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 þ
Filed by
a Party other than the Registrant o
Check the
appropriate box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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Advanced
Environmental Recycling Technologies, 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):
þ
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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RECYCLING
TECHNOLOGIES, INC.
914
N Jefferson Street (72764)
Springdale,
Arkansas 72765
NOTICE OF ANNUAL
MEETING OF STOCKHOLDERS
To
Be Held Thursday, May 28, 2009
The
annual meeting of stockholders of Advanced Environmental Recycling Technologies,
Inc. will be held at the Company’s corporate offices at 914 N. Jefferson St.,
Springdale, Arkansas 72764, at 7:00 p.m., local time, Thursday,
May 28, 2009, to consider and act upon the following matters, all as more fully
described in the accompanying proxy statement, which is incorporated herein by
this reference:
1.
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To
elect seven members to the seven-person board of directors to serve until
the next annual meeting of stockholders and until their respective
successors shall be elected and
qualify.
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2.
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To
ratify the appointment of HoganTaylor LLP as independent public
accountants of the company for the year ending December 31,
2009.
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3.
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To
approve a possible reverse stock split at a ratio to be determined
hereafter by the board of directors of up to
1-for-20.
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4.
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To
transact such other business and to consider and take action upon any and
all matters that may properly come before the annual meeting or any
adjournment thereof.
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The board
of directors has fixed the close of business on April 3, 2009, as the record
date for the determination of the stockholders entitled to notice of and to vote
at the annual meeting and any adjournment thereof.
These
proxy materials and our Annual Report to stockholders will be furnished to our
stockholders on the Internet. This means that most stockholders will not receive
paper copies of our proxy materials and Annual Report. We will instead send
stockholders a notice regarding the availability of proxy materials with
instructions for accessing the proxy materials and Annual Report on the
Internet. We believe that posting these materials on the Internet enables us to
provide stockholders with the information that they need more quickly, while
lowering our costs of printing and delivery and reducing the environmental
impact of our 2009 Annual Meeting.
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1
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VOTING
SECURITIES AND PRINCIPAL HOLDERS THEREOF
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1
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DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
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3
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CORPORATE
GOVERNANCE
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6
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AUDIT
COMMITTEE REPORT
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7
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COMPENSATION
DISCUSSION AND ANALYSIS
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8
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COMPENSATION
COMMITTEE REPORT
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10
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DIRECTOR
COMPENSATION
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11
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EXECUTIVE
OFFICER COMPENSATION
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12
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SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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14
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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14
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INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
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15
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Item
1: Election of Directors
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15
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Item
2: Ratification of Appointment of Independent Registered Public Accounting
Firm
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16
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Item
3: Reverse Stock Split
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16
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COST
AND METHOD OF PROXY SOLICITATION
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21
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ADDITIONAL
INFORMATION AVAILABLE
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21
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STOCKHOLDER
PROPOSALS FOR THE ANNUAL MEETING IN 2009
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21
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OTHER
MATTERS
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21
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RECYCLING
TECHNOLOGIES, INC.
914
N. Jefferson Street (72764)
Springdale,
Arkansas 72765
Annual Meeting of
Stockholders
SOLICITATION
AND REVOCABILITY OF PROXIES
The
enclosed proxy is solicited on behalf of the board of directors of Advanced
Environmental Recycling Technologies, Inc., a Delaware corporation (the
“Company”), for use at the annual meeting of stockholders to be held at the
Company’s corporate offices at 914 N. Jefferson St., Springdale,
AR 72764, at 7:00 p.m. local time, Thursday, May 28, 2009, and
at any adjournments thereof. The notice of meeting and notice regarding the
availability of proxy materials with instructions for accessing the proxy
materials and Annual Report on the Internet are being mailed to
stockholders on or about April 9, 2009.
A proxy may be revoked by
delivering another
proxy (either Internet proxy or printed proxy) with a later date, entering a new
vote by Internet or telephone, delivering a written notice of revocation to the
principal office of
the Company, or in person at the
meeting at any time prior to the voting thereof.
VOTING SECURITIES AND PRINCIPAL
HOLDERS THEREOF
At March
24, 2009, there were 47,423,680 shares of Class A common stock,
1,465,530 shares of Class B common stock and 788,182 shares of Series
D preferred stock issued and outstanding. Each outstanding share of Class A
common stock entitles the holder thereof to one vote on matters submitted to the
stockholders and each share of Class B common stock entitles the holder
thereof to five votes on matters submitted to the stockholders. Each
outstanding share of Series D preferred stock entitles the holder to the number
of votes equal to the number of shares of common stock into which such share of
preferred stock could be converted (currently each such preferred share is
convertible into 10 shares of Class A common stock), subject to certain
limitations. As of March 24, 2009, the holders of the Class B common stock
are entitled to an aggregate of 7,327,650 votes and the holders of the Series D
preferred stock are entitled to an aggregate of 7,881,820 votes. The holders of
record of the Class A common stock, Class B common stock and Series D
preferred stock outstanding on April 3, 2009 will vote together as a single
class on all matters submitted to stockholders and such other matters as may
properly come before the annual meeting and any adjournments.
The form
of proxy provides a method for stockholders to withhold authority to vote for
any one or more nominees (See “Election of Directors” for the method of
withholding authority to vote for directors). By withholding authority, shares
will not be voted either for or against a particular matter but will be counted
for quorum purposes. Abstentions and brokers’ “non-votes”, if any, are counted
for purposes of determining a quorum but will have no effect on the election of
directors or other matters intended to be submitted to a vote of the
stockholders.
As of
March 24, 2009, the Company’s directors and named executive officers
beneficially owned approximately 30.4% of the currently outstanding shares of
Class A common stock and 93.9% of the shares of Class B common stock,
and collectively beneficially owned shares representing approximately 33.5% of
the votes entitled to be cast upon matters submitted at the annual meeting. As
of the record date, Marjorie S. Brooks and corporations controlled by her
beneficially owned shares representing approximately 21.6% of the votes entitled
to be cast and may be in a position to control the Company.
The
following table sets forth, as of March 24, 2009, certain information with
regard to the beneficial ownership of the Company’s capital stock by each
beneficial owner of 5% or more of the outstanding stock, by each named executive
officer and director of the Company, and by all directors and named officers as
a group:
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Percent
of
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Title
of Class (1)
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Amount
and Nature of
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Percent
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Total
Voting
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Name
of Beneficial Owner
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Beneficial
Ownership (2)(15)
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of
Class
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Power
(2)(16)
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Class
A
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Marjorie
S. Brooks
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9,369,676
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(3)
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19.7%
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21.6%
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Class
B
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837,588
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(4)
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57.2%
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Class
A
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Joe
G. Brooks
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1,629,335
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(5)
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3.4%
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4.9%
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Class
B
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284,396
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19.4%
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Class
A
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Jerry
B. Burkett
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309,519
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(6)
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*
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*
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Class
B
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33,311
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2.3%
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Class
A
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Stephen
W. Brooks
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1,707,008
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(7)
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3.6%
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3.4%
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Class
B
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89,311
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6.1%
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Class
A
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Sal
Miwa
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181,095
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(8)
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*
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*
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Class
A
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Jim
Robason
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169,013
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(9)
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*
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*
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Class
A
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Michael
M. Tull
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877,033
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(10)
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1.8%
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1.4%
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Class
A
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Peter
S. Lau
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34,758
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(11)
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*
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*
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Class
A
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Tim
W. Kizer
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34,949
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(12)
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*
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*
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Class
A
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Edward
P. Carda
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34,949
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(12)
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*
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*
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Class
A
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Timothy
D. Morrison
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37,500
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(13)
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*
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*
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Class
A
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Jim
Precht
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432,700
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(14)
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*
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*
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Class
A
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Officers
and directors
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14,817,535
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30.4%
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33.5%
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Class
B
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as
a group (twelve persons)
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1,375,657
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93.9%
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(1)
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The
Class B common stock is substantially identical to the Class A
common stock, except that each share of Class B common stock has five
votes per share and each share of Class A common stock has one vote
per share. Each share of Class B common stock is convertible
into one share of Class A common
stock.
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(2)
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Beneficial
ownership of shares was determined in accordance with
Rule 13d-3(d)(1) of the Exchange Act and included shares underlying
outstanding warrants and options which the named individual has the right
to acquire within sixty days (May 23, 2009) of March 24,
2009.
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(3)
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Includes
8,079,827 shares owned directly, 1,121,457 in trusts or corporations
controlled by Mrs. Brooks, 150,000 shares issuable upon exercise
of stock options, and 18,392 shares to be issued pursuant to restricted
stock awards.
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(4)
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Includes
403,946 shares owned directly by Mrs. Brooks and
433,642 shares owned by two corporations controlled by
Mrs. Brooks. (Razorback Farms, Inc. is the record owner of
312,320 shares and Southern Mineral and Fibers, Inc. is the record
owner of 121,322 shares, representing approximately 21.3% and 8.3%,
respectively, of the Class B common stock). Excludes additional
shares owned by adult children of Mrs. Brooks, including Joe G.
Brooks, Stephen W. Brooks and J. Douglas Brooks, as to which she disclaims
a beneficial interest.
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(5)
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Includes
1,586,630 shares owned directly, 4,500 shares owned as custodian
for Joe G. Brooks’ minor child, and 38,205 shares owned as custodian
for Brooks’ Children’s Trust.
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(6)
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Includes
116,424 shares owned directly, 2,000 shares owned by
Mr. Burkett as custodian for his minor child, 10,000 shares
owned by a partnership controlled by Mr. Burkett, 150,000 shares
issuable upon exercise of stock options, and 31,095 shares to be issued
pursuant to restricted stock
awards.
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(7)
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Includes shares
owned directly.
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(8)
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Includes
150,000 shares issuable upon exercise of stock options and 31,095 shares
to be issued pursuant to restricted stock
awards.
