Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934 (Amendment No.   )

 

Filed by the Registrant ☑

Filed by a Party other than the Registrant ☐

 

Check the appropriate box: 

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) 

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

 

 

P.A.M. TRANSPORTATION SERVICES, INC.

 
 

(Name of Registrant as Specified In Its Charter)

 

 

     
 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

Fee paid previously with preliminary materials.

 

 

P.A.M. TRANSPORTATION SERVICES, INC.

297 West Henri De Tonti Boulevard

Tontitown, Arkansas 72770

(479) 361-9111

www.pamtransport.com

 


 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held on August 1, 2024

 


 

To our Shareholders:

 

The 2024 annual meeting of shareholders of P.A.M. Transportation Services, Inc., a Delaware corporation (“PTSI” or the “Company”), will be held at 12225 Stephens Road, Warren, Michigan 48089, on August 1, 2024, at 11:00 a.m. local time. The meeting is being held for the purpose of considering and voting on the following proposals:

 

 

1.

To elect nine directors to serve until the next annual meeting of shareholders and until their successors have been elected and qualified (the Board of Directors recommends a vote “FOR” the nominees named in the attached proxy statement proposal);

   

 

 

2.

To approve the P.A.M. Transportation Services, Inc. 2024 Equity Incentive Plan (the Board of Directors recommends a vote “FOR” this proposal);

   

 

 

3.

To approve the redomestication of the Company to the State of Nevada by conversion (the Board of Directors recommends a vote “FOR” this proposal);

   

 

 

4.

To ratify the appointment of Grant Thornton LLP as PTSI’s independent registered public accounting firm for the next fiscal year (the Board of Directors recommends a vote “FOR” this proposal); and

   

 

 

5.

Such other business as may properly come before the meeting or any adjournment or postponement of the meeting.

 

All shareholders of record as of the close of business on June 6, 2024, will be entitled to notice of and to vote at the meeting or any adjournment or postponement of the meeting.

 

  By Order of the Board of Directors
   
   
   
   
   
   
  Joseph A. Vitiritto
  President and Chief Executive Officer

 

 

June ___, 2024

 

Your Vote Is Important 

 

Whether or not you plan to attend the meeting in person, you are urged to promptly submit your proxy so that your shares may be voted in accordance with your wishes and the presence of a quorum may be assured. Your prompt action will help us reduce the expense of proxy solicitation.

 

 

 

P.A.M. Transportation Services, Inc.

 


 

Proxy Statement

 

For the Annual Meeting of Shareholders

To Be Held on August 1, 2024

 


 

Table of Contents

 

 

Page

   

Proxy Statement

1

   

Information About the Annual Meeting and Voting

1

   

Election of Directors

5

   

Corporate Governance

9

   

Audit Committee Report

14

   

Compensation Committee Report

15

   

Executive Compensation

15

   

Security Ownership of Certain Beneficial Owners and Management

33

   

Delinquent Section 16(a) Reports

34

   

Approval of the Company’s 2024 Equity Incentive Plan

35

   

Approval of the Redomestication of the Company to the State of Nevada by Conversion

43

   

Ratification of Appointment of Independent Registered Public Accounting Firm

63

   

Independent Public Accountants—Principal Accountant Fees and Services

63

   

Transactions with Related Persons

64

   

Annual Report to Shareholders and Report on Form 10-K

65

   

Shareholder Proposals

66

   

Other Matters

67

   

Appendix A – P.A.M. Transportation Services, Inc. 2024 Equity Incentive Plan

A-1

   

Appendix B – Redomestication Resolutions

B-1

   

Appendix C – Plan of Conversion

C-1

   

Appendix D – Articles of Incorporation of PAMT CORP

D-1

   

Appendix E – Bylaws of PAMT CORP

E-1

 

 

P.A.M. Transportation Services, Inc.

 


 

Annual Meeting of Shareholders

August 1, 2024

 

PROXY STATEMENT

 

This proxy statement and form of proxy are furnished in connection with the solicitation of proxies on behalf of the Board of Directors of P.A.M. Transportation Services, Inc. (“PTSI” or the “Company”) for use at our annual meeting of shareholders (the “Annual Meeting”) to be held at 12225 Stephens Road, Warren, Michigan, on August 1, 2024, at 11:00 a.m. local time, and at any or all adjournments or postponements of the meeting. The telephone number for our principal executive office is (479) 361-9111. This proxy statement and form of proxy are being mailed to shareholders on or about June ___, 2024.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDERS MEETING TO BE HELD ON AUGUST 1, 2024

 

Our combined Proxy Statement and 2023 Annual Report to Shareholders, which includes our Annual Report on Form 10-K and Form 10-K/A, are available at www.edocumentview.com/PTSI.

 

INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

 

What is the purpose of the Annual Meeting?

 

At the Annual Meeting, shareholders will act upon the matters outlined in the accompanying notice of the Annual Meeting, including the election of directors, approval of our 2024 Equity Incentive Plan, approval of the redomestication of the Company to the State of Nevada by conversion, ratification of the appointment of our independent public accounting firm, and consideration of such other business as may properly come before the Annual Meeting.

 

Who is entitled to vote?

 

Only shareholders of record at the close of business on the record date, June 6, 2024 (the “Record Date”), are entitled to receive notice of the Annual Meeting and to vote their shares at the meeting. Holders of our common stock are entitled to one vote per share.

 

What is the difference between a shareholder of record and a street name holder?

 

These terms describe how your shares are held. If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are a “shareholder of record.” If your shares are held in the name of a broker, bank, trust or other nominee as a custodian, you are a “street name” holder.

 

Who can attend the Annual Meeting?

 

All shareholders as of the Record Date, or their duly appointed proxies, may attend the Annual Meeting. The Company asks that any shareholder who plans to attend the meeting please notify the Company at least 48 hours in advance of the meeting by contacting our Secretary, Tyler Majors, at (479) 361-9111. Shareholders who are “street name” holders will also need to bring a copy of a brokerage statement reflecting their ownership as of the Record Date in order to attend the meeting.

 

What is a proxy?

 

A proxy is your legal designation of another person, the “proxy,” to vote on your behalf. By completing and returning the enclosed proxy card, you are giving the persons appointed as proxies by our Board of Directors (the “Board”) the authority to vote your shares as indicated on the proxy card.

 

 

What constitutes a quorum?

 

The presence at the meeting, in person or by proxy, of the holders of a majority of the shares of our common stock outstanding and entitled to vote on the Record Date will constitute a quorum, permitting business to be conducted at the meeting. As of the Record Date, 21,755,186 shares of our common stock were outstanding and entitled to vote. Proxies that are received and marked as withholding authority, abstentions, and broker non-votes (where a bank, broker or nominee does not exercise discretionary authority to vote on a matter) will be included in the calculation of the number of shares considered to be represented at the meeting.

 

How do I vote?

 

You may vote by mail or follow the alternative voting procedures described on the accompanying proxy card. If you complete, sign and return the proxy card, it will be voted as you direct. If no choice is specified on a signed proxy card, the persons named as proxies will vote in accordance with the recommendations of the Board, as set out below.

 

If you hold shares in “street name” through a broker or other nominee, your broker or nominee may not be permitted to exercise voting discretion with respect to some of the matters to be acted upon. Under current stock exchange rules, brokers who do not have instructions from their customers may not use their discretion in voting their customers’ shares on certain specific matters that are not considered to be “routine” matters, including the election of directors, executive compensation and other significant matters. The proposals in this proxy statement to elect directors, to approve the Company’s 2024 Equity Incentive Plan and to approve the redomestication of the Company to Nevada by conversion are not considered to be routine matters. Therefore, without your specific instructions, your shares will not be voted on these matters and will not be counted in determining the number of shares necessary for approval. Shares represented by such “broker non-votes,” however, will be counted in determining whether there is a quorum. You should follow the directions provided by your nominee regarding instructions on how to vote your shares.

 

The ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm is considered a routine matter, and therefore, if beneficial owners fail to give voting instructions, brokers, banks and other nominees will have the discretionary authority to vote shares of our common stock with respect to this proposal.

 

If, as of the Record Date, you are a shareholder of record and you attend the meeting, you may vote in person at the meeting.

 

The authorized capital stock of PTSI consists of 50,000,000 shares of common stock, par value $0.01 per share and 10,000,000 shares of preferred stock, par value $0.01 per share. As of the close of business on June 6, 2024, there were 21,755,186 shares of common stock eligible to vote.

 

What is a broker non-vote?

 

Generally, a “broker non-vote” occurs when a broker, bank or other nominee that holds shares in “street name” for a customer is precluded from exercising voting discretion on a particular proposal because:

 

 

(1)

the beneficial owner has not instructed the nominee on how to vote, and

 

 

(2)

the nominee lacks discretionary voting power to vote such issues.

 

Under NASDAQ rules, a nominee does not have discretionary voting power with respect to the approval of “nonroutine” matters absent specific voting instructions from the beneficial owners of such shares.

 

 

What are the Boards recommendations?

 

Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board. The Board’s recommendations are set forth together with each proposal in this proxy statement. In summary, the Board recommends a vote:

 

 

FOR the election of the nominated slate of directors.

 

 

FOR the approval of the Company’s 2024 Equity Incentive Plan.

 

 

FOR the approval of the redomestication of the Company to the State of Nevada by conversion.

 

 

FOR the ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm.

 

What vote is required to approve each proposal?

 

 

Election of Directors. The affirmative vote of the holders of shares of our common stock representing a plurality of the shares of our common stock voting on the matter, assuming a quorum is present, is required for the election of directors. Votes withheld and broker non-votes are not counted toward a nominee’s total number of votes, although such votes will be counted for purposes of determining whether there is a quorum. 

 

 

Redomestication Proposal. For the proposal to approve the redomestication of the Company to the State of Nevada by conversion, the affirmative vote of a majority of the outstanding shares of our common stock, assuming a quorum is present at the Annual Meeting, will be required for approval. A properly executed proxy marked “ABSTAIN” or not marked at all with respect to any such matter will not be voted, although it will be counted for purposes of determining whether there is a quorum. Accordingly, abstentions and broker non-votes will have the same effect as a vote against the proposal.

 

 

Other Proposals. For each other proposal, the affirmative vote of a majority of the shares represented in person or by proxy and entitled to vote at the Annual Meeting, assuming a quorum is present, will be required for approval. A properly executed proxy marked “ABSTAIN” or not marked at all with respect to any such matter will not be voted, although it will be counted for purposes of determining whether there is a quorum. Accordingly, abstentions and broker non-votes will have the same effect as a vote against the proposal.

 

Are there other matters to be voted on at the Annual Meeting?

 

As of the date of this proxy statement, our Board of Directors does not know of any other matters that may come before the meeting, other than the Proposals described in this proxy statement. Should any other matter requiring a vote of the shareholders arise and be properly presented at the Annual Meeting, the proxy included with this proxy statement confers upon the persons named in the proxy and designated to vote the shares, discretionary authority to vote or otherwise act with respect to any such matter in accordance with their best judgment.

 

Can I revoke or change my proxy after I return my proxy card?

 

Yes. Any proxy may be revoked by a shareholder at any time before it is exercised at the Annual Meeting by delivering to our Secretary a written notice of revocation or a duly executed proxy bearing a later date, or by voting in person at the meeting.

 

 

Who pays for this proxy solicitation?

 

All costs of soliciting proxies will be paid by the Company. Our directors, officers, and other employees may, without compensation other than their regular compensation, solicit proxies by further mailings or personal conversation, or by telephone, facsimile or electronic means. We may reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding soliciting material to the beneficial owners of our common stock.

 

How many Directors are there?

 

Our Second Amended and Restated By-Laws (the “Bylaws”) provide that the number of directors shall not be less than three nor more than fifteen members, with the precise number to be fixed by resolution of the shareholders or the Board of Directors. Currently, we have nine directors. The Board of Directors has recommended nine nominees for election at the Annual Meeting.

 

How long do Directors serve?

 

Our Bylaws provide that each Director shall hold office until the annual meeting of shareholders held next after his or her election and until his or her successor has been duly elected and has qualified, or until his or her earlier resignation, removal from office, or death. The shareholders of the Company elect successors for Directors whose terms have expired at the Annual Meeting. The Board elects members to fill new membership positions and vacancies in unexpired terms on the Board.

 

Do the shareholders elect the executive officers?

 

No. Executive Officers are elected by the Board and hold office until their successors are elected and qualified or until the earlier of their death, retirement, resignation or removal.

 

Where can I find the voting results of the Annual Meeting?

 

The Company will publish final voting results of the Annual Meeting on a Form 8-K within four business days after the Annual Meeting on August 1, 2024.

 

 

Whether or not you plan to attend the Annual Meeting, you are urged to promptly submit your proxy.

 

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PROPOSAL ONE

 


 

ELECTION OF DIRECTORS

 

Our Board of Directors currently consists of nine directors. Members of our Board are elected annually to serve until the next annual meeting of shareholders or until their successors are elected and qualified. Our Board has nominated for re-election each of the nine current members of our Board. The biography of each of the nominees below contains information regarding the person’s service as director, business experience, director positions held currently or at any time during the last five years, and the experiences, qualifications, attributes or skills that caused the Board to determine that the person should serve as a director.

 

Michael D. Bishop

Director Since 2019

 

Michael D. Bishop, age 56, has been a director and a member of the Audit Committee since 2019. Mr. Bishop is the President and Founder of American General Counsel PLC, a law firm providing general counsel services to businesses. From 2018 to 2020, Mr. Bishop was Co-President of iPSE-US, the Association of Independent Workers, an association dedicated to advancing the freedom an interests of America’s independent workers. Mr. Bishop served as a member of the United States Congress from 2014 to 2018. During his tenure in Congress, Mr. Bishop was appointed to and served on the House Ways and Means Committee, the Judiciary Committee and the Higher Education Committee. Preceding his service in the United States Congress, Mr. Bishop was the Chief Legal Officer and General Counsel of International Bancard Company, a nation-wide financial services technology company. Prior to his role at International Bancard, Mr. Bishop was a Senior Attorney with Clark Hill PLC, an international law firm, where he concentrated in the areas of Public Policy and Business Law. Before joining Clark Hill PLC, Mr. Bishop was elected to and served in the Michigan State legislature from 1998 to 2010. During his tenure in the Michigan State legislature, Mr. Bishop was chosen to serve as the Senate Majority Leader and also served on various committees including chairing the Senate Banking and Financial Institutions Committee and the Constitutional Law and Ethics Committee. Mr. Bishop is a licensed real estate broker and an attorney licensed to practice law in the state of Michigan, the District of Columbia, and before the U.S. Supreme Court. He also serves as an Adjunct Professor of Law at the Thomas M. Cooley Law School. His thorough understanding of legal matters, public policy, financial analytics, and budgeting qualify him for service on the Board of PTSI.

 

Frederick P. Calderone

Director Since 1998

 

Frederick P. Calderone, age 73, has been a director since 1998. Mr. Calderone retired in 2016 after over 20 years of service as a Vice President of a diversified holding company headquartered in Warren, Michigan. During his career, Mr. Calderone was widely recognized for his expertise in corporate, partnership and individual income tax matters; estate planning; tax planning for multinational businesses; mergers, acquisitions and commercial transactions; tax controversies and litigation; and corporate accounting. Prior to this time, Mr. Calderone was a partner with Deloitte, Haskins, & Sells, a predecessor to Deloitte LLP. Mr. Calderone is a certified public accountant, attorney and tax specialist with a long history of advising and providing executive oversight to transportation companies. Mr. Calderone has served as a director of Universal Logistics Holdings, Inc. (NASDAQ: ULH) since 2009. With his thorough understanding of financial reporting, generally accepted accounting principles, financial analytics, taxation and budgeting, Mr. Calderone brings to the Board a unique combination of expertise in accounting, strategic planning and finance.

 

 

W. Scott Davis

Director Since 2007

 

W. Scott Davis, age 61, is Director of Partner Relations of Circumference Group, LLC, an investment management partnership, where he is responsible for business development and client relations. Prior to that, he served as Vice Chairman and Chief Financial Officer of Clearview International, LLC, a data center business headquartered in Dallas, Texas, until the company was sold in April 2016. He had been an investor in Clearview since June 2009. Mr. Davis was a Partner and Senior Managing Director of Rock Financial Partners, LLC from April 2009 to December 2013. From August 2006 to April 2009, he served as the President and sole owner of WS Davis, Inc., the company through which he performed his consulting work. From 1987 to 2006, Mr. Davis worked for Stephens Inc., an investment banking firm, including serving as an Executive Vice President of Stephens Inc. from 2002 to 2006. Mr. Davis has served as a director of PTSI since August 2007. He has extensive experience in the investment banking industry. He currently serves as Chairman of our Audit Committee. His extensive experience in financial statement analysis and review qualifies him to serve on the Board and as Chairman of the Audit Committee of PTSI.

 

Edwin J. Lukas

Director Since 2018

 

Edwin J. Lukas, age 56, is the founder of Vistula PLC, a business law firm located in Saint Clair Shores, Michigan. He is also a Strategic Partner with Aquila Equity Partners, a private investment firm located in Bloomfield Hills, Michigan. From 2016 to March 2020, Mr. Lukas served in an executive-level capacity with a diversified holding company based in Warren, Michigan, including as its Executive Vice President and General Counsel. Prior to this time, Mr. Lukas was a partner at Bodman PLC in Detroit, Michigan. Mr. Lukas is a graduate of the University of Pennsylvania and the University of Detroit School of Law, where he served as Editor-in-Chief of the University of Detroit Law Review. He has served as a director of PTSI since 2018. Mr. Lukas brings to our Board extensive experience in representing both public and private companies in corporate law, mergers and acquisitions, and capital markets transactions. His expertise in organizations, processes, strategies, and risk management supports our goal of strong Board and management accountability, transparency, and protection of stakeholder interests.

 

Franklin H. McLarty

Director Since 2014

 

Franklin H. McLarty, age 49, is the Chairman and CEO of McLarty Diversified Holdings, a diversified holding company with investments in professional services, transportation, real estate, and media. Mr. McLarty founded McLarty Diversified Holdings in 2020. He also leads Coastal Automotive Group, an automotive retail operation that focuses on dealerships in Southern California and South Florida. He was previously the Executive Chairman and Director of MDH Acquisition Corp (NYSE: MDH.U) prior to its liquidation in 2022. Mr. McLarty was the co-founder of McLarty Capital Partners, now named Firmament, a private markets investment manager founded in June 2012; CapRocq, a real estate investment firm founded in September 2012 with significant experience as an owner-operator of high-quality office, mixed-use properties and automotive retail properties located in secondary and tertiary markets across the Southeast, Southcentral and Midwest regions otherwise known as the Heartland; and Southern United Auto Group, a growing automotive retail platform founded in June 2016 focused on the southeastern U.S. In addition, he was a founding executive of RML Automotive, where he served a tenure as CEO. Earlier in his career, Mr. McLarty worked in hotel-related private equity with McKibbon Hotel Group and The Seaway Group. Mr. McLarty has served on numerous advisory boards and boards of directors including Tire Group International, Palo Verde Holdings, The McLarty Companies and The Seaway Group. He also served on the board of, and was lead investor in, XTR, a premium documentary production company in Los Angeles. In 2007, he was appointed by then Governor Mike Beebe to the Arkansas Economic Development Commission and served as its Chairman in 2009. Mr. McLarty has served as a director and member of the Audit Committee of PTSI since 2014. Mr. McLarty’s extensive financial and transportation-related experience as an executive in the automotive industry and his insight into the Company’s customer base qualify him to serve on the Board of PTSI.

 

 

H. Pete Montaño

Director Since 2019

 

H. Pete Montaño, age 64, retired in 2018 as Vice President of Sales of Contract Freighters, Inc. (“CFI”), a trucking and logistics company which formerly operated as a division of Con-way, Inc. and XPO Logistics, Inc. As Vice President of Sales and Revenue Management for CFI, he oversaw sales in the United States, Canada and Mexico and was responsible for the strategic sales planning, account growth and training for all sales in the United States, Mexico and Canada as well as the pricing and bid departments. Mr. Montaño served over 28 years in various capacities with CFI, starting as Director of Sales for Mexico. Mr. Montaño brings significant industry experience and cross-border expertise to our board. Prior to his time at CFI, Mr. Montaño worked for Roadway Express, where he was in charge of sales for regions of the United States and Mexico. He currently serves as an advisory director of The Hawthorne Group, parent company of Melton Truck Lines, Inc., a private flatbed and step-deck carrier serving the United States, Canada, and Mexico. Mr. Montaño has served as a director and a member of the Audit Committee of PTSI since 2019. He is a dual citizen of the United States and Mexico and brings extensive sales and operational experience to the board and particular knowledge and insight relating to the Company’s Mexico operations. Mr. Montaño’s comprehensive cross-border and transportation-related experience qualify him to serve on the Board of PTSI.

 

Matthew J. Moroun

Director Since 2020

 

Matthew J. Moroun, age 24, has been a director since 2020. He is also employed in other Moroun family-owned businesses engaged in transportation and business services. Mr. Moroun obtained a Bachelor of Business Administration in Finance from the Mendoza College of Business at the University of Notre Dame in December 2021. Mr. Moroun has served as a director of Universal Logistics Holdings, Inc. (NASDAQ: ULH) since 2020. Matthew J. Moroun is the son of our Chairman, Matthew T. Moroun. We believe Mr. Moroun offers the Board a unique perspective on the Company’s strategic challenges and opportunities and will advance the long-term interests of our shareholders.

 

Matthew T. Moroun

Director Since 1992

 

Matthew T. Moroun, age 50, is Chairman of our Board of Directors. He currently serves as Chairman and President of a diversified holding company based in Warren, Michigan. He is also Chairman of an insurance and real estate holding company based in Sterling Heights, Michigan. Mr. Moroun owns or controls other privately-held businesses engaged in transportation services and real estate acquisition, development, and management. Mr. Moroun has served as a director of the Company since 1992 and as our Chairman since 2007. He is currently Chairman of our Executive Committee and Chairman of our Compensation and Stock Option Committee and served as our interim President and Chief Executive Officer from May 2020 to August 2020. Mr. Moroun has served as a director and as Chairman of the Board of Universal Logistics Holdings, Inc. (NASDAQ: ULH) since 2004. Matthew T. Moroun is the father of Matthew J. Moroun, a member of our Board of Directors. Mr. Moroun’s long-term, substantive leadership experience allows him to provide operational, financial, business, capital markets, and strategic expertise to our Board. He possesses first-hand knowledge of the best practices and trends for our industry. His perspective and practical insight on transportation, automotive, real estate development, infrastructure, and government relations enhance the Board’s ability to oversee and direct our strategy, business planning, and execution.

