Human
Understanding
TM
Behind every person is a story...
2020 Annual Report | 2021 Proxy Statement
Company Profile
A company can be described in a variety of ways including the industry it serves, its product, service, or even size.
However, at its core, every organization is a collection of its associates. Listed below is who we are.
Carling Adams
Molly Adamson
Veronica Adekile
Junayed Ahmed
Lindsey Akiyama
Echo Alexander
Sophia Ali
Ben Allemann
Taylor Almquist
Karen Althouse
Eliot Anderson
Mike Anderson
Kathy Anstine
Jess Arter
Test Associate
Sina Attaie
Michelle Bachman
Desarie Ball
Cindy Ballow
Emily Barker
Jackie Barnhart
Jason Barry
Nick Bartholomai
Steve Barton
Anna Bates
Allan Bautista
Amanda Beardsley
Ricardo Beas Medina
Rachel Beavers
Heidi Behrens
Nick Beiermann
Jocelyn Belden
Adam Benash
Sara Bennett
India Bercey
Miguel Betancourt Soto
Dan Biggs
Tracy Black
Cody Bodfield
Kasy Bodfield
Jeff Bogner
Spencer Bogus
Ava Bohlender
Ryan Bondegard
Jon Boumstein
Kassandra Braaten
Lindsey Bradley
Nick Brandt
Nicki Bratten
Leanne Bristol
Dawn Brock
Erin Brodhagen
Ryan Broker
David Bronson
Tyler Brothers
Jenn Brown
Sandrina Brown
Dustin Bruce
Dawn Brunke Helmstadter
Jenny Brunke
Katie Bruss
Haley Bucknell
Tyler Burbach
Brett Burkard
Justin Burns
Kenzie Busekist
Chris Butler
Jamie Cajka
Danielle Calhoun
Nick Canino
Corry Caouette
June Captain
Carly Carlson
Janet Carlson
Karol Carlson
Naila Carneiro
Kathy Carroll
Mary Ann Castillo
Erin Cerretta
Isak Chai
Megan Charko
Anna Chitepu
Bryan Christiancy
Bailey Christy
Jared Chulufas
Justin Clark
Brianne Clark
Alayna Clouston
Kim Clouston
Alyssa Conn
Breanna Cook
Kelsey Cook
Tim Cook
Ashley Cosgriff
Heather Costa-Greger
Teresa Costello-Raddatz
Lindsay Coupens
Ken Cousino
Chase Craddock
Karla Cram
Melissa Cummings
Shayne Cuong
Pat Dabney
Matt Dahlke
Kathleen Damme
Jake Daniel
Rob Davis
Ashlee Deeds
Tyler Dempsay
Lauryn Dermit
Lauri Dettmer
Julie Diaz
Jennifer Dietze
Ryan Donohue
John Dorn
Chandler Drake
Connor Drake
Austin Edstrom
TJ Ehlers
Sara Ehnes
Zane Ehnes
Hannah Eisert
Jhordan Elsberry
William England
Matt Engler
Andy Essink
Maggie Essink
Jared Eubank
Jillian Fast
Ashley Felker
Beki Ferguson
Bobbie Ficken
Travis Ficken
Micaela Fikar
Brian Finck
Jeanie Fisher
Lauren Fix
Aliya Flores
Michelle Folken
Travis Freeburg
Rachelle Friesen
Jessica Frink
Ben Frodyma
Sarah Fryda
Jing Fu
Cortney Galvin
Brooke Garbison
Lesly Garcia
Alex Gerch
Tim Gerken
Jeff Gill
Dave Gilsdorf
Andy Glenn
Aislinn Goodrich
Toya Gorley
Jenny Grant
Patrick Griffin
Abbie Grim
Lydia Grossenbacher
Meghan Gull
David Gutgesell
Ashley Haas
Brooke Hagel
Candis Hager
Marty Hager
Ted Hailer
Dan Halverson
Rachel Hamilton
Tracy Hanger
Hailey Hanlin
Jon Hanseling
Dave Hansen
Kathleen Hansen
John Harkendorff
Courtney Harper
Ryan Harpham
Claire Harris
Malik Harrison
Tom Hart II
Shannon Hasemann
Kylee Hasenauer
Ryan Hatt
Kirsten Hattan
Renee Hauser
Britt Hayes
Shannon Hayes
Mike Hays
Kipp Heidtbrink
Marypat Heineman
Becky Hergert
Bret Hermsen
Betti Herring
Jimmy Hilaire
James Hill
Deb Hinds
Carmen Hinseth
Bryony Hokanson-Jack
Jason Holm
Alaia Holmes
Christina Holton
Kelly Honke
Holly Hopkins
Kim Houle
Helen Hrdy
Dorothy Hu
Ming Huang
Dena Hughes
Ada Hui
Greg Humlicek
LaDonna Humphrey
Katie Hunke
Rachel Hupp
Brandon Hurley
Elisabeth Hurst
Eric Hyde
Tharziv Ilangovan
Camille Jackson
Todd Jarchow
Erika Johnson
Jean Johnson
Katie Johnson
Nygel Jones
Jamie Jorgenson
Ligy Joseph
Kayce Kahl
Ryan Kalkwarf
Mel Kamm
Kevin Karas
Emily Karnish
Dana Kearse
Kevin Kelly Jr.
Steve Kepler
Triet Khuc
Jennifer Kimmons
Kate Kimmons
Alicia King
Shawnelle King
Sam Kingsley
Mike Koh
Rich Kortum
Bill Kossack
Pete Kostelnick
Glenn Kramer
Annie Krein
Katie Kriegler
Justin Kubick
Jon Kuehler
Billy Kuehn
Brian Kvapil
Paige Lacey
Heath Lamb
Andy Lambert
Heather Lannin
Lindsay Laug
McKenna Lee
Bonny Lehmer
Garth Lienemann
Richard Lierman
Sheri Life
Kaili Little
Lu Liu
Anne Loethen
Scott Logan
Justin Longnecker
Rocio Lopez
Amanda Loseke
Pam Luciano
Greg Ludvik
Katrina Lupsiakova
Ken Lynch Jr.
Manasa Madabhushi
Linda Magin
Greg Makoul
Laine Makoul
Joel Maloof
Jamie Manley
Nathan Marra
Tracy Marshall
Brad Martins
Austin Martz
Jake Mastera
Corey Matejka
Bridget Matthiessen
Larry Mayer Jr.
Bryant McCann
Shannon McCann
Patrick McCarthy
Rusty McConnell
Jo Mcelwain
Laura McLeod
Linda Meeker
Maggie Mendoza
Amanda Merritt
Jason Messerli
Jenni Metzler
Amber Meyer
Emilio Meza
AJ Miller
Ian Miller
Matthew Miller
Nolan Miller
Randi Miller
Lisa Minchow
Yuri Miranda
Cami Mitelman
Kade Mohrman
Sheena Mommens
Ken Morton
Shelly Morton
Rose Moss
Laura Moulton
Archana Muduganti
Kathy Mummert
Ana Munoz
Chloe Murphy
Luanne Murphy
Molly Murphy
Tom Myers
Kaitlyne Nash
Pam Nelson
Sara Nelson
Taylor Nelson
Tristen Nelson
Emma Newcomb
James Newton
Jason Newton
Emily Ngo
Jennifer Nguyen
Joan Niemann
Courtney Nitzel
Courtney Nore
Sam Norman
Keshia Norris
Roxana Novoa
Breanna Obermier
Courtney Oldham
Laura Olinger
Drew Oliver
Levi Olson
Tony Ong
Michelle Ostia
Tim Ottersburg
John Palmer
Kayla Papazian
De’Juan Parker
Shilpa Patel
Komal Pattni
Connie Pautz
Alex Pavlik
Jordan Pedersen
Heidi Peirce
Kathryn Peisert
Christa Peters
Michelle Peters
Dana Petersen
Lisa Stolzenburg
Ryan Stoner
Vanessa Stuart
Melissa Summers
Dana Svehla
Sydney Svoboda
Sean Swanson
Jon Tanner
Kim Taruc
Megan Taruc
Tonya Tedrick
Jake Tegler
Allison Thomas
Sean Thomas
Micheal Thompson
Matt Timbs
James Tobey
Mia Tompkins
Eugene Tong
Shayla Underwood
Marci Vander Tuig
Peggy Vaughn
Mike Vaughn
Ryan Vavra
Priya Visweswaran
Gunter Voelker
Becky Volten
Vicki Vopalensky
Kayla Wagner
Rachel Wagner
Ari Wait
Seth Walker
Maxia Webb
Jenny Weber
Sam Weis
Dara Wells
KK West
Andie Westling
Deb Weyers
Connie White
Jenny Wieseler
Karen Wilken
Minon Wilkinson
Tanner Wilkinson
Joshua Willey
Brinn Williams
Sara Winchell
Rob Wirth
Kendall Witt
Emilie Wohlers
Erin Wolter
Kelli Woods
Charlie Woodward
Meghan Wright
Brian Wynne
Keith Wysocki
Joe Xiao
Josh Yeoman
Ian York
Ilze Young
Jon Young
Anita Yu
Alex Yuan
Natalia Yunge Ossenkop
Jason Zulkoski
Spencer Phillips
Tyler Phillips
Sara Pickrel
Rachel Pinos
Abby Plybon
Devika Pondicherry
Bailey Pons
Elliot Presnell
Alex Preston
Molly Preston
Jacob Pribnow
Taylor Price
Abby Protzman
Jona Raasch
Giana Rada
Judy Radford
Cydnee Rand
Angie Rauner
Ryan Real
Melissa Recio
Joshua Rector
Luisa Restrepo
Desiree Reutzel
Aulii Reyes
Katie Rhone
Dylan Ritchie
Corbin Rix
Karen Robertus
Andre Rodrigues Ferreira
Christy Rohe
Marcie Rohlfs
Natalie Rose
Kim Ruff
Tiffany Ryck
Deya Salgado
Parker Scheer
Mitchell Scheuler
Nathan Schmitz
Kelsey Schneider
Wes Schoenfelder
Rana Schreiber
Justin Schuerman
April Schulz
Hannah Schwanebeck
Tawna Schwarz
Matthew Seems
Colleen Selvage
Josh Sexson
Maggie Sexson
Mary Shaw
Evan Sheaff
Ben Shelton
Grant Shinn
Sarah Shockey
Hannah Skiff
Kelly Slama
Ted Smidberg
Jay Smith
Raquel Smith
Shak Sobuj
Linda Stacy
Carla Steadman
Amber Steffen
Andy Steffen
Jenelle Stein
DeAnn Stephan
Jake Stephens
Erin Steuben
Joel Steuben
Jackie Stevens
Stan Sticka
Annual Meeting
The annual meeting of shareholders will be held on June 29, 2021, at 12:30 p.m. Central Time,
live via the Internet at www.virtualshareholdermeeting.com/nrc2021.
To Our Owners:
The power of resiliency.
The chief medical officer of a major health-system client recently related his organization’s quest to move
from 40 telehealth visits a day to an aspirational level of 400 telehealth visits a day over the next few
years—only to find themselves driven by the onset of COVID-19 to successfully deliver on over 4,000
telehealth visits a day.
Closer to home, I vividly recall a session with NRC Health leadership in which we discussed our desire to
“over time” optimize culture, consistency, and connectivity across a few remote associates, only to witness
a pivot, within moments of the arrival of COVID-19, to 500 associates dispersed in lockstep.
Outside of all the pain and tragedy it represents, history may well reference the pandemic as having proven
that the slow adoption of innovation and change is our greatest waste. All too often we, as leaders, exert
energy setting limiting goals and inordinate amounts of time thinking too small, and gain a false sense of
comfort—supported by perpetual committees and taskforces—that progress is afoot.
We must take to heart that what is allowed to remain is an endorsement.
Most transformational pivots occur in moments of crisis, when survival is only secured through the rapid
adoption of innovation and when there’s no time to consider why something won’t work. In such moments,
people’s intuition is on steroids, focused on purpose. Processes are quickly established, self-governing
kicks in, and the village comes to life co-producing success. What was historically assumed to be required
becomes disposable; the impossible becomes routine; the compression of time unfathomable.
If there was ever any doubt, operationalizing innovation is possible when hesitancy is removed. Prevailing
wisdom suggests that change is hard and requires converting non-believers. But perhaps unleashing the
power of resiliency, rather than embarking on yet another exhausting journey to justify the change, may
provide our greatest and quickest returns on innovation.
Change is easy and inspiring among those who embrace it.
For NRC Health, believing in the resiliency of our associates is a powerful lever and is at the top of our list
for generating shareholder value and societal good.
Sincerely,
Michael D. Hays
Fellow Owner
[This page intentionally left blank]
NATIONAL RESEARCH CORPORATION
D/B/A NRC Health
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 29, 2021
To the Shareholders of
National Research Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of National Research
Corporation will be held on Tuesday, June 29, 2021, at 12:30 P.M., Central Time, via the Internet at
www.virtualshareholdermeeting.com/nrc2021, for the following purposes:
1.
To elect two directors to hold office until the 2024 annual meeting of
shareholders and until their successors are duly elected and qualified.
2.
To ratify the appointment of KPMG LLP as our independent registered public
accounting firm for 2021.
3.
To conduct an advisory vote to approve the compensation of our named executive
officers as disclosed in the accompanying proxy statement.
4.
To approve the reincorporation of National Research Corporation from the State
of Wisconsin to the State of Delaware pursuant to a plan of conversion.
5.
To approve our Delaware Certificate of Incorporation increasing the total number
of shares of the Company’s authorized common stock.
6.
To approve our Delaware Certificate of Incorporation removing restrictions on
business combinations.
7.
To approve a provision in our Delaware Certificate of Incorporation opting out
of Delaware General Corporation Law Section 203 in connection with the reincorporation to
Delaware; and
8.
To consider and act upon such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The close of business on May 5, 2021, has been fixed as the record date for the determination of
shareholders entitled to notice of, and to vote at, the meeting and any adjournment or postponement
thereof.
A proxy for the meeting and a proxy statement are enclosed herewith.
By Order of the Board of Directors
NATIONAL RESEARCH CORPORATION
Kevin R. Karas
Secretary
Lincoln, Nebraska
June 3, 2021
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be
Held on June 29, 2021. The National Research Corporation proxy statement for the 2021 Annual
Meeting of Shareholders and the 2020 Annual Report to Shareholders are available at
www.proxyvote.com.
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS
MAY BE. TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE DATE THE
ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, SIGN
EXACTLY AS YOUR NAME APPEARS THEREON AND RETURN IMMEDIATELY.
TABLE OF CONTENTS
General Information about the Annual Meeting ....................................................................
Proposal No. 1 – Election of Directors ..................................................................................
Page
1
3
Security Ownership of Certain Beneficial Owners and Management ................................... 13
Proposal No. 2 – Ratification of the Appointment of Independent Registered Public
Accounting Firm .................................................................................................................... 15
Compensation Discussion and Analysis ................................................................................ 16
Proposal No. 3 – Advisory Vote on Executive Compensation .............................................. 27
Commentary from the Board of Directors on Proposals 4 through 7 .................................... 29
Proposal No. 4 – Approval of the Company Reincorporating from the State of Wisconsin
to the State of Delaware .........................................................................................................
Proposal No. 5 – Approval of our Certificate of Incorporation Increasing the Number of
Authorized Shares of Common Stock....................................................................................
Proposal No. 6 – Approval of our Certificate of Incorporation Removing Restrictions on
Business Combinations ..........................................................................................................
Proposal No. 7 – Approval of a Provision in our Certificate of Incorporation Opting Out
of DGCL Section 203 ............................................................................................................
30
46
50
52
Fees Paid to Independent Registered Public Accounting Firm ............................................. 54
Appendix A – Plan of Conversion ......................................................................................... A-1
Appendix B – Wisconsin Certificate of Conversion .............................................................. B-1
Appendix C – Delaware Certificate of Conversion ............................................................... C-1
Appendix D – Delaware Certificate of Incorporation............................................................ D-1
Appendix E – Delaware Bylaws ............................................................................................ E-1
Proxy Card ............................................................................................................................. F-1
[This page intentionally left blank]
NATIONAL RESEARCH CORPORATION
D/B/A NRC Health
1245 Q Street
Lincoln, Nebraska 68508
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 29, 2021
This proxy statement is being furnished to shareholders by the Board of Directors (the “Board”)
of National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,”
“our,” “us” or similar terms), beginning on or about June 3, 2021, in connection with a solicitation of
proxies by the Board for use at the Annual Meeting of Shareholders to be held on Tuesday, June 29,
2021, at 12:30 P.M., Central Time, virtually via the Internet at
www.virtualshareholdermeeting.com/nrc2021, and all adjournments or postponements thereof (the
“Annual Meeting”) for the purposes set forth in the attached Notice of Annual Meeting of Shareholders.
Execution of a proxy given in response to this solicitation will not affect a shareholder’s right to
vote their shares during the Annual Meeting. Participation at the Annual Meeting of a shareholder who
has signed a proxy does not in itself revoke a proxy. Any shareholder giving a proxy may revoke it at any
time before it is exercised by giving notice thereof to us in writing or in open meeting. Instructions on
how to vote while participating in the Annual Meeting live via the Internet are posted at
www.virtualshareholdermeeting.com/nrc2021.
A proxy, in the enclosed form, which is properly executed, duly returned to us and not revoked,
will be voted in accordance with the instructions contained therein. The shares represented by executed
but unmarked proxies will be voted as follows:
• FOR the two persons nominated for election as directors referred to herein;
• FOR the ratification of the appointment of KPMG LLP as our independent registered public
accounting firm for 2021;
• FOR the advisory vote to approve the compensation of the individuals named in the
Summary Compensation Table set forth below in this proxy statement (such group of
individuals are sometimes referred to as our named executive officers);
• FOR the reincorporation of National Research Corporation from the State of Wisconsin to the
State of Delaware pursuant to a plan of conversion;
• FOR our Delaware Certificate of Incorporation increasing the total number of shares of the
Company’s authorized common stock;
• FOR our Delaware Certificate of Incorporation removing restrictions on business
combinations;
• FOR the approval of a provision in our Delaware Certificate of Incorporation opting out of
Delaware General Corporation Law Section 203 in connection with the reincorporation to
Delaware; and
1
• On such other business or matters which may properly come before the Annual Meeting in
accordance with the best judgment of the persons named as proxies in the enclosed form of
proxy.
Other than the election of two directors, the ratification of the appointment of KPMG LLP as our
independent registered public accounting firm for 2021, the advisory vote to approve the compensation of
our named executive officers, the reincorporation from the State of Wisconsin to the State of Delaware,
increasing the total number of shares of the Company’s authorized common stock in our Delaware
Certificate of Incorporation, removing restrictions on business combinations in our Delaware Certificate
of Incorporation, and in connection with the reincorporation, the approval of a provision in our Delaware
Certificate of Incorporation opting out of Delaware General Corporation Law Section 203, the Board has
no knowledge of any matters to be presented for action by the shareholders at the Annual Meeting.
Only holders of record of our common stock, $.001 par value per share (the “Common Stock”), at
the close of business on May 5, 2021 (the “Record Date”), are entitled to vote at the Annual Meeting. On
that date, we had outstanding and entitled to vote 25,439,013 shares of Common Stock, each of which is
entitled to one vote per share. The presence at the Annual Meeting, via live webcast or by proxy, of a
majority of the votes entitled to be cast shall constitute a quorum for the purpose of transacting business at
the Annual Meeting. Abstentions and broker non-votes will be counted as present in determining whether
there is a quorum.
Information Regarding Participation in the Annual Meeting via the Internet
Due to the public health impact of the coronavirus outbreak (COVID-19) and to support the
health and well-being of our associates and shareholders, we will be hosting the Annual Meeting live via
the Internet. You will not be able to attend the Annual Meeting in person. Any stockholder can listen to
and participate in the Annual Meeting live via the Internet at
www.virtualshareholdermeeting.com/nrc2021. The Annual Meeting webcast will begin promptly at
12:30 P.M., Central Time. We encourage you to access the Annual Meeting webcast prior to the start
time. Online check-in will begin, and stockholders may begin submitting written questions, at 12:15
P.M., Central Time, and you should allow ample time for the check-in procedures.
You will need the 16-digit control number included on your proxy card or voting instruction
form, or included in the e-mail to you if you received the proxy materials by e-mail, in order to be able to
vote your shares or submit questions during the Annual Meeting. Instructions on how to connect to the
Annual Meeting and participate via the Internet, including how to demonstrate proof of stock ownership,
are posted at www.virtualshareholdermeeting.com/nrc2021. If you do not have your 16-digit control
number, you will be able to access and listen to the Annual Meeting but you will not be able to vote your
shares or submit questions during the Annual Meeting. Our virtual meeting platform vendor will have
technicians ready to assist you with any technical difficulties you may have accessing the virtual meeting
or submitting questions. If you encounter any difficulties accessing the virtual meeting during the check-
in or meeting time, please call the technical support number that will be posted on the Virtual Shareholder
Meeting login page.
2
PROPOSAL NO. 1 – ELECTION OF DIRECTORS
Our By-Laws provide that the directors shall be divided into three classes, with staggered terms
of three years each. At the Annual Meeting, the shareholders will elect two directors to hold office until
the 2024 annual meeting of shareholders and until their successors are duly elected and qualified. Unless
shareholders otherwise specify, the shares represented by the proxies received will be voted in favor of
the election as directors of the two persons named as nominees herein. The Board has no reason to
believe that the listed nominees will be unable or unwilling to serve as directors if elected. However, in
the event that any nominee should be unable to serve or for good cause will not serve, the shares
represented by proxies received will be voted for another nominee selected by the Board. Each director
will be elected by a plurality of the votes cast at the Annual Meeting (assuming a quorum is present).
Consequently, any shares not voted at the Annual Meeting, whether due to abstentions, broker non-votes
or otherwise, will have no impact on the election of the directors. Votes will be tabulated by an inspector
of elections appointed by the Board.
The following sets forth certain information, as of May 5, 2020, about the Board’s nominees for
election at the Annual Meeting and each director of the Company whose term will continue after the
Annual Meeting.
Nominees for Election at the Annual Meeting
Terms expiring at the 2024 Annual Meeting
Michael D. Hays, 66, has served as Chief Executive Officer and a director since he founded the
Company in 1981. He also served as President of the Company from 1981 to 2004, from July 2008
to July 2011, and from October 2020 to present. Prior to founding the Company, Mr. Hays served for
seven years as a Vice President and a director of SRI Research Center, Inc. (n/k/a the Gallup
Organization). Mr. Hays’ background as founder of the Company, and his long and successful tenure as
Chief Executive Officer and a director, led to the conclusion that he should serve as a director of the
Company.
John N. Nunnelly, 68, has served as a director of the Company since December 1997. Mr.
Nunnelly is a retired Group President from McKesson Corporation, a leader in pharmaceutical
distribution and healthcare information technology. During his 28-year career at McKesson, Mr.
Nunnelly served in a variety of other positions, including Vice President of Strategic Planning and
Business Development, Vice President and General Manager of the Amherst Product Group and Vice
President of Sales-Decision Support. These responsibilities included leading several business units,
including one with over $360 million in annual revenue. In addition, he was involved in managing a
number of mergers and acquisitions. Mr. Nunnelly has also served as an adjunct professor at the
University of Massachusetts, School of Nursing, advising students and faculty on matters pertaining to
healthcare information technology. These experiences and Mr. Nunnelly’s expertise as a professional and
educator in the field of healthcare information technology led to the conclusion that he should serve as a
director of the Company.
THE BOARD RECOMMENDS THE FOREGOING NOMINEES FOR ELECTION AS
DIRECTORS AND URGES EACH SHAREHOLDER TO VOTE “FOR” SUCH NOMINEES.
SHARES OF THE COMPANY’S COMMON STOCK REPRESENTED BY EXECUTED BUT
UNMARKED PROXIES WILL BE VOTED “FOR” SUCH NOMINEES.
3
Directors Continuing in Office
Terms expiring at the 2022 Annual Meeting
Donald M. Berwick, 74, has served as a director of the Company since October 2015. Dr.
Berwick is the former President and Chief Executive Officer of the Institute for Healthcare Improvement,
which he co-founded and led for almost 20 years, and where he now serves as President Emeritus and
Senior Fellow. He is also currently a Lecturer in the Department of Health Care Policy at Harvard
Medical School. From July 2010 to December 2011, Dr. Berwick served as the Administrator of the
Centers for Medicare and Medicaid Services as an appointee of President Barack Obama. Dr. Berwick
previously served on the faculty of the Harvard Medical School and the Harvard School of Public Health
(from 1974 to 2010). He was also vice chair of the U.S. Preventive Services Task Force (from 1990 to
1995), the first “Independent Member” of the Board of Trustees of the American Hospital Association
(from 1996 to 1999) and the chair of the National Advisory Council of the Agency for Healthcare
Research and Quality (from 1995 to 1999). Dr. Berwick’s expertise as a professional, administrator,
lecturer and educator in the field of healthcare led to the conclusion that he should serve as a director of
the Company.
Stephen H. Lockhart, 62, has served as a director of the Company since May 2021. Dr.
Lockhart served as senior vice president and chief medical officer for Sutter Health Network, a not-for-
profit system of hospitals, physician organizations, and research institutions in Northern California, from
2015 to 2021. Prior to that role, Dr. Lockhart served as Sutter Health Network’s regional chief medical
officer for the East Bay Region from 2010 to 2015. From 2008 to 2010, Dr. Lockhart served as the chief
administrative officer at the St. Luke’s campus of Sutter’s California Pacific Medical Center. In 2017, Dr.
Lockhart was named to California Governor Brown’s Advisory Committee on Precision Medicine as part
of California’s effort to use advanced computing and technology to better understand, treat, and prevent
disease. Dr. Lockhart serves on the board of Molina Healthcare, Inc. (NYSE: MOH), a health plan
provider under Medicaid and Medicare programs and in state insurance marketplaces. Dr. Lockhart also
serves on the boards of the ECRI Institute, Recreational Equipment, Inc., the David and Lucile Packard
Foundation, and is chairman of Parks California – a nonprofit dedicated to supporting California's parks
and public lands. Dr. Lockhart’s 35 years of experience in the healthcare industry and his background as
medical provider and administrator in a large healthcare system led to the conclusion that he should serve
as a director of the Company.
Terms expiring at the 2023 Annual Meeting
JoAnn M. Martin, 66, has served as a director of the Company since June 2001. Ms. Martin
served as the Vice Chair of the Board of Ameritas Mutual Holding Company, Ameritas Holding
Company, and Ameritas Life Insurance Corp. (“Ameritas”) until May 2021. Ms. Martin was elected
President and Chief Executive Officer of Ameritas, an insurance and financial services company, in July
2005 and served as Chair and Chief Executive Officer until January 2020. From April 2003 to July 2005,
she served Ameritas as President and Chief Operating Officer. Prior to that role, Ms. Martin served as
Senior Vice President and Chief Financial Officer of Ameritas for more than the preceding five years. In
April 2009, Ms. Martin was elected Chief Executive Officer of Ameritas Holding Company and Ameritas
Mutual Holding Company (previously named UNIFI Mutual Holding Company), where she had served as
Executive Vice President and Chief Financial Officer for more than the preceding five years, and served
as Chief Executive Officer of Ameritas Mutual Holding Company until January 2020. Prior to her
retirement from the position of Chief Executive Officer in January 2020, Ms. Martin had served as an
officer of Ameritas and/or its affiliates since 1988. Ms. Martin has also served as a director of Nelnet, Inc.
(NYSE: NNI), a diversified educational services, technology solutions, telecommunications, and asset
management company, since March 2020 and currently serves on Nelnet’s Audit Committee. Ms.
Martin’s financial background as a certified public accountant and as the former Chief Financial Officer
and Chief Executive Officer of a mutual insurance holding company, as well as her past leadership
4
experiences as a director of the Omaha Branch of the Federal Reserve Bank of Kansas City and other
organizations, led to the conclusion that she should serve as a director of the Company.
Penny A. Wheeler, 63, has served as a director of the Company since May 2021. Since 2015,
Dr. Wheeler has served as the chief executive officer of Allina Health, a not-for-profit healthcare system
serving over 1.5 million individuals in Minnesota and western Wisconsin. Prior to that role she served as
chief clinical officer since 2006. For 20 years, Dr. Wheeler has also served as a board certified
obstetrician/gynecologist where she spent considerable time interacting with, and caring for, patients and
the community. In 2015, Minnesota Governor Mark Dayton appointed Dr. Wheeler to the Taskforce for
Health Care Financing, and Dr. Wheeler has been named as one of the top 25 women in health care by
Modern Healthcare magazine. Dr. Wheeler also serves on the board of Portico Healthnet, a not-for-profit
organization dedicated to helping uninsured Minnesotans receive affordable health coverage and care, St.
Thomas University, and the University of Minnesota Foundation. She is also on the Board of Cedar
Cares, an organization that eases the patient billing experience through customized engagement. Dr.
Wheeler’s past leadership experiences in the healthcare industry led to the conclusion that she should
serve as a director of the Company.
Independent Directors and Annual Meeting Attendance
CORPORATE GOVERNANCE
Of the six directors currently serving on the Board, the Board has determined that Donald M.
Berwick, JoAnn M. Martin, John N. Nunnelly, Stephen H. Lockhart, and Penny A. Wheeler are
“independent directors” as that term is defined in the listing standards of The NASDAQ Stock Market.
Directors are typically expected to attend our annual meeting of shareholders each year. For the
2021 Annual Meeting, such attendance will be through the Internet via live webcast. Each of the
directors attended our 2020 annual meeting of shareholders.
Currently, we do not have a chairman, and the Board does not have a policy on whether the roles
of chief executive officer and chairman should be separate. The Board has, however, designated a lead
director since 2007, with Ms. Martin serving as the lead director from 2007 until May 2012 and Mr.
Nunnelly serving as the lead director since May 2012. The Board believes its current leadership structure
is appropriate at this time since it establishes our chief executive officer as the primary executive leader
with one vision and eliminates ambiguity as to who has primary responsibility for our performance.
The lead director is an independent director who is appointed by the independent directors and
who works closely with the chief executive officer. In addition to serving as the principal liaison between
the independent directors and the chief executive officer in matters relating to the Board as a whole, the
primary responsibilities of the lead director are as follows:
Preside at all meetings of the Board at which the chief executive officer is not present,
including any executive sessions of the independent directors, and establish agendas for such
executive sessions in consultation with the other directors and the chief executive officer;
Advise the chief executive officer as to the quality, quantity, and timeliness of the flow of
information from management that is necessary for the independent directors to effectively
perform their duties;
Have the authority to call meetings of the independent directors as appropriate; and
Be available to act as the spokesperson for the Company if the chief executive officer is
unable to act as the spokesperson.
5
Committees
The Board held eleven meetings in 2020. All persons serving as directors in 2020 attended at
least 75% of the meetings of the Board and the committees on which they served during 2020.
The Board has a standing Audit Committee, Compensation and Talent Committee, Nominating
Committee and Strategic Planning Committee. Each of these committees has the responsibilities set forth
in formal written charters adopted by the Board. We make available copies of each of these charters free
of charge on our website located at www.nrchealth.com/our-purpose/investor-relations/corporate-
governance/. Other than the text of the charters, we are not including the information contained on or
available through our website as a part of, or incorporating such information by reference into, this proxy
statement.
The Audit Committee’s primary function is to assist the Board in fulfilling its oversight
responsibilities by overseeing our systems of internal controls regarding finance, accounting, legal
compliance and ethics that management and the Board have established; our accounting and financial
reporting processes; and the audits of our financial statements. The Audit Committee presently consists
of JoAnn M. Martin (Chairperson), John N. Nunnelly, and Donald M. Berwick, each of whom meets the
independence standards of The NASDAQ Stock Market and the Securities and Exchange Commission for
audit committee members. The Board has determined that JoAnn M. Martin qualifies as an “audit
committee financial expert,” as that term is defined by the Securities and Exchange Commission, because
she has the requisite attributes through, among other things, education and experience as a president, chief
financial officer and certified public accountant. The Audit Committee held five meetings in 2020.
The Compensation and Talent Committee determines compensation programs for our executive
officers, reviews management’s recommendations as to the compensation to be paid to other key
personnel and administers our equity-based compensation plans. The Compensation and Talent
Committee presently consists of Donald M. Berwick (Chairperson), JoAnn M. Martin, and John N.
Nunnelly, each of whom meets the independence standards of The NASDAQ Stock Market and the
Securities and Exchange Commission for compensation committee members. The Compensation and
Talent Committee held two meetings in 2020. From time to time, with the last time being in 2015, the
Compensation and Talent Committee or our management has engaged a nationally recognized
compensation consultant to assist us in our review of our compensation and benefits programs, including
the competitiveness of pay levels, executive compensation design issues, market trends and technical
considerations. The Compensation and Talent Committee, however, did not use this information in
setting the compensation of our executive officers in 2020.
The Nominating Committee presently consists of Donald M. Berwick (Chairperson) and John N.
Nunnelly, each of whom meets the independence standards of The NASDAQ Stock Market for
nominating committee members. The Nominating Committee’s primary functions are to: (1) recommend
persons to be selected by the Board as nominees for election as directors and (2) recommend persons to
be elected to fill any vacancies on the Board. The Nominating Committee held three meetings in 2020.
The Strategic Planning Committee assists the Board in reviewing and, as necessary, altering, our
strategic plan, reviewing industry trends and their effects, if any, on us and assessing our products,
services and offerings and the viability of such portfolio in meeting the needs of the markets that we
serve. John N. Nunnelly (Chairperson), Donald M. Berwick and JoAnn M. Martin are the current
members of the Strategic Planning Committee. The Strategic Planning Committee did not hold any
meetings in 2020.
Board Oversight of Risk
The full Board is responsible for the oversight of our operational and strategic risk management
process. The Board relies on its Audit Committee to address significant financial risk exposures facing us
and the steps management has taken to monitor, control and report such exposures, with appropriate
6
reporting of these risks to be made to the full Board. The Board relies on its Compensation and Talent
Committee to address significant risk exposures facing us with respect to compensation, with appropriate
reporting of these risks to be made to the full Board. The Board’s role in our risk oversight has not
affected the Board’s leadership structure.
Nominations of Directors
The Nominating Committee will consider persons recommended by shareholders to become
nominees for election as directors. Recommendations for consideration by the Nominating Committee
should be sent to the Secretary of the Company in writing together with appropriate biographical
information concerning each proposed nominee. Our By-Laws also set forth certain requirements for
shareholders wishing to nominate director candidates directly for consideration by the shareholders. With
respect to an election of directors to be held at an annual meeting, a shareholder must, among other
things, give notice of intent to make such a nomination to the Secretary of the Company not less than 60
days or more than 90 days prior to the second Wednesday in the month of April. In the event, however,
that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days
from the second Wednesday in the month of April, in order to be timely notice by the shareholder must be
received not earlier than the 90th day prior to the date of such annual meeting and not later than the close
of business on the later of (i) the 60th day prior to such annual meeting and (ii) the 10th day following the
day on which public announcement of the date of such meeting is first made.
In identifying and evaluating nominees for director, the Nominating Committee seeks to ensure
that the Board possesses, in the aggregate, the strategic, managerial and financial skills and experience
necessary to fulfill its duties and to achieve its objectives, and seeks to ensure that the Board is comprised
of directors who have broad and diverse backgrounds, possessing knowledge in areas that are of
importance to us. The Nominating Committee looks at each nominee on a case-by-case basis regardless
of who recommended the nominee. In looking at the qualifications of each candidate to determine if their
election would further the goals described above, the Nominating Committee takes into account all
factors it considers appropriate, which may include strength of character, mature judgment, career
specialization, relevant technical skills or financial acumen, diversity of viewpoint and industry
knowledge. In addition, the Board and the Nominating Committee believe that the following specific
qualities and skills are necessary for all directors to possess:
A director must display high personal and professional ethics, integrity and values.
A director must have the ability to exercise sound business judgment.
A director must be accomplished in his or her respective field, with broad experience at the
administrative and/or policy-making level in business, government, education, technology or
public interest.
A director must have relevant expertise and experience, and be able to offer advice and
guidance based on that expertise and experience.
A director must be independent of any particular constituency, be able to represent all
shareholders of the Company and be committed to enhancing long-term shareholder value.
A director must have sufficient time available to devote to activities of the Board and to
enhance his or her knowledge of the Company’s business.
7
The Board also believes the following qualities or skills are necessary for one or more directors to
possess:
At least one independent director must have the requisite experience and expertise to be
designated as an “audit committee financial expert,” as defined by applicable rules of the
Securities and Exchange Commission, and have past employment experience in finance or
accounting, requisite professional certification in accounting, or any other comparable
experience or background which results in the member’s financial sophistication, as required
by the rules of NASDAQ.
One or more of the directors generally must be active or former executive officers of public
or private companies or leaders of major complex organizations, including commercial,
scientific, government, educational and other similar institutions.
As noted above, in identifying and evaluating nominees for director, the Nominating Committee
seeks to ensure that, among other things, the Board is comprised of directors who have broad and diverse
backgrounds, because the Board believes that directors should be selected so that the Board is a diverse
body. The Nominating Committee implements this policy by considering how potential directors’
backgrounds would contribute to the diversity of the Board. As part of its annual self-evaluation, the
Nominating Committee assesses the effectiveness of its efforts to attain diversity by considering whether
it has an appropriate process for identifying and selecting director candidates.
Compensation Committee Interlocks and Insider Participation
Barbara Mowry, Ms. Martin, Mr. Nunnelly, and Mr. Berwick served on the Compensation and
Talent Committee during 2020. None of such individuals were our officers or employees at any time
during 2020 or as of the date of this Proxy Statement, nor was any such individual a former officer of the
Company. In 2020 we purchased dental and vision insurance for certain of our associates from Ameritas,
a company for whom Ms. Martin served as Chair and Chief Executive Officer during 2020, in arms’
length transactions for approximately $248,000. See Transactions with Related Persons for additional
information on this transaction. Otherwise, in 2020, no member of our Compensation and Talent
Committee had any relationship or transaction with us that would require disclosure as a "related person
transaction" under Item 404 of Securities and Exchange Commission Regulation S-K in this Proxy
Statement under the section entitled Transactions with Related Persons.
During 2020, none of our executive officers served as a member of the board of directors or
compensation committee (or other board committee performing equivalent functions) of another entity,
one of whose executive officers served on our Compensation and Talent Committee. Additionally, during
2020, none of our executive officers served as a member of the compensation committee (or other board
committee performing equivalent functions) of another entity, one of whose executive officers served as a
member of our Board or Compensation and Talent Committee.
Transactions with Related Persons
Except as otherwise disclosed in this section, we had no related person transactions during 2020,
and none are currently proposed, in which we were a participant and in which any related person had a
direct or indirect material interest. Our Board has adopted written policies and procedures regarding
related person transactions. For purposes of these policies and procedures:
A “related person” means any of our directors, executive officers, nominees for director, any
holder of 5% or more of the common stock or any of their immediate family members; and
A “related person transaction” generally is a transaction (including any indebtedness or a
guarantee of indebtedness) in which we were or are to be a participant and the amount
8
involved exceeds $120,000, and in which a related person had or will have a direct or indirect
material interest.
Each of our executive officers, directors or nominees for director is required to disclose to the
Audit Committee certain information relating to related person transactions for review, approval or
ratification by the Audit Committee. Disclosure to the Audit Committee should occur before, if possible,
or as soon as practicable after the related person transaction is effected, but in any event as soon as
practicable after the executive officer, director or nominee for director becomes aware of the related
person transaction. The Audit Committee’s decision whether or not to approve or ratify a related person
transaction is to be made in light of the Audit Committee’s determination that consummation of the
transaction is not or was not contrary to our best interests. Any related person transaction must be
disclosed to the full Board.
Until January 2020, Ms. Martin served as Chair and Chief Executive Officer of Ameritas. Until
May 2021, Ms. Martin served on the board of directors of Ameritas and certain of its affiliated
companies. In connection with our regular assessment of our insurance-based associate benefits and the
costs associated therewith, which is conducted by an independent insurance broker, in 2007 we began
purchasing dental insurance for certain of our associates from Ameritas and, in 2009, we also began
purchasing vision insurance for certain of our associates from Ameritas. The total value of these
purchases, which were conducted in arms’ length transactions and approved by the Audit Committee
pursuant to our related person transaction policies and procedures, was approximately $248,000 in 2020.
During 2017, we acquired a cost method investment in convertible preferred stock of
PracticingExcellence.com, Inc., a privately-held Delaware corporation (“PX”). As part of the investment,
we have the right to appoint one member to PX’s board of directors. Prior to the investment, we entered
into an agreement with PX, under which we act as a reseller of PX services (the “PX reseller agreement”).
The total revenue we earned from the PX reseller agreement was approximately $294,000 in 2020. These
transactions were conducted at arms’ length and approved by the Audit Committee pursuant to our related
person transaction policies and procedures.
Barbara Mowry, who served as one of our directors through May 2020, also served on the board
of directors of IMA Financial Group Inc. (“IMA”). In connection with our regular assessment of our
insurance coverages and the costs associated therewith, in 2020, we purchased directors and officers and
employment practices liability insurance from IMA. The total payments for these services, which were
conducted in arms’ length transactions and approved by the Audit Committee pursuant to our related
person transaction policies and procedures, was approximately $1,100,000 in 2020.
Communications with the Board of Directors
Shareholders may communicate with the Board by writing to NRC Health, Board of Directors
(or, at the shareholder’s option, to a specific director), c/o Kevin R. Karas, Secretary, 1245 Q Street,
Lincoln, Nebraska 68508. The Secretary will ensure that the communication is delivered to the Board or
the specified director, as the case may be.
Information About Our Executive Officers
Set forth below is certain information regarding our current executive officers (other than our
CEO and President, Mr. Hays, for whom information is set forth above under Nominees for Election at
the Annual Meeting).
Kevin R. Karas, 63, has served as our Chief Financial Officer, Treasurer and Secretary since
September 2011, and as Senior Vice President Finance since he joined us in December 2010. From 2005
to 2010, he served as Vice President of Finance for Lifetouch Portrait Studios, Inc., a national retail
photography company. Mr. Karas also previously served as Chief Financial Officer at CARSTAR, Inc.,
9
an automobile collision repair franchise business, from 2000 to 2005, Chief Financial Officer at Rehab
Designs of America, Inc., a provider of orthotic and prosthetic services, from 1993 to 2000, and as a
regional Vice President of Finance and Vice President of Operations at Novacare, Inc., a provider of
physical rehabilitation services, from 1988 to 1993. He began his career as a Certified Public
Accountant at Ernst & Young.
Jona S. Raasch, 62, has served as our Chief Operating Officer from 1988 to 2011 and from
2014 to present. She has also served as Chief Executive Officer of the Governance Institute, one of our
divisions, since May 2006.
Helen L. Hrdy, 56, has served as our Chief Growth Officer since January 2020. Prior to that
position Ms. Hrdy served as our Senior Vice President, Customer Success, from January 2012 to
January 2020. Prior to this Ms. Hrdy held various positions of increasing responsibility with the
Company since 2000.
Our executive officers are elected by and serve at the discretion of the Board. There are no
family relationships between any of our directors or executive officers. There are no arrangements or
understandings between any of our executive officers and any other person pursuant to which any of our
executive officers was or is to be selected as an officer.
Employee, Officer and Director Hedging
We do not have practices or policies regarding the ability of employees (including officers) or
directors of the Company, or any of their designees, to purchase financial instruments, or otherwise
engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market
value of our equity securities. Our officers and Named Executive Officers have not historically engaged
in any such hedging transactions and as of the Record Date none of our officers or Named Executive
Officers were party to any such hedging transactions.
10
2020 DIRECTOR COMPENSATION
Directors who are executive officers of the Company receive no compensation for service as
members of either the Board or committees thereof. Directors who are not executive officers of the
Company receive an annual fixed fee of $75,000 for the lead director and $50,000 for each other director.
Directors are also reimbursed for out-of-pocket expenses associated with attending meetings of the Board
and committees thereof. Ms. Martin served as our lead director from 2007 to May 2012, and Mr.
Nunnelly has served as our lead director since May 2012.
Pursuant to the National Research Corporation 2004 Non-Employee Director Stock Plan, as
amended (the “Director Plan”), each director who is not an associate (i.e., employee) of the Company also
receives an annual grant of an option to purchase shares of our Common Stock on the date of each Annual
Meeting of Shareholders. For the period from January 1, 2020 to December 31, 2020, each director
continuing in office who was not an associate of the Company received a grant of options to purchase
shares of our Common Stock with a target grant date fair value of approximately $100,000, rounded to
the nearest whole share and computed in accordance with Financial Accounting Standards Board
Accounting Standards Codification Topic 718, Compensation-Stock Compensation (“FASB ASC Topic
718”), or successor rule, on the date of our 2020 annual meeting of shareholders. The options were
granted with an exercise price equal to the fair market value of our common stock on the date of grant,
and are scheduled to vest the day immediately preceding the Annual Meeting.
The following table sets forth information regarding the compensation received by each of our
directors during 2020:
Name
Donald M. Berwick
JoAnn M. Martin
Barbara J. Mowry(2)
John N. Nunnelly
Fees Earned or
Paid in Cash
Option Awards(1)
Total
$ 50,000
$ 50,000
$ 19,231
$ 75,000
$ 100,003
$ 100,003
$ 150,003
$ 150,003
-
$ 19,231
$ 100,003
$ 175,003
1 Represents the aggregate grant date fair value of option awards granted during the year, computed in accordance with
FASB ASC Topic 718. See Note 9 to our Consolidated Financial Statements included in our Annual Report on Form
10-K for the years ended December 31, 2020, December 31, 2019, and December 31, 2018, for a discussion of
assumptions made in the valuation of share-based compensation. As of December 31, 2020, the outstanding option
awards for each director were as follows: Dr. Berwick – 14,000 options; Ms. Martin – 60,440 options; Ms. Mowry –
50,000 options; and Mr. Nunnelly – 49,675 options.
2 Ms. Mowry’s term as director expired on May 18, 2020 and she did not stand for reelection.
11
REPORT OF THE AUDIT COMMITTEE
In accordance with its written charter, the Audit Committee’s primary function is to assist the
Board in fulfilling its oversight responsibilities by overseeing the Company’s systems of internal controls
regarding finance, accounting, legal compliance and ethics that management and the Board have
established; the Company’s accounting and financial reporting processes; and the audits of the financial
statements of the Company.
In fulfilling its responsibilities, the Audit Committee has reviewed and discussed the audited
financial statements contained in the 2020 Annual Report on Form 10-K with the Company’s
management and independent registered public accounting firm. Management is responsible for the
financial statements and the reporting process, including the system of internal controls. The independent
registered public accounting firm is responsible for expressing an opinion on the audited financial
statements in conformity with U.S. generally accepted accounting principles and on the Company’s
internal control over financial reporting.
The Audit Committee discussed with the independent registered public accounting firm matters
required to be discussed under the applicable requirements of the Public Company Accounting Oversight
Board regarding communications with audit committees. In addition, the Company’s independent
registered public accounting firm provided to the Audit Committee the written disclosures and the letter
required by applicable requirements of the Public Company Accounting Oversight Board regarding the
independent registered public accounting firm’s communications with the Audit Committee concerning
independence, and the Audit Committee discussed with the independent registered public accounting firm
the firm’s independence. The Audit Committee pre-approves all audit and permissible non-audit services
provided by the independent registered public accounting firm. The Audit Committee has considered
whether the provision of the services relating to the Audit-Related Fees, Tax Fees and All Other Fees set
forth in “Miscellaneous – Independent Registered Public Accounting Firm” was compatible with
maintaining the independence of the independent registered public accounting firm and determined that
such services did not adversely affect the independence of the firm.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended
to the Board (and the Board has approved) that the audited financial statements be included in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, for filing with the
Securities and Exchange Commission.
This report shall not be deemed incorporated by reference by any general statement incorporating
by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under such Acts.
AUDIT COMMITTEE
JoAnn M. Martin, Chairperson
John N. Nunnelly
Donald M. Berwick
12
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial ownership of Common
Stock as of the Record Date (i.e., May 5, 2021) by: (1) each director and director nominee; (2) each of the
executive officers named in the Summary Compensation Table; (3) all of the directors, director nominees
and executive officers as a group; and (4) each person or entity known to the Company to be the
beneficial owner of more than 5% of the Common Stock. Except as otherwise indicated in the footnotes,
each of the holders listed below has sole voting and investment power over the shares beneficially owned.
As of the Record Date, there were 25,439,013 shares of Common Stock outstanding.
Name of Beneficial Owner
Shares
% (1)
Shares Beneficially Owned
Directors and Executive Officers (2)
Michael D. Hays ..............................................................................................
Kevin R. Karas ................................................................................................
Jona S. Raasch .................................................................................................
Helen L. Hrdy..................................................................................................
223,794(3)(4)
42,754(4)(5)
95,735(4)(6)
58,691(4)
Steven D. Jackson ...........................................................................................
55,567
Donald M. Berwick .........................................................................................
JoAnn M. Martin .............................................................................................
John N. Nunnelly ............................................................................................
Stephen H. Lockhart ........................................................................................
Penny A. Wheeler ...........................................................................................
14,540(4)
199,395(4)
76,569(4)
0(4)
0(4)
*
*
*
*
*
*
*
*
*
*
All directors, nominees and executive
officers as a group (ten persons) ..................................................................
767,045(4)
3.0%
Other Holders
Amandla MK Trust and Patrick E. Beans, as the Special Holdings Direction
Advisor under this Trust (7) ..........................................................................
6,265,055
24.6%
Common Property Trust, Common Property Trust LLC and Thomas
Richardson, as Trustee of Common Property Trust and Manager of
Common Property Trust LLC(8) ...................................................................
4,772,522
18.8%
Kayne Anderson Rudnick Investment Management
LLC (9)..........................................................................................................
3,334,366
13.1%
_______________________
* Denotes less than 1%.
(1)
(2)
(3)
(4)
In accordance with applicable rules under the Securities Exchange Act of 1934, as amended, the number of shares indicated as beneficially
owned by a person includes shares of common stock and shares underlying options that are currently exercisable or will be exercisable
within 60 days of May 5, 2021. Shares of common stock underlying stock options that are currently exercisable or will be exercisable
within 60 days of May 5, 2021 are deemed to be outstanding for purposes of computing the percentage ownership of the person holding
such options, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
The address of all directors and officers is 1245 Q Street, Lincoln, Nebraska 68508.
Includes 139,095 shares of Common Stock held by Mr. Hays’ wife. Mr. Hays disclaims beneficial ownership of the shares held by his wife.
Includes shares of Common Stock that may be purchased under stock options which are currently exercisable or exercisable within 60 days
of May 5, 2021, as follows: Mr. Hays, 47,950 shares; Mr. Karas, 20,458 shares; Ms. Raasch, 45,116 shares; Ms. Hrdy, 25,866 shares; Mr.
Berwick, 14,000 shares; Ms. Martin, 60,440 shares; Mr. Nunnelly, 49,675 shares; Dr. Lockhart, 0 shares; Dr. Wheeler, 0 shares; and all
directors, nominees and executive officers as a group, 263,505 shares.
13
(5)
(6)
(7)
(8)
Includes 22,296 shares of Common Stock pledged as security.
Includes 50,619 shares of Common Stock held indirectly through a trust.
The trustee of this Trust is The Bryn Mawr Trust Company of Delaware and its address is 20 Montchanin Road, Suite 100, Greenville,
Delaware 19807. The address of the Special Holdings Direction Advisor for this Trust is 709 Pier 2, Lincoln, Nebraska 68528.
The address for the Common Property Trust and Common Property Trust LLC is 4535 Normal Boulevard, Suite 195, Lincoln, Nebraska
68506. The trustee of Common Property Trust and the manager of Common Property Trust LLC is Thomas Richardson. Mr. Richardson’s
address is 601 Massachusetts Avenue, NW, Washington, D.C. 2000.
(9) The number of shares owned set forth above in the table is as of or about December 31, 2020 as reported by Kayne Anderson Rudnick
Investment Management LLC (“Kayne Anderson”) in its amended Schedule 13G filed with the Securities and Exchange Commission. The
address for Kayne Anderson is 1800 Avenue of the Stars, 2nd Floor, Los Angeles, California 90067. Kayne Anderson reports sole voting
and dispositive power with respect 717,151 of these shares and shared voting and dispositive power with respect to 2,617,215 of these
shares. The amended Schedule 13G further provides that the shares noted as beneficially owned by Kayne Anderson include: (i) 2,617,215
shares beneficially owned by Virtus Investment Advisers, Inc., One Financial Plaza, Hartford, Connecticut 06103, for which such person
has shared voting and dispositive power, and (ii) 2,409,518 shares beneficially owned by Virtus Equity Trust, on behalf of Virtus KAR
Small Cap Growth Fund, 101 Munson Street, Greenfield, Massachusetts 01301, for which such person has shared voting and dispositive
power.
DELINQUENT SECTION 16(A) REPORTS
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers
and any owner of greater than 10% of our Common Stock to file reports with the Securities and Exchange
Commission concerning their ownership of our Common Stock. Based solely upon information provided
to us by individual directors and executive officers, we believe that, during the fiscal year ended
December 31, 2020, all of our directors and executive officers and owners of greater than 10% of our
Common Stock complied with the Section 16(a) filing requirements, except that (i) a Form 4 for Mr.
Jackson reporting the forfeiture of shares upon the vesting of restricted stock and (ii) a Form 4 for Mr.
Hays reporting his acquisition of shares from a family trust were not timely filed.
14
PROPOSAL NO. 2 – RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed KPMG LLP to serve as our independent registered public
accounting firm for the year ending December 31, 2021.