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(9)
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Includes
112,918 shares owned directly, 25,000 shares issuable upon
exercise of stock options, and 31,095 shares to be issued pursuant to
restricted stock awards.
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(10)
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Includes
745,938 shares owned directly, 100,000 shares issuable upon
exercise of stock options, and 31,095 shares to be issued pursuant to
restricted stock awards.
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(11)
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Includes
2,500 shares owned directly, 25,000 shares issuable upon
exercise of stock options, and 7,258 shares to be issued pursuant to
restricted stock awards.
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(12)
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Includes
5,256 shares owned directly and 29,693 shares to be issued pursuant to
restricted stock awards.
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(13)
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Includes
shares to be issued pursuant to restricted stock
awards.
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(14)
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Includes
7,700 shares owned directly, 400,000 shares issuable upon
exercise of stock options and 25,000 shares to be issued pursuant to
restricted stock awards.
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(15)
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Class A
common stock beneficial ownership was calculated by dividing the
beneficial ownership of each individual by the sum of: (i) the total
shares of Class A common stock outstanding at March 24, 2009, and
(ii) the total shares underlying outstanding warrants and options
which the named individual had the right to acquire within 60 days
(May 23, 2009) of March 24, 2009. Class B common stock
beneficial ownership is calculated based on 1,465,530 shares
outstanding on March 24, 2009.
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(16)
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Calculated
by dividing the voting rights of the beneficial ownership of each
individual by the sum of: (i) the total votes available to be cast
on March 24, 2009, and (ii) the total shares underlying
outstanding warrants and options which the named individual had the right
to acquire within 60 days (May 23, 2009) of March 24,
2009.
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The
directors and executive officers of the Company are as
follows:
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Name
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Age
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Position
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Joe
G. Brooks
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53
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Chairman
of the board of directors and chief executive officer
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Stephen
W. Brooks
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52
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Chief
operating officer, secretary and director
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Timothy
D. Morrison
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50
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President
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J.
R. Brian Hanna
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55
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Chief
financial officer
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J.
Douglas Brooks
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49
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Senior
vice-president — international sales and product
development
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Alford
Drinkwater
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57
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Senior
vice president — development and governmental
affairs
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Jim
Precht
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63
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Senior
vice-president — sales and marketing
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Jerry
B. Burkett
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52
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Director
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Edward
P. Carda
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68
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Director
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Tim
W. Kizer
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43
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Director
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Peter
S. Lau
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55
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Director
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Hisao
Sal Miwa
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52
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Director
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Jim
Robason
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71
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Director
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Michael
M. Tull
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54
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Director
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The
Company’s board of directors elected Joe G. Brooks as its chairman
and the Company’s co-chief executive officer in
December 1998. In addition, he served as president from
February 2000 until March 2008. In July 2005, Mr. Brooks became
sole chief executive officer. Mr. Brooks has served as president or in
other executive office capacities and has been a director since the Company’s
inception in December 1988, including service as chairman and CEO from inception
until August 1993. He was a member of Clean Texas 2000, appointed by then
Governor George W. Bush in 1995. Mr. Brooks is a listed inventor on 13 of
the Company’s patents with additional patents pending, and is a founder of
AERT.
The
Company’s board of directors elected Stephen W. Brooks as co-chief
executive officer in December 1998 in which position he served until
July 2005 when he became vice chairman and chief operating officer. Mr.
Brooks was appointed secretary in January 2009. Mr. Brooks has been a
director since January 1996. Mr. Brooks has served as CEO and chairman
of the board of Razorback Farms, Inc. from January 1996 to the present.
Razorback Farms is a Springdale, Arkansas based firm that specializes in
vegetables processing. Mr. Brooks also serves on the board of the Ozark
Food Processors Association.
Timothy D. Morrison joined AERT as President in
March 2008. Mr. Morrison came to AERT with a background in polymer
engineering as well as experience in turnaround management. He began his
career with Dow Chemical in the hydrocarbons and polyethylene group where he
held both operations and business positions. He led the Promix Joint Venture
with Dow, Texaco and Enterprise Products before moving to Harris Chemical in
1992 as an equity partner where he led the turnaround of operations, customer
service, IT, purchasing, and logistics for the leveraged buyout group. In
2000, Mr. Morrison joined Cyctec’s engineered products composite business,
managing the composites and adhesives business. He brings experience in
successfully servicing the needs and requirements of big box retailers from
Valspar where he served most recently as manager for Valspar’s Texas Division.
Mr. Morrison comes to AERT with a BS in Chemical Engineering from the University
of Alabama, an MBA from the University of Southern California, and training in
both Lean Manufacturing and Six Sigma. He is standing for election at
the annual meeting of stockholders to be held May 28, 2009.
J. R. Brian Hanna joined AERT
as Chief Financial Officer on November 3, 2008. Mr. Hanna has most
recently served as Chief Financial Officer of JT Sports (formerly Brass Eagle
Inc.) from December 1, 1997 to October 31, 2008. Mr. Hanna
obtained his Chartered Accountant’s designation with Deloitte & Touche in
1982 and later became a Certified Public Accountant. Mr. Hanna’s background
includes merger and acquisition integrations, financial system/IT
implementations in addition to establishing internal controls, strategic
planning and treasury functions.
J. Douglas Brooks has served
as executive vice-president from inception to September 2003, has been in
charge of raw material sourcing and strategic relationships since 1998, and has
been a senior vice president since September 2003. Mr. Brooks was
vice-president of plastics from 1995 through 1998, was previously project
manager for AERT’s polyethylene recycling program with The Dow Chemical Company,
and is a joint inventor on several of AERT’s process patents for recycling
polyethylene film for composites.
Alford Drinkwater has served
as senior vice president in various capacities since September 2003, and is
currently the Company’s senior vice president of development and governmental
affairs. Prior to joining the Company in May 2000, Mr. Drinkwater had
been the Assistant Director for the Established Industries Division of the
Arkansas Department of Economic Development and was on the Advocacy Team from
November 1988 until January 2000. From September 1986 until
July 1988, he owned and operated Town and Country Waste Services, Inc. a
waste services company engaging in the development of waste recycling, energy
recovery, and disposal systems. From April 1981 until January 1987,
Mr. Drinkwater was the Resource Recovery Manager for Metropolitan Trust
Company, and was primarily involved in waste-to-energy systems development. From
July 1974 until April 1981, Mr. Drinkwater worked for the State
of Arkansas as Assistant to the Chief of the Solid Waste Control Division of the
Arkansas Department of Pollution Control & Ecology and as the Manager of the
Biomass and Resource Recovery Program of the Arkansas Department of
Energy.
Jim Precht served as executive
vice-president of sales and marketing for the Company since February 2001,
and as senior vice president since September 2003. Mr. Precht was
formerly general manager of Weyerhaeuser Building Materials’
Pittsburgh Customer Service Center with 32-years of industry
experience.
Jerry B. Burkett has served on
the board of directors of the Company since May 1993. Mr. Burkett has been
a rice and grain farmer since 1979 and has been a principal in other closely
held businesses. He is the past president of the Arkansas County Farm Bureau. In
April 2002, Mr. Burkett was elected to serve as a director of the Ag
Heritage Farm Credit Services board.
Edward P. Carda was elected to
the board of directors in July 2005. Mr. Carda began his 37-year
business career with Weyerhaeuser Company in June 1967, ending with his
retirement in December 2003. While at Weyerhaeuser, he served in various
management
positions, including statutory reporting, heading large accounting departments,
interacting with external and internal auditors and many areas of management.
Mr. Carda spent the last 10 years of his career as the business
controller for the distribution business of Weyerhaeuser. While in this
capacity, he received many awards for his performance for profit and working
capital improvement initiatives. Mr. Carda attended the University of
Montana and graduated with a degree in accounting. He has served for
25 years on the board of directors of the Woodstone Credit Union in Federal
Way, Washington and is currently its Vice Chairman. He also serves on the credit
union’s audit committee.
Tim W. Kizer was elected to
the board of directors in July 2005. Since December 2004, Mr. Kizer
has served as president and partner of Bentonville Global Associates, a global
consultancy firm specializing in collaborative commerce. Mr. Kizer is executive director of the Doing Business in Bentonville Series
— a seminar level program series in Bentonville, Arkansas. From
April 2001 to December 2004, Mr. Kizer was director of the Center
for Management and Executive Development and the
Donald W. Reynolds Center for Enterprise Development,
Sam M. Walton College of Business, University of Arkansas. From
January 2000 to April 2001, Mr. Kizer was managing director of
Information Technology Research Center,
Sam M. Walton College of Business, University of Arkansas.
Mr. Kizer was a business and industry specialist for the Division of
Continuing Education at the University of Arkansas from October 1996 until
January 2000. He has a BA from the University of Louisville and is a member
of the Board of Advisors of RFID Global Solution in Bentonville,
Arkansas.
Peter S. Lau has served on the
board of directors since July 2007. Mr. Lau is a co-founder and co-owner of
Greenstone Holdings, a boutique investment banking firm in New York City founded
in 2001 (not affiliated with the entity of the same name referred to with
respect to Mr. Miwa). Previously, he was Senior Managing Director of Corporate
Finance for American Frontier, and Managing Director of Corporate Finance at
Ridgewood Capital. Mr. Lau started his career as a CPA with Deloitte &
Touche, and was later employed by Squibb Corporation. Mr. Lau holds a
Bachelor of Science in Business Administration and an MS in Accounting from the
University of Hartford.
