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SECURITIES AND EXCHANGE COMMISSION | ||||
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Proxy Statement Pursuant to Section 14(a) of the | ||||
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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 | |||
☐ | Definitive Additional Materials | |||
☐ | Soliciting Material Pursuant to §240.14a-12 | |||
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PRELIMINARY PROXY STATEMENT
SUBJECT TO COMPLETION
DATED MARCH 31, 2023
10368 West Centennial Road
Littleton, Colorado 80127
April 13, 2021
__, 2023
Dear Stockholder:
On behalf of the Board of Directors of CPI Card Group Inc. (the “Company”), you are cordially invited to attend the 20212023 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday,Wednesday, May 27, 2021,24, 2023, at 8:00 a.m. Mountain Time. Due to public health concerns regarding the COVID-19 pandemic, theThe Annual Meeting will be a completely virtual meeting of stockholders, which will be conducted online via live webcast. Please see the Notice of Annual Meeting of Stockholders on the next page for more information about how to attend the Annual Meeting virtually.
We have included with this letter a proxy statement that provides you with detailed information about the business to be conducted at the Annual Meeting. In addition, the Company’s 20202022 Annual Report, which is being made available to you along with the proxy statement, contains information about the Company and its performance. We encourage you to read these materials carefully.
Whether or not you plan to attend the Annual Meeting, your vote is important, and we encourage you to vote promptly. You may vote your shares through one of the methods described in the accompanying proxy statement. We strongly urge you to vote FOR the nominees proposed by the Board of Directors and in accordance with the recommendations of the Board of Directors on the other proposals by following the voting instructions contained in the proxy statement.
Sincerely,
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Bradley Seaman | Scott Scheirman |
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| President, Chief Executive Officer and Director |
CPI CARD GROUP INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 202124, 2023 8:00 A.M.
8:00 A.M. (Mountain(Mountain Time)
To the Stockholders of CPI Card Group Inc.:
The 20212023 Annual Meeting of Stockholders will be held virtually on May 27, 2021,24, 2023, at 8:00 a.m. (Mountain Time) via live webcast accessible at www.virtualshareholdermeeting.com/PMTS2021.PMTS2023. The purpose of the meeting is to:
1. | elect the sevendirector nominees named in the accompanying proxy |
2. | ratify the appointment of KPMG LLP as our independent registered public accounting firm for |
3. | hold an advisory vote to approve named executive officer compensation; |
4. |
conduct any other business properly brought before the Annual Meeting or any adjournments or postponements thereof. |
Voting is limited to stockholders of record at the close of business on April 1, 2021.
3, 2023.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE YOUR SHARES OVER THE TELEPHONE, VIA THE INTERNET OR BY COMPLETING, DATING, SIGNING AND RETURNING A PROXY CARD, AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. YOUR PROMPT COOPERATION IS GREATLY APPRECIATED.
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| By Order of the Board of Directors, |
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| Sarah Kilgore |
| Chief Legal and Compliance Officer and Corporate Secretary |
Notice of Electronic Availability of Proxy Statement and Annual Report
As permitted by rules adopted by the United States Securities and Exchange Commission (the “SEC”), we are making this proxy statement and our Annual Report available to stockholders electronically via the Internet. On or about April 13, 2021,__, 2023, we will mail to most of our stockholders a notice (the “Notice”) containing instructions on how to access this proxy statement and our Annual Report and to vote via the Internet.
The Notice also contains instructions on how to request a printed copy of the proxy materials and to vote by mail. In addition, you may elect to receive future proxy materials in printed form by mail or electronically by e-mail by following the instructions included in the Notice. If you have previously elected to receive our proxy materials electronically, you will continue to receive these materials via e-mail unless you elect otherwise.
CPICPI CARD GROUP INC.
10368 West Centennial Road
Littleton, Colorado 80127
This proxy statement contains information related to the 20212023 Annual Meeting of Stockholders (the “Annual Meeting”) of CPI Card Group Inc. (referred to herein as the “Company,” “CPI,” “we,” “us” or “our” as the context requires) to be held via live webcast accessible at www.virtualshareholdermeeting.com/PMTS2021. This proxy statement is first being made available to stockholders via the Internet on or about April 13, 2021.PMTS2023.
Why did you send me this proxy statement?
We sent you this proxy statement because the Board of Directors of the Company (the “Board”) is soliciting,, on the Company’s behalf, your proxy to vote at the Annual Meeting and at any postponements or adjournments of the Annual Meeting. This proxy statement summarizes information that is intended to assist you in making an informed vote on the proposals described in this proxy statement.
Who can vote at the Annual Meeting?
Only stockholders of record as of the record date are entitled to vote at the Annual Meeting. The record date to determine stockholders entitled to notice of and to vote at the Annual Meeting is the close of business on April 1, 2021.3, 2023. On the record date, there were 11,230,482[XX] shares of our common stock, par value $0.001 per share (the “Common Stock”), outstanding. Our common stockCommon Stock is the only class of voting securities outstanding.
How many shares must be present to conduct the Annual Meeting?
We must have a quorum present virtually or by proxy to conduct the Annual Meeting. A quorum is established when a majority of shares entitled to vote is present virtually or represented by proxy at the Annual Meeting. Abstentions and broker non-votes (as described below) are counted for purposes of determining whether a quorum is present.
What matters are to be voted on at the Annual Meeting?
The agenda for the Annual Meeting is to:
1. | elect the sevendirector nominees named in this proxy statement; |
2. | ratify the appointment of KPMG LLP as our independent registered public accounting firm for |
3. | hold an advisory vote to approve named executive officer compensation (the “Say-on-Pay Proposal”); |
4. |
5. | conduct any other business properly brought before the Annual Meeting or any adjournments or postponements thereof. |
As of the date of this proxy statement, we do not know of any other matters to be presented at the Annual Meeting. If any other matters properly come before the Annual Meeting, however, the persons named as proxies will be authorized to vote or otherwise act in accordance with their judgment.
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Why is the vote on the Insider Participation Limit Proposal limited to only the Company’s disinterested stockholders, and what is the definition of “disinterested”?
The terms of the Company’s Omnibus Plan provide that certain provisions of the Omnibus Plan may not be amended without stockholder approval in accordance with the Toronto Stock Exchange (the “TSX”) Company Manual, including the section of the Omnibus Plan which the Insider Participation Limit Proposal would amend. Such section provides that the maximum number of shares that may be issuable to Insiders at any point in time under the Omnibus Plan and any other share compensation arrangement of the Company shall not exceed ten percent (10%) of the number of then issued and outstanding shares of the Company’s common stock. The Insider Participation Limit Proposal would change this ten percent (10%) threshold to fifteen percent (15%). The TSX Company Manual provides that approval of the Insider Participation Limit Proposal requires the affirmative vote of a majority of the “disinterested” stockholder votes cast.
“Disinterested” means those Company stockholders (and the shares held by such stockholders) who are not Insiders (meaning directors, corporate officers, executive officers or controlling stockholders). Only the votes of disinterested stockholders will be counted in determining whether the Insider Participation Limit Proposal is approved.
How does the Board recommend that I vote?
The Board recommends that you vote:
1. | FOR the election of each of the director nominees named in this proxy statement; |
2. | FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for |
3. | FOR the Say-on-Pay Proposal; and |
4. |
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How do I vote at the Annual Meeting?
You may vote via the Internet during the Annual Meeting or by proxy in advance of the Annual Meeting. If you are a stockholder of record, there are three ways to vote by proxy:
● | By Telephone — If you request printed copies of the proxy materials by mail, you will receive a proxy card and you can vote by telephone by following the instructions on your proxy card. You will need to use the control number appearing on your proxy card to vote by telephone. |
● | By Internet — You can vote via the Internet by following the instructions on your Notice or proxy card. You will need to use the control number appearing on your Notice or proxy card to vote via the Internet. |
● | By Mail — If you request printed copies of the proxy materials by mail, you will receive a proxy card and you can vote by completing, dating and signing the proxy card and returning it in the envelope provided. |
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If you are a beneficial owner of shares held in “street name”“street name” through a bank, broker or other nominee, you may vote as follows:
● | By Telephone — If you request printed copies of the proxy materials by mail, you will receive a voting instruction form and you can vote by telephone by following the instructions on the voting instruction form. The availability of telephone voting may depend on the voting process of the organization that holds your shares. |
Telephone and Internet voting facilities for stockholders of record will be available 24 hours a day. You may vote over the telephone or via the Internet until 11:59 p.m. Eastern Time on May 26, 2021.23, 2023. Even if you plan to attend the Annual Meeting virtually, we recommend that you also submit your proxy or voting instructions as described above so that your vote will be counted if you later decide not to attend the Annual Meeting.
Your proxy will be voted in accordance with your instructions, so long as, in the case of a proxy card returned by mail, such card has been signed and dated and is received before the Annual Meeting. If you vote your shares via the Internet, over the telephone or by executing and returning a proxy card by mail but you do not provide specific instructions with respect to the proposals, your shares will be voted FOR each director nominee named in this proxy statement,, FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for ONE YEAR on2023, FOR the Say-on-FrequencySay-on-Pay Proposal and FOR eachthe proposed amendment to the Company’s Certificate of the other proposals set forth in this proxy statement.
Incorporation.
As of the date of this proxy statement, we do not know of any matters to be presented at the Annual Meeting except those described in this proxy statement. If any other matters properly come before the Annual Meeting, however, the persons named as proxies will be authorized to vote or otherwise act in accordance with their judgment.
What does it mean if I receive more than one Notice of internet availability, e-mail or set of proxy materials?
You may receive more than one Notice, more than one e-mail or multiple proxy cards or voting instruction forms. For example, if you hold your shares in more than one brokerage account, you may receive a separate Notice, a separate e-mail or a separate voting instruction form for each brokerage account in which you hold shares. Also, if you are a stockholder of record and your shares are registered in more than one name, you may receive more than one Notice, more than one e-mail or more than one proxy card. To vote all of your shares by proxy, you must complete, date,, sign and return each proxy card and voting instruction form that you receive,, or vote over the telephone or via the Internet the shares represented by each Notice,, e-mail, or proxy card or voting instruction form that you receive.
May I change my vote?
Yes. You may revoke your proxy at any time before it is voted at the Annual Meeting. To change your vote, if you are a stockholder of record, you may submit another later dated proxy over the telephone or via the Internet no later than 11:59 p.m. Eastern Time on May 26, 202123, 2023 or by mail such that it is received prior to the Annual Meeting,, or by voting your shares during the Annual Meeting (your attendance at the Annual Meeting will not, by itself, revoke your proxy; you must vote at the Annual Meeting to revoke your proxy). If you are a beneficial owner and your shares are held in street name, you may change your vote by submitting new voting instructions to your bank, broker or other nominee, or you may change your vote by attending and voting at the Annual Meeting.
What happens if my bank or broker holds my shares in “street name” and I do not give any voting instructions?
If you hold your shares in “street name” through a bank, broker or other nominee, such bank, broker or nominee will vote those shares in accordance with your instructions. To so instruct your bank, broker or nominee, you should refer to the information provided to you by such entity. Without instructions from you, a bank, broker or nominee will be permitted to exercise its own voting discretion only with
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respect to so-called “routine matters” but will not be permitted to exercise voting discretion with respect to “non-routine matters.” The Company believes that the proposal to ratify KPMG LLP’s appointment as the Company’s independent registered public accounting firm for 20212023 (Proposal No. 2) is a routine matter on which brokers will be permitted to vote shares on your behalf, even without your instructions. Other than Proposal No. 2, the Company believes that all proposals set forth in this proxy statement are not considered routine matters, and brokers will thus not be able to vote on your behalf if you have not furnished voting instructions to them. Thus, if you do not give your bank, broker or nominee specific voting instructions with respect to Proposal No. 2, your shares will be voted in such entity’s discretion. If you do not give your bank, broker or nominee specific instructions with respect to the other proposals herein, your shares will not be voted on such proposals. This is called a “broker non-vote.” Shares represented by such broker non-votes will be counted in determining whether there is a quorum, but will have no effect on the non-routine proposals.proposals (other than Proposal No. 4). We urge you to promptly provide your bank, broker or nominee with appropriate voting instructions so that all your shares may be voted at the Annual Meeting.
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What vote is required to elect directors and approve the other matters described in this proxy statement?
The Company’s SecondThird Amended and Restated By-Laws (the “By-Laws”) require that directors be elected by the majority of votes cast with respect to such director in uncontested elections (the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee with abstentions and broker non-votes having no effect)not counted as votes “for” or “against”). In a contested election (a situation in which the number of nominees exceeds the number of directors to be elected)elected, which we do not expect to occur for the Annual Meeting), the standard for election of directors will be a plurality of the shares represented virtuallyin person or by proxy at any such meeting and entitled to vote on the election of directors.
For theThe ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 20212023 (Proposal No. 2), and the Say-on-Pay Proposal (Proposal No. 3) and the Amendment and Restatement of the Omnibus Plan Proposal (Proposal No. 5),each require the affirmative vote of the holders of a majority of the shares of Common Stock present in person or representedvirtually or by proxy at the Annual Meeting and entitled to vote onthereon. Stockholders attending the proposal willvirtual Annual Meeting via webcast are deemed to be required for approval. Forpresent “in person.” The proposed amendment to the Say-on-Frequency ProposalCompany’s Certificate of Incorporation (Proposal No. 4), the frequency that receives the most votes will be the frequency recommended by stockholders. For the Insider Participation Limit Proposal (Proposal No. 6), requires the affirmative vote of the holders of a majority of the “disinterested” shares represented virtually or by proxy andof Common Stock entitled to vote ongenerally in the proposal will be required for approval.election of directors at the Annual Meeting.
Abstentions willBroker non-votes are not be voted but will be counted for purposes of determining whether there is a quorum. Accordingly, abstentions will have the effect of a vote “against” Proposals Nos. 2, 3, 5as votes cast and 6, and broker non-votes will therefore have no effect on ProposalsProposal No. 3, 5 and 6.1. As stated above, because Proposal No. 2 is a routine matter, if you do not give your bank, broker or other nominee specific voting instructionsinstruction with respect to Proposal No. 2, your shares will be voted in such entity’s discretion,, and no broker non-votes are expected on such proposal. With respect to Proposal No. 4, abstentions and brokerBroker non-votes will have no effect on Proposal No. 3 because it is a non-routine matter on which brokers are not permitted to vote without your voting instruction. Broker non-votes will be counted as present and entitled to vote for purposes of Proposal No. 4 and will therefore have the determinationeffect of a negative vote.
Abstentions will not be voted but will be counted for purposes of determining whether there is a quorum and have the same effect of a vote “against” a proposal other than the proposal to elect directors (Proposal No. 1), on which voting frequency receives the highest number of affirmative votes cast.
they have no effect.
What is the difference between holding shares as a stockholder of record and as a beneficial owner?
If your shares are registered in your name on the Company’s books and records or with our transfer agent, you are the “stockholder of record” of those shares, and this proxy statement and accompanying materials have been provided directly to you by the Company. On the other hand, if you purchased your shares through a brokerage or other financial intermediary, the brokerage or other financial intermediary will automatically put your shares into “street name,” which means that the brokerage or other financial intermediary will hold your shares in its name or another nominee’s name and not in your name, but will keep records showing you as the “beneficial owner.” If you hold shares beneficially in street name, this proxy statement and accompanying materials have been forwarded to you by your broker, bank or other holder of record.
How many votes do I have?
Each share of common stockCommon Stock that you hold as of the record date entitles you to one vote, without cumulation, on each matter to be voted upon at the Annual Meeting.
How will the votes be counted at the Annual Meeting?
The votes will be counted by the independent inspector of election appointed for the Annual Meeting.
How will the Company announce the voting results?
The Company will report the final results of the voting at the Annual Meeting in a filing with the SEC on a Current Report on Form 8-K within four (4) business days after the date of the Annual Meeting.
Who pays for the Company’s solicitation of proxies?
The Board, on behalf of the Company, is soliciting your proxy to vote your shares of common stockCommon Stock at our Annual Meeting. The Company will bear the cost of soliciting proxies, including preparing, printing and mailing this proxy statement. Proxies may be solicited personally, or by mail, e-mail or telephone by certain of our directors, officers, employees or representatives. Our directors and employees
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will not be paid any additional compensation for soliciting proxies. We may reimburse brokerage firms and other persons representing beneficial owners of shares for their out-of-pocket expenses in forwarding solicitation materials to such beneficial owners.
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What is “householding” and how does it work?
Under the rules adopted by the SEC, we may deliver a single copy of the Notice or proxy materials to one address shared by two or more of our stockholders. This delivery method is referred to as “householding” and can reduce the environmental impact of our Annual Meeting and result in significant cost savings for the Company. To take advantage of this opportunity, we have delivered only one copy of the Notice and, if you requested printed versions by mail, this proxy statement and the Annual Report, to multiple stockholders who share an address, unless we received contrary instructions from the impacted stockholders prior to the mailing date. If you would like to either participate in householding or receive separate copies of future proxy materials, please contact Broadridge ICSFinancial Solutions, Inc. by calling 1-866-540-7095 or by mail at Broadridge ICS, Householding Department, 51 Mercedes Way, Edgewood, New York 11717, or by phone at (800) 542-1061. Attention: Householding Department. If you are a beneficial owner of shares held in street name and would like to participate in householding, you may contact the organization that holds your shares.
What do I need for admission to the Annual Meeting and how do I vote at the Annual Meeting?
You are entitled to participate in the Annual Meeting if you were a stockholder as of the close of business on April 1, 2021,3, 2023, the record date. To be admitted to and participate in the Annual Meeting, you must follow the instructions and use the information found on your proxy card, voting instruction form or Notice. The Annual Meeting will be held in a virtual-only format on Thursday,Wednesday, May 27, 202124, 2023 at 8:00 a.m. Mountain Time. The virtual meeting and live webcast can be accessed at www.virtualshareholdermeeting.com/PMTS2021.PMTS2023. You will not be able to attend the Annual Meeting in person.
You may vote during the Annual Meeting by following the instructions available at www.virtualshareholdermeeting.com/PMTS2021PMTS2023 during the Annual Meeting. Whether or not you plan to attend the Annual Meeting, you are encouraged to vote in advance by one of the methods described in this proxy statement.
May stockholders ask questions at the Annual Meeting?Meeting?
Yes. Stockholders will have the ability to submit questions during the Annual Meeting via the virtual meeting website. As part ofDuring the Annual Meeting, we will hold a live Q&A session, during which we intend to answer all questions submitted during the meeting in accordance with the Annual Meeting’s Rules of Conduct whichthat are pertinent to the Company and the meeting matters in accordance with the Annual Meeting’s Rules of Conduct and as time permits.
What if I have technical difficulties or trouble accessing the Annual Meeting?
Beginning 30If you encounter any difficulties while accessing the virtual meeting during the check-in or meeting time, a technical assistance phone number will be made available on the virtual meeting registration page beginning 15 minutes prior to the start time of and during the Annual Meeting, you may contact 844-976-0738 for technical assistance.Meeting.
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PROPOSAL NO. 1
Upon the recommendation of our Nominating and Corporate Governance Committee (the “Nominating Committee”), the Board has nominated the seven individuals listed below to stand for election to the Board for a one-year term ending at the annual meeting of stockholders in 20222024 and until their successors, if any, are duly elected or appointed. Our Third Amended and Restated Certificate of Incorporation and our By-Laws provide for the annual election of directors. Each director nominee must receive the affirmative vote of a majority of the votes cast in order to be elected (i.e., the number of votes cast “for” a director nominee must exceed the number of votes cast “against” that nominee, and abstentions and broker non-votes will not be counted as votes “for” or “against” a nominee). Unless contrary instructions are given, the shares represented by your proxy will be voted FOR the election of all director nominees. The Board has determined that each director nominee, other than Mr. Scott Scheirman, is an independent director, as further described below in “Directors and Corporate Governance — Independence of Directors.”
All of the director nominees listed below have consented to being named in this proxy statement and to serving if elected. However, if any of the below nominees becomes unable or unwilling to serve prior to the date of the Annual Meeting, proxy holders will have discretion and authority to vote for another nominee proposed by our Board. Alternatively, our Board may reduce the number of directors to be elected at the Annual Meeting.
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Thomas Furey | | Director |
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Nicholas Peters | | Director |
H. Sanford Riley | | Director Nominee |
Scott Scheirman | | Director, President and Chief Executive Officer |
Bradley Seaman | |
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Marc Sheinbaum | | Director |
Valerie Soranno Keating |
| Director |
Biographical information relating to each of the director nominees is set forth below under “Directors and Corporate Governance.Governance — Director Nominee Biographical Information and Qualifications.”
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE DIRECTOR NOMINEES NAMED IN THIS PROXY STATEMENT.
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DIRECTORS AND CORPORATE GOVERNANCE
Director Nominee Biographical Information and Qualifications
Set forth below is a description of the business experience of each director and nominee, as well as the specifictheir relevant qualifications, skills and experiences considered by the Nominating Committee and the Board in recommending our slate of director nominees.experiences. Each director nominee listed below,,except for Thomas Furey, other than H. Sanford Riley, is a current director nominated for reelection to the Board for a term expiring at the annual meeting of stockholders in 2022.2024. See “Election of Directors (Proposal No. 1).”
