UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Filed by the Registrant
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as
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Soliciting Material Pursuant to Rule 14a-11(c)
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Propel Media, Inc.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
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PROPEL MEDIA, INC.
2010 Main Street, Suite 900
Irvine, California 92614
NOTICE
OF
ANNUAL MEETING OF
STOCKHOLDERS
TO BE HELD ON JUNE 15, 2018
To the Stockholders of Propel Media, Inc.:
NOTICE IS HEREBY GIVEN that an annual meeting of stockholders (the
“
Annual
Meeting
”) of Propel Media, Inc., a Delaware
corporation (the “
Company
”),
will be held at the Company’s offices, 2010 Main Street,
Suite 900, Irvine, California 92614, on June 15, 2018 at 10:00
a.m., local time, for the following purposes:
1.
to
elect the members of the Company’s board of directors (the
“
Board
”),
each to hold office until the next annual meeting and until his or
her successor is duly elected and qualified;
2.
to
ratify the appointment of Marcum LLP as the Company’s
independent registered certified public accounting firm for the
year ending December 31, 2018; and
3.
to
transact any other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The Board has set the close of business on April 20, 2018 as the
record date for the determination of stockholders who will be
entitled to notice of and to vote at the Annual Meeting (the
“
record
date
”). The list of stockholders entitled to vote at
the Annual Meeting will be available for inspection at the
Company’s headquarters at least ten days before the Annual
Meeting.
Your vote is important
no matter how many shares you own.
Whether or not you expect
to attend the meeting, please vote your shares over the Internet in
accordance with the instructions on the proxy card, or complete,
sign and date the accompanying proxy and return it promptly in the
enclosed postage paid reply envelope. Your prompt response is
necessary to ensure that your shares are represented at the
meeting. You can change your vote and revoke your proxy at any time
before the meeting by following the procedures described in the
accompanying proxy statement.
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By Order of the Board of Directors
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/s/ David Shapiro
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David Shapiro, Secretary
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April 30, 2018
Irvine, California
Important Notice Regarding the Availability of Proxy
Materials for the Stockholder Meeting to be Held on June 15,
2018:
The Company’s Proxy
Statement and Annual Report on Form 10-K are available at
https://www.propelmedia.com/company/investor/.
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PROPEL MEDIA, INC.
2010 Main Street, Suite 900
Irvine, California 92614
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 2018
INTRODUCTION
The Company is providing this proxy statement in connection with
the solicitation by the Board of proxies to be voted at the Annual
Meeting to be held on June 15, 2018, at 10:00 a.m., local time, and
any adjournment or postponement thereof. The Annual Meeting will be
held at the Company’s offices, 2010 Main Street, Suite 900,
Irvine, California 92614.
The Company’s annual report for the fiscal year ended
December 31, 2017 (the “
Annual
Report
”), which contains the Company’s audited
financial statements and the financial statement schedules, is
enclosed with this proxy statement. This proxy statement, the
accompanying proxy card and the Annual Report are being mailed
beginning on or around April 30, 2018 in connection with the
solicitation of proxies by the Board.
What proposals are being
presented for a stockholder vote at the Annual Meeting?
There are two proposals being presented for stockholder vote at the
Annual Meeting:
•
the election of the members of the Board, each to hold office until
the next annual meeting and until his or her successor is duly
elected and qualified (the “
Director Election
Proposal
”); and
•
the ratification of the appointment of Marcum LLP as the
Company’s independent registered certified public accounting
firm for the year ending December 31, 2018 (the “
Accounting Firm
Proposal
”).
Stockholders will also consider any other business as may properly
come before the Annual Meeting.
What are the
recommendations of the Board?
The Board recommends that you vote:
•
“FOR” the election of the director nominees named in
this proxy statement; and
•
“FOR” the ratification of the appointment of Marcum LLP
as the Company’s independent registered certified public
accounting firm.
Who is entitled to
vote?
The holders of the Company’s common stock at the close of
business on the record date, April 20, 2018, are entitled to vote
at the Annual Meeting. As of the record date, 250,010,162 shares of
common stock were outstanding. Holders of the Company’s
common stock have one vote for each share that they own on such
date.
How do I submit my
vote?
Record holders can vote by the following methods:
•
By
mail
. You may vote by proxy by completing the enclosed
proxy card and returning it in the postage-paid return
envelope.
•
By
Internet
. You may vote by proxy by Internet. The proxy
card enclosed with this proxy statement provides instructions for
voting by proxy by Internet.
•
In
person
. You may attend the Annual Meeting and vote in
person using the ballot provided to you at the meeting.
1
Beneficial owners of shares held in street name may instruct their
bank, broker or other nominee how to vote their shares. Beneficial
owners should refer to the materials provided to them by their
nominee for information on communicating these “voting
instructions.” Beneficial owners may not vote their shares in
person at the Annual Meeting unless they obtain a legal proxy from
the stockholder of record, present it to the inspector of election
at the Annual Meeting and produce valid identification. Beneficial
owners should contact their bank, broker or other nominee for
instructions regarding obtaining a legal proxy.
What is the difference
between a “record holder” and a “beneficial
owner” of the Company’s common stock?
If your shares are registered in your name with our transfer agent,
Continental Stock Transfer and Trust Company, then you are
considered the record holder for those shares. If you are the
record holder of your shares, you have the right to vote your
shares by proxy or to attend the meeting and vote in person.
If your shares are held through a bank, broker or other nominee,
then you are considered to hold your shares in “street
name.” While you are the “beneficial owner” of
those shares, you are not considered the record holder. As the
beneficial owner of shares of our common stock, you have the right
to instruct your bank, broker or other nominee how to vote your
shares. However, since you are not the stockholder of record, you
may not vote these shares in person at the Annual Meeting unless
you obtain, through your bank, broker or other nominee, a
“legal proxy” from the stockholder of record.
What does it mean to
vote “by proxy”?
When you vote by proxy, you grant another person the power to vote
stock that you own. If you vote by proxy in accordance with this
proxy statement, you will have designated the following individuals
as your proxy holders for the Annual Meeting: Marv Tseu, the
Company’s Chief Executive Officer, and David Shapiro, the
Company’s Chief Operating Officer and Secretary.
Any proxy given pursuant to this solicitation and received in time
for the Annual Meeting will be voted in accordance with your
specific instructions. If you provide a proxy, but you do not
provide specific instructions on how to vote on each proposal, the
proxy holder will vote your shares “FOR” election of
the director nominees named in this proxy statement and
“FOR” the ratification of the appointment of Marcum LLP
as the Company’s independent registered certified public
accounting firm. With respect to any other proposal that properly
comes before the Annual Meeting, the proxy holders will vote in
their own discretion according to their best judgment, to the
extent permitted by applicable laws and regulations.
What happens if I do not
provide voting instructions to my bank, broker or other
nominee?
If you are a beneficial owner and do not provide your bank, broker
or other nominee with voting instructions and do not obtain a legal
proxy, under the rules of various national and regional securities
exchanges, the bank, broker or other nominee may generally vote on
routine matters but cannot vote on non-routine matters. If the
bank, broker or other nominee that holds your shares does not
receive instructions from you on how to vote your shares on a
non-routine matter, the bank, broker or other nominee will inform
the inspector of election that it does not have the authority to
vote on this matter with respect to your shares. This is generally
referred to as a “broker non-vote.” The Director
Election Proposal is considered a non-routine proposal. Therefore,
broker non-votes may occur with respect to this matter in
connection with the Annual Meeting.
How do I revoke my proxy
or voting instructions?
A record holder may revoke his, her or its proxy by (i) submitting
a written notice of revocation that is received by our Secretary at
any time prior to the voting at the Annual Meeting, (ii) submitting
a subsequent proxy prior to the voting at the Annual Meeting or
(iii) attending the Annual Meeting and voting in person. Attendance
by a stockholder at the Annual Meeting does not alone serve to
revoke his or her proxy. Stockholders may send written notice of
revocation to the Secretary, Propel Media, Inc., 2010 Main Street,
Suite 900, Irvine, California 92614.
Beneficial owners should refer to the materials provided to them by
their bank, broker or other nominee for information on changing
their voting instructions.
2
What constitutes a
quorum?
The presence at the meeting, in person or by proxy, of the holders
of a majority of the common stock outstanding and entitled to vote
at the meeting, will
constitute a quorum for the transaction of business. A proxy
submitted by a stockholder may indicate that all or a portion of
the shares represented by his or her proxy are not being voted with
respect to a particular matter. This is sometimes referred to as
“stockholder withholding.” Similarly, a broker non-vote
may occur with respect to shares held in street name, when the
bank, broker or other nominee is not permitted to vote such stock
on a particular matter in the absence of voting instructions from
the beneficial owner. The shares subject to a proxy which are not
being voted on a particular matter because of either stockholder
withholding or a broker non-vote will not be considered shares
present and entitled to vote on the matter. These shares, however,
may be considered present and entitled to vote on other matters and
will count for purposes of determining the presence of a quorum,
unless the proxy indicates that the shares are not being voted on
any matter at the Annual Meeting, in which case the shares will not
be counted for purposes of determining the presence of a quorum.