 

Joseph A. Vitiritto

Director Since 2020

 

Joseph A. Vitiritto, age 53, has served as President and Chief Executive Officer since August 2020. Prior to his employment with the Company, Mr. Vitiritto served as Senior Vice President of Pricing and Network Design for Knight-Swift Transportation Holdings, Inc. (“Knight-Swift”) since May 2019. Prior to assuming that role, Mr. Vitiritto served in various managerial capacities for Knight-Swift and its predecessor, Knight Transportation, Inc., beginning in 2003, including most recently as Senior Vice President of Operations – Swift Transition Team and Senior Vice President of Human Resources. These experiences and his knowledge of the day-to-day operations and management of the Company qualify him to serve on the Board of PTSI.

 

 

Unless otherwise instructed, the persons named as proxies intend to vote all proxies received for the election of the nine director nominees. All of the nominees have indicated their willingness to serve on the Board of Directors. If any nominee should become unwilling or unavailable to serve, our Board may select a substitute nominee, and in that event the proxies intend to vote all proxies for the person selected. If a substitute nominee is not selected, the proxies intend to vote for the election of the remaining nominees. Our Board has no reason to believe that any of the nominees will become unavailable to serve.

 

Your Board of Directors Recommends that Shareholders Vote

FOR

Each of the Nominees Named Above

 

 

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CORPORATE GOVERNANCE

 

Director Independence

 

NASDAQ listing standards generally require that, unless a listed company qualifies as a “controlled company,” a majority of the members of the company’s Board of Directors must be independent. The listing standards define a “controlled company” as a company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. More than 50% of the voting power of our company is held by Mr. Matthew T. Moroun and a group of family trusts established for the benefit of members of the Moroun family. Mr. Matthew T. Moroun, the Chairman of our Board of Directors, is the trustee of these family trusts and holds investment authority over the shares of our common stock held by the trusts. Frederick P. Calderone, a member of our Board of Directors, is the special trustee of certain of these family trusts, and in that capacity, he exercises voting power over the shares held by such trusts, while Mr. Moroun exercises voting power over the shares held by the other family trusts of which he is trustee. The special trustee serves at the discretion of the trustee of the trusts, and members of the Moroun family are the beneficiaries of the family trusts. Messrs. Moroun and Calderone have entered into a voting agreement under which Mr. Moroun agreed to vote the shares of our common stock held by the family trust over which he exercises voting power in accordance with and in the same manner as Mr. Calderone votes the shares of our common stock held by the family trusts over which the special trustee exercises voting power. Therefore, votes cast on behalf of the family trusts control any action requiring the general approval of our shareholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger or sale of substantially all of our assets. As a result, we have elected to be treated as a “controlled company” in accordance with Rule 5615(c) of the NASDAQ Listing Rules. Accordingly, we are not subject to the NASDAQ rules that would otherwise require us to have (i) a majority of independent directors on the board; (ii) a compensation committee composed solely of independent directors; and (iii) a nominating committee composed solely of independent directors.

 

Our Board of Directors has reviewed the independence of director nominees and determined that four of our director nominees, Messrs. Bishop, Davis, McLarty and Montaño, meet the standards for independence required by applicable NASDAQ listing standards. In making this determination, our Board has concluded that none of the independent directors has a relationship that, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

Board Structure and Role in Risk Oversight

 

Our Board of Directors has chosen to separate the positions of Chairman and Chief Executive Officer (“CEO”). Mr. Matthew T. Moroun is the Chairman of the Board and Mr. Joseph A. Vitiritto is the President and CEO. This separation of Chairman and CEO allows for greater oversight of the Company by the Board. The Board is actively involved in oversight of risks that could affect the Company. This oversight is conducted primarily through the Audit Committee, as disclosed in the committee description below and in its charter, and by the full Board, which has retained responsibility for general oversight of risks. The Board satisfies this responsibility through full reports by our committee chairs regarding each committee’s considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within the Company.

 

Board Meetings

 

During 2023, our Board of Directors held seven meetings. All directors attended at least 75% of the meetings of our Board, including committees on which they then served, during the period that they served.

 

 

Board Committees

 

Our Board of Directors has, and appoints members to, three standing committees: the Audit Committee, the Compensation and Stock Option Committee (the “Compensation Committee”), and the Executive Committee. The membership of these committees, as of June 6, 2024, is as follows:

 

Audit Committee

Compensation Committee

Executive Committee

W. Scot Davis* Matthew T. Moroun* Matthew T. Moroun*

Franklin H. McLarty

Joseph A. Vitiritto

Joseph A. Vitiritto

H. Pete Montaño

   

Michael D. Bishop

   

 


* Committee chairman

 

Audit Committee. We have a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The Audit Committee has four members. Each of the members of the Audit Committee is an independent director as independence for audit committee members is defined in the NASDAQ listing standards and the rules of the SEC. The Audit Committee has a charter that has been approved by our Board of Directors and is available on our website, at www.pamtransport.com under the caption of “Investors.”

 

The Audit Committee met six times in 2023. The Audit Committee assists our Board of Directors in overseeing our accounting and financial reporting process, internal controls and audit functions, and is directly responsible for the appointment, retention and compensation of our registered public accounting firm. Our Board of Directors has determined that Messrs. Davis and McLarty are each qualified as an audit committee financial expert, as that term is defined in the rules of the Securities and Exchange Commission (“SEC”). More information about the Audit Committee is included below under the heading “Audit Committee Report.”

 

Compensation Committee. Our Board of Directors has elected to appoint our Chairman of the Board and our CEO as the two members of our Compensation Committee based on our status as a “controlled company” under the NASDAQ Listing Rules. The Compensation Committee met two times in 2023. The Compensation Committee assists our Board of Directors in carrying out its responsibilities relating to compensation and benefits for our executive officers. The Compensation Committee’s responsibilities and authority include:

 

 

reviewing trends in management compensation and the competitiveness of our executive compensation programs;

 

 

overseeing development of new compensation plans, and approving or recommending for determination by our Board of Directors revisions of existing plans;

 

 

determining, or recommending for determination by our Board of Directors, the salaries, bonus and other compensation for executive officers and key employees other than our CEO;

 

 

reviewing and making recommendations concerning long-term incentive compensation plans, including equity-based plans;

 

 

to the extent eligible to do so, acting as the committee of our Board of Directors that administers equity-based plans, incentive compensation plans and employee benefit plans; and

 

 

reviewing and approving, or recommending to our Board of Directors for approval, compensation packages for new officers and severance arrangements for officers.

 

The full Board evaluates the performance of our CEO and determines the CEO’s salary, bonus and other compensation. The Board also determines the compensation of our directors and administers our equity-based compensation plans with respect to awards to our named executive officers and our directors.

 

 

If a member of a committee of our Board of Directors is absent from a meeting, the Bylaws give Board committees authority to unanimously appoint another member of our Board of Directors to act at the meeting in place of the absent committee member. While the Compensation Committee could use this authority, it has no plans to do so. The Compensation Committee has the authority to retain compensation consultants but does not currently use compensation consultants. The Compensation Committee operates without a written charter.

 

Executive Committee. The Executive Committee exercises the authority of our Board of Directors in accordance with the Bylaws between regular meetings of our Board. The Executive Committee met three times during 2023.

 

Director Nominating Process. Our Board does not have a nominating committee that nominates candidates for election to our Board. That function is performed by our Board of Directors. Each member of our Board participates in the consideration of director nominees. Our Board of Directors believes that it can adequately fulfill the functions of a nominating committee without having to appoint an additional committee to perform that function. Our Board of Directors believes that not having a separate nominating committee saves the administrative expense that would be incurred in maintaining such a committee, and saves time for directors who would serve on a nominating committee if it were established. As there is no nominating committee, we do not have a nominating committee charter.

 

At least a majority of our independent directors participate in the consideration of director nominees. These directors are independent, as independence for nominating committee members is defined in the NASDAQ listing standards. However, so long as the Company continues to be a controlled company (within the meaning of NASDAQ Rule 5615(c)(1)), the Board of Directors may be guided by the recommendations of the Company’s controlling shareholders in its nominating process. After discussion and evaluation of potential nominees, the full Board of Directors selects the director nominees.

 

Our Board will consider as potential nominees persons recommended by shareholders. Recommendations should be submitted to our Board of Directors in care of our Secretary, Tyler Majors, at Post Office Box 188, Tontitown, Arkansas 72770. Each recommendation should include a personal biography of the suggested nominee, a description of the background or experience that qualifies the person for consideration, and a statement that the person has agreed to serve if nominated and elected. If a shareholder desires to nominate a director candidate for election at the Annual Meeting but does not intend to recommend the candidate for consideration as part of the Board’s slate of director nominees, such shareholder must comply with the procedural and informational requirements described in Section 1.11 of our Bylaws. A copy of our Bylaws may be obtained upon written request to our Secretary.

 

Our Board has used an informal process to identify potential candidates for nomination as directors. Candidates for nomination have been recommended by an executive officer or director, and considered by our Board of Directors. Generally, candidates have been known to one or more of our Board members. Our Board of Directors has not adopted specific minimum qualifications that it believes must be met by a person it recommends for nomination as a director. In evaluating candidates for nomination, our Board of Directors will consider the factors it believes to be appropriate, which would generally include the candidate’s independence, personal and professional integrity, business judgment, relevant experience and skills, including those related to transportation services, and potential to be an effective director in conjunction with the rest of our Board in collectively serving the long-term interests of our shareholders. Although our Board has the authority to retain a search firm to assist it in identifying director candidates, there has to date been no need to employ a search firm. Our Board of Directors does not evaluate potential nominees for director differently based on whether they are recommended to our Board by a shareholder.

 

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Board Diversity

 

The Board has determined that the Board as a whole must have the right diversity, mix of characteristics and skills for the optimal functioning of the Board in its oversight of the Company. The Board does not follow any ratio or formula to determine the appropriate mix. Rather, it uses its judgment to identify nominees whose backgrounds, attributes, and experiences, taken as a whole, will contribute to the high standards of Board service to the Company.

 

The table below highlights the current gender identity and demographic background of the members of the Board, in compliance with NASDAQ Listing Rule 5605:

 

Board Diversity Matrix (As of June 6, 2024)

Total Number of Directors

9

 

Female

Male

Non-Binary

Did not

Disclose

Gender

Part I: Gender Identity

       

Directors

-

9

-

-

Part II: Demographic Background

       

African American or Black

-

-

-

-

Alaskan Native or Native American

-

-

-

-

Asian

-

-

-

-

Hispanic or Latinx

-

1

-

-

Native Hawaiian or Pacific Islander

-

-

-

-

White

-

8

-

-

Two or More Races or Ethnicities

-

-

-

-

LGBTQ+

-

Did Not Disclose Demographic Background

-

 

 

Communications with Directors and Attendance at the Annual Meetings

 

Shareholders may communicate directly with our Board of Directors as a group by writing to our Board of Directors, care of the Secretary of PTSI, Post Office Box 188, Tontitown, Arkansas 72770. Our Secretary will review all of the correspondence and regularly forward to our Board of Directors a summary of the correspondence, and copies of all of the correspondence that, in his opinion, deals with the functions of our Board of Directors or any of its committees or that our Secretary otherwise determines requires the attention of our Board of Directors. Directors may at any time review a log of all of the correspondence that is addressed to our Board, and request copies of any and all of the correspondence.

 

Our Board of Directors has a policy of encouraging our directors to attend the annual meetings of the shareholders. In 2023, seven of our directors attended the Annual Meeting.

 

Code of Ethics

 

We have adopted a written code of ethics that applies to all our directors, officers and employees, including our CEO and our chief financial and accounting officer. We have posted a copy of our Code of Ethics on our website at www.pamtransport.com under the caption “Investors.” In addition, we intend to post on our website all disclosures that are required by law or NASDAQ listing standards concerning any amendments to, or waivers from, any provision of the code.

 

 

Compensation Committee Interlocks and Insider Participation

 

In 2023, Messrs. Matthew T. Moroun and Joseph A. Vitiritto served as members of the Compensation Committee for the year as allowed under NASDAQ Rule 5615(c) based on the Company’s status as a controlled company. Mr. Vitiritto is currently President and CEO of the Company. Mr. Moroun is Chairman of the Board of Directors and our largest shareholder. Information regarding certain transactions between the Company and entities controlled by Mr. Moroun is provided in the section entitled “Transactions With Related Persons” on page 64 of this proxy statement. None of our executive officers serves or served as a director or member of the compensation committee of another entity in a case where an executive officer of such other entity serves or served as a director or member of our Compensation Committee.

 

Derivative Trading and Hedging

 

We have a policy that all Company directors, officers and other employees who possess material nonpublic information regarding the Company should refrain from trading in put and call options on the Company’s securities. We believe these types of hedging instruments create an enticement for abusive trading and can give the unwelcome appearance of betting against the Company.

 

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AUDIT COMMITTEE REPORT

 

Each current member of the Audit Committee is independent, as independence for audit committee members is defined in the NASDAQ listing standards and the rules of the SEC.

 

The Audit Committee’s primary purpose is to assist the Board of Directors in overseeing:

 

 

the accounting and financial reporting process;

 

audits of financial statements and internal control over financial reporting; and

 

internal control and audit functions.

 

In carrying out its responsibilities, the Audit Committee supervises the relationship between us and our independent auditor, including having direct responsibility for the auditor’s appointment, compensation and retention, reviewing the scope of its audit services, and approving audit and permissible non-audit services. The Audit Committee reviews and discusses the annual and quarterly financial statements, and reviews the activities of our internal audit function.

 

Management is responsible for the preparation, presentation and integrity of our financial statements and for the appropriateness of the accounting principles and reporting policies that are used. Management is also responsible for testing the system of internal controls and reporting to the Audit Committee on any significant deficiencies or material weaknesses that are found.

 

The Audit Committee discussed with the Company’s independent registered public accounting firm, Grant Thornton LLP (“Grant Thornton”), who is responsible for expressing an opinion on the conformity of our audited financial statements with generally accepted accounting principles, its judgments as to the quality and the acceptability of our financial reporting and such other matters as are required to be discussed with the Audit Committee under standards of the Public Company Accounting Oversight Board (“PCAOB”), including the matters required to be discussed pursuant to Auditing Standard 1301 (Communications with Audit Committees). The Audit Committee and Grant Thornton also reviewed management’s assessment included in management’s report on internal control over financial reporting and Grant Thornton’s opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023.

 

The Audit Committee has discussed with Grant Thornton the firm’s independence from management and us, and has received from Grant Thornton the written disclosures and letter required by PCAOB Rule 3526 (Communication with Audit Committees Concerning Independence). The Audit Committee has considered the compatibility of the provision of non-audit services with maintaining Grant Thornton’s independence.

 

In fulfilling its oversight responsibilities, the Audit Committee has reviewed and discussed the audited financial statements in the Annual Report on Form 10-K for the year ended December 31, 2023, with both management and our independent registered public accounting firm. The Audit Committee’s review included a discussion of the quality and integrity of the accounting principles, the reasonableness of significant estimates and judgments, and the clarity of disclosures in the financial statements.

 

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2023, for filing with the SEC.

 

Audit Committee Members

 

W. Scott Davis, Chairman

Michael D. Bishop

Franklin H. McLarty

H. Pete Montaño

 

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in this proxy statement with management. Based on the review and discussion, the committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement for filing with the SEC.

 

Compensation Committee Members

 

Matthew T. Moroun, Chairman

Joseph A. Vitiritto

 

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Overview

 

Our primary goal for the compensation of our executive officers is to create long-term value for our shareholders. Our compensation program is intended to attract, motivate, reward and retain the management talent required to achieve our corporate objectives and create long-term value for our shareholders, while at the same time making efficient use of our resources. The compensation of our executive officers is designed to reward financial and operating performance, to align their interests with those of our shareholders, and to encourage them to remain with us.

 

Executive Officers of PTSI

 

Our current executive officers are Joseph A. Vitiritto and Lance K. Stewart.

 

Name

Age

Position

Years of Service

Joseph A. Vitiritto

53

President and Chief Executive Officer

4

Lance K. Stewart

55

Vice President of Finance, Chief Financial Officer and Treasurer

32

 


 

Joseph A. Vitiritto. Mr. Vitiritto, age 53, has served as President and Chief Executive Officer since August 2020. Prior to his employment with the Company, Mr. Vitiritto served as Senior Vice President of Pricing and Network Design for Knight-Swift Transportation Holdings, Inc. (“Knight-Swift”) since May 2019. Prior to assuming that role, Mr. Vitiritto served in various managerial capacities for Knight-Swift and its predecessor, Knight Transportation, Inc., beginning in 2003, including most recently as Senior Vice President of Operations – Swift Transition Team and Senior Vice President of Human Resources.

 

Lance K. Stewart. Mr. Stewart, age 55, has served as Vice President of Finance, Chief Financial Officer and Treasurer of the Company since April 2023. Mr. Stewart served as interim Chief Financial Officer and Treasurer in March 2023 and served as Vice President of Operations of the Company’s primary operating subsidiary, P.A.M. Transport, Inc., from 2020 to April 2023. He served as Vice President of Accounting of P.A.M. Transport from 2016 until 2020. Mr. Stewart previously served as Vice President of Finance, Chief Financial Officer, Secretary and Treasurer of the Company from 2010 until 2013 and as Vice President of Accounting and Controller of P.A.M. Transport from 2002 until 2010. He began his career with P.A.M. Transport in 1989 and served in various capacities before becoming Vice President of Accounting in 2002.

 

 

Named Executive Officers for 2023

 

Our “named executive officers” for 2023 consisted of our President and Chief Executive Officer, Joseph A. Vitiritto, our Vice President of Finance, Chief Financial Officer and Treasurer, Lance K. Stewart, and our former Vice President of Finance, Chief Financial Officer, Secretary and Treasurer, Allen W. West.

 

Elements of Compensation

 

We have three key elements of compensation: annual base salary, cash incentive compensation, and long-term equity incentives. Annual base salary is intended to attract and retain talented executives, and reward them for annual achievement. Cash incentive compensation is intended to motivate our executive officers to achieve specified financial results or superior performance. Long-term equity incentives are intended to align the interests of our executive officers with those of our shareholders by linking compensation to stock price appreciation. In addition, when the criteria for vesting of equity awards includes achieving specified financial results, the equity awards also serve the purpose of motivating our executive officers to achieve those results.

 

Determining Compensation

 

The Board of Directors has appointed our Chairman, Mr. Matthew T. Moroun, and our CEO, Mr. Joseph A. Vitiritto, to the Compensation Committee in accordance with the exemption from the compensation committee independence requirements for controlled companies under NASDAQ Rule 5615(c). Currently, the Compensation Committee determines the compensation for our officers and key employees other than the CEO, while the Board of Directors makes all decisions regarding the CEO’s compensation and approves the equity awards to the named executive officers.

 

In determining compensation for our executive officers, the Compensation Committee and the Board consider competitive market compensation paid by other companies, including truckload dry van carriers and other trucking companies, but do not attempt to maintain a specified target percentile within a peer group or otherwise rely on compensation paid by other companies to determine our executive compensation. The Compensation Committee and the Board review and evaluate many factors, including:

 

 

PTSI’s performance and growth;

 

 

financial measurements such as revenue, revenue growth, net operating income and operating ratio, and trends in those measurements;

 

 

leadership qualities;

 

 

ability to achieve strategic objectives;

 

 

scope and performance of business responsibilities;

 

 

management experience and effectiveness;

 

 

individual performance and performance as a management team;

 

 

current compensation arrangements; and

 

 

long-term potential to maintain and enhance value for our shareholders.

 

The Board members generally do not adhere to rigid formulas or react to short-term changes in business performance in determining the amount and mix of compensation elements but strive to achieve an appropriate mix between annual base salary, cash incentive compensation and long-term equity incentives to meet our objectives.

 

 

The Board members receive regular updates on our business results from management and review the quarterly financial statements and projections to assess whether executive compensation continues to be properly balanced with and supportive of our business objectives. The Board members may also review information, such as reported revenue, profit levels, market capitalization and disclosed governance practices, regarding comparably-sized companies in our industry to assess our comparative performance and organizational structure. The Board members use management updates and peer information as tools to evaluate the connection between executive compensation and our performance as a business. This information is reviewed in a subjective manner. There is no implied direct or formulaic linkage between peer information and our compensation decisions. The Board members take the view that a close connection between compensation and performance objectives encourages our executive officers to make decisions that will result in significant positive short-term and long-term returns for our business and our shareholders without providing an incentive either to take unnecessary risks or to avoid opportunities to achieve long-term benefits even though they may reduce short-term benefits for the executive officers, the business or our shareholders.

 

Based on this information, the Board members regularly evaluate both the short-term and long-term performance compensation for the executive officers to ensure alignment with our business objectives. The committee also works closely with management regarding long-term equity incentives, which emphasize shareholder returns while providing enhanced retention value for key executives.

 

Annual Cash Compensation

 

Base Salary. Each of our named executive officers receives an annual base salary as compensation for services performed during the year. The base salary for each named executive is established based on the scope of responsibilities, level of experience and expertise, and the ability to lead and direct the Company and achieve various financial and operational objectives. Our general compensation philosophy is to pay executive base salaries that are competitive with the salaries of executives in similar positions, with similar responsibilities, at comparable companies. We have not benchmarked our named executive officer base salaries against the base salaries at any particular company or group of companies. The base salaries of Messrs. Vitiritto, Stewart and West were established in accordance with their respective employment agreements subject to review and adjustment by the Compensation Committee or the Board, as applicable, on an annual basis after taking into account individual responsibilities, performance and expectations. The base salaries paid to our named executive officers in 2023 are set forth below in the “Summary Compensation Table” and the accompanying narrative disclosure.

 

Cash Incentive Compensation. The Compensation Committee’s and the Board’s practice is to award an annual cash bonus to each of the named executive officers as part of his annual compensation. Bonuses are intended to provide executives with an opportunity to receive additional cash compensation, and are based on individual performance and the Company’s performance. The Committee and the Board believe this practice provides an incentive for strong financial and operating performance and aligns the interests of management with the interests of our shareholders. Bonuses may be awarded on a discretionary basis or according to pre-determined performance metrics, goals and payout formulas.