We are asking our shareholders to ratify the appointment of KPMG LLP as our independent
registered public accounting firm. Although ratification is not required, our Board is submitting the
appointment of KPMG LLP to our shareholders for ratification because we value our shareholders’ views
on our independent auditors and as a matter of good corporate practice. In the event that our shareholders
fail to ratify the appointment, the Audit Committee will consider it as a direction to consider the
appointment of a different firm. Even if the appointment is ratified, the Audit Committee in its discretion
may select a different independent auditor at any time if it determines that such a change would be in the
best interests of the Company and our shareholders.
Representatives of KPMG LLP are expected to participate in the Annual Meeting via the live
webcast with the opportunity to make a statement if they so desire. Such representatives are also expected
to be available to respond to appropriate questions.
Assuming a quorum is present at the Annual Meeting, the number of votes cast for the ratification
of the Audit Committee’s appointment of KPMG LLP as our independent registered public accounting
firm for the year ending December 31, 2021 must exceed the number of votes cast against it. Abstentions
and broker non-votes will be counted as present in determining whether there is a quorum; however, they
will not constitute a vote “for” or “against” ratification and will be disregarded in the calculation of votes
cast. A broker non-vote occurs when a broker submits a proxy card with respect to shares that the broker
holds on behalf of another person but declines to vote on a particular matter, either because the broker
elects not to exercise its discretionary authority to vote on the matter or does not have authority to vote on
the matter.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” RATIFICATION OF
THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM. SHARES OF THE COMPANY’S COMMON STOCK REPRESENTED
BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED “FOR” RATIFICATION OF
THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
15
COMPENSATION DISCUSSION AND ANALYSIS
The following discussion and analysis relates to the compensation of the individuals named in the
Summary Compensation Table, a group we refer to as our “named executive officers.” In this discussion,
the terms “we,” “our,” “us” or similar terms refer to the Company.
Overview of Executive Compensation Philosophy
Key features of our compensation program include the following:
Conservative pay policy with total named executive officer and director
compensation positioned below the median
Direct link between pay and performance that aligns business strategies with
stockholder value creation
Annual say-on-pay votes
No tax gross-ups
No excessive perquisites for executives
No change of control or severance obligations to named executive officers,
including no accelerated vesting of equity awards upon a change of control
No re-pricing or back-dating of stock options or similar awards
Appropriate balance between short- and long-term compensation that discourages
short-term risk taking at the expense of long-term results
Five year vesting period for executive option grants
We recognize the importance of maintaining sound principles for the development and
administration of our executive compensation and benefit programs. Specifically, we design our
executive compensation and benefit programs to advance the following core principles:
Competitive Pay for Our Market. We strive to compensate our executive officers at levels to
ensure that we continue to attract and retain a highly competent, committed management
team. Our Midwest headquarters provides a low cost of living that allows us to provide
compensation that accomplishes this goal while keeping total compensation below that of
many similar companies.
Align with Shareholders. We seek to align the interests, perspectives and decision-making of
our executive officers with the interests of our shareholders.
Incentivize Performance. We link our executive officers’ compensation, particularly annual
cash bonuses, to our established financial performance goals.
We believe that a focus on these principles will benefit us and, ultimately, our shareholders in the
long term by ensuring that we can attract and retain highly-qualified executive officers who are
committed to our long-term success.
Role of the Compensation and Talent Committee
The Board appoints the Compensation and Talent Committee (the “Committee”), which consists
entirely of directors who are “non-employee directors” for purposes of the Securities Exchange Act of
1934. The following individuals are members of the Committee:
Donald M. Berwick (Chairperson)
JoAnn M. Martin
16
John N. Nunnelly
The Committee is responsible for discharging the Board’s responsibilities with respect to all
significant aspects of our compensation policies, programs and plans, and accordingly the Committee
determines compensation programs for our executive officers or recommends such programs to the full
Board for approval. The Committee also reviews management’s recommendations as to the
compensation to be paid to other key personnel and administers our equity-based compensation plans.
Periodically, the Committee reviews and determines our compensation and benefit programs, with the
objective of ensuring the executive compensation and benefits programs are consistent with our
compensation philosophy. The Committee has authority to carry out the foregoing responsibilities under
its charter and may delegate such authority to subcommittees of the Committee. From time to time, the
Committee or management has engaged a nationally recognized compensation consultant to conduct a
benchmarking study of executive compensation levels and practices. This market information has, in the
past, been used to help inform and shape decisions, but was (and is) neither the only nor the determinative
factor in making compensation decisions.
At the time our Committee recommended, and our Board approved, our named executive
officers’ 2020 compensation, our most recent review of our compensation and benefit programs was in
late 2015, when our Committee engaged Aon Hewitt to review our programs before determining
compensation for 2016. In determining compensation levels for our named executive officers in 2020,
our Committee did not engage Aon Hewitt or any other compensation consultant to provide advice
concerning executive officer compensation.
One objective of the Committee in setting compensation for our executive officers, other than our
Chief Executive Officer, is to establish base salary at a level that will attract and retain highly-qualified
individuals. The Committee’s considerations in setting our Chief Executive Officer’s base salary are
described below. For our executive officers other than our Chief Executive Officer, we also consider
individual performance, level of responsibility, skills and experience, and internal comparisons among
executive officers in determining base salary levels.
The Committee administers our annual cash incentive program and long-term equity incentive
plans and approves all awards made under the program and plans. For annual and long-term incentives,
the Committee considers internal comparisons and other existing compensation awards or arrangements
in making compensation decisions and recommendations. In its decision-making process, the Committee
receives and considers the recommendations of our Chief Executive Officer as to executive compensation
programs for all of the other officers. In its decision-making process for the long-term incentives for our
executive officers, the Committee considers relevant factors, including our performance and relative
shareholder return and the awards given to the executive officer in past years. The Committee makes its
decisions regarding general program adjustments to future base salaries, annual incentives and long-term
incentives concurrently with its assessment of the executive officers’ performance. Adjustments
generally become effective in January of each year.
In fulfilling its objectives as described above, the Committee took the following steps in
determining 2020 compensation levels for our named executive officers:
Considered the performance of our Chief Executive Officer and determined his total
compensation;
Considered the performance of our other executive officers and other key associates (i.e.,
employees) with assistance from our Chief Executive Officer; and
17
Determined total compensation for our named executive officers based on recommendations
by our Chief Executive Officer (as to the other officers) and the Committee’s consideration of
the Company’s and the individual officer’s performance.
2020 Say on Pay Vote
In May 2020 (after the 2020 executive compensation actions described in this Compensation
Discussion and Analysis had taken place), we held our annual advisory shareholder vote on the
compensation of our named executive officers at our annual shareholders’ meeting, and, consistent with
the recommendation of the Board, our shareholders approved our executive compensation, with more
than 99% of votes cast in favor. Consistent with this strong vote of shareholder approval, we have not
undertaken any material changes to our executive compensation programs.
Total Compensation
We intend to continue our strategy of compensating our executive officers through programs that
emphasize performance-based incentive compensation in the form of cash and equity-based awards. To
that end, we have structured total executive compensation to ensure that there is an appropriate balance
between a focus on our long-term versus short-term performance. We believe that the total compensation
paid or awarded to the executive officers during 2020 was consistent with our financial performance and
the individual performance of each of our executive officers. We also believe that this total compensation
was reasonable in its totality and is consistent with our compensation philosophies described above.
CEO Compensation
The Committee reviews annually the salary and total compensation levels of Michael D. Hays,
our Chief Executive Officer. While Mr. Hays’ salary and overall compensation are significantly below
the median level paid to chief executive officers of comparable companies, he requested that his base
salary and targeted overall compensation remain unchanged. The Committee has not proposed an
increase in his salary or overall compensation since 2005.
Elements of Compensation
Base Salary
The objective of the Committee is to establish base salary, when aligned with performance
incentives, to continue to attract and retain the best talent (with the exception of Mr. Hays’ salary as noted
above). We have historically attempted to minimize base salary increases in order to limit our executive
compensation expense if we do not meet our objectives for financial growth under our incentive
compensation program.
Consistent with this practice, the Committee left base salaries unchanged in 2020 for Mr. Hays,
Mr. Karas, Ms. Raasch and Mr. Jackson, maintaining the salary levels in place since 2016. In the case of
Mr. Hays, the decision was based on his request, described above, that his salary not be increased. In the
case of the other named executive officers, the decision was based on our performance and the belief that
such named executive officer’s salaries were at an appropriate level to retain their talent. Ms. Hrdy
received a pay increase in 2020 due to her promotion to Chief Growth Officer.
Base salaries paid to our named executive officers represented the following percentages of their
total compensation (as calculated for purposes of the Summary Compensation Table).
18
Base Salary as a Percentage
of Total Compensation
Michael D. Hays
50%
Kevin R. Karas
50%
Jona S. Raasch
50%
Helen L. Hrdy
52%
Steven D. Jackson
58%
Annual Cash Incentive
Our executive officers are eligible for annual cash incentive awards under our incentive
compensation program. Please note that, while we may refer to annual cash incentive awards as bonuses
in this discussion, the award amounts are reported in the Summary Compensation Table under the column
titled “Non-Equity Incentive Plan Compensation” pursuant to the Securities and Exchange Commission’s
regulations.
We intend for our incentive compensation program to provide an incentive to meet and exceed
our financial goals, and to promote a superior level of performance. Within the overall context of our pay
philosophy and culture, the program:
Provides total cash compensation to attract and retain key executive talent;
Aligns pay with organizational performance;
Focuses executive attention on key business metrics; and
Provides a significant incentive for achieving and exceeding performance goals.
Under our incentive compensation program, the Committee establishes performance measures for
our named executive officers at the beginning of each year. For 2020, the Committee used our overall
revenue and net income as performance measures because the Committee believes these are key measures
of our ability to deliver value to our shareholders for which our named executive officers have primary
responsibility. The Committee weighted the two performance measures equally in determining bonus
payouts. The Committee structured the incentive compensation program so that our named executive
officers would receive a bonus based on the percentage of growth in overall revenue and net income in
2020 over 2019, starting from “dollar one” of such growth. Consistent with past years, the Committee
structured the incentive compensation program for our named executive officers to require performance
representing growth in revenue or net income for any payout to be received.
The Committee structured the incentive compensation program to permit payouts to be earned for
any growth in revenue and net income because it believed that providing an incentive to achieve growth
in these measures would provide an effective incentive to the executive officers in 2020. The Committee
determined that the bonuses under the incentive compensation program would be equal to the following
(subject to a maximum of 200% of base salary): the product of the executive officer’s base salary (i)
multiplied by the sum of the percentage year over year increase, if any, in overall revenue plus the
percentage year over year increase, if any, in overall net income (ii) multiplied by 2.5.
19
In determining the potential bonus amounts for our named executive officers described above, the
Committee concluded that their payouts determined by these formulas were likely to produce results
consistent with our past practice of setting annual target payouts at 50% of base salary, and would
continue to provide competitive compensation consistent with our goals for annual incentive awards.
The following table shows amounts actually earned by our named executive officers for 2020,
along with the percentages of their total compensation (as calculated for purposes of the Summary
Compensation Table) that these amounts represent.
Name
Michael D. Hays
Kevin R. Karas
Jona S. Raasch
Helen L. Hrdy
Steven D. Jackson(1)
2020 Actual Bonus
Percentage of
Total Compensation
2020 Actual
Bonus Amount
25%
25%
25%
25%
0%
$62,426
$139,650
$147,000
$139,650
$0
(1) Mr. Jackson resigned effective October 2, 2020 and, accordingly, did not receive a
bonus for 2020.
Long-Term Equity Incentive
The general purpose of our current equity-based plans is to promote the achievement of our long-
range strategic goals and enhance shareholder value. The Committee may from time to time approve
discretionary awards, however, we generally grant equity-based awards in the following circumstances:
• Annual Awards. To provide an additional performance incentive for our executive officers and
other key management personnel, our executive compensation package generally includes annual
grants of stock options with respect to our common stock.
• New Hire or Promotion Awards. We also award restricted stock grants to newly hired or
promoted executive officers during their first year of participation in our equity incentive
program to provide greater alignment between the officers’ interests and those of our
shareholders, and to assist in retention.
Options to purchase shares of common stock are typically granted with a per-share exercise price
of 100% of the fair market value of each share of common stock subject to the option on the date of grant.
The value of the option will be dependent on the future market value of the common stock, which we
believe helps to align the economic interests of our key management personnel with the interests of our
shareholders. To encourage our key management personnel to continue in employment with us, when we
grant restricted stock under the 2006 Equity Incentive Plan to executive officers, we generally impose a 5-
year restriction period on the grant, pursuant to which the options do not become fully vested and
exercisable until the fifth anniversary of the grant date.
In determining equity incentive awards for 2020, the Committee concluded that setting annual
equity awards for our named executive officers at a grant date target fair value of approximately 50% of
their respective then-current base salaries would provide competitive compensation consistent with our
goals for equity awards. The Committee generally grants stock options effective on a date in the first
20
week of January. Accordingly, effective January 3, 2020, the Committee granted options to each of our
named executive officers. To determine the number of option shares with a grant date target fair value
approximately equal to 50% of an executive officer’s base salary, the Committee divided 50% of the
current base salary by the most recent Common Stock closing price to determine the number of shares
that equal 50% of the current base salary. The number of shares were then multiplied by a factor of three
to determine the number of option shares to be granted. The number of options granted to our named
executive officers is shown in the Grants of Plan-Based Awards Table.
For 2020, no performance-based equity awards were granted to our named executive officers.
Our Committee may, however, consider in the future conditioning awards on the achievement of various
performance goals, including return on equity, shareholder value added, earnings from operations, net
earnings, net earnings per share, market price of our common stock and/or total shareholder return.
Other Benefits
To assist our associates in preparing financially for retirement, we maintain a 401(k) plan for all
associates over 21 years of age, including our executive officers. Pursuant to the 401(k) plan, we match
25% of the first 6% of compensation contributed by our associates up to allowable Internal Revenue
Service limitations. We also maintain group life, health, dental and vision insurance programs for all of
our salaried associates, and our named executive officers are eligible to participate in these programs on
the same basis as all other eligible associates. During 2020 we also provided our associates a work-from-
home allowance to further enable remote work due to COVID-19.
Agreements with Officers
We do not have employment, retention, severance, change of control or similar agreements with
any of our executive officers. While we enter into award agreements with our executive officers and
other participants under our long-term equity award plans, these agreements and plans do not provide for
acceleration of vesting or other benefits upon a change of control or termination.
21
2020 SUMMARY COMPENSATION TABLE
Set forth below is information regarding compensation earned by or paid or awarded to the
following executive officers: Michael D. Hays, our Chief Executive Officer and President; Kevin R.
Karas, our Senior Vice President Finance, Chief Financial Officer, Treasurer and Secretary; Jona S.
Raasch, our Chief Operating Officer; Helen L. Hrdy, our Chief Growth Officer and Steven D. Jackson,
our former President. We had no other executive officers, as defined in Rule 3b-7 of the Securities
Exchange Act of 1934, whose total compensation exceeded $100,000 during 2020. The identification of
such named executive officers is determined based on the individual’s total compensation for 2020, as
reported below in the Summary Compensation Table, other than amounts reported as above-market
earnings on deferred compensation and the actuarial increase in pension benefit accruals.
The following table sets forth for our named executive officers with respect to 2020, 2019, and
2018: (1) the dollar value of base salary earned during the year; (2) the aggregate grant date fair value of
stock and option awards granted during the year, computed in accordance with Financial Accounting
Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation
(“FASB ASC Topic 718”); (3) the dollar value of earnings for services pursuant to awards granted during
the year under non-equity incentive plans; (4) all other compensation for the year; and (5) the dollar value
of total compensation for the year.
Name and
Principal Position
Michael D. Hays(3)
Chief Executive Officer
President
Kevin R. Karas
Senior Vice President
Finance, Chief
Financial Officer,
Treasurer and
Secretary
Jona S. Raasch
Chief Operating Officer
Helen L. Hrdy
Chief Growth Officer
Steven D. Jackson(3)
Former President
Option
Awards
($)(1)
$ 60,258
$ 54,890
$ 53,332
$ 134,813
$ 122,782
$ 119,307
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($)(2)
$62,426
$47,265
$104,468
$139,650
$105,735
$ 233,700
$ 4,420
$ 4,323
$ 4,267
$ 6,868
$ 6,529
$ 6,604
Total ($)
$ 254.504
$ 233,878
$ 289,467
$ 566,331
$ 520,046
$ 644,611
Year Salary ($)
2020
2019
2018
2020
2019
2018
$ 127,400
$ 127,400
$ 127,400
$ 285,000
$ 285,000
$ 285,000
2020
$ 300,000
$ 141,909
$147,000
$ 6,914
$ 595,823
2020
$ 285,000
$ 118,254
$139,650
$ 5,410
$ 548,314
2020
2019
2018
$ 225,000
$ 300,000
$ 300,000
$ 141,909
$ 129,239
$ 125,582
$0
$111,300
$ 246,000
$ 20,363
$ 5,100
$ 5,025
$ 387,272
$ 545,639
$ 676,607
(1)
(2)
Represents the aggregate grant date fair value of the option awards granted during the year, computed in accordance with FASB ASC Topic
718. See Note 9 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31,
2020 for a discussion of assumptions made in the valuation of share-based compensation.
Includes, for each of our named executive officers, the amount of our 401(k) matching contributions; for Messrs. Hays and Karas and Mses.
Raasch and Hrdy, the amount of our health saving account matching contributions; for Messrs. Karas and Jackson and Mses. Raasch and
Hrdy, the amount of our technology allowance; and for Mr. Jackson, a housing allowance of $15,200.
(3) Mr. Jackson resigned from his position as President and Mr. Hays was appointed President effective October 2, 2020.
22
0
2
0
2
N
I
S
D
R
A
W
A
D
E
S
A
B
N
A
L
P
F
O
S
T
N
A
R
G
-
e
v
i
t
u
c
e
x
e
r
u
o
o
t
e
d
a
m
e
b
y
a
m
s
t
n
a
r
g
h
c
i
h
w
o
t
t
n
a
u
s
r
u
p
n
a
l
P
e
v
i
t
n
e
c
n
I
y
t
i
u
q
E
1
0
0
2
e
h
t
d
n
a
n
a
l
P
e
v
i
t
n
e
c
n
I
y
t
i
u
q
E
6
0
0
2
e
h
t
n
i
a
t
n
i
a
m
e
W
n
i
s
r
e
c
i
f
f
o
e
v
i
t
u
c
e
x
e
d
e
m
a
n
e
h
t
o
t
e
d
a
m
e
r
e
w
t
a
h
t
s
d
r
a
w
a
n
a
l
p
e
v
i
t
n
e
c
n
i
h
c
u
s
l
l
a
g
n
i
d
r
a
g
e
r
n
o
i
t
a
m
r
o
f
n
i
h
t
r
o
f
s
t
e
s
e
l
b
a
t
g
n
i
w
o
l
l
o
f
e
h
T
.
s
r
e
c
i
f
f
o
r
i
a
F
e
t
a
D
t
n
a
r
G
k
c
o
t
S
f
o
e
u
l
a
V
n
o
i
t
p
O
d
n
a
)
$
(
s
d
r
a
w
A
e
c
i
r
P
g
n
i
s
o
l
C
e
s
a
B
r
o
e
s
i
c
r
e
x
E
n
o
i
t
p
O
r
e
h
t
O
l
l
A
f
o
.
o
N
:
s
d
r
a
w
A
s
t
u
o
y
a
P
e
r
u
t
u
F
d
e
t
a
m
i
t
s
E
y
t
i
u
q
E
-
n
o
N
r
e
d
n
U
)
1
(
s
d
r
a
w
A
n
a
l
P
e
v
i
t
n
e
c
n
I
f
o
e
t
a
D
n
o
)
$
(
t
n
a
r
G
n
o
i
t
p
O
f
o
e
c
i
r
P
)
2
(
)
$
(
s
d
r
a
w
A
g
n
i
y
l
r
e
d
n
U
s
e
i
t
i
r
u
c
e
S
)
2
(
)
#
(
s
n
o
i
t
p
O
)
$
(
m
u
m
i
x
a
M
)
$
(
t
e
g
r
a
T
d
l
o
h
s
e
r
h
T
)
3
(
)
$
(
f
o
e
t
a
D
e
e
t
t
i
m
m
o
C
n
o
i
t
c
A
t
n
a
r
G
e
t
a
D
8
5
2
,
0
6
$
0
8
.
6
6
$
0
8
.
5
6
$
4
0
9
,
2
9
1
/
0
2
/
2
1
0
2
0
2
/
3
/
1
0
0
8
,
4
5
2
$
0
0
7
,
3
6
$
-
-
3
1
8
,
4
3
1
$
0
8
.
6
6
$
0
8
.
5
6
$
7
9
4
,
6
9
1
/
0
2
/
2
1
0
2
0
2
/
3
/
1
9
0
9
,
1
4
1
$
0
8
.
6
6
$
0
8
.
5
6
$
9
3
8
,
6
4
5
2
,
8
1
1
$
0
8
.
6
6
$
0
8
.
5
6
$
9
9
6
,
5
9
0
9
,
1
4
1
$
0
8
.
6
6
$
0
8
.
5
6
$
9
3
8
,
6
0
0
0
,
0
7
5
$
0
0
5
,
2
4
1
$
0
0
0
,
0
0
6
$
0
0
0
,
0
5
1
$
0
0
0
,
0
7
5
$
0
0
5
,
2
4
1
$
0
0
0
,
0
0
6
$
0
0
0
,
0
5
1
$
-
-
-
-
-
-
-
-
9
1
/
0
2
/
2
1
0
2
0
2
/
3
/
1
9
1
/
0
2
/
2
1
0
2
0
2
/
3
/
1
9
1
/
0
2
/
2
1
0
2
0
2
/
3
/
1
n
o
s
k
c
a
J
.
D
n
e
v
e
t
S
y
l
e
t
a
i
d
e
m
m
i
y
a
d
e
h
t
,
0
2
0
2
,
2
y
r
a
u
n
a
J
n
o
e
c
i
r
p
k
c
o
t
s
g
n
i
s
o
l
c
e
h
t
o
t
l
a
u
q
e
s
a
w
s
d
r
a
w
a
n
o
i
t
p
o
k
c
o
t
s
e
h
t
f
o
e
c
i
r
p
e
s
i
c
r
e
x
e
e
h
T
.
n
a
l
P
e
v
i
t
n
e
c
n
I
y
t
i
u
q
E
6
0
0
2
e
h
t
r
e
d
n
u
d
e
t
n
a
r
g
e
r
e
w
s
d
r
a
w
a
n
o
i
t
p
o
k
c
o
t
s
e
h
T
.
e
v
o
b
a
e
l
b
a
T
n
o
i
t
a
s
n
e
p
m
o
C
y
r
a
m
m
u
S
e
h
t
n
i
n
w
o
h
s
e
r
a
)
y
n
a
f
i
(
d
e
v
i
e
c
e
r
s
t
n
u
o
m
a
l
a
u
t
c
a
e
h
t
;
s
d
r
a
w
a
n
a
l
p
e
v
i
t
n
e
c
n
i
0
2
0
2
e
h
t
r
e
d
n
u
s
t
n
e
m
y
a
p
l
a
i
t
n
e
t
o
p
y
l
n
o
t
n
e
s
e
r
p
e
r
s
t
n
u
o
m
a
e
s
e
h
T
.
s
e
r
u
s
a
e
m
e
c
n
a
m
r
o
f
r
e
p
e
l
b
a
c
i
l
p
p
a
e
h
t
f
o
y
n
a
n
i
e
s
a
e
r
c
n
i
r
a
e
y
-
r
e
v
o
-
r
a
e
y
y
n
a
r
o
f
e
d
a
m
e
b
d
l
u
o
w
t
e
g
r
a
t
w
o
l
e
b
s
t
n
e
m
y
a
p
;
s
d
r
a
w
a
n
a
l
p
e
v
i
t
n
e
c
n
i
0
2
0
2
e
s
e
h
t
r
e
d
n
u
s
t
n
e
m
y
a
p
r
o
f
s
d
l
o
h
s
e
r
h
t
o
n
e
r
e
w
e
r
e
h
T
.
e
t
a
d
t
n
a
r
g
e
h
t
o
t
r
o
i
r
p
)
1
(
)
2
(
)
3
(
.
0
2
0
2
e
m
a
N
.
D
l
e
a
h
c
i
M
s
y
a
H
.
R
n
i
v
e
K
s
a
r
a
K
.
S
a
n
o
J
h
c
s
a
a
R
.
L
n
e
l
e
H
y
d
r
H
23
0
2
0
2
,
1
3
R
E
B
M
E
C
E
D
T
A
S
D
R
A
W
A
Y
T
I
U
Q
E
G
N
I
D
N
A
T
S
T
U
O
,
0
2
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
s
r
e
c
i
f
f
o
e
v
i
t
u
c
e
x
e
d
e
m
a
n
e
h
t
y
b
d
l
e
h
s
d
r
a
w
a
n
o
i
t
p
o
g
n
i
d
n
a
t
s
t
u
o
n
o
n
o
i
t
a
m
r
o
f
n
i
h
t
r
o
f
s
t
e
s
e
l
b
a
t
g
n
i
w
o
l
l
o
f
e
h
T
e
t
a
d
n
o
i
t
a
r
i
p
x
e
d
n
a
e
c
i
r
p
e
s
i
c
r
e
x
e
e
h
t
,
n
o
i
t
p
o
k
c
o
t
s
h
c
a
e
f
o
s
n
o
i
t
r
o
p
e
l
b
a
s
i
c
r
e
x
e
n
u
d
n
a
e
l
b
a
s
i
c
r
e
x
e
h
t
o
b
g
n
i
y
l
r
e
d
n
u
s
e
r
a
h
s
f
o
r
e
b
m
u
n
e
h
t
g
n
i
d
u
l
c
n
i
.
n
o
i
t
p
o
g
n
i
d
n
a
t
s
t
u
o
h
c
a
e
f
o
s
d
r
a
w
A
n
o
i
t
p
O
n
o
i
t
p
O
e
t
a
D
n
o
i
t
a
r
i
p
x
E
n
o
i
t
p
O
e
s
i
c
r
e
x
E
)
$
(
e
c
i
r
P
s
e
i
t
i
r
u
c
e
S
f
o
.
o
N
g
n
i
y
l
r
e
d
n
U
d
e
s
i
c
r
e
x
e
n
U
s
n
o
i
t
p
O
s
e
i
t
i
r
u
c
e
S
f
o
.
o
N
g
n
i
y
l
r
e
d
n
U
)
e
l
b
a
s
i
c
r
e
x
e
n
U
(
s
n
o
i
t
p
O
d
e
s
i
c
r
e
x
e
n
U
)
#
(
)
#
(
)
e
l
b
a
s
i
c
r
e
x
E
(
e
m
a
N
1
2
/
5
0
/
1
0
2
2
/
5
0
/
1
0
3
2
/
7
0
/
1
0
4
2
/
7
0
/
1
0
5
2
/
6
0
/
1
0
6
2
/
5
0
/
1
0
7
2
/
4
0
/
1
0
8
2
/
3
0
/
1
0
9
2
/
3
0
/
1
0
0
3
/
3
0
/
1
0
4
2
/
7
0
/
1
0
5
2
/
6
0
/
1
0
6
2
/
5
0
/
1
0
7
2
/
4
0
/
1
0
8
2
/
3
0
/
1
0
9
2
/
3
0
/
1
0
0
3
/
3
0
/
1
0
5
2
/
6
0
/
1
0
6
2
/
5
0
/
1
0
7
2
/
4
0
/
1
0
8
2
/
3
0
/
1
0
4
1
.
9
$
5
7
.
0
1
$
0
5
.
4
1
$
0
8
.
8
1
$
7
1
.
3
1
$
3
2
.
5
1
$
0
8
.
8
1
$
0
8
.
6
3
$
0
3
.
8
3
$
0
8
.
5
6
$
0
8
.
8
1
$
7
1
.
3
1
$
3
2
.
5
1
$
0
8
.
8
1
$
0
8
.
6
3
$
0
3
.
8
3
$
0
8
.
5
6
$
7
1
.
3
1
$
3
2
.
5
1
$
0
8
.
8
1
$
0
8
.
6
3
$
-
-
-
-
-
)
7
(
)
1
(
5
4
1
,
9
)
8
(
)
1
(
8
7
4
,
7
)
9
(
)
1
(
3
9
1
,
5
)
0
1
(
)
1
(
0
9
9
,
4
)
1
1
(
)
1
(
4
0
9
,
2
-
-
)
7
(
)
1
(
8
5
4
,
0
2
)
8
(
)
1
(
8
2
7
,
6
1
)
9
(
)
1
(
7
1
6
,
1
1
)
1
1
(
)
1
(
7
9
4
,
6
)
0
1
(
)
1
(
2
6
1
,
1
1
-
)
7
(
)
1
(
5
3
5
,
1
2
)
8
(
)
1
(
8
0
6
,
7
1
)
9
(
)
1
(
8
2
2
,
2
1
)
2
(
)
1
(
5
4
7
,
7
1
)
3
(
)
1
(
9
4
9
,
4
1
)
4
(
)
1
(
8
3
9
,
0
1
)
5
(
)
1
(
4
0
9
,
2
)
6
(
)
1
(
4
1
0
,
0
1
-
-
-
-
-
)
5
(
)
1
(
4
3
3
,
5
)
6
(
)
1
(
3
1
3
,
9
1
-
-
-
s
y
a
H
.
D
l
e
a
h
c
i
M
s
a
r
a
K
.
R
n
i
v
e
K
-
-
-
)
6
(
)
1
(
1
8
5
,
3
2
h
c
s
a
a
R
.
S
a
n
o
J
24
9
2
/
3
0
/
1
0
0
3
/
3
0
/
1
0
5
2
/
6
0
/
1
0
6
2
/
5
0
/
1
0
7
2
/
4
0
/
1
0
8
2
/
3
0
/
1
0
9
2
/
3
0
/
1
0
0
3
/
3
0
/
1
0
n
o
i
t
p
O
e
t
a
D
n
o
i
t
a
r
i
p
x
E
n
o
i
t
p
O
e
s
i
c
r
e
x
E
)
$
(
e
c
i
r
P
0
3
.
8
3
$
0
8
.
5
6
$
7
1
.
3
1
$
3
2
.
5
1
$
0
8
.
8
1
$
0
8
.
6
3
$
0
3
.
8
3
$
0
8
.
5
6
$
-
-
-
)
0
1
(
)
1
(
9
4
7
,
1
1
)
1
1
(
)
)
1
(
9
3
8
,
6
-
)
7
(
)
1
(
6
4
3
,
2
1
)
8
(
)
1
(
9
1
6
,
2
1
)
9
(
)
1
(
4
6
7
,
8
)
0
1
(
)
1
(
0
2
4
,
8
)
1
1
(
)
1
9
9
6
,
5
-
-
)
6
(
)
1
(
0
2
5
,
3
1
y
d
r
H
.
L
n
e
l
e
H
-
-
-
-
-
-
n
o
s
k
c
a
J
.
D
n
e
v
e
t
S
s
d
r
a
w
A
n
o
i
t
p
O
s
e
i
t
i
r
u
c
e
S
f
o
.
o
N
g
n
i
y
l
r
e
d
n
U
d
e
s
i
c
r
e
x
e
n
U
s
n
o
i
t
p
O
s
e
i
t
i
r
u
c
e
S
f
o
.
o
N
g
n
i
y
l
r
e
d
n
U
)
e
l
b
a
s
i
c
r
e
x
e
n
U
(
s
n
o
i
t
p
O
d
e
s
i
c
r
e
x
e
n
U
)
#
(
)
#
(
)
e
l
b
a
s
i
c
r
e
x
E
(
e
m
a
N
.
6
1
0
2
,
5
y
r
a
u
n
a
J
n
o
d
e
t
s
e
v
s
n
o
i
t
p
o
e
s
e
h
T
.
e
t
a
d
t
n
a
r
g
e
h
t
f
o
y
r
a
s
r
e
v
i
n
n
a
h
t
f
i
f
.
7
1
0
2
,
5
y
r
a
u
n
a
J
n
o
d
e
t
s
e
v
s
n
o
i
t
p
o
e
s
e
h
T
.
e
t
a
d
t
n
a
r
g
e
h
t
f
o
y
r
a
s
r
e
v
i
n
n
a
h
t
f
i
f
.
8
1
0
2
,
7
y
r
a
u
n
a
J
n
o
d
e
t
s
e
v
s
n
o
i
t
p
o
e
s
e
h
T
.
e
t
a
d
t
n
a
r
g
e
h
t
f
o
y
r
a
s
r
e
v
i
n
n
a
h
t
f
i
f
.
9
1
0
2
,
7
y
r
a
u
n
a
J
n
o
d
e
t
s
e
v
s
n
o
i
t
p
o
e
s
e
h
T
.
e
t
a
d
t
n
a
r
g
e
h
t
f
o
y
r
a
s
r
e
v
i
n
n
a
h
t
f
i
f
.
0
2
0
2
,
6
y
r
a
u
n
a
J
n
o
d
e
t
s
e
v
s
n
o
i
t
p
o
e
s
e
h
T
.
e
t
a
d
t
n
a
r
g
e
h
t
f
o
y
r
a
s
r
e
v
i
n
n
a
h
t
f
i
f
.
1
2
0
2
,
5
y
r
a
u
n
a
J
n
o
d
e
t
s
e
v
s
n
o
i
t
p
o
e
s
e
h
T
.
e
t
a
d
t
n
a
r
g
e
h
t
f
o
y
r
a
s
r
e
v
i
n
n
a
h
t
f
i
f
.
2
2
0
2
,
4
y
r
a
u
n
a
J
n
o
t
s
e
v
l
l
i
w
s
n
o
i
t
p
o
e
s
e
h
T
.
e
t
a
d
t
n
a
r
g
e
h
t
f
o
y
r
a
s
r
e
v
i
n
n
a
h
t
f
i
f
.
3
2
0
2
,
3
y
r
a
u
n
a
J
n
o
t
s
e
v
l
l
i
w
s
n
o
i
t
p
o
e
s
e
h
T
.
e
t
a
d
t
n
a
r
g
e
h
t
f
o
y
r
a
s
r
e
v
i
n
n
a
h
t
f
i
f
.
4
2
0
2
,
3
y
r
a
u
n
a
J
n
o
t
s
e
v
l
l
i
w
s
n
o
i
t
p
o
e
s
e
h
T
.
e
t
a
d
t
n
a
r
g
e
h
t
f
o
y
r
a
s
r
e
v
i
n
n
a
h
t
f
i
f
.
5
2
0
2
,
3
y
r
a
u
n
a
J
n
o
t
s
e
v
l
l
i
w
s
n
o
i
t
p
o
e
s
e
h
T
.
e
t
a
d
t
n
a
r
g
e
h
t
f
o
y
r
a
s
r
e
v
i
n
n
a
h
t
f
i
f
e
h
t
e
h
t
e
h
t
e
h
t
e
h
t
e
h
t
e
h
t
e
h
t
e
h
t
e
h
t
n
o
l
l
u
f
n
i
t
s
e
v
s
n
o
i
t
p
O
n
o
l
l
u
f
n
i
t
s
e
v
s
n
o
i
t
p
O
n
o
l
l
u
f
n
i
t
s
e
v
s
n
o
i
t
p
O
n
o
l
l
u
f
n
i
t
s
e
v
s
n
o
i
t
p
O
n
o
l
l
u
f
n
i
t
s
e
v
s
n
o
i
t
p
O
n
o
l
l
u
f
n
i
t
s
e
v
s
n
o
i
t
p
O
n
o
l
l
u
f
n
i
t
s
e
v
s
n
o
i
t
p
O
n
o
l
l
u
f
n
i
t
s
e
v
s
n
o
i
t
p
O
n
o
l
l
u
f
n
i
t
s
e
v
s
n
o
i
t
p
O
n
o
l
l
u
f
n
i
t
s
e
v
s
n
o
i
t
p
O
.
k
c
o
t
s
n
o
m
m
o
c
f
o
s
e
r
a
h
s
e
s
a
h
c
r
u
p
o
t
n
o
i
t
p
O
)
1
(
)
2
(
)
3
(
)
4
(
)
5
(
)
6
(
)
7
(
)
8
(
)
9
(
)
0
1
(
)
1
1
(
25
OPTION EXERCISES AND STOCK VESTED IN 2020
Option Awards
Stock Awards
Number of
Shares
Acquired
on Exercise
(#)(1)
26,481
20,088
-
20,196
-
Value
Realized on
Exercise
($)(2)
$1,575,620
$858,159
-
$999,702
-
Number of
Shares
Acquired
on Vesting
(#)(1) (3)
-
-
-
-
52,477
Value
Realized on
Vesting
($)(3)
-
-
-
-
$2,940,949
Name
Michael D. Hays
Kevin R. Karas
Jona S. Raasch
Helen L. Hrdy
Steven D. Jackson
(1)
(2)
(3)
Shares of common stock.
Amounts represent the product of the number of shares acquired on exercise multiplied by the excess of the
closing market price per share on the date of exercise over the exercise price per share.
15,721 shares vested on January 6, 2020 and 36,756 shares vested on October 1, 2020. The market value is
based on the $68.30 and $50.80 per share closing prices of our common stock on The NASDAQ Stock Market
on January 6, 2020 and October 1, 2020, respectively.
Risk Assessment of Compensation Policies and Practices
The Board relies on the Committee to address risk exposures facing us with respect to
compensation, with appropriate reporting of these risks to be made to the full Board. The Committee, as
part of its periodic review of compensation and benefit programs, assesses the potential risks arising from
our compensation policies and practices and considers safeguards against incentives to take excessive
risks. Based on its most recent review, the Committee has concluded that the risks arising from our
compensation policies and practices for its associates are not reasonably likely to have a material adverse
effect on us.
COMPENSATION COMMITTEE REPORT
The Committee has reviewed and discussed the preceding Compensation Discussion and
Analysis with management and, based on such review and discussion, has recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement.
Donald M. Berwick, Chairperson
JoAnn M. Martin
John N. Nunnelly
26
PROPOSAL NO. 3 – ADVISORY VOTE ON EXECUTIVE COMPENSATION
This proposal provides our shareholders with the opportunity to cast a vote either for or against a
non-binding, advisory resolution to approve the compensation of our named executive officers as
disclosed in the Compensation Discussion and Analysis section and the accompanying compensation
tables and narrative discussion in this proxy statement. We are required to hold this vote by Section 14A
of the Securities Exchange Act of 1934. As discussed in the Compensation Discussion and Analysis
above, beginning on page 16, we have designed our executive compensation and benefit programs for our
executive officers, including our named executive officers, to advance the following core principles:
Competitive Pay for Our Market. We strive to compensate our executive officers at levels to
ensure that we continue to attract and retain a highly competent, committed management
team. Our Midwest headquarters provides a low cost of living that allows us to provide
compensation that accomplishes this goal while keeping total compensation below that of
many similar companies.
Align with Shareholders. We seek to align the interests, perspectives and decision-making of
our executive officers with the interests of our shareholders.
Incentivize Performance. We link our executive officers’ compensation, particularly annual
cash bonuses, to our established financial performance goals.
We believe that a focus on these principles will benefit us and, ultimately, our shareholders in the
long term by ensuring that we can attract and retain highly-qualified executive officers who are
committed to our long-term success.
The Board invites you to review carefully the Compensation Discussion and Analysis beginning
on page 16 and the tabular and other disclosures on compensation beginning on page 22, and cast an
advisory vote either for or against the following resolution:
“Resolved, that shareholders approve, on an advisory basis, the compensation of the Company’s
named executive officers as disclosed in the Compensation Discussion and Analysis section and
the compensation tables and narrative discussion contained in this Proxy Statement.”
While the vote does not bind the Board to any particular action, the Board values the input of our
shareholders, and will take into account the outcome of this vote in considering future compensation
arrangements.
Assuming a quorum is present at the Annual Meeting, the number of votes cast for the non-
binding resolution to approve the Company’s executive compensation program must exceed the number
of votes cast against it. Abstentions and broker non-votes will be counted as present in determining
whether there is a quorum; however, they will not constitute a vote “for” or “against” the non-binding
resolution and will be disregarded in the calculation of votes cast. A broker non-vote occurs when a
broker submits a proxy card with respect to shares that the broker holds on behalf of another person but
declines to vote on a particular matter, either because the broker elects not to exercise its discretionary
authority to vote on the matter or does not have authority to vote on the matter.
Based on the outcome of the advisory vote on the frequency of shareholder votes on executive
compensation at our 2017 annual shareholders meeting, the Company will ask its shareholders to consider
an advisory vote on the compensation of our named executive officers every year until otherwise
determined by a vote of our shareholders pursuant to applicable Securities and Exchange Commission
rules. The next advisory vote on the compensation of our named executive officers will occur at the 2022
annual meeting of shareholders.
27
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE COMPENSATION OF
OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
SHARES OF THE COMPANY’S COMMON STOCK REPRESENTED BY EXECUTED BUT
UNMARKED PROXIES WILL BE VOTED “FOR” APPROVAL OF THE COMPENSATION OF
OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
CEO PAY RATIO
As required by Item 402(u) of Regulation S-K promulgated under the Securities Exchange Act of
1934, we are providing the following information about the ratio of the median annual total compensation
of our associates (i.e., employees) and the annual total compensation of Michael D. Hays, our Chief
Executive Officer. For the year ended December 31, 2020:
the median of the annual total compensation of all associates of the Company was reasonably
estimated to be $66,976; and
the annual total compensation of Mr. Hays was $254,504.
Based on this information, the ratio of the annual total compensation of our Chief Executive
Officer to the median of the annual total compensation of all other associates is estimated to
be 3.80 to 1.
For purposes of this disclosure, as permitted by SEC regulations, we used the same median
associate as in our 2020 proxy statement because there was no change in our associate population or
associate compensation arrangements during 2020 that we reasonably believed would result in a
significant change to our pay ratio disclosure. We identified that median associate by examining total cash
compensation (i.e., base wages plus cash bonuses and/or commissions) for 2019 of all individuals
employed by us on December 1, 2019 (other than Mr. Hays), whether full-time, part-time or on a seasonal
basis. We annualized total cash compensation for all permanent associates who were hired after January
1, 2019, as permitted by the rules of the Securities and Exchange Commission. To calculate total cash
compensation for any associate paid in currency other than U.S. dollars, we then applied the applicable
foreign currency exchange rate in effect on December 1, 2019 to convert such associate’s total cash
compensation into U.S. dollars.
To calculate the 2020 annual total compensation of our median associate for purposes of this
disclosure, we added together all of the elements of our median associate’s compensation for 2020 in the
same way that we calculate the annual total compensation of our named executive officers in the
Summary Compensation Table. To calculate Mr. Hays’ annual total compensation, we used the amount
reported in the “Total” column of our 2020 Summary Compensation Table. To calculate our ratio, we
divided Mr. Hays’ annual total compensation by the annual total compensation of our median associate.
28
COMMENTARY FROM THE BOARD OF DIRECTORS
ON PROPOSALS 4 THROUGH 7
In Proposals 4, 5, 6, and 7 below, we are seeking shareholder approval to reincorporate from the State of
Wisconsin to the State of Delaware, increase the total number of shares of the Company’s authorized
Common Stock, remove restrictions on our ability to engage in certain business combinations, and in
connection with the reincorporation, opt out of Section 203 of the Delaware General Corporation Law
(“DGCL Section 203”). In addition, if the reincorporation to Delaware is approved we intend to amend
our Bylaws to align with Delaware law as further described under Proposal 4. In amending our Bylaws,
the Board intends to include (i) proxy access provisions, pursuant to which a shareholder, or a group of up
to 20 shareholders, that have held at least 3% of our outstanding Common Stock for at least three years,
may submit director nominees for inclusion in our future proxy statements; and (ii) a majority voting
requirement in uncontested director elections, pursuant to which any director that does not receive at least
a majority of the votes cast in future uncontested elections is required to submit his or her resignation for
consideration by the Nominating Committee and the Board. If the reincorporation proposal is not
approved, the Board will further evaluate whether to add these proxy access and majority voting
provisions to our Bylaws.
Currently, the Company is subject to various antitakeover, control share, and similar provisions under
Wisconsin law and our Articles of Incorporation. The Board believes that these provisions may dissuade
certain potential investors from investing in the Company and may impede the ability of large
stockholders to dispose of their shares in orderly block sales instead of prolonged open market sales,
which could depress the price of our Common Stock. By reincorporating in Delaware, eliminating the
restrictions on certain business combination transactions with interested shareholders in our Articles of
Incorporation, and opting out of DGCL Section 203, we would be eliminating these impediments.
Moreover, reincorporating in Delaware would provide a corporate law framework that is more predictable
and more familiar to potential investors, as well as prospective board and executive officer candidates.
In addition, by increasing our total authorized Common Stock pursuant to Proposal 5, the Company will
have more flexibility in considering and planning for actions that may increase shareholder liquidity or
otherwise benefit shareholders, such as stock splits, additional stock offerings, or the issuance of stock in
strategic transactions. Finally, by amending our Bylaws to include proxy access and majority vote
provisions, the Board intends to move towards a more modern and shareholder friendly governance
structure.
Proposals 4 through 7 are intended to further the Board’s goals of increasing liquidity and public float for
the Company’s shareholders and improving governance practices. We believe the Proposals offer
potential liquidity, public float, and governance benefits for all shareholders and recommend a vote in
favor. We acknowledge that the Proposals, together with subsequent share accumulations by one or more
investors, could result in a party having significant influence over our affairs or proposing a takeover that
some shareholders disfavor, including actions or proposals that could have been prevented under our
current framework. In addition, the amendments to our Articles of Incorporation, reincorporation, and
opting out of DGCL Section 203 could facilitate the ability of trusts established by our founder and CEO,
Mike Hays, to trade larger blocks of our stock and potentially receive more favorable terms than could
have been obtained under our current framework. Nevertheless, the Board believes the potential benefits
more than outweigh the potential risks and believes that approval of Proposals 4 through 7 is in the best
interests of our shareholders. The Board’s reasons for recommending these proposals are described in
more detail below.
29
PROPOSAL NO. 4 – APPROVAL OF THE COMPANY REINCORPORATING FROM THE
STATE OF WISCONSIN TO THE STATE OF DELAWARE
Our Board has unanimously approved and recommends that our shareholders approve the
reincorporation of the Company from the State of Wisconsin to the State of Delaware (the
“Reincorporation”). Subject to shareholder approval, the Reincorporation will be effected pursuant to a
Plan of Conversion, a copy of which is included as Appendix A to this proxy statement (the “Plan of
Conversion”). If the Reincorporation is approved by our shareholders, then in accordance with the Plan
of Conversion, Section 180.1161 of the Wisconsin Business Corporation Law (the “WBCL”), and Section
265 of the Delaware General Corporation Law (the “DGCL”), the Company will file with the Wisconsin
Department of Financial Institutions a certificate of conversion substantially in the form of Appendix B to
this proxy statement (the “Wisconsin Certificate”), at the same time, the Company will file with the
Delaware Secretary of State (i) a certificate of conversion substantially in the form of Appendix C to this
proxy statement (the “Delaware Certificate”), and (ii) a new certificate of incorporation, which would
govern the Company, substantially in the form of Appendix D to this proxy statement (the “Delaware
Charter”). The approval of the Reincorporation by our shareholders will also constitute approval of the
Plan of Conversion, the Delaware Certificate, and the Delaware Charter (other than certain provisions of
the Delaware Charter that we are asking shareholders to separately approve in Proposals 5, 6, and 7). In
connection with replacing the Wisconsin Certificate with the Delaware Certificate, we are separately
seeking approval to (i) increase the total number of shares of the Company’s authorized Common Stock
in our Delaware Charter, as described in Proposal 5, (ii) remove restrictions on business combinations in
our Delaware Charter, as described in Proposal 6, and (iii) opt out of the restrictions of DGCL Section
203 in our Delaware Charter, as described in Proposal 7. If the Reincorporation is approved, then our
Board intends to adopt amended bylaws substantially in the form of Appendix E to this proxy statement
(the “Delaware Bylaws”), in accordance with DGCL requirements. In addition to changes required to
conform to the DGCL, our Board intends to include in the Delaware Bylaws (i) a shareholder “proxy
access” provision, providing a process whereby shareholders can submit director nominees to be included
in our proxy statements, and (ii) a provision providing for election of directors at an annual or special
meeting by a majority vote so long as such election is not a contested election, in each case as set forth in
Appendix E to this proxy statement. In this Proposal 4, we sometimes refer to the Company before and
after the Reincorporation as “NRC Wisconsin” and “NRC Delaware,” respectively.
Summary
The principal effects of the Reincorporation, if approved by our shareholders and effected, will be that:
• The affairs of the Company will cease to be governed by the WBCL and will become subject to
the DGCL.
• Our existing Amended and Restated Articles of Incorporation (the “Wisconsin Charter”), and our
existing By-Laws, as amended (the “Wisconsin By-Laws”), will be replaced by the Delaware
Charter and Delaware Bylaws.
• NRC Delaware will (i) be deemed to be the same entity as NRC Wisconsin under Wisconsin and
Delaware law, (ii) continue to have all the rights, powers, and privileges as NRC Wisconsin,
except for changes that result from being subject to Delaware law, the Delaware Charter, or the
Delaware Bylaws, (iii) continue to possess all of the assets of NRC Wisconsin, (iv) continue to
have all of the debts, liabilities, and obligations of NRC Wisconsin, and (v) continue with the
same officers and directors of NRC Wisconsin immediately prior to the Reincorporation.
• Each issued and outstanding share of our Common Stock will continue to be an outstanding share
of common stock of NRC Delaware, and each outstanding option, warrant, or other right to
acquire shares of our Common Stock will continue to be an outstanding option, warrant, or other
right to acquire shares of common stock of NRC Delaware;
30
• Each employee benefit plan, incentive compensation plan, or other similar plan of NRC
Wisconsin will continue to be an employee benefit plan, incentive compensation plan, or other
similar plan of NRC Delaware;
• Each director and officer of NRC Wisconsin will continue to hold his or her respective position
with NRC Delaware; and
• Other than a change in corporate domicile, the Reincorporation will not result in any change of
the business or physical location of NRC Wisconsin, nor will it result in a change of location for
our current employees, including management.
Certificates representing shares of our Common Stock will continue to represent an equal number
of shares of NRC Delaware common stock. The Reincorporation will not affect the validity of currently
outstanding stock certificates. Consequently, it will not be necessary for our shareholders to exchange
their existing stock certificates for stock certificates of NRC Delaware. Shares of our Common Stock that
are freely tradeable prior to the Reincorporation will continue to be freely tradeable as shares of NRC
Delaware common stock, and shares of our Common Stock that are subject to restrictions prior to the
Reincorporation will continue to be subject to the same restrictions as shares of NRC Delaware common
stock. NRC Delaware will continue to file periodic reports and other documents with the Securities and
Exchange Commission to the extent required by Securities and Exchange Commission rules and
regulations, and the registration statements of the Company on file with the Securities and Exchange
Commission immediately prior to the Reincorporation will not be affected. Our Common Stock is listed
for trading on the Nasdaq Global Select Market under the ticker symbol “NRC.” After the
Reincorporation, our common stock will continue be traded on the Nasdaq Global Select Market, without
interruption, under the same symbol and with the same CUSIP number.
Reasons for the Reincorporation
Our Board believes that the Reincorporation is in the best interests of the Company and will help
maximize shareholder value by allowing us to draw upon Delaware’s leading and well established
principles of corporate governance when making business and legal decisions. The prominence and
predictability of Delaware corporate law provides a reliable foundation on which our governance
decisions can be based and we believe that shareholders and the Company will benefit from the
responsiveness of Delaware corporate law. Our Board believes that there are several benefits of the
Reincorporation, as summarized below.
Highly Developed and Predicable Corporate Law
Delaware has one of the most modern statutory corporation codes, which is revised regularly in
response to changing legal and business needs of corporations. The Delaware legislature is particularly
responsive to developments in modern corporate law and Delaware has proven sensitive to changing
needs of corporations and their shareholders. The Delaware Secretary of State is viewed as particularly
flexible and responsive in its administration of the filings required for mergers, acquisitions and other
corporate transactions. Delaware has become a preferred domicile for most major American corporations
and the DGCL and administrative practices have become comparatively well-known and widely
understood. As a result of these factors, it is anticipated that the DGCL will provide greater efficiency,
predictability and flexibility in the Company’s legal affairs than is presently available under the WBCL.
In addition, Delaware case law provides a well-developed body of law defining the proper duties and
decision making processes expected of boards of directors in evaluating potential or proposed
extraordinary corporate transactions.
31
Access to Specialized Courts
Delaware has a specialized court of equity called the Court of Chancery that hears corporate law
cases. The Delaware Court of Chancery operates under rules that are intended to ensure litigation of
disputes in a timely and effective way, keeping in mind the timelines and constraints of business decision-
making and market dynamics. The appellate process on decisions emanating from the Court of Chancery
is similarly streamlined, and the justices of Delaware appellate courts tend to have substantial experience
with corporate cases because of the relatively higher volume of these cases in the Delaware courts. As the
leading state of incorporation for both private and public companies, Delaware has developed a vast body
of corporate law that helps to promote greater consistency and predictability in judicial rulings. In
contrast, Wisconsin does not have a similar specialized court established to hear corporate law cases.
Rather, disputes involving questions of Wisconsin corporate law are either heard in law courts of general
jurisdiction, alongside other civil cases, or, if federal jurisdiction exists, a federal district court. These
courts hear many different types of cases, and the cases may be heard before judges or juries with limited
corporate law experience. As a result, corporate law cases brought in Wisconsin may not proceed as
expeditiously as cases brought in Delaware and the outcomes in such courts may be less consistent and
predictable.
