UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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☐ Preliminary Proxy Statement
☐Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☒ Definitive Proxy Statement
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☐ Soliciting Material under §240.14a-12
CPI AEROSTRUCTURES, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
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CPI AEROSTRUCTURES, INC.
91 Heartland Blvd.
Edgewood, New York 11717
(631) 586-5200
Notice of Annual Meeting of Shareholders
to be held on June 28, 201620, 2018
To the Shareholders of CPI Aerostructures, Inc.:
You are cordially invited to attend the annual meeting of shareholders of CPI Aerostructures, Inc. to be held at the offices of our corporate counsel, Graubard Miller, our general counsel, located at The Chrysler Building, 405 Lexington Avenue 11th Floor, New York, New YorkNY 10174, on Tuesday,Wednesday, June 28, 2016,20, 2018, at 9:00 a.m., to consider and act upon the following matters:
(1)To elect two Class II directors to serve for the ensuing three-year period until their successors are elected and qualified;
(2)To approve, on an advisory basis, the executive compensation of our named executive officers;
(3)To select, on an advisory basis, the frequency with which we will hold an advisory shareholder vote to approveexecutive compensation;
(4)To ratify the appointment of CohnReznick LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018; and
(5)To transact such other business as may properly come before the annual meeting of shareholders and any and all postponements or adjournments thereof.
Only shareholders of record at the close of business on May 9, 2016April 30, 2018 will be entitled to notice of, and to vote at, the annual meeting of shareholders and any postponements or adjournments thereof.
YouWe are urgedproviding proxy materials to our shareholders primarily through the Internet. We have found this process significantly lowers the cost of our annual proxy campaign and offers our shareholders a convenient way to access our proxy materials.Please read the attached proxy statement whichcarefully, because it contains information relevant to the actions to be taken at the Annual Meeting. In order to assure the presence of a quorum, whether or notannual meeting.
Even if you expectplan to attend the annual meeting in person, we encourage you are requested to vote your shares in advance by proxy as promptly as possible. You may revoke your proxy if you so desire at any time before itfollowing the voting instructions provided. Every vote is voted.important, and we look forward to hearing from you.
By Order of the Board of Directors
Vincent Palazzolo, Secretary
Edgewood, New YorkMay 19, 2016April 30, 2018
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 28, 201620, 2018
Our 20162018 proxy statement and our annual report for the fiscal year ended December 31, 20152017 are available athttp://www.cstproxy.com/cpiaero/2016/2018/.
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PROXY STATEMENT
Annual Meeting of Shareholders
to be held on June 28, 2016
20, 2018This proxy statement and the accompanying form of proxy is furnished to shareholders of CPI Aerostructures, Inc. (the “Company”, “we”, or “us”) in connection with the solicitation of proxies by our board of directors for use in voting at our annual meeting of shareholders (the “Annual Meeting”) to be held at the offices of our corporate counsel, Graubard Miller, our general counsel, located at The Chrysler Building, 405Building,405 Lexington Avenue 11th Floor, New York, New YorkNY 10174, on Tuesday,Wednesday, June 28, 2016,20, 2018, at 9:00 a.m., and at any and all postponements or adjournments.adjournments thereof.
This proxy statement, the accompanying notice of annual meeting of shareholders,Annual Meeting, the proxy card, and the annual report to shareholdersAnnual Report on Form 10-K for the year ended December 31, 20152017 are being mailed or made available to shareholders on or about May 19, 201611, 2018 to shareholders of record on May 9, 2016.as of April 30, 2018. We are bearing all costs of this solicitation.
What matters am I voting on?
You are being asked to vote on the following matters:
(1)To elect two Class II directors to serve for the ensuing three-year period until their successors are elected and qualified;
(2)To approve, on an advisory basis, the executive compensation of our named executive officers;
(3)To select, on an advisory basis, the frequency with which we will hold an advisory shareholder vote to approveexecutive compensation;
(4)To ratify the appointment of CohnReznick LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018; and
(5)To transact such other business as may properly come before the Annual Meeting and any and all postponements or adjournments thereof.
What are the recommendations of the board of directors?
Our board of directors recommends that you vote:
✓ “FOR” the election of the director nominees named in this proxy statement;
✓ “FOR” the approval of executive compensation;
✓ For holding executive compensation votes “EVERY THREE YEARS”; and
✓ “FOR” the ratification of the appointment of CohnReznick LLP as the Company’s independent registered public accounting firm.
Who is entitled to vote?
Holders of our common stock as of the close of business on May 9, 2016,April 30, 2018, the record date, are entitled to vote at the Annual Meeting. As of the record date, we had issued and outstanding 8,610,4538,950,913 shares of common stock, our only class of voting securities outstanding. Each holder of our common stock is entitled to one vote for each share held on the record date. There is no cumulative voting.
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How do I submit my vote?
If you hold your shares of record, youRecord holders can vote by the following methods:
•By Internet or Telephone. You may vote by proxy via the Internet. In addition, ifInternet or telephone. The Notice of Internet Availability of Proxy Materials provides instructions for submitting a proxy by Internet or telephone.
•By mail. If you requested printedwish to receive a paper copy of the proxy materials, you must request one. The Notice of Internet Availability of Proxy Materials provides instructions for requesting paper copies of the proxy materials by mail,materials. If you request paper copies, you may vote by proxy via mail by filling outcompleting the proxy card and sendingreturning it back in the envelope provided.postage-paid return envelope.
•In person. You may alsoattend the Annual Meeting and vote in person using the ballot provided to you at the Annual Meeting. Note that photo identification is required for admittance.
Beneficial owners of shares held in street name may instruct their bank, broker, or other nominee how to vote their shares. Beneficial owners should refer to the materials provided to them by their bank, broker, or other nominee for information on communicating these voting instructions. Beneficial owners may not vote their shares in person at the Annual Meeting by submittingunless they obtain a legal proxy from the ballot that will be providedshareholder of record, present it to youthe inspector of election at the meeting.Annual Meeting, and produce valid identification. Beneficial owners should contact their bank, broker, or other nominee for instructions regarding obtaining a legal proxy.
Whether or not you plan to attend the Annual Meeting, please vote as soon as possible.
What is the difference between a “record holder” and a “beneficial owner” of the Company’s common stock?
If you hold your shares are registered in “street name”your name with the Company’s transfer agent, Continental Stock Transfer and Trust Company, then you are considered the record holder for those shares. If you are the record holder of your shares, you have the right to vote your shares by proxy or to attend the Annual Meeting and vote in person.
If your shares are held through a bank, broker, or other holdernominee, then you are considered to hold your shares in “street name.” While you are the “beneficial owner” of those shares, you are not considered the record please referholder. As the beneficial owner of shares of the Company’s common stock, you have the right to the materials provided to you byinstruct your bank, broker, or other nominee how to vote your shares. However, since you are not the record holder of record for information on communicating your voting instructions. If you hold your shares, in “street name” and you want tomay not vote these shares in person at the Annual Meeting unless you must obtain a legal proxy from your bank, broker or other holderthe shareholder of record authorizing you to vote.record. You must bring this legal proxy to the Annual Meeting, present it to the inspector of election and produce valid identification.If you hold your shares in street name, your bank, broker, or other holder of record will not be permitted to vote on your behalf on certain matters, including with respect to the election of our directors, or the 2016 Long-Term Incentive Plan, unless it receives voting instructions from you. To ensure that your vote is counted, please communicate your voting instructions to your broker, bank, or other holder of record before the Annual Meeting, or obtain a legal proxy and arrange to attend the Annual Meeting in person.
What is the effect of giving a proxy?
The persons named in the proxy have been designated as proxies by our board of directors. If you are a record holder and return the proxy in accordance with the procedures set forth in this proxy statement, the persons designated as proxies by our board of directors will vote your shares at the meetingAnnual Meeting as specified in your proxy.
If you are a record holder and return your proxy in accordance with the procedures set forth in this proxy statement but you do not provide any instructions as to how your shares should be voted, your shares will be voted FOR the election of the director nominees (Proposal 1), FOR the advisory approval of the 2016 Long-Term Incentive Planexecutive compensation (Proposal 2), for holding executive compensation approval votes EVERY THREE YEARS (Proposal 3), and FOR the ratification of the appointment of CohnReznick LLP as our independent registered public accounting firm for the fiscal year ending December 31, 20162018 (Proposal 3)4).
If you give your proxy, your shares also will be voted in the discretion of the persons designated as proxies named on the proxy card with respect to any other matters properly brought before the meetingAnnual Meeting and any postponements or adjournments.adjournments thereof. If any other matters are properly brought before the meeting,Annual Meeting, the persons named in the proxydesignated as proxies will vote the proxies in accordance with their best judgment.
May I change my vote after I returngive my proxy card?proxy?
You may revoke your proxy at any time before it is exercised by:
•delivering written notification of your revocation to our secretary;
•voting in person at the meeting;Annual Meeting; or
•delivering another proxy bearing a later date.
Please note that your attendance at the meetingAnnual Meeting will not alone serve to revoke your proxy.
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What is a quorum?
A quorum is the minimum number of shares required to be present at the meetingAnnual Meeting for the meeting to be properly held under our bylaws and New York law. The presence, in person or by proxy, of a majority of the votes entitled to be cast at the meetingAnnual Meeting will constitute a quorum atquorum. In certain instances, shares which are not considered present and entitled to vote on a particular matter will count for purposes of determining the meeting. Apresence of a quorum. For example, a proxy submitted by a shareholder may indicate that all or a portion of the shares represented by the proxy are not being voted (“shareholder withholding”), or that the shareholder is abstaining, with respect to a particular matter. Similarly, a broker may not be permitted to vote stock (“broker non-vote”) with respect to shares held in street name on a particular matter in the absence of instructions from the beneficial owner of the stock.shares. The shares subject to a proxy which are not being voted on a particular matter because ofdue to either shareholder withholding, abstention, or broker non-vote will not be considered shares present and entitled to vote on that matter. These shares, however, may be considered present and entitled to vote on other matters andmatter but will count for purposes of determining the presence of a quorum if the shares are being voted with respect to any other matter at the meeting.Annual Meeting. If the proxy indicates that the shares are not being voted on any matter at the meeting,Annual Meeting, the shares will not be counted for purposes of determining the presence of a quorum. Abstentions are voted neither “for” nor “against” a matter, but are counted in the determination of a quorum.
How many votes are needed for approval of each matter?
The election of directors.directors. The election of directors requires a plurality vote of the votes cast at the meeting.Annual Meeting. “Plurality” means that the individual who receives the largest number of votes cast “FOR” is elected as director. Consequently, any shares not voted “FOR” such nominee, whether as a result of a direction of the shareholder to withhold authority, abstentions, or a broker non-vote, will not be counted in the nominee’s favor.
The approval of the 2016 Long-Term Incentive Plan. The 2016 Long-Term Incentive Plan must be approved by the affirmative vote of a majority of the votes cast at the meeting. Abstentions from voting with respect to this proposal will NOT be counted in determining the number of votes required for a majority and will therefore have no effect on such vote. Shares deemed present at the meeting but not entitled to vote because of either shareholder withholding or broker non-vote are not deemed “votes cast” with respect to the proposal, and therefore will have noany effect on the vote.
election.
RatificationApproval of independent registered public accounting firm.executive compensation (“Say on Pay”). The ratificationresults of the appointmentSay on Pay vote are advisory and non-binding on our board of CohnReznick LLP as our independent registered public accounting firm fordirectors. A vote “FOR” the fiscal year ending December 31, 2016 must be approvedSay on Pay proposal by a majority of the votes cast at the meetingAnnual Meeting with respect to such proposal will constitute the proposal.shareholders’ non-binding approval of our current executive compensation and related policies and procedures. Abstentions and broker non-votes will not be counted in determining the number of votes required for a majority and will therefore have no effect on the outcome.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Frequency of Say on Pay (“Say on Pay Frequency”). Like the Say on Pay vote, the vote regarding the frequency with which we should hold future Say on Pay votes is advisory and non-binding on our board of directors. The table and accompanying footnotes set forth certain information asoption — every one, two, or three years — which receives a plurality of May 9, 2016the votes cast at the Annual Meeting with respect to such proposal will constitute the shareholders’ non-binding selection with respect to the ownershipfrequency of future Say on Pay votes. Abstentions and broker non-votes will not be counted in favor of any option.
Ratification of independent registered public accounting firm. The ratification of the appointment of CohnReznick LLP as our common stock by:
A person is deemedvote “AGAINST” this proposal. Brokerage firms do have authority to bevote customers’ shares on this proposal in the absence of instructions from the beneficial owner of securities that canthe shares. To the extent any brokerage firms do not vote on this proposal, such broker non-votes will not be acquired byconsidered present and entitled to vote on this matter and will not have any effect on the person within 60 days from the record date upon the exercise of options or warrants. Accordingly, common stock issuable upon exercise of options and warrants that are currently exercisable, or exercisable within 60 days of May 9, 2016, have been included in the table with respect to the beneficial ownership of the person owning the options or warrants.vote on this matter.
 | | | ||||||
| Name and Address of Beneficial Owner(1) | Shares Beneficially Owned(2) | Percent of Class(3) | ||||||
| Douglas McCrosson | 37,086 | (4) | * | |||||
| Vincent Palazzolo | 38,313 | (5) | * | |||||
| Walter Paulick | 44,882 | (6) | * | |||||
| Kenneth McSweeney | 49,305 | (7) | * | |||||
| Harvey J. Bazaar | 79,987 | (8) | * | |||||
| Michael Faber | 15,415 | (9) | * | |||||
| Terry Stinson | 26,559 | (10) | * | |||||
| Eric Rosenfeld c/o Crescendo Partners 777 Third Avenue, 37th Floor New York, NY 10017 | 746,166 | (11) | 8.6 | % | ||||
| AWM Investment Company, Inc. 527 Madison Ave., Suite 2600 New York, NY 10022 | 854,040 | (12) | 9.9 | % | ||||
| Rutabaga Capital Management 64 Broad Street, 3rd Floor Boston, MA 02109 | 622,730 | (13) | 7.2 | % | ||||
| Ariel Investments, LLC 200 E. Randolph Drive, Suite 2900 Chicago, IL 60601 | 1,412,625 | (14) | 16.4 | % | ||||
| Royce & Associates, LLC 745 Fifth Avenue New York, NY 10151 | 559,066 | (15) | 6.5 | % | ||||
| Penn Capital Management Company, Inc. Navy Yard Corporate Center 3 Crescent Drive, Suite 400 Philadelphia, PA 19112 | 454,368 | (16) | 5.3 | % | ||||
| All current directors and executive officers as a group (seven persons) | 1,046,622 | (17) | 11.7 | % | ||||
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PROPOSALPROPOSAL 1 — ELECTION OF DIRECTORS
Our board of directors is divided into three classes with only one class of directors typically being elected in each year and each class serving a three-year term. The term of office of our Class IIIII directors expires at this year’s annual meeting.Annual Meeting. Our current Class II directors are Walter Paulick and Eric Rosenfeld. The term of office of our Class III directors, Carey Bond, Michael Faber, and Douglas McCrosson, expires at the 2019 Annual Meeting. The term of office of our Class I directors, Kenneth McSweeney, Harvey J. Bazaar and Terry Stinson, will expireexpires at our annual meeting in 2017. The termthe 2020 Annual Meeting.
Our board of office of ourdirectors has nominated the current Class II directors, Walter Paulick and Eric Rosenfeld, will expire at our annual meeting in 2018. Our current Class III directors are Michael Faber and Douglas McCrosson, each of whom has been nominated for re-election as Class II directors. Biographical information about the nominees, and the entire board of directors, can be found under the heading “Directors, Executive Officers, and Corporate Governance” beginning on page 10 below.
Each of these nominees has agreed to be named in this proxy statement and to serve as a director if elected. Unless otherwise specified by you when you give your proxy, the shares subject to your proxy will be voted “FOR” the election of these nominees. In case any of these nominees become unavailable for election to our board of directors, an event which is not anticipated, the proxy holders, or their substitutes, shall have full discretion and authority to vote or refrain from voting your shares for any other person in accordance with their best judgment.
Nominees that receive the affirmative vote of a plurality of the issued and outstanding shares of the Company’s common stock, represented in person or by proxy at the Annual Meeting and entitled to vote thereon, will be elected as directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
“FOR” THE CLASS II DIRECTOR NOMINEES.
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PROPOSAL 2 – SAY ON PAY
At the Annual Meeting, shareholders will vote on the following resolution:
RESOLVED, that the shareholders of CPI Aerostructures, Inc. approve, on an advisory basis, the compensation of CPI Aerostructures, Inc.’s Named Executive Officers as disclosed in this proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which include the compensation tables and related narrative discussion).
Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), and rules promulgated by the Securities and Exchange Commission (“SEC”) thereunder, enable our shareholders to vote to approve, on an advisory basis, the compensation of our Chief Executive Officer and Chief Financial Officer (collectively, our “Named Executive Officers”) as disclosed in this proxy statement in accordance with the SEC’s rules. Our compensation policies are intended to ensure that executive compensation is competitive yet reasonable, supportive of organizational objectives and shareholder interests, and designed to align the interests of executive officers with the Company’s long-term performance and increase shareholder value. An explanation of our policies and procedures in determining executive compensation is found below under the heading “Executive Officer Compensation” and specific information regarding the current compensation of our Named Executive Officers is found in the compensation tables included below.
The Say on Pay vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers. We believe that the executive compensation as disclosed in our tabular disclosures and other narrative executive compensation disclosure in this proxy statement aligns with our compensation policies.
The Say on Pay vote is advisory, and therefore not binding on the Company, our board of directors, or the compensation committee of the board of directors (“Compensation Committee”). As a matter of policy, the Compensation Committee has decided to take into consideration the results of the most recent Say on Pay vote when making compensation decisions and reviewing its compensation policies and practices.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
“FOR” THE APPROVAL OF THE COMPANY’S COMPENSATION
OF ITS NAMED EXECUTIVE OFFICERS.
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PROPOSAL 3 – FREQUENCY OF SAY ON PAY VOTE
Shareholders will also vote on the following resolution:
RESOLVED, that the shareholders of CPI Aerostructures, Inc. determine, on an advisory basis, that the frequency with which the shareholders of CPI Aerostructures, Inc. should have an advisory vote on the compensation of CPI Aerostructures, Inc.’s Named Executive Officers as described in the tabular disclosure regarding such compensation and the accompanying narrative disclosure set forth in CPI Aerostructures, Inc.’s Annual Meeting proxy statement is:
Choice 1 — every year;
Choice 2 — every two years;
Choice 3 — every three years; or
Choice 4 — abstain from voting.
At least once every six years, the Dodd-Frank Act enables our shareholders to indicate how frequently they believe we should conduct a Say on Pay vote (as such vote is described above). When the Company last submitted this non-binding resolution for shareholder vote at the 2012 Annual Meeting, it recommended that shareholders vote to approve, on an advisory basis, to hold an advisory vote on the overall compensation of the Company’s Named Executive Officers every three years, which shareholders supported.
After careful consideration, we have again determined that a three-year cycle is consistent with our policies and practices for evaluating and determining compensation of our Named Executive Officers as described in this proxy under the heading “Executive Officer Compensation” and will allow our board of directors and the Compensation Committee to engage with investors to understand any concerns about executive compensation and meaningfully implement any desired changes to our compensation policies and practices.
Like the Say on Pay vote, the Say on Pay Frequency vote is not binding on the Company, the Compensation Committee, or our board of directors. The Compensation Committee and our board of directors have decided to account for the results of the most recent Say on Pay Frequency vote when making a decision regarding how often to hold Say on Pay votes. We, however, may choose to hold Say on Pay votes less frequently than the option chosen by shareholders if we determine that it is in the best interest of the shareholders and the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR “EVERY THREE YEARS”
ON THE PROPOSAL RECOMMENDING THE FREQUENCY
OF ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION.
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PROPOSAL 4— RATIFICATION OF THE APPOINTMENT OF
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee of our board of directors (“Audit Committee”) is directly responsible for the appointment, compensation, retention, and oversight of the independent registered public accounting firm that audits our financial statements and our internal control over financial reporting. The Audit Committee has selected CohnReznick LLP (“CohnReznick”) as our independent registered public accounting firm for 2018. The Audit Committee annually reviews CohnReznick’s independence and performance in deciding whether to retain CohnReznick or engage a different independent registered public accounting firm. This review includes, among other things, consideration of CohnReznick’s historical and recent performance on our audit, CohnReznick’s capability and expertise in handling the breadth and complexity of our operations, the appropriateness of CohnReznick’s fees for audit and non-audit services, both on an absolute basis and as compared to its peer firms, and CohnReznick’s independence and tenure as our independent registered public accounting firm.
CohnReznick has served as our independent registered public accounting firm since 2004. There are a number of benefits of a long-tenured auditor, including:
•Higher Audit Quality. Through more than 13 years of experience with the Company, CohnReznick has gained knowledge of and deep expertise regarding our operations and businesses, accounting policies and practices, and internal control over financial reporting.
•Efficient Fee Structure. CohnReznick’s familiarity with our business helps keep aggregate fees competitive with peer companies.
•No Onboarding or Educating a New Auditor. Bringing on a new independent registered public accounting firm would require significant time and commitment that could distract from management’s focus on financial reporting andinternal controls.
We propose that the shareholders ratify the appointment of CohnReznick as our independent registered public accounting firm for fiscal year 2018. We expect that representatives of CohnReznick will be present at the Annual Meeting and that they will be available to respond to appropriate questions submitted by shareholders at the Annual Meeting. CohnReznick will have the opportunity to make a statement if they desire to do so.
The following fees were paid to CohnReznick for services rendered in years ended December 31, 2017 and 2016:
| Year Ended December 31, | ||
| 2017 | | 2016 |
Audit Fees(1) | $296,350 | | $294,000 |
Audit-Related Fees(2) | 22,220 | | — |
Tax Fees(3) | — | | — |
All Other Fees | — |
| — |
Total Fees | $318,550 |
| $294,000 |
(1)Audit fees consist of fees billed for professional services by CohnReznick for audit and quarterly review of the Company’s consolidated financial statements during the years ended December 31, 2017 and 2016, and related services normally provided in connection with statutory and regulatory filings or engagements.
(2)Audit-related fees represent the aggregate fees billed for assurance and related professional services rendered by CohnReznick that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees,” including the issuance of consents in connection with registration statement filings with the SEC and comfort letters in connection with securities offerings.
(3)Tax fees represent the aggregate fees billed for professional services rendered by CohnReznick for tax compliance, tax advice, and tax planning services.
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Pre-Approval Policies and Procedures. In accordance with Section 10A(i) of the Securities Exchange Act of 1934, as amended, before we engage our independent registered public accounting firm to render audit or non-audit services, the engagement is approved by our Audit Committee. Our Audit Committee approved all of the fees referred to in the rows titled “Audit Fees,” “Tax Fees,” and “All Other Fees” in the table above.