Thomas Furey, 56,58, has served on our Board of Directors since May 2021. Mr. Furey currently serves as the Chairman and Chief Executive Officer of Sagetech Avionics, Inc. (“Sagetech”) a privately held aerospace electronics company. Sagetech was incorporated in 2019 after a divisional carve out from Sagetech Corporation, for which Mr. Furey held the position of Chief Operating Officer since 2015. From 2014 to 2015, Mr. Furey served as Vice President of manufacturing and engineering at Unitec, Inc., a point-of-sale payments equipment company, before which he ran his own operations consultancy firm from 2012-2013.2012 to 2013. From 2004 to 2012, Mr. Furey held various executive positions at Standard Register Company, including Vice President of manufacturing, Chief Supply Chain Officer and President of Standard Register’s industrial business. From 2001 to 2004, Mr. Furey was in charge of North American operations for Avery Dennison Corporation (NYSE:AVY), a label materials manufacturer. Mr. Furey also held positions of increasing responsibility in manufacturing leadership at AlliedSignal, Inc. (which acquired Honeywell Inc. in 1999 and took its name) from 1994 to 2001 and was selected as the AlliedSignal fellow to the “Leaders for Manufacturing” program at the Massachusetts Institute of Technology (“MIT”) from 1997-1999.1997 to 1999. He began his career as a Naval Flight Officer in the U.S. Navy. Mr. Furey holds a Bachelor of Science degree in mathematicsMathematics from the U.S. Naval Academy, a Master of Science degree in Industrial Engineering from California State University Northridge, as well as a Master of Science degree in Mechanical Engineering and a Master of Business Administration degree from MIT. Mr. Furey brings to the Board extensive experience in high volume manufacturing, operations and executive leadership.
Robert Pearce, 66, has served on our Board of Directors since 2007. Mr. Pearce also serves on the board of directors of Canada Guaranty Mortgage Insurance Company, First American Payment Systems, First National Financial LP and Duo Bank of Canada. Mr. Pearce spent 26 years with BMO Bank of Montreal, from 1980 to 2006, most recently holding the position of President and Chief Executive Officer, Personal and Commercial Client Group. He also served on the board of directors of MasterCard International from 1998 to 2006 and as Chairman of the Canadian Bankers’ Association from 2004 to 2006. Mr. Pearce holds a Bachelor of Arts degree from the University of Victoria and a Master of Business Administration degree from the University of British Columbia. Mr. Pearce brings to the Board extensive operational and leadership experience in the financial services industry, including extensive operating experience in credit card, debit card and prepaid cards in both card issuing and merchant acceptance in Canada and the United States.
Nicholas Peters, 48,50, has served on our Board of Directors since 2007. Mr. Peters is a Managing Director at Parallel49 Equity (formerly Tricor Pacific Capital), a private equity firm that makes control investments in lower middle market companies in the United States and Canada, which he joined in 2002, and also began serving as Parallel49 Equity’s Chief Financial Officer in 2012. Prior to joining Parallel49 Equity, Mr. Peters was a Senior Manager at Arthur Andersen LLP in Chicago. Mr. Peters is the Chairman of the Questco Companies and Certified Recycling and serves on the board of several other Parallel49 Equity investment companies as well as non-Parallel49 Equity investment companies. Mr. Peters holds a Bachelor of Science degree in Business Administration from the University of Dayton in Ohio. He is a Certified Public Accountant (inactive) and is affiliated with the American Institute of Certified Public Accountants and the Ohio Society of CPAs. Mr. Peters brings to the Board strong finance and accounting skills, as well as valuable experience from his oversight of the management and operations of several of Parallel49 Equity’s investment companies.
H. Sanford Riley, 72, has served as President and CEO of Richardson Financial Group Limited, a specialized financial services company, since 2003. Prior to this, he served for 10 years as President and CEO and later Chairman of Investor Group, Inc., Canada’s largest mutual fund company. Mr. Riley has served as a member the board of directors of Molson Coors (NYSE: TAP) since 2015 and RF Capital Group Inc. (TSX: RCG) since 2021. In addition, Mr. Riley previously served as a director of Canadian Western Bank (TSX: CWB) from 2011 to 2022, The North West Company (TSX: NWC) from 2002 to 2022, and Manitoba Hydro, where he also served as Chairman of the board of directors from 2016 to 2018. Mr. Riley is also involved with various community organizations, including serving as Chairman of the University of Winnipeg Foundation past Chancellor of the University of Winnipeg and past Chairman of the Manitoba Business Council. Mr. Riley holds a J.D. from Osgoode Hall Law School, a Bachelor of Arts degree from Queen’s University and is a Member of the Order of Manitoba and the Order of Canada.
Scott Scheirman, 5860, has served as our President and Chief Executive Officer since October 2017 and on our Board of Directors since October 2016. Prior to joining the Company, Mr. Scheirman served as the Chief Executive Officer and a co-founder of JKL Ventures LLC, a private investment and strategic advisory firm,, since February 2014. Prior to JKL Ventures LLC, Mr. Scheirman served as the Executive Vice President and Chief Financial Officer of The Western Union Company (“Western Union”) (NYSE:WU) from September 2006 to December 2013. Prior to joining Western Union, Mr. Scheirman held a variety of executive leadership and financial officer roles at First Data Corporation (NYSE:FDC), and began his career at Ernst & Young LLP. Mr. Scheirman holds a Bachelor of Science degree in Business Administration with an emphasis in Accounting from the University of Northern Colorado. Mr. Scheirman brings to the Board extensive strategic planning, finance, risk management, international, public company and corporate governance experience, and through his position as our Chief Executive Officer, he brings to the Board management’s perspective over a full range of issues affecting the Company.
Bradley Seaman, 61,63, has served on our Board of Directors since 2007 and currently serves as ChairmanChair of the Board. Mr. Seaman has been employed, since August 1999, by Parallel49 Equity (formerly(formerly Tricor Pacific Capital)Capital), a private equity firm that makes control investments in lower middle market companies in the United States and Canada. From 1999 through December 2011, Mr. Seaman served as Parallel49 Equity’s Managing Director and leader of its U.S. operations, and, since January 2012, has served as its Managing Partner, responsible for leading overall firm operations, strategy, funding and investments. Prior to joining Parallel49 Equity, from 1990 through July 1999, Mr. Seaman was employed by GE Capital Corporation (“(“GE Capital”) where he held a number of increasingly senior positions in GE Capital’s Transportation & Industrial Funding and Commercial Finance units. In 1994, Mr. Seaman was selected to be part of a new group that was established to focus GE Capital’s debt and equity products on the emerging private equity market, and, in that capacity and in his last role before leaving GE Capital, he headed GE Capital’s offices in New York City and Chicago. Mr. Seaman is also a member of the board of directors of Steel Dynamics, Inc. (Nasdaq:STLD). Mr. Seaman holds a Bachelor of Science degree in Business Administration from Bowling Green State University and a Master of Business Administration degree from the University of Dallas. He
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brings to the Board a comprehensive understanding of and experience in capital markets and management and has operational and corporate governance experience drawn from his involvement in the management and oversight of Parallel49 Equity’s investment companies.
6
Marc Sheinbaum, 63,65, has served on our Board of Directors since November 2019. Since January 2017, Mr. Sheinbaum has been an advisor to venture capital and private equity firms. From April 2014 to August 2016, he was the President, Chief Executive Officer and a Directordirector of Higher One Holdings, Inc. (NYSE:ONE), a payments technology provider for higher education. From February 2007 through March 2013, Mr. Sheinbaum was the Senior Vice President and Chief Executive Officer of Retail, Auto and Education Finance at JPMorgan Chase & Co. (NYSE:JPM). Earlier in his career, Mr. Sheinbaum held positions at GE Capital Corporation and American Express Company (NYSE:AXP), as well as Coopers & Lybrand Management Consulting. Mr. Sheinbaum holds a Bachelor of Science degree in Management Science from State University of New York at Albany and a Master of Business Administration degree from New York University. He brings considerable experience in payments and consumer financial services as well as public company leadership.
Valerie Soranno Keating, 57,59, has served on our Board of Directors since May 2018. Ms. Soranno Keating has been senior advisor to a number of private equity firms in the U.S. and Europe since 2017. From November 2009 through May 2015,, she was the Chief Executive Officer of Barclaycard, the global payments division of Barclays PLC (NYSE:BCS), with $60 billion in assets and over 30 million customers throughout the U.S., Europe and South Africa. Before joining Barclays PLC, Ms. Soranno Keating held a variety of executive positions at American Express Company (NYSE:AXP) from May 1993 through May 2009,, including President, Travelers Cheques & Prepaid Services, Executive Vice President Global Commercial Services, Executive Vice President Global Merchant Services, Emerging Global Businesses & Network Expansion, and Vice President Corporate Strategic Planning. Ms. Soranno Keating also serves as a director on the boardboards of directors ofother public and private companies, including One Main Financial (NYSE:OMF), a consumer lending business.FinServ Acquisition Corp. II (Nasdaq:FSRX), Engage People Inc. and Billhighway Management LLC. Ms. Soranno Keating holds a Bachelor of Science degree in Business Administration from Lehigh University. She brings to the Board wide-ranging experience in both executive and board roles across a broad spectrum of payments and related businesses.
| | |
Board Diversity Matrix (As of April __, 2023) | ||
Total Number of Directors | 7 | |
Part I: Gender Identity | Female | Male |
Directors | 1 | 6 |
Part II: Demographic Background | ||
White | 1 | 6 |
In addition to the diversity categories identified above, one of our directors is a military veteran.
The Nominating Committee works with the Board to determine periodically, as appropriate, the desired Board qualifications, expertise and characteristics, and recommends candidates to the Board based on these criteria. In identifying director candidates, the Nominating Committee accepts recommendations from current or former directors, search firms retained by the Nominating Committee to assist in identifying and evaluating potential candidates, stockholders, Company executives and by self-nomination. The Board does not have specific requirements for eligibility to serve as a director of CPI, nor does it have a specific policy on diversity. However, inIn evaluating director candidates, regardless of the source of recommendation, the Nominating Committee generally considers factors such as business experience, high ethical standards and integrity, skills, understanding of CPI’s business environment and willingness to devote adequate time to Board dutiesduties. The Company’s Corporate Governance Guidelines also provide that the Nominating Committee shall work with the Board to determine eligibility to serve as a director of CPI, which includes weighing the aforementioned factors and evaluating each individual in the context of the membership of the Board as a group, with the objective of having a group that can best perpetuate the success of CPI’s business and represent stockholder interests through the exercise of sound judgment using the Board’s diversity of background and experience in various areas. The Board does not have a specific policy on diversity, but the Company’s Corporate Governance Guidelines provide that, with respect to Board diversity, the Nominating Committee considersmay consider such factorssuch as differences in professional background, education, experiences, characteristics, skillsskill and other individual qualities and attributes that contribute to the total mix of viewpoints and experience represented on the Board.
The Nominating Committee periodically retains a third-party executive search firm to assist in the identification and evaluation of director candidates.
In determining whether to recommend a director for re-election, the Nominating Committee considers the director’s past attendance at meetings, participation in and contributions to the activities of the Board (including Board committees) and the Company, the director’s adherence to standards of high character and integrity, as well as other qualifications and characteristics set forth in the Nominating Committee charter.
The Nominating Committee periodically retains a third-party executive search firm to assist in the identification and evaluation of director candidates. Mr. Furey, whom the Board has nominated to stand for election to the Board at the Annual Meeting, was recommended to the Nominating Committee by a third-party executive search firm.
Recommendation of Directors by Stockholders
In accordance with its charter, the Nominating Committee will consider any candidate for election as a director of the Company recommended by any CPI stockholder, provided that the recommending stockholder follows the procedures set forth in Section 2.10(b)2.10(a) of
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the Company’s By-Laws for nominations by stockholders of persons to serve as directors (except for directors nominated by the Tricor Funds (defined below), as described in the paragraph immediately below). The Nominating Committee evaluates director candidates recommended by CPI stockholders (except for the Tricor Funds) in the same manner by which it evaluates other director candidates considered by the Nominating Committee, as described above.
Two of our stockholders, Tricor Pacific Capital Partners (Fund IV), LP and Tricor Pacific Capital Partners (Fund IV) US, LP (together, the “Tricor Funds”), have the right to collectively designate nominees for election to our Board of Directors for so long as the Tricor Funds collectively beneficially own 5% or more of the total number of shares of our common stockCommon Stock then outstanding, pursuant to a Director Nomination Agreement entered into between the Company and the Tricor Funds in connection with our initial public offering. The number of nominees that the Tricor Funds are entitled to designate under the Director Nomination Agreement bears the same proportion to the total number of members of our Board of Directors as the number of shares of common stockCommon Stock beneficially owned by the Tricor Funds bears to the total number of shares of common stockCommon Stock outstanding, rounded up to the nearest whole number. Pursuant to the Director Nomination Agreement, the Company agrees to use its best efforts to ensure that director nominees of the Tricor Funds are included in the Board’s slate of nominees submitted to the stockholders for election at each annual meeting. Thus, the Nominating Committee would not evaluate director candidates nominated by the Tricor Funds and make a determination regarding their suitability for nomination in the manner described above. Refer to “Certain Relationships and Related Party Transactions - Director Nomination Agreement” for a description of the Tricor Funds’ right to designate nominees.
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Pursuant to Section 2.10(b)2.10(a) of the By-Laws, nominations of persons for election to the Board at a meeting of stockholders may be made by any stockholder of the Company entitled to vote for the election of directors at thesuch meeting who sends a timely notice in writing to our Corporate Secretary. To be timely, a stockholder’s notice must be delivered to our Corporate Secretary at the Company’s principal executive offices not less than 90 nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that if the annual meeting is more than 30 days prior to or after the anniversary of the preceding year’s annual meeting, notice by the stockholder must be delivered not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such annual meeting is made by the Company.
The As set forth in the By-Laws, a stockholder’s notice or recommendation is required to contain certain prescribed information about each person the stockholder proposes to nominate or recommend for election as a director, the stockholder giving notice and the beneficial owner, if any, on whose behalf notice is given. The stockholder’s notice must also include the consent of the person proposed to be nominated and to serve as a director if elected. information.
Recommendations or notices relating to director nominations should be sent to CPI Card Group Inc., 10368 West Centennial Road, Littleton, Colorado 80127; Attention: Sarah Kilgore, Chief Legal and Compliance Officer and Corporate Secretary.
In February 2023, the Company received a letter from Steamboat Capital Partners Master Fund, LP (“Steamboat”), whose investment manager is a beneficial holder of approximately 6.2% of our outstanding Common Stock, purporting to give notice (the “Notice Letter”) of Steamboat’s intention to nominate a director candidate for election to our Board of Directors at the Annual Meeting. After due consideration, evaluation and consultation with legal counsel, our Board of Directors determined that the Notice Letter was materially deficient and did not meet numerous requirements set forth in the Company’s By-Laws. As a result, the Company does not believe that Steamboat is entitled to nominate a director for election to the Board of Directors at the Annual Meeting. On March 22, 2023, the Company sent to Steamboat a response letter to that effect. Steamboat’s Notice Letter included a statement that Steamboat does not intend to file a proxy statement or engage in a solicitation of proxies in connection with the Annual Meeting, and as of the date of this proxy statement, Steamboat has given no further indication of an intent to solicit proxies for the Annual Meeting. Therefore, the Company does not expect a “solicitation in opposition” as defined under Exchange Act Rule 14a-6(a) at the Annual Meeting.
The Company’s Corporate Governance Guidelines provide that a majority of the members of the Board, and each member of the Audit Committee of the Board (the “Audit Committee”), the Compensation Committee of the Board (the “Compensation Committee”) and Nominating Committee, must meet the criteria for independence set forth under applicable law and the rules and standards of any applicable national securities exchanges andexchange or inter-dealer quotation systemssystem (the “Market Rules”). No director qualifies as independent unless the Board determines that the director has no relationship with the Company which would interfere with the exercise of independent judgment in carrying out his or her responsibilities as a director. These independence guidelines are part of our Corporate Governance Guidelines, available on our website at investor.cpicardgroup.com. The Board considers all relevant facts and circumstances of which it is aware in making an independence determination with respect to any director.
The Board has made independence determinations with respect to each of our directors.directors and director nominees. Based on the Market Rules, the Board has affirmatively determined that each of Ms. Soranno Keating, and Messrs. Furey, Pearce, Peters, Riley, Seaman and Sheinbaum are independent within the meaning of the Market Rules.In addition, Mr. Jorg Schneewind served as a director from September 2020 through January 2021 and the Board affirmatively determined that he was independent within the meaning of the Market Rules.
Board’s Role in Risk Oversight
Risk assessment and oversight are an integral part of our governance and management processes. The Board is responsible for overseeing the development and execution of the Company’s strategic plans and for understanding the associated risks and actions that management continually monitors the material risks facing the Company.is taking to manage and mitigate those risks. Our enterprise risk management process is designed to facilitate the identification, assessment and management of certain key risks that the Company may encounter and which may impact our ability to achieve our strategic objectives. The enterprise risk management function supplements management’s ongoing responsibilities to monitor and address risks by providing for a process by which risk owners identify causes of and action plans for certain risks, which then are discussed with senior management. This process includes reviewing for potential short-term risks (monitoring monthly or quarterly) and
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long-term risks (monitoring annually or longer). In addition to utilizing an internal audit team to help identify and monitor risks and to periodically assess and update the Company’s risk management framework, the Company also utilizes other risk management techniques such as working with outside advisors to conduct mock identification and response exercises for training purposes and reports significant findings to the Board.
ConsistentThe Chief Executive Officer and other senior management, including the Chief Financial Officer and Chief Legal and Compliance Officer (each of whom report directly to the Chief Executive Officer), may review specific risks with the Board throughout the year, as necessary and an example of, this approach, at the onsetappropriate, including as a result of the COVID-19 pandemic and regularly thereafter,Chair or the Board receivedrequesting more frequent updates or information about specific risks. In reviewing specific risks with the Board, senior management may incorporate reports and presentations from outside advisors and consultants designed to advise with respect to future threats and trends and risk identification, management, relating to risks faced by the Company due to the pandemic,and mitigation actions, strategies, and processes, as well as to discuss with, and obtain input from, the Company’s response to those risks. The risk areas included the health and safety of our employees, our ability to remain open and operational to meet the needs of our customers in providing essential financial services to their customers, our ability to respond to a broader economic downturn and the continuity of our supply chain. As the pandemic continues, our Board remains focused on the evolving nature of the risks to our business and the Company’s ability to respond to these risks effectively.
Board.
Pursuant to its charter, the Audit Committee is responsible for oversight of the Company’s policies with respect to risk assessment and risk management and discussing with management the major risk exposures facing the Company and the steps the Company has taken to monitor and controlmitigate, where possible, such exposures. Periodically, the Company’s Chief Executive Officer, Chief Financial Officer, Chief Legal and Compliance Officer, Chief Technology Officer, Chief Accounting Officer and Internal Audit Director, among other select members of the Company’s management, as appropriate, present to the Audit Committee a description of management’s view of the most significant risks facing the Company and participate in discussions with the Audit Committee regarding those risks and any mitigating factors, plans or policies in place to address and monitor such risks.
While the Audit Committee is charged with primary oversight of risk, the Board and the Board committees oversee risks associated with their principal areas of focus, as summarized below.below. The committee chairs regularly report to the full Board regarding their risk oversight activities, and the Board regularly reviews and discusses the most significant risks facing the Company and management’s process for identifying, prioritizing and responding to those risks. Depending on the immediacy of the identified risk, the Board may take additional oversight steps, including meeting more frequently to receive updates from management and engaging outside advisors for advice regarding mitigation or remediation of such risks.
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Board/Committee Areas of Risk Oversight and Actions
| ● ● ● |
Full Board |
|
Audit | including privacy and data security |
Compensation |
|
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|
|
The Board has approved Corporate Governance Guidelines and a Code of Business Conduct and Ethics,, as well as a Code of Conduct for Financial Officers that is applicable to our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. Our corporate governance documents, including the Corporate Governance Guidelines, the Code of Business Conduct and Ethics, the Code of Conduct for Financial Officers and committee charters, are available on our website at investor.cpicardgroup.com or in printed form upon request by contacting CPI Card Group Inc. at 10368 West Centennial Road, Littleton, Colorado 80127, Attention: Investor Relations. The Board regularly reviews corporate governance developments and modifies these documents as warranted. Any modifications will be reflected on our website. The information on our website is not part of this proxy statement and is not deemed to be incorporated by reference herein.
Leadership Structure of the Board
Bradley Seaman serves as our ChairmanChair of the Board, and Scott Scheirman serves as our Chief Executive Officer (“CEO”). Our Board has decided to maintain separate ChairmanChair and CEO roles to allow our CEO to focus on the development and execution of our business strategy, while allowing the ChairmanChair to lead the Board in its fundamental role of providing advice to, and independent oversight of, management. The Board recognizes the time, effort and energy that the CEO is required to devote to his position in the current business environment as well as the commitment required to serve as our Chairman.Chair. While our By-Laws and Corporate Governance Guidelines do not require that our ChairmanChair and CEO positions be separate, the Board believes that having separate positions and having an independent director serve as ChairmanChair is the appropriate leadership structure for us at this time.
Board Meetings
In fiscal year 2020,2022, our Board held ten22 meetings. In addition to our Board meetings, our directors attend meetings of committees established by our Board on which they serve. Each of CPI’s directors attended at least 75% of the meetings of our Board and the committees on which he or she served during 20202022 that were held when he or she was a director. Each of our directors is expected to
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attend each meeting of the Board and is strongly encouraged to attend each annual stockholder meeting, as provided in our Corporate Governance Guidelines. All of our directors attended the 20202022 annual meeting of stockholders.
