UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE
14A
(Rule 14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment
No. )
Filed
by the Registrant [X]
Filed
by a Party other than the Registrant [ ]
Check
the appropriate box:
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[ ]
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Preliminary
Proxy Statement
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[ ]
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Confidential,
For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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[X]
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Definitive
Proxy Statement
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[ ]
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Definitive
Additional Materials
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[ ]
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Soliciting
Material Pursuant to § 240.14a-12
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ATRM
HOLDINGS, INC.
(Name
of Registrant as Specified in Its Charter)
(Name
of Person(s) Filing Proxy 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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Aggregate
number of securities to which transaction applies:
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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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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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(3)
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Filing
Party:
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(4)
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Date
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ATRM
Holdings, Inc.
5215 Gershwin Avenue N.
Oakdale,
Minnesota 55128
Dear
Shareholders:
It
is our pleasure to invite you to the 2017 Annual Meeting of Shareholders of ATRM Holdings, Inc. We will hold the meeting on Monday,
December 4, 2017, at 10:00 a.m., local time, at 3050 Echo Lake Avenue, Suite 300, Mahtomedi, Minnesota 55115.
We
describe in detail the actions we expect to take at the annual meeting in the accompanying Notice of Annual Meeting of Shareholders
and proxy statement.
Your
vote is important. Whether or not you plan to attend the annual meeting, please promptly sign, date and return the enclosed proxy
card or voting instruction card in the envelope provided, or submit your proxy by telephone or over the Internet (if those options
are available to you) in accordance with the instructions on the enclosed proxy card or voting instruction card.
Thank
you for your ongoing support of and continued interest in ATRM Holdings, Inc. We hope to see you at the meeting.
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Sincerely,
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/s/
Jeffrey E. Eberwein
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Jeffrey
E. Eberwein
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Chairman
of the Board
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ATRM
Holdings, Inc.
5215 Gershwin Avenue N.
Oakdale, Minnesota 55128
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 4
,
2017
Notice
is hereby given that the 2017 Annual Meeting of Shareholders (the “Annual Meeting”) of ATRM Holdings, Inc. (the “Company”)
will be held on Monday, December 4, 2017, at 10:00 a.m., local time, at 3050 Echo Lake Avenue, Suite 300, Mahtomedi,
Minnesota 55115, for the following purposes, as more fully described in the accompanying proxy statement:
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1.
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to
elect each of Jeffrey E. Eberwein, James Elbaor, Mark Hood, Daniel M. Koch, Rodney Schwatken and Galen Vetter to serve as
directors until the Company’s 2018 Annual Meeting of Shareholders and until their successors are duly elected and qualify;
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2.
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to
ratify the appointment of Boulay PLLP as the Company’s independent registered public accounting firm for the fiscal
year ending December 31, 2017;
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3.
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to
approve an amendment to the Company’s Amended and Restated Articles of Incorporation to increase the number of authorized
shares of the Company’s capital stock from 3,200,000 to 10,000,000;
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4.
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to
approve an amendment to the Company’s Amended and Restated Articles of Incorporation to effect a 4-for-1 forward stock
split of the Company’s 10.00% Series B Cumulative Preferred Stock;
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5.
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to
approve a three-year extension to the provisions of the Company’s Amended and Restated Articles of Incorporation designed
to protect the tax benefits of the Company’s net operating loss carryforwards;
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6.
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to
vote on a non-binding advisory resolution to approve the compensation of the Company’s named executive officers; and
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7.
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to
transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.
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The
approval of Proposal No. 4 is conditioned on the approval of Proposal No. 3.
Only
shareholders of record at the close of business on November 7, 2017 are entitled to notice of, and to vote at, the Annual Meeting.
Your
vote is extremely important, regardless of the number of shares you own.
Whether or not you plan to attend the Annual Meeting,
we ask that you promptly sign, date and return the enclosed proxy card or voting instruction card in the envelope provided, or
submit your proxy by telephone or over the Internet (if those options are available to you) in accordance with the instructions
on the enclosed proxy card or voting instruction card.
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By
order of the Board of Directors,
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November
10,
2017
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Jeffrey
E. Eberwein
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Oakdale,
Minnesota
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Chairman
of the Board
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Important
Notice Regarding the Availability of Proxy Materials for the ATRM Holdings, Inc.
2017 Annual Meeting of Shareholders to be Held on December 4, 2017
The
Proxy Statement, our form of proxy card, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 are available
on the Internet at
www.icommaterials.com/ATRM
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ATRM
HOLDINGS, INC.
TABLE
OF CONTENTS
PROXY
STATEMENT
This
proxy statement (“Proxy Statement”) is furnished by the Board of Directors of ATRM Holdings, Inc. (the “Board”)
in connection with the solicitation of proxies for use at the 2017 Annual Meeting of Shareholders (the “Annual Meeting”)
to be held at 3050 Echo Lake Avenue, Suite 300, Mahtomedi, Minnesota 55115, on December 4, 2017 at 10:00 a.m., local
time, and any adjournments thereof. This Proxy Statement, along with a Notice of Annual Meeting of Shareholders and either a proxy
card or a voting instruction card, are being mailed to shareholders beginning on or about November 10, 2017.
Unless
the context otherwise requires, in this Proxy Statement we use the terms “we,” “our,” “us”
and “the Company” to refer to ATRM Holdings, Inc. and its subsidiaries.
Questions
and Answers about
the Proxy Materials and the Annual Meeting
Q:
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Why
did I receive this Proxy Statement?
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A:
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The
Board is soliciting your proxy to vote at the Annual Meeting because you were a shareholder at the close of business on November
7, 2017, the record date, and are entitled to vote at the Annual Meeting.
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This
Proxy Statement summarizes the information you need to know to vote at the Annual Meeting. You do not need to attend the Annual
Meeting to vote your shares.
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Q:
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What
information is contained in this Proxy Statement?
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A:
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The
information in this Proxy Statement relates to the proposals to be voted on at the Annual Meeting, the voting process, the
Board and its committees, the compensation of directors and certain executive officers, and certain other required information.
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Q:
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What
should I do if I receive more than one set of voting materials?
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A:
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You
may receive more than one set of voting materials, including multiple copies of this Proxy Statement and multiple proxy cards
or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate
voting instruction card for each brokerage account in which you hold shares. If you are a shareholder of record and your shares
are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each
proxy card and voting instruction card that you receive.
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Q:
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How
may I obtain an additional set of proxy materials?
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A:
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All
shareholders may write to us at the following address to request an additional copy of these materials:
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ATRM
Holdings, Inc.
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5215
Gershwin Avenue N.
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Oakdale,
Minnesota 55128
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Attention:
Corporate Secretary
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Q:
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What
is the difference between holding shares as a shareholder of record and as a beneficial owner?
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If
your shares are registered directly in your name with our transfer agent, Computershare, you are considered, with respect
to those shares, the “shareholder of record.” If you are a shareholder of record, this Proxy Statement, our 2016
Annual Report on Form 10-K (the “2016 Form 10-K”), and a proxy card have been sent directly to you by the Company.
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If
your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial
owner” of shares held in street name. If you own shares held in street name, this Proxy Statement and the 2016 Form
10-K have been forwarded to you by your broker, bank or nominee who is considered, with respect to those shares, the shareholder
of record. As the beneficial owner, you have the right to direct your broker, bank or nominee how to vote your shares by using
the voting instruction card included in the mailing or by following their instructions for voting by telephone or the Internet,
if the broker, bank or nominee offers these alternatives. Since a beneficial owner is not the shareholder of record, you may
not vote these shares in person at the Annual Meeting unless you obtain a “legal proxy” from the broker, bank
or nominee that holds your shares, giving you the right to vote the shares at the Annual Meeting.
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Q:
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What
am I voting on at the Annual Meeting?
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A:
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You
are voting on the following proposals:
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to
elect each of Jeffrey E. Eberwein, James Elbaor, Mark Hood, Daniel M. Koch, Rodney Schwatken and Galen Vetter to serve as
directors until the Company’s 2018 Annual Meeting of Shareholders and until their successors are duly elected and qualify;
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to
ratify the appointment of Boulay PLLP as the Company’s independent registered public accounting firm for the fiscal
year ending December 31, 2017;
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to
approve an amendment to the Company’s Amended and Restated Articles of Incorporation to increase the number of authorized
shares of capital stock from 3,200,000 to 10,000,000 (the “Authorized Shares Increase Proposal” or “Proposal
No. 3”);
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to
approve an amendment to the Company’s Amended and Restated Articles of Incorporation to effect a 4-for-1 forward stock
split of the Company’s 10.00% Series B Cumulative Preferred Stock (the “Forward Stock Split Proposal” or
“Proposal No. 4”);
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to
approve a three-year extension to the provisions of the Company’s Amended and Restated Articles of Incorporation designed
to protect the tax benefits of the Company’s net operating loss carryforwards (the “Extended Protective Amendment
Proposal” or “Proposal No. 5”);
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to
vote on a non-binding advisory resolution to approve the compensation of the Company’s named executive officers; and
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to
transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.
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The
approval of Forward Stock Split Proposal is conditioned on the approval of Authorized Shares Increase Proposal. The Board recommends
a vote “FOR” the election of each of its nominees to the Board; “FOR” the ratification of the appointment
of Boulay PLLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017;
“FOR” the approval of the Authorized Shares Increase Proposal; “FOR” the approval of the Forward Stock
Split Proposal; “FOR” the approval of the Extended Protective Amendment Proposal; and “FOR” the approval
of a non-binding advisory resolution approving the compensation of our named executive officers.
Q:
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Is
approval of any of the proposals conditioned on approval of another proposal?
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A:
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Yes.
The approval of Forward Stock Split Proposal is conditioned on the approval of the Authorized Shares Increase Proposal. If
the Authorized Shares Increase Proposal does not receive the requisite vote for approval, then the Forward Stock Split Proposal
will have no effect even if approved by our shareholders. The other proposals do not require the approval of any other proposal
to be effective.
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Q:
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How
do I vote?
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A:
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You
may vote using any of the following methods:
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Proxy
card or voting instruction card
. Be sure to complete, sign and date the card and return it in the prepaid envelope.
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By
telephone or the Internet (if available)
. If you own shares held in street name, you will receive voting instructions
from your bank, broker or other nominee and may vote by telephone or on the Internet if they offer that alternative. Shareholders
of record will not be able to vote by telephone or on the Internet.
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In
person at the Annual Meeting
. All shareholders may vote in person at the Annual Meeting. You may also be represented by
another person at the Annual Meeting by executing a proper proxy designating that person. If you own shares held in street
name, you must obtain a legal proxy from your bank, broker or other nominee and present it to the inspector of election with
your ballot when you vote at the Annual Meeting.
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Q:
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What
can I do if I change my mind after I vote my shares?
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A:
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If
you are a shareholder of record, you may revoke your proxy at any time before it is voted at the Annual Meeting by:
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sending
written notice of revocation to our Corporate Secretary;
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submitting
a valid proxy dated later than the date of the revoked proxy; or
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attending
the Annual Meeting and voting in person.
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If
you own shares held in street name, you may submit new voting instructions by contacting your broker, bank or nominee. You may
also vote in person at the Annual Meeting if you obtain a legal proxy as described in the answer to the previous question. Attendance
at the Annual Meeting will not, by itself, revoke a proxy.
Q:
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What
if I return a signed proxy card, but do not vote for some of the matters listed on the proxy card?
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A:
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If
you return a signed proxy card without indicating your vote, your shares will be voted in accordance with the Board’s
recommendations as follows: “FOR” the election of each of its nominees to the Board; “FOR” the ratification
of the appointment of Boulay PLLP as the Company’s independent registered public accounting firm for the fiscal year
ending December 31, 2017; “FOR” the approval of the Authorized Shares Increase Proposal; “FOR” the
approval of the Forward Stock Split Proposal; “FOR” the approval of the Extended Protective Amendment Proposal;
and “FOR” the approval of a non-binding advisory resolution approving the compensation of our named executive
officers.
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Q:
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Can
my broker vote my shares for me without my instructions?
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A:
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Brokers
may not use discretionary authority to vote shares on the election of directors, the Authorized Shares Increase Proposal,
the Forward Stock Split Proposal, the Extended Protective Amendment Proposal or the compensation of the Company’s named
executive officers if they have not received instructions from their clients. Please provide voting instructions on these
proposals so your vote can be counted.
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Q:
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Can
my shares be voted if I do not return my proxy card or voting instruction card and do not attend the Annual Meeting?
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A:
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If
you do not vote your shares held of record (registered directly in your name, not in the name of a bank or broker), your shares
will not be voted.
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If
you do not vote your shares held in street name with a broker, your broker will not be authorized to vote on most items being
put to a vote, including the election of directors, the Authorized Shares Increase Proposal, the Forward Stock Split Proposal,
the Extended Protective Amendment Proposal and the compensation of the Company’s named executive officers. If your broker
returns a valid proxy but is not able to vote your shares, they will constitute “broker non-votes,” which are
counted for the purpose of determining the presence of a quorum, but otherwise do not affect the outcome of any matter being
voted on at the Annual Meeting.
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Q:
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What
are the voting requirements with respect to each of the proposals?
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A:
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In
the election of directors, each director receiving a plurality of the affirmative (“FOR”) votes cast will be elected.
You may withhold votes from any or all nominees.
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The
approval of Proposal Nos. 3, 4 and 5 each requires the affirmative (“FOR”) vote of the majority of the outstanding
shares of our common stock, par value $0.001 per share (“Common Stock”), entitled to vote on the matters. Abstentions
will count as votes “AGAINST” these proposals. The Authorized Shares Increase Proposal (Proposal No. 3) and the Forward
Stock Split Proposal (Proposal No. 4) also require the separate affirmative (“FOR”) vote of two-thirds of the outstanding
shares of Series B Stock. On November 8, 2017, the holders of all of the issued and outstanding Series B Stock approved
the Authorized Shares Increase Proposal and the Forward Stock Split Proposal by written consent.
Each
of the other proposals requires the affirmative (“FOR”) vote of the majority of the shares entitled to vote present
in person or by proxy at the Annual Meeting. Abstentions will count as votes “AGAINST” these proposals.