Ratification by the shareholders of the appointment of an independent registered public accounting firm is not required, but our board of directors believes that it is desirable to submit this matter to the shareholders. If a majority of the votes cast at the Annual Meeting do not ratify the selection of CohnReznick, the selection of an independent registered public accounting firm will be reconsidered by our Audit Committee. Even if the appointment is ratified, our Audit Committee, at its discretion, may change the appointment at any time if it determines that doing so would be in the best interests of the Company and our shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
“FOR” THE RATIFICATION OF THE APPOINTMENT OF COHNREZNICK LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
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DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information Aboutabout Directors, Nominees, and Executive Officers
Our directors and executive officers are as follows:
| | | ||
Name | | Age | | Director Since | | Position & Board Committees |
Harvey J. Bazaar |
| 77 | | 2006 |
| Director |
| | | | | | Audit Committee (Chair) |
| | | | | | |
Carey Bond | | 57 | | 2016 | | Director |
| | | | | | Compensation Committee, Nominating & Corporate Governance Committee |
| | | | | | |
Michael Faber |
| 58 | | 2013 |
| Director |
| | | | | | Audit Committee, Nominating & Corporate Governance Committee (Chair),Strategic Planning Committee |
| | | | | | |
Douglas McCrosson |
| 55 | | 2014 |
| Chief Executive Officer, President, and Director |
| | | | | | Strategic Planning Committee |
| | | | | | |
Vincent Palazzolo |
| 54 | | -- |
| Chief Financial Officer |
| | | | | | |
Walter Paulick |
| 71 | | 1992 |
| Director |
| | | | | | Audit Committee, Nominating & Corporate Governance Committee |
| | | | | | |
Eric Rosenfeld |
| 60 | | 2003 |
| Chairman of the Board of Directors |
| | | | | | Compensation Committee, Nominating & Corporate Governance Committee,Strategic Planning Committee (Chair) |
| | | | | | |
Terry Stinson |
| 76 | | 2014 |
| Director |
| | | | | | Compensation Committee (Chair), Strategic Planning Committee |
Our board of directors believesWe believe that it is necessary for each of our directors to possess qualities, attributes, and skills that contribute to a diversity of views and perspectives among the directors and enhance the overall effectiveness of the board.board of directors. As described on page 1316 under “Nominating“Nominating and Corporate Governance Committee Information — Guidelines for Selecting Director Nominees,” ourthe nominating and corporate governance committee of our board of directors (“Nominating and Corporate Governance Committee”) considers all factors it deems relevant when evaluating prospective candidates or current members of our board membersof directors for nomination to our board of directors, as prescribed in the committee’s written charter and established guidelines and the Company’s corporate governance guidelines. All of our directors bring to the board of directors leadership experience derived from past service. They also all bring a diversity of views and perspectives derived from their individual experiences working in a range of industries and occupations, which provide our board of directors, as a whole, with the skills and expertise that reflect the needs of the Company. The following skills matrix shows the diverse range of experience our directors provide to our Company.
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| | Qualifications | | Experience | ||||||||||
| | Executive | | Public | | Audit | | Accounting | | Law | | Corporate | | Aerospace |
Harvey J. Bazaar | | ✓ | | ✓ | | ✓ | | ✓ | | | | ✓ | | |
Carey Bond | | ✓ | | | | | | | | | | ✓ | | ✓ |
Michael Faber | | ✓ | | | | ✓ | | | | ✓ | | ✓ | | |
Douglas McCrosson | | ✓ | | | | | | | | | | ✓ | | ✓ |
Walter Paulick | | ✓ | | | | | | | | | | ✓ | | |
Eric Rosenfeld | | ✓ | | ✓ | | | | | | | | ✓ | | |
Terry Stinson | | ✓ | | ✓ | | | | | | | | ✓ | | ✓ |
(1)Indicates audit committee members who meet the criteria of an “Audit Committee Financial Expert” under applicable SEC rules.
Certain individual experiences, qualifications, and skills of our directors that contribute to the board of directors’ effectiveness as a whole are described in the biographies set forth below.
Harvey J. Bazaar has been a director since December 2006 and chairman of our audit committeeAudit Committee since April 2007. A certified public accountant, Mr. Bazaar has spent most of his career in public accounting, having retired from PricewaterhouseCoopers in 2000 as the Global and Americas Leader for the Capital Markets Group. At Coopers & Lybrand, which merged with PriceWaterhouse to form PricewaterhouseCoopers, Mr. Bazaar served on the firm’s Executive Committee and as Managing Partner of the New York City office. From September 2001 to December 2002, Mr. Bazaar served as the chief operating officerChief Operating Officer of DML Global Services, a company providing fund accounting and related services to private investment funds and other businesses. From December 2006 to August 2008, Mr. Bazaar served on the board of directors and audit committeeAudit Committee of BKF Capital Group, Inc., an OTC Bulletin Board company, and served as its presidentPresident and chief executive officerChief Executive Officer from November 2007 to August 2008. Beginning inFrom July 2009 to May 2018,Mr. Bazaar began servingserved on the board of directors of various insurance entities that are part of the QBE Americas Group, and in November 2009 was named chairmanserved as Chairman of the Audit Committee of QBE Holdings, Inc. from November 2009 to May 2018 and in January 2014 was namedas a member of the Remuneration Committee of these entities.QBE Holdings, Inc. from January 2014 to May 2018. Mr. Bazaar holds a Bachelor of Science Degreedegree from Kent State University and is a member of the boardBoard of trusteesTrustees of the Kent State University Foundation. Mr. Bazaar
brings to our board of directors an in-depth understanding of generally accepted accounting principles, financial statements, and SEC reporting requirements, as well as an extensive and diverse general business knowledge.
Carey E. Bondhas been a director since December 2016. Mr. Bond’s career as a corporate executive in the aviation industry has spanned over 30 years, where he has held successful leadership roles in several areas such as aircraft development and production, sales, service, and profit and loss ownership. Mr. Bond spent 10 years at Sikorsky Aircraft Corporation, a corporation specializing in designing, manufacturing and servicing helicopters, as Vice President, Corporate Strategy, Chief Marketing Officer, and President, Commercial Systems and Services. Mr. Bond has served on the board of directors of domestic and international companies, namely Shanghai Sikorsky Aircraft Company Limited, New Eclipse Aerospace, and PZL Mielec Aircraft Company. Mr. Bond holds a Masters of Business Administration from Texas Christian University. Mr. Bond brings to our board of directors a seasoned expertise in the aerospace industry, an internationally-minded approach to business development, and general business acumen.
Michael Faberhas been a director since August 2013 and chairman of our Nominating and Corporate Governance Committee since June 2014. Mr. Faber is a corporate executive, family office advisor, and attorney with overmore than 20 years of experience investing in, operating, and advising both large multi-national and emerging growth companies in a variety of industries. Since 1996,Mr. Faber has served as chief executive officerChief Executive Officer of NextPoint Management Company, Inc., an investment and strategic advisory firm, advising family offices on a variety of issues, including family office management, asset manager selection and oversight, direct investing, and trust and estates. Additionally, Mr. Faber currently serves as a senior advisor to a family office with more than $2 billion in assets, and a senior advisor to ff Venture Capital.Capital, and a senior advisor to Blueprint Capital Advisors. From 1990 to 2008, Mr. Faber was a General Partner of the NextPoint and Walnut family of investment funds, focusing on private equity, venture capital, and structured investments, where he managed three funds and invested in more than 90 companies.investments. Previously, Mr. Faber was a senior advisor to Akerman Senterfitt, of counsel to the law firm of Mintz Levin, an attorney with the law firm of Arnold & Porter, and a senior consultant to The Research Council of Washington, the predecessor to The Corporate Executive Board Company. During his career, Mr. Faber has served on audit and compensation committees for a number of companies. Mr. Faber is an honors graduate and John M. Olin Fellow of the University of Chicago Law School and attended the Johns Hopkins University School of International Studies and the State University of New York. Mr. Faber brings to our board of directors his legal expertise as well as his years of investment and general business experience.
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Douglas McCrosson was appointed as our Chief Executive Officer and President in March 2014. Mr. McCrosson joined the Company in 2003 as Director of Business Development. During his tenure, he has held positions of increasing responsibility, including Vice President of Business Development and Senior Vice President of Operations, where he headed CPI Aero’sCPI’s business development, engineering, procurement and manufacturing operations. Subsequently, he was promoted to the position of Chief Operating Officer in January 2010 before becoming President and CEO.Chief Executive Officer. He has 30 years of aerospace experience, having started his career as a mechanical engineer at Grumman Corporation, now Northrop Grumman. Mr. McCrosson holds a Bachelor of Science degree in mechanical engineering from the State University of New York at Buffalo and a Master of Science degree in Management from the New York University Polytechnic School of Engineering. He ishas been a member of the Board of Governors of the Aerospace Industries Association, a trade association representing major aerospace and defense manufacturers and suppliers in the United States. He is a member of the Board of Directors of the Long Island Association, the leading business association in the Long Island region. Mr. McCrosson provides our board of directors with unique knowledge of the Company’s business, operations and management and his other extensive experience in the Company’s industry.
Kenneth McSweeney has been a director since February 1998. From April 2003 until June 2014 he served as the chairman of our compensation committee. Mr. McSweeney has been an independent consultant to the aerospace industry since January 1995. From 1961 to 1995, Mr. McSweeney served in various management positions for Northrop Grumman Corporation, most recently as the vice president of its Aerostructures Division and a director of business development for the Mideast and gulf coast region. Mr. McSweeney has extensive experience in aerostructures and logistics support products, as well as experience in the marketing, design, and manufacturing of aerospace products. Mr. McSweeney is a licensed professional engineer in New York State. He holds Bachelor and Master of Science degrees in Electrical Engineering from the Polytechnic Institute of Brooklyn and a Master’s degree in Business Management from CW Post College. He also completed the Executive Development Program at the Cornell School of Business and Public Administration. Mr. McSweeney contributes to our board of directors with his extensive professional and business experience in the Company’s industry.
Vincent Palazzolo has been our Chief Financial Officer since May 2004 and our Secretary since March of 2008. From December 2003 to May 2004, he was employed by J. H. Cohn LLP as an audit partner. From 1988 through November 2003, Mr. Palazzolo was employed by Goldstein Golub Kessler LLP (“GGK”), where he was an audit partner from September 1999 through November 2003. While employed by GGK, from September 1999 to November 2003, Mr. Palazzolo also served as a managing director of American Express Tax and Business Services, Inc. Mr. Palazzolo holds a Bachelor of Business Administration in Accounting from Hofstra University, is a certified public accountant and is a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants.
Walter Paulick has been a director since April 1992. He served as the chairman of our nominatingNominating and corporate governance committeeCorporate Governance Committee from March 2004 until June 2015 and as chairman of our audit committeeAudit Committee from June 2006 until April 2007. Mr. Paulick is currently a self-employed real estate development consultant. From 1982 to November 1992, Mr. Paulick was a vice president of Parr Development Company, Inc., a real estate development company. From 19801974 to 1982, Mr. Paulick was employed by Key Bank, where he last held the position of vice president. From 1971 to 1980, Mr. Paulick was a vice president of National Westminster U.S.A. Mr. Paulick holds an Associate degree in Applied Science from Suffolk Community College and a Bachelor of Business Administration from Dowling College. Mr. Paulick’s background in banking and real estate development, and his general business knowledge provides our board of directors with a diverse perspective on the Company’s industry and conducting business in our region.
Eric S. Rosenfeld has been the non-executive chairmanNon-Executive Chairman of our board of directors since January 2005 and a director and chairmanChairman of our strategic planning committeeStrategic Planning Committee since April 2003. Mr. Rosenfeld has been the President and Chief Executive Officer of Crescendo Partners, L.P., a New York based investment firm, since its formation in November 1998. Prior to forming Crescendo Partners, he held the position of Managing Director at CIBC Oppenheimer and its predecessor company, Oppenheimer & Co., Inc., for 14 years. Mr.years.Mr. Rosenfeld currently serves as a director for several companies, including Absolute Software Corp., a leader in firmware-embedded endpoint security and management for computers and ultraportable devices, Cott Corporation, a consumer beverages company, Pangaea Logistics Solutions Ltd., a logistics and shipping company that merged with Quartet Merger Corp., a blank-check company, for which he served as Chairman and CEOChief Executive Officer, and SAExploration Holdings Inc. CurrentlyNextDecade Corporation, a natural gas development stage company that merged with Harmony Merger Corp., a blank-check company for which he served as Chairman and Chief Executive Officer. Mr. Rosenfeld serves asis also currently on the Chairman and CEOboard of Harmony Merger Corp.Aecon Group Inc., a blank-check company.Canadian construction company that is expected to be acquired by CCCI by the end of the second quarter 2018, subject to Canadian governmental approval. At such time, Mr. Rosenfeld will resign from his position on that board. Mr. Rosenfeld has also served as a director for numerous companies, including Arpeggio Acquisition Corporation, Rhapsody Acquisition Corporation and Trio Merger Corp., all blank check corporationscompanies that later merged with Hill International, Primoris Services Corporation and SAExploration Holdings Inc., respectively. He also servesserved on the board of directors of Sierra Systems Group Inc., an information technology, management consulting, and systems integration firm, Emergis Inc., an electronic commerce company, Hill International, a construction management firm, Matrikon Inc., a company that provides industrial intelligence solutions, DALSA Corp., a digital imaging and semiconductor firm, and GEAC Computer, a software company, Computer Horizons Corp., an IT services company, and SAExploration Holdings Inc., a seismic data services company. Mr. Rosenfeld provides our board of directors with expertise in finance and financial markets and with experience derived from his service on the boards of other public and private companies.
Terry Stinson has been a director and the chairman of theour compensation committee since June 2014. Mr. Stinson is Chief Executive Officer of his own consulting practice, Stinson Consulting, LLC, a position he has held since 2001. Stinson Consulting is engaged in strategic alliances and marketing for the aerospace industry. From January 2013 until May 31, 2014, he served as Executive Vice President of AAR CORP., an international, publicly traded aerospace manufacturing and services company, a position he has held.company. Mr. Stinson currently serves as an independent consultant to AAR CORP since May 31, 2014. Since 2001, Mr. Stinson has been Chief Executive Officer of his own consulting practice, Stinson Consulting, LLC, engaged in strategic alliances and marketing for the aerospace industry.CORP. From August 2007 until January 2013, Mr. Stinson served as Group Vice President of AAR CORP. From 2002 to 2005, Mr. Stinson served as Chief Executive Officer of Xelus, Inc., a collaborative enterprise service management solution company. From 1998 to 2001, Mr. Stinson was Chairman and Chief Executive Officer of Bell Helicopter Textron Inc., the world’s leading manufacturer of vertical lift aircraft, and served as President from 1996 to 1998. From 1991 to 1996, Mr. Stinson served as Group Vice President and Segment President of Textron Aerospace Systems and Components for
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Textron Inc. PriorFrom 1986 to that position,1996, he was President of the Hamilton Standard Division of United Technologies Corporation, a defense supply company, since 1986.company. Mr. Stinson is currently a director of Lennox International Inc., a company engaged in the design and manufacture of heating, ventilation, air conditioning,
and refrigeration products, serving on such company’s Board Governance, and Compensation, and Human Resources Committees. Mr. Stinson previously served as a director of Triumph Group, Inc., a company engaged in the manufacturing and repair of aircraft components, subassemblies, and systems, from September 2003 to March 2008. As a former senior executive of two Fortune 500 companies, Mr. Stinson contributes to our board of directors his extensive management and marketing experience in the aerospace industry, as well as his general business acumen and experience developed by serving on other public company boards.
THE BOARD RECOMMENDS THAT YOU VOTE“FOR” THE CLASS III DIRECTOR NOMINEES.Family Relationships
There are no family relationships among any of the Company’s directors or named executive officers.
Independence of Directors
Our common stock is listed on the NYSE MKTAmerican LLC exchange (“NYSE MKT”American”)., a stock exchange affiliated with the New York Stock Exchange. As a result, we follow the rules of the NYSE MKTAmerican exchange in determining whether a director is independent. The current NYSE MKTAmerican exchange listing standards define an “independent director” generally as a person, other than an officer or employee of the Company, who does not have a relationship with the Company that would interfere with the director’s exercise of independent judgment. Our board of directors consults with our legal counsel to ensure that our board of directors’ determinations are consistent with the NYSE MKTAmerican exchange rules and all relevant securities and other laws and regulations regarding the independence of directors. Consistent with these considerations, our board of directors has determined that Kenneth McSweeney, Walter Paulick, Harvey J. Bazaar, Carey Bond, Michael Faber, Walter Paulick, Eric Rosenfeld, Michael Faber and Terry Stinson will be independent directors of the Company for the ensuing year. The remaining director, Douglas McCrosson, is not independent because he is currently employed by us. All members of our audit, compensationAudit, Compensation, and nominatingNominating and corporate governance committeesCorporate Governance Committees are independent.
Code of Ethics
Our board of directors has adopted a written code of ethics thatwhich applies to our directors, officers, and employees, thatand which is designed to deter wrongdoing and to promote ethical conduct, full, fair, accurate, timely, and understandable disclosure in reports that we file or submit to the Securities and Exchange CommissionSEC and others, compliance with applicable government laws, rules, and regulations, prompt internal reporting of violations of the code, and accountability for adherence to the code. A copy of the code of ethics may be found on our website atwww.cpiaero.com.www.cpiaero.com/board.html.
Board of Directors Meetings and Committees
Our board of directors held sixseven meetings in 2015.2017. All directors attended the 20152017 annual shareholder meeting. Although we do not have any formal policy regarding director attendance at annual shareholder meetings, we attempt to schedule our annual meetings so that all of our directors can attend. In addition, we expect our directors to attend all board and committee meetings and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. No director attended fewer than 75% of the meetings of the board and of the committees thereof upon which he served in 2015.2017. We have standing compensation, audit, nominating and corporate governance, and strategic planning committees. Copies of our committee charters are available free of charge on our website atwww.cpiaero.com.www.cpiaero.com/board.html.
Leadership Structure
Our board of directors has determined to keep separate the positions of board chairman and principal executive officer at this time. This permits our principal executive officer to concentrate his efforts primarily on managing the Company’s business operations and development. This also allows us to maintain an independent chairman of the board chairman who oversees, among other things, communications and relations between our board of directors and senior management, consideration by our board of directors of the Company’s strategies and policies, and the evaluation of our principal executive officers by our board of director’s principal executive officer evaluation processes.directors.
Risk Oversight
OurThe primary function of our board of directors’ primary functiondirectors is one of oversight. Our board of directors as a whole has responsibility for risk oversight and reviews management’s risk assessment and risk management policies and procedures. Our audit committeeIn particular, our Audit Committee discusses with management the Company’s major financial risk exposures and reports its findings to our board of directors in connection with our board of directors’board’s risk oversight review.
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Stock Ownership Requirements
Non-executive directors are subject to a stock ownership policy whereby each non-executive director is required to own common stock of the Company valued at least four times his annual cash compensation before and after any stock sales. We believe this policy promotes and strengthens the alignment of interests between our non-executive directors, management, and shareholders.
Corporate Governance Highlights
✓ Independent Chairman of the Board | ✓ Regular executive sessions of independent directors |
✓ 6 out of 7 directors are independent | ✓ Stock ownership requirements for independent directors |
✓ Robust risk oversight process for board and committees | ✓ Annual board and committee evaluations |
Compensation Committee Information
Our compensation committeeCompensation Committee is currently comprised of Carey Bond, Eric Rosenfeld, and Terry Stinson (chairman), Kenneth McSweeney, Walter Paulick and Eric Rosenfeld,(Chairman). Our board of directors has determined that each member of the Compensation Committee is an independent director under the NYSE MKTAmerican exchange listing standards. Our board of directors has adopted a written compensation committeeCompensation Committee charter, which is reviewed annually and which the compensation committeeCompensation Committee intends to review at its next regularly scheduled meeting. The responsibilities of our compensation committeeofour Compensation Committee include:
•establishing the general compensation policy for our executive officers, including the chief executive officer;
•reviewing the compensation paid to non-employeenon-executive directors and making recommendations to the board for anyof directors forany adjustments;
•administering our stock option and performance equity plans and determining who participates in the plans, establishing performance goals, if any, and determining specific grants and bonuses to the participants; and
•ensuring that any compensation plan for key executives does not encourage undue risk-taking.
Our compensation committeeCompensation Committee held fivethree meetings during 20152017 to review, discuss, and make any necessary changes to our executive and non-employeenon-executive director compensation. Our compensation committeeCompensation Committee makes all final determinations with respect to compensation of executive officers, considering, among other things, its assessment of the value of each executive officer’s contribution to the Company, the Company’s financial performance during recent fiscal years in light of prevailing business conditions, and the Company’s goals for the ensuing fiscal year. Our compensation committeeCompensation Committee considers recommendations from our chief executive officerChief Executive Officer relating to the compensation of our other executive officers. For a complete discussion of our compensation committee’s policies and procedures respecting executive compensation of our Named Executive Officers, please see the “Compensation Discussion and Analysis” below.
Our compensation committeeCompensation Committee may utilize the services of third parties, including subscriptions to executive compensation surveys and other databases, to assist with theirthe review of compensation for executive officers. Our compensation committeeCompensation Committee is charged with performing an annual review of the compensation of our executive officers to determine whether they are provided with adequate incentives and motivation, and whether they are compensated appropriately in accordance with our compensation policies.
Audit Committee Information and Report
Our audit committeeAudit Committee is currently comprised of Harvey J. Bazaar (chairman)(Chairman), Michael Faber, Kenneth McSweeney and Walter Paulick. During the 2015, our audit committeeOur Audit Committee held six meetings.meetings during 2017. All of the members of our audit committeeAudit Committee are “independent directors,” as defined under the NYSE MKTAmerican exchange listing standards, and are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement.
Financial ExpertExperts on the Audit Committee
We must certify to the NYSE MKTAmerican exchange that our audit committeeAudit Committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. Our board of directors has determined that each of Harvey J. Bazaar’s and Michael Faber’s qualifications satisfy the NYSE MKT’sAmerican exchange’s definition of financial sophistication and also qualify them as an “audit committee financial expert,” as defined under the rules and regulations of the Securities and Exchange Commission.SEC.