Meetings of Non-Employee Directors
In accordance with our Corporate Governance Guidelines, our non-employee directors meet regularly in executive sessions of the Board without management present. Mr. Bradley Seaman, our Chairman,Chair of the Board, presides over these executive sessions. In the event that Mr. Seaman is not available to lead these meetings, the presiding director is chosen by the non-employee directors in attendance.
Committees of the Board
The Board has three standing committees: the Audit Committee, the Compensation Committee and the Nominating Committee. In an effort to strengthen the Board’s succession planning initiatives and also in connection with the departure of Robert Pearce, the Company restructured its committee composition in early 2023. The Nominating Committee, in conjunction with the Board, will continue to evaluate committee composition to enhance the overall governance function of the Board of Directors. The following chart sets forth the directors who currently serve as members of each of the Board committees as of the date of this proxy statement.
| | | | | | | | ||
|
| Audit |
| Compensation |
| Nominating | |||
Directors | | Committee | | Committee | | Committee | |||
|
| | X | | | | X | ||
Nicholas Peters | | | | C | | X |
| ||
Scott Scheirman | | | | | | | |||
Bradley Seaman* | | | | X |
| | | ||
Marc Sheinbaum | | C | | X | | X | |||
Valerie Soranno Keating | | X | | | |
|
| ||
|
|
|
|
| C |
|
* ChairmanChair of the Board
“C” Denotes member and chair of committee
“X” Denotes member
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Audit Committee
The Audit Committee held eight meetings in 2020.2022. The Board has determined that all of the members of the Audit Committee meet the independence criteria for purposes of serving on an audit committee under the applicable OTCQX® Bestrules of The Nasdaq Stock Market rules(“Nasdaq”) and Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, our Board has determined that Mr. PearceSheinbaum qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K. The Audit Committee operates under a written charter setting forth its functions and responsibilities. A copy of the current charter is available on our website at investor.cpicardgroup.com or in printed form upon request. Refer to “Audit Committee Report” for a summary description of the Audit Committee’s functions and responsibilities.
Compensation Committee
The Compensation Committee held eightseven meetings in 2020.2022. The Board has determined that all of the members of the Compensation Committee are independent as defined in OTCQX® Best MarketNasdaq rules. The Compensation Committee has overall responsibility for approving and evaluating the Company’s director and executive officer compensation plans, policies and programs of the Company and reviewing the disclosure of such plans, policies and programs to our stockholders in the Company’s annual proxy statement. The Compensation Committee utilizes an independent compensation consultant to assist it in its duties, and it may delegate certain of its authority to a subcommittee of the Compensation Committee, the CEO or another executive officer, including with respect to matters relating to the compensation of the Company’s employees other than the Company’s CEO and executive officers. The Compensation Committee operates under a written charter setting forth its functions and responsibilities. A copy of the current charter is available on our website at investor.cpicardgroup.com or in printed form upon request.
In consultation with the Company’s management, the Compensation Committee establishesapproves the general policies relating to senior managementCompany’s executive compensation philosophy and oversees and monitors the developmentCompany’s executive compensation policies, plans and administrationprograms for the executive officers to assess whether they are consistent with the Company’s compensation philosophy and objectives, as well as the long-term interests of such compensation programs.the Company’s stockholders. The Compensation Committee also evaluates and makes recommendations to the Board regarding the adequacy and effectiveness of non-employee director compensation. Our human resources executives and staff support the Compensation Committee in its work. These members of management work with compensation consultants (whose engagements have been approved by the Compensation Committee), accountants and legal counsel, as necessary, to implement the Compensation Committee’s decisions, monitor evolving competitive practices and make compensation recommendations to the Compensation Committee. Our human resources management, in conjunction with our independent compensation consultant, develops specific compensation recommendations for senior executives,executive officers, which are first reviewed by senior management and then presented to the Compensation Committee. The Compensation Committee has final authority to approve, modify or reject thesuch recommendations in its sole discretion and to make its decisions in executive session. The Compensation Committee approves all compensation of our executive officers, including equity awards.
Since 2018, the Compensation Committee has engaged Willis Towers Watson (“WTW”) as its independent compensation consultant. The compensation consultantWTW reports directly to the Compensation Committee, including with respect to management’s recommendations of compensation programs and awards. The Compensation Committee has the sole authority to approve the scope and terms of the engagement of WTW and to terminate such engagement. WTW assisted the Compensation Committee with the
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development of competitive market data, compensation program design and related assessments of the Company’s executive and director compensation levels, evaluation of annual and long-term incentive compensation strategy and compilation and review of total compensation data for the Company’s Named Executive OfficersNEOs (as defined in “Executive Compensation”). The Company paid WTW approximately $66,500$87,000 for the executive and director compensation consulting services described above in 2020.2022. Additionally, Company management decided to engage WTW to provide other professional consulting services in 20202022 (unrelated to executive compensation) primarily related to health and welfare (unrelated to executive compensation)benefits programs in an amount totaling approximately $175,000.$59,000.
The Compensation Committee has reviewed the independence of WTW in light of SEC rules regarding compensation consultants and has concluded that Willis Towers Watson’sWTW’s work for the Compensation Committee does not raise any conflict of interest.
Nominating and Corporate Governance Committee
The Nominating Committee held fivesix meetings in 2020. 2022. The Board has determined that all of the members of the Nominating Committee are independent as defined in the OTCQX® Best MarketNasdaq rules.
The Nominating Committee is responsible for, among other things: (i) identifying individuals qualified to become members of the Board, consistent with criteria approved by the Board; (ii) recommending director nominees to the Board for election at the next annual meeting of the stockholders of the Company; (iii) in the event of a vacancy on or an increase in the size of the Board, recommending director nominees to the Board to fill such vacancy or newly established Board seat; (iv) recommending directors to the Board for membership on each committee of the Board; and (v) establishing and reviewing annually our Corporate Governance Guidelines and Code of Business Conduct and Ethics.Ethics; and (vi) overseeing the Company’s environmental, social and governance efforts, progress and disclosures. The Nominating Committee operates under a written charter setting forth its functions and responsibilities. A copy of the current charter is available on our website at investor.cpicardgroup.com or in printed form upon request.
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Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee has in the past served as an officer or employee of the Company. None of the members of our Compensation Committee has any relationship requiring disclosure as a related party transaction. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or Compensation Committee.
Communications to the Board
Stockholders and interested parties can contact the Board or any director or group of directors (including the ChairmanChair and the independent directors) through written communication sent to CPI Card Group Inc., 10368 West Centennial Road, Littleton, Colorado 80127, Attention: Sarah Kilgore, Chief Legal and Compliance Officer and Corporate Secretary. Our Corporate Secretary reviews all written communications and forwards to the Board copies of any such correspondence that is directed to the Board or that, in the opinion of the Corporate Secretary, deals with the functions of the Board or Board committees or that she otherwise determines requires the Board’s or any Board Committee’scommittee’s attention. Concerns relating to accounting, internal accounting controls or auditing matters are immediately brought to the attention of our Audit Committee Chair, or may be submitted to the Audit Committee Chair in accordance with our Whistleblower Policy (available on our website), and such concerns will be handled in accordance with procedures established by the Audit Committee with respect to such matters. From time to time, the Board may change the process by which stockholders may communicate with the Board. Any such changes will be reflected in our Corporate Governance Guidelines, which are posted on our website at investor.cpicardgroup.com.
In 2021, the Company conducted an extensive review of its overall compensation policies and practices which included compensation paid to its non-employee directors. As a result of the review, in September 2021 the Company revised its director compensation program and modified its cash and non-cash equity compensation elements. These changes included reducing the directors’ annual cash retainer, correspondingly increasing the amount of annual equity award grants and making uniform the annual fees paid for committee membership and chair positions. All cash fees are paid to directors on a quarterly basis unless otherwise indicated and are prorated for any partial service periods. The following table sets forth our compensation packageprogram for our non-employee directors which did not change as compared to the 2019 director compensation program. Consistent with the 2019 director compensation program, 2020 director fees were paid quarterly in cash.2022:
| | | | |
Compensation Element |
| Value |
| |
Retainer |
| $ | 100,000 | |
| | | | |
Audit Committee Chair Fee |
| $ | 20,000 | |
Compensation Committee Chair Fee |
| $ | 15,000 | |
Nominating Committee Chair Fee |
| $ | 10,000 | |
Audit Committee Member Fee |
| $ | 10,000 | |
Compensation Committee Member Fee |
| $ | 7,500 | |
Nominating Committee Member Fee |
| $ | 5,000 | |
| | | |
Compensation Element |
| Value | |
Annual Cash Retainer | | $ | 50,000 |
Annual Equity Award(1) | | $ | 100,000 |
Chair of the Board Annual Cash Fee | | $ | 30,000 |
Committee Chair Annual Cash Fee | | $ | 15,000 |
Committee Member Annual Cash Fee | | $ | 7,500 |
(1) | In connection with the adoption of the revised compensation program effective September 21, 2021, an equity award was granted to each director on that date in the form of a grant of restricted stock units (“RSUs”) which vested on March 21, 2023. Although the director compensation program approved by the Board effective September 21, 2021 contemplates an equity award with an annual value of $100,000 and vesting after a period of 12 months, due to the timing of these grants, the Board approved RSU awards in September 2021, each with a grant date fair value equal to $150,000 and vesting 18 months from the award date, sized in recognition that the grants represented awards for the period beginning on the grant date and ending on the date of the next equity grant. As a result, the number of shares of each grant on September 21, 2021 was determined by dividing $150,000 by the closing stock price on the award date and rounding down to the nearest whole share. Beginning in 2023, equity awards to directors under our director compensation program will be granted quarterly with a grant date fair value of $25,000 and scheduled to vest 12 months from the date of grant. Each RSU represents the right to receive one share of Common Stock of the Company upon vesting of such RSU. |
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The following table summarizes the annual compensation for our non-employee directors during 2020.2022. Mr. Scheirman, our President and Chief Executive Officer, does not receive any additional compensation for his service on the Board. Please see the “2020“2022 Summary Compensation Table” for a summary of the compensation received by Mr. Scheirman with respect to 2020. 2022. No non-employee directors were granted equity awards in 2022, thus those columns are omitted from the table below.
20202022 DIRECTOR COMPENSATION
| | | | | |||||||||
|
| Fees |
| | | | | | | | | | |
| | Earned |
|
| | Fees |
| | |
| | | |
| | Or Paid |
| | | Earned | | | | | | | |
| | In Cash |
| | | Or Paid | | | | | | | |
Name | | ($) |
| | | In Cash | | | Stock Awards(1) | | | Total | |
Douglas Pearce (1) | | $ | 60,000 | | |||||||||
Thomas Furey | | $ | 57,500 | | $ | — | | $ | 57,500 | ||||
Robert Pearce | | $ | 127,500 | | | $ | 72,500 | | $ | — | | $ | 72,500 |
Nicholas Peters | | $ | 120,000 | | | $ | 72,500 | | $ | — | | $ | 72,500 |
Jorg Schneewind (2) | | $ | 52,500 | | |||||||||
Bradley Seaman (3) | | $ | — | | |||||||||
Bradley Seaman | | $ | 87,500 | | $ | — | | $ | 87,500 | ||||
Marc Sheinbaum | | $ | 112,500 | | | $ | 65,000 | | $ | — | | $ | 65,000 |
Valerie Soranno Keating | | $ | 117,500 | | | $ | 72,500 | | $ | — | | $ | 72,500 |
(1) |
| |
|
|
|
|
|
|
|
|
|
Security Ownership of Certain Beneficial Owners, Directors and Management
The following table sets forth, as of April 1, 2021__, 2023 (except as indicated below), beneficial ownership, as defined by SEC rules, of our common stock.Common Stock. Each of the persons listed below has sole voting and investment power with respect to the beneficially owned shares listed unless otherwise indicated. For purposes of the following table, beneficial ownership is determined in accordance with Exchange Act Rule 13d-3. The percentage calculations set forth in the table are based on 11,230,482[XX] shares of common stockCommon Stock outstanding on April 1, 2021__, 2023 rather than based on the percentages set forth in stockholders’ Schedules 13G or 13D, as applicable, filed with the SEC.
| | | | | | | | | | |
|
| Number of |
| |
|
| Number of |
| |
|
| | Shares of | | Percentage of |
| | Shares of | | Percentage of |
|
| | Common | | Common |
| | Common | | Common |
|
| | Stock | | Stock |
| | Stock | | Stock |
|
| | Owned | | Owned |
| | Owned | | Owned |
|
| | Beneficially | | Beneficially |
| | Beneficially | | Beneficially |
|
5% Beneficial Owners: | | | | | | | | | | |
Tricor Pacific Capital Partners (Fund IV), Limited Partnership(1) |
| 4,124,368 | | 36.7 | % | | 4,124,368 | | 36.2 | % |
Tricor Pacific Capital Partners (Fund IV) US, Limited Partnership (1) |
| 2,434,457 | | 21.7 | % | | 2,434,457 | | 21.4 | % |
Steamboat Capital Partners, LLC(2) | | 700,965 | | 6.2 | % | |||||
| | | | | | | | | | |
Named Executive Officers and Directors: | | | | | | |||||
Named Executive Officers, Directors and Director Nominees: | | | | | | |||||
Thomas Furey | | — | | — | | | 5,064 | | * | |
Robert Pearce |
| 105,189 | | * | | |||||
Nicholas Peters |
| 30,000 | | * | | | 35,064 | | * | |
Scott Scheirman (2) |
| 286,241 | | 2.5 | % | |||||
H. Sanford Riley | | — | | * | | |||||
Scott Scheirman | | 338,798 | | 2.9 | % | |||||
Bradley Seaman |
| — | | — | | | 5,064 | | * | |
Marc Sheinbaum | | 1,879 | | * | | | 6,943 | | * | |
Valerie Soranno Keating | | 18,797 | | * | | | 23,861 | | * | |
Guy DiMaggio (3) | | 16,675 | | * | | |||||
John Lowe | | 50,025 | | * | | | 90,096 | | * | |
Total Executive Officers and Directors as a Group (14 individuals) (5) | | 616,546 | | 5.3 | % | |||||
Lane Dubin | | 80,569 | | * | | |||||
Total Executive Officers and Directors as a Group (15 individuals) | | 656,971 | | 5.43 | % |
* Less than 1%
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| Based on a Schedule 13G filed jointly by the Tricor Funds, and Parallel49 Equity, ULC on February 12, 2016, as adjusted to give effect to the 1-for-5 reverse stock split we completed on December 20, 2017. Each of the Tricor Funds is managed by Parallel49 Equity, ULC, as the general partner. An investment committee of the Tricor Funds has the power to vote or dispose of the shares held by the Tricor Funds. The investment committee is comprised of Mr. Bradley Seaman, Mr. David Rowntree, J. Trevor Johnstone and Roderick Senft. Each of Messrs. Seaman and Peters is an officer or member of the Tricor Funds and has an indirect pecuniary interest in the shares of |
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The following table sets forth certain information concerning each of our executive officers:
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Name |
| Age |
| Position |
Scott Scheirman | |
| | President, Chief Executive Officer and Director |
| |
| |
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Lane Dubin |
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| | 54 | | Executive Vice President and Chief |
Sarah Kilgore | |
| | Chief Legal and Compliance Officer and Corporate Secretary |
John Lowe | |
| | Executive Vice President, End-to-End Solutions |
Peggy O'Leary | | 47 | | Senior Vice President, Prepaid Solutions |
Amintore Schenkel | | 56 | | Chief Financial Officer and Treasurer |
| |
| | Chief |
Beth Williams | |
| | Chief Technology Officer |
Scott Scheirman.See “Directors and Corporate Governance” for Mr. Scheirman’s biographical information.
Guy DiMaggioDonna Abbey has served as a Senior Vice Presidentour Controller and General ManagerChief Accounting Officer since July 2018. Mr. DiMaggio is a financial services executive with over 20 years of experience building and leading world-class operations and customer service teams.March 2022. Prior to joining the Company he was the SVPMs. Abbey, provided financial and Head of Operations for iPayment Inc., a financial transaction and processingaccounting consulting services company,to clients in various industries from 2013January 2020 to 2018, responsible for leading all client support and relationship management in the merchant acquiring / card processing industry.March 2022. Prior to iPayment Inc., Mr. DiMaggio served as the Senior Vice President of Integration and Indirect Business Channel for Vantiv (now known as Worldpay, Inc.) from 2010 to 2012. He also spent nearly a decade in executivethat, Ms. Abbey held roles of increasing responsibility working globally forat Western Union, a multinational financial services company, from 2001October 2010 to 2010,September 2018, including Vice President of Operations for Europe, Middle East, Africa, AsiaFinancial Reporting, Governance & Pacific. Mr. DiMaggio earnedConsolidations and Chief of Staff to the Chief Executive Officer. Prior to joining Western Union, Ms. Abbey worked in the audit practice of KPMG LLP, a Mastermultinational professional services and accounting firm, from January 2003 to September 2010. Ms. Abbey holds a Bachelor of Science degree in Business Administration degree from Colorado State University and is a Certified Public Accountant in the UniversityState of Denver Daniels College of Business and he holds a Bachelor’s Degree in Communications from Shippensburg University in Pennsylvania.Colorado.
Lane Dubin has served as aour Executive Vice President and Chief Development and Digital Officer since December 2022. Prior to that, he served as the Company’s Senior Vice President and General Manager of Personalization, Prepaid and Instant Issuance since January 2018.2020. From January 2018 to December 2019, he served as the Company’s Senior Vice President and General Manager of Prepaid and Instant Issuance. Mr. Dubin joined the Company as Senior Vice President, Sales and Marketing in August 2016. Prior to joining the Company, Mr. Dubin served at American Express Company from 1992 to 2015. Most recently, he was the Head of Global Sales at American Express Global Business Travel from 2008 to 2015, and Vice President, Business Development – North America, at American Express Global Business Travel from 2003 to 2008. Prior to these roles, Mr. Dubin held roles of increasing responsibility with American Express, including Vice President-Business Development, Financial Education Services for American Express Financial Advisors and Director of Sales and Business Development for Ketera Technologies, a technology start-up incubated by American Express. Mr. Dubin holds a Bachelor of Arts degree in Economics and Business Administration from Ursinus College.
Lori Frasier has served as our Chief Human Resources Officer since October 2019. Prior to joining the Company, Ms. Frasier served as Senior Vice President of Strategy and Performance Management for Key Equipment Finance, a division of KeyBank N.A. (“KeyBank”), a retail banking company, since September 2013. In that role, Ms. Frasier was responsible for strategic planning, marketing and communications, employee development initiatives, client insights, new product development, sales performance and analysis and enterprise project management. Ms. Frasier joined KeyBank in 2003 as Senior Vice President of Global Human Resources and was promoted to Senior Vice President of Strategic Services in 2009. Prior to joining KeyBank, she held various positions of increasing responsibility in human resources and operations at First Data/Western Union. Ms. Frasier earned a Bachelor’s Degree in Business Administration from the University of Colorado at Denver and Master of Business Administration degree from the University of Denver Daniels College of Business. She has also completed the University of Michigan’s Continuing Education, Strategic Human Resources Planning Program.
Sarah Kilgore has served as our Chief Legal and Compliance Officer and Corporate Secretary since December 2017. Prior to joining the Company, Ms. Kilgore was Of Counsel with Moye White LLP, a law firm based in Denver,, since June 2017. Prior to Moye White LLP, Ms. Kilgore founded and provided legal services through Kilgore Legal Group, LLC from 2011 through 2015. Prior to establishing Kilgore Legal Group, LLC, Ms. Kilgore served as Associate General Counsel, Governance and Securities for Western Union, a multinational financial services company, from 2006 to 2011. Prior to her role at Western Union, she held various legal positions at First Data Corporation and AT&T Corp., and was a corporate attorney in private practice. Ms. Kilgore earned her Juris Doctor degree from the University of Michigan Law School and received her Bachelor’s Degree in Business Administration from Michigan State University.
John Lowe has served as our Executive Vice President, End-to End Solutions since December 2022. Prior to that, he served as our Senior Vice President and General Manager of Secure Card since October 2021. From July 2018 to October 2021, Mr. Lowe served as the Company’s Chief Financial Officer since July 2018.Officer. Prior to joining the Company, Mr. Lowe served as Chief Financial Officer of SquareTwo Financial Corporation,, a financial services company, from August 2014 until June 2017. Prior to August 2014, Mr. Lowe held various leadership roles of increasing responsibility at SquareTwo Financial Corporation, including serving as Treasurer, Vice President of Finance and Vice President of External Reporting and Director of Technical Accounting.Reporting. Mr. Lowe’s employment with SquareTwo Financial Corporation commenced in 2009. SquareTwo Financial Corporation filed for Chapter 11 bankruptcy protection in March 2017 in connection with a strategic sale of the Company. Mr. Lowe holds a Bachelor of Science degree in both Accounting and Finance from the Virginia Polytechnic Institute and State University and is a Certified Public Accountant in the State of Colorado.University. Mr. Lowe is also a Chartered Financial Analyst.
Margaret “Peggy” O’Leary has served as our Senior Vice President Prepaid Solutions since December 2022. She previously served as the Company’s Vice President of Sales of Prepaid, Personalization Solutions, and Instant Issuance since January 2020. Ms. O’Leary joined CPI in April 2017 as Director of Sales and Client Services for Prepaid Solutions. Prior to joining the Company, Ms. O’Leary served as the Vice President Business Development for Jingit, a payments platform to drive consumer loyalty and engagement, since 2012. Prior to 2012, Ms. O’Leary held a variety of positions with increasing responsibilities including sales management, channel management, sales and client services at companies such as InteliSpend, Maritz, and Hallmark. Ms. O’Leary is a graduate of Hamline University and holds a Bachelor of Arts degree in Psychology.