Additionally,
the approval of the Forward Stock Split Proposal (Proposal No. 4) is conditioned on the approval of the Authorized Shares Increase
Proposal (Proposal No. 3). If Proposal No. 3 does not receive the requisite vote for approval, then Proposal No. 4 will have no
effect even if approved by our shareholders. The other proposals do not require the approval of any other proposal to be effective.
If
you own shares held in street name and do not provide your broker with voting instructions, your shares may constitute “broker
non-votes.” Generally, broker non-votes occur on a matter when a broker is not permitted to vote on that matter without
instructions from the beneficial owner and instructions are not given. In tabulating the voting result for any particular proposal,
shares that constitute broker non-votes will be counted for the purpose of establishing a quorum at the Annual Meeting, but otherwise
do not affect the outcome of any matter being voted on at the Annual Meeting.
Q:
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How
many votes do I have?
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A:
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You
are entitled to one vote for each share of our Common Stock that you hold. As of November
7, 2017, the record date, there were
2,396,219
shares of Common Stock outstanding.
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Q:
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Is
cumulative voting permitted for the election of directors?
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A:
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We
do not use cumulative voting for the election of directors.
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Q:
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What
happens if a nominee for director does not stand for election?
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A:
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If
for any reason any nominee does not stand for election, any proxies we receive will be voted in favor of the remaining nominees
and may be voted for a substitute nominee in place of the nominee who does not stand. We have no reason to expect that any
of the nominees will not stand for election.
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Q:
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What
happens if additional matters are presented at the Annual Meeting?
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A:
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Other
than the six items of business described in this Proxy Statement, we are not aware of any other business to be acted upon
at the Annual Meeting. If you grant a proxy, the persons named as proxy holders, Jeffrey E. Eberwein and Daniel M. Koch, will
have the discretion to vote your shares on any additional matters properly presented for a vote at the Annual Meeting.
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Q:
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How
many shares must be present or represented to conduct business at the Annual Meeting?
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A:
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A
quorum will be present if at least a majority of the outstanding shares of our Common
Stock entitled to vote at the Annual Meeting, totaling 1,198,110 shares, is represented
at the Annual Meeting, either in person or by proxy.
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Both
abstentions and broker non-votes (described above) are counted for the purpose of determining the presence of a quorum.
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Q:
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How
can I attend the Annual Meeting?
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A:
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You
are entitled to attend the Annual Meeting only if you were a shareholder of the Company as of the close of business on November
7, 2017, the record date, or if you hold a valid proxy for the Annual Meeting. You should be prepared to present photo identification
for admittance. If you are a shareholder of record, your name will be verified against the list of shareholders of record
on the record date prior to your admission to the Annual Meeting. If you are not a shareholder of record, but hold shares
through a broker, bank or nominee (i.e., in street name), you should provide proof of beneficial ownership on the record date,
such as your most recent account statement prior to November 7, 2017, a copy of the voting instruction card provided by your
broker, bank or nominee, or other similar evidence of ownership. If you do not provide photo identification or comply with
the other procedures outlined above, you will not be admitted to the Annual Meeting.
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The
Annual Meeting will begin promptly on December 4, 2017, at 10:00 a.m.,
local time. You should allow adequate time for check-in procedures.
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Q:
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How
can I vote my shares in person at the Annual Meeting?
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A:
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Shares
held in your name as the shareholder of record may be voted in person at the Annual Meeting. Shares held beneficially in street
name may be voted in person at the Annual Meeting only if you obtain a legal proxy from the broker, bank or nominee that holds
the shares giving you the right to vote the shares. Even if you plan to attend the Annual Meeting, we recommend that you also
submit your proxy card or voting instruction card as described herein so your vote will be counted if you later decide not
to attend the Annual Meeting.
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Q:
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What
is the deadline for voting my shares?
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A:
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If
you hold shares as the shareholder of record, your vote by proxy must be received before the polls close at the Annual Meeting.
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If
you hold shares beneficially in street name, please follow the voting instructions provided by your broker, bank or nominee.
You may vote these shares in person at the Annual Meeting only if at the Annual Meeting you provide a legal proxy obtained
from your broker, bank or nominee.
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Q:
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Is
my vote confidential?
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A:
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Proxy
instructions, ballots and voting tabulations that identify individual shareholders are handled in a manner that protects your
voting privacy. Your vote will not be disclosed either within the Company or to third parties except (i) as necessary to meet
applicable legal requirements, (ii) to allow for the tabulation of votes and certification of the vote and (iii) to facilitate
a successful proxy solicitation. Occasionally, shareholders provide written comments on their proxy card, which are then forwarded
to our management.
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Q:
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How
are votes counted?
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A:
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For
the election of directors, you may vote “FOR” any or all nominees or your vote may be “WITHHELD” with
respect to any or all nominees. For the other items of business, you may vote “FOR,” “AGAINST” or
“ABSTAIN.”
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Q:
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Where
can I find the voting results of the Annual Meeting?
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A:
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We
intend to announce preliminary voting results at the Annual Meeting and publish final voting results in a Current Report on
Form 8-K to be filed with the Securities and Exchange Commission (“SEC”) within four business days after the Annual
Meeting.
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Q:
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Who
will bear the cost of soliciting votes for the Annual Meeting?
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A:
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We
are making this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing these
proxy materials and soliciting votes. We have retained InvestorCom, Inc., at 65 Locust Avenue, New Canaan, CT 06840, to act
as a proxy solicitor in connection with the Annual Meeting at a cost of $8,500 plus out-of-pocket expenses. If you have questions
about the Annual Meeting, please call InvestorCom at (203) 972-9300 or toll free at (877) 972-0090, or email them at info@investor-com.com.
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We
will also reimburse brokerage firms and nominees for their expenses in forwarding proxy material to beneficial owners of our
Common Stock. In addition, our officers and employees (none of whom will receive any compensation therefore in addition to
their regular compensation) may solicit proxies. Proxies may be solicited through the mail and through telephonic or telegraphic
communications to, or by meetings with, shareholders or their representatives.
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Q:
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How
can I obtain the Company’s corporate governance information?
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A:
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The
following information is available in print to any shareholder who requests it:
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Amended
and Restated Articles of Incorporation
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Bylaws,
as amended
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The
charters of the following committees of the Board: the Audit Committee, the Nominating and Corporate Governance Committee
and the Compensation Committee
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Code
of Business Conduct and Ethics
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●
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Policy
regarding shareholder communications with the Board
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Q:
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How
may I obtain the 2016 Form 10-K and other financial information?
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A:
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A
copy of the 2016 Form 10-K is enclosed with this Proxy Statement. Shareholders may request another free copy of the 2016 Form
10-K and other financial information by contacting us at:
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ATRM
Holdings, Inc.
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5215
Gershwin Avenue N.
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Oakdale,
Minnesota 55128
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Attention:
Corporate Secretary
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Alternatively,
current and prospective investors can access the 2016 Form 10-K at
www.icommaterials.com/ATRM
.
We will also furnish any exhibit to the 2016 Form 10-K if specifically requested.
Our SEC filings are also available free of charge at the SEC’s website, www.sec.gov,
and at the Investor Relations portion of our website,
www.atrmholdings.com/about-us-investor-relations
.
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Q:
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What
if I have questions for the Company’s transfer agent?
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A:
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Please
contact our transfer agent at the telephone number or address listed below with any questions concerning stock certificates,
transfer of ownership or other matters pertaining to your stock account.
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Computershare
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Mail
Address: P.O. Box 505000, Louisville, KY 40233
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Overnight
Delivery Address: 462 South 4
th
Street, Suite 1600, Louisville, KY 40202
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Toll
free for US and Canada: (800) 962-4284
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Outside
of US and Canada: 1 (781) 575-3120
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Q:
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Who
can help answer my questions?
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A:
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If
you have any questions about the Annual Meeting or how to vote or revoke your proxy, please contact InvestorCom at:
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InvestorCom,
Inc.
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65
Locust Avenue
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New
Canaan, CT 06840
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Telephone:
(203) 972-9300 or Toll Free (877) 972-0090
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Fax:
(203) 966-6478
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E-mail:
info@investor-com.com
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You
also can contact us at:
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ATRM
Holdings, Inc.
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5215
Gershwin Avenue N.
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Oakdale,
Minnesota 55128
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Attention:
Corporate Secretary
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Proposal
No. 1: Election of Directors
There
are six nominees for election to the Board at the Annual Meeting: Jeffrey E. Eberwein, James Elbaor, Mark Hood, Daniel M. Koch,
Rodney Schwatken and Galen Vetter. Our Board currently consists of five directors; however, in accordance with the Bylaws, the
Board has determined to increase the size of the Board to six members effective at the Annual Meeting. Three of our director nominees,
Messrs. Eberwein, Koch and Vetter, currently serve as directors of the Company. Our two other existing directors, Morgan P. Hanlon
and Alfred John Knapp, Jr., were not nominated for election at the Annual Meeting and therefore will not stand for re-election.
The Board appreciates their service to the Company as well as their valuable insight and business advice over the years. Our three
other director nominees, Messrs. Elbaor, Hood and Schwatken, are being nominated for the first time this year. Each of Messrs.
Elbaor, Hood and Schwatken was recommended to the Nominating and Corporate Governance Committee by the Company’s Chairman
of the Board.
Each
director is elected annually to serve until our next annual meeting of shareholders and until his or her successor is duly elected
and qualifies. Except where authority to vote for directors has been withheld, it is intended that the proxies received pursuant
to this solicitation will be voted “FOR” the nominees named below. If for any reason any nominee does not stand for
election, such proxies will be voted in favor of the remainder of those named and may be voted for substitute nominees in place
of those who do not stand. Management has no reason to expect that any of the nominees will not stand for election.
The
following table and paragraphs set forth information regarding our executive officers and nominees for election to the Board,
including the business experience for the past five years (and, in some instances, for prior years) of each of our executive officers
and directors and the experiences and skills that led to the conclusion that the nominees should serve as directors.
Name
|
|
Age
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Position
|
Jeffrey
E. Eberwein
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47
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Chairman
of the Board
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Daniel
M. Koch
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63
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|
President,
Chief Executive Officer and Director
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Stephen
A. Clark
|
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49
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Chief
Financial Officer, Treasurer and Secretary
|
James
Elbaor
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31
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Nominee
|
Mark
Hood
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53
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Nominee
|
Rodney
Schwatken
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53
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Nominee
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Galen
Vetter
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66
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Director
|
Jeffrey
E. Eberwein
joined our Board in January 2013 and became Chairman in November 2013. In addition to his service to the Company,
he has 25 years of Wall Street experience and is CEO of Lone Star Value Management, LLC (“LSVM”), a U.S. registered
investment company. Prior to founding LSVM in January 2013, Mr. Eberwein was a Portfolio Manager at Soros Fund Management from
January 2009 to December 2011 and Viking Global Investors from March 2005 to September 2008. Mr. Eberwein serves as Chairman of
the board of three other public companies: Digirad Corporation (NASDAQ: DRAD), a medical imaging Company; Ameri Holdings, Inc.
(OTC: AMRH), an IT services company; and Hudson Global Inc. (NASDAQ: HSON), a global recruitment company. In addition, Mr. Eberwein
serves as Executive Chairman of Novation Companies, Inc. (OTC: NOVC), a healthcare staffing company. Mr. Eberwein served on the
boards of Crossroads Systems, Inc. (OTC: CRDS), a data storage company, from April 2013 to May 2016; The Goldfield Corporation
(NYSE: GV), a company in the electrical construction industry, from May 2012 to May 2013; On Track Innovations Ltd. (NASDAQ: OTIV),
a smart card company, from December 2012 to December 2014; and NTS, Inc. (previously listed NYSE: NTS), a broadband services and
telecommunications company, from December 2012 until its sale to a private equity firm in June 2014. Previously, Mr. Eberwein
also served on the board of Hope for New York, a charitable organization dedicated to serving the poor in New York City, from
2011 to 2014, where he was the Treasurer and on its Executive Committee. Mr. Eberwein earned an Masters of Business Administration
from The Wharton School, University of Pennsylvania, and a Bachelors of Business Administration degree with High Honors from The
University of Texas at Austin. The Board believes that Mr. Eberwein’s qualifications to serve on the Board include his expertise
in finance and experience in the investment community.
Daniel
M. Koch
has served as our President and Chief Executive Officer and on our Board since November 2013. Previously, Mr.
Koch served as our vice president – marketing since October 2012. From September 2010 to September 2012, Mr. Koch served
as a Senior Account Manager for Delta Design – Rasco, a manufacturer of test handlers. From March 1991 to August 2010, Mr.
Koch served as our vice president – worldwide sales. From March 1990 to March 1991, Mr. Koch served as the vice president
of sales of Summation, Inc., a company involved with the testing of PC boards. From December 1973 to March 1990, Mr. Koch served
in various sales positions and most recently as vice president of sales of Micro Component Technology, Inc. Mr. Koch’s extensive
experience in sales and general management and knowledge of our products, our markets and our customers is invaluable to our Board.
Stephen
A. Clark
has served as our Chief Financial Officer since September 2016, and previously served as our Interim Chief Financial
Officer since joining the Company in June 2016. Mr. Clark has over 25 years of business, accounting and finance experience. Prior
to joining the Company, Mr. Clark worked as a consultant for several companies in a variety of industries. Mr. Clark previously
served as Vice President and Controller of Leaf River Energy Center, LLC, a natural gas storage company, from March 2013 to August
2014. Prior to that, from May 2002 to March 2013, Mr. Clark served as Executive Director of Finance of Long Island Power Authority,
a $3 billion electric utility company servicing Long Island, New York. Mr. Clark began his career at PricewaterhouseCoopers, a
certified public accounting firm, working in the Audit and Business Advisory Services group and the Transaction Services group
from September 1990 to June 2000. Mr. Clark is a certified public accountant (inactive) and holds a Bachelor of Science in Accounting
from Syracuse University and an Masters of Business Administration from Fairfield University
.