Enhanced Ability to Attract and Retain Directors and Officers
The Board believes that the Reincorporation will enhance our ability to attract and retain qualified
directors and officers, as well as encourage directors and officers to continue to make independent
decisions in good faith on behalf of the Company. We are in a competitive industry and compete for
talented individuals to serve on our management team and on our Board. The vast majority of public
companies are incorporated in Delaware. Not only is Delaware law more familiar to directors, it also
offers greater certainty and stability from the perspective of those who serve as corporate officers and
directors. The parameters of director and officer liability are more extensively addressed in Delaware
court decisions and are therefore better defined and better understood than under Wisconsin law. The
Board believes that the Reincorporation will enhance our ability to recruit and retain directors and
officers. We believe that the better understood and comparatively stable corporate environment afforded
by Delaware law will enable us to compete more effectively with other public companies in the
recruitment of talented and experienced directors and officers.
Greater Access to Capital
Delaware corporate law and practice are comparatively well-known and widely understood, and
the well-established body of corporate case law provides a greater degree of predictability for the
investors and market participants than exists in other jurisdictions. More than two-thirds of the Fortune
500 companies are incorporated in Delaware, and, because Delaware law is better understood than
Wisconsin law by many market participants, underwriters and other members of the financial services
industry may be more willing and better able to assist in capital-raising programs, if necessary, for the
Company following the Reincorporation.
Eliminate Burdensome Restrictions of the WBCL and Wisconsin Charter
Taken together, the WBCL and the Wisconsin Charter place multiple restrictions on the
Company’s ability to engage in certain transactions which the Board may believe are in the best interests
of the Company and our shareholders. Specifically, the WBCL and Wisconsin Charter may restrict
business combinations with interested stockholders, limit the voting power of significant shareholders,
and require supermajority approval for certain business combinations where the consideration does not
meet certain requirements – For more detailed information on these restrictions, please see the rows
32
captioned “Business Combinations with Interested Stockholders,” “Control Share Statute,” and “Fair
Price Statute” in the table following the heading “Comparison of Shareholder Rights Before and After the
Reincorporation” below. These provisions are unduly burdensome and restrictive and may limit the
Board’s ability to maximize value for our shareholders. Additionally, the Company has concentrated
ownership, and these provisions may act as an impediment for large shareholders to dispose of their
shares in large blocks. This could result in such shareholders engaging in prolonged open market sales,
which could place downward pressure on the price of our Common Stock. Accordingly, the Board
believes removing these unduly burdensome and restrictive provisions may help facilitate increased
liquidity for our shareholders, grow our public float, and remove impediments to block sales that would
enable large shareholders to deconcentrate their ownership without negatively impacting the trading price
of our Common Stock.
Comparison of Shareholder Rights Before and After the Reincorporation
Because of differences between the WBCL and the DGCL, as well as differences between the
Company’s governing documents before and after the Reincorporation, the Reincorporation will effect
certain changes in the rights of the Company’s shareholders. The most significant provisions of
Wisconsin law and Delaware law are summarized below, along with the differences between the rights of
the Company’s shareholders immediately before and immediately after the Reincorporation. This
summary is not an exhaustive list of all differences, or a complete description of the differences
described, and is qualified in its entirety by reference to Wisconsin law, Delaware law, the Wisconsin
Charter, the Wisconsin By-Laws, the Delaware Charter and the Delaware Bylaws. Copies of the
Wisconsin Charter and Wisconsin By-Laws are filed with the Securities and Exchange Commission as
exhibits to our periodic reports. The Delaware Charter and Delaware Bylaws are included in this proxy
statement as Appendix D and Appendix E, respectively.
Provision or Law
NRC Wisconsin
NRC Delaware
Amending Charters
to
our
only
Under the WBCL, other than certain
amendments
the
requiring
approval of the board of directors, an
amendment
of
incorporation must be approved by a
majority of the votes entitled to be cast
on a proposed amendment, unless a
greater percentage is required by our
articles of incorporation, by-laws, or
the WBCL.
articles
The Wisconsin Charter
requires
approval of at least 66-2/3% of the
votes entitled to be cast to amend (i)
Article 3 (concerning (a) the general
powers, number, classification and
tenure of directors, (b) removal of
directors, and (c) filling vacancies on
the Board), (ii) Article 9 (restrictions
on
combinations with
interested shareholders – for more
row
information please
captioned “Business Combinations
business
see
the
33
amend
certificate
The DGCL provides that a corporation
may
of
its
incorporation by adoption of a board
resolution followed by the affirmative
vote of a majority of the shares
entitled to be cast on such amendment.
If an amendment directly affects the
shares of a class or series of stock, the
holders of the class or series are
entitled to vote on the amendment as a
class, unless
certificate of
the
incorporation opts out of the separate
class vote for increases or decreases in
the number of authorized shares of any
class of stock. If a certificate of
incorporation requires a greater vote
for action by the board of directors,
shareholders or other security holders
than
under
Delaware law, the provision requiring
the greater vote may be amended only
by that greater vote.
otherwise
required
with Interested Stockholders” below),
and (iii) Article 10 (electing to be
subject to control share and fair price
restrictions of the WBCL – for more
information
these
restrictions please
rows
captioned “Control Share Statute” and
Fair Price Statute” below).
regarding
see
the
Amending By-Laws
in
shareholders,
The WBCL provides that a board of
directors may amend or repeal a
corporation’s bylaws, or adopt new
the articles of
bylaws, unless (i)
incorporation
this power
reserve
exclusively to the shareholders or (ii)
amending,
the
repealing or adopting a particular
bylaw, provide expressly
the
board of directors may not amend or
repeal that bylaw. Under the WBCL,
shareholders may also amend or repeal
a corporation’s bylaws, or adopt new
bylaws, even though the bylaws may
also be amended or repealed by the
board of directors.
that
The Wisconsin By-Laws may be
amended, altered, or repealed by the
Board by affirmative vote of the
number of directors present at a
meeting at which a quorum is in
however,
provided,
attendance,
amendments to Sections 3.01 and 3.02
of the Wisconsin By-Laws require the
affirmative vote of at least 66-2/3% of
the directors then in office plus one
director (but in no case more than all
of
in office).
Further, the Wisconsin By-Laws may
be amended, altered, or repealed by
shareholders upon the affirmative vote
of a majority of votes entitled to be
cast, provided amendments to Sections
3.01 and 3.02 of the Wisconsin By-
Laws require the affirmative vote of at
least 66-2/3% of the votes entitled to
be cast.
the directors
then
supermajority
Except for the Wisconsin Charter
provisions noted as requiring a 66-
the
2/3%
Delaware Charter will be substantially
similar to the Wisconsin Charter with
respect
the
amendments
certificate of incorporation.
vote,
to
to
the
repeal bylaws
Under the DGCL, the power to adopt,
amend, or
rests
shareholders
generally with
entitled to vote, although the board of
directors may amend the bylaws if
such right is expressly conferred upon
its certificate of
the directors
incorporation.
in
The Delaware Charter will provide
that the Board has the power to adopt,
amend, or
the Delaware
Bylaws, including the qualifications,
classifications, or tenure of directors.
repeal
The Delaware Bylaws may be
amended, altered, or repealed by the
Board by affirmative vote of the
number of directors present at a
meeting at which a quorum is in
attendance,
however,
provided,
amendments to Sections 3.01 and 3.02
of the Delaware Bylaws require the
affirmative vote of at least 66-2/3% of
the directors then in office plus one
director (but in no case more than all
in office).
of
Further, the Delaware Bylaws may be
amended, altered, or repealed by
shareholders upon the affirmative vote
of a majority of votes entitled to be
cast, provided amendments to Sections
3.01 and 3.02 of the Delaware Bylaws
require the affirmative vote of at least
66-2/3% of the votes entitled to be
cast.
the directors
then
The Delaware Bylaws will be
substantially similar to the Wisconsin
By-Laws with respect to amendments
to the bylaws.
Number of Directors
Under the WBCL, the number of Under the DGCL, the number of
34
members serving on the board of
directors shall be at least one and fixed
in accordance with the articles of
incorporation or bylaws.
members serving on the Board of
Directors shall be at least one, and
fixed in accordance with the certificate
of incorporation or the bylaws.
The Wisconsin By-Laws provide that
the Board shall consist of not less than
3 directors, the exact number of which
shall be fixed from time to time by the
Board.
The Delaware Bylaws provide that the
Board shall consist of not less than 3
directors, the exact number of which
shall be fixed from time to time by the
Board.
The Delaware Bylaws will not
materially differ from the Wisconsin
By-Laws with respect to the number
of directors.
The WBCL allows the articles of
incorporation or bylaws to provide for
the staggering of terms for directors by
dividing the directors into 2 or 3
classes. Pursuant to the WBCL, a class
of directors is elected at each annual
shareholder meeting, with each class
of directors to serve for 2-years (if
there are 2 classes of directors) or 3-
years (if
there are 3 classes of
directors). Under the WBCL, directors
are elected by a plurality of the votes
cast of the shares entitled to vote at a
meeting at which a quorum is present.
The DGCL allows the certificate of
incorporation or bylaws to provide for
the staggering of terms for directors by
dividing the directors into 1, 2, or 3
classes. Pursuant to the DGCL, a class
of directors is elected at each annual
shareholder meeting, with each class
of directors to serve for 2-years (if
there are 2 classes of directors) or 3-
years (if
there are 3 classes of
directors). Under the DGCL, directors
are elected by a plurality of the votes
of the shares in person or represented
at the meeting and entitled to vote.
The Wisconsin By-Laws provide for
the division of the Board into 3
classes, and each class of directors
serves a 3-year term.
The Delaware Bylaws provide for the
division of the Board into 3 classes,
with each class of directors serving a 3
year term. The Delaware Bylaws also
provide that, in uncontested elections,
directors are elected by a majority of
the votes of the shares in person or
represented at the meeting and entitled
to vote.
Except for a majority vote standard in
the
uncontested director elections,
Delaware Bylaws do not materially
differ from the Wisconsin By-Laws
with respect to the classification and
election of directors.
The Wisconsin Charter provides that
any vacancy occurring on the Board,
by
including
removal of a director or the increase in
vacancies
created
35
The Delaware Charter provides that
any vacancy occurring on the Board,
by
including
removal of a director or the increase in
vacancies
created
Classified Board;
Board Elections; Vote
Required to Elect
Directors
Filling Vacancies on
the Board
Removal of Directors
then
the directors
the number of directors, shall be filled
by the affirmative vote of a majority
of
in office,
provided, however, that if the vacant
office was held by a director elected
by a voting group of shareholders,
only the remaining directors elected
by that voting group shall fill the
vacancy.
that
The Wisconsin Charter provides that a
director may only be removed for
“cause” and upon the affirmative vote
of the holders of 66-2/3% voting
power of the voting group that elected
such director to be removed, provided,
however,
the Board has
if
recommend removal of a director by a
resolution adopted by at least 66-2/3%
of the directors then in office plus one
director (but in no case more than all
of the directors then in office), our
such
shareholders may
director from office without “cause”
by the affirmative vote of a majority
of the outstanding shares.
remove
and
Under the Wisconsin Charter, “cause”
to remove a director exists only if the
director to be removed (i) has been
convicted of a felony by a court of
competent
such
jurisdiction
conviction is no longer subject to
direct appeal or (ii) has been adjudged
by a court of competent jurisdiction to
be liable for willful misconduct in the
performance of his or her duties to
NRC Wisconsin in a matter which has
a material adverse effect on
the
business of NRC Wisconsin and such
adjudication is no longer subject to
direct appeal.
Under the WBCL, action required or
permitted to be taken at a meeting of
shareholders may be taken by action
without a meeting if the action is taken
by all of the shareholders entitled to
36
Shareholder Action by
Written Consent
then
the directors
the number of directors, shall be filled
by the affirmative vote of a majority
of
in office,
provided, however, that if the vacant
office was held by a director elected
by a voting group of shareholders,
only the remaining directors elected
by that voting group shall fill the
vacancy.
The Delaware Charter will not
materially differ from the Wisconsin
Charter with
filling
respect
vacancies on the Board.
to
that
The Delaware Charter provides that a
director may only be removed for
cause upon the affirmative vote of the
holders of 66-2/3% voting power of
the voting group that elected such
director to be removed; provided,
however,
the Board has
if
recommended removal of a director by
a resolution adopted by at least 66-
2/3% of the directors then in office
plus one director (but in no case more
than all of the directors then in office),
our shareholders may remove such
director from office without cause by
the affirmative vote of a majority of
the outstanding shares.
The Delaware Charter does not define
“cause” in order to be consistent with
the DGCL, otherwise, the Delaware
Charter will not materially differ from
the Wisconsin Charter with respect to
removal of directors.
unless
the DGCL,
Under
the
certificate of incorporation provides
otherwise, any action to be taken at a
meeting of the shareholders may be
taken without a meeting if the holders
the
that
allow
articles
vote on the action. The WBCL also
of
provides
incorporation may
action
without a meeting to be taken by
shareholders having not less than the
minimum number of votes that would
be needed to take the action if a
meeting were held.
The Wisconsin Charter does not
address shareholder action without a
meeting. Accordingly, in accordance
with the relevant provisions of the
WBCL
above),
(described
shareholders may take action without
a meeting if the action is taken by all
of the shareholders entitled to vote on
the action.
of outstanding stock having at least the
minimum number of votes that would
be necessary to authorize or take such
action at a meeting consent to the
action in writing.
The Delaware Charter provides that
any action to be taken at a meeting of
the shareholders may be taken without
a meeting if the holders of all of the
outstanding stock entitled to vote with
respect to the subject matter thereof
consent to such action in writing.
The Delaware Charter will not
materially differ from the Wisconsin
Charter with respect to shareholder
action by written consent.
Shareholder Ability to
Call Special Meetings
Shareholder Derivative
Suits
Preemptive Rights
In accordance with our Wisconsin By-
Laws and
the WBCL, a special
meeting of the shareholders may only
be called by our Chief Executive
Officer, our President, or our Board.
Additionally, our Board is required to
call a
the
shareholders if the holders of at least
10% of all the votes entitled to be cast
on any issue to be considered at a
special meeting bring a proper demand
for a special meeting to the Company.
special meeting of
In accordance with our Delaware
Bylaws and the DGCL, a special
meeting of the shareholders may only
be called by our Chief Executive
Officer or our President. Additionally,
our Board is required to call a special
meeting of the shareholders if the
holders of at least 10% of all the votes
entitled to be cast on any issue to be
considered at a special meeting bring a
proper demand for a special meeting
to the Company.
The Delaware Bylaws will not
materially differ from the Wisconsin
By-Laws with respect to shareholder’s
ability to call special meetings.
transfer
The WBCL requires a shareholder
bringing a derivative lawsuit (i) to be a
beneficial owner of our shares at the
time the transaction complained of
to have become a
occurred or
by
through
shareholder
operation of law from a person who
was a shareholder at that time, and (ii)
fairly and adequately represent the
interests of the Company in enforcing
the right of the Company. The WBCL
requires that the shareholder remain a
shareholder throughout the litigation.
Under the WBCL and the Wisconsin
no
Charter,
shareholders
have
that
requires
The DGCL
the
shareholder bringing a derivative suit
to be a shareholder at the time of the
wrong complained of or that the stock
devolved to him or her by operation of
law from a person who was a
shareholder at the time of the wrong
complained of.
the
shareholder must remain a shareholder
throughout the litigation.
In addition,
Under the DGCL and the Delaware
no
Charter,
shareholders
have
37
preemptive rights to acquire additional
shares issued by NRC Wisconsin.
preemptive rights to acquire additional
shares issued by NRC Delaware.
Vote Required to
Approve a Merger or
Sale of the Company
Business
Combinations with
Interested
Stockholders
The WBCL requires the affirmative
vote of each voting group entitled to
vote by a majority of all the votes
entitled to be cast to approve a merger
of the corporation or a sale of all or
substantially all the assets of the
corporation
limited
except
circumstances. In addition, Wisconsin
super-
Charter may provide
majority voting in connection with
these transactions.
for
in
of
with
The Wisconsin Charter does not
include
voting
supermajority
requirements for mergers or sales of
all of substantially all of the assets of
NRC Wisconsin, except where such
merger or sale of all or substantially
all of the assets of NRC Wisconsin
would be otherwise subject to the
restrictions of Article 9 (business
interested
combinations
shareholders)
the Wisconsin
Charter.
The WBCL may limit the ability of a
“resident domestic corporation”
to
business
engage
in
combinations
interested
stockholders. While we believe NRC
Wisconsin does not meet the criteria
of a “resident domestic corporation”
under the WBCL, this is a fact specific
inquiry, and the Board cannot be
certain NRC Wisconsin would not be
deemed
domestic
a
corporation.
certain
with
resident
If NRC Wisconsin were deemed a
“resident domestic corporation,” the
WBCL would prohibit a person who is
an “interested stockholder” (defined as
a person who beneficially owns,
directly or indirectly, 10% of the
voting power of the outstanding voting
stock of a corporation, or who is an
affiliate or associate of the corporation
and beneficially owned 10% of the
voting power of the then outstanding
voting stock within the last three
38
The DGCL requires the affirmative
vote of the holders of a majority in
voting power of the outstanding shares
of stock entitled to vote to approve a
merger of the corporation or a sale of
all or substantially all the assets of the
limited
except
corporation,
circumstances.
the
In
Delaware Charter may provide for
super-majority voting in connection
with these transactions.
in
addition,
The Delaware Charter does not
include
voting
supermajority
requirements for mergers or sales of
all of substantially all of the assets of
NRC Delaware.
to
in
stock)
DGCL,
specified
The
circumstances, prohibits a person who
is an “interested stockholder” (defined
generally as a person who owns 15%
of NRC Delaware’s
or more
outstanding
from
voting
engaging in a “business combination”
include, among other
(defined
things, a merger, consolidation, or
other transaction, including a sale,
lease, or other disposition of assets
with an aggregate market value equal
to 10% or more of the aggregate
market value of NRC Delaware’s
outstanding stock or its assets (on a
basis)) with NRC
consolidated
Delaware for a
three-year period
following the time the stockholder
became an “interested stockholder,”
unless certain requirements are met.
For further information, please see
Proposal 7 below, where we are
the
seeking separate approval of
Delaware Charter expressly electing to
exchange
opt out of these restrictions. Under the
DGCL, since NRC Delaware common
stock will be listed on a national
(the Nasdaq
securities
Global Select Market), if Proposal 7 is
approved by
shareholders, NRC
Delaware will be subject to these
restrictions for twelve months after the
Delaware Charter becomes effective.
After such twelve month period, NRC
Delaware will not be restricted from
engaging in “business combinations”
with an “interested stockholder.”
years) from engaging in a “business
combination” (defined to include a
merger or share exchange, sale, lease,
exchange, mortgage, pledge, transfer,
or other disposition of assets equal to
at least 5% of the market value of the
stock or assets of a corporation or 10%
of its earning power, issuance of stock
or rights to purchase stock with a
market value equal to 5% of the
outstanding stock, adoption of a plan
liquidation, and certain other
of
transactions involving an “interested
stockholder”) with NRC Wisconsin
for a 3-year period following the time
the shareholder became an “interested
stockholder.” Additionally, under the
WBCL, business combinations after
the three-year period are permitted
only if: (i) the Board approved the
acquisition of the stock prior to the
acquisition date; (ii)
the business
combination is approved by a majority
of the outstanding voting stock not
beneficially owned by the interested
stockholder; (iii) the consideration to
be received by shareholders meets
certain requirements with respect to
form and amount; or (iv) the business
combination is of a type specifically
excluded from the coverage of the
statute.
engaging
Article 9 of the Wisconsin Charter
contains provisions that are similar to
the provisions of the WBCL discussed
above and restrict NRC Wisconsin
from
“business
combinations” with an “interested
stockholder.” For further information,
please see Proposal 6 below, where
shareholders are being asked
to
separately approve the removal of
Article 9 from the Wisconsin Charter.
in
Control Share Statute
The WBCL, in certain circumstances,
may limit the voting power of the
shares held by a person by limiting the
voting power of such person’s shares
in excess of 20% of the total voting
power in the corporation to 10% of the
full voting power of those shares. The
39
There is no similar provision in the
DGCL or the Delaware Charter.
Fair Price Statute
Interested Party
Transactions
WBCL allows a person whose voting
power is limited to be restored by the
affirmative vote of a majority of the
voting power of shares represented at
the meeting and entitled to vote.
require a
The Wisconsin Charter expressly
elects to be subject to control share
restrictions.
The WBCL, in certain circumstances,
may
supermajority of
shareholders to approve a business
combination unless the consideration
to be received by shareholders is equal
to or greater than a minimum fair price
statutorily defined
calculated by
valuation methods.
The Wisconsin Charter expressly
elects to be subject to fair price
restrictions.
The WBCL provides that a conflict of
interest transaction is not voidable by
a corporation solely due to a director’s
conflicting interest in the transaction
so long as any of the following are
true: (i) the material facts of the
transaction and the director’s interest
were disclosed to or known by the
board of directors and the transaction
was approved by a majority of the
disinterested directors of the board of
directors or a committee thereof, as
applicable, (ii) the material facts of the
transaction and the director’s interest
were disclosed to or known by the
shareholders entitled to vote thereon
and the transaction was approved by a
majority of the shares entitled to vote
(excluding any shares owned or voted
under the control of the interested
director), or (iii) the transaction was
fair to the corporation.
40
There is no similar provision in the
DGCL or the Delaware Charter.
if (i)
interest or
The DGCL provides that contracts or
transactions between a corporation and
one or more of its officers or directors
or an entity in which they have an
interest is not void or voidable solely
because of such
the
participation of the director or officer
in a meeting of the board of directors
or a committee which authorizes the
the
transaction
contract or
material facts as to the director’s or
officer’s relationship or interest and as
to the contract or transaction are
disclosed or are known to the board of
directors or the committee, and the
board of directors or committee in
good faith authorizes the contract or
transaction by the affirmative votes of
a majority of disinterested directors,
even though the disinterested directors
are less
than a quorum; (ii) the
material facts as to the director’s or
officer’s relationship or interest and as
to the contract or transaction are
disclosed or are known
the
stockholders entitled to vote thereon,
and the contract or transaction is
specifically approved in good faith by
vote of the stockholders; or (iii) the
contract or transaction is fair as to the
is
corporation as of
time
the
to
it
Indemnification and
Advancement of
Expenses of Directors
and Officers
Under the WBCL, a corporation is
required to indemnify a director or
officer for all reasonable expenses
incurred in the defense of a proceeding
to the extent that he or she has been
successful on the merits or otherwise
and was a party to such proceeding
due to the fact he or she was a director
or officer of such corporation. In
addition,
the WBCL permits a
corporation to indemnify a director or
officer against liability incurred in a
proceeding to which the director or
officer was a party because he or she
is a director or officer of such
liability was
corporation
incurred due to the fact the director or
officer breached or failed to perform a
fiduciary duty constituting (i) a willful
the
failure
corporation or its shareholders in a
matter in which the director has a
material conflict of interest, (ii) a
violation of criminal law, unless the
director had
to
believe that his or her conduct was
lawful or no reasonable cause to
believe that his or her conduct was
transaction from
unlawful, (iii) a
which
an
improper personal benefit, or (iv)
willful misconduct.
the director derived
reasonable cause
fairly with
to deal
unless
the
reimburse
The WBCL allows a corporation to
reasonable
pay or
expenses of a director or officer who
is party to a proceeding, upon written
request, so long as the director or
officer provides the corporation with
(a) a written affirmation of his or her
good faith belief that he or she has not
breached or failed to perform his or
her fiduciary duties, and (b) a written
undertaking to repay the allowance,
and if requested by the corporation, to
pay
such
allowance to the extent it is ultimately
determined that indemnification is not
interest on
reasonable
41
authorized, approved or ratified by the
board of directors, a committee thereof
or the stockholders.
Under the DGCL, a corporation must
indemnify a director or officer to the
extent the person is successful on the
merits or otherwise in defense of an
action, suit or proceeding by which
such director or officer is party by
reason of the fact that he or she is a
director or officer of such corporation.
In addition, the DGCL permits a
corporation to indemnify its directors
or officers from expenses and losses
arising out of litigation by reason of
the director’s or officer’s service to the
corporation or to another entity at its
request,
certain
circumstances, litigation by or in the
right of the corporation, so long as the
officer or director acted in good faith
and in a manner reasonably believed
to be in or not opposed to the best
interests of the corporation; and, in the
case of criminal proceedings, had no
reasonable cause to believe that his or
her conduct was unlawful. Unless
corporations
judicially
may not
in
connection with a proceeding by or in
the right of the corporation in which
the person was adjudged liable to the
corporation.
authorized,
indemnify a person
including,
in
under
DGCL,
certain
The
circumstances, permits a corporation
to advance expenses to its officers or
directors prior to conclusion of the
litigation. In such an event, the DGCL
requires officers and directors
to
undertake to repay advanced expenses
if it is ultimately determined that he or
she is not entitled to be indemnified by
the corporation.
The Delaware Charter and Delaware
Bylaws provide our directors and
officers with
indemnification and
advancement of expenses to the fullest
extent permitted by the DGCL.
Limitation on Personal
Liability of Directors
Declaration and
Payment of Dividends
Appraisal Rights
proper.
and
fullest
officers
to deal
fairly with
The Wisconsin By-Laws provide our
with
directors
indemnification and advancement of
expenses
extent
the
to
permitted by the WBCL.
Under the WBCL, a director is not
personally
liable for a breach of
fiduciary duty except to the extent
such breach constitutes (a) a willful
the
failure
corporation or its shareholders in a
matter in which the director has a
material conflict of interest, (b) a
violation of criminal law, unless the
director had
to
believe that his or her conduct was
lawful or no reasonable cause to
believe that his or her conduct was
unlawful, (c) a transaction from which
improper
the director derived an
personal benefit, or
(d) willful
misconduct.
reasonable cause
Under the DGCL, the certificate of
incorporation may eliminate or limit
the personal liability of a director for
breach of fiduciary duty. A certificate
of incorporation may not, however,
limit or eliminate a director’s personal
liability for (a) any breach of the
director’s duty of
the
corporation or its stockholders, (b)
acts or omissions not in good faith or
involving intentional misconduct or a
knowing violation of law, (c) payment
stock
of
repurchases or redemptions (Section
the DGCL), or (d) any
174 of
transaction
the director
in which
received an improper personal benefit.
dividends,
unlawful
loyalty
to
The Delaware Charter
the
personal liability of a director for
breach of fiduciary duty to the fullest
extent permitted by the DGCL.
limits
authorizing
the Board
the WBCL,
from
Under
is
the
prohibited
payment of a dividend, if after giving
effect to such dividend payment, the
Company would be unable to pay its
debts as they become due in the
ordinary course of business or the
Company’s total assets would be less
than the sum of its total liabilities plus
the amount that would be needed, if
the Company were to be dissolved at
the time of the distribution, to satisfy
the preferential rights upon dissolution
of shareholders whose preferential
rights are superior to those receiving
the distribution.
Under the WBCL, shareholders have
appraisal
rights,
respectively,
corporate
actions, such as a merger, occur.
These rights include the rights to
dissent from voting to approve such
dissenter’s
certain
or
if
The DGCL provides that a corporation
may pay dividends out of surplus or,
in case there is no surplus, out of the
corporation’s net profits
the
preceding fiscal year, subject to any
restrictions contained in its certificate
incorporation. The Delaware
of
Charter will
such
contain
restrictions.
for
no
the DGCL,
stockholders
Under
generally have appraisal rights if a
merger or consolidation
to be
effected pursuant to Section 251 of the
DGCL. In order to exercise appraisal
rights, stockholders must not vote in
is
42
rights must
corporate action and to demand fair
value for the shares of the dissenting
shareholder. If a proposed corporate
action creating dissenters’ rights is
submitted to a vote at a shareholders
meeting, a shareholder who wishes to
assert dissenters’
(i)
deliver to the corporation, before the
vote is taken, written notice of his
intent to demand payment for his
shares
is
effected and (ii) not vote his shares for
the proposed action. If fair value is not
settled, the WBCL provides various
procedures for the dissenter and the
corporation to arrive at a fair value,
which may ultimately be resolved by
petition to a circuit court of the county
in Wisconsin where
the
corporation’s principal office or
registered office is located.
the proposed action
if
a
favor of the merger or consolidation
nor consent thereto in writing. If a
proposed merger or consolidation for
which appraisal rights are provided is
submitted to a vote at a stockholders
meeting, a stockholder who wishes to
assert appraisal rights must (i) deliver
to the corporation, before the vote is
taken, written demand for appraisal of
such stockholder’s shares and (ii) not
vote his or her shares in favor of the
proposed merger or consolidation. If
the fair value of the shares is unsettled,
various
provides
the
procedures
shareholder(s)
the
exercising appraisal rights and the
corporation to arrive at a fair value,
which may ultimately be resolved by
petition to the Court of Chancery
where a corporation’s principal office
or registered office is located.
DGCL
for
appraisal
The DGCL provides an exception to a
stockholder’s
rights
commonly known as the “market-out”
exception. Under
this exception,
appraisal rights will not be available if
a
stockholders
corporation that is either (i) listed on a
national securities exchange or (ii)
held of record by over 2,000 holders.
stock
hold
of
After
the Reincorporation, NRC
Delaware’s stock will continue to be
traded on the NASDAQ Global Select
Market, and therefore subject to the
market-out exception in the event of a
merger or consolidation.
would
holders
Holders of NRC Delaware common
stock will not have appraisal rights
under Delaware law while the market-
out exception is applicable, except if
such
receive
consideration in a transaction other
than
the surviving
corporation, (b) stock of any other
corporation that is or will be listed on
a national securities exchange or held
by over 2,000 stockholders, (c) cash in
lieu of fractional shares or (d) any
(a) stock of
43
Filing and License
Fees
Wisconsin
corporations
charges
incorporated in Wisconsin nominal
annual corporate license renewal fees,
and does not
impose an annual
franchise tax fee.
combination of the foregoing.
all
on
fees
Delaware imposes annual franchise
corporations
tax
incorporated in Delaware. The annual
fee ranges from a nominal fee to a
maximum of $250,000, based on the
number of authorized shares of capital
stock or, in the alternative, based on
an equation consisting of the number
of issued shares and the total gross
assets of the corporation.
Anticipated Federal Income Tax Consequences of Reincorporation
The Company intends the Reincorporation to be a tax-free reorganization under the Internal
Revenue Code of 1986, as amended (the “Code”). Assuming the Reincorporation qualifies as a tax-free
reorganization, the holders of the Company’s common stock will not recognize any gain or loss under the
U.S. federal income tax laws as a result of the consummation of the Reincorporation, and neither will the
Company. At the time the Reincorporation becomes effective, each holder will receive the same basis in
NRC Delaware’s common stock as that holder had in their corresponding shares of common stock of
NRC Wisconsin and the holding period for the shares of NRC Delaware common stock will include the
holding period for shares of the NRC Wisconsin common stock converted therefor.
This proxy statement only discusses U.S. federal income tax consequences and has done so only
for your general information. This proxy statement does not address all of the federal income tax
consequences that may be relevant to particular shareholders based upon individual circumstances or to
shareholders who are subject to special rules, such as, financial institutions, tax-exempt organizations,
insurance companies, dealers in securities, foreign holders or holders who acquired their shares as
compensation, whether through employee stock options or otherwise. This proxy statement does not
address the tax consequences under state, local or foreign laws.
This discussion is based on the Code, regulations, rulings and decisions in effect as of the date of
this proxy statement, all of which are subject to differing interpretations and change, possibly with
retroactive effect. The Company has neither requested nor received a tax opinion from legal counsel or
rulings from the Internal Revenue Service regarding the consequences of the Reincorporation. There can
be no assurance that future legislation, regulations, administrative rulings or court decisions would not
alter the consequences discussed above.
You should consult with your own tax advisor to determine your particular tax consequences of
the Reincorporation, including the applicability and effect of federal, state, local, foreign and other tax
laws.
Consequences of Shareholder Vote
A vote in favor of this proposal is a vote in favor of the Reincorporation and the Plan of
Conversion, which will authorize us to file the Wisconsin Certificate, the Delaware Certificate, and the
Delaware Charter, and adopt the Delaware Bylaws. Notwithstanding the foregoing, if the Reincorporation
is approved by shareholders, the Board may, in accordance with the Plan of Conversion, abandon the
Reincorporation if the Board believes that doing so is in the best interests of the Company and its
shareholders. If this Proposal 4 is approved and implemented, the provisions of the Delaware Charter will
44
depend upon whether Proposals 5, 6, and 7 are approved. If any or all of Proposals 5, 6, or 7 are
approved, the Delaware Charter will include a provision substantively as described in Proposals 5, 6, or 7,
as applicable. If any or all of Proposals 5, 6, or 7 are not approved, Proposals 5, 6, or 7 describe the
impact on the Delaware Charter, as applicable.
If this Proposal 4 fails to obtain the requisite vote for approval, the Reincorporation will not be
consummated and the Company will continue to be incorporated in the State of Wisconsin and governed
by the Wisconsin Charter and the Wisconsin By-Laws, subject to the outcome of, and the changes
contemplated by, Proposals 5 and 6.
Required Vote
Under the WBCL, the Reincorporation of the Company from a Wisconsin corporation to a
Delaware corporation and the associated plan of conversion requires approval by a majority of votes
entitled to be cast. In addition, the Reincorporation effectively requires an amendment to the Wisconsin
Charter by adopting the revised Delaware Charter. In general, amendments to the Wisconsin Charter
require approval by a majority of votes entitled to be cast. However, the Delaware Charter will delete
Article 10 of the Wisconsin Charter and will delete the definition of “cause” in Article 3 of the Wisconsin
Charter in order to be consistent with Delaware law. Article 10 and Article 3 of the Wisconsin Charter
require approval of at least 66-2/3% of the voting power of all of the Company’s capital stock in order to
amend such Articles. Accordingly, the affirmative vote of holders of at least 66-2/3% of the shares
entitled to be cast at the annual meeting is required to approve the reincorporation of the Company from
the State of Wisconsin to the State of Delaware. Abstentions and broker non-votes will have the same
effect as a vote “AGAINST” this proposal.
THE BOARD RECOMMENDS THE REINCORPORATION OF THE COMPANY FROM THE
STATE OF WISCONSIN TO THE STATE OF DELAWARE AND URGES EACH
SHAREHOLDER TO VOTE “FOR” SUCH REINCORPORATION. SHARES OF THE
COMPANY’S COMMON STOCK REPRESENTED BY EXECUTED BUT UNMARKED
PROXIES WILL BE VOTED “FOR” SUCH REINCORPORATION.
45
PROPOSAL NO. 5 – APPROVAL OF OUR CERTIFICATE OF INCORPORATION
INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Proposed Provision
On May 4, 2021, our Board unanimously approved and adopted a resolution to increase the
number of authorized shares of the Company’s Common Stock.
As proposed, Article 4 to the Delaware Charter would state as follows:
ARTICLE 4
AUTHORIZED CAPITAL
The total amount of stock of which the Corporation shall have the authority to issue is One
Hundred-Twelve Million (112,000,000) shares, consisting of: (i) One Hundred-Ten Million
(110,000,000) shares of a class designated as “Common Stock,” with a par value of $.001 per share; and
(ii) Two Million (2,000,000) shares of a class designated as “Preferred Stock,” with a par value of $.01
per share.
The designation, relative rights, preferences and limitations of the shares of each class and the
authority of the Board of Directors of the Corporation to establish and to designate series of Preferred
Stock and to fix variations in the relative rights, preferences and limitations as between such series, shall
be as set forth herein.
A. Preferred Stock.
(1) Series and Variations Between Series. The Board of Directors of the Corporation is authorized, to
the full extent permitted under the DGCL and the provisions of this Section A, to provide for the
issuance of the Preferred Stock in series, each of such series to be distinctively designated, and to
have such redemption rights, dividend rights, rights on dissolution or distribution of assets,
conversion or exchange rights, voting powers, designations, preferences and relative
participating, optional or other special rights, if any, and such qualifications, limitations or
restrictions thereof as shall be provided by the Board of Directors of the Corporation consistent
with the provisions of this Article 4.
(2) Dividends. Before any dividends shall be paid or set apart for payment upon shares of Common
Stock, the holders of each series of Preferred Stock shall be entitled to receive dividends at the
rate (which may be fixed or variable) and at such times as specified in the particular series. The
holders of shares of Preferred Stock shall have no rights to participate with the holders of shares
of Common Stock in any distribution of dividends in excess of the preferential dividends, if any,
fixed for such Preferred Stock.
(3) Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of shares of each series of Preferred Stock shall be
entitled to receive out of the assets of the Corporation in money or money’s worth the preferential
amount, if any, specified in the particular series for each share at the time outstanding together
with all accrued but unpaid dividends thereon, before any of such assets shall be paid or
distributed to holders of Common Stock. The holders of Preferred Stock shall have no rights to
participate with the holders of Common Stock in the assets of the Corporation available for
distribution to stockholders in excess of the preferential amount, if any, fixed for such Preferred
Stock.
46
(4) Voting Rights. The holders of Preferred Stock shall have only such voting rights as are fixed for
shares of each series by the Board of Directors pursuant to this Section A or are provided, to the
extent applicable, by the DGCL.
B. Common Stock
(1) Voting Rights. Except as otherwise provided by the DGCL, and except as may be determined by
the Board of Directors with respect to the Preferred Stock pursuant to Section A of this Article 4,
only the holders of Common Stock shall be entitled to vote for the election of directors of the
Corporation and for all other corporate purposes. Upon any such vote the holders of Common
Stock shall, except as otherwise provided by law, be entitled to one vote for each share of
Common Stock held by them respectively.
(2) Dividends. Subject to the provisions of this Article 4, the Board of Directors of the Corporation
may, in its sole discretion, out of funds legally available for the payment of dividends and at such
times and in such manner as determined by the Board of Directors, declare and pay dividends or
other distributions on the Common Stock.
(3) Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, after there shall have been paid to or set aside for the holders of
Preferred Stock the full preferential amounts, if any, to which they are entitled, the holders of
outstanding shares of Common Stock shall be entitled to receive pro rata, according to the
number of shares held by each, the remaining assets of the Corporation available for distribution
to the holders of Common Stock.
C.
Preemptive Rights. No holder of shares of any class of capital stock of the Corporation
shall have any preferential or preemptive right to acquire unissued shares of capital stock of the
Corporation or securities convertible into such shares or conveying a right to subscribe for or acquire
shares.
Purpose and Effect of Proposed Article 4
Our Amended and Restated Articles of Incorporation currently authorize the issuance of up to
60,000,000 shares of Common Stock and 2,000,000 shares of Preferred Stock. As the close of business on
May 5, 2021, there were approximately 25,439,013 shares of Common Stock issued and outstanding and
2,135,813 shares of Common Stock reserved for issuance pursuant to (i) outstanding option awards, (ii)
the Director Plan, and (iii) our 2006 Equity Incentive Plan.
If this proposal is approved by shareholders, upon its effectiveness we will have a total of
110,000,000 authorized shares of Common Stock, with approximately 25,439,013 shares of Common
Stock issued and outstanding as of May 5, 2021, and approximately 2,135,813 shares of Common Stock
reserved for issuance, leaving a balance of 82,425,174 shares of Common Stock authorized and not
reserved for any specific purpose.
Our Board believes it is in the best interests of the Company to increase the number of authorized
shares of our Common Stock in order to give the Company greater flexibility in considering and planning
for future general corporate needs, including, but not limited to, stock splits, the offer and sale of
Common Stock in one or more public offerings or private placements, the grant of Common Stock or
warrants, options or other convertible securities in one or more strategic transactions, stock dividends,
grants under equity compensation plans, as well as other general corporation transactions. Our Board
believes that additional authorized shares of Common Stock will provide increased flexibility to the
47
Company to take timely advantage of any market conditions and favorable financing and acquisition
opportunities that may become available to the Company. The authorized but unissued shares will only be
issued at the direction of the Board, and if required by applicable law or regulation, upon separate
stockholder approval.
The increase in the authorized shares of Common Stock could, under certain circumstances, have
an anti-takeover effect or delay or prevent a change in control of the Company by providing the Company
the capability to engage in actions that would be dilutive to a potential acquirer, to pursue alternative
transactions, or to otherwise increase the potential cost to acquire control of the Company. Thus, while
the Company currently has no intent to employ the additional unissued authorized shares as an anti-
takeover device, the proposal may have the effect of discouraging future unsolicited takeover attempts.
The proposed increase in the number of authorized shares of the Company’s Common Stock will
not change the number of shares of Common Stock outstanding, nor will it have any immediate dilutive
effect or change the rights of current holders of the Company’s Common Stock. Any newly authorized
shares of Common Stock will be identical to the shares of Common Stock now issued and outstanding.
However, the issuance of additional shares of Common Stock authorized by this proposal may occur at
times or under circumstances as to have a dilutive effect on earnings per share, book value per share or
the percentage voting or ownership interest of the present holders of the Company’s common stock.
Consequences of Shareholder Vote
If both Proposal 5 and Proposal 4 are approved by our shareholders, the Company will be
authorized to reincorporate in the State of Delaware, file the Delaware Certificate and Delaware Charter
with the Secretary of State for the State of Delaware, and adopt the Delaware Bylaws. In such an event,
Article 4 of the Delaware Charter will provide that the Company is authorized to issue 110,000,000 shares
of common stock.
If this Proposal 5 is approved by our shareholders but Proposal 4 does not obtain the approval of
our shareholders, the Company will not reincorporate in the State of Delaware and the Company will
continue to be incorporated in the State of Wisconsin, and, consistent with the intent of this Proposal 5,
the Company will file an amendment to our Amended and Restated Articles of Incorporation with the
Wisconsin Department of Financial Institutions increasing the number of authorized shares of Common
Stock from 60,000,000 shares to 110,000,000 shares. In such an event, the amended provision in our
Amended and Restated Articles of Incorporation will be substantially similar to the provision proposed
above, except that references to “Article 4” will instead refer to “Article 2” and references to the “DGCL”
will instead refer to the “WBCL.”
If this Proposal 5 is not approved by our shareholders, the Company’s authorized shares of
Common Stock will not be increased, and the number of shares of Common Stock authorized by the
Delaware Charter (if Proposal 4 is approved) or the Wisconsin Charter (if Proposal 4 is not approved) will
continue to be 60,000,000 shares.
Required Vote
Approval of this Proposal 5 requires an affirmative vote of holders of at least a majority of the
votes to which all of the shareholders of the Company would be entitled to cast at the annual meeting.
Abstentions and broker non-votes will have the same effect as a vote “AGAINST” this proposal.
THE BOARD RECOMMENDS AMENDING OUR AMENDED AND RESTATED ARTICLES OF
INCORPORATION AND URGES EACH SHAREHOLDER TO VOTE “FOR” SUCH
AMENDMENT. SHARES OF THE COMPANY’S COMMON STOCK REPRESENTED BY
48
EXECUTED BUT UNMARKED PROXIES WILL BE VOTED “FOR” AMENDING OUR
AMENDED AND RESTATED ARTICLES OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.
49
PROPOSAL NO. 6 – APPROVAL OF OUR CERTIFICATE OF INCORPORATION
REMOVING RESTRICTIONS ON BUSINESS COMBINATIONS
Background
On May 4, 2021, in connection with the Reincorporation, our Board unanimously approved and
adopted a resolution to remove restrictions and limitations regarding business combinations with
interested shareholders from the Delaware Charter. Currently, Article 9 of our Wisconsin Charter restricts
business combinations with interested shareholders by incorporating a substantial portion of the WBCL’s
“Business Combination” statute.
Article 9 of the Wisconsin Charter regulates a broad range of “business combinations” between
the Company and an “interested stockholder.” Article 9 of the Wisconsin Charter defines a “business
combination” to include a merger or share exchange, sale, lease, exchange, mortgage, pledge, transfer, or
other disposition of assets equal to at least 5% of the market value of the stock or assets of the Company
or 10% of its earning power, issuance of stock or rights to purchase stock with a market value equal to 5%
of our outstanding stock, adoption of a plan of liquidation, and certain other transactions involving an
“interested stockholder.”
Article 9 of the Wisconsin Charter defines an “interested stockholder” as a person who
beneficially owns, directly or indirectly, 10% of the voting power of the outstanding voting stock of the
Company, or who is an affiliate or associate of the Company and beneficially owned 10% of the voting
power of the then outstanding voting stock within the last three years. Article 9 of the Wisconsin Charter
prohibits the Company from engaging in a business combination (other than certain business
combinations which are specifically excluded) with an interested stockholder for a period of three years
following the date such person becomes an interested stockholder, unless the Board approved the business
combination or the acquisition of the stock that resulted in a person becoming an interested stockholder
before such acquisition. Additionally, business combinations after the three-year period following the
stock acquisition date are permitted only if: (i) the Board approved the acquisition of our stock prior to the
acquisition date; (ii) the business combination is approved by a majority of our outstanding voting stock
not beneficially owned by the interested stockholder; (iii) the consideration to be received by shareholders
meets certain requirements with respect to form and amount; or (iv) the business combination is of a type
specifically excluded by Article 9 of the Wisconsin Charter.
Reasons for Removing Business Combination Restrictions
The Board believes that it is in the best interests of the Company and its shareholders to remove
these business combination restrictions as they may limit the Company’s ability to engage in certain
transactions which may otherwise benefit the Company’s growth and strategic plan. Additionally, these
business combination restrictions are viewed unfavorably by some institutional investors as they could
have an anti-takeover effect or otherwise restrict the Company’s ability to maximize value for its
shareholders. Moreover, as described under Proposal 4, the business combination restrictions can act as
an impediment to large shareholders selling their shares in orderly block sales instead of prolonged open
market sales. The Board believes that removing these restrictions would help facilitate dispositions of our
Common Stock by large stockholders in transactions that do not create downward pressure on the price of
our Common Stock, which in turn may help deconcentrate the ownership of our Common Stock and
increase our public float and liquidity for all shareholders.
The Board also believes that these business combination restrictions are unduly burdensome and
unnecessary if the Company reincorporates from the State of Wisconsin to the State of Delaware. In
connection with the Reincorporation, shareholders are being asked approve opting out of DGCL Section
50
203, which imposes similar restrictions on business combinations as those in Article 9 of our Wisconsin
Charter. If shareholders approved opting-out of DGCL Section 203, but we did not remove the business
combination restrictions from our Delaware Charter, we would continue to be subject to restrictions on
business combinations, which would largely defeat the purpose of opting out of DGCL Section 203.
Accordingly, the Board believes restrictions on business combinations should be removed from the
Delaware Charter for the same reasons identified in Proposal 7 below.
Consequences of Shareholder Vote
If both Proposal 6 and Proposal 4 are approved by our shareholders, the Company will be
authorized to reincorporate in the State of Delaware, file the Delaware Certificate and Delaware Charter
with the Secretary of State for the State of Delaware, and adopt the Delaware Bylaws. In such an event,
the Delaware Charter will not include provisions restricting business combinations.
If this Proposal 6 is approved by our shareholders, but Proposal 4 fails to obtain shareholder
approval, then consistent with the intent of this Proposal 6, the Company will file an amendment to our
Amended and Restated Articles of Incorporation with the Wisconsin Department of Financial Institutions
removing the provisions of Article 9.
If this Proposal 6 is not approved by our shareholders, the Delaware Charter (if Proposal 4 is
approved) or the Wisconsin Charter (if Proposal 4 is not approved) will continue to include provisions
restricting business combinations substantially similar to those in Article 9 in our current Wisconsin
Charter.
Required Vote
This Proposal 6 seeks to amend Article 9 of our Wisconsin Charter, which requires the approval
of at least 66-2/3% of the shares entitled to be cast in order to be amended. Accordingly, the affirmative
vote of holders of at least 66-2/3% of the shares entitled to be cast at the annual meeting is required to
approve removing restrictions on business combinations in our Delaware Charter. Abstentions and broker
non-votes will have the same effect as a vote “AGAINST” this proposal.
THE BOARD RECOMMENDS REMOVING PROVISIONS IN OUR CERTIFICATE OF
INCORPORATION RESTRICTING BUSINESS COMBINATIONS AND URGES EACH
SHAREHOLDER TO VOTE “FOR” REMOVING SUCH PROVISIONS IN OUR CERTIFICATE
OF INCORPORATION. SHARES OF THE COMPANY’S COMMON STOCK REPRESENTED
BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED “FOR” REMOVING SUCH
PROVISONS IN OUR CERTIFICATE OF INCORPORATION.
51
PROPOSAL NO. 7 – APPROVAL OF A PROVISON IN OUR CERTIFICATE OF
INCORPORATION OPTING OUT OF DGCL SECTION 203
Proposed Provision
On May 4, 2021, our Board unanimously approved and adopted a resolution to add a provision in
the Delaware Charter, Article 9, which would opt the Company out of Section 203 of the DGCL. As
proposed, Article 9 to the Company’s Certificate of Incorporation would state as follows:
ARTICLE 9
DGCL SECTION 203
The Corporation hereby expressly elects not to be governed by Section 203 of the DGCL.
Purpose and Effect of Proposed Article 9
Our Board believes that it is in the best interests of the Company and our shareholders to opt out of
DGCL Section 203. DGCL Section 203 is an anti-takeover provision that applies to Delaware
corporations that either have shares of voting stock listed on a national securities exchange or have more
than 2,000 record holders of voting stock. DGCL Section 203 generally provides that any person or entity
who acquires 15% or more in voting power of a corporation’s voting stock (thereby becoming an
“interested stockholder”) may not engage in a wide range of transactions (referred to as “business
combinations”) with the corporation for a period of three years following the date the person became an
interested stockholder, subject to certain exceptions. The exceptions are (i) the board of directors of the
corporation has approved, prior to the acquisition date, either the business combination or the transaction
that resulted in the person becoming an interested stockholder, (ii) upon consummation of the transaction
that resulted in the person becoming an interested stockholder, that person owns at least 85% in voting
power of the corporation’s voting stock outstanding at the time the transaction commenced (excluding
certain shares), or (iii) the business combination is approved by the board of directors and authorized at a
stockholder meeting, and not by written consent, by the affirmative vote of at least 66-2/3% of the voting
power of the outstanding voting stock not owned by the interested stockholder. Under DGCL Section
203, a corporation can elect not to be subject to DGCL Section 203 by amendment of its certificate of
incorporation. Subject to certain exceptions that do not apply to the Company, such amendment does not
take effect until twelve months after its adoption because the Company’s voting stock is listed on a
national securities exchange. The description of DGCL Section 203 set forth in this proxy statement is
qualified in its entirety by reference to the text of DGCL Section 203. Our Board believes that DGCL
Section 203 results in unnecessary additional requirements with respect to potential transactions and
opting out of DGCL Section 203 would eliminate a potential hurdle to a potential transaction that the
Board believes to be in the best interests of the Company. Moreover, as described under Proposals 4 and
6, business combination restrictions such as those in DGCL Section 203 can act as an impediment to large
shareholders selling their shares in orderly block sales instead of prolonged open market sales. The Board
believes that removing these restrictions would help facilitate dispositions of our Common Stock by large
stockholders in transactions that do not create downward pressure on the price of our Common Stock,
which in turn may help deconcentrate the ownership of our Common Stock and increase our public float
and liquidity for all shareholders.
Consequences of Shareholder Vote
This Proposal 7 is conditioned upon the approval of Proposal 4 contained in this proxy statement.
If Proposals 4 and 7 are approved by our shareholders, the Company will be authorized to reincorporate in
the State of Delaware, file the Delaware Certificate and Delaware Charter with the Secretary of State for
the State of Delaware, and adopt the Delaware Bylaws. In such event, the Delaware Charter will include a
52
provision opting out of DGCL Section 203 and, due to the Company’s voting stock being listed on a
national securities exchange, such provision does not take effect until twelve months after its adoption.
Following such twelve month period, the Company will not be subject to any restrictions imposed by
DGCL Section 203.
If this Proposal 7 is approved by our shareholders, but Proposal 4 fails to obtain shareholder
approval, then the approval of this Proposal 7 will have no force or effect, the Reincorporation will not be
consummated, and the Company will continue to be incorporated in the State of Wisconsin and governed
by the Wisconsin Charter and the Wisconsin By-Laws, subject to the outcome of, and the changes
contemplated by, Proposals 5 and 6.
If this Proposal 7 is not approved by our shareholders, but Proposal 4 is approved by our
shareholders, the Company’s Delaware Charter will not opt-out of DGCL Section 203 and the Company
will be subject to DGCL Section 203. If this Proposal 7 is not approved by our shareholders and Proposal
4 fails to obtain shareholder approval, then the Company will continue to be incorporated in the State of
Wisconsin and governed by the Wisconsin Charter and the Wisconsin By-Laws, subject to the outcome
of, and the changes contemplated by, Proposals 5 and 6.
Required Vote
Approval of this proposal requires an affirmative vote of holders of at least a majority of the votes
to which all of the shareholders of the Company would be entitled to cast at the annual meeting.
Abstentions and broker non-votes will have the same effect as a vote “AGAINST” this proposal.
THE BOARD RECOMMENDS INCLUDING A PROVISION IN OUR CERTIFICATE OF
INCORPORATION OPTING OUT OF DGCL SECTION 203 IN CONNECTION WITH THE
REINCORPORATION AND URGES EACH SHAREHOLDER TO VOTE “FOR” INCLUDING
SUCH A PROVISION IN OUR CERTIFICATE OF INCORPORATION. SHARES OF THE
COMPANY’S COMMON STOCK REPRESENTED BY EXECUTED BUT UNMARKED
PROXIES WILL BE VOTED “FOR” INCLUDING SUCH A PROVISON IN OUR
CERTIFICATE OF INCORPORATION OPTING OUT OF DGCL SECTION 203.
53
Independent Registered Public Accounting Firm
MISCELLANEOUS
KPMG LLP acted as the independent registered public accounting firm for us in 2020. The Audit
Committee is solely responsible for the selection, retention, oversight and, when appropriate, termination
of our independent registered public accounting firm.