 

Due to the challenging and uncertain operating environment that began in the latter half of 2022, the Board did not adopt or utilize an annual cash incentive plan for our executive officers based on predetermined performance metrics for 2023. For 2023, our Board awarded discretionary cash bonuses to Mr. Vitiritto and Mr. Stewart of $150,000 and $80,000, respectively, based on their efforts and leadership in achieving profitable operating results for fiscal year 2023 while navigating an extended freight recession and significant business disruptions from key customers due to the labor strikes at several automotive production facilities in the fourth quarter of 2023 and completing the integration of the former Metropolitan Trucking business acquired in 2022. The terms of these bonuses provided that 50.0% of the bonus was to be paid immediately, while the remaining 50.0% of the bonus will be paid in equal installments during each of the next two succeeding years, subject to continued employment with the company. The immediate portion of the bonus was paid in February 2024.

 

 

For 2022 and 2021, the annual cash bonuses awarded to our named executive officers and certain other key employees were determined based on an annual cash incentive plan approved by the Board in March 2021. This plan provided for cash bonuses and equity incentive awards to be determined based on the attainment of certain consolidated operating income performance targets. The potential overall incentive payments for 2022 varied from zero to 175% of base salary for Mr. Vitiritto and from zero to 130% of base salary for our former CFO, Mr. West, depending on the actual level of consolidated operating income achieved. A portion of the executive’s overall incentive award earned, if any, would be paid as a cash bonus and a portion would be paid in restricted shares of our common stock. Under the terms of the incentive plans, the cash bonus and restricted share amounts would increase incrementally based on the Company’s actual consolidated operating income level achieved, assuming a minimum operating income level was attained. For purposes of the plan, consolidated operating income was modified to exclude the impact of any cash bonus or stock compensation expense.

 

If the Company’s 2022 operating income exceeded the minimum threshold of $105 million, Mr. Vitiritto would receive a cash bonus representing 75%, 90% or 105% of his base salary, and Mr. West would receive a cash bonus representing 60%, 70% or 80% of his base salary, based on the actual operating income level achieved, with the maximum cash bonus amount being paid at an operating income of $135 million or higher. At the target operating income performance level of $125 million, Mr. Vitiritto and Mr. West would receive cash bonuses equal to 90% and 70%, respectively, of the executive’s base salary. The 2022 operating income performance target levels reflected a range of performance that the Board believed was attainable but uncertain, with the target and maximum operating income levels reflecting a significant achievement of a 25% to 35% increase over 2021 actual consolidated operating income.

 

In addition, if the Company achieved the target and maximum operating income performance levels for 2022, Mr. Vitiritto and Mr. West were eligible to receive additional discretionary “kicker” cash bonuses in amounts of up to approximately 35.2% and 17.6%, respectively, of an additional aggregate bonus pool for each such performance level under the incentive plan. The additional aggregate bonus pools for the target and maximum operating income performance levels were $400,000 and $800,000, respectively.

 

Notwithstanding the terms of Mr. Vitiritto’s employment agreement, the Board designated that the cash bonus amount earned, if any, under the incentive plan would be paid immediately following certification of the Company’s achievement of consolidated operating income exceeding the minimum performance level. For purposes of this incentive plan, the applicable base salary was the named executive officer’s base salary in effect as of December 31, 2022 of $610,220 for Mr. Vitiritto and $414,700 for Mr. West.

 

For 2022, the Company achieved consolidated operating income of $123.8 million, a 23.5% increase over 2021 consolidated operating income of $100.2 million. Excluding cash bonus and stock compensation expense, the Company’s consolidated operating income, as adjusted, for 2022 was $127.5 million. As a result of the Company exceeding the target operating income performance level under the plan, Mr. Vitiritto earned a cash bonus of $549,198 and Mr. West earned a cash bonus of $290,290 for 2022 under the incentive plan for 2022. In addition, based on their leadership in achieving the target operating income performance level despite challenging operating conditions during 2022, Mr. Vitiritto and Mr. West were awarded discretionary kicker bonuses of $140,625 and $70,311, respectively. These bonuses were paid in February 2023.

 

Under the Company’s annual cash and equity incentive plan for our named executive officers and certain other key employees for 2021, Mr. Vitiritto and Mr. West were eligible to receive overall incentive payments ranging from zero to 150% of base salary for Mr. Vitiritto and from zero to 90% of base salary for Mr. West, depending on the actual level of consolidated operating income achieved. The executive’s overall incentive award earned, if any, would be paid 60% as a cash bonus and 40% in restricted shares of our common stock.

 

If the Company’s 2021 operating income exceeded the minimum threshold of $35 million, Mr. Vitiritto would receive a cash bonus representing 30%, 45%, 60%, 75% or 90% of his base salary, and Mr. West would receive a cash bonus representing 18%, 30%, 39%, 48% or 54% of his base salary, based on the actual operating income level achieved, with the maximum cash bonus amount being paid at an operating income of $55 million or higher. At the target operating income performance level of $45 million, Mr. Vitiritto and Mr. West would receive cash bonuses equal to 60% and 39%, respectively, of the executive’s base salary.

 

For 2021, the Company achieved consolidated operating income of $100.2 million, a 295% increase over 2020 consolidated operating income of $33.9 million. Based on these results, Mr. Vitiritto earned a cash bonus of $505,674 and Mr. West earned a cash bonus of $217,339 under the incentive plan as a result of the Company exceeding the maximum operating income performance level under the plan. These bonuses were paid in January 2022.

 

 

In addition, during November 2021, in light of the Company’s record financial performance through the first three quarters of 2021, our Board awarded additional discretionary cash bonuses to Mr. Vitiritto and Mr. West in amounts that were to be determined following certification of the Company’s final full year results for 2021. Based on the 2021 year-end results, Mr. Vitiritto and Mr. West were awarded discretionary cash bonuses of $450,000 and $225,000, which were paid in January 2022.

 

Other Compensation

 

Long-Term Equity Incentives. Long-term equity incentives are awarded to our named executive officers as part of our overall compensation package. These awards are granted under our Amended and Restated Stock Option and Incentive Plan (the “Plan”), which was adopted by the Board of Directors in March 2014 and approved by our shareholders in May 2014. The Plan authorizes grants to our employees, directors, and consultants of awards of stock options, restricted stock, restricted stock units, stock appreciation rights, phantom stock units, and unrestricted common stock. A total of 3,000,000 shares of our common stock (as adjusted for the Company’s August 2021 and March 2022 2-for-1 forward stock splits), subject to adjustments, were reserved for the issuance of stock awards under the Plan. This Plan expired on March 13, 2024, and no further grants may be made under the Plan.

 

On February 15, 2024, the Board approved our 2024 Equity Incentive Plan (the “2024 Plan”), subject to the approval of our shareholders at our Annual Meeting. See “Proposal Two – Approval of the Company’s 2024 Equity Incentive Plan” on page 35 of this proxy statement. The 2024 Plan authorizes us to grant awards of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares and unrestricted shares of common stock to our employees, officers and directors, as well as consultants and advisors. A total of 1,600,000 shares of our common stock, subject to adjustments, are reserved for the issuance of stock awards under the 2024 Plan. The 2024 Plan will be administered by our Board, which, at its discretion or as legally required, may delegate such administration to our Compensation Committee or one or more additional committees. If approved by our shareholders at the Annual Meeting, the 2024 Plan will expire on August 1, 2034.

 

The Compensation Committee and the Board believe that long-term equity incentives, such as stock options and restricted stock, are consistent with the Company’s philosophy and represent an additional vehicle for aligning management’s interests with the interests of our shareholders. The Compensation Committee and the Board currently believe that restricted shares are more effective than stock options in achieving the Company’s compensation objectives, as these grants are subject to less market volatility and are less dilutive to shareholders.

 

When determining the amount of long-term incentive grants to be awarded to our named executive officers, the Board members consider, among other factors, the business performance of the Company, the responsibilities and performance of the executive, and the performance of our stock price. The Board has historically granted long-term equity incentives to our named executive officers on a discretionary basis or in connection with an executive’s hiring or promotion. During 2021, the Board adopted a cash and equity incentive plan under which our named executive officers are eligible to receive cash bonuses and restricted shares representing a percentage of the executive’s base salary based on the attainment of consolidated operating income performance targets, assuming a minimum operating income level is attained. The Board believes this plan provides an enhanced long-term incentive for our executive officers, is consistent with a pay-for-performance approach and similar to incentive programs utilized by certain Company peers, and further aligns our management’s interests with those of our shareholders. Once the fiscal year is completed, the Board grants the restricted shares, if any, determined based on our actual performance for the fiscal year with such shares being subject to additional time-based vesting conditions. The Board did not adopt or utilize such an incentive plan for 2023; however, the Board did grant restricted shares to our named executive officers in February 2023 based on our fiscal year 2022 performance.

 

 

Under the terms of the plan for 2022, if the Company’s 2022 operating income exceeded the minimum threshold of $105 million, Mr. Vitiritto would receive restricted shares representing 25%, 50%, 60% or 70% of his base salary, and Mr. West would receive restricted shares representing 15%, 30%, 40% or 50% of his base salary, based on the actual operating income level achieved, with the maximum grant amount being issued at an operating income of $135 million or higher. At the target operating income performance level of $125 million, Mr. Vitiritto and Mr. West would receive restricted shares representing 60% and 40%, respectively, of the executive’s base salary. The restricted shares earned, if any, would be granted following completion of the 2022 performance year and vest in equal annual installments over a four-year period, subject to the employee’s continued service with the Company. For purposes of the plan, consolidated operating income excludes the impact of any cash bonus or stock compensation expense. Additional information regarding this plan is described above under “Annual Cash Compensation – Cash Incentive Compensation.”

 

The Company’s 2022 actual consolidated operating income was $127.5 million, excluding cash and stock bonus compensation expense of $3.7 million. In February 2023, as a result of the Company exceeding the target operating income performance level under the plan for fiscal year 2022, the Board granted 12,938, 5,862, and 2,420 restricted shares of our common stock to Messrs. Vitiritto, West and Stewart, respectively. These shares vest in four equal annual installments beginning on the first anniversary of the grant date.

 

Under the terms of the plan for 2021, if the Company’s 2021 operating income exceeded the minimum threshold of $35 million, Mr. Vitiritto would receive restricted shares representing 20%, 30%, 40%, 50% or 60% of his base salary, and Mr. West would receive restricted shares representing 12%, 20%, 26%, 32% or 36% of his base salary, based on the actual operating income level achieved, with the maximum grant amount being issued at an operating income of $55 million or higher. At the target operating income performance level of $45 million, Mr. Vitiritto and Mr. West would have received restricted shares representing 40% and 26%, respectively, of the executive’s base salary. The restricted shares earned, if any, would vest in equal annual installments over the four-year period following completion of the 2021 performance year, subject to the employee’s continued service with the Company.

 

Based on the Company’s 2021 consolidated operating income of $100.2 million, under the terms of the incentive plan, Mr. Vitiritto was awarded 8,690 restricted shares of our common stock and Mr. West was awarded 3,734 restricted shares of our common stock, which represented achievement of the maximum operating income performance level under the plan. These restricted shares were granted to our officers in February 2022 and vest in equal annual installments over the four-year period following the grant date.

 

We did not grant any stock options to our executive officers in 2023, 2022 or 2021.

 

All share amounts set forth above reflect the Company’s August 2021 and March 2022 2-for-1 forward splits of its common stock paid in the form of 100% stock dividends. All unvested restricted shares granted to Mr. West were forfeited upon his resignation from the Company effective in June 2023.

 

Retirement and Health Benefits. We sponsor a retirement savings plan for all of our eligible employees, including our executive officers. The plan qualifies under section 401(k) of the Internal Revenue Code of 1986, as amended. This plan allows eligible employees to make tax deductible contributions to the plan. We make employer matching contributions to the plan for each eligible employee. The matching contributions are 50% of each participating employee’s voluntary contribution up to 3% of the participant’s compensation. These matching contributions vest at the rate of 20% each year until fully vested after five years.

 

We offer health, vision and dental insurance to our executive officers.

 

Perquisites. Our policy is to provide minimal, if any, perquisites to our executive officers. This helps set an example for all employees that personal expenses are not payable from company funds and helps to control expenses. We did not provide any perquisites to our executive officers in 2023.

 

Post-Employment Compensation. We do not provide a defined benefit pension plan or generally provide post-retirement health insurance coverage for our executive officers or any of our other employees. We do not offer deferred compensation plans, and do not have agreements that provide compensation to our executive officers based upon the occurrence of a change in control of PTSI. However, our executive officers would be entitled to receive certain compensation if we terminate employment based on a determination that such termination would be in our best interest. See “Payments Upon Termination or Change In Control – Payments Upon Termination Based on Our Best Interest” for more information regarding such payments.

 

 

On July 10, 2023, we entered into a separation and consulting agreement, dated as of July 7, 2023, with Mr. West, who resigned from the Company effective June 8, 2023. Under the terms of the agreement, Mr. West agreed to make himself available to advise senior management and consult with us as we may reasonably request from time to time for a one-year period for a monthly consulting fee of $35,771.67. We also agreed to provide health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”) during his consulting period, unless he becomes eligible for executive benefits from a subsequent employer. In recognition of his contributions to the Company, and in consideration of the covenants contained in the agreement and the accompanying release, we agreed to pay Mr. West a cash bonus in the aggregate amount of $1,250,000, payable in five equal semi-annual installments beginning six months after the agreement becomes effective. In addition, we agreed to repurchase the shares of our common stock owned by Mr. West (excluding his unvested restricted shares of common stock which were forfeited upon his resignation) at the closing market price per share of our common stock on the effective date of the agreement. These payments and benefits are subject to Mr. West having not revoked a customary release of claims in favor of the Company and his compliance with terms and conditions of the separation and consulting agreement. Mr. West is also subject to restrictive covenants with respect to the confidentiality of our proprietary information and the non-solicitation of employees or business that is competitive with our business or that of certain affiliated companies under common ownership with us for a 12-month period following the effective date of his resignation from the Company. The agreement also contains customary cooperation and mutual non-disparagement provisions.

 

Tax Deductibility of Compensation

 

Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a $1 million limit on the amount that a public company may deduct for compensation paid to the company’s chief executive officer, chief financial officer or certain of the company’s other most highly compensated executive officers. Historically, there was an exception to this $1 million limitation for compensation that meets the requirements under Section 162(m) for “qualifying performance-based” compensation (compensation paid only if the individual’s or the company’s performance meets pre-established objective goals based on performance criteria approved by the shareholders), and compensation paid to the chief financial officer was excluded from the $1 million limit. Effective January 1, 2018, the Tax Cuts and Jobs Act eliminated the exception for performance-based compensation, and the chief financial officer’s compensation is no longer excluded. The amendments to Section 162(m) include a grandfather clause applicable to compensation paid pursuant to a written binding contract in effect on November 2, 2017 that is not materially modified after such date. We periodically review the potential consequences of Section 162(m) but do not have a specific policy to structure the compensation for our executive officers so that it will not be subject to the deduction limitations of Section 162(m).

 

Share Ownership Guidelines

 

We do not have stock ownership requirements for our executive officers.

 

Role of Executive Officers in the Compensation Process

 

The elements of executive compensation are discussed at meetings of the Compensation Committee and the Board, with significant input from our Chairman of the Board and our CEO. Annual base salary is generally determined annually but may be determined for a multi-year period at the time that employment agreements are negotiated with our executive officers, if applicable. Cash incentive compensation and other bonuses and forms of stock-based compensation are discussed from time to time, but there is no set schedule for making determinations regarding these types of compensation. The committee and the Board retain considerable flexibility in deciding when to address these matters. In making its compensation decisions, the Board members will usually seek input from the executive officers. However, the Board makes the final decisions on compensation of our CEO and on equity awards to our executive officers, and the committee makes the final decisions on other compensation to our executive officers. The committee is authorized to utilize compensation consultants. Neither the committee nor the Board utilized a compensation consultant regarding 2022 executive compensation.

 

 

Shareholder Approval of the Companys Compensation Programs

 

At our 2023 Annual Meeting of Shareholders, we held an advisory vote on the compensation of our named executive officers, commonly referred to as “say on pay.” Our shareholders overwhelmingly approved the “say on pay” resolution presented with more than 90% of the shares represented in person or by proxy at the meeting and more than 99% of votes cast voting to approve our executive compensation. The Compensation Committee and the Board reviewed and considered these voting results in determining the Company’s compensation policies and decisions and, given the strong level of support, determined that these policies and decisions are appropriate and in the best interests of the Company and its shareholders at this time. At our 2023 Annual Meeting of Shareholders, over 85% of the shares voted (excludes abstentions and broker non-votes) were in favor of our recommendation to hold the “say on pay” vote every three years. The next shareholder vote on the frequency of future “say on pay” votes is scheduled for 2029.

 

Summary Compensation Table

 

The following table provides information regarding the compensation earned by the Company’s named executive officers for the three years ended December 31, 2023.

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position

Year

 

Salary

   

Bonus

   

Stock

Awards

   

Option

Awards

   

Non-Equity

Incentive Plan

Compensation

   

All Other

Compensation

   

Total

 
     

($)

   

($) (1)

   

($) (2)

   

($) (2)

   

($) (3)

   

($)(4)

   

($)

 

Joesph A. Vitiritto

2023

    616,085       150,000       366,145       -       -       -       1,132,230  

President and Chief Executive Officer

2022

    577,670       140,625       337,116       -       549,198       -       1,604,609  
 

2021

    540,440       450,000       -       -       505,674       -       1,496,114  

Lance K. Stewart

2023

    344,840       80,000       68,486       -       -       -       493,326  

Vice President of Finance, Chief Financial Officer and Treasurer

                                                         
                                                           

Allen W. West

2023

    205,255       -       165,895       -       -       219,961       591,111  

Former Vice President of Finance, Chief Financial Officer, Secretary and Treasurer

2022

    414,230       70,311       144,879       -       290,290       -       919,710  
 

2021

    389,934       225,000       -       -       217,339       -       832,273  

 

 

(1)

The amounts shown for 2023 represent discretionary cash bonuses that were awarded and paid at the rate of 50% during February 2024 with the remaining 50% being paid at the rate of 25% of the bonus amount awarded during each of the next two years. The amounts shown for 2022 represent discretionary cash bonuses paid in February 2023. The amounts shown for 2021 represent discretionary cash bonuses paid in January 2022.

 

 

(2)

Amounts shown do not reflect compensation actually received by the named executive officer. Instead, the amounts shown are the aggregate grant date fair value computed in accordance with the provisions of FASB ASC Topic 718. The stock awards granted to Mr. West during 2023 and all unvested shares from prior stock awards granted to Mr. West were forfeited upon his resignation from the Company effective June 8, 2023.

 

 

(3)

Amounts shown for 2022 and 2021 represent cash bonuses earned under a short-term incentive plan that were paid in February 2023 and January 2022, respectively.

 

 

(4)

The amount shown for Mr. West for 2023 includes $214,630 in consulting fees and $5,331 for COBRA benefits paid following his resignation from the Company.

 

 

Employment Agreements

 

Joseph A. Vitiritto. On August 4, 2020, we entered into an employment agreement with our President and CEO, Mr. Vitiritto. Pursuant to the agreement, the Company agreed to pay Mr. Vitiritto an initial annual salary of $530,036 and a cash bonus for fiscal year 2020 of $328,500, payable in December 2020 or January 2021. In addition, he received a grant of 160,000 (split-adjusted) restricted shares of common stock of the Company which vest in installments of 20,000 shares each in 2022, 2023, 2024 and 2027 and 40,000 shares each in 2025 and 2026, subject to his continued employment or retirement after reaching age 65. Under the terms of the agreement, Mr. Vitiritto’s performance will be reviewed annually for changes in base salary. Mr. Vitiritto currently earns an annual salary of $628,160. In addition, the agreement provides that Mr. Vitiritto is eligible to earn an annual cash bonus as determined by the Board. The terms of the agreement provide that such bonus will be paid in five annual installments of 20% each beginning in the year following the year in which the bonus is earned, subject to his continued employment or retirement after reaching age 65.

 

Notwithstanding the terms of Mr. Vitiritto’s employment agreement, our Board has elected to pay Mr. Vitiritto’s bonus amounts earned since fiscal year 2021 either in full following completion of the performance period or in larger installments than prescribed by the employment agreement. See “Annual Cash Compensation – Cash Incentive Compensation” for more information regarding Mr. Vitiritto’s bonus awards.

 

The employment agreement includes provisions regarding termination of employment and his non-compete, non-solicitation and confidentiality obligations to the Company.

 

Lance K. Stewart. On July 7, 2023, we entered into an employment agreement with our Vice President of Finance, Chief Financial Officer and Treasurer, Mr. Stewart, effective as of March 13, 2023. Pursuant to the agreement, the Company agreed to pay Mr. Stewart an initial annual salary of $378,560. Mr. Stewart currently earns an annual salary of $391,560. Under the terms of the agreement, Mr. Stewart’s performance will be reviewed annually for changes in base compensation and bonus. The employment agreement includes provisions regarding termination of employment and his non-compete, non-solicitation and confidentiality obligations to the Company.

 

Our executive officers may participate in bonus and other incentive plans that are approved from time to time by our Board of Directors or Compensation Committee. The executive officers are also entitled to any fringe benefits that we may provide for our employees in the normal course of our business.

 

Allen W. West. On March 7, 2019, we entered into an employment agreement with our former Vice President of Finance, Chief Financial Officer, Secretary and Treasurer, Mr. West, effective as of January 1, 2019. Pursuant to the agreement, the Company agreed to pay Mr. West an initial annual salary of $335,140. Under the terms of the agreement, Mr. West’s performance was reviewed annually for changes in base compensation and bonus. Mr. West’s annual base salary for 2023 was $429,260. The employment agreement includes provisions regarding termination of employment and his non-compete, non-solicitation and confidentiality obligations to the Company.

 

On July 10, 2023, we entered into a separation and consulting agreement with Mr. West, dated as of July 7, 2023. Pursuant to the agreement, Mr. West agreed to make himself available to advise senior management and consult with us as we may reasonably request from time to time for a one-year period for a monthly consulting fee of $35,771.67. We also agreed to provide health insurance coverage under COBRA during the consulting period, unless he becomes eligible for executive benefits from a subsequent employer. In recognition of his contributions to the Company, and in consideration of the covenants contained in the agreement and the accompanying release, we agreed to pay Mr. West a cash bonus in the aggregate amount of $1,250,000, payable in five equal semi-annual installments beginning six months after the agreement became effective. The initial bonus installment payment was made in February 2024. These payments and benefits are subject to Mr. West having not revoked a customary release of claims in favor of the Company and his compliance with terms and conditions of the agreement. In addition, pursuant to the agreement, in July 2023 we repurchased all of Mr. West’s vested and outstanding shares of our common stock at the closing market price per share of our common stock on the effective date of the agreement. See “Transactions with Related Persons” on page 64 of this proxy statement for additional information regarding this stock purchase.

