.
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|
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|
Q:
|
WHAT
HAPPENS IF I DO NOTHING?
|
|
A:
|
If
you do not send in any consent that the Activist Group may send you and do not return the enclosed GREEN Consent Revocation
Card, it will have the effect of your not consenting to the Activist Consent Proposals.
|
|
|
|
|
Q:
|
WHAT
HAPPENS IF THE ACTIVIST CONSENT PROPOSALS PASS?
|
|
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A:
|
If
unrevoked consents representing a majority of Common Stock outstanding as of the Record Date are delivered to us with respect
to each of the proposals by April 13, 2021, which is 60 days following the first date on which a consent was delivered to
the Company, all five of your experienced directors from the Board will be removed and replaced with the Nominees, and the
Nominees would then control Taronis. In addition, certain amendments to the Company’s Bylaws would become effective.
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|
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|
Q:
|
WHO
IS ENTITLED TO CONSENT, WITHHOLD CONSENT OR REVOKE A PREVIOUSLY GIVEN CONSENT WITH RESPECT TO THE ACTIVIST CONSENT PROPOSALS?
|
|
|
|
|
A:
|
In
accordance with Delaware law and the Company’s organizational documents, the Board has fixed March 4, 2021 as the record
date for the determination of the Company’s shareholders who are entitled to execute, withhold or revoke consents relating
to the Activist Consent Solicitation. Mr. Wetherald is disputing the validity under Delaware law of the Board’s
action to fix the record date for the Activist Consent Solicitation as March 4, 2021. Mr. Wetherald has filed a
lawsuit in the Delaware Court of Chancery seeking, among other relief, clarification from the court of the appropriate record
date and the rights of certain shares of Common Stock issued after February 12, 2021 with respect to the Activist Consent
Solicitation. Only shareholders of record as of the close of business on the Record Date may execute, withhold
or revoke consents with respect to the Activist Consent Proposals.
|
|
|
|
|
Q:
|
IF
I SUBMIT A GREEN ACTIVIST CONSENT REVOCATION CARD REVOKING MY CONSENT, CAN I SUBSEQUENTLY REVOKE SUCH ACTIVIST CONSENT REVOCATION?
|
|
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|
|
A:
|
Yes.
If you change your mind after submitting a consent revocation on the enclosed GREEN Consent Revocation Card, you can
submit a later dated consent to the Activist Group thereafter so long as such consent is submitted during the solicitation
period. Delivery of a later dated consent to the Activist Group would have the effect of revoking the earlier dated consent
revocation delivered to Taronis.
|
|
|
|
|
Q:
|
IF
THE ACTIVIST GROUP’S PROPOSALS ARE APPROVED, WILL IT RESULT IN A “CHANGE IN CONTROL?” AND IF SO, WHAT WILL
THIS MEAN FOR THE COMPANY?
|
|
|
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|
A:
|
If
the Activist Consent Solicitation is successful, all five of the current members of your Board would be replaced with the
Nominees, which could result in a “change in control” that could trigger, among other things, the acceleration
of payments under the Company’s outstanding convertible debenture and could potentially lead to adverse consequences
triggering an acceleration of payments under the Company’s revolving credit facility and term loan. In addition, employment
agreements with senior management include “double trigger” provisions that could be implicated following a change
in control. While the Board intends to take actions where advisable and appropriate to mitigate or prevent adverse consequences
of such a change in control event to the Company, the Company estimates that potential liabilities in excess of $24 million
in the aggregate could result in the event a change in control were to occur. These provisions could be triggered in the event
the members of your Board are removed and replaced with the Nominees and the Activist Group take control of Taronis. The Company
does not currently have sufficient cash on hand to make such change in control payments. In the event a change in control
were to occur and the Company is required to make such payments, the change in control would cause significant financial hardship
and seriously impair the Company’s ability to continue its operations. Such an event would likely have a direct material
adverse effect on shareholder value.
|
|
|
|
|
Q:
|
WHO
SHOULD I CONTACT IF I HAVE QUESTIONS ABOUT THE SOLICITATION?
|
|
A:
|
If
you have questions regarding this Consent Revocation Statement or about submitting your GREEN Consent Revocation Card,
or otherwise require assistance, please call MacKenzie Partners, Inc., the firm assisting us in soliciting the revocation
of consents, toll-free at (800) 322-2885 or call collect at (212) 929-5500) or by email at TRNF@mackenziepartners.com.
|
THE
CONSENT PROCEDURE
Voting
Securities and Record Date
In
accordance with Delaware law and the Company’s organizational documents, the Board fixed March 4, 2021 as the Record Date
for the determination of the Company’s shareholders who are entitled to execute, withhold or revoke consents relating to
the Activist Consent Solicitation. As of March 4, 2021, there were 9,953,029 shares of Common Stock outstanding.
Mr.
Wetherald is disputing the validity under Delaware law of the Board’s action to fix the record date for the Activist Consent
Solicitation as March 4, 2021. Mr. Wetherald has filed a lawsuit in the Delaware Court of Chancery seeking, among other relief,
clarification from the court of the appropriate record date and the rights of certain shares of Common Stock issued after February
12, 2021 with respect to the Activist Consent Solicitation.
Only
shareholders of record as of the Record Date are eligible to execute, withhold or revoke consents in connection with the Activist
Consent Proposals, and each share of Common Stock outstanding as of the Record Date will be entitled to one vote. Persons beneficially
owning shares of Common Stock (but not holders of record), such as persons whose ownership of Common Stock is through a broker,
bank or financial institution, may wish to contact such broker, bank or financial institution and instruct such person to execute
the GREEN Consent Revocation Card on their behalf. Any failure to consent will have the same effect as withholding consent
from the Activist Consent Proposals. Any abstention on an executed GREEN Consent Revocation Card will have the same effect
as voting against the Activist Consent Proposals and revoking any prior consent to the Activist Consent Proposals.
Effectiveness
of Consents
Under
Delaware law, unless otherwise provided in the Company’s certificate of incorporation, shareholders may act without a meeting,
without prior notice and without a vote, if consents in writing setting forth the action to be taken are signed by the holders
of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted. Under the Company’s Bylaws, shareholders
may act without a meeting, without prior notice and without a vote, if consents in writing setting forth the action to be taken
are signed by the holders of a majority of the outstanding shares of common stock entitled to vote thereon. The Company’s
certificate of incorporation does not prohibit shareholder action by written consent. Under Section 228 of the Delaware General
Corporation Law, the Activist Consent Proposals will become effective if valid, unrevoked consents signed by the holders of a
majority of the shares of Common Stock outstanding as of the Record Date, as certified by the independent inspector of election,
are delivered to the Company in the manner required by Delaware law within 60 days of the of the first date on which a consent
is delivered to the Company. Wetherald and Welo delivered to the Company a signed written consent on February 12, 2021, which
means that valid, unrevoked consents signed by the holders of a majority of the shares of Common Stock outstanding as of the Record
Date must be delivered no later than April 13, 2021, which is the date that is 60 days following the first date on which a consent
was delivered to the Company.
Because
the Activist Consent Proposals could become effective before April 13, 2021, we urge you to act promptly and return the GREEN
Consent Revocation Card today.
Effect
of GREEN Consent Revocation Card
A
shareholder may revoke any previously signed consent by signing, dating and returning to the Company a GREEN Consent
Revocation Card. A consent may also be revoked by delivery of a written revocation of your consent to the Activist Group.
Shareholders are urged, however, to return all consent revocations to MacKenzie Partners, Inc., 1407 Broadway, 27th Floor,
New York, NY 10018 (Facsimile No. (646) 439-9201). The Company requests that if a revocation is instead delivered to the
Activist Group, a copy of the revocation also be returned to the Company, c/o MacKenzie Partners, Inc., at the address or
facsimile number set forth above so that the Company will be aware of all revocations. If you return your GREEN Consent
Revocation Card by facsimile, please be sure to fax both sides.
When
marking boxes on the GREEN Consent Revocation Card, “YES, REVOKE MY CONSENT” and “ABSTAIN” will
have the effect of revoking a prior consent.
Unless
you specify otherwise, by signing and delivering the GREEN Consent Revocation Card, you will be deemed to have revoked
consent to all of the Activist Consent Proposals, except that you will not be treated as having revoked your consent to removal
of any director or election of any director whose name is written in the space provided in the GREEN Consent Revocation
Card.
Any
consent revocation may itself be revoked by marking, signing, dating and delivering a written revocation of your GREEN
Consent Revocation Card to the Company or to the Activist Group or by delivering to the Activist Group a subsequently dated white
consent card that the Activist Group sent to you.
The
revocation of any previously delivered consent or consent revocation must be signed, have a subsequent date than the previously
delivered consent or consent revocation and is not required to state the number of shares held unless you wish to revoke your
consent with respect to less than all shares as to which you previously consented, in which case you must state the number of
shares to which your revocation relates. In addition, if you have more than one account with respect to which you have delivered
a consent, the revocation should identify the relevant account the consent for which is being revoked.
If
any shares of Common Stock that you owned on the Record Date were held for you in an account with a stock brokerage firm, bank
nominee or other similar “street name” holder, you are not entitled to vote such shares directly, but rather must
give instructions to the stock brokerage firm, bank nominee or other “street name” holder to grant or revoke consent
for the shares of Common Stock held in your name. Accordingly, you should follow the instructions on the GREEN Consent
Revocation Card to vote your shares. Alternatively, you can contact the person responsible for your account and direct him or
her to execute the enclosed GREEN Consent Revocation Card on your behalf. You are urged to confirm in writing your instructions
to the person responsible for your account and provide a copy of those instructions to the Company, c/o MacKenzie Partners, Inc.,
at the address set forth above so that the Company will be aware of your instructions and can attempt to ensure each instruction
is followed.
YOU
HAVE THE RIGHT TO REVOKE ANY CONSENT YOU MAY HAVE PREVIOUSLY GIVEN TO THE ACTIVIST GROUP. TO DO SO, YOU NEED ONLY SIGN, DATE AND
RETURN THE GREEN CONSENT REVOCATION CARD ACCOMPANYING THIS CONSENT REVOCATION STATEMENT IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE. WHEN MARKING BOXES ON THE GREEN CONSENT CARD, “YES, REVOKE MY CONSENT” AND “ABSTAIN”
WILL HAVE THE EFFECT OF REVOKING A PRIOR CONSENT. IF YOU SIGN AND DATE THE CONSENT REVOCATION CARD BUT MAKE NO DIRECTION, YOU
WILL BE TREATED AS HAVING REVOKED YOUR CONSENT WITH RESPECT TO THE ACTIVIST CONSENT PROPOSALS, EXCEPT THAT YOU WILL NOT BE TREATED
AS HAVING REVOKED YOUR CONSENT TO THE REMOVAL OF ANY DIRECTOR, OR THE ELECTION OF ANY DIRECTOR, WHOSE NAME IS WRITTEN IN THE SPACE
PROVIDED ON GREEN CONSENT REVOCATION CARD.
The
Company has retained MacKenzie Partners, Inc. to assist in communicating with shareholders in connection with the Activist Consent
Solicitation and to assist in Taronis’ efforts to obtain consent revocations. If you have any questions about how to complete
or submit your GREEN Consent Revocation Card or any other questions, MacKenzie Partners, Inc. will be pleased to assist
you. You may call MacKenzie Partners, Inc. collect at (212) 929-5500 or toll-free at (800) 322-2885 or by email at TRNF@mackenziepartners.com.
You
should carefully review this Consent Revocation Statement. YOUR TIMELY RESPONSE IS IMPORTANT. You are urged not to sign any white
consent cards. Instead, you can reject the solicitation efforts of the Activist Group and revoke your consent by promptly
completing, signing, dating and mailing the enclosed GREEN Consent Revocation Card to MacKenzie Partners, Inc., 1407 Broadway,
27th Floor, New York, NY 10018 (Facsimile No. (646) 439-9201). If you return your GREEN Consent Revocation Card by facsimile,
please be sure to fax both sides and contact MacKenzie Partners, Inc. toll-free at (800) 322-2885 or (212) 929-5500 (call collect)
to confirm receipt of your fax. Please be aware that if you sign a GREEN Consent Revocation Card but do not check any of
the boxes on the card, you will be treated as having revoked any prior consent to all of the Consent Proposals, except that you
will not be treated as having revoked your consent to removal of any director or election of any director whose name is written
in the space provided in the GREEN Consent Revocation Card.