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Our board of directors has adopted a written audit committee charter. Our audit committeeAudit Committee charter, which is reviewed annually and which the audit committeeAudit Committee intends to review at its next regularly scheduled meeting. According to our audit committeeAudit Committee charter, our audit committee’sAudit Committee’s responsibilities include, among other things:
•meeting with the independent auditorregistered public accounting firm prior to the audit to review the scope, planning, and staffing of the audit;
•reviewing and discussing with management and the independent auditorregistered public accounting firm the Company’s quarterly financial statements prior to the filing of itsQuarterly Reports on Form 10-Q, including the results of the independent auditor’sregistered public accounting firm’s review of the quarterly financial statement;
•discussing with management and our independent auditorregistered public accounting firm significant financial reporting issues and judgments made in connection with the preparation of our financial statements;
•discussing earnings press releases generally,with management, including the use of “pro forma”pro forma or “adjusted”adjusted non-GAAP information, and financial information and earnings guidance provided to analysts and rating agencies;
•discussing with management and our independent auditorregistered public accounting firm the effect on our financial statements of (i) regulatory and accounting initiatives and (ii) off-balance sheet structures;
•discussing with management major financial risk exposures and the steps management has taken to monitor and control such exposures, including our risk assessment and risk management policies;
•discussing with the independent auditorregistered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management;
•reviewing disclosures made to our audit committeeAudit Committee by our chief executive officerChief Executive Officer and chief financial officerChief Financial Officer during their certification process for our Form 10-Ks and Form 10-Qs about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in our internal controls;
•reviewing the scope, planning, and staffing of the audit for the Company’s 401(k) Planplan and reviewreviewing the audited financial statements for the 401(k) Plan;
•verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;
•reviewing and discussing with our independent registered public accounting firm the firm’s written disclosures concerning independence as required by PCAOB Ethics and Independence Rule 3526;
•reviewing and approving all related-party transactions;
•discussing with management our compliance with applicable laws and regulations;
•pre-approving all audit services and permitted non-audit services to be performed by our independent auditor,registered public accounting firm, including the fees and terms of the services to be performed;
•appointing or replacing our independent auditor;
•determining the compensation and oversight of the work of our independent auditorregistered public accounting firm (including resolution of disagreements between management and our independent auditorregistered public accounting firm regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; and
•establishing procedures for the receipt, retention, and treatment of complaints received by us regarding accounting, internal accounting controls, or reports which raise material issues regarding our financial statements or accounting policies.
Management has reviewed the audited financial statements in the Company’s annual reportAnnual Report on Form 10-K for the year ended December 31, 2017 with our audit committee,Audit Committee, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant accounting judgments and estimates, and the clarity of disclosures in the financial statements. In addressing the quality of management’s accounting judgments, members of our audit committeeAudit Committee asked for management’s representations and reviewed certifications prepared by the chief executive officerChief Executive Officer and chief financial officerChief Financial Officer that the unaudited quarterly and audited annual financial statements of the Company fairly present, in all material respects, the financial condition and results of operations of the Company.
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In performing all of these functions, our audit committeeAudit Committee acts only in an oversight capacity. The committeeAudit Committee reviews the Company’s annual reports and generally reviews its quarterly reports prior to filing with the Securities and Exchange Commission.SEC. In its oversight role, our audit committeeAudit Committee relies on the work and assurances of the Company’s management, which has the responsibility for financial statements and reports, and of our independent registered public accounting firm, who, in their report, express an opinion on the conformity of the Company’s annual financial statements to generally accepted accounting principles. Our audit committeeAudit Committee has met and held discussions with management and the Company’s independent registered public accounting firm. Management represented to our audit committeeAudit Committee that the Company’s financial statements were prepared in accordance with generally accepted accounting principles, and our audit committeeAudit Committee has reviewed and discussed the financial statements with management and our independent registered public accounting firm. Our audit committeeAudit Committee also discussed with our independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The Company’s independent registered public accounting firm also provided our audit committeeAudit Committee with the written disclosures required by Independence Standard Board Standard No. 1 (Independence Discussions with Audit Committees) and our audit committeeAudit Committee discussed with our independent registered public accounting firm and management the auditor’sindependent registered public accounting firm’s independence, including with regard to fees for services rendered during the fiscal year and for all other professional services rendered by the Company’s independent registered public accounting firm.rendered. In reliance on these reviews, and discussions, and the report of our independent registered public accounting firm, our audit committeeAudit Committee recommended to our board of directors, and the board of directors approved, that the audited financial statements be included in the Company’s annual reportAnnual Report on Form 10-K for the fiscal year ended December 31, 2015,2017, for filing with the Securities and Exchange Commission.SEC.
Members of our Audit Committee:
Harvey J. Bazaar (chairman)
(Chairman)
Michael Faber
Walter PaulickKenneth McSweeney
Nominating and Corporate Governance Committee Information
Our board of directors has a nominatingNominating and corporate governance committeeCorporate Governance Committee is currently comprised of Carey Bond, Michael Faber (chairman)(Chairman), Walter Paulick, Kenneth McSweeney and Eric Rosenfeld, each an independent director under the NYSE MKTAmerican exchange listing standards. Our nominatingNominating and corporate governance committeeCorporate Governance Committee held twothree meetings during 2015.2017. Our nominatingNominating and corporate governance committeeCorporate Governance Committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors and for developing and recommending corporate governance guidelines. Our nominatingNominating and corporate governance committeeCorporate Governance Committee considers potential director nominees identified by its members, our board of directors, management, shareholders, investment bankers, and others.
Our board of directors has adopted a written charter for our Nominating and establishedCorporate Governance Committee, which establishes guidelines for corporate governance, the selection of director nominees, and athe method by which shareholders may propose to our nominatingNominating and corporate governance committeeCorporate Governance Committee candidates for selection as nominees for director. On April 29, 2016,16, 2018, the nominatingNominating and corporate governance committeeCorporate Governance Committee reviewed its charter, the guidelines for corporate governance, and criteria for the selection of director nominees.
Guidelines for Selecting Director Nominees
The guidelines for selecting director nominees generally provide that persons to be nominatedthe nominee should be accomplished in his or her field, withhave a reputation that is consistent with that of the Company, have relevant experience and expertise, have an understanding of financial statements, corporate budgeting, and capital structure, be familiar with the requirements of a publicly traded company, be familiar with industries relevant to our business endeavors, be willing to devote significant time to the oversight duties of the board of directors of a public company, and be able to promote a diversity of views based on the person’s education, experience, and professional employment. Our nominatingNominating and corporate governance committeeCorporate Governance Committee evaluates each individual in the context of the board as a whole, with the objective of recommending a group of persons that can best implement our business plan, perpetuate our business, and represent shareholder interests. Our nominatingNominating and corporate governance committeeCorporate Governance Committee may require certain skills or attributes, such as financial or accounting
experience, to meet specific board needs that arise from time to time. Our nominatingNominating and corporate governance committeeCorporate Governance Committee does not distinguish among nominees recommended by shareholders and other persons.
Procedure for Shareholders to Recommend Director Candidates
Shareholders and others who wish to recommend candidates to our nominatingNominating and corporate governance committeeCorporate Governance Committee for consideration as directors must submit their written recommendations to our nominatingNominating and corporate governance committeeCorporate Governance Committee and include all of the information described in the section “2017“2019 Annual Meeting Shareholder Proposals and Nominations.Nominations” on page 27 below.
On April 29, 201616, 2018, our nominatingNominating and corporate governance committeeCorporate Governance Committee recommended to our board of directors to nominate Douglas McCrossonWalter Paulick and Michael FaberEric Rosenfeld for re-election as Class IIIII directors at thethis year’s Annual Meeting. Our nominatingNominating and corporate governance committeeCorporate Governance Committee did not receive recommendations from any shareholders or others for director candidates.
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Guidelines for Corporate Governance
Our corporate governance guidelines are intended to ensure that the board of directors has the necessary authority and practices in place to review and evaluate the Company’s business operations and to make decisions that are independent of the Company’s management. The corporate governance guidelines are also are intended to align the interests of the Company’s directors and management with those of the Company’s shareholders. The guidelines establish the practices theour board of directors follows with respect to the obligations of the board and each director;director, board composition and selection;selection, board meetings and involvement of senior management; chief executive officermanagement, Chief Executive Officer performance evaluation and succession planning;planning, board committee composition and meetings;meetings, director compensation;compensation, director orientation and education;education, and director access to members of management and to independent advisors.
The corporate governance guidelines were adopted by theour board of directors in 2010 and are reviewed periodically and updated as necessary to reflect changes in regulatory requirements and evolving oversight practices. The guidelines were last reviewed on April 29, 2016.16, 2018. The guidelines comply with corporate governance requirements contained in the listing standards of the NYSE MKTAmerican exchange and enhance the Company’s corporate governance policies.
Strategic Planning Committee Information
OurThe strategic planning committee of our board of directors (“Strategic Planning Committee”) is currently comprised of Eric Rosenfeld (chairman), Douglas McCrosson, Michael Faber, Eric Rosenfeld (Chairman), and Terry Stinson. The main role of the strategic planning committeeStrategic Planning Committee is to evaluate and analyze strategic options for the Company. The strategic planning committeeStrategic Planning Committee held fourthree meetings in 2015.during 2017.
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EXECUTIVE OFFICER COMPENSATION
Compensation Discussion and Analysis
References in this section to Employment Agreements are to the employment agreement in effect for each Named Executive Officernamed executive officer for the applicable period, giving effect to any and all amendments, unless context requires otherwiseotherwise..
Overview
The compensation committee is composed of Terry Stinson (chairman), Kenneth McSweeney, Walter Paulick and Eric Rosenfeld, each of whom is an independent director under NYSE MKT standards. The compensation committee oversees the compensation and employee benefit plans and practices of the Company, including its executive and non-employee director compensation plans. The compensation committee’s goal is to ensure that executive compensation is competitive yet reasonable, supportive of organizational objectives and shareholder interests and designed to align the interests of executive officers with the Company’s long-term performance and increase shareholder value.
This Compensation Discussion and Analysis concerns the compensation of Douglas McCrosson our Chief Executive Officer and Vincent Palazzolo our Chief Financial Officer.
At our 2012 annual meeting of shareholders, we conducted an advisory “SaySay on When Pay”Pay Frequency vote, in which shareholders determined that a “Sayan advisory Say on Pay”Pay vote should be held every three years. In accordance with the shareholder vote, the Company held a “SaySay on Pay”Pay vote at ourthe 2015 Annual Meeting,annual meeting of shareholders, in which shareholders overwhelmingly approved the then-current compensation of our Named Executive Officers. The following “Saynamed executive officers. Say on When Pay” vote will take place at our annual meeting toPay Frequency votes must be held at least every six years, therefore, at this Annual Meeting, we will hold an advisory Say on Pay Frequency vote, in 2018.which shareholders will be asked to determine how frequently to hold Say on Pay votes going forward. Also at this Annual Meeting we will hold an advisory Say on Pay vote, in which shareholders will be asked to approve, on an advisory basis, the current compensation of our named executive officers. The compensation committeeCompensation Committee considers the results of shareholder advisory votes regarding compensation as one factor when reviewing compensation and making compensation decisions.
In 2013, the compensation committee modified the process for determining annual salary increases for the Named Executive Officers. In 2014, the compensation committee also determined separation benefits and consulting compensation arrangements for Edward J. Fred in connection with his resignation as President and Chief Executive Officer of the Company.
During 2015, the compensation committee determined to reevaluate the Company’s compensation policies and is in the process of finalizing new compensation policies for our Named Executive Officers. The compensation committee has engaged a compensation consultant to advise and assist it with developing compensation structures for Messrs. McCrosson and Palazzolo that strike an appropriate balance between maintaining competitive, yet reasonable, compensation levels and benefits and aligning pay with performance. The new compensation structures will include changing the Company’s practice of providing long-term employment contracts to the Named Executive Officers in favor of at-will employment with industry competitive severance and other benefits. The new compensation structures will also provide the compensation committee with the flexibility to refocus cash and equity performance incentives annually. The compensation committee’s objective in revising its compensation policies is to provide compensation incentives to its Named Executive Officers that will contribute significantly to the Company’s performance.
Compensation Policies and Practices
The compensation committee met four times during 2015 to review and discuss executive compensation matters. It has been the Company’s practice to enter into three-year employment agreements with our Named Executive Officers and, if considered appropriate by our board of directors, to extend the term of the employment agreements for two additional years in the fourth quarter of the year prior to their expiration. In October 2013, the board extended the term of the Employment Agreements with each of Messrs. McCrosson and Palazzolo from December 31, 2014 to December 31, 2016. In connection therewith, the compensation committee tied annual base salary increases for the Named Executive Officers to achievement of performance goals established by the compensation committee, as described below.
In March 2014, Mr. McCrosson was appointed President and Chief Executive Officer and the Company entered into an amended and restated Employment Agreement with him.
Determinations of executive compensation are not based on a rigid formula, but focus on both objective and subjective factors that the compensation committee believes indicative of a Named Executive Officer’s success as an officer of the Company. The compensation committee assesses the value of each Named Executive Officer’s contribution to the Company, the Company’s financial performance during recent fiscal years in light of prevailing business conditions, the Company’s goals for the ensuing fiscal years, prevailing compensation levels of the chief executive officer at companies considered to be comparable to the Company and, with respect to each other executive officer, their total compensation relative to the chief executive officer’s total compensation.
The compensation committee considers recent shareholder approval votes with respect to executive compensation. As mentioned above, the compensation committee is in the process of finalizing new compensation policies for the Named Executive Officers and has engaged a compensation consultant to advise and assist it with developing new compensation structures for Messrs. McCrosson and Palazzolo.
The compensation committee considers recommendations, if any, from our chief executive officer relating to the compensation of our other executive officers.
Existing Compensation Components
Each of the Employment Agreements, as amended, provides for three primary compensation components: base salary, a performance-based annual bonus and perquisites and other personal benefits, each of which is discussed in detail below.
Base Salary. In addition to the factors addressed above, the compensation committee focuses on whether the base salary of each Named Executive Officer is commensurate with the level of responsibility his position entails and with his experience. When determining base salary, the compensation committee endeavors to maintain a balance in the range of base salaries of the Named Executive Officers and their respective responsibilities. For fiscal years ended December 31, 2013, 2014 and 2015, Messrs. McCrosson’s and Palazzolo’s base salary under their respective Employment Agreements was:
| | | | |||||||||
| Executive Officer | 2013 ($) | 2014 ($) | 2015 ($) | |||||||||
| Douglas McCrosson | 253,000 | 313,462 | 333,125 | |||||||||
| Vincent Palazzolo | 253,000 | 263,000 | 269,575 | |||||||||
Before his appointment as President and Chief Executive Officer, Mr. McCrosson was the Company’s Chief Operating Officer and his Employment Agreement provided for an annual base salary of $265,000 for 2014. Upon his appointment as President and Chief Executive Officer, the compensation committee determined to increase his base salary to an annual rate of $325,000 for the remainder of 2014 in consideration of his increased level of responsibility. Mr. McCrosson was paid 10 weeks of salary as Chief Operating Officer and 42 weeks of salary as Chief Executive Officer in 2014.
The compensation committee’s past practice had been to set annual base salary increases for each year during the term of the Employment Agreements. When renewing Employment Agreements in October 2013, the compensation committee determined that Messrs. McCrosson’s and Palazzolo’s annual base salary increases for 2015 and 2016 would be tied to the achievement of individual performance goals. Accordingly, Messrs. McCrosson’s and Palazzolo’s Employment Agreements provide for discretionary base salary increases in 2015 and 2016, not to exceed 5% of the prior year’s base salary, based upon the attainment of individual performance goals. Such goals were established by the compensation committee after consultation with Messrs. McCrosson and Palazzolo for the applicable year. The compensation committee believes that rewarding management based on achievement of individual performance goals provides additional incentives aligning the executive’s goals with the Board’s direction for the Company and the Company’s overall performance. Based on Messrs. McCrosson’s and Palazzolo’s performance in relation to the 2014 performance goals, the compensation committee determined to increase each of their base salaries by 2.5% for 2015. Based on Messrs. McCrosson’s and Palazzolo’s performance in relation to the 2015 performance goals, the compensation committee determined to increase each of their base salaries by 3.0% for 2016.
Performance-Based Annual Bonus. Each of the Employment Agreements provides for an annual non-discretionary bonus based on changes in our revenues and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) from the prior year. Per each Employment Agreement, 25% of the bonus amount is determined by revenues and 75% by EBITDA. If growth targets are met on each metric, each executive receives his baseline bonus. During his tenure as Chief Operating Officer, the baseline bonus for Mr. McCrosson was 45% of 100% of his base salary. After his appointment as President and Chief Executive Officer, the baseline bonus for Mr. McCrosson was increased to 60% of 100% of his base salary. The current baseline bonus for Mr. Palazzolo is 45% of 100% of his base salary.
The percent of base salary used to calculate the bonus amount decreases or increases depending upon the percent increase or decrease in revenues and EBITDA. For example, if EBITDA and revenues both increase by a 25% margin for a fiscal year ending on or before December 31, 2015, then Mr. McCrosson would receive a bonus equal to (1) 75% of 60% of 110% of his base salary plus (2) 25% of 60% of 110% of his base salary. If EBITDA decreases by 5% and revenues remain the same for a fiscal year ending on or before December 31, 2015, then Mr. McCrosson would receive a bonus equal to (1) 75% of 60% of 50% of his base salary plus (2) 25% of 60% of 75% of his base salary. The performance targets and corresponding percentage of base salary used to calculate the bonus (for the applicable fiscal year), as set forth in the Employment Agreements, are listed in the tables below. The amounts are adjusted pro ratably in the event EBITDA or revenue growth falls between two targets.
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Each executive receives part of his bonus in cash, and the balance in shares of the Company’s common stock valued at the volume weighted average price of the common stock on NYSE MKT for the five consecutive trading days ending two trading days before issuance. Shares of common stock are issued pursuant to the Company’s Performance Equity Plan 2009 (described below). When Mr. McCrosson served as our Chief Operating Officer, the first $75,000 of his bonus was paid in cash and the balance paid half in cash and half in shares. Since Mr. McCrosson’s appointment as President and Chief Executive Officer, and under his current Employment Agreement, the first $100,000 of his bonus is paid in cash and the balance is paid half in cash and half in shares of common stock. Under Mr. Palazzolo’s Employment Agreement, the first $75,000 of his bonus is paid in cash and the balance is paid half in cash and half in shares of common stock.
Primarily as a result of the change in estimate on the Company’s A-10 contract in 2014, for 2014 there was a decrease of more than 15% in both EBITDA and revenues from 2013. Accordingly, Messrs. McCrosson and Palazzolo were not entitled to performance-based annual bonuses for 2014.
Considering challenges addressed by Messrs. McCrosson and Palazzolo during 2014, particularly, the transition to a new Chief Executive Officer and the A-10 change in estimate, in December 2014, the compensation committee awarded discretionary merit bonuses to Messrs. McCrosson and Palazzolo in the amounts of $50,000 and $30,000, respectively. The discretionary bonuses were awarded subject to Messrs. McCrosson and Palazzolo agreeing to a reduction by such amounts of performance-based annual bonuses earned by them for 2015. Accordingly, Messrs. McCrosson and Palazzolo’s bonuses in 2015 were reduced by $50,000 and $30,000, respectively.
| | | | |||||||||
| Name | Bonus Calculated Based on EBITDA ($) | Bonus Calculated Based on Revenues ($) | Total Bonus Awarded ($)(1) | |||||||||
| Douglas McCrosson | — | 87,445 | 37,445 | |||||||||
| Vincent Palazzolo | — | 53,073 | 23,073 | |||||||||
Perquisites and Other Personal Benefits. We maintain various employee benefit plans, including medical, dental, life and disability, and these plans are available to all of the Company’s key employees. Each of Messrs. McCrosson and Palazzolo is reimbursed for expenses related to the use of an automobile to be used in connection with Company business. Such expenses include lease and insurance costs, repairs and maintenance. The Company maintains a corporate golf club membership that is made available to key employees, including Messrs. McCrosson and Palazzolo. The perquisites and other personal benefits provided to Messrs. McCrosson and Palazzolo are set forth in the Employment Agreements.
Termination and Change in Control Payments
Potential Payments under Current Employment Agreements
Mr. McCrosson’s Employment Agreement provides that if, during the employment term, we terminate him without “cause” or he terminates his employment for “good reason” (as such terms are defined therein), we will be required to pay him his base salary through the end of the employment term and for up to six months thereafter, his medical and dental premiums for continued coverage on our benefit plans as permitted under the Consolidated Omnibus Budget Reconciliation Act of 1985. Mr. Palazzolo’s Employment Agreement provides that if, during the employment term, we terminate him without “cause” or he terminates his employment for “good reason” (as such terms are defined therein), we will be required to pay Mr. Palazzolo his base salary through the end of the employment term. We believe such termination payments are reasonable and appropriate in light of non-competition provisions in such executives’ Employment Agreements, which prohibit them from competing with the Company for a period of two years following their employment with us.
Mr. McCrosson’s Employment Agreement contains an additional provision, which provides for certain compensation in the event of a change of control (as such term is defined in the agreement) if, within 18 months of such change of control, Mr. McCrosson’s employment is terminated by us without “cause” or by Mr. McCrosson for “good reason.” In such event and at Mr. McCrosson’s option, in lieu of the above-discussed compensation, we will pay him a lump sum equal to two times the lesser of (a) the total compensation (including salary and bonus) earned by him during the last full calendar year of his employment or (b) the average of his total compensation (including salary and bonus) for the five calendar years ending before the change of control. We believe that providing Mr. McCrosson with benefits in the face of a change of control will help us retain him and most importantly, ensure his objectivity in connection with potential transactions that may result in a change of control of the Company.
Other Compensation Matters
Risk Assessment. The compensation committee has also reviewed whether the Company’s compensation policies and practices might encourage inappropriate risk taking by the Company’s Named Executive Officers. The compensation committee determined that the current compensation structure aligns the Named Executive Officers’ interests with those of the Company without providing rewards for excessive risk-taking by awarding a mix of fixed and incentive compensation, with the compensation structure related to the Company’s performance counterbalancing revenue and EBITDA goals, as discussed above.
Tax Considerations. Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation over $1 million. Certain performance-based compensation, however, is specifically exempt from the deduction limit. At this time, the compensation committee has not taken steps to qualify compensation for deductibility primarily because at current base salaries and bonus potential, it is unlikely that any of our Named Executive Officers would exceed the $1 million limit in a given year.
Compensation Committee Report
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the compensation committee recommended that the Compensation Discussion and Analysis be included in this proxy statement.
Compensation committee:
Terry Stinson (Chairman)Kenneth McSweeneyWalter PaulickEric Rosenfeld
Compensation Committee Interlocks and Insider Participation
No member of the compensation committee is or has been an executive officer or employee of the Company, or had any relationships requiring disclosure by the Company under the Securities and Exchange Commission’s rules requiring disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, the executive officers of which served as a director of the Company or member of our compensation committee during 2015.
Summary Compensation Table
The following table sets forth the compensation paid or earned by each of our Named Executive Officers for each of the fiscal years ended December 31, 2015, 20142017 and 2013.2016.