Abstentions are voted neither “FOR” nor
“AGAINST” a matter, but are counted in the
determination of a quorum.
How many votes are
required to approve each proposal?
Director Election
Proposal
. Nominees that receive the affirmative vote of
a plurality of the issued and outstanding shares of the
Company’s common stock represented in person or by proxy at
the meeting and entitled to vote thereon, will be elected as
directors. “Plurality” means that the individuals who
receive the largest number of votes cast “FOR” are
elected as directors. Consequently, abstentions and broker non-votes
will not have any effect on the election.
Accounting Firm
Proposal
. Ratification of the appointment of Marcum LLP
requires the affirmative vote of a majority of the issued and
outstanding shares of the Company’s common stock represented
in person or by proxy at the meeting and entitled to vote thereon.
Abstentions, which are considered present and entitled to vote on
this matter, will have the same effect as a vote
“AGAINST” this proposal. Broker non-votes, which are
not considered present and entitled to vote on this matter, will
not have any effect on the vote with respect to this proposal.
Who is paying for this
proxy statement and the solicitation of my proxy, and how are
proxies solicited?
Proxies are being solicited by the Board for use at the Annual
Meeting. The Company’s officers and other employees, without
additional remuneration, also may assist in the solicitation of
proxies in the ordinary course of their employment. In addition to
the use of the mail and the Internet, solicitations may be made
personally or by email or telephone, as well as by public
announcement. The Company will bear the cost of this proxy
solicitation. The Company may also request brokers, dealers, banks
and their nominees to solicit proxies from their clients where
appropriate, and may reimburse them for reasonable expenses related
thereto.
3
DIRECTOR ELECTION
PROPOSAL
The Board consists of up to five directors, with all of the
directors elected at each annual meeting of stockholders.
Accordingly, at the Annual Meeting, the stockholders will vote on
the election of directors. However, there currently is one vacancy
on the Board. As a result, the Board will nominate only four
individuals for election by the stockholders. Each director elected
at the Annual Meeting will serve until the next annual meeting of
stockholders and until his or her successor has been elected and
qualified.
The Company’s directors currently are Sam Humphreys, Jonathan
Ledecky, Marv Tseu and David Shapiro. The Board is nominating such
individuals for re-election as directors. Biographical information
about the nominees can be found in “
Directors and
Executive Officers
” beginning on page 6.
Unless otherwise specified by you when you give your proxy, the
shares subject to your proxy will be voted “FOR” the
election of these nominees. In case any of these nominees become
unavailable for election to the Board, an event which is not
anticipated, the proxy holders, or their substitutes, shall have
full discretion and authority to vote or refrain from voting your
shares for any other person in accordance with their best
judgment.
Nominees that receive the affirmative vote of a plurality of the
issued and outstanding shares of the Company’s common stock
represented in person or by proxy at the meeting and entitled to
vote thereon, will be elected as directors.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH NOMINEE
LISTED ABOVE.
4
ACCOUNTING FIRM
PROPOSAL
The Board has appointed Marcum LLP to serve as the Company’s
independent registered public accounting firm for the fiscal year
ending December 31, 2018. At the Annual Meeting, stockholders will
vote on a proposal to ratify this appointment.
Marcum LLP has served as the Company’s independent registered
public accounting firm since it was retained to perform the audit
for our fiscal year ended December 31, 2014. Marcum LLP also
previously served as the independent registered public accounting
firm for Kitara Media Corp. (“
Kitara
”)
until the consummation of the business combination (the
“
Business
Combination
”) between the Company, Kitara and Propel
Media LLC (“
Propel
Media
”) on January 28, 2015. Prior to the Business
Combination, Kitara was a public company. Upon the closing of the
Business Combination, Kitara became a wholly-owned subsidiary of
the Company.
While stockholder ratification of the Board’s decision to
retain Marcum LLP is not required by the Company’s bylaws or
otherwise, the Board has chosen to submit that selection to the
Company’s stockholders for ratification. If the
Company’s stockholders fail to ratify the selection, the
Board may, but is not required to, reconsider whether to retain
that firm. Additionally, even if the selection is ratified, the
Board may in its discretion direct the appointment of a different
independent registered public accounting firm at any time during
the fiscal year if it determines that such a change would be in the
best interests of the Company and its stockholders.
Marcum LLP has advised us that the firm is independent with respect
to the Company and its subsidiaries. We expect that representatives
of Marcum LLP will be present at the Annual Meeting to make
statements and to respond to appropriate questions from our
stockholders.
Ratification of the appointment of Marcum LLP requires the
affirmative vote of a majority of the issued and outstanding shares
of the Company’s common stock represented in person or by
proxy at the meeting and entitled to vote thereon.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE
RATIFICATION OF THE APPOINTMENT OF MARCUM LLP AS THE
COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
Independent Registered
Public Accounting Firm’s Fees and Services
The following fees were paid to Marcum LLP for services rendered in
the years ended December 31, 2017 and 2016:
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Audit Fees
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$
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216,130
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$
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211,338
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Audit Related Fees
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—
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—
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Tax Fees
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—
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—
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All Other Fees
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—
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—
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Pre-Approval of Audit
and Non-Audit Services
The Company currently does not have an audit committee. However,
before the Company engages its independent registered public
accounting firm to render any audit or non-audit services, the
Board approves such engagement. In accordance with this policy, the
Board pre-approved the engagement of Marcum LLP for all of the
services described above.
5
DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive
Officers
The Company’s directors and executive officers are as
follows:
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Sam Humphreys
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58
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Chairman of the Board
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Jonathan J. Ledecky
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60
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Director
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Marv Tseu
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70
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Chief Executive Officer and Director
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David Shapiro
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47
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Chief Operating Officer, Secretary and
Director
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Daniela Nabors
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40
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Chief Revenue Officer
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Howard Yeaton
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63
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Interim Chief Financial Officer
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Sam Humphreys
has served as Chairman of the Board since
December 31, 2017 and has served as a member of the Board since
January 2015. Mr. Humphreys also served as a member of the Kitara
board of directors from July 2013 to April 2015. Since 2006, Mr.
Humphreys has served as the Chief Executive Officer of London Bay
Capital, a private equity firm based in San Francisco that Mr.
Humphreys co-founded. Prior to co-founding London Bay Capital, Mr.
Humphreys was a principal in several private equity and venture
capital firms, and prior thereto, a lawyer focused on mergers and
acquisitions. Mr. Humphreys has participated as a founder or
executive officer, or through his firms, the financial sponsor, of
numerous high-growth businesses which pursued consolidation
strategies in highly fragmented industries. These businesses
include, among others, Envirofil Inc. (NASDAQ: EFIL), which merged
with USA Waste Services, Inc. (NYSE: UW) and which ultimately
merged with Waste Management, Inc. (NYSE: WMI) after completing
several hundred acquisitions in the solid waste industry, creating
a Fortune 500 business; US Delivery Systems, Inc., (NYSE: DLV),
which consolidated the same-day, same-city delivery industry before
being acquired by Corporate Express, Inc.; PalEx, Inc. (NASDAQ:
PLX), which consolidated the pallet manufacturing and recycling
sector; US Concrete (NASDAQ: RMX), which consolidated the ready mix
concrete industry; and Quanta Services, Inc. (NYSE: PWR), which
consolidated specialty contracting businesses in the telecom and
electrical infrastructure sectors and became a Fortune 500
business. Prior to entering the private equity field, Mr. Humphreys
was a partner at the law firm of Andrews & Kurth, where he
focused on mergers and acquisitions and public securities
offerings. He served as the Chairman of the Securities Law
Committee of the State Bar of Texas from 1989 to 1991. The Company
believes Mr. Humphreys is well-qualified to serve as a member of
the Board due to his investing experience, his knowledge of mergers
and acquisitions and his business contacts.
Jonathan J.
Ledecky
has
served as a member of the Board since January 2015. Previously, Mr.
Ledecky served as a member of the Kitara board of directors from
January 2011 to April 2015 and as Kitara’s non-executive
chairman of the board from February 2012 until April 2015. Mr.