Results
of Consent Revocation Statement
The
Company will retain an independent inspector of elections in connection with the Activist Consent Solicitation. The Company intends
to notify shareholders of the results of the Activist Consent Solicitation by issuing a press release, which it will also file
with the SEC as an exhibit to a Current Report on Form 8-K, promptly following the receipt of a final report of the inspector
of elections.
SOLICITATION
OF CONSENT REVOCATIONS
Cost
and Method
The
cost of the solicitation of revocations of consent will be borne by the Company. The Company estimates that the total expenditures
relating to the Company’s consent revocation solicitation (other than salaries and wages of officers and employees), but
excluding costs of (if any) litigation related to the solicitation, will be approximately $500,000, of which approximately $280,000
has been incurred as of the date hereof. In addition to solicitation by mail, directors and officers of the Company may, without
additional compensation, solicit revocations by mail, e-mail, facsimile, in person or by telephone or other forms of telecommunication.
The
Company has retained MacKenzie Partners, Inc. as its soliciting agent, for reasonable and customary fees, plus reasonable out-of-pocket
expenses incurred on Taronis’ behalf, to assist in the solicitation of consent revocations. The Company will reimburse brokerage
houses, banks, custodians and other nominees and fiduciaries for out-of-pocket expenses incurred in forwarding the Company’s
consent revocation materials to, and obtaining instructions relating to such materials from, beneficial owners of Common Stock.
MacKenzie Partners, Inc. has advised the Company that approximately 5 of its employees will be involved in the solicitation of
consent revocations by MacKenzie Partners, Inc. on behalf of the Company. In addition, MacKenzie Partners, Inc. and certain related
persons will be indemnified against certain liabilities arising out of or in connection with the engagement.
Participants
in the Solicitation
Under
applicable regulations of the SEC, each of Taronis’ directors and certain of Taronis’ executive officers and other
employees may be deemed to be “participants” in this consent revocation solicitation. Please refer to the sections
entitled Board of Directors and the appendix entitled Supplemental Information Regarding Participants for information
about Taronis’ directors and executive officers and other employees who may be deemed to be participants in the solicitation.
Except as described in this Consent Revocation Statement, there are no agreements or understandings between the Company and any
such participants relating to employment with the Company or any future transactions.
Other
than the persons described above, no general class of employee of the Company will be employed to solicit shareholders in connection
with the solicitation. However, in the course of their regular duties, employees may be asked to perform clerical or ministerial
tasks in furtherance of this solicitation.
CERTAIN
AGREEMENTS
If
the Activist Consent Solicitation is successful, all five of the current members of your Board would be replaced with the Nominees,
which could result in a “change in control” that could trigger events of default under certain of the Company’s
agreements governing its indebtedness and would also potentially trigger severance termination provisions under the Company’s
employment agreements with its executives. As a result, replacing all five of the current members of your Board could cause the
Company significant financial liability. While the Board intends to take actions where advisable and appropriate to mitigate or
prevent adverse consequences of such a change of control event to the Company, in the aggregate, the Company estimates that it
could be required to pay in excess of $24 million if even a majority of the current members of your Board are replaced, which
would be due and payable on the date the Nominees take office should they be elected. The Company does not have sufficient cash
on hand to pay this amount, and the requirement to do so could cause the Company significant financial and operational harm, and
seriously impair the Company’s ability to continue its operations. If the Company is unsuccessful in seeking a waiver of
these provisions, raising additional capital, or obtaining financing to pay these liabilities, the Company would likely become
insolvent and you could lose all or part of your investment.
A
summary of the agreements under which a “change in control” would or could be triggered is set forth below.
Credit
Facility and Term Loan
On
October 21, 2020, the Company and certain of its subsidiaries entered into a Loan and Security Agreement (the “Loan Agreement”)
with Tech Capital, LLC (the “Lender”). The Loan Agreement provided the Company with a senior secured asset-based revolving
credit facility of up to $10 million (the “Facility Commitment”). As security for the Facility Commitment, the Company
granted the Lender a lien on all of its assets, including accounts receivable and inventory. In addition, on December 14, 2020,
the Company entered into a Secured Promissory Note (the “Promissory Note”) with Lender for a senior secured term loan
in the amount of $2.5 million.
Pursuant
to the terms of the Loan Agreement and Promissory Note, the Company will be in default in the event that the Lender determines
that there has been a material adverse change in the Company’s business or financial condition, or that there has been any
change in the Company’s ability to pay and perform its obligations when due. In the event the Lender were to determine that
the replacement of the entire Board was a material adverse change in the Company’s business, or that the Company has been
impacted financially as a result of the replacement of the entire Board such that the Company is unable to pay its obligations
as a result of a change in control due to the other payment obligations described in this section, the Company would be in default
under the Loan Agreement and the Promissory Note. Upon an event of default, the Lender can require all of the obligations under
the Loan Agreement and Promissory Note to be immediately due and payable. Thereafter, all amounts outstanding will bear interest
at an additional 5%. In addition, the Lender could foreclose on the Company’s assets and control or otherwise sell its assets.
The Company estimates that the occurrence of an event of default would result in payment obligations in excess of $12.5 million
becoming immediately due and payable to the Lender, while also risking potential foreclosure on the Company’s assets if
the Company is unable to fulfill such payment obligations.
Executive
Severance Plan and Employment Agreements
The
Company maintains an Executive Severance Plan (the “Severance Plan”) and employment agreements with its senior management
that provide severance protection to the Company’s senior management who, among other things, may be terminated following
a change in control or terminate their employment following a change in control if their compensation or duties are materially
reduced. Pursuant to the Severance Plan, the replacement of your current Board with the Nominees would be considered a change
in control. If a participant is terminated by the Company after a change in control, or such participant terminates his employment
following a reduction in salary or job responsibilities, such participant’s severance benefit would be generally due and
payable in a lump sum on or before the 60th day following the termination date. A participant’s severance benefit
in the event of termination following a change in control includes (i) a cash payment equal to the participant’s base salary
for thirty-six (36) months in the case of the Chief Executive Officer and Vice President, General Counsel, and Secretary, and
twenty-four (24) months in the case
of
the Chief Financial Officer, (ii) a cash payment equal to the maximum amount of all bonus awards, (iii) a lump sum cash payment
equal to cost of monthly medical and dental coverage under COBRA for twenty-four (24) months, and (iv) the immediate vesting of
all equity awards that have not yet vested upon such termination following a change in control.
The
Company estimates that, if all of the participants either (i) are terminated by the Company following a change in control or (ii)
terminate their employment following a change in control if there is also a material reduction in their respective compensation
or duties or for “good reason”, the Company would incur obligations to pay the participants lump sum cash payments
in excess of $10.5 million in the aggregate.
Convertible
Debenture
In
connection with a private placement offering of convertible debentures and warrants that closed in August 2020, the Company has
one outstanding convertible debenture in the principal amount of $675,000. If all five of the current members of your Board were
replaced with the Nominees, a change in control under the outstanding convertible debenture would occur. A change in control would
constitute an event of default, which would require the immediate payment of the outstanding principal amount of the convertible
debenture, plus accrued but unpaid interest, liquidated damages, and other amounts owing through the date of acceleration in cash
at a default amount. The default amount is the sum of 130% of the outstanding principal amount of the debenture, plus 130% of
the accrued and unpaid interest thereon, plus 130% of all other amounts and costs due under the debenture. Commencing on the occurrence
of an event of default, the debenture will accrue interest at 18% or the maximum amount permitted under applicable law.
The
Company estimates that in the event all five of the current members of your Board were replaced with the Nominees, an event of
default would occur under the debenture and the Company would have liabilities in excess of $1 million. In such an event, the
Board will consider whether to approve the Activist Group’s nominees for purposes of avoiding an event of default under
the convertible debenture.
OUR
BOARD OF DIRECTORS AND GOVERNANCE MATTERS
Directors
and Executive Officers
The
following table sets forth the names, ages, positions and dates of appointment of our current directors and executive officers.
|
Name
|
|
Age
|
|
Position
|
|
Date
Appointed
|
|
Scott
Mahoney
|
|
46
|
|
Chief
Executive Officer, President and Director
|
|
April
9, 2019
|
|
Edward
J. Fred
|
|
62
|
|
Chief
Financial Officer and Treasurer
|
|
December
24, 2020
|
|
Tyler
B. Wilson, Esq.
|
|
36
|
|
Vice
President, Secretary and General Counsel
|
|
April
9, 2019
|
|
Kevin
Pollack
|
|
50
|
|
Director
|
|
August
13, 2019
|
|
William
Staunton III
|
|
73
|
|
Director
|
|
August
13, 2019
|
|
Robert
Dingess
|
|
74
|
|
Director
|
|
August
13, 2019
|
|
Peter
Molloy
|
|
49
|
|
Director
|
|
August
13, 2019
|
Significant
Employees
Jack
Armstrong – Vice President of Business Development
Richard
Conz – Vice President of Engineering, Research & Development
Jered
Ruyle - Executive VP, Central U.S. Sales and Operations
Sal
Pena – Executive VP, Western U.S. Sales and Operations
Troy
Galvin – Executive VP, Eastern U.S. Sales and Operations
Michael
Khorassani – Director of Investor Relations
Family
Relationships
None.
Business
Experience
Scott
Mahoney is our Chief Executive Officer, President and a member of our Board of Directors. He presently holds the same
role with Taronis Technologies, Inc. He previously served as Chief Financial Officer and Secretary of Taronis Technologies since
December 2016. Mr. Mahoney has 20 years of financial and distressed situation management experience. Prior to joining Taronis,
Mr. Mahoney was the Chief Financial Officer of Phoenix Group Metals, LLC, a leading auto core supply and automobile recycling
company based in Phoenix, AZ. In addition, Mr. Mahoney has served in several entrepreneurial roles in the oil industry, raising
over $200 million in equity and debt capital for previous projects in the Permian Basin, Eagle Ford, Williston Basin, Rockies
and Mid-continent. Mr. Mahoney has managed 13 oil and gas acquisitions, and managed or participated in more than 350 oil and gas
wells. Prior to co-founding Vast, Mr. Mahoney was the Chief Financial Officer of American Standard Energy Corp, building that
company from a start-up to a $400 million market capitalization in two years.
Prior
to American Standard, Mr. Mahoney founded Catalyst Corporate Solutions, a financial consulting firm focused on turnaround management
in the heavy industrial, business services and oil and gas industries. Under that firm, Mr. Mahoney served as a strategic advisor
to XOG Operating, LLC a contract operator in 17 states and Geronimo Holding Corporation, a portfolio of oil and gas assets in
the Permian Basin, Williston Basin, Eagle Ford, South Texas, among other holdings. Mr. Mahoney also advised a number of southwest-based
companies on restructuring, debt and equity financings, acquisitions and the sale of multiple businesses. He has extensive experience
in the technology, heavy manufacturing, recycling and transportation and construction industries through both his banking and
consulting client base. Prior to forming Catalyst, Mr. Mahoney spent 13 years in corporate and investment banking with JP Morgan,
Wells Fargo and Key Bank. Mr. Mahoney is a Chartered Financial Analyst and has an MBA from the Thunderbird School of Global Management
and two Bachelor’s degrees from the University of New Hampshire.
Mr.
Mahoney’s qualifications to serve on our Board include his financial and management experience.
Edward
J. Fred is our Chief Financial Officer and Treasurer. Prior to joining the Company, Mr. Fred was the principal of EJF
Consulting and TEE Enterprises, which are managerial consulting firms he founded in 2018 and 2015, respectively. Prior to founding
EJF Consulting and TEE Enterprises, from 2015 to 2018 he was the Chief Executive Officer and President of Origo Acquisition Corp.,
an investment vehicle designed to bring a privately-held company to the public marketplace. Mr. Fred retired in March 2014 as
the Chief Executive Officer and President of CPI Aero, a publicly-held aerospace company listed on the NYSE MKT (symbol: CVU),
now known as the NYSE American. Mr. Fred previously was a member of the American Stock Exchange’s and NYSE’s listed
Company Councils, which advised the exchanges on the needs of smaller public companies. He previously served on the Board of Directors
and was the Audit Committee Chairman of Interlink Electronics and on the Board of Directors and Audit Committee of TOMI Environmental
Solutions. He graduated from Dowling College in 1980 with a BBA in Accounting, and went to work in the accounting department of
Borden, Inc., a Fortune 50 food conglomerate. After leaving Borden, he spent two and a half years with Sterling Drug, before going
to work for Grumman Aerospace Corporation for 10 years. Mr. Fred also holds an Executive MBA from Hofstra University.