Hisao Sal Miwa has been an
outside director of the Company since January 1994. He served as chairman
of the board between December 1995 and December 1998, and as vice
chairman from December 1998 through July 2005. From January 2005 to
present, Mr. Miwa has been chairman of Greenstone Holdings, Inc. (OTC
“GSHG”), a chemical technology company located in New York City primarily
serving the building and construction industry (not affiliated with the entity
of the same name referred to with respect to Mr. Lau). From July 2004 to
December 2005, he was CEO of Greenstone Inc. of Delaware, a predecessor of
Greenstone Holdings, Inc. From April 2000 to June 2004, he was COO and
director of RealRead Inc., an online document service company. For more than
20 years Mr. Miwa has been engaged in various international businesses
and serves on boards of several closely held family businesses around the world.
He received his master’s degree in aerospace engineering from the Massachusetts
Institute of Technology in 1981.
Jim Robason has served on the
board of directors since July 2003. From 2005 to 2007, Mr. Robason was a
consultant to and supervisor of the Company’s plant operations on an interim
basis. Mr. Robason joined Allen Canning Co. in 1967. Mr. Robason
served as senior vice-president-operations of Allen Canning Co. from 1974 until
his retirement in 2002. As senior vice-president of operations with Allen
Canning Co., he was responsible for the operation of twelve plants with plant
managers and raw product procurement managers, as well as special projects
engineering, reporting to him. He has a vast amount of knowledge in all phases
of manufacturing including infrastructure, building, equipment, and engineering;
with a focus on the full production arena from product procurement through the
production process. Mr. Robason is a graduate of
West Texas State University. He has served on Allen Canning’s
executive committee and profit sharing/retirement plan committee in addition to
his operations responsibilities.
Michael M. Tull has served on
the board of directors of the Company since December 1998. Mr. Tull has
served since 1990 as the president and majority owner of Tull Sales Corporation,
a manufacturer’s representative company, which professionally represents eight
manufacturing companies and is responsible for the sales and marketing of those
companies’ window and door related components in the southeastern United States.
Mr. Tull serves on boards of several closely held family businesses.
Additionally, he is a board of director member of Greenstone, Inc. and the
National Wild Turkey Federation, which is one of the largest North American
conservation organizations.
Joe G.
Brooks, Stephen W. Brooks, and J. Douglas Brooks are brothers and are sons of
Marjorie S. Brooks, the Company’s largest stockholder and a former director.
There are no other familial relationships between the current directors and
executive officers.
Each of
the Company’s directors has been elected to serve until the next annual meeting
of stockholders or until their successors are elected and qualified. Officers
serve at the discretion of the Board of Directors.
Independence
of Directors
The board
of directors has determined that Jerry B. Burkett, Edward P. Carda, Tim W.
Kizer, Peter S. Lau, and H. Sal Miwa are independent under the NASDAQ Stock
Market’s (“NASDAQ”) corporate governance listing standards, and that Joe G.
Brooks, chairman and CEO, Stephen W. Brooks, chief operating officer, Michael M.
Tull and Jim Robason are not independent under such listing
standards.
During
fiscal 2008, the Company did not hold any executive sessions of the board of
directors in which only independent members of the board were
present.
Stockholder
and Interested Parties Communications with the Board
Stockholders
and other interested parties may contact any of the Company’s directors, a
committee of the Board of Directors, the Board’s independent directors as a
group or the Board generally, by writing to them at Advanced Environmental
Recycling Technologies, Inc., c/o Corporate Secretary, at the address shown on
the cover of this proxy statement. Stockholder communications received in this
manner will be handled in accordance with procedures approved by the Board’s
independent directors. The Company encourages,
but does not require, directors to attend annual meetings of stockholders. All
members of the board attended the Company’s 2008 stockholder meeting with the
exception of Sal Miwa, who was traveling.
Board
Meeting and Certain Committees Reports and Meetings
During
the Company’s fiscal year ended December 31, 2008, the board of directors
held 16 meetings. All directors attended 75% or more of the total number of
meetings of the board of directors and its committees on which he or she
served.
From
January 1, 2008 through July 23, 2008, the audit committee of the board of
directors consisted of four independent directors under NASDAQ’s director and
audit committee independence standards: Melinda Davis, Ed Carda (chairperson),
Jerry Burkett, and Peter Lau. On July 24, 2008, the Board appointed Ed Carda
(chairperson), Jerry Burkett, and Peter Lau to its audit committee. The
composition of the audit committee has not changed since July 24, 2008. The
audit committee is directly responsible for the engagement of the Company’s
independent accountants and is responsible for approving the services performed
by the Company’s independent accountants and for reviewing and evaluating the
Company’s accounting principles and its system of internal accounting controls.
The audit committee met two times in 2008, in addition to quarterly
discussions by either the audit committee chairperson or the full audit
committee with the Company's auditors concerning their quarterly review of the
Company's financial statements. Ed Carda and Peter Lau serve as the financial
experts on the audit committee.
From
January 1, 2008 through July 23, 2008, the compensation committee consisted
of Ed Carda (chairperson), Sal Miwa, Tim W. Kizer, and Jim Robason. On July 24,
2008, the Board appointed Ed Carda (chairperson), Tim W. Kizer, Peter Lau and
Jim Robason to the committee. The composition of the compensation committee has
not changed since July 24 2008. The compensation committee establishes and
administers the Company’s compensation plans on behalf of the board of directors
and makes recommendations to the board of directors as to stock options,
restricted stock awards or other awards granted thereunder and other
compensation matters. The compensation committee met two times in
2008.
From
January 1, 2008 through July 23, 2008, the nominating and corporate
governance committee consisted of Sal Miwa (chairperson), Melinda Davis, Jerry
Burkett, and Ed Carda. On July 24, 2008, the Board appointed Sal Miwa
(chairperson), Jerry Burkett, and Ed Carda to the committee. The
composition of the nominating and corporate governance committee has not changed
since July 24, 2008. The nominating and corporate governance committee evaluates
the efforts of AERT and its board of directors to maintain effective corporate
governance practices and identifies candidates for election to the board of
directors. The nominating and corporate governance committee met three times in
2008.
The
nominating and corporate governance committee believes that candidates for
director should have certain minimum qualifications, including being able to
read and understand financial statements and having the highest personal
integrity and ethics. The committee also considers such factors as relevant
expertise and experience, ability to devote sufficient time to the affairs of
the Company, demonstrated excellence in his or her field, the ability to
exercise sound business judgment and the commitment to rigorously represent the
long-term interests of the Company’s stockholders. Candidates for director will
be reviewed in the context of the current composition of the board, the
operating requirements of the Company and the long-term interests of
stockholders.
The
nominating and corporate governance committee does not have a formal process for
identifying and evaluating nominees for directors. Instead, it uses its network
of contacts to identify potential candidates. The committee will conduct any
appropriate and necessary inquiries into the backgrounds and qualifications of
possible candidates after considering the function and needs of the board. The
committee will meet to discuss and consider such candidates’ qualifications and
then select a nominee for recommendation to the board by majority
vote.
Although
the nominating and corporate governance committee has not established procedures
for considering nominees recommended by stockholders, the committee will
consider director candidates recommended by stockholders, and those candidates
will receive substantially the same consideration that candidates recommended by
the nominating and corporate governance committee receive. Stockholders wishing
to recommend director candidates for consideration by the committee may do so in
writing to the corporate secretary by December 10, 2009, at least 120 days
in advance of the date corresponding to the mailing of proxy materials for this
annual meeting, giving the recommended nominee’s name, biographical data, and
qualifications, accompanied by the written consent of the recommended
nominee.
The
charters of the audit, compensation, and nominating and corporate governance
committees are available on the corporate website at www.aert.com. The Company has
implemented a “Corporate Compliance Line” through which the audit committee, the
board of directors, and the corporate compliance officer may be contacted, as
appropriate. This service and number is available on our corporate
website.
The
following report of the audit committee for fiscal year 2008 does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other Company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this report by reference therein.
The audit
committee of the Company is composed of three non-employee directors, and each
member of the committee is independent in accordance with the policy of the
National Association of Security Dealers applicable to NASDAQ listed companies.
The committee operates under a written charter adopted by the board of
directors.
Management
is responsible for the Company’s internal controls and the financial reporting
process. The independent auditors are responsible for performing an independent
audit of the Company’s financial statements in accordance with generally
accepted auditing standards and to issue a report thereon. The committee’s
responsibility is to engage independent public accountants for the Company and
to monitor and oversee the Company’s financial reporting process and report its
findings to the board of directors.
The
committee fulfills its responsibilities through periodic meetings with
management and independent auditors. The committee reviewed and discussed with
management and independent auditors the audited financial statements in the
Company’s annual report on Form 10-K for the year ended December 31,
2008. The committee also discussed with the independent auditors matters
required to be discussed by Statement on Auditing Standards No. 61. In
addition, the committee has received and reviewed the written disclosures and
the letter from the independent auditors required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees, and
has discussed with the auditors the auditor’s independence.
On the
basis of these reviews and discussions, the audit committee recommended to the
board of directors that the board approve the inclusion of the Company’s audited
financial statements in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008, for filing with the Securities and Exchange
Commission (“SEC”).
The audit
committee has also considered whether the provision of non-audit services by the
independent registered public accounting firm, Tullius Taylor Sartain &
Sartain LLP (“TTS&S”), is compatible with maintaining auditor independence.
TTS&S performed tax consulting and preparation services for the Company
during 2008. No other non-audit related services were provided by TTS&S
during 2008. On January 7, 2009, TTS&S merged with Hogan & Slovacek P.C.
to form HoganTaylor LLP, which has acted as the Company's independent registered
public accounting firm since the merger.
Submitted
by the audit committee,
|
|
|
|
Sal
Miwa
|
Peter
S. Lau
|
Edward
P. Carda , Chairperson
|
|
COMPENSATION DISCUSSION AND
ANALYSIS
Overview of Compensation
Program
Our
executive compensation program is designed to achieve our goal of attracting,
developing and retaining business leaders who can drive financial and strategic
growth objectives that are intended to maximize long-term stockholder value.