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Kevin O’BrienAmintore Schenkel has served as our Chief AccountingFinancial Officer since April 2018. Mr. O’Brien joined the Company in March 2016 as Director of Corporate Accounting and SEC Reporting.October 2021. Prior to joining the Company, Mr. O’BrienSchenkel served as the Director of Financial Reporting and Compliance at Sports Authority, Inc., a sporting goods retailer, from 2014 to 2016. From 2011 to 2014, Mr. O’Brien served as the AssistantSenior Vice President, Chief Accounting Officer & Controller of CIBER, Inc., an information technology andWestern Union, a multinational financial services company.company, from 2006 to 2020. Additionally, he held a variety of financial roles of increasing responsibility at First Data Corporation from 2001 to 2006. Prior to joining CIBER, Inc.,First Data Corporation, Mr. O’BrienSchenkel was a Senior Audit Manager at Deloittewith Ernst & Touche LLP from 2002 to 2011.Young for 12 years. Most recently, he served as Managing Member and provided consulting services through InterContinental Advisory and Accounting Services LLC, an entity that he founded in 2020. Mr. O’Brien holdsSchenkel has over 30 years of executive finance, accounting and operations experience. Mr. Schenkel earned both a Bachelor of ArtsScience in Accounting degree and a Master of ScienceAccountancy degree in Accounting from the University of ColoradoDenver and is a Certified Public Accountant in the State of Colorado.
Sonya Vollmer has served as our Chief Human Resources Officer since January 2022. Ms. Vollmer joined the Company in February 2021 as Director of Total Rewards and assumed the role of interim Chief Human Resources Officer in August 2021. Prior to joining the Company, Ms. Vollmer held positions of increasing responsibility at Charter Manufacturing Company, a metals manufacturing business, from February 2013 to February 2021, most recently serving as Director of Total Rewards. Prior to 2013, Ms. Vollmer held human resources leadership roles across a variety of manufacturing companies, including in the healthcare/life sciences, industrial automation and metals industries. She also served in consulting roles with Hewitt Associates (now Aon), and her own consulting firm. Ms. Vollmer holds a Bachelor of Arts degree in Economics from the University of Wisconsin-Parkside, and an Executive Master of Business Administration from the University of Wisconsin-Milwaukee.
Beth Williams has served as our Chief Technology Officer since January 2020, and she previously served in roles with CPI as Technology Director, Instant Issuance and Prepaid from January 2018 to January 2020, and as Director of Personalization Solutions from 2016 to 2017. Prior to joining CPI, Ms. Williams served in various leadership roles at EFT Source, Inc., including Chief Information Officer and Software Development Manager and Lead Software Developer from 2007 to 2015. Prior to 2007, Ms. Williams held a variety of positions of increasing responsibility, including programming, web and software development and analysis at KeyBank, Deloitte Consulting, NFIB, PIC (Sygen international subsidiary) and Vanderbilt University Medical Center. Ms. Williams holds a Bachelor of Business Administration - MIS from Ohio University.
The following narrative describes our executive compensation program and the decisions of the Compensation Committee of the Board regarding the fiscal year 20202022 compensation of our named executive officers. officers (“NEOs). The Company qualifies as a “smaller reporting company” in accordance with Rule 12b-2 of the Exchange Act.Act. For as long as we are a smaller reporting company, we are not required to include a Compensation Discussion and Analysis section in this proxy statement and have elected to comply with the scaled-down executive compensation disclosure requirementsrequirements.
2020 Named Executive Officers
For fiscal year 2020,2022, our named executive officers (“NEOs”)NEOs were:
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President, Chief Executive Officer and Director | |
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John Lowe |
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20202022 Business Overview
Our executive team was pivotal in delivering the Company’s strong financial performance in 2020,2022, including:
● | Total Net Sales(1) of |
● | Net Income of |
● | Adjusted EBITDA |
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Additional highlights of 20202022 performance ($ in millions)
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(2) |
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| Adjusted EBITDA is not a measurement of financial performance prepared in accordance with |
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Our 2020 results represented a continuationour innovative eco-focused cards, expanded distribution of our leading Software-as-a-Service-based instant issuance solution, and continued growth in contactless card delivery, supporting the Company’s strong financial improvementsongoing conversion to these cards in each of 2018 and 2019. Such results and improvements contributed to our ability to successfully refinance the Company’s existing indebtedness and enhance its liquidity position through a private offering of senior secured notes and entering into a new revolving credit facility in March 2021.U.S. market. We believe the achievement of these milestonesresults is tieddue to our executive team’s focus on delivering against our strategic plan and continuing to execute on our four key strategies: deep customer focus; market-leading quality products and customer service; continuous innovation; and a market-competitivemarket competitive business model.
WeFor further details, we encourage you to review the financial results set forth in our Form 10-K for the fiscal year ended December 31, 2020.
2022.
As described in this “Executive Compensation” section, we believe our compensation program focuses on performance-based compensation elements and provides alignment with the Company’s financial and strategic priorities as well as stockholder interests. We have structured our compensation design features to incentivize our NEOs and other executive officers to pursue performance that increases stockholder value by rewarding top-line growth, profitability and non-financial business imperatives, and we employ competitive compensation levels to drive the retention, performance and engagement of our executive team, including our NEOs. Further, our programs are designed to incentivize over-achievement of goals by awarding compensation consistent with above-market compensationperformance when the Company exceeds its performance goals, as we did in 2020.2022.
Summary of Our 2022 Compensation Decisions
The principal components of our 2022 executive compensation program consisted of (i) base salary, (ii) short-term incentives delivered in the form of quarterly cash payments and (iii) long-term incentives delivered entirely in the form of equity awards. We believe including equity awards as a significant componentthese components provide the appropriate mix of compensation to recruit and retain top-level talent, motivate our executive team to achieve the Company’s near-term financial objectives, and align compensation program will allow us to continue to (i)with stockholder value, all of which incentivize our executive team to continue improving our business. Part of this strategy involves utilizing a short-term incentive plan (“STIP”) that rewards short-term incentive goal achievement with cash payments, as well as a long-term incentive plan (“LTIP”) which utilizes the business, (ii) promote retentionCompany’s 2021 Omnibus Incentive Plan ("Omnibus Incentive Plan”) to grant stock options (“Options”) and restricted stock units (“RSUs”).
In 2021, the Company conducted an extensive review of our high performingits overall compensation policies and practices, which included its executive teamofficer compensation program. As a result of the review, in September 2021 the Company modified its executive compensation program. Prior to this time, the Company had generally ceased using equity awards because they were viewed as an ineffective compensation vehicle in light of the Company’s stock price and facilitate recruiting of additional top-level talent, (iii) align compensation withdilutive impact on stockholder value and (iv) be consistent with market practices. Becausealso due to the fact that the Omnibus Incentive Plan lacked a sufficient number of the limited shares currently available for awards under our Omnibus Plan, however, we believe it is necessary to modifymake market-competitive awards. Following an amendment to the Omnibus Plan approved by stockholders in 2021, and as our common stock price improved, the Compensation Committee returned to make additional shares available forthe market practice of granting equity-based long-term incentive awards to ourits executives, as evidenced by the award of Options and RSUs in 2020 and 2021 as a portion or all of the long-term incentive awards.
In connection with the adoption of the revised compensation program effective September 21, 2021, an equity award was granted to each executive team, as describedofficer on that date in Stockholder Proposals Nos. 5the form of Options and 6. See Stockholder Proposal Nos. 5RSUs, which vest 50% each on the first and 6 for further information.
Impactsecond anniversaries of COVID-19
Our Company demonstrated resilience in its responsethe grant date. Although the executive compensation program contemplates an annual LTIP equity award component, due to the ever-evolving landscape presented bytiming of these grants, they were sized in recognition that the COVID-19 pandemic, while maintaining focusgrants represented awards for the period beginning on the health and safety of our employees, our ability to continue to provide essential products and services to our customers and the stability of our supply chain. We took immediate action to developSeptember 21, 2021 grant date with a pandemic preparedness plan based on federal, state and local guidelines, which we expand and refine as necessary in response to new developments and information. Our pandemic preparedness plan includes health screening, mask wearing, hygiene and enhanced cleaning protocols, visitor protocols, social distancing and remote working where possible, response protocols for sick or exposed employees, communications and training for our workforce, and management oversight through reporting and tracking tools. Many protocols are tailored to the operationsvesting event occurring in each of our facilities. The Company recognized2022 and 2023 and with the commitment and continued hard work of our on-site employees in numerous ways, including:
We continue to extend gratitude to our employees for their dedication and commitment to safety and serving our customers through these unprecedented times.
We established the executive compensation targets for 2020 early in the year, before the implicationsdate of the COVID-19 pandemicnext equity grant occurring in first quarter of 2023. As a result, there were fully understood. Despiteno equity awards granted to the challenges presented byNEOs in 2022, other than promotions and new hires, as the pandemic, we did not make any executive compensation target adjustments during the year. As illustrated in the “Business Highlights” section above, the Company achieved strong financial results in 2020, and, based on these results, our 2020 STIP paid out at above-target-incentive levels.
Summary2021 grant was designed to compensate for 18 months of Our 2020 Compensation Decisions equity awards.
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The Compensation Committee makes all decisions regarding our NEOs’ total compensation (base salary, short-term incentives and long-term incentives).
| ● ● ● ● ● | |
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Factors that Guided | ● Our executive compensation philosophy ● Degree of achievement of key financial goals for ● Recommendations of our CEO (other than with respect to his own compensation) |
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2020 Short-Term Incentive Plan (“2020 STIP”)
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’s 2021 performance, the — Short-Term Incentives” for more information. September 21, 2021, the Compensation Committee granted equity awards under the Omnibus Incentive Plan to select employees of the Company, including the NEOs. These equity awards were granted 50% in the form of RSUs and 50% in the form of Options, with awards vesting in equal annual installments on the first and second anniversaries of the grant date. In addition, on October 5, 2021, the Compensation Committee approved the grant of additional long-term equity incentive awards in the form of RSUs and Options to Mr. Lowe in connection with his promotion to Senior Vice President and General Manager, Secure Card, with such equity awards also vesting in two equal installments on the first and second anniversaries of the grant date. These awards were determined in consideration of our NEOs’ performance and a review of competitive market data, and the targeted values reflect that we are shifting the timing of our next annual equity grant. As such, we do not expect to make annual equity awards in 2022, and our next annual equity grant is expected to occur in the first quarter of 2023. — Long-Term Incentives” for more information. ’s 2020 review. The compensation peer group is comprised of companies that meet at least one of the following criteria: ● EBITDA); ● ● “Role of Market Data and the Peer Group” for more information. |
2022 Compensation Program Changes and Key Decisions (continued) | 2022 Short-Term Incentive Plan (“2022 STIP”) The 2022 STIP emphasizes pay-for-performance and the achievement of critical near-term performance milestones. Under the 2022 STIP, the NEOs were eligible to earn quarterly cash bonus awards based on the achievement of pre-established financial goals (specifically the metrics were based on a weighting of 70% for Adjusted EBITDA and 30% for Net Sales). Each NEO’s individual incentive opportunity is determined by the Compensation Committee following a review of competitive market data and internal pay equity. Each of the NEOs received an increase in his 2022 STIP target as compared with the 2021 STIP target, with Mr. Scheirman’s target increasing by 9.5%, Mr. Dubin’s target increasing by 6.7% and Mr. Lowe’s target increasing by 13.0%. Such increases in STIP targets for 2022 increased the portion of our NEOs’ pay which was at-risk and directly tied to Company performance. Based on the Company’s strong above-target performance during 2022, the 2022 STIP payouts were at the maximum level of 200% of target for the NEOs. See “Elements of the
program in September 2021, awards granted at that time were designed to compensate for 18 months of equity awards. As a result, in 2022, there were no RSUs or Options granted to the
Compensation Peer Group The Compensation Committee reviewed and affirmed our compensation peer group in ● Similar in size and complexity to CPI (primarily based on revenue and EBITDA); ● In a similar or related technology-oriented industry; or ● In competition with CPI for executive talent. See “Role of Market Data and the Peer Group” for more information.
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Executive Compensation Governance Highlights
The Compensation Committee reviews on an ongoing basis the Company’s executive compensation practices to evaluate whether they support the Company’s executive compensation philosophy and are aligned with stockholder interests. Our 20202022 executive compensation practices include the following, each of which the Compensation Committee believes is supportive of our executive compensation philosophy and the interests of our stockholders:
What We Do | | What We Don’t Do | ||
✓ Deliver a significant portion of compensation through performance-based, at-risk pay ✓ Maintain a peer group for evaluating competitive market practices ✓ Set pre-established performance targets designed to be challenging ✓ Regularly review risks associated with compensation ✓ Consult with an independent consultant on compensation levels and practices ✓ Provide no executive perquisites ✓ Maintain a clawback policy ✓ Annual say-on-pay vote | | X Provide automatic, annual increases in executive salaries X Maintain uncapped executive incentive plans X Award single-trigger cash severance in connection with a change in control X Re-price stock options without the prior approval of our stockholders X Permit hedging or pledging of equity X Enter into supplemental executive retirement plans X Provide excise tax gross-ups on termination-related payments |
Stockholder Input on Executive2022 Say-on-Pay Vote
In its compensation review process, the Compensation
Beginning on December 31, 2020, Committee considers whether the Company’s executive compensation program is aligned with the interests of the Company’s stockholders. As part of its review of the Company’s executive compensation program, the Compensation Committee considered the approval by approximately 98% of the votes cast for the Company’s say-on-pay vote at our 2022 Annual Meeting of Stockholders. The Compensation Committee determined that the Company’s executive compensation philosophies and objectives and compensation elements continued to be appropriate and did not make any changes to the Company’s executive compensation program in response to the 2022 say-on-pay vote. However, as noted above, in 2021, the Company was no longer an Emerging Growth Company for purposes of SEC reporting. We continue to qualify as a Smaller Reporting Company and are thus required to hold a say-on-pay and a say-on-frequency vote regarding the compensation of our NEOs. The Say-on-Pay Proposal is included in this proxy statement as Proposal No. 3, and the Say-on-Frequency Proposal is included in this proxy statement as Proposal No. 4. We believe holding an annual advisory say-on-pay vote will foster useful and frequent communication with our stockholders onreintroduced 100% equity-denominated awards into the Company’s NEOlong-term incentive program following stockholder approval to increase the total number of shares of CPI common stock available for issuance under the Omnibus Incentive Plan. The 2022 fiscal year represents the first full year of this change to deliver long-term incentives as 100% equity since 2018, and equity awards granted in September 2021 were designed as part of the 2022 compensation practices and program.
Role of the Compensation Committee
In consultation with the Company’s Chief Executive Officer,CEO, the Compensation Committee establishes the general policies relating to senior management compensation and oversees the development and administration of such compensation programs. Our human resources executives and staff support the Compensation Committee in its work to implement the Compensation Committee’s decisions, monitor evolving competitive practices and make compensation recommendations to the Compensation Committee. Our human resources management, in conjunction with our independent compensation consultant, develops specific compensation recommendations for senior executives, which are first reviewed by senior management and then presented to the Compensation Committee. The Compensation Committee has final authority to approve, modify or reject these recommendations in its sole discretion. Members of management do not attend the portions of the Compensation Committee meetings relating to their own compensation, and the Compensation Committee regularly conducts executive sessions without management present. The Compensation Committee approves all compensation of our executive officers, including equity awards.
Role of the Independent Compensation Consultant
Since 2018, the Compensation Committee has engaged WTW as its independent compensation consultant. WTW is engaged by and reports directly to the Compensation Committee. The Compensation Committee has the sole authority to approve the scope and terms of the engagement of WTW and to terminate such engagement. In 2020,2022, WTW assisted the Compensation Committee with the development of competitive market data, compensation program design and related assessments of the Company’s executive and
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director compensation levels, evaluation of short-term and long-term incentive compensation strategy, and compilation and review of total compensation data for the Company’s NEOs.
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The Compensation Committee has reviewed the independence of WTW in light of SEC rules regarding compensation consultants and has concluded that WTW is independent and its work for the Compensation Committee does not raise any conflict of interest.
Role of Market Data and the Peer Group
In order to gauge the competitiveness of our compensation program and to provide our NEOs with fair and market-competitive compensation, the CompanyCompensation Committee reviewed compensation practices and pay opportunities from general industry survey data as well as from a selection of publicly traded peer companies.companies, as provided by WTW. The Company attempts to position itself to attract and retain qualified senior executives in the face of competitive pressures in its relevant labor markets, and we design our compensation practices with this goal in mind.
Specifically, in 2020, the Company2022, WTW analyzed information regarding the pay practices of a compensation peer group (as described below) to assist the Compensation Committee in determining pay for our Chief Executive Officer and Chief Financial Officer. In addition, the Company analyzed the pay practices of similarly sized general industry companies in the WTW Executive Compensation Database to assist the Compensation Committee in determining pay for our other executive officers. The compensation data resulting from this analysis was considered by the Compensation Committee in making 20202022 executive compensation decisions.
In 2020, we worked with WTW to reviewThe Compensation Committee reviewed and validateaffirmed our peer group. In compiling ourcompensation peer group we engaged in a multi-faceted analysis2022. The compensation peer group is comprised of companies that identified companies:
meet at least one of the following criteria:
● | Similar in size and complexity to CPI (primarily based on revenue and EBITDA); |
● | In a similar or related technology-oriented industry; or |
● | In competition with CPI for executive talent. |
The Compensation Committee approvedTherefore, the following peer group was used for 2020:
2022 compensation benchmarking purposes:
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Executive Compensation Peer Group | ||||
Altium Limited | DSP Group, Inc. | Inseego Corp. | ||
Cantaloupe, Inc. | EVERTEC, Inc. | Key Tronic Corporation | ||
Cass Information Systems, Inc. | FormFactor, Inc. | Lattice Semiconductor Corporation | ||
| GreenSky, Inc. |
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| SigmaTron International, Inc. | ||
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Elements of the 20202022 Executive Compensation Program
Our 20202022 executive compensation program consisted of fixed pay and variable pay, including cash and non-cash components. The chart below summarizes the various elements of CPI’s 20202022 executive compensation program and the objective and key features of each element:element. Although equity awards were not granted to our NEOs in 2022, we have included them in this chart as the 2021 grants were
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sized to include a grant value for 2022 and are viewed by the Compensation Committee to be a component of the 2022 executive compensation program.
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| Objective | Type of | Key Features | |||||||
Base Salary | A standard compensation element in executive compensation packages, offering market competitive fixed compensation to attract and retain talent | Cash | ● Reflects individual skills, experience, responsibilities and performance over time ● Provides a consistent source of income | |||||||
Short-Term | A cash-based award that encourages executives to focus on specific short-term corporate and/or business unit performance | goals. | Cash | ● Performance-based award tied to achievement of critical short-term financial goals and priorities ● Pays only if threshold performance levels are met or exceeded | ||||||
Long-Term |
| Rewards |
| Equity |
| ● At-risk
● Aligns executive and stockholder interests | ||||
Long-Term | Rewards stockholder value creation by aligning executive pay with stock price appreciation, enhances executive stock ownership and promotes retention |
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| Equity | ●
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Other Benefits | Provide programs for employees to pursue physical and financial wellbeing through retirement and health and welfare benefits | Benefit | ● Competitive broad-based benefits available to all employees | |||||||
Employment and | Protects the Company and NEOs during certain termination events, through the use of | Benefit | ● Facilitates an orderly transition in the event of management changes ● Helps ensure NEOs remain focused on creating sustainable performance in case of risk of job loss ● Provides confidentiality, non-compete and non-solicit protections for the Company |
Base salaries established for the Company’s executive officers are intended to reflect each individual’s responsibilities, experience, historical performance and other discretionary factors deemed relevant by the Company and have generally been set at levels deemed necessary to attract and retain individuals with superior talent. Base salaries are also designed to provide executive officers with steady cash flow during the course of the fiscal year that is not contingent on short-term variations in the Company’s operating performance. The base salaries of our NEOs in 20192022 and 20202021 are set forth below.below:
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| 2022 Base Salary |
| 2021 Base Salary |
| Aggregate % | ||
| | (As of December 31, 2022) | | (As of December 31, 2021) | | Increase | ||
Scott Scheirman(1) | | $ | 670,018 | | $ | 610,018 | | 9.8% |
Lane Dubin(1) | | $ | 503,839 | | $ | 484,461 | | 4.0% |
John Lowe(2) | | $ | 420,000 | | $ | 420,000 | | 0.0% |
(1) | The NEO’s base salary increase was effective March 6, 2022. |
(2) | Mr. Lowe did not receive a base salary increase in 2022 due to an increase on October 5, 2021. |
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Our NEOs were entitled toThe Compensation Committee annually reviews the following annual base salaries in 2019of the Company’s executive officers, including the CEO, and 2020:may from time to time make adjustments to these amounts as it deems necessary for the Company to pursue its goal of attracting and retaining key personnel.