Tyler
B. Wilson, Esq. is our Vice President, Secretary and General Counsel. Mr. Wilson has held several executive level positions
during his tenure with the Company, including that of Chief Financial Officer, Treasurer, Secretary and General Counsel. In November
2020, Mr. Wilson transitioned from leading the finance and accounting team to an expanded managerial role of Vice President of
the Company. Mr. Wilson now assists with day-to-day operations of our corporate and retail divisions. Over the course of his career,
Mr. Wilson has founded and co-founded a number of successful start-ups and has extensive experience in business operations, capital
markets, M&A and operational leadership. Mr. Wilson holds a Bachelor of Arts from the University of Notre Dame, a Juris Doctor
from the University of Notre Dame Law School and has completed extensive course work at Columbia Business School.
Jack
Armstrong is our Vice President of Business Development. Mr. Armstrong has over 20 years of experience in the capital
markets. He was a Managing Director at Piper Jaffray, Head of Trading at ThinkEquity Partners and recently the Senior Vice President
of the Corporate Client Group at Northland Capital Markets assisting companies in strategy and capital raises. Over his career,
Mr. Armstrong has worked with senior level management at several of the largest investment companies through the process of raising
an estimated $5 billion of funds over his career. Mr. Armstrong received a Bachelor of Administration in Economics from Arizona
State University.
Richard
Conz is our Vice President of Engineering, Research & Development. Mr. Conz is an accomplished professional with more
than 30 years of engineering, program management, and new business development experience which included 28 years with Raytheon.
His expertise includes component and system level design, integration and test, production, deployment and maintenance of complex
electro-mechanical systems. He is well-trained and versed in engineering processes, strategy development, and project scoping,
planning, execution, and budget/resource management throughout the entire program life cycle. In 2011, he received a patent for
performing complex cost/performance trades to determine system best value solutions. In 2013, Mr. Conz launched a successful consulting
business, providing business development, program management, and engineering services. In this role, he provides leadership and
direction in the areas of company/program assessments, market analysis, business intelligence, Price-To-Win assessments, and is
a Subject Matter Expert (SME) in multiple markets. He received his Bachelor of Science degree in Electrical Engineering from Wayne
State University and held Program Management, Capture Management, and Six Sigma certifications.
Jered
Ruyle is Executive VP, Central U.S. Sales and Operations. Mr. Ruyle has more than 14 years of experience in the packaged
gas industry. Prior to joining the Company, Mr. Ruyle held key positions with his family’s multi-generational business in
the welding supply industry. He has experience in fill plant operations, management of logistics teams and sales teams, and was
the President of an independent packaged gas distributor. Mr. Ruyle obtained his Bachelor’s degree from the University of
Texas at Tyler in Business administration.
Sal
Pena is our Executive VP, Western U.S. Sales and Operations. Mr. Peña has more than 20 years of successful business
management experience in a variety of industries and more than 12 years in compressed gases and welding supplies. Mr. Peña
holds a Bachelor’s Degree from San Diego State University in Industrial Arts with an emphasis on Manufacturing and Graphic
Design as well as a Bachelor’s Degree in Spanish Literature.
Troy
Galvin is our Executive VP, Eastern U.S. Sales and Operations. Mr. Galvin has over 25 years of experience in sales, operations
and management, with nearly 10 years in the welding and industrial gas distribution market. His business acumen and collaborative
management style have historically led to multiple record setting sales years. Troy attended Sacramento State College of Business
Administration.
Michael
Khorassani is our Director of Investor Relations. Mr. Khorassani has over 28 years of experience in the financial services
industry. Prior to joining Taronis Mr. Khorassani served as Director of Investments at the Private Client group of Oppenheimer
and Co. for 18 years. Mr. Khorassani focused on small and mid-sized companies in the technology and oil and gas sectors. Mr. Khorassani
attended NYU university and holds series 7, 63, 65 licenses.
Robert
L. Dingess is an independent director. He has served as Chairman of our Board and Audit Committee and as a member of the
Compensation Committee for Taronis Fuels since August 13, 2019. Mr. Dingess previously served as Chairman of the Board of Directors
of Taronis Technologies, Inc., our former parent company, from April 30, 2013 to September 30, 2020. Mr. Dingess has over 35 years
of financial and management experience, including working with several large healthcare organizations, owning and operating his
own businesses, and serving as a Senior Manager and Partner of Ernst & Young. Mr. Dingess currently is owner and Chief Executive
Officer of Ideal Management Services, Inc., d/b/a Ideal Image Central Florida, a med-spa company with four locations in central
Florida. From 1992 to 2002, Mr. Dingess served as the Chief Executive and owner of Dingess & Associates, Inc., a private healthcare
consulting and management company, which served healthcare clients in multiple states. From 1986 to 1992, Mr. Dingess was a Senior
Manager and Partner in Ernst & Young’s Southeast Region Healthcare Operations Business Office Practice, where he advised
over 200 healthcare clients in healthcare financial management. Mr. Dingess holds a Master of Business Administration from Virginia
Commonwealth University and a Bachelor of Business Administration from Marshall University.
Mr.
Dingess’ experience in owning and operating his own businesses, serving as a Partner at E&Y and in advising companies
give him the qualifications and skills to serve as a Director of our Company.
Kevin
Pollack is an independent director. He has served as an independent director, Chairman of our Nominating and Corporate
Governance Committee, and member of the Audit Committee, Acquisitions Committee and External Communications Committee since August
13, 2019. Mr. Pollack previously served as an independent director of Taronis Technologies, Inc., our former parent company, from
June 21, 2012 to September 30, 2020. Mr. Pollack served as Chief Financial Officer of Opiant Pharmaceuticals, Inc. (NASDAQ: OPNT),
a pharmaceutical company, and as a member of its Board of Directors, from 2012 until 2017, and as an advisor from 2017 until 2018.
From 2007 until 2013, Mr. Pollack was a managing director at Paragon Capital LP, a private investment firm focused primarily on
U.S.-listed companies. Since 2003, Mr. Pollack has also served as president of Short Hills Capital LLC. Prior to that, Mr. Pollack
worked as an investment banker at Banc of America Securities LLC, focusing on mergers and acquisitions and corporate finance.
Mr. Pollack started his career at Sidley Austin LLP (formerly Brown & Wood LLP) as a securities attorney. Since 2012, Mr.
Pollack has served as a member of the board of directors of Pressure BioSciences, Inc. (OTCQB: PBIO). Mr. Pollack graduated magna
cum laude from the Wharton School of the University of Pennsylvania and received a dual J.D./M.B.A. from Vanderbilt University,
where he graduated with Beta Gamma Sigma honors.
Mr.
Pollack’s qualifications to serve on our Board include his financial, legal, investment and management experience, including
his experience with other public companies.
William
W. Staunton III is an independent director. He has served as an independent director and Chairman of the Compensation
Committee and Acquisitions Committee since August 13, 2019. Mr. Staunton previously served as an independent director of Taronis
Technologies, Inc., our former parent company, from April 30, 2013 to September 30, 2020. He is the CEO and Chairman of Okika
Technologies, an electronics design services company specializing in custom integrated circuit (IC), firmware, and software solutions.
He has been the President of Accel–RF Corporation, a provider of RF Reliability Test Systems for compound semiconductor
devices from 2011 until 2013. In 2011, Mr. Staunton founded Kokua Executives, LLC, which provides guidance and interim executive
level-leadership to companies. From 2000 to 2011, Mr. Staunton served as the Chief Executive Officer and a Director of Ramtron
International Corporation, which designs, develops and markets specialized semiconductor memory, microcontroller, and integrated
semiconductor solutions. From March 1999 until December 2000, Mr. Staunton served as Chief Operating Officer of Maxwell Technologies,
which designs and manufactures multi-chip modules and board products for commercial satellite applications. Previously, Mr. Staunton
was executive vice president of Valor Electronics Inc. from April 1996 until February 1999. Mr. Staunton holds a Bachelor of Science
degree in electrical engineering from Utah State University.
Mr.
Staunton’s extensive experience in the semi-conductor industry, with specific background in Military and Space Contracting,
give him the qualifications and skills to serve as a director of our Company.
Peter
Molloy is an independent director. He has served as an independent director, Chairman of our External Communications Committee,
and as a member of the Nominating and Corporate Governance Committee since August 13, 2019. Mr. Molloy has nearly 25 years of
creating, advising and investing in private and public companies, with a particular focus on the Technology, Cleantech and Healthcare
Sectors. He was previously the founder and CEO of Edison Group where he spent 15 years building the company into an international
brand with a global team in excess of 100 people, recognized for its world class equity research platform, advisory services,
and deep sector expertise. He remains a Director and principle shareholder of Edison. Mr. Molloy is also the co-founder of various
other companies, including, most recently, a small molecule biotech company focused on immune-oncology. Mr. Molloy’s earlier
career includes an extensive period as an institutional investor, most notably at Hermes Investment Management in London, managing
a technology and healthcare focused small/mid-cap portfolio, and with a close involvement in Hermes’ shareholder activism
initiatives. Mr. Molloy currently sits on the Board of Tryp Therapeutics, Inc, advises the Boards of several private and public
companies and is also Chair of the African based charity Kick4Life. Mr. Molloy graduated from the University of Exeter (UK) with
a degree in Economics and is an alumnus of London Business School.
Mr.
Molloy’s extensive experience advising public and private companies with a focus on technology give him the qualifications
and skills to serve as a director of our Company.
Involvement
in Certain Legal Proceedings
To
our knowledge, during the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has:
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Been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other
minor offenses);
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Had
any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or
business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or
within two years prior to that time;
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Been
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction
or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement
in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities,
or to be associated with persons engaged in any such activity;
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Been
found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to
have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
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Been
the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an
alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial
institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement
or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or
any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
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Been
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of
the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority
over its members or persons associated with a member.
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Except
as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or
executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates
which are required to be disclosed pursuant to the rules and regulations of the Commission.
Code
of Business Conduct
We
have adopted a Code of Business Conduct effective as of August 12, 2019, that applies to our principal executive officer, principal
financial officer, and principal accounting officer as well as our employees. Our standards are in writing and are to be posted
on our website at a future time. The following is a summary of the key requirements of our Code of Business Conduct:
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Honest
and ethical conduct, including ethical handling of actual or apparent conflicts of interest between personal and professional
relationships;
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Full,
fair, accurate, timely, and understandable disclosure reports and documents that a small business issuer files with, or submits
to, the Commission and in other public communications made by our Company;
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Compliance
with applicable government laws, rules and regulations;
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The
prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and
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Accountability
for adherence to the code.
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We
will provide to any person, without charge, upon request, a copy of such Code of Business Conduct, as amended. Requests should
be addressed to the Company in care of our Secretary, 24980 N. 83rd Avenue, Suite 100, Peoria, AZ 85383.
Whistleblower
Policy
Our
Audit Committee adopted a Whistleblower Policy effective as of January 25, 2021 to establish procedures for (a) the receipt, retention,
and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and
(b) the submission by employees of the Company and others, on a confidential and anonymous basis, of good faith concerns regarding
questionable accounting or auditing matters. Employees have the ability to submit concerns to the Audit Committee on a confidential
and, if desired, anonymous basis. The Company’s Whistleblower Policy is distributed among, and remains accessible to, its
employees online via the Company’s internal employee website.
Corporate
Governance
Director
Independence
We
make our determination of director independence using the definition of “independence” set forth in NYSE Listing Rule
303A.02, which provides:
(a)(i)
No director qualifies as “independent” unless the board of directors affirmatively determines that the director has
no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that
has a relationship with the company).
(ii)
In addition, in affirmatively determining the independence of any director who will serve on the compensation committee of the
listed company’s board of directors, the board of directors must consider all factors specifically relevant to determining
whether a director has a relationship to the listed company which is material to that director’s ability to be independent
from management in connection with the duties of a compensation committee member, including, but not limited to:
(A)
the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the listed company
to such director; and
(B)
whether such director is affiliated with the listed company, a subsidiary of the listed company or an affiliate of a subsidiary
of the listed company.