 

 

The separation and consulting agreement requires Mr. West to comply with certain restrictive covenants with respect to the confidentiality of our proprietary information and the non-solicitation of employees or business that is competitive with our business or that of certain affiliated companies under common ownership with us for a 12-month period following the effective date of his resignation from the Company. The agreement also contains customary cooperation and mutual non-disparagement provisions.

 

Additional information regarding the non-compete, non-solicitation and confidentiality obligations of our named executive officers is discussed below under the heading “Payments Upon Termination or Change in Control.”

 

Grants of Plan-Based Awards

 

The following table shows all plan-based awards granted to the named executive officers during fiscal year 2023. No stock options were granted to our executive officers during 2023. Our 2014 Amended and Restated Stock Option and Incentive Plan expired on March 13, 2024, and no further grants may be made under the Plan. Subject to the approval of our shareholders at the Annual Meeting, a total of 1,600,000 shares of our common stock are reserved for the issuance of stock awards under the 2024 Equity Incentive Plan. See “Proposal Two – Approval of the Company’s 2024 Equity Incentive Plan” on page 35 of this proxy statement.

 

     

Estimated Possible Payouts Under

Non-Equity Incentive Plan Awards

   

Estimated Future Payouts Under

Equity Incentive Plan Awards

                                 

Name

Grant

Date

 

Threshold

   

Target

   

Maximum

   

Threshold

   

Target

   

Maximum

   

All Other

Stock

Awards:

Number of

Shares of

Stock or

Units

   

All Other

Option

Awards:

Number

of

Securities

Under-

lying

Options

   

Exercise

or Base

Price of

Option

Awards

   

Grant Date

Fair Value of

Stock and

Option

Awards

 
     

($)

   

($)

   

($)

   

(#)

   

(#)

   

(#)

   

(#) (1)

   

(#)

   

($/Sh)

   

($) (2)

 

Joseph A. Vitiritto

2/9/2023

    -       -       -       -       -       -       12,938       -       -       366,145  
                                                                                   

Lance K. Stewart

2/9/2023

    -       -       -       -       -       -       2,420       -       -       68,486  
                                                                                   

Allen W. West

2/9/2023

    -       -       -       -       -       -       5,862 (3)     -       -       165,895  
                                                                                   

 

 

(1)

These awards represent restricted shares of common stock granted according to our cash and equity incentive plan based on actual 2022 operating income performance, as discussed above under “Compensation Discussion and Analysis – Annual Cash Compensation” on page 17 of this proxy statement. These restricted shares vest in four equal annual installments beginning on February 9, 2024. 

 

 

(2)

Amounts shown do not reflect compensation actually received by the named executive officer. Instead, the amounts shown are the aggregate grant date fair value computed in accordance with the provisions of FASB ASC Topic 718.

 

 

(3)

These shares were forfeited by Mr. West upon his resignation from the Company in June 2023.

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table provides information as of December 31, 2023, regarding equity awards for each of the named executive officers.

 

   

Option Awards

   

Stock Awards

 
                                                                         

Name

 

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

   

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options (#)

   

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 ($)

(1)

   

Equity

Incentive

Plan

Awards:

Number of

Unearned

Shares,

Units or

Other

Rights

That Have

Not Vested

(#)

   

Equity

Incentive

Plan A

wards:

Market or

Payout

Value of

Unearned

Shares,

Units or

Other

Rights

That Have

Not Vested

($)

 
                                                                         

Joseph A. Vitiritto

    -       -       -       -       -       120,000       2,493,600       -       -  
      -       -       -       -       -       6,517       135,423       -       -  
      -       -       -       -       -       12,938       268,852       -       -  

Lance K. Stewart

    -       -       -       -       -       1,428       29,674       -       -  
      -       -       -       -       -       13,332       277,039       -       -  
      -       -       -       -       -       1,948       40,479       -       -  
      -       -       -       -       -       2,420       50,288       -       -  

Allen W. West

    -       -       -       -       -       -       -       -       -  
                                                                         

 

(1)

Based on the closing market price of $20.78 per share of PTSI’s common stock as reported on the NASDAQ Global Market on December 29, 2023.

(2)

These shares will vest in installments of 20,000 shares each on August 18 in 2024 and 2027 and 40,000 shares each on August 18 in 2025 and 2026.

(3)

These shares will vest in installments of 2,173 on February 9, 2024 and 2,172 shares each on February 9, 2025 and 2026.

(4)

These shares will vest in four equal installments of 25% each beginning on February 9, 2024.

(5)

These shares vested in their entirety on January 3, 2024.

(6)

These shares will vest in their entirety on August 4, 2024.

(7)

These shares will vest in installments of 650 shares on February 9, 2024 and 649 shares each on February 9, 2025 and 2026.

 

Options Exercised and Stock Vested

 

The following table contains information about stock options exercised and restricted stock awards vested by each of our named executive officers during 2023.

 

   

Option Awards

   

Stock Awards

 
                         

Name

 

Number of shares

acquired on exercise

   

Value realized on

exercise ($)

   

Number of shares

acquired on vesting

   

Value realized on

vesting ($)

 

Joseph A. Vitiritto

    -       -       22,173       506,096  

Lance K. Stewart

    -       -       650       18,395  

Allen W. West

    -       -       934       26,432  

 

 

Payments Upon Termination or Change In Control

 

Generally, employment agreements and certain of our stock award agreements that we enter into with any of our executive officers provide for payments that may be made to the executive officers following termination of their employment. The potential payments under our employment agreements with our executive officers and other payments to which our executive officers are entitled upon termination are discussed below and quantified in the tables that follow. We do not have any agreements or plans that provide for payments to any of our executive officers based on the occurrence of a change in control of the Company.

 

No Payments If There Is a Termination for Just Cause

 

In the event that one of our executive officers is terminated for just cause, including conviction of a crime, moral turpitude, gross negligence in the performance of duties, intentional failure to perform duties, insubordination, or dishonesty, we would have no obligation to pay base salary or benefits beyond the last day worked.

 

Payments Upon Death

 

In the event of the death of one of our executive officers, we would pay the executive officer his base salary through the date of death. Upon death, Mr. Vitiritto and Mr. Stewart would be entitled to receive any bonus earned but not yet paid.

 

Payments Upon Disability

 

In the event that an executive officer becomes disabled and is unable to perform his duties, we may terminate his employment. If the executive officer’s employment is terminated due to disability, the employment agreements provide that he would be entitled to receive his base salary and benefits for three months following the date of disability and any bonus earned but not yet paid.

 

Payments Upon Termination Based on Our Best Interest

 

In the event that an executive officer is terminated by our Board of Directors based upon a determination that such action would serve the Company’s best interest, we would generally have no obligation to pay base salary or benefits beyond the last day worked. However, Mr. Vitiritto would be entitled to receive base salary and COBRA benefits for a period of 60 weeks. Mr. Stewart would be entitled to receive base salary for a period of four months following the termination of employment in the Company’s best interest. If the Board of Directors elects to extend Mr. Stewart’s covenant not to compete for one year, Mr. Stewart would be entitled to receive base salary for a period of 12 months.

 

Payments Upon Resignation, Including Retirement

 

Our executive officers have the right to resign by providing written notice of the intent to resign. Mr. Vitiritto must provide six months’ written notice, and Mr. Stewart must provide four months’ written notice. Following such notice, we may terminate the executive’s employment before the end of the notice period. In the event an officer resigns with the required notice or is terminated following such notice, the executive officer is entitled to receive base salary through the end of the notice period. If Mr. Vitiritto retires after age 65, he is entitled to any residual bonus amounts earned but not yet paid. Mr. West was required under his employment agreement to provide three months’ written notice. He notified the Company on March 8, 2023 of his intention to resign from his positions with the Company. On March 13, 2023, our Board of Directors appointed Mr. Stewart as interim Chief Financial Officer and Treasurer, and on April 3, 2023, the Board appointed him Vice President of Finance, Chief Financial Officer and Treasurer. Mr. West remained in an advisory role with the Company until June 8, 2023. We entered into a separation and consulting agreement with Mr. West on July 10, 2022. Information regarding the terms of this agreement and the payments to which Mr. West was entitled under the agreement is discussed below under “Separation and Consulting Agreement with Mr. West.”

 

 

Obligations of Executive Officers

 

Under our existing employment agreements and certain restricted stock award agreements, our executive officers have agreed not to compete with, or solicit or retain business that is competitive with, our business, or that of specified affiliates under common ownership with us for a specified period after employment with us terminates. The duration of the non-compete period is one year for Mr. Vitiritto and six months for Mr. Stewart. We have the right to extend the non-compete period for Mr. Stewart for an additional 12 months, in which case Mr. Stewart will be entitled to receive his monthly base salary for the full extended period. In addition, Mr. Stewart has agreed not to solicit or accept business that is competitive with us or certain of our affiliates for two years after his employment with us terminates. In the event that Mr. Stewart were terminated because such termination is in the best interest of the Company, his employment agreement provides that the duration of his covenant not to solicit or accept competitive business will be for a period of four months and can be extended for one year, in which case Mr. Stewart will be entitled to receive base salary for a period of 12 months. Mr. Vitiritto and Mr. Stewart have also agreed that they will not, for a period of 24 months after termination, encourage, solicit or otherwise attempt to persuade any of our employees or any employees of the specified affiliates to leave our employment or employment with the specified affiliates. If an executive officer were to hire an employee from us or a specified affiliate during the restricted period, the executive officer has agreed to pay us or our affiliate 30% of the employee’s first year’s gross compensation. Under the employment agreements, our executive officers have also agreed to maintain the confidentiality of our proprietary information.

 

Stock Awards

 

The terms of the award agreements for the restricted shares granted to Messrs. Vitiritto and Stewart provide that all unvested shares will be forfeited at the time of termination. However, upon termination of the executive’s continuous service due to the executive’s voluntary retirement after reaching age 65, the Compensation Committee or the Board may, in its discretion, accelerate the vesting of any unvested shares of restricted stock. The terms of both the February 2022 and February 2023 awards to Messrs. Vitiritto and Stewart also provide that the Company will be entitled to recover an amount equal to 60% of the value realized under the award if the executive violates the non-compete and non-solicitation covenants in his employment agreement.

 

Separation and Consulting Agreement with Mr. West.

 

Under the terms of the separation and consulting agreement we entered into with Mr. West in July 2023, Mr. West agreed to make himself available to advise senior management and consult with us as we may reasonably request from time to time for a one-year period for a monthly consulting fee of $35,771.67. We also agreed to provide health insurance coverage under COBRA during the consulting period, unless he becomes eligible for executive benefits from a subsequent employer. In recognition of his contributions to the Company, and in consideration of the covenants contained in the agreement and the accompanying release, we agreed to pay Mr. West a cash bonus in the aggregate amount of $1,250,000, payable in five equal semi-annual installments beginning six months after the agreement becomes effective. We also agreed to repurchase the shares of our common stock owned by Mr. West (excluding his unvested restricted shares of common stock which were forfeited upon his resignation) at the closing market price per share of our common stock on the effective date of the agreement. These payments and benefits are subject to Mr. West having not revoked a customary release of claims in favor of the Company and his compliance with terms and conditions of the agreement.

 

Mr. West is also subject to restrictive covenants with respect to the confidentiality of our proprietary information and the non-solicitation of employees or business that is competitive with our business or that of certain affiliated companies under common ownership with us for a 12-month period following the effective date of his resignation from the Company. The separation and consulting agreement also contains customary cooperation and mutual non-disparagement provisions.

 

 

Tables of Payments Upon Termination of Employment

 

The following tables provide information regarding amounts paid or payable to each of our named executive officers in connection with a termination of employment. The amounts shown for Mr. Vitiritto and Mr. Stewart assume that termination of employment was effective as of December 31, 2023, the last business day of our 2023 fiscal year, and include estimates of the amounts that would be paid. The actual amounts would only be determined upon an officer’s termination of employment. The amounts shown for Mr. West reflect the actual amounts paid or payable in connection with his resignation.

 

   

Joseph A. Vitiritto

 

Benefits and Payments Upon Termination

 

Just Cause

($)

   

Death
($)

   

Disability
($)

   

Best Interest of

the Company

($)(1)

   

Resignation

($)(2)

   

Retirement

($)

 

Base Salary (3)

    -       -       157,040       724,800       314,080       -  

Annual Bonus (4)

    -       150,000       150,000               -       -  

All Other Compensation

    -       -       -       -       -       -  
                                                 

Total:

    -       150,000       307,040       724,800       314,080       -  

 

(1)

Mr. Vitiritto would is entitled to receive his base salary and COBRA benefits for a period of 60 weeks following termination in the best interest of the Company.

 

(2)

Assumes Mr. Vitiritto’s employment was terminated by the Company immediately following receipt of notice of his intent to resign.

 

(3)

These amounts would be paid in equal installments in accordance with the Company’s regularly scheduled payroll periods.

 

(4)

Upon death or disability, Mr. Vitiritto would be entitled to receive any bonus amounts earned but not yet paid.

 

   

Lance K. Stewart

 

Benefits and Payments Upon Termination

 

Just Cause

($)

   

Death
($)

   

Disability
($)

   

Best Interest of

the Company

($)(1)

   

Resignation

($)(2)

   

Retirement

($)

 

Base Salary (3)

    -       -       94,640       567,840       123,760       -  

Annual Bonus (4)

    -       80,000       80,000       -       -       -  

All Other Compensation

    -       -       -       -       -       -  
                                                 

Total:

    -       -       174,640       567,840       123,760       -  

 

(1)

Mr. Stewart is entitled to receive his base salary for a period of four months following termination in the best interest of the Company, unless the Board of Directors elects to extend his covenant not to solicit competitive business to up to one year from his termination date or his covenant not to compete to up to 18 months from his termination date, in which case he will be entitled to receive his base salary for the extended non-solicitation or non-competition period, as applicable. This calculation assumes that the Board of Directors would elect to extend Mr. Stewart’s covenants not to compete or solicit competitive business for the full extension periods, and thus he would be entitled to receive his base salary for 18 months following termination. If these options are not exercised, the amount owed to Mr. Stewart for termination in the best interest of the Company would be $123,760.

 

(2)

Assumes Mr. Stewart’s employment is terminated by the Company immediately following receipt of notice of his intent to resign.

 

(3)

These amounts would be paid in equal installments in accordance with the Company’s regularly scheduled payroll periods.

 

(4)

Upon death or disability, Mr. Stewart would be entitled to receive any bonus amounts earned but not yet paid.

 

 

   

Allen W. West

 

Benefits and Payments Upon Termination

 

Just Cause

($)

   

Death
($)

   

Disability
($)

   

Best Interest of

the Company

($)

   

Resignation

($)(1)

   

Retirement

($)

 

Base Salary

    -       -       -       -       -       -  

Annual Bonus

    -       -       -       -       -       -  

All Other Compensation

    -       -       -       -       2,331,474       -  
                                                 

Total:

    -       -       -       -       2,331,474       -  

 

(1)

This amount reflects the aggregate amounts paid or payable to Mr. West under his separation and consulting agreement, including consulting fees of $429,260, estimated payments for COBRA benefits of $10,662, a special cash bonus in the aggregate amount of $1,250,000, and the purchase price of $641,552 paid for the purchase of 24,934 shares of our common stock from Mr. West in July 2023.

 

Pay Versus Performance

 

The following table sets forth information regarding the compensation of our named executive officers (“NEOs”) for the fiscal years ended December 31, 2021, 2022 and 2023, and our financial performance for each such fiscal year:

 

Pay Versus Performance Table

 

                                     

Year

 

 

Summary

Compensation

Table Total

for PEO

($)(1)

   

Compensation

Actually Paid to

PEO

($)(2)

   

Average

Summary

Compensation

Table Total for

Non-PEO NEOs

($)(3)

   

Average

Compensation

Actually Paid to

Non-PEO NEOs

($)(2)

   

Value of Initial Fixed

$100 Investment

Based on
Total Shareholder

Return

($)(4)

   

Net Income
(In thousands)

($)(5)

 

2023

    1,132,230       252,742       542,218       (11,014 )     170       18,416  

2022

    1,604,665       138,164       919,710       731,773       211       90,672  

2021

    1,496,114       5,217,714       832,273       1,114,445       290       76,516  

 

 

(1)

Represents the total compensation of our principal executive officer (PEO), Joseph A. Vitiritto, as reported in the Summary Compensation Table for each year indicated.

 

 

(2)

The amount reported in this column for each year indicated is calculated as follows:

 

[The table follows on the next page.]

 

 

Reconciliation of PEO/Non-PEO NEOs

 

PEO

           

Non-PEO NEOs

         
SCT Total and Compensation Actually Paid.  

2023

   

2022

   

2021

   

2023

   

2022

   

2021

 
 

Total Compensation as reported SCT

  $ 1,132,230     $ 1,604,665     $ 1,496,114     $ 542,218     $ 919,710     $ 832,273  

Subtract

Pension values reported in SCT for covered fiscal year

                                   

Subtract

Fair value of equity awards granted during covered fiscal year

    (366,145 )     (337,172 )           (117,190 )     (144,879 )      

Add

Pension value attributable to covered fiscal year’s service and any change in pension value attributable to plan amendments made in the covered year

                                   

Add

Fair value of equity awards granted in covered fiscal year and that are unvested at end of such covered fiscal year - valued at year-end

    268,852       225,071             86,050       96,711        

Add

Fair value of equity awards granted in covered fiscal year that vested during such covered fiscal year - valued on date of vesting

                                   

Add

Dividends or other earnings paid on stock or option awards in the covered fiscal year prior to the vesting date that are not otherwise included in the total compensation for the covered fiscal year

                                   

Add/Subtract

Change in fair value from end of prior fiscal year to end of covered fiscal year for awards made in prior fiscal years that were unvested at end of current fiscal year

    (714,010 )     (1,345,400 )     3,721,600       (109,670 )     (82,768 )     162,892  

Add/Subtract

Change in fair value from end of prior fiscal year to vesting date for awards made in prior fiscal years that vested during covered fiscal year

    (68,185 )     (9,000 )           1,901       (57,000 )     119,280  

Subtract

Fair value of awards forfeited in current fiscal year determined at end of prior fiscal year

                      (414,322 )            

Equals

Compensation Actually Paid to PEO/Non-PEO NEOs

  $ 252,742     $ 138,164     $ 5,217,714     $ (11,014 )   $ 731,773     $ 1,114,445  

 

 

(3)

Represents the total compensation of our only other NEO for 2021 and 2022, Allen W. West, and the average of the total compensation of each of our other NEOs during 2023, Lance K. Stewart and Allen W. West, as reported in the Summary Compensation Table for each year indicated.

 

 

(4)

Represents the cumulative three-year total return to shareholders of our common stock and assumes that the value of the investment was $100 on December 31, 2020. The Company did not issue any dividends during 2021, 2022 or 2023. The stock price performance included in this column is not necessarily indicative of future stock price performance.

 

 

(5)

Represents our reported net income for each year indicated.

 

Relationship Between Compensation Actually Paid to our NEOs and Company Performance

 

The following graphs show the relationship between the compensation actually paid to our PEO and our other NEOs to our total shareholder return and net income over the three fiscal years ending December 31, 2023 as reported in the table above:

 

[The graphs follow on the next page.]

 

 

graph01.jpg

 

graph02.jpg

 

 

Director Compensation for 2023

 

The following table provides information about the compensation of our directors for the year ended December 31, 2023.

 

                                           

Name

 

Fees Earned

or Paid in

Cash

   

Stock

Awards

   

Option

Awards

   

Non-Equity

Incentive Plan

Compensation

   

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

   

All Other

Compensation

   

Total

 

(1)

 

($)

   

($) (2)

   

($)

   

($)

   

($)

   

($)

   

($) (2)

 
                                                         

Michael D. Bishop

    55,000       -       -       -       -       -       55,000  

Frederick P. Calderone

    50,000       -       -       -       -       -       50,000  

W. Scott Davis

    65,000       -       -       -       -       -       65,000  

Edwin J. Lukas

    50,000       -       -       -       -       -       50,000  

Franklin McLarty

    40,000       14,993       -       -       -       -       54,993  

H. Pete Montaño

    45,000       9,987       -       -       -       -       54,987  

Matthew J. Moroun

    35,000       14,993       -       -       -       -       49,993  

Matthew T. Moroun

    90,000       14,993       -       -       -       -       104,993  

 

(1)

Our CEO and President, Mr. Vitiritto, who is also a director, has been omitted from this table because he receives no additional compensation for serving on our Board of Directors. Mr. Vitiritto’s compensation is included in the Summary Compensation Table.

(2)

The amounts shown represent the compensation expense that we recognized in 2023, determined in accordance with FASB ASC Topic 718 for shares of our common stock issued to our non-employee directors, who have the option to elect stock in lieu of cash for a portion of their compensation. The grant date fair value of $23.95 for these shares was determined based on the closing price on May 8, 2023.

 

Compensation Arrangements for Non-employee Directors

 

Director compensation is determined by our Board of Directors. For 2023, we paid our non-employee directors an annual retainer of $50,000, paid in two equal semiannual installments, with the option to elect to receive up to $15,000 of the first annual retainer installment in unrestricted shares of common stock in lieu of cash, valued based on the closing price of our common stock on May 8, 2023, the date of issuance. The Chairman of the Board, which is a non-officer position, was paid an annual retainer of $100,000, and the chairmen of our Audit Committee and Compensation Committee were paid additional annual retainers of $15,000 and $5,000, respectively. Members of our Audit Committee, other than the chairman, were paid an additional annual retainer of $5,000. We reimburse our directors for expenses that they incur in attending Board and committee meetings, including expenses for food, lodging and transportation.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

Under the proxy rules of the SEC, a person who directly or indirectly has or shares voting power or investment power with respect to a security is considered a beneficial owner of the security. Voting power is the power to vote or direct the voting of shares, and investment power is the power to dispose of or direct the disposition of shares. Shares as to which voting power or investment power may be acquired within 60 days are also considered as beneficially owned under the proxy rules.