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| 2019 Base Salary |
| 2020 Base Salary | | |
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| | (As of December 31, 2019) | | (As of December 31, 2020) | | % Increase |
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Scott Scheirman(1) | | $ | 592,250 | | $ | 592,250 | | 0.0% | |
Guy DiMaggio(2) | | $ | 375,000 | | $ | 375,000 | | 0.0% | |
John Lowe | | $ | 330,687 | | $ | 347,221 | | 5.0% | |
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The Company believes that establishing cash incentive opportunities is an important factor in both attracting and retaining qualified and highly skilled executives and in motivating our executives to achieve the Company’s near-term financial objectives. To achieve these objectives, the Company maintains a quarterly short-term incentive plan with an annual component, or the “STIP.” The quarterly design of the STIP is intended to reward the achievement of critical quarterly financial performance objectives and the annual component is tied to annual financial performance objectives. As such, payments may vary quarter to quarter.
To determine payouts under the STIP, the Company measures performance for each metric on both a quarterly and a cumulativean annual basis. Each quarterly payment is “capped” at 125% of target, amounts that exceed the quarterly cap are subject to a year-end “true-up,” and each quarterly award is eligible for a “catch-up” payment for cumulative performance to-date. This design was implemented to further enhance the motivational effect of the STIP and provide a continual incentive to improve performance throughout the year.
Under the 20202022 STIP, executives were eligible to earn quarterly cash bonuses based on the achievement of the following metrics:
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30% based on achievement of Net Sales(2)
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(1) | “Adjusted EBITDA” is a financial measure that is not calculated according to |
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Our annual STIP Net Sales Adjusted EBITDA and Adjusted Free Cash FlowEBITDA goals are defined on a quarterly basis for purposes of calculating the quarterly STIP payments. The quarterly goals align to the Company’s annual operating plan and reflect the planned seasonality of our business and operations. Achievement of performance goals is calculated on the basis of straight-line interpolation between the threshold, target and maximum bonus opportunities for each applicable metric underlying the performance goal. Quarterly and cumulativeannual payouts under the STIP can range from 0% to 200%, based on Company performance; however, any payment made under the STIP with respect to the first three quarterseach quarter is capped at one-hundred twenty-five (125%)125% of the quarterly target incentive.incentive, with amounts in excess of the cap, up to 200%, payable with the annual payout. The targeted cumulative Adjusted EBITDA metric also serves as a trigger as CPI must achieve the overall Adjusted EBITDA threshold performance in order for any year-end STIP payments to fund.fund.
In 2022, the Compensation Committee approved a 9.5% increase in Mr. Scheirman’s 2022 STIP target (as compared to his 2021 STIP target). Mr. Dubin received an 6.7% increase in his 2022 STIP target (as compared to his 2021 STIP target). Mr. Lowe received a 13.0% increase in his 2022 STIP target (as compared to his 2021 STIP target). Such increases in STIP targets for 2022 increased the portion of our NEOs’ pay which was at-risk and directly tied to Company performance. For the 2022 performance year, our NEOs were eligible to receive the following target bonus opportunities under the 2022 STIP:
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Executive |
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Scott Scheirman | | $ | 1,379,800 |
Lane Dubin | | $ | 407,680 |
John Lowe | | $ | 357,000 |
Despite the significant unforeseen global impact of COVID-19, no adjustments were made to the financial performance targets under our 2020 STIP, and 2020 STIP awards were based on goals established prior to the pandemic. Based on strong Company performance in 2020,2022, our 20202022 STIP paid out at above-target-incentive levels.maximum levels under the plan (i.e., 200% of each NEO’s bonus opportunity). Therefore, Messrs. Scheirman, DiMaggioDubin and Lowe received 20202022 STIP payments of $2,017,714, $508,475,$2,759,600, $815,360, and $481,118, respectively.$714,000, respectively (with payments relating to fourth quarter 2022 and annual 2022 performance made in 2023).
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On October 2, 2020, the Compensation Committee approved long-term incentiveTogether with STIP awards, in the form of RSUs and Retention Awards. The October 2020 RSUs represent our first grant of equity-denominated awards (other than equity awards associated with initial offers of employment) to the NEOs since 2017. Beginning in 2018, the Compensation Committee suspended the use of equity awards because they were viewed as an ineffective compensation vehicle in light of the Company’s stock price and dilutive impact on stockholder value. In addition, based on the Company’s stock volatility and standard methodology for valuing equity awards, the Omnibus Plan lacked a sufficient number of available shares to make market-competitive equity awards. Due to a number of factors, the Compensation Committee delayed requesting stockholder approval of an increase in shares to the Omnibus Plan until this year. See the section “Stockholder Equity Compensation Related Proposals” below for further discussion. As the Company’s performance and stock price have improved, the Compensation Committee supports a return to the market practice of granting equity-based long-term incentive awards to its executives, as evidenced by the award of RSUs as a portion of the long-term incentive equity awards in 2020. We believe such awards promoteare designed to balance the achievement of critical near-term performance objectives with long-term strategic goals and the retention of our high performing executive team,team. We believe such awards also allow us to continue to recruit top-level talent and align compensation with stockholder value, all of which incentivize our executive team to continue improving our business. Generally, long-term incentive equity awards granted by the Company are subject to various conditions, including the executive’s continued service to the Company, time-based vesting conditions, and acceleration of vesting in the event of the executive’s death, termination due to disability or in connection with a change in control of the Company.
TogetherAs discussed above, in connection with STIPthe modification to the executive compensation program in September 2021, awards the RSUs and Retention Awards aregranted at that time were designed to balance the achievementcompensate for 18 months of critical near-term performance objectives with long-term strategic goals and the retention of key executives.
October 2020 Awards
The following table sets forth the details of theequity awards. As a result, in 2022, there were no RSUs and Retention Awardsor Options granted to our NEOs in October 2020:
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| # RSUs | RSU Grant Date | Retention | Aggregate |
Scott Scheirman | 54,757 | $116,085 | $562,215 | $678,300 |
Guy DiMaggio | 13,796 | $29,248 | $141,652 | $170,900 |
John Lowe | 13,126 | $27,827 | $134,773 | $162,600 |
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Stockholder Equity Compensation Related Proposals
The Compensation Committee believes that it is important for the Company to return to a long-term incentive program that consists largely or entirely of equity-based awards. Such an equity-based incentive program would (i) enable the Company to attract and retain a high performing executive team, (ii) incentivize behaviors which support the best interests of the Company and its stockholders, (iii) align business performance with compensation and (iv) be consistent with market practice. Unfortunately, the current limited share availability and Insider equity award limit in the Omnibus Plan do not allow us to return to a market standard equity-based long-term
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incentive program as part of our executive compensation, whichyear is why we are seeking stockholder approval to make additional shares available for award under our Omnibus Plan (see Stockholder Proposal No. 5) and to increase the limit on equity awards that can be made to Insiders (see Stockholder Proposal No. 6).omitted from this proxy statement.
Several key goals guiding our planned transition to an equity-based compensation model include:
The Compensation Committee believes that given improvements in the last few years in business performance and stock price and the executive team’s achievement of key milestones, including the recent refinancing of the Company’s indebtedness, it is in the Company’s and the stockholders’ best interests to begin to transition to a more market competitive equity-based long-term incentive program during 2021.
The Company maintains the CPI Holdings I,Card Group, Inc. 401(k) Plan (the “401(k) Plan”), which is designed to be a qualified defined-contributiondefined contribution plan under the provisions of the Internal Revenue Code, (the “Code”), covering substantially all employees who meet certain eligibility requirements. Under the 401(k) Plan, participants may defer their salary subject to statutory limitations and may direct the contributions among various investment accounts. The Company matches 100% of thea participant’s first 3% of deferrals and 50% of the next 2% of deferrals. The matching contributions are fully vested at the time of the match.
Termination or Change in Control
Pursuant to their respective employment or post-termination arrangements, each of our NEOs ismay be entitled to certain payments and benefits in certain termination situations or upon a change in control. We believe that our severance arrangements would help facilitate an orderly transition in the event of changes in management. For further discussion of severance payments and benefits, see “Employment and Post-Termination Arrangements.”
Additional Compensation Governance Practices
Compensation Risk Assessment
The Compensation Committee regularly reviews the risk associated with the Company’s compensation programs. As part of this process, the Compensation Committee reviewed a comprehensive risk assessment conducted by WTW in 2019 and, at the time, concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. In 2020,2022, the Compensation Committee discussed with WTW the risk assessment of the Company’s executive compensation programs and any year-over-year changes that could impact the risk assessment. The Compensation Committee and WTW concluded that no program changes were implemented in 20202022 that would materially affect the existing risk profile of the Company’s compensation programs,program and that several of our current practices effectively mitigate riskthere were no material risks to the Company’s existing executive compensation program. Accordingly, the Compensation Committee and promote performance.WTW did not recommend any changes the Company’s executive compensation program in 2022 on this basis.
Prohibited TransactionsInsider Trading Policy
In February 2020, theThe Company adopted a Prohibited Transactionsmaintains an Insider Trading Policy, which prohibits CPI officers and directors from purchasing financial instruments and engaging in certain transactions designed to hedge against a decrease in the value of the Company’s securities, including short sales, publicly traded options, hedging and monetization transactions, margin sales, pledges of collateral and standing limit orders.
Clawback Policy
The Company has had an incentive compensation recoupment policy in place since 2016 (the “Clawback Policy”). Under the Clawback Policy, if the Company is required to restate its financial results because of its material noncompliance with any financial reporting requirement under applicable securities laws, the Compensation Committee will review all awards or payments of any form of incentive-based compensation (including cash and equity) made to current and former executive officers of the Company within the three-year period immediately preceding the date on which the Company is required to prepare the restatement. If the Compensation Committee determines that any such incentive awards or payments were based on erroneous data and would have been lower had they been calculated based on the restated results, the Compensation Committee may, to the extent permitted by applicable law, seek to recover, for the benefit of the Company, the difference between the amounts awarded or paid and the amounts that would have been awarded or paid based on the restated results, as determined by the Compensation Committee. These remedies would be in addition to, and not in lieu of, any penalties imposed by law enforcement agencies, regulators or other authorities. For purposes of this policy, “executive officers” of the Company include all persons designated by the Board as Section 16 reporting officers. The Company will review and modify the Clawback Policy as necessary to reflect the final Nasdaq listing rules adopted to implement the compensation recovery requirements under the Dodd-Frank Wall Street Reform Consumer Protection Act.
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Stock Ownership Guidelines
Since 2016, the Company has maintained formal executive stock and independent director stock ownership guidelines that apply to our directors and senior executives, including our NEOs, and our independent directors (“Unaffiliated Directors”) who are not affiliated with Parallel49 Equity, ULC (formerly known as Tricor Pacific Capital and an affiliate of the Tricor Funds (“Parallel49”)).NEOs. The Company did this to further align the interests of our leaders and the UnaffiliatedBoard of Directors with those of our stockholders and further promote our commitment to sound corporate governance.
Under the guidelines, once appointed to their respective role, executives and Unaffiliated Directorsdirectors have up to five years to accumulate shares and share equivalents that have a market value equal to or greater than a prescribed multiple of annual salary or annual retainer fees, as applicablefees. For directors this multiple is five times the cash portion of the annual retainer, for our Chief Executive Officer this multiple is five times base salary, and as outlined below. While our executives and Unaffiliated Directors have until 2021 (or five years from appointment to their position, whicheverfor all other executive officers this multiple is later) to satisfy the applicable share ownership levels, given the historical volatility in the Company’s stock price and the Compensation Committee’s decision not to include equity awards as long-term incentives for 2018 and 2019 and to make limited long-term incentive equity awards in 2020, management and the Compensation Committee have been monitoring progress against these guidelines and will determine an appropriate course of action.two times base salary.
The table below reflects the current ownership guidelines:
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20202022 Summary Compensation Table
The 20202022 Summary Compensation Table discloses the compensation information for fiscal year 20202022 and, to the extent required by applicable SEC disclosure rules, fiscal year 20192022, for ourthe principal executive officer (“PEO”) and theour two other most highly compensated executive officers other than the PEO who were serving as executive officers at the end of the last completed fiscal year.
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| | | | | | | | | | | | | | | | Incentive Plan | | Compensation | | All Other | | | | | | | | | | | | | | | | | | | | Incentive Plan | | Compensation | | All Other | | | | ||||
Name and Principal Position | | Year | | Salary (1) | | Bonus (2) | | Stock Awards(3) | | Option Awards | | Compensation (4) | | Earnings | | Compensation (5) | | Total |
| | Year | | Salary | | Bonus | | Stock Awards(1) | | Option Awards (2) | | Compensation (3) | | Earnings | | Compensation (4) | | Total | ||||||||||||||
Scott Scheirman, President, Chief Executive Officer and Director | | 2020 | | $ | 615,029 | | $ | 562,215 | | $ | 116,085 | | $ | — | | $ | 2,017,714 | | — | | $ | 11,400 | | $ | 3,322,443 | | | 2022 | | $ | 659,634 | | $ | — | | $ | — | | $ | — | | $ | 2,759,600 | $ | — | | $ | 12,200 | | $ | 3,431,434 |
| | 2019 | | $ | 588,270 | | $ | 710,700 | | $ | — | | $ | — | | $ | 1,747,080 | | — | | $ | 4,423 | | $ | 3,050,473 |
| | 2021 | | $ | 609,221 | | $ | — | | $ | 574,835 | | $ | 573,175 | | $ | 2,519,600 | $ | — | | $ | 11,600 | | $ | 4,288,431 |
Guy DiMaggio, SVP and GM, Secure Card |
| 2020 | | $ | 389,423 | | $ | 221,652 | | $ | 29,248 |
| $ | — | | $ | 508,475 |
| — | | $ | 11,400 | | $ | 1,160,198 | | |||||||||||||||||||||||||
Lane Dubin, EVP and Chief Development and Digital Officer (7) |
| 2022 | | $ | 500,486 | | $ | — | | $ | — |
| $ | — | | $ | 815,360 | $ | — | | $ | 12,200 | | $ | 1,328,046 | ||||||||||||||||||||||||||
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| 2019 | | $ | 330,769 | | $ | 305,700 | | $ | — |
| $ | — | | $ | 400,271 |
| — | | $ | 10,700 | | $ | 1,047,440 | |
| 2021 | | $ | 468,113 | | $ | — | | $ | 156,097 |
| $ | 155,644 | | $ | 764,040 | $ | — | | $ | 11,600 | | $ | 1,555,494 |
John Lowe, Chief Financial Officer(6) | | 2020 | | $ | 356,761 | | $ | 254,773 | | $ | 27,827 | | $ | — | | $ | 481,118 | | — | | $ | 11,400 | | $ | 1,131,879 | | |||||||||||||||||||||||||
John Lowe, EVP, End-to-End Solutions |
| 2022 | | $ | 420,000 | | $ | — | | $ | — |
| $ | — | | $ | 714,000 | $ | — | | $ | 12,200 | | $ | 1,146,200 | ||||||||||||||||||||||||||
| | 2021 | | $ | 372,521 | | $ | — | | $ | 142,341 |
| $ | 141,962 | | $ | 631,650 | $ | — | | $ | 2,137 | | $ | 1,290,611 |
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| | Unexercised | | Unexercised | | | Option | | | | Stock that | | Stock that |
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| | Options | | Options | | | Exercise | | Option | | Have Not | | Have Not |
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| | (Exercisable) | | (Unexercisable) | | | Price | | Expiration | | Vested | | Vested |
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Name | | (#) | | (#)(1) | | | ($) | | Date | | (#) (2) | ($) (3) |
| | (#) | | (#)(1) | | | ($) | | Date | | (#) | | ($) (4) | |||
Scott Scheirman |
| 280,000 |
| — | | $ | 5.25 |
| 9/25/2027 |
| 54,757 | | $ | 240,383 | |
| 280,000 |
| — | | $ | 5.25 |
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Guy DiMaggio |
| 16,675 |
| 8,325 |
| $ | 2.11 |
| 8/1/2028 |
| 13,796 | | $ | 60,564 | | ||||||||||||||
| | 16,447 | | 16,446 | | $ | 29.62 | | 9/21/2028 | | 9,703 | (2) | $ | 350,084 | |||||||||||||||
Lane Dubin | | 22,500 | | — | | $ | 27.60 | | 9/1/2026 | | — | | | — | |||||||||||||||
| | 11,885 | | — | | $ | 21.75 | | 3/22/2027 | | — | | | — | |||||||||||||||
| | 25,000 | | — | | $ | 5.25 | | 9/25/2027 | | — | | | — | |||||||||||||||
| | 4,466 | | 4,466 | | $ | 29.62 | | 9/21/2028 | | 2,635 | (2) | $ | 95,071 | |||||||||||||||
John Lowe |
| 50,025 |
| 24,975 |
| $ | 1.98 |
| 7/2/2028 | | 13,126 | | $ | 57,623 | | | 75,000 | | — | | $ | 1.98 | | 7/2/2028 | | — | | | — |
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| 3,942 |
| $ | 29.62 |
| 9/21/2028 |
| 2,326 | (2) | $ | 83,922 | |||||||||||||||
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| 126 |
| $ | 30.53 |
| 10/5/2028 | | 74 | (3) | $ | 2,670 |
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(2) | These RSU awards will vest on September 21, 2023, subject to continued service with the Company through such vesting date. |
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Employment and Post-Termination Arrangements
Mr. Scheirman’s Employment Agreement
On September 25, 2017, Mr. Scheirman entered into an employment and non-competition agreement (the “CEO Employment Agreement”) with the Company to serve as President and Chief Executive Officer, effective October 5,September 25, 2017, for a term ending on March 31, 2021, plus automatic one-year renewals thereafter unless either party provides notice of intent not to renew the agreement. The CEO Employment Agreement provides for an initial base salary of $575,000 per year.
Under the terms of the CEO Employment Agreement, in the event that Mr. Scheirman’s employment is terminated by the Company without Cause, he resigns for Good Reason (each as defined in the CEO Employment Agreement), separates employment due to death or disability or the Company fails to renew his agreement upon its expiration, Mr. Scheirman would be entitled to (i) continued monthly paymentsa severance payment equal to 1.5 times the sum of hisMr. Scheirman’s then-current annual base salary and his annual STIP target bonus for athe year of termination, payable in equal installments during the eighteen (18) month period of eighteen months;following the termination date; (ii) a prorated portion of his STIP bonus based on the number of full months completed during the fiscal year in which such termination of employment occurs and based on final Company performance for the STIP year;year, payable at the same time as annual bonuses become payable to other executive employees; (iii) accelerated vesting of any outstanding equity awards that would have otherwise vested in the next twelve months following the termination (for performance-based awards, vesting will be based on actual performance determined at the end of the performance period); (iv) the cost of COBRAcontinuing health and dental coverage for his health coverageunder the Company’s plans as then in effect, less the employee contribution for an active employee, for the severance period;up to eighteen (18) months; and (v) other than in the case of a termination for death or disability, up to six months of outplacement services. The estimated cash severance payment to Mr. Scheirman on termination, assuming a termination as of December 31, 2020,2022, would have been $2,619,208$3,104,499 (inclusive of $11,682$14,772 in COBRA insurance coverage and outplacement services valued at $15,000) for termination without “Cause,”Cause, for “GoodGood Reason,” for the Company’s failure to renew the agreement, or termination due to his death or disability.
In the event that Mr. Scheirman experiences a termination event as described above within six months prior to or two years following a Change in Control (as defined in the CEO Employment Agreement) of the Company, Mr. Scheirman will receive the benefits described in the foregoing paragraph, except that the severance and COBRA continuation benefits in items (i) and (iv) above would be extended from eighteen to twenty-four months, and his outstanding equity awards would vest in full (with any performance-based awards vesting at the target level of performance). The estimated cash severance payment to Mr. Scheirman on termination in connection with a Change in Control, assuming a termination as of December 31, 2020,2022, would have been $3,487,277$4,134,332 (inclusive of $15,576$19,696 in COBRA insurance coverage and outplacement services valued at $15,000).
Mr. Scheirman is subject to certain restrictive covenants in the CEO Employment Agreement, including obligations regarding non-competitionnoncompetition and non-solicitation of Company employees and customers during the term of his employment and for a period of eighteen months following any termination of his employment with the Company.
Mr. Scheirman, along with the other NEOs and executive officers, participates in the STIP whereby a significant portion of his total compensation is directly tied to Company performance. To further align Mr. Scheirman’s compensation with Company performance, the Company’s Compensation Committee determined in February 2020 that in lieu of a base increase, Mr. Scheirman’s 2020 STIP target would be increased. As a participant in the 2020 STIP, Mr. Scheirman’s 2020 quarterly incentive opportunity was equal to $227,220 per quarter and his annual incentive opportunity was equal to $227,220. Payouts were based on quarterly and annual Company performance goals for 2020. See “Elements of the 2020 Executive Compensation Program – Short-Term Incentives”Dubin’s Employment Agreement for a description of the 2020 STIP.
In October 2019,connection with Mr. Scheirman entered into a retention agreement withDubin’s promotion to Executive Vice President and Chief Development and Digital Officer, the Company pursuant to which Mr. Scheirman was paid $710,700 on October 18, 2019. Mr. Scheirman would have been required to repay that amount, net of taxes, to the Company in the event he voluntarily terminated his employment without “good reason” or the Company terminated his employment for “cause,” in either case before March 15, 2021.
As described above, in October 2020, Mr. Scheirman entered into a retention agreement with the Company pursuant to which he was paid $562,215 on October 22, 2020, and must repay that amount to the Company in the event he voluntarily terminates his employment without “good reason” or the Company terminates his employment for ”cause,” in either case before March 15, 2022.