Compensation levels are set to reflect competitive market practices, as well as
company and individual performance. The Compensation Committee of the Board of
Directors (the “Committee”) has established the following guiding principles for
our executive compensation programs:
·
|
Competitiveness —
All components of compensation should be set competitively as compared
against appropriate peer companies so that we can continue to attract,
retain and motivate high performing executive
talent.
|
·
|
Pay
for Performance — All components of compensation should be tied to
the performance of the individual executive officer, his or her specific
business unit or function, and AERT
overall.
|
·
|
Accountability
for Short- and Long-Term Performance — Annual performance bonuses and
long-term incentives should reward an appropriate balance of short-and
long-term financial and strategic business results, with an emphasis on
managing the business for the
long-term.
|
·
|
Alignment
to Stockholders’ Interests — Long-term incentives should align
decision making with the interests of our
stockholders.
|
Compensation
Philosophy and Objectives
Our
executive compensation program is designed to:
·
|
Attract,
motivate and retain executive officers who can make significant
contributions to our long-term
success;
|
·
|
Align
the interests of executive officers with those of
stockholders; and
|
·
|
Place
a significant portion of an executive officer’s total compensation at risk
by tying it to our financial
performance.
|
Role of Executive Officers in
Compensation Decisions
To assist
them in making compensation decisions, the Committee reviews compensation tally
sheets, prepared by management, which present comprehensive data on the total
compensation and benefits package for each of our executive officers. These
tally sheets include all obligations for present and projected future
compensation, as well as analyses for hypothetical terminations and retirements
to consider our obligations under such circumstances. Additionally, the
Committee partially relies on recommendations by the CEO regarding compensation
of the other executive officers and key management employees.
Setting Executive
Compensation
The
Committee strives to establish and periodically review AERT’s compensation
philosophy and the adequacy of compensation plans and programs for directors,
executive officers and other AERT employees and make recommendations to the
Board of Directors regarding:
·
|
Compensation
arrangements and incentive goals for executive officers and administration
of the compensation plans and recommendations to the Board of Directors
with respect thereto;
|
·
|
The
performance of the executive officers and incentive compensation awards
and adjustment of compensation arrangements as appropriate based upon
performance;
|
·
|
Management
development and succession plans and
activities; and
|
·
|
The
report on executive compensation for inclusion in AERT’s annual proxy
statement in accordance with Securities Exchange Commission rules and
regulations.
|
The
primary components of our executive compensation programs are: base salary,
discretionary awards, and long-term incentive awards.
Base
Salary
Base
salaries are generally targeted at the middle of the competitive marketplace
(the “median”).
The
“market rate” for an executive position is determined through an assessment by
our human resources personnel under the guidance and supervision of the
Committee. This assessment considers relevant industry salary practices, the
position’s complexity, and level of responsibility, its importance to AERT in
relation to other executive positions, and the competitiveness of an executive’s
total compensation.
Subject
to the Committee’s approval, the level of an executive officer’s base pay is
determined on the basis of:
·
|
Relevant
comparative compensation
data; and
|
·
|
The
Chief Executive Officer’s assessment (except with respect to himself) of
the executive’s performance, experience, demonstrated leadership, job
knowledge and management
skills.
|
The
Committee may, at its discretion, authorize periodic cash awards to executives.
Discretionary awards are designed to give the Committee the flexibility to
provide incentives that are comparable to those found in the marketplace in
which we compete for executive talent. In determining the extent and nature of
discretionary awards, the Committee considers our cash flow, net income,
progress toward short-term and long-term business objectives, and other
competitive compensation programs.
When
considering discretionary awards, the Committee identifies the employees who are
eligible to participate and computes and certifies the size of the discretionary
pool based on financial information supplied by our executive officers. The
award made to each eligible participant is based on the opportunity level
assigned to the participant and an assessment of his or her performance and the
performance of their business unit versus corporate objectives.
Long-Term Incentive
Awards
Long term
executive incentives are designed to promote the interests of AERT and its
stockholders by attracting and retaining eligible directors, executives and
other key employees.
The
Committee has the authority to determine the participants to whom awards shall
be granted. The awards under our prior plans could be made in the form of stock
options, restricted stock units, performance awards and other stock-based
awards. Consistent with the views of the Board of Directors and the Committee
that the interests of employees and directors are more likely to be aligned with
stockholders to the extent that such employees and directors are stockholders of
AERT, we have determined for the foreseeable future to provide incentive equity
compensation in the form of restricted stock unit awards rather than options or
other forms of equity compensation. The 2005 and 2008 Key Associate and
Management Equity Inventive Plans and the 2005 and 2008 Non-Employee Director
Equity Incentive Plans reflect this shift in compensation policy.
The
Committee has reviewed and approved a compensation plan for our management and
executives that is designed to reward focus on increasing throughputs, reducing
costs, and increasing efficiencies. The equity incentive plans, which are
administered by the Committee, give us flexibility to provide incentives that
are comparable to those found in the marketplace in which we compete for
management and associate talent. In determining the extent and nature of awards,
the Committee considers our cash flow, net income, progress toward short-term
and long-term business objectives, and other competitive compensation
programs.
2008
Executive Compensation Components
For the
fiscal year ended December 31, 2008, compensation decisions focused on the
key elements of the total direct compensation program for executive officers,
which included base pay, discretionary incentive awards, and long-term
incentives. Elements reviewed as part of the long-term incentives to executive
officers included type and level of award distribution.
Chief Executive
Officer Compensation
In
determining CEO and other named executive officer compensation, the Committee
considered:
·
|
AERT’s
financial performance and peer group compensation
data; and
|
·
|
In
the case of all executive officers, leadership, decision-making skills,
experience and knowledge; and in addition, for the CEO, communication with
the Board of Directors and strategic recommendations, as well as AERT’s
positioning for future
performance.
|
The
Committee considered many factors and did not place any particular relative
weight on one over another, but our financial performance is generally given the
most weight.
The
Committee’s recommendations regarding CEO compensation and other related matters
are reported to and approved by the Board of Directors. In the case of other
named executive officers, the CEO makes recommendations regarding compensation
to the Committee, and the Committee formulates its recommendations and brings
them to the Board of Directors for approval.
For
fiscal year ended December 31, 2008, the Committee did not grant any
discretionary bonuses, including to the CEO. Long-term incentive awards in the
form of restricted stock were granted to Timothy D. Morrison, who joined the
Company as president on March 1, 2008, and to J. R. Brian Hanna, who joined the
Company as chief financial officer on November 3, 2008.
Tax and
Accounting Implications
Deductibility of
Compensation
Under
Section 162(m) of the Internal Revenue Code, AERT may not deduct
compensation in excess of $1,000,000 paid to AERT’s Chief Executive Officer or
to any of the other named executive officers unless the compensation meets
specific criteria for performance-based compensation. Awards under our
short-term incentive compensation plan do not meet the criteria of being
performance-based awards under Section 162(m) of the Internal Revenue Code
of 1986, as amended, and, therefore, would not qualify as a deduction to the
extent in excess of Section 162(m) limits. Certain awards under our
long-term incentive plan, such as stock options or restricted stock unit awards,
could satisfy the criteria of being performance based under Section 162(m)
and therefore qualify as deductible under the Internal Revenue Code of 1986, as
amended. Our historical levels of compensation have not been subject to Section
162(m) of the Internal Revenue Code of 1986. The Committee reserves the right to
approve non-deductible compensation if the Committee believes it is in the best
interests of AERT and our stockholders.
COMPENSATION
COMMITTEE REPORT
The
following report of the Committee for fiscal year 2008 does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other Company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this report by reference therein.
The
Committee is responsible for administering incentive plans and reviewing and
making recommendations to the Board of Directors with respect to the
compensation of AERT executive officers and key employees. The compensation
committee has adopted a charter that is available on the Company’s web site at
www.aert.com.
The
Committee has reviewed and discussed the Compensation Discussion and Analysis
required by Item 402(b) of Regulation S-K with management and, based
on such review and discussions, the Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this
Proxy Statement.
THE COMPENSATION
COMMITTEE
Edward P.
Carda, Chairperson
Tim
Morrison was hired as the Company’s president on March 3, 2008. The Company and
Mr. Morrison entered into a written agreement providing for an annual base
salary of $200,000, and an annual bonus of 25% to 100% of his base salary
depending on the achievement of performance measures to be established from time
to time by the Company’s compensation committee. He was provided a moving
allowance of up to $50,000. Additionally, Mr. Morrison is being granted 150,000
shares of restricted stock each year over his first three years, contingent upon
the achievement of performance measures to be established from time to time by
the Company’s compensation committee. The stock vests at 25% per year over a
four year period.
As part
of Mr. Morrison’s employment agreement he will receive an amount equal to three
times his previous year’s annual salary and bonus if there is a change in
control of ownership of AERTwithin the first three years of his employment.
Additionally, if he is terminated without cause within the first three years of
his employment, he will receive 18 months of pay based on his previous year’s
annual salary and bonus.
On
November 3, 2008, J. R. Brian Hanna joined the Company as its chief
financial officer. The Company and Mr. Hanna agreed to a compensation
package providing for an annual salary of $185,000 and an annual bonus of 25% to
100% of his base salary, subject to the attainment of performance criteria, to
be established by the Company’s Compensation Committee. In addition, Mr. Hanna
was granted 100,000 shares of restricted stock. These shares will vest over four
years, contingent upon the achievement of performance objectives. If there is a
change in control of ownership of AERT within the first three years of his
employment, Mr. Hanna’s existing awards will immediately vest and he will
receive 100,000 shares. Additionally, if he is terminated without cause within
the first three years of his employment, he will receive 18 months of pay
based on his previous year’s annual salary and bonus.
The
Company has no other written employment agreements in effect with its key
executives.