 

The following table sets forth certain information as of June 6, 2024, regarding beneficial ownership of our Common Stock by: (i) each person who is known to us to own beneficially more than 5% of our Common Stock; (ii) each of our directors and nominees; (iii) each of the named executive officers in the Summary Compensation Table of this proxy statement; and (iv) the total for our current directors and executive officers as a group.

 

                               

Name or Group of Beneficial Owner

 

Shares

Owned

   

Shares Held

in Trust

   

Shares

Vesting

Within 60

Days

   

Shares

Beneficially

Owned (1)

   

Percent of Class

(2)

 

5% Shareholders:

                                       

Dimensional Fund Advisors LP (3)

    1,351,428       -       -       1,351,428       6.21 %

Directors and Named Executive Officers:

                                       

Michael D. Bishop

    3,234       -       -       3,234          

Frederick P. Calderone (4)

    10,636       -       -       10,636          

W. Scott Davis

    56,196       -       -       56,196          

Edwin J. Lukas

    5,082       -       -       5,082          

Franklin H. McLarty

    8,962       -       -       8,962          

H. Pete Montaño

    4,098       -       -       4,098          

Matthew J. Moroun (5)

    3,604       -       -       3,604          

Matthew T. Moroun (6)

    2,500,000       13,501,896       -       16,005,500       73.57 %

Joseph A. Vitiritto

    27,215       -       -       27,215          

Lance K. Stewart

    3,333       -       -       3,333          

Allen W. West

    -       -       -       -       -  

Directors and executive officers as a group

    2,622,360       13,501,896       -       16,124,256       74.12 %

Total Outstanding Shares as of June 6, 2024

                                    21,755,186  
                                         

 

 

*

Denotes less than one percent.

 

(1)

The number of shares beneficially owned includes any shares over which the person has sole or shared voting power or investment power and also any shares that the person can acquire within 60 days of June 6, 2024, through the exercise of any stock option or other right, as well as any unvested shares pursuant to restricted stock awards that vest within 60 days of June 6, 2024. Unless otherwise indicated, each person has sole investment and voting power (or shares such power with his spouse) over the shares set forth in the table.

   

(2)

The percentages shown are based on the 21,755,186 shares of our common stock outstanding as of June 6, 2024, plus the number of shares that the named person or group has the right to acquire within 60 days of June 6, 2024. For purposes of computing the percentage of outstanding shares of common stock held by each person or group, any shares the person or group has the right to acquire within 60 days of June 6, 2024 are deemed to be outstanding with respect to such person or group, but are not deemed to be outstanding for the purpose of computing the percentage of ownership of any other person or group.

   

(3)

Based upon a Schedule 13G/A, filed on February 9, 2024, by Dimensional Fund Advisors LP, a Delaware limited partnership, which indicates that as of December 29, 2023, Dimensional Fund Advisors LP had sole voting power with respect to 1,326,909 shares and sole dispositive power with respect to 1,351,428 shares as an investment advisor or manager to investment companies, trusts and separate accounts that own the reported shares. Dimensional Fund Advisors LP had no shared voting or dispositive power with respect to the reported shares. The address of Dimensional Fund Advisors LP is 6300 Bee Cave Road, Building One, Austin, Texas 78746. We make no representation as to the accuracy or completeness of the information reported.

 

 

(4)

Does not include the 6,354,148 shares beneficially owned by the 2020 Irrevocable Lindsay S. Moroun Trust (the “2020 Lindsay Moroun Trust”) or the 306,048 shares beneficially owned by the 2020 Irrevocable Agnes Anne Moroun Trust (the “2020 AAM Trust”). Mr. Calderone serves as special trustee of these trusts with sole voting power over the shares held by each trust, and Matthew T. Moroun serves as trustee of each of these trusts with investment power over the shares held by each trust. Mr. Calderone disclaims beneficial ownership of the shares held by these trusts, and this disclosure shall not be deemed an admission that Mr. Calderone is the beneficial owner of such shares.

   

(5)

Does not include the 2,500,000 shares beneficially owned by Mr. Moroun's father, Matthew T. Moroun, the 6,768,000 shares beneficially owned by the Grantor Trust for Matthew T. Moroun and DuraRock Underwriters, Ltd. (the “Moroun Grantor Trust”), the 6,354,148 shares beneficially owned by the 2020 Lindsay Moroun Trust, the 306,048 shares beneficially owned by the 2020 AAM Trust, or the 73,700 shares beneficially owned by the Manuel J. Moroun Revocable Trust U/A, dated March 24, 1977, as amended and restated on December 22, 2004.

   

(6)

Includes the 3,604 shares owned by Mr. Moroun’s son, Matthew J. Moroun, 2,500,000 shares beneficially owned directly, 6,768,000 shares held by the Moroun Grantor Trust, of which Matthew T. Moroun is trustee and a beneficiary, 6,354,148 shares held by the 2020 Lindsay Moroun Trust, of which Matthew T. Moroun is trustee, 306,048 shares held by the 2020 AAM Trust, of which Matthew T. Moroun is trustee, and 73,700 shares held by the Manuel J. Moroun Revocable Trust U/A, dated March 24, 1977, as amended and restated on December 22, 2004, of which Matthew T. Moroun is a trustee. The business address of Matthew T. Moroun is 12225 Stephens Road, Warren, Michigan 48089.

 

 

DELINQUENT SECTION 16(a) REPORTS

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and persons who own more than 10% of our outstanding common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Executive officers, directors and greater than 10% shareholders are also required to furnish us with copies of the reports that they file. To our knowledge, based solely on a review of the copies of the reports furnished to us and representations received from our directors and executive officers, we believe that all reports required to be filed under Section 16(a) for 2023 were timely filed, except that one Form 4 each for Joseph A. Vitiritto and Allen W. West were not filed timely, each reporting an award of restricted shares.

 

 

[The remainder of this page is intentionally left blank.]

 

 


 

PROPOSAL TWO

 


 

APPROVAL OF THE COMPANYS 2024 EQUITY INCENTIVE PLAN

 

Introduction

 

We are asking shareholders to approve our 2024 Equity Incentive Plan (the “2024 Plan”) at the Annual Meeting. The 2024 Plan was approved by our Board on February 15, 2024 subject to the approval of our shareholders. Our Board recommends that the shareholders vote for approval of the Plan.

 

Our Amended and Restated 2014 Stock Option and Incentive Plan expired on March 13, 2024, and no further awards may be granted under that plan. The approval by our shareholders of the 2024 Plan will allow us to continue to grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares and unrestricted common stock to our employees, officers and directors, as well as consultants and advisors. We believe that our ability to grant this broad array of equity incentives is critical to secure, retain and incentivize our talented service providers and to respond to market conditions and best practices.

 

We are seeking approval for 1,600,000 shares to be available for issuance under the 2024 Plan. We believe that 1,600,000 shares under the 2024 Plan will be sufficient to fund our equity compensation needs for the duration of the plan based on historical grant practices. We also believe our future success depends, in large part, upon our ability to maintain a competitive position in attracting, retaining and motivating persons who are expected to make important contributions to the Company and by providing such persons with equity ownership opportunities and incentives that are intended to align their interests with those of the Company’s shareholders. Without shareholder approval of the 2024 Plan, we will no longer be able to make grants of equity-based compensation awards.

 

Accordingly, the Board believes that approval of the 2024 Plan is in the best interests of the Company and its shareholders.

 

Description of the 2024 Plan

 

The following summary of the material terms of the 2024 Plan is not complete and is qualified in its entirety by reference to the full text of the Plan, which is set forth in Appendix A to this proxy statement and incorporated by reference into this proposal.

 

The 2024 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Code, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares and unrestricted common stock, each as described below (collectively, “Awards”).

 

Award Eligibility. Under the 2024 Plan, Awards may be granted to employees, officers, directors, consultants and advisors of the Company and any of its present or future parent or subsidiary corporations. Under present law, however, incentive stock options may only be granted to employees of the Company and its subsidiaries.

 

Shares Available. Subject to adjustment in connection with changes in capitalization and reorganization and change in control events, the maximum aggregate number of shares that may be issued under the 2024 Plan is 1,600,000 shares of our common stock. Shares subject to Awards granted under the 2024 Plan that expire unexercised or are forfeited, will become available for future grant under 2024 Plan. However, shares used to pay the exercise price of an Award or to satisfy the tax withholding obligations related to an Award will not become available for future grants under the 2024 Plan. To the extent that an Award is paid out in cash rather than shares, such cash payment will not reduce the number of shares available for issuance under the 2024 Plan. The shares of common stock available for issuance under the 2024 Plan may be authorized but unissued or reacquired shares of our common stock.

 

 

In connection with a merger or consolidation of an entity with the Company or our acquisition of property or stock of an entity, the administrator may grant awards under the 2024 Plan in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof, on terms consistent with the provisions of the 2024 Plan, that provide the recipient with benefits substantially similar to those provided to the recipient under the existing award that such substitute award is intended to replace. Any such substitute award shall not count against the share limits described above, except as required by reason of Section 422 and related provisions of the Code but shall be available under the 2024 Plan by virtue of the Company’s assumption of the plan or arrangement of the acquired company or business.

 

Administration. The 2024 Plan is administered by our Board, which, at its discretion or as legally required, may delegate such administration to our Compensation Committee or one or more additional committees. In addition, subject to any requirements of applicable law, the Board may delegate to one or more of our officers the power to grant Awards (subject to any limitations under the 2024 Plan) to our employees or officers and to exercise such other powers under the 2024 Plan as the Board may determine. The Board will fix the terms of any Awards to be granted by officers, the maximum number of shares subject to Awards that the officers may grant, and the time period in which such Awards may be granted. No officer will be authorized to grant Awards to any “executive officer” as defined by Rule 3b-7 under the Exchange Act or to any “officer” as defined by Rule 16a-1 under the Exchange Act.

 

Subject to the provisions of our 2024 Plan, the administrator has the power to determine fair market value, select the recipients of Awards, determine the number of shares to be covered by each Award, approve forms of Award agreements for use under the 2024 Plan, determine the terms and conditions, not inconsistent with the terms of the 2024 Plan, of any Award including, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the shares relating thereto, based in each case on such factors as the administrator may determine. The administrator also has the power to construe and interpret the terms of the 2024 Plan and Awards granted pursuant to it, prescribe, amend and rescind rules and regulations relating to the plan, including rules and regulations established for the purpose of satisfying applicable foreign laws, for qualifying for favorable tax treatment under applicable foreign laws or facilitating compliance with foreign laws and the creation of sub-plans for any of these purposes, modify or amend each Award (subject to the terms of the 2024 Plan), determine the manner in which participants satisfy withholding tax obligations relating to Awards, authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the administrator, and make all other determinations deemed necessary or advisable for administering the plan. The administrator’s decisions, determinations and interpretations will be final and binding on all participants and any other holders of Awards.

 

Incentive Stock Options and Nonstatutory Stock Options. The administrator may grant incentive or nonstatutory stock options under our 2024 Plan, provided that incentive stock options may only be granted to employees. The exercise price of such options must equal at least the fair market value of our common stock on the date of grant. The term of an option may not exceed ten years; provided, however, that an incentive stock option held by a participant who owns more than 10% of the total combined voting power of all classes of our stock, or of certain of our subsidiary corporations, may not have a term in excess of five years and must have an exercise price of at least 110% of the fair market value of our common stock on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, check, shares (subject to certain requirements), consideration received by us under a broker-assisted (or other) cashless exercise program implemented by us in connection with the 2024 Plan, net exercise (for nonstatutory options only) and/or by such other consideration or method of payment to the extent permitted by applicable law. Subject to the provisions of our 2024 Plan, the administrator determines the remaining terms of the options (for example, the vesting provisions). After the termination of the services of an employee, director or consultant, the option may be exercised, to the extent vested as of such date of termination, for the period of time stated in his or her option agreement. Generally, if termination is due to death or disability, the option will remain exercisable for twelve months. In all other cases, the option will generally remain exercisable for three months following the termination of service. However, in no event may an option be exercised later than the expiration of its term.

 

 

Stock Appreciation Rights. Stock appreciation rights may be granted under the 2024 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the date of grant and the exercise date. Subject to the provisions of our 2024 Plan, the administrator determines the terms of stock appreciation rights, including when such rights vest and become exercisable and whether to settle such Awards in cash or with shares of our common stock, or a combination thereof, except that the per share exercise price for the shares to be subject to a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant. The maximum term of a stock appreciation right and terms on which a stock appreciation right may be exercised following a termination of service as an employee, director or consultant are the same as those described for options above. The specific terms of each Award will be set forth in an Award agreement.

 

Restricted Stock. Restricted stock may be granted under the 2024 Plan. Restricted stock awards are grants of shares of our common stock that are subject to various restrictions, including restrictions on transferability and forfeiture provisions. Shares of restricted stock will vest and the restrictions on such shares will lapse, in accordance with terms and conditions established by the administrator. Such terms may include, among other things, vesting upon the achievement of specific performance goals determined by the administrator or continued service. The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Unless provided otherwise in an Award agreement, the participant will have no right to vote or to receive dividends or other distributions with respect to shares of restricted stock that have not vested. Shares of restricted stock that do not vest for any reason will be forfeited by the recipient and will revert to us. The specific terms of each Award will be set forth in an Award agreement. Unless the administrator determines otherwise, shares of restricted stock will be held by the Company as escrow agent until the applicable restrictions have lapsed.

 

Restricted Stock Units. Restricted stock units may be granted under our 2024 Plan as determined in the discretion of the administrator. Each restricted stock unit granted is a bookkeeping entry representing an amount equal to the fair market value of one share of our common stock. The administrator determines the terms and conditions of restricted stock units including the vesting criteria, which may include achievement of specified performance criteria or continued service, and the form and timing of payment. The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. The administrator may provide that a grant of restricted stock units may provide the participant with the right to receive an amount equal to any dividends or other distributions declared and paid on an equal number of outstanding shares of our common stock. Any such dividend equivalents may be settled in cash or shares of our common stock and will be subject to the same restrictions on transfer and forfeitability as the restricted stock units with respect to which such dividend equivalents are awarded. The administrator determines in its sole discretion whether an Award will be settled in stock, cash or a combination of both. The specific terms of each Award will be set forth in an Award agreement. On the date set forth in the applicable Award agreement all unearned restricted stock units will be forfeited to us.

 

Performance Units and Performance Shares. Performance units (which are Awards that may be settled for cash, stock or other securities, or a combination thereof) and performance shares (which are Awards denominated in shares) may be granted under the 2024 Plan. Performance units and performance shares are Awards that will result in a payment to a participant only if performance goals established by the administrator are achieved and any other applicable vesting provisions are satisfied. Performance units have an initial dollar value established by the administrator prior to the grant date, and performance shares have an initial value equal to the fair market value of our common stock on the grant date. The administrator will establish performance goals in its discretion, which, depending on the extent to which they are met, will determine the number and value of performance units and performance shares to be paid out to participants. The time period during which the performance objectives or other vesting provisions must be met is the “performance period” of the applicable performance unit or performance share award. In no event will dividends or dividend equivalents be paid with respect to unvested performance units or performance shares prior to the time of vesting of the underlying performance units or performance shares, with respect to which the dividend or dividend equivalent is accrued.

 

 

For purposes of the performance units and performance shares, performance goals will be established by the administrator on the basis of targets to be attained with respect to performance measures established by the administrator, which can include any one or more of the following measures of business or financial performance, which may be determined pursuant to generally accepted accounting principles (“GAAP”) or on a non-GAAP or other basis, in each case, as determined by the administrator:

 

 

total revenue;

 

fuel surcharge revenue;

 

revenue, excluding fuel surcharge;

 

operating income;

 

operating ratio;

 

income or earnings before taxes, interest, depreciation and/or amortization;

 

income or earnings from continuing operations;

 

effective tax rates;

 

cash taxes;

 

net income;

 

pre-tax income or after-tax income;

 

operating expenses, or any component expense thereof;

 

financing or capital transactions;

 

gross margin;

 

operating margin or profit margin;

 

capital expenditures, cost targets, and expense management;

 

total assets;

 

return on assets (gross or net), return on investment, return on capital, or return on shareholder equity;

 

cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital;

 

stock price or total shareholder return;

 

earnings or book value per share (basic or diluted);

 

economic value created;

 

pre-tax profit or after-tax profit;

 

freight rates or any other customer pricing measure;

 

customer growth, retention or diversification;

 

goals relating to divestitures, joint ventures, mergers, acquisitions and similar transactions;

 

changes in revenue equipment counts or utilization;

 

goals relating to human capital management, including but not limited to driver or other employee recruiting, retention or turnover, results from employee surveys, employee safety, employee accident and/or injury rates, headcount, performance management, or completion of employee training initiatives;

 

goals relating to transportation safety measures, ratings, incidents or initiatives;

 

goals related to equipment maintenance; and

 

key regulatory objectives.

 

The administrator may specify that such performance measures shall be adjusted to exclude any one or more of:

 

 

extraordinary items;

 

gains or losses on the dispositions of assets;

 

the cumulative effects of changes in accounting principles;

 

the writedown of any asset;

 

unusual and/or infrequent events impacting Company performance; and

 

any other events affecting the Company.

 

 

As determined in the discretion of the administrator, the performance measures for any performance period may (a) differ from participant to participant and from Award to Award, (b) be based on the performance of the Company as a whole or the performance of a specific participant or one or more subsidiaries, divisions, departments, regions, locations, segments, functions or business units of the Company, (c) be measured on a per share, per truck, trailer or other revenue equipment unit, per mile, per lane, per customer, per employee, and/or other objective or subjective basis, (d) be measured on a pre-tax or after-tax basis, and (e) be measured on an absolute basis or in relative terms (including, but not limited to, the passage of time and/or against other companies, financial metrics and/or an index). Without limiting the foregoing, the administrator shall adjust any performance criteria, performance measures or other feature of an Award that relates to or is wholly or partially based on the number of, or the value of, any stock of the Company to reflect any stock dividend or split, repurchase, recapitalization, combination, or exchange of shares or other similar changes in such stock, and may take into account other factors (including subjective factors).

 

After the applicable performance period of a performance award has ended, the holder of such Award will be entitled to receive a payout of the number of performance units or performance shares earned by the participant over the performance period, to be determined as a function of the extent to which the corresponding performance goals or other vesting provisions have been achieved. Notwithstanding any provision of the 2024 Plan, the administrator may adjust downwards the cash or number of shares payable pursuant to a performance award if it determines, in its sole discretion, that such adjustment is appropriate.

 

The administrator, in its sole discretion, may pay earned performance units in the form of cash, in shares or in some combination thereof. The specific terms of each Award will be set forth in an Award agreement. On the date set forth in the applicable Award agreement, all unearned or unvested performance units or performance shares will be forfeited to the Company.

 

Unrestricted Common Stock. The administrator may also grant awards of unrestricted common stock, in such amounts and on such terms as it determines, subject to the terms and conditions set forth in the 2024 Plan. Awards of unrestricted common stock would vest immediately and would not be subject to any restricted period. Except as required by applicable laws, no payment would be required for shares of unrestricted common stock. The Company would issue, in the name of each participant to whom unrestricted shares are granted, the total number of shares granted to the participant as soon as reasonably practicable after the grant date or on such later date as the administrator determines at the time of grant.

 

No Repricing or Purchases of Underwater Options Without Shareholder Approval. Unless approved by our shareholders (except as provided under the 2024 Plan in connection with certain changes in capitalization and reorganizations), (i) options and stock appreciation rights issued under the 2024 Plan shall not be amended to lower their exercise price, (ii) options and stock appreciation rights issued under the 2024 Plan will not be exchanged for other options or stock appreciation rights with lower exercise prices, (iii) options and stock appreciation rights issued under the 2024 Plan with an exercise price in excess of the fair market value of the underlying shares will not be exchanged for cash or other property, and (iv) no other action shall be taken with respect to options or stock appreciation rights that would be treated as a repricing under the rules of the principal stock exchange or market system on which our shares are listed.

 

Transferability of Awards. Unless the administrator provides otherwise, an Award granted under the 2024 Plan may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or beneficiary designation or by the laws of descent or distribution, and only the recipient of an option or stock appreciation right may exercise such an Award during his or her lifetime.

 

Limit Applicable to Non-employee Directors. The maximum aggregate value (calculated, for Awards granted under the 2024 Plan, based on the grant date fair value for financial reporting purposes) of all compensation granted or paid, as applicable, in any fiscal year, including Awards and cash compensation, to any individual non-employee director may not exceed $750,000; provided, however, that our Board may make exceptions to this limit for any non-employee director in extraordinary circumstances, as the Board may determine in its sole discretion, provided that the non-employee director who is granted or paid such additional compensation may not participate in the decision to grant or pay such additional compensation.

 

New Plan Benefits. The granting of Awards under the 2024 Plan is discretionary and will depend on the actions of the administrator. Therefore, it is not possible to determine the number or type of awards to be granted in the future to any particular person or group if our shareholders approve the 2024 Plan. Information regarding our recent practices with respect to annual incentive awards and stock-based compensation under existing plans is presented in the “Summary Compensation Table,” the “Grants of Plan-Based Awards” table and the “Outstanding Equity Awards at Fiscal Year End” table found elsewhere in this proxy statement.

 

 

Fair Market Value of Shares. On June ___, 2024, the last reported sale price of our common stock on the NASDAQ Global Market was $___.

 

Changes in Capitalization and Reorganization Events. In the event of a stock split, reverse stock split, stock dividend, combination, consolidation, recapitalization (including a recapitalization through a large nonrecurring cash dividend) or reclassification of the shares, subdivision of the shares, a rights offering, a reorganization, merger, spin-off, split-up, repurchase, or exchange of shares of our common stock or other securities of the Company or other significant corporate transaction, or if another change affecting our shares of common stock occurs, to prevent diminution or enlargement of the benefits or potential benefits available under the 2024 Plan, the administrator will, in a manner it deems equitable, make adjustments to one or more of the number and class of shares that may be delivered under the 2024 Plan or the number, class and price of shares covered by each outstanding Award, the numerical share limits and the share counting provisions contained in the 2024 Plan. In the event of our proposed winding up, liquidation or dissolution, the administrator will notify participants as soon as practicable prior to the effective date of the proposed transaction and all unexercised Awards will terminate immediately prior to the consummation of such proposed transaction.