Ledecky also served as Kitara’s interim chief financial
officer, from February 2012 until July 2013, and as Kitara’s
chief executive officer, from January 2011 to February 2012, during
which time Kitara was known as Ascend Acquisition Corp. Mr. Ledecky
has been a co-owner of the National Hockey League’s New York
Islanders franchise since October 2014. He also serves as an
Alternate Governor on the Board of Governors of the NHL and as
President of NYC Hockey Holdings LLC. Mr. Ledecky has served as
chairman of Ironbound Partners Fund, LLC (“
Ironbound
”),
a private investment management fund, since March 1999. He has also
served as President, Chief Financial Officer and sole Director of
Newtown Lane Marketing, Incorporated, a public shell company, since
October 2015. From June 1998 to August 2013, Mr. Ledecky served as
a director of School Specialty, a Nasdaq Global Market listed
education company that provides products, programs and services
that enhance student achievement and development. School Specialty
was spun out of U.S. Office Products in June 1998. Mr. Ledecky
founded U.S. Office Products in October 1994 and served as its
chief executive officer until November 1997 and as its chairman
until its sale in June 1998. U.S. Office Products was one of the
fastest start-up entrants in the history of the Fortune 500 with
sales in excess of $3 billion within three years. From July 1999 to
July 2001, Mr. Ledecky was vice chairman of Lincoln Holdings,
owners of the Washington sports franchises in the NBA, NHL and
WNBA. Mr. Ledecky also has served as a trustee of George Washington
University, a director of the U.S. Chamber of Commerce and a
commissioner on the National Commission on Entrepreneurship and
currently serves as a trustee of the U.S. Olympic Foundation and
the U.S. Paralympic Foundation. In 2004, Mr. Ledecky was elected
the Chief Marshal of the 2004 Harvard University Commencement, a
singular honor bestowed by his alumni peers for a 25
th
reunion graduate deemed to have made exceptional contributions to
Harvard and the greater society while achieving outstanding
professional success. Mr. Ledecky received a B.A. (cum laude) from
Harvard University in 1979 and a M.B.A. from the Harvard
6
Business School in 1983. The
Company believes Mr. Ledecky is well-qualified to serve as a member
of the Board due to his public company experience, operational
experience and business contacts.
Marv Tseu
has served as the Company’s Chief Executive
Officer since April 2016 and has served as a member of the Board
since January 2015. Mr. Tseu also has served as Propel
Media’s and Kitara’s Chief Executive Officer since
April 2016. Prior to such time, he served as the Company’s
and Propel Media’s President, from January 2015 to April
2016, as Propel Media’s Chief Operating Officer, from April
2014 to April 2016, and as Kitara’s President, from April
2015 to April 2016. He has been a member of the Board of Directors
of Plantronics, Inc. (NYSE:PLT) since 1999 and served as Chairman
of the Board and Presiding Director of executive sessions until
March 2018, when he became Vice Chairman of the Board of
Plantronics. Mr. Tseu has served as a managing partner since 2008
of Waypoint Strategies, a firm which advises companies’
boards, chief executive officers and management on alignment of
roles, responsibilities and actions to improve corporate
performance. From June 2009 to September 2013, Mr. Tseu served as
Chief Operating Officer of Exponential Interactive, a leading
global provider of advertising intelligence and digital media
solutions to brand advertisers. From May 2006 to November 2007, Mr.
Tseu served as Chief Executive Officer and Director of Axesstel,
Inc., a designer and developer of fixed wireless voice and
broadband data products. From October 2002 to March 2006, Mr. Tseu
served as the Chief Executive Officer and was a founder of Active
Reasoning, Inc., a private company that produced resource
management software to help enterprises manage their IT operations,
which was acquired by Oracle Corporation in 2007. From 2000 to
2002, Mr. Tseu served as a consulting venture partner with
ComVentures, LLP, a venture capital firm focusing on communications
companies. From February 2001 to July 2001, Mr. Tseu was Chief
Executive Officer of Method Networks, Inc., an Internet technology
company helping enterprises automate the management of their
Internet networks. From October 1999 to October 2000, Mr. Tseu
served as President and Chief Executive Officer and was a
co-founder of SiteSmith, Inc., a provider of outsourced Internet
site operations. From August 1998 to July 1999, Mr. Tseu served as
President of Structured Internetworks, Inc., a company engaged in
the design and marketing of bandwidth allocation products. Mr. Tseu
has a Bachelor of Arts degree in Economics from Stanford
University. The Company believes Mr. Tseu is well-qualified to
serve as a member of the Board due to his experience in the online
advertising industry and his business acumen.
David Shapiro
has served as a member of the Board since
December 31, 2017, has served as the Company’s Chief
Operating Officer since April 2016 and has served as the
Company’s Secretary since January 2015. Mr. Shapiro also has
served as Propel Media’s and Kitara’s Chief Operating
Officer since April 2016. Prior to such time, he served as the
Company’s Chief Corporate Development Officer and General
Counsel, from January 2015 to April 2016, as Propel Media’s
and Kitara’s Chief Corporate Development Officer and General
Counsel, from April 2015 to April 2016, as Propel Media’s
General Counsel, from January 2012 to April 2016, and as
Kitara’s General Counsel, from April 2015 to April 2016. He
also previously served as Propel Media’s Executive Vice
President, Business & Legal Affairs, from January 2012 to April
2015. Mr. Shapiro served as Propel Media’s outside General
Counsel from October 2011 to December 2011. From September 2008 to
October 2011, Mr. Shapiro served as a consultant to media and
Internet companies. From May 2006 to September 2008, Mr. Shapiro
served as the Senior Vice President, Business & Legal Affairs
and Secretary to DIC Entertainment, a publicly traded,
children’s entertainment company. Prior to that, Mr. Shapiro
was a member of the Office of the CEO and the Head of Corporate
Projects and Initiatives at LRN, a leading provider of
technology-enabled ethics and corporate governance solutions, and a
corporate attorney at Wilson Sonsini Goodrich and Rosati, where he
specialized in venture capital financings and mergers and
acquisitions for public and private technology companies. Earlier
in his career, he served as an Assistant District Attorney in the
Manhattan District Attorney’s Office. Mr. Shapiro graduated
with honors from Harvard Law School and received a Master’s
degree in Public Policy from the Eagleton Institute of Politics and
a Bachelor of Arts degree in Politics from Brandeis University,
where he graduated Phi Beta Kappa. The Company believes Mr. Shapiro
is well-qualified to serve as a member of the Board due to his
extensive knowledge of the Company’s business, his
operational experience and his business acumen.
Daniela Nabors
has served as the Company’s Chief
Revenue Officer since April 2016. Prior to such time, she served as
Propel Media’s Chief Adverting Officer from September 2013 to
April 2016. She also previously served as Propel Media’s
Executive Vice President, Campaign Analytics and Account Management
from January 2012 to September 2013, as Propel Media’s Vice
President, Campaign Analytics and Account Management from January
2010 to December 2011 and as Propel Media’s Director,
Campaign Analytics, from April to December 2009. From 2008 to 2009,
Ms. Nabors was the Director of Web Publishing, Display and SEM at
WebYES!, a private, lead-generation focused company in the payday
and private lending space. Prior to that, from 2005 to 2008, Ms.
Nabors was the Sr. SEM Manager at mylife.com (formerly
reunion.com), a company that re-connects users
7
through their data online, and helps them keep it safe. From 2003
to 2005, she was Head of Customer Operations at Komdat GmbH, a full
service, online performance marketing agency based in Munich,
Germany. She started her career in online marketing at GoTo.com,
the first provider of sponsored search listings, where she worked
from 2000 to 2003 and held various customer facing and account
management roles in the U.S., as well as in Europe, during the
company’s international expansion and rebranding to Overture
Services, Inc. (now Yahoo Search Marketing). Ms. Nabors attended
school in Fuerth, Germany at the Fachoberschule Fuerth. She majored
in business, law and administration.
Howard Yeaton
has served as the Company’s Interim
Chief Financial Officer since January 2015. Mr. Yeaton has been the
Managing Principal of Financial Consulting Strategies LLC since
2003, a firm serving principally early stage public companies with
financial reporting support and other related strategic services.
In addition, from July 2014 to July 2015, Mr. Yeaton served as
interim Chief Financial Officer of Energous Corporation, a public
company listed on the Nasdaq Capital Market. Prior to founding
Financial Consulting Strategies LLC, Mr. Yeaton served in various
financial leadership positions for Konica and Teco Energy. Mr.
Yeaton began his career with Deloitte, an international accounting
and auditing firm. Mr. Yeaton currently serves as a director, Vice
Chairman and chairman of the audit committee for Stewardship
Financial Corporation, a community bank. Mr. Yeaton has a BS in
accounting from Florida State University in Tallahassee, FL, and a
Master’s in Business Administration from the University of
Connecticut in Storrs, CT.
Director
Compensation
As of the date of this proxy statement, the Company has not
established a regular compensation plan for the members of the
Board. However, the Company granted equity awards to its
nonemployee directors at the completion of the Business
Combination, which are reflected in the footnotes to the Director
Compensation table below. In addition, in November 2017, the
Company paid Messrs. Humphreys, Ledecky and Pobre $300,000 each in
cash, in recognition of their extraordinary service to the Board.