Name and Position | Year | Salary | Bonus | Stock | Non-Equity | All Other | Total | ||
Douglas McCrosson | 2017 | 355,128 | — | 266,343 | (3) | 297,862 | 24,030 | (6) | 943,363 |
Chief Executive Officer | 2016 | 343,119 | 100,000 | 240,181 | | — | 25,901 | (7) | 709,201 |
Vincent Palazzolo | 2017 | 280,439 | — | 105,167 | (4) | 187,899 | 21,017 | (8) | 594,522 |
Chief Financial Officer | 2016 | 277,506 | 50,000 | 133,624 | | — | 26,533 | (9) | 487,663 |
(1)Reflects actual base salary amounts paid for each of the years indicated.
| | | | | | | | |||||||||||||||||||||
| Name and Principal Position | Year | Salary ($)(1) | Bonus ($) | Stock Awards ($) | Non-Equity Incentive Plan Compensation ($)(2) | All Other ($) | Total ($) | |||||||||||||||||||||
| Douglas McCrosson Chief Executive Officer (Former Chief Operating Officer) | 2015 | 333,125 | 37,445 | 34,028 | (3) | 404,598 | ||||||||||||||||||||||
| 2014 | 313,462 | 50,000 | — | — | 21,501 | (4) | 384,963 | |||||||||||||||||||||
| 2013 | 253,000 | — | — | 11,329 | 23,845 | (5) | 288,174 | |||||||||||||||||||||
| Vincent Palazzolo Chief Financial Officer | 2015 | 269,575 | 23,073 | 22,951 | (6) | 315,599 | ||||||||||||||||||||||
| 2014 | 263,000 | 30,000 | — | — | 25,239 | (7) | 318,236 | |||||||||||||||||||||
| 2013 | 253,000 | — | — | 11,329 | 24,131 | (8) | 288,460 | |||||||||||||||||||||
(2)Reflects grant date fair market value of restricted stock grants awarded to our Named Executive Officers as part of their performance-based annual bonus, less grant date fair market value of restricted stock subsequently forfeited as of December 31, 2017, if any.
(3)Does not reflect the 9,523 shares which Mr. McCrosson forfeited on March 26, 2018 in accordance with the terms of his restricted stock award agreement withthe Company.
(4)Does not reflect the 4,599 shares which Mr. Palazzolo forfeited on March 26, 2018 in accordance with the terms of his restricted stock award agreement withthe Company.
(5)Represents amounts awarded in cash to our Named Executive Officers as part of their performance-based annual bonus. Awards were earned in the year provided, but were not made until the first quarter of the next fiscal year.
(6)Represents (a) $11,892 of an automobile lease, insurance, and maintenance attributable to personal use; (b) $6,595 of disability insurance premiums; and(c) $5,543 of 401(k) contributions
(7)Represents (a) $11,470 of an automobile lease, insurance, and maintenance attributable to personal use; (b) $6,595 of disability insurance premiums; and(c) $7,836 of 401(k) contributions.
(8)Represents (a) $9,425 of an automobile lease, insurance and maintenance attributable to personal use, (b) $5,399 of disability insurance premiums; and (c) $6,193 of 401(k) contributions.
(9)Represents (a) $13,649 of an automobile lease, insurance and maintenance attributable to personal use, (b) $5,399 of disability insurance premiums; and(c) $7,485 of 401(k) contributions.
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Grants of Plan-Based Awards
| | | | | | | ||||||||||||||||||
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Possible Payouts Under Equity Incentive Plan Awards(2) | |||||||||||||||||||||||
| Threshold ($)(3) | Target ($)(4) | Maximum ($)(5) | Threshold ($)(3) | Target ($)(4) | Maximum ($)(5) | |||||||||||||||||||
| Vincent Palazzolo | 759 | 98,154 | 143,645 | — | 23,154 | 68,645 | ||||||||||||||||||
| Douglas McCrosson | 1,250 | 149,937 | 224,891 | — | 49,938 | 124,891 | ||||||||||||||||||
Compensation Arrangements for Named Executive Officers
Douglas McCrosson
On December 16, 2009, we entered into an employment agreement with Douglas McCrosson, which provided for Mr. McCrosson to be employed as our Chief Operating Officer from January 1, 2010 until December 31, 2012. This employment agreement was amended on November 4, 2011 and October 31, 2013 to extend his term ultimately through December 31, 2016. On March 5, 2014, we entered into an amended and restated employment agreement with Mr. McCrosson in connection with his appointment as our President and Chief Executive Officer, which supersedessuperseded his prior employment agreement with the Company.
As Chief Operating Officer, under his prior employment agreement, Mr. McCrosson’s annual base salary was $253,000 and $265,000 during 2013 and 2014, respectively. Beginning with his appointment as our Presidnet and Chief Executive Officer and the effectiveness of his amended and restated employment agreement beginning March 5, 2014, Mr. McCrosson’s annual base salary was $325,000 for fiscal year 2014. ForThe agreement provided that for each of fiscal yearyears 2015 and 2016, Mr. McCrosson’s annual base salary was to be at least equal to his base salary for the prior fiscal year, subject to a merit increase of up to five percent to be determined atin the discretion of the Company’s compensation committee on the basis of Mr. McCrosson’s attainment ofCompensation Committee ifMr. McCrosson attained individual performance goals set by the compensation committeeCompensation Committee (after consultation with Mr. McCrosson). The Compensation Committee determined to increase Mr. McCrosson’s annual base salary for fiscal years 2015 and 2016 by 2.5% and 3%, respectively, to recognize his performance in relation to annual performance goals. Mr. McCrosson was also receivesentitled to receive a non-discretionary performance-based annual bonus upon the attainment of certainCompany growth targets measured by EBITDA and revenue.
On July 7, 2016, Mr. McCrosson’s employment agreement was terminated and Mr. McCrosson’s employment continued on an at-will basis at his then-current annual base salary of $343,119. During 2016, Mr. McCrosson was entitled to receive a non-discretionary performance based bonus upon the attainment of Company growth targets measured by EBITDA and revenue. The manner of calculating and paying such bonus is set forth in the “Compensation Discussion and Analysis” above. For the year ended December 31, 2013,2016, Mr. McCrosson’sMcCrosson received no performance-based compensation was $11,389, paid all in cash. For the year ended December 31, 2014, Mr. McCrosson’s received no performance based compensation thoughalthough he received a $50,000$100,000 one-time discretionary bonus for achievement of other quantitative and qualitative measures by the Company during 2016. In addition,Mr. McCrosson was awarded an aggregate of 41,590 shares of restricted stock (with a fair market value on the date of grant of $274,495) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to him agreeingtime-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s annual report on Form 10-K each year; the remaining 50% of the shares are subject to a reduction in such amount fromperformance based vesting, and vest upon the annual bonus earnedachievement of Company financial performative-metric thresholds for each fiscal year as identified by him underour Compensation Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2016 metrics were growth targets measured by EBITDA and revenue. The 2016 performance-based vesting metrics were not met and, therefore, Mr. McCrosson forfeited 5,199 shares of restricted stock.
In conjunction with the termination of his employment agreement, forMr. McCrosson entered into a Severance and Change in Control Agreement (the “Severance and Change in Control Agreement”), the year ended December 31, 2015. Accordingly, fordetails of which are outlined on page 21 below under the year ended December 31, 2015, Mr. McCrosson’s performance-based compensation was $37,445 after it was reduced byheading “Payments upon Termination or Change in Control.” Pursuant to the $50,000 discretionary bonus paid to himseverance and change in 2015.
Under his current employmentcontrol agreement, Mr. McCrosson is prohibited from disclosing confidential information about us and he has agreed not to compete with us without our consent during the term of his employment and for two years thereafter.18 months thereafter, so long as we make severance payments to Mr. McCrosson pursuant to the agreement.
During 2017, Mr. McCrosson’s current employment agreement providescontinued on an at-will basis at an annual base salary of $355,128. He was entitled to receive a non-discretionary performance based cash bonus equal to 60% of his base salary upon the attainment of Company growth targets measured by pre-tax income, return on invested capital, and cash flow, plus an additional non-discretionary performance based cash bonus equal to 3% of his base salary upon the attainment of each of five performance objectives, for certain paymentsan aggregate of 15%. For the year ended December 31, 2017, Mr. McCrosson received $297,862 in performance-based cash compensation. In addition,Mr. McCrosson was awarded an aggregate of 34,590 shares of restricted stock (with a fair market value on the date of grant of $266,343) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance based vesting, and vest upon terminationthe achievement of Company financial performative-metric thresholds for each fiscal year as identified by our Compensation Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2017 metrics were growth targets measured by revenue and a changeyear-end inventory. The 2017 performance-based vesting metrics were not met and, therefore,Mr. McCrosson forfeited 9,523 shares of control addressedrestricted stock, representing that portion of the restricted stock granted in the section below entitled “Payments Upon Termination or Change in Control.”2017 and 2016.
Vincent Palazzolo
On December 16, 2009,October 31, 2013, we entered into an amended and restated employment agreement with Vincent Palazzolo, which provided for Mr. Palazzolo to continue to be employedin connection with his role as our Chief Financial Officer, until December 31, 2012. On each of November 4, 2011 and October 31, 2013, we amended our employment agreement with Mr. Palazzolo to extendwhich extended his term ultimatelyof employment through December 31, 2016. Under his employment agreement, as amended, Mr. Palazzolo’s annual base salary for 2013 was $253,000 and $263,000 for fiscal year 2014. ForThe agreement provided that for each of fiscal yearyears 2015 and 2016, Mr. Palazzolo’s annual base salary was to be at least equal to his base salary for the prior fiscal year, subject to a merit increase of up to five percent to be determined atin the discretion of the Company’s compensation committeeCompensation Committee on the basis of attainment of individual performance goals set by the compensation committee.Compensation Committee. The Compensation Committee determined to increase Mr. Palazzolo’s annual base salary for fiscal years 2015 and 2016 by 2.5% and 3%, respectively, to recognize his performance in relation to annual performance goals. Additionally, Mr. Palazzolo also receiveswas entitled to receive received a non-discretionary performance-based annual bonus upon the attainment of certain Company growth targets measured by EBITDA and revenue. The manner
20
On July 7, 2016, Mr. Palazzolo’s employment agreement was terminated and Mr. Palazzolo’s employment continued on an at-will basis at his then-current annual base salary of calculating$277,506. During 2016, Mr. Palazzolo was entitled to receive a non-discretionary performance based bonus upon the attainment of Company growth targets measured by EBITDA and paying such bonus is set forth in the “Compensation Discussion and Analysis” above.revenue. For the year ended December 31, 2013,2016, Mr. Palazzolo’s performance-based compensation was $11,329, paid all in cash. For the year ended December 31, 2014, Mr. Palazzolo’s did not receive anyPalazzolo received no performance based compensation thoughalthough he received a $50,000 one-time discretionary bonus for achievement of $30,000other quantitative and qualitative measures by the Company during 2016. In addition,Mr. Palazzolo was awarded an aggregate of 23,138 shares of restricted stock (with a fair market value on the date of grant of $152,628) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to him agreeingtime-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to a reduction in such amount fromperformance based vesting, and vest upon the annual bonus earnedachievement of Company financial performative-metric thresholds for each fiscal year as identified by him underour Compensation Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2016 metrics were growth targets measured by EBITDA and revenue. The 2016 performance-based vesting metrics were not met and, therefore, Mr. Palazzolo forfeited 2,892 shares of restricted stock.
In conjunction with the termination of his employment agreement, forMr. Palazzolo entered into a Severance and Change in Control Agreement, the year ended December 31, 2015. Accordingly, fordetails of which are outlined on page 21 below under the year ended December 31, 2015, Mr. Palazzolo’s performance-based compensation was $23,073 after it was reduced byheading “Payments upon Termination or Change in Control.” Pursuant to the $30,000 discretionary bonus paid to himSeverance and Change in 2015.
Under his employment agreement,Control Agreement, Mr. Palazzolo is prohibited from disclosing confidential information about us and he has agreed not to compete with us without our consent during the term of his employment and for two years thereafter.12 months thereafter, so long as we make severance payments to Mr. Palazzolo pursuant to the agreement.
During 2017, Mr. Palazzolo’s employment agreement doescontinued on an at-will basis at an annual base salary of $280,439. He was entitled to receive a non-discretionary performance based bonus equal to 45% of his base salary upon the attainment of Company growth targets measured by return on invested capital, cash flow from operations, and completion of certain operational projects. For the year ended December 31, 2017, Mr. Palazzolo received $187,899 in performance-based cash compensation. In addition, Mr. Palazzolo was awarded an aggregate of 13,658 shares of restricted stock (with a fair market value on the date of grant of $105,167) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance based vesting, and vest upon the achievement of Company financial performative-metric thresholds for each fiscal year as identified by our Compensation Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2017 metrics were growth targets measured by revenue and year-end inventory. The 2017 performance-based vesting metrics were not containmet and, therefore, Mr. Palazzolo forfeited 4,599 shares of restricted stock, representing that portion of the restricted stock granted in 2017 and 2016.
Hedging
We prohibit our Named Executive Officers from engaging in any changehedging or publicly-traded derivative transactions in control provisions, but does provide for certain termination payments addressedtheCompany’s stock.
Section 162(m)
The Tax Cuts and Jobs Act, signed into law by President Trump on December 22, 2017, changed the characterization of executive compensation under Section 162(m) of the Internal Revenue Code. Before the tax reform, our Company was limited to deducting up to $1 million per year, in the sectionaggregate, for compensation to our named executive officers, and performance-based compensation was fully deductible. Now, the $1 million deduction limit applies more broadly to any employee who is now or ever has been our Chief Executive Officer, Chief Financial Officer, or one of the three most-highly compensated officers, and includes compensation paid to an employee after termination or retirement, including severance, deferred compensation, and supplemental retirement payments. Additionally, performance-based compensation is no longer exempt, though performance-based compensation arrangements that were in effect on November 2, 2017 and have not been materially modified remain deductible.
The Company’s cash compensation to our Chief Executive Officer, Chief Financial Officer, and the three most highly compensated officers is significantly below entitled “Payments Upon Termination or Changethe $1 million deductible limit. In addition, equity-based compensation is only tax deductible upon vesting, which was not changed by the Tax Cuts and Jobs Act. As such, we do not believe that the impact of the Tax Cuts and Jobs Act will be material for the Company.
Our Compensation Committee has assessed and will continue to assess the impact of these changes on the design of executive compensation in Control.”future years, while also retaining the discretion to establish compensation that may result in non-deductible compensation.
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Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the outstanding option and stock awards as of December 31, 20152017 for each Named Executive Officer.
| Option Awards | |||
Name | Number of Securities | Number of Securities | Option Exercise | Option Expiration |
Douglas McCrosson | 25,000(1) | 0 | 0 | 3/31/2019 |
Vincent Palazzolo | 0 | 0 | — | — |
(1)Represents options which are fully vested.
| | | | | ||||||||||||||||
| Option Awards | ||||||||||||||||||||
| Stock Awards | |||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares of | Equity Incentive Plan | Market Value of | Equity Incentive | ||||||||||||
| Douglas McCrosson Chief Executive Officer | 25,000 | 0 | 6.60 | 3/31/2019 | 64,221 | 6,920 | 574,136 | 61,934 | ||||||||||||
| Vincent Palazzolo Chief Financial Officer | 25,000 | 0 | 6.75 | 11/30/2016 | 31,011 | 4,029 | 277,239 | 36,060 | ||||||||||||
Option Exercises
_____________
(1)Reflects shares of restricted stock granted pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in 2015The following table sets forth certain information concerning option exercisesfour equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance-based vesting, and vest upon the achievement of Company financial performative-metric thresholds for each fiscal year as identified by our Named Executive Officers duringCompensation Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2016 metrics were growth targets measured by EBITDA and revenue, and the fiscal 2017 metrics were growth targets measured by revenue and year-end inventory.
(2)Reflects shares of restricted stock granted pursuant to the Company’s 2016 long-term incentive plan which were forfeited in March, 2017, and shares of restricted stock withheld to satisfy tax obligations.
(3)Calculated using the closing price per share of the Company’s common stock on the last date of fiscal year ended December 31, 2015.2017.
Pension Benefits
| | | ||||||
| Name | Number of Shares Acquired on Exercise | Value Realized on Exercise(1) ($) | ||||||
| Douglas McCrosson | 0 | $ | 0 | |||||
| Vincent Palazzolo | 0 | $ | 0 | |||||
Payments Uponupon Termination or Change in ControlCompensation Arrangements as of December 31, 2015
The employmentSeverance and Change in Control agreements in effect as of December 31, 2015 with each of Messrs.Mr. McCrosson and Mr. Palazzolo and McCrosson providedprovide for varying types and amounts of payments and additional benefits upon termination of employment, during the term of such employment agreements, depending on the circumstances of the termination.
The following is a brief description•Termination without cause. If employment of termination payments and circumstances under Mr. Palazzolo’s employment agreement.
Mr. Palazzolo does not have a duty to mitigate awards payable under the above conditions and any compensation paid from any source other than the Company does not offset or terminate the Company’s obligations to make such payments.
In connection with his appointment as our President and Chief Executive Officer, the Company entered into an amended and restated employment agreement with Mr. McCrosson. Below is a brief description of termination payments and circumstances under Mr. McCrosson’s employment agreement.
Mr. McCrosson does not have a duty to mitigate the above-described payments, however, if he receives a payment for (a) termination by the Company withoutother than for cause, as defined in the agreements, then (i) with respect to Mr. McCrosson, he is entitled to (x) continued salary for18 months, (y) any earned cash bonus not yet paid for the preceding fiscal year, and (z) a pro-rata cash bonus calculated using the prior year’s cash bonus amount, and (ii) with respect to Mr. Palazzolo, he is entitled to (x) continued salary for 12 months, (y) any earned cash bonus not yet paid for the preceding fiscal year, and (z) a pro-rata cash bonus calculated using the prior year’s cash bonus amount. A non-competition provision will apply for as long as severance payments are being paid. Any unvested restricted stock will be forfeited and any unexercised options will expire.
•Termination for cause, or (b) terminationif the executive quits.If Mr. McCrosson or Mr. Palazzolo voluntarily terminates his employment, or if the Company terminates his employment for cause, he is not entitled to any severance payments and is not bound by a non-compete clause, however he is still bound by any confidentially and non-disparagement duties. Any unvested restricted stock will be forfeited and any unexercised options will expire.
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•Termination for disability.If Mr. McCrosson or Mr. Palazzolo is terminated because of hisa disability, as defined in the severance and change in control agreements, then he will receive severance as if he had been terminated without cause.
•Termination following a change in control.If the employment of Mr. McCrosson or Mr. Palazzolo is terminated within18 months, following a change in control by the Company other than for cause or disability or by him for good reason then(all such terms as defined in the Severance and Change in Control Agreements), he is entitled to (i) his base salary earned through the date of termination, (ii) any compensationearned cash bonus not yet paid for the preceding fiscal year, and(iii) apro rata portion of the his annual cash bonus for the portion of the year he worked, assuming all applicable targets had been met. In addition, he will be entitled to him from sources other than the Company will offset or terminate the Company’s obligation to make such payment. Additionally, the Company’s obligation to pay insurance premiumsa change in control payment: (x) for Mr. McCrosson, upon a terminationin an amount equal to two times total compensation (base salary plus earned cash bonus) for either the prior full fiscal year, or the preceding fiscal year, whichever is the highest total compensation; (y) for Mr. Palazzolo, in an amount equal to one and one-half times his total base salary for the prior full fiscal year. Upon any change in control, all outstanding stock options and restricted stock will vest immediately for bothMr. McCrosson and Mr. Palazzolo. Health insurance and other fringe benefits will continue for each of his employment without cause or by Mr. McCrosson andMr. Palazzolo for good reason ends upon Mr. McCrosson’s eligibility for group insurance coverage from other employment (whether or not he elects such coverage).a period of six months after termination.
The following table summarizes the amounts payable upon termination of employment for each of Messrs.Mr. McCrosson and Mr. Palazzolo, and McCrosson assuming termination occurred on December 31, 20152017 under the current employment agreementsSeverance and Change in Control Agreements with each such Named Executive Officer. For purposes of presenting amounts payable over a period of time (e.g., salary continuation), the amounts are shown as a single total but not as a present value (i.e., the(the single sum does not reflect any discount).
To the extent the termination accelerates vesting of equity awards, the value presented below is based upon the Company’s stock price as of December 31, 2017, and assumes the achievement of all applicable performance benefits.
| | | | | ||||||||||||||||||||||||
Potential Termination Payments | Potential Termination Payments | | ||||||||||||||||||||||||||
| Name | Death or Disability ($) | By Company for Cause ($) | By Executive for Good Reason or By Company without Cause ($) | Change in Control ($) | Disability | | By Company | | By Company | | Change in Control | | ||||||||||||||||
| Cash ($) | Equity | | Cash ($) | Equity | | Cash ($) | Equity | | Cash ($) | Equity | | ||||||||||||||||
| Douglas McCrosson | — | — | 333,125 | 333,125 | 830,554 | — | | — | | 830,554 | — | | 1,603,842 | 574,136 | | |||||||||||||
| Vincent Palazzolo | — | — | 269,575 | — | 468,338 | — | | — | | 468,338 | — | | 608,558 | 277,239 | | |||||||||||||
Equity Award Plans
Long-term equity incentives are an important component of compensation and are designed to align the interests of our executive officers and directors who receive long-term equity awards with the Company’s long-term performance and to increase shareholder value. The Company has awarded long-term incentive compensation pursuant to three plans:
2016 Long-Term Incentive Plan.The 2016 Long-Term Incentive Plan registered 600,000 shares of our common stock, which may be granted in the form of stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards, to employees, officers, directors, and consultants of the company. As of December 31, 2017, we have granted 329,691 shares under this plan and 270,309 shares remained available for grant under this plan.
Performance Equity Plan 2009. The Performance Equity Plan 2009 authorizes the grant of 500,000 stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards. As of December 31, 2015, 322,5872017, we have granted 439,420 options/shares had been granted under this plan. As of May 9, 2016, 87,964 common stock remainplan and 172,698 shares remained available for grant.
Performance Equity Plan 2000. The Performance Equity Plan 2000 authorizes the grant of 1,230,000 stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards. As of December 31, 2015,2017, options to purchase an aggregate of 1,260,333 shares of common stock had been granted under this plan, of which 85,00035,000 options remainremained outstanding exercisable at exercise prices ranging froma price of $6.60 to $8.10 per share. As of May 9, 2016,December 31, 2017, no additional options/shares may be grantedremained available for grant under this plan.
Equity Equity Compensation Plan Information
Plan Category
Number of Securities to
be issued upon exercise
of outstanding options,
warrants, and rights
Weighted-average
exercise price of
outstanding options,
warrants, and rights ($)
Number of securities
remaining available for
future issuance under equity
compensation plans(1)
Equity compensation plans approved by shareholders
35,000
6.60
443,007
Equity compensation plans not approved by shareholders
—
—
—
Total
35,000
6.60
443,007
Equity Compensation Plan Information | |||
Plan Category | Number of Securities to | Weighted-average | Number of securities |
Equity compensation plans approved by shareholders | 35,000 | 6.60 | 443,007 |
Equity compensation plans not approved by shareholders | — | — | — |
Total | 35,000 | 6.60 | 443,007 |
(1)Excludes securities to be issued upon exercise of outstanding options, warrants, and rights, which are reflected in the first column.
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Compensation Plan Informationof Directors
The following table sets forth certain information at December 31, 2015 with respectOur non-executive directors receive a mix of cash compensation and stock compensation for their service to our equityCompany. Each year, our Compensation Committee determines the total amount of non-executive director compensation, plans providing foras well as the issuance of options, warrants, or rightsallocation among cash and stock compensation, and takes into consideration, among other things, the Company’s performance relative to purchase our securities.
| | | | |||||||||
| Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights ($) | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in the first column) | |||||||||
| Equity Compensation Plans Approved by Security Holders | 269,983 | $ | 11.29 | 113,787 | ||||||||
Compensation of Directors
The following table summarizesits guidance, the extent to which director compensation aligns the interests of our directors with the interests of our shareholders, compensation awarded to directors of similarly sized companies in our industry, and past practices. Our Compensation Committee is also tasked with reviewing the compensation paid to non-executive directors and making recommendations to our board of directors for the year ended December 31, 2015. any adjustments deemed necessary as a result of their review.
