AYRO, INC.
10-Ks and 10-Qs
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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 [X]
Filed
by a Party other than the Registrant [ ]
Check
the appropriate box:
☐ Preliminary Proxy
Statement
☐
Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
☑ Definitive Proxy
Statement
☐ Definitive Additional
Materials
☐
Soliciting Material Under Rule 14a-12
DropCar,
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.
1)
Title of each class
of securities to which transaction applies:
2)
Aggregate number of
securities to which transaction applies:
3)
Per unit price or
other underlying value of transaction computed pursuant to Exchange
Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
4)
Proposed maximum
aggregate value of transaction:
5)
Total fee
paid:
☐
Fee paid previously with preliminary materials.
☐
Check box if any
part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing:
1) Amount
previously paid:
2) Form,
Schedule or Registration Statement No:
3) Filing
party:
4) Date
Filed:
October
9, 2018
To Our
Stockholders:
You are
cordially invited to attend the 2018 annual meeting of stockholders
of DropCar, Inc. to be held at 10:00 A.M. EST on Thursday, November
15, 2018, at the offices of Mintz, Levin, Cohn, Ferris, Glovsky
& Popeo, P.C., 666 Third Avenue, New York, New York
10017.
Details
regarding the meeting, the business to be conducted at the meeting,
and information about DropCar, Inc. that you should consider when
you vote your shares are described in this proxy
statement.
At the
annual meeting, eight persons will be elected to our Board of
Directors. In addition, we will ask stockholders to approve the
following proposals:
1.
To approve a
proposed amendment to the WPCS International Incorporated Amended
and Restated 2014 Equity Incentive Plan
to
increase the number of shares
available for the grant of awards by 1,712,500 shares;
2.
To authorize, for purposes of complying with
Nasdaq Listing Rule 5635(d), the issuance of shares of our common
stock underlying Series H-4 Convertible Preferred Stock and
warrants issued by us pursuant to the terms of that certain
Securities Purchase Agreement, dated March 8, 2018, by and among
DropCar, Inc. and the investors named therein, in an amount equal
to or in excess of 20% of our common stock outstanding before the
issuance of such Series H-4 Convertible Preferred Stock and
warrants
(including upon the operation of anti-dilution
provisions contained in such
Series
H-4 Convertible Preferred Stock
and warrants);
3.
To
approve an amendment to the DropCar, Inc. Amended and Restated
Certificate of Incorporation, as amended, to effect a reverse stock
split of our issued and outstanding shares of common stock, at a
ratio of between 2-for-1 and 25-for-1, if the Board of Directors
believes that a reverse stock split is in the best interests of the
Company and its stockholders;
4.
To ratify the
appointment of
EisnerAmper LLP
as the Company’s independent
registered public accounting firm for the fiscal year
ending
December 31,
2018;
5
To approve by an
advisory vote the compensation of our named executive officers, as
disclosed in this proxy statement; and
6.
To
approve an adjournment of our annual meeting of stockholders, if
necessary, to solicit additional proxies if there are not
sufficient votes in favor of any of the foregoing
proposals.
The
Board of Directors recommends a vote “FOR” each of the
director nominees and “FOR” the approval of each of the
above proposals. Such other business will be transacted as may
properly come before the annual meeting.
We hope
you will be able to attend the annual meeting. Whether you plan to
attend the annual meeting or not, it is important that you cast
your vote either in person or by proxy. You may vote over the
Internet as well as by telephone or by mail. When you have finished
reading the proxy statement, you are urged to vote in accordance
with the instructions set forth in this proxy statement.
We encourage you to vote by proxy so
that your shares will be represented and voted at the meeting,
whether or not you can attend.
Thank
you for your continued support of DropCar, Inc. We look forward to
seeing you at the annual meeting.
|
|
Sincerely,
Spencer
Richardson
Chief
Executive Officer
|
October
9, 2018
NOTICE
OF 2018 ANNUAL MEETING OF STOCKHOLDERS
TIME:
10:00 A.M. EST
DATE:
Thursday, November 15, 2018
PLACE:
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., located at
666 Third Avenue, New York, New York, 10017
PURPOSES:
1.
To
elect
eight directors
to hold office until the 2019 annual meeting of stockholders or
until their successors are duly elected and qualified;
2.
To approve a
proposed amendment to the WPCS International Incorporated Amended
and Restated 2014 Equity Incentive Plan
to
increase the number of shares
available for the grant of awards by
1,712,500
shares;
3.
To authorize, for purposes of complying with
Nasdaq Listing Rule 5635(d), the issuance of shares of our common
stock underlying Series H-4 Convertible Preferred Stock and
warrants issued by us pursuant to the terms of that certain
Securities Purchase Agreement, dated March 8, 2018, by and among
DropCar, Inc. and the investors named therein, in an amount equal
to or in excess of 20% of our common stock outstanding before the
issuance of such Series H-4 Convertible Preferred Stock and
warrants
(including upon the operation of anti-dilution
provisions contained in such
Series
H-4 Convertible Preferred Stock
and warrants);
4.
To
approve an amendment to the DropCar, Inc. Amended and Restated
Certificate of Incorporation, as amended, to effect a reverse stock
split of our issued and outstanding shares of common stock, at a
ratio of between 2-for-1 and 25-for-1, if the Board of Directors
believes that a reverse stock split is in the best interests of the
Company and its stockholders;
5.
To ratify the
appointment of
EisnerAmper LLP
as the Company’s independent
registered public accounting firm for the fiscal year
ending
December 31,
2018;
6.
To approve by an
advisory vote the compensation of our named executive officers, as
disclosed in this proxy statement;
7.
To
approve an adjournment of our annual meeting of stockholders, if
necessary, to solicit additional proxies if there are not
sufficient votes in favor of any of the foregoing proposals;
and
8.
To transact such
other business that is properly presented at the annual meeting and
any adjournments or postponements thereof.
WHO MAY
VOTE:
You may
vote if you were the record owner of DropCar, Inc. common stock at
the close of business on September 26, 2018
.
A list of stockholders of record will
be available at the annual meeting and, during the 10 days prior to
the annual meeting, at our principal executive offices located at
1412 Broadway, Suite 2105, New York,
New York 10018.
All
stockholders are cordially invited to attend the annual meeting.
Whether you plan to attend the
annual meeting or not, we urge you to vote and submit your proxy by
the Internet, telephone or mail in order to ensure the presence of
a quorum.
You may change or
revoke your proxy at any time before it is voted at the
meeting.
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BY ORDER OF THE
BOARD OF DIRECTORS
Paul
Commons
Chief
Financial Officer
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TABLE OF CONTENTS
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PAGE
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Important Information About the Annual Meeting and
Voting
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3
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Security Ownership of Certain Beneficial Owners and
Management
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9
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Management and Corporate Governance
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11
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Executive Committee Report
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14
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Executive Officer and Director Compensation
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18
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Equity Compensation Plan Information
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21
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Report of Audit Committee
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21
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Section 16(a) Beneficial Ownership Reporting
Compliance
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22
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Certain Relationships and Related Person Transactions
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22
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Election of Directors
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23
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Approval of Amendment to the Company’s 2014 Equity Incentive
Plan
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24
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Approval of Issuance of Shares of Common Stock in Financing
Transaction
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26
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Approval of Reverse Stock Split
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32
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Independent Registered Public Accounting Firm
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39
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Advisory Vote on Executive Compensation as Disclosed in this Proxy
Statement
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41
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Code of Conduct and Ethics
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43
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Other Matters
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43
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Stockholder Proposals and Nominations For Director
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43
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Appendix
Appendix A –
Form of Certificate of Amendment to Amended and Restated
Certificate of Incorporation to Effect Reverse Stock
Split
Appendix B
–
Proxy Card
DropCar, Inc.
1412 Broadway, Suite 2105
New York, New York 10018
PROXY STATEMENT FOR THE DROPCAR, INC.
2018 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 15,
2018
This
proxy statement, along with the accompanying notice of 2018 annual
meeting of stockholders, contains information about the 2018 annual
meeting of stockholders of DropCar, Inc., including any
adjournments or postponements of the annual meeting. We are holding
the annual meeting at 10:00 A.M. EST on Thursday, November 15,
2018, at the offices of Mintz, Levin, Cohn, Ferris, Glovsky &
Popeo, P.C., 666 Third Avenue, New York, New York
10017.
In this
proxy statement, we refer to DropCar, Inc. as
“DropCar,” “the Company,” “we”
and “us.”
This
proxy statement relates to the solicitation of proxies by our Board
of Directors for use at the annual meeting.
On or
about October 10, 2018, we began sending this proxy statement, the
attached Notice of Annual Meeting of Stockholders and the enclosed
proxy card to all stockholders entitled to vote at the annual
meeting.
Although not part
of this proxy statement, we are also sending along with this proxy
statement
a copy of our
Current
Report on Form 8-K/A, which includes financial statements
for the fiscal year ended December 31,
2017
.
1
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE
SHAREHOLDER MEETING TO BE HELD ON NOVEMBER 15, 2018
This
proxy statement and
a copy of
our
Current Report on Form 8-K/A, which includes financial
statements
for the fiscal year ended
December 31, 2017,
are available for viewing, printing and
downloading at www.proxyvote.com
.
To view
these materials please have your 16-digit control number(s)
available that appears on your proxy card.
On this website,
you can also elect to receive future distributions of our proxy
statements and annual reports to stockholders by electronic
delivery.
Additionally, you can find a copy of our
Current Report on Form 8-K/A, which includes our financial
statements for the fiscal year ended December 31, 2017 on the
website of the Securities and Exchange Commission, or the SEC,
at
www.sec.gov
,
or in the “Investors”
section of our website at
www.dropcar.com.
You may also obtain a printed copy
of our Current Report on Form 8-K/A, including our financial
statements, free of charge, from us by sending a written request
to: DropCar, Inc., Investor Relations, 1412 Broadway, Suite 2105,
New York, New York 10018. Exhibits will be provided upon written
request and payment of an appropriate processing
fee.
2
IMPORTANT INFORMATION ABOUT THE ANNUAL MEETING AND
VOTING
Why is the Company Soliciting My Proxy?
The Board of Directors of DropCar, Inc. is
soliciting your proxy to vote at the 2018 annual meeting of
stockholders to be held at the offices of Mintz, Levin, Cohn,
Ferris, Glovsky & Popeo, P.C., 666 Third Avenue, New York, New
York 10017,
at 10:00 A.M. EST on Thursday, November 15,
2018,
and any adjournments of the
meeting, which we refer to as the annual meeting. The proxy
statement along with the accompanying Notice of Annual Meeting of
Stockholders summarizes the purposes of the meeting and the
information you need to know to vote at the Annual
Meeting.
We have made available to you on the Internet or
have sent you this proxy statement, the Notice of Annual Meeting of
Stockholders, the proxy card and a copy of our
Current
Report on Form 8-K/A, which includes financial statements
for the fiscal year ended December 31,
2017, because you owned shares of DropCar, Inc. common stock on the
record date. The Company intends to commence distribution of the
proxy materials to stockholders on or about
October
10
, 2018.
Who May Vote?
Only
stockholders who owned our common stock at the close of business on
September 26, 2018, are entitled to vote at the annual meeting. On
this record date, there were 8,884,411 shares of our common stock
outstanding and entitled to vote. Our common stock is our only
class of voting stock.
You do
not need to attend the annual meeting to vote your shares. Shares
represented by valid proxies, received in time for the annual
meeting and not revoked prior to the annual meeting, will be voted
at the annual meeting. For instructions on how to change or revoke
your proxy, see “May I Change or Revoke My Proxy?”
below.
How Many Votes Do I Have?
Each
share of our
common
stock that you own entitles you to one vote.
How Do I Vote?
Whether
you plan to attend the annual meeting or not, we urge you to vote
by proxy. All shares represented by valid proxies that we receive
through this solicitation, and that are not revoked, will be voted
in accordance with your instructions on the proxy card or as
instructed via Internet or telephone. You may specify whether your
shares should be voted for or withheld for each nominee for
director and whether your shares should be voted for, against or
abstain with respect to each of the other proposals. If you
properly submit a proxy without giving specific voting
instructions, your shares will be voted in accordance with the
Board of Directors’ recommendations as noted below. Voting by
proxy will not affect your right to attend the annual meeting. If
your shares are registered directly in your name through our stock
transfer agent, Issuer Direct Corporation, or you have stock
certificates registered in your name, you may vote:
●
By Internet or by
telephone.
Follow the
instructions included in the Notice or, if you received printed
materials, in the proxy card to vote by Internet or
telephone.
●
By mail.
If you received a proxy card by mail, you can vote
by mail by completing, signing, dating and returning the proxy card
as instructed on the card. If you sign the proxy card but do not
specify how you want your shares voted, they will be voted in
accordance with the Board of Directors’ recommendations as
noted below.
●
In person at the
meeting.
If you attend the
meeting, you may deliver a completed proxy card in person or you
may vote by completing a ballot, which will be available at the
meeting.
3
Telephone and Internet voting facilities for stockholders of record
will be available 24 hours a day and will close at 11:59 p.m.
Eastern Time on November 14, 2018.
If
your shares are held in “street name” (held in the name
of a bank, broker or other holder of record), you will receive
instructions from the holder of record. You must follow the
instructions of the holder of record in order for your shares to be
voted. Telephone and Internet voting also will be offered to
stockholders owning shares through certain banks and brokers. If
your shares are not registered in your own name and you plan to
vote your shares in person at the annual meeting, you should
contact your broker or agent to obtain a legal proxy or
broker’s proxy card and bring it to the annual meeting in
order to vote.
How Does the Board of Directors Recommend That I Vote on the
Proposals?
The
Board of Directors recommends that you vote as
follows:
●
“
FOR
” the election of the nominees
for director;
●
“
FOR
” the amendment to
the
WPCS International
Incorporated Amended and Restated 2014 Equity Incentive
Plan;
●
“
FOR
” the
authorization, for purposes of complying with
Nasdaq Listing Rule 5635(d), the issuance of shares of our common
stock underlying Series H-4 Convertible Preferred Stock and
warrants issued by us pursuant to the terms of that certain
Securities Purchase Agreement, dated March 8, 2018, by and among
DropCar, Inc. and the investors named therein, in an amount equal
to or in excess of 20% of our common stock outstanding before the
issuance of such Series H-4 Convertible Preferred Stock and
warrants
(including upon the operation of anti-dilution
provisions contained in such
Series
H-4 Convertible Preferred Stock
and warrants);
●
“
FOR
” the amendment to our Amended and Restated
Certificate of Incorporation to effect a reverse stock split of our
common stock, par value $0.0001 per share, at a ratio of between
2-for-1 and 25-for-1, if the Board of Directors believes that a
reverse stock split is in the best interests of the Company and its
stockholders;
●
“
FOR
” the ratification of the
selection of EisnerAmper LLP as our independent registered public
accounting firm for our fiscal year ending December 31,
2018;
●
“
FOR
” the advisory vote on the
compensation of our named executive officers, as disclosed in this
proxy statement; and
●
“
FOR
” the adjournment of our annual meeting of
stockholders, if necessary, to solicit additional proxies if there
are not sufficient votes in favor of any of the foregoing
proposals.
If any
other matter is presented at the annual meeting, your proxy
provides that your shares will be voted by the proxy holder listed
in the proxy in accordance with his best judgment. At the time this
proxy statement was first made available, we knew of no matters
that needed to be acted on at the annual meeting, other than those
discussed in this proxy statement.
May I Change or Revoke My Proxy?
If you
give us your proxy, you may change or revoke it at any time before
the annual meeting. You may change or revoke your proxy in any one
of the following ways:
●
if you received a
proxy card, by signing a new proxy card with a date later than your
previously delivered proxy and submitting it as instructed
above;
●
by re-voting by
Internet or by telephone as instructed above;
4
●
by notifying
DropCar’s Secretary/Clerk in writing before the annual
meeting that you have revoked your proxy; or
●
by
attending the annual meeting in person and voting in person.
Attending the annual meeting in person will not in and of itself
revoke a previously submitted proxy. You must specifically request
at the annual meeting that it be revoked.
Your
most current vote, whether by telephone, Internet or proxy card is
the one that will be counted.
What if I Receive More Than One Notice or Proxy Card?
You may
receive more than one Notice or proxy card if you hold shares of
our common stock in more than one account, which may be in
registered form or held in street name. Please vote in the manner
described above under “How Do I Vote?” for each account
to ensure that all of your shares are voted.
Will My Shares be Voted if I Do Not Vote?
If your
shares are registered in your name or if you have stock
certificates, they will not be counted if you do not vote as
described above under “How Do I Vote?” If your shares
are held in street name and you do not provide voting instructions
to the bank, broker or other nominee that holds your shares as
described above, the bank, broker or other nominee that holds your
shares has the authority to vote your unvoted shares only on
certain of the proposals set forth in this proxy statement without
receiving instructions from you. Therefore, we encourage you to
provide voting instructions to your bank, broker or other nominee.
This ensures your shares will be voted at the annual meeting and in
the manner you desire. A “broker non-vote” will occur
if your broker cannot vote your shares on a particular matter
because it has not received instructions from you and does not have
discretionary voting authority on that matter or because your
broker chooses not to vote on a matter for which it does have
discretionary voting authority.
What Vote is Required to Approve Each Proposal and How are Votes
Counted?
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Proposal 1: Elect Directors
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The
nominees for director who receive the most votes (also known as a
“plurality” of the votes cast) will be elected. You may
vote either FOR all of the nominees, WITHHOLD your vote from all of
the nominees or WITHHOLD your vote from any one or more of the
nominees. Votes that are withheld will not be included in the vote
tally for the election of the directors. Brokerage firms do not
have authority to vote customers’ unvoted shares held by the
firms in street name for the election of the directors. As a
result, any shares not voted by a customer will be treated as a
broker non-vote. Such broker non-votes will have no effect on the
results of this vote.