The amount of the cash payment was determined based on a review of
comparable companies in similar industries. Going forward, the
Company expects to consider the payment of future compensation to
the nonemployee directors.
The following table sets forth information concerning compensation
of the Company’s directors (other than directors who are also
named executive officers and whose compensation is fully reflected
in the Summary Compensation Table below) for the year ended
December 31, 2017:
Director Compensation for 2017
|
|
|
Fees Earned or
Paid in Cash
($)
|
|
|
Sam Humphreys
|
|
$
|
300,000
|
|
$
|
300,000
|
Jonathan Ledecky
|
|
$
|
300,000
|
|
$
|
300,000
|
Jared Pobre
(2)
|
|
$
|
300,000
|
|
$
|
300,000
|
|
|
Unexercised
Option Awards
|
Sam
Humphreys
|
|
750,000
|
|
Jonathan
Ledecky
|
|
1,500,000
|
(a)
|
Jared
Pobre
|
|
—
|
|
Independence of
Directors
Although the Company’s securities are not listed on a
national securities exchange, the Company has elected to adhere to
the listing standards of The NASDAQ Stock Market, LLC
(“
Nasdaq
”)
in determining whether a director is independent. The Board
consults with its counsel to ensure that its determinations are
consistent with those rules and all relevant securities and other
laws and regulations regarding the independence of directors.
Nasdaq generally
8
defines an “independent director” as a person other
than an officer of the Company, who does not have a relationship
with the Company that would interfere with the director’s
exercise of independent judgment in carrying out the
responsibilities of a director. Consistent with these
considerations, the Company determined that Messrs. Humphreys and
Ledecky are independent directors.
Board
Structure
The Company does not have separate standing audit, nomination or
compensation committees. The Company does not believe it is
necessary for the Board to appoint such committees, or have a
separately designated lead director, because the volume of matters
that come before the Board for consideration permits the full Board
to give sufficient time and attention to such matters and to be
involved in all decision making. In addition, the Company believes
that nomination and compensation committees are not necessary due
to the concentration of stock ownership with two former members of
Propel Media, including Jared Pobre, who beneficially own a
majority of the Company’s outstanding common stock.
Audit Oversight
The entire Board serves as our audit committee. The Board has
determined that Sam Humphreys qualifies as an audit committee
financial expert within the meaning of the rules and regulations of
the SEC and is independent under the definition of independence
applicable to audit committee members in the Nasdaq listing
standards. The Company has determined that, under the definition of
independence applicable to audit committee members in the Nasdaq
listing standards, Messrs. Tseu and Shapiro would not be considered
independent.
Report of the Board
The Board, serving as the audit committee, reviewed and discussed
the Company’s audited financial statements for year ended
December 31, 2017 with management, as well as with the
Company’s independent auditors. The Board discussed with the
independent auditors the matters required to be discussed by the
statement on Auditing Standards No. 61, as amended, as adopted by
the Public Company Accounting Oversight Board (“
PCAOB
”)
in Rule 3200T, as well as various accounting issues relating to
presentation of certain items in our financial statements and
compliance with Section 10A of the Securities Exchange Act of 1934,
as amended. The Board received the written disclosures and letter
from the independent auditors required by the applicable
requirements of the PCAOB regarding the independent auditors’
communications with the Board concerning independence, and the
Board discussed with the independent auditors the independent
auditors’ independence.
Based upon the review and discussions referred to above, the Board
recommended that the Company’s audited financial statements
be included in our Annual Report on Form 10-K for the year ended
December 31, 2017 for filing with the SEC. The Board evaluated the
performance of Marcum LLP and re-appointed the firm as the
Company’s independent auditors for the fiscal year ending
December 31, 2018.
|
|
Submitted by the Board:
|
|
|
|
|
|
Sam Humphreys (Chairman)
|
|
|
Jonathan Ledecky
|
|
|
Marv Tseu
|
|
|
David Shapiro
|
Compensation Process
The entire Board participates in consideration of executive officer
and director compensation. The Company has determined that, under
the definition of independence applicable to compensation committee
members in the Nasdaq listing standards, Messrs. Tseu and Shapiro
would not be considered independent.
The Board makes all decisions regarding executive officer
compensation. The Board periodically reviews the elements of
compensation for the executive officers and, subject to any
existing employment agreements, sets each element of compensation
for the Chief Executive Officer and the other executive officers,
including annual base salary, annual incentive bonus and equity
compensation. The Board also periodically reviews the terms of
employment agreements with the executive officers, including in
connection with any new hire or the expiration of
9
any existing employment agreements. The Board will consider the
recommendations of the Chief Executive Officer when determining compensation for the other
executive officers. Executive officers do not determine any element
or component of their own pay package or total compensation amount.
The Chief Executive Officer has no role in determining his own
compensation.
The Board also reviews and approves the Company’s
compensation plans, policies and programs and administers the
Company’s equity incentive plans. In addition, the Chief Executive Officer,
the Chief Operating Officer and other members of management make
recommendations to the Board with regard to overall pay strategy
including program designs, annual incentive design, and long-term
incentive plan design for all employees. Management from time to
time provides the Board with market information and relevant data
analysis as requested. The Company has not paid any fee to or
otherwise engaged any compensation consultants.
Nomination Process
Subject to the right by certain former members of Propel Media to
designate director nominees pursuant to the stockholders agreement
described in “
Security Ownership of
Certain Beneficial Holders
” beginning on page 16, the
entire Board participates in the consideration of director
nominees. The Company has determined that, under the definition of
independence applicable to nominating committee members in the
Nasdaq listing standards, Messrs. Tseu and Shapiro would not be
considered independent.
The Board reviews any written information provided with respect to
the candidates and interviews the candidates. Although there are no
formal criteria or minimum requirements for nominees, the Board
believes that persons should be actively engaged in business
endeavors, have a financial background, be familiar with
acquisition strategies and money management and be able to promote
a diversity of views based on the person’s education,
experience and professional employment. Though the Board does not
have specific guidelines on diversity, it is one of many criteria
considered by the Board when evaluating candidates. Based on the
information gathered, the Board then makes a decision on whether to
nominate the candidates for election as directors. The Board does
not distinguish among candidates recommended by stockholders and
other persons. The Company does not pay any fee to or otherwise
engage any third party or parties to identify or evaluate or assist
in identifying or evaluating potential nominees.
The Company does not have a written policy or formal procedural
requirements for stockholders to submit recommendations for
director nominations. However, the Board will consider
recommendations from stockholders. Stockholders should communicate
nominee suggestions directly to the Board and accompany the
recommendation with biographical details and a statement of support
for the nominee. The potential nominee must also provide a
statement of consent to being considered for nomination.
Board
Meetings
During the year ended December 31, 2017, the Board met 9 times and
acted by unanimous consent 3 times. All of our directors attended
at least 75% of the aggregate number of meetings of the Board.
Although the Company does not have any formal policy regarding
director attendance at annual meetings of stockholders, the Company
attempts to schedule its annual meetings so that all of its
directors can attend.
Leadership
Structure
The Board has determined to keep the positions of chairman of the
board and principal executive officer separate at this time. This
permits the Company’s principal executive officer to
concentrate his efforts on managing the Company’s business
operations and development. This also allows the Company to
maintain an independent chairman of the board who oversees, among
other things, communications and relations between the Board and
senior management, consideration by the Board of the
Company’s strategies and policies and evaluation by the Board
of the Company’s principal executive officer.
Board Role in Risk
Oversight
The Board’s primary function is one of oversight. The Board
as a whole has responsibility for risk oversight and reviews
management’s risk assessment and risk management policies and
procedures. The Board assesses and
10
seeks to mitigate financial risk, including risk related to
internal controls, and receives reports from management on
identified risk areas; strives to create compensation incentives
that encourage behavior consistent with the Company’s
business strategy, without encouraging undue risk-taking; and
considers areas of potential risk within corporate governance and
compliance, such as management succession.
Code of
Ethics
In January 2015, the Company’s board of directors adopted a
code of ethics that applies to the Company’s directors,
officers and employees, including its principal executive officer,
principal financial officer, and principal accounting officer. The
code of ethics is available at
https://www.propelmedia.com/company/investor/code-of-ethics/
.
Stockholder
Communications
Stockholders may contact the Board or individual members of the
Board by writing to them in care of the Secretary, Propel Media,
Inc., 2010 Main Street, Suite 900, Irvine, California 92614. The
Secretary will forward all correspondence received to the Board or
the applicable director from time to time. This procedure was
approved by the Company’s independent directors.