The
NYSE listing rules provide that a director cannot be considered independent if:
(b)
In addition, a director is not independent if:
(i)
The director is, or has been within the last three years, an employee of the listed company, or an immediate family member is,
or has been within the last three years, an executive officer, of the listed company.
(ii)
The director has received, or has an immediate family member who has received, during any twelve-month period within the last
three years, more than $120,000 in direct compensation from the listed company, other than director and committee fees and pension
or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued
service).
(iii)
(A) The director is a current partner or employee of a firm that is the listed company’s internal or external auditor; (B)
the director has an immediate family member who is a current partner of such a firm; (C) the director has an immediate family
member who is a current employee of such a firm and personally works on the listed company’s audit; or (D) the director
or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on the
listed company’s audit within that time.
(iv)
The director or an immediate family member is, or has been with the last three years, employed as an executive officer of another
company where any of the listed company’s present executive officers at the same time serves or served on that company’s
compensation committee.
(v)
The director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments
to, or received payments from, the listed company for property or services in an amount which, in any of the last three fiscal
years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues.
We
have determined that the following directors of the Company are “independent” directors as defined by applicable SEC
rules and NYSE listing standards: Robert Dingess, Kevin Pollack, William Staunton and Peter Molloy.
Board
Meetings and Committees; Annual Meeting Attendance
The
business and affairs of the company are managed under the direction of our Board of Directors (“Board”). We conduct
two formal Board meetings per year. Each of our directors is required to attend the meetings either in person or via telephone
conference. The Board also conducts monthly telephone calls in which the majority of the independent Board members must be present.
In fiscal 2020, the Audit Committee held four (4) meetings, the Compensation Committee held five (5) meetings, the Nominating
and Corporate Governance Committee held three (3) meetings, the Acquisition Committee held five (5) meetings, and the External
Communications Committee held zero (0) meetings. The Company encourages all directors to attend annual meetings.
Term
of Office
Our
directors are appointed for staggered terms. The Board of Directors of the Company is divided into three classes designated as
Class I, Class II and Class III, respectively. Directors are assigned to each class in accordance with a resolution or resolutions
adopted by the Board of Directors. To the extent practicable, the Board of Directors shall assign an equal number of directors
to Class I, Class II and Class III. At the first annual meeting of shareholders after the filing of the Certificate of Incorporation,
the terms of the Class I directors shall expire and Class I directors shall be elected for a full term of office to expire at
the third succeeding annual meeting of shareholders after their election. At the second annual meeting of shareholders, the terms
of the Class II directors shall expire and Class II directors shall be elected for a full term of office to expire at the third
succeeding annual meeting of shareholders after their election. At the third annual meeting of shareholders, the terms of the
Class III directors shall expire and Class III directors shall be elected for a full term of office to expire at the third succeeding
annual meeting of shareholders after their election. At each succeeding annual meeting of shareholders, directors elected to succeed
the directors of the class whose terms expire at such meeting shall be elected for a full term of office to expire at the third
succeeding annual meeting of shareholders after their election. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and
any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for
a term that shall coincide with the remaining term of that class.
Board
Committees
Our
Board has established four standing committees: audit, compensation, acquisition and nominating and corporate governance. Actions
taken by our committees are reported to the full Board. The Board has determined that all members of each of the audit and compensation
committees are independent under the current listing standards of the NYSE. Our nominating and corporate governance committee
is comprised of two independent directors.
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Audit
Committee
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Compensation
Committee
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Acquisition
Committee
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Nominating
and
Corporate Governance
Committee
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External
Communications
Committee
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Robert
Dingess*
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William
Staunton III*
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William
Staunton III*
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Kevin
Pollack*
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Peter
Molloy*
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Kevin
Pollack
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Robert
Dingess
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Kevin
Pollack
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Peter
Molloy
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Kevin
Pollack
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*
Indicates committee chair
Audit
Committee
Our
Audit Committee, which currently consists of two directors, provides assistance to our Board in fulfilling its legal and fiduciary
obligations with respect to matters involving the accounting, financial reporting, internal controls and compliance functions
of the Company. Our Audit Committee employs an independent registered public accounting firm to audit the financial statements
of the Company and perform other assigned duties. Further, our Audit Committee provides general oversight with respect to the
accounting principles employed in financial reporting and the adequacy of our internal controls. In discharging its responsibilities,
our Audit Committee may rely on the reports, findings and representations of our auditors, legal counsel and responsible officers.
Our Board has determined that all members of the Audit Committee are financially literate within the meaning of SEC rules and
under the current listing of the NYSE. Our Board has also determined that Mr. Dingess qualifies as an “audit committee financial
expert.”
Compensation
Committee
Our
Compensation Committee, which currently consists of two directors, establishes executive compensation policies consistent with
our objectives and our shareholders’ interests. Our Compensation Committee also reviews the performance of our executive
officers and establishes, adjusts and awards compensation, including incentive-based compensation, as more fully discussed below.
In addition, our Compensation Committee generally is responsible for:
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Establishing
and periodically reviewing our compensation philosophy and the adequacy of compensation plans and programs for our directors,
executive officers and other employees;
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Overseeing
our compensation plans, including the establishment of performance goals under the company’s incentive compensation
arrangements and the review of performance against those goals in determining incentive award payouts;
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Overseeing
our executive employment contracts, special retirement benefits, severance, change in control arrangements and/or similar
plans;
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Acting
as administrator of any company stock option plans; and
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Overseeing
the outside consultant, if any, engaged by the Compensation Committee.
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Our
Compensation Committee periodically reviews the compensation paid to our non-employee Directors and the principles upon which
their compensation is determined. The compensation committee also periodically reports to the Board on how our non-employee Director
compensation practices compare with those of other similarly situated public corporations and, if the Compensation Committee deems
it appropriate, recommends changes to our director compensation practices to our Board for approval.
Outside
consulting firms retained by our Compensation Committee and management also will, if requested, provide assistance to the compensation
committee in making its compensation-related decisions.
Acquisition
Committee
Our
Acquisition Committee reviews mergers and acquisitions deemed to be material to provide additional oversight and guidance to management
and the Board. The Acquisition Committee is comprised of two (2) directors. Each Acquisition Committee member is subject to annual
reconfirmation and may be removed by the Board at any time. In addition, our Acquisition Committee generally is responsible for:
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Reviewing
acquisition strategies with the Company’s management and investigating acquisition targets on behalf of the Company.
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Recommending
acquisition strategies and candidates to the Company’s Board, as appropriate.
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Reporting
all of its material actions to the Board and keeping the Board apprised of the Company’s proposed material investments
and acquisitions.
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Nominating
and Corporate Governance Committee
Our
Nominating and Corporate Governance Committee, which currently consists of two directors, monitors our corporate governance system,
assesses Board membership needs, makes recommendations to the Board regarding potential director candidates for election at the
annual meetings of shareholders or in the event of any director vacancy and performs any other functions or duties deemed appropriate
by the Board.
Director
candidates must have experience in positions with a high degree of responsibility and leadership experience in the companies or
institutions with which they are or have been affiliated. Directors are selected based upon contributions that they can make to
the Company. The Nominating and Corporate Governance Committee considers a candidate’s principal employment and employment
history, expertise relevant to the Company’s business, the amount of time the candidate will be able to commit to the Board,
independence, financial literacy and expertise, public company experience, and other personal qualities. We do not maintain a
separate policy regarding the diversity of our Board members. However, consistent with its charter, the Nominating and Corporate
Governance Committee, and ultimately the Board, seeks directors (including nominees for director) with diverse personal and professional
backgrounds, experience and perspectives that, when combined, provide a diverse portfolio of experience and knowledge that will
well serve our governance and strategic needs.
The
Nominating and Corporate Governance Committee also considers candidates validly nominated by stockholders in accordance with applicable
laws, rules and regulations, and provisions in the Company’s Bylaws. The Nominating and Corporate Governance Committee applies
the same evaluation process to candidates submitted by shareholders. Shareholders may recommend candidates for the Nominating
and Corporate Governance Committee to consider by writing to the Nominating and Corporate Governance Committee in care of our
Secretary, 24980 N. 83rd Avenue, Suite 100, Peoria, AZ 85383. To timely submit a nomination, a shareholder should follow
the guidelines in the Section entitled “General Information” in this Consent Revocation Statement. Submitting a shareholder
recommendation to the Nominating and Corporate Governance Committee does not ensure that shareholders will have an opportunity
to vote on the shareholder’s candidate because the Nominating and Corporate Governance Committee may determine not to recommend
the candidate to the full Board or the full Board may determine not to recommend the candidate to shareholders.
External
Communications Committee
Our
External Communications Committee, which currently consists of two independent directors, is charged with assisting with senior
level management with reviewing Company press releases and other external communications and providing content recommendations
prior to public dissemination. Members of the External Communications Committee are selected by the Board of Directors based on
prior experience or expertise dealing with public relations, investor relations or legal disclosures.
Shareholder
Communications
Our
Board provides a process for shareholders to send communications to our Board or to individual directors or groups of directors.
Our Board of Directors recommends that shareholders initiate any communications with our Board (or individual directors or groups
of directors) in writing. These communications should be sent by mail to our Secretary at Taronis Fuels, Inc. 24980 N. 83rd
Avenue, Suite 100, Peoria, AZ 85383. This centralized process will assist our Board in reviewing and responding to shareholder
communications in an appropriate manner. The name of any specific intended Board recipient or recipients should be clearly noted
in the communication (including whether the communication is intended only for the non-management directors as a group). Our Board
has instructed our Secretary to forward such correspondence only to the intended recipients; however, our Board has also instructed
our Secretary, prior to forwarding any correspondence, to review such correspondence and not to forward any items deemed to be
of a purely commercial or frivolous nature (such as spam) or otherwise obviously inappropriate for the intended recipient’s
consideration. In such cases, our Secretary may forward some of the correspondence elsewhere within our company for review and
possible response.
Board
Leadership Structure and Role in Risk Oversight
Our
Board leadership structure includes a non-executive Chairman of the Board who is an independent director. Mr. Dingess serves as
the non-executive Chairman of the Board. The Board currently believes that separating the Chief Executive Officer and Chairman
roles will enable our Chief Executive Officer, Mr. Mahoney, to focus on the business strategy and operations of the company, while
an independent Chairman will provide the continuity of leadership of the Board necessary for the Board to fulfill its responsibilities.
Our
Board is primarily responsible for overseeing our risk management processes. The Board receives and reviews periodic reports from
management, auditors, legal counsel and others, as considered appropriate regarding our assessment of risks. The Board focuses
on the most significant risks facing the Company and our general risk management strategy, and also ensures that risks undertaken
by the Company are consistent with the Board’s tolerance for risk. While the Board oversees our risk management, management
is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach
for addressing the risks facing the Company and that our Board leadership structure supports this approach.
The
Audit Committee assists our Board in its general oversight of, among other things, the Company’s policies, guidelines and
related practices regarding risk assessment and risk management, including the risk of fraud. As part of this endeavor, the Audit
Committee reviews and assesses the Company’s major financial, legal, regulatory, environmental and similar risk exposures
and the steps that management has taken to monitor and control such exposures. The Audit Committee also reviews and assesses the
quality and integrity of the Company’s public reporting, the Company’s compliance with legal and regulatory requirements,
the performance and independence of the Company’s independent auditors, the performance of the Company’s internal
audit department, the effectiveness of the Company’s disclosure controls and procedures and the adequacy and effectiveness
of the Company’s risk management policies and related practices.
Transactions
with Related Persons
None.
Review,
Approval or Ratification of Transactions with Related Persons
We
are a “Smaller Reporting Company,” as defined by 17 C.F.R. § 229.10(f)(1) and are not required to provide information
required by 17 CFR §229.404(b).
EXECUTIVE
COMPENSATION
Overview
The
Compensation Committee is responsible for determining the compensation of our executive officers. Our executive compensation program
consists primarily of a base salary, an annual cash incentive opportunity, and long-term equity incentive awards. In making executive
compensation decisions, the Compensation Committee is guided by the principle that our compensation program should be structured
to help attract, reward and retain highly talented executive officers and also should encourage creation of stockholder value
and achievement of strategic corporate objectives.
As
an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller
reporting companies,” as such term is defined under applicable securities laws, which require compensation disclosure for
our principal executive officer and the two most highly compensated executive officers other than our principal executive officer.