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Proposal 2: Approve Amendment to the WPCS International
Incorporated Amended and Restated 2014 Equity Incentive
Plan
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The
affirmative vote of a majority of the Company’s outstanding
capital stock entitled to vote thereon is required to approve the
amendment to the WPCS International Incorporated Amended and
Restated 2014 Equity Incentive Plan to increase the aggregate
number of shares available to be granted under the Company’s
WPCS International Incorporated Amended and Restated 2014 Equity
Incentive Plan. Abstentions will be treated as votes against this
proposal. Brokerage firms do not have authority to vote
customers’ unvoted shares held by the firms in street name on
this proposal. As a result, any shares not voted by a customer will
have the same effect as a vote against this proposal.
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5
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Proposal 3: Approve the Issuance of Shares of our Common Stock in
the Financing Transaction
|
The
affirmative vote of the holders of a
majority of the total votes cast in person or by proxy at the
annual meeting is required to approve, in accordance with Nasdaq
Listing Rule 5635(d), the issuance, under the terms of that certain
Securities Purchase Agreement dated March 8, 2018, by and among
DropCar, Inc. and the investors thereto, and related documents, of
shares of our common stock underlying Series H-4 Convertible
Preferred Stock and warrants issued by us (including upon the
operation of “ratchet” anti-dilution provisions
contained in such shares of Series H-4 Convertible Preferred Stock
and warrants). Abstentions will be treated as votes against this
proposal. Brokerage firms do not have authority to vote
customers’ unvoted shares held by the firms in street name on
this proposal. As a result, any shares not voted by a customer will
be treated as a broker non-vote. Such broker non-votes will have no
effect on the results of this vote.
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Proposal 4: Reverse Stock Split
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The affirmative vote of the
holders of a
majority of the total votes cast in person or by proxy at the
annual meeting is required to approve
the amendment to our Amended and Restated
Certificate of Incorporation, as amended, to effect a reverse stock
split of our common stock, if the Board of Directors believes that
a reverse stock split is in the best interests of the Company and
its stockholders. Brokerage firms have authority to vote customers'
unvoted shares held by the firms in street name on this proposal.
Abstention and broker non-votes, if any, will be treated as votes
against this proposal.
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Proposal 5: Ratify Selection of Independent Registered Public
Accounting Firm
|
The
affirmative vote of the holders of a majority of the shares of our
common stock present and entitled to vote on the matter either in
person or by proxy at the annual meeting is required to ratify the
appointment of EisnerAmper LLP as our independent registered public
accounting firm for the fiscal year ending December 31, 2018.
Abstentions will be treated as votes against this proposal.
Brokerage firms have authority to vote customers’ unvoted
shares held by the firms in street name on this proposal. If a
broker does not exercise this authority, such broker non-votes will
have no effect on the results of this vote. We are not required to
obtain the approval of our stockholders to select our independent
registered public accounting firm. However, if our stockholders do
not ratify the selection of EisnerAmper LLP as our independent
registered public accounting firm for 2018, our Audit Committee of
our Board of Directors will reconsider its selection.
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Proposal 6: Approve an Advisory Vote on the Compensation of our
Named Executive Officers
|
The
affirmative vote of a majority of the votes cast in person or by
proxy at the annual meeting is required to approve, on an advisory
basis, the compensation of our named executive officers, as
described in this proxy statement. Abstentions will be treated as
votes against this proposal. Brokerage firms do not have authority
to vote customers’ unvoted shares held by the firms in street
name on this proposal. As a result, any shares not voted by a
customer will be treated as a broker non-vote. Such broker
non-votes will have no effect on the results of this vote. Although
the advisory vote is non-binding, the Executive Committee and the
Board of Directors will review the voting results and take them
into consideration when making future decisions regarding executive
compensation.
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6
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Proposal 7:
Approve an Adjournment of
the Annual Meeting, if Necessary, to Solicit Additional Proxies if
there are not Sufficient Votes in Favor of Any of the Foregoing
Proposals
|
Approval of the adjournment of the annual meeting,
if necessary, to solicit additional proxies if there are not
sufficient votes in favor of the above proposals requires the
affirmative vote of the holders of a majority of the shares of
common stock present and entitled to vote either in person or by
proxy at the annual meeting.
Abstentions will be treated as
votes against this proposal. Brokerage firms do not have authority
to vote customers’ unvoted shares held by the firms in street
name on this proposal. As a result, any shares not voted by a
customer will be treated as a broker non-vote. Such broker
non-votes will have no effect on the results of this
vote.
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Is Voting Confidential?
We will
keep all the proxies, ballots and voting tabulations private. We
only let our Inspector of Election, a representative from Mintz,
Levin, Cohn, Ferris, Glovsky & Popeo, P.C., examine these
documents. Management will not know how you voted on a specific
proposal unless it is necessary to meet legal requirements. We
will, however, forward to management any written comments you make
on the proxy card or otherwise provide.
Where Can I Find the Voting Results of the Annual
Meeting?
The
preliminary voting results will be announced at the annual meeting,
and we will publish preliminary, or final results if available, in
a Current Report on Form 8-K within four business days of the
annual meeting.
If final results are
unavailable at the time we file the Form 8-K, then we will file an
amended report on Form 8-K to disclose the final voting results
within four business days after the final voting results are
known.
In
addition, we are required to file on a Current Report on Form 8-K
no later than the earlier of one hundred fifty calendar days after
the annual meeting or sixty calendar days prior to the deadline for
submission of stockholder proposals set forth on page 43
of this proxy
statement under the heading “Stockholder Proposals and
Nominations for Director” our decision on how frequently we
will include a stockholder vote on the compensation of our named
executive officers in our proxy materials.
What Are the Costs of Soliciting these Proxies?
We will
pay all of the costs of soliciting these proxies. Our directors and
employees may solicit proxies in person or by telephone, fax or
email. We will pay these employees and directors no additional
compensation for these services. We will ask banks, brokers and
other institutions, nominees and fiduciaries to forward these proxy
materials to their principals and to obtain authority to execute
proxies. We will then reimburse them for their
expenses.
We
have engaged Kingsdale Advisors (“Kingsdale”) to act as
our proxy solicitor in connection with the proposals to be acted
upon at our annual meeting. Pursuant to our agreement with
Kingsdale, Kingsdale will, among other things, provide advice
regarding proxy solicitation issues and solicit proxies from our
stockholders on our behalf in connection with the annual meeting.
For these services, we will pay a fee of approximately $2,000 plus
expenses. We have also agreed to pay to Kingsdale a performance fee
of $10,000 in the event all proposals achieve requisite stockholder
approval.
What Constitutes a Quorum for the Annual Meeting?
The
presence, in person or by proxy, of the holders of thirty-three and
one-third percent (33.33%) of our outstanding shares entitled to
vote at the annual meeting is necessary to constitute a quorum at
the annual meeting. Votes of stockholders of record who are present
at the annual meeting in person or by proxy, abstentions, and
broker non-votes are counted for purposes of determining whether a
quorum exists.
7
Attending the Annual Meeting
The
annual meeting will be held at 10:00 A.M. EST on Thursday, November
15, 2018, at the offices of Mintz, Levin, Cohn, Ferris, Glovsky
& Popeo, P.C., 666 Third Avenue, New York, New York 10017. When
you arrive at the meeting, signs will direct you to the appropriate
meeting rooms. You need not attend the annual meeting in order to
vote.
Householding of Annual Disclosure Documents
Some
brokers or other nominee record holders may be sending you a single
Notice or, if applicable, a single set of our proxy materials if
multiple DropCar, Inc. stockholders live in your household. This
practice, which has been approved by the SEC, is called
“householding.” Once you receive notice from your
broker or other nominee record holder that it will be
“householding” the Notice or if, applicable, our proxy
materials, the practice will continue until you are otherwise
notified or until you notify them that you no longer want to
participate in the practice.
Stockholders who participate in householding will
continue to have access to and utilize separate proxy voting
instructions.
We will
promptly deliver a separate copy of our Notice or if applicable,
our proxy materials to you if you write or call our corporate
secretary at: DropCar, Inc., Investor Relations, 1412 Broadway,
Suite 2105, New York, New York 10018. If you want to receive your
own Notice or, if applicable, set of our proxy materials in the
future or, if you share an address with another DropCar, Inc.
stockholder and together both of you would like to receive only a
single Notice or, if applicable, set of proxy materials, you should
contact your broker or other nominee record holder directly or you
may contact us at the above address and phone number.
Electronic Delivery of Company Stockholder
Communications
Most
stockholders can elect to view or receive copies of future proxy
materials over the Internet instead of receiving paper copies in
the mail.
You can
choose this option and save the Company the cost of producing and
mailing these documents by:
●
following the
instructions provided on your proxy card;
●
following the
instructions provided when you vote over the Internet;
or
●
going to
www.proxyvote.com
and
following the instructions provided.
8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The
following table sets forth certain information with respect to the
beneficial ownership of our common stock as of September 15, 2018
for (a) the executive officers named in the Summary Compensation
Table on page 18 of
this proxy statement, (b) each of our directors and director
nominees, (c) all of our current directors and executive officers
as a group and (d) each stockholder known by us to own beneficially
more than 5% of our common stock. Beneficial ownership is
determined in accordance with the rules of the SEC and includes
voting or investment power with respect to the securities. We deem
shares of common stock that may be acquired by an individual or
group within 60 days of September 15, 2018 pursuant to the exercise
of options or warrants or the vesting of restricted stock
units
to be outstanding
for the purpose of computing the percentage ownership of such
individual or group, but those shares are not deemed to be
outstanding for the purpose of computing the percentage ownership
of any other person shown in the table. Except as indicated in
footnotes to this table, we believe that the stockholders named in
this table have sole voting and investment power with respect to
all shares of common stock shown to be beneficially owned by them
based on information provided to us by these stockholders.
Percentage of ownership is based on 8,884,411 shares of common
stock outstanding on September 15, 2018.
Except as otherwise indicated, the address of each
of the persons in this table is c/o DropCar, Inc., 1412 Broadway,
Suite 2105, New York, New York 10018.
|
Name and Address
of Beneficial Owner
|
Number of Shares
of Common Stock Beneficially Owned
|
Percent of
Shares of Common Stock Beneficially Owned
|
|
Five percent or more beneficial owners:
|
|
|
|
Alpha Capital
Anstalt
(1)
|
887,552
|
9.9
%
|
|
Iroquois Master
Fund Ltd.
(2)
|
887,552
|
9.9
%
|
|
Directors and named executive officers:
|
|
|
|
Spencer
Richardson
(3)
|
732,210
|
8.2
%
|
|
David
Newman
(4)
|
722,210
|
8.1
%
|
|
Paul
Commons
(5)
|
—
|
*
|
|
Sebastian
Giordano
(6)
|
290,374
|
*
|
|
Brian
Harrington
|
—
|
*
|
|
Zvi
Joseph
|
—
|
*
|
|
Solomon
Mayer
|
—
|
*
|
|
Joshua
Silverman
(7)
|
47,609
|
0.5
%
|
|
Greg
Schiffman
|
—
|
*
|
|
David
Allen
(8)
|
123,750
|
1.4
%
|
|
Robert Roller
(9)
|
89,984
|
1.0
%
|
|
All current
directors and officers as a group (10 individuals)
(10)
:
|
2,006,137
|
21.0
%
|
9
*
Represents beneficial ownership of less than 1% of the outstanding
shares of our common stock.
1)
Based
on a Schedule 13G filed on May 24, 2018. The principal business
address of the beneficial owner is Lettstrasse 32, FL-9490 Vaduz,
Furstentums, Liechtenstein. Konrad Ackerman is the Director of
Alpha Capital Anstalt. The shares included in the table
report the number of shares that would be issuable upon exercise of
the warrants after giving effect to the 9.99% blocker included in
such warrants.
2)
Based on a Schedule 13G/A filed on February 14,
2018. The principal business address of the beneficial owner is 205
East 42nd Street, 20th Floor, New York, New York 10017. Iroquois
Master Fund (“IMF”) is a private investment fund.
Iroquois Capital Management LLC (“Iroquois Capital”) is
an investment adviser that provides investment advisory services to
IMF. Iroquois Capital Investment Group LLC (“ICIG”) is
a private investment fund. Richard Abbe is the President of
Iroquois Capital and managing member of ICIG. Kimberly Page is the
manager of American Capital and the Chief Operating Officer,
Compliance Officer of Iroquois Capital
. Beneficial ownership
includes 315,586 shares of common stock and warrants to obtain
1,175,140 shares of common stock which are exercisable within 60
days of September 15, 2018. IMF, Iroquois Capital, Richard Abbe and
Kimberly Page share voting and dispositive power over all shares
and warrants. Richard Abbe additionally holds sole voting and
dispositive power over an additional 27,394 shares and warrants to
purchase 132,183 shares, which in each case are held indirectly by
Mr. Abbe through American Capital, an investment entity that was
dissolved as of December 31, 2017 and which distributed securities
held by it to its members. ICIG shares voting and dispositive power
over 27,394 shares and warrants to purchase 105,120 shares.
The shares included in the table
report the number of shares that would be issuable upon exercise of
the warrants after giving effect to the 9.99% blocker included in
such warrants.
3)
Consists of 732,210
shares of common stock held by Mr. Richardson. Does not include
restricted stock units which are not exercisable within 60 days of
September 15, 2018.
4)
Consists of 722,210
shares of common stock held by Mr. Newman. Does not include
restricted stock units which are not exercisable within 60 days of
September 15, 2018.
5)
Consists of options
to purchase 148,750 shares of common stock which are exercisable
within 60 days of September 15, 2018.
6)
Consists of options
to purchase 290,374 shares of common stock which are exercisable
within 60 days of September 15, 2018.
7)
Consists of 35,109
shares of common stock held by
JNS Holdings Group LLC and warrants
to obtain 6,766 shares of common stock which are exercisable within
60 days of September 15, 2018. Mr. Silverman is the Principal of
JNS Holdings Group LLC and may be deemed to have voting and
investment power with respect to the shares owned by JNS Holdings
Group LLC.
8)
Consists of options
to purchase 148,750 shares of common stock which are exercisable
within 60 days of September 15, 2018.
9)
Consists of options
to purchase 89,984 shares of common stock, which are exercisable
within 60 days of September 15, 2018.
10)
Includes all
directors and officers named in the above table except David Allen,
the Company’s previous Chief Financial Officer, who is not a
current director or executive officer.
10
MANAGEMENT AND CORPORATE GOVERNANCE
The Board of Directors
On
September 26, 2018, our Board of Directors accepted the
recommendation of the Nominating Committee and voted to nominate
Spencer Richardson, David Newman, Sebastian Giordano, Brian
Harrington, Zvi Joseph, Solomon Mayer, Joshua Silverman and Greg
Schiffman for election at the annual meeting for a term of one year
to serve until the 2019 annual meeting of stockholders, and until
their respective successors have been elected and
qualified.
Set
forth below are the names of the persons nominated as directors,
their ages, their offices in the Company, if any, their principal
occupations or employment for at least the past five years, the
length of their tenure as directors and the names of other public
companies in which such persons hold or have held directorships
during the past five years. Additionally, information about the
specific experience, qualifications, attributes or skills that led
to our Board of Directors’ conclusion at the time of filing
of this proxy statement that each person listed below should serve
as a director is set forth below.
|
Name
|
|
|
Age
|
|
|
Position(s)
|
|
|
Employee Directors
|
|
|
|
|
|
|
|
|
Spencer Richardson
|
|
|
33
|
|
|
Chief Executive Officer; Director
|
|
|
David Newman
|
|
|
58
|
|
|
Chief Business Development Officer; Director
|
|
|
Non-Employee Directors
|
|
|
|
||||
|
Joshua Silverman
|
|
|
48
|
|
|
Director; Chairman of the Board of Directors
|
|
|
Sebastian
Giordano
|
|
|
61
|
|
|
Director
|
|
|
Brian Harrington
|
|
|
51
|
|
|
Director
|
|
|
Zvi Joseph
|
|
|
52
|
|
|
Director
|
|
|
Solomon Mayer
|
|
|
65
|
|
|
Director
|
|
|
Greg Schiffman
|
|
|
60
|
|
|
Director
|
|
Our
Board of Directors has reviewed the materiality of any relationship
that each of our directors has with DropCar, Inc.
either directly or indirectly.
Based upon this review, our
Board of
Directors
has determined that the following members of the
Board of Directors
are
“independent directors” as defined by The Nasdaq Stock
Market:
Brian Harrington, Zvi Joseph,
Solomon Mayer, Joshua Silverman and Greg
Schiffman.
On January 30, 2018, the Company completed its business combination
with DropCar, Inc. (“Private DropCar”) in accordance
with the terms of the Agreement and Plan of Merger and
Reorganization, dated as of September 6, 2017, as subsequently
amended, by and among the Company, DC Acquisition Corporation
(“Merger Sub”), and Private DropCar (as amended, the
“Merger Agreement”), pursuant to which Merger Sub
merged with and into Private DropCar, with Private DropCar
surviving as a wholly owned subsidiary of the Company (the
“Merger”). The information below includes information
regarding each director’s service on the boards of directors
of WPCS, Private DropCar and the Company.
Employee Directors
Spencer Richardson
Mr.
Richardson has served as our Chief Executive Officer and a member
of the Board of Directors since the closing of the Merger, and
prior to that time, served as a member of the board of directors of
Private DropCar since September 2014. Mr. Richardson served as
Co-Founder and Chief Executive Officer of Private DropCar since its
inception in September 2014 through the closing of the Merger. Mr.
Richardson also served as the Chairman of our Board of Directors
from January 2018 to May 2018. Prior to his service with DropCar,
from March 2009 through February 2016, Mr. Richardson served as
Co-Founder and Chief Executive Officer of FanBridge, Inc., a
platform that enables clients, such as musicians, comedians,
influencers, and anyone with a fan base, to manage fan acquisition,
retention, and engagement. In 2012, Forbes Magazine selected Mr.
Richardson as a “30 Under 30” innovator. Mr. Richardson
currently serves on the boards of directors of numerous private
companies. Mr. Richardson holds a B.S. in Finance and Marketing
from New York University Stern School of Business.
11
David Newman
Mr.
Newman has served as our Chief Business Development Officer and a
member of the Board of Directors since the closing of the Merger,
and prior to that time, served as a member of the board of
directors of Private DropCar since its inception in September 2014.
Mr. Newman served as Co-Founder, Secretary and Treasurer of Private
DropCar since its inception and as Chief Business Development
Officer since April 2017. Mr. Newman has served as President of
David B. Newman Consultants, Inc., a New York-based consulting
corporation, as President of Rockland Westchester Legal Services,
PC, a New York-based legal services company, and as a Senior
Managing Director of Brock Securities LLC, a broker-dealer that
provides investment banking and advisory services, in each instance
since August 2013. He previously served as a director of United
Realty Trust Inc., a public real estate investment trust, from
August 2012 through September 2015. Mr. Newman holds a B.B.A. in
Business Management from Hofstra University and a J.D. from Fordham
Law School.
Non-Employee Directors
Sebastian Giordano
Mr.
Giordano currently serves as a consultant to the Company and has
served as a member of the Board of Directors since the closing of
the Merger, and prior to that time, served as a director of WPCS
since February 2013. Mr. Giordano served as the Interim Chief
Executive Officer of WPCS from August 2013 until April 25, 2016,
when the interim label was removed from his title. He served as the
Chief Executive Officer of WPCS since such time through the closing
of the Merger. Since 2002, Mr. Giordano has been Chief Executive
Officer of Ascentaur, LLC, a business consulting firm providing
comprehensive strategic, financial and business development
services to start-up, turnaround and emerging growth companies.
From 1998 to 2002, Mr. Giordano was Chief Executive Officer of
Drive One, Inc., a safety training and education business. From
1992 to 1998, Mr. Giordano was Chief Financial Officer of Sterling
Vision, Inc., a retail optical chain. Mr. Giordano received B.B.A.
and M.B.A. degrees from Iona College.
Mr. Giordano’s qualifications to sit on
the
Board of Directors
include
his broad management experience, including having served as Chief
Executive Officer of WPCS.
Brian Harrington
Mr. Harrington has served as a member of
the
Board of Directors
since
the closing of the Merger. Mr. Harrington has served as the Chief
Product Officer for CBRE, Inc. since December 2017. He previously
served as Entrepreneur in Residence and Adjunct Faculty Member of
Boston College from January 2016 through May 2017. From August 2012
through September 2015, he served as Executive Vice President and
Chief Marketing Officer at ZipCar, Inc. From January 2012 through
December 2013, Mr. Harrington served as Principal at Little Harbor
Group, a boutique consulting firm specializing in consulting for
business services. Mr. Harrington holds a B.S. in Finance/Marketing
from Boston College and an MBA from the University of Notre
Dame.
Mr. Harrington’s qualifications to sit on
the
Board of Directors
include
his financial background, business and marketing experience and
education.
Greg Schiffman
Mr. Schiffman has served as a member of the
Board of Directors
since the closing
of the Merger. Mr. Schiffman served as the Chief Financial Officer
of Vineti, Inc. from October 2017 through April 2018. He previously
served as the Chief Financial Officer of each of Iovance
Biotherapeutics (formerly Lion Biotechnologies), from October 2016
through June 2017, Stem Cells, Inc., from January 2014 through
September 2016, and Dendreon Corporation, from December 2006
through December 2013. He currently serves on the boards of
directors of several private companies. Mr. Schiffman holds a B.S.
in Accounting from DePaul University and an MM (MBA) from
Northwestern University Kellogg Graduate School of
Management.
12
Mr. Schiffman’s qualifications to sit on
the
Board of Directors
include
his financial background, business experience and
education.
Zvi Joseph
Mr. Joseph has served as a member of the
Board of Directors
since the closing
of the Merger. He has served as Deputy General Counsel of Amdocs
Limited, a publicly traded corporation that provides software and
services to communications and media companies, since October 2005.
He received his A.A.S. in Business Administration from Rockland
Community College, his B.A. in Literature from New York University
and his J.D. from Fordham University School of Law. He also holds a
Certificate in Business Excellence from Columbia University School
of Business.
Mr. Joseph’s qualifications to sit on
the
Board of Directors
include
his legal experience and education.
Solomon Mayer
Mr. Mayer has served as a member of the
Board of Directors
since the closing
of the Merger and, prior to that time, served as a member of the
Board of Directors of Private DropCar. He has served as President
and Chief Executive Officer of Mooney Aviation Company, a private
company that manufactures four-place, single-engine and
piston-powered aircraft, since 1999. Prior to that time, he held
the position of Chief Executive Officer of, and consultant to,
Overseas Trading, a department store wholesaler. Mr. Mayer
serves as a director of Laniado Hospital, a voluntary,
not-for-profit hospital in Kiryat Sanz, Netanya, Israel, as well as
a director of several private companies. He previously served as a
consultant to and director of each of Innovative Food Holdings, a
provider of sourcing, preparation and delivery of specialty/fresh
food for both professional chefs and consumers, and BlastGard
International Inc., which manufactures and markets proprietary
blast mitigation materials, in each case, from 2002 until
2016.
Mr. Mayer’s qualifications to sit on
the
Board of Directors
include
his and extensive management experience as an executive and
director of a variety of companies.
Joshua Silverman
Mr. Silverman has served as a member of the
Board of Directors
since the closing
of the Merger, and prior to that time, served as a director of WPCS
since August 2016. Mr. Silverman currently serves as the Managing
Member of Parkfield Funding LLC. Mr. Silverman was the co-founder,
and a Principal and Managing Partner of Iroquois Capital
Management, LLC, an investment advisory firm. Since its inception
in 2003 until July 2016, Mr. Silverman served as Co-Chief
Investment Officer of Iroquois. While at Iroquois, he designed and
executed complex transactions, structuring and negotiating
investments in both public and private companies and has often been
called upon by the companies solve inefficiencies as they relate to
corporate structure, cash flow, and management. From 2000 to 2003,
Mr. Silverman served as Co-Chief Investment Officer of Vertical
Ventures, LLC, a merchant bank. Prior to forming Iroquois, Mr.
Silverman was a Director of Joele Frank, a boutique consulting firm
specializing in mergers and acquisitions. Previously, Mr. Silverman
served as Assistant Press Secretary to The President of the United
States. Mr. Silverman currently serves as a director of WPCS,
Protagenic Therapeutics, Neurotrope, Inc., and TapImmune Inc., all
of which are public companies. He previously served as a Director
of National Holdings Corporation from July 2014 through August
2016, MGT Capital Investments, Inc. from December 2014 to May 2016,
and Alanco Technologies Inc. from March 2016 through August 2016.
Mr. Silverman received his B.A. from Lehigh University in
1992.
Mr. Silverman’s qualifications to sit on
the
Board of Directors
include
his experience as an investment banker, management consultant and
as a director of numerous public companies.
13
Committees of the Board of Directors and Meetings
Meeting Attendance.
During the fiscal year ended December 31, 2017, which concluded
prior to the closing of the Merger on January 30, 2018,
WPCS’s Board of Directors
held eight meetings,
and the various committees of the
WPCS
Board of Directors met
a total of five times. All directors attended at least 75% of the
total number of meetings of the
WPCS
Board of Directors and
of committees of the
WPCS
Board of Directors on
which he served during fiscal 2017.
WPCS
did not hold an annual
meeting in 2017.
Audit Committee
.
WPCS’s Audit Committee met four times during fiscal 2017.
This committee currently has three
members, Greg Schiffman
(Chairman), Solomon Mayer and Zvi Joseph. Our Audit
Committee’s role and responsibilities are set forth in the
Audit Committee’s written charter and include the authority
to retain and terminate the services of our independent registered
public accounting firm. In addition, the Audit Committee reviews
annual financial statements, considers matters relating to
accounting policy and reviews the scope of annual audits.
All members
of the Audit Committee satisfy the current independence standards
promulgated by the Securities and Exchange Commission and by The
Nasdaq Stock Market, as such standards apply specifically to
members of audit committees. The Board of Directors has determined
that Mr. Schiffman is an “audit committee financial
expert” as the Securities and Exchange Commission has defined
that term in Item 407 of Regulation S-K. Please also see the report
of the Audit Committee set forth elsewhere in this proxy
statement.
A copy of the Audit Committee charter is available
to view on the Company’s website
at
www.dropcar.com
.
Compensation
Committee
.
WPCS’s Executive Committee did not meet during
fiscal
2017. This
committee, which has subsequently been renamed the Compensation
Committee, currently has two members, Solomon Mayer (Chairman) and
Zvi Joseph. Our Compensation Committee’s role and
responsibilities are set forth in the Compensation
Committee’s written charter and includes reviewing, approving
and making recommendations regarding our compensation policies,
practices and procedures to ensure that legal and fiduciary
responsibilities of the Board of Directors are carried out and that
such policies, practices and procedures contribute to our success.
Our Compensation Committee also administers our WPCS International
Incorporated Amended and Restated 2014 Equity Incentive Plan. The
Compensation Committee is responsible for the determination of the
compensation of our chief executive officer, and shall conduct its
decision making process with respect to that issue without the
chief executive officer present. All members of the Compensation
Committee qualify as independent under the definition promulgated
by
The Nasdaq Stock
Market.
A copy of the Compensation Committee Charter is
available to view on the Company’s website
at
www.dropcar.com
.
Nominating
Committee
.
WPCS’s
Nominating and Corporate Governance Committee (“Nominating
Committee”) met one time during fiscal 2017 and has two
members, Zvi Joseph (Chairman) and Solomon Mayer. Our Board of
Directors has determined that all members of the Nominating
Committee qualify as independent under the definition promulgated
by The Nasdaq Stock Market.
The
Nominating Committee’s responsibilities are set forth in the
Nominating Committee’s written charter and
include:
●
evaluating and
making recommendations to the full Board of Directors as to the
composition, organization and governance of the Board and its
committees,
●
evaluating and
making recommendations as to director candidates,
●
evaluating current
Board of Directors members’ performance
●
overseeing the
process for CEO and other executive officer succession planning,
and
●
developing and
recommending governance guidelines for the Company.
14
Generally, our
Nominating Committee considers candidates recommended by
stockholders as well as from other sources such as other directors
or officers, third party search firms or other appropriate sources.
Once identified, the Nominating Committee will evaluate a
candidate’s qualifications in accordance with our Nominating
and Governance Committee Policy Regarding Qualifications of
Directors appended to our Nominating Committee’s written
charter. Threshold criteria include: personal integrity and sound
judgment, business and professional skills and experience,
independence, knowledge of our industry, possible conflicts of
interest, the extent to which the candidate would fill a present
need on the Board, and concern for the long-term interests of our
stockholders. Our Nominating Committee has not adopted a formal
diversity policy in connection with the consideration of director
nominations or the selection of nominees. However, the Nominating
Committee will consider issues of diversity among its members in
identifying and considering nominees for director, and strive where
appropriate to achieve a diverse balance of backgrounds,
perspectives, experience, age, gender, ethnicity and country of
citizenship on the board and its committees.
If a
stockholder wishes to propose a candidate for consideration as a
nominee for election to the Board of Directors, it must follow the
procedures described in our Amended and Restated Bylaws, as
amended, and in “Stockholder Proposals and Nominations For
Director” at the end of this proxy statement.
In general, persons recommended by
stockholders will be considered in accordance with our Policy on
Shareholder Recommendation of Candidates for Election as Directors
appended to our Nominating Committee’s written charter. Any
such recommendation should be made in writing to the Nominating
Committee, care of our Corporate Secretary at our principal office
and should be accompanied by the following information concerning
each recommending stockholder and the beneficial owner
,
if any, on whose behalf the nomination
is made:
●
all information
relating to such person that would be required to be disclosed in a
proxy statement;
●
certain
biographical and share ownership information about the stockholder
and any other proponent, including a description of any derivative
transactions in the Company’s securities;
●
a description of
certain arrangements and understandings between the proposing
stockholder and any beneficial owner and any other person in
connection with such stockholder nomination; and
●
a statement whether
or not either such stockholder or beneficial owner intends to
deliver a proxy statement and form of proxy to holders of voting
shares sufficient to carry the proposal.
The
recommendation must also be accompanied by the following
information concerning the proposed nominee:
●
certain
biographical information concerning the proposed
nominee;
●
all
information concerning the proposed nominee required to be
disclosed in solicitations of proxies for election of
directors;
●
certain information
about any other security holder of the Company who supports the
proposed nominee;
●
a description of
all relationships between the proposed nominee and the recommending
stockholder or any beneficial owner, including any agreements or
understandings regarding the nomination; and
●
additional
disclosures relating to stockholder nominees for directors,
including completed questionnaires and disclosures required by our
Bylaws.
A copy of the Nominating Committee charter is
available to view on the Company’s website
at
www.dropcar.com
.
15
Board Leadership Structure and Role in Risk Oversight
Our
Board of Directors has five independent members, including Brian
Harrington, Zvi Joseph, Solomon Mayer, Joshua Silverman and Greg
Schiffman, and three non-independent members, Spencer Richardson,
our Chief Executive Officer, David Newman, our Chief Business
Development Officer, and Sebastian Giordano, our former Chief
Executive Officer. We believe that the number of independent,
experienced directors that make up our Board of Directors benefits
our Company and our stockholders.
Our
current Board of Directors leadership structure separates the
positions of CEO and Chairman of the Board of Directors, although
we do not have a corporate policy requiring that structure. Until
May 2018, Spencer Richardson served as both our CEO and Chairman of
the Board of Directors. In May 2018, Mr. Silverman was appointed
Chairman of the Board of Directors. The Board of Directors believes
that this separation is appropriate for the organization at this
time because it allows for a division of responsibilities and a
sharing of ideas between individuals having different perspectives.
Our current CEO, who is also a member of our Board of Directors, is
primarily responsible for our operations and strategic direction,
while our Chairman is primarily focused on matters pertaining to
corporate governance and management oversight. While the Board of
Directors believes that this is the most appropriate structure at
this time, the Board of Directors retains the authority to change
the Board of Directors structure, including the possibility of
combining the CEO and Chairman of the Board of Directors positions,
if it deems such a change to be appropriate in the
future.
Our
management is principally responsible for defining the various
risks facing the Company, formulating risk management policies and
procedures, and managing our risk exposures on a day-to-day basis.
The Board of Directors’ principal responsibility in this area
is to ensure that sufficient resources, with appropriate technical
and managerial skills, are provided throughout the Company to
identify, assess and facilitate processes and practices to address
material risk and to monitor our risk management processes by
informing itself concerning our material risks and evaluating
whether management has reasonable controls in place to address the
material risks. The involvement of the Board of Directors in
reviewing our business strategy is an integral aspect of the Board
of Directors’ assessment of management’s tolerance for
risk and also its determination of what constitutes an appropriate
level of risk for the Company.
While
the full Board of Directors has overall responsibility for risk
oversight, the Board of Directors has elected to delegate oversight
responsibility related to certain committees, which, in turn,
report on the matters discussed at the committee level to the full
Board of Directors. For instance, our Audit Committee focuses on
the material risks facing the Company, including operational,
market, credit, liquidity and legal risks. Additionally, our
Executive Committee could be charged with reviewing and discussing
with management whether our compensation arrangements are
consistent with effective controls and sound risk management. Our
management reports to the Board of Directors and Audit Committee on
a regular basis regarding risk management.
Stockholder Communications to the Board
Generally,
stockholders who have questions or concerns should contact our
Investor Relations department at (646) 916-4595. However, any
stockholders who wish to address questions regarding our business
directly with the Board of Directors, or any individual director,
should direct his or her questions in writing to the Chairman of
the
Board of Directors
at
1412 Broadway, Suite 2105, New York,
New York 10018
. Communications will be distributed to the
Board of Directors
, or to any
individual director or directors as appropriate, depending on the
facts and circumstances outlined in the communications. Items that
are unrelated to the duties and responsibilities of the
Board of Directors
may be
excluded, such as:
●
junk mail and mass
mailings;
●
resumes and other
forms of job inquiries;
●
surveys;
or
●
solicitations or
advertisements.
16
In
addition, any material that is unduly hostile, threatening, or
illegal in nature may be excluded, provided that any communication
that is filtered out will be made available to any outside director
upon request.
Executive Officers
The
following table sets forth certain information regarding our
executive officers who are not also directors. We have employment
agreements with Mr. Commons. All other executive officers are
at-will employees.
|
Name
|
|
|
Age
|
|
|
Position(s)
|
|
|
Executive Officers
|
|
|
|
||||
|
Paul Commons
|
|
|
64
|
|
|
Chief Financial Officer
|
|
|
Leandro Larroulet
|
|
|
36
|
|
|
Chief Information Officer
|
|
Executive Officers
Paul Commons
Mr. Commons joined DropCar in January 2018 as its Chief Financial
Officer. Prior to joining DropCar, Mr. Commons served as the Chief
Financial Officer of Zipz Inc., a packaging tech company, from May
2015 through November 2017. Prior to that, from October 2007
through May 2015, Mr. Commons served in a variety of roles at WPC
Worldwide, which provided CFO consulting services to tech
companies. Mr. Commons holds a B.I.A. from Kettering University and
an MBA in Finance from the University of Denver.
Leandro Larroulet
Mr.
Larroulet joined DropCar in July 2017 as its Chief Information
Officer (CIO). Prior to joining DropCar, Mr. Larroulet served as
Chief Operating Officer (COO) for the Argentina based global
technology development and consulting firm FDV Solutions from
September 2016 to June 2017. Previously Mr. Larroulet held roles at
FDV including Senior Project Manager, Software Developer and
Network Operator, dating back to September 2007. Mr. Larroulet
graduated from FIUBA (Engineering University of Buenos Aires), and
also currently serves as both a member of their curricular
commission for Information Systems as well as an auxiliary teacher
for their Information Analysis program.
17
EXECUTIVE OFFICER AND DIRECTOR COMPENSATION
Summary Compensation Table
The
following table shows the total compensation paid or accrued during
the last two fiscal years ended December 31, 2017 and December 31,
2016 to (1) our former Chief Executive Officer, (2) our former
Chief Financial
Officer
, (3)
our next most highly compensated executive officer who earned more
than $100,000 during the fiscal year ended December 31, 2017.
Because SEC
rules require us to disclose this information as of the end of our
last fiscal year, and because the closing of the Merger occurred in
January 2018, this executive compensation section relates to
persons who were executive officers of WPCS International
Incorporated prior to its merger with Private DropCar. We note that
Mr. Giordano and Mr. Allen resigned from their positions as
executive officers on or prior to the closing of the
Merger.
|
Name and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock Awards
($)
(1)
|
Option Awards
($)
(2)
|
Non-Equity Incentive Plan
Compensation
($)
|
Change in Pension Value and
Nonqualified Deferred Compensation Earnings
($)
|
All Other Compensation
($)
|
Total ($)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|
Sebastian Giordano,
previous Chief Executive Officer
(3)
|
2017
|
180,000
|
0
|
0
|
104,000
|
0
|
0
|
0
|
284,000
|
|
|
2016
|
180,000
|
77,000
|
0
|
145,500
|
0
|
0
|
0
|
402,500
|
|
David Allen, previous
Chief Financial Officer
(4)
|
2017
|
140,000
|
0
|
0
|
78,000
|
0
|
0
|
0
|
218,000
|
|
|
2016
|
140,000
|
20,000
|
0
|
72,750
|
0
|
0
|
0
|
232,750
|
|
Robert Roller, President of Suisun
Operations
(5)
|
2017
|
170,000
|
100,000
|
0
|
78,000
|
0
|
0
|
0
|
348,000
|
|
|
2016
|
170,000
|
100,000
|
0
|
72,750
|
0
|
0
|
0
|
342,500
|
1)
These amounts represent the aggregate
grant
date fair value for stock awards for calendar years 2017 and 2016,
respectively, computed in accordance with FASB ASC Topic 718.
A
discussion of t
he assumptions used in
determining grant date fair value may be found in Note 2 to our
Financial Statements, included in our Current Report on Form 8-K/A,
as filed with the Securities and Exchange Commission on April 2,
2018.
2)
These amounts represent the aggregate
grant
date fair value for option awards for calendar years 2017 and 2016,
respectively, computed in accordance with FASB ASC Topic
718
.
A discussion
of the assumptions used in determining
grant date fair value may be found in Note 2 to our Financial
Statements, included in our Current Report on Form 8-K/A, as filed
with the Securities and Exchange Commission on April 2,
2018.
3)
Mr. Giordano
resigned as Chief Executive Officer on January 30,
2018.
4)
Mr. Allen resigned
as Chief Financial Officer on January 30, 2018.
5)
Mr. Roller is
currently employed as President of our Suisun
Operations.
18
Narrative Disclosure to Summary Compensation Table
Employment Agreements
The
compensation arrangement of Sebastian Giordano, our former Chief
Executive Officer, was set forth in a letter agreement, dated July
29, 2013, as amended on February 3, 2015. Pursuant to that
agreement, Mr. Giordano was entitled to a base salary of $180,000
per year (effective as of January 1, 2015).
On January 30, 2018,
Sebastian Giordano, our former Chief Executive Officer, and David
Allen, our former Chief Financial Officer, resigned as officers of
the Company. In connection with their respective resignations, each
of Mr. Giordano and Mr. Allen entered into a separation agreement,
effective as of January 30, 2018 (the “Giordano
Agreement” and the “Allen Agreement,”
respectively, and collectively, the “Separation
Agreements”), with the Company. Each of the Giordano
Agreement and Allen Agreement includes a customary release by Mr.
Giordano and Mr. Allen, respectively, of certain claims against the
Company that are held by Mr. Giordano and Mr. Allen,
respectively.
Pursuant to the
Giordano Agreement, Mr. Giordano ceased serving as an employee of
the Company effective as of January 30, 2018 (the “Separation
Date”). Pursuant to the Giordano Agreement, Mr. Giordano
received a severance payment equal to $350,000. Pursuant to the
Allen Agreement, Mr. Allen ceased serving as an employee of
the Company effective as of the Separation Date. Pursuant to the
Allen Agreement, Mr. Allen received a severance payment equal
to $150,000.
On
July 11, 2018, we entered into a consulting agreement (the
“Consulting Agreement”) with Ascentaur, LLC
(“Ascentaur”). Sebastian Giordano is the Chief
Executive Officer of Ascentaur, LLC. Pursuant to the terms of the
Consulting Agreement, Ascentaur has agreed to provide advisory
services with respect to the strategic development and growth of
the Company, including advising the Company on market strategy and
overall Company strategy, advising the Company on the sale of the
Company’s WPCS International business segment, providing
assistance to the Company in identifying and recruiting prospective
employees, customers, business partners, investors and advisors
that offer desirable administrative, financing, investment,
technical, marketing and/or strategic expertise, and performing
such other services pertaining to the Company’s business as
the Company and Ascentaur may from time to time mutually agree. As
consideration for its services under the Consulting Agreement,
Ascentaur shall be entitled to receive (i) a fee of $10,000 per
month for a period of nine months from the effective date of the
Consulting Agreement, (ii) a lump sum fee of $90,000 upon the
closing of the sale of the Company’s WPCS International
business segment and (iii) reimbursement for reasonable and
customary business expenses incurred in connection with
Ascentaur’s performance under the Consulting
Agreement.
Outstanding Equity Awards at 2017 Fiscal Year-End
The
following table shows grants of stock options and grants of
unvested stock awards outstanding on the last day of the fiscal
year ended December 31, 2017, including both awards subject to
performance conditions and non-performance-based
awards,
to each of the
executive officers named in the Summary Compensation
Table.
|
Name
|
Number of
Securities underlying Unexercised Options (#)
Exercisable
|
Number of
Securities underlying Unexercised Options (#)
Unexercisable
|
Equity incentive
plan awards: Number of securities underlying unexercised unearned
options (#)
|
Option Exercise
Price ($/Sh)
|
Option
Expiration Date
|
Number of shares
or units of stock that have not vested (#)
|
Equity incentive
plan awards: Number of unearned shares, units or other rights that
have not vested (#)
|
Equity incentive
plan awards: Market or payout value of unearned shares, units or
other rights that have not vested ($)
|
Market value of
shares or units of stock that have not vested ($)
|
|
Sebastian
Giordano
|
130
|
-
|
-
|
$
60.06
|
4/24/2018
|
-
|
-
|
-
|
-
|
|
|
11,364
|
-
|
|
$
26.40
|
4/24/2019
|
|
|
|
|
|
|
50,000
|
-
|
|
$
1.19
|
8/6/2025
|
|
|
|
|
|
|
650,000
|
-
|
|
$
1.32
|
9/29/2025
|
|
|
|
|
|
|
150,000
|
-
|
|
$
1.26
|
4/28/2026
|
|
|
|
|
|
|
100,000
|
-
|
|
$
1.35
|
4/28/2027
|
|
|
|
|
|
|
|
|
200,000
(1)
|
$
1.35
|
4/28/2027
|
200,000
|
|
|
$
210,000
|
|
|
|
|
|
|
|
|
|
|
|
|
David Allen
|
20,000
|
-
|
|
$
1.19
|
8/6/2025
|
|
|
|
|
|
|
325,000
|
-
|
|
$
1.32
|
9/29/2025
|
|
|
|
|
|
|
75,000
|
-
|
|
$
1.26
|
4/28/2026
|
|
|
|
|
|
|
75,000
|
-
|
|
$
1.35
|
4/28/2027
|
|
|
|
|
|
|
|
|
100,000
(1)
|
$
1.35
|
4/28/2027
|
100,000
|
|
|
$
105,000
|
|
Robert Roller
|
162
|
-
|
|
$
13.20
|
11/15/2017
|
|
|
|
|
|
|
2,273
|
-
|
|
$
26.40
|
4/24/2019
|
|
|
|
|
|
|
7,500
|
-
|
|
$
1.19
|
8/6/2025
|
|
|
|
|
|
|
100,000
|
-
|
|
$
1.32
|
9/29/2025
|
|
|
|
|
|
|
75,000
|
-
|
|
$
1.26
|
4/28/2026
|
|
|
|
|
|
|
75,000
|
-
|
|
$
1.35
|
4/28/2027
|
|
|
|
|
|
|
|
|
100,000
(1)
|
$
1.35
|
4/28/2027
|
100,000
|
|
|
$
105,000
|
(1)
Stock options were
granted under the Amended and Restated 2014 Equity Incentive Plan
and became fully vested upon the closing of the
Merger.
19
Pension Benefits
We do
not have any qualified or non-qualified defined benefit
plans.
Nonqualified Deferred Compensation
We do
not have any nonqualified defined contribution plans or other
deferred compensation plan.
Potential Payments upon Termination or
Change-In-Control
On
October 21, 2015, our subsidiary, WPCS International - Suisun City,
Inc. (the “Suisun City Operations”), entered into a
change in control agreement with Robert Roller, the President of
the Suisun City Operations. The agreement had an initial term of
two years and automatically extends for additional one-year periods
at the expiration of the initial term and on each anniversary
thereafter unless either party notifies the other party of
non-renewal no later than 30 days prior to such anniversary. Upon a
change in control of the Company or the Suisun City Operations, the
agreement continues for a term of two years and then expires.
Pursuant to the terms of the agreement, Mr. Roller is entitled to a
severance payment of $150,000 and unpaid compensation and benefits
and unused vacation accrued through the date of termination, if he
is terminated without cause or if he is terminated for good reason
within two years following a change in control of the Company or
the Suisun City Operations.
On
September 29, 2015, we entered into change of control agreements
with Messrs. Giordano and Allen. The agreements had initial terms
of four years and automatically extended for additional one-year
periods thereafter, unless either party notified the other of
non-renewal no later than 30 days prior to such anniversary. Under
the agreements, Messrs. Giordano and Allen received payments of
$350,000 and $150,000, respectively upon a change in control of the
Company.
On January 30, 2018, in
connection with the consummation of the Merger, Mr. Giordano
received
a severance payment
equal to $350,000 and
Mr. Allen received a severance payment equal
to $150,000. The payment of the severance benefits was made
immediately following the closing of the transactions contemplated
by the Merger Agreement, as contemplated by the Merger
Agreement.
Director Compensation
The
following table shows the total compensation paid or accrued during
the fiscal year ended December 31, 2017 to each of our non-employee
directors. Directors who are employed by us are not compensated for
their service on our Board of Directors.
|
Name
|
Fees Earned
or
Paid
in
Cash
($)
|
Stock
Awards
(1)
($)
|
Option
Awards
(2)
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
|
Sebastian Giordano
(3)
|
0
|
0
|
104,000
|
0
|
0
|
0
|
104,000
|
|
Joshua
Silverman
|
24,000
|
0
|
52,000
|
$
0
|
0
|
0
|
76,000
|
|
Charles Benton
(4)
|
30,000
|
0
|
52,000
|
$
0
|
0
|
0
|
82,000
|
|
Norm Dumbroff
(4)
|
24,000
|
0
|
52,000
|
$
0
|
0
|
0
|
76,000
|
|
Edward Gildea
(4)
|
24,000
|
0
|
52,000
|
$
0
|
0
|
0
|
76,000
|
|
Jonathan
Schechter
(4)
|
18,000
|
0
|
0
|
$
0
|
0
|
0
|
18,000
|
|
Brian
Daly
(4)
|
18,000
|
0
|
0
|
$
0
|
0
|
0
|
18,000
|
1)
These amounts represent the aggregate
grant
date fair value for stock awards for calendar year 2017 computed in
accordance with FASB ASC Topic 718.
A discussion of
t
he assumptions used in determining
grant date fair value may be found in Note 2 to our Financial
Statements, included in our Current Report on Form 8-K/A, as filed
with the Securities and Exchange Commission on April 2,
2018.
2)
These amounts represent the aggregate
grant
date fair value for option awards for calendar year 2017 computed
in accordance with FASB ASC Topic 718
.
A discussion
of the assumptions used in determining grant date
fair value may be found in Note 2 to our Financial Statements,
included in our Current Report on Form 8-K/A, as filed with the
Securities and Exchange Commission on April 2,
2018.
3)
Reflects
104,000 in option awards paid to Mr. Giordano in connection with
his previous employment as our Chief Executive Officer in 2017.
Following the Merger, Mr. Giordano has served as a non-employee
director. Since June 2018, Mr. Giordano has served as a consultant
to the Company. See “—Narrative Disclosure to Summary
Compensation Table — Employment Agreements” above for
additional information.
4)
Resigned
effective January 30, 2018.
20
On May 14, 2018, the Board of Directors approved
of the following compensation to non-employee directors. The
Chairman of the Board of Directors is entitled to receive a monthly
cash payment of $10,000 as consideration for his services, in
addition to an annual grant of options to purchase shares of the
Company’s common stock
valued
at $30,000 on the date of grant calculated using the Black-Scholes
valuation method. Each of the Company’s other non-employee
directors is entitled to receive an annual cash payment of $30,000,
paid quarterly in arrears, in addition to an annual grant of
options to purchase shares of the Company’s common
stock
valued at $20,000 on the date of grant calculated
using the Black-Scholes valuation method.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides certain aggregate information with respect
to all of the Company’s equity compensation plans in effect
as of December 31, 2017.
|
|
(a)
|
(b)
|
(c)
|
|
Plan
category
|
Number of
securities to be issued upon exercise of outstanding options,
warrants and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number of
securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
Equity compensation
plans approved by security holders(1)
|
3,253,072
|
$
1.32
|
406,019
|
|
Total
|
3,253,072
|
$
1.32
|
406,019
|
(1)
This plan consists
of our Amended and Restated 2014 Equity Incentive
Plan.
REPORT OF AUDIT COMMITTEE
The
Audit Committee of the Board of Directors, which consists entirely
of directors who meet the independence and experience requirements
of The Nasdaq Stock Market, has furnished the following
report:
The
Audit Committee assists the
Board of
Directors
in overseeing and monitoring the integrity of our
financial reporting process, compliance with legal and regulatory
requirements and the quality of internal and external audit
processes. This committee’s role and responsibilities are set
forth in our charter adopted by the
Board of Directors
, which is available on
our website at
www.dropcar.com
. This committee reviews
and reassesses our charter annually and recommends any changes to
the
Board of Directors
for
approval. The Audit Committee is responsible for overseeing our
overall financial reporting process, and for the appointment,
compensation, retention, and oversight of the work of EisnerAmper
LLP. In fulfilling its responsibilities for the financial
statements for fiscal year 2017, the Audit Committee took the
following actions:
●
Reviewed and
discussed the audited financial statements for the fiscal year
ended
December 31, 2017
with management and EisnerAmper LLP, our independent registered
public accounting firm;
●
Discussed with
EisnerAmper LLP the matters required to be discussed in accordance
with Auditing Standard No. 1301-
Communications with Audit Committees
;
and
●
Received written
disclosures and the letter from EisnerAmper LLP regarding its
independence as required by applicable requirements of the Public
Company Accounting Oversight Board regarding EisnerAmper
LLP
communications with
the Audit Committee and the Audit Committee further discussed with
EisnerAmper LLP their independence. The Audit Committee also
considered the status of pending litigation, taxation matters and
other areas of oversight relating to the financial reporting and
audit process that the committee determined
appropriate.
Based
on the Audit Committee’s review of the audited financial
statements and discussions with management and EisnerAmper LLP, the
Audit Committee recommended to the
Board of Directors
that the audited
financial statements be included in our Current Report on Form
8-K/A, which includes financial statements
for the fiscal year ended December
31, 2017, for filing with the SEC.
Members
of the DropCar, Inc. Audit Committee
Greg
Schiffman
Solomon
Mayer
Zvi
Joseph
21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), requires our directors, executive
officers and beneficial owners of more than 10% of our common stock
to file with the SEC initial reports of ownership and reports of
changes in the ownership of our common stock and other equity
securities. Such persons are required to furnish us copies of all
Section 16(a) filings.
Based
solely upon a review of the copies of the forms furnished to us, we
believe that our officers, directors and beneficial owners of more
than 10% of our common stock complied with all applicable filing
requirements during the fiscal year ended December 31, 2017, with
the exception of a Form 3 which was not filed on a timely basis on
behalf of our former director Brian Daly.
CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Our
Board of Directors must approve in advance of all future
transactions between us and any director, executive officer, holder
of 5% or more of any class of our capital stock or any member of
the immediate family of, or entities affiliated with, any of them,
or any other related persons, as defined in Item 404 of
Regulation S-K, or their affiliates, in which the amount
involved is equal to or greater than $120,000. Any request
for such a transaction must first be presented to our Board of
Directors for review, consideration and approval. In
approving or rejecting any such proposal, our Board of Directors is
to consider all available information deemed relevant by the Board
of Directors, including, but not limited to, the extent of the
related person’s interest in the transaction, and whether the
transaction is on terms no less favorable to us than terms we could
have generally obtained from an unaffiliated third party under the
same or similar circumstances.
Binding Term Sheet for Sale of WPCS
On
August 9, 2018, we entered into a binding term sheet with the
management of WPCS International Suisun City, Inc. for the sale of
select assets and liabilities of our WPCS business for $3.5
million. The sale is conditioned on the management team’s
receipt of suitable financing to complete the acquisition. It is
anticipated that the transaction will close in the 4th quarter of
2018, however, there can be no assurance that the sale will be
consummated on the terms previously negotiated or at
all.
Indemnification Agreements
We have
entered into indemnification agreements with each of our directors
and executive officers. These agreements, among other things,
require us to indemnify each director and executive officer to the
fullest extent permitted by Delaware law, including indemnification
of expenses such as attorneys’ fees, judgments, penalties
fines and settlement amounts incurred by the director or executive
officer in any action or proceeding, including any action or
proceeding by or in right of the Company, arising out of the
person’s services as a director or executive
officer.
22
ELECTION OF DIRECTORS
(Notice Item 1)
General
On
September 26, 2018, the Board of Directors nominated Spencer
Richardson, David Newman, Sebastian Giordano, Brian Harrington, Zvi
Joseph, Solomon Mayer, Joshua Silverman and Greg Schiffman for
election at the annual meeting. If they are elected, they will
serve on our Board of Directors until the 2019
Annual Meeting of Stockholders and
until their respective successors have been elected and
qualified.
Unless
authority to vote for any of these nominees is withheld, the shares
represented by the enclosed proxy will be voted
FOR
the election as directors of Spencer
Richardson, David Newman, Sebastian Giordano, Brian Harrington, Zvi
Joseph, Solomon Mayer, Joshua Silverman and Greg Schiffman. In the
event that any nominee becomes unable or unwilling to serve, the
shares represented by the enclosed proxy will be voted for the
election of such other person as the Board of Directors may
recommend in that nominee’s place. We have no reason to
believe that any nominee will be unable or unwilling to serve as a
director.
Vote Required and Board of Directors’
Recommendation
The
nominees for director who receive the most votes (also known as a
“plurality” of the votes cast) will be elected. You may
vote either FOR all of the nominees, WITHHOLD your vote from all of
the nominees or WITHHOLD your vote from any one or more of the
nominees. Votes that are withheld will not be included in the vote
tally for the election of the directors. Brokerage firms do not
have authority to vote customers’ unvoted shares held by the
firms in street name for the election of the directors. As a
result, any shares not voted by a customer will be treated as a
broker non-vote. Such broker non-votes will have no effect on the
results of this vote.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF SPENCER
RICHARDSON, DAVID NEWMAN, SEBASTIAN GIORDANO, BRIAN HARRINGTON, ZVI
JOSEPH, SOLOMON MAYER, JOSHUA SILVERMAN AND GREG SCHIFFMAN AS
DIRECTORS, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE
VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE
ON THE PROXY.
23
APPROVAL
OF AN AMENDMENT TO THE WPCS INTERNATIONAL INCORPORATED AMENDED AND
RESTATED 2014 EQUITY INCENTIVE PLAN
(Notice Item 2)
General
Our Board of Directors is requesting that our
stockholders approve the adoption of an amendment to the WPCS
International Incorporated Amended and Restated 2014 Equity
Incentive Plan (the “Plan”), which amendment
was
approved by the Board of Directors on
September 26, 2018,
effective upon
approval by our stockholders at the annual meeting. If this
proposal is approved, the number of shares authorized for issuance
of awards under the Plan will be increased from 2,527,272 to an
aggregate of 4,239,772 shares of common stock. In connection with
this amendment, we are changing the name of the Plan to the
“DropCar, Inc. Amended and Restated 2014 Equity Incentive
Plan” to reflect our name change.
The
Plan
was originally
approved by our Board of Directors and stockholders in 2014. By its
terms, the Plan may be amended by the Board of Directors provided
that any amendment that the Board of Directors determines requires
stockholder approval is subject to receiving such stockholder
approval. Approval by our stockholders is required by the listing
rules of the Nasdaq Stock Market. In addition, stockholder approval
is required in order to ensure favorable federal income tax
treatment for grants of incentive stock options under Section 422
of the Internal Revenue Code of 1986, as amended (the
“Code”).
As of
September 15, 2018, a total of 30,804 shares of our common stock
remain available for issuance under the Plan, and options to
purchase a total of 1,028,610 shares of common stock and restricted
stock units exercisable for 1,467,858 shares of common stock remain
outstanding. As of September 15, 2018, a total of 0 shares of our
common stock have been issued upon the exercise of options and
vesting of other equity awards granted under the Plan.
The
outstanding options under the Plan have a consolidated weighted
average exercise price of $4.58 and a consolidated weighted average
remaining term of 8.1 years. As of September 15, 2018, the equity
overhang, represented by (a) the sum of all outstanding stock
options and other stock-based awards under all Company equity
plans, plus the number of shares available for issuance pursuant to
future awards under the Plan as a percentage of (b) the sum of (i)
the number of shares of our common stock outstanding as of
September 15, 2018, plus (ii) the number of shares described in
clause (a) above, was 22.1%. If the amendment to the Plan is
approved by stockholders, the equity overhang would be
32.3%.
Reasons for Amendment of the Plan
Our
Board of Directors
, the
Executive Committee and management believe that the effective use
of stock-based long-term incentive compensation is vital to our
ability to achieve strong performance in the future. The Plan will
maintain and enhance the key policies and practices adopted by our
management and Board of Directors to align employee and stockholder
interests and to link compensation to the Company performance. In
addition, our future success depends, in large part, upon our
ability to maintain a competitive position in attracting, retaining
and motivating key personnel. We believe that the increase in the
number of shares available for issuance under our Plan is essential
to permit our management to continue to provide long-term,
equity-based incentives to present and future key employees,
consultants and directors. Without stockholder approval of the
proposed amendment to the Plan, we will not be able to make
meaningful equity grants in the future as we have only 30,804
shares of common stock available under the Plan. In addition, in
May 2018, we granted options to purchase an aggregate of 79,267
shares of our common stock to our non-employee directors at an
exercise price of $1.82, the closing price of our Common Stock on
the Nasdaq Capital Market on May 14, 2018, subject to the approval
of the amendment to the Plan by our stockholders. In the event that
the amendment to the Plan is not approved by our stockholders, the
options will be forfeited.
24
New Plan Benefits
The
following table shows the total number of options that have been
granted to the identified individuals and groups, which awards are
subject to the approval of the amendment to the Plan by our
stockholders:
|
Name and
Position
|
Number of
Options
|
|
Sebastian
Giordano
|
12,195
|
|
Brian
Harrington
|
12,195
|
|
Zvi
Joseph
|
12,195
|
|
Solomon
Mayer
|
12,195
|
|
Joshua
Silverman
|
18,282
|
|
Greg
Schiffman
|
12,195
|
|
Non-Executive
Directors Total
|
79,267
|
The
amounts of future grants under the Plan are not determinable as all
other future awards under the Plan will be granted at the sole
discretion of the Compensation Committee and we cannot determine at
this time either the persons who will receive awards under the Plan
or the amount or types of any such awards. However, as compensation
for their service to the Board of Directors, our independent
directors will annually be granted a non-qualified stock option to
purchase shares of our common stock valued at $20,000 (with the
Chairman of the Board of Directors receiving a non-qualified stock
option to purchase shares of our common stock valued at $30,000) on
the date of grant, which will vest in full one year from the grant
date, subject to the applicable director’s continued service
on the Board of Directors as of the vesting date. The number of
options to be received will be calculated using the Black-Scholes
valuation method. Each option granted to our non-employee directors
will have an exercise price equal to the closing price of our
common stock on the Nasdaq Capital Market (or other applicable
trading market) on the date of grant, or if the date of grant is
not a trading day, the closing price on the next trading day
following the date of grant, and each option will have a term of
ten years.
Vote Required and Board of Directors’
Recommendation
The
affirmative vote of a majority of the Company’s outstanding
capital stock entitled to vote thereon is required to approve the
amendment to the Plan to increase the aggregate number of shares
available to be granted under the Plan. Abstentions will be treated
as votes against this proposal. Brokerage firms do not have
authority to vote customers’ unvoted shares held by the firms
in street name on this proposal. As a result, any shares not voted
by a customer will have the same effect as a vote against this
proposal.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE AMENDMENT TO THE
PLAN TO INCREASE BY
1,712,500
SHARES THE AGGREGATE NUMBER OF SHARES WHICH MAY
BE GRANTED, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE
VOTED IN FAVOR OF THE AMENDMENT UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
25
TO AUTHORIZE, FOR PURPOSES OF
COMPLYING WITH NASDAQ LISTING RULE 5635(d), THE ISSUANCE OF SHARES
OF OUR COMMON STOCK UNDERLYING SERIES H-4 CONVERTIBLE PREFERRED
STOCK AND SERIES H-4 WARRANTS ISSUED BY US PURSUANT TO THE TERMS OF
THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED MARCH 8, 2018, BY
AND AMONG DROPCAR, INC. AND THE INVESTORS NAMED THEREIN, IN AN
AMOUNT EQUAL TO OR IN EXCESS OF 20% OF OUR COMMON STOCK OUTSTANDING
BEFORE THE ISSUANCE OF SUCH CONVERTIBLE PREFERRED STOCK AND
WARRANTS
(INCLUDING UPON THE OPERATION OF ANTI-DILUTION
PROVISIONS CONTAINED IN SUCH
SERIES
H-4 CONVERTIBLE PREFERRED STOCK
AND SERIES H-4
WARRANTS)
(Notice Item 3)
Background and Description of Proposal
Financing Transaction
On March 8, 2018, we entered into a
Securities Purchase Agreement (the “Purchase
Agreement”) with certain institutional and accredited
investors (collectively, the “Investors”), pursuant to
which we issued to the Investors an aggregate of 26,843 shares of
our newly designated Series H-4 Convertible Preferred Stock, par
value $0.0001 per share (the “Series H-4 Shares”), and
warrants to purchase 2,684,300 shares of our common stock, par
value $0.0001 per share (“Common Stock”), with an
exercise price of $2.60 per share, subject to adjustments (the
“Series H-4 Warrants”). The purchase price per Series
H-4 Share was $235.50, equal to (i) the closing price of the Common
Stock on the Nasdaq Capital Market on March 7, 2018, plus $0.125
multiplied by (ii) 100. The aggregate purchase price for the Series
H-4 Shares and Series H-4 Warrants was approximately $6.0
million. Subject to certain ownership limitations, the Series H-4
Warrants are immediately exercisable from the issuance date and
will be exercisable for a period of five years from the
issuance date.
In
connection with the financing, we agreed to seek approval of our
stockholders of an adjustment to the conversion price of the Series
H-4 Shares and the exercise price of the Series H-4 Warrants, as
the case may be, below the then applicable conversion price or
exercise price, as the case may be, with the recommendation of our
Board of Directors that such proposal be approved.
On
August 31, 2018, we offered (the “Repricing Offer
Letter”) to the Investors the opportunity to exercise such
Series H-4 Warrants for cash at a reduced exercise price of $0.60
per share (the “Reduced Exercise Price”) provided such
Series H-4 Warrants
were
exercised for cash on or before 5:00 P.M. Eastern Daylight Time on
September 4, 2018. On September 4, 2018, we received executed
Repricing Offer Letters from a majority of the Investors resulting
in the exercise of Series H-4 Warrants to purchase 1,561,596 shares
of Common Stock (equal to 19.99% of the shares of Common Stock
outstanding on March 8, 2018). We received gross proceeds of
approximately $937,000 from the exercise of the Series H-4 Warrants
pursuant to the terms of the Repricing Offer Letter.
In
connection with the exercise of the Series H-4 Warrants, the
Company issued to each Investor who exercised its Series H-4
Warrants prior to the End Date a “reload” warrant (the
“Reload Warrants”) covering one share for each Series
H-4 Warrant exercised during that period. The terms of the Reload
Warrants are substantially identical to the terms of the Series H-4
Warrants except that (i) the exercise price is equal to $1.00, (ii)
the Reload Warrants may be exercised at all times beginning on the
6-month anniversary of the issuance date on a cash basis and also
on a cashless basis as described in Section 2(d) of the Reload
Warrant, (iii) the Reload Warrants do not contain any provisions
for anti-dilution adjustment and (iv) the Company will have the
right to require the Investor to exercise all or any portion of the
Reload Warrant still unexercised for a cash exercise if the VWAP
(as defined in the Reload Warrant) for the Common Stock equals or
exceeds $1.50 for not less than ten consecutive trading days. In
connection with the Repricing Offer Letter, the Company issued
Reload Warrants to purchase up to 1,561,596 shares of Common Stock.
Further, in connection with the
Repricing Offer Letter, we undertook to use best efforts to as
promptly as practicable after the date of Repricing Offer Letter
file a proxy statement seeking stockholder approval to: (i) reduce
the conversion price of the Series H-4 Shares and the exercise
price of the remaining Series H-4 Warrants to $0.60; and (ii) issue
all the shares of Common Stock issuable upon the full conversion of
the Series H-4 Shares and exercise of the Series H-4 Warrants at
$0.60. Upon receipt of stockholder approval of this proposal, the
conversion price of the Series H-4 Shares and the exercise price of
the remaining Series H-4 Warrants will be immediately reduced to
$0.60 (subject to adjustment as set forth in the
Certificate
of Designations, Preferences and Rights of the Series H-4
Convertible Preferred Stock, par value $0.0001 per share,
originally filed with the Secretary of State of the State of
Delaware on March 8, 2018 (the “Certificate of
Designations”)
and the Series
H-4 Warrants).
26
On
September 5, 2018, we received a request from The Nasdaq Stock
Market (“Nasdaq”), to (i) amend our Certificate of
Designations to provide that the Series H-4 Shares may not be
converted into shares of Common Stock until the Company has
obtained stockholder approval of the issuance of the Common Stock
underlying the Series H-4 Shares pursuant to the applicable rules
and regulations of Nasdaq and (ii) amend our Series H-4 Warrants to
provide that the Series H-4 Warrants may not be exercised until we
have obtained stockholder approval of the issuance of Common Stock
underlying the Series H-4 Warrants pursuant to the applicable rules
and regulations of Nasdaq.
In
response to the above requests, on September 10, 2018, the Company
(i) filed a Certificate of Amendment (the “COD
Amendment”) to the Certificate of Designations and (ii)
entered into an amendment (the “Warrant Amendment”)
with the holders of its Series H-4 Shares, in each case to provide
for stockholder approval as described above prior to the conversion
of the Series H-4 Shares or exercise of the Series H-4 Warrants, as
the case may be.
Reasons for the Financing
As of December 31, 2017, our cash balance was $372,011. In March
2018, our Board of Directors determined that it was necessary to
raise additional funds to support our continuing operations and to
provide working capital for general corporate
purposes.
We
believe that the financing, which yielded gross proceeds of
approximately $6.0 million, was necessary in light of the
Company’s cash balance and funding requirements at the time.
We also believe that the anti-dilution protections contained in the
Series H-4 Shares
and Series
H-4 Warrants were reasonable in light of market conditions and the
size and type of the financing, and that we would not have been
able to complete the sale of the
Series H-4 Shares
and Series H-4 Warrants
unless such anti-dilution provisions were offered. In addition, at
the time of the financing, our Board of Directors considered
numerous other alternatives to the transaction, none of which
proved to be feasible or, in the opinion of our Board of Directors,
would have resulted in aggregate terms equivalent to, or more
favorable than, the terms obtained in the financing.
Securities Purchase Agreement
The
Series H-4 Shares
and Series
H-4 Warrants were issued on March 8, 2018 (the
“Closing”) pursuant to the terms of the Purchase
Agreement. The Purchase Agreement provided for the sale of the
Series H-4 Shares
and the
Series H-4 Warrants at the Closing for gross proceeds of
approximately $
6.0
million
.
The
Purchase Agreement obligates us to indemnify the Investors and
various related parties for certain losses including those
resulting from (i) any misrepresentation or breach of any
representation or warranty made by us, (ii) any breach of any
obligation of ours, and (iii) certain claims by third
parties.
The
Purchase Agreement contains representations and warranties of us
and the Investors which are typical for transactions of this type.
In addition, the Purchase Agreement contains customary covenants on
our part that are typical for transactions of this type, as well as
the following additional covenants: (i) we agreed, without the
consent of the Investors, not to enter into certain variable rate
transactions until the date that no Investor holds at least ten
percent of the securities originally issued to such Investor, and
(ii) we agreed to offer to the Investors, until the second
anniversary of the Closing, the opportunity to participate in any
subsequent securities offerings by us.
Series H-4 Shares
On
March 8, 2018, we filed the Certificate of Designations with the
Secretary of State of the State of Delaware, establishing and
designating the rights, powers and preferences of the Series H-4
Shares. We designated up to 30,000 Series H-4 Shares and each share
has a stated value of $235.50 (the “Stated
Value”).
27
Each
Series H-4 Share was originally convertible at any time at the
option of the holder thereof, into a number of shares of Common
Stock determined by dividing the Stated Value by the initial
conversion price of $2.355 per share, subject to a 9.99% blocker
provision discussed below. In connection with the entry into the
Repricing Offer Letter, if approved by our stockholders, the
conversion price of the Series H-4 Shares will be immediately
reduced to $0.60.
The Series H-4 Shares were initially convertible
into
an aggregate of 2,684,300 shares of Common Stock. If
this proposal is approved by our stockholders, the Series H-4
Shares will be convertible into an aggregate of 10,535,878 shares
of Common Stock.
If
we fail to timely deliver Common Stock upon the conversion of the
Series H-4 Shares, we have agreed to pay certain liquidated damages
to the converting holder. The Series H-4 Shares have the same
dividend rights as the Common Stock, and no voting rights except as
provided for in the Certificate of Designation or as otherwise
required by law. In the event of any liquidation or dissolution of
us, the Series H-4 Shares rank senior to the Common Stock in the
distribution of assets, to the extent legally available for
distribution.
In
addition, the
Series H-4 Shares
are subject to anti-dilution protection in the event we issue
additional Common Stock, options or Common Stock equivalents at a
price per share less than the conversion price in effect. If we
issue Common Stock, options or Common Stock equivalents at a price
less than the conversion price of the Series H-4 Shares, subject to
certain customary exceptions, the conversion price of the Series
H-4 Shares will be reduced to that lower price; provided, however,
that the conversion price of the Series H-4 Shares shall not be
adjusted to be less than
twenty percent (20%) of the conversion
price on the original issuance date (subject to appropriate
adjustments for stock splits, stock dividends, recapitalizations,
reclassifications, combinations or other similar transactions) (the
“Conversion Price Floor”).
Therefore, the
anti-dilution provision in the
Series
H-4 Shares
may result in the downward adjustment of the
conversion price of the Series H-4 Shares. This anti-dilution
provision of the Series H-4 Shares will not be effective until
stockholder approval is obtained. If we obtain stockholder approval
of this proposal, the conversion price of the Series H-4 Shares may
be adjusted upon a dilutive issuance.
In connection with the entry into the Repricing
Offer Letter, if this proposal is approved by our stockholders, the
conversion price of the Series H-4 Shares will be immediately
reduced to $0.60.
Limitations on Conversion and Issuance
As
referenced above, in connection with the Repricing Offer Letter, we
entered into the COD Amendment which requires stockholder approval
prior to the conversion of any Series H-4 Shares into shares of our
Common Stock.
In
addition, a Series H-4 Share may not be converted and shares of
Common Stock may not be issued under the Series H-4 Shares if,
after giving effect to the conversion or issuance, the holder
together with its affiliates would beneficially own in excess of
9.99% of our outstanding shares of Common Stock (the “Series
H-4 Blocker”). The Series H-4 Blocker may be raised or
lowered to any other percentage not in excess of 9.99% at the
option of the selling securityholder, except that any raise will
only be effective upon 61-days’ prior notice to
us.
Series H-4 Warrants
At the Closing, we issued
Series H-4
Warrants
that entitled the holders of
the Series H-4 Warrants to purchase, in aggregate, up to 2,684,300
shares of our Common Stock. As referenced above, on September 4,
2018, we received executed Repricing Offer Letters from a majority
of the Investors resulting in the exercise of Series H-4 Warrants
to purchase 1,561,596 shares of Common Stock. The Series H-4
Warrants were immediately exercisable and will expire five years
from the date of issuance. The Series H-4 Warrants were initially
exercisable at an exercise price equal to $2.60, subject to certain
adjustments. If this proposal is approved by our stockholders, the
exercise price of the remaining Series H-4 Warrants will be reduced
to $0.60 which will entitle the holders of the remaining Series H-4
Warrants to purchase, in aggregate, up to 1,122,704 additional
shares of Common Stock.
The
Series H-4 Warrants may be exercised for cash, provided that, if
there is no effective registration statement available registering
the exercise of the Series H-4 Warrants, the Series H-4 Warrants
may be exercised on a cashless basis. The exercise price of the
Series H-4 Warrants is subject to adjustment for stock splits,
combinations or similar events. Similar to the Series H-4 Shares,
the Series H-4 Warrants require “buy-in” payments to be
made by us for failure to deliver the shares of Common Stock
issuable upon exercise.
28
In
addition, except in the case of issuances of certain excluded
securities, the Series H-4 Warrants are subject to anti-dilution
protection in the event we issue additional Common Stock, options
or Common Stock equivalents at a price per share less than the
exercise price in effect. If we issue Common Stock, options or
Common Stock equivalents at a price less than the exercise price of
the Series H-4 Warrants, subject to certain customary exceptions,
the exercise price of the Series H-4 Warrants will be reduced to
that lower price and the number of shares issuable pursuant to the
Series H-4 Warrants will be increased such that the exercise price
payable pursuant to the Series H-4 Warrants, after taking into
account the decrease in the exercise price, shall be equal to the
aggregate exercise price prior to such adjustment; provided,
however, that the exercise price of the Series H-4 Warrants shall
not be adjusted to be less than
twenty percent (20%) of the exercise
price on the original issuance date (subject to appropriate
adjustments for stock splits, stock dividends, recapitalizations,
reclassifications, combinations or other similar transactions) (the
“Exercise Price Floor”).
Therefore, the
anti-dilution provision in the Series H-4 Warrants may result in
the downward adjustment of the exercise price of the Series H-4
Warrants and result in a greater number of shares being issued
pursuant to the Series H-4 Warrants. This anti-dilution provision
of the Series H-4 Warrants will not be effective until stockholder
approval is obtained. If we obtain stockholder approval of this
proposal, the exercise price of the Series H-4 Warrants and the
number of shares to be issued upon exercise of the Series H-4
Warrants may be adjusted upon a dilutive issuance.
If this proposal is approved by our stockholders,
the exercise price of the remaining Series H-4 Warrants will be
reduced to $0.60 which will entitle the holders of the remaining
Series H-4 Warrants to purchase, in aggregate, up to 1,122,704
additional shares of Common Stock.
Fundamental Transactions
The
Series H-4 Warrants prohibit us from entering into specified
transactions involving a change of control, unless the successor
entity assumes in writing all of our obligations under the Series
H-4 Warrants under a written agreement.
In the
event of transactions involving a change of control or other
fundamental transaction, the Warrant will remain outstanding and
shall thereafter, be exercisable for the number of shares of Common
Stock that would have been issuable upon the exercise of such
Warrant immediately prior to the occurrence of such fundamental
transaction, subject to appropriate adjustment in the exercise
price of the Warrant to the value per share for the Common Stock
reflected by the terms of such fundamental transaction, and a
corresponding immediate adjustment to the number of shares of
Common Stock acquirable upon exercise of the Warrant without regard
to any limitations or restrictions on exercise, if the value so
reflected is less than the exercise price of the Warrant in effect
immediately prior to such fundamental transaction.
Limitations on Exercise and Issuance
As
referenced above, in connection with the Repricing Offer Letter, we
entered into the Warrant Amendment which requires stockholder
approval prior to the exercise of any additional Series H-4
Warrants into shares of our Common Stock.
A
Warrant may not be exercised and shares of Common Stock may not be
issued under the Series H-4 Warrants if, after giving effect to the
exercise or issuance, the holder together with its affiliates would
beneficially own in excess of 9.99% of our outstanding shares of
Common Stock (the “Warrant Blocker”). The Warrant
Blocker may be raised or lowered to any other percentage not in
excess of 9.99% at the option of the selling securityholder, except
that any raise will only be effective upon 61-days’ prior
notice to us.
Effect of Issuance of Securities
The potential issuance of (x) the aggregate of 5,368,600 shares of
our Common Stock underlying (i) the Series H-4 Shares (an aggregate
of 2,684,300 shares of Common Stock), and (ii) the Series H-4
Warrants (2,684,300 shares of Common Stock) and (y) the potential
additional shares of Common Stock issuable pursuant to the
anti-dilution terms of the Series H-4 Shares and the Series H-4
Warrants that are the subject of this proposal, would result in an
increase in the number of shares of Common Stock outstanding, and
our stockholders will incur dilution of their percentage ownership
to the extent that the investors convert their Series H-4 Shares or
exercise their Series H-4 Warrants, or additional shares of Common
Stock are issued pursuant to the anti-dilution terms of the Series
H-4 Shares or the Series H-4 Warrants. As referenced above,
in connection with the Repricing Offer Letter, we agreed to use
best efforts to seek stockholder approval to reduce the conversion
price of the Series H-4 Shares to $0.60 and the exercise price of
the remaining Series H-4 Warrants to $0.60. If this proposal is
approved by our stockholders, this will result in the potential
issuance of (x) the aggregate of 11,658,582 shares of our Common
Stock underlying (i) the Series H-4 Shares (an aggregate of
10,535,878 shares of Common Stock), and (ii) the remaining Series
H-4 Warrants (1,122,704 shares of Common Stock) and (y) the
potential additional shares of Common Stock issuable pursuant to
the anti-dilution terms of the Series H-4 Shares and the Series H-4
Warrants that are the subject of this proposal, would result in an
increase in the number of shares of Common Stock outstanding, and
our stockholders will incur dilution of their percentage ownership
to the extent that the investors convert their Series H-4 Shares or
exercise their Series H-4 Warrants, or additional shares of Common
Stock are issued pursuant to the anti-dilution terms of the Series
H-4 Shares or the Series H-4 Warrants. Because of potential
adjustments to the number of shares of Common Stock issuable upon
conversion of the Series H-4 Shares and exercise of the Series H-4
Warrants to be issued in connection with the financing, the exact
magnitude of the dilutive effect of the Series H-4 Shares and
Series H-4 Warrants cannot be conclusively determined. However, the
dilutive effect may be material to our current
stockholders.
29
Proposal to Approve Financing Transaction
Nasdaq
Listing Rule 5635(d) requires us to obtain stockholder approval
prior to the issuance of securities in connection with a
transaction other than a public offering involving (i) the sale,
issuance or potential issuance by us of our Common Stock (or
securities convertible into or exercisable for our Common Stock) at
a price less than the greater of book or market value which equals
20% or more of Common Stock or 20% or more of the voting power
outstanding before the issuance; or (ii) the sale, issuance or
potential issuance by us of our Common Stock (or securities
convertible into or exercisable for our Common Stock) equal to 20%
or more of the Common Stock or 20% or more of the voting power
outstanding before the issuance for less than the greater of book
or market value of the stock. Additionally, Nasdaq attributes a
value of $0.125 per share to securities convertible into shares of
Common Stock for purposes of the market value restriction of Nasdaq
Listing Rule 5635(d). Therefore, when securities are sold in fixed
combinations of one share of Common Stock together with a security
convertible into one share of Common Stock, the purchase price per
fixed combination must exceed the market value of one share of the
issuer’s Common Stock by at least $0.125.
Prior
to closing the financing, we had 7,811,888 shares of Common Stock
outstanding. Therefore, the potential issuance of 5,368,600 shares
of our Common Stock (2,684,300 shares of Common Stock upon
conversion of the Series H-4 Shares and 2,684,300 shares of Common
Stock upon exercise of the Series H-4 Warrants, all prior to giving
effect to any reduction in conversion price and exercise price as
discussed herein) would have constituted approximately 69% of the
shares of Common Stock outstanding prior to giving effect to the
financing. The market value of our Common Stock immediately
preceding the entry into the Purchase Agreement was $2.23 per
share, which exceeded its book value. Accordingly, in order to
close the financing without being required to obtain stockholder
approval pursuant to Rule 5635(d)(2), the offering price per fixed
combination of one Series H-4 Share convertible into one share of
Common Stock and a Warrant to purchase one share of Common Stock
was set at $2.355. The exercise price of the Series H-4 Warrants
was set at $2.60 per share. However, pursuant to applicable Nasdaq
rules, our entry into the Repricing Offer Letter resulted in the
original financing being considered by Nasdaq to be a
“below-market” transaction. As such, we are seeking
stockholder approval under Nasdaq Rule 5635(d) for the sale,
issuance or potential issuance by us of our Common Stock (or
securities convertible into or exercisable for our Common Stock) in
excess of 20% of the shares of Common Stock outstanding on the
original date of entry into the Purchase Agreement, including
without limitation, as a result of the anti-dilution feature of the
Series H-4 Shares and Series H-4 Warrants since such provisions may
reduce the per share conversion price or exercise price, as the
case may be, and result in the issuance of shares at less than the
greater of market price or book value per share.
We
generally have no control over whether the Investors convert their
Series H-4 Shares or exercise their Series H-4 Warrants. Further,
we cannot predict the market price of our Common Stock at any
future date, and therefore cannot predict the applicable prices at
which the Series H-4 Shares may be converted. For these reasons, we
are unable to accurately forecast or predict with any certainty the
total amount of shares that may be issued under the Series H-4
Shares or Series H-4 Warrants. Under certain circumstances,
however, it is possible, that we may have to issue more than 20% of
our outstanding shares of Common Stock to the holders of Series H-4
Shares and Series H-4 Warrants under the terms of the financing.
Therefore, we are seeking stockholder approval under this proposal
to issue more than 20% of our outstanding shares of Common Stock,
if necessary, to the holders of Series H-4 Shares and Series H-4
Warrants under the terms of the financing.
Any
transaction requiring approval by our stockholders under Nasdaq
Listing Rule 5635(d) would likely result in a significant increase
in the number of shares of our Common Stock outstanding, and, as a
result, our current stockholders will own a smaller percentage of
our outstanding shares of Common Stock.
Future
issuances of securities in connection with the financing, if any,
may cause a significant reduction in the percentage interests of
our current stockholders in the voting power, any liquidation
value, our book and market value, and in any future earnings.
Further, the issuance or resale of Common Stock issued to the
holders of Series H-4 Shares and Series H-4 Warrants could cause
the market price of our Common Stock to decline. In addition to the
foregoing, the increase in the number of issued shares of Common
Stock in connection with the financing may have an incidental
anti-takeover effect in that additional shares could be used to
dilute the stock ownership of parties seeking to obtain control of
us. The increased number of issued shares could discourage the
possibility of, or render more difficult, certain mergers, tender
offers, proxy contests or other change of control or ownership
transactions.
30
Under
the Nasdaq Listing Rules, we are not permitted (without risk of
delisting) to undertake a transaction that could result in a change
in control of us, as defined by Nasdaq Listing Rule 5635(b),
without seeking and obtaining separate stockholder approval. We are
not required to obtain stockholder approval for the Financing
Transaction under Nasdaq Listing Rule 5635(b) because the holders
of Series H-4 Shares and Series H-4 Warrants have agreed that, for
so long as they hold any shares of our Common Stock, neither they
nor any of their affiliates will acquire shares of our common stock
which result in them and their affiliates, collectively,
beneficially owning or controlling more than 9.99% of the total
outstanding shares of our common stock.
Consequences of Not Approving this Proposal
After
extensive efforts to raise capital on more favorable terms, we
believe that the financing is the only viable financing alternative
available to us at this time. If our stockholders do not approve
this proposal, we will not be able to issue shares of our Common
Stock at a price below $2.355 until we receive approval from our
stockholders. On September 24, 2018, the last reported sale price
for our Common Stock on the Nasdaq Capital Market was $0.52 per
share. In addition, if we
do not
obtain stockholder approval, the Series H-4 Shares and Series H-4
Warrants will not be convertible or exercisable, as the case may
be, into shares of our Common Stock.
The
Purchase Agreement, the Certificate of Designations and the forms
of Warrant were filed with the Securities and Exchange Commission
in connection with our Current Report on Form 8-K filed on March 9,
2018. The forms of Reload Warrant, Repricing Offer Letter, COD
Amendment and Warrant Amendment were filed with the Securities and
Exchange Commission in connection with our Current Report on Form
8-K originally filed on September 4, 2018 and as amended on
September 10, 2018.
Vote Required and Board of Directors’
Recommendation
Nasdaq
Listing Rule 5635(d) generally requires us to obtain stockholder
approval prior to issuing more than 20% of our outstanding shares
of Common Stock under the financing.
The
affirmative vote of the holders of a
majority of the total votes cast in person or by proxy at the
annual meeting is required to approve, in accordance with Nasdaq
Listing Rule 5635(d), the issuance, under the terms of that certain
Securities Purchase Agreement dated March 8, 2018, by and among
DropCar, Inc. and the investors thereto, and related documents, of
shares of our Common Stock underlying Series H-4 Convertible
Preferred Stock and Series H-4 Warrants issued by us (including
upon the operation of “ratchet” anti-dilution
provisions contained in such shares of Series H-4 Convertible
Preferred Stock and Series H-4 Warrants). Abstentions will be
treated as votes against this proposal. Brokerage firms do not have
authority to vote customers’ unvoted shares held by the firms
in street name on this proposal. As a result, any shares not voted
by a customer will be treated as a broker non-vote. Such broker
non-votes will have no effect on the results of this
vote.
In accordance with applicable Nasdaq Marketplace Rules, holders of
the shares of our Common Stock issued in connection with the
financing, including any shares of Common Stock issued pursuant to
the Repricing Offer Letter, are not entitled to vote such shares on
this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE ISSUANCE OF
SHARES OF OUR COMMON STOCK UNDERLYING THE SERIES H-4 SHARES AND
SERIES H-4 WARRANTS, IN AN AMOUNT EQUAL TO OR IN EXCESS OF 20% OF
OUR COMMON STOCK OUTSTANDING BEFORE THE ISSUANCE OF SUCH SERIES H-4
SHARES AND SERIES H-4 WARRANTS, IN SATISFACTION OF THE NASDAQ
LISTING RULE 5635(d), INCLUDING THE APPROVAL OF THE ANTI-DILUTION
PROTECTIONS CONTAINED IN SUCH SERIES H-4 SHARES AND SERIES H-4
WARRANTS, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE
VOTED IN FAVOR OF THE PROPOSAL UNLESS A STOCKHOLDER INDICATES
OTHERWISE ON THE PROXY.