11
EXECUTIVE OFFICER
COMPENSATION
Summary Compensation
Table
The following table sets forth information concerning compensation
of each of the Company’s “named executive
officers,” as defined in Item 402(m) of Regulation S-K, for
the years ended December 31, 2017 and 2016:
Summary Compensation Table for 2017
|
Name
and Principal Position
|
|
|
|
|
|
|
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
(1)
|
|
All
Other
Compensation
($)
|
|
|
Marv Tseu
|
|
2017
|
|
486,000
|
|
137,000
|
|
—
|
|
520,159
|
|
|
|
1,143,159
|
Chief Executive Officer
|
|
2016
|
|
486,000
|
|
—
|
|
—
|
|
227,996
|
|
—
|
|
695,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Shapiro
|
|
2017
|
|
350,000
|
|
—
|
|
—
|
|
803,882
|
|
|
|
1,153,882
|
Chief Operating Officer and Secretary
|
|
2016
|
|
340,000
|
|
—
|
|
—
|
|
398,993
|
|
—
|
|
738,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniela Nabors
|
|
2017
|
|
300,000
|
|
—
|
|
—
|
|
372,902
|
|
|
|
672,902
|
Chief Revenue Officer
|
|
2016
|
|
290,167
|
|
—
|
|
—
|
|
184,177
|
|
—
|
|
474,344
|
Compensation
Arrangements
Marv Tseu and David Shapiro
Each of Messrs. Tseu and Shapiro (each an “
Executive
”
and collectively the “
Executives
”)
is employed by the Company pursuant to an employment agreement,
dated as of March 6, 2015, as amended (each an “
Employment
Agreement
” and collectively the “
Employment
Agreements
”). The term of each Employment Agreement
expired on March 6, 2018. However, pursuant to the Employment
Agreements, because each Executive continues to work for the
Company, his employment continues on the same terms and conditions
as set forth in their Employment Agreements, except that he is an
“at will” employee and the severance provisions are no
longer in effect. The Company currently is negotiating new
employment agreements with each of Messrs. Tseu and Shapiro.
The Employment Agreements provide for base salaries of $486,000 for
Mr. Tseu and $350,000 for Mr. Shapiro. Each of the Executives will
be reimbursed for his reasonable business expenses, subject to an
exception for certain commuting costs, including travel and
lodging, for Mr. Tseu.
Pursuant to the Employment Agreements, commencing in 2016, each of
the Executives became eligible to earn a bonus as part of the
Company’s cash bonus program, as described below. In
addition, on December 29, 2017, the Company paid Mr. Tseu a
one-time special bonus in the amount of $137,000. The one-time
bonus was paid to Mr. Tseu in consideration of his services to the
Company for the past year.
In accordance with the Employment Agreements, on March 6, 2015, the
Company granted an option to purchase 3,000,000 shares of common
stock to Mr. Tseu and an option to purchase 3,000,000 shares of
common stock to Mr. Shapiro. The options, which were granted under
the Company’s 2014 Long-Term Incentive Plan (the
“
2014
Plan
”), have an exercise price of $0.55 per share and
a term of 10 years. Each of the options vested as to one-quarter of
the underlying shares on March 6, 2016, vested as to one-half of
the underlying shares in eight equal quarterly installments through
March 6, 2018 and will vest as to the remaining one-quarter of the
underlying shares in four equal quarterly installments through
March 6, 2019.
Each of the Employment Agreements restricts the Executive from
disclosing confidential information concerning the business of the
Company.
12
Daniela Nabors
Ms. Nabors is not employed by the Company pursuant to an employment
agreement. Ms. Nabors’ base salary is $300,000. Commencing in
2016, Ms. Nabors became eligible to earn a bonus based on the
Company’s gross profit, excluding certain divisions of the
Company’s business. The Company pays her a bonus equal to
0.50% of the Company’s monthly gross profit, excluding
certain divisions of the Company’s business, as reported on
the Company’s financial statements, if such gross profit
reaches a specified threshold in such month, and 0.25% of the
Company’s gross profit, if such gross profit is below such
specified threshold in such month. The Company is required to use
its best efforts to pay the bonus within 30 days after the end of
the applicable month. Commencing in 2017, Ms. Nabors also became
eligible to earn a bonus as part of the Company’s cash bonus
program, as described below.
On March 6, 2015, the Company granted an option to purchase
1,000,000 shares of common stock to Ms. Nabors. The option, which
was granted under the 2014 Plan, has an exercise price of $0.55 per
share and a term of 10 years. The option vested as to one-quarter
of the underlying shares on March 6, 2016, vested as to one-half of
the underlying shares in eight equal quarterly installments through
March 6, 2018 and will vest as to the remaining one-quarter of the
underlying shares in four equal quarterly installments through
March 6, 2019.
The Company is party to a severance agreement, dated as of March
25, 2015 (the “
Severance
Agreement
”), with Ms. Nabors. The Severance Agreement
provides that, in the event of a termination of Ms. Nabors’
employment by the Company without “cause” or by Ms.
Nabors’ for “good reason” (each as defined in the
Severance Agreement), the Company will pay her (i) an aggregate
amount equal to 100% of her base salary, payable over the course of
12 months, subject to the Executive executing a general release of
all claims against the Company, (ii) all valid expense
reimbursements, and (iii) all accrued but unused vacation pay. In
addition, all of Ms. Nabors’ equity awards, including the
options described above, will fully vest and be exercisable for one
year following the termination of employment.
Cash Bonus Program
Under the Company’s cash bonus program, which commenced in
2016, the Company pays up to 5% of its quarterly consolidated
adjusted EBITDA as bonuses to the participants in the program.
Through January 1, 2017, 75% of such 5% (or 3.75% of its quarterly
consolidated adjusted EBITDA) had been allocated to employees,
including 1.00% and 1.75% to Messrs. Tseu and Shapiro,
respectively. Effective as of January 1, 2017, the Board determined
to allocate the remaining 25% of such 5% (or 1.25% of its quarterly
consolidated adjusted EBITDA) to employees, including 0.375% to Mr.
Tseu (for a total of 1.375%), 0.375% to Mr. Shapiro (for a total of
2.125%) and 0.25% to Ms. Nabors (for a total of 0.25%). Two-thirds
of a participant’s quarterly cash bonus is payable only if
the Company’s consolidated adjusted EBITDA for the applicable
quarter is 70% or more of the budgeted EBITDA for such quarter and
one-third of the cash bonus is payable only if the Company’s
revenue for the applicable quarter is 70% or more of the budgeted
revenue for such quarter. In addition, to the extent bonuses were
not paid for a prior fiscal quarter in the same fiscal year,
participants may receive a true-up payment calculated based on the
participant’s percentage of the year-to-date consolidated
adjusted EBITDA. Two-thirds of a participant’s true-up
payment will be made only if the year-to-date consolidated adjusted
EBITDA is 70% or more of the budgeted EBITDA for the year-to-date
period and one-third of the true-up payment will be made only if
the year-to-date revenue is 70% or more of the budgeted revenue for
the year-to-date period. The bonuses, including the true-up, are
not payable in any circumstances if the Company is not in
compliance with its senior secured credit facility or if the bonus
payments would cause the Company to not be in compliance with its
senior secured credit facility. The Company is required to use its
best efforts to pay the bonuses within 30 days after the end of the
applicable fiscal quarter and must pay the bonuses no later than 60
days after the end of such quarter.
13
Outstanding Equity
Awards at Fiscal Year End
The following table sets forth information concerning the
outstanding equity awards, including unexercised options, unvested
stock and equity incentive awards, if any, for each of the
Company’s named executive officers as of December 31,
2017:
|
|
|
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
Option
Exercise
Price
($)
|
|
|
Marv Tseu
|
|
2,062,500
|
|
937,500
|
(1)
|
|
0.55
|
|
3/6/25
|
David Shapiro
|
|
2,062,500
|
|
937,500
|
(1)
|
|
0.55
|
|
3/6/25
|
Daniela Nabors
|
|
687,500
|
|
312,500
|
(1)
|
|
0.55
|
|
3/6/25
|
Retirement
Plans
The Company does not have any plans that provide for the payment of
retirement benefits, or benefits that will be paid primarily
following retirement, except for a 401(k) plan that is generally
available to all employees, including the named executive officers,
on a nondiscriminatory basis.
Termination and Change
in Control Payments
Ms. Nabors is entitled to payment upon termination of her
employment by the Company without “cause” or by her for
“good reason,” as described above. In addition, each of
the 2014 Plan, the Kitara 2013 Long-Term Incentive Equity Plan
assumed by the Company in the Business Combination (the
“
2013
Plan
”) and the Kitara 2012 Long-Term Incentive Equity
Plan assumed by the Company in the Business Combination (the
“
2012
Plan
,” and together with the 2012 Plan, the
“
Kitara
Plans
”) provides that, in the event that a person or
more than one person acting as a group acquires more than 50% of
the total fair market value or combined voting power of the
Company’s stock in a transaction not approved by the Board,
all of the stock options under the plan, including the stock
options held by the named executive officers, will automatically
vest and become immediately exercisable in full. Each of the 2014
Plan, 2013 Plan and 2012 Plan also provides that, in the event a
person or more than one person acting as a group acquires more than
50% of the total fair market value or combined voting power of the
Company’s stock or more than 50% the total gross fair market
value of all of the Company’s assets in a transaction
approved by the Board, the Board may either accelerate the vesting
of all of the stock options under the plan, including the stock
options held by the named executive officers, or require the
holders of any award granted under the plan to relinquish such
award to the Company for cash. If the awards are not accelerated or
required to be relinquished in connection with such an approved
transaction, the awards will continue in effect in accordance with
their terms.