James
Elbaor
currently serves as a consulting advisor to Lucus Advisors LLC, an SEC registered investment advisor, a position
he has held since 2014. Mr. Elbaor previously was a Vice President at Northeast Bancorp (NASDAQ: NBN), a financial services company,
in Boston and served on the bank’s Asset-Liability Committee (ALCO). Prior to joining Northeast Bancorp, Mr. Elbaor was
an early employee at DoSomething.org, a global non-profit organization with the goal of motivating young people to make positive
change, advancing DoSomething.org as a leading organization in digital media, mobile technology, and philanthropy. DoSomething.org
now mobilizes over 2.5 million teens across the United States. Mr. Elbaor currently serves on the DoSomething.org Finance Committee.
In 2010, Mr. Elbaor was honored as an Echoing Green Fellowship Semi-Finalist for his work reforming student lending practices.
Mr. Elbaor holds a Bachelors of Arts in Philosophy from New York University and a Masters of Business Administration from Columbia
Business School. Mr. Elbaor’s extensive investment and business strategy experience makes him a valuable asset to the Board.
Mark
Hood
is Executive Vice President for Crossroads Systems, Inc. (OTC Pink: CRSS) (“Crossroads”), an intellectual
property licensing company. He leads initiatives in business development and capital markets while serving as a key strategist
in managing the company’s intellectual property portfolio. Prior to joining Crossroads, Mr. Hood was CEO of Network Consulting
Services, a master sales agency he launched to integrate services from multiple telecommunications companies. He also founded
MCH Advisors, a consultancy focused on guiding early stage technology clients through the design and launch of sales and marketing
programs in high-growth markets. He previously served as a director of P10 Industries (OTC Pink: PIOE). Mr. Hood held Series 7,
65, and 66 securities licenses and served as General Partner of two small-cap equity investment funds. Mr. Hood holds a Bachelors
of Arts in Marketing from Sam Houston State University and an Masters in Technology Commercialization from The University of Texas
at Austin, McCombs School of Business. The Board believes that Mr. Hood offers significant investment, sales, marketing and management
experience that make him highly qualified to serve on the Board.
Rodney
Schwatken
is serving as an executive advisor to Novation Companies, Inc. (OTC Pink: NOVC) (“Novation”), a
healthcare staffing company, and served as Novation’s Chief Executive Officer from August 2015 to September 2017. Mr. Schwatken
served as Novation’s Chief Financial Officer from January 2008 to August 2017 and held various other officer positions at
Novation from June 1993 to January 2008, including Vice President-Controller and Vice President-Strategic Initiatives. Novation
owns or has owned businesses engaged in a variety of activities, including residential mortgage lending, technology and staffing.
From June 1993 to March 1997, Mr. Schwatken was employed in the finance and accounting department of U.S. Central Credit Union,
a $30 billion investment manager and technology service provider for the credit union industry. From January 1987 to June 1993,
Mr. Schwatken was employed by Deloitte, most recently as an audit manager. Mr. Schwatken received his Bachelors of Science degree
from the University of Kansas. Mr. Schwatken brings to the Board financial expertise and experience, as well as business analysis
acumen and advanced financial literacy.
Galen
Vetter
joined our Board in January 2013. He is currently a private investor and professional corporate director. In his
career, Mr. Vetter served as president of Rust Consulting, Inc. from December 2008 to May 2012, as global chief financial officer
of Franklin Templeton Investment Funds from April 2004 to November 2008 and in numerous roles at McGladrey from June 1973 to March
2004. In addition to our Board, Mr. Vetter currently serves as a member on the Advisory Board of Directors of Land O’Lakes
and serves on the board of Alerus Financial and Hill Capital Corporation. Previously, he served on the board of Crossroads from
May 2014 to June 2017. Mr. Vetter is a licensed certified public accountant (inactive). Mr. Vetter is a member of the National
Association of Corporate Directors, including being Board Leadership Fellow certified. Mr. Vetter received his Bachelors of Science
degree from the University of Northern Iowa. Mr. Vetter brings to our Board diverse management experience including financial,
analytical, information management, strategy and team development. In addition to Mr. Vetter’s extensive financial experience,
our Board benefits from Mr. Vetter’s enterprise risk management and international business experience.
Family
Relationships
There
are no family relationships among our executive officers and directors.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our directors, executive officers
and holders of more than 10% of our Common Stock to file with the SEC initial reports of ownership and reports of changes in the
ownership of Common Stock and other equity securities of the Company. Such persons are required to furnish us with copies of all
Section 16(a) filings.
Based
solely upon a review of the copies of the forms furnished to us, we believe that our directors, officers and holders of more than
10% of our Common Stock complied with all applicable filing requirements during the 2016 fiscal year.
Related
Person Transactions and Certain Relationships
Jeffrey
E. Eberwein and Lone Star Value
As
of November 7, 2017, Jeffrey E. Eberwein, our Chairman of the Board, may be deemed to beneficially own (i) 1,087,887 shares
of Common Stock, or approximately 45.4% of the Common Stock outstanding, and (ii) 132,548 shares of the Company’s 10.00%
Series B Cumulative Preferred Stock (the “Series B Stock”), or 100% of the Series B Stock outstanding. Such shares
of Common Stock include 1,067,885 shares of Common Stock owned directly by Lone Star Value Investors, LP (“LSVI”),
or approximately 44.6% of the Common Stock outstanding, 10,000 shares of Common Stock owned directly by Mr. Eberwein, and 10,000
shares of Common Stock held in an account managed by LSVM. Such shares of Series B Stock include 49,406 shares owned directly
by LSVI and 83,142 shares owned directly by Lone Star Value Co-Invest I, LP (“LSV Co-Invest I”). Mr. Eberwein is the
manager of Lone Star Value Investors GP, LLC (“LSVGP”), the general partner of LSVI and LSV Co-Invest I, and sole
member of LSVM, the investment manager of LSVI.
On
September 29, 2017, the Company, LSVI and LSV Co-Invest I entered into an Exchange Agreement, dated as of the same date (the “Exchange
Agreement”), pursuant to which the Company issued to LSVI and LSV Co-Invest I a total of 132,548 shares of Series B Stock
in exchange for the return and cancellation of all of the unsecured promissory notes of the Company (the “Notes”)
held by LSVI and LSV Co-Invest I (the “Exchange”). The Notes had an aggregate of $13.3 million unpaid principal and
accrued and unpaid interest outstanding at the time of their cancellation.
On
September 29, 2017, in connection with the Exchange, the Company entered into a Registration Rights Agreement, dated as of the
same date (the “Series B Registration Rights Agreement”), with LSVI and LSV Co-Invest I. The Series B Registration
Rights Agreement provides that at any time after October 15, 2018, upon the written request of the holders of at least 66 2/3%
of the shares of Series B Stock issued in the Exchange that qualify as registrable securities as defined therein, the Company
will prepare and file with the SEC a registration statement covering the resale of those shares by their holders.
In
order to provide additional working capital to the Company, LSV Co-Invest I purchased an unsecured promissory note, dated July
21, 2014, as amended on August 12, 2016, made by the Company in the principal amount of $2.5 million, an unsecured promissory
note, dated September 19, 2014, as amended on August 12, 2016, made by the Company in the principal amount of $2.0 million, an
unsecured promissory note, dated October 4, 2016, made by the Company in the principal amount of $2.0 million, and an unsecured
promissory note, dated March 31, 2017, made by the Company in the principal amount of $0.5 million. In addition, LSVI purchased
an unsecured promissory note, dated February 25, 2015, made by the Company in the principal amount of $1.0 million and an unsecured
promissory note, dated April 1, 2014, as amended on August 12, 2016, made by the Company in the principal amount of $6.0 million.
Each of these notes bears interest at 10.0% per annum, with interest payable semiannually in January and July and any unpaid principal
and interest is due on April 1, 2019. The LSVI promissory note dated February 25, 2015 was repaid in full on September 21, 2015.
The LSVI promissory note initially dated April 7, 2014 was partially repaid with principal payments of $1.0 million on each of
December 1, 2014 and February 24, 2015. The remainder of the LSV Co-Invest I and LSVI unsecured promissory notes that were previously
issued were each cancelled pursuant to the Exchange (as described above).
On
August 12, 2016, the Company, LSVI and LSV Co-Invest I amended certain of the Notes allowing the Company, at its sole option,
to elect to make any interest payment in paid-in-kind interest (“PIK Interest”) at an annual rate of 12% (versus the
10% interest rate applied to cash payments) for that period. The Company elected the PIK Interest option for the six-month periods
ended June 30, 2016, December 31, 2016 and June 30, 2017, which resulted in an additional $1.8 million of PIK Interest being added
to the principal balance of certain of the Notes.
We
are party to a Registration Rights Agreement with LSVI, providing LSVI with certain demand and piggyback registration rights,
effective at any time after July 30, 2014, with respect to 107,297 shares of Common Stock issued upon the conversion
of a convertible promissory note held by LSVI in 2014
.
As
a condition to Premier Bank’s entry into a Revolving Loan Credit Agreement with our EBGL subsidiaries, Mr. Eberwein entered
into a guaranty in favor of Premier Bank, absolutely and unconditionally guaranteeing all of the borrowers’ obligations.
Procedures
for Review and Approval of Transactions with Related Parties
All
transactions between us and any of our officers, directors, director nominees, principal shareholders or their immediate family
members are required to be reviewed and approved by the Audit Committee. Such policy and procedures are set forth in the Audit
Committee charter.
Vote
Required
Each
nominee receiving a plurality of the affirmative (“FOR”) votes cast
at the Annual
Meeting
will be elected to the Board.
Recommendation
of the Board
The
Board unanimously recommends a vote “FOR” the election of each of its nominees to the Board to serve until the Company’s
2018 Annual Meeting of Shareholders and until their successors are duly elected and qualify.
Proposal
No. 2: Ratification of Appointment of Independent Registered Public Accounting Firm
The
Audit Committee has appointed Boulay PLLP as our independent registered public accounting firm for the fiscal year ending December
31, 2017. Although this appointment does not require ratification, the Board has directed that the appointment of Boulay PLLP
be submitted to shareholders for ratification due to the significance of the appointment. If shareholders do not ratify the appointment
of Boulay PLLP, the Audit Committee will consider the appointment of another independent registered public accounting firm.
Boulay
PLLP served as the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2016
and 2015. A representative of Boulay PLLP is expected to be present at the Annual Meeting, will have an opportunity to make a
statement and will be available to respond to appropriate questions.
Audit
and Non-Audit Fees
The
following table presents aggregate fees billed for professional services rendered by Boulay PLLP for fiscal years 2016 and 2015.
There were no other professional services rendered or fees billed by Boulay PLLP for fiscal years 2016 and 2015.
Services
Rendered
|
|
2016
|
|
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2015
|
|
Audit
Fees
(1)
|
|
$
|
179,429
|
|
|
$
|
113,000
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|
Audit-Related
Fees
(2)
|
|
|
2,075
|
|
|
|
1,220
|
|
Tax
Fees
(3)
|
|
|
18,130
|
|
|
|
32,438
|
|
All
Other Fees
(4)
|
|
|
114,092
|
|
|
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37,841
|
|
(1)
|
These
fees include the audits of our annual consolidated financial statements for fiscal years 2016 and 2015 and the reviews of
our consolidated financial statements included in our Quarterly Reports on Form 10-Q and 10-Q/A for fiscal years 2016 and
2015.
|
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(2)
|
These
fees are related to consultations regarding revenue recognition in 2015.
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(3)
|
These
fees are related to the preparation of our 2015 and 2014 federal and state income tax returns and consultations regarding
Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).
|
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(4)
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These
fees are related to the audits of the historical financial statements of an acquired business.
|
Pre-Approval
Policies and Procedures
All
services provided by our independent registered public accounting firms are subject to pre-approval by our Audit Committee. The
Audit Committee has authorized each of its members to approve services by our independent registered public accounting firms in
the event there is a need for such approval prior to the next full Audit Committee meeting. The Audit Committee has also adopted
policies and procedures that are detailed as to the particular service and that do not include delegation of the Audit Committee’s
responsibilities to management under which management may engage our independent registered public accounting firm to render audit
or non-audit services. Any interim approval given by an Audit Committee member and any such engagement by management must be reported
to the Audit Committee no later than its next scheduled meeting. Before granting any approval, the Audit Committee (or a committee
member if applicable) gives due consideration to whether approval of the proposed service will have a detrimental impact on the
independence of the independent registered public accounting firm. The full Audit Committee pre-approved all services provided
by Boulay PLLP in fiscal year 2016.
Vote
Required
The
affirmative (“FOR”) vote of the majority of the shares entitled to vote present in person or by proxy at the Annual
Meeting is required to ratify the appointment of Boulay PLLP as our registered public accounting firm for the fiscal year ending
December 31, 2017.
Recommendation
of the Board
The
Board unanimously recommends a vote “FOR” the ratification of the appointment of Boulay PLLP as our independent registered
public accounting firm for the fiscal year ending December 31, 2017.
Proposal
No. 3: Approval of Authorized Shares INCREASE
We
are asking our shareholders to approve an amendment to our Amended and Restated Articles of Incorporation (the “Existing
Charter”) to increase the number of authorized shares of our capital stock to 10,000,000, and correspondingly increase the
number of authorized shares of our Common Stock to 7,500,000 and the number of authorized shares of preferred stock to 2,500,000,
of which 3,000 shares will be designated as Series A Junior Participating Preferred Stock (“Series A Stock”) and 2,000,000
shares will be designated as Series B Stock, in the form of Annex A hereto (the “Authorized Shares Amendment”). Our
Existing Charter currently authorizes the issuance of 3,000,000 shares of Common Stock and 200,000 shares of undesignated stock,
3,000 of which the Board designated as Series A Stock and 160,000 of which the Board designated as Series B Stock.