Directors who are employees of the Company do not receive separate compensation for their service as a director.
Cash Compensation
| | | | |||||||||
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Total ($) | |||||||||
| Eric Rosenfeld | 102,575 | 147,425 | 250,000 | |||||||||
| Harvey J. Bazaar | 66,950 | 113,050 | 180,000 | |||||||||
| Terry Stinson | 66,950 | 113,050 | 180,000 | |||||||||
| Walter Paulick | 24,750 | 50,250 | 75,000 | |||||||||
| Michael Faber | 24,750 | 50,250 | 75,000 | |||||||||
| Kenneth McSweeney | 24,750 | 50,250 | 75,000 | |||||||||
Pursuant to the non-employeenon-executive director compensation plan in effect for 2015, non-employee2017, non-executive directors were compensated as follows: Chairman of the Board, $250,000 (cash payment, $102,575); Chairman of the Audit Committee and the Chairman of the compensation committeeCompensation Committee, $180,000 each (cash payment, $66,950), and all other non-employeenon-executive directors, $75,000 each (cash payment, $24,750). The annual cash compensation due each director was paid quarterly as has been the Company’s past practice.
Stock Compensation
The balance of the non-employeenon-executive director compensation is paid in restricted stock units (“RSUs”) that, which are granted on January 1 and vest quarterly. Non-employeeIf the non-executive director resigns or is removed from office, unvested RSUs, if any, will be forfeited. The number of RSUs granted is calculated using the closing price of our common stock on the last day of the fiscal year prior to the grant. Non-executive directors are subject to a non-employee director stock ownership policy whereby non-employee directors areeach non-executive director is required to own stock of the Company valued at least four times his annual cash compensation before and followingafter any stock sales.
Pension Benefits
Other thanThe following table summarizes the compensation of our 401(k) plan, we do not maintain any other plan that providesnon-executive directors for payments or other benefits at, following, orthe year ended December 31, 2017.
Name | Fees Earned or | Stock Awards ($)(1) | Total ($) |
Eric Rosenfeld | 102,575 | 147,425 | 250,000 |
Harvey J. Bazaar | 66,950 | 113,050 | 180,000 |
Terry Stinson | 66,950 | 113,050 | 180,000 |
Walter Paulick | 24,750 | 50,250 | 75,000 |
Michael Faber | 24,750 | 50,250 | 75,000 |
Carey Bond | 24,750 | 50,250 | 75,000 |
Kenneth McSweeney(2) | 12,375 | 21,125 | 37,500 |
(1)Represents stock awarded to directors during 2017 in connectionthe form of RSUs, all of which had vested by December 31, 2017. The Company accounts for compensation expense associated with retirement.RSUs based on the fair value of the units on the date of grant.
(2)Reflects the pro-rated non-executive director compensation paid to Mr. McSweeney for his service as a director for two fiscal quarters during 2017.
Certain Relationships and Related-Party Transactions
Related-Party PolicyPolicy..
Our Code of Ethics requires us to avoid, wherever possible, all related-party transactions that could result in actual or potential conflicts of interest, except under guidelines approved by our board of directors (or our audit committee)Audit Committee). Securities and Exchange CommissionSEC rules generally define related-party transactions as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our common stock, or (c) immediate family member of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.
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Our audit committee,Audit Committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. Our audit committeeAudit Committee considers all relevant factors when determining whether to approve a related-party transaction, including whether the related-party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related-party’s interest in the transaction. No director may participate in the approval of any transaction in which he or she is a related-party, but that director is required to provide our audit committeeAudit Committee with all material information concerning the transaction. Additionally, we require each of our directors and executive officers to complete a directors’ and officers’ questionnaire annually that elicits information about related-party transactions. These procedures are intended to determine whether any such related-party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee, or officer.
We did not engage in any related partyrelated-party transactions in the fiscal year ended December 31, 20152017 as required to be reported pursuant to rules of the Securities and Commission Exchange.SEC.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers, directors, and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission.SEC. These reporting persons also are required by regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on the review of the copies of these forms furnished to us and representations that no other reports were required during the year ended December 31, 2015,2017, all Section 1616(a) reports were timely filed by our officers, directors, and greater than ten percent beneficial owners.
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PROPOSAL 2 — APPROVALSECURITY OWNERSHIP OF CPI AEROSTRUCTURES, INC.
2016 LONG-TERM INCENTIVE PLAN
Background
CERTAIN BENEFICIAL OWNERS AND MANAGEMENTOur 2016 Long-Term Incentive Plan has been approved byThe table and accompanying footnotes below set forth certain information as of April 30, 2018 with respect to the ownership of our boardcommon stock by:
•each person or group who beneficially owns more than 5% of our common stock;
•each of our directors and will take effect upon approvalour director nominees;
•our current Chief Executive Officer and Chief Financial Officer, our only executive officers as defined by SEC rules promulgated pursuant to the Securities Exchange Act of 1934, as amended (together, the “Named Executive Officers”); and
•all of our directors and executive officers as a group.
A person is deemed to be the beneficial owner of securities that can be acquired by the shareholders atperson within 60 days from the Annual Meeting. Werecord date. Accordingly, common stock issuable upon exercise of options that are submittingcurrently exercisable, or exercisable within 60 days of April 30, 2018, have been included in the plantable with respect to the beneficial ownership of the person owning the options.
Name and Address of Beneficial Owner(1) | Shares | | Shares vesting | Unvested | Total | Percent of | |
Current Directors and Officers: | | | | | | | |
Douglas McCrosson | 46,935 | (5) | | 79,987 | 126,922 | | 1.42% |
Vincent Palazzolo | 21,595 | | | 34,813 | 56,408 | | * |
Walter Paulick | 41,214 | (6) | 1,404 | 2,807 | 45,425 | | * |
Harvey J. Bazaar | 71,734 | (7) | 3,158 | 6,315 | 81,207 | | * |
Michael Faber | 16,922 | | 1,404 | 2,807 | 21,133 | | * |
Terry Stinson | 34,606 | | 3,158 | 6,315 | 44,079 | | * |
Carey Bond | 7,185 | | 1,404 | 2,807 | 11,396 | | * |
Eric Rosenfeld | 735,403 | (8) | 4,118 | 8,236 | 747,757 | | 8.35% |
All current directors and executive officers | | | | | 1,134,327 | (9) | 12.67% |
Five Percent Holders: | | | | | | | |
Ariel Investments, LLC | 638,543 | (10) | | | | | 7.2% |
Royce & Associates, LLC | 631,166 | (11) | | | | | 7.11% |
Perritt Capital Management Inc. | 510,141 | (12) | | | | | 5.75% |
Heartland Advisors, Inc. | 650,000 | (13) | | | | | 7.32% |
Dimensional Fund Advisors LP | 492,421 | (14) | | | | | 5.55% |
*Less than 1%
(1)Unless otherwise noted, the business address of each of the following persons is c/o CPI Aerostructures, Inc., 91 Heartland Blvd., Edgewood, New York 11717.
(2)Includes the vested portion of restricted stock awards and RSUs, as applicable. Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all common stock beneficially owned by them, subject to community property laws, where applicable.
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(3)With respect to our shareholders for their approval soexecutive officers, this includes unvested time-based and performance-based restricted stock awards that optionsare forfeitable until the vesting date or performance certification date, as applicable. It does not include unvested time-based awards which will vest within 60 days of the record date (which are reported in a separate column), nor portions of restricted stock awards which have been forfeited. With respect to our non-executive directors, this includes unvested RSUs which will not vest within 60 days of the record date (such RSUs are reported in a separate column). RSUs are granted on the first day of the year and vest quarterly upon completion of service as a director. Such shares are included herein because they confer voting rights and therefore may be deemed to be beneficially owned under Rule 13d-3(a)(1) promulgated under the plan may qualify for treatmentSecurities Exchange Act of 1934, as incentive stock options and awards under the plan may constitute performance-based compensation not subject to Section 162(m)amended.
(4)As of the Internal Revenue Code of 1986, as amended (“IRC”).
The plan reserves 600,000April 30, 2018, there were 8,950,913 shares of our common stock for issuance in accordance with the plan’s terms. The purpose of the plan is to enable us to offer our employees, officers, directors,issued and consultants whose past, present and/or potential contributions to us have been, are or will be important to our success, an opportunity to share monetarily in our success and/or acquireoutstanding. Each person beneficially owns a proprietary interest in us. The various types of incentive awards that may be provided under the plan are intended to enable us to respond to changes in compensation practices, tax laws, accounting regulations and the size and diversitypercentage of our business.
All employees, officers, directors and consultants of ours will be eligible to be granted awards under the plan. An incentiveoutstanding common stock option may be granted under the plan onlyequal to a person who, atfraction, the timenumerator of which is the grant, is an employeenumber shares of ours. No allocations of shares that may be subject to awards have been made in respect of the executive officers or any other group. All awards will be subject to the recommendations of a committee designated by our board of directors and approvalcommon stock held by such committee.
A summary of the principal features of the plan is provided below, but is qualified in its entirety by reference to the full text of the plan, which is attached to this proxy statement as Appendix A.
Administration
The plan is administered by a committee of our board of directors comprised of at least two “outside directors,” as defined in the regulations issued under Section 162(m) of the IRC. Subject to the provisions of the plan, the committee determines, among other things, the persons to whom from time to time awards may be granted, the specific type of awards to be granted, the number of shares subject to each award, share prices, any restrictions or limitations on the awards, and any vesting, exchange, deferral, surrender, cancellation, acceleration, termination, exercise or forfeiture provisions related to the awards.
Stock Subject to the Plan
Shares of stock subject to other awards that are forfeited or terminated will be available for future award grants under the plan. If a holder pays the exercise price of a stock option by surrendering any previously owned shares of common stock or arranges to have the appropriate number of shares otherwise issuable upon exercise withheld to cover the withholding tax liability associated with the stock option exercise, the shares surrendered by the holder or withheld by the Company will not be available for future award grants under the plan.
Under the plan, on a change inperson plus the number of shares of our common stock as a resultthat such person can acquire within 60 days of a dividend on sharesApril 30, 2018 upon the exercise of commonoptions or vesting of restricted stock payable in shares of commonor restricted stock common stock forward split or reverse split or other extraordinary or unusual event that results in a change inunits and the shares of common stock as a whole, the terms of the outstanding award may be proportionately adjusted.
Eligibility
We may grant awards under the plan to employees, officers, directors and consultants who are deemed to have rendered, or to be able to render, significant services to us and who are deemed to have contributed, or to have the potential to contribute, to our success. An “incentive stock option” as defined in Section 422 of the IRC, may be granted under the plan only to a person who, at the time of the grant, is an employee of ours.
Types of Awards
Options. The plan provides both for incentive stock options, and for options not qualifying as incentive options, bothdenominator of which may be granted with any other stock based award under the plan. The committee determines the exercise price per shareis 8,950,913 (the number of common stock purchasable under an incentive or non-qualified
stock option, which may not be less than 100% of the fair market value on the day of the grant or, if greater, the par value of a share of common stock. However, the exercise price of an incentive stock option granted to a person possessing more than 10% of the total combined voting power of all classesshares of our common stock may not be less than 110% of the fair market value on the date of grant. The aggregate fair market value of all shares of common stock with respect to which incentive stock options are exercisable by a participant for the first time during any calendar year (under all of our plans), measured at the date of the grant, may not exceed $100,000 or such other amount as may be subsequently specified under the IRC or the regulations thereunder.
An incentive stock option may only be granted within a ten-year term commencing with shareholder approval of the 2016 Long-Term Incentive Plan and may only be exercised within ten years from the date of the grant, or within five years in the case of an incentive stock option granted to a person who, at the time of the grant, owns common stock possessing more than 10% of the total combined voting power of all classes of our stock. Subject to any limitations or conditions the committee may impose, stock options may be exercised, in whole or in part, at any time during the term of the stock option by giving written notice of exercise to us specifyingoutstanding) plus the number of shares of our common stock to be purchased. The notice must be accompanied by payment in full of the purchase price, either in cash or, if provided in the agreement, in our securities or in combination of the two.such person can so acquire during such 60-day period.
Generally, stock options granted under the plan may not be transferred other than by will or by the laws of descent and distribution and all stock options are exercisable, during the holder’s lifetime, only by the holder, or in the event of legal incapacity or incompetency, the holder’s guardian or legal representative. However, a holder, with the approval of the committee, may transfer a non-qualified stock option by gift to a family member of the holder, by domestic relations order to a family member of the holder or by transfer to an entity in which more than 50% of the voting interests are owned by family members of the holder or the holder, in exchange for an interest in that entity.
Generally, if the holder is an employee, no stock options granted under the plan may be exercised by the holder unless he or she is employed by us or a subsidiary of ours at the time of the exercise and has been so employed continuously from the time the stock options were granted. However, in the event the holder’s employment is terminated due to disability, the holder may still exercise his or her vested stock options for a period of 12 months or such other greater or lesser period as the committee may determine, from the date of termination or until the expiration of the stated term of the stock option, whichever period is shorter.
Similarly, should a holder die while employed by us, his or her legal representative or legatee under his or her will may exercise the decedent holder’s vested stock options for a period of 12 months from the date of his or her death, or such other greater or lesser period as the board or the committee may determine or until the expiration of the stated term of the stock option, whichever period is shorter. If the holder’s employment is terminated due to normal retirement, the holder may still exercise his vested stock options for a period of 12 months from the date of termination or until the expiration of the stated term of the stock option, whichever period is shorter. If the holder’s employment is terminated for any reason other than death, disability or normal retirement, the stock option will automatically terminate, except that if the holder’s employment is terminated by us without cause, then the portion of any stock option that is vested on the date of termination may be exercised for the lesser of three months after termination of employment, or such other greater or lesser period as the committee may determine but not beyond the balance of the stock option’s term.
Stock Appreciation Rights. Under the plan, we may grant stock appreciation rights to plan participants who have been, or are being, granted stock options under the plan as a means of allowing the participants to exercise their stock options without the need to pay the exercise price in cash, or we may grant them alone and unrelated to an option. In conjunction with nonqualified stock options, stock appreciation rights may be granted either at or after the time of the grant of the non-qualified stock options. In conjunction with incentive stock options, stock appreciation rights may be granted only at the time of the grant of the incentive stock options. A stock appreciation right entitles the holder to receive a number of(5)Includes 25,000 shares of common stock having a fair market value equalthat Mr. McCrosson has the right to the excess fair market valueacquire upon exercise of one share of common stock over the exercise price of the related stock option, multiplied by the number of shares subject to the stock appreciation rights. The
options.
granting of a stock appreciation right will not affect the number of(6)Includes 4,435 shares of common stock available for awards underthat Mr. Paulick has a right to acquire upon the plan. The numberexercise of shares available for awards under the plan will, however, be reduced by the number ofoptions.
(7)Includes 9,977 shares of common stock acquirablethat Mr. Bazaar has the right to acquire upon exercise of the stock option to which the stock appreciation right relates.options.
Restricted Stock. Under the plan, we may award shares of restricted stock either alone or in addition to other awards granted under the plan. The board or the committee determines the persons to whom grants of restricted stock are made, the number of shares to be awarded, the price if any to be paid for the restricted stock by the person receiving the stock from us, the time or times within which awards of restricted stock may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the restricted stock awards.
Restricted stock awarded under the plan may not be sold, exchanged, assigned, transferred, pledged, encumbered or otherwise disposed of, other than to us, during the applicable restriction period. In order to enforce these restrictions, the plan requires that all shares of restricted stock awarded to the holder remain in our physical custody until the restrictions have terminated and all vesting requirements with respect to the restricted stock have been fulfilled. Other than regular cash dividends and other cash equivalent distributions as we may designate, pay or distribute, we will retain custody of all distributions made or declared with respect to the restricted stock during the restriction period. A breach of any restriction regarding the restricted stock will cause a forfeiture of the restricted stock and any retained distributions. Except for the foregoing restrictions, the holder will, even during the restriction period, have all of the rights of a shareholder, including the right to receive and retain all regular cash dividends and other cash equivalent distributions as we may designate, pay or distribute on the restricted stock and the right to vote the shares.
Restricted Stock Units. Under the plan, we may award restricted stock units, which are an unfunded, unsecured right to receive, on the applicable settlement date, one share or an amount in cash or other consideration determined by the Committee to be of equal value as of such settlement date, subject to certain vesting conditions and other restrictions. Restricted stock units may be awarded either alone or in addition to other awards granted under the plan. The board or committee determines the persons to whom grants of restricted stock units are made, the number of restricted stock units to be awarded, the time or times within which awards of restricted stock units may be subject to deferral or forfeiture, the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the restricted stock units. The holder will have no rights of a shareholder with respect to shares subject to any restricted stock unit unless and until the shares are delivered in settlement of the restricted stock unit. If the committee provides, a grant of restricted stock units may provide the holder with the right to receive dividend equivalents. Dividend equivalents may be paid currently or credited to an account for the holder, settled in cash or shares and subject to the same restrictions on transferability and forfeitability as the restricted stock units with respect to which the dividend equivalents are granted.
Other Stock-Based Awards. Under the plan, we may grant other stock-based awards, subject to limitations under applicable law, that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to,(8)Represents (a) 212,123 shares of common stock as deemed consistent with the purposes of the plan. These other stock-based awards may be in the form of purchase rights,owned individually, including 4,118 shares of common stock awarded that are not subject to any restrictions or conditions, convertible or exchangeable debentures or other rights convertible intounderlying vested RSUs, (b) 510,270 shares of common stock and awards valued by reference to the value of securities of, or the performance of, one of our subsidiaries. These other stock-based awards may include performance shares or options, whose award is tied to specific performance criteria. These other stock-based awards may be awarded either alone, in addition to, or in tandem with any other awards under the plan or any of our other plans.
Incentive Bonuses. Under the plan, we may grant incentive bonuses that confer upon the holder the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance goal(s) established for a performance period established by the committee. The terms of any incentive bonus will be set forth in an agreement. Each agreement evidencing an incentive bonus shall contain provisions regarding (i) the target and maximum amount payable to the holder as an incentive bonus, (ii) the performance goal(s) and level of achievement versus the performance goal(s) that shall determine the amount of such payment, (iii) the term of the performance period as to which performance shall be measured for
determining the amount of any payment, (iv) the timing of any payment earned by virtue of performance, (v) restrictions on the alienation or transfer of the incentive bonus prior to actual payment, (vi) forfeiture provisions and (vii) such further terms and conditions, in each case not inconsistent with the plan as may be determined from time to time by the committee. The committee shall establish the performance goal(s) and level of achievement versus the performance goal(s) that shall determine the target and maximum amount payable under an incentive bonus. These incentive bonuses may be awarded either alone, in addition to, or in tandem with any other awards under the plan or any of our other plans.
Accelerated Vesting and Exercisability. If any one person, or more than one person acting as a group, acquires the ownership of stock of the Company that, together with the stock held by such person or group, constitutes more than 50% of the total fair market value or combined voting power of the stock of the Company,Crescendo Partners II, L.P. Series L (“Crescendo Partners II”) and the Company’s board of directors does not authorize or otherwise approve such acquisition, then the vesting periods of any and all stock options and other awards granted and outstanding under the plan shall be accelerated and all such stock options and awards will immediately and entirely vest, and the respective holders thereof will have the immediate right to purchase and/or receive any and all common stock subject to such stock options and awards on the terms set forth in the plan and the respective agreements respecting such stock options and awards, and all performance goals will be deemed achieved at 100% of target levels and all other terms and conditions will be deemed met. An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the Company acquires its stock in exchange for property is not treated as an acquisition of stock.
The committee may, in the event of an acquisition by any one person, or more than one person acting as a group, together with acquisitions during the 12-month period ending on the date of the most recent acquisition by such person or persons, of assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions, or if any one person, or more than one person acting as a group, acquires the ownership of stock of the Company that, together with the stock held by such person or group, constitutes more than 50% of the total fair market value or combined voting power of the stock of the Company, which has been approved by the Company’s board of directors, (i) accelerate the vesting of any and all stock options and other awards granted and outstanding under the plan, or (ii) require a holder of any award granted under the plan to relinquish such award to the Company upon the tender by the Company to the holder of cash, stock or other property, or any combination thereof, in an amount equal to the repurchase value of such award; provided, however, that the obligation to tender the repurchase value to such holders may be subject to any terms and conditions to which the tender of consideration to the Company’s shareholders in connection with the acquisition is subject, including any terms and conditions of the acquisition providing for an adjustment to or escrow of such consideration; and provided, further, that in the case of any stock option or stock appreciation right with an exercise price that equals or exceeds the price paid for a share of common stock in connection with the acquisition, the committee may cancel the stock option or stock appreciation right without the payment of consideration therefor; and/or (iii) terminate all incomplete performance periods in respect of awards in effect on the date the acquisition occurs, determine the extent to which performance goals have been met based upon such information then available as it deems relevant and cause to be paid to the holder all or the applicable portion of the award based upon the committee’s determination of the degree of attainment of performance goals, or on such other basis determined by the committee. For this purpose, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
Notwithstanding any provisions of the plan or any award granted thereunder to the contrary, no acceleration shall occur with respect to any award to the extent such acceleration would cause the plan or an award granted thereunder to fail to comply with IRC Section 409A.
Repurchases. The committee may at any time offer to repurchase a stock option previously granted, at a purchase price not to exceed the repurchase value and under such terms and conditions as the committee shall establish and communicate to the holder of stock at the time of the offer.
Award Limitation. No participant may be granted options and/or stock appreciation rights with respect to more than 100,000(c) 13,010 shares of common stock inthat Mr. Rosenfeld has the right to acquire upon exercise of options. Mr. Rosenfeld is the senior managing member of the sole general partner of Crescendo Partners II. Mr. Rosenfeld disclaims beneficial ownership of the shares held by Crescendo Partners II, except to the extent of his pecuniary interest therein.
(9)Includes an aggregate or any other awards for more than 50,000 shares
of common stock in the aggregate or incentive bonuses for more than $500,000 in the aggregate, in any calendar year. Additionally, a non-employee director may not be granted awards covering more than 50,00052,422 shares of common stock in any calendar year.that Messrs. McCrosson, Paulick, Bazaar, and Rosenfeld have the right to acquire upon exercise of options.
Full Value Awards. Any(10)The information with respect to Ariel Investments, LLC is derived from an Amendment to Schedule 13G filed with the SEC on February 13, 2018.
(11)The information with respect to Royce & Associates, LLC is derived from an Amendment to Schedule 13G filed with the SEC on January 17, 2018.
(12)The information with respect to Perritt Capital Management, Inc. is derived from a Schedule 13G filed with the SEC on February 5, 2018.
(13)The information with respect to Heartland Advisors, Inc. is derived from a Schedule 13G filed with the SEC on February 2, 2018.