14
SECTION 16 BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the “
Exchange
Act
”), requires the Company’s officers,
directors and persons who own more than ten percent of a registered
class of the Company’s equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission (the “
SEC
”).
Officers, directors and ten percent stockholders are required by
regulation to furnish the Company with copies of all Section 16(a)
reports they file. Based solely on a review of such reports
received by the Company and written representations from certain
reporting persons that no Form 5s were required for those persons,
the Company believes that, during the fiscal year ended December
31, 2017, all reports required to be filed by the Company’s
officers, directors and persons who own more than ten percent of a
registered class of the Company’s equity securities were
filed on a timely basis.
15
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
Security Ownership of
Certain Beneficial Owners
The following tables set forth information regarding the beneficial
ownership of our common stock as of April 20, 2018 by:
•
each person known by us to be the beneficial owner of more than 5%
of our outstanding shares of common stock;
•
each of our officers and directors; and
•
all of our officers and directors as a group.
The beneficial ownership of each person was calculated based on
250,010,162 shares of our common stock outstanding as of April 20,
2018, according to the record ownership listings as of that date,
the beneficial ownership reports filed by 5% beneficial owners with
the SEC and the verifications we solicited and received from each
director and executive officer. The SEC has defined
“beneficial ownership” to mean more than ownership in
the usual sense. For example, a person has beneficial ownership of
a share not only if he owns it in the usual sense, but also if he
has the power (solely or shared) to vote, sell or otherwise dispose
of the share. Beneficial ownership also includes the number of
shares that a person has the right to acquire within 60 days of
April 20, 2018, pursuant to the exercise of options or warrants or
the conversion of notes, debentures or other indebtedness, but
excludes stock appreciation rights. Two or more persons might count
as beneficial owners of the same share. Unless otherwise noted, the
following persons have sole voting and sole investment power with
regard to the shares beneficially owned by them.
Name
and Address of Beneficial Owner
|
|
Amount of
Beneficial
Ownership
|
|
Percentage of
Beneficial
Ownership
|
Executive Officers and Directors:
|
|
|
|
|
|
|
Sam Humphreys
c/o London Bay Capital, LLC
3265 Sacramento St.
San Francisco, CA 94115
|
|
609,375
|
(1)
|
|
*
|
|
Jonathan J. Ledecky
(2)
c/o Graubard Miller
405 Lexington Avenue, 11
th
Floor
New York, NY 10174
|
|
18,216,606
|
(3)
|
|
7.2
|
%
|
Marv Tseu
2010 Main St, Suite 900
Irvine, CA 92614
|
|
3,305,317
|
(4)
|
|
1.3
|
%
|
David Shapiro
2010 Main St, Suite 900
Irvine, CA 92614
|
|
3,305,317
|
(5)
|
|
1.3
|
%
|
Daniela Nabors
2010 Main St, Suite 900
Irvine, CA 92614
|
|
1,391,045
|
(6)
|
|
*
|
|
Howard Yeaton
2010 Main St, Suite 900
Irvine, CA 92614
|
|
—
|
|
|
0.0
|
%
|
All executive officers and directors as a group
(6 individuals)
|
|
26,827,660
|
(7)
|
|
10.4
|
%
|
16
Name
and Address of Beneficial Owner
|
|
Amount of
Beneficial
Ownership
|
|
Percentage of
Beneficial
Ownership
|
Five Percent Holders:
|
|
|
|
|
|
|
Selling Source, LLC
c/o London Bay Capital, LLC
3265 Sacramento St.
San Francisco, CA 94115
|
|
22,145,294
|
(8)
|
|
8.9
|
%
|
Ironbound Partners Fund LLC
(2)
c/o Graubard Miller
405 Lexington Avenue, 11
th
Floor
New York, New York 10174
|
|
17,607,231
|
(9)
|
|
7.0
|
%
|
Neptune Capital Trust
(10)
c/o Brian Mason
P.O. Box 3104
Avarua, Rarotonga, Cook Islands
|
|
61,650,368
|
|
|
24.7
|
%
|
Family Trust of Jared L. Pobre
(11)
2010 Main St, Suite 900
Irvine, CA 92614
|
|
92,475,553
|
|
|
37.0
|
%
|
17
Business Combination and
Stockholders Agreement
On January 28, 2015, the Company consummated the Business
Combination, as contemplated by (i) the Agreement and Plan of
Reorganization (the “
Merger
Agreement
”), dated as of October 10, 2014, by and
among Kitara, the Company (which was previously a wholly-owned
subsidiary of Kitara) and Kitara Merger Sub, Inc. (which was
previously a wholly-owned subsidiary of the Company), and (ii) the
Unit Exchange Agreement (the “
Exchange
Agreement
”), dated as of October 10, 2014 and amended
as of December 23, 2014, April 29, 2015 and January 26, 2016, by
and among Kitara, the Company, Propel Media and the former members
of Propel Media.
Prior to the Business Combination, Kitara was a public operating
company, Propel Media was a private operating company, the Company
was a wholly-owned subsidiary of Kitara and Selling Source owned
33.5% of Kitara’s outstanding common stock. Upon the closing
of the Business Combination, Kitara and Propel Media became
wholly-owned subsidiaries of the Company, certain of the former
members of Propel Media became the owners of 154,125,921 shares of
Company common stock, at the time representing approximately 61.7%
of the Company’s outstanding common stock, and the former
stockholders of Kitara became the owners of the remaining
95,884,241 shares of Company common stock, at the time representing
approximately 38.3% of the Company’s outstanding common
stock. As a result, the Company became the new public company. In
addition, under the terms of the Exchange Agreement, the Company is
required to pay to the former members of Propel Media, on or prior
to June 30, 2019, $10,000,000 in cash and/or shares of the
Company’s common stock. The $10,000,000 payment will be made
in shares of common stock to the extent such amount has not already
been paid, if, during the ten day period following each December
31
st
,
Mr. Pobre elects, on behalf of the former members of Propel Media,
to receive any unpaid amount of such consideration in shares of the
Company’s common stock. Such shares would be valued at the
last closing market price prior to the delivery of such shares. If
Mr. Pobre were to exercise this right, assuming a last closing
price of $0.20, which was the last closing price per share April
20, 2018, the Company would be obligated to issue the former
members of Propel Media 50,000,000 shares of common stock.
As a condition to the closing
of the Business Combination, on January 28, 2015, the Company
entered into a stockholders agreement with the Family Trust of
Jared L. Pobre, U/A DTD 12/13/2004, of which Jared Pobre is the
sole trustee, and the Neptune Capital Trust, who together
constitute all of the former members of Propel Media that received
shares of Company common stock in the Business Combination.
Pursuant to the stockholders agreement, the former members have the
right to designate for election at each annual or special meeting
no fewer than (i) as long as the members and their permitted
transferees own at least 50% of the Company’s outstanding
common stock, a number of directors equal to 50% of the number of
directors then authorized (rounded down) plus one, and (ii) as long
as the members and their permitted transferees own less than 50%
but at least 20% of the Company’s outstanding common stock, a
number of directors equal to 40% of the number of directors then
authorized (rounded up).
Without the written consent of at least two of the directors
appointed or nominated by the former members of Propel Media, the
Company may not take certain actions with respect to, among other
things, the composition of the Board and its committees; the
repurchase of Company securities; the payment or declaration of
dividends and distributions; the creation or disposition of
subsidiaries; related party transactions; the amendment of Company
organizational documents; the acquisition of the securities, assets
or business of a third party, or the disposition of any assets or
business of the Company; change of control (as defined in the
stockholders agreement) transactions; or plans of liquidation,
dissolution or winding up of the Company, or voluntary bankruptcy
or similar filings.
At such time as the former members of Propel Media and their
affiliates and permitted transferees cease to collectively
beneficially own at least 20% of the outstanding Company common
stock, such members shall cease to have the any rights under the
stockholders agreement, subject to certain limited exceptions.
18
Equity Compensation
Plans
The following table provides certain information with respect to
compensation plans (including individual compensation arrangements)
under which equity securities of Propel are authorized for issuance
as of December 31, 2017.
|
|
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
|
|
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
|
|
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in first
column)
|
Equity compensation plans approved by security
holders
(1)
|
|
15,665,000
|
|
$
|
0.55
|
|
10,507,326
|
Equity compensation plans not approved by
security holders
(2)
|
|
4,825,000
|
|
$
|
0.28
|
|
—
|
Total
|
|
23,351,875
|
|
$
|
0.49
|
|
10,507,326
|
Upon the closing of the Business Combination, the Company assumed
Kitara’s 2012 Plan and its 2013 Plan, and all outstanding
stock options thereunder. However, the Company amended the Kitara
Plans so that no further awards may be issued thereunder. The
Kitara Plans are described more fully below.