Directors
who are also employees of AERT are not entitled to any additional compensation
by virtue of service as a director, except for reimbursement of any specific
expenses attributable to such service. In 2008, non-employee directors received
annual compensation for board service of $16,000 in cash. Additionally,
non-employees directors received a fee for each full board meeting and committee
meeting they attended. The Company’s directors agreed to forego for 2008 their
annual restricted stock unit awards of shares, which would have had a market
value of $32,000 measured on an average closing sale price basis over a
50-business day period preceding the award. Under the Company’s non-employee
equity incentive plan, newly elected directors are initially granted restricted
stock units equal to a prorated portion of the yearly award based on their
period of service in their initial fiscal year as a director. Previously granted
restricted stock unit awards for directors vest over a three-year period, with
20% of a particular award vesting on the first anniversary thereof, an
additional 30% of such award (50% cumulatively) vesting on the second
anniversary of the award, and the 50% balance of the award vesting on the third
anniversary of the award. In addition, non-employee board committee members
received annual cash compensation as follows: audit committee: $8,000
(chairperson) and $3,000 (other members); compensation committee: $5,000
(chairperson) and $3,000 (other members); nominating committee: $4,000
(chairperson) and $2,000 (other members); technology committee: $3,000
(chairperson) and $1,000 (other members); legal affairs committee: $4,000
(chairperson) and $2,000 (other members); and capital expenditures committee:
$4,000 (chairperson) and $2,000 (other members).
Director
Compensation in 2008
|
|
Fees
Earned or Paid in Cash
|
|
Stock
Awards
|
|
Option
Awards
|
|
Non-Equity
Incentive Plan Compensation
|
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
|
|
All
Other Compensation
|
|
Total
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
|
|
($)
|
|
($)
|
Marjorie
S. Brooks4
|
12,500
|
|
7,500
|
|
-
|
|
-
|
|
-
|
|
-
|
|
20,000
|
Jerry
B. Burkett
|
|
27,875
|
|
25,500
|
|
-
|
|
-
|
|
-
|
|
-
|
|
53,375
|
Edward
P. Carda
|
|
41,000
|
|
26,125
|
|
-
|
|
-
|
|
-
|
|
-
|
|
67,125
|
Melinda
Davis4
|
|
9,500
|
|
7,500
|
|
-
|
|
-
|
|
-
|
|
-
|
|
17,000
|
Tim
W. Kizer
|
|
34,000
|
|
26,125
|
|
-
|
|
-
|
|
-
|
|
-
|
|
60,125
|
Sal
Miwa
|
|
34,375
|
|
25,500
|
|
-
|
|
-
|
|
-
|
|
-
|
|
59,875
|
Peter
S. Lau
|
|
36,250
|
|
6,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
42,250
|
Jim
Robason
|
|
29,500
|
|
25,500
|
|
-
|
|
-
|
|
-
|
|
-
|
|
55,000
|
Michael
M. Tull
|
|
10,500
|
|
25,500
|
|
-
|
|
-
|
|
-
|
|
-(1)
|
|
36,000
|
_____________________
(1)
|
A
company owned by Mr. Tull was paid $543,438 for services in 2008 as an
outside sales representative.
|
(2)
|
At
December 31, 2007, the aggregate number of options outstanding for
each director was as follows: Marjorie S. Brooks — 150,000; Jerry B.
Burkett — 150,000; Melinda Davis — 75,000; Samuel L. Milbank — 75,000; Sal
Miwa — 150,000; Peter S. Lau — 25,000; Jim Robason — 25,000; Michael Tull
— 100,000.
|
(3)
|
At
December 31, 2008, the aggregate number of stock grants outstanding
for each director was as follows: Marjorie S. Brooks — 18,392; Jerry B.
Burkett — 39,765; Edward P. Carda — 38,363; Melinda Davis — 18,392; Tim W.
Kizer — 38,363; Sal Miwa — 39,765; Peter S. Lau — 14,516; Jim Robason —
39,765; Michael Tull —
39,765.
|
(4)
|
Marjorie
S. Brooks and Melinda Davis retired from the board of directors in
2008.
|
EXECUTIVE
OFFICER COMPENSATION
The
following table sets forth the aggregate compensation we paid during the two
years ended December 31, 2008 to the chief executive officer and to each of
our next two most highly compensated executive officers whose total compensation
in 2008 exceeded $100,000.
Summary
Compensation Table
|
|
|
|
Salary
|
|
Stock
Awards
|
|
All
Other Compensation
|
|
Total
|
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Joe
G. Brooks
|
|
2008
|
|
190,000
|
|
-
|
|
14,052
|
2
|
204,052
|
Chairman
and Chief Executive Officer
|
|
2007
|
|
190,000
|
|
-
|
|
16,275
|
3
|
206,275
|
|
|
|
|
|
|
|
|
|
|
|
Timothy
D. Morrison1
|
|
2008
|
|
162,088
|
|
26,875
|
|
99,679
|
4
|
288,642
|
President
|
|
2007
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Jim
Precht
|
|
2008
|
|
131,403
|
|
-
|
|
19,075
|
2
|
150,478
|
Senior
Vice President – Sales and Marketing
|
|
2007
|
|
130,000
|
|
-
|
|
17,800
|
3
|
147,803
|
____________________
1.
|
Mr.
Morrison joined the Company in March
2008.
|
2.
|
The
2008 amounts for Joe G. Brooks and Jim Precht include a company provided
vehicle, the taxable portion of company provided life insurance and a
non-accountable expense allowance of
$12,000.
|
3.
|
The
2007 amounts for Joe G. Brooks and Jim Precht include a company provided
vehicle and a non-accountable expense allowance of
$12,000.
|
4.
|
This
amount represents a relocation allowance of $99,368 and the taxable
portion of company provided life
insurance.
|
Outstanding
Equity Awards at 2008 Calendar Year End
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of Securities Underlying Unexercised Options
|
Number
of Securities Underlying Unexercised Options
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested
(#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
($)
|
Timothy
D. Morrison1
|
-
|
-
|
-
|
-
|
-
|
150,0002
|
25,500
|
-
|
-
|
Jim
Precht
|
100,000
|
-
|
-
|
1.25
|
2/1/11
|
-
|
-
|
-
|
-
|
|
100,000
|
-
|
-
|
1.75
|
2/1/11
|
-
|
-
|
-
|
-
|
|
100,000
|
-
|
-
|
2.25
|
2/1/11
|
-
|
-
|
-
|
-
|
|
100,000
|
-
|
-
|
2.75
|
2/1/11
|
-
|
-
|
-
|
-
|
___________________________
1.
|
As
part of Mr. Morrison’s employment agreement he will receive an amount
equal to three times his previous year’s annual salary and bonus if there
is a change in control of ownership of AERT within the first three years
of his employment. Additionally, if he is terminated without cause within
the first three years of his employment, he will receive 18 months of
pay based on his previous year’s annual salary and
bonus.
|
2.
|
Represents
a restricted stock award pursuant to which 37,500 shares vest annually on
each of March 1, 2009, 2010, 2011 and
2012.
|
Equity
Compensation Plan Information
The
following table provides information as of December 31, 2008, regarding
shares outstanding and available for issuance under our existing stock option
plans.
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
|
Equity
compensation plans approved by security holders
|
1,274,000
|
|
$
1.67
|
|
-
|
Equity
compensation plans not approved by security holders
|
-
|
|
-
|
|
-
|
Total
|
1,274,000
|
|
$
1.67
|
|
-
|
Limited Liability of Officers and
Directors
The
Delaware Supreme Court has held that a directors’ duty of care to a corporation
and its stockholders requires the exercise of an informed business judgment.
Having become informed of all material information reasonably available to them,
directors must act with requisite care in the discharge of their duties. The
Delaware general corporation law permits a corporation through its certificate
of incorporation to exonerate its directors from personal liability to the
corporation or its stockholders for monetary damages for breach of the fiduciary
duty of care as a director, with certain exceptions. The exceptions include a
breach of the directors’ duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or knowing violations of law, improper
declarations of dividends and transactions from which the directors derived an
improper personal benefit. The Company’s certificate of incorporation exonerates
its directors, acting in such capacity, from monetary liability to the extent
permitted by this statutory provision. The limitation of liability provision
does not eliminate a stockholder’s right to seek non-monetary, equitable
remedies such as injunction or rescission to redress an action taken by
directors. However, as a practical matter, equitable remedies may not be
available in all situations and there may be instances in which no effective
remedy is available.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)
of the Securities Exchange Act of 1934 requires AERT’s executive officers and
directors, and persons who own more than ten-percent of a registered class of
the Company’s securities to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and National Association of
Securities Dealers. Officers, directors and greater than ten-percent
stockholders are required by SEC regulation to furnish the Company with copies
of all forms filed pursuant to Section 16(a). Based on a review of the
copies of such forms received by it and written representations from certain
reporting persons that no Forms 4 or Forms 5 were required for those persons,
the Company believes that during the fiscal year ended December 31, 2008;
all Section 16(a) filing requirements were met, except as
follows: Timothy D. Morrison filed a late Form 3 report upon being
appointed president of the Company. J. R. Brian Hanna filed a late Form 3 report
upon being appointed chief financial officer of the Company. Alford Drinkwater,
senior vice-president, filed one late Form 4 report for one transaction related
to the purchase of common stock. Peter Lau, director, filed one late Form 4
report for four transactions related to the sale of common stock.
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
From time
to time, the Company may enter into transactions with related parties. In
reviewing a transaction or relationship, the Board as a whole, with the
interested parties recusing themselves, will take into account, among other
factors it deems appropriate, whether the transaction is on terms no more
favorable than to an unaffiliated third party under similar circumstances, as
well as the extent of the related party’s interest in the
transaction. For each of the following related party transactions,
the Board determined that the transaction was negotiated at arms length and on
no more favorable terms than to an unaffiliated party.