The fees to KPMG LLP for the fiscal years ended December 31, 2020 and 2019 were as follows:
2020
2019
Audit Fees(1)
Audit-Related Fees(2)
Tax Fees(3)
All Other Fees
Total
___________________
(1) Audit of annual financial statements, review of financial statements included in Form 10-Q and other services normally provided
$457,810
134,500
83,285
--
$449,748
134,726
203,336
--
$787,810
$675,595
in connection with statutory and regulatory filings, including out-of-pocket expenses.
Information security audit services, including out-of-pocket expenses.
(2)
(3) Tax consultations and tax return preparation including out-of-pocket expenses. Of this amount, $71,727 related to tax return
preparation services and $11,558 related to tax consulting services.
The Audit Committee has established pre-approval policies and procedures with respect to audit
and permitted non-audit services to be provided by our independent registered public accounting firm.
Pursuant to these policies and procedures, the Audit Committee may form, and delegate authority to,
subcommittees consisting of one or more members when appropriate to grant such pre-approvals,
provided that decisions of such subcommittee to grant pre-approvals are presented to the full Audit
Committee at its next scheduled meeting. The Audit Committee’s pre-approval policies do not permit the
delegation of the Audit Committee’s responsibilities to management. In 2020, the Audit Committee pre-
approved all services provided by our independent registered public accounting firm, and no fees to the
independent registered public accounting firm were approved pursuant to the de minimis exception under
the Securities and Exchange Commission’s rules.
Expenses
The cost of soliciting proxies will be borne by the Company. In addition to soliciting proxies by
mail, proxies may be solicited personally and by telephone by certain officers and regular associates of
the Company. Such individuals will not be paid any additional compensation for such solicitation. We
will reimburse brokers and other nominees for their reasonable expenses in communicating with the
persons for whom they hold Common Stock.
54
Multiple Shareholders Sharing the Same Address
Pursuant to the rules of the Securities and Exchange Commission, services that deliver our
communications to shareholders that hold their stock through a bank, broker or other holder of record
may deliver to multiple shareholders sharing the same address a single copy of our annual report to
shareholders and proxy statement, unless we have received contrary instructions from one or more of the
shareholders. Upon written or oral request, we will promptly deliver a separate copy of the annual report
to shareholders and/or proxy statement to any shareholder at a shared address to which a single copy of
each document was delivered. For future deliveries of annual reports to shareholders and/or proxy
statements, shareholders may also request that we deliver multiple copies at a shared address to which a
single copy of each document was delivered. Shareholders sharing an address who are currently
receiving multiple copies of the annual report to shareholders and/or proxy statement may also request
delivery of a single copy. Shareholders may notify us of their requests by calling or writing Kevin R.
Karas, Secretary, NRC Health, at (402) 475-2525 or 1245 Q Street, Lincoln, Nebraska 68508.
Shareholder Proposals
Proposals that our shareholders intend to present at and have included in our proxy statement for
the 2022 annual meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended
(“Rule 14a-8”), must be received by us by the close of business on February 12, 2022. In addition, a
shareholder who otherwise intends to present business at the 2022 annual meeting (including nominating
persons for election as directors) must comply with the requirements set forth in our By-Laws. Among
other things, to bring business before an annual meeting, a shareholder must give written notice thereof,
complying with the By-Laws, to the Secretary of the Company not less than 60 days and not more than 90
days prior to the second Wednesday in the month of April. In the event, however, that the date of the
annual meeting is advanced by more than 30 days or delayed by more than 60 days from the second
Wednesday in the month of April, in order to be timely notice by the shareholder must be received not
earlier than the 90th day prior to the date of such annual meeting and not later than the close of business
on the later of (i) the 60th day prior to such annual meeting and (ii) the 10th day following the day on
which public announcement of the date of such meeting is first made. Under the By-Laws, if we do not
receive notice of a shareholder proposal submitted otherwise than pursuant to Rule 14a-8 (i.e., proposals
shareholders intend to present at the 2022 annual meeting but do not intend to include in our proxy
statement for such meeting) prior to February 12, 2022, then the notice will be considered untimely and
we will not be required to present such proposal at the 2022 annual meeting. If the Board chooses to
present such proposal at the 2022 annual meeting, then the persons named in proxies solicited by the
Board for the 2022 annual meeting may exercise discretionary voting power with respect to such
proposal.
By Order of the Board of Directors
NATIONAL RESEARCH CORPORATION
June 3, 2021
Kevin R. Karas
Secretary
55
NATIONAL RESEARCH CORPORATION
PLAN OF CONVERSION
APPENDIX A
This Plan of Conversion, dated as of [], 2021 (this “Plan”), of National Research
Corporation, a Wisconsin corporation (the “Company”), sets forth the terms, conditions, and
procedures for the conversion of the Company from a Wisconsin corporation to a Delaware
corporation pursuant to Sections 180.1161 and 180.1103 of the Wisconsin Business Corporation
Law (the “WBCL”) and Section 265 of the Delaware General Corporation Law (the “DGCL”).
WHEREAS, conversion of a Wisconsin corporation into a Delaware corporation is
permitted by Sections 180.1161 and 180.1103 of the WBCL and Section 265 of the DGCL;
WHEREAS, the Board of Directors of the Company (the “Board”) has determined that
the conversion of the Company into a Delaware corporation (the “Conversion”) is in the best
interests of the Company and its stockholders;
WHEREAS, the Board has authorized, approved, and adopted the form, terms, and
provisions of this Plan and has submitted this Plan to the Company’s stockholders for approval;
WHEREAS, on June 29, 2021, an annual meeting of the stockholders of the Company
was held, whereby this Plan was approved by the stockholders holding a majority of the voting
power of the Company; and
WHEREAS, this Plan has been approved by the Board and the stockholders of the
Company in accordance with the WBCL, DGCL, and the governing documents of the Company.
NOW, THEREFORE, the Company will be converted to a Delaware corporation in accordance
with the provisions of this Plan:
1.
Conversion; Effect of Conversion.
a) At the Effective Time (as defined below), the Company will be converted into the
Converted Entity (as defined below), pursuant to, and in accordance with Sections
180.1161 and 180.1103 of the WBCL and Section 265 of the DGCL, whereupon
the previous organizational form of Company shall cease, and the Company will
continue its existence in the organizational form of a Delaware corporation.
b) At the Effective Time, by virtue of the Conversion and without any further action
on the part of the Company or its stockholders, the Converted Entity shall, for all
purposes of the laws of the State of Delaware be deemed to be the same entity as
the Company. At the Effective Time, by virtue of the Conversion and without any
further action of the part of the Company or its stockholders, for all purposes of
the laws of the State of Delaware, all of the rights, privileges, and powers of the
Company, and all property, whether real, personal or mixed, and all debts due to
the Company, as well as all other things and causes of action belonging to the
Company, shall remain vested in the Converted Entity and shall be the property of
the Converted Entity and the title to any real property vested by deed or otherwise
A-1
in the Company shall not revert or in any way be impaired by reason of the
Conversion; but all rights of creditors and all liens upon any property of the
Company shall be preserved unimpaired, and all debts, liabilities, and duties of
the Company shall remain attached to the Converted Entity at the Effective Time,
and may be enforced against the Converted Entity to the same extent as if said
debts, liabilities, and duties had been originally incurred or contracted by the
Converted Entity in its capacity as a corporation of the State of Delaware. The
rights, privileges, powers, and interests in property of the Company, as well as the
debts, liabilities, and duties of the Company, shall not be deemed, as a
consequence of the Conversion, to have been transferred to the Converted Entity
at the Effective Time for any purpose of the laws of the State of Delaware.
c) The Company shall not be required to wind up its affairs or pay its liabilities and
distribute its assets, and the Conversion shall not be deemed to constitute a
dissolution of the Company and shall constitute a continuation of the existence of
the Company in the form of a Delaware corporation. The Converted Entity is the
same entity as the Company. The Conversion shall not be deemed to effect any
obligations or liabilities of the Company incurred prior to the Effective Time or
the personal liability of any person incurred prior to the Effective Time.
d) At the Effective Time, the name of the Converted Entity shall be “National
Research Corporation” and it will be subject to all provisions of the DGCL,
except that notwithstanding Section 106 of the DGCL, the existence of the
Converted Entity shall be deemed to have commenced on the date the Company
commenced its existence in the State of Wisconsin (September 8, 1997).
2.
Filings. As promptly as practicable following the date hereof, the Company shall cause
the Conversion to be effective by:
a) Executing and filing (or causing to be executed and filed) a Certificate of
Conversion pursuant to Section 180.1161 of the WBCL substantially in the form
set forth in Exhibit A attached hereto with the Wisconsin Department of Financial
Institutions;
b) Executing and filing (or causing to be executed and filed) a Certificate of
Conversion pursuant to Section 265 of the DGCL substantially in the form set
forth in Exhibit B attached hereto (the “Delaware Certificate of Conversion”) with
the Secretary of State of the State of Delaware; and
c) Executing, acknowledging, and filing (or causing to be executed, acknowledged,
or filed) a Certificate of Incorporation of National Research Corporation
substantially in the form set forth in Exhibit C attached hereto (the “Delaware
Certificate of Incorporation”) with the Secretary of State of the State of Delaware.
3.
Effective Time. The Conversion shall become effective at 5:01 p.m. Eastern Standard
Time upon the filing the Delaware Certificate of Conversion and Delaware Certificate of
Incorporation with the Secretary of State of the State of Delaware (the time of the
effectiveness of the Conversion, the “Effective Time”).
A-2
4.
5.
6.
7.
8.
Effect of Conversion on Common Stock. Subject to the terms and conditions of this Plan,
at the Effective Time, by virtue of the Conversion and without any further action on the
part of the Company or its stockholders, each share of common stock in the Company, par
value $.001 per share (the “Company Common Stock”) issued and outstanding
immediately prior to the Effective Time shall automatically be converted into one share of
common stock in the Converted Entity, par value $.001 per share (the “Converted Entity
Common Stock”).
Effect of Conversion on Stock Options, Warrants, and Other Rights to Acquire Shares of
Common Stock. Subject to the terms and conditions of this Plan, at the Effective Time, by
virtue of the Conversion and without any further action on the part of the Company or its
stockholders, each option, warrant, and other right to acquire shares of the Company
Common Stock outstanding immediately prior to the Effective Time shall automatically be
converted into an equivalent option, warrant, or other right to acquire, as applicable, upon
the same terms and conditions (including, without limitation, the exercise price per share
applicable to such option, warrant, or other right to acquire) as were in effect immediately
prior to the Effective Time, to the same number of shares of Converted Entity Common
Stock.
Effect of Conversion on Employee Benefit, Incentive Compensation, or Other Similar
Plans. Subject to the terms and conditions of this Plan, at the Effective Time, by virtue of
the Conversion and without any further action on the part of the Company or its
stockholders, each employee benefit plan, incentive compensation plan, or other similar
plan to which the Company is a party shall automatically continue to be a plan of the
Converted Entity. To the extent that any such plan provides for the issuance of Company
Common Stock, at the Effective Time, such plan shall be deemed to provide for the
issuance of Converted Entity Common Stock. A number of shares of Converted Entity
Common Stock shall be reserved for issuance under any such plan equal to the number of
shares of Company Common Stock so reserved immediately prior to the Effective Time.
Effect of Conversion on Stock Certificates. The holders of the Company Common Stock
will not be required to exchange their stock certificates for new stock certificates of the
Converted Entity. Following the Effective Time, any stock certificates of the Company
submitted to the Converted Entity for transfer, whether pursuant to a sale or otherwise, will
automatically be exchanged for the stock certificates of the Converted Entity. The holders
of the Company Common Stock should not destroy any stock certificate(s) and should not
submit any certificate(s) to the Company or the Converted Entity unless and until
requested to do so.
Effect of Conversion on Directors and Officers. The members of the Board and the officers
of the Company immediately prior to the Effective Time shall continue in office following
the Effective Time as the directors and officers of the Converted Entity, respectively, until
the expiration of their respective terms of office and until their successors have been duly
elected and qualified, or until their earlier death, resignation or removal.
9.
Termination. At any time prior to the Effective Time and notwithstanding the approval of
this Plan by the stockholders of the Company, this Plan may be terminated and the
A-3
Conversion may be abandoned by an action of the Board. In the event of the termination of
this Plan in accordance with its terms, this Plan will be void and have no force or effect,
without any liability or obligation on the part of the Company.
10. Amendment. The Board may amend this Plan at any time prior to the approval of this Plan
by the stockholders of the Company. Notwithstanding the foregoing, this Plan may be
amended or modified by the Board at any time prior to the Effective Time, provided that
such amendment shall not change (a) the amount or kind of shares or other securities to be
received hereunder by the stockholders of the Company, (b) any term of the Certificate of
Incorporation or the Bylaws of the Converted Entity, other than changes permitted to be
made without stockholder approval by the DGCL, or (c) any of the terms and conditions of
this Plan if such alteration or change would adversely affect the stockholders of the
Company. This Plan may not be amended except by an instrument in writing signed by the
Company.
11. Filings, Licenses, Permits, Titled Property, Etc. As necessary, following the Effective
Time, the Converted Entity shall apply for new qualifications to conduct business
(including as a foreign corporation), licenses, permits and similar authorizations on its
behalf and in its own name in connection with the Conversion and to reflect the fact that it
is a corporation duly formed and validly existing under the laws of the State of Delaware.
As required or appropriate, following the Effective Time, all real, personal or intangible
property of the Converted Entity which was titled or registered in the name of the
Company shall be re-titled or re-registered, as applicable, in the name of the Converted
Entity by appropriate filings or notices to the appropriate party (including, without
limitation, any applicable governmental agencies).
12. Further Assurances. If, at any time after the Effective Time, the Converted Entity shall
determine or be advised that any deeds, bills of sale, assignments, agreements, documents
or assurances or any other acts or things are necessary, desirable or proper, consistent with
the terms of this Plan, (a) to vest, perfect or confirm, of record or otherwise, in the
Converted Entity its right, title or interest in, to or under any of the rights, privileges,
immunities, powers, purposes, franchises, properties or assets of the Company, or (b) to
otherwise carry out the purposes of this Plan, the Converted Entity, its officers and
directors and the designees of its officers and directors, are hereby authorized to solicit in
the name of the Converted Entity any third-party consents or other documents required to
be delivered by any third-party, to execute and deliver, in the name and on behalf of the
Converted Entity all such deeds, bills of sale, assignments, agreements, documents and
assurances and do, in the name and on behalf of the Converted Entity, all such other acts
and things necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under any of the rights, privileges, immunities, powers, purposes,
franchises, properties or assets of the Company and otherwise to carry out the purposes of
this Plan.
13. Delaware Bylaws. To the fullest extent permitted by law, at the Effective Time, the bylaws
of the Converted Entity shall be substantially in the form attached hereto as Exhibit D (the
“Delaware Bylaws”), and the Converted Entity’s board of directors shall approve and
ratify the Delaware Bylaws as promptly as practicable following the Effective Time.
A-4
14. Third Party Beneficiaries. This Plan shall not confer any rights or remedies upon any
person other than as expressly provided herein.
15.
Implementation and Interpretation. This Plan shall be implemented and interpreted, prior to
the Effective Time, by the Board and, upon the Effective Time, by the board of directors of
the Converted Entity, (a) each of which shall have full power and authority to delegate and
assign any matters covered hereunder to any other party(ies), including, without limitation,
any officers of the Company or the Converted Entity, as the case may be, and (b) the
interpretations and decisions of which shall be final, binding and conclusive on all parties.
16. Severability. Whenever possible, each provision of this Plan will be interpreted in such
manner as to be effective and valid under applicable law, but if any provision of this Plan
is held to be prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without invalidating the
remainder of this Plan.
17. Governing Law. This Plan shall be construed in accordance with and governed by the laws
of the State of Delaware, without regard to the conflict of law provisions thereof.
[Remainder of Page Intentionally Left Blank]
A-5
IN WITNESS WHEREOF, the Company has caused this Plan of Conversion to be duly executed
as of the date first above written.
National Research Corporation
a Wisconsin corporation
By: ________________________________
Name: Kevin R. Karas
Title: Senior Vice President Finance, Chief
Financial Officer, Treasurer and
Secretary
A-6
APPENDIX B
B-1
B-2
B-3
B-4
APPENDIX C
C-1
CERTIFICATE OF INCORPORATION
OF
NATIONAL RESEARCH CORPORATION
APPENDIX D
(Effective [•], 2021)
ARTICLE 1
NAME
The name of the corporation is National Research Corporation (the “Corporation”).
ARTICLE 2
REGISTERED OFFICE; REGISTERED AGENT
The address of the Corporation’s registered office in the State of Delaware is Corporation Trust
Center, 1209 Orange Street, Wilmington, Delaware 1980. The name of the registered agent at such
address is The Corporation Trust Company.
ARTICLE 3
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware (the “DGCL”).
ARTICLE 4
AUTHORIZED CAPITAL
The aggregate number of shares which the Corporation shall have the authority to issue is One
Hundred-Twelve Million (112,000,000) shares, consisting of: (i) One Hundred-Ten Million
(110,000,000) shares of a class designated as “Common Stock,” with a par value of $.001 per share; and
(ii) Two Million (2,000,000) shares of a class designated as “Preferred Stock,” with a par value of $.01
per share.
The designation, relative rights, preferences and limitations of the shares of each class and the
authority of the Board of Directors of the Corporation to establish and to designate series of Preferred
Stock and to fix variations in the relative rights, preferences and limitations as between such series, shall
be as set forth herein.
A. Preferred Stock.
(1)
Series and Variations Between Series. The Board of Directors of the Corporation is
authorized, to the full extent permitted under the DGCL and the provisions of this Section A, to provide
for the issuance of the Preferred Stock in series, each of such series to be distinctively designated, and to
have such redemption rights, dividend rights, rights on dissolution or distribution of assets, conversion or
exchange rights, voting powers, designations, preferences and relative participating, optional or other
special rights, if any, and such qualifications, limitations or restrictions thereof as shall be provided by the
Board of Directors of the Corporation consistent with the provisions of this Article 4.
(2)
Dividends. Before any dividends shall be paid or set apart for payment upon shares of
Common Stock, the holders of each series of Preferred Stock shall be entitled to receive dividends at the
rate (which may be fixed or variable) and at such times as specified in the particular series. The holders of
shares of Preferred Stock shall have no rights to participate with the holders of shares of Common Stock
D-1
in any distribution of dividends in excess of the preferential dividends, if any, fixed for such Preferred
Stock.
(3)
Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of shares of each series of Preferred Stock shall be entitled to
receive out of the assets of the Corporation in money or money’s worth the preferential amount, if any,
specified in the particular series for each share at the time outstanding together with all accrued but
unpaid dividends thereon, before any of such assets shall be paid or distributed to holders of Common
Stock. The holders of Preferred Stock shall have no rights to participate with the holders of Common
Stock in the assets of the Corporation available for distribution to stockholders in excess of the
preferential amount, if any, fixed for such Preferred Stock.
(4)
Voting Rights. The holders of Preferred Stock shall have only such voting rights as are
fixed for shares of each series by the Board of Directors pursuant to this Section A or are provided, to the
extent applicable, by the DGCL.
B. Common Stock
(1)
Voting Rights. Except as otherwise provided by the DGCL, and except as may be
determined by the Board of Directors with respect to the Preferred Stock pursuant to Section A of this
Article 4, only the holders of Common Stock shall be entitled to vote for the election of directors of the
Corporation and for all other corporate purposes. Upon any such vote the holders of Common Stock shall,
except as otherwise provided by law, be entitled to one vote for each share of Common Stock held by
them respectively.
(2)
Dividends. Subject to the provisions of this Article 4, the Board of Directors of the
Corporation may, in its sole discretion, out of funds legally available for the payment of dividends and at
such times and in such manner as determined by the Board of Directors, declare and pay dividends or
other distributions on the Common Stock.
(3)
Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, after there shall have been paid to or set aside for the holders of Preferred
Stock the full preferential amounts, if any, to which they are entitled, the holders of outstanding shares of
Common Stock shall be entitled to receive pro rata, according to the number of shares held by each, the
remaining assets of the Corporation available for distribution to the holders of Common Stock.
C.
Preemptive Rights. No holder of shares of any class of capital stock of the Corporation
shall have any preferential or preemptive right to acquire unissued shares of capital stock of the
Corporation or securities convertible into such shares or conveying a right to subscribe for or acquire
shares.
ARTICLE 5
BYLAWS
In furtherance and not in limitations of the powers conferred by the DGCL, the Board of
Directors is expressly authorized to make, alter, amend, change, add to, rescind or repeal, in whole or in
part, the bylaws of the Corporation (as the same may be amended and/or restated from time to time, the
D-2
“Bylaws”) without the assent or vote of the stockholders in any manner not inconsistent with the laws of
the State of Delaware or this Certificate of Incorporation.
ARTICLE 6
BOARD OF DIRECTORS
A.
General Powers, Number, Classification and Tenure of Directors. The general powers,
number, classification, tenure and qualifications of the directors of the Corporation shall be as set forth in
Sections 3.01 and 3.02 of Article III of the Bylaws of the Corporation (and as such Sections shall exist
from time to time). Such Sections 3.01 and 3.02 of the Bylaws, or any provision thereof, may only be
amended, altered, changed or repealed by the affirmative vote of stockholders holding at least sixty-six
and two-thirds percent (66-2/3%) of the voting power of the then outstanding shares of all classes of
capital stock of the Corporation generally possessing the voting rights in the election of directors,
considered for this purpose as a single class; provided, however, that the Board of Directors, by resolution
adopted by the Requisite Vote (as hereinafter defined), may amend, alter, change or repeal Sections 3.01
and 3.02 of the Bylaws, or any provision thereof, without a vote of the stockholders. As used herein, the
term “Requisite Vote” shall mean the affirmative vote of at least two-thirds of the directors then in office
plus one director, but in no case more than all of the directors then in office.
B.
Removal of Directors. Any director may be removed from office for cause by the
affirmative vote of holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
the then outstanding shares of stock of the voting group of stockholders that elected the director to be
removed; provided, however, that if the Board of Directors by resolution adopted by the Requisite Vote
shall have recommended removal of a director, then the stockholders may remove such director from
office without cause by a majority vote of such outstanding shares.
C.
Vacancies. Any vacancy occurring in the Board of Directors, including a vacancy created
by the removal of a director or an increase in the number of directors, shall be filled by the affirmative
vote of a majority of the directors then in office, although less than a quorum of the Board of Directors;
provided, however, that if the vacant office was held by a director elected by a voting group of
stockholders, only the remaining directors elected by that voting group shall fill the vacancy. For
purposes of this Article 6, a director elected by directors to fill a vacant office pursuant to this Section C
shall be deemed to be a director elected by the same voting group of stockholders that elected the
director(s) who voted to fill the vacancy. Any director elected pursuant to this Section C shall serve until
the next election of the class for which such director shall have been chosen and until his or her successor
shall be elected and qualified.
D.
Amendments.
(1)
Notwithstanding any other provision of this Certificate of Incorporation, the provisions of
this Article 6 may be amended, altered, changed or repealed only by the affirmative vote of stockholders
holding at least sixty-six and two-thirds percent (66-2/3%) of the voting power of the then outstanding
shares of all classes of capital stock of the Corporation generally possessing voting rights in the election
of directors, considered for this purpose as a single class.
(2)
Notwithstanding the foregoing and any provisions in the Bylaws of the Corporation,
whenever the holders of any one or more series of Preferred Stock issued by the Corporation pursuant to
Article 4 hereof shall have the right, voting separately as a class or by series, to elect directors at an
D-3
annual or special meeting of stockholders, the election, term of office, filling of vacancies and other
features of such directorships shall be governed by the terms of the series of Preferred Stock applicable
thereto, and such directors so elected shall not be divided into classes unless expressly provided by the
terms of the applicable series.
STOCKHOLDER ACTION BY WRITTEN CONSENT
ARTICLE 7
Any action required or permitted by this Certificate of Incorporation or the Bylaws of the
Corporation or any provision of the DGCL to be taken at an Annual Meeting or Special Meeting of
Stockholders may be taken without a meeting if a written consent or consents, describing the action so
taken, is signed by all of the stockholders entitled to vote with respect to the subject matter thereof and
delivered to the Corporation for inclusion in the corporation records.
ARTICLE 8
LIMITATION ON LIABILITY
To the fullest extent permitted by the DGCL, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a
director except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit. If the DGCL is amended after the filing of the Certificate
of Incorporation of which this Section A is a part to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
Neither any amendment nor repeal of this Article 8, nor adoption of any provision of the
Corporation’s Certificate of Incorporation inconsistent with this Article 8, shall eliminate or reduce the
effect of this Article 8 in respect of any matter occurring, or any cause of action, suit or proceeding
accruing or arising that, but for this Article 8, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
ARTICLE 9
DGCL SECTION 203
The Corporation hereby expressly elects not to be governed by Section 203 of the DGCL.
ARTICLE 10
BOOKS AND RECORDS
The books and records of the Corporation may be kept, subject to the DGCL, outside the State of
Delaware at such place or places as may be designated from time to time by the Board of Directors or in
the Bylaws of the Corporation. Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
ARTICLE 11
AMENDMENTS
Subject to the provisions hereof, the Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this
reservation.
D-4
ARTICLE 12
INCORPORATOR
The name and mailing address of the Incorporator are as follows:
The incorporator is Kevin R. Karas, whose address is 1245 Q Street, Lincoln, Nebraska 68508.
[Remainder of page intentionally left blank.]
D-5
I, THE UNDERSIGNED, being the Incorporator hereinbefore named, for the purpose of forming a
corporation pursuant to the General Corporation Law of the State of Delaware, do make, file and record
this Certificate of Incorporation, hereby declaring and certifying that the facts herein stated are true and,
accordingly, have hereunto set my hand this [●] day of [●], 2021.
Kevin R. Karas
Sole Incorporator
D-6
BYLAWS
OF
NATIONAL RESEARCH CORPORATION
(a Delaware corporation)
APPENDIX E
As amended through
[●], 2021
E-1
ARTICLE I. OFFICES
1.01 Principal and Business Offices. The Corporation may have such principal and
other business offices, either within or without the State of Delaware, as the Board of Directors
may designate or as the business of the Corporation may require from time to time.
1.02 Registered Office. The registered office of the Corporation required by the
General Corporation Law of the State of Delaware (the “DGCL”) to be maintained in the State of
Delaware may be, but need not be, identical with the principal office in the State of Delaware,
and the address of the registered office may be changed from time to time by the Board of
Directors or by the registered agent. The business office of the registered agent of the
Corporation shall be identical to such registered office.
ARTICLE II. STOCKHOLDERS
2.01 Annual Meeting. The annual meeting of the stockholders (the “Annual
Meeting”), commencing with the Annual Meeting in 1998, shall be held on the second
Wednesday in April of each year, or at such other time and date as may be fixed by resolution of
the Board of Directors. In fixing a meeting date for any Annual Meeting, the Board of Directors
may consider such factors as it deems relevant within the good faith exercise of its business
judgment. At each Annual Meeting, the stockholders shall elect that number of directors equal
to the number of directors in the class whose term expires at the time of such meeting. At any
such Annual Meeting, only other business properly brought before the meeting in accordance
with Section 2.14 of these Bylaws may be transacted. If the election of directors shall not be
held on the date designated herein, or fixed as herein provided, for any Annual Meeting, or any
adjournment thereof, the Board of Directors shall cause the election to be held at a special
meeting of stockholders (a “Special Meeting”) as soon thereafter as is practicable.
2.02 Special Meetings.
(a)
A Special Meeting may be called only by (i) the Chief Executive Officer, (ii) the
President or (iii) the Board of Directors and shall be called by the Corporation upon the demand,
in accordance with this Section 2.02, of the holders of record of shares representing at least 10%
of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting.
(b)
In order that the Corporation may determine the stockholders entitled to demand a
Special Meeting, the Board of Directors may fix a record date to determine the stockholders
entitled to make such a demand (the “Demand Record Date”). The Demand Record Date shall
not precede the date upon which the resolution fixing the Demand Record Date is adopted by the
Board of Directors and shall not be more than ten days after the date upon which the resolution
fixing the Demand Record Date is adopted by the Board of Directors. Any stockholder of record
seeking to have stockholders demand a Special Meeting shall, by sending written notice to the
Secretary of the Corporation by hand or by certified or registered mail, return receipt requested,
request the Board of Directors to fix a Demand Record Date. The Board of Directors shall
promptly, but in all events within ten days after the date on which a valid request to fix a
Demand Record Date is received, adopt a resolution fixing the Demand Record Date and shall
make a public announcement of such Demand Record Date. If no Demand Record Date has
been fixed by the Board of Directors within ten days after the date on which such request is
received by the Secretary, the Demand Record Date shall be the 10th day after the first date on
E-2
which a valid written request to set a Demand Record Date is received by the Secretary. To be
valid, such written request shall set forth the purpose or purposes for which the Special Meeting
is to be held, shall be signed by one or more stockholders of record (or their duly authorized
proxies or other representatives), shall bear the date of signature of each such stockholder (or
proxy or other representative) and shall set forth all information about each such stockholder and
about the beneficial owner or owners, if any, on whose behalf the request is made that would be
required to be set forth in a stockholder’s notice described in paragraph (a) (ii) of Section 2.14 of
these Bylaws.
(c)
In order for a stockholder or stockholders to demand a Special Meeting, a written
demand or demands for a Special Meeting by the holders of record as of the Demand Record
Date of shares representing at least 10% of all the votes entitled to be cast on any issue proposed
to be considered at the Special Meeting must be delivered to the Corporation. To be valid, each
written demand by a stockholder for a Special Meeting shall set forth the specific purpose or
purposes for which the Special Meeting is to be held (which purpose or purposes shall be limited
to the purpose or purposes set forth in the written request to set a Demand Record Date received
by the Corporation pursuant to paragraph (b) of this Section 2.02), shall be signed by one or
more persons who as of the Demand Record Date are stockholders of record (or their duly
authorized proxies or other representatives), shall bear the date of signature of each such
stockholder (or proxy or other representative), and shall set forth the name and address, as they
appear in the Corporation’s books, of each stockholder signing such demand and the class and
number of shares of the Corporation which are owned of record and beneficially by each such
stockholder, shall be sent to the Secretary by hand or by certified or registered mail, return
receipt requested, and shall be received by the Secretary within seventy days after the Demand
Record Date.
(d)
Except as provided in the following sentence, any Special Meeting shall be held at
such hour and day as may be designated by whichever of the Chief Executive Officer, the
President, or the Board of Directors shall have called such meeting. In the case of any Special
Meeting called by the President upon the demand of stockholders (a “Demand Special
Meeting”), such meeting shall be held at such hour and day as may be designated by the Board
of Directors; provided , however, that the date of any Demand Special Meeting shall not be more
than sixty days nor less than ten days after the Meeting Record Date (as defined in Section 2.06
hereof); and provided further that in the event that the directors then in office fail to designate an
hour and date for a Demand Special Meeting within ten days after the date that valid written
demands for such meeting by the holders of record as of the Demand Record Date of shares
representing at least 10% of all the votes entitled to be cast on each issue proposed to be
considered at the Special Meeting are delivered to the Corporation (the “Delivery Date”), then
such meeting shall be held at 2:00 P.M. local time on the 100th day after the Delivery Date or, if
such 100th day is not a Business Day (as defined below), on the first preceding Business Day. In
fixing a meeting date for any Special Meeting, the Chief Executive Officer, the President, or the
Board of Directors may consider such factors as he, she or it deems relevant within the good
faith exercise of his, her or its business judgment, including, without limitation, the nature of the
action proposed to be taken, the facts and circumstances surrounding any demand for such
meeting, and any plan of the Board of Directors to call an Annual Meeting or a Special Meeting
for the conduct of related business.
E-3
(e)
The Corporation may engage regionally or nationally recognized independent
inspectors of elections to act as an agent of the Corporation for the purpose of promptly
performing a ministerial review of the validity of any purported written demand or demands for a
Special Meeting received by the Secretary. For the purpose of permitting the inspectors to
perform such review, no purported demand shall be deemed to have been delivered to the
Corporation until the earlier of (i) five Business Days following receipt by the Secretary of such
purported demand and (ii) such date as the independent inspectors certify to the Corporation that
the valid demands received by the Secretary represent at least 10% of all the votes entitled to be
cast on each issue proposed to be considered at the Special Meeting. Nothing contained in this
paragraph (f) shall in any way be construed to suggest or imply that the Board of Directors or
any stockholder shall not be entitled to contest the validity of any demand, whether during or
after such five Business Day period, or to take any other action (including, without limitation, the
commencement, prosecution or defense of any litigation with respect thereto).
(f)
For purposes of these Bylaws, “Business Day” shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of Delaware are
authorized or obligated by law or executive order to close.
2.03 Place of Meeting. The Board of Directors, the Chief Executive Officer or the
President may designate any place, either within or without the State of Delaware, as the place of
meeting for an Annual Meeting or Special Meeting, or no place if the meeting is to be held solely
by means of remote communication. The Board of Directors may, in its sole discretion,
determine that a meeting of the stockholders shall not be held at any place, but may instead be
held solely by means of remote communication in accordance with the applicable provisions of
the DGCL. If no designation is made, the place of meeting shall be the principal office of the
Corporation. Any meeting may be adjourned to reconvene at any place, or by means of remote
communication, designated by vote of the Board of Directors or by the President or the
Secretary.
2.04 Notice of Meeting. Written notice stating the date, time and place, if any, of any
meeting of stockholders shall be delivered not less than ten days nor more than sixty days before
the date of the meeting (unless a different time period is provided by the DGCL or the Certificate
of Incorporation), either personally or by mail, by or at the direction of the Chief Executive
Officer, the President or the Secretary, to each stockholder of record entitled to vote at such
meeting and to such other persons as required by the DGCL. If the Board of Directors has
authorized participation by means of remote communication the notice shall also describe the
means of remote communication to be used. In the event of any Demand Special Meeting, such
notice of meeting shall be sent not more than thirty days after the Delivery Date. If mailed,
notice pursuant to this Section 2.04 shall be deemed to be effective when deposited in the United
States mail, addressed to the stockholder at his or her address as it appears on the stock record
books of the Corporation, with postage thereon prepaid. Unless otherwise required by the DGCL
or the Certificate of Incorporation, a notice of an Annual Meeting need not include a description
of the purpose for which the meeting is called. In the case of any Special Meeting, (a) the notice
of meeting shall describe any business that the Board of Directors shall have theretofore
determined to bring before the meeting and (b) in the case of a Demand Special Meeting, the
notice of meeting (i) shall describe any business set forth in the statement of purpose of the
demands received by the Corporation in accordance with Section 2.02 of these Bylaws and (ii)
shall contain all of the information required in the notice received by the Corporation in
E-4
accordance with Section 2.14(b) of these Bylaws. If an Annual Meeting or Special Meeting is
adjourned to a different date, time or place, or will be held by new means of remote
communication, the Corporation shall not be required to give notice of the new date, time, place,
or means of remote communication if the new date, time, place, or means of remote
communication is announced at the meeting before adjournment; provided, however, that if a
new Meeting Record Date for an adjourned meeting is or must be fixed, the Corporation shall
give notice of the adjourned meeting to persons who are stockholders as of the new Meeting
Record Date.
2.05 Waiver of Notice. A stockholder may waive any notice required by the DGCL,
the Certificate of Incorporation or these Bylaws before or after the date and time stated in the
notice. The waiver shall be in writing and signed by the stockholder entitled to the notice,
contain the same information that would have been required in the notice under applicable
provisions of the DGCL (except that the time and place of meeting need not be stated) and be
delivered to the Corporation for inclusion in the corporate records. A stockholder’s attendance at
any Annual Meeting or Special Meeting, in person or by proxy, waives objection to all of the
following: (a) lack of notice or defective notice of the meeting, unless the stockholder at the
beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting
business at the meeting; and (b) consideration of a particular matter at the meeting that is not
within the purpose described in the meeting notice, unless the stockholder objects to considering
the matter when it is presented.
2.06 Fixing of Record Date. The Board of Directors may fix in advance a date not less
than ten days and not more than sixty days prior to the date of an Annual Meeting or Special
Meeting as the record date for the determination of stockholders entitled to notice of, or to vote
at, such meeting (the “Meeting Record Date”). In the case of any Demand Special Meeting, (i)
the Meeting Record Date shall be not later than the 30th day after the Delivery Date and (ii) if
the Board of Directors fails to fix the Meeting Record Date within thirty days after the Delivery
Date, then the close of business on such 30th day shall be the Meeting Record Date. The
stockholders of record on the Meeting Record Date shall be the stockholders entitled to notice of
and to vote at the meeting. Except as provided by the DGCL for a court-ordered adjournment, a
determination of stockholders entitled to notice of and to vote at an Annual Meeting or Special
Meeting is effective for any adjournment of such meeting unless the Board of Directors fixes a
new Meeting Record Date, which it shall do if the meeting is adjourned to a date more than 120
days after the date fixed for the original meeting. The Board of Directors may also fix in
advance a date as the record date for the purpose of determining stockholders entitled to take any
other action or determining stockholders for any other purpose. Such record date shall be not
more than sixty days prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken. The record date for determining stockholders
entitled to a distribution (other than a distribution involving a purchase, redemption or other
acquisition of the Corporation’s shares) or a share dividend is the date on which the Board of
Directors authorizes the distribution or share dividend, as the case may be, unless the Board of
Directors fixes a different record date.
2.07 Stockholders’ List for Meetings. After a Meeting Record Date has been fixed, the
Corporation shall prepare a list of the names of all of the stockholders entitled to notice of the
meeting. The list shall be arranged by class or series of shares, if any, and show the address of
and number of shares held by each stockholder. Such list shall be available for inspection by any
E-5
stockholder, beginning ten days prior to the date of the meeting and continuing to the date of the
meeting, at the Corporation’s principal office or at a place identified in the meeting notice in the
city where the meeting will be held. A stockholder or his, her or its agent may, on written
demand, inspect and, subject to the limitations imposed by the DGCL, copy the list, during
regular business hours and at his, her or its expense, during the period that it is available for
inspection pursuant to this Section 2.07. The Corporation shall make the stockholders’ list
available at the meeting and any stockholder or his, her or its agent or attorney may inspect the
list at any time during the meeting or any adjournment thereof. Refusal or failure to prepare or
make available the stockholders’ list shall not affect the validity of any action taken at a meeting
of stockholders.
2.08 Quorum and Voting Requirements; Postponements; Adjournments.
(a)
Shares entitled to vote as a separate voting group may take action on a matter at
any Annual Meeting or Special Meeting only if a quorum of those shares exists with respect to
that matter. If the Corporation has only one class of stock outstanding, such class shall constitute
a separate voting group for purposes of this Section 2.08. Except as otherwise provided in the
Certificate of Incorporation or the DGCL, a majority of the votes entitled to be cast on the matter
shall constitute a quorum of the voting group for action on that matter. Once a share is
represented for any purpose at any Annual Meeting or Special Meeting, other than for the
purpose of objecting to holding the meeting or transacting business at the meeting, it is
considered present for purposes of determining whether a quorum exists for the remainder of the
meeting and for any adjournment of that meeting unless a new Meeting Record Date is or must
be set for the adjourned meeting. If a quorum exists, except in the case of the election of
directors, action on a matter shall be approved if the votes cast within the voting group favoring
the action exceed the votes cast opposing the action, unless the Certificate of Incorporation, these
Bylaws, or the DGCL requires a greater number of affirmative votes. Unless otherwise provided
in the Certificate of Incorporation, each nominee for director shall be elected to the Board of
Directors by a majority of the votes cast by the shares entitled to vote in the election of directors
at an Annual Meeting or Special Meeting at which a quorum is present, if the election is not a
contested election. A nominee receives a majority of the votes cast if the votes “for” such
nominee’s election exceed the votes “against” such nominee’s election. However, a nominee for
director shall be elected by a plurality of the votes cast in any contested election for directors. A
contested election is an election in which the number of nominees seeking election is more than
the number of directors to be elected.
(i)
Following any uncontested election, any incumbent director who was a
nominee and who did not receive a majority of the votes cast by the shares entitled to
vote in the election of directors shall promptly tender his or her offer of resignation to the
Board of Directors for consideration by the Board of Directors if such director has not
previously submitted a conditional offer of resignation. A recommendation on whether or
not to accept such resignation offer shall be made by a committee of independent
directors that has been delegated responsibility of recommending nominees for director
appointment or election to the Board of Directors, or (A) if each member of such
committee did not receive the required majority vote or (B) if no such committee has
been appointed, a majority of the Board of Directors shall appoint a special committee of
independent directors for such purpose of making a recommendation to the Board (the
E-6
“Nominating Committee”). If no independent directors received the required majority
vote, the Board of Directors shall act on the resignation offers.
Within 60 days following certification of the stockholder vote, the Nominating
Committee shall recommend to the Board of Directors the action to be taken with respect
to such offer of resignation. In determining whether or not to recommend that the Board
of Directors accept any resignation offer, the Nominating Committee shall be entitled to
consider all factors believed relevant by such Committee’s members, including without
limitation: (1) any stated reasons for the director not receiving the required majority vote
and whether the underlying cause or causes are curable; (2) the factors, if any, set forth in
the guidelines or other policies that are to be considered by the Nominating Committee in
evaluating potential candidates for the Board of Directors as such factors relate to each
director who has so offered his or her resignation; (3) the length of service of such
director, (4) the effect of such resignation on the Corporation’s compliance with any law,
rule, regulation, stock exchange listing standards, or contractual obligations, (5) such
director’s contributions to the Corporation, and (6) any other factors that the Nominating
Committee believes are in the best interest of the Corporation.
The Board of Directors shall act on the Nominating Committee’s recommendation and
publicly disclose the decision and reasons therefor, by a press release, a filing with the
Securities and Exchange Commission or other broadly disseminated means of
communication, within 90 days following certification of the stockholder vote. In
determining whether or not to accept any resignation offer, the Board of Directors shall
take into account the factors considered by the Nominating Committee and any additional
information and factors that the Board of Directors believes to be relevant.
(ii)
If any director’s resignation offer is not accepted by the Board of
Directors, such director shall continue to serve until the third succeeding Annual Meeting
and his or her successor is duly elected and qualified, or until the director’s earlier death,
resignation or removal. If a director’s resignation is accepted by the Board pursuant to
this Section 2.08, or if a nominee for director is not elected and the nominee is not an
incumbent director, then the Board of Directors, in its sole discretion, may fill any
resulting vacancy pursuant to the provisions of Section 3.09 or may decrease the size of
the Board of Directors pursuant to Section 3.01.
(b)
The Board of Directors acting by resolution may postpone and reschedule any
previously scheduled Annual Meeting or Special Meeting; provided, however, that a Demand
Special Meeting shall not be postponed beyond the 100th day following the Delivery Date. Any
Annual Meeting or Special Meeting may be adjourned from time to time, whether or not there is
a quorum, (i) at any time, upon a resolution by stockholders if the votes cast in favor of such
resolution by the holders of shares of each voting group entitled to vote on any matter theretofore
properly brought before the meeting exceed the number of votes cast against such resolution by
the holders of shares of each such voting group or (ii) at any time prior to the transaction of any
business at such meeting, by the President or pursuant to a resolution of the Board of Directors.
No notice of the time and place of adjourned meetings need be given except as required by the
DGCL. At any adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as originally
notified.
E-7
2.09 Conduct of Meeting. The Chief Executive Officer, and in his or her absence, the
President, and in his or her absence, a Vice President in the order provided under Section 4.08 of
these Bylaws, and in their absence, any person chosen by the stockholders present shall call any
Annual Meeting or Special Meeting to order and shall act as chairperson of the meeting, and the
Secretary of the Corporation shall act as secretary of all meetings of the stockholders, but, in the
absence of the Secretary, the presiding officer may appoint any other person to act as secretary of
the meeting.
2.10 Proxies. At any Annual Meeting or Special Meeting, a stockholder may vote his
or her shares in person or by proxy. A stockholder may appoint a proxy to vote or otherwise act
for the stockholder by signing an appointment form, either personally or by his or her
attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other
officer or agent of the Corporation authorized to tabulate votes. An appointment is valid for
three years from the date of its signing unless a different period is expressly provided in the
appointment form. Unless otherwise provided, a proxy may be revoked at any time before it is
voted, either by written notice filed with the Secretary or the acting secretary of the meeting or
by notice given by the stockholder to the presiding officer during the meeting. The presence of a
stockholder who has filed his or her appointment of proxy shall not itself constitute a revocation.
The Board of Directors shall have the power and authority to make rules establishing
presumptions as to the validity and sufficiently of proxies.
2.11 Voting of Shares.
(a)
Each outstanding share shall be entitled to one vote upon each matter submitted to
a vote at an Annual Meeting or Special Meeting, except to the extent that the voting rights of the
shares of any class or classes are enlarged, limited or denied by the DGCL or the Certificate of
Incorporation.
(b)
Shares held by another corporation, if a sufficient number of shares entitled to
elect a majority of the directors of such other corporation is held directly or indirectly by this
Corporation, shall not be entitled to vote at an Annual Meeting or Special Meeting, but shares
held in a fiduciary capacity may be voted.
2.12 Action Without Meeting. Any action required or permitted by the Certificate of
Incorporation or these Bylaws or any provision of the DGCL to be taken at an Annual Meeting
or Special Meeting may be taken without a meeting if a written consent or consents, describing
the action so taken, is signed by all of the stockholders entitled to vote with respect to the subject
matter thereof and delivered to the Corporation for inclusion in the corporate records.
2.13 Acceptance of Instruments Showing Stockholder Action. If the name signed on a
vote, consent, waiver or proxy appointment corresponds to the name of a stockholder, the
Corporation, if acting in good faith, may accept the vote, consent, waiver or proxy appointment
and give it effect as the act of a stockholder. If the name signed on a vote, consent, waiver or
proxy appointment does not correspond to the name of a stockholder, the Corporation, if acting
in good faith, may accept the vote, consent, waiver or proxy appointment and give it effect as the
act of the stockholder if any of the following apply:
(a)
The stockholder is an entity and the name signed purports to be that of an officer
or agent of the entity.
E-8
(b)
The name purports to be that of a personal representative, administrator, executor,
guardian or conservator representing the stockholder and, if the Corporation requests, evidence
of fiduciary status acceptable to the Corporation is presented with respect to the vote, consent,
waiver or proxy appointment.
(c)
The name signed purports to be that of a receiver or trustee in bankruptcy of the
stockholder and, if the Corporation requests, evidence of this status acceptable to the Corporation
is presented with respect to the vote, consent, waiver or proxy appointment.
(d)
The name signed purports to be that of a pledgee, beneficial owner, or
attorney-in-fact of the stockholder and, if the Corporation requests, evidence acceptable to the
Corporation of the signatory’s authority to sign for the stockholder is presented with respect to
the vote, consent, waiver or proxy appointment.
(e)
Two or more persons are the stockholders as co-tenants or fiduciaries and the
name signed purports to be the name of at least one of the co-owners and the person signing
appears to be acting on behalf of all co-owners.
The Corporation may reject a vote, consent, waiver or proxy appointment if the Secretary or
other officer or agent of the Corporation who is authorized to tabulate votes, acting in good faith,
has reasonable basis for doubt about the validity of the signature on it or about the signatory’s
authority to sign for the stockholder.
2.14 Notice of Stockholder Business and Nomination of Directors.
(a)
Annual Meetings.
(i)
Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the stockholders may be
made at an Annual Meeting (A) pursuant to the Corporation’s notice of meeting, (B) by
or at the direction of the Board of Directors or (C) by any stockholder of the Corporation
who is a stockholder of record at the time of giving of notice provided for in this Bylaw
and who is entitled to vote at the meeting and complies with the notice procedures set
forth in this Section 2.14.
(ii)
For nominations or other business to be properly brought before an Annual
Meeting by a stockholder pursuant to clause (C) of paragraph (a)(i) of this Section 2.14,
the stockholder must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder’s notice shall be received by the Secretary of
the Corporation at the principal offices of the Corporation not less than sixty days nor
more than ninety days prior to the second Wednesday in the month of April; provided,
however, that in the event that the date of the Annual Meeting is advanced by more than
thirty days or delayed by more than sixty days from the second Wednesday in the month
of April, notice by the stockholder to be timely must be so received not earlier than the
90th day prior to the date of such Annual Meeting and not later than the close of business
on the later of (x) the 60th day prior to such Annual Meeting and (y) the 10th day
following the day on which public announcement of the date of such meeting is first
made. Such stockholder’s notice shall be signed by the stockholder of record who
intends to make the nomination or introduce the other business (or his duly authorized
E-9
proxy or other representative), shall bear the date of signature of such stockholder (or
proxy or other representative) and shall set forth: (A) the name and address, as they
appear on this Corporation’s books, of such stockholder and the beneficial owner or
owners, if any, on whose behalf the nomination or proposal is made; (B) the class and
number of shares of the Corporation which are beneficially owned by such stockholder or
beneficial owner or owners; (C) a representation that such stockholder is a holder of
record of shares of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to make the nomination or introduce the other
business specified in the notice; (D) in the case of any proposed nomination for election
or re-election as a director, (I) the name and residence address of the person or persons to
be nominated, (II) a description of all arrangements or understandings between such
stockholder or beneficial owner or owners and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination is to be made
by such stockholder, (III) such other information regarding each nominee proposed by
such stockholder as would be required to be disclosed in solicitations of proxies for
elections of directors, or would be otherwise required to be disclosed, in each case
pursuant to Regulation 14A under the Exchange Act, including any information that
would be required to be included in a proxy statement filed pursuant to Regulation 14A
had the nominee been nominated by the Board of Directors and (IV) the written consent
of each nominee to be named in a proxy statement and to serve as a director of the
Corporation if so elected; and (E) in the case of any other business that such stockholder
proposes to bring before the meeting, (I) a brief description of the business desired to be
brought before the meeting and, if such business includes a proposal to amend these
Bylaws, the language of the proposed amendment, (II) such stockholder’s and beneficial
owner’s or owners’ reasons for conducting such business at the meeting and (III) any
material interest in such business of such stockholder and beneficial owner or owners.
(iii) Notwithstanding anything in the second sentence of paragraph (a)(ii) of
this Section 2.14 to the contrary, in the event that the number of directors to be elected to
the Board of Directors of the Corporation is increased and there is no public
announcement naming all of the nominees for director or specifying the size of the
increased Board of Directors made by the Corporation at least seventy days prior to the
second Wednesday in the month of April, a stockholder’s notice required by this Section
2.14 shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be received by the Secretary at the principal
offices of the Corporation not later than the close of business on the 10th day following
the day on which such public announcement is first made by the Corporation.
(b)
Special Meetings. Only such business shall be conducted at a Special Meeting as
shall have been described in the notice of meeting sent to stockholders pursuant to Section 2.04
of these Bylaws. Nominations of persons for election to the Board of Directors may be made at
a Special Meeting at which directors are to be elected pursuant to such notice of meeting (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who (A) is
a stockholder of record at the time of giving of such notice of meeting, (B) is entitled to vote at
the meeting and (C) complies with the notice procedures set forth in this Section 2.14. Any
stockholder desiring to nominate persons for election to the Board of Directors at such a Special
Meeting shall cause a written notice to be received by the Secretary of the Corporation at the
principal offices of the Corporation not earlier than ninety days prior to such Special Meeting
E-10
and not later than the close of business on the later of (x) the 60th day prior to such Special
Meeting and (y) the 10th day following the day on which public announcement is first made of
the date of such Special Meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. Such written notice shall be signed by the stockholder of record who
intends to make the nomination (or his duly authorized proxy or other representative), shall bear
the date of signature of such stockholder (or proxy or other representative) and shall set forth:
(A) the name and address, as they appear on the Corporation’s books, of such stockholder and
the beneficial owner or owners, if any, on whose behalf the nomination is made; (B) the class
and number of shares of the Corporation which are beneficially owned by such stockholder or
beneficial owner or owners; (C) a representation that such stockholder is a holder of record of
shares of the Corporation entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to make the nomination specified in the notice; (D) the name and residence
address of the person or persons to be nominated; (E) a description of all arrangements or
understandings between such stockholder or beneficial owner or owners and each nominee and
any other person or persons (naming such person or persons) pursuant to which the nomination is
to be made by such stockholder; (F) such other information regarding each nominee proposed by
such stockholder as would be required to be disclosed in solicitations of proxies for elections of
directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation
14A under the Exchange Act, including any information that would be required to be included in
a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the
Board of Directors; and (G) the written consent of each nominee to be named in a proxy
statement and to serve as a director of the Corporation if so elected.
(c)
General.
(i)
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.14 shall be eligible to serve as directors. Only such business shall
be conducted at an Annual Meeting or Special Meeting as shall have been brought before
such meeting in accordance with the procedures set forth in this Section 2.14. The
chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made in
accordance with the procedures set forth in this Section 2.14 and, if any proposed
nomination or business is not in compliance with this Section 2.14, to declare that such
defective proposal shall be disregarded.
(ii)
For purposes of this Section 2.14, “public announcement” shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated Press
or comparable national news service or in a document publicly filed by the Corporation
with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(iii) Notwithstanding
the foregoing provisions of
this Section 2.14, a
stockholder shall also comply with all applicable requirements of the Exchange Act and
the rules and regulations thereunder with respect to the matters set forth in this Section
2.14. Nothing in this Section 2.14 shall be deemed to limit the Corporation’s obligation
to include stockholder proposals in its proxy statement if such inclusion is required by
Rule 14a-8 under the Exchange Act.
E-11
(d) Nothing contained in this Section 2.14 shall be deemed to affect any rights of
stockholders to request inclusion of nominees for director in the Corporation’s proxy statement
pursuant to Section 2.15.
2.15 Stockholder Nominations Included in the Corporation’s Proxy Materials.
(a)
Definitions. For purposes of this Section 2.15, the following terms shall have the
meanings set forth below, except as otherwise provided herein.