(14)The information with respect to Dimensional Fund Advisors LP is derived from a Schedule 13G filed with the SEC on February 9, 2018. Includes 492,421 shares of common stock granted in connection with awards other than stock optionsCommon Stock held by certain investment companies, comingled funds, group trusts, and stock appreciation rights shall be counted against the number of shares reservedseparate accounts (the “Funds”) for issuance under the planwhich DimensionalFund Advisors LP acts as one and one-half shares of common stock for every one share of common stock granted in connection with such award. Any shares of common stock granted in connection with stock options and stock appreciation rights shall be counted against the number of shares reserved for issuance under the plan as one share for every one stock option investment advisor, sub-advisor, and/or stock appreciation right awarded.
Other Limitations. The committee may not modify or amend any outstanding option or stock appreciation right to reduce the exercise price of such option or stock appreciation right, as applicable, below the exercise price as of the date of grant of such option or stock appreciation right. In addition, no payment of cash or other property having a value greater than the repurchase value may be made, and no option or stock appreciation right with a lower exercise price may be granted in exchange for, or in connection with, the cancellation or surrender of an option or stock appreciation right.
Withholding Taxes
Upon the exercise of any award granted under the plan, the holder may be required to remit to us an amount sufficient to satisfy all federal, state and local withholding tax requirements prior to delivery of any certificate or certificates for shares of common stock.
Term and Amendments
Unless terminated by the board, the plan shall continue to remain effective until no further awards may be granted and all awards granted under the plan are no longer outstanding. Notwithstanding the foregoing, grants of incentive stock options may be made only until ten years from the date of shareholder approval of the 2016 Long-Term Incentive Plan. The board may at any time, and from time to time, amend the plan, provided that no amendment will be made that would impair the rights of a holder under any agreement entered into pursuant to the plan without the holder’s consent.
Federal Income Tax Consequences
The following discussion of the federal income tax consequences of participation in the plan is only a summary of the general rules applicable to the grant and exercise of stock options and other awards and does not give specific details or cover, among other things, state, local and foreign tax treatment of participation in the plan. The information contained in this section is based on present law and regulations, which are subject to being changed prospectively or retroactively.
Incentive Stock Options. Participants will recognize no taxable income upon the grant of an incentive stock option. The participant generally will realize no taxable income when the incentive stock option is exercised. The excess, if any, of the fair market valuemanager. Dimensional Fund Advisors LP disclaims beneficial ownership of the shares on the date of exercise of an incentive stock option over the exercise price will be treated as an item of adjustment for a participant’s taxable year in which the exercise occurs and may result in an alternative minimum tax liability for the participant. We will not qualify for any deduction in connection with the grant or exercise of incentive stock options. Upon a disposition of the shares after the later of two years from the date of grant or one year after the transfer of the shares to a participant, the participant will recognize the difference, if any, between the amount realized and the exercise price as long-term capital gain or long-term capital loss, as the case may be, if the shares are capital assets.
If common stock acquired upon the exercise of an incentive stock option is disposed of prior to the expiration of the holding periods described above, the participant will recognize ordinary compensation income in the taxable year of disposition in an amount equal to the excess, if any, of the fair market value of the shares on the date of exercise over the exercise price paid for the shares; and we will qualify for a deduction equal to any amount recognized, subject to the limitation that the compensation be reasonable.
Non-Qualified Stock Options. With respect to non-qualified stock options:
On a disposition of the shares, the participant will recognize gain or loss equal to the difference between the amount realized and the sum of the exercise price and the ordinary compensation income recognized. The gain or loss will be treated as capital gain or loss if the shares are capital assets and as short-term or long-term capital gain or loss, depending upon the length of time that the participant held the shares.Funds.
If the shares acquired upon exercise of a non-qualified stock option are subject to a substantial risk of forfeiture, the participant will recognize ordinary income at the time when the substantial risk of forfeiture is removed, unless the participant timely files under Section 83(b) of the IRC to elect to be taxed on the receipt of shares, and we will qualify for a corresponding deduction at that time. The amount of ordinary income will be equal to the excess of the fair market value of the shares at the time the income is recognized over the amount, if any, paid for the shares.
Stock Appreciation Rights. Upon the grant of a stock appreciation right, the participant recognizes no taxable income and we receive no deduction. The participant recognizes ordinary income and we receive a deduction at the time of exercise equal to the cash and fair market value of common stock payable upon the exercise.
Restricted Stock. A participant who receives restricted stock will recognize no income on the grant of the restricted stock and we will not qualify for any deduction. At the time the restricted stock is no longer subject to a substantial risk of forfeiture, a participant will recognize ordinary compensation income in an amount equal to the excess, if any, of the fair market value of the restricted stock at the time the restriction lapses over the consideration paid for the restricted stock. A participant’s shares are treated as being subject to a substantial risk of forfeiture so long as his or her sale of the shares at a profit could subject him or her to a suit under Section 16(b) of the Securities Exchange Act of 1934. The holding period to determine whether the participant has long-term or short-term capital gain or loss begins when the restriction period expires, and the tax basis for the shares will generally be the fair market value of the shares on this date.
A participant may elect under Section 83(b) of the IRC, within 30 days of the transfer of the restricted stock, to recognize ordinary compensation income on the date of transfer in an amount equal to the excess, if any, of the fair market value on the date of transfer of the shares of restricted stock, as determined without regard to the restrictions, over the consideration paid for the restricted stock. If a participant makes an election and thereafter forfeits the shares, no ordinary loss deduction will be allowed. The forfeiture will be treated as a sale or exchange upon which there is realized loss equal to the excess, if any, of the consideration paid for the shares over the amount realized on such forfeiture. The loss will be a capital loss if the shares are capital assets. If a participant makes an election under Section 83(b), the holding period will commence on the day after the date of transfer and the tax basis will equal the fair market value of shares, as determined without regard to the restrictions, on the date of transfer.
On a disposition of the shares, a participant will recognize gain or loss equal to the difference between the amount realized and the tax basis for the shares.
Whether or not the participant makes an election under Section 83(b), we generally will qualify for a deduction, subject to the reasonableness of compensation limitation, equal to the amount that is taxable as ordinary income to the participant, in the taxable year in which the income is included in the participant’s gross income. The income recognized by the participant will be subject to applicable withholding tax requirements.
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Dividends paid on restricted stock that is subject to a substantial risk of forfeiture generally will be treated as compensation that is taxable as ordinary compensation income to the participant and will be deductible by us subject to the reasonableness limitation. If, however, the participant makes a Section 83(b) election, the dividends will be treated as dividends and taxable as ordinary income to the participant, but will not be deductible by us.
Restricted Stock Units. A participant who receives restricted stock units generally will recognize no income upon the grant of restricted stock units. Instead, a participant will recognize as ordinary income, and we receive a corresponding deduction, any cash delivered and the fair market value of any common stock delivered in payment of an amount due under the restricted stock unit. The income recognized by the participant will be subject to applicable withholding tax requirements. Upon selling any common stock received by a participant in payment of an amount due under a restricted stock unit, the participant generally will recognize a capital gain or loss in an amount equal to the difference between the sale price of the common stock and the participant’s tax basis in the common stock (i.e., the ordinary income recognized by the participant).
Other Stock-Based Awards. The federal income tax treatment of other stock-based awards will depend on the nature and restrictions applicable to the award.
Section 162(m) Limits. Section 162(m) of the IRC places a limit of $1,000,000 on the amount of compensation that a publicly traded company may deduct in any one year with respect to each of its chief executive officer and 4 most highly paid executive officers. Certain performance-based compensation approved by shareholders is not subject to the deduction limit. The plan is qualified such that awards under the plan may constitute performance-based compensation not subject to Section 162(m) of the IRC. One of the requirements for equity compensation plans is that there must be a limit to the number of options and/or stock appreciation rights and shares granted to any one individual under the plan. Accordingly, the plan provides that the maximum number of options and/or stock appreciation rights which may be made to any participant in any calendar year is 100,000 and the maximum number of shares for which awards may be made to any participant in any calendar year is 50,000. The maximum amount payable pursuant to that portion of a cash award granted under the plan for any fiscal year to any participant that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the IRC may not exceed $500,000.
Certain Awards Deferring or Accelerating the Receipt of Compensation. Section 409A of the IRC, enacted as part of the American Jobs Creation Act of 2004, imposes certain new requirements applicable to “nonqualified deferred compensation plans.” If a nonqualified deferred compensation plan subject to Section 409A fails to meet, or is not operated in accordance with, these new requirements, then all compensation deferred under the plan may become immediately taxable. Stock appreciation rights and deferred stock awards that may be granted under the plan may constitute deferred compensation subject to the Section 409A requirements.
It is our intention that any award agreement governing awards subject to Section 409A will comply with these rules.
New Plan Benefits
The benefits or amounts that will be received by or allocated to any executive officers or employees under the plan are not currently determinable since no specific grants have been decided upon and no grants will be made prior to the plan’s adoption.
Recommendation and Vote Required
Approval of our incentive compensation plan will require the affirmative vote of the holders of a majority of the votes cast at the Annual Meeting.
THE BOARD RECOMMENDS THAT YOU VOTE
“FOR” THE 2016 LONG-TERM INCENTIVE PLAN.
PROPOSAL 3 — RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We propose that the shareholders ratify the appointment of CohnReznick LLP as our independent registered public accounting firm for fiscal year 2016 by our audit committee of our board of directors. We expect that representatives of CohnReznick LLP will be present at the annual meeting of shareholders and that they will be available to respond to appropriate questions submitted by shareholders at the meeting. CohnReznick LLP will have the opportunity to make a statement if they desire to do so.
Audit Fees. The aggregate fees billed by our independent registered public accounting firm for professional services rendered for the audits of our annual financial statements for the years ended December 31, 2015 and 2014 and review of financial statements included in our quarterly reports on Form 10-Q or services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those periods, were $405,000 and $285,202, respectively, including out of pocket expenses of $2,500 and 2,550, respectively.
Audit-Related Fees. No audit-related fees were billed by our independent registered public accounting firm for professional services for the years ended December 31, 2015 and 2014.
Tax Fees. No tax-related fees were billed by our independent registered public accounting firm for professional services rendered for the years ended December 31, 2015 or 2014.
All Other Fees. No other fees were billed by our independent registered public accounting firm for professional services rendered for the years ended December 31, 2015 or 2014.
Pre-Approval Policies and Procedures. In accordance with Section 10A(i) of the Securities Exchange Act of 1934, before we engage our independent registered public accounting firm to render audit or non-audit services, the engagement is approved by our audit committee. Our audit committee approved all of the fees referred to in the sections entitled “Audit Fees,” “Tax Fees” and “All Other Fees” above.
Ratification by the shareholders of the appointment of an independent registered public accounting firm is not required, but our board of directors believes that it is desirable to submit this matter to the shareholders. If a majority of the votes cast at the meeting do not ratify the selection of CohnReznick LLP at the meeting, the selection of an independent registered public accounting firm will be reconsidered by our audit committee.
THE BOARD RECOMMENDS A VOTE
“FOR” THE RATIFICATION OF THE APPOINTMENT OF COHNREZNICK LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
SOLICITATION OF PROXIES
Your proxy is being solicited on behalf of our board of directors and we are bearing the cost of this solicitation. In addition to the use of the mails and the Internet, proxies may be solicited personally or by email or telephone using the services of directors, officers, and regular employees at nominal cost. Banks, brokerage firms, and other custodians, nominees, and fiduciaries will be reimbursed by us for expenses incurred in sending proxy material to beneficial owners of our common stock. We have retained MacKenzie Partners, Inc. (“MacKenzie”) to assist in the solicitation of proxies for the annual meeting.Annual Meeting. We will pay MacKenzie a fee of $6,500 plus reimbursement for reasonable out-of-pocket expenses.
2017
2019 ANNUAL MEETING SHAREHOLDER PROPOSALS AND NOMINATIONS
In order for any shareholder proposal or nominations to be presented at the annual meeting of shareholders to be held in 20172019 or to be eligible for inclusion in our proxy statement for such meeting, we must receive itthe shareholder proposal or nomination at our principal executive offices by January 6, 2017.December 31, 2018. Proposals received after December 31, 2018, will be considered untimely. Each proposal should include the exact language of the proposal, a brief description of the matter and the reasons for the proposal, the name and address of the shareholder making the proposal and the disclosure of that shareholder’s number of shares of common stock owned, length of ownership of the shares, a representation that the shareholder will continue to own the shares through the shareholder meeting, a statement of the shareholder’s intention to appear in person or by proxy at the shareholder meeting, the and material interest, if any, in the matter being proposed.
Shareholders who wish to recommend to our nominatingNominating and corporate governance committeeCorporate Governance Committee a candidate for election to our board of directors should send their letters to CPI Aerostructures, Inc., 91 Heartland Boulevard, Edgewood, New York 11717, Attention: Nominating and Corporate Governance Committee. The corporate secretary will promptly forward all such letters to the members of our nominatingNominating and corporate governance committee.Corporate Governance Committee. Shareholders must follow certain procedures to recommend to our nominatingNominating and corporate governance committeeCorporate Governance Committee candidates for election as directors. In general,directors, in orderaddition to provide sufficient time to enable our nominating and corporate governance committee to evaluate candidates recommended by shareholders in connection with selecting candidatesthe procedures for nomination in connection with our annual meeting of shareholders, the corporate secretary must receive the shareholder’s recommendation no later than thirty days after the end of our fiscal year.other shareholder proposals, detailed above.
The recommendation must contain the following information about the candidate:
•Name and age;
•Current business and residence addresses and telephone numbers, as well as residence addresses for the past 20 years;
•Principal occupation or employment and employment history (name and address of employer and job title) for the past 10past10 years (or such shorter period as the candidate has been in the workforce);
•Educational background;
•Permission for the Company to conduct a background investigation, including the right to obtain education, employment and credit information;
•The number of shares of common stock of the Company beneficially owned by the candidate;
•The information that would be required to be disclosed by the Company about the candidate under the rules of the Securities and Exchange CommissionSEC in a proxy statement soliciting proxies for the election of such candidate as a director (which currently includes information required by Items 401, 404 and 405 of Regulation S-K promulgated by the Securities and Exchange Commission)SEC); and
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OTHER SHAREHOLDER COMMUNICATIONS WITH OUR BOARD OF DIRECTORS
Our board of directors provides a process for shareholders and interested parties to send communications to the board.board of directors. Shareholders and interested parties may communicate with our board of directors, any committee chairperson or the non-management directors as a group by writing to the board or committee chairperson in care of CPI Aerostructures, Inc., 91 Heartland Blvd., Edgewood, New York 11717. Each communication will be forwarded, depending on the subject matter, to the board of directors,the appropriate committee chairperson or all non-management directors.
DISCRETIONARY VOTING OF PROXIES
Pursuant to Rule 14a-4 promulgated by the Securities and Exchange Commission,SEC, shareholders are advised that our management will be permitted to exercise discretionary voting authority under proxies it solicits and obtains for our 20172019 annual meeting of shareholders with respect to any proposal presented by a shareholder at such meeting, without any discussion of the proposal in our proxy statement for such meeting, unless we receive notice of such proposal at our principal office in Edgewood, New York, not later than January 6, 2017.December 31, 2018.
INCORPORATION BY REFERENCE
This proxy statement incorporates by reference certain information included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015,2017, including our audited financial statements and supplementary data, management’s discussion and analysis of financial condition and results of operations, and our quantitative and qualitative disclosures about market risk. You may request a free copy of any or all of the information incorporated by reference into the proxy statement (other than exhibits not specifically incorporated by reference into the text of such documents). Please direct any oral or written requests for such documents to: Attention: Corporate Secretary,toCPI Aerostructures, Inc., 91 Heartland Blvd., Edgewood, New York 11717.11717, Attention: Corporate Secretary.
OTHER MATTERS
Our board of directors knows of no matter that will be presented for consideration at the meetingAnnual Meeting other than the matters referred to in this proxy statement. Should any other matter properly come before the meeting,Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote the proxy in accordance with their best judgment.
By Order of the Board of Directors
Vincent Palazzolo, Secretary
Edgewood, New YorkMay 19, 2016April 30, 2018
| YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY. | ||
Vote by Internet – QUICK EASYIMMEDIATE – 24 Hours a Day, 7 Days a Week or by Mail | ||
CPI AEROSTRUCTURES, INC. | Your internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. Votes submitted electronically over the Internet must be received by 11:59 p.m., Eastern Time, on June 19, 2018. |
 | INTERNET/MOBILE — www.cstproxyvote.com | |
| Use the Internet to vote your proxy. Have your proxy card available when you access the above website. Follow the prompts to vote your shares. | ||
 | MAIL– Mark, sign and date your proxy card and return it in the postage-paid envelope provided. |
| PLEASE DO NOT RETURN THE PROXY CARD IF YOU ARE VOTING ELECTRONICALLY . |
▲ FOLD HERE • DO NOT SEPARATE • INSERT IN ENVELOPE PROVIDED ▲
| PROXY | Please mark your votes like this | ☒ |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSALS 1, 2, AND 4, AND FOR A VOTE OF
“EVERY THREE YEARS” FOR PROPOSAL 3.
| 1. | Election of the following Class II directors (select one of the following): |
| Class II | FORall Nominees | WITHHOLD AUTHORITY for all nominees | FORall Except | |
| (1) | Walter Paulick | ☐ | ☐ | ☐ |
| (2) | Eric Rosenfeld | |||
SPECIAL INSTRUCTIONS for Proposal 1: To withhold authority to vote for any individual nominee, mark “FOR ALL EXCEPT” and strike a line through that nominee’s name in the list above.
| 2. | Advisory approval of the compensation of the Company’s Named Executive Officers. | FOR ☐ | AGAINST ☐ | ABSTAIN ☐ |
| 3. | Advisory selection of the frequency with which the company holds Say on Pay Votes. |
| 3 Years | 2 Years | 1 Year | ABSTAIN | |
| ☐ | ☐ | ☐ | ☐ |
| 4. | Ratification of appointment of CohnReznick LLP as the Company’s independent registered public accounting firm. | FOR ☐ | AGAINST ☐ | ABSTAIN ☐ |
| 5. | In their discretion, the proxies are authorized to vote upon such other business as may come before the meeting or any adjournment thereof. |
| Mark here if you plan to attend the meeting.☐ |
| CONTROL NUMBER | |
APPENDIX ASignature________________________________ Signature, if held jointly______________________________ Date_____________, 2018
Note: Please sign exactly as name appears hereon. When shares are held by joint owners, both should sign. When signing as attorney, executor, administrator, trustee, guardian, or corporate officer, please give title as such.
Important Notice Regarding the Internet Availability of Proxy
Materials for the Annual Meeting of Shareholders
The 2018 Proxy Statement and the 2017 Annual Report to
Shareholders are available at: http://www.cstproxy.com/cpiaero/2018
▲ FOLD HERE • DO NOT SEPARATE • INSERT IN ENVELOPE PROVIDED ▲
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CPI AEROSTRUCTURES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE2016 Long Term Incentive Plan
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 20, 2018Section 1. Purpose; Definitions.
1.1.Purpose.
The purposeundersigned shareholder(s) of CPI AEROSTRUCTURES, INC., a New York corporation (“Company”), hereby appoint(s) Douglas McCrosson and Terry Stinson, or either of them, with full power of substitution and to act without the other, as the agents, attorneys and proxies of the Plan isundersigned, to enable the Company to offer to its employees, officers, directors and consultants whose past, present and/or potential future contributions to the Company and its Subsidiaries have been, are or will be important to the success of the Company, an opportunity to share monetarily in the success of, and/or acquire a proprietary interest in, the Company. The various types of long-term incentive awards that may be provided under the Plan will enable the Company to respond to changes in compensation practices, tax laws, accounting regulations and the size and diversity of its business.
1.2.Definitions. For purposes of the Plan, the following terms shall be defined as set forth below:
(a) “Agreement” means the agreement between the Company and the Holder, or such other document as may be determined by the Committee, setting forth the terms and conditions of an award under the Plan.
(b) “Board” means the Board of Directors of the Company.
(c) “Code” means the Internal Revenue Code of 1986, as amended from time to time.
(d) “Committee” means the committee of the Board designated to administer the Plan as provided in Section 2.1. If no Committee is so designated, then all references in this Plan to “Committee” shall mean the Board.
(e) “Common Stock” means the Common Stock of the Company, par value $0.001 per share.
(f) “Company” means CPI Aerostructures, Inc., a corporation organized under the laws of the State of New York.
(g) “Disability” means physical or mental impairment as determined under procedures established by the Committee for purposes of the Plan.
(h) “Effective Date” means the date determined pursuant to Section 12.1.
(i) “Excluded Items” has the meaning set forth in Section 13.2.
(j) “Fair Market Value,” unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, means, as of any given date: (i) if the Common Stock is listed on a national securities exchange or is traded over-the-counter and last sale information is available, the last sale price of the Common Stock in the principal trading market for the Common Stock on such date, as reported by the exchange or by such source that the Committee deems reliable, as the case may be; or (ii) if the fair market value of the Common Stock cannot be determined pursuant to clause (i), such price as the Committee shall determine, in good faith.
(k) “Holder” means a person who has received an award under the Plan.
(l) “Incentive Bonus” means a bonus opportunity awarded under Section 9 pursuant to which a recipient may become entitled to receive an amount based on satisfaction of such Performance Goals as are specified in the Agreement.
(m) “Incentive Stock Option” means any Stock Option intended to be and designated as an “incentive stock option” within the meaning of Section 422 of the Code.
(n) “Non-qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.
(o) “Normal Retirement” means retirement from active employment with the Company or any Subsidiary on or after such age which may be designated by the Committee as “retirement age” for any particular Holder. If no age is designated, it shall be 65.
(p) “Other Stock-Based Award” means an award under Section 8 that is valued in whole or in part by reference to, or is otherwise based upon, Common Stock.
(q) “Parent” means any present or future “parent corporation” of the Company, as such term is defined in Section 424(e) of the Code.
(r) “Performance Goals” means the one or more goals established by the Committee in accordance with Sections 13.2.
(s) “Plan” means the Company’s 2016 Long Term Incentive Plan, as hereinafter amended from time to time.
(t) “Repurchase Value” shall mean the Fair Market Value if the award to be settled under Section 2.2(d) or repurchased under Section 5.2(l) is comprised of shares of Common Stock and the difference between Fair Market Value and the exercise price (if lower than Fair Market Value) if the award is a Stock Option or Stock Appreciation Right; in each case, multiplied by the number of shares subject to the award. “Repurchase Value” if the award to be repurchased under Section 10.2 is comprised of shares of Common Stock shall mean the greater of the Fair Market Value or the based upon the price per share of Common Stock received or to be received by other shareholders of the Company in the event. “Repurchase Value” if the award to be repurchased under Section 10.2 is comprised of Stock Options or Stock Appreciation Rights shall mean the difference between the greater of Fair Market Value or the price per share of Common Stock received or to be received by other shareholders of the Company in the event and the exercise price (if lower) multiplied by the number of shares subject to the award.
(u) “Restricted Stock” means Common Stock received under an award made pursuant to Section 7 that is subject to restrictions under Section 7.