 

Change in Control Events. Our 2024 Plan provides that, except as set forth in an Award agreement, to the extent the successor corporation in a merger or change in control, as such term is defined under the 2024 Plan, does not assume or substitute an equivalent Award for any outstanding award under the 2024 Plan, then such Award will fully vest, all restrictions on such Award will lapse, all performance goals or other vesting criteria applicable to such Award will be deemed achieved at 100% of target levels, and all other terms and conditions deemed met. In addition, if an option or stock appreciation right is not assumed or substituted in the event of a change in control, the administrator will notify the participant in writing or electronically that the option or stock appreciation right will be exercisable for a period of time determined by the administrator in its sole discretion, and the option or stock appreciation right will terminate upon the expiration of such period.

 

Plan Amendment, Termination. The Board has the authority to amend, suspend or terminate the 2024 Plan at any time. However, no amendment, alteration, suspension or termination of the 2024 Plan may impair the rights of any participant, unless mutually agreed otherwise, in a written signed agreement between the participant and the administrator. The 2024 Plan requires that we obtain shareholder approval of any plan amendment to the extent necessary and desirable to comply with applicable laws and the rules of any stock exchange or quotation system on which shares of our common stock are listed or quoted. If approved by our shareholders at the Annual Meeting on August 1, 2024, our 2024 Plan will automatically terminate on August 1, 2034, unless we terminate it sooner.

 

Federal Income Tax Consequences of Awards under the 2024 Plan

 

THE FOLLOWING DISCUSSION OF THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE ISSUANCE, VESTING, PAYMENT, SALE AND FORFEITURE OF AWARDS UNDER THE 2024 PLAN IS BASED ON ANALYSIS OF THE INTERNAL REVENUE CODE, EXISTING LAWS, JUDICIAL DECISIONS AND ADMINISTRATIVE RULINGS AND REGULATIONS, ALL OF WHICH ARE SUBJECT TO CHANGE. THERE CAN BE NO ASSURANCE THAT FUTURE LEGISLATIVE, ADMINISTRATIVE OR JUDICIAL CHANGES OR INTERPRETATIONS, WHICH CHANGES COULD APPLY RETROACTIVELY, WILL NOT AFFECT THE ACCURACY OF THIS SUMMARY. IN ADDITION TO BEING SUBJECT TO THE FEDERAL INCOME TAX CONSEQUENCES DESCRIBED BELOW, A PARTICIPANT MAY ALSO BE SUBJECT TO STATE AND LOCAL (AND/OR FOREIGN) TAX CONSEQUENCES IN THE JURISDICTION IN WHICH HE OR SHE WORKS AND/OR RESIDES.

 

Incentive Stock Options. A participant will not realize income upon the grant of an incentive stock option. Also, except as described below, a participant will not have income upon exercise of an incentive stock option if the participant has been employed by us or our corporate parent or a 50% or more-owned corporate subsidiary at all times beginning with the option grant date and ending three months before the date the participant exercises the option. If the participant has not been so employed during that time, then the participant will be taxed as described below under “Nonstatutory Stock Options.” The exercise of an incentive stock option may subject the participant to the alternative minimum tax.

 

 

A participant will have income upon the sale of the stock acquired under an incentive stock option at a profit if the sales price exceeds the exercise price. The type of income will depend on when the participant sells the stock. If a participant sells the stock more than two years after the option was granted and more than one year after the option was exercised, then all of the profit will be long-term capital gain. If a participant sells the stock prior to satisfying these waiting periods, then the participant will have engaged in a disqualifying disposition and the participant will have ordinary income in an amount equal to the aggregate fair market value of the shares on the date of exercise less the aggregate exercise price. Any portion of the sales price that exceeds the aggregate fair market value of the shares on the date of exercise will be treated as capital gain. This capital gain will be long-term if the participant has held the stock for more than one year and otherwise will be short-term. If a participant sells the stock at a loss (i.e., sales price is less than the exercise price), then the loss will be a capital loss. This capital loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.

 

Nonstatutory Stock Options. A participant will not realize income upon the grant of a nonstatutory stock option. A participant will have compensation income upon the exercise of a nonstatutory stock option equal to the fair market value of the stock on the day the participant exercised the option less the exercise price. Upon sale of the stock, the participant will realize capital gain or loss equal to the difference between the sales price and the fair market value of the stock on the day the option was exercised. This capital gain or loss will be long-term if the participant has held the stock for more than one year and otherwise will be short-term.

 

Stock Appreciation Rights. Generally, a participant will not realize income upon the grant of a stock appreciation right (“SAR”). A participant generally will recognize compensation income upon the exercise of an SAR equal to the amount of the cash and the fair market value of any stock received. Upon the sale of stock received upon settlement of a SAR, the participant will realize capital gain or loss equal to the difference between the sales price and the fair market value of the stock on the day the SAR was exercised. This capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.

 

Restricted Stock Awards. Generally, a participant will not realize income upon the grant of restricted stock unless an election under Section 83(b) of the Code is made within 30 days of the date of grant. If a timely Section 83(b) election is made, then a participant will have compensation income equal to the fair market value of the stock on the grant date less the purchase price, if any. When the stock is sold, the participant will realize capital gain or loss equal to the difference between the sales price and the fair market value of the stock on the date of grant. If the participant does not make a timely Section 83(b) election, then when the stock vests the participant will have compensation income equal to the fair market value of the stock on the vesting date less the purchase price, if any. When the stock is sold, the participant will realize capital gain or loss equal to the sales price less the fair market value of the stock on the vesting date. Any capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.

 

Restricted Stock Units. Generally, a participant will not realize income upon the grant of a restricted stock unit (“RSU”). A participant is not permitted to make a Section 83(b) election with respect to an RSU award. Upon settlement of an RSU for vested stock or cash, the participant will have income in an amount equal to the fair market value of such stock or cash. When stock acquired upon settlement of an RSU is sold, the participant will have capital gain or loss equal to the sales price less the value of the stock on the settlement date. Any capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.

 

Performance Units/Performance Shares. The tax consequences associated with any performance unit or performance share awards granted under the 2024 Plan will vary depending on the specific terms of such Award. Among the relevant factors are whether or not the Award has a readily ascertainable fair market value, whether or not the Award is subject to forfeiture provisions or restrictions on transfer, the nature of the property to be received by the participant under the Award and the participant’s holding period and tax basis for the Award or underlying common stock.

 

 

Unrestricted Common Stock. A participant will recognize ordinary income upon the grant of unrestricted shares of common stock in an amount equal to the fair market value of the stock on the day the participant receives the grant of shares. Upon sale of the stock, the participant will realize capital gain or loss equal to the difference between the sales price and the fair market value of the stock on the grant date. This capital gain or loss will be long-term if the participant has held the stock for more than one year and otherwise will be short-term.

 

Tax Consequences to the Company. There will be no tax consequences to the Company with respect to Awards made under the 2024 Plan, except that the Company will be entitled to a deduction when a participant has compensation income. Any such deduction will be subject to the limitations of Section 162(m) of the Code.

 

The preceding discussion is based on U.S. tax laws and regulations presently in effect, which are subject to change, and the discussion does not purport to be a complete description of the federal income tax aspects of the 2024 Plan. A participant may also be subject to state and local taxes, or taxes in other jurisdictions, in connection with the grant of awards under the 2024 Plan. The Company suggests that participants consult with their individual tax advisors to determine the applicability of the tax rules to the awards granted to them in their personal circumstances.

 

Vote Required

 

This proposal requires the affirmative vote of a majority of the shares represented in person or by proxy and entitled to vote at the Annual Meeting, assuming a quorum is present. With respect to approval of the 2024 Plan, you may vote “FOR”, “AGAINST” or “ABSTAIN”. Abstentions will only be counted toward the tabulations of the shares present and entitled to vote on the proposal and will have the same effect as votes against the proposal. Brokers do not have discretion to vote on the proposal to approve the 2024 Plan, and broker non-votes will have the same effect as votes against the proposal.

 

We urge you to read in its entirety the text of the 2024 Equity Incentive Plan, which is attached to this proxy statement as Appendix A and is incorporated by reference into this proposal. We believe the 2024 Plan will result in additional benefit to the Company while continuing our practice of compensating our executives through programs that emphasize performance. Accordingly, we ask our shareholders to vote “FOR” the following resolution at the Annual Meeting:

 

RESOLVED, that the shareholders of P.A.M. Transportation Services, Inc. approve the 2024 Equity Incentive Plan.

 

Your Board of Directors Recommends that Shareholders Vote

 

FOR

 

the Approval of the Companys 2024 Equity Incentive Plan

 

 


 

PROPOSAL THREE

 


 

APPROVAL OF REDOMESTICATION TO NEVADA BY CONVERSION

 

Our Board has approved a proposal to redomesticate, by conversion, the Company from a corporation organized under the laws of the State of Delaware (the “Delaware Corporation”) to a corporation organized under the laws of the State of Nevada (the “Nevada Corporation”) (such conversion of the Delaware Corporation into the Nevada Corporation, the “Redomestication”). Our Board recommends that our shareholders approve the Redomestication and adopt the resolution of the Board approving the Redomestication, which is included as Appendix B to this proxy statement (the “Redomestication Resolution”). Upon the completion of the Redomestication, the Company will become a Nevada corporation and will continue operate our business under a new name, “PAMT CORP.” As part of the conversion, our Board has approved, subject to the approval of the Redomestication by the Company’s shareholders, an increase in the authorized shares of the common stock of the Company from 50,000,000 shares to 100,000,000 shares for the purposes of potential future capital raising transactions, corporate acquisitions, stock splits and other general corporate purposes. This increase in authorized shares is included in the Company’s Nevada Articles of Incorporation, which are included as Appendix D to this proxy statement and will be effective upon completion of the Redomestication. Approval of the Redomestication as set forth in this Proposal Three includes approval of the proposed name change and the proposed increase in the authorized shares of common stock of the Company.

 

The Redomestication is expected reduce the Company’s overall tax burden given the franchise taxes imposed on Delaware corporations. Our Board also believes that the Redomestication in Nevada will give the Company a greater measure of flexibility and simplicity in corporate governance than is available under Delaware law and will provide for greater protection for our directors and officers from unmeritorious lawsuits. Chapter 78 of the Nevada Revised Statutes, as amended (the “NRS”), is generally recognized as one of the most comprehensive and progressive state corporate acts. By reincorporating the Company in Nevada, our Board believes that the Company will be better suited to take advantage of business opportunities and that Nevada law can better provide for the Company’s ever-changing business needs and lower its ongoing administrative expenses. The Board also believes the reincorporation will enhance the Company’s competitive position for attracting and retaining talent with other industry peer companies incorporated in Nevada.

 

Accordingly, our Board believes that it is in the Company’s and our shareholders’ best interests that the Company’s state of incorporation be changed from Delaware to Nevada. The Redomestication will not result in any change in the Company’s business, operations, management, assets, liabilities or net worth.

 

Reasons for the Redomestication

 

Our Board believes that there are several reasons the Redomestication is in the best interests of the Company and its shareholders. In particular, the Board believes that the Redomestication will allow the Company to take advantage of certain provisions of the corporate and tax laws of Nevada.

 

The Redomestication will eliminate our obligation to pay the annual Delaware franchise tax, which we expect will result in substantial savings to us over the long term. For fiscal year 2023, the Company paid approximately $86,450 in Delaware franchise taxes. We anticipate that, if the Company remains a Delaware Corporation, for fiscal year 2024, the Company’s Delaware franchise taxes will be similar to its 2023 franchise taxes (based on our current capital structure and assets). If the Company redomesticates in Nevada, our current annual fees will consist of an annual business license fee of $500 and the fee for filing the Company’s annual list of directors and officers based on the number of authorized shares and their par value, currently equal to $650.

 

 

In addition, the Redomestication will provide potentially greater protection from unmeritorious litigation for directors and officers of the Company. Delaware law permits a corporation to adopt provisions limiting or eliminating the liability of a director or an officer to a company and its shareholders for monetary damages for breach of fiduciary duty, provided that the liability does not arise from certain proscribed conduct, including breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law. By contrast, Nevada law permits a broader exclusion of individual liability of both officers and directors to a company and its shareholders, providing for an exclusion of any damages as a result of any act or failure to act in his or her capacity as a director or officer unless the presumption that the director or officer acted in good faith, on an informed basis and with a view to the interests of the company, has been rebutted, and it is proven that the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer, and such breach involved intentional misconduct, fraud or a knowing violation of law. The Redomestication will result in the elimination of any liability of an officer or director for a breach of the duty of loyalty unless arising from intentional misconduct, fraud or a knowing violation of law. There is currently no known pending claim or litigation against any of our directors or officers for breach of fiduciary duty related to their service as directors or officers of the Company. The directors and officers of the Company have an interest in the Redomestication to the extent that they will be entitled to such limitation of liability. The Board was aware of these interests and considered them, among other matters, in reaching its decision to approve the Redomestication and to recommend that our shareholders vote in favor of this proposal.

 

Also, by reducing the risk of lawsuits being filed against the Company and its directors and officers, the Redomestication may help us attract and retain qualified management. Currently, at least two of the Company’s publicly traded truckload carrier and transportation services industry peers with which the Company competes for business and ultimately talent, Covenant Logistics Group, Inc. and Heartland Express, Inc., are incorporated in Nevada. As previously discussed and for the reasons described below, we believe that, in general, Nevada law provides greater protection to our directors, officers and the Company than Delaware law. The increasing frequency of claims and litigation directed towards directors and officers has greatly expanded the risks facing directors and officers of public companies in exercising their duties. The amount of time and money required to respond to these claims and to defend these types of litigation matters can be substantial. Delaware law provides that every person becoming a director or an officer of a Delaware corporation consents to the personal jurisdiction of the Delaware courts in connection with any action concerning the corporation. Accordingly, both directors and officers can be personally sued in Delaware, even though the director or officer has no other contacts with the state. Similarly, Nevada law provides that every person who accepts election or appointment, including reelection or reappointment, as a director or officer of a Nevada corporation consents to the personal jurisdiction of the Nevada courts in connection with all civil actions or proceedings brought in Nevada by, on behalf of or against the entity in which the director or officer is a necessary or proper party, or in any action or proceeding against the director or officer for a violation of a duty in such capacity, whether or not the person continues to serve as a director or officer at the time the action or proceeding is commenced. Though Delaware corporate law has recently been amended to, among other things, increase protections for officers of a corporation, we believe Nevada is more advantageous than Delaware because Nevada has pursued a statute-focused approach that does not depend upon judicial interpretation, supplementation and revision, and is intended to be stable, predictable and more efficient, whereas much of Delaware corporate law still consists of judicial decisions that migrate and develop over time.

 

Further, the Redomestication is expected to provide corporate flexibility in connection with certain corporate transactions. However, note that the Redomestication is not being effected to prevent a change in control, nor is it in response to any present attempt known to our Board to acquire control of the Company or obtain representation on our Board. Nevertheless, certain effects of the proposed Redomestication may be considered to have anti-takeover implications by virtue of being subject to Nevada law.

 

Principal Terms of the Redomestication

 

The Redomestication would be effected through a conversion pursuant to Section 266 of the Delaware General Corporation Law (“DGCL”) as set forth in the Plan of Conversion, which is included as Appendix C to this proxy statement. The Plan of Conversion provides that the Company will convert from a Delaware corporation into a Nevada corporation pursuant to Section 266 of the DGCL and Sections 92A.195 and 92A.205 of the NRS.

 

 

The Plan of Conversion provides that, upon the Redomestication, (i) each outstanding share of common stock of the Delaware Corporation will be automatically converted into one outstanding share of common stock of the Nevada Corporation, and (ii) each outstanding share of preferred stock of the Delaware Corporation will be automatically converted into one outstanding share of the preferred stock of the Nevada Corporation. Security holders will not have to exchange their existing stock certificates for new stock certificates. At the same time, upon the Redomestication, each outstanding stock option, warrant or other right to acquire shares of common stock of the Delaware Corporation will automatically become a stock option, warrant or right to acquire an equal number of shares of common stock of the Nevada Corporation under the same terms and conditions. In addition, upon conversion, the Company will operate under a new corporate name, PAMT CORP. At the Effective Time (as defined herein) of the Redomestication, the common stock will continue to be traded on The Nasdaq Global Market but will begin trading under a new symbol, “PAMT.” There is not expected to be any interruption in the trading of the common stock as a result of the Redomestication. As part of the conversion, the Board has also determined that it is the best interests of shareholders to increase the authorized shares of the common stock of the Company from 50,000,000 shares to 100,000,000 shares, as set forth in the Company’s Nevada Articles of Incorporation attached as Appendix D to this proxy statement, for the purposes of potential future capital raising transactions, corporate acquisitions, stock splits and other general corporate purposes. This increase in the authorized shares of common stock of the Company will also be effective at the Effective Time.

 

The Board currently intends that the Redomestication will occur as soon as practicable following the Annual Meeting. If the Redomestication is approved by our shareholders, it is anticipated that the Redomestication will become effective at the date and time (the “Effective Time”) specified in each of (i) the Articles of Domestication to be executed and filed with the office of the Nevada Secretary of State in accordance with NRS 92A.205 and (ii) the Certificate of Conversion to be executed and filed with the Office of the Secretary of State of Delaware in accordance with Section 262 of the DGCL. However, the Redomestication may be delayed by our Board or the Plan of Conversion may be terminated and abandoned by action of the Board at any time prior to the Effective Time of the Redomestication, whether before or after the approval by the Company’s shareholders, if the Board determines for any reason that the consummation of the Redomestication should be delayed or would be inadvisable or not in the best interests of the Company and its shareholders, as the case may be.

 

Effects of the Redomestication

 

Following the Redomestication, the Company will be governed by the NRS instead of the DGCL, and the Company will be governed by the form of Nevada Articles of Incorporation (the “Nevada Charter”) and the form of Nevada Bylaws (the “Nevada Bylaws”), included as Appendix D and Appendix E, respectively, to this proxy statement. The Company’s current Amended and Restated Certificate of Incorporation, as amended (collectively, the “Delaware Charter”), and its current Second and Amended and Restated By-Laws (the “Delaware Bylaws”) will no longer be applicable following completion of the Redomestication. Copies of the Delaware Charter and Delaware Bylaws are available as Exhibits 3.1, 3.2, 3.3 and 3.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, as filed with the SEC on May 7, 2024, available to the public via the SEC’s website at http://www.sec.gov.

 

Apart from being governed by the Nevada Charter, Nevada Bylaws and the NRS and operating under the new corporate name PAMT CORP, following completion of the Redomestication, the Company will continue to exist in the form of a Nevada corporation. By virtue of the Redomestication, all of the rights, privileges, and powers of the Delaware Corporation, and all property, real, personal, and mixed, and all debts due to the Delaware Corporation, as well as all other things and causes of action belonging to the Delaware Corporation, will remain vested in the Nevada Corporation and will be the property of the Nevada Corporation. In addition, all debts, liabilities, and duties of the Delaware Corporation will remain attached to the Nevada Corporation and may be enforced against the Nevada Corporation.

 

There will be no change in our business, properties, assets, obligations, or management as a result of the Redomestication. Our directors and officers immediately prior to the Redomestication will serve as our directors and officers following the completion of the Redomestication. We will continue to maintain our headquarters in Arkansas.

 

 

Effect of Vote for the Redomestication

 

A vote in favor of this Redomestication proposal is a vote to approve the Plan of Conversion and therefore the Redomestication. A vote in favor of this Redomestication proposal is also effectively a vote in favor of the Nevada Charter and the Nevada Bylaws, including the adoption of the new corporate name of PAMT CORP and the increase in authorized shares of the Company’s common stock from 50,000,000 shares to 100,000,000 shares.

 

If the Redomestication proposal fails to obtain the requisite vote for approval, the Redomestication will not be consummated and the Company will continue to be incorporated in Delaware and be subject to the Delaware Charter and Delaware Bylaws.

 

No Securities Act Consequences

 

The Company will continue to be a publicly held company following completion of the Redomestication, and its common stock will continue to be listed on The Nasdaq Global Market under its new corporate name, PAMT CORP, and will begin trading under the new symbol “PAMT.” The Company will continue to file required periodic reports and other documents with the SEC. There is not expected to be any interruption in the trading of the common stock as a result of the Redomestication. We and our shareholders will be in the same respective positions under the federal securities laws after the Redomestication as we and our shareholders were prior to the Redomestication.

 

Key Differences Between Delaware Charter and Bylaws and the Nevada Charter and Bylaws

 

Following completion of the Redomestication, the Company will be governed by the NRS instead of the DGCL as well as the Nevada Charter and Nevada Bylaws, forms of which are included as Appendix D and Appendix E, respectively, to this proxy statement. Our current Delaware Charter and Delaware Bylaws will no longer be applicable following completion of the Redomestication. Copies of the Delaware Charter and Delaware Bylaws are available as Exhibits 3.1, 3.2, 3.3 and 3.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, as filed with the SEC on May 7, 2024, available to the public via the SEC’s website at http://www.sec.gov.

 

The Nevada Charter and Nevada Bylaws differ in a number of respects from the Delaware Charter and Delaware Bylaws, respectively. Set forth below is a table summarizing certain material differences in the rights of our shareholders under Nevada and Delaware law under the respective charters and bylaws. This chart does not address each difference, but focuses on some of those differences which we believe are most relevant to our shareholders. This chart is qualified in its entirety by reference to the Nevada Charter, the Nevada Bylaws, the Delaware Charter and the Delaware Bylaws.

 

Provision

Delaware

Nevada

Charter Regarding Authorized Shares of Capital Stock

The Delaware Charter provides that the Company is authorized to issue 60,000,000 shares of capital stock, consisting of 50,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share.

The Nevada Charter provides that the Company is authorized to issue 110,000,000 shares of capital stock, consisting of 100,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share.

 

 

Charter Regarding Limitation of Liability

The Delaware Charter states that no Director shall be liable to the Company or its shareholders for monetary damages for any breach of the Director’s duty of loyalty to the Company or its shareholders except that a Director shall be liable for: (1) for any breach of the Directors’ duty of loyalty to the Company or its shareholders; (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (3) under Section 174 of the DGCL; or (4) for any transaction from which the Director derived any improper personal benefit.

The Nevada Charter provides that the liability of Directors and Officers shall be limited to the fullest extent permitted by law. Any repeal or modification of this provision will not adversely affect the protection of any Director or Officer provided thereby for any act or omission as a Director or Officer occurring prior to the effectiveness of such repeal or modification. If any provision of the NRS is amended to authorize corporate action further eliminating or limiting the personal liability of Directors and Officers, then the liability of Directors and Officers will be eliminated or limited to the fullest extent permitted by the NRS, as so amended.