Mr. DiMaggio’s Employment Offer Letter
Mr. DiMaggio does not have an employment agreement with Mr. Dubin effective December 13, 2022 and ending on June 30, 2024, unless earlier terminated or extended by the Company.parties (the “EVP Employment Agreement”). Under the termsEVP Employment Agreement, in the event of his employment offer letter, he received an initial base salary of $300,000 per year. Mr. DiMaggio’s offer letter also provided for a cash sign-on bonus of $200,000 payable in two installments with $120,000 paid on his one-year anniversary and $80,000 payable on his two-year anniversary. Mr. DiMaggio’s offer letter does not provide for any severance benefits, however, upon a termination of his employment by the Company without Cause (as defined in the EVP Employment Agreement) or by Mr. Dubin (a) for Good Reason or (b) other than for Good Reason (as defined in the EVP Employment Agreement) and effective as of June 30, 2023, December 31, 2023 or June 30, 2024 (each, a “Severance Termination Event”), subject to his execution and delivery of a release of claims, Mr. Dubin will receive (i) severance payments equal to 1.0 times (1.5 times in the case of a Severance Termination Event that occurs within six months prior to or 24 months following a Change in Control of the Company (as defined in the EVP Employment Agreement) the sum of Mr. Dubin’s annual base salary and target bonus for the year of the termination; and (ii) the sum of (y) the Employee’s Quarterly Performance Incentive (as defined in the STIP) for the calendar quarter in which such termination occurs, including any related “catch-up” payment with respect to such quarter as determined in accordance with the STIP and (z) the Annual Performance Incentives determined under the STIP, in each case, based on the Company’s actual performance and pro-rated based on the number of days Mr. Dubin was employed by the Company during such period. Mr. Dubin is also entitled to reimbursement for the cost of up to 18 months of continuation coverage under the Company’s health and welfare plans at active employee rates and six months of outplacement services.
In the case of a termination of employment by the Company without Cause, by Mr. Dubin for Good Reason or by Mr. Dubin other than for Good Reason and effective on or after December 31, 2023, Mr. Dubin is entitled to (1) the continued vesting of any awards granted to Mr. Dubin after December 13, 2022 through the two-year anniversary of the end of the Severance Period (as defined below), and (2) the vested and unexercised portions of any stock option awards held by Mr. Dubin will remain outstanding and exercisable until the earlier of (A) the two-year anniversary of the end of the Severance Period and (B) the original expiration date of the stock option award; and (vi) in the case of a Change in Control, full vesting of his outstanding equity awards, with the performance-based equity awards vesting at the target level of performance. For purposes of the EVP Employment Agreement, “Severance Period” means the shorter of (i) the 12-month period (18-month period in the case of a Severance Termination Event incurred in connection with a change in control) commencing on the date of Mr. Dubin’s termination of employment and (ii) the period commencing on the termination date and ending on the date that Mr.
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Dubin violates the Confidentiality, Trade Secret Protection, Unfair Competition, Non-Solicitation, and Invention Assignment Agreement, by and between Mr. Dubin and CPI Card Group-Colorado, Inc., effective as of April 8, 2019 (the “Confidentiality Agreement”). The EVP Employment Agreement extended the restricted period under the Confidentiality Agreement to a period of two years following the cessation of Mr. Dubin’s employment. The Company has the right pursuant to the EVP Employment Agreement to terminate Mr. Dubin’s employment other than for cause upon 60 calendar days written notice; provided that (i) any such termination which would be effective after June 30, 2023 but before December 31, 2023 will be deemed effective as of December 31, 2020,2023, and (ii) any such termination which would otherwise be effective after December 31, 2023 and before June 30, 2024 will be deemed effective as of June 30, 2024.
The estimated cash severance payment to Mr. DiMaggioDubin on termination, assuming a termination as of December 31, 2022, would have been eligible to receive an estimated $672,116 in cash severance$948,716 (inclusive of $7,116$22,197 in COBRA insurance coverage and outplacement services valued at $15,000) upon afor termination without “cause”Cause, for Good Reason, for the Company’s failure to renew the agreement, or for “good reason,” pursuanttermination due to our Executive Severance Guidelines, as summarized below. Also, pursuant to the Executive Severance Guidelines, thehis death or disability and, in each case, not in connection with a Change in Control.
The estimated cash severance payment to Mr. DiMaggioDubin on termination in connection with a Change in Control, (as defined in the Omnibus Plan), assuming a termination as of December 31, 2020,2022, would have been $997,116$1,404,476 (inclusive of $7,116$22,197 in COBRA insurance coverage and outplacement services valued at $15,000).
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Mr. DiMaggio, along with the other NEOs and executive officers, participates in the STIP whereby a significant portion of his total compensation is directly tied to Company performance. As a participant in the 2020 STIP, Mr. DiMaggio’s 2020 quarterly incentive opportunity was equal to $55,000 per quarter and his annual incentive opportunity was equal to $55,000. Payouts were based on quarterly and annual Company performance goals for 2020. See “Elements of the 2020 Executive Compensation Program – Short-Term Incentives” for a description of the 2020 STIP.
In September 2019, Mr. DiMaggio entered into a retention agreement with the Company pursuant to which Mr. DiMaggio was paid $185,700 in 2019. Mr. DiMaggio would have been required to repay that amount, net of taxes, to the Company in the event he voluntarily terminated his employment without “good reason” or the Company terminated his employment for “cause,” in either case before March 15, 2021.
As discussed above, in October 2020, Mr. DiMaggio entered into a retention agreement with the Company pursuant to which Mr. DiMaggio was paid $141,652 on October 22, 2020, and must repay that amount to the Company in the event he voluntarily terminates his employment without “good reason” or the Company terminates his employment for “cause,” in either case before March 15, 2022.
Mr. Lowe’s Employment Offer Letter
Mr. Lowe does not have an employment agreement with the Company. Under the terms of hisThe employment offer letter he receivedbetween Mr. Lowe and the Company dated October 1, 2021 from his transition from Chief Financial Officer to the position of Senior Vice President & General Manager, Secure Card, remains in effect. This offer letter provides for an initialannual base salary as well as eligibility for the Company’s STIP and eligibility to receive long-term incentives under the Omnibus Incentive Plan. In connection with his promotion to Executive Vice President, End-to End Solutions in December 2022, Mr. Lowe received a commensurate increase in base salary and incentives effective as of $325,000 per year. Mr. Lowe’s offer letter also provided for a cash sign-on bonus of $200,000 payable in two installments with $80,000 paid on or about December 31, 2018 and $120,000 payable on his two-year anniversary. January 1, 2023.
Mr. Lowe’s offer letter does not provide for any severance benefits, however, upon a termination of his employment as of December 31, 2020,2022, Mr. Lowe would have been eligible to receive an estimated $650,528$814,197 in cash severance (inclusive of $17,407$22,197 in COBRA insurance coverage and outplacement services valued at $15,000) upon a termination without “cause” or for “good reason” pursuant to our Executive Severance Guidelines, as summarized below. Also, pursuant to the Executive Severance Guidelines, the estimated cash severance payment to Mr. Lowe on termination in connection with a Change“change in Controlcontrol” (as defined in the Omnibus Plan)Executive Severance Guidelines), assuming a termination as of December 31, 2020,2022, would have been $959,589$1,202,697 (inclusive of $17,407$22,197 in COBRA insurance coverage and outplacement services valued at $15,000).
Mr. Lowe, along with the other NEOs and executive officers, participates in the STIP whereby a significant portion of his total compensation is directly tied to Company performance. As a participant in the 2020 STIP, Mr. Lowe’s 2020 quarterly incentive opportunity was equal to $54,180 per quarter and his annual incentive opportunity was equal to $54,180. Payouts were based on quarterly and annual Company performance goals for 2020. See “Elements of the 2020 Executive Compensation Program – Short-Term Incentives” for a description of the STIP.
In September 2019, Mr. Lowe entered into a retention agreement with the Company pursuant to which Mr. Lowe was paid $180,300. Mr. Lowe would have been required to repay that amount, net of taxes, to the Company in the event he voluntarily terminated his employment without “good reason” or the Company terminated his employment for “cause,” in either case before March 15, 2021.
As discussed above, in October 2020, Mr. Lowe entered into a retention agreement with the Company pursuant to which Mr. Lowe was paid $134,773 on October 22, 2020, and must repay that amount to the Company in the event he voluntarily terminates his employment without “good reason” or the Company terminates his employment for “cause,” in either case before March 15, 2022.
Executive Severance Guidelines
On June 22, 2017, the Company adopted guidelines governing executive severance (“Executive Severance Guidelines”), applicable to executive officers and NEOs of the Company who are not otherwise parties to individual employment or severance agreements providing for benefits upon a termination of employment. Under the Executive Severance Guidelines, if the employment of an eligible officer is terminated without “cause” or due to a resignation for “good reason,” not in connection with a “change in control” (each as defined in the Executive Severance Guidelines) and subject to the execution, delivery and non-revocation of a release of claims, he or she would be eligible to receive cash severance equal to one times the sum of his or her base salary plus annual bonus target (or 1.5 times the sum of base salary and annual bonus target for a CEO participant). For such a termination occurring within the 24 months following a change in control of the Company, the applicable severance multiple would be increased to 1.5 times for all other eligible officers (or 2.0 times for a CEO participant). In addition, the Company would continue to pay a portion of the cost of medical, dental and vision benefits on behalf of an eligible officer, such that the officer’s contribution would remain as it were for an active officer, for the greater of the severance period or such officer’s eligibility for COBRA continuation coverage, and the Company may provide, in its discretion, up to six months of outplacement services. Each of Messrs. DiMaggio andMr. Lowe areis subject to the Executive Severance Guidelines, while Mr.Messrs. Scheirman isand Dubin are excluded from the Executive Severance Guidelines due to the severance provisions in the CEOtheir respective Employment Agreement.Agreements.
Pay vs. Performance
| | | | | | |
| | | | | Value of Initial Fixed $100 |
|
| Summary | Compensation | Average Summary | Average Compensation | Investment Based On: | |
| Compensation Table | Actually Paid | Compensation Table Total | Actually Paid | Total | Net Income |
Year (1) | Total for PEO ($) (2) | to PEO ($) (3) | for Non-PEO NEOs ($) (2) | for Non-PEO NEOs ($) (3) | Shareholder Return ($) (4) | (in thousands) ($) |
2022 | 3,431,434 | 3,621,040 | 1,237,123 | 1,286,687 | 821.87 | 36,540 |
2021 | 4,288,431 | 4,565,532 | 1,423,053 | 1,672,791 | 422.55 | 15,941 |
(1) | Scott Scheirman served as the Company’s PEO and Lane Dubin and John Lowe served as the other NEOs for the entirety of 2022 and 2021. |
(3) | To calculate “Compensation Actually Paid” (“CAP”), adjustments were made to the amounts reported in the Summary Compensation Table for the applicable year. A reconciliation of the adjustments for Mr. Scheirman and for the average of the other NEOs is set forth following the footnotes to this table.* |
25
(4) | Pursuant to rules of the SEC, the comparison assumes $100 was invested on December 31, 2020 in our common stock. Historic stock price performance is not necessarily indicative of future stock price performance. |
*Compensation Actually Paid (“CAP”) Adjustments (see FN 3 above)
| | | | | | | | |
| | Minus | Plus | Plus (Minus) | Plus | Plus (Minus) | Minus | Equals |
| | | | | | Change in Fair | | |
| | | | | | Value as of | | |
| | | | | | Vesting Date of | Fair Value as | |
| | | | | | Stock Option and | of Prior Fiscal | |
| | | Fair Value at | Change in Fair | Fair Value at | Stock Awards | Year-End of Stock | |
| | Grant Date | Fiscal Year-End | Value of | Vesting of Stock | Granted in | Option and Stock Awards | |
| | Fair Value of | of Outstanding and | Outstanding and | Option and Stock | Prior Fiscal Years | Granted in Prior | |
| | Stock Option | Unvested Stock | Unvested Stock | Awards Granted | for which Applicable | Fiscal Years that | |
| | and Stock | Option and Stock | Option and Stock | in Fiscal Year | Vesting Conditions | Failed to Meet | |
| Summary | Awards Granted | Awards Granted | Awards Granted | that Vested | Were Satisfied | Applicable Vesting | |
| Compensation Table | in Fiscal | in Fiscal | in Prior Fiscal | During Fiscal | During Fiscal | Conditions During | Compensation |
Year | Total ($) (a) | Year ($) (b) | Year ($) (c) | Years ($) (d) | Year ($) (e) | Year ($) (f) | Fiscal Year ($) (g) | Actually Paid ($) |
Scott Scheirman | ||||||||
2022 | 3,431,434 | - | - | 321,862 | - | (132,256) | - | 3,621,040 |
2021 | 4,288,431 | (1,148,010) | 649,752 | 775,359 | - | - | - | 4,565,532 |
Average Other NEOs(h) | ||||||||
2022 | 1,237,123 | - | - | 83,413 | - | (33,849) | - | 1,286,687 |
2021 | 1,423,053 | (298,022) | 168,734 | 198,212 | - | 180,814 | - | 1,672,791 |
(a) | Represents Total Compensation as reported in the Summary Compensation Table for the indicated fiscal year. With respect to the other NEOs, amounts shown represent averages. |
(b) | Represents the grant date fair value of the stock option and stock awards granted during the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes. |
(c) | Represents the grant date fair value of the stock option and stock awards granted during the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes. |
(d) | Represents the change in fair value during the indicated fiscal year of each option award and stock award that was granted in a prior fiscal year and that remained outstanding and unvested as of the last day of the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes and, for awards subject to performance-based vesting conditions, based on the probable outcome of such performance-based vesting conditions as of the last day of the fiscal year. |
(e) | Represents the fair value at vesting of the option awards and stock awards that were granted and vested during the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes. |
(f) | Represents the change in fair value, measured from the prior fiscal year-end to the vesting date, of each option award and stock award that was granted in a prior fiscal year and which vested during the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes. |
(g) | Represents the fair value as of the last day of the prior fiscal year of the option award and stock awards that were granted in a prior fiscal year and which failed to meet the applicable vesting conditions in the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes. |
(h) | See footnote 1 above for the NEOs included in the average for each year. |
2826
Relationship Between Pay and Performance
We believe the CAP in each of the years reported above and over the two-year cumulative period are reflective of the Compensation Committee’s emphasis on “pay-for-performance” as the CAP amount captures the maximum amounts awarded under the STIP that related to the Company’s outstanding financial performance in each year as demonstrated in the chart below. The total CAP amounts for each of the PEO and NEOs fluctuated year-over-year, primarily due to no equity awards being granted in 2022, as the equity awards granted in 2021 were designed to compensate for an 18-month period.
Equity Compensation Plan Information Table
The following table provides information as of December 31, 20202022 with respect to shares of our common stock that may be issued under our existing equity compensation plan.
| | | | | | | | | | | | | |
|
| |
| |
| Number of securities |
|
| |
| |
| Number of securities |
| | | | | | remaining available for |
| | | | | | remaining available for |
| | | | | | future issuance under |
| | | | | | future issuance under |
| | Number of securities to | | Weighted average | | equity compensation |
| | Number of securities to | | Weighted average | | equity compensation |
| | be issued upon exercise | | exercise price of | | plans (excluding |
| | be issued upon exercise | | exercise price of | | plans (excluding |
| | of outstanding options, | | outstanding options, | | securities reflected in |
| | of outstanding Options, | | outstanding Options, | | securities reflected in |
| | warrants and rights | | warrants and rights | | column (a)) |
| | warrants and rights | | warrants and rights | | column (a)) |
| | (a) (#) | | (b) ($) | | (c) (#) |
| | (a) (#) | | (b) ($) | | (c) (#) |
Equity compensation plans approved by security holders (1) |
| 886,373 | (2) | 6.44 | (2) | 185,113 | (3) |
| 879,287 | (2) | 18.12 | (2) | 944,123 |
Equity compensation plans not approved by security holders |
| — | | – | | – | |
| — | | — | | — |
Total |
| 886,373 | | 6.44 | | 185,113 | |
| 879,287 | | | | 944,123 |
(1) |
| |
|
| All current equity compensation plans have been approved by stockholders. |
(2) |
| Consists of (i) |
|
|
|
27
This report of the Audit Committee is required by the SEC and, in accordance with the SEC’s rules, will not be deemed to be part of or incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or under the Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and will not otherwise be deemed “soliciting material” or “filed” under either the Securities Act or the Exchange Act.
The principal purpose of the Audit Committee is to assist the Board in its oversight of (i) the integrity of our accounting and financial reporting processes and the audits of our consolidated financial statements; (ii) our system of disclosure controls and internal controlscontrol over financial reporting; (iii) our compliance with legal and regulatory requirements; (iv) the qualifications and independence of our independent auditor; (v) the performance of our independent auditor; and (vi) the business practices and ethical standards of the Company. The Audit Committee is responsible for the appointment, compensation, retention and oversight of work of the Company’s independent auditor. The Audit Committee’s function is more fully described in its charter.
Our management is responsible for the preparation, presentation and integrity of our consolidated financial statements, for the appropriateness of the accounting principles and reporting policies that we use and for establishing and maintaining adequate internal control over financial reporting. KPMG LLP (“KPMG”), our independent registered public accounting firm for 2020,2022, was responsible for performing an independent audit of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020,2022, and expressing an opinion on the conformity of those financial statements with generally accepted accounting principles.
KPMG was also responsible for expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
The Audit Committee has reviewed and discussed with management our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.2022. The Audit Committee has also reviewed and discussed with KPMG the audited consolidated financial statements in such Form 10-K. In addition, the Audit Committee discussed with KPMG those matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (the “PCAOB”) and the SEC. Additionally, KPMG provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding KPMG’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with KPMG its independence from the Company.
Based upon the review and discussions described above, the Audit Committee recommended to the Board that CPI’s audited consolidated financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 20202022 for filing with the SEC.
Robert Pearce, ChairmanAudit Committee:
Marc Sheinbaum, Chair
Thomas Furey
Valerie Soranno Keating
29
FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
For the years ended December 31, 20202022 and 2019,2021, KPMG, LLP, our independent registered public accounting firm, billed the approximate fees set forth below:
| | | | | | | | | | | | | |
|
| 2020 |
| 2019 |
|
| 2022 |
| 2021 | ||||
Audit fees(1) | | $ | 975,943 | | $ | 733,326 | | | $ | 1,545,878 | | $ | 1,761,000 |
Audit-related fees(2) | |
| — | |
| — | | |
| — | |
| — |
Tax fees (3) | | | 246,500 | | | 269,425 | | | | 270,971 | | | 141,157 |
All other fees(4) | |
| — | |
| — | | |
| — | |
| — |
Total fees | | $ | 1,222,443 | | $ | 1,002,751 | | | $ | 1,816,849 | | $ | 1,902,157 |
|
| ||
|
|
| Audit fees relate to (i) the audit of our annual consolidated financial statements as of and for the years ended December 31, |
|
|
| These services include attest services related to financial reporting that are not required by statute or regulation. |
|
|
| For the years ended December 31, |
28
|
|
| This category includes fees for services that are not included in the above categories. |
The Audit Committee has adopted certain policies and procedures regarding permitted audit and non-audit services and the pre-approval of such services. Each year, the Audit Committee will ratify the types of audit and non-audit services of which management may wish to avail itself, subject to pre-approval of specific services. Each year, the independent registered public accounting firm will submit a pre-approval request, which will list each known and/or anticipated audit and non-audit service for the upcoming calendar year and which will include associated budgeted fees. The Audit Committee will review the requests and approve a list of annual pre-approved non-audit services. Any additional interim requests for additional non-audit services that were not contained in the annual pre-approval request are pre-approved by the Audit Committee.
All services provided by KPMG LLP during the fiscal year ended December 31, 20202022 and 20192021 were pre-approved by the Audit Committee.
3029
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has appointed KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2021.2023. A proposal will be presented at the Annual Meeting to ratify this appointment. If the stockholders fail to ratify such selection, another independent registered public accounting firm will be considered by our Audit Committee, but the Audit Committee may nonetheless choose to engage KPMG LLP. Even if the appointment of KPMG LLP is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.We have been advised that a representative of KPMG LLP will be present at the Annual Meeting and will be available to respond to appropriate questions and, if such person chooses to do so, make a statement.
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THE BOARD OF DIRECTORS AND THE AUDIT COMMITTEE UNANIMOUSLY RECOMMEND A VOTE FOR RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2023.
3130
STOCKHOLDER ADVISORY VOTE TO APPROVE OUR namedNAMED EXECUTIVE officerOFFICER COMPENSATION
We are offering our stockholders an opportunity to cast an advisory vote to approve the compensation of our NEOs, as disclosed in this proxy statement, pursuant to Section 14A of the Exchange Act (commonly referred to as a “say-on-pay” vote). The advisory vote to approve executive compensation is not a vote on the Company’s general compensation policies or the compensation of the Company’s Board of Directors.
In making decisions with respect to compensation for our NEOs, the Compensation Committee is guided by a pay-for-performance philosophy. The Compensation Committee believes that a significant portion of each NEO’s total compensation opportunity should vary with achievement of the Company’s annual and long-term financial, operational and strategic goals. In designing the compensation program for our NEOs, the Compensation Committee seeks to achieve the following key objectives:
Motivate Executives. The compensation program should encourage our executive officers to achieve the Company’s annual and long-term goals.
Align Interests with Stockholders. The compensation program should align the interests of our executive officers with those of our stockholders, promoting actions that will have a positive impact on total stockholder return over the long term.
Attract and Retain Talented Executives. The compensation program should provide each executive officer with a total compensation opportunity that is market competitive. This objective is intended to ensure that we are able to attract and retain qualified executives while maintaining an appropriate cost structure for the Company.