Lease
In
December 2007, the Company entered into a 20-year lease for an existing 16
building complex on 60 acres in Adair County, Oklahoma near the town of
Watts, for construction of a waste plastic washing, recycling, and reclamation
facility. The property is being leased from a corporation controlled by Marjorie
S. Brooks, the Company’s largest stockholder and a former director, with
payments of .0075 cents per pound of plastic recycled, commencing on
January 1, 2009 on a pounds of production, or net throughput of recycled
plastic produced, basis with a minimum rent of $1,000 per month. The throughput
or production rent is due quarterly and is capped throughout the term of the
lease not to exceed $450,000 per year.
Beginning
in 2011, from January 1 to March 1, 2011 for a 60-day period and every
three years thereafter, the Company shall have the right to purchase the site
and any adjoining property of 891 acres required for the operation of its
facility at fair market value.
Commissions
The
Company employs the services of a related party, Tull Sales, Inc. (Tull Sales),
as an outside sales representative. Tull Sales is owned by Michael M. Tull, one
of our directors. Commission costs incurred by the Company for services
performed by Tull Sales were $543,438 in 2008 and $679,390 in 2007.
Guarantee
Marjorie
Brooks; Joe Brooks, the Company’s chairman and chief executive officer; and
Steve Brooks, the Company’s chief operating officer; personally guarantee
repayment of our bank line of credit, which had a balance of $10,579,475 at
December 31, 2008. Marjorie Brooks also guarantees the Company’s $5,758,699
Allstate note. The Company recorded loan guarantee fees of $318,429 in 2008 and
$239,313 in 2007 to compensate Ms. Brooks for her guarantees.
Debt
In 2006
and 2007, we received loans in the amount of $1,000,000 and $750,000,
respectively, from Brooks Investment Company (BIC), which is controlled by Ms.
Brooks. The interest rate on loans outstanding to BIC during 2007 was 9.25%.
During 2007, we made payments to BIC in the amount of $1,750,000 for the
principal portion of loans and $32,124 for interest. There were no loans
outstanding from BIC at December 31, 2008 and 2007.
Raw Material
Purchases
During
2007, we purchased $1,113,000 in plastic and wood fiber through BIC, and paid
$17,000 in interest related to those purchases.
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The
information below sets forth the fees charged by Tullius Taylor
Sartain & Sartain LLP (TTS&S) during 2008 and 2007 for services
provided to the Company in the following categories and
amounts:
|
|
2008
|
|
|
2007
|
|
Audit
fees
|
|
$ |
162,951 |
|
|
$ |
223,900 |
|
Audit-related
fees
|
|
|
11,000 |
|
|
|
10,000 |
|
Tax
fees
|
|
|
29,850 |
|
|
|
12,300 |
|
All
other fees
|
|
|
- |
|
|
|
- |
|
|
|
$ |
203,801 |
|
|
$ |
246,200 |
|
Audit
fees include amounts charged for the audit of the financial statements as of and
for the year ended December 31, 2008, along with fees for the review of the
financial statements for the quarters ended March 31, 2008; June 30,
2008; and September 30, 2008; and fees for post-audit reviews for
registration statement filings. Audit-related fees include the audit of the
financial statements of the AERT 401(k) Plan.
Tax fees
were paid primarily for preparation of federal and state tax returns, along with
consulting services related to certain tax issues.
All of
TTS&S’s fees for 2008 and 2007 were pre-approved by the audit committee
through a formal engagement letter with TTS&S. The audit committee’s policy
is to pre-approve all services by AERT’s independent accountants.
Item 1: Election of
Directors
The
Company currently has nine directors. Seven directors are standing for election
at the May 28, 2009 annual meeting of stockholders. Holders of shares of
outstanding Class A and Class B common stock and Series B
preferred stock voting together as a single class are to elect the board of
directors. Three directors, Tim W. Kizer, Jim Robason and Michael M. Tull, will
be retiring from the board of directors effective May 28, 2009, and one
director, Timothy D. Morrison, will be standing for election at the annual
meeting. To be elected, each director must receive a plurality of the votes cast
at the annual meeting. All directors serve for a term of one year and until
their successors are duly elected and qualified. Each outstanding share of
Class A common stock entitles the holder thereof to one vote with respect
to the election of each of the seven director positions to be filled, each share
of outstanding Class B common stock entitles the holder thereof to five
votes with respect to the elections of each of the seven director positions to
be filled, and each outstanding share of Series D preferred stock is entitled to
a number of votes equal to the number of common shares into which it is then
convertible (currently 10 votes per share of Series D preferred stock) with
respect to the election of each of the director positions to be
filled.
The form
of proxy provides a method for stockholders to withhold authority to vote for
any one or more of the nominees for director while granting authority to vote
for the remaining nominees. If you withhold authority to vote your shares, such
vote will be treated as an abstention and, accordingly, your shares will neither
be voted for or against a director but will be counted for quorum
purposes.
The seven
nominees for director are: Joe G. Brooks, Stephen W. Brooks, Jerry B. Burkett,
Edward P. Carda, Peter S. Lau, Hisao Sal Miwa, and Timothy D. Morrison. All of
the nominees for director are presently serving as directors of the Company,
with the exception of Timothy D. Morrison. Currently, Joe G. Brooks is chairman
and chief executive officer, Stephen W. Brooks is vice-chairman of the board and
chief operating officer, and Timothy D. Morrison is
President.
THE BOARD
RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF THE SEVEN NOMINEES NAMED
ABOVE. PROXY CARDS EXECUTED AND RETURNED WILL BE SO VOTED UNLESS CONTRARY
INSTRUCTIONS ARE INDICATED THEREON.
In the
event one or more nominees become unavailable for election, votes will be cast,
pursuant to authority granted by the proxy, for such substitute nominees as may
be designated by the board of directors. The board of directors has no reason to
believe that any nominee will be unable to serve, if elected.
Subject
to ratification by the stockholders, the board’s audit committee has selected
HoganTaylor LLP to be AERT’s independent registered public accounting firm for
the Company’s fiscal year ending December 31, 2009. Tullius Taylor Sartain
and Sartain LLP (TTS&S) acted as the Company’s independent registered public
accounting firm from 2001 through 2008. On January 7, 2009, TTS&S merged
with Hogan & Slovacek P.C. to form HoganTaylor LLP, which has acted as the
Company’s independent registered public accounting firm since the merger. The
audit committee may terminate the appointment of HoganTaylor LLP as independent
registered public accounting firm without stockholder approval whenever the
audit committee deems necessary or appropriate.
Representatives
of HoganTaylor are expected to attend the annual meeting. They will have the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions from stockholders.
Ratification
of the appointment of the independent registered public accounting firm requires
the affirmative vote of a majority of the voting power present (in person or by
proxy) and entitled to vote at the meeting. In the event that the Company’s
stockholders fail to ratify the appointment of HoganTaylor LLP, the selection of
the Company’s independent registered public accounting firm will be submitted to
the Company’s audit committee for reconsideration.
THE BOARD
RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM. PROXY CARDS EXECUTED AND RETURNED WILL BE SO
VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED
THEREON.
Item
3: Reverse Stock
Split
Since
December 21, 2007, the Company has failed to satisfy the NASDAQ minimum
closing bid price of $1.00 per share and could be subject to NASDAQ delisting
procedures if such noncompliance is not rectified on or before September 19,
2009. If the stock price does not increase to $1.00 or more for at least 10
consecutive trading days to re-establish compliance with NASDAQ’s listing
requirement prior to that date, the Company intends to effectuate a reverse
stock split. On July 24, 2008, the Company’s stockholders approved a
potential reverse stock split to be effectuated by December 15, 2008 at a
ratio to be determined by the board of directors between one-to-two and
one-to-five; however, the deadline for the reverse split has passed and the
previously approved range of reverse split ratios will not bring us into
compliance with the minimum bid price requirement due to the decrease in our
stock price since the original range of ratios was approved.
As a
result, the board of directors has adopted a resolution declaring the potential
advisability of effectuating a reverse stock split (the "Reverse Split") at a ratio to
be determined hereafter by the board of directors of up to
one-to-twenty (as finally determined, the “Reverse Split Ratio” and the
number of shares, up to twenty, ultimately determined by the board of directors
to be reverse split for one share being referred to as the “Reverse Stock Number”) in
order to meet one of the Nasdaq Capital Market’s continued listing requirements,
to be effectuated at any time hereafter if the board determines that
compliance with Nasdaq’s minimum bid requirement is not likely to be otherwise
achieved by an increase in the market price of the common stock, or if the board
determines that other strategic reasons warrant resolving any uncertainty as to
its Nasdaq listing at an earlier date.
Assuming
stockholder approval of this Item and at such time as the board decides to
effectuate the Reverse Split, the Company will provide at least 20 business days
advance notice of the Reverse Split Ratio, Reverse Split Number and intended
Effective Date of the Reverse Split by a press release and Current Report on
Form 8-K.
In order
to effectuate such a Reverse Stock Split and because the Reverse Stock Split
will be effectuated by an amendment to the Company’s certificate of
incorporation requiring stockholder approval, the board of directors also
authorized submitting this Item to the stockholders for approval as a proposal
to amend the Company's certificate of incorporation to effect a reverse split of
the Company's issued and outstanding Class A and Class B common stock on the
effective date of the amendment, on the basis that a number of shares of common
stock equal to the Reverse Split Number, as finally determined by the board,
will be converted into one share. The proposal may be abandoned by
the board of directors at any time before or after the annual meeting and prior
to the date and time at which the Reverse Split becomes effective (the "Effective Date") if for any
reason the board of directors deems it advisable to abandon the
proposal.