If
our shareholders approve this proposal at the Annual Meeting, Article 6, Section 6.1, of the Existing Charter would be amended
and restated in its entirety to read as follows:
Shares,
Classes and Series Authorized
. The aggregate number of shares which the Corporation shall have the authority to issue shall
be ten million (10,000,000) shares, of which (i) seven million five hundred thousand (7,500,000) shares shall be Common Stock,
par value $0.001 per share (the “Common Stock”), and (ii) two million five hundred thousand (2,500,000) shares shall
be preferred stock, of which preferred shares three thousand (3,000) shares are designated as Series A Junior Participating Preferred
Stock, par value $0.001 per share, and two million (2,000,000) shares are designated as 10.00% Series B Cumulative Preferred
Stock, par value $0.001 per share. The common voting shares shall be of the same class and series with equal rights and preferences
unless the Board of Directors shall establish one or more separate classes or series. The undesignated preferred shares shall
be issued in such classes or series and shall have such voting rights and preferences or restrictions, including without limitation,
rights, preferences and restrictions as to redemption, distributions and conversion, as the Board of Directors may establish.
On
November
8,
2017
, the holders of all of the issued and outstanding Series B Stock approved the
Authorized
Shares Increase Proposal
by written consent.
If our shareholders approve this proposal
at the Annual Meeting, we intend to file Articles of Amendment to our Existing Charter reflecting the approved amendment
with the Secretary of State of the State of Minnesota as soon as practicable following the Annual Meeting, at which time the increase
in the number of authorized shares of the Company’s capital stock, and each of the respective increases to the authorized
Common Stock and Series B Stock would become effective.
As
of November 7, 2017, (i) 2,396,219 shares of Common Stock were issued and outstanding, (ii) 315,800 shares
of Common Stock were reserved for issuance under our equity incentive plans, including upon exercise of outstanding options to
purchase Common Stock, and (iii) 132,548 shares of Series B Stock were issued and outstanding. Therefore, as of November 7,
2017, 287,981 shares of Common Stock out of the 3,000,000 shares of Common Stock authorized under the Existing Charter
remained unallocated and 27,452 shares of Series B Stock out of the 160,000 shares of Series B Stock authorized under the
Existing Charter remained unallocated.
Additionally,
under Proposal No. 4 we are requesting that shareholders approve the proposed amendment to the Existing Charter which would effect
a 4-for-1 forward stock split of the Company’s Series B Stock. The approval of Proposal No. 4 is conditioned on the approval
of this Proposal No. 3.
The
Board believes that it is in the Company’s best interest and that of its shareholders to increase the number of authorized
shares of the Company’s capital stock to give the Company sufficient authorized shares to generally support its growth and
to provide flexibility for future corporate needs, including but not limited to grants under equity compensation plans, stock
splits, financings, potential strategic transactions, including mergers, acquisitions, and business combinations, as well as other
general corporate transactions. The additional authorized shares would enable the Company to issue shares in the future in a timely
manner and under circumstances the Company considers favorable without incurring the risk, delay and potential expense incident
to obtaining shareholder approval for a particular issuance.
Increasing
the number of authorized shares of Common Stock and Series B Stock will not alter the number of shares of Common Stock and Series
B Stock presently issued and outstanding or reserved for issuance, other than pursuant to the Forward Stock Split Proposal, and
will not change the relative rights of holders of any shares. The additional authorized shares of Common Stock and Series B Stock,
if and when issued, would have the same respective rights and privileges as the shares of Common Stock and Series B Stock previously
authorized, issued and outstanding.
The
issuance of any of the additional authorized shares of Common Stock and Series B Stock may dilute the proportionate ownership
and voting power of existing shareholders, and their issuance, or the possibility of their issuance, may depress the market price
of our Common Stock and/or Series B Stock.
We
do not have any existing plans, proposals or arrangements, written or otherwise, to issue any of the additional authorized shares
of Common Stock or Series B Stock other than as disclosed in the Company’s filings with the SEC. However, we may
decide to seek additional financing through equity or debt issuances or divest of certain assets or businesses to provide additional
working capital to sustain our operations. The issuance of any shares of Common Stock or Series B Stock, or securities convertible
into Common Stock or Series B Stock, in connection with any such financing, may dilute the proportionate ownership and voting
power of existing shareholders and depress the market price of our Common Stock or Series B Stock.
The
availability of additional authorized but unissued shares of our capital stock may enable our Board to render it more difficult,
or discourage an attempt to obtain control of, the Company, which may adversely affect the market price of our Common Stock. If
in the due exercise of its fiduciary obligations, for example, our Board were to determine that a takeover proposal was not in
our best interests, shares of capital stock could be issued by the Board without shareholder approval in (i) one or more private
placements or other transactions that might prevent, render more difficult or make more costly the completion of any attempted
takeover transaction by diluting voting or other rights of the proposed acquirer or insurgent shareholder group or creating a
substantial voting block in institutional or other hands that might support the position of the incumbent Board or (ii) an acquisition
that might complicate or preclude the takeover. This proposal is not prompted by any specific effort or takeover threat currently
perceived by management.
Vote
Required
The
affirmative (“FOR”) vote
of the majority of the outstanding
shares of Common Stock entitled to vote
at the Annual Meeting, voting as a class, and the
vote of the two-thirds of the outstanding shares of Series B Stock
entitled to vote
,
voting separately as another class, is required to approve the Authorized Shares Increase Proposal. On November
8,
2017
, the holders of all of the issued and outstanding Series B Stock approved the
Authorized
Shares Increase Proposal
by written consent.
Recommendation
of the Board
The
Board unanimously recommends a vote “FOR” the approval of the Authorized Shares Increase Proposal.
Proposal
No. 4: Approval of forward stock split
The
Board has approved and is recommending that the Company’s shareholders approve an amendment to the Existing Charter (the
“Forward Split Amendment”) to effect a 4-for-1 forward split of our Series B Stock (the “Forward Split”)
in the form of Annex B hereto.
If
our shareholders approve Proposal No. 4 at the Annual Meeting, Article 6, Section 6.1, of the Existing Charter would be amended
to add the following paragraph:
Effective
upon filing these Articles of Amendment with the Secretary of State of the State of Minnesota, a 4-for-1 forward stock
split for each share of 10.00% Series B Cumulative Preferred Stock, par value $0.001 per share (the “Series
B Preferred Stock”), issued and outstanding as of the filing of these Articles of Amendment, shall automatically
and without any action of the part of the holders thereof occur (the “Forward Stock Split”). Pursuant to the Forward
Stock Split, each one (1) share of Series B Preferred Stock shall be reclassified and changed into four (4) shares of Series
B Preferred Stock, having a par value of $0.001 per share and a stated value of $25.00 per share.
The
Forward Split Amendment, if approved by shareholders, would become effective upon the filing of Articles of Amendment to
our Existing Charter with the Secretary of State of the State of Minnesota, or such later date as is specified in the filing.
We expect to file the Forward Split Amendment as soon as practicable following the Annual Meeting.
On
November
8, 2017
, the holders of all of the issued and outstanding
Series B Stock approved the Forward Stock Split Proposal by written consent.
However, if Proposal No. 3 is not approved,
the Company will not proceed with the Forward Split, because the Company will not have a sufficient number of shares of Series
B Stock to effect the Forward Split.
Reasons
for the Forward Split
The
Board proposed the Forward Split as one method to increase liquidity and investor interest in the Series B Stock. However, the
effect of the Forward Split upon investor interest in the Series B Stock cannot be predicted. As a result of the Forward Split,
the stated value of the Series B Stock will adjust proportionately from $100.00 to $25.00.
Effect
of Proposal No. 3
If
shareholders approve Proposal No. 3, we will be able to issue up to 2,000,000 shares of Series B Stock. If shareholders do not
approve Proposal No. 3, we will be unable to effect the Forward Split.
Effects
of the Forward Split
General
Pursuant
to the Forward Split, each holder of record of one (1) share of Series B Stock, issued and outstanding immediately prior to the
effectiveness of the Forward Split, will become entitled to three (3) additional shares of Series B Stock after consummation of
the Forward Split. In effect, each one (1) share of Series B Stock will become four (4) shares of Series B Stock.
Effect
on Authorized and Outstanding Shares
As
of November 7, 2017, there were 132,548 shares of Series B Stock issued and outstanding. Upon filing of the Forward Split
Amendment (which is contingent upon approval of Proposal No. 3, and thus will include the increase in the number of authorized
shares of Series B Stock), the Company will be authorized to issue a maximum of 2,000,000 shares of Series B Stock, and the number
of issued and outstanding shares of Series B Stock will be increased from 132,548 to 530,192 shares.
With
the exception of the number of shares issued and outstanding and the change in stated value from $100.00 to $25.00, the rights
and preferences of the shares of Series B Stock prior and subsequent to the Forward Split will remain the same.
Appraisal
and Dissenters’ Rights
No
appraisal or dissenters’ rights are available under Minnesota law or the Existing Charter or Bylaws, to shareholders who
dissent from Forward Split. The Company will not independently provide its shareholders with any such right.
Certain
Federal Income Tax Consequences
The
following summary describes certain material United States federal income tax consequences of the Forward Split to holders of
our Series B Stock. This summary is based on the income tax provisions of the Code, United States Treasury regulations promulgated
thereunder, administrative rulings and judicial authority, all as in effect as of the date hereof. Subsequent developments in
United States federal income tax law, including changes in law or differing interpretations, which may be applied retroactively,
could result in the United States federal income tax consequences of the Forward Split differing from those discussed below.
This
summary does not address all of the United States federal income tax consequences that may be relevant to holders of our Series
B Stock in light of their particular circumstances or to holders that may be subject to special tax rules, including, without
limitation, banks, insurance companies, thrift institutions, other financial institutions, regulated investment companies, real
estate investment trusts, personal holding companies, foreign entities, nonresident alien individuals, broker-dealers, S corporations,
partnerships or other pass-through entities, tax-exempt organizations, United States expatriates, holders subject to the alternative
minimum tax, traders in securities that elect to use a mark-to-market method of accounting, dealers in securities or currencies,
holders of our Series B Stock whose functional currency is not the U.S. dollar, holders that hold our Series B Stock as part of
a position in a “straddle” or as part of a “hedging,” “conversion” or other integrated investment
transaction for federal income tax purposes, persons who acquire shares of our Series B Stock in connection with employment or
other performance of services, or persons that do not hold our Series B Stock as “capital assets” as defined in the
Code (generally, property held for investment). If a partnership (or other entity classified as a partnership for United States
federal income tax purposes) is the beneficial owner of our Series B Stock, the United States federal income tax treatment of
a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships
that hold our Series B Stock, and partners in such partnerships, should consult their own tax advisors regarding the United States
federal income tax consequences of the Forward Split.
The
receipt of Series B Stock following the effective date of the Forward Split solely in exchange for Series B Stock held prior to
the Forward Split will not generally result in a recognition of gain or loss to the shareholders.
The
aggregate adjusted tax basis of a shareholder in the Series B Stock received after the Forward Split will be the same as the aggregate
adjusted tax basis of the Series B Stock held prior to the Forward Split exchanged therefor, and the holding period of the Series
B Stock received after the Forward Split will include the holding period of the Series B Stock held prior to the Forward Split
exchanged therefor. No gain or loss will be recognized by the Company as a result of the Forward Split. The Company’s views
regarding the tax consequences of the Forward Split are not binding upon the Internal Revenue Service or the courts, and there
can be no assurance that the Internal Revenue Service or the courts would accept the positions expressed above.
This
summary does not address tax considerations under state, local, non-U.S., and non-income tax laws. Furthermore, no ruling or tax
opinion of legal or tax counsel has been obtained with respect to the consequences of the Forward Split.
TAX
MATTERS ARE COMPLICATED, AND THE TAX CONSEQUENCES OF THE FORWARD SPLIT DEPEND UPON THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER.
ACCORDINGLY, EACH SHAREHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL, AND FOREIGN
INCOME AND OTHER TAX CONSEQUENCES OF THE FORWARD SPLIT.
Vote
Required
The
affirmative (“FOR”) vote
of the majority of the outstanding
shares of Common Stock entitled to vote
at the Annual Meeting, voting as a class, and the
vote of the two-thirds of the outstanding shares of Series B Stock
entitled to vote
,
voting separately as another class, is required to approve the Forward Stock Split Proposal. On November
8,
2017
, the holders of all of the issued and outstanding Series B Stock approved the Forward
Stock Split Proposal by written consent. Approval of Proposal No. 4 also is conditioned on the approval of Proposal No. 3. If
Proposal No. 3 is not approved, then Proposal No. 4 will have no effect even if approved by our shareholders.
Recommendation
of the Board
The
Board unanimously recommends a vote “FOR” the approval of the Forward Stock Split Proposal.
background
to the Extended Protective Amendment Proposal
Our
past operations generated significant net operating losses and other tax benefits (collectively, “NOLs”). Under federal
tax laws, we generally can use our NOLs and certain related tax credits to reduce ordinary income tax paid in our prior two tax
years or on our future taxable income for up to 20 years, at which point they “expire” for such purposes. Until they
expire, we can “carry forward” NOLs and certain related tax credits that we do not use in any particular year to offset
taxable income in future years. As of December 31, 2016, we had approximately $97 million in federal NOLs. While we cannot estimate
the exact amount of NOLs that we will be able use to reduce future income tax liability because we cannot predict the amount and
timing of our future taxable income, we believe our NOLs are a very valuable asset.
Our
ability to utilize our NOLs to offset future taxable income may be significantly limited if we experience an “ownership
change,” as determined under Section 382 of the Code. Under Section 382, an “ownership change” occurs if a shareholder
or a group of shareholders that is deemed to own at least 5% of our Common Stock increases its ownership by more than 50 percentage
points over its lowest ownership percentage within a rolling three-year period. If an ownership change occurs, Section 382 would
impose an annual limit on the amount of our NOLs that we can use to offset taxable income equal to the product of the total value
of our outstanding equity immediately prior to the ownership change (reduced by certain items specified in Section 382) and the
federal long-term tax-exempt interest rate in effect for the month of the ownership change. A number of complex rules apply to
calculating this annual limit.
If
an ownership change is deemed to occur, the limitations imposed by Section 382 could significantly limit our ability to use our
NOLs to reduce future income tax liability and result in a material amount of our NOLs expiring unused and, therefore, significantly
impair the value of our NOLs. While the complexity of Section 382’s provisions and the limited knowledge any public company
has about the ownership of its publicly traded securities make it difficult to determine whether an ownership change has occurred,
we currently believe that an ownership change has not occurred. However, if no action is taken to protect our NOLs, we believe
it is possible that we could experience an ownership change before our NOLs are fully-utilized or expire.