Note that, under the NRS, this provision does not exclude exculpation for breaches of the duty of loyalty and covers both Officers and Directors.

Charter Regarding Indemnification and Advancement of Expenses

The Delaware Charter does not contain provisions regarding indemnification. Those provisions are currently contained in the Delaware Bylaws.

Under the Nevada Charter, the Company shall indemnify and advance expenses to any person made or threatened to be made a party to an action, suit or proceeding, by reason of being a Director, Officer, employee or agent of the Company or any predecessor of the Company.

Charter Regarding Compromises or Arrangements with Creditors and/or Shareholders

In the event of a compromise or arrangement between the Company and its creditors, or any class of them, and/or between the Company and its shareholders, or any class of them, the Delaware Charter contains a provision permitting any court of equitable jurisdiction in Delaware, upon the application of the Company, any creditor of the Company, shareholders, or any receiver or trustee to order a meeting of the creditors, or any class of them, and/or shareholders, or any class of them. If a majority in number representing three-fourths in value of the creditors or class of creditors and/or of the shareholders or class of shareholders of the Company agree to the compromise or arrangement and to any reorganization of the Company as a consequence of such compromise or arrangement, then the compromise or arrangement and reorganization shall be binding on all creditors, or class of creditors, and/or on all shareholders, or class of shareholders, and on the Company, if sanctioned by the court.

The Nevada Charter does not contain a corresponding provision.

 

 

Charter Regarding Inapplicability of Controlling Interest Statutes

The Delaware Charter does not contain a corresponding provision.

The Nevada Charter provides that the provisions in NRS 78.378 to 78.3793, inclusive, and any successor statutes relating to acquisitions of controlling interests in the Company shall not apply to any acquisition of shares of the Company’s capital stock beneficially owned by Matthew T. Moroun, his spouse or their children (the “Moroun Family”), any trust for the benefit of one or more members of the Moroun Family, or any corporation, partnership, limited liability company, or other entity controlled by one or more members of the Moroun Family.

Charter/Bylaws Regarding Forum Adjudication for Disputes

The Delaware Bylaws provide that unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former Director, Officer, employee or shareholder of the Company to the Company or the Company’s shareholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, the Delaware Charter or the Delaware Bylaws, (iv) any action asserting a claim against the Company governed by the internal affairs doctrine, or (v) any action asserting an “internal corporate claim” as the term is defined in Section 115 of the DGCL. The Delaware Bylaws further provide that, unless the Company consents in writing to the selection of an alternative forum, the federal district courts shall be the exclusive forum for any complaint asserting a cause of action arising under the Securities Act of 1933. Any person or entity purchasing or otherwise acquiring any interest in shares of the capital stock of the Company is deemed to have notice of and consented to these provisions.

The Nevada Bylaws do not contain a corresponding provision, but the Nevada Charter provides that unless the Company consents in writing to the selection of an alternative forum, the Eighth Judicial District Court sitting in Clark County in the State of Nevada (or, if the Eighth Judicial District Court of the State of Nevada lacks jurisdiction, the federal district court for the District of Nevada or other state courts of the State of Nevada) shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former Director, Officer, employee or shareholder of the Company to the Company or the Company’s shareholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, (iii) any action asserting a claim arising pursuant to NRS Chapters 78 or 92A, the Nevada Charter or the Nevada Bylaws, or (iv) any action asserting a claim against the Company governed by the internal affairs doctrine. The Nevada Charter further provides that, unless the Company consents in writing to the selection of an alternative forum, the federal district courts shall be the exclusive forum for any complaint asserting a cause of action arising under the Securities Act of 1933. Any person or entity purchasing or otherwise acquiring any interest in shares of the capital stock of the Company is deemed to have notice of and consented to these provisions.

 

 

Bylaws Regarding Proxies

Under the Delaware Bylaws, no proxy shall be voted after eleven months from its date, unless the proxy provides for a longer period.

The Nevada Bylaws expressly provide that a proxy may be authorized by an instrument in writing or by electronic transmission. Under the Nevada Bylaws, no proxy shall be voted or acted upon after six months from its date, unless coupled with an interest or unless the proxy provides for a longer period, which may not exceed seven years. Under the NRS, proxies are valid for six months from the date of creation unless the proxy provides for a longer period of up to seven years.

Bylaws Regarding Indemnification

The Delaware Bylaws provide that the Company shall indemnify against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and hold harmless each person who has been successful on the merits or otherwise in the defense of any action, suit or proceeding and each person who a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or the firm of independent legal counsel then employed by the Company, in a written opinion, authorizes the indemnification of when that person is a party to or is threatened to be made a party to an action, suit or proceeding, or investigation by reason of the fact that he or she is or was a Director, Officer, employee or agent of the Company or who was or is a party or is threatened to be made a party of any, threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he or she is or was a Director, Officer, employee or agent of the Company. However, under the Delaware Bylaws, no indemnification shall be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the Company, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses.

The Nevada Bylaws provide that the Company shall indemnify against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and hold harmless each person who has been successful on the merits or otherwise in the defense of any action, suit or proceeding and each person who the shareholders, a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or independent legal counsel, in a written opinion, authorizes the indemnification of when that person is a party to or is threatened to be made a party to an action, suit or proceeding, or investigation by reason of the fact that he or she is or was a Director, Officer, employee or agent of the Company or who was or is a party or is threatened to be made a party of any, threatened, pending or completed action, suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he or she is or was a Director, Officer, employee or agent of the Company. However, under the Nevada Bylaws, no indemnification shall be made in respect to any claim, issue or matter as to which such person shall have been adjudged by a court of competent jurisdiction, after exhaustion of any appeals, to the Company or for amounts paid in settlement to the Company, unless and only to the extent that the court in which such action or suit was brought or other court of competent jurisdiction determines upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses.

 

 

Comparison of Shareholder Rights under Delaware and Nevada Law

 

The rights of our shareholders are currently governed by the DGCL, the Delaware Charter and the Delaware Bylaws. Following completion of the Redomestication, the rights of our shareholders will be governed by the NRS, the Nevada Charter and the Nevada Bylaws.

 

The statutory corporate laws of Nevada, as governed by the NRS, are similar in many respects to those of Delaware, as governed by the DGCL. However, there are certain differences that may affect your rights as a shareholder, as well as the corporate governance of the Company. The following are brief summaries of material differences between the current rights of shareholders of the Company and the rights of shareholders of the Company following completion of the Redomestication. The following discussion does not provide a complete description of the differences that may affect you. This summary is qualified in its entirety by reference to the NRS and DGCL as well as the Delaware Charter and Delaware Bylaws and the Nevada Charter and Nevada Bylaws.

 

Increasing or Decreasing Authorized Capital Stock. The NRS allows the board of directors of a corporation, unless restricted by the articles of incorporation, to increase or decrease the number of authorized shares in a class or series of the corporation’s shares and correspondingly effect a forward or reverse split of any class or series of the corporation’s shares (and change the par value thereof) without a vote of the shareholders, so long as the action taken does not adversely change or alter any right or preference of the shareholders and does not include any provision or provisions pursuant to which only money will be paid or scrip issued to shareholders who hold 10% or more of the outstanding shares of the affected class and series, and who would otherwise be entitled to receive fractions of shares in exchange for the cancellation of all of their outstanding shares. Delaware law has no similar provision.

 

Classified Board of Directors. The DGCL permits any Delaware corporation to classify its board of directors into as many as three classes with staggered terms of office. If this is done, the shareholders elect only one class each year and each class would have a term of office of three years; however, neither the Delaware Charter nor Delaware Bylaws provide for a classified board of directors. The NRS also permits any Nevada corporation to classify its board of directors into any number of classes with staggered terms of office, so long as at least one-fourth of the total number of directors is elected annually; however neither the Nevada Charter nor Nevada Bylaws provide for a classified board of directors.

 

Cumulative Voting. Cumulative voting for directors entitles each shareholder to cast a number of votes that is equal to the number of voting shares held by such shareholder multiplied by the number of directors to be elected and to cast all such votes for one nominee or distribute such votes among up to as many candidates as there are positions to be filled. Cumulative voting may enable a minority shareholder or group of shareholders to elect at least one representative to the board of directors where such shareholders would not be able to elect any directors without cumulative voting.

 

Although the DGCL does not generally grant shareholders cumulative voting rights, a Delaware corporation may provide in its certificate of incorporation for cumulative voting in the election of directors. The NRS also permits any Nevada corporation to provide in its articles of incorporation the right to cumulative voting in the election of directors as long as certain procedures are followed.

 

Neither the Delaware Charter nor the Nevada Charter provides for cumulative voting in the election of directors.

 

Vacancies. Under both the DGCL and the NRS, subject to the certificate or articles of incorporation and bylaws, vacancies on the board of directors, including those resulting from any increase in the authorized number of directors, may be filled by the affirmative vote of a majority of the remaining directors then in office, even if less than a quorum. Any director so appointed will hold office for the remainder of the term of the director no longer on the board.

 

 

Removal of Directors. Under the DGCL, the holders of a majority of shares of each class entitled to vote at an election of directors may vote to remove any director or the entire board without cause unless (i) the board is a classified board, in which case directors may be removed only for cause, or (ii) the corporation has cumulative voting, in which case, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his or her removal would be sufficient to elect him or her. The NRS requires the vote of the holders of at least two-thirds of the shares or class or series of shares of the issued and outstanding stock entitled to vote at an election of directors in order to remove a director or all of the directors. The articles of incorporation may provide for a voting threshold higher than two-thirds, but not lower. Furthermore, the NRS does not make a distinction between removals for cause and removals without cause.

 

The Delaware Charter and the Nevada Charter both include a provision requiring the affirmative vote of seventy-five percent (75%) of the outstanding shares of the stock of the Company entitled to elect directors to effect their removal.

 

Fiduciary Duties and Business Judgment. Nevada, like most jurisdictions, requires that directors and officers of Nevada corporations exercise their powers in good faith and with a view to the interests of the corporation but, unlike some other jurisdictions, fiduciary duties of directors and officers are codified in the NRS. As a matter of law, directors and officers are presumed to act in good faith, on an informed basis and with a view to the interests of the corporation in making business decisions. In performing such duties, directors and officers may exercise their business judgment through reliance on information, opinions, reports, financial statements and other financial data prepared or presented by corporate directors, officers or employees who are reasonably believed to be reliable and competent. Reliance may also be extended to legal counsel, public accountants, advisers, bankers or other persons reasonably believed to be competent, and to the work of a committee (on which the particular director or officer does not serve) if the committee was established and empowered by the corporation’s board of directors, and if the committee’s work was within its designated authority and was about matters on which the committee was reasonably believed to merit confidence. However, directors and officers may not rely on such information, opinions, reports, books of account or similar statements if they have knowledge concerning the matter in question that would make such reliance unwarranted.

 

Under Delaware law, members of the board of directors or any committee designated by the board of directors are similarly entitled to rely in good faith upon the records of the corporation and upon such information, opinions, reports and statements presented to the corporation by corporate officers, employees, committees of the board of directors or other persons as to matters such member reasonably believes are within such other person’s professional or expert competence, provided that such other person has been selected with reasonable care by or on behalf of the corporation. Such appropriate reliance on records and other information protects directors from liability related to decisions made based on such records and other information. Both Delaware and Nevada law extend the statutory protection for reliance on such persons to corporate officers.

 

Flexibility for Decisions, Including Takeovers. Nevada provides directors with more discretion than Delaware in making corporate decisions, including decisions made in takeover situations. Under Nevada law, director and officer actions taken in response to a change or potential change in control are granted the benefits of the business judgment rule. However, in the case of an action to resist a change or potential change in control that impedes the rights of shareholders to vote for or remove directors, directors will only be given the benefit of the presumption of the business judgment rule if the directors have reasonable grounds to believe a threat to corporate policy and effectiveness exists and the action taken that impedes the exercise of the shareholders’ rights is reasonable in relation to such threat.

 

 

In exercising their powers, including in response to a change or potential change of control, directors and officers of Nevada corporations may consider all relevant facts, circumstances, contingencies or constituencies, which may include, without limitation, the effect of the decision on several corporate constituencies in addition to the shareholders, including the corporation’s employees, suppliers, creditors and customers, the economy of the state and nation, the interests of the community and society in general, and the long-term as well as short-term interests of the corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the corporation. To underscore the discretion of directors and officers of Nevada corporations, the NRS specifically states that such directors and officers are not required to consider the effect of a proposed corporate action upon any constituent as a dominant factor. Further, a director may resist a change or potential change in control of the corporation if the board of directors determines that the change or potential change of control is opposed to or not in the best interest of the corporation upon consideration of any relevant facts, circumstances, contingencies or constituencies, including that there are reasonable grounds to believe that, within a reasonable time the corporation or any successor would be or become insolvent subjected to bankruptcy proceedings.

 

The DGCL does not provide a similar list of statutory factors that corporate directors and officers may consider in making decisions. In a number of cases and in certain situations, Delaware law has been interpreted to provide that fiduciary duties require directors to accept an offer from the highest bidder regardless of the effect of such sale on the corporate constituencies other than the shareholders. Thus, the flexibility granted to directors of Nevada corporations when making business decisions, including in the context of a hostile takeover, are greater than those granted to directors of Delaware corporations.

 

Both the Delaware Charter and the Nevada Charter contain a provision providing that, when evaluating any offer involving (1) a tender or exchange offer for the Company’s equity securities, (2) a merger or consolidation of the Company, or (3) the acquisition of all or substantially all of the Company’s properties and assets, the Board must, in connection with the exercise of its business judgment in determining what is in the best interest of the Company and its shareholders, give due consideration to all relevant factors, including without limitation, the consideration being offered in relation to the then current market price of the Company’s common stock, the then current value of the Company in a freely negotiated transaction and the Board’s estimate of the future value of the Company as an independent entity, the social and economic effects on the employees, customers, suppliers, and other constituents of the Company and on the communities in which the Company and its subsidiaries operate or are located and the desirability of maintaining independence from any other business or business entity. This provision may not be amended or repealed, under the Delaware Charter or the Nevada Charter, without the affirmative vote or consent of the holders of 75% of the outstanding shares entitled to elect directors.

 

Limitation on Personal Liability of Directors and Officers. The NRS and the DGCL each, by way of statutory provisions or permitted provisions in corporate charter documents, eliminate or limit the personal liability of directors and officers to the corporation or their shareholders for monetary damages for breach of a director’s fiduciary duty, subject to the differences discussed below.

 

The DGCL precludes liability limitation for acts or omissions not in good faith or involving intentional misconduct and for paying dividends or repurchasing stock out of other than lawfully available funds. Under the NRS, in order for a director or officer to be individually liable to the corporation or its shareholders or creditors for damages as a result of any act or failure to act, the presumption of the business judgment rule must be rebutted and it must be proven that the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and that the breach of those duties involved intentional misconduct, fraud or a knowing violation of law. Unlike the DGCL, however, the limitation on director and officer liability under the NRS does not distinguish the duty of loyalty or transactions from which a director derives an improper personal benefit, but does, pursuant to NRS 78.300, impose limited personal liability on directors for distributions made in violation of NRS 78.288. Further, the NRS permits a corporation to renounce in its articles of incorporation any interest or expectancy to participate in specific or specified classes or categories of business opportunities. Both the DGCL and the NRS permit limitation of liability which applies to both directors and officers, though the NRS expressly also applies this limitation to liabilities owed to creditors of the corporation. Furthermore, under the NRS, it is not necessary to adopt provisions in the articles of incorporation limiting personal liability of directors or officers as this limitation is provided by statute. Under Delaware law, the exculpation of officers is authorized only in connection with direct claims brought by shareholders, including class actions; however, the DGCL does not eliminate monetary liability of officers for breach of fiduciary duty arising out of claims brought by the corporation itself or for derivative claims brought by shareholders in the name of the corporation.

 

 

As described above, the NRS provides broader protection from personal liability for directors and officers than the DGCL. Both the Delaware Charter and the Nevada Charter provide a limitation to director liability to the fullest extent permitted by Delaware and Nevada law, respectively. The Nevada Charter also extends this limitation to officer liability.

 

Indemnification. The NRS and the DGCL each permit corporations to indemnify directors, officers, employees and agents in similar circumstances, subject to the differences discussed below.

 

In suits that are not brought by or in the right of the corporation, both jurisdictions permit a corporation to indemnify current and former directors, officers, employees and agents for attorneys’ fees and other expenses, judgments and amounts paid in settlement that the person actually and reasonably incurred in connection with the action, suit or proceeding. The person seeking indemnity may recover as long as he or she acted in good faith and believed his or her actions were either in the best interests of or not opposed to the best interests of the corporation. Under the NRS, the person seeking indemnity may also be indemnified if he or she is not liable for breach of his or her fiduciary duties. Similarly, with respect to a criminal proceeding, the person seeking indemnification must not have had any reasonable cause to believe his or her conduct was unlawful.

 

In derivative suits, a corporation in either jurisdiction may indemnify its directors, officers, employees or agents for expenses that the person actually and reasonably incurred. A corporation may not indemnify a person if the person was adjudged to be liable to the corporation unless a court otherwise orders. No corporation may indemnify a party unless it decides that indemnification is proper. Under the DGCL, the corporation through its shareholders, directors or independent legal counsel will determine whether the conduct of the person seeking indemnity conformed with the statutory provisions governing indemnity. Under the NRS, the corporation through its shareholders, directors or independent counsel must determine that the indemnification is proper.

 

The NRS and the DGCL also each permit corporations to pay the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined that the director or officer is not entitled to be indemnified by the corporation.

 

Under the NRS, the indemnification pursuant to the statutory mechanisms available under the NRS, as described above, does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, but unless ordered by a court, indemnification may not be made to or on behalf of any director or officer finally adjudged by a court of competent jurisdiction, after exhaustion of any appeals taken therefrom, to be liable for intentional misconduct, fraud or a knowing violation of law, and such misconduct, fraud or violation was material to the cause of action.

 

Both the Delaware Bylaws and the Nevada Bylaws include substantially similar provisions providing for indemnification, including advancement of expenses, consistent with the laws of the respective states. In addition, the Nevada Charter provides for indemnification and advancement of expenses to the fullest extent permitted by law.

 

Director Compensation. The DGCL does not have a specific statute on the fairness of director compensation. In contrast, the NRS provides that, unless otherwise provided in the articles of incorporation or bylaws, the board of directors, without regard to personal interest, may establish the compensation of directors for services in any capacity. If the board of directors so establishes the compensation of directors, such compensation is be presumed to be fair to the corporation unless proven unfair by a preponderance of the evidence.

 

Action by Written Consent of Directors. Both the DGCL and NRS provide that, unless the articles or certificate of incorporation or the bylaws provide otherwise, any action required or permitted to be taken at a meeting of the directors or a committee thereof may be taken without a meeting if all members of the board or committee, as the case may be, consent to the action in writing. Neither the Delaware Charter or Delaware Bylaws nor the Nevada Charter or Nevada Bylaws limit a Board action by written consent.

 

 

Actions by Written Consent of Shareholders. Both the DGCL and NRS provide that, unless the articles or certificate of incorporation provides otherwise, any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if the holders of outstanding stock having at least the minimum number of votes that would be necessary to authorize or take the action at a meeting of shareholders consent to the action in writing. In addition, the DGCL requires the corporation to give prompt notice of the taking of corporate action without a meeting by less than unanimous written consent to those shareholders who did not consent in writing. There is no equivalent requirement under the NRS.

 

The NRS also permits a corporation to prohibit shareholder action by written consent in lieu of a meeting of shareholders by including such prohibition in its articles of incorporation or bylaws. Neither the Delaware Charter or Delaware Bylaws nor the Nevada Charter or Nevada Bylaws limit shareholder action by written consent.

 

Dividends and Distributions. Delaware law is more restrictive than Nevada law with respect to dividend payments. Unless further restricted in the certificate of incorporation, the DGCL permits a corporation to declare and pay dividends out of either (i) surplus, or (ii) if no surplus exists, out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year (provided that the amount of capital of the corporation is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets). The DGCL defines surplus as the excess, at any time, of the net assets of a corporation over its stated capital. In addition, the DGCL provides that a corporation may redeem or repurchase its shares only when the capital of the corporation is not impaired and only if such redemption or repurchase would not cause any impairment of the capital of the corporation.

 

The NRS provides that no distribution (including dividends on, or redemption or purchases of, shares of capital stock or distributions of indebtedness) may be made if, after giving effect to such distribution, (i) the corporation would not be able to pay its debts as they become due in the usual course of business, or, (ii) except as otherwise specifically permitted by the articles of incorporation, the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed at the time of a dissolution to satisfy the preferential rights of preferred stockholders (the condition in this clause (ii), the “Balance Sheet Test”). Directors may consider financial statements prepared on the basis of accounting practices that are reasonable in the circumstances, a fair valuation, including but not limited to unrealized appreciation and depreciation, and any other method that is reasonable in the circumstances.

 

Restrictions on Business Combinations. Both Delaware and Nevada law provide certain protections to shareholders in connection with certain business combinations. These protections can be found in NRS 78.411 to 78.444, inclusive, and Section 203 of the DGCL. Under Section 203 of the DGCL, certain “business combinations” with “interested stockholders” of the Company are subject to a three-year moratorium unless specified conditions are met. For purposes of Section 203, the term “business combination” is defined broadly to include (i) mergers with or caused by the interested stockholder; (ii) sales or other dispositions to the interested stockholder (except proportionately with the corporation’s other stockholders) of assets of the corporation or a subsidiary equal to 10% or more of the aggregate market value of either the corporation’s consolidated assets or its outstanding stock; (iii) the issuance or transfer by the corporation or a subsidiary of stock of the corporation or such subsidiary to the interested stockholder (except for transfers in a conversion or exchange or a pro rata distribution or certain other transactions, none of which increase the interested stockholder’s proportionate ownership of any class or series of the corporation’s or such subsidiary’s stock); or (iv) receipt by the interested stockholder (except proportionately as a stockholder), directly or indirectly, of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or a subsidiary.