(i)
“Eligible Holder” is a person who has either (i) been a record holder of the
shares of Common Stock used to satisfy the eligibility requirements of Section 2.15(d)
continuously for the three (3)-year period as described in Section 2.15(d), or (ii) provides
to the Secretary of the Corporation, within the time period specified in Section 2.15(e),
evidence of continuous ownership of such shares for such three (3)-year period from one
or more securities intermediaries in a form that the Board of Directors, or its designee,
acting in good faith, determines would be acceptable for purposes of a stockholder
proposal under Rule 14a-8(b)(2) under the Exchange Act (or any successor rule).
(ii)
“Maximum Number” with respect to any Annual Meeting, means that
number of nominees for election to the Board of Directors that constitutes no more than
20% of the total number of directors of the Corporation as of the last day on which a
Qualified Nomination Notice may be submitted pursuant to Section 2.15(e) (rounded
down to the nearest whole number), but not less than two (2). The Maximum Number
shall be subject to the adjustments described in Section 2.15(c).
(iii)
“Minimum Number” means 3% of
issued and
outstanding shares of Common Stock as of the most recent date for which such amount is
given in any filing made by the Corporation with the Securities and Exchange
Commission (the “SEC”) prior to the submission of the Qualified Nomination Notice.
the Corporation’s
(iv)
“Qualified Nomination Notice” means a notice given by a Nominating
Stockholder that complies with the requirements of Section 2.15(e) and names a
Nominee.
(v)
“Nominating Stockholder” means an Eligible Holder or group of up to 20
Eligible Holders who nominate a nominee for election to the Board of Directors.
(vi)
“Nominee” means any person nominated for election to the Board of
Directors by a Nominating Stockholder that, individually and collectively, in the case of a
group, satisfy all applicable procedures set forth in Section 2.15(d) and 2.15(e).
(b)
Inclusion of Nominee in Proxy Statement. Subject to the provisions of this
Section 2.15, if expressly requested in a Qualified Nomination Notice delivered by a Nominating
Stockholder, the Corporation shall include in its proxy statement for any Annual Meeting:
(i)
the name of the Nominee, which shall also be included on the
Corporation’s form of proxy and ballot;
(ii)
disclosures about the Nominee and Nominating Stockholder required
E-12
under the rules of the SEC or other applicable law to be included in the proxy statement;
(iii)
any statement included by the Nominating Stockholder in the Qualified
Nomination Notice for inclusion in the proxy statement in support of the Nominee’s election to
the Board of Directors (subject, without limitation, to Section 2.15(e)(ii)), if such statement does
not exceed 500 words; and
(iv)
any other information that the Corporation or the Board of Directors
determines, in its discretion to include in the proxy statement relating to the nomination of the
Nominee, including, without limitation, any statement in opposition to the nomination and any of
the information provided pursuant to this Section 2.15.
(c) Maximum Number of Nominees.
(i)
The Corporation shall not be required to include in the proxy statement for
an Annual Meeting more Nominees than the Maximum Number for such Annual Meeting. The
Maximum Number for a particular Annual Meeting shall be reduced by: (1) Nominees who are
subsequently withdrawn or that the Board of Directors itself decides to nominate for election at
such Annual Meeting, and (2) the number of incumbent directors who were Nominees with
respect to any of the preceding two Annual Meetings and whose re-election at the upcoming
Annual Meeting is being recommended by the Board of Directors. If one or more vacancies for
any reason occurs on the Board of Directors after the deadline set forth in Section 2.15(e), but
before the date of the Annual Meeting, and the Board of Directors resolves to reduce the size of
the Board in connection therewith, the Maximum Number shall be calculated based on the
number of directors in office as so reduced.
(ii)
If the number of Nominees pursuant to this Section 2.15 for any Annual
Meeting exceeds the Maximum Number then, promptly upon notice from the Corporation, each
Nominating Stockholder will select one Nominee for inclusion in the proxy statement until the
Maximum Number is reached, going in order of the amount (largest to smallest) of the
ownership position as disclosed in each Nominating Stockholder’s Qualified Nomination Notice,
with the process repeated if the Maximum Number is not reached after each Nominating
Stockholder has selected one Nominee. If, after the deadline for submitting a Qualified
Nomination Notice as set forth in Section 2.15(e), a Nominating Stockholder becomes ineligible
or withdraws its nomination, or a Nominee becomes unwilling to serve on the Board of
Directors, whether before or after the mailing of the definitive proxy statement, then the
nomination shall be disregarded, and the Corporation (1) shall not be required to include in its
proxy statement or on any ballot or form of proxy the disregarded Nominee or any successor or
replacement Nominee proposed by the Nominating Stockholder or by any other Nominating
Stockholder, and (2) may otherwise communicate to its stockholders, including, without
limitation, by amending or supplementing its proxy statement or ballot or form of proxy, that the
Nominee will not be included as a Nominee in the proxy statement or on any ballot or form of
proxy and will not be voted on at the Annual Meeting.
(d)
Eligibility of Nominating Stockholder.
An Eligible Holder or group of up to twenty (20) Eligible Holders may
submit a nomination in accordance with this Section 2.15 only if the person or group (in the
(i)
E-13
aggregate) has continuously owned at least the Minimum Number of shares of the Common
Stock (as adjusted for any stock splits, stock dividends, or similar events) throughout the three
(3)-year period preceding, including the date of submission of, the Qualified Nomination Notice,
and continues to own at least the Minimum Number through the date of the Annual Meeting. A
group of funds under common management and investment control shall be treated as one
Eligible Holder if such Eligible Holder shall provide, together with the Qualified Nomination
Notice, documentation reasonably satisfactory to the Corporation that demonstrates that the
funds are under common management and investment control. For the avoidance of doubt, in the
event of a nomination by a group of Eligible Holders, any and all requirements and obligations
for an individual Eligible Holder that are set forth in this Section 2.15, including the minimum
holding period, shall apply to each member of such group; provided, however, that the Minimum
Number shall apply to the ownership of the group in the aggregate. If any stockholder withdraws
from a group of Eligible Holders acting together as a Nominating Stockholder at any time prior
to the Annual Meeting, the group of Eligible Holders shall only be treated as owning the shares
held by the remaining members of the group.
(ii)
For purposes of this Section 2.15(d), an Eligible Holder “owns” only those
outstanding shares of Common Stock as to which the Eligible Holder possesses both: (A) the full
voting and investment rights pertaining to the shares; and (B) the full economic interest in
(including the opportunity for profit and risk of loss on) such shares. The number of shares
calculated in accordance with clauses (A) and (B) shall not include any shares: (1) sold by such
Eligible Holder or any of its affiliates in any transaction that has not been settled or closed, (2)
borrowed by such Eligible Holder or any of its affiliates for any purpose or purchased by such
Eligible Holder or any of its affiliates pursuant to an agreement to resell, or (3) subject to any
option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement
entered into by such Eligible Holder or any of its affiliates, whether any such instrument or
agreement is to be settled with shares or with cash based on the notional amount or value of
outstanding shares of Common Stock, in any such case which instrument or agreement has, or is
intended to have, the purpose or effect of: (x) reducing in any manner, to any extent or at any
time in the future, such Eligible Holder’s or any of its affiliates’ full right to vote or direct the
voting of any such shares, and/or (y) hedging, offsetting, or altering to any degree, gain or loss
arising from the full economic ownership of such shares by such Eligible Holder or any of its
affiliates. An Eligible Holder “owns” shares held in the name of a Nominee or other
intermediary, so long as the Eligible Holder retains the right to instruct how the shares are voted
with respect to the election of directors and possesses the full economic interest (including the
opportunity for profit and risk of loss on) in the shares. An Eligible Holder’s ownership of shares
shall be deemed to continue during any period in which the Eligible Holder has delegated any
voting power by means of a proxy, power of attorney, or other similar instrument or arrangement
that is revocable at any time by the Eligible Holder. The terms “owned,” “owning” and other
variations of the word “own” shall have correlative meanings. Whether outstanding shares of
Common Stock are “owned” for these purposes shall be determined by the Board of Directors,
acting in good faith.
(iii) No person shall be permitted to be in more than one group constituting a
Nominating Stockholder, and if any person appears as a member of more than one group, it shall
be deemed to be a member of the group that has the largest ownership position as reflected in the
Qualified Nomination Notice.
E-14
(e)
Qualified Nomination Notice. To nominate a Nominee, the Nominating
Stockholder must, no earlier than one hundred fifty (150) days and no later than one hundred
twenty (120) days before the anniversary of the date that the Corporation mailed its proxy
statement for the prior year’s Annual Meeting, submit to the Secretary of the Corporation at the
principal executive office of the Corporation all of the following information and documents
(collectively, the “Qualified Nomination Notice”); provided, however, that if (and only if) the
Annual Meeting is not scheduled to be held within a period that commences thirty (30) days
before the anniversary date of the prior year’s Annual Meeting and ends thirty (30) days after
such anniversary date (an Annual Meeting date outside such period being referred to herein as an
“Other Meeting Date”), the Qualified Nomination Notice shall be given in the manner provided
herein by the later of the close of business on the date that is one hundred eighty (180) days prior
to such Other Meeting Date or the tenth (10th) day following the date such Other Meeting Date is
first publicly announced or disclosed:
(i)
A Schedule 14N (or any successor form) relating to the Nominee,
completed and filed with the SEC by the Nominating Stockholder as applicable, in accordance
with SEC rules;
(ii) A written notice of the nomination of such Nominee that includes the
following additional information, agreements, representations and warranties by the Nominating
Stockholder (including each group member): (A) the details of any relationship that existed
within the past three (3) years and that would have been described pursuant to Item 6(e) of
Schedule 14N (or any successor item) if it existed on the date of submission of the Schedule
14N; (B) a representation and warranty that the Nominating Stockholder did not acquire, and is
not holding, securities of the Corporation for the purpose or with the effect of influencing or
changing control of the Corporation; (C) a representation and warranty that the Nominee’s
candidacy or, if elected, Board of Directors membership would not violate applicable state or
federal law or the rules of any stock exchange on which the Corporation’s securities are traded;
(D) a representation and warranty that the Nominee: (1) does not have any direct or indirect
relationship with the Corporation other than those relationships that have been deemed
categorically immaterial pursuant to the Corporation’s corporate governance guidelines as most
recently published on its website and otherwise qualifies as independent under the rules of the
primary stock exchange on which the Corporation’s securities are traded; (2) meets the Audit
Committee independence requirements under the rules of any stock exchange on which the
Corporation’s securities are traded; (3) is a “non-employee director” for the purposes of Rule
16b-3 under the Exchange Act (or any successor rule); and (4) is not and has not been subject to
any event specified in Rule 506(d)(1) of Regulation D (or any successor rule) under the
Securities Act of 1933, as amended (the “Securities Act”) or Item 401(f) of Regulation S-K (or
any successor rule) under the Exchange Act, without reference to whether the event is material to
an evaluation of the ability or integrity of the Nominee; (E) a representation and warranty that
the Nominating Stockholder satisfies the eligibility requirements set forth in Section 2.15(d) and
has provided evidence of ownership to the extent required by Section 2.15(d); (F) a
representation and warranty that the Nominating Stockholder intends to continue to satisfy the
share ownership eligibility requirements described in Section 2.15(d) through the date of the
Annual Meeting; (G) details of any position of the Nominee as an officer or director of any
competitor (that is, any entity that produces products or provides services that compete with or
are alternatives to the principal products produced or services provided by the Corporation or its
affiliates) of the Corporation, within the five (5) years preceding the submission of the Qualified
E-15
Nomination Notice; (H) a representation and warranty that the Nominating Stockholder will not
engage in a “solicitation” within the meaning of Rule 14a-1(l) of the Exchange Act (without
reference to the exception in Rule 14a-1(l)(2)(iv) of the Exchange Act) (or any successor rules)
with respect to the Annual Meeting, other than with respect to the Nominee or any nominee of
the Board; (I) a representation and warranty that the Nominating Stockholder will not use any
proxy card other than the Corporation’s proxy card in soliciting stockholders in connection with
the election of a Nominee at the Annual Meeting; (J) if desired, a statement for inclusion in the
proxy statement in support of the Nominee’s election to the Board of Directors, provided that
such statement shall not exceed 500 words and shall fully comply with Section 14 of the
Exchange Act and the rules and regulations thereunder, including Rule 14a-9; (K) in the case of
a nomination by a group, the designation by all group members of one group member who is
authorized to act on behalf of all group members with respect to all matters relating to the
nomination, including withdrawal of the nomination; and (L) the information required to be
included in a stockholder’s notice referenced in Section 14(a)(ii) and Section 14(b);
(iii) An executed agreement, which must be submitted within seven (7) days of
the Nominating Stockholder’s first submission of any information required by this Section 2.15,
in a form deemed satisfactory by the Board of Directors or its designee, acting in good faith,
pursuant to which the Nominating Stockholder (including each group member) agrees: (A) to
comply with all applicable laws, rules and regulations in connection with the nomination,
solicitation and election; (B) to file any written solicitation or other communication with the
Corporation’s stockholders relating to one or more of the Corporation’s directors or director
nominees or any Nominee with the SEC, regardless of whether any such filing is required under
rule or regulation or whether any exemption from filing is available for such materials under any
rule or regulation; (C) to assume all liability stemming from an action, suit or proceeding
concerning any actual or alleged legal or regulatory violation arising out of any communication
by the Nominating Stockholder with the Corporation, its stockholders or any other person in
connection with the nomination or election of directors, including, without limitation, the
Qualified Nomination Notice; (D) to indemnify and hold harmless (jointly with all other group
members, in the case of a group member) the Corporation and each of its directors, officers and
employees individually against any liability, loss, damages, expenses or other costs (including
attorneys’ fees) incurred in connection with any threatened or pending action, suit or proceeding,
whether legal, administrative, or investigative, against the Corporation or any of its directors,
officers or employees arising out of or relating to a failure or alleged failure of the Nominating
Stockholder to comply with, or any breach or alleged breach of, its obligations, agreements or
representations under this Section 2.15, or otherwise arising out of any nomination, solicitation
or other activity by any Nominating Stockholder in connection with its efforts under this Section
2.15; and (E) if any information included in the Qualified Nomination Notice, or any other
communication by the Nominating Stockholder (including with respect to any group member),
with the Corporation, its stockholders or any other person in connection with the nomination or
election ceases to be true and accurate in all material respects (or due to a subsequent
development omits a material fact necessary to make the statements made no misleading), or the
Nominating Stockholder (including any group member) fails to continue to satisfy the eligibility
requirements described in Section 2.15(d), to promptly (and in any event within 48 hours of
discovering such misstatement or omission) notify the Corporation and any other recipient of
such communication of the misstatement or omission in such previously provided information
and of the information that is required to correct the misstatement or omission; and
E-16
(iv) An executed agreement, which must be submitted within seven (7) days of
the Nominating Stockholder’s first submission of any information required by this Section 2.15,
in a form determined to be satisfactory by the Board of Directors, or its designee, acting in good
faith, by the Nominee: (A) to provide to the Corporation such other information, including
completion of the Corporation’s director questionnaire, as it may reasonably request; (B) that the
Nominee has read and agrees, if elected, to serve as a member of the Board of Directors, to
adhere to the Corporation’s corporate governance guidelines and code of ethical conduct and any
other Corporation policies and guidelines applicable to directors as adopted from time to time;
and (C) that the Nominee will promptly and fully disclose to the Corporation if the Nominee is
or becomes a party to (1) any compensatory, payment or other financial agreement, arrangement
or understanding with any person or entity in connection with service or action as a director of
the Corporation, (2) any agreement, arrangement or understanding with any person or entity as to
how the Nominee would vote or act on any issue or question as a director (a “Voting
Commitment”) that has not been disclosed to the Corporation, or (3) any Voting Commitment
that could limit or interfere with the Nominee’s ability to comply, if elected as a director of the
Corporation, with its fiduciary duties under applicable law.
The information and documents required by this Section 2.15(e) shall be: (i) provided with
respect to and executed by each group member, in the case of information applicable to group
members; and (ii) provided with respect to the persons specified in Instruction 1 to Items 6(c)
and (d) of Schedule 14N (or any successor items) in the case of a Nominating Stockholder or
group member that is an entity. The Qualified Nomination Notice shall be deemed submitted on
the date on which all the information and documents referred to in this Section 2.15(e) (other
than such information and documents contemplated to be provided after the date the Qualified
Nomination Notice is provided) have been delivered to or, if sent by mail, received by the
Secretary of the Corporation.
(f)
Exceptions.
(i)
Notwithstanding anything to the contrary contained in Section 2.15, the
Corporation may omit from its proxy statement any Nominee and any information concerning
such Nominee (including a Nominating Stockholder’s statement in support) and no vote on such
Nominee will occur (notwithstanding that proxies in respect of such vote may have been
received by the Corporation), and the Nominating Stockholder may not, after the last day on
which a Qualified Nomination Notice would be timely, cure in any way any defect preventing
the nomination of the Nominee, if: (A) the Nominating Stockholder or the designated lead group
member, as applicable, or any qualified representative thereof, does not appear at the Annual
Meeting to present the nomination submitted pursuant to this Section 2.15 or the Nominating
Stockholder withdraws its nomination; (B) the Board of Directors, acting in good faith,
determines that such Nominee’s nomination or election to the Board of Directors would result in
the Corporation violating or failing to be in compliance with these Bylaws or Certificate of
Incorporation or any applicable law, rule or regulation to which the Corporation is subject,
including any rules or regulations of any stock exchange on which the Corporation’s securities
are traded; (C) the Nominee was nominated for election to the Board of Directors pursuant to this
Section 2.15 at one of the Corporation’s two (2) preceding Annual Meetings and either withdrew
or became ineligible or received less than 25% of the votes that all stockholders are entitled to
cast for such Nominee; (D) the Nominee has been, within the past three (3) years, an officer or
director of a competitor, as defined for purposes of Section 8 of the Clayton Antitrust Act of
E-17
1914, as amended, or (E) the Corporation is notified, or the Board of Directors acting in good
faith determines, that a Nominating Stockholder has failed to continue to satisfy the eligibility
requirements described in Section 2.15(d), any of the representations and warranties made in the
Qualified Nomination Notice ceases to be true and accurate in all material respects (or omits a
material fact necessary to make the statement not misleading), the Nominee becomes unwilling
or unable to serve on the Board of Directors or any material violation or breach occurs of the
obligations, agreements, representations or warranties of the Nominating Stockholder or the
Nominee under this Section 2.15.
(ii)
Notwithstanding anything to the contrary contained in this Section
2.15, the Corporation may omit from its proxy statement, or may supplement or correct, any
information, including all or any portion of the statement in support of the Nominee included in
the Nomination Notice, if the Board of Directors in good faith determines that: (A) such
information is not true in all material respects or omits a material statement necessary to make
the statements made not misleading; (B) such information directly or indirectly impugns
character, integrity or personal reputation of, or directly or indirectly makes charges concerning
improper, illegal or immoral conduct or associations, without factual foundation, with respect to,
any person; or (C) the inclusion of such information in the proxy statement would otherwise
violate the SEC proxy rules or any other applicable law, rule or regulation.
(iii)
The Corporation may solicit against, and include in the proxy
statement its own statement relating to, any Nominee.
ARTICLE III. BOARD OF DIRECTORS
3.01 General Powers, Classification and Number. All corporate powers shall be
exercised by or under the authority of, and the business affairs of the Corporation managed under
the direction of, the Board of Directors. The Board of Directors shall consist of not less than
three (3) members, the exact number of which shall be fixed from time to time by the Board of
Directors. The Board of Directors shall be divided into three classes, designated as Class I, Class
II, and Class III, as nearly equal in number of directors as reasonably possible. At the first
meeting of stockholders at which directors are elected after the date these Bylaws are first
adopted, the directors of Class I shall be elected for a term to expire at the first Annual Meeting
after their election, and until their successors are duly elected and qualified, the directors of Class
II shall be elected for a term to expire at the second Annual Meeting after their election, and until
their successors are duly elected and qualified, and the directors of Class III shall be elected for a
term to expire at the third Annual Meeting after their election, and until their successors are duly
elected and qualified. At each Annual Meeting after the first meeting of stockholders at which
directors are elected after the date these Bylaws are first adopted, the successors to the class of
directors whose terms shall expire at the time of such Annual Meeting shall be elected to hold
office until the third succeeding Annual Meeting, and until their successors are duly elected and
qualified.
3.02 Tenure and Qualifications. Each director shall hold office until the next Annual
Meeting in the year in which such director’s term expires and until his or her successor shall
have been duly elected and, if necessary, qualified, or until there is a decrease in the number of
directors which takes effect after the expiration of his or her term, or until his or her prior
retirement, death, resignation or removal. A director may be removed from office only as
E-18
provided in the Certificate of Incorporation at a meeting of the stockholders called for the
purpose of removing the director, and the meeting notice shall state that the purpose, or one of
the purposes, of the meeting is removal of the director. A director may resign at any time by
delivering written notice which complies with the DGCL to the Board of Directors, to the Chief
Executive Officer or to the Corporation. A director’s resignation is effective when the notice is
delivered unless the notice specifies a later effective date. Directors need not be residents of the
State of Delaware or stockholders of the Corporation. No other restrictions, limitations or
qualifications may be imposed on individuals for service as a director.
3.03 Regular Meetings. Unless otherwise determined by the Board of Directors, a
regular meeting of the Board of Directors shall be held without other notice than this Bylaw
immediately after the Annual Meeting and each adjourned session thereof. The place of such
regular meeting shall be the same as the place of the Annual Meeting which precedes it, or such
other suitable place as may be announced at such Annual Meeting. The Board of Directors may
provide, by resolution, the date, time and place, either within or without the State of Delaware,
for the holding of additional regular meetings of the Board of Directors without other notice than
such resolution.
3.04 Special Meetings. Special meetings of the Board of Directors may be called by or
at the request of the Chief Executive Officer, the President, the Secretary or any two directors.
The Chief Executive Officer, the President or the Secretary may fix any place, either within or
without the State of Delaware, as the place for holding any special meeting of the Board of
Directors, and if no other place is fixed the place of the meeting shall be the principal office of
the Corporation in the State of Delaware.
3.05 Notice; Waiver. Notice of each meeting of the Board of Directors (unless
otherwise provided in or pursuant to Section 3.03 of these Bylaws) shall be given by written
notice delivered in person, by telegraph, teletype, facsimile or other form of wire or wireless
communication, or by mail or private carrier, to each director at his or her business address or at
such other address as such director shall have designated in writing filed with the Secretary, in
each case not less than forty-eight hours prior to the meeting. The notice need not describe the
purpose of the meeting of the Board of Directors or the business to be transacted at such meeting.
If mailed, such notice shall be deemed to be effective when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice is given by telegram, such notice shall be
deemed to be effective when the telegram is delivered to the telegraph company. If notice is
given by private carrier, such notice shall be deemed to be effective when delivered to the private
carrier. Whenever any notice whatever is required to be given to any director of the Corporation
under the Certificate of Incorporation or these Bylaws or any provision of the DGCL, a waiver
thereof in writing, signed at any time, whether before or after the date and time of meeting, by
the director entitled to such notice shall be deemed equivalent to the giving of such notice. The
Corporation shall retain any such waiver as part of the permanent corporate records. A director’s
attendance at or participation in a meeting waives any required notice to him or her of the
meeting unless the director at the beginning of the meeting or promptly upon his or her arrival
objects to holding the meeting or transacting business at the meeting and does not thereafter vote
for or assent to action taken at the meeting.
3.06 Quorum. A majority of the directors holding office immediately prior to a
meeting of the Board of Directors shall constitute a quorum for the transaction of business at
E-19
such meeting. A quorum of any committee of the Board of Directors created pursuant to Section
3.12 of these Bylaws shall consist of a majority of the number of directors appointed to serve on
the committee. If a quorum shall not be present at any meeting of the Board of Directors or
committee thereof, a majority of the directors present (though less than such quorum) may
adjourn any meeting of the Board of Directors or any committee thereof, as the case may be,
from time to time without further notice. In the event the Board of Directors is composed of an
even number of persons, a majority means one-half of the number of such persons plus one.
3.07 Manner of Acting. The affirmative vote of a majority of the directors present at a
meeting of the Board of Directors or a committee thereof at which a quorum is present shall be
the act of the Board of Directors or such committee, as the case may be, unless the DGCL, the
Certificate of Incorporation or these Bylaws require the vote of a greater number of directors.
3.08 Conduct of Meetings. The Chief Executive Officer, and in his or her absence, the
President, and in his or her absence, a Vice President in the order provided under Section 4.08 of
these Bylaws, and in their absence, any director chosen by the directors present, shall call
meetings of the Board of Directors to order and shall act as chairperson of the meeting. The
Secretary of the Corporation shall act as secretary of all meetings of the Board of Directors but in
the absence of the Secretary, the presiding officer may appoint any other person present to act as
secretary of the meeting. Minutes of any regular or special meeting of the Board of Directors
shall be prepared and distributed to each director.
3.09 Vacancies. Any vacancies occurring in the Board of Directors, including a
vacancy created by an increase in the number of directors, shall be filled only as provided in the
Certificate of Incorporation. A vacancy that will occur at a specific later date, because of a
resignation effective at a later date or otherwise, may be filled before the vacancy occurs, but the
new director may not take office until the vacancy occurs.
3.10 Compensation. The Board of Directors, irrespective of any personal interest of
any of its members, may establish reasonable compensation of all directors for services to the
Corporation as directors or may delegate such authority to an appropriate committee. The Board
of Directors also shall have authority to provide for or delegate authority to an appropriate
committee to provide for reasonable pensions, disability or death benefits, and other benefits or
payments, to directors, officers and employees and to their estates, families, dependents or
beneficiaries on account of prior services rendered by such directors, officers and employees to
the Corporation.
3.11 Presumption of Assent. A director who is present and is announced as present at a
meeting of the Board of Directors or any committee thereof created in accordance with Section
3.12 of these Bylaws, when corporate action is taken, assents to the action taken unless any of
the following occurs: (a) the director objects at the beginning of the meeting or promptly upon
his or her arrival to holding the meeting or transacting business at the meeting; (b) the director
dissents or abstains from an action taken and minutes of the meeting are prepared that show the
director’s dissent or abstention from the action taken; (c) the director delivers written notice that
complies with the DGCL of his or her dissent or abstention to the presiding officer of the
meeting before its adjournment or to the Corporation immediately after adjournment of the
meeting; or (d) the director dissents or abstains from an action taken, minutes of the meeting are
prepared that fail to show the director’s dissent or abstention from the action taken, and the
E-20
director delivers to the Corporation a written notice of that failure that complies with the DGCL
promptly after receiving the minutes. Such right of dissent or abstention shall not apply to a
director who votes in favor of the action taken.
3.12 Committees. The Board of Directors by resolution adopted by the affirmative
vote of a majority of all of the directors then in office may create one or more committees,
appoint members of the Board of Directors to serve on the committees and designate other
members of the Board of Directors to serve as alternates. Each committee shall have at least one
member who shall, unless otherwise provided by the Board of Directors, serve at the pleasure of
the Board of Directors. A committee may be authorized to exercise the authority of the Board of
Directors, except that a committee may not do any of the following: (a) approve or recommend
to stockholders for approval any action or matter expressly required by the DGCL to be
submitted to stockholders for approval; and (b) adopt, amend or repeal any Bylaw of the
Corporation. Unless otherwise provided by the Board of Directors in creating the committee, a
committee may employ counsel, accountants and other consultants to assist it in the exercise of
its authority.
3.13 Telephonic Meetings. Except as herein provided and notwithstanding any place
set forth in the notice of the meeting or these Bylaws, members of the Board of Directors (and
any committees thereof created pursuant to Section 3.12 of these Bylaws) may participate in
regular or special meetings by, or through the use of, any means of communication by which all
participants may simultaneously hear each other, such as by conference telephone. If a meeting
is conducted by such means, then at the commencement of such meeting the presiding officer
shall inform the participating directors that a meeting is taking place at which official business
may be transacted. Any participant in a meeting by such means shall be deemed present in
person at such meeting. Notwithstanding the foregoing, no action may be taken at any meeting
held by such means on any particular matter which the presiding officer determines, in his or her
sole discretion, to be inappropriate under the circumstances for action at a meeting held by such
means. Such determination shall be made and announced in advance of such meeting.
3.14 Action Without Meeting. Any action required or permitted by the DGCL to be
taken at a meeting of the Board of Directors or a committee thereof created pursuant to Section
3.12 of these Bylaws may be taken without a meeting if the action is taken by all members of the
Board or of the committee. The action shall be evidenced by one or more written consents
describing the action taken, signed by each director or committee member and retained by the
Corporation. Such action shall be effective when the last director or committee member signs
the consent, unless the consent specifies a different effective date.
ARTICLE IV. OFFICERS
4.01 Number. The principal officers of the Corporation shall be a Chief Executive
Officer, a President, the number of Vice Presidents as authorized from time to time by the Board
of Directors, a Secretary, and a Treasurer, each of whom shall be elected by the Board of
Directors. Such other officers and assistant officers as may be deemed necessary may be elected
or appointed by the Board of Directors. The Board of Directors may also authorize any duly
appointed officer to appoint one or more officers or assistant officers. Any two or more offices
may be held by the same person.
E-21
4.02 Election and Term of Office. The officers of the Corporation to be elected by the
Board of Directors shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each Annual Meeting. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as is practicable. Each officer shall
hold office until his or her successor shall have been duly elected or until his or her prior death,
resignation or removal.
4.03 Removal. The Board of Directors may remove any officer and, unless restricted
by the Board of Directors or these Bylaws, an officer may remove any officer or assistant officer
appointed by that officer, at any time, with or without cause and notwithstanding the contract
rights, if any, of the officer removed. The appointment of an officer does not of itself create
contract rights.
4.04 Resignation. An officer may resign at any time by delivering notice to the
Corporation that complies with the DGCL. The resignation shall be effective when the notice is
delivered, unless the notice specifies a later effective date and the Corporation accepts the later
effective date.
4.05 Vacancies. A vacancy in any principal office because of death, resignation,
removal, disqualification or otherwise, shall be filled by the Board of Directors for the unexpired
portion of the term. If a resignation of an officer is effective at a later date as contemplated by
Section 4.04 of these Bylaws, the Board of Directors may fill the pending vacancy before the
effective date if the Board provides that the successor may not take office until the effective date.
4.06 Chief Executive Officer. The Chief Executive Officer shall be the principal
executive officer of the Corporation and, subject to the control of the Board of Directors, shall in
general supervise and control all of the business and affairs of the Corporation. The Chief
Executive Officer shall have authority, subject to such rules as may be prescribed by the Board
of Directors, to appoint such agents and employees of the Corporation as he or she shall deem
necessary, to prescribe their powers, duties and compensation, and to delegate authority to them.
Such agents and employees shall hold office at the discretion of the Chief Executive Officer. He
or she shall have authority to sign, execute and acknowledge, on behalf of the Corporation, all
deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or
instruments necessary or proper to be executed in the course of the Corporation’s regular
business, or which shall be authorized by resolution of the Board of Directors; and, except as
otherwise provided by law or the Board of Directors, he or she may authorize the President or
any Vice President or other officer or agent of the Corporation to sign, execute and acknowledge
such documents or instruments in his or her place and stead. In general, he or she shall perform
all duties incident to the office of Chief Executive Officer and such other duties as may be
prescribed by the Board of Directors from time to time. The Chief Executive Officer shall, when
present, preside at all meetings of the stockholders and of the Board of Directors.
4.07 President. The President shall assist the Chief Executive Officer in exercising
general supervision over the business and affairs of the Corporation, and shall perform such
other duties and have such authority as from time to time may be delegated or assigned to him or
her by the Chief Executive Officer or by the Board of Directors. The President shall have
authority, subject to the authority of the Chief Executive Officer and to such rules as may be
prescribed by the Board of Directors, to appoint such agents and employees of the Corporation as
E-22
he or she shall deem necessary, to prescribe their powers, duties and compensation, and to
delegate authority to them. Such agents and employees shall hold office at the discretion of the
President. He or she shall have authority to sign, execute and acknowledge, on behalf of the
Corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all
other documents or instruments necessary or proper to be executed in the course of the
Corporation’s regular business, or which shall be authorized by the Chief Executive Officer or
by resolution of the Board of Directors; and, except as otherwise provided by law, the Chief
Executive Officer or the Board of Directors, he or she may authorize any Vice President or other
officer or agent of the Corporation to sign, execute and acknowledge such documents or
instruments in his or her place and stead. During the absence or disability of the Chief Executive
Officer, or while that office is vacant, the President shall exercise all the powers and discharge
all of the duties of the Chief Executive Officer.
4.08 The Vice Presidents. In the absence of the President or in the event of the
President’s death, inability or refusal to act, or in the event for any reason it shall be
impracticable for the President to act personally, the Vice President (or in the event there be
more than one Vice President, the Vice Presidents in the order designated by the Board of
Directors, or in the absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of and be subject to all
the restrictions upon the President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the Corporation; and shall perform such other duties and have
such authority as from time to time may be delegated or assigned to him or her by the Chief
Executive Officer, President or by the Board of Directors. The execution of any instrument of the
Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her
authority to act in the stead of the President. The Board of Directors may designate any Vice
President as being senior in rank or degree of responsibility and may accord such a Vice
President an appropriate title designating his or her senior rank, such as “Senior Vice President.”
The Board of Directors may assign a certain Vice President responsibility for a designated group,
division or function of the Corporation’s business and add an appropriate descriptive designation
to his or her title.
4.09 The Secretary. The Secretary shall: (a) keep minutes of the meetings of the
stockholders and of the Board of Directors (and of committees thereof) in one or more books
provided for that purpose (including records of actions taken by the stockholders or the Board of
Directors (or committees thereof) without a meeting); (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by the DGCL; (c) be custodian of
the corporate records and of the seal of the Corporation and see that the seal of the Corporation is
affixed to all documents the execution of which on behalf of the Corporation under its seal is
duly authorized; (d) maintain a record of the stockholders of the Corporation, in a form that
permits preparation of a list of the names and addresses of all stockholders, by class or series of
shares and showing the number and class or series of shares held by each stockholder; (e) sign
with the Chief Executive Officer, the President, or a Vice President, certificates for shares of the
Corporation, the issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the Corporation; and (g) in
general perform all duties incident to the office of Secretary and have such other duties and
exercise such authority as from time to time may be delegated or assigned by the Chief
Executive Officer, the President or by the Board of Directors.
E-23
4.10 The Treasurer. The Treasurer shall: (a) have charge and custody of and be
responsible for all funds and securities of the Corporation; (b) maintain appropriate accounting
records; (c) receive and give receipts for moneys due and payable to the Corporation from any
source whatsoever, and deposit all such moneys in the name of the Corporation in such banks,
trust companies or other depositaries as shall be selected in accordance with the provisions of
Section 5.04 of these Bylaws; and (d) in general perform all of the duties incident to the office of
Treasurer and have such other duties and exercise such other authority as from time to time may
be delegated or assigned by the Chief Executive Officer, the President or by the Board of
Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful
discharge of his or her duties in such sum and with such surety or sureties as the Board of
Directors shall determine.
4.11 Assistant Secretaries and Assistant Treasurers. There shall be such number of
Assistant Secretaries and Assistant Treasurers as the Board of Directors may from time to time
authorize. The Assistant Secretaries may sign with the Chief Executive Officer, the President or
a Vice President certificates for shares of the Corporation the issuance of which shall have been
authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively,
if required by the Board of Directors, give bonds for the faithful discharge of their duties in such
sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries
and Assistant Treasurers, in general, shall perform such duties and have such authority as shall
from time to time be delegated or assigned to them by the Secretary or the Treasurer,
respectively, or by the Chief Executive Officer, the President or the Board of Directors.
4.12 Other Assistants and Acting Officers. The Board of Directors shall have the
power to appoint, or to authorize any duly appointed officer of the Corporation to appoint, any
person to act as assistant to any officer, or as agent for the Corporation in his or her stead, or to
perform the duties of such officer whenever for any reason it is impracticable for such officer to
act personally, and such assistant or acting officer or other agent so appointed by the Board of
Directors or an authorized officer shall have the power to perform all the duties of the office to
which he or she is so appointed to be an assistant, or as to which he or she is so appointed to act,
except as such power may be otherwise defined or restricted by the Board of Directors or the
appointing officer.
4.13 Salaries. The salaries of the principal officers shall be fixed from time to time by
the Board of Directors or by a duly authorized committee thereof, and no officer shall be
prevented from receiving such salary by reason of the fact that he or she is also a director of the
Corporation.
ARTICLE V CONTRACTS, LOANS, CHECKS
AND DEPOSITS; SPECIAL CORPORATE ACTS
5.01 Contracts. The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute or deliver any instrument in the name of and on
behalf of the Corporation, and such authorization may be general or confined to specific
instances. In the absence of other designation, all deeds, mortgages and instruments of
assignment or pledge made by the Corporation shall be executed in the name of the Corporation
by the Chief Executive Officer, the President or one of the Vice Presidents and by the Secretary,
an Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or an Assistant
E-24
Secretary, when necessary or required, shall affix the corporate seal, if any, thereto; and when so
executed no other party to such instrument or any third party shall be required to make any
inquiry into the authority of the signing officer or officers.
5.02 Loans. No indebtedness for borrowed money shall be contracted on behalf of the
Corporation and no evidences of such indebtedness shall be issued in its name unless authorized
by or under the authority of a resolution of the Board of Directors. Such authorization may be
general or confined to specific instances.
5.03 Checks, Drafts, etc. All checks, drafts or other orders for the payment of money,
notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed
by such officer or officers, agent or agents of the Corporation and in such manner as shall from
time to time be determined by or under the authority of a resolution of the Board of Directors.
5.04 Deposits. All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks, trust companies or other
depositaries as may be selected by or under the authority of a resolution of the Board of
Directors.
5.05 Voting of Securities Owned by this Corporation. Subject always to the specific
directions of the Board of Directors, (a) any shares or other securities issued by any other
corporation and owned or controlled by this Corporation may be voted at any meeting of security
holders of such other corporation by the Chief Executive Officer or the President of this
Corporation if any of them shall be present, or in their absence by any Vice President of this
Corporation who may be present, and (b) whenever, in the judgment of the Chief Executive
Officer or the President, or in their absence, of any Vice President, it is desirable for this
Corporation to execute a proxy or written consent in respect to any shares or other securities
issued by any other corporation and owned by this Corporation, such proxy or consent shall be
executed in the name of this Corporation by the Chief Executive Officer, the President or one of
the Vice Presidents of this Corporation, without necessity of any authorization by the Board of
Directors, affixation of corporate seal, if any, or countersignature or attestation by another
officer. Any person or persons designated in the manner above stated as the proxy or proxies of
this Corporation shall have full right, power and authority to vote the shares or other securities
issued by such other corporation and owned by this Corporation the same as such shares or other
securities might be voted by this Corporation.
ARTICLE VI. CERTIFICATES FOR SHARES; TRANSFER OF SHARES
6.01 Certificates for Stock; Stock Without Certificates. Certificates representing shares
of the Corporation shall be in such form, consistent with the DGCL, as shall be determined by
the Board of Directors. Such certificates shall be signed by the Chief Executive Officer, the
President or a Vice President and by the Secretary or an Assistant Secretary. The name and
address of the person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and no new certificate
shall be issued until the former certificate for a like number of shares shall have been surrendered
and canceled, except as provided in Section 6.06 of these Bylaws. Shares of the Corporation
may also be issued without certificates to the full extent such issuance is allowed by the DGCL
and the listing standards of The NASDAQ Stock Market.
E-25
6.02 Facsimile Signatures and Seal. The seal of the Corporation, if any, on any
certificates for shares may be a facsimile. The signature of the Chief Executive Officer, the
President or Vice President and the Secretary or Assistant Secretary upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent, or a registrar, other
than the Corporation itself or an employee of the Corporation.
6.03 Signature by Former Officers. The validity of a share certificate is not affected if
a person who signed the certificate (either manually or in facsimile) no longer holds office when
the certificate is issued.
6.04 Transfer of Shares. Prior to due presentment of shares for registration of transfer
the Corporation may treat the registered owner of such shares as the person exclusively entitled
to vote, to receive notifications and otherwise to have and exercise all the rights and power of an
owner. Where shares are presented to the Corporation with a request to register for transfer, the
Corporation shall not be liable to the owner or any other person suffering loss as a result of such
registration of transfer if (a) there were on or with the certificate the necessary endorsements or
with the necessary documents accompanying a transfer of shares issued without certificates, and
(b) the Corporation had no duty to inquire into adverse claims or has discharged any such duty.
The Corporation may require reasonable assurance that such endorsements are genuine and
effective and compliance with such other regulations as may be prescribed by or under the
authority of the Board of Directors.
6.05 Restrictions on Transfer. The face or reverse side of each certificate representing
shares shall bear a conspicuous notation of any restriction imposed by the Corporation upon the
transfer of such shares and any such notation shall be made in the “book-entry” system in the
case of shares issued without certificates.
6.06 Lost, Destroyed or Stolen Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or certificates theretofore issued
by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the person requesting
such new certificate or certificates, or his or her legal representative, to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
6.07 Consideration for Shares. The Board of Directors may authorize shares to be
issued for consideration consisting of any tangible or intangible property or benefit to the
Corporation, including cash, promissory notes, services performed, contracts for services to be
performed or other securities of the Corporation. Before the Corporation issues shares, the
Board of Directors shall determine that the consideration received or to be received for the shares
to be issued is adequate. The determination of the Board of Directors is conclusive insofar as the
adequacy of consideration for the issuance of shares relates to whether the shares are validly
issued, fully paid and nonassessable. The Corporation may place in escrow shares issued in
whole or in part for a contract for future services or benefits, a promissory note, or other property
to be issued in the future, or make other arrangements to restrict the transfer of the shares, and
may credit distributions in respect of the shares against their purchase price, until the services are
E-26
performed, the benefits or property are received or the promissory note is paid. If the services
are not performed, the benefits or property are not received or the promissory note is not paid,
the Corporation may cancel, in whole or in part, the shares escrowed or restricted and the
distributions credited.
6.08 Stock Regulations. The Board of Directors shall have the power and authority to
make all such further rules and regulations not inconsistent with law as it may deem expedient
concerning the issue, transfer and registration of shares of the Corporation.
ARTICLE VII. SEAL
7.01 The Board of Directors may provide for a corporate seal for the Corporation.
ARTICLE VIII. FISCAL YEAR
8.01 The fiscal year of the Corporation shall be from January 1 to December 31.
ARTICLE IX. INDEMNIFICATION
9.01 Provision of Indemnification. The Corporation shall, to the fullest extent
permitted or required by the DGCL, including any amendments thereto (but in the case of any
such amendment, only to the extent such amendment permits or requires the Corporation to
provide broader indemnification rights than prior to such amendment), indemnify its directors
and officers against any and all liabilities, and advance any and all reasonable expenses, incurred
thereby in any proceeding to which any such director or officer is a party because he or she is or
was a director or officer of the Corporation. The Corporation shall also indemnify an employee
who is not a director or officer, to the extent that the employee has been successful on the merits
or otherwise in defense of a proceeding, for all reasonable expenses incurred in the proceeding if
the employee was a party because he or she is or was an employee of the Corporation. The
rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to
indemnification against liabilities or the advancement of expenses which a director, officer or
employee may be entitled under any written agreement, Board of Directors resolution, vote of
stockholders, the DGCL or otherwise. The Corporation may, but shall not be required to,
supplement the foregoing rights to indemnification against liabilities and advancement of
expenses under this Section 9.01 by the purchase of insurance on behalf of any one or more of
such directors, officers or employees, whether or not the Corporation would be obligated to
indemnify or advance expenses to such director, officer or employee under this Section 9.01.
ARTICLE X. AMENDMENTS
10.01 By Stockholders. Except as otherwise provided in the Certificate of Incorporation
or these Bylaws, these Bylaws may be amended or repealed and new Bylaws may be adopted by
the stockholders at any Annual Meeting or Special Meeting at which a quorum is in attendance.
10.02 By Directors. Except as otherwise provided by the DGCL or the Certificate of
Incorporation, these Bylaws may also be amended or repealed and new Bylaws may be adopted
by the Board of Directors by affirmative vote of a majority of the number of directors present at
any meeting at which a quorum is in attendance; provided, however, that the stockholders in
E-27
adopting, amending or repealing a particular Bylaw may provide therein that the Board of
Directors may not amend, repeal or readopt that Bylaw.
10.03 Implied Amendments. Any action taken or authorized by the stockholders or by
the Board of Directors which would be inconsistent with the Bylaws then in effect but which is
taken or authorized by affirmative vote of not less than the number of shares or the number of
directors required to amend the Bylaws so that the Bylaws would be consistent with such action
shall be given the same effect as though the Bylaws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken or authorized.
E-28
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 001-35929
National Research Corporation
(Exact name of Registrant as specified in its charter)
Wisconsin
(State or other jurisdiction of
incorporation or organization)
47-0634000
(I.R.S. Employer
Identification No.)
1245 Q Street, Lincoln, Nebraska 68508
(Address of principal executive offices) (Zip Code)
(402) 475-2525
(Registrant’s telephone number, including area code)
Title of Each Class
Common Stock, $.001 par value
Securities registered pursuant to 12(b) of the Act:
Trading Symbol(s)
NRC
Name of each exchange on which registered
The NASDAQ stock market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company"
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes ☐ No ☒
Aggregate market value of the common stock held by non-affiliates of the registrant at June 30, 2020: $653,540,609.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Common Stock, $.001 par value, outstanding as of February 26, 2021: 25,420,408
Portions of the Proxy Statement for the 2021 Annual Meeting of Shareholders are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Item 1.
Business .....................................................................................................................................................
Item 1A. Risk Factors ...............................................................................................................................................
Item 1B. Unresolved Staff Comments ......................................................................................................................
Properties ...................................................................................................................................................
Item 2.
Legal Proceedings ......................................................................................................................................
Item 3.
Mine Safety Disclosures ............................................................................................................................
Item 4.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ................................................................................................................................................
Selected Financial Data .............................................................................................................................
Item 6.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ....................
Item 7.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk ....................................................................
Financial Statements and Supplementary Data ..........................................................................................
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ....................
Item 9A. Controls and Procedures ............................................................................................................................
Item 9B. Other Information ......................................................................................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance .........................................................................
Executive Compensation ...........................................................................................................................
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters ..
Item 12.
Certain Relationships and Related Transactions, and Director Independence ...........................................
Item 13.
Principal Accountant Fees and Services ....................................................................................................
Item 14.
PART IV
Item 15.
Exhibits ......................................................................................................................................................
Form 10-K Summary .................................................................................................................................
Item 16.
Signatures ......................................................................................................................................................................
Page
1
7
14
14
14
14
15
17
18
27
28
57
57
57
58
58
59
59
59
60
61
63
i
Item 1. Business
Special Note Regarding Forward-Looking Statements
PART I
Certain matters discussed in this Annual Report on Form 10-K are “forward-looking statements” within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be
identified as such because the context of the statement includes phrases such as National Research Corporation, doing business
as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar terms), “believes,” “expects,” “may,” “could,”
“anticipates,” or the use of words such as “would,” “may,” “could,” or “should,” or other words of similar import. Similarly,
statements that describe our future plans, objectives or goals are also forward-looking statements. In this Annual Report on
Form 10-K, statements regarding the future impact of adopting new accounting standards, value and utility of, and market
demand for, our service offerings, future opportunities for growth and respect to new and existing clients, our future ability
to compete and the types of firms with which we will compete, future consolidation in the healthcare industry, future adequacy
of our liquidity sources, future revenue sources, future capital expenditures and the sources of cash to fund such capital
expenditures, the expected impact of pending claims and contingencies, the future outcome of uncertain tax positions, our
future use of owned and leased real property, the source of funds for future payments of deferred purchase price obligations
and other cash expenses, the future phase out of LIBOR and applicable replacement benchmark rates and the expected impact
of the COVID-19 pandemic and related government mandates and recommendations, among others, are forward-looking
statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or
outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include,
without limitation, the following factors:
● The likelihood that the COVID-19 pandemic will adversely affect our sales, earnings, financial condition and liquidity;
● The possibility of non-renewal of our client service contracts and retention of key clients;
● Our ability to compete in our markets, which are highly competitive with new market entrants, and the possibility of
increased price pressure and expenses;
● The effects of an economic downturn;
● The impact of consolidation in the healthcare industry;
● The impact of federal healthcare reform legislation or other regulatory changes;
● Our ability to attract and retain key managers and other personnel;
● The possibility that our intellectual property and other proprietary information technology could be copied or
independently developed by our competitors;
● The possibility for failures or deficiencies in our information technology platform;
● The possibility that we could be subject to cyber-attacks, security breaches or computer viruses; and
● The factors set forth under the caption “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K and various
disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.
Shareholders, potential investors and other readers are urged to consider these and other factors in evaluating the forward-
looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking
statements included are only made as of the date of this Annual Report on Form 10-K and we undertake no obligation to
publicly update such forward-looking statements to reflect subsequent events or circumstances, except as required by the
federal securities laws.
1
General
Our purpose is to establish human understanding. Our solutions enable health care organizations to understand what matters
most to each person they serve. We are a leading provider of analytics and insights that facilitate measurement and
improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for
healthcare organizations. Our heritage, proprietary methods, and holistic approach enable our partners to better understand
the people they care for and design experiences that inspire loyalty and trust, while also facilitating regulatory compliance
and the shift to population-based health management. Our ability to measure what matters most and systematically capture,
analyze and deliver insights based on self-reported information from patients, families and consumers is critical in today’s
healthcare market. We believe that access to and analysis of our extensive consumer-driven information is becoming more
valuable as healthcare providers increasingly need to more deeply understand and engage the people they serve to build
customer loyalty.
Our expertise includes the efficient capture, transmittal, benchmarking, analysis and interpretation of critical data elements
from millions of healthcare consumers. Using our digital Voice of the Customer platform, our clients gain insights into what
people think and feel about their organizations in real-time, allowing them to build on their strengths and resolve service
issues with greater speed and personalization. We also provide legacy experience-based solutions and shared intelligence
from industry thought leaders and the nation’s largest member network focused on healthcare governance and strategy to
member boards and executives.
Our portfolio of subscription-based solutions provides actionable information and analysis to healthcare organizations across
a range of mission-critical, constituent-related elements, including patient experience, service recovery, care transitions,
health risk assessments, employee engagement, reputation management and brand loyalty. We partner with clients across the
continuum of healthcare services. Our clients include integrated health systems, post-acute providers and payer organizations.
We believe this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models
drive healthcare providers and payers towards a more collaborative and integrated service model.
We have achieved a market leadership position through our more than 39 years of industry innovation and experience, as well
as our long-term, recurring revenue relationships (solutions that are used or required by a client each year) with many of the
healthcare industry’s largest organizations. Since our founding in 1981, we have focused on meeting the evolving information
needs of the healthcare industry through internal product development, as well as select acquisitions. We are a Wisconsin
corporation headquartered in Lincoln, Nebraska.
Sales
Our portfolio of solutions represents a unique set of capabilities that individually and collectively provide value to our clients.
The solutions are offered at an enterprise level through the Voice of the Customer platform, The Governance Institute, and
legacy Experience solutions.
We partner with clients across the continuum of healthcare services. Our clients include integrated health systems, post-acute
providers and payer organizations. Our ten largest clients collectively accounted for 14%, 16%, and 17% of our total revenue
in 2020, 2019 and 2018, respectively. Approximately 2%, 3% and 4% of our revenue was derived from foreign customers in
2020, 2019, and 2018, respectively.
Voice of the Customer Platform Solutions
Our Voice of the Customer (“VoC”) platform represents a portfolio of solutions that collectively provide a comprehensive
set of capabilities that enable healthcare providers to collect, measure and analyze data collected across the patient journey to
understand the preferences, experiences and needs of the people they serve. The digital platform consists of three primary
solution categories which can be implemented both collectively as an enterprise solution or individually to meet specific
needs within the organization. The primary solution categories include Market Insights solutions, Transparency solutions,
and certain Experience solutions. Our solutions within the digital VoC platform accounted for 73.3% of total revenue in 2020.
2
Market Insights Solutions – Our Market Insights solutions are subscription-based services that allow for improved tracking
of awareness, perception, and consistency of healthcare brands; real-time assessment of competitive differentiators; and
enhanced segmentation tools to evaluate the needs, wants, and behaviors of communities through real-time competitive
assessments and enhanced segmentation tools. Market Insights is the largest U.S. healthcare consumer database of its kind,
measuring the opinions and behaviors of approximately 300,000 healthcare consumers across the contiguous United States
annually. Our Market Insights is a syndicated survey that provides clients with an independent third-party source of
information that is used to understand consumer perception and preferences and optimize marketing strategies. Our Market
Insights solutions provide clients with on-demand tools to measure brand value and build brand equity in their markets,
evaluate and optimize advertising efficacy and consumer recall, and tailor research to obtain the real time voice of customer
feedback to support branding and loyalty initiatives. Our Market Insights solutions were historically marketed under the
Healthcare Market Guide and Ticker brands.
Experience Solutions – Our Experience solutions are provided on a subscription basis via a cross-continuum VoC platform
that collects and measures data and then delivers business intelligence that our clients utilize to improve patient experience,
engagement and loyalty. Patient experience data can also be collected on a periodic basis using CAHPS compliant mail and
telephone survey methods for regulatory compliance purposes and to monitor and measure improvement in CAHPS survey
scores. CAHPS survey data can be collected and measured as an integrated service within the VoC platform or independently
as a legacy service offering. Our Experience solutions provide hospitals and healthcare providers the ability to receive and
take action on customer and employee feedback across all care settings in real-time. Experience solutions include patient and
resident experience, workforce engagement, health risk assessments, transitions, and improvement tools, which are provided
through the Experience, Transitions and National Research Canada Corporation operating segments. These solutions enable
clients to comply with regulatory requirements and to improve their reimbursement under value-based purchasing models.