31
APPROVAL OF REVERSE STOCK SPLIT
(Notice Item 4)
General
At our 2018 annual meeting of stockholders,
holders of our common stock are being asked to approve the proposal
that our Amended and Restated Certificate of Incorporation be
amended to effect a reverse stock split of the issued and
outstanding shares of common stock (such split to combine a number
of outstanding shares of our common stock between 2-for-1 and
25-for-1, such number consisting of only whole shares, into one
(1) share of common stock), if the Board of Directors believe
that a reverse stock split is in the best interests of the Company
and its stockholders,. The full text of the proposed amendment to
our Amended and Restated Certificate of Incorporation is attached
to this proxy statement as
Appendix A
.
If approved by the stockholders, the reverse stock split, if any,
would become effective at a time, and at a ratio, to be designated
by the Board of Directors. The Board of Directors may effect only
one reverse stock split as a result of this authorization. The
Board of Directors’ decision as to whether and when to effect
the reverse stock split will be based on a number of factors,
including market conditions, existing and expected trading prices
for our common stock and the continued listing requirements of The
Nasdaq Capital Market. Even if the stockholders approve the reverse
stock split, we reserve the right not to effect the reverse stock
split if the Board of Directors does not deem it to be in the best
interests of us and our stockholders to effect the reverse stock
split. The reverse stock split, if authorized pursuant to this
resolution and if deemed by the Board of Directors to be in the
best interests of us and our stockholders, will be effected, if at
all, at a time that is not later than the date that is one year
from the filing of the definitive proxy
statement.
The
proposed amendment to our Amended and Restated Certificate of
Incorporation to effect the reverse stock split, as more fully
described below, will effect the reverse stock split but will not
change the number of authorized shares of common stock or preferred
stock, or the par value of common stock or preferred stock. As of
the date of this proxy statement, we do not have any current
arrangements or understandings relating to the issuance of any
additional shares of common stock following the reverse stock
split.
Purpose
On
September 26, 2018, the Board of Directors approved the proposal
authorizing the reverse stock split for the following
reasons:
●
the
Board of Directors believes that effecting the reverse stock split
may be an effective means of maintaining compliance with the bid
price requirement for continued listing of our common stock on The
Nasdaq Capital Market; and
●
the
Board of Directors believes that a higher stock price may help
generate investor interest in us, including interest among
institutional investors.
If
the reverse stock split successfully increases the per share price
of our common stock and facilitates the continued listing of our
common stock on The Nasdaq Capital Market, as to which no assurance
can be given, the Board of Directors believes this increase may
facilitate future financings, enhance our ability to transact with
our securities and increase the appetite of third parties with whom
we may be negotiating for purposes of evaluating potential
strategic alternatives.
Nasdaq Requirements for Continued Listing
Our
common stock is listed on The Nasdaq Capital Market under the
symbol “DCAR.” One of the requirements for continued
listing on The Nasdaq Capital Market is maintenance of a minimum
closing bid price of $1.00. On September 24, 2018, the
closing market price per share of our common stock was $0.52, as
reported by the Nasdaq Capital Market, and the price has been below
$1.00 for more than 30 consecutive trading days. On September 25,
2018, we received a letter from Nasdaq indicating that for the last
30 consecutive business days, the bid price of our common shares
closed below the minimum $1.00 per share requirement pursuant to
Nasdaq Listing Rule 5550(a)(2) for continued listing on The
Nasdaq Capital Market. In accordance with Nasdaq Listing Rule
5810(c)(3)(A), we have a grace period of 180 calendar days, or
until March 25, 2019, to regain compliance with the minimum bid
price requirements. In accordance with Nasdaq Listing Rule
5810(c)(3)(A)(ii), we expect to be granted an additional 180 day
period, or until September 22, 2019, to regain compliance with the
minimum $1.00 bid price per share requirement for continued listing
on The Nasdaq Capital Market.
32
Our
plan to regain compliance with the Nasdaq Listing Rules includes
potentially effecting the reverse stock split for which we are
seeking stockholder approval in this proposal. We cannot assure you
that our share price will comply with the requirements for
continued listing of our common shares on the Nasdaq Capital Market
in the future or that we will comply with the other continued
listing requirements. If our common shares lose their status on the
Nasdaq Capital Market, our common shares would likely trade in the
over-the-counter market.
If
our shares were to trade on the over-the-counter market, selling
our common shares could be more difficult because smaller
quantities of shares would likely be bought and sold, and
transactions could be delayed. In addition, in the event our common
stock is delisted, broker-dealers have certain regulatory burdens
imposed upon them, which may discourage broker-dealers from
effecting transactions in our common stock, further limiting the
liquidity of our common stock. These factors could result in lower
prices and larger spreads in the bid and ask prices for our common
stock.
Such
delisting from The Nasdaq Capital Market and continued or further
declines in our share price could also greatly impair our ability
to raise additional necessary capital through equity or debt
financing, and could significantly increase the ownership dilution
to stockholders caused by our issuing equity in financing or other
transactions.
In
light of the factors mentioned above, our Board of Directors
approved the reverse stock split as a potential means of increasing
the share price of our common stock to above $1.00 per share and of
maintaining the share price of our common stock above $1.00 per
share in compliance with Nasdaq requirements. However, the Board of
Directors may, at any time prior to the effectiveness of the
proposed amendment to our Amended and Restated Certificate of
Incorporation, as amended, abandon the proposed amendment or
reverse stock split, without further action by our
stockholders.
Potential Increased Investor Interest
In
approving the proposal authorizing the reverse stock split, the
Board of Directors considered that our common stock may not appeal
to brokerage firms that are reluctant to recommend lower priced
securities to their clients. Investors may also be dissuaded from
purchasing lower priced stocks because the brokerage commissions,
as a percentage of the total transaction, tend to be higher
for such stocks. Moreover, the analysts at many brokerage firms do
not monitor the trading activity or otherwise provide coverage of
lower priced stocks.
There
are risks associated with the reverse stock split, including that
the reverse stock split may not result in a sustained increase in
the per share price of our common stock.
We
cannot predict whether the reverse stock split will increase the
market price for our common stock on a sustained basis. The history
of similar stock split combinations for companies in like
circumstances is varied. There is no assurance that:
●
the
market price per share of our common stock after the reverse stock
split will rise in proportion to the reduction in the number of
shares of our common stock outstanding before the reverse stock
split;
●
the
reverse stock split will result in a per share price that will
attract brokers and investors who do not trade in lower priced
stocks;
●
our
ability to conduct future financings will be enhanced;
and
●
the
market price per share will either exceed or remain in excess of
the $1.00 minimum bid price as required by Nasdaq, or that we will
otherwise meet the requirements of Nasdaq for continued inclusion
for trading on the Nasdaq Capital Market.
33
The
market price of our common stock will also be based on our
performance and other factors, some of which are unrelated to the
number of shares outstanding. If the reverse stock split is
effected and the market price of our common stock declines,
the percentage decline as an absolute number and as
a percentage of our overall market capitalization may be
greater than would occur in the absence of a reverse stock split.
Furthermore, the liquidity of our common stock could be adversely
affected by the reduced number of shares that would be outstanding
after the reverse stock split.
Principal Effects of the Reverse Stock Split
If
the stockholders approve the proposal to authorize the Board of
Directors to implement the reverse stock split and the Board of
Directors implements the reverse stock split, we will amend the
existing provision of Article Fourth of our Amended and
Restated Certificate of Incorporation by adding the following
paragraphs:
“(3)
Reverse Stock Split. Effective at 5:00 p.m. (Eastern time), on
the date of filing of this Certificate of Amendment of the Amended
and Restated Certificate of Incorporation of the Corporation with
the Secretary of State of the State of Delaware (the
“Effective Time”), the shares of the
Corporation’s Common Stock issued and outstanding prior to
the Effective Time and the shares of Common Stock issued and held
in treasury of the Corporation immediately prior to the Effective
Time shall automatically be reclassified into a smaller number of
shares such that each ( ) shares of the Corporation’s issued
and outstanding Common Stock immediately prior to the Effective
Time are reclassified into one validly issued, fully paid and
nonassessable share of Common Stock, without any further action by
the Corporation or the holder thereof. No fractional shares of
Corporation common stock will be issued as a result of the reverse
stock split. Instead, stockholders of record who otherwise would be
entitled to receive fractional shares, will be entitled to rounding
up of their fractional share to the nearest whole
share.
(4)
Each stock certificate that, immediately prior to the Effective
Time, represented shares of Common Stock that were issued and
outstanding immediately prior to the Effective Time shall, from and
after the Effective Time, automatically and without the necessity
of presenting the same for exchange, represent that the number of
whole shares of Common Stock after the Effective Time into which
the shares of Common Stock formerly represented by such certificate
shall have been reclassified (as well as the right to receive a
whole share in lieu of a fractional share of Common Stock),
provided, however, that each person of record holding a certificate
that represented shares of Common Stock that were issued and
outstanding immediately prior to the Effective Time shall receive,
upon surrender of such certificate, a new certificate evidencing
and representing the number of whole shares of Common Stock after
the Effective Time into which the shares of Common Stock formerly
represented by such certificate shall have been reclassified
(including the right to receive a whole share in lieu of a
fractional share of Common Stock).”
The
reverse stock split will be effected simultaneously for all issued
and outstanding shares of common stock and the exchange ratio will
be the same for all issued and outstanding shares of common stock.
The reverse stock split will affect all of our stockholders
uniformly and will not affect any
stockholder’s percentage ownership interests in the
Company, except to the extent that the reverse stock split results
in any of our stockholders owning a fractional share that would be
rounded up to the next highest whole share. Common stock issued
pursuant to the reverse stock split will remain fully paid and
nonassessable. The reverse stock split will not affect the Company
continuing to be subject to the periodic reporting requirements of
the Exchange Act. Following the reverse stock split, our common
stock will continue to be listed on the Nasdaq Capital Market,
under the symbol “DCAR,” although it would receive a
new CUSIP number.
By
approving this amendment, stockholders will approve the combination
of any whole number of shares of common stock between and including
two (2) shares and twenty-five (25) shares into one (1) share.
The certificate of amendment to be filed with the Secretary of
State of the State of Delaware will include only that number
determined by the Board of Directors to be in the best interests of
the Company and its stockholders. The Board of Directors will not
implement any amendment providing for a different split
ratio.
34
Procedure for Effecting Reverse Stock Split and Exchange of Stock
Certificates
If
the certificate of amendment is approved by our stockholders, and
if at such time the Board of Directors still believes that a
reverse stock split is in the best interests of the Company and its
stockholders, the Board of Directors will determine the ratio of
the reverse stock split to be implemented. We will file the
certificate of amendment with the Secretary of State of the State
of Delaware at such time as the Board of Directors has determined
the appropriate effective time for the reverse stock split. The
Board of Directors may delay effecting the reverse stock split, if
at all, until a time that is not later than one year from the date
of our definitive proxy statement, without re-soliciting
stockholder approval. The reverse stock split will become effective
on the date of filing of the certificate of amendment with the
Secretary of State of the State of Delaware. Beginning on the
effective date of the split, each certificate representing
pre-split shares will be deemed for all corporate purposes to
evidence ownership of post-split shares.
Book-Entry Shares
If
the reverse stock split is effected, stockholders who hold
uncertificated shares (i.e., shares held in book-entry form and not
represented by a physical stock certificate), either as direct or
beneficial owners, will have their holdings electronically adjusted
automatically by our transfer agent (and, for beneficial owners, by
their brokers or banks that hold in “street name” for
their benefit, as the case may be) to give effect to the reverse
stock split. Stockholders who hold uncertificated shares as direct
owners will be sent a statement of holding from our transfer agent
that indicates the number of post-reverse stock split shares of our
common stock owned in book-entry form.
Certificated Shares
As
soon as practicable after the effective date of the split,
stockholders will be notified that the reverse stock split has been
effected. We expect that our transfer agent will act as exchange
agent for purposes of implementing the exchange of stock
certificates. Holders of pre-split shares will be asked to
surrender to the exchange agent certificates representing pre-split
shares in exchange for certificates representing post-split shares
in accordance with the procedures to be set forth in a letter of
transmittal to be sent by us or our exchange agent. No new
certificates will be issued to a stockholder until such stockholder
has surrendered such stockholder’s outstanding certificate(s)
together with the properly completed and executed letter of
transmittal to the exchange agent. Any pre-split shares submitted
for transfer, whether pursuant to a sale or other disposition, or
otherwise, will automatically be exchanged for post-split shares.
STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD
NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO
SO.
Fractional Shares
No
fractional shares will be issued in connection with the reverse
stock split. Stockholders of record on the effective date of the
split who otherwise would be entitled to receive fractional shares
because they hold a number of pre-split shares not evenly divisible
by the number of pre-split shares for which each post-split share
is to be exchanged, will in lieu of a fractional share, be entitled
upon surrender to the exchange agent of certificates representing
such pre-split shares, to receive one whole share of common stock
by virtue of rounding up such fractional share to the next highest
whole share. The ownership of such a whole share will give the
holder thereof the same voting, dividend, and other rights as are
held by other holders of common stock.
Stockholders
should be aware that receipt of a whole share of common stock
resulting from the rounding up of a fractional share interest to
the next highest whole share may have tax consequences. Each holder
should seek advice based on the holder’s particular
circumstances from an independent tax advisor.
Accounting Matters
The
reverse stock split will not affect the common stock capital
account on our balance sheet. However, because the par value of our
common stock will remain unchanged on the effective date of the
split, the components that make up the common stock capital account
will change by offsetting amounts. Depending on the size of the
reverse stock split the Board of Directors decides to implement,
the stated capital component will be reduced to an amount between
$407.50 and $31.60 of its present amount, and the additional
paid-in capital component will be increased with the amount by
which the stated capital is reduced. The per share net income or
loss and net book value of our common stock will be increased
because there will be fewer shares of common stock outstanding.
Prior periods’ per share amounts will be restated to reflect
the reverse stock split.
35
Effect on Par Value
The
proposed amendment to our Amended and Restated Certificate of
Incorporation will not affect the par value of our common stock,
which will remain at $0.0001 per share.
No Going Private Transaction
Notwithstanding
the decrease in the number of outstanding shares following the
proposed reverse stock split, our Board of Directors does not
intend for this transaction to be the first step in a “going
private transaction” within the meaning of Rule 13e-3 of the
Exchange Act.
Potential Anti-Takeover Effect
Although
the increased proportion of unissued authorized shares to issued
shares could, under certain circumstances, have an anti-takeover
effect (for example, by permitting issuances that would dilute the
stock ownership of a person seeking to effect a change in the
composition of the Board of Directors or contemplating a tender
offer or other transaction for the combination of the Company with
another company), the reverse stock split proposal is not being
proposed in response to any effort of which we are aware to
accumulate shares of our common stock or obtain control of the
Company, nor is it part of a plan by management to recommend a
series of similar amendments to the Board of Directors and
stockholders. Other than the reverse stock split proposal, the
Board of Directors does not currently contemplate recommending the
adoption of any other actions that could be construed to affect the
ability of third parties to take over or change control of the
Company.
No Dissenters’ Rights
Under
the Delaware General Corporation Law, our stockholders are not
entitled to dissenters’ rights with respect to the reverse
stock split, and we will not independently provide stockholders
with any such right.
Material United States Federal Income Tax Consequences of the
Reverse Stock Split
The
following is not intended as tax or legal advice. Each holder
should seek advice based on his, her or its particular
circumstances from an independent tax advisor.
The
following discussion describes the anticipated material United
States federal income tax consequences to “U.S.
holders” (as defined below) of our capital stock relating to
the reverse stock split. This discussion is based upon the Internal
Revenue Code of 1986, as amended (the “Code”), Treasury
Regulations promulgated thereunder, judicial authorities, published
positions of the Internal Revenue Service (“IRS”), and
other applicable authorities, all as currently in effect and all of
which are subject to change or differing interpretations (possibly
with retroactive effect). We have not obtained a ruling from the
IRS or an opinion of legal or tax counsel with respect to the tax
consequences of the reverse stock split and there can be no
assurance the IRS will not challenge the statements set forth below
or that a court would not sustain any such challenge. The following
discussion is for information purposes only and is not intended as
tax or legal advice.
For
purposes of this discussion, the term “U.S. holder”
means a beneficial owner of our capital stock that is for United
States federal income tax purposes:
(i)
an
individual citizen or resident of the United States;
36
(ii)
a
corporation (or other entity treated as a corporation for U.S.
federal income tax purposes) organized under the laws of the United
States, any state or the District of Columbia;
(iii)
an
estate with income subject to United States federal income tax
regardless of its source; or
(iv)
a
trust that (a) is subject to primary supervision by a United
States court and for which United States persons control all
substantial decisions or (b) has a valid election in effect
under applicable Treasury Regulations to be treated as a United
States person.