In certain circumstances, the compensation of former executive officers may also need to be disclosed. The table below sets forth
the compensation for services rendered to us during 2020 (and, if applicable, 2019) by these executive officers (also referred
to as our named executive officers, or NEOs).
All
share numbers set forth in this section have been adjusted to account for the Company’s 1-for-75 reverse stock split effective
on December 28, 2020.
Executive
Compensation Table – Fiscal Years 2020 and 2019
The
following table summarizes the total compensation earned by each of our named executive officers for the fiscal years ended December
31, 2020 and 2019. The Company became an independent, public company upon completion of a spin-off from its former parent company,
Taronis Technologies, Inc., on December 5, 2019. Accordingly, the compensation provided below for fiscal 2019, which was earned
prior to the spin-off, includes compensation earned by our named executive officers for services provided to Taronis Technologies
and the Company prior to the spin-off.
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Name and
Principal
Position
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Year
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Salary
($)
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Bonus
($)
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Stock
Awards
($)(1)
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Option
Awards
($)
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Non-Equity
Incentive Plan
Compensation ($)
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Non-Qualified
Deferred
Compensation
Earnings
($)
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All Other
Compensation
($)
|
|
|
Totals
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Mahoney,
|
|
|
2020
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
|
|
|
|
369,000
|
(2)
|
|
|
-
|
|
|
|
225,000
|
(3)
|
|
|
-
|
|
|
|
48,077
|
(4)
|
|
|
1,142,077
|
|
|
Chief Executive Officer & President (5)
|
|
|
2019
|
|
|
|
256,135
|
|
|
|
75,000
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,961
|
|
|
|
357,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tyler B. Wilson, Esq.
|
|
|
2020
|
|
|
|
275,000
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
137,500
|
(6)
|
|
|
-
|
|
|
|
37,019
|
(7)
|
|
|
449,519
|
|
|
Vice President, Secretary, and General Counsel (8)
|
|
|
2019
|
|
|
|
189,423
|
|
|
|
35,000
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,923
|
|
|
|
255,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward J. Fred
|
|
|
2020
|
|
|
|
4,807
|
|
|
|
50,000
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
54,807
|
|
|
Chief Financial Officer and Treasurer (9)
|
|
|
2019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mary Pat Thompson
|
|
|
2020
|
|
|
|
33,653.83
|
|
|
|
|
|
|
|
-
|
|
|
|
683,001.11
|
(12)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,530.05 (13)
|
|
|
|
721,184.99 (14)
|
|
|
Former Chief Financial Officer and Former Treasurer (11)
|
|
|
2019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Narrative
to Executive Compensation Table
|
(1)
|
The
amounts reported in this column reflect the fair value on the grant date of the equity awards granted to our named executive
officers in fiscal 2020 computed in accordance with the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Topic 718 Compensation — Stock Compensation. In each case,
this amount was determined based on the closing price of the Company’s common stock on the applicable grant date.
|
|
|
|
|
(2)
|
Represents
the grant date value of a fully vested award of 40,000 deferred restricted stock units granted in accordance with the Company’s
2019 Equity Incentive Plan for Mr. Mahoney’s contributions to the Company during fiscal 2020. The
award will be settled in shares of the Company’s common stock within 60 days of the earliest to occur of the following:
(i) a Corporate Transaction (as defined in the Company’s 2019 Equity Incentive Plan); (ii) a termination of Mr. Mahoney’s
service with the Company; (iii) the date a majority of members of the Company’s board of directors is replaced during
any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s
board of directors before the date of the appointment or election; or (iv) October 16, 2025.
|
|
|
|
|
(3)
|
Represents
the one-half of the bonus earned by Mr. Mahoney for performance during fiscal 2020 pursuant to the Company’s Executive
Bonus Plan that was paid in cash. The remaining one-half of the bonus was awarded to Mr. Mahoney as 49,020 shares of the Company’s
common stock in January 2021 that vest one year from the date of issuance. Under applicable SEC rules, this award of shares
will be reported as part of Mr. Mahoney’s 2021 compensation in the Company’s proxy statement for the 2022 annual
meeting of stockholders.
|
|
|
|
|
(4)
|
Represents
the payout in 2020 of accrued earned paid time off pursuant to the terms of the executive’s employment agreement.
|
|
|
|
|
(5)
|
Mr.
Mahoney also served as the Company’s interim Chief Financial Officer and Treasurer during the 2020 fiscal year from
December 18, 2020 through December 24, 2020.
|
|
|
|
|
(6)
|
Represents
the one-half of the bonus earned by Mr. Wilson for performance during fiscal 2020 pursuant to the Company’s Executive
Bonus Plan that was paid in cash. The remaining one-half of the bonus was awarded to Mr. Wilson as 29,957 shares of the Company’s
common stock in January 2021 that vest one year from the date of issuance. Under applicable SEC rules, this award of shares
will be reported as part of Mr. Wilson’s 2021 compensation in the Company’s proxy statement for the 2022 annual
meeting of stockholders.
|
|
|
|
|
(7)
|
Represents
the payout in 2020 of accrued earned paid time off pursuant to the terms of the executive’s employment agreement.
|
|
|
|
|
(8)
|
Mr.
Wilson also served as the Company’s Chief Financial Officer and Treasurer during the 2020 fiscal year until November
5, 2020.
|
|
|
|
|
(9)
|
Mr.
Fred was appointed the Company’s Chief Financial Officer and Treasurer on December 24, 2020. In connection with his
appointment he was granted a signing bonus of 62,600 shares of Common Stock in January 2021, which vests in approximately
equal monthly installments over a one-year period. Under applicable SEC rules, this award of shares will be reported as part
of Mr. Fred’s 2021 compensation in the Company’s proxy statement for the 2022 annual meeting of stockholders.
|
|
(10)
|
Represents
a cash signing bonus granted to Mr. Fred upon commencement of employment.
|
|
|
|
|
(11)
|
Ms.
Thompson was appointed the Company’s Chief Financial Officer and Treasurer on November 5, 2020 and resigned from her
roles on December 20, 2020.
|
|
|
|
|
(12)
|
On
November 5, 2020, Ms. Thompson was granted 82,788 shares of restricted Common Stock as a signing bonus in connection with
her appointment as the Company’s Chief Financial Officer and Treasurer. The shares of restricted Common Stock were set
to vest in equal quarterly installments and would have been fully vested two years from the date of grant. Because Ms. Thompson
resigned from her roles on December 20, 2020, no shares of restricted Common Stock granted to Ms. Thompson vested and all
82,788 shares of restricted Common Stock were subsequently cancelled.
|
|
|
|
|
(13)
|
Represents
the payout in 2020 of accrued earned paid time off pursuant to the terms of the executive’s employment agreement.
|
|
|
|
|
(14)
|
$683,001.11
of the executive’s total compensation consisted of shares of restricted Common Stock granted as a signing bonus in connection
with her appointment as the Company’s Chief Financial Officer and Treasurer. No such shares of restricted Common Stock
vested, and all such shares were cancelled in connection with the executive’s resignation from her roles on December
20, 2020.
|
Outstanding
Equity Awards as of December 31, 2020
There
were no unvested equity awards as of December 31, 2020.
Employment
Agreements
The
Company and Mr. Mahoney, the Company’ Chief Executive Officer, entered into an employment Agreement dated November 20, 2019.
Pursuant to his employment agreement, Mr. Mahoney receives an annual base salary of $500,000 and is eligible to receive annual
cash bonuses between 100% and 300% of his annual base salary. The actual amount of any annual bonus, and his entitlement to any
annual bonus, will be subject to the terms of the Company’s Executive Bonus Plan (the “Bonus Plan”). Mr. Mahoney
also has the opportunity to earn grants of the Company’s common stock upon the achievement of certain Company financial
performance and operational objectives. Mr. Mahoney’s employment term is for three (3) years and is automatically extended
on the yearly anniversary to include an additional year of employment unless terminated by Mr. Mahoney or the Company no less
than thirty days prior to the yearly anniversary of his employment.
The
Company and Mr. Wilson, the Company’ Vice President, Secretary, and General Counsel, entered into an employment Agreement
dated November 20, 2019. Pursuant to his employment agreement, Mr. Wilson receives an annual base salary of $275,000 and is eligible
to receive annual cash bonuses between 100% and 300% of his annual base salary. The actual amount of any annual bonus, and his
entitlement to any annual bonus, will be subject to the terms of the Bonus Plan. Mr. Wilson also has the opportunity to earn grants
of the Company’s common stock upon the achievement of certain Company financial performance and operational objectives.
Mr. Wilson’s employment term is for three (3) years and is automatically extended on the yearly anniversary to include an
additional year of employment unless terminated by Mr. Wilson or the Company no less than thirty days prior to the yearly anniversary
of his employment.
The
Company and Mr. Fred, the Company’ Chief Financial Officer and Treasurer, entered into an employment Agreement dated December
24, 2020. Pursuant to his employment agreement, Mr. Fred receives an annual base salary of $250,000 and is eligible to receive
annual cash bonuses between 100% and 300% of his annual base salary. The actual amount of any annual bonus, and his entitlement
to any annual bonus, will be subject to the terms of the Bonus Plan. Mr. Fred also has the opportunity to earn grants of the Company’s
common stock upon the achievement of certain Company financial performance and operational objectives. Mr. Fred’s employment
term is for two (2) years and subject to extension upon the mutual agreement of the Company and Mr. Fred.
Potential
Payments Upon Termination or Change-in-Control
Executive
Severance Plan
Each
of our executive officers participates in our Executive Severance Plan. Under the plan, an executive is entitled to receive severance
benefits if the executive’s employment is terminated by the Company without cause or by the executive for good reason (as
such terms are defined in the plan) and the executive provides a release of claims in a form acceptable to the Company. On such
a termination, the executive would be entitled to cash severance equal to (i) in the case of Mr. Mahoney, Mr. Fred and Mr. Wilson,
24 months of the executive’s base salary and (ii) for all other participants, one month of the executive’s base salary
for each year of service with the Company. The executive’s severance will be paid in installments and may also include a
pro-rated amount of his or her target bonus for the year in which the termination occurs based on the Compensation Committee’s
assessment of the executive’s performance during the year. The executive would also be entitled to a lump sum payment of
his or her COBRA premiums for the applicable severance period and pro-rated vesting of any time-based vesting requirements under
his or her Company equity awards with vesting dates that occur less frequently than monthly (with such vesting determined as if
the award had a monthly vesting schedule).
If
the executive’s employment is terminated by the Company without cause or by the executive for good reason and such
termination occurs during the period beginning three months before, and ending 12 months after, a change in control of the Company,
the executive will receive the severance benefits described above, except (i) the executive’s cash severance will be paid
in a lump sum and will include the executive’s maximum bonus award for the year in which the termination occurs, (ii) in
the case of Mr. Mahoney, Mr. Fred and Mr. Wilson, the lump sum payment of COBRA premiums will cover a period of 36 months, and
(iii) the executive will be entitled to full acceleration of all time-based vesting under his or her Company equity awards, and
all performance-based vesting requirements will deemed satisfied at a level reasonably determined by the Compensation Committee
based on actual performance as of the date of the executive’s termination.
Employment
Agreements
Mr.
Mahoney and Mr. Wilson are also entitled to certain equity acceleration severance benefits under their employment agreements,
including in the event of an involuntary termination in connection with a change in control. If Mr. Mahoney or Mr. Wilson were
terminated by the Company without cause or by the executive for good reason within the first two years of employment, in either
case not during a change in control as described below, they become entitled to the benefits under the Executive Severance Plan
and, in lieu of other equity acceleration benefits under the Executive Severance Plan, (A) any equity grants subject to time-based
vesting shall immediately vest as though the executive had remained employed by the Company for an additional twelve (12) months
after the termination date, although in no case shall the executive be credited with less than two (2) years of vesting; and (B)
all other performance-based equity grants or other options shall, to the extent unvested: (1) vest upon the executive’s
termination date if the applicable performance conditions have been satisfied as of such date, and/or, (2) remain outstanding
for twelve (12) months following the termination date to the extent the applicable performance conditions have not already been
met. If the performance conditions applicable to any performance-based grants or options are met within twelve (12) months of
the executive’s termination, such awards would vest in accordance with their terms, without consideration of the time-based
vesting elements of such awards.