More importantly, our Experience solutions provide quantitative and qualitative real-time feedback, improvement plans, and
coaching tools to enable clients to improve the experiences of patients, residents, physicians and staff. By illuminating the
complete care journey in real time, our clients are able to ensure each individual receives the care, respect, and experience he
or she deserves. Developing a longitudinal profile of what healthcare customers want and need allows for organizational
improvement, increased clinician and staff engagement, loyal relationships and personal well-being. These solutions have
previously been marketed under the NRC Picker, My InnerView (“MIV”), Customer-Connect LLC (“Connect”), and NRC
Canada brands.
Our Health Risk Assessment solutions (formerly Payer solutions) enable our clients to understand the health risks associated
with populations of patients, analyze and address readmission risks, and efficiently reach out to patients to impact their
behaviors outside of the healthcare provider settings. These health risk assessment solutions enable clients to effectively
segment populations and manage care for those who are most at-risk, engage individuals, increase preventative care and
manage wellness programs to improve patient experience and outcomes.
Our Transitions solutions are provided to healthcare organizations on a subscription basis to drive effective communication
between healthcare providers and patients in the critical 24-72 hours post discharge using a discharge call program. Through
preference-based communications and real-time alerts, these solutions enable organizations to identify and manage high-risk
patients to reduce readmissions, increase patient satisfaction and support safe care transitions. Tracking, trending and
benchmarking tools isolate the key areas for process improvement allowing organizations to implement changes and reduce
future readmissions. Our Transitions solutions were previously provided by Connect.
Transparency Solutions – Our Transparency solutions allow healthcare organizations to share a picture of their organization
and ensure that timely and relevant content informs better consumer decision-making. Our Star Ratings solution (formerly
Reputation) enables clients to publish a five-star rating metric and verified patient feedback derived from actual patient survey
data to complement their online physician information. Sharing this feedback not only results in better-informed consumer
decision-making but also has the ability to drive new patient acquisition and grow online physician reputation. Our Reputation
Monitoring solution alerts clients to ratings and reviews on third-party websites and provides workflows for response and
service recovery. These solutions raise physician awareness of survey results and provide access to improvement resources
and educational development opportunities designed to improve the way care is delivered.
The Governance Institute
Our Governance solutions, branded as The Governance Institute (“TGI”), serves not-for-profit hospital and health system
boards of directors, executives, and physician leadership. TGI’s subscription-based, value-driven membership services are
provided through national conferences, publications, advisory services, and an online portal designed to improve the
effectiveness of hospital and healthcare systems by continually strengthening their board governance, strategic planning,
medical leadership, management performance, and transparency positioning. TGI also conducts research studies and tracks
3
industry trends showcasing emerging healthcare trends and best practice solutions of healthcare boards across the country.
TGI thought leadership helps our client board members and executives inform and guide their organization’s strategic
priorities in alignment with the rapidly changing healthcare market.
For additional information on our operating segments and our revenue and assets by geographic area, see Note 13, “Segment
Information,” to our consolidated financial statements.
Markets
Growth Strategy
We believe that the value proposition of our current solutions, combined with the favorable alignment of our solutions with
emerging market demand, positions us to benefit from multiple growth opportunities. We believe that we can accelerate our
growth through (1) increasing scope of services and sales of our existing solutions to our existing clients (or cross-selling),
(2) winning additional new clients through market share growth in existing market segments, (3) developing and introducing
new solutions to new and existing clients, and (4) pursuing acquisitions of, or investments in, firms providing products,
solutions or technologies which complement ours.
Increasing contract value with existing clients. Approximately 28% of our existing clients purchase more than one of our
solutions. Our sales organization actively identifies and pursues cross-sell opportunities for clients to add additional solutions
in order to accelerate our growth. Organic contract value growth is also realized by the increased scope of solution adoption
as the size of client organizations increase from market expansion and consolidation.
Adding new clients. We believe that there is an opportunity to add new clients across all existing market segments. Our sales
organization is actively identifying and engaging new client prospects with a focus on demonstrating the economic value
derived from adopting the portfolio of solutions in alignment with the prospect’s strategic objectives.
Adding new solutions. The need for effective solutions in the market segments that we serve is evolving to align with emerging
healthcare consumerism trends. The evolving market creates an opportunity for us to introduce new solutions that leverage
and extend our existing core competencies. We believe that there is an opportunity to drive sales growth with both existing
and new clients, across all of the market segments that we serve, through the introduction of new solutions.
Pursue strategic acquisitions and investments. We have historically complemented our organic growth with strategic
acquisitions, having completed seven such transactions over the past eighteen years. These transactions have added new
capabilities and access to market segments that are adjacent and complementary to our existing solutions and market
segments. We believe that additional strategic acquisition and/or investment opportunities will exist from time to time to
complement our organic growth by further expanding our service capabilities, technology offerings and end markets.
We generate the majority of our revenue from the renewal of subscription-based client service agreements, supplemented by
sales of additional solutions to existing clients and the addition of new clients. Our sales activities are carried out by a direct
sales organization staffed with professional, trained sales associates.
We engage in marketing activities that enhance our brand visibility in the marketplace, generate demand for our solutions and
engage existing clients. Strategic campaigns and programs focus on (1) ensuring coverage of prospective clients via targeted
advertising and account-based campaigns, (2) elevating client value evidence and success stories to an executive level profile,
(3) engaging key stakeholders with content, programming and events and (4) amplifying thought leadership through public
and media relations programs that include earning placement in national media and trade publications, securing podium
presentations at key industry events and winning awards on behalf of us and our executives.
Competition
The healthcare information and market research services industry is highly competitive. We have traditionally competed with
healthcare organizations’ internal marketing, market research, and/or quality improvement departments which create their
own performance measurement tools, and with relatively small specialty research firms which provide survey-based
healthcare market research and/or performance assessment. Our primary competitors among such specialty firms include
Press Ganey, which we believe has significantly higher annual revenue than us, and several other organizations that we believe
have less annual revenue than us. We, to a certain degree, currently compete with, and anticipate that in the future we may
increasingly compete with, (1) market research firms and technology solutions which provide survey-based, general market
4
research or voice of the customer feedback capabilities and (2) firms that provide services or products that complement
healthcare performance assessments such as healthcare software or information systems.
We believe the primary competitive factors within our market include quality of service, timeliness of delivery, unique service
capabilities, credibility of provider, industry experience, and price. We believe that our industry leadership position, exclusive
focus on the healthcare industry, cross-continuum presence, comprehensive portfolio of solutions and relationships with
leading healthcare payers and providers position us to compete in this market.
Although only a few of these competitors have offered specific services that compete directly with our solutions, many of
these competitors have substantially greater financial, information gathering, and marketing resources than us and could
decide to increase their resource commitments to our market. There are relatively few barriers to entry into our market, and
we expect increased competition in our market which could adversely affect our operating results through pricing pressure,
increased marketing expenditures, and market share losses, among other factors. There can be no assurance that we will
continue to compete successfully against existing or new competitors.
We believe that our competitive strengths include the following:
A leading provider of patient experience solutions for healthcare providers, payers and other healthcare organizations. Our
history is based on capturing the voice of the consumer in healthcare markets. Our solutions build on the “Eight Dimensions
of Patient-Centered Care,” a philosophy developed by noted patient advocate Harvey Picker, who believed patients’
experiences are integral to quality healthcare. This foundation has been enhanced through the digital VoC platform offering
that provides the delivery of data and insights on a real time basis.
Premier client portfolio across the care continuum. Our client portfolio encompasses leading healthcare organizations across
the healthcare continuum, from acute care hospitals and post-acute providers to healthcare payers. Our client base is diverse,
with our top ten clients collectively representing approximately 14% of total revenue for the year ended December 31, 2020,
and no single client representing more than 4% of our revenue.
Highly scalable and visible revenue model. Our solutions are offered to healthcare providers, payers and other healthcare
organizations primarily through subscription-based service agreements. The solutions we provide are also recurring in nature,
which enables an ongoing relationship with our clients. This combination of subscription-based revenue, a base of ongoing
client renewals and automated platforms creates a highly visible and scalable revenue model.
Comprehensive portfolio of solutions. We offer a portfolio of solutions that provide insights across the patient journey, which
is unique in the healthcare industry, enabling our clients to initially establish an enterprise relationship utilizing the entire
portfolio or begin with an individual solution and increase the scope of services over time, increasing overall contract value.
Exclusive focus on healthcare. We focus exclusively on healthcare and serving the unique needs of healthcare organizations
across the continuum, which we believe gives us a distinct competitive advantage compared to other survey and analytics
software providers. Our platform includes features and capabilities built specifically for healthcare providers, including a
library of performance improvement content which can be tailored to the provider based on their specific customer feedback
profile.
Experienced senior management team led by our founder. Our senior management team has extensive industry and leadership
experience. Michael D. Hays, our Chief Executive Officer and President as of October 2, 2020, founded NRC Health in 1981.
Prior to launching the Company, Mr. Hays served as Vice President and as a Director of SRI Research Center, Inc. (now
known as the Gallup Organization). Our Chief Financial Officer, Kevin Karas, CPA, has extensive financial experience
having served as CFO at two previous companies, along with healthcare experience at Rehab Designs of America, Inc. and
NovaCare, Inc. Steven D. Jackson, our President through October 1, 2020, served as Chief Strategy Officer for Vocera
Communications. Jona Raasch has served as our Chief Operating Officer for most of the last 30 years and as Chief Executive
Officer of the Governance Institute for nearly 15 years. Helen Hrdy was appointed as our Chief Growth Officer in 2020. Prior
to this position Ms. Hrdy served as our Senior Vice President, Customer Success, for eight years.
5
Resources
Our success depends in part upon our data collection processes, research methods, data analysis techniques and internal
systems, and procedures that we have developed specifically to serve clients in the healthcare industry. We have no patents
for most of our intellectual property. Consequently, we rely on a combination of copyright and trade secret laws and associate
nondisclosure agreements to protect our systems, survey instruments and procedures. There can be no assurance that the steps
we have taken to protect our rights will be adequate to prevent misappropriation of such rights or that third parties will not
independently develop functionally equivalent or superior systems or procedures. We believe that our systems and procedures
and other proprietary rights do not infringe upon the proprietary rights of third parties. There can be no assurance, however,
that third parties will not assert infringement claims against us in the future or that any such claims will not result in protracted
and costly litigation, regardless of the merits of such claims or whether we are ultimately successful in defending against such
claims.
Government Regulation
According to the Centers for Medicare and Medicaid Services (“CMS”), health expenditures in the United States were
approximately $3.8 trillion in 2019, or $11,582 per person. In total, health spending accounted for 17.7% of the nation’s Gross
Domestic Product in 2019. Addressing this growing expenditure burden continues to be a major policy priority at both federal
and state levels. In addition, increased co-pays and deductibles in healthcare plans have focused even more consumer attention
on health spending and affordability. In the public sector, Medicare provides health coverage for individuals aged 65 and
older, while Medicaid provides coverage for low-income families and other individuals in need. Both programs are
administered by the CMS. With the aging of the U.S. population, Medicare enrollment has increased significantly. In
addition, longer life spans and greater prevalence of chronic illnesses among both the Medicare and Medicaid populations
have placed tremendous demands on the health care system.
An increasing percentage of Medicare reimbursement and reimbursement from commercial payers has been determined under
value payment models, based on factors such as patient readmission rates and provider adherence to certain quality-related
protocols. At the same time, many hospitals and other providers are creating new models of care delivery to improve patient
experience, reduce cost and provide better clinical outcomes. These new models are based on sharing financial risk and
managing the health and behaviors of large populations of patients and consumers. This transformation towards value-based
payment models and increased engagement of healthcare consumers is resulting in a greater need for existing healthcare
providers to deliver more customer-centric healthcare. At the same time, organizations that have successfully developed
effective customer service models and brand loyalty in other industry verticals are entering the healthcare services market.
We believe that our current portfolio of solutions is uniquely aligned to address these healthcare market trends and related
business opportunity. We provide tools and solutions to capture, interpret and improve the Consumer Assessment of
Healthcare Providers and Systems ("CAHPS") data required by CMS as well as real time feedback that enables clients to
better understand what matters most to people at key moments in their relationship with a health organization. Our solutions
enable our clients to both satisfy patient survey compliance requirements and design experiences to build loyalty and improve
the wellbeing of the people and communities they care for.
Human Capital
As of December 31, 2020, we employed a total of 485 associates, 13 of those were employed in Canada. None of our associates
are represented by a collective bargaining unit. As a result of the COVID-19 pandemic, the majority of our associates are
working remotely with very successful results. We attract a passionate team of associates who care deeply about making a
difference in advancing “Human Understanding” in healthcare. We consider our relationships with our associates to be good.
Available Information
More information regarding NRC Health is available on our website at www.nrchealth.com. We are not including the
information contained on or available through our website as part of, or incorporating such information by reference into, this
Annual Report on Form 10-K. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and any amendments to those reports are made available to the public at no charge through a link appearing on our
website. We provide access to such materials through our website as soon as reasonably practicable after electronically filing
such material with, or furnishing it to, the Securities and Exchange Commission. Reports and amendments posted on our
website do not include access to exhibits and supplemental schedules electronically filed with the reports or amendments.
6
Item 1A. Risk Factors
You should carefully consider each of the risks described below, together with all of the other information contained in this
Annual Report on Form 10-K, before making an investment decision with respect to our securities. If any of the following
risks develop into actual events, our business, financial condition or results of operations could be materially and adversely
affected and you may lose all or part of your investment.
Risks Related to our Business
We could be negatively impacted by the recent Coronavirus or “COVID-19” outbreak or other similar outbreaks.
The outbreak of COVID-19 has been recognized as a global pandemic by the World Health Organization. Federal, state, local
and foreign governments have restricted travel and business operations and recommended or imposed social distancing and
isolation mandates. These measures have severely restricted economic activity around the world. These events have had and
may continue to have adverse effects on our business in a number of respects.
The outbreak of COVID-19 has significantly increased economic and demand uncertainty. The current outbreak and
continued spread of COVID-19 and associated government mandates and recommendations have resulted in an economic
slowdown and a global recession. Although the impact on our healthcare clients has varied, the restrictions on movement
outside of individuals’ homes has resulted in significantly decreased demand for elective healthcare services, which are a
large source of revenue for healthcare providers. These circumstances have resulted in many of our clients experiencing
decreased revenues, contracting margins, and cash losses. Some clients’ cost reducing measures have included and could
continue to include reducing or eliminating the services they purchase from us. While these circumstances did not
significantly impact our financial position or results of operations in 2020, the negative impact could continue to increase.
We rely on third-party service providers and business partners, for services or supplies that are critical to providing our clients’
services. These include activities such as internet, cloud data storage, information technology services, and survey related
services. These third parties are also subject to risks and uncertainties related to the COVID-19 pandemic, which may interfere
with their ability to provide their services in a timely manner and in accordance with the agreed-upon terms or our agreements,
which could interfere with our ability to operate our business.
The COVID-19 pandemic may also have legal or regulatory impacts that have an impact on our business and operations.
Historically CMS required certain healthcare organizations to periodically assess, through surveys or related methodologies,
the performance of the care they provide. Many of these organizations use our services to comply with this regulatory
requirement. However, as a result of the COVID-19 pandemic CMS has suspended the requirement for healthcare
organizations to perform these assessments, and some clients have suspended or reduced these services, and others may do
so.
In addition, the vast majority of our workforce has been working remotely since March 2020. Historically we have relied on
national travel as part of our sales efforts, but as a result of the pandemic we have placed an indefinite hold on all company
related travel. To date, we are still capable of providing our services without interruption and without significant changes to
our internal control over financial reporting. However, an extended period of associates working remotely and restrictions on
travel may interfere with our ability to conduct business, including our ability to sell our products or develop new products.
Furthermore, COVID-19 has negatively impacted the proper functioning of financial and capital markets, foreign currency
exchange rates, and interest rates. In particular, the continued spread of COVID-19 has led to disruption and volatility in the
global capital markets which increases the cost of capital and adversely impacts access to capital. If we need to seek additional
liquidity in response to some of the economic and business impacts of COVID-19, these circumstances could increase our
cost of capital or limit the extent to which capital is available to us.
The impact of the COVID-19 pandemic (or any future pandemic or similar event) on our business will depend on a variety
of factors, including the duration and spread of the outbreak in the United States and Canada, the associated government and
industry mandates and practices, the economic and regulatory impacts on our clients and the markets in which we operate,
the policies we implement, and the response of our associates and clients to these factors, all of which are difficult to predict.
We may need to develop or adapt to new ways of doing business that challenge our leadership, our associate training, our
human resources, and our business practices, and we cannot assure you that we will be successful in doing so. The short and
long-term costs associated with these potential changes are difficult to quantify. For these and other reasons, the outbreak
and associated responses have negatively affected and are expected to continue to affect our business, and the impact could
be material.
7
We depend on contract renewals, including retention of key clients, for a large share of our revenue and our operating
results could be adversely affected.
We expect that a substantial portion of our revenue for the foreseeable future will continue to be derived from renewable
service contracts. Substantially all contracts are renewable annually at the option of our clients, although contracts with clients
under unit-based arrangements generally have no minimum purchase commitments. Client contracts are generally cancelable
on short notice without penalty, however we are entitled to payment for services through the cancellation date. To the extent
that clients fail to renew or defer their renewals, we anticipate our results may be materially adversely affected. We rely on a
limited number of key clients for a substantial portion of our revenue. Our ten largest clients collectively accounted for 14%,
16%, and 17% of our total revenue in 2020, 2019, and 2018, respectively. Our ability to secure renewals depends on, among
other things, our ability to gather and analyze performance data in a consistent, high-quality, and timely fashion. In addition,
the service needs of our clients are affected by accreditation requirements, enrollment in managed care plans, the level of use
of satisfaction measures in healthcare organizations’ overall management and compensation programs, the size of operating
budgets, clients’ operating performance, industry and economic conditions, and changes in management or ownership. As
these factors are beyond our control, we cannot ensure that we will be able to maintain our renewal rates. Any material decline
in renewal rates from existing levels would have an adverse effect on our revenue and a corresponding effect on our operating
and net income.
We operate in a highly competitive market and could experience increased price pressure and expenses as a result.
The healthcare information and market research services industry is highly competitive. We have traditionally competed with
healthcare organizations’ internal marketing, market research and/or quality improvement departments that create their own
performance measurement tools, and with relatively small specialty research firms that provide survey-based healthcare
market research and/or performance assessment. Our primary competitors among such specialty firms include Press Ganey,
which we believe has significantly higher annual revenue than us, and three or four other firms that we believe have lower
annual revenue than us. To a certain degree, we currently compete with, and anticipate that in the future we may increasingly
compete with, (1) market research firms and technology solutions which provide survey-based, general market research or
Voice of the Customer Feedback capabilities and (2) firms that provide services or products that complement healthcare
performance assessments, such as healthcare software or information systems. Although only a few of these competitors have
offered specific services that compete directly with our services, many of these competitors have substantially greater
financial, information gathering, and marketing resources than us and could decide to increase their resource commitments
to our market. There are relatively few barriers to entry into our market, and we expect increased competition in our market
which could adversely affect our operating results through pricing pressure, increased marketing expenditures, and market
share losses, among other factors. There can be no assurance that we will continue to compete successfully against existing
or new competitors.
Because our clients are concentrated in the healthcare industry, our revenue and operating results may be adversely
affected by changes in regulations, a business downturn or consolidation with respect to the healthcare industry.
Substantially all of our revenue is derived from clients in the healthcare industry. As a result, our business, financial condition
and results of operations are influenced by conditions affecting this industry, including changing political, economic,
competitive and regulatory influences that may affect the procurement practices and operation of healthcare providers and
payers. Future legislative changes, including additional provisions to control healthcare costs, improve healthcare quality and
expand access to health insurance, could result in lower reimbursement rates and otherwise change the environment in which
providers and payers operate. In addition, large private purchasers of healthcare services are placing increasing cost pressure
on providers. Healthcare providers may react to these cost pressures and other uncertainties by curtailing or deferring
purchases, including purchases of our services.
Moreover, there has been consolidation of companies in the healthcare industry, a trend which we believe will continue to
grow. Consolidation in this industry, including the potential acquisition of certain of our clients, could adversely affect
aggregate client budgets for our services, could result in clients performing more marketing, market research and/or quality
improvement functions internally or could result in the termination of a client’s relationship with us. The impact of these
developments on the healthcare industry is difficult to predict and could have an adverse effect on our revenue and a
corresponding effect on our operating and net income.
8
We rely on third parties for data collection and other services whose actions could have a material adverse effect on
our business.
We outsource certain operations and engage third parties to perform work needed to fulfill our client services. For example,
we use vendors to perform certain printing, mailing, information transmittal and other services related to our survey
operations. If any of these vendors cease to operate or fail to adequately perform the contracted services and alternative
resources and processes are not utilized in a timely manner, our business could be adversely affected. The loss of any of our
key vendors could impair our ability to perform our client services and result in lower revenues and income. It would also be
time-consuming and expensive to replace, either directly or through other vendors, the services performed by these vendors,
which could adversely impact revenues, expenses and net income. Furthermore, our ability to monitor and direct our vendors’
activities is limited. If their actions and business practices violate policies, regulations or procedures otherwise considered
illegal, we could be subject to reputational damage or litigation which would adversely affect our business.
We face several risks relating to our ability to collect the data on which our business relies.
Our ability to provide timely and accurate performance measurement and improvement services to our clients depends on our
ability to collect large quantities of high-quality data through surveys and interviews. If our mail survey operations are
disrupted and we are unable to mail our surveys in a timely manner, then our revenue and net income could be negatively
impacted. If receptivity to our survey and interview methods by respondents declines, or, for some other reason, their
willingness to complete and return surveys declines, or if we, for any reason, cannot rely on the integrity of the data we
receive, then our revenue could be adversely affected with a corresponding effect on our operating and net income. We also
rely on third-party panels of pre-recruited consumer households to produce our Market Insights in a timely manner. If we are
not able to continue to use these panels, or the time period in which we use these panels is altered and we cannot find
alternative panels on a timely, cost-competitive basis, we could face an increase in our costs or an inability to effectively
produce our Market Insights. In either case, our operating and net income could be negatively affected.
If intellectual property and other proprietary information technology were copied or independently developed by our
competitors, our operating results could be negatively affected.
Our success depends in part upon our data collection process, research methods, data analysis techniques, and internal systems
and procedures that we have developed specifically to serve clients in the healthcare industry. We have no patents for most
of our intellectual property. Consequently, we rely on a combination of copyright, trade secret laws and associate
nondisclosure agreements to protect our systems, survey instruments and procedures. We cannot assure you that the steps we
have taken to protect our rights will be adequate to prevent misappropriation of such rights, or that third parties will not
independently develop functionally equivalent or superior systems or procedures. We believe that our systems and procedures
and other proprietary rights do not infringe upon the proprietary rights of third parties. We cannot assure you, however, that
third parties will not assert infringement claims against us in the future, or that any such claims will not result in protracted
and costly litigation, regardless of the merits of such claims, or whether we are ultimately successful in defending against
such claims.
Failures or deficiencies in our information technology platform could negatively impact our operating results.
Our ability to provide client service is dependent, to a significant extent, upon the technology that we develop internally.
Investment in the enhancement of existing and development of new information technology processes is costly and affects
our ability to successfully serve our clients. The failure or deficiency of the technology we develop could negatively impact
the willingness or ability for our clients to use our services and our ability to perform our services. Our failure to anticipate
clients’ expectation and needs, adapt to emerging technological trends, or design efficient and effective information
technology platforms, could result in lower utilization, loss of customers, damage to customer relationships, reduced revenue
and profits, refunds to customers and damage to our reputation. Although we have procedures to monitor the efficacy of our
information technology platforms, the procedures may not prevent failures or deficiencies in the information technology
platforms we develop, we may not adapt quickly enough and may incur significant costs and delays that could harm our
business. Additional costs could be incurred to further develop and improve our information technology platforms.
9
Our business and operating results could be adversely affected if we experience business interruptions or failure of
our information technology and communication systems.
Our ability to provide timely and accurate performance measurement and improvement services to our clients depends on the
efficient and uninterrupted operation of our information technology and communication systems, and those of our external
service providers. Our systems and those of our external service providers could be exposed to damage or interruption from
fire, natural disasters, energy loss, telecommunication failure, security breach and computer viruses. An operational failure
or outage in our information technology and communication systems or those of our external service providers, could result
in loss of customers, damage to customer relationships, reduced revenue and profits, refunds of customer charges and damage
to our reputation and may result in additional expense to repair or replace damaged equipment and recover data loss resulting
from the interruption. Although we have taken steps to prevent system failures and have back-up systems and procedures to
prevent or reduce disruptions, such steps may not prevent an interruption of services and our disaster recovery planning may
not account for all contingencies. Additionally, our insurance may not adequately compensate us for all losses or failures that
may occur. Any one of the above situations could have a material adverse effect on our business, financial condition, results
of operations and reputation.
If we sustain cyber-attacks or other privacy or data security incidents that result in security breaches that disrupt our
operations or result in the unintended dissemination of protected personal information or proprietary or confidential
information, we could suffer a loss of revenue and increased costs, exposure to significant liability, reputational harm
and other serious negative consequences.
In connection with our client services, we receive, process, store and transmit sensitive business information and, in certain
circumstances, personal medical information of our clients’ patients, electronically over the internet. We may become the
target of attempted cyber-attacks and other security threats and may be subject to breaches of the information technology
systems we use. Experienced computer programmers and hackers may be able to penetrate our security controls and access,
misappropriate or otherwise compromise protected personal information or proprietary or confidential information or that of
third-parties, create system disruptions or cause system shutdowns that could negatively affect our operations. They also may
be able to develop and deploy viruses, worms, ransomware, and other malicious software programs that attack our systems
or otherwise exploit any security vulnerabilities.
We were the target of an external cyber-attack in February 2020 (the “February incident”) which resulted in a temporary
suspension of our services to clients. We will likely continue to be the target of other attempted cyber-attacks and security
threats. Such cyber-attacks may subject us to litigation and regulatory risk, civil and criminal penalties, additional costs and
diversion of management attention due to investigation, remediation efforts and engagement of third party consultants and
legal counsel in connection with such incidents, payment of “ransoms” to regain access to our systems and information, loss
of clients, damage to client relationships, reduced revenue and profits, refunds of client charges and damage to our reputation,
any of which could have a material adverse effect on our business, cash flows, financial condition and results of operations.
While we have contingency plans and insurance coverage for potential liabilities of this nature, they may not be sufficient to
cover all claims and liabilities and in some cases are subject to deductibles and layers of self-insured retention.
We cannot ensure that we will be able to identify, prevent or contain the effects of cyber-attacks or other cybersecurity risks
that bypass our security measures or disrupt our information technology systems or business. We have security technologies,
processes and procedures in place to protect against cybersecurity risks and security breaches. However, hardware, software
or applications we develop or procure from third parties may contain defects in design, manufacturer defects or other problems
that could unexpectedly compromise information security. In addition, because the techniques used to obtain unauthorized
access, disable or degrade service or sabotage systems change frequently, are becoming increasingly sophisticated, and may
not immediately produce signs of intrusion, we may be unable to anticipate these techniques, timely discover or counter them
or implement adequate preventative measures.
In addition, we use third-party technology, systems and services for a variety of reasons, including, without limitation,
encryption and authentication technology, employee email, content delivery to clients, back-office support, and other
functions that in some cases involve processing, storing and transmitting large amounts of data for our business. These third-
party providers may also experience security breaches or interruptions to their information technology hardware and software
infrastructure and communications systems that could adversely impact us.
10
Under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology
for Economic and Clinical Health Act of 2009, or HITECH, implementing regulations promulgated by the U.S. Department
of Health and Human Services, or “HHS,” including what are referred to as the “Privacy Rule” and the “Security Rule”
(collectively, “HIPAA”), we face potential liability related to the privacy of health information we obtain. We are required
through our contracts with our clients and by HIPAA to protect the privacy and security of certain health information and to
make certain disclosures to our clients or to the public if this information is unlawfully accessed.
Changes in privacy and information security laws and standards may require we incur significant expense to ensure
compliance due to increased technology investment and operational procedures. Noncompliance with any privacy or security
laws and regulations, including, without limitation, HIPPA, or any security breach, cyber-attack or cybersecurity breach, and
any incident involving the misappropriation, loss or other unauthorized disclosure or use of, or access to, sensitive or
confidential information, whether by us or by one of our third-party service providers, could require us to expend significant
resources to continue to modify or enhance our protective measures and to remediate any damage. In addition, this could
negatively affect our operations, cause system disruptions, damage our reputation, cause client losses and contract breaches,
and could also result in regulatory enforcement actions, material fines and penalties, litigation or other actions that could have
a material adverse effect on our business, cash flows, financial condition and results of operations. Even if cyber-attacks or
other cybersecurity breaches do not result in noncompliance with privacy or security laws, the perception that such
noncompliance may have occurred by our clients or in the news media may have an adverse impact on our stock price and
could result in damage to our reputation or loss of clients, which could have a material adverse effect on our business, cash
flows, financial condition and results of operations.
Reputational harm could have a material adverse effect on our business, financial condition and results of operations.
Our ability to maintain a good reputation is critical to selling our services. Our reputation could be adversely impacted by any
of the following (whether or not valid): the failure to maintain high ethical and social standards; the failure to perform our
client services in a timely manner; violations of laws and regulations; failure to adequately preserve information security; and
the failure to maintain an effective system of internal controls or to provide accurate and timely financial information. Damage
to our reputation or loss of our clients’ confidence in our services for any of these, or any other reasons, could adversely
impact our business, revenues, financial condition, and results of operations, as well as require additional resources to rebuild
our reputation.
Our operations are subject to laws and regulations that impose significant compliance costs and create reputational
and legal risk.
Due to the nature of the services we offer, we are subject to significant commercial, trade and privacy regulations. We cannot
predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner
in which existing laws might be administered or interpreted, which could have a material and negative impact on our business
and our results of operation. For example, recent years have seen an increase in the development or enforcement of legislation
related to healthcare reform, privacy, trade compliance and anti-corruption. Additionally, some of the services we provide
include information our clients need to fulfill regulatory reporting requirements. If our services result in errors or omissions
in our clients’ regulatory reporting, we may be subject to loss of clients, reputational harm or litigation, each potentially
adversely impacting our business. Furthermore, although we maintain a variety of internal policies and controls designed to
educate, discourage, prevent and detect violations of such laws, we cannot guarantee that such actions will be effective or
sufficient or that individual employees will not engage in inappropriate behavior in breach of our policies. Such conduct, or
even an allegation of misbehavior, could result in material adverse reputational harm, costly investigations, severe criminal
or civil sanctions, or could disrupt our business, and could negatively affect our results of operations or financial condition.
Our growth strategy includes future acquisitions and/or investments which involve inherent risk.
In order to expand services or technologies to existing clients and increase our client base, we have historically, and may in
the future, make strategic business acquisitions and/or investments that we believe complement our business. Acquisitions
have inherent risks which may have material adverse effects on our business, financial condition, or results of operations,
including, among other things: (1) failure to successfully integrate the purchased operations, technologies, products or services
and maintain uniform standard controls, policies and procedures; (2) substantial unanticipated integration costs; (3) loss of
key associates including those of the acquired business; (4) diversion of management’s attention from other operations; (5)
failure to retain the customers of the acquired business; (6) failure to achieve any projected synergies and performance targets;
(7) additional debt and/or assumption of known or unknown liabilities; (8) dilutive issuances of equity securities; and (9) a
write-off of goodwill, software development costs, client lists, other intangibles and amortization of expenses. If we fail to
11
successfully complete acquisitions or integrate acquired businesses, we may not achieve projected results and there may be a
material adverse effect on our business, financial condition and results of operations.
Risks Related to our Common Stock
Our principal shareholders effectively control the Company.
A majority of our common stock and voting power was historically owned and/or held by Michael D. Hays, our Chief
Executive Officer and President. However, over the years Mr. Hays, for estate planning purposes, gifted and/or transferred
almost all of his directly owned shares to two trusts for the benefit of his family, The K/I/E Trust under agreement dated
October 24, 2018 and the Amandla MK Trust (collectively the “Trusts”).
As of February 26, 2021, approximately 44.0% of our outstanding common stock was owned by the Trusts and approximately
54.0% of our outstanding common stock was held by the Trusts and other entities owned or controlled by members of Mr.
Hays’ family. As a result, the Trusts and these other entities have the power to indirectly control decisions such as whether to
issue additional shares or declare and pay dividends and can control matters requiring shareholder approval, including the
election of directors and the approval of significant corporate matters such as change of control transactions. The effects of
such influence could be to delay or prevent a change of control of the Company unless the terms are approved by the Trusts
and these other entities.
The market price of our common stock may be volatile and shareholders may be unable to resell shares at or above
the price at which the shares were acquired.
The market price and trading volume of our common stock has historically been and may continue to be highly volatile, and
investors in our common stock may experience a decrease in the value of their shares, including decreases that are in response
to factors beyond our control, including, but not limited to:
● Variations in our financial performance and that of similar companies;
● Regulatory and other developments that may impact the demand for our services;
● Reaction to our press releases, public announcements and filings with the Securities and Exchange Commission;
● Client, market and industry perception of our services and performance;
● Actions of our competitors;
● Changes in earnings estimates or recommendations by analysts who follow our stock;
● Loss of key personnel;
● Investor, management team or large stockholder sales of our stock;
● Changes in accounting principles; and
● Variations in general market, economic and political conditions or financial markets.
Any of these factors, among others, may result in changes in the trading volume and/or market price of our common stock.
Following periods of volatility in the market price of our securities, shareholders have often filed securities class-action
lawsuits.
Our involvement in a class-action lawsuit would result in substantial legal fees and divert our senior management’s attention
from operating our business, which could harm our business and net income.
General Risk Factors
Our operating results may fluctuate and this may cause our stock price to decline.
Our overall operating results may fluctuate as a result of a variety of factors, including the size and timing of orders from
clients, client demand for our services (which, in turn, is affected by factors such as accreditation requirements, enrollment
in managed care plans, operating budgets and clients’ operating performance), the hiring and training of additional staff,
expense increases, and industry and general economic conditions. Because a significant portion of our overhead is fixed in
the short-term, particularly some costs associated with owning and occupying our building and full-time personnel expenses,
our results of operations may be materially adversely affected in any particular period if revenue falls below our expectations.
These factors, among others, make it possible that in some future period our operating results may be below the expectations
of securities analysts and investors which would have a material adverse effect on the market price of our common stock.
12
Our business and operating results could be adversely affected if we are unable to attract or retain key managers and
other personnel.
Our future performance may depend, to a significant extent, upon the efforts and ability of our key personnel who have
expertise in gathering, interpreting and marketing survey-based performance information for healthcare markets. Although
client relationships are managed at many levels within our company, the loss of the services of Michael D. Hays, our Chief
Executive Officer and President, or one or more of our other senior managers, could have a material adverse effect, at least
in the short to medium term, on most significant aspects of our business, including strategic planning, product development,
and sales and customer relations. Our success will also depend on our ability to hire, train and retain skilled personnel in all
areas of our business. Competition for qualified personnel in our industry is intense, and many of the companies that compete
with us for qualified personnel have substantially greater financial and other resources than us. Furthermore, we expect
competition for qualified personnel to become more intense as competition in our industry increases. We cannot assure you
that we will be able to recruit, retain and motivate a sufficient number of qualified personnel to compete successfully.
Failure to comply with public company regulations could adversely impact our profitability.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-
Oxley Act of 2002, the Dodd-Frank Act Wall Street Reform and Consumer Protection Act, the listing requirements of
NASDAQ and other applicable securities rules and regulations. Additionally, laws, regulations and standards relating to
corporate governance and public disclosure are subject to varying interpretations and continue to develop and change. If we
misinterpret or fail to comply with these rules and regulations, our legal and financial compliance costs and net income may
be adversely affected.
13
Item 1B. Unresolved Staff Comments
We have no unresolved staff comments to report pursuant to this item.
Item 2. Properties
Our headquarters is located in an owned office building in Lincoln, Nebraska, of which 62,000 square feet are used for our
operations. This facility houses all the capabilities necessary for our survey programming, printing and distribution, data
processing, analysis and report generation, marketing, and corporate administration. Our credit facilities are secured by this
property and our other assets.
We are leasing 4,000 square feet of office space in Markham, Ontario, 4,300 square feet of office space in Seattle, Washington,
6,200 square feet of office space in Atlanta, Georgia and 200 square feet of office space in Nashville, Tennessee. Due to our
transition to a primarily remote workforce we do not anticipate renewing these office leases at expiration, other than Nashville,
Tennessee, which is a month-to-month lease. In February 2021 we began leasing 19,300 square feet of space in Lincoln,
Nebraska for our survey programming, printing and distribution previously housed at our headquarters.
Item 3. Legal Proceedings
From time to time, we are involved in certain claims and litigation arising in the normal course of business. Management
assesses the probability of loss for such contingencies and recognizes a liability when a loss is probable and estimable. For
additional information, see Note 1, under the heading “Commitments and Contingencies,” to our consolidated financial
statements. Regardless of the final outcome, any legal proceedings, claims, inquiries and investigations, however, can impose
a significant burden on management and employees, may include costly defense and settlement costs, and could cause harm
to our reputation and brand, and other factors.
Item 4. Mine Safety Disclosures
Not applicable.
14
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
In May 2013, we consummated a recapitalization pursuant to which we established two classes of common stock (class A
common stock and class B common stock), issued a dividend of three shares of class A common stock for each share of our
then existing common stock and reclassified each then existing share of common stock as one-half of one share of class B
common stock. Following the May 2013 recapitalization, our class A common stock and our class B common stock were
traded on the NASDAQ Global Market under the symbols “NRCIA” and “NRCIB,” respectively.
On April 16, 2018, our shareholders approved, among other things, an amendment to our Amended and Restated Articles of
Incorporation (the “Articles”) to effect a recapitalization (the “Recapitalization”) pursuant to which each share of our then-
existing class B common stock was exchanged for one share of the our then-existing Class A common stock plus $19.59 in
cash, without interest. On April 17, 2018, we filed an amendment to our Articles effecting the Recapitalization, followed by
an amendment and restatement of our Articles, which resulted in the elimination of our class B common stock and the
reclassification of our class A common stock as a share of Common Stock, par value $0.001 per share (“Common Stock”).
We issued 3,617,615 shares of Common Stock and paid $72.4 million in exchange for all class B shares outstanding and to
settle outstanding share-based awards for class B common stock. The Common Stock continues to trade on the NASDAQ
Global Market under the revised symbol “NRC.”
Cash dividends in the aggregate amount of $5.3 million were declared and paid in 2020. Cash dividends in the aggregate
amount of $19.4 million were declared in 2019 with $14.2 million paid in 2019 and the remaining $5.2 million paid in January
2020. Cash dividends in the aggregate amount of $29.7 million were declared in 2018 with $12.6 million paid in 2018 and
the remaining $17.1 million paid in January 2019. The payment and amount of future dividends, if any, is at the discretion of
our Board of Directors and will depend on our future earnings, financial condition, general business conditions, alternative
uses of our earnings and cash and other factors.
On February 16, 2021, there were approximately 12 shareholders of record and approximately 7,479 beneficial owners of
common stock.
In February 2006 and subsequently amended in May 2013, our Board of Directors authorized the repurchase of 2,250,000
shares of class A common stock and 375,000 shares of class B common stock in the open market or in privately negotiated
transactions. In connection with the Recapitalization in April 2018, our Board of Directors further amended the stock
repurchase program to eliminate the repurchase of the former class B common stock. Unless terminated earlier by resolution
of our Board of Directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase
thereunder. No Common Stock was repurchased during the three-month period ended December 31, 2020. The remaining
shares of Common Stock that may be purchased under that authorization are 280,491.
See Item 12 in Part III of this Annual Report on Form 10-K for certain information concerning shares of our Common Stock
authorized for issuance under our equity compensation plans.
15
The following graph compares the cumulative 5-year total return provided shareholders on our common stock relative to the
cumulative total returns of the NASDAQ Composite Index and the Russell 2000 Index. An investment of $100 (with
reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on December
31, 2015, and our relative performance is tracked through December 31, 2020.
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
12/15
12/16
12/17
12/18 12/19 12/20
National Research Corporation – Formerly Class B 100.00
123.06
173.87
--
--
--
National Research Corporation Common Stock -
Formerly Class A
100.00
121.06
241.04
253.96 445.62
290.26
NASDAQ Composite
100.00
108.87
141.13
137.12 187.44 271.64
Russell 2000
100.00
121.31
139.08
123.76 155.35 186.36
16
Item 6. Selected Financial Data
The selected statement of income data for the years ended December 31, 2020, 2019 and 2018, and the selected balance sheet
data as of December 31, 2020 and 2019, are derived from, and are qualified by reference to, our audited consolidated financial
statements included elsewhere in this Annual Report on Form 10-K. The selected statement of income data for the years
ended December 31, 2017 and 2016, and the balance sheet data as of December 31, 2018, 2017 and 2016, are derived from
audited consolidated financial statements not included herein. The information set forth below should be read in conjunction
with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated
financial statements and notes thereto included in Items 7 and 8, respectively, of this Annual Report on Form 10-K.
Statement of Income Data:
Revenue
Insurance recoveries
Operating expenses:
Direct
Selling, general and administrative
Depreciation, amortization and impairment
Total operating expenses
Operating income
Other income (expense)
Income before income taxes
Provision for income taxes
Net income
Earnings per share common stock:
Basic Earnings per share:
Common Stock (formerly Class A)
Class B
Diluted Earnings per share:
Common Stock (formerly Class A)
Class B
Weighted average share and share equivalents
outstanding:
Common Stock (formerly Class A) – basic
Class B – basic
Common Stock (formerly Class A) – diluted
Class B – diluted
Balance Sheet Data:
Working capital surplus (deficiency)
Total assets
Total debt and finance lease obligations, net of
unamortized debt issuance costs
Total shareholders’ equity
Cash dividends declared per share:
Common Stock (formerly class A)
Class B common stock
2020
2019(2)(3)
Year Ended December 31,
2018(1)(2)
2017
(In thousands, except per share data)
2016
$
133,277 $
533
127,982 $
--
119,686 $
--
117,559 $
--
109,384
--
49,187
34,441
7,505
91,133
42,677
(1,210)
41,467
4,207
37,260 $
1.48 $
-- $
1.45 $
-- $
46,435
32,973
5,539
84,947
43,035
(2,516)
40,519
8,113
32,406 $
1.30 $
-- $
1.26 $
-- $
47,577
31,371
5,463
84,411
35,275
(566)
34,709
4,662
30,047 $
1.08 $
1.31 $
1.04 $
1.27 $
49,068
29,686
4,586
83,340
34,219
64
34,283
11,340
22,943 $
0.54 $
3.26 $
0.52 $
3.18 $
45,577
28,385
4,225
78,187
31,197
159
31,356
10,838
20,518
0.49
2.93
0.48
2.88
$
$
$
$
$
25,170
--
25,696
--
24,809
--
25,653
--
23,562
3,527
24,448
3,628
20,770
3,514
21,627
3,603
20,713
3,505
21,037
3,560
2020
2019(2)(3)
2018(1)(2)
2017
(In thousands, except per share data)
2016
$
22,431 $
133,423
(8,998) $
110,685
(18,699) $
108,032
19,949 $
127,316
15,551
120,624
31,878
64,315
34,959
32,892
38,723
19,083
1,225
90,041
3,732
82,806
$
0.21
-- $
0.78
-- $
1.13
.60 $
.40
2.40 $
.34
2.04
(1) On January 1, 2018, we adopted Accounting Standards Update 2014-09, Revenue- Revenue from Contracts with Customers
and all related amendments using the modified retrospective method for all incomplete contracts as of the date of adoption.
See Notes 1 and 3 to our consolidated financial statements.
(2) As described in Note 2 to our consolidated financial statements, we completed the Recapitalization in April 2018 which
settled all then-existing outstanding class B share-based awards, resulting in the elimination of the class B common stock
and reclassified class A common stock to Common Stock.
(3) On January 1, 2019, we adopted Accounting Standards Update 2016-02, Leases, and all related amendments using the
modified retrospective method for all incomplete contracts as of the date of adoption. See Notes 1 and 10 to our consolidated
financial statements.
17
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Our purpose is to establish human understanding. Our solutions enable health care organizations to understand what matters
most to each person they serve. We are a leading provider of analytics and insights that facilitate measurement and
improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for
healthcare organizations. Our heritage, proprietary methods, and holistic approach enable our partners to better understand
the people they care for and design experiences that inspire loyalty and trust, while also facilitating regulatory compliance
and the shift to population-based health management. Our ability to measure what matters most and systematically capture,
analyze and deliver insights based on self-reported information from patients, families and consumers is critical in today’s
healthcare market. We believe that access to and analysis of our extensive consumer-driven information is becoming more
valuable as healthcare providers increasingly need to more deeply understand and engage the people they serve to build
customer loyalty.
Our portfolio of subscription-based solutions provides actionable information and analysis to healthcare organizations across
a range of mission-critical, constituent-related elements, including patient experience, service recovery, care transitions,
health risk assessments, employee engagement, reputation management, and brand loyalty. We partner with clients across the
continuum of healthcare services. Our clients include integrated health systems, post-acute providers and payer organizations.
We believe this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models
drive healthcare providers and payers towards a more collaborative and integrated service model.
The outbreak of COVID-19, and the associated responses, have impacted our business in a variety of ways. Governments
have implemented business and travel restrictions, recommended social distancing and other guidelines, and temporarily
suspended the requirement for certain healthcare organizations to periodically assess the performance of the care they provide
(although many providers continue to do so). Many businesses, including many of our clients, have de-emphasized external
business opportunities and restricted in-person meetings while shifting their attention toward addressing COVID-19 planning,
business disruptions, higher costs, and revenue shortfalls. At NRC Health, our workforce remains intact and highly
engaged. The vast majority of our associates are working remotely, and to date we have been capable of providing our
services without significant disruption. Historically, we have relied on national travel as part of our sales efforts, but as a
result of the pandemic we have placed an indefinite hold on all company related travel. The duration and severity of the
COVID-19 pandemic and associated responses on our business, including the impact on our revenue, expenses, and cash
flows, cannot be predicted at this time. Some clients cost reducing measures have included and could continue to include
reducing or eliminating the services they purchase from us. Based on the foregoing, we do not expect our recent revenue and
earnings growth to be indicative of future expectations. We do, however, expect to have adequate sources of liquidity to meet
our current and expected needs for the foreseeable future.
Our operating income in 2020 was impacted by a significant increase in depreciation and amortization, as well as an
impairment adjustment. Depreciation and amortization increased by $1.1 million compared to 2019 due to the change in the
estimated lives of certain assets related to our transformation to a distributed workforce environment, which includes building
renovations in our headquarters, as well as shortening the useful lives of certain assets associated with our Atlanta, Georgia
and Markham, Ontario offices based on the expectation that we will vacate the office space before the end of the lease term.
In addition, we recognized a goodwill impairment adjustment for our Canadian reporting unit of $714,000, as described in
more detail under “Critical Accounting Policies and Estimates”.
Critical Accounting Policies and Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported
therein. The following areas are considered critical accounting estimates because they involve significant judgments or
assumptions, involve complex or uncertain matters or they are susceptible to change and the impact could be material to our
financial condition or operating results:
●
●
Revenue recognition; and
Valuation of goodwill and identifiable intangible assets.
18
Revenue Recognition
We derive a majority of our revenue from annually renewable subscription-based service agreements with our customers,
which include performance measurement and improvement services, healthcare analytics and governance education services.
Such agreements are generally cancelable on short or no notice without penalty. See Notes 1 and 3 to our consolidated
financial statements for a description of our revenue recognition policies.
Our revenue arrangements with a client may include combinations of more than one service offering which may be executed
at the same time, or within close proximity of one another. We combine contracts with the same customer into a single contract
for accounting purposes when the contract is entered into at or near the same time and the contracts are negotiated as a single
performance obligation. For contracts that contain more than one separately identifiable performance obligation, the total
transaction price is allocated to the identified performance obligations based upon the relative stand-alone selling prices of
the performance obligations. The stand-alone selling prices are based on an observable price for services sold to other
comparable customers, when available, or an estimated selling price using a cost-plus margin or residual approach. We
estimate the total contract consideration we expect to receive for variable arrangements based on the most likely amount we
expect to earn from the arrangement based on the expected quantities. We only include some or a portion of variable
consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue
recognized will not occur. We consider the sensitivity of the estimate, our relationship and experience with the client and
variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to
the overall arrangement.
Our fixed, non-subscription arrangements typically require us to perform an unspecified amount of services for a fixed price
during a fixed period of time. Revenues are recognized over time based upon the costs incurred to date in relation to the total
estimated contract costs. In determining cost estimates, management uses historical and forecasted cost information which is
based on estimated volumes, external and internal costs and other factors necessary in estimating the total costs over the term
of the contract. Changes in estimates are accounted for using a cumulative catch up adjustment which could impact the amount
and timing of revenue for any period.
If management made different judgments and estimates, then the amount and timing of revenue for any period could differ
from the reported revenue.
Valuation of Goodwill and Identifiable Intangible Assets
Intangible assets include customer relationships, trade names, technology, and goodwill. Intangible assets with estimable
useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for
impairment with other long-lived assets in the related asset group whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. We review intangible assets with indefinite lives for impairment
annually as of October 1 and whenever events or changes in circumstances indicate that the carrying value of an asset may
not be recoverable.
When performing the impairment assessment, we will first assess qualitative factors to determine whether it is necessary to
recalculate the fair value of the intangible assets with indefinite lives. If we believe, as a result of the qualitative assessment,
that it is more likely than not that the fair value of the indefinite-lived intangibles is less than their carrying amount, we
determine the fair value using a market or income approach. If the carrying value of intangible assets with indefinite lives
exceeds their fair value, then the intangible assets are written-down to their fair values. We did not recognize any impairments
related to indefinite-lived intangibles during 2020, 2019 or 2018.
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination
that are not individually identified and separately recognized. All of our goodwill is allocated to our reporting units, which
are the same as our six operating segments: Experience, The Governance Institute, Market Insights, Transparency, National
Research Corporation Canada and Transitions. Goodwill is reviewed for impairment at least annually, as of October 1, and
whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.
19
We review goodwill for impairment by first assessing qualitative factors to determine whether any impairment may exist. If
we believe, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less
than its carrying amount, a quantitative analysis will be performed, and the fair value of the reporting unit is compared with
its carrying value (including goodwill). If the carrying value of the reporting unit exceeds the fair value, then goodwill is
written down by this difference. We performed a qualitative analysis as of October 1, 2020 and determined the fair value of
each reporting unit likely exceeded the carrying value. No impairments were recorded during the years ended December 31,
2019 or 2018. A substantial portion of the revenue earned by our Canadian subsidiary is concentrated with one customer.
While the customer has exercised its option to extend its existing contract to September 2022, during December 2020 we
chose not to enter into a new contract with this customer or otherwise extend the term of the contract beyond September 2022.
We subsequently announced that we would close the Canada office at the end of the contract. As a result, we tested for
impairment of the Canada reporting unit’s goodwill at December 31, 2020. We recognized an impairment of $714,000 for
the excess of the Canada reporting unit’s carrying value over the fair value, using discounted cash flows. The remaining
balance of goodwill of our Canada reporting unit at December 31, 2020 was $1.6 million. Changes in the actual amount or
timing of cash flows or other assumption used to discount cash flows to estimate fair value of the Canada reporting unit could
result in additional impairment.
Results of Operations
The following table and graphs set forth, for the periods indicated, selected financial information derived from our
consolidated financial statements, including amounts expressed as a percentage of total revenue and the percentage change
in such items versus the prior comparable period (please note that all columns may not add up to 100% due to rounding).
The trends illustrated in the following table and graphs may not necessarily be indicative of future results. The discussion
that follows the information should be read in conjunction with our consolidated financial statements.
Percentage of Total Revenue
Year Ended December 31,
2020
2019
2018
Percentage
Increase (Decrease)
2020 over
2019
2019 over
2018
Revenue
Insurance recoveries
Operating expenses:
100.0%
0.4
100.0%
--
100.0%
--
4.1%
100.0
Direct
Selling, general and administrative
Depreciation, amortization and impairment
Total operating expenses
Operating income
36.9
25.9
5.6
68.4
32.0%
36.3
25.8
4.3
66.4
33.6%
39.7
26.2
4.6
70.5
29.5%
5.9
4.5
35.5
7.3
(0.8)%
6.9%
--
(2.4)
5.1
1.4
0.6
22.0%
20
Year Ended December 31, 2020, Compared to Year Ended December 31, 2019
Revenue. Revenue in 2020 increased 4.1% to $133.3 million, compared to $128.0 million in 2019, which was driven primarily
due to both new client sales and growth in contract value from existing clients. Revenue growth was partially offset by revenue
reductions due to COVID-19, as some clients have reduced or eliminated the services they purchase from us as cost reducing
measures. Our solutions within the VoC platform in 2020 accounted for 73.3% of total revenue compared to 62.7% in 2019.
The remaining revenue consists of legacy Experience and Governance Solutions.
Direct expenses. Direct expenses increased 5.9% to $49.2 million in 2020, compared to $46.4 million in 2019. This was due
to an increase in fixed expenses of $5.4 million, partially offset by a decrease in variable expenses of $2.6 million. Fixed
expenses increased primarily as a result of increased salary and benefits and contracted services costs in the customer service
and information technology areas and less sales tax incentives compared to the same period in 2019. These were partially
offset by decreased travel and meal costs due to restricted travel from COVID-19. Variable expenses decreased mainly due
to less postage, printing and paper costs primarily resulting from increased use of digital survey methodologies and decreased
conference expenses due to rescheduling and virtually hosting the conferences on account of COVID-19. Direct expenses
increased as a percentage of revenue to 36.9% in 2020, from 36.3% in 2019, as expenses increased by 5.9% while revenue
for the same period increased by 4.1%.