The Company also assumed an option (the “
Assumed
Option
”) to purchase 750,000 shares of our common
stock that was originally issued by Kitara outside of the Kitara
Plans. The Assumed Option has an exercise price of $0.60 and
expires on May 7, 2019. It was fully vested upon issuance. In the
event of any change in the shares of our common stock as a whole
occurring as the result of a common stock split, or reverse split,
common stock dividend payable on shares of our common stock,
combination or exchange of shares, or other extraordinary or
unusual event occurring after the grant of the Assumed Option, the
Board will determine, in its sole discretion, whether such change
equitably requires an adjustment in the terms of this Option. The
Assumed Option not transferable by the holder other than by will or
by the laws of descent and distribution, and is exercisable, during
the holder’s lifetime, only by the holder (or, to the extent
of legal incapacity or incompetency, the holder’s guardian or
legal representative).
2012 Plan and 2013 Plan Options
As of December 31, 2017, the options issued under the Kitara Plans
have a weighted average exercise price of $0.23, a weighted average
term remaining of 0.69 years and are currently exercisable with
respect to 4,075,000 shares of common stock.
Under the Kitara Plans, on a change in the number of shares of our
common stock as a result of a dividend on shares of common stock
payable in shares of common stock, a forward split, reverse split,
combination or exchange of the common stock, or other extraordinary
or unusual event that results in a change in the shares of common
stock as a whole, the Board shall determine whether such change
equitably requires an adjustment in the terms of the options in
order to prevent dilution or enlargement of the benefits.
Generally, stock options granted under the Kitara Plans may not be
transferred other than by will or by the laws of descent and
distribution and all stock options are exercisable, during the
holder’s lifetime, only by the holder, or in the event of
legal incapacity or incompetency, the holder’s guardian or
legal representative. However, a holder,
19
with the approval of the Board, may transfer a non-qualified stock
option to an immediate family member of the holder by gift or by
domestic relations order or to an entity in which more than 50% of
the voting interests are owned by the holder or immediate family
members of the holder.
Generally, if the holder is an employee, no stock options granted
under the Kitara Plans may be exercised by the holder unless he or
she is employed by the Company or one of its subsidiaries at the
time of the exercise and has been so employed continuously from the
time the stock options were granted. However, should a holder die
while employed by the Company or one of its subsidiaries, unless
otherwise provided in the stock option agreement, his or her legal
representative or legatee under his or her will may exercise the
decedent holder’s vested stock options for a period of 12
months from the date of his or her death, or such other greater or
lesser period as the Board may specify in the stock option
agreement, or until the expiration of the stated term of the stock
option, whichever period is shorter. Similarly, in the event the
holder’s employment is terminated due to disability or normal
retirement, unless otherwise provided in the stock option
agreement, the holder may still exercise his or her vested stock
options for a period of 12 months, or such other greater or lesser
period as the Board may specify in the stock option agreement, from
the date of termination or until the expiration of the stated term
of the stock option, whichever period is shorter. If the
holder’s employment is terminated for any reason other than
death, disability or normal retirement, unless otherwise provided
in the stock option agreement, the stock option will automatically
terminate, except that if the holder’s employment is
terminated by the Company without cause, the holder may still
exercise his or her vested stock options for a period of three
months, or such other greater or lesser period as the Board may
specify in the stock option agreement, from the date of termination
or until the expiration of the stated term of the stock option,
whichever period is shorter.
If any one person, or more than one person acting as a group,
acquires the ownership of stock of the Company that, together with
the stock held by such person or group, constitutes more than 50%
of the total fair market value or combined voting power of the
stock of the Company, and the Board does not authorize or otherwise
approve such acquisition, then the vesting periods of any and all
stock options and other awards granted and outstanding under the
Kitara Plans shall be accelerated and all such stock options and
awards will immediately and entirely vest, and the respective
holders thereof will have the immediate right to purchase and/or
receive any and all common stock subject to such stock options and
awards on the terms set forth in the Kitara Plans and the
respective agreements respecting such stock options and awards. An
increase in the percentage of stock owned by any one person, or
persons acting as a group, as a result of a transaction in which
the Company acquires its stock in exchange for property is not
treated as an acquisition of stock.
The Board may, in the event of an acquisition by any one person, or
more than one person acting as a group, together with acquisitions
during the 12-month period ending on the date of the most recent
acquisition by such person or persons, of assets from the Company
that have a total gross fair market value equal to or more than 50%
of the total gross fair market value of all of the assets of the
Company immediately before such acquisition or acquisitions, or if
any one person, or more than one person acting as a group, acquires
the ownership of stock of the Company that, together with the stock
held by such person or group, constitutes more than 50% of the
total fair market value or combined voting power of the stock of
the Company, which has been approved by the Board, (i) accelerate
the vesting of any and all stock options and other awards granted
and outstanding under the Kitara Plans, or (ii) require a holder of
any award granted under the Kitara Plans to relinquish such award
to the Company upon the tender by the Company to the holder of cash
in an amount equal to the repurchase value of such award. For this
purpose, gross fair market value means the value of the assets of
the Company, or the value of the assets being disposed of,
determined without regard to any liabilities associated with such
assets.
20
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
Related
Transactions
Chief Financial Officer
On October 14, 2014, the Kitara board of directors appointed Howard
Yeaton as Kitara’s Interim Chief Financial Officer. Mr.
Yeaton is the Managing Principal of Financial Consulting Strategies
LLC (“
FCS
”).
On January 28, 2015, Mr. Yeaton became the Company’s Interim
Chief Financial Officer. The Company and Kitara paid FCS $181,000
and $194,000 during the years ended December 31, 2017 and 2016,
respectively, for Mr. Yeaton’s services as Interim Chief
Financial Officer and other financial advisory and accounting
services provided by FCS. As of March 31, 2018, the Company had
paid FCS $45,000 for such services during 2018.
Compensation Arrangements with Related Parties
The Company employed Robert Regular as its Chief Executive Officer
through April 30, 2016, pursuant to an employment agreement, dated
as of March 6, 2015, as amended. During his employment, the
agreement provided for Mr. Regular to receive a base salary of
$500,000 and reimbursement of his reasonable business expenses. For
the first fiscal quarter of 2016, it also provided for him to be
eligible to earn a bonus as part of the Company’s cash bonus
program, as described above, pursuant to which the Company paid him
$16,271. Pursuant to the agreement, the Company also granted to Mr.
Regular an option to purchase 2,100,000 shares of common stock,
with an exercise price of $0.55 per share. As part of the Business
Combination, the Company also assumed an option to purchase
2,400,000 shares of common stock, with an exercise price of $0.20
per share, granted to him by Kitara. On April 30, 2016, the Company
entered into a separation agreement with Mr. Regular. Pursuant to
his employment agreement, as modified by the separation agreement,
following the end of his employment on April 30, 2016, the Company
paid Mr. Regular (i) $536,896 in 12 monthly installments, (ii) all
valid expense reimbursements through April 30, 2016, and (iii) all
accrued but unused vacation pay through April 30, 2016. In
addition, the option to purchase 2,400,000 shares became fully
vested; it remains exercisable until June 30, 2018. The option to
purchase 2,100,000 also became fully vested; however, it expired
unexercised on April 30, 2017.
From January 2015 to September 2015, Limor Regular, a co-founder of
Kitara and the wife of Robert Regular, was the Chief Operating
Officer of Kitara Media LLC, a wholly owned subsidiary of Kitara.
She resigned from this position in September 2015 and became a
consultant to the Company, beginning in October 2015. She was a
consultant to Propel Media from October 2015 to March 2016. Ms.
Regular was paid $31,600 for her services as a consultant during
2016.
Business Combination Arrangements
On January 28, 2015, the Company consummated the Business
Combination contemplated by the Merger Agreement and the Exchange
Agreement. In connection with the Business Combination, the former
members of Propel Media, including the Family Trust of Jared L.