 

The three-year moratorium imposed on business combinations by Section 203 of the DGCL does not apply if: (i) prior to the time on which such stockholder becomes an interested stockholder the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested stockholder; (ii) the interested stockholder owns 85% of the corporation’s voting stock upon consummation of the transaction that made him or her an interested stockholder (excluding from the 85% calculation shares owned by directors who are also officers of the target corporation and shares held by employee stock plans that do not permit employees to decide confidentially whether to accept a tender or exchange offer); or (iii) at or after the time on which such stockholder becomes an interested stockholder, the board approves the business combination and it is also approved at a stockholder meeting by at least two-thirds (66-2/3%) of the outstanding voting stock not owned by the interested stockholder.

 

 

In contrast, the NRS imposes a maximum moratorium of two years versus Delaware’s three-year moratorium on business combinations. However, NRS 78.411 to 78.444, inclusive, regulate combinations more stringently. First, an interested stockholder is defined as a beneficial owner of 10% or more of the voting power. Second, the two-year moratorium can be lifted only by advance approval of the combination or the transaction by which such person first becomes an interested stockholder by a corporation’s board of directors or unless the combination is approved by the board and 60% of the corporation’s voting power not beneficially owned by the interested stockholder, its affiliates and associates, as opposed to Delaware’s provision that allows interested stockholder combinations with stockholder approval at the time of such combination. Finally, after the two-year period, a combination remains prohibited unless (i) it is approved by the board of directors, the disinterested stockholders or a majority of the outstanding voting power not beneficially owned by the interested stockholder and its affiliates and associates or (ii) the interested stockholders satisfy certain fair value requirements. But note that these statutes do not apply to any combination of a corporation and an interested stockholder after the expiration of four years after the person first became an interested stockholder. The combinations statutes in Nevada apply only to Nevada corporations with 200 or more stockholders of record. As of the Record Date, the Company has fewer than 200 stockholders of record.

 

Companies are entitled to opt out of the business combination provisions of the DGCL and NRS. The Company has not opted out of the business combination provisions of Section 203 of the DGCL, nor does the Company plan to opt out of the business combination provisions of NRS 78.411 to 78.444, inclusive, under the Nevada Charter. Any opt-out of the business combinations provisions of the NRS must be contained in an amendment to the Nevada Charter approved by a majority of the outstanding voting power not then owned by interested stockholders, but the amendment would not be effective until 18 months after the vote of the stockholders to approve the amendment, and would not apply to any combination with a person who first became an interested stockholder on or before the effective date of the amendment.

 

Acquisition of Controlling Interests. In addition to certain restrictions on business combinations with interested shareholders, Nevada law also protects the corporation and its shareholders from persons acquiring a “controlling interest” in a corporation. The provisions can be found in NRS 78.378 to 78.3793, inclusive. Delaware law does not have similar provisions. Pursuant to NRS 78.379, any person who acquires a controlling interest in a corporation may not exercise voting rights on any control shares unless such voting rights are conferred by a majority vote of the disinterested shareholders of the issuing corporation at a special meeting of such shareholders held upon the request and at the expense of the acquiring person. NRS 78.3785 provides that a “controlling interest” means the ownership of outstanding voting shares of an issuing corporation sufficient to enable the acquiring person, individually or in association with others, directly or indirectly, to exercise (i) one fifth or more but less than one third, (ii) one third or more but less than a majority or (iii) a majority or more of the voting power of the issuing corporation in the election of directors, and once an acquirer crosses one of these thresholds, shares which it acquired in the transaction taking it over the threshold and within the 90 days immediately preceding the date when the acquiring person acquired or offered to acquire a controlling interest become “control shares” to which the voting restrictions described above apply. In the event that the control shares are accorded full voting rights and the acquiring person acquires control shares with a majority or more of all the voting power, any shareholder, other than the acquiring person, who does not vote in favor of authorizing voting rights for the control shares is entitled to demand payment for the fair value of such person’s shares, and the corporation must comply with the demand.

 

NRS 78.378(1) provides that the control share statutes of the NRS do not apply to any acquisition of a controlling interest in an issuing corporation if the articles of incorporation or bylaws of the corporation in effect on the 10th day following the acquisition of a controlling interest by the acquiring person provide that the provisions of those sections do not apply to the corporation or to an acquisition of a controlling interest specifically by types of existing or future shareholders, whether or not identified. In addition, NRS 78.3788 provides that the controlling interest statutes apply as of a particular date only to a corporation that has 200 or more shareholders of record, at least 100 of whom have addresses in Nevada appearing on the corporation’s stock ledger at all times during the 90 days immediately preceding that date, and which does business directly or indirectly in Nevada. NRS 78.378(2) provides that the corporation may impose stricter requirements if it so desires. Corporations are entitled to opt out of the above controlling interest provisions of the NRS.

 

 

The Nevada Charter states that these provisions will not apply to the acquisition of the Company’s capital stock by Matthew T. Moroun, his spouse or their children (the “Moroun Family”), any trust for the benefit of one or more members of the Moroun Family, or any corporation, partnership, limited partnership. limited liability company, or other entity controlled by one or more members of the Moroun Family. Additionally, as of the Record Date, the Company has fewer than 200 stockholders of record.

 

Shareholder Vote for Mergers and Other Corporate Reorganizations. Under the DGCL, unless the certificate of incorporation specifies a higher percentage, the shareholders of a corporation that is being acquired in a merger or selling substantially all of its assets must authorize such merger or sale of assets by vote of an absolute majority of outstanding shares entitled to vote. The corporation’s board of directors must also approve such transaction. Similarly, under the NRS, a merger or sale of all assets requires authorization by shareholders of the corporation being acquired or selling its assets by at least a majority of the voting power of the outstanding shares entitled to vote, as well as approval of such corporation’s board of directors. Although a substantial body of case law has been developed in Delaware as to what constitutes the “sale of substantially all of the assets” of a corporation, it is difficult to determine the point at which a sale of virtually all, but less than all, of a corporation’s assets would be considered a “sale of all of the assets” of the corporation for purposes of Nevada law. It is possible that many sales of less than all of the assets of a corporation requiring shareholder authorization under Delaware law would not require shareholder authorization under Nevada law.

 

The DGCL and NRS have substantially similar provisions with respect to approval by shareholders of a surviving corporation in a merger. The DGCL does not require a shareholder vote of a constituent corporation in a merger (unless the corporation provides otherwise in its certificate of incorporation) if (i) the plan of merger does not amend the existing certificate of incorporation, (ii) each share of stock of such constituent corporation outstanding immediately before the effective date of the merger is an identical outstanding share after the effective date of merger and (iii) either no shares of the common stock of the surviving corporation and no shares, securities or obligations convertible into such stock are to be issued or delivered under the plan of merger, or the authorized unissued shares or treasury shares of the common stock of the surviving corporation to be issued or delivered under the plan of merger plus those initially issuable upon conversion of any other shares, securities or obligations to be issued or delivered under such plan do not exceed 20% of the shares of common stock of such constituent corporation outstanding immediately prior to the effective date of the merger. The NRS does not require a shareholder vote of the surviving corporation in a merger under substantially similar circumstances. The Delaware Charter does not require a higher percentage to vote to approve certain corporate transactions. The Nevada Charter also does not specify a higher percentage.

 

Appraisal or Dissenters Rights. In both jurisdictions, dissenting shareholders of a corporation engaged in certain major corporate transactions are entitled to appraisal rights. Appraisal or dissenter’s rights permit a shareholder to receive cash generally equal to the fair value of the shareholder’s shares (as determined by agreement of the parties or by a court) in lieu of the consideration such shareholder would otherwise receive in any such transaction.

 

Under Section 262 of the DGCL, appraisal rights are generally available for the shares of any class or series of stock of a Delaware corporation in a merger, consolidation or conversion, provided that no appraisal rights are available with respect to shares of any class or series of stock if, at the record date for the meeting held to approve such transaction, such shares of stock, or depositary receipts in respect thereof, are either (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders, unless the shareholders receive in exchange for their shares anything other than shares of stock of the surviving or resulting corporation (or depositary receipts in respect thereof), or of any other corporation that is listed on a national securities exchange or held by more than 2,000 holders of record, cash in lieu of fractional shares or fractional depositary receipts described above or any combination of the foregoing.

 

In addition, Section 262 of the DGCL allows beneficial owners of shares to file a petition for appraisal without the need to name a nominee holding such shares on behalf of such owner as a nominal plaintiff and makes it easier than under Nevada law to withdraw from the appraisal process and accept the terms offered in the merger, consolidation or conversion. Under the DGCL, no appraisal rights are available to shareholders of the surviving or resulting corporation if the merger did not require their approval. The Delaware Charter and Delaware Bylaws do not provide for appraisal rights in addition to those provided by the DGCL.

 

 

Under the NRS, a shareholder is entitled to dissent from, and obtain payment for, the fair value of the shareholder’s shares in the event of (i) certain acquisitions of a controlling interest in the corporation, (ii) consummation of a plan of merger, if approval by the shareholders is required for the merger, regardless of whether the shareholder is entitled to vote on the merger or if the domestic corporation is a subsidiary and is merged with its parent, or if the domestic corporation is a constituent entity in a merger pursuant to NRS 92A.133, (iii) consummation of a plan of conversion to which the corporation is a party, (iv) consummation of a plan of exchange in which the corporation is a party, (iv) any corporate action taken pursuant to a vote of the shareholders, if the articles of incorporation, bylaws or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares, or (v) any corporate action to which the shareholder would be obligated, as a result of the corporate action, to accept money or scrip rather than receive a fraction of a share in exchange for the cancellation of all the shareholder’s outstanding shares, except where the shareholder would not be entitled to receive such payment pursuant to NRS 78.205, 78.2055 or 78.207.

 

Holders of covered securities (generally those that are listed on a national securities exchange), any shares traded in an organized market and held by at least 2,000 shareholders of record with a market value of at least $20,000,000, and any shares issued by an open end management investment company registered under the Investment Company Act of 1940 and which may be redeemed at the option of the holder at net asset value are generally not entitled to dissenter’s rights. However, this exception is not available if (i) the articles of incorporation of the corporation issuing the shares provide that such exception is not available, (ii) the resolution of the board of directors approving the plan of merger, conversion or exchange expressly provides otherwise or (iii) the holders of the class or series of stock are required by the terms of the corporate action to accept for the shares anything except cash, shares of stock or other securities as described in NRS 92A.390(3) or any combination thereof. The NRS prohibits a dissenting shareholder from voting his or her shares or receiving certain dividends or distributions after his or her dissent. The Nevada Charter and Nevada Bylaws do not provide for dissenter’s rights in addition to those provided by the NRS. The mechanics and timing procedures vary somewhat between Delaware and Nevada, but both require technical compliance with specific notice and payment protocols.

 

Special Meetings of the Shareholders. The DGCL permits special meetings of shareholders to be called by the board of directors or by any other person authorized in the certificate of incorporation or bylaws to call a special shareholder meeting. In contrast, the NRS permits special meetings of shareholders to be called by the entire board of directors, any two directors or the President, unless the articles of incorporation or bylaws provide otherwise. Under the Delaware Bylaws, a special meeting of shareholders may be called by the President, Chief Executive Officer, or the Chairman of the Board. Under the Delaware Bylaws, the President or Secretary must call a special meeting of shareholders when: (1) requested in writing by any two or more of the directors; or (2) requested in writing by shareholders owning at least seventy-five percent (75%) of the shares entitled to vote. Such written request must contain the purposes or purposes of the proposed meeting. The Nevada Bylaws contain substantially similar provisions.

 

Special Meetings Pursuant to Petition of Shareholders. The DGCL provides that a director or a shareholder of a corporation may apply to the Court of Chancery of Delaware if the corporation fails to hold an annual meeting for the election of directors or there is no written consent to elect directors in lieu of an annual meeting for a period of 30 days after the date designated for the special meeting or, if there is no date designated, within 13 months after the last annual meeting.

 

Under the NRS, shareholders having not less than 15% of the voting interest may petition the district court to order a meeting for the election of directors if a corporation fails to call a meeting for that purpose within 18 months after the last meeting at which directors were elected.

 

Adjournment of Shareholder Special Meetings. Under the DGCL, if a meeting of shareholders is adjourned due to lack of a quorum and the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting must be given to each shareholder of record entitled to vote at the meeting. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting.

 

 

In contrast, under the NRS, a corporation is not required to give any notice of an adjourned meeting or of the business to be transacted at an adjourned meeting, other than by announcement at the meeting at which the adjournment is taken, unless the board of directors of the corporation fixes a new record date for the adjourned meeting or the meeting date is adjourned to a date more than 60 days later than the date set for the original meeting, in which case a new record date must be fixed and notice given.

 

Duration of Proxies. Under the DGCL, a proxy executed by a shareholder may not be voted after a period of three years from its date, unless the proxy provides for a longer period. The Delaware Bylaws provide that a proxy is valid for 11 months, unless the proxy provides for a longer period. Under the NRS, a proxy is effective only for a period of six months, unless it is coupled with an interest or unless otherwise provided in the proxy, which duration may not exceed seven years. The NRS also provides for irrevocable proxies, without limitation on duration, in limited circumstances. The proxy provisions in the Nevada Bylaws are consistent with the NRS.

 

Quorum and Voting. The DGCL provides that the certificate of incorporation and bylaws may establish quorum and voting requirements, but in no event shall quorum consist of less than one-third of the shares entitled to vote. If the certificate of incorporation and bylaws are silent as to specific quorum and voting requirements: (a) a majority of the shares entitled to vote shall constitute a quorum at a meeting of shareholders; (b) in all matters other than the election of directors, the affirmative vote of the majority of shares present at the meeting and entitled to vote on the subject matter shall be the act of the shareholders; (c) directors shall be elected by a plurality of the votes of the shares present at the meeting and entitled to vote on the election of directors; and (d) where a separate vote by a class or series is required, a majority of the outstanding shares of such class or series shall constitute a quorum entitled to take action with respect to that vote on that matter and, in all matters other than the election of directors, the affirmative vote of the majority of shares of such class or series present at the meeting shall be the act of such class or series or classes or series. A bylaw amendment adopted by shareholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the board. The Delaware Bylaws provide that the holders of shares representing a majority of the Company’s stock issued, outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business, except as otherwise provided by law, the Delaware Charter or the Delaware Bylaws.

 

The NRS provides that, unless the articles of incorporation or bylaws provide otherwise, a majority of the voting power of the corporation, present in person or by proxy at a meeting of shareholders (regardless of whether the proxy has authority to vote on any matter), constitutes a quorum for the transaction of business. Under the NRS, unless the articles of incorporation or bylaws provide for different proportions, action by the shareholders on a matter other than the election of directors is approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action. Unless provided otherwise in the corporation’s articles of incorporation or bylaws, directors are elected at the annual meeting of shareholders by plurality vote. The Nevada Bylaws similarly provide that the holders of a majority of the Company’s stock issued, outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business, except as otherwise provided by law, the Nevada Charter or the Nevada Bylaws. Consistent with the NRS, the Nevada Bylaws also provide that, except as otherwise provided by law, in the Nevada Charter or the Nevada Bylaws, that action by the shareholders on a matter other than the election of directors is approved if the number of votes case in favor of the action exceeds the number of votes cast in opposition to the action.

 

Shareholder Inspection Rights. The DGCL grants any shareholder or beneficial owner of shares the right, upon written demand under oath stating the proper purpose thereof, either in person or by attorney or other agent, to inspect and make copies and extracts from a corporation’s stock ledger, list of shareholders and its other books and records for any proper purpose. A proper purpose is one reasonably related to such person’s interest as a shareholder.

 

 

Inspection rights under Nevada law are more limited. The NRS grants any person who has been a stockholder of record of a corporation for at least six months immediately preceding the demand, or any person holding, or thereunto authorized in writing by the holders of, at least 5% of all of its outstanding shares, upon at least five days’ written demand the right to inspect in person or by agent or attorney, during usual business hours (i) the articles of incorporation and all amendments thereto, (ii) the bylaws and all amendments thereto and (iii) a stock ledger or a duplicate stock ledger, revised annually, containing the names, alphabetically arranged, of all persons who are shareholders of the corporation, showing their places of residence, if known, and the number of shares held by them respectively. A Nevada corporation may require a shareholder to furnish the corporation with an affidavit that such inspection is for a proper purpose related to his or her interest as a shareholder of the corporation.

 

In addition, the NRS grants certain shareholders the right to inspect the books of account and records of a corporation for any proper purpose. The right to inspect the books of account and all financial records of a corporation, to make copies of records and to conduct an audit of such records is granted only to a shareholder who owns at least 15% of the issued and outstanding shares of a Nevada corporation, or who has been authorized in writing by the holders of at least 15% of such shares. However, these requirements do not apply to any corporation that furnishes to its shareholders a detailed annual financial statement or any corporation that has filed during the preceding 12 months all reports required to be filed pursuant to Section 13 or Section 15(d) of the Exchange Act.

 

Business Opportunities. Under Delaware law, the corporate opportunity doctrine holds that a corporate officer or director may not generally and unilaterally take a business opportunity for his or her own if: (i) the corporation is financially able to exploit the opportunity; (ii) the opportunity is within the corporation’s line of business; (iii) the corporation has an interest or expectancy in the opportunity; and (iv) by taking the opportunity for his or her own, the corporate fiduciary will thereby be placed in a position inimical to his duties to the corporation. The DGCL permits a Delaware corporation to renounce, in its certificate of incorporation or by action of the board of directors, any interest or expectancy of the corporation in, or being offered an opportunity to participate in, specified business opportunities or specified classes or categories of business opportunities that are presented to the corporation or one or more of its officers, directors or shareholders.

 

Similar to the DGCL, the NRS permits a Nevada corporation to renounce, in its articles of incorporation or by action of the board of directors, any interest or expectancy to participate in specified business opportunities or specified classes or categories of business opportunities that are presented to the corporation or one or more of its officers, directors or shareholders. Neither the Company’s Delaware Charter, nor the Company’s Nevada Charter contain such provisions.

 

Potential Risks and Disadvantages of the Redomestication

 

Because of Delaware’s prominence as a state of incorporation for many large corporations, the Delaware courts have developed considerable expertise in dealing with corporate issues and a substantial body of case law has developed construing Delaware law and establishing public policies with respect to Delaware corporations. While Nevada also has encouraged incorporation in that state and has adopted comprehensive, modern and flexible statutes that it periodically updates and revises to meet changing business needs, Nevada case law concerning the effects of its statutes and regulations is more limited. As a result, the Company and its shareholders may experience less predictability with respect to the legality of certain corporate affairs and transactions and shareholders’ rights to challenge them, to the extent Nevada’s statutes do not provide a clear answer and a Nevada court must make a determination.

 

Also, underwriters and other members of the financial services industry may be less willing and able to assist the Company with capital-raising transactions because they might perceive Nevada’s laws as being less flexible or developed than those of Delaware. Certain investment funds, sophisticated investors and brokerage firms may likewise be less comfortable and less willing to invest in a corporation incorporated in a jurisdiction other than Delaware whose corporate laws may be less understood or perceived to be unresponsive to shareholder rights.

 

 

The Company will also incur certain non-recurring costs in connection with the Redomestication, including legal and other transaction costs. A majority of these costs have already been incurred or will be incurred regardless of whether the Redomestication is ultimately completed. Many of the expenses that will be incurred are difficult to accurately estimate at the present time, and additional unanticipated costs may be incurred in connection with the Redomestication.

 

Regulatory Matters

 

The consummation of the Redomestication requires the filing of the Articles of Domestication and the Nevada Charter with the office of the Nevada Secretary of State and the Certificate of Conversion with the Office of the Secretary of State in Delaware. No other regulatory or governmental approvals or consents will be required in connection with the Redomestication.

 

No Appraisal Rights

 

Under the DGCL, holders of our common stock are not entitled to appraisal rights with respect to the Redomestication described in this Proposal.

 

No Exchange of Stock Certificates Required

 

Shareholders will not have to exchange their existing stock certificates for new stock certificates.

 

No Material Accounting Implications

 

Effecting the Redomestication will not have any material accounting implications.

 

Certain Federal Income Tax Consequences

 

The following discussion summarizes certain U.S. federal income tax consequences of the Redomestication to holders of the shares of the common stock of the Delaware Corporation (the “Delaware Common Stock”), each of which shares shall be converted into one outstanding share of common stock of the Nevada Corporation (the “Nevada Common Stock”) in connection with the Redomestication.

 

This discussion is based on the Code, applicable Treasury regulations promulgated or proposed thereunder (collectively, the “Treasury Regulations”), judicial authority, and administrative rulings and practice, all as in effect as of the date of this proxy statement, and all of which are subject to change at any time, possibly with retroactive effect. This discussion is limited to holders of the Delaware Common Stock that are U.S. holders (as defined below) who hold their shares of Delaware Common Stock as capital assets within the meaning of Section 1221 of the Code. Further, this discussion does not discuss all tax considerations that may be relevant to holders of the Delaware Common Stock in light of their particular circumstances (including the Medicare tax imposed on net investment income and the alternative minimum tax), nor does it address any tax consequences to holders subject to special treatment under the U.S. federal income tax laws, such as tax-exempt entities, partnerships or other pass-through entities for U.S. federal income tax purposes (and investors therein), holders that acquired their shares of common stock pursuant to the exercise of employee stock options or otherwise as compensation, financial institutions, insurance companies, dealers or traders in securities, holders that have a functional currency other than the U.S. dollar, and holders that hold their shares of common stock as part of a straddle, hedge, conversion, constructive sale, synthetic security, integrated investment, or other risk-reduction transaction for U.S. federal income tax purposes. This discussion does not address any U.S. federal estate, gift, or other non-income tax consequences or any state, local, or foreign tax consequences.

 

For purposes of this section, a U.S. holder is a beneficial owner of the Delaware Common Stock that is, for U.S. federal income tax purposes, (i) an individual that is a citizen or resident of the United States; (ii) a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any state or political subdivision thereof; (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust, if (a) a court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (b) it has a valid election in place under applicable Treasury Regulations to be treated as a U.S. person.

 

 

If a partnership (including any entity or arrangement treated as partnership for U.S. federal income tax purposes) holds shares of the Delaware Common Stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A partner in a partnership holding shares of the Delaware Common Stock should consult his, her or its tax advisor regarding the tax consequences of the Redomestication.

 

Treatment of the Redomestication. Subject to the caveats and qualifications noted above, we intend the Redomestication, under U.S. federal income tax law, to qualify as a tax-free “reorganization” within the meaning of Section 368(a)(1)(F) of the Code. Assuming the Redomestication qualifies as a “reorganization” within the meaning of Section 368(a)(1)(F) of the Code, then, for U.S. federal income tax purposes: