Presidio Property Trust, Inc PRE 14A, filed Mar 31, 2022
Presidio Property Trust, Inc. (SQFT)
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
| Filed by the Registrant ☒ | Filed by a party other than the Registrant ☐ |
Check the appropriate box:
| ☒ | Preliminary Proxy Statement |
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ☐ | Definitive Proxy Statement |
| ☐ | Definitive Additional Materials |
| ☐ | Soliciting Material Under Rule14a-12 |
Presidio Property Trust, 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. | |
| ☐ | No fee 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): | |
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| ☐ | 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.: | |
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| (4) | Date Filed: | |
April 15, 2022
Dear Stockholder:
You are cordially invited to attend the 2022 Annual Meeting of Stockholders (“Annual Meeting”) of Presidio Property Trust, Inc., a Maryland corporation (“Company”), to be held at 8:30 A.M., Pacific Time, on Thursday, May 26, 2022. As a result of the public health impact of the coronavirus outbreak or COVID-19, and to promote the safety, health and well-being of our stockholders, we will host a virtual Annual Meeting, conducted via a live audio-only webcast. Please visit www.proxydocs.com/SQFT to register to attend and vote at the meeting, and for more details.
The Notice Regarding the Availability of Proxy Materials describes the business we will conduct at the Annual Meeting and provides information about how to access the proxy materials that you should consider when you vote your shares. Whether you own a few or many shares and whether or not you plan to participate in our virtual Annual Meeting, please cast your vote by submitting an electronic ballot or by proxy. None of our stockholders owns more than 15% of our outstanding shares, so every vote is important to us. We urge you to read the Proxy Statement and vote in accordance with the Board of Directors’ recommendations.
Thank you for your continued support of the Company. We look forward to your participation at our virtual Annual Meeting.
| Sincerely, | |
| Jack K. Heilbron | |
| President and Chief Executive Officer | |
| Chairman of the Board |
NOTICE OF 2022 ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the 2022 Annual Meeting of Stockholders (“Annual Meeting”) of Presidio Property Trust, Inc., a Maryland corporation (“Company”), will be held as follows:
| TIME: | 8:30 A.M., Pacific Time |
| DATE: | May 26, 2022 |
| PLACE: | Annual Meeting to be held live, audio-only, via the Internet. Please visit www.proxydocs.com/SQFT for registration and more details. |
ITEMS OF BUSINESS:
| 1. | To elect five (5) members to serve on our Board of Directors until the 2023 Annual Meeting of Stockholders or until their respective successors are duly elected and qualify; |
| 2. | To consider and vote upon the ratification of the appointment of Baker Tilly US, LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022; |
| 3. | To consider and vote upon an amendment to the Company’s charter to provide for the reclassification of any unissued shares of common stock from time to time into one or more classes or series of stock having such terms as determined by the Board of Directors; |
| 4. | To consider and vote upon a non-binding, advisory proposal to approve the compensation of our named executive officers; |
| 5. | To consider and vote upon an amendment to the Company’s 2017 Incentive Award Plan to increase the number of shares available for issuance thereunder to 2,500,000 from 1,100,000 shares of common stock; and |
| 6. | To transact such other business as may properly come before the Annual Meeting or any postponement or adjournment thereof. |
The foregoing items of business are more fully described in the attached Proxy Statement, which forms a part of this notice and is incorporated herein by reference.
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WHO MAY VOTE:
Our Board of Directors has fixed the close of business on April 1, 2022 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Annual Meeting or any postponement or adjournment thereof.
Pursuant to the rules of the Securities and Exchange Commission, we have elected to furnish proxy materials to our stockholders over the Internet. In addition, we will send a full set of proxy materials to any stockholder who makes a timely request for such materials by mail.
We will send a Notice Regarding the Availability of Proxy Materials and provide access to our proxy materials over the Internet, beginning on or about April 15, 2022, for the record and beneficial owners of our common stock as of the close of business on the record date. The Notice Regarding the Availability of Proxy Materials instructs you on how to access and review the Proxy Statement and our Annual Report on Form 10-K for the year ended December 31, 2021, how to authorize your proxy on-line via the Internet or by telephone, and how to receive a printed copy of our proxy materials.
Proxy Voting: Your vote is important. All stockholders are cordially invited to register and attend our virtual Annual Meeting. Whether or not you plan to participate in our Annual Meeting via the live, audio-only webcast, please authorize your proxy as soon as possible on-line or by telephone, or, if you receive a paper copy of the proxy materials by mail, please mark, sign, date, and return your proxy card, in order for your shares to be represented at the Annual Meeting. If you plan to attend the virtual Annual Meeting and wish to vote your shares by submitting an electronic ballot at such time, you must register to attend the meeting so you may do so at any time before the polls are closed.
You may attend the Annual Meeting via the live, audio-only webcast to vote on the proposals described in the Proxy Statement if you register to attend at www.proxydocs.com/SQFT. You will be asked to provide the Control Number located inside the shaded gray box and marked by the arrow on your Notice Regarding the Availability of Proxy Materials or proxy card. If you register to attend, further instructions, including a unique link to access the Annual Meeting, will be e-mailed to you. If you request a printed copy of our proxy materials by mail, your broker or nominee will provide a voting instruction card for you to use.
You are encouraged to read the Proxy Statement before voting or authorizing a proxy to vote on your behalf.
| BY ORDER OF THE | |
| BOARD OF DIRECTORS, | |
| Jack K. Heilbron | |
President and Chief Executive Officer Chairman of the Board | |
| San Diego, California | |
| April 15, 2022 |
Important Notice Regarding the Availability of Proxy Materials for the 2022
Annual Meeting to be held on May 26, 2022:
This Notice, Proxy Statement and 2021 Annual Report to Stockholders are
available at www.proxydocs.com/SQFT.
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4995 Murphy Canyon Road, Suite 300 San Diego, California 92123 |
| PROXY STATEMENT |
| FOR |
| ANNUAL MEETING OF STOCKHOLDERS |
| to be held on May 26, 2022 at 8:30 A.M., Pacific Time |
This Proxy Statement is furnished to the stockholders of Presidio Property Trust, Inc., a Maryland corporation (“Company,” “we,” “us,” or “our”), in connection with the solicitation by the Board of Directors of the Company (“Board” or “Board of Directors”) of your proxy to be voted at the 2022 Annual Meeting of Stockholders of the Company (“Annual Meeting”) and at any postponements or adjournments thereof. The Annual Meeting is to be held live via the Internet on Thursday, May 26, 2022 at 8:30 A.M., Pacific Time. Please visit www.proxydocs.com/SQFT for more details. The mailing address of our principal executive office is 4995 Murphy Canyon Road, Suite 300, San Diego, California 92123. As described in detail in this Proxy Statement, we have chosen to deliver electronically this Proxy Statement, accompanying proxy materials, and our Annual Report on Form 10-K for the year ended December 31, 2021 (“Annual Report”) by posting them on our website, www.PresidioPT.com, and mailing the Notice Regarding the Availability of Proxy Materials to stockholders on or about April 15, 2022.
Important Information Regarding Delivery of Proxy Materials
What is “Notice and Access”?
“Notice and access” generally refers to rules governing how companies must provide proxy materials.
Under the notice and access model, a company may select one of the following two options for making proxy materials available to stockholders:
| ■ | the full set delivery option; or | |
| ■ | the notice only option. |
A company may use a single method for all its stockholders, or use full set delivery for some while adopting the notice only option for others.
What is the Full Set Delivery Option?
Under the “Full Set Delivery” option, a company delivers all proxy materials to its stockholders. This delivery can be by mail or, if a stockholder has previously agreed, by e-mail. In addition to delivering proxy materials to stockholders, the company must also post all proxy materials on a publicly accessible website and provide information to stockholders about how to access that website.
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What is the Notice Only Option?
Under the “Notice Only” option, a company must post all its proxy materials on a publicly accessible website and deliver a Notice Regarding the Availability of Proxy Materials. The notice includes, among other matters:
| ■ | information regarding the date and time of the meeting of stockholders as well as the items to be considered at the meeting; | |
| ■ | information regarding the website where the proxy materials are posted; and | |
| ■ | the means by which a stockholder can request paper or electronic copies of the proxy materials. |
In connection with the Annual Meeting, the Company has elected to use the Notice Only option. Accordingly, you should have received a Notice Regarding the Availability of Proxy Materials by mail, which included instructions on how to access and view the proxy materials and vote online or by telephone, or, if you have previously elected to receive proxy materials by mail, you should have received a full set paper copy of the Proxy Statement, accompanying proxy materials, and our Annual Report.
You may view your proxy materials, including our Annual Report and proxy card online, by going to www.proxydocs.com/SQFT. If you received the Notice Only and would like one or more paper copies of the Proxy Statement, Annual Report or accompanying proxy materials, you may request such copies by calling 1-866-648-8133. You will also have the opportunity to make a request to receive paper copies for all future meetings or only for the 2022 Annual Meeting. Paper copies will be sent within three business days via first class U.S. mail.
PURPOSE OF THE MEETING
At the Annual Meeting, the stockholders of the Company will be asked:
| Proposal 1: | To elect five (5) members to serve on our Board of Directors until the 2023 Annual Meeting of Stockholders or until their respective successors are duly elected and qualify; |
Proposal 2:
|
To consider and vote upon the ratification of the appointment of Baker Tilly US, LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022; |
| Proposal 3: | To consider and vote upon an amendment to the Company’s charter to provide for the reclassification of any unissued shares of common stock from time to time into one or more classes or series of stock having such terms as determined by the Board of Directors; |
| Proposal 4: | To consider and vote upon a non-binding, advisory proposal to approve the compensation of our named executive officers; |
| Proposal 5: | To consider and vote upon an amendment to the Company’s 2017 Incentive Award Plan to increase the number of shares available for issuance thereunder to 2,500,000 from 1,100,000 shares of common stock; and |
| Proposal 6: | To transact of such other business as may properly come before the Annual Meeting or any postponement or adjournment thereof. |
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ATTENDANCE
You may attend the Annual Meeting via a live, audio-only webcast to vote on the proposals described in this Proxy Statement if you register to attend at www.proxydocs.com/SQFT by 2:00 P.M., Pacific Time on May 24, 2022 (“Registration Deadline”). You will be asked to provide the Control Number located inside the shaded gray box and marked by the arrow on your Notice Regarding the Availability of Proxy Materials or proxy card. If you register by the Registration Deadline, further instructions, including a unique link to access the Annual Meeting, will be emailed to you. If you request a printed copy of our proxy materials by mail, your broker or nominee will provide a voting instruction card for you to use.
QUORUM
The presence, in person or by proxy, of stockholders entitled to cast a majority of all the votes entitled to be cast on a matter will constitute a quorum at the Annual Meeting. Votes “for” and “against,” “abstentions,” and “broker non-votes” will be counted as present to determine whether a quorum has been established. If a quorum is not present, the chairman of the meeting or the stockholders entitled to vote at the Annual Meeting, present in person or by proxy, may adjourn the Annual Meeting or adjourn the Annual Meeting to a date not more than 120 days after the original record date, without notice other than announcement at the meeting. The persons named as proxies will vote in favor of any such adjournment.
VOTING RIGHTS
Only holders of record of outstanding shares of our common stock at the close of business on April 1, 2022 are entitled to receive notice of and to vote at the Annual Meeting or any postponement or adjournment of the meeting. As of the record date, there were issued and outstanding [ ] shares of the Company’s common stock. Each share of common stock entitles the holder thereof to one vote for as many individuals as there are directors to be elected at the Annual Meeting and one vote on each other matter properly brought before the Annual Meeting.
VOTING PROCEDURES
An abstention from voting on any proposal and broker non-votes are considered present for the purpose of determining the presence of a quorum. A “broker non-vote” occurs when a bank, broker, or other holder of record holding shares for a beneficial owner does not vote because that holder does not have discretionary voting power and has not received voting instructions from the beneficial owner. Brokers no longer have the discretion to vote your shares without receiving voting instructions from you in an uncontested election of directors. This is a very important change to the process that many investors may have relied on when considering whether to return voting instructions. As a result, if you do not complete the voting instructions, your votes will not be cast for the election of directors. In addition, brokers do not have discretionary authority to vote your shares on any of the other proposals to be considered at the Annual Meeting without receiving voting instructions from you, except for Proposal 2.
Telephone and Internet voting for all stockholders of record will be available 24-hours a day at www.proxydocs.com/SQFT, up until the time that the polls close during the Annual Meeting, which commences at 8:30 A.M., Pacific Time, on Thursday, May 26, 2022. You may also vote your shares on the day of and during the virtual Annual Meeting at www.proxypush.com/SQFT. Attendance at the virtual Annual Meeting will not revoke a previously submitted proxy unless you actually vote by submitting an electronic ballot at the meeting. For shares you hold beneficially in street name, you may change your vote by submitting a new voting instruction to your broker or other nominee following the instructions they provided or, if you have obtained a legal proxy from your broker or other nominee giving you the right to vote your shares, by attending the virtual Annual Meeting and voting by submitting an electronic ballot.
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VOTE REQUIRED
Voting for the election of directors in Proposal 1 will be cumulative if, prior to commencement of the voting, a stockholder gives us notice of his or her intention to cumulate votes. If any stockholder gives such a notice, then every stockholder will be entitled to such rights, in which case, you may cumulate your total votes and cast all of your votes for any one or a combination of director nominees. In cumulative voting, your total votes equal the number of director nominees multiplied by the number of shares of common stock that you are entitled to vote. In the event that a quorum is not present and the meeting is not convened, each of the Company’s current directors will remain in office and continue to serve until their successors are duly elected and qualify. You may vote 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. If you elect to withhold authority for any individual nominee or nominees, you may do so by making an “X” in the box marked “FOR ALL EXCEPT,” and by writing the name(s) of such nominee or nominees on the applicable proxy card. In the event of cumulative voting, the five nominees for the Board who receive the most votes will be elected. If no stockholder provides notice of an intention to cumulate votes in the election of directors, directors will be elected by a plurality of all the votes cast at a meeting in which directors are being elected. In the event of cumulative voting, abstentions and broker non-votes, if any, will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum. In the event that votes are not cumulated in the election of directors, abstentions and broker non-votes, if any, will have no effect on the result of the vote.
Approval of Proposal 2 requires a majority of the votes cast. Abstentions and broker non-votes, if any, will have no effect on the result of the vote on Proposal 2, although they will be considered present for the purpose of determining the presence of a quorum.
Approval of Proposal 3 requires the affirmative vote of a majority of all the votes entitled to be cast on the matter. Abstentions and broker non-votes, if any, will have the same effect as votes against Proposal 3, although they will be considered present for the purpose of determining the presence of a quorum.
Approval of Proposal 4 requires the affirmative vote of a majority of the votes cast on the matter. Abstentions and broker non-votes, if any, will have no effect on the result of the vote on Proposal 4, although they will be considered present for the purpose of determining the presence of a quorum.
Approval of Proposal 5 requires the affirmative vote of a majority of the votes cast on the matter. Abstentions and broker non-votes, if any, will have no effect on the result of the vote on Proposal 5, although they will be considered present for the purpose of determining the presence of a quorum.
SOLICITATION OF PROXIES
If you cannot attend the Annual Meeting, the accompanying proxy card should be used to instruct the persons named as proxies to vote your shares in accordance with your directions. The persons named in the accompanying proxy card will vote shares represented by all valid proxies in accordance with the instructions contained therein. In the absence of instructions, shares represented by properly executed proxies will be voted FOR the election of the five individuals designated hereinafter as nominees for the Board, FOR the ratification of the appointment of Baker Tilly US, LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2022, FOR the approval of the amendment to the Company’s charter to provide for the reclassification of any unissued shares of common stock from time to time into one or more classes or series of stock having such terms as determined by the Board of Directors, FOR the non-binding advisory proposal to approve the compensation of our named executive officers, and FOR an amendment to the Company’s 2017 Incentive Award Plan to increase the number of shares available for issuance thereunder to 2,500,000 from 1,100,000 shares of common stock. As to any other business which may properly come before the Annual Meeting and be submitted to a vote of the stockholders, proxies received by the Board of Directors will be voted in the discretion of the named proxy holders.
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Attendance at the Annual Meeting will not revoke a previously submitted proxy unless you actually vote by submitting an electronic ballot at the meeting. For shares you hold beneficially in street name, you may change your vote by submitting a new voting instruction to your broker or other nominee following the instructions they provided or, if you have obtained a legal proxy from your broker or other nominee giving you the right to vote your shares, by attending the virtual Annual Meeting and voting by submitting an electronic ballot.
If you are a stockholder of record, you may revoke a proxy at any time before it is voted at the Annual Meeting by:
| (a) | delivering a proxy revocation or another duly executed proxy bearing a later date to the Secretary of the Company at 4995 Murphy Canyon Road, Suite 300, San Diego, CA 92123; or |
| (b) | attending the virtual Annual Meeting and voting by submitting an electronic ballot; or |
| (c) | authorizing a proxy to vote via the Internet or by telephone with new voting instructions. |
The expense of soliciting proxies, including the cost of preparing and mailing the Notice of Availability of Proxy Materials for the Annual Meeting and the Annual Report, and the cost of Internet hosting and telephone and Internet voting will be paid by the Company. In addition to solicitation by mail, our directors, officers and employees, and representatives from Donnelley Financial Solutions, P.O. Box 932721, Cleveland, OH 44193 and Mediant Communications, 3 Columbus Circle, Suite 2110, New York, NY 10019, may solicit proxies by telephone, Internet or otherwise. Our directors, officers and employees will not be additionally compensated for the solicitation, but may be reimbursed for their out-of-pocket expenses. The Company will pay Donnelley Financial Solutions (“Donnelley”) and Mediant Communications (“Mediant”) a fee to maintain the Internet and telephone voting services. Brokerage firms, fiduciaries and other custodians who forward soliciting material to the beneficial owners of shares held of record by them will be reimbursed for their reasonable expenses incurred in forwarding such materials.
CONFIDENTIALITY
The Company will keep all the proxies, ballots and voting tabulations private, except as necessary to meet applicable legal requirements. We will permit the Inspector of Elections and our legal counsel to examine these documents. The Company will, however, disclose the total votes received for and against each proposal in a Form 8-K filing following the Annual Meeting as required by law.
ELECTRONIC DELIVERY OF COMPANY STOCKHOLDER COMMUNICATIONS
Company stockholders will be able to view the Proxy Statement, accompanying proxy material, and Annual Report over the Internet in addition to receiving paper copies by mail upon request. Please follow the instructions provided in your proxy materials, including on your proxy card, or the instructions provided when you authorize your vote over the Internet by going to the website www.proxypush.com/SQFT.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD LIVE VIA THE INTERNET ON May 26, 2022. THE NOTICE OF ANNUAL MEETING, PROXY STATEMENT AND 2021 ANNUAL REPORT ARE AVAILABLE AT WWW.PROXYDOCS.COM/SQFT.
ANNUAL REPORT AND FINANCIAL STATEMENTS OF THE COMPANY
The annual report of the Company, containing audited financial statements for the fiscal year ended December 31, 2021, is included with this Proxy Statement and is available at www.proxydocs.com/SQFT.
PROPOSALS ON WHICH YOU MAY VOTE
WHETHER OR NOT YOU PLAN TO ATTEND THE VIRTUAL ANNUAL MEETING AND VOTE BY SUBMITTING AN ELECTRONIC BALLOT, WE URGE YOU TO HAVE YOUR VOTE RECORDED. STOCKHOLDERS MAY SUBMIT THEIR PROXIES VIA THE INTERNET AT WWW.PROXYPUSH.COM/SQFT OR VIA TELEPHONE AT 1-866-249-5360.
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PROPOSAL 1
ELECTION OF DIRECTORS
Pursuant to our Bylaws and as fixed by our Board of Directors, the number of members of the Board is currently set at five directors.
At the meeting, you will be asked to elect five directors to the Board. The following current directors have been nominated for re-election at the Annual Meeting: Jennifer A. Barnes, David T. Bruen, James R. Durfey, Jack K. Heilbron, and Sumner J. Rollings.
For your review and consideration, a biography of each nominee for director is contained in this Proxy Statement under the section titled Director Biographies. The term of office of each individual elected to be a director of the Company will be until the next annual meeting of stockholders or until such individual’s successor is duly elected and qualified. If any unforeseen event prevents one or more of the nominees from serving as a director, your votes will be cast for the election of a substitute or substitutes selected by the Board. In no event, however, can the proxies be voted for a greater number of individuals than the current size of the Board.
DIRECTOR NOMINEES
Set forth below are the names of the individuals 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.
The table below provides the skills and qualifications of each director nominee. The director qualifications currently focus on what the Nominating and Corporate Governance Committee believes to be essential competencies to effectively serve on the Board in conjunction with the director qualification standards and selection criteria outlined by the Corporate Governance Guidelines. In reviewing and considering potential nominees for the Board, the Nominating and Corporate Governance Committee reviewed the candidate’s experience in corporate management, such as serving as an officer or former officer of a publicly held company, the candidate’s experience as a board member of a publicly held company, the candidate’s professional and academic experience relevant to the Company’s industry, the strength of the candidate’s leadership skills, the candidate’s experience in finance and accounting and/or executive compensation practices, and whether the candidate has the time required for preparation, participation and attendance at Board meetings and committee meetings, as well as the candidate’s geographic background, gender, age and ethnicity. The Nominating and Corporate Governance Committee and the Board have concluded that each of the nominees for election to the Board should serve as a member of the Board at the time of filing the Proxy.
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Jack K. Heilbron |
Jennifer A. Barnes |
David T. Bruen |
James R. Durfey |
Sumner J. Rollings | ||||||
| Financial and Accounting expertise | X | X | X | X | ||||||
| Multi-industry/Corporate Management experience | X | X | X | X | ||||||
| Real Estate experience | X | X | X | X | ||||||
| Human Resources and Compensation Practices experience | X | X | X | X | ||||||
| Director, officer or former officer of public company | X | X | ||||||||
| Officer or former officer of emerging company | X | X | X | |||||||
| Community Involvement | X | X | X | X | X | |||||
| Personal and Professional Integrity, Ethics and Values | X | X | X | X | X |
DIRECTOR BIOGRAPHIES
Name (Age)
Jennifer A. Barnes (42)
Mrs. Barnes has served as a director and as a member of the Audit Committee since February 2020. Effective December 31, 2020, Mrs. Barnes joined the Nominating and Corporate Governance Committee as a member. Mrs. Barnes currently serves as CEO of Optima Office, Inc., an accounting and HR services company that she founded in October 2018. From September 2012 to September 2018, she served as CEO of Pro Back Office, LLC, a company that she co-founded. Mrs. Barnes has also held a number of Controller and Director of Accounting positions at privately held for-profit and non-profit companies. She currently serves on the boards of the San Diego Chapter of Junior Achievement, the Better Business Bureau of the Pacific Southwest as the Treasurer of the Foundation Board and is also the Treasurer for Tech Coast Angels. Mrs. Barnes received a Bachelor of Science in Finance and Marketing from the University of Arizona and an Executive MBA from San Diego State University. She also completed the Becker CPA courses. Based on her extensive experience in accounting and personnel matters, the Nominating and Corporate Governance Committee determined that Mrs. Barnes is qualified to serve on the Board of Directors.
David T. Bruen (77)
Mr. Bruen has served as our Lead Independent Director since May 2020 and Chair of our Audit Committee since February 2020. Mr. Bruen joined our Board of Directors in 2008 and has served as a member of the Audit Committee since 2010 until his appointment as Chair in 2020. Mr. Bruen retired in 2008 from San Diego National Bank after six years as a senior commercial lending officer. During the previous 17 years, Mr. Bruen was in commercial lending for mid-size businesses in San Diego County for First Interstate Bank, Wells Fargo Bank, Mellon 1st Business Bank, and San Diego National Bank. He is a Life Member of the Holiday Bowl Committee and has been a member of the Presidents Association for Palomar College, Financial Executives International, the San Diego MIT Enterprise Forum, and the Association for Corporate Growth. Mr. Bruen is a graduate of San Diego State University and has an M.B.A. from the University of Southern California. Based on his experience with banks, his educational background, and his achievements in the community, the Nominating and Corporate Governance Committee determined that Mr. Bruen is qualified to serve on the Board of Directors.
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James R. Durfey (71)
Mr. Durfey has served as a director, as a member of the Compensation Committee, and as a member of the Nominating and Corporate Governance Committee since December 2019. Effective December 31, 2020, Mr. Durfey was appointed to serve as Chair of the Nominating and Corporate Governance Committee. Mr. Durfey retired in 2017 from American Assets Trust, Inc. (NYSE: AAT), a publicly traded REIT, where he served as Vice President, Office Properties, since 2004. During his tenure at AAT, Mr. Durfey supervised property management and leasing of Class A office buildings, assisted in the acquisition and/or development of office buildings, and worked with AAT’s board in developing corporate investment strategies. From 1996 to 2004, Mr. Durfey was Vice President of Trammell Crow Company and General Manager of the Century Plaza Towers and the ABC Entertainment Center. From 1980 to 1996, Mr. Durfey held various senior roles at Homart Development Company, which was the commercial real estate subsidiary of Sears, Roebuck and Company. Mr. Durfey received his Bachelor of Science degree in Business Management from Indiana University and is a licensed real estate broker in California. Based on his extensive experience in various facets of commercial real estate and with a publicly traded REIT, the Nominating and Corporate Governance Committee determined that Mr. Durfey is qualified to serve on the Board of Directors.
Jack K. Heilbron (71)
Mr. Heilbron has served as a director and our Chief Executive Officer and President since our inception. Mr. Heilbron also has served as Chairman, CEO and President of NetREIT Dubose Model Home REIT, Inc. (“NetREIT Dubose”) since its inception, and has served as CEO, President and/or Managing Member of NetREIT Advisors, LLC, Dubose Advisors, LLC, NTR Property Management, Inc., Murphy Canyon Acquisition Corp. and Murphy Canyon Acquisition Sponsor, LLC since their inceptions, all of which are Company affiliated entities. Mr. Heilbron was a founding officer, director, and stockholder of the former CI Holding Group, Inc. and of its subsidiary corporations (Centurion Counsel, Inc., Bishop Crown Investment Research Inc., PIM Financial Securities Inc., Centurion Institutional Services Inc. and CHG Properties, Inc.) and currently serves as Chairman and CEO of Centurion Counsel, Inc., a licensed investment advisor. He also served as a director of the Centurion Counsel Funds, an investment company registered under the Investment Company Act of 1940, from 2001 until 2005. From 1994 until its dissolution in 1999, Mr. Heilbron served as the Chairman and/or director of Clover Income and Growth REIT. Mr. Heilbron graduated with a B.S. degree in Business Administration from California Polytechnic College, San Luis Obispo, California. Based on his experience as a director and his experience with other
REITs, the Nominating and Corporate Governance Committee determined that Mr. Heilbron is qualified to serve on the Board of Directors.
Sumner J. Rollings (73)
Mr. Rollings has served as a director since 2001, is a member of the Audit Committee, and in December 2020 was appointed Chair of the Compensation Committee. He also previously served as Chair of the Nominating and Corporate Governance Committee. From 2001 to 2014, Mr. Rollings owned and operated the Wagon Wheel Restaurant as the Chief Executive Officer of Rolling Wheel Restaurant, Inc., in Escondido, California. From 1999 to 2001, Mr. Rollings served as sales executive for Joseph Webb Foods of Vista, California and from 1985 to 1999, as sales executive for Alliant Food Service Sales. Mr. Rollings also served as a director of the Centurion Counsel Funds, an investment company registered under the Investment Company Act of 1940, from March 2001 until 2005. Based on his experience owning and operating a business and having served as a director on another board, the Nominating and Corporate Governance Committee determined that Mr. Rollings is qualified to serve on the Board of Directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Our Board unanimously recommends that stockholders vote FOR each of the nominees set forth above.
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CORPORATE GOVERNANCE
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
Policy Governing Communications with the Board of Directors
Stockholders and other interested parties may communicate with the Board or one or more members of the Board, including our Lead Independent Director, or the non-management directors as a group, by sending an email to Investor Relations, Lowell Hartkorn, at LHartkorn@presidiopt.com or in writing in care of the Secretary of Presidio Property Trust, Inc., at our principal executive office, 4995 Murphy Canyon Road, Suite 300, San Diego, California 92123. All appropriate correspondence will be promptly forwarded by the Secretary, to the director or directors for whom it is intended.
Corporate Governance Guidelines
Our Board of Directors has adopted Corporate Governance Guidelines to serve as a flexible framework within which our Board of Directors and its committees operate. These guidelines cover a number of areas, including the size and composition of our Board of Directors, Board of Directors membership criteria and director qualifications, director responsibilities, Board of Directors agenda, roles of the Chairman of the Board of Directors and Chief Executive Officer, meetings of independent directors, committee responsibilities and assignments, Board of Directors member access to management and independent advisors, director compensation, director orientation and continuing education and management succession planning. Our Nominating and Corporate Governance Committee reviews our Corporate Governance Guidelines from time to time as it deems appropriate and, if necessary, recommends changes thereto to our Board of Directors.
Board Committees
The Board has adopted a charter for each of the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. The Board may, from time to time, establish certain other committees to facilitate the management of the Company. The committee charters and the Corporate Governance Guidelines are posted on the Company’s website at www.PresidioPT.com and will be provided without charge upon request to the Secretary, Presidio Property Trust, Inc., 4995 Murphy Canyon Road, Suite 300, San Diego, California 92123. The information contained on the Company’s website is not incorporated by reference into and does not form a part of this Proxy Statement. The table below indicates the members and chair of each Board committee as of December 31, 2021.
| Director | Audit | Compensation | Nominating and Corporate Governance | |||
| Jennifer A. Barnes | X ^ | X | ||||
| David T. Bruen | Chair ^ | |||||
| James R. Durfey | X | Chair | ||||
| Sumner J. Rollings | X | Chair |
^ Financial expert
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Board Independence
Our Board of Directors has determined that each of our current directors and nominees, except for Mr. Heilbron and Larry G. Dubose, has no relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and is “independent” within the meaning of the listing standards of Nasdaq (“Nasdaq Rules”) and our director independence standards. Also as previously disclosed, Mr. Dubose notified the Company that he is resigning from his positions with NetREIT Advisors, LLC and Dubose Advisors, LLC in 2022 and will not stand for re-election at the Annual Meeting, due to his other professional commitments and demands on his time. However, he will continue to remain an employee of our model home division. Mr. Heilbron is a named executive officer of the Company. The Board of Directors established and employed the following categorical standards (which are at least as restrictive as “independent” standards of the Nasdaq Rules) in determining whether a relationship is material and thus would disqualify such director from being independent:
| ■ | The director is, or has been within the last three years, our employee or an employee of any of our subsidiaries; |
| ■ | An immediate family member of the director is, or has been within the last three years, our executive officer or an executive officer of any of our subsidiaries; |
| ■ | The director (or an immediate family member of the director) received during any 12-month period within the last three years, more than $120,000 in direct compensation from us and/or any of our subsidiaries, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); |
| ■ | The director was affiliated with or employed within the last three years by our present or former external auditor or an immediate family member of the director was affiliated with or employed in a professional capacity by our present or former external auditor and worked on our audit within the last three years; |
| ■ | The director (or an immediate family member of the director) is, or has been within the last three years, employed as an executive officer of another company where any of our executives serve or served on that company’s compensation committee; |
| ■ | The director, or an immediate family member of the director, is currently a controlling stockholder, partner or executive officer of another company that made payments to, or received payments from us or any of our subsidiaries for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $200,000, or 5% of such other company’s consolidated gross revenues; or |
| ■ | The director (or an immediate family member of the director) was, within the last three years, an officer, director or trustee of a charitable organization where our (or an affiliated charitable foundation’s) annual discretionary charitable contributions to the charitable organization exceeded the greater of $200,000 or 5% of that organization’s consolidated gross revenues. |
An “affiliate” includes any person beneficially owning in excess of 10% of the voting power of, or a general partner or managing member of, a company.
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Meetings and Attendance
The Board met four times during 2021 and the various committees of the Board met a total of 11 times. For the 2021 fiscal year, all directors attended at least 75% of the total number of meetings of the Board and of the committees of the Board on which the director served during the year. Although the Company has no policy with regard to Board members’ attendance at the Company’s Annual Meeting, the Company expects all Board members to attend any meeting of stockholders at which stockholders are anticipated by the Company to be present. Since very few stockholders attend annual meetings, no director attended the 2021 Annual Meeting. To ensure free and open discussion among the Independent Directors of the Board, if necessary, the Independent Directors may meet prior to or after Board meetings, but in no event fewer than two times per year.
Diversity
Our Nominating and Corporate Governance Committee recognizes the benefits associated with, and strives to create, diversity on the Board of Directors as a whole when identifying and selecting nominees. Although our Nominating and Corporate Governance Committee does not have a specific policy with respect to board diversity, the Nominating and Corporate Governance Committee utilizes a broad conception of diversity and will consider the candidate’s geographic background, gender, age and ethnicity. These and the additional factors such as a candidate’s experience in corporate management, such as serving as an officer or former officer of a publicly held company, the candidate’s experience as a board member of a publicly held company, the candidate’s professional and academic experience relevant to the Company’s industry, the strength of the candidate’s leadership skills, the candidate’s experience in finance and accounting and/or executive compensation practices, and whether the candidate has the time required for preparation, participation and attendance at Board of Directors meetings and committee meetings, and others are considered useful by our Nominating and Corporate Governance Committee and are reviewed in terms of assessing the needs of our Board of Directors at any particular point in time. Our Nominating and Corporate Governance Committee focuses on having a Board of Directors which collectively possesses a broad range of talent, skill, expertise and experience useful to the effective oversight of our Company’s business and affairs. Typically, on an annual basis, as part of our Board of Directors’ self-evaluation, each director assesses whether the overall mix of our Board members is appropriate for our Company.
Board Leadership Structure and Role in Risk Oversight
The Board believes the combined role of Chairman and Chief Executive Officer, together with a Lead Independent Director, is in the best interests of the Company because it provides the appropriate balance between strategic development and independent oversight of management.
The Company believes the chosen leadership structure is the most appropriate for its size and business. Since our inception, Jack K. Heilbron has served as both Chairman of the Board and Chief Executive Officer. The Company has a Lead Independent Director, David T. Bruen, who also serves as Chair of the Audit Committee. As Lead Independent Director, Mr. Bruen is able to monitor and address any compliance issues, improprieties, or ethical considerations, including anonymous submissions by Company employees.
Code of Ethics and Conduct
The Board of Directors has adopted a Code of Ethics and Conduct (“Ethics Code”) that applies to all of our directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer. The Ethics Code, which was last revised on December 6, 2019, is posted under the Investor / Corporate Governance section of our website at www.PresidioPT.com. To the extent required by applicable Securities and Exchange Commission (“SEC”) rules, we intend to post any future amendments to or waivers from the Ethics Code promptly following the date of such amendment or waiver on our website at www.PresidioPT.com.
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NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
In 2021, the Nominating and Corporate Governance Committee was comprised of Mr. Durfey (Chair) and Mrs. Barnes, each of whom was or is “independent” within the meaning of the Nasdaq Rules and our director independence standards.
The Nominating and Corporate Governance Committee met three times during 2021. The Nominating and Corporate Governance Committee’s principal responsibilities include:
| ■ | Reviewing the purpose, structure and membership of the committees of the Board of Directors; |
| ■ | Reviewing the succession planning for our executive management; |
| ■ | Assisting the Board in developing and implementing our Corporate Governance Guidelines; |
| ■ | Considering questions of possible conflicts of interest of the Board, as such questions arise; |
| ■ | Determining the size, needs and composition of the Board and its committees; |
| ■ | Monitoring a process to evaluate and assess the effectiveness of the Board; and |
| ■ | Recommending nominees to the full Board. |
Stockholder Recommendations of Director Candidates
The Nominating and Corporate Governance Committee’s policy is to consider candidates recommended by stockholders. The stockholder must submit a resume of the candidate and an explanation of the reasons why such stockholder believes the candidate is qualified for service on the Board and how the candidate satisfies the Board criteria noted above. The stockholder must also provide such other information about the candidate as would be required by the rules of the SEC to be included in a proxy statement. In addition, the stockholder must include the consent of the candidate to serve as a director if elected and describe any arrangements or undertakings between the stockholder and the candidate regarding the nomination. The stockholder must submit proof of ownership of the Company’s shares of stock. See “Stockholder Proposals for 2022 Annual Meeting” in this Proxy Statement. All communications are to be directed to the Chair of the Nominating and Corporate Governance Committee, c/o Secretary, Presidio Property Trust, Inc., 4995 Murphy Canyon Road, Suite 300, San Diego, California 92123. Properly submitted stockholder recommendations will be evaluated by the Nominating and Corporate Governance Committee using the same criteria used to evaluate other director candidates.
COMPENSATION COMMITTEE
In 2021, the Compensation Committee was comprised of Mr. Rollings (“Chair”) and Mr. Durfey, each whom was or is “independent” within the meaning of the Nasdaq Rules and our director independence standards. The Compensation Committee met three times during 2021. The Compensation Committee’s principal responsibilities include:
| ■ | reviewing and approving the corporate goals and objectives with respect to the compensation of our Chief Executive Officer (“CEO”) and evaluating our CEO’s performance in light of these goals and objectives and, based upon this evaluation (either alone or, if directed by the Board of Directors, in conjunction with a majority of the independent directors on the Board), setting our CEO’s compensation (our CEO may not be present during voting deliberations on his compensation); |
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| ■ | reviewing and setting or recommending to the Board the compensation of our named executive officers other than the CEO; |
| ■ | reviewing and providing oversight of our compensation philosophy and composition of our peer company community used for market comparisons; |
| ■ | reviewing and approving or recommending to the Board our incentive compensation and equity- based plans and arrangements; |
| ■ | performing a periodic evaluation of the Compensation Committee’s performance in fulfilling its duties and responsibilities under the Compensation Committee charter; |
| ■ | reviewing and recommending to the Board the compensation of our non-employee directors; |
| ■ | to the extent that we are required to include a Compensation Discussion and Analysis (“CD&A”) in our Annual Report on Form 10-K or annual proxy statement, reviewing and discussing with management our CD&A and considering whether to recommend to our Board that our CD&A be included in the appropriate filing; |
| ■ | preparing the annual Compensation Committee Report; |
| ■ | reporting regularly to the Board regarding the activities of the Compensation Committee; and |
| ■ | annually reviewing and reassessing our Compensation Committee charter and submitting any recommended changes to the Board for its approval. |
The Compensation Committee may also delegate any or all of its responsibilities to a subcommittee of the Compensation Committee and/or delegate the authority to grant stock or other equity rights to one or more officers of our Company in a manner that is in accordance with applicable law.
EXECUTIVE COMPENSATION
Overview of Compensation Program
The Compensation Committee is responsible for establishing, implementing and continually monitoring adherence with our compensation philosophy. The Compensation Committee ensures that the total compensation paid is fair, reasonable, and competitive. The following narrative explains our compensation philosophy, objectives, policies, and practices with respect to our named executive officers, as determined in accordance with applicable SEC rules. The Compensation Committee does not utilize compensation consultants for executive or director compensation.
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Compensation Objectives, Philosophy and Risk Assessment
The Compensation Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by us and that aligns executives’ interests with those of the stockholders by rewarding performance above established goals with the ultimate objective of improving stockholder value. Together with the Chief Executive Officer, the Compensation Committee evaluates both performance and compensation to ensure that we maintain our ability to attract and retain employees in key positions with superior ability, experience and leadership capability and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of our peer companies. To that end, the Compensation Committee believes that executive compensation packages provided to our employees, including our named executive officers, should include both cash and share-based compensation that rewards performance measured against established goals.
The Compensation Committee believes that measures such as growth in assets and number of properties, rental income, and funds from operations1 (“FFO”) play an important part in setting compensation; however, the Compensation Committee also recognizes that often outside forces beyond the control of management, such as economic conditions, capital market conditions, changing retail and real estate markets, and other factors, may contribute to less favorable near-term results. The Compensation Committee also strives to assess whether management is making appropriate strategic decisions that will allow us to succeed over the long term and build long-term stockholder value. These may include ensuring that we have the appropriate leasing and acquisition pipelines to ensure a future stream of recurring and increasing revenues, assessing our risks associated with real estate markets and tenant credit, managing our debt maturities, and determining whether our staffing and general and administrative expense is appropriate given our projected operating requirements.
We believe that our compensation programs do not encourage unnecessary or excessive risk taking that could have a material adverse effect on our Company. In establishing and reviewing our compensation program, the Compensation Committee considers whether the program encourages unnecessary or excessive risk taking and has concluded that it does not. Base salaries are fixed in amount and thus do not encourage risk taking. In addition, the annual bonus program appropriately balances risk and the desire to focus on goals important to our success without putting undue emphasis on any particular performance measure or encouraging unnecessary or excessive risk taking. Furthermore, a significant portion of the compensation provided to our named executive officers may be in the form of equity awards that are important to help further align executives’ interests with those of our stockholders. These awards do not encourage unnecessary or excessive risk taking since the ultimate value of the awards is tied to the value of our stock, and grants are subject to vesting or retention schedules to help ensure that executives have significant value tied to our long-term stock performance.
1 Funds from operations or “FFO” is widely used as a key measure of financial performance by REITs. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from extraordinary items and sales of depreciated operating properties, plus real estate related depreciation and amortization, impairment write-downs of real estate and write-downs of investments in an affiliate where the write-downs have been driven by a decrease in value of real estate held by the affiliate and after adjustments for unconsolidated joint ventures.
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Say-on-Pay
In reviewing our compensation objectives and practices for 2021, the Compensation Committee and the named executive officers were aware of the results of the 2019 “say-on-pay” vote to approve our executive compensation practices, and the “say-on-pay frequency” vote to review such compensation every three years, which we viewed as generally supportive of our compensation philosophy and practices. We included the “say-on-pay” proposal in the proxy statement for the 2019 annual meeting held on May 23, 2019, which was re-convened on July 24, 2019. The “say-on-pay” proposal was approved at the annual meeting in which approximately 84% of the votes cast on such proposal voted to approve our executive compensation practices. Stockholders also approved the “say-on-pay” frequency proposal in which approximately 61% of the votes cast voted for a three-year frequency. The next “say-on-pay” vote will occur at the Annual Meeting and the next “say-on- pay frequency” vote will take place in 2025.
Role of Executive Officers in Compensation Decisions
The Compensation Committee makes direct compensation decisions with respect to the compensation of Mr. Heilbron, our Chairman, President and Chief Executive Officer, and establishes the general parameters within which it establishes the compensation for our other named executive officers and senior management team. The Compensation Committee may also review equity awards to other officers and employees. Our Chief Executive Officer is not present for any deliberations or decisions on his own compensation.
The Chief Executive Officer reviews the performance of our other named executive officers and senior management team annually and makes recommendations with respect to salary adjustments, bonuses and equity award amounts for such individuals. The Compensation Committee may choose to exercise its discretion in modifying any recommended adjustment or award.
Total Compensation
Total annual compensation consists of base salary, cash incentives, and long-term equity incentive compensation in the form of stock. In setting the total annual compensation for our named executive officers, information on the performance of each named executive officer for the prior year and market data covering peer group salaries are generally utilized. This evaluation is comprised of both a quantitative assessment as well as a qualitative assessment. The target levels for the total annual compensation of our named executive officers and senior management team are generally less than the average of the peer group used, primarily due to our size and status at the time as a nontraded REIT. We believe that this approach contemplates both the quantitative and qualitative elements of each position and rewards performance. In addition, this approach allows our skilled and talented executives to guide and lead our business and supports a “pay for performance” culture.
Annual Cash Compensation
Base Salary
Each of our named executive officers receives a base salary to compensate him for services performed during the year. When determining the base salary for each of our named executive officers, the market levels of similar positions (discounted for size) at the peer group companies, the performance of the named executive officer, the experience of the named executive officer in his position, and the other components of compensation and total compensation are generally considered. The named executive officers are eligible for annual increases in their base salaries.
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Annual Non-Equity Compensation
A significant portion of each named executive officer’s compensation is in the form of an annual cash bonus. For 2021, named executive officers could elect to receive all or a portion of their annual cash bonus in the form of stock that immediately vested equal to approximately two times cash. The annual bonuses are primarily based upon quantifiable company and executive performance objectives. This practice is consistent with our compensation objective of supporting a performance-based environment. An annual determination is made as to the appropriate weight between company-wide and executive specific goals based upon an assessment of the appropriate balance. Each year, the Compensation Committee sets for the Chief Executive Officer a threshold and target bonus that may be awarded to him if the threshold goals are achieved. No specific target bonus was established for Mr. Dubose for 2021 and his bonus was determined at the discretion of the Chief Executive Officer.
The Compensation Committee awarded Mr. Heilbron a $75,000 cash bonus (of which Mr. Heilbron elected to accept $25,000 in cash and the balance in the form of equity, equal to approximately two times cash, or $100,000 in stock, which were paid in 2022) for his 2021 performance. In addition, Mr. Heilbron was granted 35,000 shares of stock on January 4, 2021.
Long-Term Incentive Compensation
We grant long-term equity incentive awards to our named executive officers as part of our overall compensation package. These awards are consistent with our policies of fostering a performance-based environment and aligning the interests of our senior management with the financial interests of our stockholders. When determining the amount of long-term equity incentive awards to be granted, the following factors are considered: our business performance, using metrics such as MFFO and performance of real estate assets (including, but not limited to, occupancy, same-store property net operating income growth and leasing spreads); the individual responsibilities and performance of each executive, such as how he performed relative to his delineated goals; strategic accomplishment, such as identifying strategic direction for us, and market factors, such as navigating the current economic climate and the strength of the balance sheet and debt maturities.
We compensate our named executive officers through grants of shares. These shares vested equally over a three-year period for more recent grants (and over a ten-year period for certain grants made earlier) for all officers. The aggregate value of the long-term incentive compensation granted is based upon established goals including an assessment of MFFO as compared to budgeted or targeted goals; the identification of strategic initiatives, their execution and the anticipated long-term benefits to stockholders. Distributions are paid on the entire grant, regardless of vesting.
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Equity compensation is awarded to our Chief Executive Officer by the Compensation Committee and to other named executive officers based primarily on the strategic initiatives and performance during the applicable fiscal year. The stock awards granted to our named executive officers during 2021 are reflected in the Outstanding Equity Awards at Fiscal Year End table below. On January 4, 2021, Mr. Heilbron was granted 35,000 shares of stock; Mr. Dubose was granted 25,974 shares of stock; Mr. Sragovicz was granted 19,480 shares of stock; and Mr. Katz was granted 19,480 shares of stock. All such stock granted vests in equal installments over three years. On January 3, 2022, Mr. Heilbron was granted 127,779 shares of stock; Mr. Dubose was granted 31,525 shares of stock; Mr. Sragovicz was granted 86,539 shares of stock; and Mr. Katz was granted 93,895 shares of stock. All such stock granted vests in equal installments over three years.
Perquisites and Other Personal Benefits
We provide our named executive officers with perquisites and other personal benefits, including payment of premiums for an additional life insurance policy, and for Mr. Heilbron, an auto allowance and payment of country club dues, that we believe are reasonable and consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions. The Compensation Committee periodically reviews the levels of perquisites and other personal benefits provided to the named executive officers.
We maintain a 401(k) retirement savings plan for all employees on the same basis, which provides matching contributions at the rate of 100% of the employee’s contributions up to 4% of their salary. In 2021, employees could contribute up to $19,500 of their salary and a catch-up contribution of up to $6,500 for employees aged 50 and older, subject to annual limits under the Internal Revenue Code of 1986, as amended (the “Code”). Named executive officers are also eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life, disability and accidental death and dismemberment insurance, in each case, on the same basis as other employees.
NAMED EXECUTIVE OFFICERS OF THE COMPANY
The Company’s current named executive officers are as follows:
| Name | Age | Position | ||
| Jack K. Heilbron | 71 | Chairman of the Board of Directors, President and Chief Executive Officer | ||
| Adam Sragovicz | 52 | Chief Financial Officer | ||
| Gary M. Katz* | 58 | Chief Investment Officer |
* Gary M. Katz was appointed Chief Investment Officer effective as of December 16, 2021. He had previously served as our Senior Vice President, Asset Management, for the prior portion of 2021.
Each named executive officer of the Company may be removed from office at any time by a majority vote of the Board with or without cause. Removal of Mr. Heilbron is subject to the terms of his employment agreement, which is described in more detail under the section titled “Employment Agreements” below.
The following section sets forth certain background information regarding those persons currently serving as executive officers of the Company, excluding Mr. Heilbron, who is described under the section titled Director Biographies as set forth in “Proposal No. 1 – Election of Directors”:
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Adam Sragovicz. Mr. Sragovicz is our Chief Financial Officer, a position he has held since January 2018. He has also served as the Chief Financial Officer, Treasurer and director of Murphy Canyon Acquisition Corp., a SPAC sponsored by the Company, since its inception in 2021. He previously served as our Senior Vice President, Finance since May 2017, and from time to time as our Chief Accounting Officer for brief, interim periods. Before joining us, Mr. Sragovicz served as Treasurer of Encore Capital Group from 2011 to 2017, where he was responsible for global capital raising, foreign exchange risk management and cash management. Mr. Sragovicz has also held capital markets, finance, and treasury management positions with KPMG, Union Bank of California / MUFG and Bank of America Merrill Lynch. Mr. Sragovicz is the Director of the Yale Alumni Schools Committee in San Diego and previously sat on the board of Congregation Adat Yeshurun. Mr. Sragovicz is a graduate of Yale University with a Bachelor of Arts degree in Soviet and Eastern European Studies, with a concentration in Economics.
Gary M. Katz. Mr. Katz joined us as Senior Vice President, Asset Management in 2010. He was appointed Chief Investment Officer effective as of December 16, 2021. He has worked in the commercial real estate industry for over 30 years and has held positions with Legacy Partners, Lincoln Property Company, Kemper Real Estate Management Company, Bedford Properties, and Meyer Investment Properties. Prior to joining us, Mr. Katz served in senior acquisition, leasing, asset management, and development roles for Westcore Properties from 2001 to 2009 and was responsible for real estate transactions throughout the western United States. Mr. Katz is actively involved with NAIOP, a commercial real estate education and advocacy organization. He was a member of the NAIOP Corporate (National) Board, formerly served as president of the San Diego Chapter and currently serves on the Board of Directors and as Treasurer of the San Diego Chapter. He also sits on the San Diego Charitable Real Estate Foundation’s Board of Directors. Mr. Katz holds a Bachelor of Arts degree in Economics from University of California San Diego.
Summary Compensation Table
The following table sets forth information concerning the compensation earned by our named executive officers for the fiscal years ended December 31, 2021 and 2020.
| Name and Principal Position | Year | Salary | Stock Awards (1) | Non-equity Incentive Plan Compensation (2) | All Other Compensation (3) | Total | ||||||||||||||||||
| Jack K. Heilbron | 2021 | $ | 371,531 | $ | 235,462 | 25,000 | $ | 117,601 | $ | 749,594 | ||||||||||||||
| Chairman of the Board, President and CEO | 2020 | $ | 375,137 | $ | 218,662 | — | $ | 87,837 | $ | 681,636 | ||||||||||||||
| Larry G. Dubose* | 2021 | $ | 86,539 | $ | 198,185 | — | $ | 44,726 | $ | 329,450 | ||||||||||||||
| Former President, NetREIT Advisors, LLC and Dubose Advisors, LLC; former CFO, NetREIT Dubose Model Home REIT, Inc.; and Director | 2020 | $ | 150,000 | $ | 165,912 | $ | 15,000 | $ | 34,678 | $ | 365,590 | |||||||||||||
| Adam Sragovicz | 2021 | $ | 262,895 | $ | 106,428 | 14,000 | $ | 43,350 | $ | 426,673 | ||||||||||||||
| Chief Financial Officer | 2020 | $ | 265,447 | $ | 81,748 | $ | 50,000 | $ | 28,864 | $ | 426,059 | |||||||||||||
| Gary M. Katz** | 2021 | $ | 262,895 | $ | 184,348 | — | $ | 46,017 | $ | 493,260 | ||||||||||||||
| Chief Investment Officer and former SVP, Asset Management | 2020 | $ | 265,447 | $ | 131,782 | — | $ | 24,825 | $ | 422,054 | ||||||||||||||
* Mr. Dubose resigned from these positions with NetREIT Advisors, LLC and Dubose Advisors, LLC in 2022 and will not stand for re-election at the Annual Meeting. However, he will continue to remain an employee of our model home division.
** Gary M. Katz was appointed Chief Investment Officer effective as of December 16, 2021.
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| (1) | The amounts shown represent the aggregate grant date fair value of awards granted during each fiscal year shown, computed in accordance with FASB ASC Topic 718. This does not represent the compensation expense recognized for the fiscal years shown for financial statement reporting purposes. The value of non-vested shares granted in 2020 was calculated based on the offering price of the shares in the most recent private placement offering, adjusted for stock dividends since granted and assumed selling costs, as well as with periodic adjustments based on comparable market valuations, which management believes approximated fair market value as of the date of grant (well before the shares of the Company’s stock started publicly trading in October 2020). The value of the shares granted in 2021 were based on the closing price of the common stock on the date of grant. The value of stock received in lieu of approximately two times cash bonus is reported based on the closing price of the Company’s stock on date of issuance. |
| (2) | Bonuses shown for 2021 were paid as follows: The cash component of bonuses were paid in January 2022 (unless there was an election to defer payment); each named executive officer elected to accept all or a portion of his cash bonus earned in the form of stock equivalent to approximately two times cash and such stock, which vested immediately, was issued in January 2022 and is shown as part of the amount in the Stock Awards column. Bonuses shown for 2020 were paid as follows: The cash component of bonuses were paid in December 2020 and/or January 2021 (unless there was an election to defer payment); each named executive officer elected to accept all or a portion of his cash bonus earned in the form of stock equivalent to approximately two times cash and such stock, which vested immediately, was issued in January 2021 and is shown as part of the amount in the Stock Awards column. |
| (3) | The following table sets forth the components of All Other Compensation included above (and excludes unlimited paid time off, which is only available to our executives): |
| Name | Year | Distributions Received on Stock | Matching Contributions to 401(k) Plan | Group Term Life Insurance Payments | Auto Allowance | Country Club | Medical Premiums | Total of Other Compensation | ||||||||||||||||||||||||
| Jack K. Heilbron | 2021 | $ | 40,359 | $ | 11,600 | $ | 17,468 | 11,529 | 17,257 | $ | 19,388 | $ | 117,601 | |||||||||||||||||||
| 2020 | $ | 4,071 | $ | 19,605 | $ | 17,104 | $ | 7,148 | $ | 20,536 | $ | 19,373 | $ | 87,837 | ||||||||||||||||||
| Larry G. Dubose | 2021 | $ | 26,495 | $ | 5,160 | $ | 1,071 | 12,000 | — | $ | 12,000 | $ | 44,726 | |||||||||||||||||||
| 2020 | $ | 1,592 | $ | 8,060 | $ | 1,026 | $ | 12,000 | — | $ | 12,000 | $ | 34,678 | |||||||||||||||||||
| Adam Sragovicz | 2021 | $ | 17,407 | $ | 11,600 | $ | 2,343 | — | — | $ | 12,000 | $ | 43,350 | |||||||||||||||||||
| 2020 | $ | 1,648 | $ | 13,518 | $ | 1,698 | — | — | $ | 12,000 | $ | 28,864 | ||||||||||||||||||||
| Gary M. Katz | 2021 | $ | 20,725 | $ | 10,936 | $ | 2,356 | — | — | $ | 12,000 | $ | 46,017 | |||||||||||||||||||
| 2020 | $ | 509 | $ | 10,618 | $ | 1,698 | — | — | $ | 12,000 | $ | 24,825 | ||||||||||||||||||||
Employment Agreement
On October 18, 2017, we entered into a new employment agreement with Mr. Heilbron, which superseded his January 19, 2011 employment agreement. Pursuant to his employment agreement, Mr. Heilbron’s initial annual base salary was $333,900, subject to increase in the discretion of the Board or the Compensation Committee. Mr. Heilbron is also eligible to earn an annual bonus pursuant to our bonus plan for senior executives based on the achievement of targets and other objectives established by the Board or the Compensation Committee for each fiscal year. The employment agreement provides that Mr. Heilbron’s target annual bonus is up to 100% of his base salary. Mr. Heilbron is eligible to participate in all other incentive plans, savings and retirement plans, welfare benefit plans, practices, policies and programs, in each case, that are generally applicable to our senior executives. We also provide to Mr. Heilbron: (a) a supplemental life insurance policy on Mr. Heilbron’s life on terms and conditions agreed to between us and Mr. Heilbron, (b) use of an automobile at our expense, selected by our agreement with Mr. Heilbron, and (c) club dues for membership at a country club of Mr. Heilbron’s choosing.
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Mr. Heilbron’s employment agreement provides that if his employment is terminated by us without “cause” or by Mr. Heilbron for “good reason” (each as defined in the employment agreement), then, subject to his execution and non-revocation of a release of claims, he will be entitled to receive the following payments
| ● | a lump-sum cash payment in an amount equal to the average of the annual bonuses received by Mr. Heilbron during the immediately preceding two years, payable within 10 days following the release effective date; | |
| ● | for up to 12 months following Mr. Heilbron’s termination of employment, healthcare benefits for Mr. Heilbron and his eligible dependents which are substantially the same and at the same cost as the benefits provided to our currently active employees; and | |
| ● | 100% of the outstanding and unvested restricted stock and other equity awards granted to Mr. Heilbron under our equity incentive plans (other than performance-based vesting awards, if any) will become immediately vested and exercisable in full, effective as of the date of termination. |
The employment agreement contains confidentiality covenants by Mr. Heilbron which apply indefinitely and non-competition covenants by Mr. Heilbron which apply during the term of his employment. The foregoing severance provisions under Mr. Heilbron’s employment agreement are substantially the same as the severance benefits to which he was entitled under his previous employment agreement.
Outstanding Equity Awards at Fiscal Year End
The following table shows information regarding restricted stock awards held by our named executive officers on the last day of our fiscal year ended December 31, 2021.
| Stock Awards | |||||||||||||||||||
| Name | Grant Date | Number of Shares or Units that have not Vested (4) | Market Value of Shares or Units that have not Vested (5) | 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 | ||||||||||||||
| Jack K. Heilbron | 1/02/2013 | (1) | 582 | $ | 2,188 | — | — | ||||||||||||
| 1/02/2014 | (1) | 1,163 | $ | 4,373 | — | — | |||||||||||||
| 1/02/2015 | (1) | 2,442 | $ | 9,182 | — | — | |||||||||||||
| 1/04/2016 | (1) | 3,256 | $ | 12,243 | — | — | |||||||||||||
| 1/03/2017 | (1) | 4,000 | $ | 15,040 | — | — | |||||||||||||
| 1/01/2018 | (1) | 7,721 | $ | 29,031 | — | — | |||||||||||||
| 1/02/2020 | (2) | 5,834 | $ | 21,936 | — | — | |||||||||||||
| 01/04/2021 | (2) | 23,450 | $ | 88,172 | — | — | |||||||||||||
| 01/21/2021 | (3) | 22,728 | $ | 85,457 | — | — | |||||||||||||
| Larry G. Dubose | 1/02/2013 | (1) | 436 | $ | 1,639 | — | — | ||||||||||||
| 1/02/2014 | (1) | 698 | $ | 2,624 | — | — | |||||||||||||
| 1/04/2016 | (1) | 1,744 | $ | 6,557 | — | — | |||||||||||||
| 1/03/2017 | (1) | 2,188 | $ | 8,227 | — | — | |||||||||||||
| 1/02/2020 | (2) | 3,425 | $ | 12,878 | — | — | |||||||||||||
| 01/04/2021 | (2) | 17,403 | $ | 65,435 | — | — | |||||||||||||
| 01/21/2021 | (3) | 22,728 | $ | 85,457 | — | — | |||||||||||||
| Adam Sragovicz | 1/02/2020 | (2) | 2,547 | $ | 9,577 | — | — | ||||||||||||
| 01/04/2021 | (2) | 13,052 | $ | 49,076 | — | — | |||||||||||||
| 01/21/2021 | (3) | 6,494 | $ | 24,417 | — | — | |||||||||||||
| Gary M. Katz | 1/01/2020 | (2) | 1,274 | $ | 4,790 | — | — | ||||||||||||
| 01/04/2021 | (2) | 13,052 | $ | 49,076 | — | — | |||||||||||||
| 01/21/2021 | (3) | 25,974 | $ | 97,662 | — | — | |||||||||||||
(1) Represents an award of shares of stock, of which 1/10th of the stock award will vest on December 31 of the year in which the award is granted and an additional 1/10th of the stock award will vest on each anniversary of such date thereafter, subject to the named executive officer’s continued employment.
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(2)Represents an award of shares of stock, of which 1/3rd of the stock award will vest on December 31 of the year in which the award is granted and an additional 1/3rd of the stock award will vest on each anniversary of such date thereafter, subject to the named executive officer’s continued employment.
(3)Represents a stock grant in lieu of cash bonus earned in the form of two times stock, which was restricted for one year. These shares will be unrestricted on January 22, 2022.
(4)Represents the number of unvested shares of stock as of December 31, 2021.
(5)Market value has been calculated by multiplying the closing market price of our common stock at January 6, 2022 of $3.76 per share by the outstanding share of stock awards for each Named Executive Officer.
Director Compensation
We compensate the directors with cash compensation and awards of stock. We do not have a written policy regarding director compensation. Our Compensation Committee meets at least annually to review, and determine and approve, as appropriate, director compensation for the next fiscal year, including cash and equity compensation, reimbursement for travel and related expenses, and similar matters. The Compensation Committee may also meet during the year, as appropriate, to discuss compensation matters such as grants of stock to our directors in connection with their services as chairs of Board of Directors committees, and related matters. If a director is also an employee of our Company, such director is not paid separate compensation for services rendered as a director.
For the fiscal year ending December 31, 2021, the Company paid director compensation as follows:
| Name (1) | Fees earned or Paid in Cash (2) | Fees earned or Paid in Stock (2) | Annual Stock Awards (3) | All Other Compensation (4) | Total | |||||||||||||||
| Jennifer A. Barnes | $ | 25,000 | $ | 29,162 | $ | 33,523 | $ | 5,482 | $ | 93,167 | ||||||||||
| David T. Bruen | $ | 30,000 | $ | 25,076 | $ | 34,969 | $ | 6,275 | $ | 96,320 | ||||||||||
| James R. Durfey | $ | 10,000 | $ | 57,196 | $ | 33,523 | $ | 7,603 | $ | 108,322 | ||||||||||
| Sumner J. Rollings | $ | 18,000 | $ | 41,173 | $ | 33,523 | $ | 6,583 | $ | 99,279 | ||||||||||
(1) Messrs. Heilbron and Dubose are not included in this table as they are employees and do not receive compensation for their services as a director. Compensation paid for the services they provide to us as a director or consultant are reflected in the Summary Compensation Table.
(2) Each non-employee director received a cash stipend of $8,000 to $10,000 for each Board of Directors meeting attended in the first three fiscal quarters in 2021; the cash stipend was restored to $10,000 from $8,000 for the second fiscal quarter of 2021. Amounts do not include reasonable out-of-pocket expenses (i.e., airfare, hotel, car rental, etc.) incurred by directors for which we reimburse in connection with attendance at Board of Directors and committee meetings. No such expenses were incurred by any non-employee director in 2021. Directors also had the option to take all or a portion of the fee in Series A Common Stock at two times the cash fee amount, with the number of shares determined using market prices. These stock grants will vest on the one year anniversary of their grant dates.
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(3) The amounts shown represent the aggregate grant date fair value of awards made during 2021, computed in accordance with FASB ASC Topic 718. For a discussion of the valuation assumptions used to determine the fair value of these awards, see Note 11 to the Financial Statements for the year ended December 31, 2021 included in our Form 10-K for such year. The stock awards vest annually in equal installments over a three-year period.
(4) Amount represents distributions received in 2021 from unvested shares of our common stock held by each non-employee director.
As of December 31, 2021, our current non-employee directors held the following shares of unvested restricted stock:
| Name | Shares | |||
| Jennifer A. Barnes | 14,424 | |||
| David T. Bruen | 13,414 | |||
| James R. Durfey | 22,364 | |||
| Sumner J. Rollings | 17,679 | |||
Equity Plans
2017 Incentive Award Plan
Effective as of October 18, 2017, we adopted the 2017 Incentive Award Plan, under which we may grant cash and equity incentive awards to eligible service providers in order to motivate, attract and retain the talent for which we compete.
Eligibility and Administration. Our employees, consultants and directors (including employees, consultants and directors of our subsidiaries) are eligible to receive awards under the 2017 Incentive Award Plan. Approximately 19 employees, no consultants and four non-employee directors are eligible to participate in the 2017 Incentive Award Plan. The 2017 Incentive Award Plan will be administered by the Board with respect to awards to non-employee directors and by the Compensation Committee with respect to other participants, each of which may delegate its duties and responsibilities to committees of our directors and/or officers (referred to collectively as the “plan administrator”), subject to certain limitations that may be imposed under the Code, Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and/or stock exchange rules, as applicable. The plan administrator will have the authority to administer the 2017 Incentive Award Plan, including the authority to select award recipients, determine the nature and amount of each award, and determine the terms and conditions of each award. The plan administrator will also have the authority to make all determinations and interpretations under, prescribe all forms for use with, and adopt rules for the administration of, the 2017 Incentive Award Plan, subject to its express terms and conditions.
Size of Share Reserve; Limitations on Awards. The total number of shares reserved for issuance pursuant to awards under the 2017 Incentive Award Plan is 1,100,000 shares, which may be issued as shares of our Series A or our Series C Common Stock, as determined by the plan administrator, provided that, since the date on which the Series A Common Stock became publicly listed, we have and intend to issue only shares of Series A Common Stock under the 2017 Incentive Award Plan. Shares that are potentially deliverable under an award that expires or is canceled, forfeited, settled for cash or otherwise terminated without delivery of such shares will, to the extent of such expiration, cancellation, forfeiture, cash settlement or termination, again be available for new grants under the 2017 Incentive Award Plan, and shares withheld by us in payment of the exercise price or taxes relating to any award will again be available for new grants under the 2017 Incentive Award Plan. However, the following shares may not be used again for grant under the 2017 Incentive Award Plan: (a) previously owned shares tendered by a participant to satisfy exercise price or tax withholding obligations associated with an award; and (b) shares purchased on the open market with the cash proceeds from the exercise of options. The total number of shares reserved for issuance under the 2017 Incentive Award Plan will not be adjusted for the reverse stock split.
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To the extent permitted under applicable securities exchange rules without stockholder approval, awards granted under the 2017 Incentive Award Plan in connection with the assumption, replacement, conversion or adjustment of outstanding equity awards in the context of a corporate acquisition or merger will not reduce the shares authorized for grant under the 2017 Incentive Award Plan.
