✉️ What This Document Is

This is the company's 2026 Proxy Statement (a DEF 14A). Think of this document as the annual "owner's manual" for the stockholders. It contains all the necessary legal disclosures, proposals, and corporate details that will be voted on at the Annual Meeting of Stockholders.

👉 Why it matters: If you are a shareholder, this filing tells you exactly how the company operates, who is running it, what big decisions (like hiring an accountant or changing compensation plans) need your vote, and what the management plans to do in the coming years.

The annual meeting is set for Monday, June 8, 2026, at 2:00 p.m. Mountain Time, at their offices in 650 South 500 West, Suite 150, Salt Lake City, Utah 84101. The record date (the date you must be a shareholder to vote) is April 14, 2026.

🤖 What The Company Does

Palladyne AI Corp. is a U.S.-based technology company specializing in embodied artificial intelligence ("AI") software and collaborative autonomy solutions. In simple terms, they don't just build software that runs on a cloud; they build intelligence that can act in the physical world, in real time.

👉 How they make money: They sell full-stack, closed-loop autonomy software—called Palladyne IQ, SwarmOS, and Palladyne Pilot—which enhances third-party robotic systems (like industrial robots, UAVs, UGVs, etc.). They also provide advanced avionics compute hardware and precision engineering services for defense and commercial markets.

The Technology Core: DECA The company's core architecture is called Decentralized Embodied Collaborative Autonomy (DECA). This system is modeled after nature and is designed for machines to:

Perceive, decide, and act locally in the physical world.
Collaborate through decentralized interaction, rather than relying on constant central control or massive cloud computation.

Product Applications:

Defense: They position themselves as a mid-tier U.S. technology prime defense contractor. Their AI is designed to operate in complex, high-risk environments, supporting multi-vehicle operations where reliable, localized decision-making is essential.
Commercial/Industrial: Palladyne IQ helps poly-functional robots and industrial cobots adapt to variable tasks and environments in settings like manufacturing and warehousing, reducing the need for rigid, custom automation.
Public Safety: Palladyne Pilot is a derived version of SwarmOS, tailored for public safety and commercial customers, offering core autonomy with reduced complexity and cost.

📜 Quick History: The company has a deep roots, having spun out of the University of Utah in 1983. It was acquired by Raytheon in 2007 and operated as Raytheon Sarcos until 2014. Key strategic moves included:

Merging with Rotor Acquisition Corp. on September 24, 2021, forming Sarcos Corp.
Acquiring RE2, Inc. in April 2022.
Pivoting business strategy in November 2023 to focus solely on full-stack, closed-loop autonomy software (AI/ML Foundational Technology) and suspending further commercialization efforts on hardware.
Renaming the company to Palladyne AI Corp. in March 2024.
Acquiring GuideTech, LLC, MKR Fabrication, LLC, and Warnke Precision Machining, LLC in November 2025.

🚀 Future Plans: Crawl, Walk, Run

Palladyne AI has mapped out its growth stages using the analogy of crawling, walking, and running, signaling a transition from research toward scaled commercial products.

🚧 2026 Goal: Crawl The primary focus this year is to prove the integrated model works at scale. Objectives include:

Converting the current backlog into actual revenue.
Generating product revenue from the recently acquired businesses.
Executing live demonstrations and trials for key platforms like SwarmOS, IntelliSwarm, and Palladyne IQ 2.0.
Advancing specialized variants like Gremlin-X, SwarmStrike, and BRAIN toward defined milestones.

🚶 2027 Goal: Walk The company aims for repeatability. They plan to:

Broaden integrations for SwarmOS and IntelliSwarm.
Repeat successes achieved with Palladyne IQ 2.0.
Increase deployments of BRAIN.
Benefit from multiple product-based revenue streams, making growth more systematic.

🏃 2028 Goal: Run At this ultimate stage, Palladyne expects DECA to operate seamlessly across air, space, and land/sea. The goal is for revenue from UAV, missile, and avionics to scale significantly across multiple defense programs, making today's development-stage products into a core, scaled portfolio.

👥 Board & Corporate Governance

The Board of Directors oversees the company's strategy, and the proxy statement details its structure and the committees that guide corporate best practices.

Current Directors: The Board consists of six directors, including Brian D. Finn, Eric T. Olson, Stephen M. Twitty, Dennis Weibling, Benjamin G. Wolff, and Michael T. Young.
Committees: The Board uses specialized committees to manage certain tasks, including the Audit Committee (responsible for overseeing financial statements and the auditor), the Compensation Committee, and the Nominating and Corporate Governance Committee.
Governance Philosophy: The Board is committed to maintaining high standards, requiring non-employee directors to communicate any employment changes or circumstances that could adversely affect them to the Nominating and Corporate Governance Committee.
Insider Trading Policy: A key element is the robust insider trading policy. It generally prohibits directors, officers, and employees from engaging in activities like short sales, trading options, or pledging company securities as collateral.
- Note: The policy grants a specific, limited waiver to Mr. Benjamin G. Wolff, authorizing him to pledge a portion of shares from his 2025 restricted stock award solely to cover taxes associated with that award.