Pobre and Neptune Capital Trust, exchanged all of the outstanding
membership interests of Propel Media for (i) $80,000,000 in cash,
(ii) 154,125,921 shares of the Company’s common stock, (iii)
the right to receive performance-based “earn out”
payments that will enable the members to receive up to an
additional $40,000,000 in cash or stock consideration based on
Propel Media reaching certain EBITDA levels during the 2015 to 2018
fiscal years, (iv) on or prior to June 30, 2019, $10,000,000 in
cash and/or shares of the Company’s common stock, and (v)
immediately after the payment of certain fees to the lender under
the Company’s senior secured credit facility on or about the
fourth anniversary of the closing, $6,000,000 in cash. The
consideration payable to the members was subject to a post-closing
adjustment based on the working capital and indebtedness of Propel
Media and the working capital of Kitara. On October 30, 2015, the
Company paid $3,337,000 to the members in full satisfaction of this
post-closing adjustment. The Company did not achieve the required
EBITDA level in 2015, 2016 or 2017 and accordingly no “earn
out” payment was made with respect to such fiscal years. The
$10,000,000 payment will be made in shares of common stock to the
extent such amount has not already been paid, if, during the ten
day period following December 31, 2018, Mr. Pobre elects, on behalf
of the former members of Propel Media, to receive any unpaid amount
of such consideration in shares of the Company’s common
stock, valued at the last closing market price prior to the
delivery of such shares. Pursuant to the Exchange Agreement, the
Company also reimbursed the members for all transaction expenses
paid by Propel Media, its subsidiaries or the members on or before
the consummation of the Business Combination, and assumed all of
their
21
unpaid transaction expenses as of such date. The aggregate
transaction expenses reimbursed or assumed by it were $867,000.
Jared Pobre, the Company’s former Non-Executive Chairman of
the Board, is the trustee of The Family Trust of Jared L. Pobre.
Neptune Capital Trust became the beneficial owner of more than 10%
of the Company’s common stock upon the closing of the
Business Combination.
In connection with the Business Combination, the Company assumed an
option to purchase 750,000 shares of the Company’s common
stock at $0.60 per share held by Jonathan J. Ledecky, a director of
the Company, which was not issued under the Kitara Plans.
As a condition to the closing of the Business Combination, on
January 28, 2015, the Company entered into a registration rights
agreement with the Family Trust of Jared L. Pobre and the Neptune
Capital Trust, who together constitute all of the former members of
Propel Media that received shares of our common stock in the
Business Combination (the “
Registrable
Shares
”). Pursuant to the registration rights
agreement, subject to compliance with certain lockup agreements
between such members and the Company, the holders of the
Registrable Shares will have the right to demand that the Company
file a registration statement on Form S-1 or any successor form
thereto covering 15% or greater of the then-outstanding Registrable
Shares. Furthermore, at any time when the Company is eligible to
use Form S-3 or any successor form thereto, the holders of the
Registrable Shares will have the right to demand that the Company
file a registration statement on Form S-3 or any successor form
thereto covering 5% or greater of the then-outstanding Registrable
Shares. The Company will not be obligated to effect more than two
such “demand” registrations on Form S-1, but there is
no limit to the number of “demand” registrations that
may be effected on Form S-3. The holders of the Registrable Shares
also will have certain “piggyback” registration rights,
in the event the Company proposes or is required to register any of
its equity securities on Form S-1 or Form S-3, whether or not for
the Company’s own account. The “demand” and
“piggyback” registration rights are subject to certain
customary conditions and limitations.
Also as a condition to the closing of the Business Combination, on
January 28, 2015, the Company entered into the stockholders
agreement with the Family Trust of Jared L. Pobre and the Neptune
Capital Trust. The stockholders agreement is described more fully
in “
Security Ownership of
Certain Beneficial Owners — Business Combination and
Stockholders Agreement
” on page 18.
Predecessor Transactions
On July 1, 2013, in connection with the consummation of a merger
transaction pursuant to which Kitara acquired Kitara Media LLC and
New York Publishing Group, Inc. (the “
Kitara
Acquisition
”), Kitara entered into a registration
rights agreement with Robert Regular and Selling Source, as the
former owners of Kitara Media LLC and New York Publishing Group,
Inc., respectively. Selling Source is a beneficial owner of more
than 5% of the Company’s outstanding common stock. Pursuant
to the registration rights agreement, Kitara was required, at its
expense and upon the demand of the former owners holding at least
30% of the shares issued in the Kitara Acquisition, to use its
reasonable best efforts to file a registration statement for such
shares within 90 days (or 45 days if the Company is eligible to
file a registration statement on Form S-3) after the Company
receives a written demand from such former owners. Subject to
certain limitations, the registration rights agreement also
provided the former owners with certain piggyback registration
rights for underwritten public offerings that Kitara may effect for
its account or for the benefit of other selling stockholders. After
the closing of the Business Combination, the former owners have
identical rights with respect to the shares of the Company common
stock they received in exchange for the shares issued in connection
with the Kitara Acquisition.
To provide for the post-closing respective indemnification rights
of Kitara, Robert Regular and Selling Source, as the former owners
of Kitara Media LLC and New York Publishing Group, Inc., Kitara
entered into an escrow agreement, pursuant to which ten percent of
the shares received by the former owners in the Kitara Acquisition
were deposited in escrow. These shares are being reserved with
respect to indemnification claims made by Kitara as a result of the
litigation described in our Annual Report.
Related Party
Policy
The Company’s Code of Ethics requires its directors, officers
and employees to avoid, wherever possible, all related party
transactions that could result in actual or potential conflicts of
interest, except under guidelines approved by the Board.
Related-party transactions are defined as transactions in which (1)
the aggregate amount involved will or may be expected to exceed
$120,000 in any calendar year, (2) we or any of our subsidiaries is
a
22
participant, and (3) any (a) executive officer, director or nominee
for election as a director, (b) greater than 5 percent beneficial
owner of our common stock, or (c) immediate family member, of the
persons referred to in clauses (a) and (b), has or will have a
direct or indirect material interest (other than solely as a result
of being a director or a less than 10 percent beneficial owner of
another entity). A conflict of interest situation can arise when a
person takes actions or has interests that may make it difficult to
perform his or her work objectively and effectively. Conflicts of
interest may also arise if a person, or a member of his or her
family, receives improper personal benefits as a result of his or
her position.
All ongoing and future transactions between us and any of our
officers and directors or their respective affiliates will be on
terms believed by us to be no less favorable to us than are
available from unaffiliated third parties. Such transactions will
require prior approval by a majority of our uninterested
“independent” directors (to the extent we have any) or
the members of the Board who do not have an interest in the
transaction, in either case who had access, at our expense, to our
attorneys or independent legal counsel. We will not enter into any
such transaction unless our disinterested “independent”
directors (or, if there are no “independent” directors,
our disinterested directors) determine that the terms of such
transaction are no less favorable to us than those that would be
available to us with respect to such a transaction from
unaffiliated third parties.
The Board is responsible for reviewing and approving related-party
transactions to the extent we enter into such transactions. The
Board will consider all relevant factors when determining whether
to approve a related party transaction, including whether the
related party transaction is on terms no less favorable than terms
generally available to an unaffiliated third-party under the same
or similar circumstances and the extent of the related
party’s interest in the transaction. No director may
participate in the approval of any transaction in which he is a
related party, but that director is required to provide the other
members of the Board with all material information concerning the
transaction. Additionally, we require each of our directors and
executive officers to complete a directors’ and
officers’ questionnaire that elicits information about
related party transactions. These procedures are intended to
determine whether any such related party transaction impairs the
independence of a director or presents a conflict of interest on
the part of a director, employee or officer.
23
DISCRETIONARY VOTING OF
PROXIES ON OTHER MATTERS
We do not intend to bring before the Annual Meeting any matters
other than those specified in the Notice of the Annual Meeting, and
we do not know of any business which persons other than the Board
intend to present at the Annual Meeting. Should any business
requiring a vote of the stockholders, which is not specified in the
notice, properly come before the Annual Meeting, the proxy holders
specified in this proxy statement and in the accompanying proxy
card intend to vote the shares represented by them in accordance
with their best judgment.
STOCKHOLDER PROPOSALS
AND NOMINATIONS
A proposal that a stockholder intends to present at the 2019 annual
meeting of stockholders and wishes to be considered for inclusion
in the Company’s proxy materials must be received no later
than December 31, 2018. All proposals must comply with Rule 14a-8
under the Exchange Act.
The Company’s bylaws contain provisions intended to promote
the efficient functioning of stockholder meetings. Some of the
provisions require advance notice to us of stockholder proposals or
director nominations to be considered at an annual meeting. Under
the Company’s bylaws, in order to properly bring stockholder
proposals or director nominations before an annual meeting, even if
the stockholder does not intend to include such proposal in the
Company’s proxy materials, the stockholder must deliver
written notice of such proposal or nomination to the Secretary, no
earlier than 120 days prior to the first anniversary of the prior
year’s annual meeting and no later than 90 days prior to the
first anniversary of the prior year’s annual meeting.
Accordingly, for the 2019 annual meeting of stockholders, this
notice must be received no earlier than February 15, 2019 and no
later than March 17, 2019. A notice of a stockholder proposal or
director nomination must include the information set forth in our
bylaws. Stockholder proposals and director nominations should be
addressed to Secretary, 2010 Main Street, Suite 900, Irvine,
California 92614.
Dated April 30, 2018
24