The maximum number of shares of our common stock that may be subject to one or more awards granted to any one participant pursuant to the 2017 Incentive Award Plan during any calendar year is 1,100,000 shares and the maximum amount that may be paid under a cash award pursuant to the 2017 Incentive Award Plan to any one participant during any calendar year period is $5,000,000. The individual award limit under the 2017 Incentive Award Plan will not be adjusted for the reverse stock split.
The plan administrator may establish compensation for our non-employee directors in accordance with the 2017 Incentive Award Plan, including the terms, conditions and amounts of all such compensation. However, subject to certain exceptions, the sum of any cash compensation and the value of awards granted to a non-employee director as compensation for services as a non-employee director during any calendar year may not exceed $500,000, increased to $800,000 for the non-employee director’s initial year of service.
Awards. The 2017 Incentive Award Plan provides for the grant of stock options, restricted stock, performance bonuses, dividend equivalents, stock payments, restricted stock units (“RSUs”), performance shares, other incentive awards and stock appreciation rights (“SARs”). All awards under the 2017 Incentive Award Plan will be set forth in award agreements, which will detail all terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. Awards will be settled in shares of our common stock or cash, as determined by the plan administrator.
Stock Options. Stock options provide for the purchase of shares of our common stock in the future at an exercise price set on the grant date. The exercise price of a stock option may not be less than 100% of the fair market value of the underlying share on the date of grant, except with respect to certain substitute options granted in connection with a corporate transaction. The term of a stock option may not be longer than ten years. Vesting conditions determined by the plan administrator may apply to stock options and may include continued service, performance and/or other conditions.
Restricted Stock Units. RSUs are contractual promises to deliver shares of our common stock (or the fair market value of such shares in cash) in the future, which may also remain forfeitable unless and until specified vesting conditions are met. RSUs generally may not be sold or transferred until vesting conditions are removed or expire. The shares underlying RSUs will not be issued until the RSUs have vested, and recipients of RSUs generally will have no voting or dividend rights prior to the time the RSUs are settled in shares, unless the RSU includes a dividend equivalent right (in which case the holder may be entitled to dividend equivalent payments under certain circumstances). Delivery of the shares underlying the RSUs may be deferred under the terms of the award or at the election of the participant, if the plan administrator permits such a deferral. On the settlement date or dates, we will issue to the participant one unrestricted, fully transferable share of our common stock (or the fair market value of one such share in cash) for each vested and nonforfeited RSU.
Restricted Stock. Restricted stock is an award of nontransferable shares of our common stock that remain forfeitable unless and until specified vesting conditions are met. Vesting conditions applicable to restricted stock may be based on continuing service, the attainment of performance goals and/or such other conditions as the plan administrator may determine. In general, restricted stock may not be sold or otherwise transferred until all restrictions are removed or expire.
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Stock Appreciation Rights. SARs entitle their holder, upon exercise, to receive an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The exercise price of a SAR may not be less than 100% of the fair market value of the underlying share on the date of grant (except with respect to certain substitute SARs granted in connection with a corporate transaction) and the term of a SAR may not be longer than ten years. Vesting conditions determined by the plan administrator may apply to SARs and may include continued service, performance and/or other conditions. SARs under the 2017 Incentive Award Plan will be settled in cash or shares of common stock, or in a combination of both, as determined by the administrator.
Performance Shares. Performance shares are contractual rights to receive a range of shares of our common stock in the future based on the attainment of specified performance goals, in addition to other conditions which may apply to these awards. Conditions applicable to performance shares may be based on continuing service, the attainment of performance goals and/or such other conditions as the plan administrator may determine.
Stock Payments. Stock payments are awards of fully vested shares of our common stock that may, but need not, be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to any individual who is eligible to receive awards.
Other Incentive Awards. Other incentive awards are awards other than those enumerated in this summary that are denominated in, linked to or derived from shares of our common stock or value metrics related to our shares, and may remain forfeitable unless and until specified conditions are met. Other incentive awards may be linked to any one or more specific performance criteria determined by the plan administrator.
Dividend Equivalents. Dividend equivalents represent the right to receive the equivalent value of dividends paid on shares of our common stock and may be granted alone or in tandem with awards other than stock options or SARs. Dividend equivalents are credited as of dividend payments dates during the period between a specified date and the date such award terminates or expires, as determined by the plan administrator.
Performance Bonus Awards. Performance bonus awards are cash bonus awards that are granted subject to vesting and/or payment based on the attainment of specified performance goals.
Certain Transactions. The plan administrator has broad discretion to take action under the 2017 Incentive Award Plan, as well as make adjustments to the terms and conditions of existing and future awards, to prevent the dilution or enlargement of intended benefits and facilitate necessary or desirable changes in the event of certain transactions and events affecting our common stock, such as stock dividends, stock splits, mergers, acquisitions, consolidations and other corporate transactions. In addition, in the event of certain non-reciprocal transactions with our stockholders known as “equity restructurings,” the plan administrator will make equitable adjustments to the 2017 Incentive Award Plan and outstanding awards. In the event of a “change in control,” to the extent that the surviving entity declines to assume or substitute outstanding awards or it is otherwise determined that awards will not be assumed or substituted, the plan administrator shall cause the awards to become fully vested and exercisable in connection with the transaction.
Claw-Back Provisions, Transferability, and Participant Payments. All awards will be subject to the provisions of any claw-back policy implemented by us to the extent set forth in such claw-back policy and/or in the applicable award agreement. With limited exceptions for estate planning, domestic relations orders, certain beneficiary designations and the laws of descent and distribution, awards under the 2017 Incentive Award Plan are generally non-transferable prior to vesting, and are exercisable only by the participant, unless otherwise provided by the plan administrator. With regard to tax withholding, exercise price and purchase price obligations arising in connection with awards under the 2017 Incentive Award Plan, the plan administrator may, in its discretion, accept cash or check, shares of our common stock that meet specified conditions, a “market sell order” or such other consideration as it deems suitable.
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Plan Amendment and Termination. The Board may amend or terminate the 2017 Incentive Award Plan at any time, subject to certain exceptions. In addition, no amendment, suspension or termination of the 2017 Incentive Award Plan may, without the consent of the affected participant, impair any rights or obligations under any previously-granted award, unless the award itself otherwise expressly so provides. If not earlier terminated by the Board, the 2017 Incentive Award Plan will terminate in October 2027.
Additional REIT Restrictions. The 2017 Incentive Award Plan provides that no participant will be granted, become vested in the right to receive or acquire or be permitted to acquire, or will have any right to acquire, shares under an award if such acquisition would be prohibited by the restrictions on ownership and transfer of our stock contained in our charter or would impair our status as a REIT.
Securities Laws. The 2017 Incentive Award Plan is intended to conform to all provisions of the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act and any and all regulations and rules promulgated by the SEC thereunder, including, without limitation, Rule 16b-3. The 2017 Incentive Award Plan will be administered, and awards will be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations.
Federal Income Tax Consequences. The material federal income tax consequences of the 2017 Incentive Award Plan under current federal income tax law are summarized in the following discussion, which deals with the general tax principles applicable to the 2017 Incentive Award Plan. The following discussion is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. Foreign, state and local tax laws, and employment, estate and gift tax considerations are not discussed due to the fact that they may vary depending on individual circumstances and from locality to locality.
Stock Options and SARs. A 2017 Incentive Award Plan participant generally will not recognize taxable income and we generally will not be entitled to a tax deduction upon the grant of a stock option or SAR. Only non-qualified stock options may be granted under the 2017 Incentive Award Plan. Upon exercising an option when the fair market value of our stock is higher than the exercise price of the option, a 2017 Incentive Award Plan participant generally will recognize taxable income at ordinary income tax rates equal to the excess of the fair market value of the stock on the date of exercise over the purchase price, and we (or our subsidiaries, if any) generally will be entitled to a corresponding tax deduction for compensation expense, in the amount equal to the amount by which the fair market value of the shares purchased exceeds the purchase price for the shares. Upon a subsequent sale or other disposition of the option shares, the participant will recognize a short-term or long-term capital gain or loss in the amount of the difference between the sales price of the shares and the participant’s tax basis in the shares.
Upon exercising or settling an SAR, a 2017 Incentive Award Plan participant will recognize taxable income at ordinary income tax rates, and we should be entitled to a corresponding tax deduction for compensation expense, in the amount paid or value of the shares issued upon exercise or settlement. Payments in shares will be valued at the fair market value of the shares at the time of the payment, and upon the subsequent disposition of the shares the participant will recognize a short-term or long-term capital gain or loss in the amount of the difference between the sales price of the shares and the participant’s tax basis in the shares.
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Restricted Stock and RSUs. A 2017 Incentive Award Plan participant generally will not recognize taxable income at ordinary income tax rates and we generally will not be entitled to a tax deduction upon the grant of restricted stock or RSUs. Upon the termination of restrictions on restricted stock or the payment of RSUs, the participant will recognize taxable income at ordinary income tax rates, and we should be entitled to a corresponding tax deduction for compensation expense, in the amount paid to the participant or the amount by which the then fair market value of the shares received by the participant exceeds the amount, if any, paid for them. Upon the subsequent disposition of any shares, the participant will recognize a short-term or long-term capital gain or loss in the amount of the difference between the sales price of the shares and the participant’s tax basis in the shares. However, a 2017 Incentive Award Plan participant granted restricted stock that is subject to forfeiture or repurchase through a vesting schedule such that it is subject to a “risk of forfeiture” (as defined in Section 83 of the Code) may, subject to our consent, make an election under Section 83(b) of the Code to recognize taxable income at ordinary income tax rates, at the time of the grant, in an amount equal to the fair market value of the shares of common stock on the date of grant, less the amount paid, if any, for such shares. We will be entitled to a corresponding tax deduction for compensation, in the amount recognized as taxable income by the participant. If a timely Section 83(b) election is made, the participant will not recognize any additional ordinary income on the termination of restrictions on restricted stock, and we will not be entitled to any additional tax deduction.
Other Stock or Cash Based Awards. A 2017 Incentive Award Plan participant will not recognize taxable income and we will not be entitled to a tax deduction upon the grant of other stock or cash based awards until cash or shares are paid or distributed to the participant. At that time, any cash payments or the fair market value of shares that the participant receives will be taxable to the participant at ordinary income tax rates and we should be entitled to a corresponding tax deduction for compensation expense. Payments in shares will be valued at the fair market value of the shares at the time of the payment, and upon the subsequent disposition of the shares, the participant will recognize a short-term or long-term capital gain or loss in the amount of the difference between the sales price of the shares and the participant’s tax basis in the shares.
1999 Flexible Incentive Plan
We established the 1999 Flexible Incentive Plan (the “1999 Plan”) for the purpose of attracting and retaining employees. No additional awards have been granted under the 1999 Plan since October 2017.
Share Reserve. The 1999 Plan provided that the maximum number of shares to be issued under the 1999 Plan would be an amount equal to 10% of the Company’s issued and outstanding common stock at such time; the aggregate number of common stock that may be issued under the 2017 Incentive Award Plan is 1,100,000 shares. At December 31, 2021, approximately 256,929 restricted shares of common stock had been issued under the 1999 Plan and approximately 513,380 shares of Restricted Stock (as defined in the 2017 Incentive Award Plan) had been issued under such Plan.
Awards. The 1999 Plan provides that our administrator may grant or issue stock options, restricted stock, performance awards, dividend equivalents, stock appreciation rights, phantom stock awards or any combination thereof. The administrator considers each award grant subjectively, considering factors such as the individual performance of the recipient and the anticipated contribution of the recipient to the attainment of our long-term goals. Each award is set forth in a separate agreement with the person receiving the award and indicates the type, terms and conditions of the award. To date, only restricted stock has been issued under the 1999 Plan.
Restricted stock may be granted to participants and made subject to such restrictions as may be determined by the administrator. Typically, restricted stock may be repurchased by us at the original purchase price or, if no cash consideration was paid for such stock, forfeited for no consideration if the conditions or restrictions are not met, and the restricted stock may not be sold or otherwise transferred to third parties until restrictions are removed or expire. Recipients of restricted stock, unlike recipients of options, may have voting rights and may receive dividends, if any, prior to when the restrictions lapse.
Administration. Our Board of Directors administers the 1999 Plan. Subject to the terms and conditions of the 1999 Plan, the administrator has the authority to select the persons to whom awards are to be made, to determine the type or types of awards to be granted to each person, determine the number of awards to grant, determine the number of shares to be subject to such awards, and the terms and conditions of such awards, and make all other determinations and decisions and to take all other actions necessary or advisable for the administration of the 1999 Plan. The plan administrator is also authorized to prescribe, amend and rescind rules relating to administration of the 1999 Plan, subject to certain restrictions.
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Eligibility. Awards under the 1999 Plan may be granted to individuals who are then our employees, consultants and members of our Board of Directors and our subsidiaries. Approximately 19 employees, no consultants and four non-employee directors are eligible to participate in the 1999 Plan.
Corporate Transactions. In the event of a corporate transaction where the acquirer does not assume awards granted under the 1999 Plan, awards issued under the 1999 Plan will be subject to accelerated vesting such that 100% of the awards will become vested and exercisable or payable. Under the 1999 Plan, a corporate transaction is generally defined as any recapitalization, merger, consolidation or conversion involving our company or any exchange of securities involving the common stock, provided that a primary issuance of shares of common stock shall not be deemed to be a corporate transaction.
Amendment and Termination of the 1999 Plan. Our Board of Directors may terminate, amend or modify the 1999 Plan.
Securities Laws. The 1999 Plan is intended to conform to all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the SEC thereunder, including, without limitation, Rule 16b-3. The 1999 Plan will be administered, and awards will be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations.