(v) “Restricted Stock Unit” means an unfunded, unsecured right to receive, on the applicable settlement date, one share or an amount in cash or other consideration determined by the Committee to be of equal value as of such settlement date, subject to certain vesting conditions and other restrictions.
(w) “SAR Value” means the excess of the Fair Market Value (on the exercise date) over (a) the exercise price that the participant would have otherwise had to pay to exercise the related Stock Option or (b) if a Stock Appreciation Right is granted unrelated to a Stock Option, the Fair Market Value of a share of Common Stock on the date of grant of the Stock Appreciation Right, in either case, multiplied by the number of shares for which the Stock Appreciation Right is exercised.
(x) “Stock Appreciation Right” means the right to receive from the Company, without a cash payment to the Company, a number of shares of Common Stock equal to the SAR Value divided by the Fair Market Value (on the exercise date).
(y) “Stock Option” or “Option” means any option to purchase shares of Common Stock which is granted pursuant to the Plan.
(z) “Subsidiary” means any present or future “subsidiary corporation” of the Company, as such term is defined in Section 424(f) of the Code.
(aa) “Vest” means to become exercisable or to otherwise obtain ownership rights in an award.
Section 2. Administration.
2.1.Committee Membership. The Plan shall be administered by the Board or a Committee. If administered by a Committee, such Committee shall be composed of at least two directors, all of whom are “outside directors” within the meaning of the regulations issued under Section 162(m) of the Code and “non-employee” directors within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended. Committee members shall serve for such term as the Board may in each case determine and shall be subject to removal at any time by the Board.
2.2.Powers of Committee. The Committee shall have full authority to award, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Restricted Stock Units, (v) Other Stock-Based Awards, and/or (vi) Incentive Bonuses. For purposes of illustration and not of limitation, the Committee shall have the authority (subject to the express provisions of this Plan):
(a) to select the officers, employees, directors and consultants of the Company or any Subsidiary to whom Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Other Stock-Based Awards and/or Incentive Bonuses may from time to time be awarded hereunder;
(b) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, number of shares, share exercise price or types of consideration paid upon exercise of such options, such as other securities of the Company or other property, any restrictions or limitations, and any vesting, exchange, surrender, cancellation, acceleration, termination, exercise or forfeiture provisions, or any Performance Goals, as the Committee shall determine);
(c) to determine the terms and conditions under which awards granted hereunder are to operate on a tandem basis and/or in conjunction with or apart from other awards under this Plan and cash and non-cash awards made by the Company or any Subsidiary outside of this Plan; and
(d) to make payments and distributions with respect to awards (i.e., to “settle” awards) through cash payments in an amount equal to the Repurchase Value.
The Committee may not modify or amend any outstanding Option or Stock Appreciation Right to reduce the exercise price of such Option or Stock Appreciation Right, as applicable, below the exercise price as of the date of grant of such Option or Stock Appreciation Right. In addition, no payment of cash or other property having a value greater than the Repurchase Value may be made, and no Option or Stock Appreciation Right with a lower exercise price may be granted, in exchange for, or in connection with, the cancellation or surrender of an Option or Stock Appreciation Right.
Notwithstanding anything to the contrary, the Committee shall not grant to any one Holder in any one calendar year Options and/or Stock Appreciation Rights with respect to more than 100,000 shares in the aggregate or any other awards for more than 50,000 shares in the aggregate or Incentive Bonuses for more than $500,000 in the aggregate. In all cases, determinations of these limits should be made in a manner that is consistent with the exemption for performance-based compensation that Section 162(m) of the Code provides.
2.3.Interpretation of Plan. Subject to Section 11, the Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable, to interpret the terms and provisions of the Plan and any award issued under the Plan (and to determine the form and substance of all agreements relating thereto), and to otherwise supervise the administration of the Plan. Subject to Section 11, all decisions made by the Committee pursuant to the provisions of the Plan shall be made in the Committee’s sole discretion and shall be final and binding upon all persons, including the Company, its Subsidiaries and Holders.
Section 3. Stock Subject to Plan.
3.1.Number of Shares. The total number of shares of Common Stock reserved and available for issuance under the Plan shall be up to 600,000 shares;provided that, no more than 200,000 shares of Common Stock may be granted as Incentive Stock Options. Any shares of Common Stock granted in connection with Stock Options and Stock Appreciation Rights shall be counted against this limit as one share for every one Stock Option or Stock Appreciation Right awarded. Any shares of Common Stock granted in connection with awards other than Stock Options and Stock Appreciation Rights shall be counted against this limit as one and one-half shares of Common Stock for every one share of Common Stock granted in connection with such award. Additionally, a non-employee Director may not be granted awards covering more than 50,000 shares of Common Stock in any year. Shares of Common Stock under the Plan (“Shares”) may consist, in whole or in part, of authorized and unissued shares or treasury shares. If any shares of Common Stock that have been granted pursuant to a Stock Option cease to be subject to a Stock Option, or if any shares of Common Stock that are subject to any Stock Appreciation Right, Restricted Stock award, Restricted Stock Units or Other Stock-Based award granted hereunder are forfeited, or any such award otherwise
terminates without a payment being made to the Holder in the form of Common Stock, such shares shall again be available for distribution in connection with future grants and awards under the Plan. Shares of Common Stock that are surrendered by a Holder or withheld by the Company as full or partial payment in connection with any award under the Plan, as well as any shares of Common Stock surrendered by a Holder or withheld by the Company or one of its Subsidiaries to satisfy the tax withholding obligations related to any award under the Plan, shall not be available for subsequent awards under the Plan.
3.2.Adjustment Upon Changes in Capitalization, Etc. In the event of any common stock dividend payable on shares of Common Stock, Common Stock split or reverse split, combination or exchange of shares of Common Stock, or other extraordinary or unusual event which results in a change invote the shares of Common Stock of the Company as a whole, the Committee shall determine, in its sole discretion, whether such change equitably requires an adjustment in the terms of any award in order to prevent dilution or enlargement of the benefits available under the Plan (including number of shares subject to the award and the exercise price) or the aggregate number of shares reserved for issuance under the Plan. Any such adjustments will be made by the Committee, whose determination will be final, binding and conclusive.
3.3.Administrative Stand Still. In the event of any changes in capitalization described above in Section 3.2, or any other extraordinary transaction or change affecting the shares or the share price of Common Stock, including any equity restructuring or any securities offering or other similar transaction, for administrative convenience, the Committee may refuse to permit the exercise of any award for up to sixty days before and/or after such transaction; provided, however, that the Committee may not refuse to permit the exercise of any award during the last five trading days prior to the expiration of such award.
3.4.Substitute Awards. In connection with an entity’s merger or consolidation with the Company or any Subsidiary or the Company’s or any Subsidiary’s acquisition of an entity’s property or stock, the Committee may grant awards in substitution for any options or other stock or stock-based awards granted before such merger or consolidation by such entity or its affiliate. Substitute awards may be granted on such terms as the Committee deems appropriate, notwithstanding limitations on awards in the Plan. Substitute awards will not count against the Plan limit, except that shares acquired by exercise of substitute Incentive Stock Options will count against the maximum number of shares that may be issued pursuant to the exercise of Incentive Stock Options under the Plan.
Section 4. Eligibility.
Awards may be made or granted to employees, officers, directors and consultants who are deemed to have rendered or to be able to render significant services to the Company or its Subsidiaries and who are deemed to have contributed or to have the potential to contribute to the success of the Company and which recipients are qualified to receive options under the regulations governing Form S-8 registration statements under the Securities Act of 1933, as amended (“Securities Act”). No Incentive Stock Option shall be granted to any person who is not an employee of the Company or an employee of a Subsidiary at the time of grant or so qualified as set forth in the immediately preceding sentence. Notwithstanding the foregoing, an award may also be made or granted to a person in connection with his hiring or retention, or at any time on or after the date he reaches an agreement (oral or written) with the Company with respect to such hiring or retention, even though it may be prior to the date the person first performs services for the Company or its Subsidiaries; provided, however, that no portion of any such award shall vest prior to the date the person first performs such services and the date of grant shall be deemed to be the date hiring or retention commences.
Section 5. Stock Options.
5.1.Grant and Exercise. Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-qualified Stock Options. Any Stock Option granted under the Plan shall contain such terms, not inconsistent with this Plan, or with respect to Incentive Stock Options, not inconsistent with the Plan and the Code, as the Committee may from time to time approve. The Committee shall have the authority to grant Incentive Stock Options or Non-qualified Stock Options, or both types of Stock Options which may be granted alone or in addition to other awards granted under the Plan.
5.2.Terms and Conditions. Stock Options granted under the Plan shall be subject to the following terms and conditions:
(a)Option Term. The term of each Stock Option shall be fixed by the Committee; provided, however, that no Stock Option may be exercisable after the expiration of ten years from the date of grant; provided, further, that no Incentive Stock Option granted to a person who, at the time of grant, owns stock possessing more than 10% of the total combined voting power of all classes of voting stock of the Company (“10% Shareholder”) may be exercisable after the expiration of five years from the date of grant.
(b)Exercise Price. The exercise price per share of Common Stock purchasable under a Stock Option shall be determined by the Committee at the time of grant; provided, however, that the exercise price of a Stock Option may not be less than 100% of the Fair Market Value on the date of grant or, if greater, the par value of a share of Common Stock; provided, further, that the exercise price of an Incentive Stock Option granted to a 10% Shareholder may not be less than 110% of the Fair Market Value on the date of grant.
(c)Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee. The Committee intends generally to provide that Stock Options be exercisable only in installments, i.e., that they vest over time, typically over a three to five year period. The Committee may waive such installment exercise provisions at any time at or after the time of grant in whole or in part, based upon such factors as the Committee determines.
(d)Method of Exercise. Subject to whatever installment, exercise and waiting period provisions are applicable in a particular case, Stock Options may be exercised in whole or in part at any time during the term of the Option by giving written notice of exercise to the Company specifying the number of shares of Common Stock to be purchased. Such notice shall be accompanied by payment in full of the purchase price, which shall be in cash or, if provided in the Agreement, either in shares of Common Stock (including Restricted Stock and other contingent awards under this Plan) or partly in cash and partly in such Common Stock, or such other means which the Committee determines are consistent with the Plan’s purpose and applicable law. Cash payments shall be made by wire transfer, certified or bank check or personal check, in each case payable to the order of the Company; provided, however, that the Company shall not be required to deliver certificates for shares of Common Stock with respect to which an Option is exercised until the Company has confirmed the receipt of good and available funds in payment of the purchase price thereof (except that, in the case of an exercise arrangement approved by the Committee and described in the last sentence of this paragraph, payment may be made as soon as practicable after the exercise). The Committee may permit a Holder to elect to pay the exercise price upon the exercise of a Stock Option by irrevocably authorizing a third party to sell shares of Common Stock (or a sufficient portion of the shares) acquired upon exercise of the Stock Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding resulting from such exercise.
(e)Stock Payments. Payments in the form of Common Stock shall be valued at the Fair Market Value on the date of exercise. Such payments shall be made by delivery of stock certificates in negotiable form that are effective to transfer good and valid title thereto to the Company, free of any liens or encumbrances.
(f)Transferability. Except as may be set forth in the next sentence of this Section or in the Agreement, no Stock Option shall be transferable by the Holder other than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the Holder’s lifetime, only by the Holder (or, to the extent of legal incapacity or incompetency, the Holder’s guardian or legal representative). Notwithstanding the foregoing, a Holder, with the approval of the Committee, may transfer a Non-Qualified Stock Option (i) (A) by gift, for no consideration, or (B) pursuant to a domestic relations order, in either case, to or for the benefit of the Holder’s “Immediate Family” (as defined below), or (ii) to an entity in which the Holder and/or members of Holder’s Immediate Family own more than fifty percent of the voting interest, subject to such limits as the Committee may establish and the
execution of such documents as the Committee may require, and the transferee shall remain subject to all the terms and conditions applicable to the Non-Qualified Stock Option prior to such transfer. The term “Immediate Family” shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent beneficial interest, and a foundation in which these persons (or the Holder) control the management of the assets. The Committee may, in its sole discretion, permit transfer of an Incentive Stock Option in a manner consistent with the Code and applicable securities law upon the Holder’s request.
(g)Termination by Reason of Death. If a Holder’s employment by, or association with, the Company or a Subsidiary terminates by reason of death, any Stock Option held by such Holder, unless otherwise determined by the Committee and set forth in the Agreement, shall thereupon automatically terminate, except that the portion of such Stock Option that has vested on the date of death may thereafter be exercised by the legal representative of the estate or by the legatee of the Holder under the will of the Holder, for a period of one year (or such other greater or lesser period as the Committee may specify in the Agreement) from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is shorter.
(h)Termination by Reason of Disability. If a Holder’s employment by, or association with, the Company or any Subsidiary terminates by reason of Disability, any Stock Option held by such Holder, unless otherwise determined by the Committee and set forth in the Agreement, shall thereupon automatically terminate, except that the portion of such Stock Option that has vested on the date of termination may thereafter be exercised by the Holder for a period of one year (or such other greater or lesser period as the Committee may specify in the Agreement) from the date of such termination or until the expiration of the stated term of such Stock Option, whichever period is shorter.
(i)Termination by Reason of Normal Retirement. Subject to the provisions of Section 13.4, if such Holder’s employment by, or association with, the Company or any Subsidiary terminates due to Normal Retirement, any Stock Option held by such Holder, unless otherwise determined by the Committee and set forth in the Agreement, shall thereupon automatically terminate, except that the portion of such Stock Option that has vested on the date of termination may thereafter be exercised by the Holder for a period of one year in the case of a Non-Qualified Stock Option or three months in the case of an Incentive Stock Option (or such other greater or lesser period as the Committee may specify in the Agreement) from the date of such termination or until the expiration of the stated term of such Stock Option, whichever period is shorter.
(j)Other Termination. Subject to the provisions of Section 13.4, if such Holder’s employment by, or association with, the Company or any Subsidiary terminates for any reason other than death, Disability or Normal Retirement, any Stock Option held by such Holder, unless otherwise determined by the Committee and set forth in the Agreement, shall thereupon automatically terminate, except that, if the Holder’s employment is terminated by the Company or a Subsidiary without cause, the portion of such Stock Option that has vested on the date of termination may thereafter be exercised by the Holder for a period of three months (or such other greater or lesser period as the Committee may specify in the Agreement) from the date of such termination or until the expiration of the stated term of such Stock Option, whichever period is shorter.
(k)Incentive Stock Options. The aggregate Fair Market Value (on the date of grant of the Stock Option) with respect to which Incentive Stock Options become exercisable for the first time by a Holder during any calendar year (under all such plans of the Company and its Parent and Subsidiaries) shall not exceed $100,000. To the extent that any Stock Option intended to qualify as an Incentive Stock Option does not so qualify, including by reason of the immediately preceding sentence, it shall constitute a separate Non-qualified Stock Option. The Company shall have no liability to any Holder or any other person if a Stock Option designated as an Incentive Stock Option fails to qualify as such at any time or
if a Stock Option is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code and the terms of such Stock Option do not satisfy the requirements of Section 409A of the Code.
(l)Buyout and Settlement Provisions. The Committee may at any time, in its sole discretion, offer to repurchase a Stock Option previously granted, at a purchase price not to exceed the Repurchase Value, based upon such terms and conditions as the Committee shall establish and communicate to the Holder at the time that such offer is made.
(m)Rights as Shareholder. A Holder shall have none of the rights of a shareholder of the Company with respect to the shares subject to the Option until such shares shall be transferred to the Holder upon the exercise of the Option.
Section 6. Stock Appreciation Rights.
6.1.Grant and Exercise. Subject to the terms and conditions of the Plan, the Committee may grant Stock Appreciation Rights in tandem with an Option or alone and unrelated to an Option. The Committee may grant Stock Appreciation Rights to participants who have been or are being granted Stock Options under the Plan as a means of allowing such participants to exercise their Stock Options without the need to pay the exercise price in cash. In the case of a Non-qualified Stock Option, a Stock Appreciation Right may be granted either at or after the time of the grant of such Non-qualified Stock Option. In the case of an Incentive Stock Option, a Stock Appreciation Right may be granted only at the time of the grant of such Incentive Stock Option.
6.2.Terms and Conditions. Stock Appreciation Rights shall be subject to the following terms and conditions:
(a)Exercisability. Stock Appreciation Rights shall be exercisable as shall be determined by the Committee and set forth in the Agreement, subject, for Stock Appreciation Rights granted in tandem with an Incentive Stock Option, to the limitations, if any, imposed by the Code with respect to related Incentive Stock Options.
(b)Termination. All or a portion of a Stock Appreciation Right granted in tandem with a Stock Option shall terminate and shall no longer be exercisable upon the termination or after the exercise of the applicable portion of the related Stock Option.
(c)Method of Exercise. Stock Appreciation Rights shall be exercisable upon such terms and conditions as shall be determined by the Committee and set forth in the Agreement and, for Stock Appreciation Rights granted in tandem with a Stock Option, by surrendering the applicable portion of the related Stock Option. Upon exercise of all or a portion of a Stock Appreciation Right and, if applicable, surrender of the applicable portion of the related Stock Option, the Holder shall be entitled to receive a number of shares of Common Stock equal to the SAR Value divided by the Fair Market Value on the date the Stock Appreciation Right is exercised.
(d)Shares Available Under Plan. The granting of a Stock Appreciation Right in tandem with a Stock Option shall not affect the number of shares of Common Stock available for awards under the Plan. The number of shares available for awards under the Plan will, however, be reduced by the number of shares of Common Stock acquirable upon exercise of the Stock Option to which such Stock Appreciation Right relates.
Section 7. Restricted Stock; Restricted Stock Units.
7.1.Grant. Shares of Restricted Stock may be awarded either alone or in addition to other awards granted under the Plan. The Committee shall determine the eligible persons to whom, and the time or times at which, grants of Restricted Stock will be awarded, the number of shares to be awarded, the price (if any) to be paid by the Holder, the time or times within which such awards may be subject to forfeiture, including upon termination of employment or failure of performance conditions (“Restriction Period”), the vesting schedule and rights to acceleration thereof, the Performance Goal(s), if any, and level of achievement versus the Performance Goal(s) that shall determine the number of shares of Restricted Stock granted, issued and/or vested, the term of the performance period, if any, as to which performance will be measured for determining
the number of such shares of Restricted Stock and all other terms and conditions of the awards. In addition, the Committee may award Restricted Stock Units, which may be subject to vesting and forfeiture conditions during the applicable restriction period or periods, as set forth in an Agreement.
7.2.Restricted Stock Terms and Conditions. Each Restricted Stock award shall be subject to the following terms and conditions:
(a)Certificates. Restricted Stock, when issued, will be represented by a stock certificate or certificates registeredstanding in the name of the Holderundersigned at the Company’s Annual Meeting of Shareholders to whom such Restricted Stock shall have been awarded. During the Restriction Period, certificates representing the Restricted Stockbe held on June 20, 2018 and any securities constituting Retained Distributions (as defined below) shall bear a legend to the effect that ownership of the Restricted Stock (and such Retained Distributions) and the enjoyment ofat all rights appurtenant thereto are subject to the restrictions, terms and conditions provided in the Plan and the Agreement. Such certificates shalladjournments thereof. This proxy will be deposited by the Holder with the Company, together with stock powers or other instruments of assignment, each endorsed in blank, which will permit transfer to the Company of all or any portion of the Restricted Stock and any securities constituting Retained Distributions that shall be forfeited or that shall not become vestedvoted in accordance with the Planinstructions given below. If no instructions are given, this proxy will be voted in favor of electing the Class II nominees, and will be voted FOR the Agreement.Say on Pay Proposal, FOR THREE YEARS as the Frequency of Say on Pay, and FOR the ratification of the appointment of CohnReznick LLP as the Company’s independent registered public accounting firm.
(b)Rights of Holder. Restricted Stock shall constitute issued and outstanding shares of Common Stock for all corporate purposes. The Holder will have the right to vote such Restricted Stock
(Continued, and to exercise all other rights, powersbe marked, dated and privileges of a holder of Common Stock with respect to such Restricted Stock, with the exceptions that (i) the Holder will not be entitled to delivery of the stock certificate or certificates representing such Restricted Stock until the Restriction Period shall have expired and unless all other vesting requirements with respect thereto shall have been fulfilled; (ii) the Company will retain custody of the stock certificate or certificates representing the Restricted Stock during the Restriction Period; (iii) the Company will retain custody of all dividends and distributions (“Retained Distributions”) made, paid or declared with respect to the Restricted Stock (and such Retained Distributions will be subject to the same restrictions, terms and conditions as are applicable to the Restricted Stock) until such time, if ever, as the Restricted Stock with respect to which such Retained Distributions shall have been made, paid or declared shall have become vested and with respect to which the Restriction Period shall have expired; and (iv) a breach of any of the restrictions, terms or conditions contained in this Plan or the Agreement or otherwise established by the Committee with respect to any Restricted Stock or Retained Distributions will cause a forfeiture of such Restricted Stock and any Retained Distributions with respect thereto.
(c)Vesting; Forfeiture. Upon the expiration of the Restriction Period with respect to each award of Restricted Stock and the satisfaction of any other applicable restrictions, terms and conditions, which may include Performance Goals, (i) all or part of such Restricted Stock shall become vested in accordance with the terms of the Agreement, and (ii) any Retained Distributions with respect to such Restricted Stock shall become vested to the extent that the Restricted Stock related thereto shall have become vested. Any such Restricted Stock and Retained Distributions that do not vest shall be forfeited to the Company and the Holder shall not thereafter have any rights with respect to such Restricted Stock and Retained Distributions that shall have been so forfeited.
(d)Discretionary Adjustments and Limits. Notwithstanding the satisfaction of any Performance Goals, the number of shares of Restricted Stock granted, issued and/or vested under an award of Restricted Stock on account of either financial performance or personal performance evaluations may, to the extent specified in the Agreement, be reduced, but not increased, by the Committeesigned, on the basis of such further considerations as the Committee shall determine.other side)
7.3.Restricted Stock Units Terms and Conditions. Each Restricted Stock Units award shall be subject to the following terms and conditions:
(a)Settlement. The Committee may provide that settlement of Restricted Stock Units will occur upon or as soon as reasonably practicable after the Restricted Stock Units vest or will instead be deferred, on a mandatory basis or at the Holder’s election, in a manner intended to comply with Section 409A.
(b)Shareholder Rights. A Holder will have no rights of a holder of Common Stock with respect to shares subject to any Restricted Stock Unit unless and until the shares are delivered in settlement of the Restricted Stock Unit.
(c)Dividend Equivalents. If the Committee provides, a grant of Restricted Stock Units may provide a Holder with the right to receive dividend equivalents. Dividend equivalents may be paid currently or credited to an account for the Holder, settled in cash or shares and subject to the same restrictions on transferability and forfeitability as the Restricted Stock Units with respect to which the dividend equivalents are granted and subject to other terms and conditions as set forth in the Agreement.
Section 8. Other Stock-Based Awards.