We believe our executive compensation is structured in the manner that best serves the interests of the Company and its stockholders. We encourage stockholders to review the “EXECUTIVE COMPENSATION”“Executive Compensation” section above for a complete discussion of how we determine the pay for our NEOs as well as key accomplishments the executive team achieved during 2020.
2022.
Accordingly, we are asking stockholders to approve the following advisory resolution at the Annual Meeting:
RESOLVED, that the stockholders of the Company approve, on an advisory and non-binding basis, the compensation of the Company’s named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission,, including the Executive Compensation section, the compensation tables and any related material disclosed in this proxy statement.”
As an advisory vote, this resolution is not binding on us. However, the Compensation Committee, which is responsible for designing and administering our executive compensation program, values the opinions expressed by our stockholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for our NEOs. We expect to hold this vote on an annual basis for the foreseeable future.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL, ON AN ADVISORY BASIS, OF OUR NAMED EXECUTIVE OFFICER COMPENSATION AS DISCLOSED IN THIS PROXY STATEMENT.
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3231
PROPOSAL NO. 4 APPROVAL OF AN AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO REFLECT NEW DELAWARE LAW PROVISIONS REGARDING OFFICER EXCULPATION
STOCKHOLDER ADVISORY VOTE onAfter careful consideration, the frequencyBoard has unanimously adopted, and recommends that our stockholders approve, an amendment to our Fourth Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to provide for the elimination or limitation of monetary liability of certain officers of the stockholder vote on named executive officer compensationCompany for certain actions (the “Proposed Amendment”). The Certificate of Incorporation currently limits the monetary liability of our directors in certain circumstances pursuant to, and consistent with, Section 102(b)(7) of the Delaware General Corporation Law (the “DGCL”). Effective August 1, 2022, Section 102(b)(7) of the DGCL was amended to permit a corporation’s certificate of incorporation to include a provision eliminating or limiting monetary liability for certain senior corporate officers for certain breach of fiduciary duty actions.
PursuantThe Proposed Amendment
In light of this amendment to Section 14the DGCL, we are proposing to amend the Certificate of Incorporation to add a provision exculpating certain of the Exchange Act, we are offering our stockholders an opportunity to cast an advisory vote on the frequencyCompany’s officers from liability in specific circumstances, as permitted by Delaware law. As amended, Section 102(b)(7) of the non-binding stockholder advisory voteDGCL only permits, and our Proposed Amendment would only permit, exculpation for direct claims (as opposed to approve NEO compensation. The options are to hold the advisory vote to approve NEO compensation every year, every two years or every three years. This advisory votederivative claims made by stockholders on the frequencybehalf of the “say-on-pay” voteCompany) and would not apply to breaches of the duty of loyalty, acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, or any transaction in which the officer derived an improper personal benefit. The rationale for so limiting the scope of liability is required to strike a balance between stockholders’ interest in accountability and their interest in the Company being able to attract and retain talented officers to work on its behalf.
If stockholders approve this amendment, the first paragraph of Article SIXTH of the Certificate of Incorporation would be held at least once every six years.revised as follows (new text is double underlined, deleted text is stricken):
The personal liability of the directors and officers of the Corporation is hereby eliminated to the fullest extent permitted by Section 102(b)(7) of the DGCL. Without limiting the generality of the foregoing, a director or officer shall, to the fullest extent permitted by the DGCL as it now exists or as it may hereafter be amended, not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except foror officer, provided that this paragraph shall not eliminate or limit the liability of (i) a director or officer for any breach of the director’s or officer’s duty of loyalty to the Corporation or its stockholders, (ii) a director or officer for acts or omissions not in good faith or thatwhich involve intentional misconduct or a knowing violation of law, or (iii) a director under Section 174 of the DGCL, (iv) a director or officer for any transaction from which the director or officer derived any improper personal benefit or (v) an officer in any action by or in the right of the Corporation. If the DGCL is amended, after approval by the stockholders of this Article SIXTH, to authorize corporate action to further eliminate or limit the personal liability of directors or officers, then the liability of a director or officer of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
Purpose and Effect of the Proposed Amendment
The Board of Directorsbelieves that there is recommending that the frequencya need for directors and officers to remain free of the stockholder advisory vote on NEO compensationrisk of financial ruin as a result of an unintentional misstep. Therefore, taking into account the narrow class and type of claims for which officers’ liability would be every year. This recommendation reflects our commitmentexculpated, and the benefits the Board believes would accrue to strong corporate governancethe Company and accountabilityits stockholders in the form of an enhanced ability to our stockholders. We believe holding an annual advisory vote will foster usefulattract and frequent communication with our stockholders by allowingretain talented officers, the Board determined that it is in the best interests of the Company and our stockholders to annually express their views onamend the Company’s NEO compensation practices and programs.Certificate of Incorporation as described herein.
As an advisory vote,Effect of Approval
If stockholders approve the outcomeProposed Amendment, we will file with the Secretary of State of the vote on this resolution is not binding onState of Delaware a Certificate of Amendment to the Company. However,Certificate of Incorporation setting forth the Board of Directors valuesProposed Amendment, shortly following the opinions expressed by our stockholders, andAnnual Meeting. The Proposed Amendment will take into considerationbecome legally effective upon the outcomefiling of the vote when determiningCertificate of Amendment with the frequencySecretary of State of the stockholder advisory vote on NEO compensation.State of Delaware.
While the Board of Directors recommends an annual advisory vote to approve NEO compensation, the proxy card provides stockholders with four choices with respect to this proposal: (1) one year; (2) two years; (3) three years; or (4) abstaining from voting on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL, OF THE AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO REFLECT NEW DELAWARE LAW PROVISIONS REGARDING OFFICER EXCULPATION.
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3332
APPROVAL OF AN AMENDMENT AND RESTATEMENT OF THE CPI CARD GROUP INC. OMNIBUS INCENTIVE PLAN TO INCREASE THE AVAILABLE SHARES AND MAKE OTHER ADMINISTRATIVE CHANGES
The Board and management believe it is important that an amendment and restatement (the “Amended and Restated Omnibus Plan”) of the Omnibus Plan be approved at the Annual Meeting.
As of the Record Date, there were approximately 185,113 shares of Company common stock that remained available for future issuances under the Omnibus Plan (representing 1.6% of the Company’s issued and outstanding common stock). Given the limited number of shares that currently remain available under the Omnibus Plan, the Board and management believe it is important to increase the available shares under the Omnibus Plan by one million shares in order to allow the Company to continue to be able to make awards of long-term incentives, which we believe are critical for attracting, motivating, rewarding and retaining a talented management team that will contribute to our success. These incentives are also deemed critical in aligning compensation with stockholder returns. As of the Record Date, the number of shares issuable under the Omnibus Plan is 1,200,000 shares, representing 10.7% of the Company’s issued and outstanding common stock. If the Amended and Restated Omnibus Plan is approved, the number of shares issuable under the Amended and Restated Omnibus Plan will be 2,200,000, representing 19.6% of the Company’s issued and outstanding common stock as of the Record Date. See the section below “Historical Equity Awards” for additional measurements of stockholder dilution and Omnibus Plan overhang. The Amended and Restated Omnibus Plan would also extend the term of the Omnibus Plan from September 25, 2027 to May 27, 2031, limit the number of shares subject to options and SARs granted during any fiscal year to any participant to 1,500,000 and make certain other administrative changes, such as the deletion of the provisions previously included to comply with the performance-based compensation exemption under Section 162(m) of the Code.
At the Annual Meeting, stockholders are also being asked to increase the cap on awards that may be granted to “Insiders” of the Company, as defined in the TSX Company Manual for the purpose of security-based compensation arrangements. Under the TSX Company Manual, “Insiders” consist of our corporate officers, executive officers, directors and the Tricor Funds. Under the TSX Company Manual, because such Insiders have an interest in the proposal to increase the award cap, Insiders are prohibited from voting on such proposal. Accordingly, the proposal to increase the award cap is being presented to stockholders separately as Proposal No. 6 and the approval of this Proposal No. 5 will not constitute an approval of Proposal No. 6 with respect to the increase in the award cap for Insider awards. Please see Proposal No. 6 for further information regarding the increase in the Insider award cap.
Historical Equity Awards
The following table sets forth the number of restricted stock units and stock options that have been granted under the Omnibus Plan to NEOs and the other individuals and groups indicated since the inception of the Omnibus Plan.
| | |
| Restricted | Stock |
Name and Position | Stock Units | Options |
Scott Scheirman, President, Chief Executive Officer | 60,998 (1) | 280,000 |
Guy DiMaggio, SVP and GM, Secure Card | 13,796 | 25,000 |
John Lowe, Chief Financial Officer | 13,126 | 75,000 |
All current executive officers(2) | 133,454 | 482,300 |
All current non-employee directors | 45,408 | — |
All current employees (other than current executive officers) | 75,684 | 224,072 |
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As of the Record Date, 180,001 restricted stock units and 706,372 stock options are currently issued and outstanding under the Omnibus Plan, which underlying shares of Company common stock represent approximately 7.9% of the Company’s issued and outstanding common stock.
The following table summarizes the utilization rate (being the total number of restricted stock units and stock options granted under the Omnibus Incentive Plan during the applicable fiscal year divided by the weighted average number of shares of Company common stock outstanding for the applicable fiscal year) in respect of the Omnibus Plan for the past three years:
Fiscal Year | RSUs Utilization Rate | Stock Options Utilization Rate |
2020 | 1.6% | 0% |
2019 | 0% | 0% |
2018 | 0.7% | 1.4% |
34
A common measure of equity plan stockholder dilution is the overhang rate, which is calculated as the sum of (i) the total outstanding awards plus (ii) the shares available for award, divided by the sum of (x) the total outstanding awards plus (y) the shares available for award plus the total shares of outstanding company stock. The Omnibus Plan overhang rate as of the Record Date is 8.7%. The overhang rate under the Amended and Restated Omnibus Plan would be 15.6%, inclusive of the additional one million share increase proposal.
Description of the Amended and Restated Omnibus Plan
We originally adopted the Omnibus Plan in connection with our initial public offering, pursuant to which cash and equity-based incentives (including through an annual incentive program) may be granted to participating employees, directors and consultants. The principal purposes of the Amended and Restated Omnibus Plan are to encourage profitability and growth through short-term and long-term incentives that are consistent with our objectives; to give participants an incentive for excellence in individual performance; to promote teamwork among participants; and to give us a significant advantage in attracting and retaining key employees, directors and consultants. The Amended and Restated Omnibus Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Code, nonqualified stock options, stock appreciation rights (“SARs”), restricted shares, restricted stock units, performance-based awards (including performance shares, performance units and performance bonus awards), and other stock or cash-based awards.
A summary of the Amended and Restated Omnibus Plan is set forth below. This summary of the Amended and Restated Omnibus Plan is qualified by reference to the full text of the Amended and Restated Omnibus Plan, which has been included as Annex B and is incorporated by reference herein.
Administration. The Amended and Restated Omnibus Plan is administered by the Board or by a committee that the Board designates for this purpose (referred to below as the plan administrator). Currently, the Compensation Committee of the Board administers the Omnibus Plan. The plan administrator has the power to determine the terms of the awards granted under the Amended and Restated Omnibus Plan, including the exercise price, the number of shares subject to each award, and the exercisability of the awards. The plan administrator also has the full power to determine the persons to whom and the time or times at which awards will be made and to make all other determinations and take all other actions advisable for the administration of the Amended and Restated Omnibus Plan.
Eligibility for Participation. Certain employees, consultants, and directors are eligible to be granted awards under the Amended and Restated Omnibus Plan, other than incentive stock options, which may be granted only to employees. As of April 9, 2021, all of our approximately 1,000 employees, including eight executive officers and five non-employee directors, would have been eligible to receive awards under the Amended and Restated Omnibus Plan if selected by the plan administrator for participation; however, consistent with market practices, we have historically limited awards under the Omnibus Plan to our executive officers, non-employee directors and senior levels of Company management.
Shares Available for Awards. Subject to capitalization adjustments as provided in the Amended and Restated Omnibus Plan, the number of shares of the Company's common stock reserved and available for issuance thereunder is the sum of (i) 1,200,000 shares, consisting of 800,000 shares originally reserved under the Omnibus Plan as of October 8, 2015, the date of the effectiveness of the registration statement for the Company's initial public offering, and 400,000 additional shares originally reserved under the Omnibus Plan as of September 25, 2017, less any shares issued under the Omnibus Plan on or prior to, or subject to outstanding awards as of, the date of the Board's adoption of the Amended and Restated Omnibus Plan, plus (ii) an additional 1,000,000 shares to be added to the share reserve if this Amended and Restated Omnibus Plan is approved by stockholders. Under the Omnibus Plan, 400,000 shares may be issued subject to incentive stock option awards. As of the Record Date, the number of shares issuable under the Omnibus Plan is 1,200,000 shares, representing 10.7% of the Company’s issued and outstanding common stock. If the Amended and Restated Omnibus Plan is approved, the number of shares issuable under the Amended and Restated Omnibus Plan will be 2,200,000, representing 19.6% of the Company’s issued and outstanding common stock as of the Record Date. See the section above “Historical Equity Awards” for additional measurements of stockholder dilution and Omnibus Plan overhang. The closing price of a share of Company common stock on the Record Date was $14.75 per share, as reported on the OTC Markets Group Inc.
Award Limits. The maximum number of shares issuable pursuant to awards under the Amended and Restated Omnibus Plan and any other share compensation arrangement we maintain within a one-year period to any one participant in the Amended and Restated Omnibus Plan, will not exceed 5% of the total number of issued and outstanding shares of our common stock on the grant date of such awards, on a non-diluted basis. The maximum number of shares that may be issued to all Insiders (as defined in the Toronto Stock Exchange Company Manual for the purpose of security-based compensation arrangements) within any one-year period, and issuable to Insiders at any point in time under the Amended and Restated Omnibus Plan and any other share compensation arrangement we maintain will not exceed 10% of the total number of then-issued and outstanding shares of our common stock, increased to 15% if Proposal No. 6 is approved by our disinterested stockholders at the Annual Meeting. In addition, subject to the foregoing limits, the aggregate number of shares subject to options and SARs granted during any fiscal year to any participant shall not exceed, subject to capitalization adjustments as provided in the Amended and Restated Omnibus Plan, one and a half million (1,500,000) shares.Under the terms of the Amended and Restated Omnibus Plan, the aggregate grant date fair market value of shares subject to awards granted during any fiscal year to any non-employee director, when taken together with any cash fees paid to such non-employee director during the fiscal year (in each case, with respect to his or her service as a non-employee director), will not exceed $500,000; provided, however, that this limit will not apply to any awards a non-employee director elects to receive at fair market value in lieu of all or a portion of such non-employee director’s compensation.
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Stock Options. Under the Amended and Restated Omnibus Plan, the plan administrator may grant participants incentive stock options, which qualify for special tax treatment in the United States, as well as non-qualified stock options. The plan administrator will establish the duration of each option at the time it is granted, with a maximum duration of 10 years from the grant date, reduced to five years in the case of an incentive stock option granted to a ten percent (10%) stockholder of the Company’s common stock (within the meaning of Code Section 422(b)(6)). Each option’s term is subject to earlier expiration pursuant to the applicable provisions in the Amended and Restated Omnibus Plan and the award agreement. The plan administrator may also establish vesting performance requirements that must be met prior to the exercise of options. If on the date an outstanding option would expire, the exercise of the option would violate applicable securities laws or any insider trading policy maintained by the Company, the expiration date applicable to the option will be extended (except to the extent that such extension would violate Section 409A of the Code), to a date that is 30 calendar days after the date that the exercise of the option would no longer violate applicable securities laws or any such insider trading policy.
Stock option grants must have an exercise price that is equal to or greater than the fair market value of our common stock on the date of grant. Stock option grants may include provisions that permit the option holder to exercise all or part of the holder's vested options, or to satisfy withholding tax liabilities, by tendering shares of our common stock already owned by the option holder with a fair market value equal to the exercise price.
Unless the applicable award agreement provides otherwise, in the event that the employment or service of a participant with the Company and all affiliates thereof terminates for any reason other than cause, retirement, disability, or death, (i) options granted to such participant, to the extent that they are exercisable at the time of such termination, will remain exercisable until the date that is ninety (90) days after such termination, on which date they will expire, and (ii) options granted to such participant, to the extent that they were not exercisable at the time of such termination, will expire at the close of business on the date of such termination. Unless the applicable award agreement provides otherwise, the ninety (90) day period post-termination exercise period will be extended to one (1) year after the date of such termination in the event of the participant’s death during such ninety (90) day period. Unless the applicable award agreement provides otherwise, in the event that the employment or service of a participant with the Company and all affiliates thereof terminates on account of retirement, disability or the death of the participant, (i) options granted to such participant, to the extent that they were exercisable at the time of such termination, will remain exercisable until the date that is one (1) year after such termination, on which date they will expire and (ii) options granted to such participant, to the extent that they were not exercisable at the time of such termination, will expire at the close of business on the date of such termination. In the event of the termination of a participant’s employment or service for cause, all outstanding options granted to such participant will expire at the commencement of business on the date of such termination.
SARs. The plan administrator may also grant SARs, which will be exercisable upon the occurrence of certain contingent events. SARs entitle the holder upon exercise to receive an amount in any combination of cash and shares of the Company's common stock (as determined by the plan administrator) equal in value to the excess of the fair market value of the shares covered by the SARs on the date of exercise over the exercise price of the right. Any SAR must be granted with an exercise price that is equal to or greater than the fair market value of our common stock on the date of grant. The term of each free standing SAR (an SAR granted alone and independent of another award) will be fixed by the plan administrator, but no free standing SAR will be exercisable more than ten (10) years after the date such right is granted. The term of each related SAR (an SAR granted with all or part of any option granted under the Amended and Restated Omnibus Plan) will be the term of the option to which it relates, but no related SAR will be exercisable more than ten (10) years after the date such SAR is granted.
In the event of the termination of employment or service with the Company and all affiliates thereof of a participant who has been granted one or more free standing SARs, such rights will be exercisable at such time or times and subject to such terms and conditions as shall be determined by the plan administrator in the applicable award agreement. In the event of the termination of employment or service with the Company and all affiliates thereof of a participant who has been granted one or more related SARs, such rights will be exercisable at such time or times and subject to such terms and conditions as set forth in the related options.
Restricted Shares. The plan administrator may also grant restricted shares, which are shares of common stock that vest in accordance with the terms and conditions established by the plan administrator. The plan administrator will determine in the award agreement whether the participant will be entitled to vote the restricted shares and/or receive dividends on such shares.
Restricted Stock Units. Restricted stock units represent the right to receive shares of the Company's common stock at a specified date in the future, subject to forfeiture of such right. If the restricted stock unit has not been forfeited, then on the date specified in the restricted stock unit grant, the Company must deliver to the holder of the restricted stock unit, unrestricted shares of our common stock, which will be freely transferable.
Performance-Based Awards. Performance-based awards are denominated in shares of our common stock, stock units, or cash, and are linked to the satisfaction of performance criteria established by the plan administrator.
Performance Goals. The plan administrator may establish performance goals that may be used to determine the grant, vesting or payment of an award under the Amended and Restated Omnibus Plan and which may be based on one or more of the following criteria: (i) earnings before interest and taxes; (ii) earnings before interest, taxes, depreciation and amortization; (iii) net operating profit after tax; (iv) cash flow; (v) revenue; (vi) net revenues; (vii) sales; (viii) days sales outstanding; (ix) scrap rates; (x) income; (xi) net income; (xii) operating income; (xiii) net operating income; (xiv) operating margin; (xv) earnings; (xvi) earnings per share; (xvii) return on equity; (xviii) return on investment; (xix) return on capital; (xx) return on assets; (xxi) return on net assets; (xxii) total stockholder return; (xxiii) economic profit; (xxiv) market share; (xxv) appreciation in the fair market value, book value or other measure of value of the Company’s
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common stock; (xxvi) expense or cost control; (xxvii) working capital; (xxviii) volume or production; (xxix) new products; (xxx) customer satisfaction; (xxxi) brand development; (xxxii) employee retention or employee turnover; (xxxiii) employee satisfaction or engagement; (xxxiv) environmental, health or other safety goals; (xxxv) individual performance; (xxxvi) strategic objective milestones; (xxxvii) days inventory outstanding; (xxxviii) any combination of, or, as applicable, a specified increase or decrease in, any of the foregoing or (xxxix) any other goal selected by the plan administrator, whether or not listed in the Amended and Restated Omnibus Plan. Where applicable, the performance goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company or an affiliate thereof, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the plan administrator. The performance goals may include a threshold level of performance below which no payment shall be made (or no vesting shall occur), levels of performance at which specified payments shall be made (or specified vesting shall occur), and a maximum level of performance above which no additional payment shall be made (or at which full vesting shall occur). In establishing a performance goal or determining the achievement of a performance goal, the plan administrator may provide that achievement of the applicable performance goals may be amended or adjusted to include or exclude components of any performance goal, including, without limitation, foreign exchange gains and losses, asset write-downs, acquisitions and divestitures, change in fiscal year, unbudgeted capital expenditures, special charges such as restructuring or impairment charges, debt refinancing costs, extraordinary or noncash items, unusual, infrequently occurring, nonrecurring or one-time events affecting the Company or its financial statements or changes in law or accounting principles. Performance goals will be subject to such other special rules and conditions as the plan administrator may establish at any time.