If
Mr. Mahoney or Mr. Wilson are terminated by the Company without cause or by the executive for good reason beginning three months
before, and ending 12 months after, a change in control of the Company, in lieu of any other equity acceleration benefits provided
by the Executive Severance Plan, they will be entitled to: (A) full vesting of their time-based equity grants upon the termination
or change in control, whichever is later; and (B) full vesting of their performance-based equity grants or options to the extent—and
only to the extent—the applicable performance conditions have been met within twelve (12) months after the termination date,
such awards would vest in accordance with their terms, without consideration of the time-based vesting elements of such awards.
Defined
Contribution Plans
As
part of our overall compensation program, we provide all full-time employees, including our named executive officers, with the
opportunity to participate in a defined contribution 401(k) plan. Our 401(k) plan is intended to qualify under Section 401 of
the Internal Revenue Code so that employee contributions and income earned on such contributions are not taxable to employees
until withdrawn. Employees may elect to defer a percentage of their eligible compensation (not to exceed the statutorily prescribed
annual limit) in the form of elective deferral contributions to our 401(k) plan. Our 401(k) plan also has a “catch-up contribution”
feature for employees aged 50 or older (including those who qualify as “highly compensated” employees) who can defer
amounts over the statutory limit that applies to all other employees. We provide a matching contribution under the plan up to
10% of an employee’s total cash compensation.
DIRECTOR
COMPENSATION
Under
our Director Compensation Policy and Stock Ownership Guidelines, annual compensation for the members of our Board of Directors
who are not employed by us or any of our subsidiaries (referred to in this section as “non-employee directors”) consists
of an annual cash retainer, an additional cash retainer for non-employee directors serving in certain positions as described below,
and equity awards as determined by the Compensation Committee. Members of the Board of Directors are also reimbursed for their
reasonable out-of-pocket expenses, including travel and lodging, incurred in attending meetings of the Board and Board committees,
consistent with our expense reimbursement policy. Our Board of Directors and the Compensation Committee reserve the right to modify
the Director Compensation Policy from time to time.
Annual
Cash Retainer
Pursuant
to the terms of the Director Compensation Policy, each non-employee director receives an annual cash retainer of $90,000.
In addition, annual cash retainers are provided for non-employee directors serving in the following positions: (a) as Chairperson
of the Board of Directors, an annual retainer of $30,000; (b) as Chair of the Audit Committee, Compensation Committee, Nominating
and Governance Committee, Acquisition Committee, or External Communications Committee, an annual retainer of $15,000; and (c)
as a member (other than the Chair) of one of these Board committees, an annual retainer of $7,500. Each such retainer is
paid on a quarterly basis. Newly elected or appointed non-employee directors, or non-employee directors who are appointed to one
of the positions identified above, receive a prorated retainer for the applicable quarter. Our non-employee directors do not receive
any additional fees based on the number of meetings they attend.
Equity
Awards
Non-employee
directors are also eligible to receive equity awards from time to time in such amounts and on such terms as determined by the
Compensation Committee, with such awards typically vesting on a monthly basis. Any such equity awards granted to a non-employee
director that are not then vested will vest in full upon a termination or resignation of the director’s service on the Board
or if a change in control of the Company (as defined in the policy) occurs. Unless otherwise determined by the Compensation Committee,
a director’s then-unvested equity awards will terminate if the director is disqualified or removed, with or without cause,
from the Board.
Director
Compensation Table - Fiscal Year 2020
The
following table sets forth the total compensation paid to our non-employee directors for their service on our Board of Directors
during fiscal 2020. The table excludes Mr. Mahoney, who is our Chief Executive Officer, because his compensation is reflected
above in the Summary Compensation Table. Mr. Mahoney did not receive any additional compensation for serving on our board of directors.
The table also excludes Mary Pat Thompson, who served as our Chief Financial Officer and as a director for part of fiscal 2020.
Ms. Thompson did not receive any additional compensation as a director in fiscal 2020.
|
Name
|
|
Fees
Earned or
Paid in
Cash ($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
|
|
|
|
|
|
All Other
Compensation
($)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Dingess,
|
|
|
128,523.26
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
128,523.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Staunton,
|
|
|
127,846.06
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
127,846.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Pollack,
|
|
|
132,302.76
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
132,302.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Molloy,
|
|
|
101,466.31
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
101,466.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tobias Welo (1)
|
|
|
0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
0
|
|
(1)
Mr. Welo was appointed to the Board of Directors, effective December 1, 2020, and resigned as a member of the Board, effective
December 20, 2020.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table provides information as of December 31, 2020 regarding shares of common stock that may be issued under the Company’s
2019 Equity Incentive Plan (the “Equity Plan”). The Equity Plan was approved by the Company’s shareholders and
is the Company’s sole equity compensation plan.
|
Plan category
|
|
(a)
Number of
securities
to be issued
upon exercise
of outstanding
options,warrants
and rights
|
|
|
(b)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
|
|
|
(c)
Number of
securities remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
|
|
|
Equity compensation plans approved by security holders (1)
|
|
|
40,766
|
|
|
$
|
8.91
|
(2)
|
|
|
99,959,234
|
|
|
Equity compensation plans not approved by security holders (3)
|
|
|
ˉ
|
|
|
|
ˉ
|
|
|
|
ˉ
|
|
|
Total
|
|
|
40,766
|
|
|
|
-
|
|
|
|
99,959,234
|
|
(1)
This row reflects outstanding awards and shares available for future issuance under the Equity Plan. The shares available for
issuance under the Equity Plan are generally available for any type of award authorized under that plan, including stock options,
stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other awards.
(2)
This dollar value does not reflect outstanding awards of restricted stock and stock units granted under the plan.
(3)
Not Applicable.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding our shares of common stock beneficially owned as of March 4, 2021, for
(i) each named executive officer and director, (ii) all executive officers and directors as a group, and (iii) each shareholder
(including any “group” as that term is used in Section 13(d)(3) of the Exchange Act) known to be the beneficial owner
of 5% or more of our outstanding shares of common stock. A person is considered to beneficially own any shares: (i) over which
such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the
right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise
indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised
solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
For
purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common
stock that such person has the right to acquire within 60 days of March 4, 2021. For purposes of computing the percentage of outstanding
shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the
right to acquire within 60 days of March 4, 2021 is deemed to be outstanding, but is not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does
not constitute an admission of beneficial ownership. Unless otherwise indicated, all addresses are c/o Taronis Fuels, Inc. 24980
N. 83rd Avenue, Suite 100, Peoria, AZ 85383.
|
Name of Beneficial Owner and Address
|
|
Amount and
Nature of
Beneficial
Ownership of
Common Stock
|
|
|
Percent of
Common
Stock (1)
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
Scott Mahoney, Chief Executive Officer, President, Director
|
|
|
255,071
|
(2)
|
|
|
2.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
William W. Staunton III, Director
|
|
|
49,298
|
(3)
|
|
|
0.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Robert L. Dingess, Chairman/Director
|
|
|
74,211
|
(4)
|
|
|
0.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Pollack, Director
|
|
|
81,642
|
(5)
|
|
|
0.82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Peter Molloy, Director
|
|
|
77,742
|
(6)
|
|
|
0.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Tyler B. Wilson, Vice President, Secretary, and General Counsel
|
|
|
102,449
|
(7)
|
|
|
10.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Edward J. Fred (8)
|
|
|
62,600
|
(9)
|
|
|
0.629
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Mary Pat Thompson (10)
|
|
|
13,333
|
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and officers as a group (8 people)
|
|
|
716,346
|
|
|
|
7.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Wetherald, Tobias Welo, and Mary Pat Thompson (11)
|
|
|
1,113,332
|
|
|
|
11.19
|
%
|
*
Less than 1%.
|
(1)
|
Beneficial
ownership is determined under the rules and regulations of the SEC, and generally includes voting or dispositive power with
respect to such shares. Based on 9,953,029 shares of Taronis Fuels’ common stock outstanding as of March 4, 2021. Shares
of common stock that a person has the right to acquire within 60 days are deemed to be outstanding and beneficially owned
by that person for the purpose of computing the total number of shares beneficially owned by that person and the percentage
ownership of that person, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any
other person or group. Accordingly, the amounts in the table include shares of common stock that such person has the right
to acquire within 60 days of March 4, 2021 by the exercise of stock options.
|
|
|
|
|
(2)
|
Mr.
Mahoney’s beneficial ownership is comprised of 13 shares of free trading common
stock; 27,100 shares of common stock that vests in equal weekly installments through the end of December 31, 2021; 49,020
shares of common stock that vest one year from the January 21, 2021 issuance date; and 178,938 shares of restricted common
stock.
|
|
|
|
|
(3)
|
Mr.
Staunton’s beneficial ownership is comprised of 35,006 shares of restricted common
stock, 742 shares of free-trading common stock, and 13,550 shares of free trading common stock that vests in equal weekly
installments through the end of the December 31, 2021 fiscal year.
|
|
|
|
|
(4)
|
Mr.
Dingess’ beneficial ownership is comprised of 59,919 shares of restricted common
stock, 742 shares of free trading common stock and 13,550 shares of free trading common stock that vests in equal weekly installments
through the end of the December 31, 2021 fiscal year.
|
|
|
|
|
(5)
|
Mr.
Pollack’s beneficial ownership is comprised of 35,732 shares of restricted common stock, 742 shares of free trading
common stock, 19,761 vested options to purchase common stock, and 25,407 options to purchase common stock that will vest within
60 days of March 4, 2021.
|
|
|
|
|
(6)
|
Mr.
Molloy’s beneficial ownership is comprised of 32,574 shares of restricted common stock, 19,761 vested options to purchase
common stock, and 25,407 options to purchase common stock that will vest within 60 days of March 4, 2021. options to purchase
common stock.
|
|
|
|
|
(7)
|
Mr.
Wilson’s beneficial ownership is comprised of 65,717 shares of restricted common
stock; 6,775 of common stock that vests in equal weekly installments through the end of December 31, 2021; and 29,957 shares
of common stock that vest one year from the January 21, 2021 issuance date.
|
|
|
|
|
(8)
|
Mr.
Fred was appointed the Company’s Chief Financial Officer and Treasurer on December 24, 2020.
|
|
(9)
|
Mr.
Fred’s beneficial ownership is comprised of 62,600 shares of common stock that vest in approximately equal weekly
installments over a one-year period from the January 6, 2021 date of grant.
|
|
(10)
|
Ms.
Thompson was appointed the Company’s Chief Financial Officer and Treasurer on November 5, 2020 and resigned from
her roles on December 20, 2020.
|
|
(11)
|
Pursuant
to a Schedule 13D filed on February 16, 2021, as amended on February 25, 2021 (as amended, the “Schedule 13D”),
Mr. Wetherald, Mr. Welo, and Ms. Thompson expressly affirmed their membership in a “group” as that term in
used of Section 13(d)(3) of the Exchange Act. The residence of Thomas Wetherald is 49 Red Gate Lane, Cohasset, Massachusetts
02025. The address of the principal office of Tobias Welo is 2 Newton Executive Park, Suite 202, 2227 Washington Street,
Newton, Massachusetts 02462. The residence of Mary Pat Thompson is 3790 S. Suntree Place, Boise, Idaho 83706. Pursuant
to the Schedule 13D, Mr. Wetherald beneficially owns 933,333 shares of Common Stock over which he has sole voting and
dispositive power; Mr. Welo beneficially owns 166,666 shares of Common Stock, with sole voting and dispositive power over
133,333 shares of Common Stock and shared voting and dispositive power over 33,333 shares of Common Stock; and Ms. Thompson
beneficially owns 13,333 shares of Common Stock over which she has sole voting and dispositive power.
|
|
(1)
|
Beneficial
ownership is determined under the rules and regulations of the SEC, and generally includes voting or dispositive power with
respect to such shares. Based on 9,953,029 shares of Taronis Fuels’ common stock outstanding as of March 4, 2021. Shares
of common stock that a person has the right to acquire within 60 days are deemed to be outstanding and beneficially owned
by that person for the purpose of computing the total number of shares beneficially owned by that person and the percentage
ownership of that person, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any
other person or group. Accordingly, the amounts in the table include shares of common stock that such person has the right
to acquire within 60 days of March 4, 2021 by the exercise of stock options.
|
|
|
|
|
(2)
|
Mr.
Mahoney’s beneficial ownership is comprised of 13 shares of free trading common
stock; 27,100 shares of common stock that vests in equal weekly installments through the end of December 31, 2021; 49,020
shares of common stock that vest one year from the January 21, 2021 issuance date; and 178,938 shares of restricted common
stock.
|
|
|
|
|
(3)
|
Mr.