After
careful consideration, our Board determined that the most effective way to protect the significant potential long-term tax benefits
presented by our NOLs is to approve an amendment to the Company’s Amended and Restated Articles of Incorporation to extend
the provisions of the existing protective amendment, which was previously approved by the Company’s shareholders at the
2014 Annual Meeting of Shareholders (the “Original Protective Amendment”), to December 5, 2020 (the “Extended
Protective Amendment” and as amended, together with the Original Protective Amendment, the “Protective Amendment”).
The Protective Amendment, like the Original Protective Amendment, is designed to prevent certain transfers of our securities that
could result in an ownership change, and is described below. The Protective Amendment leaves the Original Protective Amendment
unchanged in all respects, other than to extend the expiration date from December 5, 2017 to December 5, 2020. The Extended Protective
Amendment is contained in a proposed amended and restated Article 12 to our Existing Charter and is attached as Annex C hereto.
The Extended Protective Amendment will not be put into effect unless and until it is approved by shareholders at the Annual
Meeting. If the shareholders do not approve the Extended Protective Amendment, the Original Protective Amendment will automatically
expire on December 5, 2017.
Our
Board urges shareholders to read Proposal No. 5, including the items discussed below under the heading “Certain Considerations
Related to the Protective Amendment” and the complete text of the Extended Protective Amendment, which is attached as Annex
C hereto. It is important to note that this measure does not offer a complete solution and that an ownership change may
occur even if the Extended Protective Amendment is approved by shareholders. There may be limitations on the enforceability of
the Protective Amendment against shareholders who do not vote to approve it that may allow an ownership change
to
occur. The limitations are described in more detail below. The Board believes that the adoption of this measure is appropriate
and that it will serve as an important tool to help prevent an ownership change that could substantially reduce or eliminate the
significant potential long-term tax benefits presented by our NOLs.
Accordingly, the Board recommends that shareholders approve
the Extended Protective Amendment.
Proposal
No. 5: APPROVAL OF Extended Protective Amendment
The
Board previously approved the Original Protective Amendment to assist us in protecting the long-term value to the Company of its
NOLs, as described above. The Original Protective Amendment was approved by
the Company’s
shareholders and became effective on December 5, 2014, and is scheduled to expire on December 5, 2017. On November 8, 2017,
the Board, subject to approval by shareholders, approved an extension of the expiration date of the Original Protective Amendment
by three additional years (until December 5, 2020) and is hereby soliciting shareholder approval for the Extended Protective Amendment.
For
the reasons discussed above under “Background to the Extended Protective Amendment Proposal,” our Board recommends
that shareholders adopt the Extended Protective Amendment. The Protective Amendment is designed to prevent certain transfers of
our Common Stock that could result in an ownership change under Section 382 and, therefore, significantly impair the value of
our NOLs. The Board believes it is in our and our shareholders’ best interests to adopt the Extended Protective Amendment
to help continue to protect our NOLs.
The
Protective Amendment leaves the Original Protective Amendment unchanged in all respects, other than to extend the expiration date.
The purpose of the Protective Amendment is to assist us in protecting long
-term
value to the Company of its accumulated NOLs by limiting direct or indirect transfers of our Common Stock that could affect the
percentage of stock that is treated as being owned by a holder of 4.99% of our Common Stock. In addition, the Protective Amendment
includes a mechanism to block the impact of such transfers while allowing purchasers to receive their money back from prohibited
purchases. Our Board has adopted resolutions approving and declaring the advisability of amending our Existing Charter as described
below, and the complete text of the Extended Protective Amendment is attached as Annex C hereto. However, in order for
the Extended Protective Amendment to be implemented, it first must be approved by shareholders at the Annual Meeting.
If
approved by our shareholders, the definition of “Expiration Date,” as set forth in the Original Protective
Amendment, will be amended and restated in its entirety to read as follows:
(ix)
“Expiration Date” means the earliest of (i) the close of business on December 5, 2020, (ii) the repeal of Section
382 of the Code or any successor statute if the Board of Directors determines that this Article 12 is no longer necessary or desirable
for the preservation of Tax Benefits, (iii) the close of business on the first day of a taxable year of the Corporation as to
which the Board of Directors determines that no Tax Benefits may be carried forward or (iv) such date as the Board of Directors
shall fix in accordance with paragraph (l) of this Article 12.
The
Extended Protective Amendment, if approved by shareholders, would become effective upon the filing of Articles of Amendment
to our Existing Charter with the Secretary of State of the State of Minnesota, which we would expect to do as soon as practicable
after the Extended Protective Amendment is approved by shareholders.
Description
of the Protective Amendment
The
following description of the Extended Protective Amendment is qualified in its entirety by reference to the complete text of the
Extended Protective Amendment, which is attached as Annex C hereto. The Extended Protective Amendment should be read in
connection with the Original Protective Amendment, a copy of which is included in our Current Report on Form 8-K filed with the
SEC on December 4, 2014.
Please read the Extended Protective Amendment and the Original Protective Amendment both in their
entirety, as the discussion below is only a summary.
Prohibited
Transfers
. The Protective Amendment generally restricts any direct or indirect transfer (such as transfers of our Common Stock
that result from the transfer of interests in other entities that own our Common Stock) if the effect would be to:
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increase
the direct or indirect ownership of our Common Stock by any Person (as defined below) from less than 4.99% to 4.99% or more
of our Common Stock; or
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increase
the percentage of our Common Stock owned directly or indirectly by a Person owning or deemed to own 4.99% or more of our Common
Stock.
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“Person”
means any individual, partnership, joint venture, limited liability company, firm, corporation, unincorporated association or
organization, trust or other entity or any group of such “Persons” having a formal or informal understanding among
themselves to make a “coordinated acquisition” of shares within the meaning of Treasury Regulation § 1.382-3(a)(1)
or who are otherwise treated as an “entity” within the meaning of Treasury Regulation § 1.382-3(a)(1), and includes
any successor (by merger or otherwise) of any such entity or group.
Restricted
transfers include sales to Persons whose resulting percentage ownership (direct or indirect) of our Common Stock would exceed
the 4.99% thresholds discussed above, or to Persons whose direct or indirect ownership of our Common Stock would by attribution
cause another Person to exceed such threshold. Complicated stock ownership rules prescribed by the Code (and regulations promulgated
thereunder) applies in determining whether a Person is a 4.99% shareholder under the Protective Amendment. A transfer from one
member of a “public group” (as that term is defined under Section 382) to another member of the same public group
does not increase the percentage of our Common Stock owned directly or indirectly by the public group and, therefore, such transfers
are not restricted. For purposes of determining the existence and identity of, and the amount of our Common Stock owned by, any
shareholder, we are entitled to rely on the existence or absence of certain public securities filings as of any date, and our
actual knowledge of the ownership of our Common Stock. The Protective Amendment includes the right to require a proposed transferee,
as a condition to registration of a transfer of our Common Stock, to provide all information reasonably requested regarding such
person’s direct and indirect ownership of our Common Stock.
These
transfer restrictions may result in the delay or refusal of certain requested transfers of our Common Stock, or prohibit ownership
(thus requiring dispositions) of our Common Stock due to a change in the relationship between two or more persons or entities
or to a transfer of an interest in an entity other than us that, directly or indirectly, owns our Common Stock. The transfer restrictions
also apply to proscribe the creation or transfer of certain “options” (which are broadly defined by Section 382) with
respect to our Common Stock to the extent that, in certain circumstances, the creation, transfer or exercise of the option would
result in a proscribed level of ownership.
Consequences
of Prohibited Transfers
. Upon adoption of the Extended Protective Amendment, any direct or indirect transfer attempted in
violation of the Protective Amendment would be void as of the date of the prohibited transfer as to the purported transferee (or,
in the case of an indirect transfer, the ownership of the direct owner of our Common Stock would terminate simultaneously with
the transfer), and the purported transferee (or in the case of any indirect transfer, the direct owner) would not be recognized
as the owner of the shares owned in violation of the Protective Amendment for any purpose, including for purposes of voting and
receiving dividends or other distributions in respect of such shares, or in the case of options, receiving shares in respect of
their exercise. In this Proxy Statement, our Common Stock purportedly acquired in violation of the Protective Amendment is referred
to as “excess stock.”
In
addition to a prohibited transfer being void as of the date it is attempted, upon demand, the purported transferee must transfer
the excess stock to our agent along with any dividends or other distributions paid with respect to such excess stock. Our agent
is required to sell such excess stock in an arm’s-length transaction (or series of transactions) that would not constitute
a violation under the Protective Amendment. The net proceeds of the sale, together with any other distributions with respect to
such excess stock received by our agent, after deduction of all costs incurred by the agent, will be transferred first to the
purported transferee in an amount, if any, up to the cost (or in the case of gift, inheritance or similar transfer, the fair market
value of the excess stock on the date of the prohibited transfer) incurred by the purported transferee to acquire such excess
stock, and the balance of the proceeds, if any, will be transferred to a charitable beneficiary. If the excess stock is sold by
the purported transferee, such person will be treated as having sold the excess stock on behalf of the agent, and will be required
to remit all proceeds to our agent (except to the extent we grant written permission to the purported transferee to retain an
amount not to exceed the amount such person otherwise would have been entitled to retain had our agent sold such shares).
To
the extent permitted by law, any shareholder who knowingly violates the Protective Amendment will be liable for any and all damages
we suffer as a result of such violation, including damages resulting from any limitation in our ability to use our NOLs and any
professional fees incurred in connection with addressing such violation.
With
respect to any transfer of Common Stock that does not involve a transfer of our securities within the meaning of Minnesota law
but that would cause a person to violate the Protective Amendment, the following procedure will apply in lieu of those described
above: in such case, such person whose ownership of our securities is attributed to such proscribed person will be deemed to have
disposed of (and will be required to dispose of) sufficient securities, simultaneously with the transfer, to cause such proscribed
person not to be in violation of the Protective Amendment, and such securities will be treated as excess stock to be disposed
of through the agent under the provisions summarized above, with the maximum amount payable to such shareholder that was the direct
holder of such excess stock from the proceeds of sale by the agent being the fair market value of such excess stock at the time
of the prohibited transfer.
Public
Groups; Modification and Waiver of Transfer Restrictions
. In order to facilitate sales by shareholders into the market, the
Protective Amendment permits otherwise prohibited transfers of our Common Stock where the transferee is a public group.
In
addition, our Board will have the discretion to approve a transfer of our Common Stock that would otherwise violate the transfer
restrictions if it determines that the transfer is in our and our shareholders’ best interests. If our Board decides to
permit such a transfer, that transfer or later transfers may result in an ownership change that could limit our use of our NOLs.
In deciding whether to grant a waiver, our Board may seek the advice of counsel and tax experts with respect to the preservation
of our federal tax attributes pursuant to Section 382. In addition, our Board may request relevant information from the acquirer
and/or selling party in order to determine compliance with the Protective Amendment or the status of our federal income tax benefits,
including an opinion of counsel selected by our Board (the cost of which will be borne by the transferor and/or the transferee)
that the transfer will not result in a limitation on the use of the NOLs under Section 382. If our Board decides to grant a waiver,
it may impose conditions on such waiver on the acquirer or selling party.
In
the event of a change in law, our Board will be authorized to modify the applicable allowable percentage ownership interest (currently
4.99%) or modify any of the definitions, terms and conditions of the transfer restrictions or to eliminate the transfer restrictions,
provided that our Board determines, by adopting a written resolution, that such action is reasonably necessary or advisable to
preserve the NOLs or that the continuation of these restrictions is no longer reasonably necessary for such purpose, as applicable.
Our shareholders will be notified of any such determination through a filing with the SEC or such other method of notice as the
Secretary of the Company shall deem appropriate.
Our
Board may establish, modify, amend or rescind bylaws, regulations and procedures for purposes of determining whether any transfer
of Common Stock would jeopardize our ability to use our NOLs.
Implementation
and Expiration of the Protective Amendment
If
our shareholders approve the Extended Protective Amendment, we intend to file the Extended Protective Amendment promptly with
the Secretary of State of the State of Minnesota, whereupon the Extended Protective Amendment will become effective. We intend
to enforce the restrictions in the Protective Amendment immediately thereafter to preserve the future use of our NOLs. We also
intend to include a legend reflecting the transfer restrictions included in the Protective Amendment on certificates representing
newly issued or transferred shares, to disclose such restrictions to persons holding our Common Stock in uncertificated form and
to disclose such restrictions to the public generally.
The
Protective Amendment would expire on the earliest of (i) the close of business on the date that is the third anniversary of the
filing of the Extended Protective Amendment with the Secretary of State of the State of Minnesota, (ii) our Board’s determination
that the Protective Amendment is no longer necessary for the preservation of our NOLs because of the repeal of Section 382 or
any successor statute, (iii) the beginning of a taxable year to which our Board determines that none of our NOLs may be carried
forward and (iv) such date as our Board otherwise determines that the Protective Amendment is no longer necessary for the preservation
of our NOLs. Our Board may also accelerate the expiration date of the Protective Amendment in the event of a change in the law
if our Board has determined that the continuation of the restrictions contained in the Protective Amendment is no longer reasonably
necessary for the preservation of our NOLs or such action is otherwise reasonably necessary or advisable.
Effectiveness
and Enforceability
Although
the Protective Amendment is intended to reduce the likelihood of an ownership change, we cannot eliminate the possibility that
an ownership change will occur even if the Extended Protective Amendment is adopted given that:
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The
Board can permit a transfer to an acquirer that results in or contributes to an ownership change if it determines that such
transfer is in our and our shareholders’ best interests.