Other Stock-Based Awards may be awarded, subject to limitations under applicable law, that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of Common Stock, as deemed by the Committee to be consistent with the purposes of the Plan, including, without limitation, purchase rights, shares of Common Stock awarded which are not subject to any restrictions or conditions, rights convertible into shares of Common Stock and awards valued by reference to the value of securities of or the performance of specified Subsidiaries. These other stock-based awards may include performance shares or options, whose award is tied to specific Performance Goals. Other Stock-Based Awards may be awarded either alone or in addition to or in tandem with any other awards under this Plan or any other plan of the Company. Each other Stock-Based Award shall be subject to such terms and conditions as may be determined by the Committee.
Section 9. Incentive Bonuses
9.1.General. Each Incentive Bonus award will confer upon the Holder the opportunity to earn a future payment tied to the level of achievement with respect to one or more Performance Goals established for a performance period established by the Committee.
9.2.Incentive Bonus Document. The terms of any Incentive Bonus will be set forth in an Agreement. Each Agreement evidencing an Incentive Bonus shall contain provisions regarding (i) the target and maximum amount payable to the Holder as an Incentive Bonus, (ii) the Performance Goals and level of achievement versus the Performance Goals that shall determine the amount of such payment, (iii) the term of the performance period as to which performance shall be measured for determining the amount of any payment, (iv) the timing of any payment earned by virtue of performance, (v) restrictions on the alienation or transfer of the Incentive Bonus prior to actual payment, (vi) forfeiture provisions and (vii) such further terms and conditions, in each case not inconsistent with this Plan as may be determined from time to time by the Committee.
9.3.Performance Goals. The Committee shall establish the Performance Goals and level of achievement versus the Performance Goals that shall determine the target and maximum amount payable under an Incentive Bonus.
9.4.Timing and Form of Payment. The Committee shall determine the timing of payment of any Incentive Bonus. Payment of the amount due under an Incentive Bonus shall be made in cash. The Committee may provide for or, subject to such terms and conditions as the Committee may specify, may permit a Holder to elect for the payment of, any Incentive Bonus to be deferred to a specified date or event.
9.5.Discretionary Adjustments. Notwithstanding satisfaction of any Performance Goals, the amount paid under an Incentive Bonus on account of either financial performance or personal performance evaluations may, to the extent specified in the Agreement, be reduced, but not increased, by the Committee on the basis of such further considerations as the Committee shall determine.
9.6.Termination. If a Holder’s employment by, or association with, the Company or any Subsidiary terminates for any reason (including by reason of death or Disability), the Holder shall receive payment in respect of any Incentive Bonuses only to the extent specified by the Committee, unless otherwise expressly provided in the Agreement or another contract, including an employment agreement. Payments in respect of any such Incentive Bonuses shall be made at the time specified by the Committee and set forth in the Agreement.
Section 10. Accelerated Vesting and Exercisability.
10.1.Non-Approved Transactions. If any one person, or more than one person acting as a group, acquires the ownership of stock of the Company that, together with the stock held by such person or group, constitutes more than 50% of the total fair market value or combined voting power of the stock of the Company, and the Board does not authorize or otherwise approve such acquisition, then the vesting periods of any and all Stock Options and other awards granted and outstanding under the Plan shall be accelerated and all such Stock Options and awards will immediately and entirely vest, and the respective holders thereof will have the immediate right to purchase and/or receive any and all Common Stock subject to such Stock Options and awards on the terms set forth in this Plan and the respective Agreements respecting such Stock Options and awards, and all Performance Goals will be deemed achieved at 100% of target levels and all other terms and conditions will be deemed met. An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the Company acquires its stock in exchange for property is not treated as an acquisition of stock for purposes of this Section 10.1.
10.2.Approved Transactions. The Committee may, in the event of an acquisition by any one person, or more than one person acting as a group, together with acquisitions during the 12-month period ending on the date of the most recent acquisition by such person or persons, of assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions, or if any one person, or more than one person acting as a group, acquires the ownership of stock of the Company that, together with the stock held by such person or group, constitutes more than 50% of the total fair market value or combined voting power of the stock of the Company, which has been approved by the Company’s Board of Directors, (i) accelerate the vesting of any and all Stock Options and other awards granted and outstanding under the Plan; (ii) require a Holder of any Stock Option, Stock Appreciation Right, Restricted Stock award or Other Stock-Based Award granted under this Plan to relinquish such award to the Company upon the tender by the Company to Holder of cash, stock or other property, or any combination thereof, in an amount equal to the Repurchase Value of such award; provided, however, that the obligation to tender the Repurchase Value to such Holders may be subject to any terms and conditions to which the tender of consideration to the Company’s shareholders in connection with the acquisition is subject, including any terms and conditions of the acquisition providing for an adjustment to or escrow of such consideration; and provided, further, that in the case of any Stock Option or Stock Appreciation Right with an exercise price that equals or exceeds the price paid for a share of Common Stock in connection with the acquisition, the Committee may cancel the Stock Option or Stock Appreciation Right without the payment of consideration therefor; and/or (iii) terminate all incomplete performance periods in respect of awards in effect on the date the acquisition occurs, determine the extent to which Performance Goals have been met based upon such information then available as it deems relevant and cause to be paid to the Holder the all or the applicable portion of the award based upon the Committee’s determination of the degree of attainment of Performance Goals, or on such other basis determined by the Committee. For this purpose, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
10.3.Code Section 409A. Notwithstanding any provisions of this Plan or any award granted hereunder to the contrary, no acceleration shall occur with respect to any award to the extent such acceleration would cause the Plan or an award granted hereunder to fail to comply with Code Section 409A.
Section 11. Amendment and Termination.
The Board may at any time, and from time to time, amend alter, suspend or discontinue any of the provisions of the Plan or any Agreement, but no amendment, alteration, suspension or discontinuance shall be made that would impair the rights of a Holder under any Agreement theretofore entered into hereunder, without the Holder’s consent, except as set forth in this Plan or the Agreement. Notwithstanding anything to the contrary herein, no amendment to the provisions of the Plan shall be effective unless approved by the shareholders of the Company to the extent shareholder approval is necessary to satisfy any provision of the Code or other applicable law or the listing requirements of any national securities exchange on which the Company’s securities are listed.
Section 12. Term of Plan.
12.1.Effective Date. The Effective Date of the Plan shall be May 9, 2016, subject to the approval of the Plan by the Company’s shareholders within one year after the Effective Date. Only Stock Options may be granted under the Plan prior to such approval of the Plan by the Company’s shareholders. Any Stock Options granted under the Plan prior to such approval shall be effective when made (unless otherwise specified by the Committee at the time of grant), but shall be conditioned upon, and subject to, such approval of the Plan by the Company’s shareholders and no Stock Options shall vest or otherwise become free of restrictions prior to such approval.
12.2.Termination Date. Unless terminated by the Board, this Plan shall continue to remain effective until such time as no further awards may be granted and all awards granted under the Plan are no longer outstanding. Notwithstanding the foregoing, grants of Incentive Stock Options may be made only during the ten-year period beginning on the Effective Date.
Section 13. General Provisions.
13.1.Written Agreements. Each award granted under the Plan shall be confirmed by, and shall be subject to the terms of, the Agreement executed by the Company and the Holder, or such other document as may be determined by the Committee. The Committee may terminate any award made under the Plan if the Agreement relating thereto is not executed and returned to the Company within 10 days after the Agreement has been delivered to the Holder for his or her execution.
13.2.Establishing Performance Goals. Performance Goals shall be established by the Committee based upon performance criteria that relate to one or more of the following with respect to the Company or any one or more of its Subsidiaries or its or their respective business units, in all cases before Excluded Items, except as otherwise determined by the Committee upon the grant of an award: sales or other revenues; cost of goods sold; gross profit; expenses or expense or cost reductions; income or earnings, including net income or income from operations; earnings before one or more items such as interest, taxes, depreciation and amortization; margins; working capital or any of its components, including accounts receivable, inventories or accounts payable; assets or productivity of assets; return on shareholders’ equity, capital, assets or other financial measure that appears on the Company’s financial statements or is derived from one or more amounts that appear on the Company’s financial statements; stock price; dividend payments; economic value added, or other measure of profitability that considers the cost of capital employed; cash flow; debt or ratio of debt to equity or other financial measure that appears on the Company’s financial statements or is derived from one or more amounts that appear on the Company’s financial statements; net increase (decrease) in cash and cash equivalents; customer satisfaction; market share; product quality; new product introductions or launches; sustainability, including energy or materials utilization; business efficiency measures; safety; or any combination of the foregoing. Performance Goals also may include earnings per share on a consolidated basis and total shareholder return. Unless otherwise determined by the Committee at the time of grant, as to each Performance Goal, the relevant measurement of performance shall be computed in accordance with U.S. generally accepted accounting principles to the extent applicable, but will exclude the effects of the following: (i) charges for reorganizing and restructuring; (ii) discontinued operations; (iii) asset write-downs; (iv) gains or losses on the disposition of a business or business segment or arising from the sale of assets outside the ordinary course of business; (v) changes in tax or accounting principles, regulations or laws; (vi) extraordinary, unusual, transition, one-time and/or non-recurring expenses, revenues or other items of gain or loss; (vii) changes in interest expenses as a result of modified debt structures; and (viii) mergers and acquisitions, that, in case of each of the foregoing, the Company identifies in its publicly filed periodic or current reports, its audited financial statements, including notes to the financial statements, or the Management’s Discussion and Analysis section of the Company’s annual report, to the extent applicable (collectively, the “Excluded Items”). With respect to any award intended to qualify as performance-based compensation under Section 162(m) of the Code, such exclusions shall be made only to the extent consistent with Section 162(m) of the Code. To the extent consistent with Section 162(m) of the Code, the Committee may also provide for other adjustments to Performance Goals in the Agreement evidencing any award. In addition, the Committee may appropriately adjust any evaluation of performance under a Performance Goal to exclude any of the following events that occurs during a performance period: (i) litigation, claims, judgments or settlements; (ii) the effects of changes in other laws or regulations affecting reported results; and
(iii) accruals of any amounts for payment under this Plan or any other compensation arrangements maintained by the Company; provided that, with respect to any award intended to qualify as performance-based compensation under Section 162(m) of the Code, such adjustment may be made only to the extent consistent with Code Section 162(m) of the Code. Where applicable, the Performance Goals may be expressed, without limitation, in terms of attaining a specified level of the particular criterion or the attainment of an increase or decrease (expressed as absolute numbers, averages and/or percentages) in the particular criterion or achievement in relation to a peer group or other index. The Performance Goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be paid (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur).
13.3.Performance Awards. The Committee, in its sole discretion, may determine at the time an award is granted or at any time thereafter whether such award is intended to qualify as “performance based compensation” within the meaning of Section 162(m) of the Code. For the avoidance of doubt, nothing herein shall require the Committee to structure any awards in a manner intended to constitute performance based compensation and the Committee shall be free, in its sole discretion, to grant awards that are not intended to be performance based compensation. Notwithstanding any other provision of the Plan and except as otherwise determined by the Committee, any award which is granted under the Plan and is intended to qualify as performance based compensation” shall be subject to any additional limitations set forth in Section 162(m) of the Code or any regulations or rulings issued thereunder that are requirements for qualification as performance based compensation, and the Plan and the applicable Agreement shall be deemed amended to the extent necessary to conform to such requirements. In addition, Restricted Stock awards, Other Stock-Based Awards and Incentive Bonus awards that are intended to qualify as performance based compensation under Section 162(m) of the Code shall be subject to the following provisions, which shall control over any conflicting provision in the Plan or any Agreement:
(a) To the extent necessary to comply with the requirements of Section 162(m)(4)(C) of the Code, no later than 90 days following the commencement of any performance period or any designated fiscal period or period of service (or such earlier time as may be required under Section 162(m) of the Code), the Committee shall, in writing, (a) designate the recipient to receive such award, (b) select the performance criteria applicable to the performance period, (c) establish the Performance Goals, and amounts of such awards, as applicable, which may be earned for such performance period based on the performance criteria, and (d) specify the relationship between performance criteria and the Performance Goals and the amounts of such awards, as applicable, to be earned by each covered employee for such performance period.
(b) Following the completion of each performance period, the Committee shall certify in writing whether and the extent to which the applicable Performance Goals have been achieved for such performance period. In determining the amount earned under such awards, the Committee shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant, including the assessment of individual or corporate performance for the performance period.
(c) No adjustment or action described in any provision of the Plan shall be authorized to the extent that such adjustment or action would cause such award to fail to so qualify as performance based compensation, unless the Committee determines that the award should not so qualify.
13.4.Unfunded Status of Plan. The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Holder by the Company, nothing contained herein shall give any such Holder any rights that are greater than those of a general creditor of the Company.
13.5.Employees.
(a)Engaging in Competition With the Company; Solicitation of Customers and Employees; Disclosure of Confidential Information. If a Holder’s employment with the Company or a Subsidiary is terminated for any reason whatsoever, and within 12 months after the date thereof such Holder either
(i) accepts employment with any competitor of, or otherwise engages in competition with, the Company or any of its Subsidiaries, (ii) solicits any customers or employees of the Company or any of its Subsidiaries to do business with or render services to the Holder or any business with which the Holder becomes affiliated or to which the Holder renders services or (iii) uses or discloses to anyone outside the Company any confidential information or material of the Company or any of its Subsidiaries in violation of the Company’s policies or any agreement between the Holder and the Company or any of its Subsidiaries, the Committee, in its sole discretion, may require such Holder to return to the Company the economic value of any award that was realized or obtained by such Holder at any time during the period beginning on the date that is six months prior to the date such Holder’s employment with the Company is terminated; provided, however, that if the Holder is a resident of the State of California, such right must be exercised by the Company for cash within six months after the date of termination of the Holder’s service to the Company or within six months after exercise of the applicable Stock Option, whichever is later. In such event, Holder agrees to remit to the Company, in cash, an amount equal to the difference between the Fair Market Value of the Shares on the date of termination (or the sales price of such Shares if the Shares were sold during such six month period) and the price the Holder paid the Company for such Shares.
(b)Termination for Cause. If a Holder’s employment with the Company or a Subsidiary is terminated for cause, the Committee may, in its sole discretion, require such Holder to return to the Company the economic value of any award that was realized or obtained by such Holder at any time during the period beginning on that date that is six months prior to the date such Holder’s employment with the Company is terminated. In such event, Holder agrees to remit to the Company, in cash, an amount equal to the difference between the Fair Market Value of the Shares on the date of termination (or the sales price of such Shares if the Shares were sold during such six month period) and the price the Holder paid the Company for such Shares.
(c)No Right of Employment. Nothing contained in the Plan or in any award hereunder shall be deemed to confer upon any Holder who is an employee of the Company or any Subsidiary any right to continued employment with the Company or any Subsidiary, nor shall it interfere in any way with the right of the Company or any Subsidiary to terminate the employment of any Holder who is an employee at any time.
13.6.No Fractional Shares. No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan. The Committee shall determine whether cash, additional awards or other securities or property shall be issued or paid in lieu of fractional shares of Common Stock or whether any fractional shares should be rounded, forfeited or otherwise eliminated.
13.7.Provisions for Foreign Participants. The Committee may modify awards granted to Holders who are foreign nationals or employed outside the United States or establish subplans or procedures under the Plan to address differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.
13.8.Limitations on Liability.
(a) Notwithstanding any other provisions of the Plan, no individual acting as a director, officer, other employee or agent of the Company or any Subsidiary will be liable to any Holder, former Holder, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan or any award, and such individual will not be personally liable with respect to the Plan because of any contract or other instrument executed in his or her capacity as member of the Committee, director, officer, other employee or agent of the Company or any Subsidiary. The Company will indemnify and hold harmless each director, officer, other employee and agent of the Company or any Subsidiary that has been or will be granted or delegated any duty or power relating to the Plan’s administration or interpretation, against any cost or expense (including attorneys’ fees) or liability (including any sum paid in settlement of a claim with the Committee’s approval) arising from any act or omission concerning this Plan unless arising from such person’s own fraud or bad faith.
(b) Neither the Company nor any Subsidiary shall be liable to a Holder or any other person as to: (i) the non-issuance or sale of shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder; and (ii) any tax consequence expected, but not realized, by any Holder or other person due to the receipt, exercise or settlement of any award granted hereunder.
13.9.Lock-Up Period. The Company may, at the request of any underwriter representative, placement agent or otherwise, in connection with an offering of any Company securities under the Securities Act or pursuant to an exemption therefrom, prohibit any Holder from, directly or indirectly, selling or otherwise transferring any shares of Common Stock or other Company securities during a period of up to one hundred eighty days following either the effective date of a Company registration statement filed under the Securities Act, in the case of a registered offering, or the closing date of the sale of the Company securities, in the case of an offering exempt from registration, or for such longer period as determined by the underwriter, representative or placement agent.
13.10.Data Privacy. As a condition for receiving any award, each Holder explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this Section 13.10 by and among the Company and its Subsidiaries and affiliates exclusively for implementing, administering and managing the Holder’s participation in the Plan. The Company and its Subsidiaries and affiliates may hold certain personal information about a Holder, including the Holder’s name, address and telephone number; birthdate; social security, insurance number or other identification number; salary; nationality; job title(s); any shares held in the Company or its Subsidiaries and affiliates; and award details, to implement, manage and administer the Plan and awards (the “Data”). The Company and its Subsidiaries and affiliates may transfer the Data amongst themselves as necessary to implement, administer and manage a Holder’s participation in the Plan, and the Company and its Subsidiaries and affiliates may transfer the Data to third parties assisting the Company with Plan implementation, administration and management. These recipients may be located in the Holder’s country, or elsewhere, and the Holder’s country may have different data privacy laws and protections than the recipients’ country. By accepting an award, each Holder authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, to implement, administer and manage the Holder’s participation in the Plan, including any required Data transfer to a broker or other third party with whom the Company or the Holder may elect to deposit any shares. The Data related to a Holder will be held only as long as necessary to implement, administer, and manage the Holder’s participation in the Plan. A Holder may, at any time, view the Data that the Company holds regarding such Holder, request additional information about the storage and processing of the Data regarding such Holder, recommend any necessary corrections to the Data regarding the Holder or refuse or withdraw the consents in this Section 13.10 in writing, without cost, by contacting the local human resources representative. The Company may cancel Holder’s ability to participate in the Plan and, in the Committee’s discretion, the Holder may forfeit any outstanding awards if the Holder refuses or withdraws the consents in this Section 13.10. For more information on the consequences of refusing or withdrawing consent, Holders may contact their local human resources representative.
13.11.Successor. The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to all or substantially all of the assets and business of the Company and its affiliates, taken as a whole.
13.12.Investment Representations; Company Policy. The Committee may require each person acquiring shares of Common Stock pursuant to a Stock Option or other award under the Plan to represent to and agree with the Company in writing that the Holder is acquiring the shares for investment without a view to distribution thereof. Each person acquiring shares of Common Stock pursuant to a Stock Option or other award under the Plan shall be required to abide by all policies of the Company in effect at the time of such acquisition and thereafter with respect to the ownership and trading of the Company’s securities.
13.13.Additional Incentive Arrangements. Nothing contained in the Plan shall prevent the Board from adopting such other or additional incentive arrangements as it may deem desirable, including, but not limited
to, the granting of Stock Options and the awarding of Common Stock and cash otherwise than under the Plan; and such arrangements may be either generally applicable or applicable only in specific cases.
13.14.Withholding Taxes. Not later than the date as of which an amount must first be included in the gross income of the Holder for Federal income tax purposes with respect to any Stock Option or other award under the Plan, the Holder shall pay to the Company, or make arrangements satisfactory to the Committee regarding the payment of, any Federal, state and local taxes of any kind required by law to be withheld or paid with respect to such amount. If permitted by the Committee, tax withholding or payment obligations may be settled with Common Stock, including Common Stock that is part of the award that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditioned upon such payment or arrangements and the Company or the Holder’s employer (if not the Company) shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Holder from the Company or any Subsidiary.
13.15.Clawback. Notwithstanding any other provisions of the Plan, any award which is subject to recovery under any law, government regulation or listing requirement of any national securities exchange on which the Company’s securities are listed, will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or listing requirement).
13.16.Governing Law. The Plan and all awards made and actions taken thereunder shall be governed by and construed in accordance with the law of the State of New York (without regard to choice of law provisions).
13.17.Other Benefit Plans. Any award granted under the Plan shall not be deemed compensation for purposes of computing benefits under any retirement plan of the Company or any Subsidiary and shall not affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation (unless required by specific reference in any such other plan to awards under this Plan).
13.18.Non-Transferability. Except as otherwise expressly provided in the Plan or the Agreement, no right or benefit under the Plan may be alienated, sold, assigned, hypothecated, pledged, exchanged, transferred, encumbranced or charged, and any attempt to alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the same shall be void.
13.19.Applicable Laws. The obligations of the Company with respect to all Stock Options and awards under the Plan shall be subject to (i) all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required, including, without limitation, the Securities Act, and (ii) the rules and regulations of any securities exchange on which the Common Stock may be listed. Notwithstanding anything herein to the contrary, the Plan and all awards will be administered only in conformance with such applicable laws. To the extent such applicable laws permit, the Plan and all Agreements will be deemed amended as necessary to conform to such applicable laws.
13.20.Conflicts. If any of the terms or provisions of the Plan or an Agreement conflict with the requirements of Section 422 of the Code, then such terms or provisions shall be deemed inoperative to the extent they so conflict with such requirements. Additionally, if this Plan or any Agreement does not contain any provision required to be included herein under Section 422 of the Code, such provision shall be deemed to be incorporated herein and therein with the same force and effect as if such provision had been set out at length herein and therein. If any of the terms or provisions of any Agreement conflict with any terms or provisions of the Plan, then such terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of the Plan. Additionally, if any Agreement does not contain any provision required to be included therein under the Plan, such provision shall be deemed to be incorporated therein with the same force and effect as if such provision had been set out at length therein.
13.21.Compliance with Section 409A of the Code. The Company intends that any awards be structured in compliance with, or to satisfy an exemption from, Section 409A of the Code, such that there are no adverse tax consequences, interest, or penalties pursuant to Section 409A of the Code as a result of the awards. Notwithstanding the Company’s intention, in the event any award is subject to Section 409A of the Code,
the Committee may, in its sole discretion and without a participant’s prior consent, amend this Plan and/or outstanding Agreements, adopt policies and procedures, or take any other actions (including amendments, policies, procedures and actions with retroactive effect) as are necessary or appropriate to (i) exempt this Plan and/or any award from the application of Section 409A of the Code, (ii) preserve the intended tax treatment of any such award, or (iii) comply with the requirements of Section 409A of the Code, including without limitation any such regulations guidance, compliance programs and other interpretive authority that may be issued after the date of grant of an award. This Plan shall be interpreted at all times in such a manner that the terms and provisions of the Plan and the awards are exempt from or comply with Section 409A of the Code.
13.22.Non-Registered Stock. The shares of Common Stock to be distributed under this Plan have not been, as of the Effective Date, registered under the Securities Act or any applicable state or foreign securities laws and the Company has no obligation to any Holder to register the Common Stock or to assist the Holder in obtaining an exemption from the various registration requirements, or to list the Common Stock on a national securities exchange or any other trading or quotation system.
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