Staunton’s beneficial ownership is comprised of 35,006 shares of restricted common
stock, 742 shares of free-trading common stock, and 13,550 shares of free trading common stock that vests in equal weekly
installments through the end of the December 31, 2021 fiscal year.
|
|
|
|
|
(4)
|
Mr.
Dingess’ beneficial ownership is comprised of 59,919 shares of restricted common
stock, 742 shares of free trading common stock and 13,550 shares of free trading common stock that vests in equal weekly installments
through the end of the December 31, 2021 fiscal year.
|
|
|
|
|
(5)
|
Mr.
Pollack’s beneficial ownership is comprised of 35,732 shares of restricted common stock, 742 shares of free trading
common stock, 19,761 vested options to purchase common stock, and 25,407 options to purchase common stock that will vest within
60 days of March 4, 2021.
|
|
|
|
|
(6)
|
Mr.
Molloy’s beneficial ownership is comprised of 32,574 shares of restricted common stock, 19,761 vested options to purchase
common stock, and 25,407 options to purchase common stock that will vest within 60 days of March 4, 2021.
|
|
|
|
|
(7)
|
Mr.
Wilson’s beneficial ownership is comprised of 65,717 shares of restricted common
stock; 6,775 of common stock that vests in equal weekly installments through the end of December 31, 2021; and 29,957 shares
of common stock that vest one year from the January 21, 2021 issuance date.
|
|
|
|
|
(8)
|
Mr.
Fred was appointed the Company’s Chief Financial Officer and Treasurer on December 24, 2020.
|
|
(9)
|
Mr.
Fred’s beneficial ownership is comprised of 62,600 shares of common stock that vest in approximately equal weekly
installments over a one-year period from the January 6, 2021 date of grant.
|
|
(10)
|
Ms.
Thompson was appointed the Company’s Chief Financial Officer and Treasurer on November 5, 2020 and resigned from
her roles on December 20, 2020.
|
|
(11)
|
Pursuant
to a Schedule 13D filed on February 16, 2021, as amended on February 25, 2021 (as amended, the “Schedule 13D”),
Mr. Wetherald, Mr. Welo, and Ms. Thompson expressly affirmed their membership in a “group” as that term in
used of Section 13(d)(3) of the Exchange Act. The residence of Thomas Wetherald is 49 Red Gate Lane, Cohasset, Massachusetts
02025. The address of the principal office of Tobias Welo is 2 Newton Executive Park, Suite 202, 2227 Washington Street,
Newton, Massachusetts 02462. The residence of Mary Pat Thompson is 3790 S. Suntree Place, Boise, Idaho 83706. Pursuant
to the Schedule 13D, Mr. Wetherald beneficially owns 933,333 shares of Common Stock over which he has sole voting and
dispositive power; Mr. Welo beneficially owns 166,666 shares of Common Stock, with sole voting and dispositive power over
133,333 shares of Common Stock and shared voting and dispositive power over 33,333 shares of Common Stock; and Ms. Thompson
beneficially owns 13,333 shares of Common Stock over which she has sole voting and dispositive power.
|
Pursuant
to Rule 13d-3(d)(1)(i) the percentage calculations use different totals of outstanding securities for the purpose of determining
ownership. Any securities not outstanding which are subject to such options, warrants, rights or conversion privileges shall be
deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person
but shall not be deemed to be outstanding for the purpose of computing the percentage of the class by any other person.
INDEPENDENT
PUBLIC ACCOUNTANTS
Marcum
LLP, an independent registered public accounting firm, served as our principal accounting for fiscal 2019 and fiscal 2020. The
fees paid to Marcum LLP for the past two years are described below:
Audit
Fees
The
aggregate fees billed in fiscal 2020 and 2019 for assurance and related services by the principal accountant that are reasonably
related to the performance of the audit or review of the registrant’s financial statements and review of financial statements
included in the registrant’s regulatory filings or services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements, were approximately $0.4 million and approximately $0.1 million, respectively.
Audit-Related
Fees
The
aggregate fees billed in fiscal 2020 and 2019 for assurance and related services by the principal accountant that are reasonably
related to the performance of the audit or review of the registrant’s financial statements and not reported under Item 9(e)(1)
of Schedule 14A, for professional services rendered were $0 and $0, respectively.
Tax
Fees
The
aggregate fees billed in fiscal 2020 and 2019 for professional services rendered by the principal accountant for tax compliance,
tax advice, and tax planning for professional services rendered were $0 and $0, respectively.
All
Other Fees
The
aggregate fees billed in fiscal 2020 and 2019 for products and services, provided by the principal accountant, other than the
services report in Items 9(e)(1) through 9(e)(3) of Schedule 14A, for services rendered were $0 and $0, respectively.
Audit
Committee Approval
Before
a principal accountant is engaged by the Company or its subsidiaries to render audit or non-audit services, the engagement is
approved by our Audit Committee.
GENERAL
INFORMATION
The
Board of Directors urges you NOT to return any white consent card solicited from you by the Activist Group. If you have previously
returned any such consent card you have every right to revoke your consent. Simply complete, sign, date and mail the enclosed
GREEN Consent Revocation Card in the postage-paid envelope provided, whether or not you previously returned the green consent
card.
For
additional information or assistance, please call Taronis’ solicitation agent, MacKenzie Partners, Inc. collect at (212)
929-5500 or toll-free at (800) 322-2885 or by email at TRNF@mackenziepartners.com. The address of MacKenzie Partners, Inc. is
1407 Broadway, 27th Floor, New York, NY 10018.
We
appreciate your support and encouragement.
WE
URGE SHAREHOLDERS TO REJECT THE ACTIVIST CONSENT SOLICITATION AND REVOKE ANY CONSENT PREVIOUSLY SUBMITTED.
DO
NOT DELAY. IN ORDER TO HELP ENSURE THAT THE CURRENT BOARD IS ABLE TO ACT IN YOUR BEST INTERESTS, PLEASE SIGN, DATE AND RETURN
THE ENCLOSED GREEN CONSENT REVOCATION CARD AS PROMPTLY AS POSSIBLE.
Shareholder
Proposals for Inclusion in Proxy Materials
Pursuant
to SEC Rule 14a-8, in order for a shareholder proposal to be considered for inclusion in our proxy statement for the 2022 annual
meeting of shareholders, the written proposal must comply with SEC regulations regarding the inclusion of shareholder proposals
in company-sponsored proxy materials and must be received at our principal executive offices at 24980 N. 83rd Avenue,
Suite 100, Peoria, AZ 85383, Attention: Corporate Secretary, on or before the date which is 120 days prior to the first anniversary
of the date the proxy statement was first released to shareholders in connection with the previous year’s Annual Meeting.
However, if the date of the annual meeting changes by more than 30 days from the one-year anniversary of the date of the prior
year’s annual meeting, then such proposals must be received a reasonable time before the Company begins to print and send
its proxy materials for such annual meeting. The Company has not yet held an annual meeting. As a result, under SEC Rule 14a-8,
the Company will accept shareholder proposals to be considered for inclusion in our proxy statement for the 2022 annual meeting
of shareholder if such proposal is received by us a reasonable time before we begin to print and send proxy materials for such
meeting. If we receive notice after that date of a shareholder’s intent to present a proposal at an annual meeting, we will
have the right to exercise discretionary voting authority with respect to such proposal, if presented at the meeting, without
including information regarding such proposal in our proxy materials.
Shareholder
Proposals and Nomination of Director Candidates Not Intended for Inclusion in Proxy Materials
In
accordance with our Bylaws, in order for a shareholder proposal, including a director nomination, not included in our Proxy Statement
to be properly brought before an annual meeting of shareholders, a shareholder’s notice of the matter the shareholder wishes
to present must comply with the requirements set forth in our Bylaws, and specifically, must be delivered to our principal executive
offices at 24980 N. 83rd Avenue, Suite 100, Peoria, AZ 85383, Attention: Corporate Secretary, not less than 90 nor
more than 120 days prior to the first anniversary of the date of the prior year’s annual meeting of shareholders. If the
date of the annual meeting of shareholders is advanced by more than 30 days or delayed by more than 30 days from the first anniversary
of the date of the prior year’s annual meeting, any such notice must be received not less than 90 nor more than 120 days
prior to the first anniversary of the date of the prior year’s annual meeting of shareholders or no later than the 10th
day following the day on which public announcement of the date of such meeting is first made by us. The Company has not yet held
an annual meeting, and our Bylaws do not explicitly set a deadline for receipt of shareholder proposals to be brought before an
annual meeting when no prior annual meeting has been held. Consistent with SEC Rule 14a-8, the Company will allow shareholder
proposals not included in our Proxy Statement to be brought before an annual meeting if delivered to our principal executive offices
at the address set forth above no later than a reasonable time before we begin to print and send such Proxy Statement.
No
Appraisal Rights
Under
the Delaware General Corporation Law, the Company’s shareholders are not entitled to appraisal rights in connection with
the Activist Consent Proposals or this Consent Revocation Statement, and the Company will not independently provide shareholders
with any such right.
Householding
of Consent Revocation Statement
In
order to reduce printing costs and postage fees, we mail only one copy of the Consent Revocation Statement to any one address,
unless we receive contrary instructions from any shareholder at that address (known as “householding”).
We
will deliver upon written or oral request a separate copy of the Consent Revocation Statement to any shareholder at a shared address
to which a single copy of these materials was delivered. If you are a shareholder of record, you may contact us by writing c/o
the Corporate Secretary at our corporate headquarters located at 24980 N. 83rd Avenue, Suite 100 Peoria, AZ 85383 or
by calling us at 866-370-3835. If you are a beneficial but not record owner, you can request additional copies, or you can request
householding, by notifying your broker, bank, or nominee.
Requests
for Certain Documents
You
may obtain without charge the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, or any of
the other corporate governance documents referred to in this consent revocation statement, by writing to the Company at: Corporate
Secretary, Taronis Fuels, Inc., 24980 N. 83rd Avenue, Suite 100 Peoria, AZ 85383. These materials are also available
on the SEC’s website at www.sec.gov or on the Company’s website
at taronisfuels.com.
Other
Business
The
only matters for which the participants intend to solicit revocations of consents are set forth in this Consent Revocation Statement.
However, if consents are solicited by the Activist Group or any other person on any other matter, the participants may determine
that it is in the best interests of the Company and its shareholders to solicit revocations of consents with respect to such additional
matters.
CONTACT
FOR QUESTIONS AND ASSISTANCE IN REVOKING CONSENT
If
you have any questions or require any assistance with revoking consent of your shares, or if you need additional copies of the
consent revocation materials, please contact:
MacKenzie
Partners, Inc.
1407
Broadway, 27th Floor
New
York, New York 10018
(212)
929-5500 or (800) 322-2885
Email:
TRNF@mackenziepartners.com
|
|
By
order of the Board of Directors,
|
|
|
|
|
|
Tyler
B. Wilson
|
|
|
Secretary
|
|
|
|
|
|
Peoria,
AZ
|
|
|
March
[●], 2021
|
APPENDIX
A: SUPPLEMENTAL INFORMATION REGARDING PARTICIPANTS
The
following tables set forth the name, principal business address and the present principal occupation or employment, and the name,
principal business and address of any corporation or other organization in which their employment is carried on, of our directors,
executive officers and other employees who, under the rules of the SEC, are “participants” in our solicitation of
revocations of consent.