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A
court could find that part or all of the Protective Amendment is not enforceable, either in general or as applied to a particular
shareholder or fact situation. Minnesota law provides that transfer restrictions with respect to shares issued prior to the
adoption of the restriction are effective against (i) holders of those securities that are parties to the applicable agreement
or voted in favor of the restriction and (ii) purported successors or transferees of such holders if (A) the transfer restriction
is noted conspicuously on the certificate(s) representing such shares or (B) the successor or transferee had actual knowledge
of the transfer restrictions (even absent such conspicuous notation). We intend to cause shares of our Common Stock issued
after the effectiveness of the Protective Amendment to be issued with the relevant transfer restriction conspicuously noted
on the certificate(s) representing such shares, and therefore under Minnesota law such newly issued shares will be subject
to the transfer restriction. We also intend to disclose such restrictions to persons holding our Common Stock in uncertificated
form. For the purpose of determining whether a shareholder is subject to the Protective Amendment, we intend to take the position
that all shares issued prior to the effectiveness of the Protective Amendment that are proposed to be transferred were voted
in favor of the Protective Amendment, unless the contrary is established. We may also assert that shareholders have waived
the right to challenge or otherwise cannot challenge the enforceability of the Protective Amendment, unless a shareholder
establishes that it did not vote in favor of the Protective Amendment. Nonetheless, despite these actions, a court still could
find that the Protective Amendment is unenforceable, either in general or as applied to a particular shareholder or fact situation.
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Despite
the adoption of the Protective Amendment, there is still a risk that certain changes in relationships among shareholders or
other events could cause an ownership change under Section 382. Accordingly, we cannot assure you that an ownership change
will not occur even if the Extended Protective Amendment is made effective.
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As
a result of these and other factors, the Protective Amendment is intended to reduce, but does not eliminate, the risk that we
will undergo an ownership change that would limit our ability to utilize our NOLs.
Section
382 Ownership Change Determinations
The
rules of Section 382 are very complex and are beyond the scope of this summary discussion. Some of the factors that must be considered
in determining whether a Section 382 ownership change has occurred include the following:
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Each
shareholder who owns less than 5% of our Common Stock is generally (but not always) aggregated with other such shareholders
and treated as a single “5-percent shareholder” for purposes of Section 382. Transactions in the public markets
among such shareholders are generally (but not always) excluded from the Section 382 calculation.
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There
are several rules regarding the aggregation and segregation of shareholders who otherwise do not qualify as Section 382 “5-percent
shareholders.” Ownership of stock is generally attributed to its ultimate beneficial owner without regard to ownership
by nominees, trusts, corporations, partnerships or other entities.
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Acquisitions
by a person that cause the person to become a Section 382 “5-percent shareholder” generally result in a 5% (or
more) change in ownership, regardless of the size of the final purchase(s) that caused the threshold to be exceeded.
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Certain
constructive ownership rules, which generally attribute ownership of stock owned by estates, trusts, corporations, partnerships
or other entities to the ultimate indirect individual owner thereof, or to related individuals, are applied in determining
the level of stock ownership of a particular shareholder. Special rules can result in the treatment of options (including
warrants) or other similar interests as having been exercised if such treatment would result in an ownership change.
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Our
redemption or buyback of our Common Stock will increase the ownership of any Section 382 “5-percent shareholders”
(including groups of shareholders who are not individually 5-percent shareholders) and can contribute to an ownership change.
In addition, it is possible that a redemption or buyback of shares could cause a holder of less than 5% to become a Section
382 “5-percent shareholder,” resulting in a 5% (or more) change in ownership.
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Vote
Required
The
affirmative (“FOR”) vote of the majority of the outstanding shares of Common Stock entitled to vote at the Annual
Meeting is required to approve the Extended Protective Amendment. If the Extended Protective Amendment is not approved, the Original
Protective Amendment will expire on December 5, 2017, in accordance with its original terms.
Recommendation
of the Board
The
Board unanimously recommends a vote “FOR” the approval of the Extended Protective Amendment.
Certain
Considerations Related to the Extended Protective Amendment Proposal
Our
Board believes that attempting to protect the tax benefits of our NOLs as described above under “Background to the Extended
Protective Amendment Proposal” is in our and our shareholders’ best interests. However, we cannot eliminate the possibility
that an ownership change will occur even if the Extended Protective Amendment is approved. Please consider the items discussed
below in voting on Proposal No. 5.
The
Internal Revenue Service (“IRS”) could challenge the amount of our NOLs or claim we experienced an ownership change,
which could reduce the amount of our NOLs that we can use or eliminate our ability to use them altogether
The
IRS has not audited or otherwise validated the amount of our NOLs. The IRS could challenge the amount of our NOLs, which could
limit our ability to use our NOLs to reduce our future taxable income. In addition, the complexity of Section 382’s provisions
and the limited knowledge any public company has about the ownership of its publicly traded stock make it difficult to determine
whether an ownership change has occurred. Therefore, we cannot assure you that the IRS will not claim that we experienced an ownership
change and attempt to reduce or eliminate the benefit of our NOLs even if the Protective Amendment is in place.
Continued
Risk of Ownership Change
Although
the Protective Amendment is intended to reduce the likelihood of an ownership change, we cannot assure you that it would prevent
all transfers of our Common Stock that could result in such an ownership change. In
particular
,
absent a court determination, we cannot assure you that the Protective Amendment’s restrictions on acquisition of our Common
Stock will be enforceable against all our shareholders, and they may be subject to challenge on equitable grounds, as discussed
above under Proposal No. 5.
Potential
Effects on Liquidity
The
Protective Amendment restricts a shareholder’s ability to acquire, directly or indirectly, additional shares of our Common
Stock in excess of the specified limitations. Furthermore, a shareholder’s ability to dispose of our Common Stock may be
limited by reducing the class of potential acquirers for such shares. In addition, a shareholder’s ownership of our Common
Stock may become subject to the restrictions of the Protective Amendment upon actions taken by persons related to, or affiliated
with, such shareholder. Shareholders are advised to carefully monitor their ownership of our stock and consult their own legal
advisors and/or us to determine whether their ownership of our Common Stock approaches the restricted levels.
Potential
Impact on Value
Our
Board intends to include a legend reflecting the transfer restrictions included in the Protective Amendment on certificates representing
newly issued or transferred shares, to disclose such restrictions to persons holding Common Stock in uncertificated form, and
to disclose such restrictions to the public generally. Because certain buyers, including persons who wish to acquire more than
5% of our Common Stock and certain
institutional
holders who may not be comfortable
holding our Common Stock with restrictive legends, may not choose to purchase our Common Stock, the Protective Amendment could
depress the value of our Common Stock in an amount that could more than offset any value preserved from protecting our NOLs.
Potential
Anti-Takeover Impact
The
reason our Board
approved
the Extended Protective Amendment is to continue to protect
the significant potential long-term tax benefits presented by our NOLs. The Protective Amendment is not intended to prevent a
takeover of the Company. However, the Protective Amendment, if the extension is approved by our shareholders, could be deemed
to have an anti-takeover effect because, among other things, it will restrict the ability of a person, entity or group to accumulate
more than 4.99% of our Common Stock and the ability of persons, entities or groups now owning more than 4.99% of our Common Stock
to acquire additional shares of our Common Stock without the approval of our Board for an additional three years. Accordingly,
the overall effects of the Protective Amendment, if the extension is approved by our shareholders, may be to render more difficult,
or discourage, a merger, tender offer, proxy contest or assumption of control by a substantial holder of our securities.
Effect
of the Extended Protective Amendment If You Vote For It and Already Directly or Indirectly Own More Than 4.99% of our Common Stock
If
you already own more than 4.99% of our Common Stock, you would be able to transfer shares of our Common Stock only if the transfer
does not increase the percentage of stock ownership of another holder of 4.99% or more of our Common Stock or create a new holder
of 4.99% or more of our Common Stock. You will also be able to transfer your shares of our Common Stock through open-market sales
to a public group. Shares acquired in any such transaction will be subject to the Protective Amendment’s transfer restrictions.
Effect
of the Extended Protective Amendment If You Vote For It and Directly or Indirectly Own Less Than 4.99% of our Common Stock
The
Protective Amendment will apply to you, but, so long as you own less than 4.99% of our Common Stock,
you
can transfer your shares to a purchaser who, after the sale, also would own less than 4.99% of our Common Stock.
Effect
of the Extended Protective Amendment If You Vote Against It
Minnesota
law provides that transfer restrictions with respect to shares issued prior to the adoption of the
restriction
are effective against (i) holders of those securities that are parties to the applicable agreement or voted in favor of
the restriction and (ii) purported successors or transferees of such holders if (A) the transfer restriction is noted conspicuously
on the certificate(s) representing such shares or (B) the successor or transferee had actual knowledge of the transfer restrictions
(even absent such conspicuous notation). We intend to cause shares of our Common Stock issued after the effectiveness of the Extended
Protective Amendment to be issued with the relevant transfer restriction conspicuously noted on the certificate(s) representing
such shares, and therefore under Minnesota law such newly issued shares will be subject to the transfer restriction. We also intend
to disclose such restrictions to persons holding our Common Stock in uncertificated form. For the purpose of determining whether
a shareholder is subject to the Extended Protective Amendment, we intend to take the position that all shares issued prior to
the effectiveness of the Extended Protective Amendment that are proposed to be transferred were voted in favor of the Extended
Protective Amendment, unless the contrary is established. We may also assert that shareholders have waived the right to challenge
or otherwise cannot challenge the enforceability of the Extended Protective Amendment, unless a shareholder establishes that it
did not vote in favor of the Extended Protective Amendment. Nonetheless, despite these actions, a court still could find that
the Protective Amendment is unenforceable, either in general or as applied to a particular shareholder or fact situation.
Proposal
No. 6: Advisory Vote on Executive Compensation
The
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the “Dodd-Frank Act,” enables
shareholders
to vote to approve, on an advisory, non-binding basis, the compensation of the named executive officers as disclosed in
this Proxy Statement in accordance with the SEC’s rules.
We
are asking shareholders to indicate their support for the compensation of our named executive officers named in the “Summary
Compensation Table” included in this Proxy Statement. This proposal, commonly
known
as a “say-on-pay” proposal, gives shareholders the opportunity to express their views on the compensation of
our named executive officers. Accordingly, we will ask shareholders to vote “FOR” the following resolution at the
Annual Meeting:
“RESOLVED,
that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed
in the Company’s Proxy Statement for the 2017 Annual Meeting of Shareholders pursuant to the compensation disclosure rules
of the Securities and Exchange Commission, including the Summary Compensation Table and the other related tables and disclosure.”
The
say-on-pay vote is advisory, and therefore not binding on the Company, the Compensation Committee or the Board. The Board and
the Compensation Committee value the opinions of our shareholders
and
to the extent
there is any significant vote against the named executive officer compensation as disclosed in this Proxy Statement, we will consider
our shareholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those
concerns.
Vote
Required
The
affirmative (“FOR”) vote
of the majority of the shares
entitled to vote present in person or by proxy
at the Annual Meeting is required to approve
the compensation of our named executive officers.
Recommendation
of the Board
The
Board unanimously recommends a vote “FOR” the adoption of the resolution approving the compensation of the Company’s
named executive officers.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information with respect to the beneficial ownership of our Common Stock as of November 7, 2017,
by:
|
●
|
each
person, or group of affiliated persons, known to us to beneficially own more than 5% of our outstanding Common Stock;
|
|
|
|
|
●
|
each
of our directors and named executive officers; and
|
|
|
|
|
●
|
all
of our directors and executive officers as a group.
|
The
amounts and percentages of Common Stock beneficially owned are reported on the basis of regulations of the SEC governing the determination
of beneficial ownership of securities. The information relating to our 5% beneficial owners is based on information we received
from such holders. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that
person has or shares voting power, which includes the power to vote or direct the voting of a security, or investment power, which
includes the power to dispose of or to direct the disposition of a security. A person is also deemed to be a beneficial owner
of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than
one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities
as to which such person has no economic interest. Except as otherwise set forth below, the address of the persons listed below
is c/o ATRM Holdings, Inc., 5215 Gershwin Avenue N., Oakdale, Minnesota 55128, and each of the persons listed has, to our knowledge,
sole voting and investment power with respect to the indicated shares of Common Stock.
Name
of Beneficial Owner
|
|
Number
of
Shares of
Common Stock
|
|
|
Percentage
of Outstanding Common Stock
(1)
|
|
5%
or Greater Shareholders
|
|
|
|
|
|
|
|
|
Lone
Star Value Investors, LP
|
|
|
1,067,885
|
(2)
|
|
|
44.6
|
%
|
|
|
|
|
|
|
|
|
|
Directors
and Named Executive Officers
|
|
|
|
|
|
|
|
|
Jeffrey
E. Eberwein
|
|
|
1,087,885
|
(3)
|
|
|
45.4
|
%
|
Daniel
M. Koch
|
|
|
29,010
|
(4)
|
|
|
1.2
|
%
|
Stephen
A. Clark
|
|
|
10,000
|
|
|
|
*
|
|
Morgan
P. Hanlon
|
|
|
10,000
|
|
|
|
*
|
|
Alfred
John Knapp, Jr.
|
|
|
10,000
|
|
|
|
*
|
|
Galen
Vetter
|
|
|
20,185
|
|
|
|
*
|
|
Paul
H. Askegaard
|
|
|
27,500
|
(5)
|
|
|
1.1
|
%
|
All
current executive officers and directors as a group (6 persons)
(6)
|
|
|
1,167,080
|
(6)
|
|
|
48.6
|
%
|
*
Represents holdings of less than 1% of shares outstanding.
|
(1)
|
The
applicable percentage of ownership for each beneficial owner is based on
2,396,219
shares of Common Stock outstanding as of
November
7
, 2017. Shares of our Common Stock issuable upon exercise of options, warrants
or other rights or the conversion of other convertible securities beneficially owned
that are exercisable or convertible within 60 days are deemed outstanding for the purpose
of computing the percentage ownership of the person holding such securities and rights
and all executive officers and directors as a group.
|
|
|
|
|
(2)
|
Represents
1,067,885 shares of Common Stock owned directly by LSVI. LSVGP as the general partner of LSVI, LSVM as the investment manager
of LSVI, and Jeffrey E. Eberwein as the manager of LSVGP and sole member of LSVM, may be deemed the beneficial owner of the
securities owned by LSVI. LSVGP, LSVM and Mr. Eberwein disclaim beneficial ownership of such securities, except to the extent
of his or its pecuniary interest therein. The principal business address of LSVI is 53 Forest Avenue, 1st Floor, Old Greenwich,
Connecticut 06870.
|
|
|
|
|
(3)
|
Represents
10,000 shares of Common Stock owned directly by Mr. Eberwein, 1,067,885 shares of Common Stock owned directly by LSVI, and
10,000 shares of Common Stock held in an account managed by LSVM (“Separately Managed Account I”). LSVGP as the
general partner of LSVI, LSVM as the investment manager of LSVI, and Jeffrey E. Eberwein as the manager of LSVGP and sole
member of LSVM, may be deemed the beneficial owner of the securities owned by LSVI. LSVM as the investment manager of Separately
Managed Account I, and Mr. Eberwein as the sole member of LSVM, may be deemed the beneficial owner of the securities held
in Separately Managed Account I. Mr. Eberwein disclaims beneficial ownership of such securities, except to the extent of his
pecuniary interest therein.
|
|
|
|
|
(4)
|
Includes
10,000 restricted shares of Common Stock and 5,500 shares of Common Stock issuable upon exercise of options.
|
|
|
|
|
(5)
|
Includes
2,500 shares of Common Stock issuable upon exercise of options.
|
|
|
|
|
(6)
|
Includes
5,500 shares of Common Stock issuable upon exercise of options. Excludes shares beneficially
owned by Mr. Askegaard, who is no longer an executive officer of the Company.
|
Corporate
Governance
Director
Independence
The
Board has determined that all of our non-employee directors, other than Mr. Eberwein, and our three new director nominees Messrs.