The
number of shares of capital stock authorized by the certificate of incorporation
and the $.01 per share par value of the Company's authorized common stock will
not change as a result of the proposed Reverse Split and, as a result, the
Company’s authorized but unissued Class A and Class B common stock will
also be increased. Since the Company’s current pool of authorized
shares of Class A common stock that are unissued and unreserved for
potential derivative securities issuances has grown very small in relation to
its potential future capital needs, this effective increase in available
authorized common stock is an important additional effect of the Reverse Stock
Split.
The
Class B common stock will also be subject to the Reverse Stock Split in
order to preserve the intended one-for-one conversion ratio between Class B
common stock and Class A common stock and as required by the certificate of
incorporation, although the Company will not issue any additional shares of
Class B common stock except in connection with a future stock split of such
Class B common stock concurrent with any future stock split of Class A common
stock.
The
Effect of the proposed Reverse Split on the holders of common stock will be as
follows:
(1)
Holders of record of fewer than a number of shares of common stock equal to the
Reverse Split Number, as finally determined by the board of directors, will have
their shares automatically converted in the Reverse Split on the Effective Date
into the right to receive scrip in lieu of fractional shares as set forth
below. (See "Scrip in Lieu of Fractional Shares").
(2)
Holders of record of a number of shares of common stock equal to or greater than
the Reverse Split Number, as finally determined by the board of directors, will
have their shares automatically converted on the Effective Date by the Reverse
Split into the number of whole shares equal to the number of their shares
divided by the Reverse Split Number, as finally determined by the board of
directors, and the right to receive scrip in lieu of any fractional
shares. (See "Scrip in Lieu of Fractional Shares").
Scrip
in Lieu of Fractional Shares
Stockholders
who hold on the Effective Date fewer than a number of shares of common stock
equal to the Reverse Split Number, as finally determined by the Board, will be
entitled to receive in lieu of fractional shares arising as a result of the
Reverse Split, scrip representing the number of shares of common stock held
prior to the Reverse Split. Stockholders who hold more than a number
of shares of common stock equal to the Reverse Split Number, as finally
determined by the board of directors, will be entitled on the Effective Date to
receive, in lieu of fractional shares arising as a result of the Reverse Split,
scrip representing the number of shares of common stock held prior to the
Reverse Split that are not evenly divisible by the Reverse Split Number, as
finally determined by the board of directors. The Company, as agent
for holders of rights to receive scrip, will, in lieu of issuing scrip to those
entitled to receive scrip, hold and combine scrip into full shares of common
stock, sell such shares, and distribute the net proceeds therefrom to holders of
rights to receive scrip. The Company intends to sell the full shares
of common stock immediately after the Effective Date. The net
proceeds will be prorated among holders of rights to receive scrip in proportion
to the value of such rights to receive scrip; however, no actual distribution
will be made until a stockholder surrenders his or her or its outstanding
certificates and letter of transmittal. References herein to "the
right to receive scrip" will be deemed to be subject to the condition that the
Company has the right, which right will be exercised, to hold and combine scrip
into full shares and sell such shares. As a result, holders of a
right to receive scrip will effectively have a right to receive cash proceeds in
lieu thereof.
Under
Delaware law, scrip may be issued in registered or bearer form and shall entitle
the holder to receive a certificate for a full share of common stock upon the
surrender of scrip aggregating a full share of common stock. Delaware
law further provides that scrip may be issued subject to any conditions which
the board of directors may determine advisable. The board of
directors has
determined
that the Company, as agent for holders of rights to receive scrip, will, in lieu
of issuing scrip to those entitled to receive scrip, issue scrip to itself (as
agent), hold and combine such scrip into full shares of common stock, sell such
shares, and distribute the net proceeds therefrom to holders of rights to
receive scrip. Accordingly, holders of rights to receive scrip will not actually
receive scrip but will instead receive their respective proportionate interests
in the net proceeds derived from the sale of full shares of common stock
representing the combined scrip. A holder of a right to receive scrip will not
be entitled to vote as a stockholder or share in the assets or any future
earnings of the Company.
Any
stockholder owning of record a number of shares of common stock less than the
Reverse Split Number or not evenly divisible by the Reverse Split Number who
desires not to receive scrip may avoid such result by purchasing prior to the
Effective Date sufficient additional shares of the Company's outstanding common
stock in the open market to increase the number of shares held in his or her or
its name to a number of shares equal to the Reverse Split Number or a greater
number of shares that is evenly divisible by the Reverse Split
Number.
As soon
as practicable after the Effective Date, the Company will mail letters of
transmittal to each holder of record of the stock certificate or certificates
which represent issued shares of the Company's common stock outstanding on the
Effective Date. The letter of transmittal will contain instructions
for the surrender of such certificate or certificates to the Company’s transfer
agent in exchange for cash proceeds derived from the sale by the Company, as
agent, of the combined scrip (to be issued in lieu of fractional shares) and/or
certificates representing the number of whole shares of common stock into which
the shares of common stock have been converted as a result of the proposed
Reverse Split. Net cash proceeds derived from the sale by the
Company, as agent, of the combined scrip or new certificate will not be issued
to the stockholder until he or she has surrendered his or her outstanding
certificates together with either letter of transmittal to the Company’s
transfer agent (see "Exchange of Stock Certificates"). The Company will be
required to pay transfer fees and related charges totaling approximately $30,000
in connection with the Reverse Split. Stockholders holding whole shares after
the proposed Reversed Split do not need to surrender old certificates unless
desirous of receiving new certificates. Until surrendered, such old certificates
shall be deemed to represent the number of whole shares to which holders are
entitled as a result of the Reverse Split.
Amendment
to Certificate of Incorporation
An
amendment to the certificate of incorporation, assuming approval of the proposed
Reverse Split by the stockholders at the annual meeting and the determination by
the board of directors to effectuate this Reverse Split at a particular
Reverse Split Ratio determined by the board of directors, will be filed with the
Secretary of State of Delaware and the Reverse Split will become effective on
the date of such filing. Without any further action on the part of the Company
or the stockholders, stockholders of record will have their shares of issued and
outstanding common stock converted, on the Effective Date, into the right to
receive the number of whole shares equal to the number of their shares divided
by the Reverse Split Number and/or the right to receive scrip in lieu of any
fractional shares. The Company will provide at least 20 business days
advance notice of the Reverse Split Ratio, Reverse Split Number and intended
Effective Date of the Reverse Split by a press release and Current Report on
Form 8-K.
Effect
of the Proposed Reverse Split
The
proposed Reverse Split will be effected by means of an amendment to the
certificate of incorporation. Stockholders have no right to dissent
from the proposed Reverse Split of common stock, or to dissent from the issuance
of scrip in lieu of fractional shares, or to dissent from the payment of cash
proceeds (in lieu of issuing scrip to holders entitled to receive scrip) derived
from the sale by the Company, as agent, of the combined scrip, under Delaware
law.
On the
Effective Date, each stockholder of record who owns fewer than a number of
shares of common stock equal to the Reverse Split Number will have only the
right to receive scrip in lieu of receiving fractional shares; the interest of
each such stockholder who owns fewer than a number of shares of common stock
equal to the Reverse Split Number in the Company will thereby be terminated, and
he or she will have no right to vote as a stockholder or share in the assets or
any future earnings of the Company. A holder of a right to receive
scrip will only be entitled to receive his or her proportionate interest in the
net proceeds derived from the sale by the Company, as agent, of full shares of
common stock representing the combined scrip. The full shares of
common stock will be sold in the open market or privately at prices relating to
prevailing market prices at the time of sale. Approval of the proposed Reverse
Split will be deemed approval for the Company to act as agent for holders of
rights to receive scrip for the purpose of holding and combining the scrip into
full shares of common stock for sale, as discussed above.
Each
stockholder on the Effective Date who owns of record a number of shares of
common stock that equals or exceeds the Reverse Split Number will, with respect
to any fractional shares that such stockholder might otherwise be entitled to
receive in the Reverse Split, have only the right to receive
scrip. Any such stockholder will continue as a stockholder of the
Company with respect to the whole share or shares resulting from the Reverse
Split. Each such stockholder will continue to share in the future
growth and earnings of the Company, if any, to the extent of his or her
ownership of shares of common stock following the proposed Reverse
Split.
The
current authorized capital stock of the Company consists of 5,000,000 shares of
preferred stock, 100,000,000 shares of Class A common stock, and 7,500,000
shares of Class B common stock. Based upon the Company's best
estimates, the number of issued and outstanding shares of Class A common stock
would be reduced as a result of the proposed Reverse Split from 47,423,680 to
approximately 2,371,000 if the Reverse Split Number were twenty.
The $.01
per share par value of the Company's authorized capital stock will not be
changed by reason of the proposed Reverse Split. As a result, the
Company's stated capital (defined generally under Delaware law as the sum of the
par value of all shares that have been issued) will be reduced from $496,774 to
approximately $32,000 if the Reverse Split Number were twenty. A reduction in
stated capital will, under Delaware law, create a corresponding increase in
surplus (defined under Delaware law as the excess of net assets (net assets
meaning the amount by which total assets exceed total liabilities) over stated
capital). Delaware law provides that a corporation may make distributions, such
as the payment of dividends, up to the amount of its surplus provided that the
distribution does not cause the corporation to be insolvent.
The
number of stockholders of record who hold odd-lots (assuming that an odd-lot is
something other than 100 shares or a multiple thereof, which is generally the
case) will increase as a result of the proposed Reverse Split. There
is generally increased expense associated with the marketing of odd-lots,
usually in the form of a proportionately higher
commission. Furthermore, odd-lots may be more difficult to market in
relatively thinly traded stocks such as the Company's.
The
common stock is currently registered under Section 12 (b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and as a result, the
Company is subject to the periodic reporting and other requirements of the
Exchange Act. The proposed Reverse Split will not affect the
registration of the common stock under the Exchange Act and the Company has no
present intention of terminating the registration of the common stock under the
Exchange Act in order to become a "private" company.