Federal Income Tax Consequences. The material federal income tax consequences of the 1999 Plan under current federal income tax law are summarized in the following discussion, which deals with the general tax principles applicable to the 1999 Plan. The following discussion is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. Foreign, state and local tax laws, and employment, estate and gift tax considerations are not discussed due to the fact that they may vary depending on individual circumstances and from locality to locality.
A 1999 Plan participant generally will not recognize taxable income at ordinary income tax rates and we generally will not be entitled to a tax deduction upon the grant of restricted stock. Upon the termination of restrictions on restricted stock, the participant will recognize taxable income at ordinary income tax rates, and we should be entitled to a corresponding tax deduction for compensation expense, in the amount paid to the participant or the amount by which the then fair market value of the shares received by the participant exceeds the amount, if any, paid for them. Upon the subsequent disposition of any shares, the participant will recognize a short-term or long-term capital gain or loss in the amount of the difference between the sales price of the shares and the participant’s tax basis in the shares. However, a 1999 Plan participant granted restricted stock that is subject to forfeiture or repurchase through a vesting schedule such that it is subject to a “risk of forfeiture” (as defined in Section 83 of the Code) may make an election under Section 83(b) of the Code to recognize taxable income at ordinary income tax rates, at the time of the grant, in an amount equal to the fair market value of the shares of common stock on the date of grant, less the amount paid, if any, for such shares. We will be entitled to a corresponding tax deduction for compensation, in the amount recognized as taxable income by the participant. If a timely Section 83(b) election is made, the participant will not recognize any additional ordinary income on the termination of restrictions on restricted stock, and we will not be entitled to any additional tax deduction.
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The following table summarizes information about our equity compensation plans as of December 31, 2021.
| 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)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | — | — | — | |||||||||
| Equity compensation plans not approved by security holders | — | — | 1,280,527 | (1) | ||||||||
| Total | — | — | 1,280,527 | |||||||||
| (1) | Of these securities: (i) 586,620 shares of common stock remain available for future issuance under the 2017 Incentive Award Plan, and (ii) 693,907 shares of common stock remain available for future issuance under the 1999 Plan. |
AUDIT COMMITTEE
General
The Audit Committee is comprised of Mr. Bruen (Chair), Mrs. Barnes and Mr. Rollings, each of whom is “independent” within the meaning of the Nasdaq Rules, our director independence standards and the audit committee requirements of the SEC. The Board of Directors has determined that Mr. Bruen and Mrs. Barnes each qualify as an “audit committee financial expert,” as defined by the SEC and that each member of the Audit Committee is “financially literate” under the Nasdaq Rules. The Audit Committee met five times during 2021.
The Audit Committee’s main function is to oversee our accounting and financial reporting processes and the audits of our financial statements. The Audit Committee also shares responsibility for performing risk assessment. The Audit Committee is responsible for discussing with management the guidelines, policies and processes relied upon and used by management to assess and manage our exposure to risk.
The Audit Committee ensures that procedures have been established for the receipt, retention and treatment of complaints from our employees on accounting, internal accounting controls or auditing matters, as well as for the confidential, anonymous submissions by our employees of concerns regarding questionable accounting or auditing matters or other potentially material risks.
The Audit Committee’s principal responsibilities include:
| ■ | Assisting the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing and reporting practices; |
| ■ | Reviewing and monitoring compliance with our code of ethics and conduct; |
| ■ | The ultimate authority over the appointment, retention, compensation, oversight and evaluation of the work of our independent registered public accounting firm; |
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| ■ | Preparing the report that the SEC requires in our annual proxy statement; and |
| ■ | The selection, approval and engagement of our independent registered public accounting firm, including approving any special assignments given to the independent accounting firm and reviewing: |
| ■ | The independence of the independent registered public accounting firm; | |
| ■ | Any audit and non-audit services to be performed by the independent registered public accounting firm; | |
| ■ | Our guidelines and policies with respect to risk assessment and risk management; and | |
| ■ | Our compliance with legal and regulatory requirements. |
The Audit Committee responsibilities are more fully described in its charter, which is available on our website at www.PresidioPT.com.
In determining whether to appoint or reappoint the independent registered public accounting firm as our independent auditor, the Audit Committee takes into consideration a number of factors, including audit fees, the expertise of the lead audit partner with respect to real estate and, specifically REITs, the length of time the firm has been engaged by us, the quality of the Audit Committee’s ongoing discussions with its independent registered public accounting firm and an assessment of the professional qualifications, external data relating to audit quality and performance, including recent Public Company Accounting Oversight Board reports relating to our independent registered public accounting firm and past performance of the firm’s lead audit partner responsible for our audit. The Audit Committee has also been involved in the selection of the lead audit partner.
AUDIT COMMITTEE REPORT
Management of the Company has the primary responsibility for the preparation of the financial statements as well as executing the financial reporting process, principles and internal controls. The independent registered public accounting firm is responsible for performing an audit of the Company’s financial statements and expressing an opinion as to the conformity of such financial statements with accounting principles generally accepted in the United States. The Audit Committee is responsible for assisting the Board of Directors in overseeing the conduct of these activities by the Company’s management and the independent auditors.
The Audit Committee, with respect to the audit of the Company’s 2021 consolidated financial statements, reports as follows:
| ■ | The Audit Committee and the Company’s management met with Baker Tilly US, LLP, in advance of the 2021 audit to discuss the annual audit planning. The discussions included identifying critical audit areas, accounting and reporting controls and the overall audit approach. |
| ■ | The Audit Committee has reviewed and discussed the audit of the financial statements, for the year ended December 31, 2021, with Baker Tilly US, LLP and with the Company’s management. |
| ■ | The Audit Committee has discussed with Baker Tilly US, LLP the matters required by Statement on Auditing Standard No. 61 (Communication with Audit Committees), as currently in effect. In addition, the Audit Committee has received the written disclosures and the letter from Baker Tilly US, LLP as required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as currently in effect, and the Audit Committee has discussed with Baker Tilly US, LLP their independence from the Company. The Audit Committee has also considered whether Baker Tilly US, LLP’s other non-audit services to the Company are compatible with maintaining Baker Tilly US, LLP’s independence. |
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| ■ | Following discussions and a complete review of the financial statements, the Audit Committee approves and authorizes for filing, the financial report filings (Forms 10-K and 10-Qs) prior to the Company’s management filing of these financial statements with the SEC. Based on the review and discussions described in this report, the Audit Committee recommended to the Board of Directors that the audited financial statements for the year ended December 31, 2021 be included in our Annual Report on Form 10-K for filing with the SEC. |
During the year ended December 31, 2021, Baker Tilly US, LLP served as our independent auditor and has continuously served in that capacity since 2009. The Audit Committee has the right, however, to select a new auditor at any time in the future in its discretion if it deems the change would be in our best interests. Any such decision would be disclosed to the stockholders in accordance with applicable securities laws.
Submitted by the members of the Audit Committee of the Board of Directors.
| David T. Bruen, Chair | |
| Jennifer A. Barnes | |
| Sumner J. Rollings |
The above report of the Audit Committee will not be deemed to be incorporated by reference into any filing by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates the same by reference.
Audit Fees
The following table presents fees for professional services rendered by Baker Tilly US, LLP for fiscal years 2021 and 2020:
| 2021 | 2020 | |||||||
| Audit fees1 | $ | 189,540 | $ | 153,460 | ||||
| Audit-related fees2 | 94,180 | 85,780 | ||||||
| Tax fees | 66,107 | — | ||||||
| Total fees | $ | 349,827 | $ | 239,240 | ||||
| 1 | Audit fees represent aggregate fees billed for professional services in connection with our annual audit of our consolidated financial statements and reviews of our quarterly reports on Form 10-Q. |
| 2 | Audit-related fees represent fees for assurance and related services reasonably related to the audit and/or review of financial statements, such as audits required in connection with property acquisitions, certain additional services associated with accessing the capital markets, including reviewing registration statements and amendments thereto, the issuance and preparation of comfort letters and consents, and/or other accounting-related services. |
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Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy that it generally must pre-approve all audit and non-audit services to be performed by the Company’s independent registered public accounting firm before the firm is engaged to perform the services. The Audit Committee reviews and approves these fees in advance, taking into consideration the quality and timing of service and the competitiveness of the fees charged. The Audit Committee believes that audit independence has not been impaired as a result of the non-audit services provided, if any.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 28, 2022 relating to the beneficial ownership of shares of our common stock by (1) each director and named executive officer named in the Summary Compensation Table, (2) all executive officers and directors as a group as of March 28, 2022 and (3) 5% or greater holders. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. 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. The address of each person is c/o Presidio Property Trust, Inc., 4995 Murphy Canyon Road, Suite 300, San Diego, CA 92123 unless otherwise indicated herein.
| Number of Shares | % of Total | |||||||
| of Series A | Outstanding | |||||||
| Directors and Named Executive Officers | Common Stock | Shares (1) | ||||||
| Jennifer A. Barnes | 27,552 | (2) | * | |||||
| David T. Bruen | 46,836 | (3) | * | |||||
| Larry G. Dubose | 144,574 | (4) | 1.2 | % | ||||
| James R. Durfey | 47,492 | (5) | * | |||||
| Jack K. Heilbron | 306,217 | (6) | 2.5 | % | ||||
| Gary M. Katz | 158,958 | (7) | 1.3 | % | ||||
| Sumner J. Rollings | 62,813 | (8) | * | |||||
| Adam Sragovicz | 132,170 | (9) | 1.1 | % | ||||
| All current directors and executive officers as a group (8 people) | 926,612 | 7.5 | % | |||||
| 5% or greater stockholders | ||||||||
| Armistice Capital, LLC, Steven Boyd, 510 Madison Avenue, 7th Floor, New York, New York 10022 (10) | 1,320,552 | (11) | 10.68 | % | ||||
| * | Less than 1%. |
| (1) | Based on 12,364,289 shares of common stock of the Company issued and outstanding as of March 28, 2022. |
| (2) | Includes 22,541 shares are unvested stock that are scheduled to become fully vested by December 31, 2024. |
| (3) | Includes 21,346 shares of unvested stock that are scheduled to become fully vested by December 31, 2024. |
| (4) | Includes 36,402 shares of unvested stock that are scheduled to become fully vested by December 31, 2026. |
| (5) | Includes 30,481 shares are unvested stock that are scheduled to become fully vested by December 31, 2024. |
| (6) | Of these shares: (i) 10,655 shares are held by Puppy Toes, Inc. and its subsidiaries (including Centurion Counsel, Inc.), of which Mr. Heilbron is the controlling shareholder, (ii) 10,007 shares are held by Mr. Heilbron’s spouse, (iii) 600 shares are held by or FBO Mr. Heilbron’s grandchildren and (iv) includes 149,956 shares are unvested stock that are scheduled to become fully vested by December 31, 2027. | |
| (7) | Includes 86,153 shares of unvested stock that are scheduled to become fully vested by December 31, 2024. |
| (8) | Of these shares: (i) 2,677 shares are held by Mr. Rollings’ spouse, and (ii) includes 25,796 shares are unvested stock that are scheduled to become fully vested by December 31, 2024. |
| (9) | Includes 87,426 shares of unvested stock that are scheduled to become fully vested by December 31, 2024. |
| (10) | Based solely on a Schedule 13G filed with the SEC on February 15, 2022. The Schedule 13G was filed by Armistice Capital, LLC and Steven Boyd (collectively, “Armistice”). According to the Schedule 13G, as of February 15, 2022, Armistice Capital, LLC and Steven Boyd have shared voting power and shared dispositive power with regard to 1,320,552 shares of common stock. |
| (11) | Does not include 2,000,000 warrants with a 19.99% beneficial ownership blocker. |
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Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors, executive officers and any owner of greater than 10% of the Company’s Common Stock to file reports with the Securities and Exchange Commission concerning their ownership of the Company’s Common Stock. Based solely upon information provided to the Company by individual directors and executive officers, the Company believes that, during the year ended December 31, 2021, all of its directors and executive officers and owners of greater than 10% of the Company’s Common Stock complied with the Section 16(a) filing requirements, except that Jack Heilbron filed one late Form 4 with respect to one transaction.
Related Party Transactions
In the last two fiscal years, there have been no transactions in which the Company was or is to be a party in which the amount involved exceeds $120,000 and in which any director, executive officer, holder of more than 5% of the Company’s common stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest except as set forth below.
Our Audit Committee reviews and approves all related party transactions that management has determined are required to be disclosed in the audited financial statements.
In November 2021, our subsidiary Murphy Canyon Acquisition Sponsor, LLC (the “Sponsor”), purchased 4,312,500 founder shares of Murphy Canyon Acquisition Corp. for an aggregate purchase price of $25,000, or approximately $0.006 per share. On January 26, 2022, the Sponsor surrendered and forfeited 1,006,250 founder shares for no consideration, following which the Sponsor held 3,306,250 Founder Shares at approximately $0.008 per share.
In February 7, 2022, the Sponsor purchased 754,000 units (the “Private Placement Units”) from Murphy Canyon Acquisition Corp., at a price of $10.00 per Private Placement Unit.
In 2021 and 2022, the Sponsor loaned $300,000 to Murphy Canyon Acquisition Corp., which was repaid on February 7, 2022. These loans were non-interest bearing and unsecured.
Indemnification of Our Directors and Officers in Our Charter and Bylaws
Our charter authorizes us to obligate ourselves, and our bylaws obligate us, to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to:
| ■ | any present or former director or officer who is made or threatened to be made a party to, or witness in, a proceeding by reason of his or her service in that capacity; or |
| ■ | any individual who, while a director or officer of our Company and at our request, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity. |
Our charter and bylaws also permit us to indemnify and advance expenses to any individual who served any of our predecessors in any of the capacities described above and any employee or agent of us or any of our predecessors.