Elbaor, Hood and Schwatken, are independent within the meaning of the SEC rules. The Board has also determined that all directors
serving on the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are independent
within the meaning of the SEC rules with respect to membership on each such committee.
Board
and Committee Meetings
During
the fiscal year ended December 31, 2016, the Board met or took action in writing 6 times, the Audit Committee met or took action
in writing 4 times, the Compensation Committee met or took action in writing 4 times and the Nominating and Corporate Governance
Committee met or took action in writing 1 time. Each of the directors then serving attended at least 75% or more of the aggregate
of (i) the total number of meetings of the Board (held during the period for which he served as a director), and (ii) the total
number of meetings held by all committees of the Board on which he served (during the periods that he served on such committees).
All of our then-incumbent directors attended our 2016 Annual Meeting of Shareholders.
We
have no written policy regarding director attendance at annual meetings of shareholders.
Board
Committees
Our
Board has three standing committees to assist it with its responsibilities. These committees are described below.
Audit
Committee
. The primary purpose of the Audit Committee is to oversee the accounting and financial reporting processes of the
Company and the audits of the consolidated financial statements of the Company. The Audit Committee is also charged with the review
and approval of all related party transactions involving the Company. The current members of the Audit Committee are Messrs. Vetter,
Hanlon and Knapp. Mr. Vetter currently serves as Chairman of the Audit Committee. The Board has determined that all members of
the Audit Committee are audit committee financial experts, as defined by the SEC rules, based on their past business experience
and financial certifications. The Audit Committee charter is posted in the “About Us – Governance” section of
our website at
www.atrmholdings.com
.
Compensation
Committee
. The duties and responsibilities of the Compensation Committee include, among other things, reviewing and approving
the Company’s general compensation policies, setting compensation levels for the Company’s executive officers, setting
the terms of and grants of awards under share-based incentive plans and retaining and terminating executive compensation consultants.
The current members of the Compensation Committee are Messrs. Knapp, Hanlon and Vetter. Mr. Knapp currently serves as Chairman
of the Compensation Committee. The Compensation Committee charter is posted in the “About Us – Governance” section
of our website at
www.atrmholdings.com
.
Nominating
and Corporate Governance Committee
. The duties and responsibilities of the Nominating and Corporate Governance Committee include,
among other things, assisting the Board in identifying individuals qualified to become Board members and recommending director
nominees for the next annual meeting of shareholders, and taking a leadership role in shaping the corporate governance of the
Company. The current members of the Nominating and Corporate Governance Committee are Messrs. Hanlon, Knapp and Vetter. Mr. Hanlon
currently serves as Chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee
charter is posted in the “About Us – Governance” section of our website at
www.atrmholdings.com
.
Director
Nominations
The
Nominating and Corporate Governance Committee evaluates and recommends candidates for membership on the Board consistent with
the criteria established by the committee. The Nominating and Corporate Governance Committee has not formally established any
specific, minimum qualifications that must be met by each candidate for the Board or specific qualities or skills that are necessary
for one or more of the members of the Board to possess. However, the Nominating and Corporate Governance Committee, when considering
a candidate, will factor into its determination the following qualities of a candidate: educational background; diversity of professional
experience, including whether the person is a current or former CEO or CFO or the head of a division of a successful company;
knowledge of our business; integrity; professional reputation; strength of character; mature judgment; relevant technical experience;
diversity; independence; wisdom; and ability to represent the best interests of our shareholders. The Nominating and Corporate
Governance Committee may also consider such other factors as it may deem to be in the best interests of the Company and our shareholders.
The
Nominating and Corporate Governance Committee uses the same criteria for evaluating candidates nominated by shareholders and self-nominated
candidates as it does for those proposed by other Board members, management and search companies. For more information on how
shareholders can nominate candidates for election as directors, see “Shareholder Proposals” below.
The
Nominating and Corporate Governance Committee identifies nominees by first evaluating the current members of the Board willing
to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are
willing to continue in service are considered for re-nomination, thereby balancing the value of continuity of service by existing
members of the Board with that of obtaining a new perspective. If any member of the Board up for re-election at an upcoming annual
meeting of shareholders does not wish to continue in service, the Nominating and Corporate Governance Committee identifies the
desired skills and experience of a new nominee in light of the criteria above. Current members of the Nominating and Corporate
Governance Committee and Board will be polled for suggestions as to individuals meeting the criteria of the Nominating and Corporate
Governance Committee. Research may also be performed to identify qualified individuals. If the Nominating and Corporate Governance
Committee believes that the Board requires additional candidates for nomination, it may explore alternative sources for identifying
additional candidates. Alternative sources may include engaging, as appropriate, a third party search firm to assist in identifying
qualified candidates.
While
we do not have a specific policy related to Board diversity, the Board seeks nominees with a broad diversity of experience, expertise
and backgrounds. We believe that the backgrounds and qualifications of the directors, considered as a group, should provide a
significant composite mix of experience, knowledge and abilities that will allow the Board to fulfill its responsibilities and
meet its objectives. Nominees are not discriminated against on the basis of race, gender, religion, national origin, sexual orientation,
disability or any other basis prescribed by law.
Board
Leadership Structure
The
Board is led by Jeffrey E. Eberwein, our Chairman of the Board since November 2013. The Board does not have a policy regarding
the separation of the roles of Chief Executive Officer and Chairman of the Board as the Board believes it is in the best interests
of the Company to make that determination based on the then-current position and direction of the Company and the membership of
the Board. The Board has determined that separating the roles of Chief Executive Officer and Chairman of the Board is in the best
interests of the Company’s shareholders at this time. This structure permits the Chief Executive Officer to focus exclusively
on the management of our day-to-day operations and the Board to provide appropriate oversight.
Board
Role in Risk Oversight
Senior
management is responsible for assessing and managing our various exposures to risk on a day-to-day basis, including the creation
of appropriate risk management programs and policies. The Board is responsible for overseeing management in the execution of its
responsibilities and for assessing our approach to risk management. The Board exercises these responsibilities periodically as
part of its meetings and also through the Board’s three committees, each of which examines various components of enterprise
risk as part of its responsibilities. Members of each committee report to the full Board at the next Board meeting regarding risks
discussed by such committee. In addition, an overall review of risk is inherent in the Board’s consideration of our long-term
strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions and
divestitures, and financial matters.
Code
of Business Conduct and Ethics
We
have adopted a Code of Business Conduct and Ethics (the “Code of Ethics”), which covers a wide range of business practices
and procedures and is intended to ensure to the greatest extent possible that our business is conducted in a consistently legal
and ethical manner. The Code of Ethics is consistent with how we have always conducted our business and applies to all of our
directors, officers and other employees, including our principal executive officer and principal financial and accounting officer.
A copy of the Code of Ethics is publicly available in the “About Us – Governance” section of our website at
www.atrmholdings.com. We intend to promptly disclose on our website any grant of waivers from or amendments to a provision of
the Code of Ethics following such amendment or waiver.
Shareholder
Communications with the Board
Any
shareholder wishing to do so may communicate directly with the Board or specified individual directors by writing to:
Board
of Directors (or name of individual director)
c/o
Corporate Secretary
ATRM
Holdings, Inc.
5215
Gershwin Avenue N.
Oakdale,
Minnesota 55128
All
communications that are reasonably related to the Company or its business will be directed by the Corporate Secretary to the Board,
or particular Board members, not later than the next regularly scheduled meeting of the Board. Notwithstanding the foregoing,
the Corporate Secretary has the authority to discard or disregard or take other appropriate actions with respect to any inappropriate
communications, such as unduly hostile, illegal or threatening communications.
Additionally,
the Audit Committee has established procedures for the receipt, retention and confidential treatment of complaints received by
the Company regarding accounting, internal accounting controls or auditing matters, including procedures for confidential, anonymous
submissions by employees with respect to such matters. Employees and shareholders may raise a question or concern to the Audit
Committee regarding accounting, internal accounting controls or auditing matters by writing to:
Chairman,
Audit Committee
c/o
Corporate Secretary
ATRM
Holdings, Inc.
5215
Gershwin Avenue N.
Oakdale,
Minnesota 55128
AUDIT
COMMITTEE REPORT
The
Audit Committee has reviewed and discussed the consolidated financial statements for the fiscal year ended December 31, 2016,
with both management and Boulay PLLP, the Company’s independent
registered
public accounting firm. In its discussion, management has represented to the Audit Committee that the Company’s consolidated
financial statements for the fiscal year ended December 31, 2016 were prepared in accordance with generally accepted accounting
principles.
The
Audit Committee meets with the Company’s independent registered public accounting firm, with and without management present,
to discuss the results of their examinations, their evaluations of the Company’s
internal
controls and the overall quality of the Company’s financial reporting. The Audit Committee has discussed with Boulay
PLLP the matters required to be discussed by Statement on Auditing Standard No. 16, “Communications with Audit Committees,”
issued by the Public Company Accounting Oversight Board. Boulay PLLP reported to the Audit Committee regarding the critical accounting
estimates and practices and the estimates and assumptions used by management in the preparation of the audited consolidated financial
statements as of December 31, 2016 and for the fiscal year then ended, all alternative treatments of financial information within
generally accepted accounting principles that have been discussed with management, the ramifications of use of such alternative
treatments and the treatment preferred by Boulay PLLP.
Boulay
PLLP provided a report to the Audit Committee describing Boulay PLLP’s internal quality-control procedures and related matters.
Boulay PLLP also provided to the Audit Committee the written disclosures and the letter required by the applicable requirements
of the Public Company Accounting Oversight Board regarding Boulay PLLP’s communications with the Audit Committee concerning
independence, and the Audit Committee discussed with Boulay PLLP its independence. When considering Boulay PLLP’s independence,
the Audit Committee considered, among other matters, whether Boulay PLLP’s provision of non-audit services to the Company
is compatible with maintaining the independence of Boulay PLLP. All audit and permissible non-audit services in 2016 and 2015
were pre-approved pursuant to these procedures.
Based
on the Audit Committee’s review of the audited financial statements and the various discussions noted above, the Audit Committee
recommended to the Board that the audited consolidated financial statements be included in the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2016.
|
AUDIT
COMMITTEE
|
|
|
|
Galen
Vetter (Chairman)
|
|
Morgan
P. Hanlon
|
|
Alfred
John Knapp, Jr.
|
Executive
Compensation
Summary
Compensation Table
The
following table sets forth the cash and non-cash compensation for the fiscal years ended December 31, 2016 and December 31, 2015
earned by our named executive officers:
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Stock
Awards
($)
(1)
|
|
|
Total
($)
|
|
Daniel
M. Koch
|
|
2016
|
|
|
240,000
|
|
|
|
14,500
|
(2)
|
|
|
254,500
|
|
President
and Chief Executive Officer
|
|
2015
|
|
|
193,435
|
|
|
|
44,800
|
(3)
|
|
|
238,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
A. Clark
(4)
|
|
2016
|
|
|
107,917
|
|
|
|
14,500
|
(2)
|
|
|
122,417
|
|
Chief
Financial Officer, Treasurer and Secretary
|
|
2015
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
H. Askegaard
(5)
|
|
2016
|
|
|
180,000
|
|
|
|
14,500
|
(2)
|
|
|
194,500
|
|
Former
Chief Financial Officer
|
|
2015
|
|
|
162,396
|
|
|
|
44,800
|
(3)
|
|
|
197,196
|
|
(1)
|
The
fair value of these stock awards was computed in accordance with methods allowed under FASB ASC Topic 718, “Compensation
- Stock Compensation.”
|
|
|
(2)
|
Represents
the grant date fair value of a restricted stock grant of 10,000 shares of Common Stock awarded on October 19, 2016. These
shares vested on October 19, 2017.
|
|
|
(3)
|
Represents
the grant date fair value of a restricted stock grant of 10,000 shares of Common Stock awarded on June 5, 2015. These shares
vested on June 5, 2016.
|
|
|
(4)
|
Mr.
Clark’s employment with the Company commenced on June 1, 2016 as the Company’s Interim Chief Financial Officer.
He was appointed as the Company’s Chief Financial Officer effective as of September 7, 2016.
|
|
|
(5)
|
Mr.
Askegaard retired from his position as Chief Financial Officer effective June 1, 2016. He remained working with the Company
and its subsidiaries in other capacities for a transition period.
|
Employment
Agreements
Each
of the Company’s current executive officers, Messrs. Koch and Clark, is an employee “at will” and does not have
an employment agreement with the Company. Mr. Askegaard also was an employee “at will” and did not have an employment
agreement with the Company.