Selling, general and administrative expenses. Selling, general and administrative expenses increased 4.5% to $34.4 million
in 2020 compared to $33.0 million in 2019, primarily due to an increase in software license fees and platform hosting expenses
of $1.5 million, an increase in contracted services of $1.4 million, additional salary and benefits costs of $864,000 and less
sales tax incentives of $362,000 compared to the same period in 2019. These increases were partially offset by a decrease in
travel and meals expense of $1.6 million due to restricted travel associated with COVID-19 and decreases in other taxes and
licenses of $948,000 primarily due to less sales taxes. Selling, general, and administrative expenses as a percentage of revenue
was 25.9% in 2020 and 25.8% in 2019.
Depreciation, amortization and impairment. Depreciation, amortization and impairment expenses increased to $7.5 million
for the twelve-month period ended December 31, 2020 compared to $5.5 million in 2019. This was primarily due $1.1 million
in additional depreciation resulting from the change in useful lives of certain assets due to our transformation to a distributed
workforce environment, which includes building renovations in our headquarters, as well as shortening the useful lives of
certain assets associated with our Atlanta, Georgia and Markham, Ontario offices based on the expectation that we will vacate
the office space before the end of the lease term. Additionally, we recognized a $714,000 goodwill impairment adjustment
for our Canadian reporting unit due to our decision to not enter into a new agreement with an existing client, which accounted
for the majority of revenue in Canada. Depreciation, amortization and impairment expenses increased as a percentage of
revenue to 5.6% in 2020, from 4.3% in 2019 as depreciation, amortization and impairment expenses increased by 35.5%
while revenue increased by 4.1% during the same period.
Other income (expense). Other expense, net was $1.2 million for the twelve-month period ended December 31, 2020,
compared to $2.5 million for the same period in 2019. Interest expense decreased to $1.8 million in the 2020 period from $2.1
million for the same period in 2019 due to the declining balance on our term loan and no borrowings on our Line of Credit
during the 2020 period. Other non-interest expense changed to other income of $585,000 for the twelve-month period ended
December 31, 2020, compared to other expense of $462,000 for the same period in 2019, primarily due to gain on insurance
recoveries for property damage of $260,000 and the revaluation of intercompany transactions for changes in the foreign
exchange rates.
Provision for income taxes. Provision for income taxes was $4.2 million (10.1% effective tax rate) in 2020, compared to $8.1
million (20.0% effective tax rate) in 2019. The effective tax rate for the twelve-month period ended December 31, 2020, was
lower primarily due to increased tax benefits of $4.8 million from the exercise and vesting of share-based compensation
awards, partially offset by a non-deductible goodwill impairment adjustment and higher state income taxes.
Year Ended December 31, 2019, Compared to Year Ended December 31, 2018
Revenue. Revenue in 2019 increased 6.9% to $128.0 million, compared to $119.7 million in 2018, which was driven primarily
due to new customer sales, as well as increases in sales to the existing client base. Our solutions within the VoC platform in
2019 accounted for 62.7% of total revenue compared to 49.6% in 2018. The remaining revenue consists of legacy Experience
and Governance Solutions. Clients with agreements for multiple solutions represented 27% of our client base at the end of
2019, up from 24% at the end of 2018.
21
Direct expenses. Direct expenses decreased 2.4% to $46.4 million in 2019, compared to $47.6 million in 2018. This was due
to a decrease in variable expenses of $2.6 million, partially offset by an increase in fixed expenses of $1.4 million. Variable
expenses decreased mainly due to less postage, printing and paper costs due to lower volumes and changes in survey
methodologies. Fixed expenses increased primarily as a result of increased salary and benefit costs in the customer service
and information technology areas partially offset by $730,000 of state payroll and sales tax incentives and lower contracted
services. Direct expenses decreased as a percentage of revenue to 36.3% in 2019, from 39.7% in 2018, as expenses decreased
by 2.4% while revenue for the same period increased by 6.9%.
Selling, general and administrative expenses. Selling, general and administrative expenses increased 5.1% to $33.0 million
in 2019 compared to $31.4 million in 2018, primarily due to increased software license fees and platform hosting expenses
of $790,000, sales tax expense of $775,000 as a result of a recent sales tax analysis, higher salary and benefit costs of $690,000,
additional insurance costs of $285,000, increased travel costs of $196,000, higher marketing program expenses of $89,000
and additional company incentive event costs of $81,000. These were partially offset by decreased contract services of
$529,000, a reduction in legal and accounting costs of $469,000 mainly associated with the Recapitalization, the Tax Cut and
Jobs Act and adoption of ASC 606 in 2018 and state payroll and sales tax incentives of $917,000. Selling, general, and
administrative expenses decreased as a percentage of revenue to 25.8% in 2019, from 26.2% in 2018 as expenses increased
by 5.1% while revenue increased by 6.9% during the same period.
Depreciation and amortization. Depreciation and amortization expenses remained at $5.5 million for the twelve-month period
ended December 31, 2019 and 2018, however, there was increased amortization from additional computer software
investments primarily offset by an intangible asset that has been fully amortized. Depreciation and amortization expenses
decreased as a percentage of revenue to 4.3% in 2019, from 4.6% in 2018 as depreciation and amortization expenses increased
by 1.4% while revenue increased by 6.9% during the same period.
Other income (expense). Other expense, net was $2.5 million for the twelve-month period ended December 31, 2019,
compared to $566,000 for the same period in 2018. Interest expense increased $578,000 due to additional interest related to
the term loan originated in April 2018 and borrowings on the line of credit. Other expense, net increased $1.3 million primarily
due to revaluation of intercompany transactions for changes in the foreign exchange rates.
Provision for income taxes. Provision for income taxes was $8.1 million (20.0% effective tax rate) in 2019, compared to $4.7
million (13.4% effective tax rate) in 2018. The effective tax rate for the twelve-month period ended December 31, 2019, was
higher mainly due to lower income tax benefits from the exercise of share-based compensation awards and higher state
income taxes due to requirements to file in more states.
Inflation and Changing Prices
Inflation and changing prices have not had a material impact on revenue or net income in the last three years.
Liquidity and Capital Resources
We believe that our existing sources of liquidity, including cash and cash equivalents, borrowing availability, and operating
cash flows will be sufficient to meet our projected capital and debt maturity needs for the foreseeable future. Cash dividends
in the aggregate amount of $5.3 million were declared and paid in 2020. An additional $5.2 million was paid in January 2020
from dividends declared in 2019. The dividends were paid from cash on hand.
As of December 31, 2020, our principal sources of liquidity included $34.7 million of cash and cash equivalents, up to $30
million of unused borrowings under our line of credit and up to $15 million on our delayed draw term note. Of this cash, $5.4
million was held in Canada. The delayed draw term note can only be used to fund permitted future business acquisitions or
repurchasing our Common Stock.
Working Capital
We had a working capital surplus of $22.4 million and deficiency of $9.0 million on December 31, 2020 and 2019,
respectively.
22
The change was primarily due to increases in cash and cash equivalents of $21.2 million, trade accounts receivable of $2.3
million, income taxes receivable of $1.2 million, prepaids of $607,000, and decreases in dividends payable of $5.2 million
and deferred revenue of $769,000. Dividends payable decreased due dividends not being declared since the three-month
period ended March 31, 2020. Trade accounts receivable increased due to timing of billing and payments, as well as COVID-
19 causing clients payments to be delayed due to such clients’ cash-flow issues. Prepaid expenses increased due to timing of
payment for services and supplies. Income taxes receivable changed due to the timing of income tax payments. Our working
capital is significantly impacted by our large deferred revenue balances which will vary based on the timing and frequency
of billings on annual agreements. The deferred revenue balances as of December 31, 2020 and December 31, 2019, were
$15.6 million and $16.4 million, respectively.
The deferred revenue balance is primarily due to timing of initial billings on new and renewal contracts. We typically invoice
clients for services before they have been completed. Billed amounts are recorded as billings in excess of revenue earned, or
deferred revenue, on our consolidated financial statements, and are recognized as income when earned. In addition, when
work is performed in advance of billing, we record this work as revenue earned in excess of billings, or unbilled revenue.
Substantially all deferred revenue and all unbilled revenue will be earned and billed respectively, within 12 months of the
respective period ends.
Cash Flow Analysis
A summary of operating, investing, and financing activities are shown in the following table:
2020
For the Year Ended December 31,
2019
(In thousands)
2018
Provided by operating activities
Used in investing activities
Used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at end of period
Cash Flows from Operating Activities
$
$
40,636 $
(3,724)
(15,503)
(236)
21,173
34,690 $
40,917 $
(4,656 )
(36,346 )
611
526
13,517 $
39,848
(5,971)
(54,497)
(1,122)
(21,742)
12,991
Cash flows from operating activities consist of net income adjusted for non-cash items including depreciation and
amortization, deferred income taxes, share-based compensation and related taxes, reserve for uncertain tax positions, loss on
disposal of property and equipment and the effect of working capital changes.
Net cash provided by operating activities was $40.6 million for the year ended December 31, 2020, which included net income
of $37.3 million, plus non-cash charges (benefits) for deferred income taxes, depreciation, amortization and impairment,
reserve for uncertain tax positions, loss on disposal of property and equipment and non-cash share-based compensation
totaling $8.0 million. Changes in working capital decreased cash flows from operating activities by $4.6 million, primarily
from increases in trade accounts receivable, income taxes receivable, prepaid expenses and other current assets and deferred
contact costs, and a decrease in accounts payable, which fluctuate due to the timing of payments of prepaids, accounts payable
and income taxes and the timing of direct and incremental costs directly related to sales. A decrease in deferred revenue also
contributed to the working capital surplus, which will vary based on the timing and frequency of billings on annual
agreements. These decreases to cash flows were partially offset by increases in accrued expenses, wages and bonuses which
fluctuate due to the timing of accrued expenses, wages and bonuses and included the deferral of employer payroll taxes from
the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
Net cash provided by operating activities was $40.9 million for the year ended December 31, 2019, which included net income
of $32.4 million, plus non-cash charges (benefits) for deferred income taxes, depreciation and amortization, reserve for
uncertain tax positions, loss on disposal of property and equipment and non-cash share-based compensation totaling $7.9
million. Changes in working capital increased cash flows from operating activities by $616,000, primarily from increases in
accounts payable, accrued expenses, wages, bonus and profit sharing, deferred tax incentives, and deferred contract costs,
net, which fluctuate due to the timing of payments of accounts payable and accrued expenses, and the timing of direct and
incremental costs directly related to sales. These increases to cash flows were partially offset by decreases in deferred contract
costs and prepaid expenses and other current assets.
23
Net cash provided by operating activities was $39.8 million for the year ended December 31, 2018, which included net income
of $30.0 million, plus non-cash charges (benefits) for deferred tax expense, depreciation and amortization, reserve for
uncertain tax positions, loss on disposal of property and equipment and non-cash share-based compensation totaling $8.4
million. Changes in working capital increased cash flows from operating activities by $1.5 million, primarily from increases
in income taxes payable and decreases in accounts receivables, which fluctuate due to the timing of income tax payments and
the timing and frequency of billings on new and renewal contracts, respectively. These increases to cash flows were partially
offset by an increase in prepaid expenses and other current assets and decreases due to the timing of payments on accounts
payable, accrued expenses, wages, bonus and profit sharing, deferred contract costs and a decrease in deferred revenue.
Cash Flows from Investing Activities
Net cash of $3.7 million was used for investing activities in the year ended December 31, 2020. We used cash of $4.0 million
for purchases of property and equipment, consisting mainly of computer software classified in property and equipment. We
received $260,000 in insurance proceeds for damaged property and equipment due to flooding.
Net cash of $4.7 million was used for investing activities in the year ended December 31, 2019 for purchases of property and
equipment. These expenditures consisted mainly of computer software classified in property and equipment.
Net cash of $6.0 million was used for investing activities in the year ended December 31, 2018 for purchases of property and
equipment.
Cash Flows from Financing Activities
Net cash used in financing activities was $15.5 million in the year ended December 31, 2020. In 2020 we used cash to repay
borrowings under the term notes totaling $3.6 million, to pay loan commitment fees of $36,000 and for finance lease
obligations of $332,000. In 2020 we also used cash to pay $10.5 million of dividends on our Common Stock and to pay
payroll tax withholdings related to share-based compensation of $2.8 million. Proceeds from the exercise of stock options
were $1.7 million in 2020.
Net cash used in financing activities was $36.3 million in the year ended December 31, 2019. In 2019 we used cash to repay
borrowings under the term notes totaling $3.7 million, to repay borrowings on the line of credit of $21.0 million and for
finance lease obligations of $229,000. In 2019 we also used cash to pay $31.3 million of dividends on our Common Stock
and to pay payroll tax withholdings related to share-based compensation of $1.1 million. In 2019 borrowings on our line of
credit provided cash of $21.0 million.
Net cash used in financing activities was $54.5 million in the year ended December 31, 2018. In 2018 we used cash for the
Recapitalization of $72.4 million (see Note 2 to our consolidated financial statements), to repay borrowings under the term
notes totaling $3.1 million, to repay borrowings on the line of credit of $2.5 million, to pay loan origination fees on the new
credit agreement of $187,000 and for finance lease obligations of $157,000. In 2018, we also used cash to pay $16.9 million
of dividends on our Common Stock and to pay payroll tax withholdings related to share-based compensation of $1.9 million.
In 2018 borrowings on our new term loan and the new line of credit provided cash of $40 million and $2.5 million,
respectively.
Capital Expenditures
We paid cash of $4.0 million for capital expenditures in the year ended December 31, 2020. These expenditures consisted
mainly of computer software and hardware and furniture and equipment. In addition to continued expenditures for computer
software and hardware and furniture and equipment in 2021, we expect substantially higher capital expenditures for
investment in our VoC platform and building improvements, with the total amount yet to be determined, which we expect to
be funded through cash generated from operations.
Debt and Equity
Our credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) was amended and restated on
May 28, 2020 and includes (i) a $30,000,000 revolving credit facility (the “Line of Credit”), (ii) a $33,002,069 term loan (the
“Term Loan”) and (iii) a $15,000,000 delayed draw-dawn term facility (the “Delayed Draw Term Loan” and, together with
the Line of Credit and the Term Loan, the “Credit Facilities”). The Delayed Draw Term Loan may be used to fund any
permitted future business acquisitions or repurchases of our Common Stock and the Line of Credit can be used to fund ongoing
24
working capital needs and for other general corporate purposes. The May 2020 amendment increased the Line of Credit from
$15,000,000 to $30,000,000.
The amended Term Loan revised the remaining payments for the existing balance outstanding of $33,002,069 to monthly
installments of $462,988 through May 2025, with a balloon payment due at maturity in May 2025. The Term Loan bears
interest at a fixed rate per annum of 5%.
Borrowings under the Line of Credit and the Delayed Draw Term Loan, if any, bear interest at a floating rate equal to the 30-
day London Interbank Offered Rate plus 225 basis points (2.40% at December 31, 2020). Interest on the Line of Credit
accrues and is payable monthly. Principal amounts outstanding under the Line of Credit are due and payable in full at maturity,
in May 2023. As of December 31, 2020, and December 31, 2019, the Line of Credit did not have a balance. There were no
borrowings on the Line of Credit during 2020. There have been no borrowings on the Delayed Draw Term Loan since
origination.
We are obligated to pay ongoing unused commitment fees quarterly in arrears pursuant to the Line of Credit and the Delayed
Draw Term Loan facility at a rate of 0.20% per annum based on the actual daily unused portions of the Line of Credit and the
Delayed Draw Term Loan facility, respectively.
The Credit Agreement contains customary representations, warranties, affirmative and negative covenants (including
financial covenants) and events of default. The negative covenants include, among other things, restrictions regarding the
incurrence of indebtedness and liens, repurchases of our Common Stock and acquisitions, subject in each case to certain
exceptions. Pursuant to the Credit Agreement, we are required to maintain a minimum fixed charge coverage ratio of 1.10x
for all testing periods throughout the term(s) of the Credit Facilities, which calculation excludes, unless our liquidity falls
below a specified threshold, (i) any cash dividend in a fiscal quarter that, together with all other cash dividends paid or
declared during such fiscal quarter, exceeds $5,500,000 in total cash dividends paid or declared, (ii) the portion of the purchase
price for any permitted share repurchase of our shares paid with cash on hand, and (iii) the portion of any acquisition
consideration for a permitted acquisition paid with cash on hand. We are also required to maintain a cash flow leverage ratio
of 3.00x or less for all testing periods throughout the terms of the Credit Facilities. As of December 31, 2020, we were in
compliance with our financial covenants.
All obligations under the Credit Facilities are to be guaranteed by each of our direct and indirect wholly owned domestic
subsidiaries, if any, and, to the extent required by the Credit Agreement, direct and indirect wholly owned foreign subsidiaries
(each, a “guarantor”).
The Credit Facilities are secured, subject to permitted liens and other agreed upon exceptions, by a first-priority lien on and
perfected security interest in substantially all of our and our guarantors’ present and future assets (including, without
limitation, fee-owned real property, and limited, in the case of the equity interests of foreign subsidiaries, to 65% of the
outstanding equity interests of such subsidiaries).
We have finance leases for computer equipment, office equipment, printing and inserting equipment. The balance of the
finance leases as of December 31, 2020 was $1.3 million.
We incurred expenses related to the Recapitalization of approximately $721,000 in the year ended December 31, 2018, which
were included in selling and administrative expenses.
A sales tax accrual of $775,000 was recorded in 2019 for sales taxes that should have been collected from clients in 2019 and
certain previous years. We received a revenue ruling from the state of Washington noting that our services are not subject to
retail sales tax, and therefore, reversed $268,000 of sales tax accrual for the state of Washington in the third quarter of 2020.
We have completed voluntary disclosure agreements with certain states, remitted past due sales tax, are remitting current
sales tax timely, are collecting sales tax from clients, and no accrual for past due sales tax remains as of December 31, 2020.
State and local jurisdictions have differing rules and regulations governing sales, use, and other taxes and these rules and
regulations can be complex and subject to varying interpretations that may change over time. As a result, we could face the
possibility of tax assessment and audits, and our liability for these taxes and associated interest and penalties could exceed
our original estimates.
25
Contractual Obligations
We had contractual obligations to make payments in the following amounts in the future as of December 31, 2020:
Contractual Obligations(1)
(In thousands)
Operating leases
Finance leases
Uncertain tax positions(2)
Long-term debt
Total
Total
Payments
Less than
One Year
One to
Three to
Three Years
Five Years
After
Five Years
$
$
1,471 $
1,326
--
35,544
38,341 $
509 $
527
--
5,556
6,592 $
641 $
786
--
11,112
12,539 $
321 $
13
--
18,876
19,210 $
--
--
--
--
--
(1) Amounts are inclusive of interest payments, where applicable.
(2) We have $783,000 in liabilities associated with uncertain tax positions. We are unable to reasonably estimate the
expected cash settlement dates of these uncertain tax positions with the taxing authorities.
We generally do not make unconditional, non-cancelable purchase commitments. We enter into purchase orders in the normal
course of business, but these purchase obligations do not exceed one year.
Stock Repurchase Program
Our Board of Directors authorized the repurchase of up to 2,250,000 then-existing class A shares and 375,000 then-existing
class B shares of common stock in the open market or in privately negotiated transactions under a stock repurchase program
that was originally approved in February 2006 and subsequently amended in May 2013. In connection with the
Recapitalization in April 2018, our Board of Directors further amended the stock repurchase program to eliminate the
repurchase of the former class B common stock. As of December 31, 2020, the remaining number of shares of Common Stock
that could be purchased under this authorization was 280,491 shares.
Off-Balance Sheet Obligations
We have no significant off-balance sheet obligations.
Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements for a description of recently issued accounting pronouncements.
26
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Our primary market risk exposures are changes in foreign currency exchange rates and interest rates.
Our Canadian subsidiary uses Canadian dollars as its functional currency. It translates its assets and liabilities into U.S. dollars
at the exchange rate in effect at the balance sheet date. It translates its revenue and expenses at the average exchange rate
during the period. We include translation gains and losses in accumulated other comprehensive income (loss), a component
of shareholders’ equity. Foreign currency translation gains (losses) were ($189,550), $707,000 and ($1.3 million) in 2020,
2019 and 2018, respectively. Gains and losses related to transactions denominated in a currency other than the functional
currency of the countries in which we operate and short-term intercompany accounts are included in other income (expense)
in the consolidated statements of income and amounted to ($333,000), ($483,000) and $893,000 in 2020, 2019 and 2018,
respectively. The change is primarily the result of exchange rate fluctuation applied to an intercompany loan from our
Canadian subsidiary which was paid off in the three-month period ended September 30, 2020. A portion of our cash in our
Canadian subsidiary is denominated in foreign currencies, where fluctuations in exchange rates will impact our cash balances
in U.S. dollar terms. A sensitivity analysis assuming a hypothetical 10% change in the value of the U.S. dollar versus the
Canadian dollar would impact our reported cash balance by approximately $686,000. We have not entered into any foreign
currency hedging transactions. We do not purchase or hold any currency exchange related derivative financial instruments.
We are exposed to interest rate risk with both our fixed-rate Term Loan and variable rate Line of Credit. Interest rate changes
for borrowings under our fixed-rate Term Loan would impact the fair value of such debt, but do not impact earnings or cash
flow. At December 31, 2020, our fixed-rate Term Loan totaled $30.7 million. Based on a sensitivity analysis, a one percent
per annum change in market interest rates as of December 31, 2020, would impact the estimated fair value of our fixed-rate
Term Loan outstanding at December 31, 2020 by approximately $944,000.
Borrowings under our Line of Credit and Delayed Draw Term Loan, if any, bear interest at a floating rate equal to the 30-day
LIBOR plus 225 basis points. Borrowings under the Line of Credit and Delayed Draw Term Note may not exceed $30.0
million and $15.0 million, respectively. There were no borrowings outstanding under the Line of Credit at December 31,
2020, or at any time during 2020. There were no borrowings outstanding under the Delayed Draw Term Note at December
31, 2020, or at any time during 2020. A sensitivity analysis assuming a hypothetical 10% movement in interest rates applied
to the average daily borrowings and the maximum borrowings available under the Line of Credit for 2020 indicated that such
a movement would not have a material impact on our consolidated financial position, results of operations or cash flows. We
have not entered into any interest rate swaps or hedging transactions.
LIBOR is currently expected to be phased out in 2021. We are required to pay interest on borrowings under our Line of Credit
and Delayed Draw Term Loan at floating rates based on LIBOR. Future debt that we may incur may also require that we pay
interest based upon LIBOR. Under the terms of our Credit Agreement with FNB, if LIBOR becomes unavailable during the
term of the agreement, FNB may, in its discretion and in a manner consistent with market practice, designate a substitute
index. We currently expect that the determination of interest under our Credit Agreement would be revised to provide for an
interest rate that approximates the existing interest rate as calculated in accordance with LIBOR. Despite our current
expectations, we cannot be sure that if LIBOR is phased out or transitioned, the changes to the determination of interest under
our agreements would approximate the current calculation in accordance with LIBOR. We do not know what standard, if any,
will replace LIBOR if it is phased out or transitioned.
27
Item 8. Financial Statements and Supplementary Data
Quarterly Financial Data (Unaudited)
The following table sets forth selected financial information for each of the eight quarters in the two-year period ended
December 31, 2020. This unaudited information has been prepared on the same basis as the consolidated financial statements
and includes all normal recurring adjustments necessary to present fairly this information when read in conjunction with our
audited consolidated financial statements and the notes thereto.
(In thousands, except per share data)
Quarter Ended
Dec. 31,
2020
Sept 30,
2020
June 30,
2020
Mar. 31,
2020
Dec. 31,
2019
Sept 30,
2019
June 30,
2019
Mar. 31,
2019
Revenue
Insurance recoveries
Direct expenses
Selling, general and
administrative
expenses
Depreciation,
$ 34,774 $ 33,477 $ 31,166 $ 33,860 $ 32,623 $ 32,465 $ 31,414 $ 31,480
--
--
12,818 12,189 11,634 12,546 11,166 12,109 11,506 11,654
533
--
--
--
--
--
8,887
7,953
8,852
8,749
8,241
8,706
8,319
7,707
amortization and
impairment
Operating income
Other income (expense)
Provision for income
2,882
1,847
10,187 12,021
(355)
(313)
1,371
1,405
1,415
9,275 11,194 11,962 10,220 10,149 10,704
(844)
(718)
1,430
1,440
1,254
(664)
(597)
(411)
176
1,662
$ 8,212 $
2,088
9,578 $
842
(385)
7,715 $ 11,755 $
2,667
8,698 $
1,690
8,119 $
2,092
7,393 $
1,664
8,196
taxes
Net income
Earnings per share of
common stock:
Basic earnings per
share
Common (formerly
class A)
$
0.32 $
0.38 $
0.31 $
0.47 $
0.35 $
0.33 $
0.30 $
0.33
Dilutive earnings per
share
Common (formerly
class A)
Weighted average
shares outstanding
– basic
Common (formerly
class A)
Weighted average
shares outstanding
– diluted
Common (formerly
$
0.32 $
0.37 $
0.30 $
0.46 $
0.34 $
0.31 $
0.29 $
0.32
25,337 25,219 25,148 24,972 24,852 24,827 24,789 24,766
class A)
25,684 25,704 25,680 25,725 25,715 25,741 25,586 25,509
28
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
National Research Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of National Research Corporation and subsidiary (the
Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income,
shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related
notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial
reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2020 based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control
over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained
in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
29
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of sufficiency of audit evidence over new and modified subscription-based service agreement terms
As discussed in Notes 1 and 3 to the consolidated financial statements, revenue consists of service arrangement contracts
with customers that can include more than one separately identifiable performance obligation. The Company’s revenue for
the year ended December 31, 2020 included $122.5 million for subscription-based service agreements, a portion of which
was revenue from new and modified subscription-based service agreements, that was recognized ratably over the subscription
period and which agreements are renewable at the option of the customer. Subscription-based service agreements represent
a single promise to stand ready to provide reporting, tools and services throughout the subscription period.
We identified the evaluation of sufficiency of audit evidence over the key terms within new and modified subscription-based
service agreements as a critical audit matter. Specifically, the nature and extent of procedures performed over the key terms
within the new and modified subscription-based service agreements required subjective auditor judgment as recognition of
revenue by the Company is dependent on the accuracy of the key terms within the related information technology (IT)
application used to calculate revenue. The key terms within the new subscription-based service agreements include
description of service, transaction price, renewal price and contract term, and the key terms within the modified subscription-
based service agreements are the transaction price and contract term.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to
determine the nature and extent of procedures to be performed over the accuracy of key terms within the IT application,
including the identification of key terms. We evaluated the design and tested the operating effectiveness of certain internal
controls over the Company’s subscription-based service revenue process, including controls over the agreements entered into
during the current year, and the determination of the transaction price and contract term when the agreement was modified
during the current year. We also tested certain internal controls over the accurate input of the underlying key terms of the
subscription-based service agreement into the related IT application. For a sample of revenue transactions, we compared the
key terms used in the revenue calculation to the underlying contract with the customer. We evaluated the sufficiency of audit
evidence obtained over the key terms within new and modified subscription-based service agreements by assessing the results
of procedures performed, including the nature and extent of audit effort.
/s/ KPMG LLP
We have served as the Company’s auditor since 1997.
Lincoln, Nebraska
March 5, 2021
30
NATIONAL RESEARCH CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
Current assets:
Assets
Cash and cash equivalents
Trade accounts receivable, less allowance for doubtful accounts of $120 and $144,
$
34,690 $
13,517
2020
2019
respectively
Prepaid expenses
Income taxes receivable
Other current assets
Total current assets
Net property and equipment
Intangible assets, net
Goodwill
Operating lease right-of-use assets
Deferred contract costs, net
Other
Total assets
Current liabilities:
Liabilities and Shareholders’ Equity
Current portion of notes payable, net of unamortized debt issuance costs
Accounts payable
Accrued wages and bonuses
Accrued expenses
Income taxes payable
Dividends payable
Deferred revenue
Other current liabilities
Total current liabilities
Notes payable, net of current portion and unamortized debt issuance costs
Deferred income taxes
Other long-term liabilities
Total liabilities
Shareholders’ equity:
Preferred stock, $0.01 par value, authorized 2,000,000 shares, none issued
Common stock, $0.001 par value; authorized 60,000,000 shares, issued 30,775,154
in 2020 and 30,151,574 in 2019, outstanding 25,390,968 in 2020 and 24,947,500
in 2019
Additional paid-in capital
Retained earnings (accumulated deficit)
Accumulated other comprehensive loss, foreign currency translation adjustment
Treasury stock, at cost; 5,384,186 Common shares in 2020 and 5,204,074 Common
shares in 2019
Total shareholders’ equity
13,923
2,645
1,235
1,619
54,112
11,726
1,410
57,255
1,308
4,555
3,057
11,639
2,038
69
1,894
29,157
13,530
1,728
57,935
1,628
4,204
2,503
$
133,423 $
110,685
$
4,061 $
1,095
6,460
3,184
--
--
15,585
1,296
31,681
26,547
7,265
3,615
69,108
4,378
1,279
6,086
3,408
366
5,239
16,354
1,045
38,155
29,795
7,399
2,444
77,793
--
--
31
171,785
(61,375)
(2,399)
(43,727)
64,315
30
162,154
(93,357 )
(2,209 )
(33,726 )
32,892
Total liabilities and shareholders’ equity
$
133,423 $
110,685
See accompanying notes to consolidated financial statements.
31
NATIONAL RESEARCH CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share amounts)
Revenue
Insurance recoveries
Operating expenses:
Direct
Selling, general and administrative
Depreciation, amortization and impairment
Total operating expenses
Operating income
Other income (expense):
Interest income
Interest expense
Other, net
2020
2019
2018
$
133,277 $
127,982 $
119,686
533
--
--
49,187
34,441
7,505
91,133
46,435
32,973
5,539
84,947
47,577
31,371
5,463
84,411
42,677
43,035
35,275
18
(1,813)
585
37
(2,091 )
(462 )
62
(1,513)
885
Total other income (expense)
(1,210)
(2,516 )
(566)
Income before income taxes
41,467
40,519
34,709
Provision for income taxes
4,207
8,113
4,662
Net income
$
37,260 $
32,406 $
30,047
Earnings per share of common stock:
Basic earnings per share:
Common (formerly Class A)
Class B
Diluted earnings per share:
Common (formerly Class A)
Class B
Weighted average shares and share equivalents outstanding
Common (formerly Class A) - basic
Class B - basic
Common (formerly Class A) - diluted
Class B - diluted
See accompanying notes to consolidated financial statements.
$
$
$
$
1.48 $
-- $
1.45 $
-- $
1.30 $
-- $
1.26 $
-- $
25,170
--
25,696
--
24,809
--
25,653
--
1.08
1.31
1.04
1.27
23,562
3,527
24,448
3,628
32
NATIONAL RESEARCH CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
2020
2019
2018
Net income
$
37,260 $
32,406 $
30,047
Other comprehensive income (loss):
Cumulative translation adjustment
Other comprehensive income (loss)
Comprehensive income
See accompanying notes to consolidated financial statements.
$
$
$
(190) $
(190) $
707 $
707 $
(1,281)
(1,281)
37,070 $
33,113 $
28,766
33
NATIONAL RESEARCH CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands except share and per share amounts)
Common
Stock
(formerly
Class A)
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
$
26 $
4 $
51,025 $
77,574 $
(1,635) $
(36,953) $ 90,041
--
--
--
--
--
(7,950)
(7,950)
Balances at December 31, 2017
Purchase of 218,344 class A and 3,677
class B shares of treasury stock
Issuance of 468,318 class A and 9,296
class B common shares for the exercise
of stock options
Issuance of 3,496 class A restricted
common shares, net of (forfeitures)
Non-cash stock compensation expense
Settlement of class B restricted common
shares and stock options in connection
with Recapitalization for cash of $3,271
and 90,369 class A common shares
Settlement of class B common shares in
connection with Recapitalization
(3,527,246 class B common shares
exchanged for $69,099 cash and
3,527,246 class A common shares)
Retirement of 4,328,552 class B common
shares in connection with
Recapitalization
Dividends declared of $1.13 and $0.60 per
A and B common share, respectively
Cumulative effect adjustment for adoption
$
of ASC 606, net of income tax
Other comprehensive income, foreign
currency translation adjustment
Net income
Balances at December 31, 2018
Purchase of 87,203 shares of treasury
stock
Issuance of 227,902 common shares for
the exercise of stock options
Issuance of 6,005 restricted common
shares
Non-cash stock compensation expense
Dividends declared of $0.78 per common
share
Other comprehensive income, foreign
currency translation adjustment
Net income
Balances at December 31, 2019
Purchase of 180,112 shares of treasury
$
stock
Issuance of 630,373 common shares for
the exercise of stock options
Forfeiture of 6,793 restricted common
shares
Non-cash stock compensation expense
Dividends declared of $0.21 per common
share
Other comprehensive income, foreign
currency translation adjustment
Net income
Balances at December 31, 2020
$
--
--
--
--
--
--
6,098
--
1,514
--
--
--
--
--
--
--
6,098
--
--
--
1,514
-
--
(2,548)
--
--
(723)
(3,271)
4
--
118,335
--
--
(187,438) (69,099)
--
--
--
--
--
30 $
--
--
--
--
--
--
--
30 $
--
1
--
--
--
--
--
31 $
(4)
(17,112)
(186,944)
--
204,060
--
--
--
--
--
-- $
--
--
--
--
--
--
(29,751)
--
2,735
--
--
-- (29,751)
--
2,735
--
--
--
30,047
157,312 $ (106,339) $
(1,281)
--
(2,916) $
--
(1,281)
-- 30,047
(29,004) $ 19,083
--
3,618
--
1,224
--
--
--
--
--
(19,424)
--
(4,722)
(4,722)
--
--
--
--
--
3,618
--
--
--
1,224
-- (19,424)
--
--
-- $
--
--
162,154 $
--
32,406
(93,357) $
707
--
(2,209) $
--
707
-- 32,406
(33,726) $ 32,892
--
--
--
--
--
--
8,951
--
680
--
--
--
--
--
(5,278)
--
(10,001) (10,001)
--
--
--
--
--
8,952
--
--
--
680
--
(5,278)
--
--
-- $
--
--
171,785 $
--
37,260
(61,375) $
(190)
--
(2,399) $
(190)
--
-- 37,260
(43,727) $ 64,315
See accompanying notes to consolidated financial statements.
34
NATIONAL RESEARCH CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
$
2020
2019
2018
37,260 $
32,406 $
30,047
activities:
Depreciation, amortization and impairment
Deferred income taxes
Reserve for uncertain tax positions
Gain on insurance recoveries for damaged property
Loss on disposal of property and equipment
Non-cash share-based compensation expense
Change in assets and liabilities:
Trade accounts receivable
Prepaid expenses and other current assets
Operating lease assets and liability, net
Deferred contract costs, net
Accounts payable
Accrued expenses, wages and bonuses
Income taxes receivable and payable
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Insurance proceeds for damaged property
Net cash used in investing activities
Cash flows from financing activities:
Payments related to Recapitalization
Proceeds from issuance of note payable
Borrowings on line of credit
Payments on line of credit
Payments on notes payable
Payment of debt issuance costs
Payments on finance lease obligations
Proceeds from the exercise of stock options
Payment of employee payroll tax withholdings on share-based awards
exercised
Payment of dividends on common stock
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
7,505
(134)
185
(260)
12
680
(2,271)
(827)
16
(351)
(247)
1,370
(1,529)
(773)
40,636
(3,984)
260
(3,724)
--
--
--
--
(3,568)
(36)
(332)
1,734
(2,784)
(10,517)
(15,503)
(236)
21,173
5,539
1,099
39
--
(6)
1,224
311
(529)
(8)
(719)
647
806
11
97
40,917
(4,656)
--
(4,656)
--
--
21,000
(21,000)
(3,715)
--
(229)
--
(1,103)
(31,299)
(36,346)
611
526
5,463
1,476
(288)
--
186
1,514
2,767
(833)
--
(113)
(39)
(566)
686
(452)
39,848
(5,971)
--
(5,971)
(72,370)
40,000
2,500
(2,500)
(3,071)
(187)
(157)
--
(1,853)
(16,859)
(54,497)
(1,122)
(21,742)
Cash and cash equivalents at beginning of period
13,517
12,991
34,733
Cash and cash equivalents at end of period
Supplemental disclosure of cash paid for:
Interest expense, net of capitalized amounts
Income taxes
Supplemental disclosure of non-cash investing and financing activities:
Common stock (formerly class A) issued in the Recapitalization in
exchange for then-existing class B shares and options.
Finance lease obligations originated for property and equipment
Stock tendered to the Company for cashless exercise of stock options in
connection with equity incentive plans
$
$
$
$
$
$
34,690 $
13,517 $
12,991
1,735 $
5,217 $
2,014 $
6,946 $
1,282
2,635
-- $
817 $
-- $
192 $
121,371
879
7,217 $
3,618 $
6,098
See accompanying notes to consolidated financial statements.
35
NATIONAL RESEARCH CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Description of Business and Basis of Presentation
National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar
terms), is a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee
experience while also increasing patient engagement and customer loyalty for healthcare organizations in the United States
and Canada. Our purpose is to establish human understanding. Our solutions enable health care organizations to understand
what matters most to each person they serve. Our portfolio of solutions represents a unique set of capabilities that individually
and collectively provide value to our clients. The solutions are offered at an enterprise level through the Voice of the Customer
("VoC") platform, The Governance Institute, and legacy Experience solutions.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiary, National
Research Corporation Canada. All significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make certain estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Translation of Foreign Currencies
Our Canadian subsidiary uses Canadian dollars as its functional currency. It translates its assets and liabilities into U.S. dollars
at the exchange rate in effect at the balance sheet date. It translates its revenue and expenses at the average exchange rate
during the period. We include translation gains and losses in accumulated other comprehensive income (loss), a component
of shareholders’ equity. Gains and losses related to transactions denominated in a currency other than the functional currency
of the country in which we operate and short-term intercompany accounts are included in other income (expense) in the
consolidated statements of income.
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers
and all related amendments (“ASC 606” or “new revenue standard”) using the modified retrospective method for all
incomplete contracts as of the date of adoption. We applied the practical expedient to reflect the total of all contract
modifications occurring before January 1, 2018 in the transaction price and performance obligations at transition rather than
accounting for each modification separately. Results for reporting periods beginning on or after January 1, 2018 are presented
under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in
effect for the prior period. As discussed in more detail below and under “Deferred Contract Costs”, the largest impact of
implementing the new revenue standard was the deferral and amortization of direct and incremental costs of obtaining
contracts. In addition, there were other revisions to revenue recognition primarily related to performance obligation
determinations and estimating variable consideration. We recorded a transition adjustment of approximately $2.7 million, net
of $814,000 of tax, to the opening balance of retained earnings.
We derive a majority of our revenues from our annually renewable subscription-based service agreements with our customers,
which include performance measurement and improvement services, healthcare analytics and governance education services.
Such agreements are generally cancelable on short or no notice without penalty. See Note 3 for further information about our
contracts with customers. We account for revenue using the following steps:
● Identify the contract, or contracts, with a customer;
● Identify the performance obligations in the contract;
● Determine the transaction price;
36
● Allocate the transaction price to the identified performance obligations; and
● Recognize revenue when, or as, we satisfy the performance obligations.
Our revenue arrangements with a client may include combinations of more than one service offering which may be executed
at the same time, or within close proximity of one another. We combine contracts with the same client into a single contract
for accounting purposes when the contract is entered into at or near the same time and the contracts are negotiated together,
consideration in one contract depends on another contract, or services in one or more contracts are a single performance
obligation. For contracts that contain more than one separately identifiable performance obligation, the total transaction price
is allocated to the identified performance obligations based upon the relative stand-alone selling prices of the performance
obligations. The stand-alone selling prices are based on an observable price for services sold to other comparable clients,
when available, or an estimated selling price using a cost-plus margin or residual approach. We estimate the amount of total
contract consideration we expect to receive for variable arrangements based on the most likely amount we expect to earn from
the arrangement based on the expected quantities of services we expect to provide and the contractual pricing based on those
quantities. We only include some or a portion of variable consideration in the transaction price when it is probable that a
significant reversal in the amount of cumulative revenue recognized will not occur. We consider the sensitivity of the estimate,
our relationship and experience with the client and variable services being performed, the range of possible revenue amounts
and the magnitude of the variable consideration to the overall arrangement. Our revenue arrangements do not contain any
significant financing element due to the contract terms and the timing between when consideration is received and when the
service is provided.
Our arrangements with customers consist principally of four different types of arrangements: 1) subscription-based service
agreements; 2) one-time specified services performed at a single point in time; 3) fixed, non-subscription service agreements;
and 4) unit-priced service agreements.
Subscription-based services - Services that are provided under subscription-based service agreements are usually for a twelve
month period and represent a single promise to stand ready to provide reporting, tools and services throughout the subscription
period as requested by the client. These agreements are renewable at the option of the client at the completion of the initial
contract term for an agreed upon price increase each year. These agreements represent a series of distinct monthly services
that are substantially the same, with the same pattern of transfer to the client as the client receives and consumes the benefits
throughout the contract period. Accordingly, subscription services are recognized ratably over the subscription period.
Subscription services are typically billed annually in advance but may also be billed on a quarterly and monthly basis.
One-time services – These agreements typically require us to perform a specific one-time service in a particular month. We
are entitled to a fixed payment upon completion of the service. Under these arrangements, we recognize revenue at the point
in time we complete the service and it is accepted by the client.
Fixed, non-subscription services – These arrangements typically require us to perform an unspecified amount of services for
a fixed price during a fixed period of time. Revenues are recognized over time based upon the costs incurred to date in relation
to the total estimated contract costs. In determining cost estimates, management uses historical and forecasted cost information
which is based on estimated volumes, external and internal costs and other factors necessary in estimating the total costs over
the term of the contract. Changes in estimates are accounted for using a cumulative catch up adjustment which could impact
the amount and timing of revenue for any period.
Unit-price services – These arrangements typically require us to perform certain services on a periodic basis as requested by
the client for a per-unit amount which is typically billed in the month following the performance of the service. Revenue
under these arrangements is recognized over the time the services are performed at the per-unit amount.
Revenue is presented net of any sales tax charged to our clients that we are required to remit to taxing authorities. We
recognize contract assets or unbilled receivables related to revenue recognized for services completed but not invoiced to the
clients. Unbilled receivables are classified as receivables when we have an unconditional right to contract consideration. A
contract liability is recognized as deferred revenue when we invoice clients in advance of performing the related services
under the terms of a contract. Deferred revenue is recognized as revenue when we have satisfied the related performance
obligation.
37
Deferred Contract Costs
Deferred contract costs, net is stated at gross deferred costs less accumulated amortization. We defer commissions and
incentives, including payroll taxes, if they are incremental and recoverable costs of obtaining a renewable client contract. In
2020, we began providing information technology development work for certain clients specific to their implementation,
which are capitalized as deferred contract costs. Deferred contract costs are amortized over the estimated term of the contract,
including renewals, which generally ranges from three to five years. The contract term was estimated by considering factors
such as historical client attrition rates and product life. The amortization period is adjusted for significant changes in the
estimated remaining term of a contract. An impairment of deferred contract costs is recognized when the unamortized balance
of deferred contract costs exceeds the remaining amount of consideration we expect to receive net of the expected future costs
directly related to providing those services. We have elected the practical expedient to expense contract costs when incurred
for any nonrenewable contracts with a term of one year or less. Prior to 2018, all commissions and incentives were expensed
as incurred. We recorded a transition adjustment on January 1, 2018 as an increase to retained earnings of $2.6 million, net
of $776,000 of tax, to reflect $3.4 million of commissions and incentives related to contracts that began prior to 2018, net of
accumulated amortization. We deferred incremental costs of obtaining a contract of $3.7 million, $3.6 million and $2.6 million
in the years ended December 31, 2020, 2019 and 2018, respectively. Deferred contract costs, net of accumulated amortization
was $4.6 million and $4.2 million at December 31, 2020 and 2019, respectively. Total amortization by expense classification
for the years ended December 31, 2020, 2019 and 2018 was as follows:
Direct expenses
Selling, general and administrative expenses
Total amortization
2020
2019
(In thousands)
2018
$
$
$
272 $
2,970 $
3,242 $
34 $
2,874 $
2,908 $
83
2,400
2,483
Additional expense included in selling, general and administrative expenses for impairment of costs capitalized due to lost
clients was $63,000, $22,000 and $51,000 for the years December 31, 2020, 2019 and 2018, respectively.
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount. Effective January 1, 2020, we adopted Accounting Standards
Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU requires the measurement of
all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical
experience, current conditions, and reasonable and supportable forecasts. The adoption of this standard did not have an impact
on our consolidated financial statements. The allowance for doubtful accounts is our best estimate of the amount of probable
credit losses in our existing accounts receivable, determined based on our historical write-off experience, current economic
conditions and reasonable and supportable forecasts about the future. We review the allowance for doubtful accounts monthly.
Account balances are charged off against the allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. The COVID-19 pandemic has resulted in an increase in accounts receivables as some
clients have delayed payments or are slower paying due to such clients’ cash-flow issues.
The following table provides the activity in the allowance for doubtful accounts for the years ended December 31, 2020, 2019
and 2018 (in thousands):
Balance at
Beginning
of Year
Bad Debt
Expense
Write-offs,
net of
Recoveries
Balance
at End
of Year
Year Ended December 31, 2018
Year Ended December 31, 2019
Year Ended December 31, 2020
$
$
$
200 $
175 $
144 $
80 $
75 $
46 $
105 $
106 $
70 $
175
144
120
38
Property and Equipment
Property and equipment is stated at cost. Major expenditures to purchase property or to substantially increase useful lives of
property are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or
otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or
losses are included in income.
We capitalize certain costs incurred in connection with obtaining or developing internal-use software, including payroll and
payroll-related costs for employees who are directly associated with the internal-use software projects and external direct
costs of materials and services. Capitalization of such costs ceases when the project is substantially complete and ready for
its intended purpose. Costs incurred during the preliminary project and post-implementation stages, as well as software
maintenance and training costs are expensed as incurred. We capitalized approximately $2.7 million and $4.1 million of costs
incurred for the development of internal-use software for the years ended December 31, 2020 and 2019, respectively.
When a software license is included in a cloud computing arrangement and we have the legal right, ability and feasibility to
download the software, it is accounted for as software, included in property and equipment, and amortized. If a software
license is not included or we do not have the ability or feasibility to download software included in a cloud computing
arrangement, it is accounted for as a service contract, which is expensed to direct expenses or selling, general and
administrative expenses during the service period. Effective January 1, 2020, we prospectively adopted ASU 2018-15,
Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40). This ASU aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal
use software license). The adoption did not significantly impact our results of operations and financial position.
We provide for depreciation and amortization of property and equipment using annual rates which are sufficient to amortize
the cost of depreciable assets over their estimated useful lives. We use the straight-line method of depreciation and
amortization over estimated useful lives of three to ten years for furniture and equipment, three to five years for computer
equipment, one to five years for capitalized software, and seven to forty years for our office building and related
improvements. Software licenses are amortized over the term of the license.
Impairment of Long-Lived Assets and Amortizing Intangible Assets
Long-lived assets, such as property and equipment and purchased intangible assets subject to depreciation or amortization,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, we first
compare undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying
value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized
to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques
including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
No significant impairments were recorded during the years ended December 31, 2020, 2019, or 2018.
Among others, management believes the following circumstances are important indicators of potential impairment of such
assets and as a result may trigger an impairment review:
●
●
●
●
●
Significant underperformance in comparison to historical or projected operating results;
Significant changes in the manner or use of acquired assets or our overall strategy;
Significant negative trends in our industry or the overall economy;
A significant decline in the market price for our common stock for a sustained period; and
Our market capitalization falling below the book value of our net assets.
Goodwill and Intangible Assets
Intangible assets include customer relationships, trade names, technology, and goodwill. Intangible assets with estimable
useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be
recoverable. We review intangible assets with indefinite lives for impairment annually as of October 1 and whenever events
or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
39
When performing the impairment assessment, we will first assess qualitative factors to determine whether it is necessary to
recalculate the fair value of the intangible assets with indefinite lives. If we believe, as a result of the qualitative assessment,
that it is more likely than not that the fair value of the indefinite-lived intangibles is less than their carrying amount, we
calculate the fair value using a market or income approach. If the carrying value of intangible assets with indefinite lives
exceeds their fair value, then the intangible assets are written-down to their fair values. We did not recognize any impairments
related to indefinite-lived intangibles during 2020, 2019 or 2018.
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination
that are not individually identified and separately recognized. All of our goodwill is allocated to our reporting units, which
are the same as our operating segments. Goodwill is reviewed for impairment at least annually, as of October 1, and whenever
events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.
We review goodwill for impairment by first assessing qualitative factors to determine whether any impairment may exist. If
we believe, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less
than its carrying amount, a quantitative analysis will be performed, and the fair value of the reporting unit is compared with
its carrying value (including goodwill). If the carrying value of the reporting unit exceeds the fair value, then goodwill is
written down by this difference. We performed a qualitative analysis as of October 1, 2020 and determined the fair value of
each reporting unit likely exceeded the carrying value. No impairments were recorded during the years ended December 31,
2019 or 2018. A substantial portion of the revenue earned by our Canadian subsidiary is concentrated with one
customer. While the customer has exercised its option to extend its existing contract to September 2022, during December
2020 we chose not to enter into a new contract with this customer or otherwise extend the term of the contract beyond
September 2022. We subsequently announced that we would close the Canada office at the end of the contract. As a result,
we tested for impairment of the Canada reporting unit’s goodwill at December 31, 2020. We recognized an impairment of
$714,000 for the excess of the Canada reporting unit’s carrying value over the fair value, using discounted cash flows. The
remaining balance of goodwill of our Canada reporting unit at December 31, 2020 was $1.6 million. Changes in the actual
amount or timing of cash flows or other assumptions used to discount cash flows to estimate fair value of the Canada reporting
unit could result in additional impairment.
Insurance Recoveries
We record insurance recoveries when the realization of the claim is probable. In 2020 we received $3.3 million in insurance
recoveries, and $447,000 was paid directly to certain vendors from the insurer related to a cyber-attack in February 2020 (the
“February incident”). We recorded $533,000, representing reimbursement for lost revenues, as insurance recoveries, and the
remainder as a reduction to operating expenses. Due to insurance recoveries, the February incident did not have a significant
impact on our consolidated financial statements. In 2020, we also recorded a gain in other income of $260,000 from insurance
recoveries for property damage due to a flooding.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under that method, deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis using enacted tax rates. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation
allowances, if any, are established when necessary to reduce deferred tax assets to the amount that is more likely than not to
be realized. We use the deferral method of accounting for our investment tax credits related to state tax incentives. During
the years ended December 31, 2020, 2019 and 2018, we recorded income tax benefits relating to these tax credits of $45,000,
$24,000, and $0, respectively. Interest and penalties related to income taxes are included in income taxes in the Consolidated
Statements of Income.
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized
income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in
recognition or measurement are reflected in the period in which the change in judgment occurs.
40
Share-Based Compensation
All of our existing stock option awards and non-vested stock awards have been determined to be equity-classified awards.
The compensation expense on share-based payments is recognized based on the grant-date fair value of those awards. We
recognize the excess tax benefits and tax deficiencies in the income statement when options are exercised. Amounts
recognized in the financial statements with respect to these plans are as follows:
Amounts charged against income, before income tax benefit
Amount of related income tax benefit
Net (benefit) expense to net income
$
$
680 $
(6,764)
(6,084) $
1,224 $
(2,081 )
(857 ) $
1,514
(3,566)
(2,052)
2020
2019
(In thousands)
2018
We refer to our restricted stock awards as “non-vested” stock in these consolidated financial statements.
Cash and Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash
equivalents were $5.0 million and $3.7 million as of December 31, 2020, and 2019, respectively, consisting primarily of
money market accounts. At certain times, cash equivalent balances may exceed federally insured limits.
Leases
We adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“Topic 842” or the “New Leases
Standard”) effective January 1, 2019 using a modified retrospective transition and did not adjust prior periods. We elected
practical expedients related to existing leases at transition to not reassess whether contracts are or contain leases, to not
reassess lease classification, initial direct costs, or lease terms. Additionally, we elected the practical expedient to account for
lease and non-lease components as a single lease component for all asset classifications. We have also made a policy election
to not record short-term leases with a duration of 12 months or less on the balance sheet.
Topic 842 requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset on the balance sheet for operating
leases. We recorded $2.3 million of ROU assets and $2.3 million of lease liabilities related to operating leases at the date of
transition. The ROU assets recorded were net of $43,000 of accrued liabilities and prepaid expenses representing previously
deferred (prepaid) rent. There was no significant impact to the consolidated statements of income, comprehensive income,
shareholders’ equity or cash flows. Accounting for finance leases is substantially unchanged.
We determine whether a lease is included in an agreement at inception. Operating lease ROU assets are included in operating
lease right-of-use assets in our consolidated balance sheet. Finance lease assets are included in property and equipment.
Operating and finance lease liabilities are included in other current liabilities and other long-term liabilities. Certain lease
arrangements may include options to extend or terminate the lease. We include these provisions in the ROU asset and lease
liabilities only when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is
recognized on a straight-line basis over the lease term and is included in direct expenses and selling, general and administrative
expenses. Our lease agreements do not contain any residual value guarantees.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to
make lease payments during the lease term. ROU assets and lease liabilities are recorded at lease commencement based on
the estimated present value of lease payments. Because the rate of interest implicit in each lease is not readily determinable,
we use our estimated incremental collateralized borrowing rate at lease commencement, to calculate the present value of lease
payments. When determining the appropriate incremental borrowing rate, we consider our available credit facilities, recently
issued debt and public interest rate information.