Indemnification Agreements
We have entered into indemnification agreements with each of our named executive officers and directors whereby we agree to indemnify such executive officers and directors to the fullest extent permitted by Maryland law against all expenses and liabilities. These indemnification agreements also provide that upon an application for indemnity by an executive officer or director to a court of appropriate jurisdiction, such court may order us to indemnify such executive officer or director. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors or executive officers, we have been informed that in the opinion of the SEC such indemnification is against public policy and is therefore unenforceable.
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PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of our Board of Directors has engaged Baker Tilly US, LLP as our independent auditor to audit our financial statements for the year ending December 31, 2022. A representative of Baker Tilly US, LLP may be present at the Annual Meeting and will have an opportunity to make a statement if he or she so desires. The representative, if present, will be available to respond to appropriate questions from our stockholders.
Although it is not required to do so, our Board is submitting the Audit Committee’s appointment of our independent registered public accounting firm for ratification by our stockholders at the Annual Meeting in order to ascertain the view of the stockholders regarding such appointment.
In the event stockholders fail to ratify the appointment, our Audit Committee will reconsider whether to retain our independent registered public accounting firm at its next scheduled meeting. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Our Board unanimously recommends a vote FOR ratification of the appointment of Baker Tilly US, LLP as our independent registered public accounting firm for the year ending December 31, 2022.
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PROPOSAL 3
PROPOSAL TO AMEND OUR CHARTER
TO PROVIDE FOR THE RECLASSIFICATION OF OUR COMMON STOCK
Description of Proposal
The Board of Directors has declared advisable and recommends to the stockholders an amendment (“Charter Amendment”) to the charter of the Company to provide the Board with the power to reclassify any unissued shares of common stock from time to time into one or more classes or series of stock having such preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption as determined by the Board. The full text of the Charter Amendment is set forth in the Articles of Amendment attached hereto as Appendix A and is incorporated by reference herein.
The current charter of the Company grants the Board the power to classify any unissued shares of preferred stock, par value $0.01 per share (“preferred stock”), of the Company into one or more classes or series of stock having such preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption as determined by the Board. However, when the Company moved its jurisdiction of incorporation from California to Maryland in 2010, the charter omitted a similar power for the Board to reclassify shares of common stock. From time to time, the Company has relied on the existing charter provisions to classify undesignated shares of preferred stock into classes and series of common stock and preferred stock. However, the ability to only classify and reclassify shares of preferred stock has resulted in the Company having only 80,000 shares of undesignated preferred stock currently authorized under the charter and 9,000,000 shares of Series C common stock, which Series C common stock the Company has no intention of issuing following the Company’s initial public offering of shares of Series A common stock in October 2020.
Purpose and Effect of Amendment
The principal purpose and effect of the Charter Amendment is to provide the Board with additional flexibility in the management of the Company’s capitalization and financing. The ability to reclassify common stock into other classes or series of stock is a well-recognized and commonly-employed financing tool that could be used by us, instead of debt or currently available shares of preferred stock, to raise capital for future acquisitions or other business purposes. Having the flexibility to issue the full range of securities, including new classes or series of common stock, preferred stock, debt and other securities, is crucial to ensuring that the Company can competitively finance future acquisitions and other business needs with the same tools employed by our competitors. The issuance of new classes or series of stock may, depending on market conditions, provide the Company with a lower cost of capital than alternative means of financing, which, in turn, can positively affect earnings available to our stockholders.
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The overwhelming majority of publicly-traded REITs have the authority to classify and reclassify shares of common and preferred stock, and a significant number of these REITs have issued multiple classes or series of stock. By way of example, the following REITs, among many others, have similar provisions authorized under their charters:
| Acadia Realty Trust | CyrusOne, Inc. | Federal Realty Investment Trust | ||
| Alexandria Real Estate Equities, Inc. | Digital Realty Trust, Inc. | Hudson Pacific Properties, Inc. | ||
| Arbor Realty Trust, Inc. | Extra Space Storage Inc. | STORE Capital Corporation | ||
| Corporate Office Properties Trust | Franklin Street Properties Corp. | UDR, Inc. |
The foregoing list includes industry-leading REITs. In competing for property acquisitions, the acquiror’s cost of capital is a critical element to success. As a result, we may be at a potential competitive disadvantage to other REITs due to our inability to reclassify common stock into other classes or series of stock as an additional financing tool to achieve the lowest possible overall cost of capital, particularly should the Company exhaust the available 80,000 undesignated shares of preferred stock currently authorized under the charter. Moreover, in order for the Company to maintain its qualification as a REIT under the Code, we must distribute annually at least 90% of our REIT taxable income. Therefore, the Company (like all REITs) must regularly access the capital markets to finance its growth since it is generally unable to do so by retaining earnings. As a result, due to the capital intensive nature of the REIT industry, having the ability to reclassify and issue new classes or series of stock is an important financing tool for many REITs.
If Proposal 3 is approved by the Company’s stockholders, then the Company will file the Articles of Amendment containing the text of the Charter Amendment set forth in Appendix A to this Proxy Statement for record with the State Department of Assessments and Taxation of Maryland, which we expect to occur promptly after the Annual Meeting. In addition, the Company intends to reclassify the 9,000,000 shares of Series C common stock into undesignated shares of preferred stock and 1,000 shares of Series B common stock into shares of Series A common stock promptly following the filing of the Articles of Amendment containing the Charter Amendment. Following such reclassifications, the Company would have 110,001,000 shares of stock authorized under the charter, consisting of (i) 100,001,000 shares of Series A common stock and (ii) 10,000,000 shares of preferred stock, of which 920,000 shares are classified as 9.375% Series D Cumulative Redeemable Perpetual Preferred Stock.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Our Board unanimously recommends a vote FOR approval of the Charter Amendment described in this Proposal 3.
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PROPOSAL 4
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
Section 14A of the Exchange Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), entitles our stockholders an opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission.
As described in detail under the heading “Compensation Narrative,” we seek to closely align the interests of our named executive officers with the interests of our stockholders. Our compensation programs are designed to reward the achievement of specific annual, long-term and strategic goals by the Company and to align such executive officers’ interests with those of our stockholders by rewarding performance above established goals with the ultimate objective of improving stockholder value.
We encourage you to carefully review the section of this Proxy Statement titled “Compensation Narrative” for additional details on our executive officer compensation program as well as the reasons and processes for how our Compensation Committee determined the structure and amounts of the 2021 compensation of our named executive officers.
We are asking our stockholders to indicate their support for the compensation of our named executive officers as set forth in this Proxy Statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation. Accordingly, we ask that our stockholders vote “FOR” the following resolution.
“RESOLVED, that the stockholders of Presidio Property Trust, Inc. (“Presidio”) approve, on an advisory basis, the compensation of Presidio’s named executive officers, as disclosed in Presidio’s Proxy Statement for the 2022 Annual Meeting of Stockholders, pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the related compensation tables and disclosures.”
The vote on this resolution is not intended to address any specific element of compensation, but rather the vote relates to the compensation of our named executive officers, as described in this Proxy Statement. Pursuant to the Dodd-Frank Act, the vote is advisory, which means that the vote is not binding on the Company, our Board of Directors or our Compensation Committee. Nevertheless, the views expressed by our stockholders, whether through this vote or otherwise, are important to us and, accordingly, the Board of Directors and the Compensation Committee intend to consider the results of this vote in making determinations in the future regarding executive compensation arrangements.
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PROPOSAL 5
PROPOSAL TO INCREASE THE TOTAL NUMBER OF SHARES OF COMMON
STOCK AUTHORIZED FOR ISSUANCE UNDER THE 2017 INCENTIVE AWARD
PLAN FROM 1,100,000 SHARES TO2,500,000 SHARES
We are seeking stockholder approval of an amendment to the 2017 Incentive Award Plan to increase the number of shares issuable pursuant to the 2017 Incentive Award Plan to 2,500,000 from 1,100,000. In determining the amount of the increase contemplated by the proposed amendment to the 2017 Incentive Award Plan, the Board of Directors has taken into consideration the desire to continue to retain the flexibility to offer incentives to our officers, directors, consultants and others.
Upon stockholder approval, an additional 1,400,000 shares of common stock will be available for issuance under the 2017 Incentive Award Plan, the purpose of which will be to enable us to continue to incentivize our officers, directors, consultants and others thereby attracting, retaining and motivating the individuals who will be critical to the Company’s success in achieving its business objectives and thereby creating greater value for all our stockholders. In addition, the proposed amendment to the 2017 Incentive Award Plan will clarify that shares of Series A Common Stock became issuable as awards following the listing of the Series A Common Stock on the Nasdaq Capital Market, which occurred on October 7, 2020.
Section 3.1(a) of the 2017 Incentive Award Plan shall be amended and restated in its entirety as follows:
(a) Subject to Section 3.1(b) and Section 11.2 hereof, the aggregate number of Shares which may be issued or transferred pursuant to Awards under the Plan is 2,500,000 Shares (the “Share Limit”), which may be issued as Shares of Series A Common Stock or Shares of Series C Common Stock, as determined by the Administrator in its sole discretion and to the extent such series of Common Stock exists from time to time; provided, however, that, from and after the date on which the Series A Common Stock is listed on any established securities exchange (such as the New York Stock Exchange, the NASDAQ Global Market and the NASDAQ Global Select Market) (the “Listing Date”), only shares of Series A Common Stock may be issued pursuant to Awards hereunder. The Share Limit shall not be adjusted pursuant to Article 11 in the event of the proposed reverse stock split of the Series A Common Stock to be effected by the Company immediately prior to the Listing Date. From and after the day immediately prior to the Listing Date, no additional awards will be granted under the Prior Plan. Following the Listing Date, any Shares that again become available for future grants of Awards under the Plan shall be treated as Series A Common Stock hereunder.
Approval of the amendment will permit the Company to continue to use and offer incentives to eligible participants in order to motivate and reward those providing services to the Company or any subsidiary.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR amending the 2017 Incentive Award Plan to increase the number of shares available for issuance thereunder to 2,500,000 from 1,100,000 shares of common stock.
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OTHER BUSINESS
Management does not intend to present any business at the meeting not mentioned in this Proxy Statement, and at the time of preparation of this Proxy Statement knows of no other business to be presented. If any other matters are properly brought before the meeting or at any postponement or adjournment thereof, the appointed proxies will vote all proxies on such matters in accordance with their discretion.
Other Information Regarding the Company’s Proxy Solicitation
STOCKHOLDER PROPOSALS
In accordance with Rule 14a-8 under the Exchange Act, to be considered for inclusion in the proxy statement relating to the Company’s 2022 Annual Meeting, stockholder proposals must have been received no later than December 16, 2021. Our Secretary has not received any valid notice of any such matter to be presented by a stockholder at our Annual Meeting.
A stockholder proposal submitted pursuant to Rule 14a-8 under the Exchange Act for inclusion in our proxy statement and form of proxy for the 2023 Annual Meeting must be received by our Company by December 16, 2022. Such a proposal must also comply with the requirements as to form and substance established by the SEC for such proposals. To be considered for presentation at the 2023 Annual Meeting, although not included in the Company’s proxy statement, proposals, under our current Bylaws, must generally be received no earlier than November 16, 2022 nor later than 5:00 P.M., Pacific Time on December 16, 2022 and must be submitted in accordance with the requirements of our current Bylaws. Proposals that are not received in a timely manner will not be voted on at the 2023 Annual Meeting. If a proposal is received on time, the proxies that management solicits for such 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 Secretary of the Company at 4995 Murphy Canyon Road, Suite 300, San Diego, California 92123.
ANNUAL REPORT ON FORM 10-K
Company stockholders will receive in the mail or be able to view the Proxy Statement and Annual Report over the Internet at www.proxyvote.com by following the instructions provided in your Notice of Availability of Proxy Materials or by going to the website www.proxydocs.com/SQFT and following the instructions. The Annual Report contains important information about the Company and its financial condition that is not included in the Proxy Statement. If you prefer a paper copy of the proxy materials, you may request one by calling 1-866-249-5360.
| BY ORDER OF THE BOARD OF DIRECTORS, | |
| Jack K. Heilbron | |
President and Chief Executive Officer
Chairman of the Board | |
| San Diego, California | |
| April 15, 2022 |
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APPENDIX A
PRESIDIO PROPERTY TRUST, INC.
ARTICLES OF AMENDMENT
Presidio Property Trust, Inc., a Maryland corporation (the “Corporation”), hereby certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by adding the following sentence at the end of Section 6.2 of Article VI:
“The Board of Directors may reclassify any unissued shares of Common Stock from time to time into one or more classes or series of stock having such preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption as determined by the Board of Directors.”
SECOND: The amendment to the charter of the Corporation as set forth above has been duly advised by the Board of Directors and approved by the stockholders of the Corporation as required by law.
THIRD: There has been no increase in the authorized shares of stock of the Corporation effected by the amendment to the Charter as hereinabove set forth.
FOURTH: The information required by Section 2-607(b)(2)(i) of the Maryland General Corporation Law is not changed by the foregoing amendment of the charter.
FIFTH: These Articles of Amendment shall become effective at 4:00 p.m., Eastern Time, on _______, 2022.
SIXTH: The undersigned acknowledges these Articles of Amendment to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties of perjury.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment to be signed in its name and on its behalf by its President and Chief Executive Officer and attested to by its Secretary on this ___ day of ____________, 2022.
| ATTEST: | PRESIDIO PROPERTY TRUST, INC. | ||||
| By: | (SEAL) | ||||
| Name: | Name: | Jack K. Heilbron | |||
| Title: | Secretary | Title: | President and Chief Executive Officer | ||