This
discussion assumes that a U.S. holder holds our capital stock as a
capital asset within the meaning of Code Section 1221. This
discussion does not address all of the tax consequences that may be
relevant to a particular stockholder or to stockholders that are
subject to special treatment under United States federal income tax
laws including, but not limited to, financial institutions,
tax-exempt organizations, insurance companies, regulated investment
companies, persons that are broker-dealers, traders in securities
who elect the mark-to-market method of accounting for their
securities, or stockholders holding their shares of our capital
stock as part of a “straddle,” “hedge,”
“conversion transaction” or other integrated
transaction. In addition, this discussion does not address other
United States federal taxes (such as gift or estate taxes or
alternative minimum taxes), the tax consequences of the reverse
stock split under state, local or foreign tax laws or certain tax
reporting requirements that may be applicable with respect to the
reverse stock split.
If
a partnership (or other entity treated as a partnership for United
States federal income tax purposes) is a stockholder, the tax
treatment of a partner in the partnership or any equity owner of
such other entity will generally depend upon the status of the
person and the activities of the partnership or other entity
treated as a partnership for United States federal income tax
purposes.
Tax Consequences of the Reverse Stock Split Generally
We
believe that the reverse stock split should qualify as a
“recapitalization” under Section 368(a)(1)(E) of
the Code. Accordingly:
●
A
U.S. holder will not recognize any gain or loss as a result of the
reverse stock split.
●
A
U.S. holder’s aggregate tax basis in his, her or its
post-reverse stock split shares will be equal to the aggregate tax
basis in the pre-reverse stock split shares exchanged
therefor.
●
A
U.S. holder’s holding period for the post-reverse stock split
shares will include the period during which such stockholder held
the pre-reverse stock split shares surrendered in the reverse stock
split.
Treasury
Regulations promulgated under the Code provide detailed rules for
allocating the tax basis and holding period of the shares of our
common stock surrendered to the shares of our common stock received
pursuant to the reverse stock split. Holders of shares of our
common stock who acquired their shares on different dates and at
different prices should consult their tax advisors regarding the
allocation of the tax basis and holding period of such shares among
their post-reverse stock split shares.
Interests of Directors and Executive Officers
Our
directors and executive officers have no substantial interests,
directly or indirectly, in the matters set forth in this proposal
except to the extent of their ownership of shares of our common
stock.
Reservation of Right to Abandon Reverse Stock Split
We
reserve the right to not file the Certificate of Amendment and to
abandon any reverse stock split without further action by our
stockholders at any time before the effectiveness of the filing
with the Secretary of the State of Delaware of the Certificate of
Amendment, even if the authority to effect these amendments is
approved by our stockholders at the annual meeting. By voting in
favor of a reverse stock split, you are expressly also authorizing
the Board of Directors to delay, not proceed with, and abandon,
these proposed amendments if it should so decide, in its sole
discretion, that such action is in the best interests of our
stockholders.
37
Vote Required and Board of Directors’
Recommendation
The affirmative vote of the
holders of a
majority of the total votes cast in person or by proxy
entitled to vote on the matter either in person or
by proxy at the annual meeting is required to approve the amendment
to our Amended and Restated Certificate of Incorporation to effect
a reverse stock split of our common stock, if the Board of
Directors believes that a reverse stock split is in the best
interests of the Company and its stockholders. Abstentions will be
treated as votes against this proposal. Brokerage firms have
authority to vote customers’ unvoted shares held by the firms
in street name on this proposal. If a broker does not exercise this
authority, such broker non-votes will have the same effect as a
vote against such proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO AUTHORIZE THE BOARD OF
DIRECTORS IN ITS DISCRETION TO AMEND THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF THE
ISSUED AND OUTSTANDING SHARES OF OUR COMMON STOCK (SUCH SPLIT TO
COMBINE A NUMBER OF OUTSTANDING SHARES OF OUR COMMON STOCK BETWEEN
TWO (2) SHARES AND TWENTY-FIVE (25) SHARES, SUCH NUMBER CONSISTING
OF ONLY WHOLE SHARES, INTO ONE (1) SHARE OF OUR COMMON STOCK),
AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN
FAVOR OF THE AMENDMENT UNLESS A STOCKHOLDER INDICATES OTHERWISE ON
THE PROXY.]
38
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
(Notice Item 5)
General
The
Audit Committee has appointed EisnerAmper LLP as our independent
registered public accounting firm, to audit our financial
statements for the fiscal year ending December 31, 2018. The
Board of Directors
proposes
that the stockholders ratify this appointment. EisnerAmper LLP
audited our financial statements for the fiscal year ended December
31, 2017. We expect that representatives of EisnerAmper LLP will be
present at the annual meeting, will be able to make a statement if
they so desire, and will be available to respond to appropriate
questions.
In deciding to appoint
EisnerAmper
LLP
, the Audit Committee reviewed
auditor independence issues and existing commercial relationships
with
EisnerAmper LLP
and
concluded that
EisnerAmper LLP
has no commercial relationship with the Company
that would impair its independence for the fiscal year
ending
December
31, 2018.
The
following table presents fees for professional audit services
rendered by EisnerAmper LLP for the audit of the Company’s
annual financial statements for the years ended December 31, 2017
and December 31, 2016 and fees billed for other services rendered
by EisnerAmper LLP during those periods.
|
|
2017
|
2016
|
|
Audit
Fees:(1)
|
$
307,654
|
$
54,950
|
|
Audit-Related
Fees:(2)
|
—
|
12,500
|
|
Tax
Fees:(3)
|
—
|
—
|
|
All
Other Fees:(4)
|
—
|
—
|
|
Total
|
$
307,654
|
$
67,450
|
(1)
Audit Fees
include fees for
services rendered for the audit of our annual financial statements,
the review of financial statements included in our quarterly
reports on Form 10-Q, assistance with and review of documents filed
with the SEC and consents and other services normally provided in
connection with statutory and regulatory filings or
engagements.
(2)
Audit-Related Fees
principally include fees incurred for due diligence in connection
with potential transactions and accounting
consultations.
(3)
Tax Fees
would include fees
for services rendered for tax compliance, tax advice, and tax
planning. There were no tax fees incurred with EisnerAmper LLP in
2017 and 2016.
(4)
All Other Fees
would
include fees that do not constitute Audit Fees, Audit-Related Fees,
or Tax Fees.
Policy on Audit Committee Pre-Approval of Audit and Permissible
Non-audit Services of Independent Public Accountant
Consistent with SEC
policies regarding auditor independence, the Audit Committee has
responsibility for appointing, setting compensation and overseeing
the work of our independent registered public accounting firm. In
recognition of this responsibility, the Audit Committee has
established a policy to pre-approve all audit and permissible
non-audit services provided by our independent registered public
accounting firm.
39
Prior
to engagement of an independent registered public accounting firm
for the next year’s audit, management will submit an
aggregate of services expected to be rendered during that year for
each of four categories of services to the Audit Committee for
approval.
1.
Audit
services
include audit work performed in the preparation of financial
statements, as well as work that generally only an independent
registered public accounting firm can reasonably be expected to
provide, including comfort letters, statutory audits, and attest
services and consultation regarding financial accounting and/or
reporting standards.
2.
Audit-Related
services are for assurance and related services that are
traditionally performed by an independent registered public
accounting firm, including due diligence related to mergers and
acquisitions, employee benefit plan audits, and special procedures
required to meet certain regulatory requirements.
3.
Tax
services include
all services performed by an independent registered public
accounting firm’s tax personnel except those services
specifically related to the audit of the financial statements, and
includes fees in the areas of tax compliance, tax planning, and tax
advice.
4.
Other Fees
are those
associated with services not captured in the other categories. The
Company generally does not request such services from our
independent registered public accounting firm.
Prior
to engagement, the Audit Committee pre-approves these services by
category of service. The fees are budgeted and the Audit Committee
requires our independent registered public accounting firm and
management to report actual fees versus the budget periodically
throughout the year by category of service. During the year,
circumstances may arise when it may become necessary to engage our
independent registered public accounting firm for additional
services not contemplated in the original pre-approval. In those
instances, the Audit Committee requires specific pre-approval
before engaging our independent registered public accounting
firm.
The
Audit Committee may delegate pre-approval authority to one or more
of its members. The member to whom such authority is delegated must
report, for informational purposes only, any pre-approval decisions
to the Audit Committee at its next scheduled meeting.
In the
event the stockholders do not ratify the appointment of EisnerAmper
LLP as our independent registered public accounting firm, the Audit
Committee will reconsider its appointment.
Vote Required and Board of Directors’
Recommendation
The
affirmative vote of the holders of a majority of the shares of our
common stock present and entitled to vote on the matter either in
person or by proxy at the annual meeting is required to ratify the
appointment of EisnerAmper LLP as our independent registered public
accounting firm for the fiscal year ending December 31, 2018.
Abstentions will be treated as votes against this proposal.
Brokerage firms have authority to vote customers’ unvoted
shares held by the firms in street name on this proposal. If a
broker does not exercise this authority, such broker non-votes will
have no effect on the results of this vote. We are not required to
obtain the approval of our stockholders to select our independent
registered public accounting firm. However, if our stockholders do
not ratify the selection of EisnerAmper LLP as our independent
registered public accounting firm for 2018, our Audit Committee of
our Board of Directors will reconsider its selection.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO RATIFY THE APPOINTMENT
OF EISNERAMPER LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED
IN FAVOR OF SUCH RATIFICATION UNLESS A STOCKHOLDER INDICATES
OTHERWISE ON THE PROXY.
40
ADVISORY
VOTE ON APPROVAL OF EXECUTIVE COMPENSATION AS DISCLOSED IN THIS
PROXY STATEMENT
(Notice Item 6)
General
We are
seeking your advisory vote as required by Section 14A of the
Securities Exchange Act of 1934, as amended, on the approval of the
compensation of our named executive officers as described in the
compensation tables and related material contained in this proxy
statement. Because your vote is advisory, it will not be binding on
our Executive Committee or our Board of Directors. However, the
Executive Committee and the
Board of
Directors
will review the voting results and take them into
consideration when making future decisions regarding executive
compensation.
We have
determined to hold an advisory vote to approve the compensation of
our named executive officers every three years.
Our
compensation philosophy is designed to align each executive’s
compensation with DropCar’s short-term and long-term
performance and to provide the compensation and incentives needed
to attract, motivate and retain key executives who are crucial to
our long-term success. Consistent with this philosophy, a
significant portion of the total compensation opportunity for each
of our executives is directly related to performance factors that
measure our progress against the goals of our strategic and
operating plans, as well as our performance against that of our
peer companies.
In
accordance with the rules of the SEC, the following resolution,
commonly known as a “say-on-pay” vote, is being
submitted for a stockholder vote at the 2018 annual
meeting:
“RESOLVED,
that the compensation paid to the named executive officers of
DropCar, as disclosed pursuant to the compensation disclosure rules
of the Securities and Exchange Commission, including the
compensation tables and the related material disclosed in this
proxy statement, is hereby APPROVED.”
Vote Required and Board of Directors’
Recommendation
The
affirmative vote of a majority of the votes cast in person or by
proxy at the annual meeting is required to approve, on an advisory
basis, the compensation of our named executive officers, as
described in this proxy statement. Abstentions will be treated as
votes against this proposal. Brokerage firms do not have authority
to vote customers’ unvoted shares held by the firms in street
name on this proposal. As a result, any shares not voted by a
customer will be treated as a broker non-vote. Such broker
non-votes will have no effect on the results of this vote. Although
the advisory vote is non-binding, the Executive Committee and the
Board of Directors will review the voting results and take them
into consideration when making future decisions regarding executive
compensation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE
COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AND PROXIES SOLICITED
BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR OF SUCH APPROVAL
UNLESS A STOCKHOLDER INDICATES OTHERWISE ON THE PROXY.
41
APPROVAL OF THE ADJOURNMENT OF THE ANNUAL MEETING, IF
NECESSARY, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT
SUFFICIENT VOTES IN FAVOR OF ANY OF THE FOREGOING
PROPOSALS
(Notice Item 7)
We
are asking our stockholders to vote on a proposal to approve the
adjournment of the annual meeting, if necessary, to solicit
additional proxies if there are not sufficient votes in favor of
the foregoing proposals.
Vote Required and Board of Directors’
Recommendation
Approval of the adjournment of the annual meeting,
if necessary, to solicit additional proxies if there are not
sufficient votes in favor of the foregoing proposals requires the
affirmative vote of the holders of a majority of the shares of
common stock present and entitled to vote either in person or by
proxy at the annual meeting.
Abstentions will be treated as
votes against this proposal. Brokerage firms do not have authority
to vote customers’ unvoted shares held by the firms in street
name on this proposal. As a result, any shares not voted by a
customer will be treated as a broker non-vote. Such broker
non-votes will have no effect on the results of this
vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE
ADJOURNMENT OF THE ANNUAL MEETING, IF NECESSARY, TO SOLICIT
ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF
ANY OF THE FOREGOING PROPOSALS.
42
CODE OF CONDUCT AND ETHICS
We have
adopted a code of conduct and ethics that applies to all of our
employees, including our chief executive officer and chief
financial and accounting officers. The text of the code of conduct
and ethics will be posted on our website at
www.dropcar.com
and will be made
available to stockholders without charge, upon request, in writing
to the Corporate Secretary at
1412
Broadway, Suite 2105, New York, New York 10018
Disclosure
regarding any amendments to, or waivers from, provisions of the
code of conduct and ethics that apply to our directors, principal
executive and financial officers will be included in a Current
Report on Form 8-K within four business days following the date of
the amendment or waiver, unless website posting or the issuance of
a press release of such amendments or waivers is then permitted by
the rules of The Nasdaq Stock Market.
OTHER MATTERS
The
Board of Directors knows of no other business which will be
presented to the annual meeting. If any other business is properly
brought before the annual meeting, proxies will be voted in
accordance with the judgment of the persons named
therein.
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR DIRECTOR
To be
considered for inclusion in the proxy statement relating to our
2019 Annual Meeting of Stockholders, we must receive stockholder
proposals (other than for director nominations) no later than May
12, 2019.
To be
considered for presentation at the
2019 Annual Meeting, although not
included in the proxy statement, proposals (including director
nominations that are not requested to be included in our proxy
statement) must be received no earlier than August 17, 2019 and no
later than September 16, 2019
.
Proposals that are not received in
a timely manner will not be voted on at the 2019 Annual Meeting. If
a proposal is received on time, the proxies that management
solicits for the meeting may still exercise discretionary voting
authority on the proposal under circumstances consistent with the
proxy rules of the SEC. All stockholder proposals should be marked
for the attention of the Corporate Secretary, DropCar, Inc.,
1412 Broadway, Suite 2105, New York,
New York 10018.
New
York, New York
October
9, 2018
43
APPENDIX A — FORM OF CERTIFICATE OF AMENDMENT TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO EFFECT REVERSE
STOCK SPLIT
FORM OF CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DROPCAR, INC.
DROPCAR,
INC.
, a Delaware corporation
(the “Corporation”), does hereby certify
that:
FIRST:
The name of the Corporation is DROPCAR,
INC.
SECOND:
The Amended and Restated Certificate of
Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on April 4,
2017.
THIRD:
The Board of Directors of the Corporation
(the “Board”), acting in accordance with the provisions
of Sections 141 and 242 of the General Corporation Law of the State
of Delaware (the “DGCL”), adopted resolutions amending
the Corporation’s Amended and Restated Certificate of
Incorporation as follows:
Article
Fourth of the Corporation’s Amended and Restated Certificate
of Incorporation is hereby amended by adding the following
paragraphs:
“(3)
Reverse Stock Split. Effective at 5:00 p.m. (Eastern time), on
the date of filing of this Certificate of Amendment of the Amended
and Restated Certificate of Incorporation of the Corporation with
the Secretary of State of the State of Delaware (the
“Effective Time”), the shares of the
Corporation’s Common Stock issued and outstanding prior to
the Effective Time and the shares of Common Stock issued and held
in treasury of the Corporation immediately prior to the Effective
Time shall automatically be reclassified into a smaller number of
shares such that each __________ shares of the Corporation’s
issued and outstanding Common Stock immediately prior to the
Effective Time are reclassified into one validly issued, fully paid
and nonassessable share of Common Stock, without any further action
by the Corporation or the holder thereof. No fractional shares of
Corporation common stock will be issued as a result of the reverse
stock split. Instead, stockholders of record who otherwise would be
entitled to receive fractional shares, will be entitled to rounding
up of their fractional share to the nearest whole
share.
(4)
Each stock certificate that, immediately prior to the Effective
Time, represented shares of Common Stock that were issued and
outstanding immediately prior to the Effective Time shall, from and
after the Effective Time, automatically and without the necessity
of presenting the same for exchange, represent that the number of
whole shares of Common Stock after the Effective Time into which
the shares of Common Stock formerly represented by such certificate
shall have been reclassified (as well as the right to receive a
whole share in lieu of a fractional share of Common Stock),
provided, however, that each person of record holding a certificate
that represented shares of Common Stock that were issued and
outstanding immediately prior to the Effective Time shall receive,
upon surrender of such certificate, a new certificate evidencing
and representing the number of whole shares of Common Stock after
the Effective Time into which the shares of Common Stock formerly
represented by such certificate shall have been reclassified
(including the right to receive a whole share in lieu of a
fractional share of Common Stock).”
FOURTH:
Thereafter, pursuant to a resolution of the
Board, this Certificate of Amendment was submitted to the
stockholders of the Corporation for their approval, and was duly
adopted in accordance with the provisions of Sections 222 and 242
of the DGCL.
44
IN
WITNESS WHEREOF, the Corporation has caused this CERTIFICATE OF
AMENDMENT to be signed by Spencer Richardson, its Chief Executive
Officer, as of the __________ day of __________,
__________.
DROPCAR, INC.
By:
_____________________
Name:
Spencer Richardson
Title:
Chief Executive
Officer
45
APPENDIX B —PROXY CARD
TABLE OF CONTENTS