Fair Value Measurements
Our valuation techniques are based on maximizing observable inputs and minimizing the use of unobservable inputs when
measuring fair value. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs
reflect our market assumptions. The inputs are then classified into the following hierarchy: (1) Level 1 Inputs—quoted prices
in active markets for identical assets and liabilities; (2) Level 2 Inputs—observable market-based inputs other than Level 1
inputs, such as quoted prices for similar assets or liabilities in active markets, quoted prices for similar or identical assets or
41
liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data;
(3) Level 3 Inputs—unobservable inputs.
The following details our financial assets within the fair value hierarchy at December 31, 2020 and 2019:
As of December 31, 2020
Money Market Funds
Total Cash Equivalents
As of December 31, 2019
Money Market Funds
Total Cash Equivalents
Level 1
Level 2
Level 3
Total
(In thousands)
$
$
$
$
5,015 $
5,015 $
3,662 $
3,662 $
-- $
-- $
-- $
-- $
-- $
-- $
5,015
5,015
-- $
-- $
3,662
3,662
There were no transfers between levels during the years ended December 31, 2020 and 2019.
Our long-term debt described in Note 8 is recorded at historical cost. The fair value of long-term debt is classified in Level 2
of the fair value hierarchy and was estimated based primarily on estimated current rates available for debt of the same
remaining duration and adjusted for nonperformance and credit.
The following are the carrying amount and estimated fair values of long-term debt:
Total carrying amount of long-term debt
Estimated fair value of long-term debt
December 31,
2020
December 31,
2019
$
$
(In thousands)
30,713 $
32,943 $
34,281
35,205
The carrying amounts of accounts receivable, accounts payable, and accrued expenses approximate their fair value. All non-
financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which includes
property and equipment, goodwill, intangibles and cost method investments, are measured at fair value in certain
circumstances (for example, when there is evidence of impairment). As of December 31, 2020 and 2019, there was no
indication of impairment related to these assets, other than for the Canada reporting unit’s goodwill as discussed above. We
estimated the fair value of the Canada reporting unit using discounted cash flows based on management’s most recent
projections which are considered level 3 inputs in the fair value hierarchy.
Commitments and Contingencies
From time to time, we are involved in certain claims and litigation arising in the normal course of business. Management
assesses the probability of loss for such contingencies and recognizes a liability when a loss is probable and estimable. Legal
fees, net of estimated insurance recoveries, are expensed as incurred. We do not believe the final disposition of claims at
December 31, 2020 will have material adverse effect on our consolidated financial position, results of operations or liquidity.
A sales tax accrual of $775,000 was recorded in 2019 for sales taxes that should have been collected from clients in 2019 and
certain previous years. We received a revenue ruling from the state of Washington noting that our services are not subject to
retail sales tax, and therefore, reversed $268,000 of sales tax accrual for the state of Washington in the third quarter of 2020.
We have completed voluntary disclosure agreements with certain states, remitted past due sales tax, are remitting sales tax
timely, are collecting sales tax from clients and no accrual for past due sales tax remains as of December 31, 2020. State and
local jurisdictions have differing rules and regulations governing sales, use, and other taxes and these rules and regulations
can be complex and subject to varying interpretations that may change over time. As a result, we could face the possibility of
tax assessment and audits, and our liability for these taxes and associated interest and penalties could exceed our original
estimates.
We became self-insured for group medical and dental insurance on January 1, 2019. We carry excess loss coverage in the
amount of $150,000 per covered person per year for group medical insurance. We do not self-insure for any other types of
losses, and therefore do not carry any additional excess loss insurance. We record a reserve for our group medical and dental
insurance for all unresolved claims and for an estimate of incurred but not reported (“IBNR”) claims. On a quarterly basis,
42
we adjust our accrual based on a review of our claims experience and a third-party actuarial IBNR analysis. As of December
31, 2020 and 2019, our accrual related to self-insurance was $418,000 and $270,000, respectively.
Earnings Per Share
Prior to the Recapitalization, net income per share of our former class A common stock and former class B common stock
was computed using the two-class method. Basic net income per share was computed by allocating undistributed earnings to
common shares and using the weighted-average number of common shares outstanding during the period.
Diluted net income per share was computed using the weighted-average number of common shares and, if dilutive, the
potential common shares outstanding during the period. Potential common shares consist of the incremental common shares
issuable upon the exercise of stock options and vesting of restricted stock. The dilutive effect of outstanding stock options is
reflected in diluted earnings per share by application of the treasury stock method.
The liquidation rights and the rights upon the consummation of an extraordinary transaction were the same for the holders of
our former class A common stock and former class B common stock. Other than share distributions and liquidation rights,
the amount of any dividend or other distribution payable on each share of former class A common stock was equal to one-
sixth (1/6th) of the amount of any such dividend or other distribution payable on each share of former class B common stock.
As a result, the undistributed earnings for each period were allocated based on the participation rights of the former class A
and former class B common stock under our then-effective Articles of Incorporation as if the earnings for the year had been
distributed.
As described in Note 2, we completed a Recapitalization in April 2018, resulting in the elimination of the class B common
stock and settlement of all then-existing outstanding class B share-based awards and reclassification of all class A common
stock to Common Stock. The Recapitalization was effective on April 17, 2018. Therefore, income was allocated between the
former class A and class B stock using the two-class method through April 16, 2018, and fully allocated to the Common Stock
(formerly class A) following the Recapitalization.
We had 65,127, 16,221 and 93,346 options of Common Stock (former class A shares) for the years ended December 31, 2020,
2019 and 2018, respectively which have been excluded from the diluted net income per share computation because their
inclusion would be anti-dilutive.
2020
2019
2018
Common
Stock
Common
Stock
Common
Stock
(formerly
Class A)
Class B
Common
Stock
(In thousands, except per share data)
$
37,260 $
32,406 $
25,423 $
4,624
(57)
37,203 $
(109)
32,297 $
(82)
25,341 $
(18)
4,606
25,170
1.48 $
24,809
1.30 $
23,562
1.08 $
3,527
1.31
$
$
Numerator for net income per share - basic:
Net income
Allocation of distributed and undistributed income to unvested
restricted stock shareholders
Net income attributable to common shareholders
Denominator for net income per share - basic:
Weighted average common shares outstanding – basic
Net income per share - basic
Numerator for net income per share - diluted:
Net income attributable to common shareholders for basic
computation
$
37,203 $
32,297 $
25,341 $
4,606
Denominator for net income per share - diluted:
Weighted average common shares outstanding – basic
Weighted average effect of dilutive securities – stock options
Denominator for diluted earnings per share – adjusted weighted
25,170
526
24,809
844
23,562
886
average shares
Net income per share - diluted
25,696
1.45 $
25,653
1.26 $
24,448
1.04 $
$
3,527
101
3,628
1.27
43
Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). Among other
clarifications and simplifications related to income tax accounting, this ASU simplifies the accounting for income taxes by
eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income
taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. The
guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early
adoption is permitted in interim or annual periods with any adjustments reflected as of the beginning of the annual period that
includes that interim period. Additionally, entities that elect early adoption must adopt all the amendments in the same
period. Amendments are to be applied prospectively, except for certain amendments that are to be applied either
retrospectively or with a modified retrospective approach through a cumulative effect adjustment recorded to retained
earnings. We believe the adoption will not significantly impact our results of operations and financial position.
In March 2020, FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting", which provides optional expedients and exceptions for applying generally accepted
accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if
certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference
LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective
for all entities as of March 12, 2020 through December 31, 2022. We expect to apply the optional expedient for contract
modification to account for the change in the reference rate on impacted credit facilities prospectively by adjusting the
effective interest rate.
(2) Recapitalization
On April 16, 2018, our shareholders approved, among other things, an amendment to our Amended and Restated Articles of
Incorporation (the “Articles”) to effect a recapitalization (the “Recapitalization”) pursuant to which each share of our then-
existing class B common stock was exchanged for one share of the our then-existing Class A common stock plus $19.59 in
cash, without interest. On April 17, 2018, we filed an amendment to our Articles effecting the Recapitalization, followed by
an amendment and restatement of our Articles, which resulted in the elimination of our class B common stock and the
reclassification of our class A common stock as a share of Common Stock, par value $0.001 per share (“Common Stock”).
We issued 3,617,615 shares of Common Stock and paid $72.4 million in exchange for all class B shares outstanding and to
settle outstanding share-based awards for class B common stock. The Common Stock continues to trade on the NASDAQ
Global Market under the revised symbol “NRC.”
In connection with the Recapitalization, on April 18, 2018, we entered into a credit agreement with First National Bank of
Omaha, a national banking association (“FNB”), as described in Note 8.
(3) Contracts with Customers
The following table disaggregates revenue for the years ended December 31, 2020 and 2019 based on timing of revenue
recognition (In thousands):
Subscription services recognized ratably over time
Services recognized at a point in time
Fixed, non-subscription recognized over time
Unit price services recognized over time
Total revenue
$
$
122,499 $
2,932
2,907
4,939
133,277 $
114,216 $
4,992
3,248
5,526
127,982 $
104,777
4,775
3,163
6,971
119,686
2020
2019
2018
Our solutions within the digital VoC platform in 2020, 2019 and 2018 accounted for 73.3%, 62.7% and 49.6% of total
revenue, respectively. The remaining revenue consists of legacy Experience and Governance Solutions.
44
The following table provides information about receivables, contract assets, and contract liabilities from contracts with
customers (In thousands):
Accounts receivables
Contract assets included in other current assets
Deferred revenue
December 31,
2020
December 31,
2019
$
$
$
13,923 $
311 $
(15,585 ) $
11,639
103
(16,354 )
Significant changes in contract assets and contract liabilities during the years ended December 31, 2020 and 2019 are as
follows (in thousands):
2020
2019
Contract
Asset
Deferred
Revenue
Contract
Asset
Increase (Decrease)
Deferred
Revenue
Revenue recognized that was included in deferred revenue at
beginning of year due to completion of services
$
- $
(16,083) $
- $
(15,785)
Increases due to invoicing of client, net of amounts recognized
as revenue
Decreases due to completion of services (or portion of services)
and transferred to accounts receivable
Change due to cumulative catch-up adjustments arising from
changes in expected contract consideration
Increases due to revenue recognized in the period with
additional performance obligations before invoicing
-
15,338
-
15,631
(103)
-
(53)
-
-
(24)
-
264
311
-
103
-
We have elected to apply the practical expedient to not disclose the value of unsatisfied performance obligations for contracts
with an original expected length of one year or less. Total remaining contract revenue for contracts with original duration of
greater than one year expected to be recognized in the future related to performance obligations that are unsatisfied at
December 31, 2020 approximated $205,000, which is expected to be recognized during 2021.
(4) Equity Investments
We make equity investments to promote business and strategic objectives. For investments that do not have a readily
determinable fair value, we apply either cost or equity method of accounting depending on the nature of our investment and
our ability to exercise significant influence. Investments are periodically analyzed to determine whether or not there are any
indicators of impairment and written down to fair value if the investment has incurred an other than temporary impairment.
Our investment of $1.3 million in convertible preferred stock of PracticingExcellence.com, Inc., a privately-held Delaware
corporation (“PX”) is included in non-current assets. It is not practicable for us to estimate fair value at each reporting date
due to the cost and complexity of the calculations for this non-public entity. Therefore, it is carried at cost less impairment,
plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment
of the same issuer, if any. We have a seat on PX's board of directors and our investment, which is not considered to be in-
substance common stock, represents approximately 15.7% of the issued and outstanding equity interests in PX.
45
(5) Property and Equipment
At December 31, 2020, and 2019, property and equipment consisted of the following:
Furniture and equipment
Computer equipment
Computer software
Building
Leaseholds
Land
Property and equipment at cost
Less accumulated depreciation and amortization
Net property and equipment
2020
2019
(In thousands)
4,808 $
2,638
27,087
7,515
232
425
42,705
30,979
11,726 $
5,025
2,706
24,532
9,349
41
425
42,078
28,548
13,530
$
$
Depreciation and amortization expense related to property and equipment, including assets under capital lease, for the years
ended December 31, 2020, 2019, and 2018 was $6.5 million, $5.4 million, and $4.8 million, respectively. There were no
significant impairments in property and equipment during 2020, 2019, and 2018. However, we did shorten the useful lives of
certain assets to reflect our best estimate of when assets are expected to be disposed of or replaced.
(6) Goodwill and Intangible Assets
Goodwill and intangible assets consisted of the following at December 31, 2020:
Goodwill
$
57,969 $
(714) $
57,255
Gross
Accumulated
Impairment
(In thousands)
Net
Non-amortizing intangible assets:
Indefinite trade name
Amortizing intangible assets:
Customer related
Technology
Trade names
Total amortizing intangible assets
Total intangible assets other than goodwill
Useful Life
(In years)
Gross
Accumulated
Amortization
(In thousands)
Net
5
5
- 15
7
- 10
$
1,191
9,344
1,360
1,572
12,276
13,467 $
9,256
1,229
1,572
12,057
12,057 $
1,191
88
131
--
219
1,410
Goodwill and intangible assets consisted of the following at December 31, 2019:
Goodwill
$
57,935 $
- $
57,935
Gross
Accumulated
Impairment
(In thousands)
Net
46
Non-amortizing intangible assets:
Indefinite trade name
Amortizing intangible assets:
Customer related
Technology
Trade names
Useful Life
(In years)
5
5
- 15
7
- 10
Total amortizing intangible assets
Total intangible assets other than goodwill
$
Gross
Accumulated
Amortization
(In thousands)
Net
1,191
9,338
1,360
1,572
12,270
13,461 $
9,154
1,007
1,572
11,733
11,733 $
1,191
184
353
--
537
1,728
The following represents a summary of changes in the carrying amount of goodwill for the years ended December 31, 2020
and 2019 (in thousands):
Balance as of December 31, 2018
Foreign currency translation
Balance as of December 31, 2019
Impairment
Foreign currency translation
Balance as of December 31, 2020
$
$
$
57,831
104
57,935
(714)
34
57,255
As discussed in Note 1, we recorded an impairment of $714,000 to the Canada reporting unit’s goodwill in December 2020.
Aggregate amortization expense for customer related intangibles, trade names, and technology for the years ended December
31, 2020, 2019 and 2018 was $318,000, $374,000, and $662,000, respectively. Estimated future amortization expense for
2021, 2022 and 2023 is $180,000, $40,000, and -0-, respectively.
(7) Income Taxes
For the years ended December 31, 2020, 2019, and 2018, income before income taxes consists of the following:
U.S. Operations
Foreign Operations
Income before income taxes
2020
2019
(In thousands)
2018
$
$
41,357 $
110
41,467 $
40,045 $
474
40,519 $
32,056
2,653
34,709
47
Income tax expense consisted of the following components:
Federal:
Current
Deferred
Total
Foreign:
Current
Deferred
Total
State:
Current
Deferred
Total
Total
2020
2019
(In thousands)
2018
$
$
$
$
$
$
$
3,546 $
(308)
3,238 $
225 $
(6)
219 $
578 $
172
750 $
5,574 $
718
6,292 $
94 $
33
127 $
1,322 $
372
1,694 $
2,144
1,328
3,472
882
(178)
704
204
282
486
4,207 $
8,113 $
4,662
Federal Tax Reform
On December 22, 2017, the Tax Cut and Jobs Act (the “Tax Act”) was enacted which made broad and complex changes to
the U.S. tax code, including the following:
● Reduction in the U.S. Federal Corporate Tax Rate: The Tax Act reduced the corporate tax rate to 21%, effective
January 1, 2018
● Availability of 100% bonus depreciation on assets placed in service after September 27, 2017
● Certain stock compensation plans potentially subject to limitations on excess tax benefits
● The Global Intangible Low Taxed Income (GILTI) provision
As a result of the Tax Act, we determined that we would no longer indefinitely reinvest the earnings of our Canadian
subsidiary. Our Canadian subsidiary declared a deemed dividend to the Company for $9.6 million and $3 million in 2020 and
2018, respectively. Additionally, a withholding tax of 5% was paid for each dividend distribution.
The Tax Act subjects a U.S. corporation to tax on its Global Intangible Low Taxed Income (“GILTI”). Due to the complexity
of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act. Under Generally Accepted Accounting
Principles, we can make an accounting policy election to either treat taxes due on the GILTI inclusion as a current period
expense or factor such amounts into the measurement of deferred taxes. We elected the current period expense method and
have not reflected any corresponding deferred tax assets and liabilities associated with the GILTI tax in the table of deferred
tax assets and liabilities. GILTI tax has been recorded as current period expense of $10,000, $13,000, and $40,000 in 2020,
2019, and 2018, respectively.
We received notice in December 2019, that we met qualification requirements for the Nebraska Advantage LB312 Act
(“NAA”) related to certain investment and full-time equivalent employee thresholds in the year ended 2017. NAA provides
direct refunds of sales tax on qualified property, as well as investment credits and employment credits that can be claimed
through credits of Nebraska income tax, employment tax, and sales tax on non-qualified property. We will receive direct
refunds of Nebraska sales tax on qualified property incurred from 2014 to 2023. Investment credits started to accumulate in
2014 and can be earned through 2023. These credits can be claimed against Nebraska income taxes or through sales tax on
non-qualified property through 2028. The employment credits are earned from 2017 through 2023, and they can be claimed
against Nebraska payroll taxes through 2028. In 2019, we recorded cumulative adjustments for direct refunds and credits
earned through the year ending December 31, 2019, which reduced operating expenses by approximately $1.9 million. For
the year ended December 31, 2020, adjustments for credits reduced operating expenses by approximately $435,000. In
addition, income tax credits of $45,000 and $24,000 were recorded as a reduction to income tax expense for the years ended
December 31, 2020 and 2019, respectively.
48
The differences between income taxes expected at the U.S. federal statutory income tax rate of 21 percent and the reported
income tax (benefit) expense are summarized as follows:
2020
2019
(In thousands)
2018
Expected federal income taxes
Foreign tax rate differential
State income taxes, net of federal benefit and state tax credits
Share-based compensation
Compensation limit for covered employees
Federal tax credits
Uncertain tax positions
Nondeductible expenses (income) related to recapitalization
Goodwill Impairment
Tax depreciation method change
Withholding tax on repatriation of foreign earnings
GILTI
Other
$
$
8,708 $
6
607
(5,713)
463
(261)
157
--
184
--
18
10
28
4,207 $
8,509 $
26
1,344
(1,579)
--
(419)
34
(24)
--
--
107
13
102
8,113 $
7,285
146
376
(3,041)
--
(150)
90
151
--
(308)
--
40
73
4,662
Deferred tax assets and liabilities at December 31, 2020 and 2019, were comprised of the following:
Deferred tax assets:
Allowance for doubtful accounts
Accrued expenses
Share-based compensation
Accrued bonuses
Employer payroll tax deferral
Foreign tax credit from repatriation
Other
Gross deferred tax assets
Less valuation allowance
Deferred tax assets
Deferred tax liabilities:
Prepaid expenses
Deferred contract costs
Property and equipment
Intangible assets
Repatriation withholding
Unrealized translation gain on intercompany loan
Other
Deferred tax liabilities
Net deferred tax liabilities
2020
2019
(In thousands)
$
$
29 $
696
735
145
323
--
27
1,955
--
1,955
93
1,111
1,725
6,109
174
--
8
9,220
(7,265) $
35
537
1,267
120
--
535
--
2,494
(535)
1,959
135
990
1,926
5,553
528
214
12
9,358
(7,399)
In March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the
“CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which,
among other things, contains numerous income tax provisions. As a result of the CARES Act, we have deferred $1,323,000
of employer social security tax payments into future years. We have had no other impacts to our consolidated financial
statements or related disclosures from the CARES Act.
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion, or all, of
the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. We consider projected
future taxable income, carry-back opportunities, and tax planning strategies in making this assessment. Based upon the level
of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are
deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences excluding the
49
foreign tax credit carryforward. In 2020, we wrote off the deferred tax asset for prior year foreign tax credit carryforwards of
$535,000 and the related valuation allowance. We made the assessment that due to our Canadian subsidiary’s decreased
projected future income and the lower US tax rate compared to the Canadian tax rate, it was unlikely we would realize this
asset.
We had an unrecognized tax benefit at December 31, 2020 and 2019, of $768,000 and $592,000, respectively, excluding
interest of $15,000 and $7,000 at December 31, 2020 and 2019, respectively. Of these amounts, $668,000 and $515,000 at
December 31, 2020 and 2019, respectively, represents the net unrecognized tax benefits that, if recognized, would favorably
impact the effective income tax rate. The change in the unrecognized tax benefits for 2020 and 2019 is as follows:
Balance of unrecognized tax benefits at December 31, 2018
Reductions due to lapse of applicable statute of limitations
Reductions due to tax positions of prior years
Reductions due to settlement with taxing authorities
Additions based on tax positions related to the current year
Balance of unrecognized tax benefits at December 31, 2019
Reductions due to lapse of applicable statute of limitations
Additions due to tax positions of prior years
Reductions due to settlement with taxing authorities
Additions based on tax positions related to the current year
Balance of unrecognized tax benefits at December 31, 2020
(In thousands)
$
$
$
554
(43)
--
(300)
381
592
(34)
4
--
206
768
We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and Canada federal and provincial
jurisdictions. Tax years 2017 and forward remain subject to U.S. federal examination. Tax years 2014 and forward remain
subject to state examination. Tax years 2016 and forward remain subject to Canadian federal and provincial examination.
(8) Notes Payable
Our long-term debt consists of the following:
Term Loans
Less: current portion
Less: unamortized debt issuance costs
Notes payable, net of current portion
2020
2019
(In thousands)
30,713 $
(4,061)
(105)
26,547 $
34,281
(4,378)
(108)
29,795
$
$
Our credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) was amended and restated on
May 28, 2020 and includes (i) a $30,000,000 revolving credit facility (the “Line of Credit”), (ii) a $33,002,069 term loan (the
“Term Loan”) and (iii) a $15,000,000 delayed draw-dawn term facility (the “Delayed Draw Term Loan” and, together with
the Line of Credit and the Term Loan, the “Credit Facilities”). The Delayed Draw Term Loan may be used to fund any
permitted future business acquisitions or repurchases of our Common Stock and the Line of Credit can be used to fund ongoing
working capital needs and for other general corporate purposes. The May 2020 amendment increased the Line of Credit from
$15,000,000 to $30,000,000.
The amended Term Loan revised the remaining payments for the existing balance outstanding of $33,002,069 to monthly
installments of $462,988 through May 2025, with a balloon payment due at maturity in May 2025. The Term Loan bears
interest at a fixed rate per annum of 5%. Borrowings under the Line of Credit and the Delayed Draw Term Loan, if any, bear
interest at a floating rate equal to the 30-day London Interbank Offered Rate plus 225 basis points (2.40% at December 31,
2020). Interest on the Line of Credit accrues and is payable monthly. Principal amounts outstanding under the Line of Credit
are due and payable in full at maturity, in May 2023. There were no borrowings on the Line of Credit during 2020. There
have been no borrowings on the Delayed Draw Term Loan since origination.
50
We are obligated to pay ongoing unused commitment fees quarterly in arrears pursuant to the Line of Credit and the Delayed
Draw Term Loan facility at a rate of 0.20% per annum based on the actual daily unused portions of the Line of Credit and the
Delayed Draw Term Loan facility, respectively.
The Credit Agreement is collateralized by substantially all of our assets, subject to permitted liens and other agreed exceptions,
and contains customary representations, warranties, affirmative and negative covenants (including financial covenants) and
events of default. The negative covenants include, among other things, restrictions regarding the incurrence of indebtedness
and liens, repurchases of our Common Stock and acquisitions, subject in each case to certain exceptions. Pursuant to the
Credit Agreement, we are required to maintain a minimum fixed charge coverage ratio of 1.10x for all testing periods
throughout the terms of the Credit Facilities, which calculation excludes, unless our liquidity falls below a specified threshold,
(i) any cash dividend in a fiscal quarter that, together with all other cash dividends paid or declared during such fiscal quarter,
exceeds $5,500,000 in total cash dividends paid or declared, (ii) the portion of the purchase price for any permitted share
repurchase of our shares paid with cash on hand, and (iii) the portion of any acquisition consideration for a permitted
acquisition paid with cash on hand. We are also required to maintain a cash flow leverage ratio of 3.00x or less for all testing
periods throughout the term(s) of the Credit Facilities. As of December 31, 2020, we were in compliance with our financial
covenants.
Scheduled maturities of notes payable at December 31, 2020 are as follows:
2021
2022
2023
2024
2025
(9) Share-Based Compensation
$
4,093
4,306
4,529
4,762
13,023
We measure and recognize compensation expense for all share-based payments based on the grant-date fair value of those
awards. All of our existing stock option awards and unvested stock awards have been determined to be equity-classified
awards. We account for forfeitures as they occur. As described in Note 2, we completed a Recapitalization in April 2018
which, among other things, settled all then-existing outstanding class B share-based awards and resulted in the elimination of
the class B common stock. As a result, we accelerated vesting of all outstanding class B share-based awards, resulting in
accelerated share-based compensation of $331,000 in the year ended December 31, 2018. All outstanding class B share-based
awards were then settled for the same stock to cash proportion of the class B common stock described in Note 2, less the
exercise price, if any, which approximated the awards’ intrinsic values.
Our 2001 Equity Incentive Plan provided for the granting of stock options, stock appreciation rights, restricted stock,
performance shares and other share-based awards and benefits up to an aggregate of 1,800,000 shares of our former class A
common stock and 300,000 shares of our former class B common stock. Stock options granted could have been either
nonqualified or incentive stock options. Stock options vest over one to five years following the date of grant and option terms
are generally five to ten years following the date of grant. Due to the expiration of the 2001 Equity Incentive Plan, at December
31, 2015, there were no shares of stock available for future grants.
Our 2004 Non-Employee Director Stock Plan, as amended (the “2004 Director Plan”), is a nonqualified plan that provides
for the granting of options with respect to 3,000,000 shares of our Common Stock and, prior to the Recapitalization, 500,000
shares of our former class B common stock. The 2004 Director Plan provides for grants of nonqualified stock options to each
of our directors who we do not employ. Beginning in 2018, on the date of each annual meeting of shareholders, options to
purchase shares of Common Stock equal to an aggregate grant date fair value of $100,000 are granted to each non-employee
director that is elected or retained as a director at each such meeting. Stock options vest approximately one year following
the date of grant and option terms are generally the earlier of ten years following the date of grant, or three years from the
termination of the outside director’s service. At December 31, 2020, there were 830,419 shares of Common Stock available
for issuance pursuant to future grants under the 2004 Director Plan. We have accounted for grants of 2,169,581 shares of
Common Stock under the 2004 Director Plan using the date of grant as the measurement date for financial accounting
purposes.
51
Our 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”), as amended, provides for the granting of stock options,
stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate
of 1,800,000 shares of Common Stock and, prior to the Recapitalization, 300,000 shares of our former class B common stock.
Stock options granted may be either incentive stock options or nonqualified stock options. Vesting terms vary with each grant
and option terms are generally five to ten years following the date of grant. At December 31, 2020, there were 779,800 shares
of Common Stock available for issuance pursuant to future grants under the 2006 Equity Incentive Plan. We have accounted
for grants of 1,020,200 shares of Common Stock and restricted stock under the 2006 Equity Incentive Plan using the date of
grant as the measurement date for financial accounting purposes.
During 2020, 2019 and 2018, we granted options to purchase 70,471, 100,615 and 116,276 shares of Common Stock,
respectively. Options to purchase shares of common stock are typically granted with exercise prices equal to the fair value of
the common stock on the date of grant. We do, in certain limited situations, grant options with exercise prices that exceed the
fair value of the common shares on the date of grant. The fair value of stock options granted was estimated using a Black-
Scholes valuation model with the following weighted average assumptions:
Expected dividend yield at date of grant
Expected stock price volatility
Risk-free interest rate
Expected life of options (in years)
2020
Common
Stock
2019
Common
Stock
2018
Common
Stock
1.84%
33.62%
1.35%
7.39
2.60%
34.01%
2.38%
7.46
2.59%
32.47%
2.51%
7.28
The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The
expected volatility was based on historical monthly price changes of our stock based on the expected life of the options at the
date of grant. The expected life of options is the average number of years we estimate that options will be outstanding. We
consider groups of associates that have similar historical exercise behavior separately for valuation purposes.
The following table summarizes stock option activity under the 2001 and 2006 Equity Incentive Plans and the 2004 Director
Plan for the year ended December 31, 2020:
Common Stock
Outstanding at December 31, 2019
Granted
Exercised
Forfeited
Outstanding at December 31, 2020
Exercisable at December 31, 2020
Weighted
Average
Remaining
Contractual
Terms
(Years)
Aggregate
Intrinsic
Value
(In
thousands)
Weighted
Average
Exercise
Price
18.08
62.23
14.20
32.28
25.31
18.00
$
25,912
5.58 $
4.14 $
11,665
6,811
Number of
Options
1,245,922 $
70,471 $
(630,373 ) $
(85,449 ) $
600,571 $
270,876 $
The following table summarizes information related to stock options for the years ended December 31, 2020, 2019 and 2018:
2020
Common
Stock
2019
Common
Stock
2018
Common
Stock
Weighted average grant date fair value of stock options
granted
$
Intrinsic value of stock options exercised (in thousands) $
$
Intrinsic value of stock options vested (in thousands)
18.67 $
25,912 $
1,965 $
11.99 $
8,280 $
1,891 $
10.02
10,621
2,719
As of December 31, 2020, the total unrecognized compensation cost related to non-vested stock option awards was
approximately $1.4 million which was expected to be recognized over a weighted average period of 2.96 years.
52
There was $1.7 million in cash received from stock options exercised for the year ended December 31, 2020 and no cash
received from options exercised in 2019 or 2018. We recognized $680,000, $934,000 and $1.1 million of non-cash
compensation for the years ended December 31, 2020, 2019, and 2018, respectively, related to options, which is included in
direct and selling, general and administrative expenses. The actual tax benefit realized for the tax deduction from stock options
exercised was $6.3 million, $2.0 million and $3.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.
During 2019 and 2018, we granted 6,005 and 6,793 non-vested shares of Common Stock, respectively, under the 2006 Equity
Incentive Plan. No shares of non-vested Common Stock were granted during the year ended December 31, 2020. As of
December 31, 2020, we had 6,005 non-vested shares of Common Stock outstanding under the 2006 Equity Incentive Plan.
These shares vest over five years following the date of grant and holders thereof are entitled to receive dividends from the
date of grant, whether or not vested. The fair value of the awards is calculated as the fair market value of the shares on the
date of grant. We recognized $23,000, $290,000 and $428,000 of non-cash compensation for the years ended December 31,
2020, 2019, and 2018, respectively, related to this non-vested stock, which is included in direct and selling, general and
administrative expenses. The actual tax benefit realized for the tax deduction from vesting of restricted stock was $235,000
and $168,000 for the years ended December 31, 2020 and 2018, respectively. No restricted stock vested during the year end
December 31, 2019.
The following table summarizes information regarding non-vested stock granted to associates under the 2006 Equity Incentive
Plans for the year ended December 31, 2020:
Outstanding at December 31, 2019
Granted
Vested
Forfeited
Outstanding at December 31, 2020
Common Stock
Weighted
Average Grant
Date Fair Value
Per Share
17.23
--
13.59
36.80
38.30
Common Stock
Outstanding
84,176 $
-- $
(71,378) $
(6,793) $
6,005 $
As of December 31, 2020, the total unrecognized compensation cost related to non-vested stock awards was approximately
$138,000 and is expected to be recognized over a weighted average period of 3.00 years.
(10) Leases
We lease printing, computer, other equipment and office space in the United States and Canada. The leases remaining terms
as of December 31, 2020 range from less than one year to 4.7 years.
Certain equipment and office lease agreements include provisions for periodic adjustments to rates and charges. The rates
and charges are adjusted based on actual usage or actual costs for internet, common area maintenance, taxes or insurance, as
determined by the lessor and are considered variable lease costs.
The components of lease expense for the years ended December 31, 2020 and 2019 included (in thousands):
Operating leases
Finance leases:
Asset amortization
Interest on lease liabilities
Variable lease cost
Short-term lease cost
Total net lease cost
2020
2019
$
600 $
355
37
62
42
1,096 $
$
781
252
39
86
42
1,200
In 2020, we adjusted the useful life of the operating right of use assts associated with our Atlanta, Georgia and Markham,
Ontario office leases based on the expectation that we will vacate the office space before the end of the lease term. We
recorded rent expense in connection with our operating leases of $779,000 in 2018.
53
Supplemental balance sheet information related to leases (in thousands):
Operating leases:
Operating ROU assets
Current operating lease liabilities
Noncurrent operating lease liabilities
Total operating lease liabilities
Finance leases:
Furniture and equipment
Computer Equipment
Computer Software
Property and equipment under finance lease, gross
Less accumulated amortization
Property and equipment under finance lease, net
Current obligations of finance leases
Noncurrent obligations of finance leases
Total finance lease liabilities
Weighted average remaining lease term (in years):
Operating leases
Finance leases
Weighted average discount rate:
Operating leases
Finance leases
December 31,
2020
December 31,
2019
$
1,308 $
1,628
461
896
1,357 $
524
1,139
1,663
$
December 31,
2020
December 31,
2019
$
$
$
$
1,014 $
662
207
1,883
(605)
1,278 $
493 $
778
1,271 $
3.68
2.69
4.40%
3.38%
802
511
207
1,520
(734)
786
227
559
786
4.17
3.56
4.81%
4.60%
Supplemental cash flow and other information related to leases were as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
$
ROU assets obtained in exchange for operating lease liabilities
ROU assets obtained in exchange for finance lease liabilities
2020
2019
596 $
36
332
276
817
789
38
229
16
192
54
Undiscounted payments under non-cancelable finance and operating leases at December 31, 2020 were as follows (in
thousands):
2021
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Less: Amount representing interest
Present value of minimum lease payments
Current portion
Lease obligations, net of current portion
Finance Leases Operating Leases
509
527 $
$
322
481
319
305
203
13
118
--
--
--
1,471
1,326
(114)
(55)
1,357
1,271
(461)
(493)
896
778 $
$
In addition to the above, we have an operating lease for office space commencing February 2021 which requires monthly
base rent payments of $14,288 through January 2024.
(11) Related Party
Until January 2020, one of our directors served as an officer and director of Ameritas Life Insurance Corp. (“Ameritas”) and
continues to service on the board of directors of Ameritas. In connection with our regular assessment of our insurance-based
associate benefits, which is conducted by an independent insurance broker, and the costs associated therewith, we purchase
dental and vision insurance for certain of our associates from Ameritas. The total value of these purchases was $248,000,
$242,000 and $200,000 in 2020, 2019 and 2018 respectively.
A director, who served on our board through May 2020, also served as a board member of IMA Financial Group. In connection
with our regular assessment of our liability coverage, during 2020 we began purchasing directors and officers and employment
practices liability insurance through IMA Financial Group. Total payments for these services totaled $1.1 million with
$478,000 recorded as expense in 2020.
During 2017, we acquired a cost method investment in convertible preferred stock of PX (see Note 4). Also in 2017, we paid
$250,000 to acquire certain perpetual content licenses from PX for content we include in certain of our subscription services.
We also have an agreement with PX which commenced in 2016 under which we act as a reseller of PX services and receive
a portion of the revenues. The total revenue earned from the PX reseller agreement in the years ended December 31, 2020,
2019 and 2018 was $294,000, $578,000 and $439,000, respectively. We will no longer earn revenue under this agreement
after September 30, 2021 due to termination of the reseller agreement.
(12) Associate Benefits
We sponsor a qualified 401(k) plan covering substantially all associates with no eligibility service requirement. Under the
401(k) plan, we match 25.0% of the first 6.0% of compensation contributed by each associate. Employer contributions, which
are discretionary, vest to participants at a rate of 20% per year. We contributed $521,000, $447,000 and $396,000 in 2020,
2019 and 2018, respectively, as a matching percentage of associate 401(k) contributions.
(13) Segment Information
Our six operating segments are aggregated into one reporting segment because they have similar economic characteristics
and meet the other aggregation criteria from the FASB guidance on segment disclosure. The six operating segments are
Experience, The Governance Institute, Market Insights, Transparency, National Research Corporation Canada and
Transitions, which offer a portfolio of solutions that address specific needs around market insight, experience, transparency
and governance for healthcare providers, payers and other healthcare organizations.
55
The table below presents entity-wide information regarding our revenue and assets by geographic area (in thousands):
Revenue:
United States
Canada
Total
Long-lived assets:
United States
Canada
Total
Total assets:
United States
Canada
Total
(14) Subsequent Event
2020
2019
2018
$
$
$
$
$
$
130,305 $
2,972
133,277 $
77,448 $
1,863
79,311 $
128,319 $
5,104
133,423 $
124,369 $
3,613
127,982 $
78,906 $
2,622
81,528 $
95,668 $
15,017
110,685 $
115,451
4,235
119,686
77,330
2,291
79,621
91,080
16,952
108,032
On January 4, 2021, we acquired substantially all assets and assumed certain liabilities of PatientWisdom, Inc., a company
with a health engagement solution that will further our purpose of operationalizing human understanding through tangible
and actionable insights. $3.0 million of the total $5.0 million all-cash consideration was paid at closing. We are required to
pay the remaining $2.0 million no later than February 1, 2022, subject to offset for indemnification claims as provided in the
purchase agreement. The closing payment was funded, and we expect to fund the deferred portion of the purchase price, with
cash on hand.
56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), our management evaluated,
with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as
of December 31, 2020. Based upon their evaluation of these disclosure controls and procedures, the Chief Executive Officer
and the Chief Financial Officer concluded that the disclosure controls and procedures were effective as of December 31,
2020.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Rule 13a-15(f) of the Exchange Act). Our internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Because of its inherent limitations, however, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies of procedures may deteriorate.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of our internal control over financial reporting using the framework in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on such
evaluation, our management concluded that our internal control over financial reporting was effective as of December 31,
2020.
The effectiveness of our internal control over financial reporting as of December 31, 2020, has been audited by KPMG LLP,
an independent registered public accounting firm, as stated in their report, a copy of which is included in this Annual Report
on Form 10-K.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended December 31,
2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
We have no other information to report pursuant to this item.
57
PART III
Preliminary note regarding this Part III: The disclosure below is from our Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 5, 2021 (the “Original 10-K”). As noted below, the Original 10-K
incorporated certain information by reference to our Proxy Statement for our 2021 Annual Meeting of Shareholders (the
“Proxy Statement”), which is being provided to shareholders contemporaneously with this Annual Report. We amended the
Original 10-K by filing an amendment on Form 10-K/A on April 28, 2021 to include the information previously incorporated
by reference in this Part III (the “Amendment”). A copy of the Amendment is available on our website at
https://national-research-corporation.ir.rdgfilings.com/ and is also available to the public on the Securities and Exchange
Commission’s online EDGAR database at www.sec.gov. We have not included the Amendment as part of this Annual Report
because it contains information that is duplicative with the information contained in the accompanying Proxy Statement and,
in some cases, the information in the Amendment has been further updated in the Proxy Statement.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item with respect to directors, executive officers and Section 16 compliance is included
under the captions “Election of Directors,” “Corporate Governance – Committees”, “Information About Our Executive
Officers” and “Delinquent Section 16(a) Reports,” respectively, in our definitive Proxy Statement for our 2021 Annual
Meeting of Shareholders (“Proxy Statement”) and is hereby incorporated herein by reference. The information required by
this Item with respect to audit committees and audit committee financial experts is included under the caption “Corporate
Governance” in the Proxy Statement and is incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics that applies to all of our associates, including our Chief Executive
Officer and Chief Financial Officer and other persons performing similar functions. We have posted a copy of the Code of
Business Conduct and Ethics on our website at www.nrchealth.com, and such Code of Business Conduct and Ethics is
available, in print, without charge, to any shareholder who requests it from our Secretary. We intend to satisfy the disclosure
requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, the Code of Business Conduct and
Ethics by posting such information on our website at www.nrchealth.com. We are not including the information contained on
our website as part of, or incorporating it by reference into, this report.
Item 11. Executive Compensation
The information required by this Item is included under the captions “Compensation Discussion and Analysis,” “2020
Summary Compensation Table,” “Grants of Plan-Based Awards in 2020,” “Outstanding Equity Awards at December 31,
2020,” “2020 Director Compensation,” “Compensation Committee Report,” “Corporate Governance-Transactions with
Related Persons,” “Compensation Committee Interlocks and Insider Participation” and “CEO Pay Ratio” in the Proxy
Statement and is hereby incorporated herein by reference.
58
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by this Item with respect to security ownership of certain beneficial owners and management is
included under the caption “Principal Shareholders” in the Proxy Statement and is hereby incorporated by reference.
The following table sets forth information with respect to compensation plans under which equity securities of the Company
are authorized for issuance as of December 31, 2020.
Number of
securities
to be issued
upon
the exercise of
outstanding
options,
warrants and
rights
Weighted-
average
exercise price
of
outstanding
options,
warrants and
rights
Number of
securities
remaining
available
for future issuance
under equity
compensation
plans (excluding
securities
reflected
in the first
column)
600,571 $
--
600,571 $
25.31
--
25.31
1,610,219 (2)
--
1,610,219
Plan Category Common Shares
Equity compensation plans approved by security holders(1)
Equity compensation plans not approved by security holders
Total
(1) Includes our 2006 Equity Incentive Plan, 2004 Director Plan, and the 2001 Equity Incentive Plan.
(2) Under the 2006 Equity Incentive Plan, we had authority to award up to 331,874 additional shares of restricted
Common Stock provided that the total of such shares awarded may not exceed the total number of shares remaining
available for issuance under the 2006 Equity Incentive Plan, which totaled 779,800 shares of Common Stock as of
December 31, 2020. The Director Plan provides for granting options for 3,000,000 shares of Common Stock. Option
awards through December 31, 2020 totaled 2,169,581 shares of Common Stock. No future awards are available
under the 2001 Equity Incentive Plan due to its expiration.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is included under the caption “Corporate Governance” in the Proxy Statement and is
hereby incorporated by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item is included under the caption “Miscellaneous — Independent Registered Public
Accounting Firm” in the Proxy Statement and is hereby incorporated by reference.
59
Item 15. Exhibits, Financial Statement Schedules
PART IV
1. Consolidated financial statements. The consolidated financial statements listed in the accompanying index to the
consolidated financial statements are filed as part of this Annual Report on Form 10-K.
2. Financial statement schedules. All financial statement schedules have been omitted because they are not applicable or
the required information is included in the consolidated financial statements and the related notes thereto.
3. Exhibits. The exhibits listed in the exhibit index below are filed as part of this Annual Report on Form 10-K.
Exhibit
Number Exhibit Description
EXHIBIT INDEX
(3.1)
(3.2)
(4.1)
(4.2)
(4.3)
Amended and Restated Articles of Incorporation of National Research Corporation, effective as of 5:01 pm, CT,
on April 17, 2018 [Incorporated by reference to Exhibit 3.3 to National Research Corporation’s Current Report on
Form 8-K dated April 16, 2018 and filed on April 20, 2018 (File No. 001-35929)]
By-Laws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit 3.1 to
National Research Corporation’s Current Report on Form 8-K dated May 14, 2020 and filed on May 15, 2020 (File
No. 001-35929)]
Amended and Restated Articles of Incorporation of National Research Corporation, effective as of 5:01 pm, CT,
on April 17, 2018 [Incorporated by reference to Exhibit 3.3 to National Research Corporation’s Current Report on
Form 8-K dated April 16, 2018 and filed on April 20, 2018 (File No. 001-35929)]
By-Laws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit 3.1 to
National Research Corporation’s Current Report on Form 8-K dated May 14, 2020 and filed on May 15, 2020 (File
No. 001-35929)]
Description of the Securities of the Registrant [Incorporated by reference to Exhibit 4.3 to National Research
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019 and filed on March 6, 2020
(File No. 001-35929)]
(10.1) Amended and Restated Credit Agreement dated May 28, 2020, between National Research Corporation and First
National Bank of Omaha [Incorporated by reference to Exhibit 10.1 to National Research Corporation’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2020 and filed on August 7, 2020 (File No. 001-35929)]
(10.2)* National Research Corporation 2004 Non-Employee Director Stock Plan, as amended [Incorporated by reference
to Appendix A to National Research Corporation’s Proxy Statement for the 2018 Annual Meeting of Shareholders
filed on April 27, 2018 (File No. 001-35929)]
(10.3)* Form of Nonqualified Stock Option Agreement (for new associates) used in connection with the National Research
Corporation 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 4.4 to National Research
Corporation’s Registration Statement on Form S-8 (Registration No. 333-120530) filed on November 16, 2004]
(10.4)* Form of Nonqualified Stock Option Agreement (for officers) used in connection with the National Research
Corporation 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 4.5 to National Research
Corporation’s Registration Statement on Form S-8 (Registration No. 333-120530) filed on November 16, 2004]
(10.5)* Form of Restricted Stock Agreement for executive officers used in connection with the National Research
Corporation 2001 Equity Incentive Plan [Incorporated by reference to Exhibit 10.2 to National Research
Corporation’s Current Report on Form 8-K dated March 19, 2005 and filed on March 23, 2005 (File No. 000-
29466)]
60
Exhibit
Number Exhibit Description
(10.6)* Form of Restricted Stock Agreement (one year vesting) used in connection with the National Research Corporation
2001 Equity Incentive Plan [Incorporated by reference to Exhibit 4.6 to National Research Corporation’s
Registration Statement on Form S-8 (Registration No. 333-120530) filed on November 16, 2004]
(10.7)* Form of Restricted Stock Agreement (five year vesting) used in connection with the National Research Corporation
2001 Equity Incentive Plan [Incorporated by reference to Exhibit 4.7 to National Research Corporation’s
Registration Statement on Form S-8 (Registration No. 333-120530) filed on November 16, 2004]
(10.8)* Form of Nonqualified Stock Option Agreement used in connection with the National Research Corporation 2006
Equity Incentive Plan [Incorporated by reference to Exhibit (10.14) to National Research Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2006 and filed on April 2, 2007 (File No. 000-29466)]
(10.9)* Form of Restricted Stock Agreement used in connection with the National Research Corporation 2006 Equity
Incentive Plan [Incorporated by reference to Exhibit (10.15) to National Research Corporation’s Annual Report on
Form 10-K for the year ended December 31, 2006 and filed on April 2, 2007 (File No. 000-29466)]
(10.10)* National Research Corporation 2001 Equity Incentive Plan [Incorporated by reference to Appendix A to National
Research Corporation’s Proxy Statement for the 2002 Annual Meeting of Shareholders filed on April 3, 2002 (File
No. 000-29466)]]
(10.11)* National Research Corporation 2006 Equity Incentive Plan, [Incorporated by reference to Appendix A to National
Research Corporation’s Proxy Statement for the 2006 Annual Meeting of Shareholders filed on April 3, 2006 (File
No. 000-29466)]
(10.12)* Form of Grant used in connection with the National Research Corporation 2004 Non-Employee Director Stock
Plan, as amended [Incorporated by reference to Exhibit 10.2 to National Research Corporation’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2020 and filed on August 7, 2020 (File No. 001-35929)]
(21)** Subsidiary of National Research Corporation
(23)** Consent of Independent Registered Public Accounting Firm
(31.1)** Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2)** Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32)** Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(101)** Financial statements from the Annual Report on Form 10-K of National Research Corporation for the year ended
December 31, 2020, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the Consolidated
Balance Sheets, (ii) the Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive
Income, (iv) Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows,
(vi) the Notes to the Consolidated Financial Statements, and (vii) document and entity information.
(104)** Cover Page Interactive Data File (formatted in the Inline XBRL and contained in Exhibit 101).
*
A management contract or compensatory plan or arrangement.
** Filed herewith.
Item 16. Form 10-K Summary
None.
61
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page in this
Form 10-K
Report of Independent Registered Public Accounting Firm .................................................................................
Consolidated Balance Sheets as of December 31, 2020 and 2019 .......................................................................
Consolidated Statements of Income for the Three Years Ended December 31, 2020 ..........................................
Consolidated Statements of Comprehensive Income for the Three Years Ended December 31, 2020 ................
Consolidated Statements of Shareholders’ Equity for the Three Years Ended December 31, 2020 ....................
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2020 ...................................
Notes to Consolidated Financial Statements ........................................................................................................
29
31
32
33
34
35
36
All other financial statement schedules are omitted since the required information is not present or is not present in amounts
sufficient to require submission of the schedules, or because the information required is included in the consolidated financial
statements and notes thereto.
62
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 5th day of March 2021.
SIGNATURES
NATIONAL RESEARCH CORPORATION
By: /s/ Michael D. Hays
Michael D. Hays
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Michael D. Hays
Michael D. Hays
/s/ Kevin R. Karas
Kevin R. Karas
/s/ Donald M. Berwick
Donald M. Berwick
/s/ JoAnn M. Martin
JoAnn M. Martin
/s/ John N. Nunnelly
John N. Nunnelly
Chief Executive Officer, President and Director
(Principal Executive Officer)
March 5, 2021
Senior Vice President Finance, Chief Financial
Officer, Treasurer and Secretary (Principal
Financial and Accounting Officer)
Director
Director
Director
March 5, 2021
March 5, 2021
March 5, 2021
March 5, 2021
63
Subsidiary of National Research Corp.
National Research Corporation’s subsidiary as of December 31, 2020 is listed below:
Subsidiary
Jurisdiction of organization
National Research Corporation Canada
Ontario
Exhibit 21
Consent of Independent Registered Public Accounting Firm
Exhibit 23
The Board of Directors
National Research Corporation:
We consent to the incorporation by reference in the registration statements (File Nos. 333-120530, 333-137763, 333-
137769, 333-173097, 333-189139, 333-189140, 333-189141, 333-209934, 333-226715, and 333-226716) on Forms S-8
and (File Nos. 333-120529, 333-211190, and 333-232534) on Forms S-3 of National Research Corporation of our report
dated March 5, 2021, with respect to the consolidated balance sheets of National Research Corporation and subsidiary as
of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes, and
the effectiveness of internal control over financial reporting as of December 31, 2020, which report appears in the
December 31, 2020 annual report on Form 10-K of National Research Corporation.
/s/ KPMG LLP
Lincoln, Nebraska
March 5, 2021
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934
I, Michael D. Hays, certify that:
1. I have reviewed this Annual Report on Form 10-K of National Research Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiary, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 5, 2021
By: /s/ Michael D. Hays
Michael D. Hays
Chief Executive Officer and President
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934
I, Kevin R. Karas, certify that:
1. I have reviewed this Annual Report on Form 10-K of National Research Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiary, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 5, 2021
By: /s/ Kevin R. Karas
Kevin R. Karas
Chief Financial Officer
Exhibit 32
Certification Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the accompanying Annual Report on Form 10-K of National Research Corporation (the “Company”) for
the year ended December 31, 2020 (the “Report”), I, Michael D. Hays, Chief Executive Officer and President of the Company,
and I, Kevin R. Karas, Chief Financial Officer, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, based on my knowledge, that:
1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ Michael D. Hays
Michael D. Hays
Chief Executive Officer and President
/s/ Kevin R. Karas
Kevin R. Karas
Chief Financial Officer
Date: March 5, 2021
A signed original of this written statement required by Section 906 has been provided to National Research Corporation and
will be retained by National Research Corporation and furnished to the Securities and Exchange Commission or its staff upon
request.
Directors and Officers
Board of Directors
Michael D. Hays
President and Chief Executive Officer
National Research Corporation
JoAnn M. Martin
Retired President and Chief Executive
Officer, Ameritas Life Insurance Corp.
Member of the Strategy, Audit (Chair), and
Stephen H. Lockhart, M.D., Ph.D.
Retired Senior Vice President and Chief
Medical Officer, Sutter Health Network
Member of the Strategy, Nominating and
Compensation and Talent Committees
Compensation and Talent (Co-chair) Committees
Donald M. Berwick, M.D.
President Emeritus and Senior Fellow
Institute for Healthcare Improvement
Member of the Strategy, Audit,
Nominating (Chair), and Compensation
and Talent (Co-chair) Committees
John N. Nunnelly, Lead Director
Retired Group President
McKesson Corporation
Member of the Strategy (Chair), Audit,
Nominating, and Compensation and
Talent Committees
Penny A. Wheeler, M.D.
Chief Executive Officer
Allina Health
Member of the Strategy, Audit and
Nominating Committees
Executive Officers
Michael D. Hays
President and Chief Executive Officer
Helen L. Hrdy
Chief Growth Officer
Jona S. Raasch
Chief Operating Officer
Chief Executive Officer,
The Governance Institute
Kevin R. Karas
Chief Financial Officer,
Treasurer and Secretary
Corporate Data
Corporate Headquarters
National Research Corporation
1245 Q Street
Lincoln, Nebraska 68508
Phone: 402.475.2525
Fax: 402.475.9061
www.nrchealth.com
Transfer Agent
American Stock Transfer & Trust Company LLC
200 S. Wacker Drive, Suite 3144
Chicago, Illinois 60606
Phone: 718.921.8588
Fax: 718.765.8717
Corporate Counsel
Scudder Law Firm, P.C., L.L.O.
Lincoln, Nebraska
Common Stock
National Research Corporation’s
common stock is traded on the
NASDAQ Stock Market under the
symbol NRC.
Independent Registered
Public Accounting Firm
KPMG LLP
Lincoln, Nebraska
1.800.388.4264 | nrchealth.com
1245 Q Street | Lincoln, Nebraska | 68508