Outstanding
Equity Awards at Fiscal Year End
The
following table sets forth equity incentive plan awards for each named executive officer outstanding as of the end of our last
completed fiscal year:
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
Number
of Securities Underlying Unexercised Options (#) Exercisable
|
|
|
Number
of Securities Underlying Unexercised Options (#) Unexercisable
|
|
|
Option
Exercise Price
($)
|
|
|
Option
Expiration Date
|
|
Number
of Shares or Units of Stock That Have Not Vested (#)
|
|
|
Market
Value
of Shares
or Units
of Stock
That Have
Not Vested
($)
(5)
|
|
Daniel
M. Koch
|
|
|
5,500
|
(1)
|
|
|
—
|
|
|
|
6.10
|
|
|
11/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
(4)
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
A. Clark
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
10,000
|
(4)
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
H. Askegaard
|
|
|
5,500
|
(2)
|
|
|
—
|
|
|
|
7.75
|
|
|
3/19/2017
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
(3)
|
|
|
—
|
|
|
|
5.20
|
|
|
11/20/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
(4)
|
|
|
17,000
|
|
(1)
|
The
stock option was granted on November 1, 2012 and became fully exercisable effective March 13, 2013 as a result of an agreement
we entered into with an activist shareholder group that triggered an accelerated vesting provision in Mr. Koch’s change
of control agreement.
|
|
|
(2)
|
The
stock option was granted on March 19, 2012 and became fully exercisable effective March 13, 2013 as a result of an agreement
we entered into with an activist shareholder group that triggered an accelerated vesting provision in Mr. Askegaard’s
change of control agreement.
These options
expired unexercised on March 19, 2017.
|
|
|
(3)
|
The
stock option was granted on November 20, 2012 and became fully exercisable effective March 13, 2013 as a result of an agreement
we entered into with an activist shareholder group that triggered an accelerated vesting provision in Mr. Askegaard’s
change of control agreement.
|
|
|
(4)
|
Represents
a vested portion of a restricted stock grant that was awarded on October 19, 2016 under the 2014 Incentive Plan. These shares
vested on October 19, 2017.
|
|
|
(5)
|
Based
on the closing share price on December 30, 2016 of $1.70.
|
Potential
Payments Upon Termination or Change-in-Control
We
are party to a Change of Control Agreement (a “Change of Control Agreement”) with Mr. Koch providing for severance
pay and other benefits in the event of a change of control. The Change of Control Agreement provides for severance payments of
two times the executive’s annual base salary in the event the executive’s employment is terminated, either voluntarily
with “good reason” or involuntarily, during the two-year period following a change of control. The severance payments
are to be made over 24 months following the date of employment termination according to our regular payroll practices and policies.
An executive receiving severance payments is also entitled to reimbursement of the employer portion of group medical and group
dental premiums under COBRA continuation coverage. The Change of Control Agreement also provides for immediate vesting of all
of the executive’s unvested options outstanding upon a change of control.
For
purposes of the Change of Control Agreement, a change of control is deemed to occur upon:
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●
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the
sale or other transfer of all or substantially all of our assets;
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●
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the
approval by our shareholders of a liquidation or dissolution of the Company;
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|
|
|
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●
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any
person, other than a bona fide underwriter, becoming the owner of more than 40% of our outstanding shares of Common Stock;
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|
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●
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a
merger, consolidation or exchange involving the Company, but only if our shareholders prior to such transaction own
less than 65% of the combined voting power of the surviving or acquiring entity following the transaction; or
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●
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the
“continuity” members of our Board, being the incumbent members of our Board as of the end of 2012 and future members
of our Board who were approved by at least a majority of our continuity members, ceasing to constitute at least a majority
of the Board.
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Compensation
of Non-Employee Directors
For
our fiscal year ended December 31, 2016 there was no cash or non-cash compensation awarded to our directors, other than our named
executive officers.
At
the present time, our directors receive no cash compensation for their services as members of the Board, although their out-of-pocket
expenses incurred on our behalf are reimbursed.
Shareholder
Proposals
Proposals
of shareholders intended to be presented at the Company’s 2018 Annual Meeting of Shareholders (the “2018 Annual Meeting”)
must be received by the Company at its principal executive offices on or before July 13, 2018 and must satisfy the requirements
of the proxy rules promulgated by the SEC, in order to be included in our proxy statement and form of proxy relating to the 2018
Annual Meeting.
Under
SEC rules, if the Company does not receive notice of a shareholder proposal at least 45 days prior to the first anniversary of
the date of mailing of the prior year’s proxy statement, then the Company will be permitted to use its discretionary voting
authority when the proposal is raised at the annual meeting, without any discussion of the matter in the proxy statement. In connection
with the 2018 Annual Meeting, if the Company does not have notice of a shareholder proposal on or before September 26,
2018 the Company will be permitted to use its discretionary voting authority as outlined above.
Proxy
Solicitation
The
solicitation of proxies is made on behalf of the Board, and the cost thereof will be borne by us. We have retained InvestorCom,
Inc., at 65 Locust Avenue, New Canaan, CT 06840, to act as a proxy solicitor in connection with the Annual Meeting at a cost of
$8,500, plus out-of-pocket expenses. We will also reimburse brokerage firms and nominees for their expenses in forwarding proxy
material to beneficial owners of our Common Stock. In addition, our officers and employees (none of whom will receive any compensation
therefore in addition to their regular compensation) may solicit proxies. Proxies may be solicited through the mail and through
telephonic or telegraphic communications to, or by meetings with, shareholders or their representatives.
Annual
Report
The
2016 Form 10-K is being sent with this Proxy Statement to each shareholder and is available at
www.icommaterials.com/ATRM
.
The 2016 Form 10-K contains audited consolidated financial statements of the Company and its subsidiaries for the fiscal year
ended December 31, 2016. The 2016 Form 10-K, however, is not to be regarded as part of the proxy soliciting material.
Annex
A
Form
of Articles of Amendment to the Articles of Incorporation
to Increase the Authorized Shares*
I,
__________________, the President of ATRM Holdings, Inc., a Minnesota corporation (the "Corporation"), do hereby certify
that the following resolutions were adopted by the directors and shareholders, pursuant to Minnesota Statutes, Chapter 302A:
RESOLVED,
that Article VI, Section 6.1 of the Articles of Incorporation of this Corporation shall be amended in its entirety to read as
follows:
Shares,
Classes and Series Authorized
. The aggregate number of shares which the Corporation shall have the authority to issue shall
be ten million (10,000,000) shares, of which (i) seven million five hundred thousand (7,500,000) shares shall be Common Stock,
par value $0.001 per share (the “Common Stock”), and (ii) two million five hundred thousand (2,500,000) shares shall
be preferred stock, of which preferred shares three thousand (3,000) shares are designated as Series A Junior Participating Preferred
Stock, par value $0.001 per share, and two million (2,000,000) shares are designated as 10.00% Series B Cumulative Preferred Stock,
par value $0.001 per share. The common voting shares shall be of the same class and series with equal rights and preferences unless
the Board of Directors shall establish one or more separate classes or series. The undesignated preferred shares shall be issued
in such classes or series and shall have such voting rights and preferences or restrictions, including without limitation, rights,
preferences and restrictions as to redemption, distributions and conversion, as the Board of Directors may establish.
IN
WITNESS WHEREOF, the undersigned has executed this Amendment this ___ day of ______, 2017.
|
ATRM
Holdings, Inc.
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
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*
Resolutions included herein may be consolidated with resolutions reflecting any other amendments to the Existing Charter approved
by shareholders at the Annual Meeting and filed with the Secretary of State of the State of Minnesota as one Articles of Amendment
filing reflecting all such amendments.
Annex
B
Form
of Articles of Amendment to the Articles of Incorporation
to Effect the Forward Split*
I,
__________________, the President of ATRM Holdings, Inc., a Minnesota corporation (the "Corporation"), do hereby certify
that the following resolutions were adopted by the directors and shareholders, pursuant to Minnesota Statutes, Chapter 302A:
RESOLVED,
that Article VI, Section 6.1 of the Articles of Incorporation of this Corporation shall be amended to add the following paragraph:
Effective
upon filing these Articles of Amendment with the Secretary of State of the State of Minnesota, a 4-for-1 forward stock split for
each share of 10.00% Series B Cumulative Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”),
issued and outstanding as of the filing of these Articles of Amendment, shall automatically and without any action of the part
of the holders thereof occur (the “Forward Stock Split”). Pursuant to the Forward Stock Split, each one (1) share
of Series B Preferred Stock shall be reclassified and changed into four (4) shares of Series B Preferred Stock, having a par value
of $0.001 per share and a stated value of $25.00 per share.
IN
WITNESS WHEREOF, the undersigned has executed this Amendment this ___ day of ______, 2017.
|
ATRM
Holdings, Inc.
|
|
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
*
Resolutions included herein may be consolidated with resolutions reflecting any other amendments to the Existing Charter approved
by shareholders at the Annual Meeting and filed with the Secretary of State of the State of Minnesota as one Articles of Amendment
filing reflecting all such amendments.
Annex
C
Form
of Articles of Amendment to the Articles of Incorporation
to Effect the Extended Protective Amendment*
I,
__________________, the President of ATRM Holdings, Inc., a Minnesota corporation (the "Corporation"), do hereby certify
that the following resolutions were adopted by the directors and shareholders, pursuant to Minnesota Statutes, Chapter 302A:
RESOLVED,
that Article 12, Section 12.1(ix) of the Articles of Incorporation of this Corporation shall be amended in its entirety to read
as follows:
(ix)
“Expiration Date” means the earliest of (i) the close of business on December 5, 2020, (ii) the repeal of Section
382 of the Code or any successor statute if the Board of Directors determines that this Article 12 is no longer necessary or desirable
for the preservation of Tax Benefits, (iii) the close of business on the first day of a taxable year of the Corporation as to
which the Board of Directors determines that no Tax Benefits may be carried forward or (iv) such date as the Board of Directors
shall fix in accordance with paragraph (l) of this Article 12.
IN
WITNESS WHEREOF, the undersigned has executed this Amendment this ___ day of ______, 2017.
|
ATRM
Holdings, Inc.
|
|
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
*
Resolutions included herein may be consolidated with resolutions reflecting any other amendments to the Existing Charter approved
by shareholders at the Annual Meeting and filed with the Secretary of State of the State of Minnesota as one Articles of Amendment
filing reflecting all such amendments.
ATRM
HOLDINGS, INC.
ANNUAL
MEETING OF
SHAREHOLDERS – December 4, 2017
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned shareholder of ATRM Holdings, Inc., a Minnesota corporation (the “Company”), hereby appoints Jeffrey E.
Eberwein and Daniel M. Koch, each with full power of substitution, as proxies, to vote all capital stock of the Company that the
shareholder would be entitled to vote on all matters that may properly come before the Company’s Annual Meeting of the Shareholders
to be held at 10:00 a.m., local time, on December 4, 2017 (the “Annual Meeting”) at 3050 Echo Lake Avenue,
Suite 300, Mahtomedi, Minnesota 55115, and any adjournments or postponements thereof. The undersigned shareholder hereby revokes
any proxy or proxies heretofore given by the undersigned for the Annual Meeting.
This
proxy when properly executed and returned will be voted in the manner directed by the undersigned shareholder. If no direction
is made, this proxy will be voted in accordance with the recommendations of the Board. The proxies are also authorized to vote
upon such other matters as may properly come before the Annual Meeting in accordance with their discretion.
PLEASE
MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE: [X]
The
Board recommends a vote
FOR
the election of all of the listed nominees and
FOR
Proposals 2, 3, 4, 5 and 6.
1.
|
Election
of nominees named below to the Board of Directors of the Company.
|
[ ]
FOR ALL NOMINEES.
[ ]
WITHHOLD AUTHORITY FOR ALL NOMINEES.
[ ]
FOR ALL EXCEPT
(See
instructions below)
Nominees:
|
O
|
Jeffrey
E. Eberwein
|
|
O
|
James
Elbaor
|
|
O
|
Mark
Hood
|
|
O
|
Daniel
M. Koch
|
|
O
|
Rodney
Schwatken
|
|
O
|
Galen
Vetter
|
INSTRUCTIONS
:
|
To
withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to
each nominee you wish to withhold, as shown here: ●
|
2.
|
To
ratify the appointment of Boulay PLLP as the Company’s independent registered public accounting firm for the fiscal
year ending December 31, 2017.
|
|
FOR
[ ]
|
AGAINST
[ ]
|
ABSTAIN
[ ]
|
3.
|
To
approve an amendment to the Company’s Amended and Restated Articles of Incorporation to increase the number of authorized
shares of capital stock from 3,200,000 to 10,000,000.
|
|
FOR
[ ]
|
AGAINST
[ ]
|
ABSTAIN
[ ]
|
4.
|
To
approve an amendment to the Company’s Amended and Restated Articles of Incorporation to effect a 4-for-1 forward stock
split of the Company’s 10.00% Series B Cumulative Preferred Stock.
|
|
FOR
[ ]
|
AGAINST
[ ]
|
ABSTAIN
[ ]
|
5.
|
To
approve a three-year extension to the provisions of the Company’s Amended and Restated Articles of Incorporation designed
to protect the tax benefits of the Company’s net operating loss carryforwards.
|
|
FOR
[ ]
|
AGAINST
[ ]
|
ABSTAIN
[ ]
|
6.
|
To
approve an advisory resolution regarding the compensation of the Company’s named executive officers.
|
|
FOR
[ ]
|
AGAINST
[ ]
|
ABSTAIN
[ ]
|
This
proxy may be revoked prior to the time it is voted by delivering to the Secretary of the Company either a written revocation or
a proxy bearing a later date, or by appearing at the Annual Meeting and voting in person.
See
reverse side for additional instructions
PLEASE
ACT PROMPTLY
PLEASE
SIGN AND DATE THIS PROXY CARD
AND RETURN IT IN THE ENCLOSED ENVELOPE TODAY
To
change the address on your account, please check the box at right and indicate your new address in the address space above. Please
note that changes to the registered name(s) on the account may not be submitted via this method. [ ]
DATE:
________________
|
|
|
(Signature
of Shareholder)
|
|
|
DATE:
________________
|
|
|
(Signature
of Shareholder)
|
|
|
|
Please
sign exactly as your name or names appear on this proxy. When shares are held jointly, each holder should sign. When signing
as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation,
please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please
sign in partnership name by authorized person.
|