💼 Human Resources & Staffing

Human capital is viewed as critical to the company’s success. The filings provide an update on the size and nature of the workforce.

Employee Count: As of March 31, 2026, the company had approximately 162 employees.
Functional Breakdown: About 48% of the employees are involved in critical engineering functions, including research and development.
Labor Relations: The company states that it has not experienced any organized work stoppages and that none of its employees are subject to a collective bargaining agreement or represented by a labor union.

💰 Director Compensation

This section covers how the company compensates its outside directors for their board service. The compensation policy uses a mix of cash and equity.

💵 Annual Cash Fees (Non-Employee Directors):

Board Member: $50,000
Chairperson of the Board: $25,000
Chair of the Audit Committee: $5,000
Compensation Committee Member: $1,500
Note: All cash payments are paid quarterly in arrears on a pro-rated basis.

📈 Equity Compensation: The compensation model uses Restricted Stock Units (RSUs) and Stock Options.

New Director Award: Every new non-employee director receives RSUs equivalent to $100,000 divided by the average closing share price over the prior 60 trading days.
Annual Award: Similarly, every non-employee director automatically receives an Annual Award of RSUs, calculated the same way, at the annual meeting.
Vesting: All awards vest on the earlier of the one-year anniversary of the grant date or the annual meeting following the grant date.
Compensation Limits: The policy limits the aggregate annual compensation for non-employee directors to $500,000 (or $750,000 for the first year of service).

📊 Director Compensation for 2025: The total compensation for the directors served on the Board for the fiscal year ended December 31, 2025, reached $2,108,611 (Dennis Weibling). Michael Young had the highest total compensation at $2,601,970.

🗳️ Proposal 1: Electing a Director

The Board recommends electing a Class II director.

Nominee: The Board has nominated Dennis Weibling.
Goal: If elected, Mr. Weibling will serve as a Class II director until the 2029 annual meeting of stockholders.
Voting Requirement: Directors are elected by a plurality of the voting power of shares present in person or represented by proxy.

💰 Proposal 2: Ratifying the Auditor

The company asks stockholders to approve the continued appointment of its independent accounting firm.

Proposed Firm: KPMG LLP (KPMG). KPMG has served as the company's independent registered public accounting firm since April 2024.
Proposal: Ratification of KPMG's appointment for the fiscal year ending December 31, 2026.
Fees: The total fees paid to KPMG for audit services were $651 thousand in 2025, up slightly from $604 thousand in 2024.
Background: The Audit Committee previously dismissed Ernst & Young LLP (EY) on April 3, 2024. The Committee stresses that the process of selecting the auditor was competitive.

⚙️ Proposal 3: Amending the Equity Plan

The company seeks shareholder approval to amend the 2021 Equity Incentive Plan, which is crucial for its future talent strategy.

The Change: The proposed amendment increases the number of shares authorized under the 2021 Plan by 4,500,000 shares.
Why it Matters: If approved, this allows Palladyne to continue offering equity awards to attract, retain, and motivate key employees. Without this amendment, the company's incentive program could be severely limited.
Shares Available: As of March 31, 2026, there were 1,422,970 Shares available for issuance under the 2021 Plan.
Historical Context (Share Burn Rate): In 2025, the company granted total shares worth 2,633,569 shares. The management notes that the annual burn rate for 2025 was 6.8% (shares granted divided by the weighted average number of outstanding shares).

🏆 Proposal 4: Executive RSUs

This proposal asks for approval of Restricted Stock Unit (RSU) awards for senior executives.

The Goal: Approval of these awards is designed to incentivize and reward senior leadership.
Board Recommendation: The Board of Directors unanimously recommends voting FOR these awards.

🔗 How to Participate & Contact Info

This section provides essential logistics for stockholders to ensure their votes count.

Voting Mechanism: Stockholders are strongly urged to vote their shares promptly via the Internet, telephone, or mail, whether or not they plan to attend the meeting.
Official Website: Proxy materials and the annual report can be accessed online at www.proxydocs.com/PDYN.
Corporate Secretary: For procedural information, the Corporate Secretary is Stephen Sonne.
General Contact: The main office address is 650 South 500 West, Suite 150, Salt Lake City, Utah 84101.

🧠 The Analogy

Running a specialized, high-tech business like an advanced AI company is like building a complex, sophisticated machine. In the early stages, the company can only think (centralized, cloud-based AI). To make it work in the real world, however, the intelligence must be decentralized—it must be installed in every part of the machine itself. The DECA architecture is that localized "brain" that allows the entire system to function autonomously, even if the main central Wi-Fi signal drops out or the connection is contested.

🧩 Final Takeaway

Palladyne is transitioning from a development-heavy company to a commercial operator, betting heavily on its decentralized AI software stack. The board is asking shareholders to approve key funding mechanisms (Equity Plan) and governance changes (Auditor Ratification) to fund the "crawl" phase of commercialization in 2026.

Palladyne AI issues 2026 proxy statement detailing annual shareholder votes