A
reduction in the number of issued and outstanding shares caused by the effect of
the proposed Reverse Split will increase proportionately the Company's earnings
per share and book value per share. Such an increase, in turn, may
make the common stock more attractive to a broader group of
investors.
There is,
however, no assurance that the market for the company's common stock will be
improved. Stockholders should note that the board of directors cannot predict
what effect the proposed Reverse Split will have on the market price of the
common stock. However, a higher price may diminish the adverse impact
that very low prices have upon the efficient operation of the trading market for
the stock. Also, the brokerage commission on the purchase or sale of
a stock with a relatively low price generally tends to represent a higher
percentage of the sales price than the brokerage commission charged on a stock
with a relatively higher price, to the detriment of the Company's stockholders
and the market for the Company's common stock.
Exchange
of Stock Certificates
As soon
as practicable after the Effective Date, the Company will send letters of
transmittal to all stockholders of record on the Effective Date for use in
transmitting stock certificates ("old certificates") to the Company’s transfer
agent (“Exchange
Agent”). Upon proper completion and execution of the letter of
transmittal and return thereof to the Exchange Agent, together with old
certificates, each stockholder who holds of record fewer than a number of shares
on the Effective Date equal to the Reverse Split Number will receive cash
proceeds derived from the sale by the Company, as agent, of scrip attributable
to such fractional share interests and such fractional share interests will be
deemed for all purposes to represent only the right to receive scrip to which
the holder is entitled as a result of the Reverse Split.
Upon
proper completion and execution of the letter of transmittal and return thereof
to the Exchange Agent, together with old certificates, holders of record of more
than a number of shares on the Effective Date equal to the Reverse Split Number
will receive certificates ("new certificates") representing the number of whole
shares of common stock into which their shares of common stock have been
converted as a result of the Reverse Split. Holders of record of more than a
number of shares on the Effective Date whose shares are not evenly divisible by
the Reverse Split Number will receive cash proceeds derived from the sale by the
Company, as
agent, of
the combined scrip to which they are entitled in lieu of scrip, which scrip will
be issued in lieu of any fractional shares resulting from the Reverse Split.
Until surrendered, each outstanding old certificate held by a stockholder who
holds of record more than a number of shares equal to the Reverse Split Number
shall be deemed for all purposes to represent the number of whole shares and the
right to receive scrip (or cash proceeds derived from the sale by the Company,
as agent, of the combined scrip), if any, to which the holder is entitled as a
result of the Reverse Split (see "Scrip in Lieu of Fractional
Shares").
Federal
Income Tax Consequences of the Proposed Reverse Split
The
following discussion describes certain federal income tax consequences of the
proposed Reverse Split to stockholders of the Company who are citizens or
residents of the United States, other than stockholders who receive their Common
Stock as compensation. The following discussion assumes that the
Company, as agent for holders of rights to receive scrip, will hold and combine
all scrip into full shares of the Company's common stock, sell such common
shares either in the open market or privately (at prices related to prevailing
market prices at the time of sale) and distribute the proceeds therefrom to
holders of rights to receive scrip. In general, the federal income
tax consequences of the proposed Reverse Split will vary among stockholders
depending upon whether they receive (1) solely cash for rights to receive scrip
as a result of the scrip sale, (2) solely new certificates, or (3) new
certificates plus cash for rights to receive scrip as a result of the scrip
sale, in exchange for old certificates. In addition, the actual
consequences for each stockholder will be governed by the specific facts and
circumstances pertaining to his or her acquisition and ownership of the common
stock. Thus, the Company makes no representations concerning the tax
consequences for any of its stockholders and recommends that each stockholder
consult with his or her tax advisor concerning the tax consequences (including
federal, state and local income or other tax) of the proposed Reverse
Split. The Company has not sought and will not seek an opinion of
counsel or a ruling from the Internal Revenue Service regarding the federal
income tax consequences of the proposed Reverse Split. However, the
Company believes that because the proposed Reverse Split is not part of a plan
to periodically increase a stockholder's proportionate interest in the assets or
earnings and profits of the Company, the proposed Reverse Split probably will
have the following federal income tax effects:
(1) A
stockholder who owns fewer than a number of shares of the common stock before
the Reverse Split, and who therefore receives only cash for a right to receive
scrip as a result of the Reverse Split, will be treated as having sold his or
her shares of common stock represented by old certificates and will recognize
gain to the extent that the cash received exceeds his or her basis in such
common stock. If the shares are a capital asset in the hands of the
stockholder, then the gain will be taxed either as a long-term or a short-term
capital gain depending on whether the shares were held for more than one
year. If the stockholder's basis in the shares is greater than the
cash received, and if the shares are a capital asset in the hands of the
stockholder, the stockholder will recognize a long-term or a short-term capital
loss.
(2) A
stockholder who holds a number of shares equal to the Reverse Split Number and
whose shares are evenly divisible by the Reverse Split Number before the Reverse
Split (i.e., a stockholder who is entitled to receive solely new certificates),
will not recognize gain or loss on the exchange. In the aggregate,
such a stockholder's basis in the shares of common stock represented by new
certificates will equal his or her basis in the shares of common stock
represented by old certificates.
(3) A
stockholder who holds a number of shares equal to the Reverse Split Number and
whose shares are not evenly divisible by the Reverse Split Number before the
Reverse Split (i.e., a stockholder who is entitled to receive both new
certificates and cash for a right to receive scrip, in exchange for his or her
old certificates), will not recognize gain or loss on the exchange of old
certificates for new certificates. In the aggregate, such a stockholder's basis
in the shares of common stock represented by new certificates will equal his or
her basis in the highest number of shares of common stock represented by old
certificates that was evenly divisible by the Reverse Split Number. A
stockholder will be treated as having sold the shares not evenly divisible by
the Reverse Split Number, and will recognize gain to the extent the cash
received exceeds the stockholder's basis in the shares. If the shares are a
capital asset in the hands of the stockholder, then the gain will be taxed
either as a long-term or a short-term capital gain depending on whether the
shares were held for more than one year. If the stockholder's basis in the
shares is greater than the cash received, then no gain or loss will be
recognized, and the stockholder's basis in the shares of common stock
represented by new certificates will equal the stockholder's basis in the shares
of common stock represented by old certificates, less the amount of cash
received.
The
proposed Reverse Split will constitute a reorganization within the meaning of
Section 368 (a)(1)(E) of the Internal Revenue Code of 1986 and the Company will
not recognize any gain or loss as a result of the proposed Reverse
Split.
Recommendation
and Vote
The
proposed Reverse Split must be approved by the holders of a majority of the
outstanding shares of the Company's Class A common stock, Class B
common stock and Series D preferred stock, voting on an as converted basis,
voting as a single class. The Company's directors and named executive
officers, or their affiliates, own of record approximately 33.5% of the
Company's voting power, all of which are intended to be voted in favor of the
proposal.
THE BOARD
OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE PROPOSED REVERSE SPLIT.
PROXY CARDS EXECUTED AND RETURNED WILL BE SO VOTED UNLESS CONTRARY
INSTRUCTIONS ARE INDICATED THEREON.
COST AND METHOD OF PROXY
SOLICITATION
The
Company will pay the cost of proxy solicitation. In addition to notices sent by
mail, arrangements will be made with brokers and other custodians, nominees and
fiduciaries to send the necessary materials to their principals and the Company
will, upon request, reimburse them for their reasonable expenses in so
doing.
ADDITIONAL INFORMATION
AVAILABLE
Upon
written request of any stockholder, the Company will furnish, without charge, a
copy of the Company’s 2008 annual report on Form 10-K, as filed with the
SEC, including the financial statements and schedules. The written request
should be sent to investor relations, at the Company’s executive office. The
written request must state that, as of April 3, 2009, the person making the
request was a beneficial owner of capital stock of the
Company.
The SEC
has adopted rules that permit companies and intermediaries such as brokers to
satisfy delivery requirements for proxy statements with respect to two or more
stockholders sharing the same address by delivering a single proxy statement
addressed to those stockholders. This process, which is commonly referred to as
“householding,” potentially provides extra convenience for stockholders and cost
savings for companies. The Company and some brokers household proxy materials,
delivering a single proxy statement to multiple stockholders sharing an address
unless contrary instructions have been received from the affected stockholders.
Once you have received notice from your broker or the Company that they or the
Company will be householding materials to your address, householding will
continue until you are notified otherwise or until you revoke your consent. If,
at any time, you no longer wish to participate in householding and would prefer
to receive a separate proxy statement, please notify your broker if your shares
are held in a brokerage account or the Company if you hold registered shares.
You can notify the Company by sending a written request to investor relations,
Post Office Box 1237, Springdale, Arkansas 72765, by registered, certified,
or express mail.
STOCKHOLDER PROPOSALS FOR THE
ANNUAL MEETING IN 2010
If you
want to present a proposal for possible inclusion in the Company’s proxy
statement for the annual meeting of stockholders in 2010, you may do so by
following the procedures described in SEC Rule 14a-8 by sending the
proposal to Secretary of the Company, Post Office Box 1237, Springdale,
Arkansas 72765, by registered, certified or express mail. Proposals must be
received on or before December 10, 2009. This date is determined by the board
and is based on SEC Rule 14a-8, which states proposals for a regularly
scheduled annual meeting must be received at the company’s principal executive
offices not less than 120 calendar days before the release date of the previous
year’s annual meeting proxy statement.
The board
does not intend to present any items of business other than those stated in the
Notice of Annual Meeting of Stockholders. If other matters are properly brought
before the meeting, the persons named in the proxy will vote the shares
represented by it in accordance with their best judgment. Discretionary
authority to vote on other matters is included in the proxy.
The
foregoing Notice and Proxy Statement are sent by order of the board of
directors.