Directors
The
principal occupations of our directors who are “participants” in our consent revocation are set forth under the section
above titled “Our Board of Directors” of this Consent Revocation Statement. The business address of each director
is c/o Taronis Fuels, Inc., 24980 N. 83rd Avenue, Suite 100 Peoria, AZ 85383. The name and principal occupation of
the organization of employment of our directors are as follows:
|
Name
|
|
Occupation
|
|
Scott
Mahoney
|
|
Chief
Executive Officer, Taronis Fuels, Inc.
|
|
Robert
Dingess
|
|
Chief
Executive Officer of Ideal Management Services, Inc.
|
|
Kevin
Pollack
|
|
Retired
|
|
William
W. Staunton III
|
|
Chief
Executive Officer, Okika Technologies
|
|
Peter
Molloy
|
|
Co-Founder,
Executive Director Tarus Therapeutics, Inc.
|
Executive
Officers and Other Employees
Our
executive officers and other employees who are “participants” in our solicitation are as follows. The business address
of each such executive officer and other employee is c/o Taronis Fuels, Inc., 24980 N. 83rd Avenue, Suite 100 Peoria,
AZ 85383.
|
Name
|
|
Position
|
|
Scott
Mahoney
|
|
Chief
Executive Officer
|
|
Edward
Fred
|
|
Chief
Financial Officer
|
|
Tyler
B. Wilson
|
|
Vice
President, Secretary and General Counsel
|
|
Michael
Khorassani
|
|
Director
of Investor Relations
|
Information
Regarding Ownership of Taronis Securities By Participants as of February 26, 2021
The
following table sets forth information regarding purchases and sales of the Company’s securities by the persons listed above
under “Directors” and “Officers and Employees,” within the past two years. No part of the purchase price
or market value of these securities is represented by funds borrowed or otherwise obtained for the purpose of acquiring or holding
such securities. From time to time, the Company has granted awards of stock options to certain participants and, other than the
information provided below, no participants have exercised any previously-awarded stock options. The number of shares set forth
in the following table have been adjusted to account for the Company’s 1-for-75 reverse stock split effective on December
28, 2020.
|
Name
|
|
Date
|
|
Title of Security
|
|
Number of Shares
|
|
|
Transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Mahoney
|
|
March 30, 2020
|
|
Common Stock
|
|
|
40,579
|
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Mahoney
|
|
October 26, 2020
|
|
Common Stock
|
|
|
35,118
|
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Dingess
|
|
March 30, 2020
|
|
Common Stock
|
|
|
14,492
|
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Dingess
|
|
October 26, 2020
|
|
Common Stock
|
|
|
11,111
|
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Pollack
|
|
March 30, 2020
|
|
Common Stock
|
|
|
1,449
|
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Staunton III
|
|
March 30, 2020
|
|
Common Stock
|
|
|
724
|
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tyler B. Wilson
|
|
October 26, 2020
|
|
Common Stock
|
|
|
13,888
|
|
|
Purchase
|
Except
as disclosed in this Consent Revocation Statement, to the Company’s knowledge:
|
●
|
No
Participant owns any securities of Taronis of record that such Participant does not own beneficially.
|
|
●
|
No
Participant is, or was within the past year, a party to any contract, arrangements or understandings with any person with
respect to any securities of Taronis, including, but not limited to joint ventures, loan or option arrangements, puts or calls,
guarantees against loss or guarantees of profit, division of losses or profits, or the giving or withholding of proxies.
|
|
●
|
No
associate of any Participant owns beneficially, directly or indirectly, any securities of Taronis. No Participant owns beneficially,
directly or indirectly, any securities of any parent or subsidiary of Taronis.
|
|
●
|
No
Participant, nor any associate of a Participant, is a party to any transaction, since the beginning of the Company’s
last fiscal year, or any currently proposed transaction, in which (i) Taronis was or is to be a participant, (ii) the amount
involved exceeds $120,000 and (iii) any Participant or any related person thereof had or will have a direct or indirect material
interest.
|
|
●
|
No
Participant, nor any associate of a Participant, has any arrangement or understanding with any person (i) with respect to
any future employment by Taronis or its affiliates or (ii) with respect to any future transactions to which Taronis or any
of its affiliate will or may be a party.
|
|
●
|
No
Participant has any substantial interest, direct or indirect, by security holdings or otherwise.
|
Preliminary—Subject
to Completion, Dated March 8, 2021
GREEN
CONSENT REVOCATION
SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS OF
TARONIS
FUELS, INC.
The
undersigned, a record holder of shares of common stock, par value $0.000001 per share (“Common Stock”), of Taronis
Fuels, Inc., a Delaware corporation (the “Company”), acting with respect to all shares of Common Stock held by the
undersigned at the close of business on March 4, 2021, hereby acts as follows concerning the proposals of the Activist Group set
forth below.
IF
NO DIRECTION IS MADE, BY SIGNING AND DATING THIS CONSENT REVOCATION CARD, THE UNDERSIGNED WILL BE TREATED AS HAVING REVOKED ITS
CONSENT WITH RESPECT TO PROPOSALS 1, 2, 3, 4 AND 5 EXCEPT THAT THE UNDERSIGNED WILL NOT BE DEEMED TO REVOKE ITS CONSENT TO THE
REMOVAL OF ANY DIRECTOR, OR THE ELECTION OF ANY DIRECTOR, WHOSE NAME IS WRITTEN IN THE SPACE PROVIDED.
WHEN
MARKING BOXES, “YES, REVOKE MY CONSENT” AND “ABSTAIN” WILL HAVE THE EFFECT OF REVOKING A PRIOR CONSENT.
THE
BOARD OF DIRECTORS OF THE COMPANY URGES YOU TO MARK THE “YES, REVOKE MY CONSENT” BOXES ON ALL PROPOSALS SET FORTH
HEREIN.
UNLESS
YOU SPECIFY OTHERWISE, THIS CONSENT REVOCATION CARD REVOKES ALL PRIOR CONSENTS GIVEN WITH RESPECT TO THE ACTIVIST CONSENT PROPOSALS
SET FORTH HEREIN.
BY
EXECUTING THE CONSENT REVOCATION CARD, THE UNDERSIGNED HEREBY AFFIRMS THAT THE SHARES REPRESENTED HEREBY WERE HELD OF RECORD ON
MARCH 4, 2021.
PLEASE
REVIEW THE CONSENT REVOCATION STATEMENT AND REVOKE YOUR CONSENT TODAY IN ONE OF TWO WAYS:
|
1.
|
Revoke
by Mail – Please complete, sign, date and return the Consent Revocation Card in the postpaid envelope provided, or mail
to: Taronis Fuels, Inc., c/o MacKenzie Partners, Inc., 1407 Broadway, 27th Floor, New York, NY 10018
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2.
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Revoke
by Fax – Please complete, sign, date and Fax both sides of the Consent Revocation Card to 1-646-439-9201.
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TO
REVOKE YOUR CONSENT BY MAIL PLEASE SIGN,
DATE
AND RETURN IN THE POSTAGE - PAID ENVELOPE PROVIDED
Important!
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1.
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Regardless
of how many shares you own, your consent revocation is very important. Please sign, date and mail the enclosed Consent
Revocation Card. WE STRONGLY RECOMMEND THAT YOU REJECT EACH OF THE PROPOSED CONSENT ACTIONS.
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2.
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We
urge you NOT to sign any WHITE consent card sent to you by Thomas Wetherald, Tobias Welo, Mary Pat Thompson, Sergey
Vasnetsov and Andrew McCormick.
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3.
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Even
if you have sent a WHITE consent card to the Activist Group you have every legal right to change your vote. You may revoke
that consent, and revoke your consent as recommended by your board by signing, dating and mailing the enclosed Consent Revocation
Card in the enclosed pre-paid return envelope.
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4.
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If
your shares are held in the name of a bank, broker or other nominee, please follow the instruction form provided by your
bank, broker or nominee.
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If
you have any questions on the consent revocation, please contact:
MacKenzie
Partners, Inc. 1407 Broadway, 27th Floor
New
York, NY 10018
Call
Toll-Free: (800) 322-2885 or
(212)
929-5500Email:Proxy@mackenziepartners.com
(CONTINUED
ON REVERSE SIDE)
IF
NO BOX IS MARKED FOR A PROPOSAL, THE UNDERSIGNED WILL BE TREATED AS HAVING REVOKED ITS CONSENT TO SUCH PROPOSAL, EXCEPT THAT THE
UNDERSIGNED WILL NOT BE TREATED AS HAVING REVOKED ITS CONSENT TO THE REMOVAL OF ANY DIRECTOR, OR THE ELECTION OF ANY DIRECTOR,
WHOSE NAME IS WRITTEN IN THE SPACE PROVIDED. THE BOARD OF DIRECTORS OF THE COMPANY URGES YOU TO MARK THE “YES, REVOKE MY
CONSENT” BOXES IN ALL PROPOSALS BELOW.
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PLEASE
MARK YOUR CHOICE
AS IN THIS EXAMPLE
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PROPOSAL 1:
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Repeal any provision of the Amended and Restated Bylaws
of the Company (the “Bylaws”) in effect immediately prior to the time the Proposal becomes effective, including any
amendments thereto, which was not included in the Bylaws that were filed with the Securities and Exchange Commission on December
13, 2019;
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□
YES, REVOKE MY CONSENT
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□
NO, DO NOT REVOKE MY CONSENT
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ABSTAIN
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PROPOSAL 2:
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Amend Article IV, Section 18 of the Bylaws, as set forth
on Schedule III to the Consent Statement, to declassify the Board so that all directors are elected on an annual basis.
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□
YES, REVOKE MY CONSENT
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NO, DO NOT REVOKE MY CONSENT
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ABSTAIN
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PROPOSAL 3:
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Amend Article IV, Section 21 of the Bylaws, as set forth
on Schedule IV to the Consent Statement, to eliminate the provision purporting to require a supermajority vote of three-fourths
of the then-outstanding shares of capital stock of the Company entitled to vote at an election of directors in order to remove
any individual director or director and to replace that provision consistent with the Company’s Amended and Restated Certificate
of Incorporation, with a provision providing that a vote of a majority of the then-outstanding shares of capital stock of the
Company entitled to vote generally at an election of directors is sufficient to remove any individual director or directors.
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□
YES, REVOKE MY CONSENT
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NO, DO NOT REVOKE MY CONSENT
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ABSTAIN
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PROPOSAL 4:
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Remove without cause all five members of the Board:
Scott Mahoney, Robert Dingess, Kevin Pollack, William Staunton and Peter Molloy and, in addition, any person (other than those
elected by the Consent Solicitation) nominated, elected or appointed to the Board to fill any vacancy on the Board or any newly-created
directorships on or after December 20, 2020 and prior to the time that any of the actions proposed to be taken by the Consent
Solicitation become effective
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YES, REVOKE MY CONSENT
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NO, DO NOT REVOKE MY CONSENT
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ABSTAIN
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INSTRUCTION:
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IF
YOU WISH TO REVOKE CONSENT TO THE REMOVAL OF CERTAIN OF THE PERSONS NAMED IN PROPOSAL #4, BUT NOT ALL OF THEM, CHECK THE “YES,
REVOKE MY CONSENT” BOX ABOVE AND WRITE THE NAME OF EACH SUCH PERSON YOU DO NOT WANT TO BE REMOVED IN THE FOLLOWING SPACE
(NOTE THAT STRIKING A NOMINEE’S NAME FROM THE ABOVE PROPOSAL, WITHOUT MORE, WILL NOT BE TREATED AS A UNREVOKED CONSENT
OR ABSTENTION FROM SUCH DIRECTOR’S REMOVAL):
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PROPOSAL
5:
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Elect
by consent in lieu of an annual meeting the Activist Group’s five nominees: Thomas Wetherald, Tobias Welco, Sergey Vasnetsov,
Mary Pat Thompson and Andrew McCormick, to serve as directors of the Company until the Company’s 2022 annual meeting
of shareholders and until their successors are duly elected and qualified (or, if any such nominee is unable or unwilling
to serve as a director of the Company, or if the number of directorships is the greater than five, any other person designated
as a nominee by the remaining nominee or nominees).
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□
YES, REVOKE MY CONSENT
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NO, DO NOT REVOKE MY CONSENT
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ABSTAIN
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INSTRUCTION:
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IF
YOU WISH TO REVOKE CONSENT TO THE ELECTION OF CERTAIN OF THE PERSONS NAMED IN PROPOSAL #5, BUT NOT ALL OF THEM, CHECK THE
“YES REVOKE MY CONSENT” BOX ABOVE AND WRITE THE NUMBER(S) OF THE CANDIDATE(S) YOU DO NOT WANT TO BE ELECTED IN
THE FOLLOWING SPACE:
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PLEASE
MARK, SIGN, DATE AND MAIL TODAY IN THE POSTAGE-PAID ENVELOPE PROVIDED.
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Dated: ,
2021
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Print
Name:
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Signature
(Title, if any):
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Signature
(if held jointly):
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Name
and Title or Authority (if applicable):
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Please
sign in the same form as name appears hereon. Executors and fiduciaries should indicate their titles. If signed on behalf
of a corporation, give title of officer signing.
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(SEE
REVERSE SIDE)
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