Change in Control Provisions. In connection with the grant of an award, the plan administrator may provide for the treatment of such award in the event of a change in control of the Company, including that, in the event of an involuntary termination of an executive's employment by the Company in connection with a change in control, any outstanding awards that are unexercisable or otherwise unvested will become fully vested and/or immediately exercisable.
Amendment and Termination. The Board may alter, amend, modify, or terminate the Amended and Restated Omnibus Plan at any time, provided that the approval of our stockholders will be obtained for any amendment to the Amended and Restated Omnibus Plan that requires stockholder approval under the rules of the stock exchange(s) on which our common stock is then listed or in accordance with other applicable law, including, but not limited to, an increase in the number of shares of our common stock reserved for issuance, a reduction in the exercise price of options or other entitlements, an extension of the maximum term of any award, an increase to the maximum number of shares that may be issued to “Insiders” (as defined in the Toronto Stock Exchange Company Manual for the purpose of security-based compensation arrangements) or an amendment that grants the Board additional powers to amend the Amended and Restated Omnibus Plan. In addition, no modification of an award will, without the prior written consent of the participant, adversely alter or impair any rights or obligations under any award already granted under the Amended and Restated Omnibus Plan unless the Board expressly reserved the right to do so at the time of the award.
Transfer of Awards. No purported sale, assignment, mortgage, hypothecation, transfer, charge, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any award or any agreement or commitment to do any of the foregoing by any holder thereof in violation of the provisions of the Amended and Restated Omnibus Plan or an award agreement will be valid, except with the prior written consent of the plan administrator, which consent may be granted or withheld in the sole discretion of the plan administrator. Any purported transfer of an award or any economic benefit or interest therein in violation of the Amended and Restated Omnibus Plan or an award agreement will be null and void ab initio, and will not create any obligation or liability of the Company, and any person purportedly acquiring any award or any economic benefit or interest therein transferred in violation of the Amended and Restated Omnibus Plan or an award agreement will not be entitled to be recognized as a holder of such shares. Unless otherwise determined by the plan administrator in accordance with the provisions of the immediately preceding sentence, an option may be exercised, during the lifetime of the participant, only by the participant or, during any period during which the participant is under a legal disability, by the participant’s guardian or legal representative.
Certain U.S. Federal Income Tax Effects
The following is a brief summary of certain United States federal income tax consequences generally arising with respect to awards under the Amended and Restated Omnibus Plan. This discussion does not address all aspects of the United States federal income tax consequences of participating in the Amended and Restated Omnibus Plan that may be relevant to participants in light of their personal investment or tax circumstances and does not discuss any state, local or non-United States tax consequences of participating in the Amended and Restated Omnibus Plan. Each participant is advised to consult his or her particular tax advisor concerning the application of the United States federal income tax laws to such participant’s particular situation, as well as the applicability and effect of any state, local or non-United States tax laws before taking any actions with respect to any awards.
Nonqualified Stock Options. An optionee subject to United States federal income tax will generally not recognize taxable income for United States federal income tax purposes upon the grant of a nonqualified stock option. Rather, at the time of exercise of the nonqualified stock option, the optionee will recognize ordinary income, and the Company or employer subsidiary will be entitled to a deduction subject to the limitations under Section 162(m) of the Code, in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price. If the shares acquired upon the exercise of a nonqualified stock option are later sold or exchanged, then the difference between the amount received upon such sale or exchange and the fair market value of such shares on the date of such exercise will generally be taxable as long-term or short-term capital gain or loss, depending upon the length of time such shares were held by the optionee.
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Incentive Stock Options. An optionee subject to United States federal income tax will generally not recognize taxable income for United States federal income tax purposes upon the grant of an incentive stock option (within the meaning of Section 422 of the Code) and neither the Company nor the employer subsidiary will be entitled to a deduction at that time. An optionee will not recognize income (except for purposes of the alternative minimum tax) upon exercise of an incentive stock option. If the shares acquired by exercise of an incentive stock option are held for the longer of two years from the date the option was granted and one year from the date it was exercised, any gain or loss arising from a subsequent disposition of those shares will be taxed as long-term capital gain or loss, and neither the Company nor the employer subsidiary will be entitled to any deduction. If, however, those shares are disposed of within the above-described period, then in the year of that disposition the optionee will recognize compensation taxable as ordinary income equal to the excess of the lesser of (1) the amount realized upon that disposition, and (2) the excess of the fair market value of those shares on the date of exercise over the exercise price, and the Company or employer subsidiary will be entitled to a corresponding deduction, subject to the limitations under Section 162(m) of the Code.
SARs. A participant subject to United States federal income tax who is granted a SAR will not recognize ordinary income for United States federal income tax purposes upon receipt of the SAR. At the time of exercise, however, the participant will recognize ordinary income equal to the value of any cash received and the fair market value on the date of exercise of any shares received. Neither the Company nor the or employer subsidiary will be entitled to a deduction upon the grant of a SAR, but generally will be entitled to a deduction for the amount of income the participant recognizes upon the participant's exercise of the SAR, subject to the limitations under Section 162(m) of the Code. The participant's tax basis in any shares received will be the fair market value on the date of exercise and, if the shares are later sold or exchanged, then the difference between the amount received upon such sale or exchange and the fair market value of the shares on the date of exercise will generally be taxable as long-term or short-term capital gain or loss depending upon the length of time such shares were held by the participant.
Restricted Shares. A participant subject to United States federal income tax generally will not be taxed upon the grant of a restricted share award, but rather will recognize ordinary income for United States federal income tax purposes in an amount equal to the fair market value of the shares at the time the restricted shares are no longer subject to a substantial risk of forfeiture (within the meaning of the Code). The Company or employer subsidiary generally will be entitled to a deduction at the time when, and in the amount that, the participant recognizes ordinary income on account of the lapse of the restrictions, subject to the limitations under Section 162(m) of the Code. A participant's tax basis in the shares will equal his or her fair market value at the time the restrictions lapse, and the participant's holding period for capital gains purposes will begin at that time. Any cash dividends paid on the shares before the restrictions lapse will be taxable to the participant as additional compensation (and not as dividend income). Under Section 83(b) of the Code, a participant may elect to recognize ordinary income at the time the restricted shares are awarded in an amount equal to their fair market value at that time, notwithstanding the fact that such shares are subject to restrictions and a substantial risk of forfeiture. If such an election is made, no additional taxable income will be recognized by such participant at the time the restrictions lapse, the participant will have a tax basis in the restricted shares equal to their fair market value on the grant date, and the participant's holding period for capital gains purposes will begin at that time. The Company or employer subsidiary generally will be entitled to a tax deduction at the time when, and to the extent that, ordinary income is recognized by such participant, subject to the limitations under Section 162(m) of the Code.
Restricted Stock Units. A participant subject to United States federal income tax who is granted a restricted stock unit will not recognize ordinary income for United States federal income tax purposes upon the receipt of the restricted stock unit, but rather will recognize ordinary income in an amount equal to the fair market value of the shares at the time the shares of our common stock are delivered to the participant, and the Company or employer subsidiary will have a corresponding deduction at that time, subject to the limitations under Section 162(m) of the Code.
Other Share-Based and Other Cash-Based Awards. In the case of other share-based and other cash-based awards, depending on the form of the award, a participant subject to United States federal income tax will not be taxed upon the grant of such an award, but, rather, will recognize ordinary income for United States federal income tax purposes when such an award vests or otherwise is free of restrictions. In any event, the Company or employer subsidiary will be entitled to a deduction at the time when, and in the amount that, a participant recognizes ordinary income.
Section 162(m) of the Code. Section 162(m) of the Code generally limits to $1 million the amount that a publicly held corporation is allowed each year to deduct for the compensation paid to the corporation’s chief executive officer, chief financial officer and certain of the corporation’s current and former executive officers.
New Plan Benefits. The plan administrator has the discretion to grant awards under the Amended and Restated Omnibus Plan and, therefore, it is not possible as of the date of this proxy statement to determine future awards that will be received by participants under the Amended and Restated Omnibus Plan.
As discussed above, the Amended and Restated Omnibus Plan is being submitted for approval by our stockholders at the Annual Meeting. If our stockholders approve this proposal, the Amended and Restated Omnibus Plan will become effective as of the date on which the Amended and Restated Omnibus Plan is approved by stockholders, and awards may be granted under the Amended and Restated Omnibus Plan. If this Proposal does not pass, we believe it may have a significant negative impact on the Company’s ability to attract, engage and retain key executives that are critical to the Company’s future success. We believe this will be the case as equity-based compensation is typically a key component to an executive’s pay package and without this increase in available shares under the plan we will be restricted in our ability to award equity-based compensation to our key executives.
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APPROVAL OF AN AMENDMENT TO THE CPI CARD GROUP INC. OMNIBUS INCENTIVE PLAN TO INCREASE THE ANNUAL LIMIT APPLICABLE TO INSIDERS
The Board and management believe it is important that an amendment to the Omnibus Plan be approved at the Annual Meeting. Under the terms of the Omnibus Plan, there is a cap on awards that may be granted to “Insiders” of the Company, as defined in the TSX Company Manual for the purpose of security-based compensation arrangements. Under the TSX Company Manual, “Insiders” consist of our corporate officers, executive officers, directors and the Tricor Funds.
Under the Omnibus Plan, the maximum number of shares that may be issued to all “Insiders” (as defined in the Toronto Stock Exchange Company Manual for the purpose of security-based compensation arrangements) within any one-year period, and issuable to Insiders at any point in time under the Omnibus Plan and any other share compensation arrangement we maintain will not exceed 10% of the total number of then-issued and outstanding shares of our common stock (the “Insider limit”). Based on the number of shares issued and outstanding as of the Record Date and considering prior awards granted to Insiders, the number of additional shares that we are able to grant to Insiders is limited to approximately 520,000 shares. We are thus asking stockholders who are not Insiders (“disinterested stockholders”) to approve an increase in the Insider limit to 15% of the total number of then-issued and outstanding shares of our common stock. Under the TSX Company Manual, because Insiders have an interest in this Proposal to increase the Insider limit, Insiders are prohibited from voting on this Proposal, and this Proposal may only be approved by a majority of the disinterested stockholders voting. Based on the number of shares issued and outstanding as of the Record Date and considering prior awards granted to Insiders, if this Proposal is approved, then the number of shares that we will be able to grant to Insiders will increase from approximately 520,000 shares to 1,080,000 shares.
The Board and management believe it is important to increase the Insider award limit in order to allow the Company to continue to be able to make awards of long-term incentives. On October 2, 2020, the Compensation Committee approved long-term incentive awards in the form of restricted stock units, which represented our first grant of equity-denominated awards (other than equity awards associated with initial offers of employment) to the NEOs since 2017, and reflects the Compensation Committee’s desire to return to an equity-based program that provides direct alignment to stockholder interests and share price. This also represents a change from our ongoing compensation program designs in 2018 and 2019, which were primarily cash-denominated. The Board believes that an equity-based program is critical for attracting, motivating, rewarding and retaining a talented management team that will contribute to our success. By increasing the Insider limit, the Board will have a pool of shares available that it can use to grant equity awards to senior management as well as Board members that will enable us to continue to attract, retain and incentivize participants. Importantly, we are not asking stockholders to amend the annual director compensation limit, which provides that the aggregate grant date fair market value of shares subject to awards granted during any fiscal year to any non-employee director, when taken together with any cash fees paid to such non-employee director during the fiscal year (in each case, with respect to his or her service as a non-employee director), will not exceed $500,000.
At the Annual Meeting, stockholders are also being asked to approve an increase in the available shares under the Omnibus Plan, extend the term of the Omnibus Plan and to make certain other administrative changes, as described in Proposal 5. Accordingly, the proposal to increase the available shares under the Omnibus Plan is being presented to stockholders separately as Proposal No. 5 and the approval of this Proposal No. 6 will not constitute an approval of Proposal No. 5 with respect to the increase in the available shares under the Omnibus Plan. Please see Proposal No. 5 for further information regarding the increase in the available shares under the Omnibus Plan.
Description of the Omnibus Plan
We originally adopted the Omnibus Plan in connection with our initial public offering, pursuant to which cash and equity-based incentives (including through an annual incentive program) may be granted to participating employees, directors and consultants. The principal purposes of the Omnibus Plan are to encourage profitability and growth through short-term and long-term incentives that are consistent with our objectives; to give participants an incentive for excellence in individual performance; to promote teamwork among participants; and to give us a significant advantage in attracting and retaining key employees, directors, and consultants. The Omnibus Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Code, nonqualified stock options, SARs, restricted shares, restricted stock units, performance-based awards (including performance shares, performance units and performance bonus awards), and other stock or cash-based awards.
A summary of certain terms of the Omnibus Plan, as contemplated to be amended and restated if Proposal No. 5 is adopted by our stockholders, is set forth below. Please see Proposal No. 5 for a more detailed summary of the Amended and Restated Omnibus Plan. This summary of the Amended and Restated Omnibus Plan is qualified by reference to the full text of the Amended and Restated Omnibus Plan, which has been included as Annex B and is incorporated by reference herein, and which also reflects the amendment to the Omnibus Plan contemplated by this Proposal.
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Administration.The Amended and Restated Omnibus Plan is administered by the Board or by a committee that the Board designates for this purpose (referred to below as the plan administrator). Currently, the Compensation Committee of the Board administers the Omnibus Plan. The plan administrator has the power to determine the terms of the awards granted under the Amended and Restated Omnibus Plan, including the exercise price, the number of shares subject to each award, and the exercisability of the awards. The plan administrator also has the full power to determine the persons to whom and the time or times at which awards will be made and to make all other determinations and take all other actions advisable for the administration of the Amended and Restated Omnibus Plan.
Eligibility for Participation. Certain employees, consultants, and directors are eligible to be granted awards under the Amended and Restated Omnibus Plan, other than incentive stock options, which may be granted only to employees. As of April 9, 2021, approximately 1,000 employees, including eight executive officers and five non-employee directors, would have been eligible to receive awards under the Amended and Restated Omnibus Plan if selected by the plan administrator for participation; however, consistent with market practices, we have historically limited awards under the Omnibus Plan to our executive officers, non-employee directors and senior levels of Company management.
Shares Available for Awards. Subject to capitalization adjustments as provided in the Amended and Restated Omnibus Plan, the number of shares of the Company's common stock reserved and available for issuance thereunder is the sum of (i) 1,200,000 shares, consisting of 800,000 shares originally reserved under the Omnibus Plan as of October 8, 2015, the date of the effectiveness of the registration statement for the Company's initial public offering, and 400,000 additional shares originally reserved under the Omnibus Plan as of September 25, 2017, less any shares issued under the Omnibus Plan on or prior to, or subject to outstanding awards as of, the date of the Board's adoption of the Amended and Restated Omnibus Plan, plus (iii) an additional 1,000,000 shares to be added to the share reserve if Proposal No. 5 is approved by stockholders. The closing price of a share of Company common stock on the Record Date was $14.75 per share, as reported on the OTC Markets Group Inc.
Award Limits. The maximum number of shares issuable pursuant to awards under the Amended and Restated Omnibus Plan and any other share compensation arrangement we maintain within a one-year period to any one participant in the Amended and Restated Omnibus Plan, will not exceed 5% of the total number of issued and outstanding shares of our common stock on the grant date of such awards, on a non-diluted basis. The maximum number of shares that may be issued to all Insiders within any one-year period, and issuable to Insiders at any point in time under the Amended and Restated Omnibus Plan and any other share compensation arrangement we maintain will not exceed 10% of the total number of then-issued and outstanding shares of our common stock, increased to 15% if this Proposal is approved by our disinterested stockholders at the Annual Meeting. In addition, subject to the foregoing limits, the aggregate number of shares subject to options and SARs granted during any fiscal year to any participant shall not exceed, subject to capitalization adjustments as provided in the Amended and Restated Omnibus Plan, one and a half million (1,500,000) shares. Under the terms of the Amended and Restated Omnibus Plan, the aggregate grant date fair market value of shares subject to awards granted during any fiscal year to any non-employee director, when taken together with any cash fees paid to such non-employee director during the fiscal year (in each case, with respect to his or her service as a non-employee director), will not exceed $500,000; provided, however, that this limit will not apply to any awards a non-employee director elects to receive at fair market value in lieu of all or a portion of such non-employee director’s compensation.
Change in Control Provisions. In connection with the grant of an award, the plan administrator may provide for the treatment of such award in the event of a change in control of the Company, including that, in the event of an involuntary termination of an executive's employment by the Company in connection with a change in control, any outstanding awards that are unexercisable or otherwise unvested will become fully vested and/or immediately exercisable.
Amendment and Termination.The Board may alter, amend, modify, or terminate the Amended and Restated Omnibus Plan at any time, provided that the approval of our stockholders will be obtained for any amendment to the Amended and Restated Omnibus Plan that requires stockholder approval under the rules of the stock exchange(s) on which our common stock is then listed or in accordance with other applicable law, including, but not limited to, an increase in the number of shares of our common stock reserved for issuance, a reduction in the exercise price of options or other entitlements, an extension of the maximum term of any award, an increase to the maximum number of shares that may be issued to Insiders (as defined in the Toronto Stock Exchange Company Manual for the purpose of security-based compensation arrangements) or an amendment that grants the Board additional powers to amend the Amended and Restated Omnibus Plan. In addition, no modification of an award will, without the prior written consent of the participant, adversely alter or impair any rights or obligations under any award already granted under the Amended and Restated Omnibus Plan unless the Board expressly reserved the right to do so at the time of the award.
Transfer of Awards. No purported sale, assignment, mortgage, hypothecation, transfer, charge, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any award or any agreement or commitment to do any of the foregoing by any holder thereof in violation of the provisions of the Amended and Restated Omnibus Plan or an award agreement will be valid, except with the prior written consent of the plan administrator, which consent may be granted or withheld in the sole discretion of the plan administrator. Any purported transfer of an award or any economic benefit or interest therein in violation of the Amended and Restated Omnibus Plan or an award agreement will be null and void ab initio, and will not create any obligation or liability of the Company, and any person purportedly acquiring any award or any economic benefit or interest therein transferred in violation of the Amended and Restated Omnibus Plan or an award agreement will not be entitled to be recognized as a holder of such shares. Unless otherwise determined by the plan administrator in accordance with the provisions of the immediately preceding sentence, an option may be exercised, during the lifetime of the participant, only by the participant or, during any period during which the participant is under a legal disability, by the participant’s guardian or legal representative.
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Certain U.S. Federal Income Tax Effects
The following is a brief summary of certain United States federal income tax consequences generally arising with respect to awards under the Amended and Restated Omnibus Plan. This discussion does not address all aspects of the United States federal income tax consequences of participating in the Amended and Restated Omnibus Plan that may be relevant to participants in light of their personal investment or tax circumstances and does not discuss any state, local or non-United States tax consequences of participating in the Amended and Restated Omnibus Plan. Each participant is advised to consult his or her particular tax advisor concerning the application of the United States federal income tax laws to such participant’s particular situation, as well as the applicability and effect of any state, local or non-United States tax laws before taking any actions with respect to any awards.
Nonqualified Stock Options. An optionee subject to United States federal income tax will generally not recognize taxable income for United States federal income tax purposes upon the grant of a nonqualified stock option. Rather, at the time of exercise of the nonqualified stock option, the optionee will recognize ordinary income, and the Company or employer subsidiary will be entitled to a deduction subject to the limitations under Section 162(m) of the Code, in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price. If the shares acquired upon the exercise of a nonqualified stock option are later sold or exchanged, then the difference between the amount received upon such sale or exchange and the fair market value of such shares on the date of such exercise will generally be taxable as long-term or short-term capital gain or loss, depending upon the length of time such shares were held by the optionee.
Incentive Stock Options. An optionee subject to United States federal income tax will generally not recognize taxable income for United States federal income tax purposes upon the grant of an incentive stock option (within the meaning of Section 422 of the Code) and neither the Company nor the employer subsidiary will be entitled to a deduction at that time. An optionee will not recognize income (except for purposes of the alternative minimum tax) upon exercise of an incentive stock option. If the shares acquired by exercise of an incentive stock option are held for the longer of two years from the date the option was granted and one year from the date it was exercised, any gain or loss arising from a subsequent disposition of those shares will be taxed as long-term capital gain or loss, and neither the Company nor the employer subsidiary will be entitled to any deduction. If, however, those shares are disposed of within the above-described period, then in the year of that disposition the optionee will recognize compensation taxable as ordinary income equal to the excess of the lesser of (1) the amount realized upon that disposition, and (2) the excess of the fair market value of those shares on the date of exercise over the exercise price, and the Company or employer subsidiary will be entitled to a corresponding deduction, subject to the limitations under Section 162(m) of the Code.
SARs. A participant subject to United States federal income tax who is granted a SAR will not recognize ordinary income for United States federal income tax purposes upon receipt of the SAR. At the time of exercise, however, the participant will recognize ordinary income equal to the value of any cash received and the fair market value on the date of exercise of any shares received. Neither the Company nor the employer subsidiary will be entitled to a deduction upon the grant of a SAR, but generally will be entitled to a deduction for the amount of income the participant recognizes upon the participant's exercise of the SAR, subject to the limitations under Section 162(m) of the Code. The participant's tax basis in any shares received will be the fair market value on the date of exercise and, if the shares are later sold or exchanged, then the difference between the amount received upon such sale or exchange and the fair market value of the shares on the date of exercise will generally be taxable as long-term or short-term capital gain or loss depending upon the length of time such shares were held by the participant.
Restricted Shares. A participant subject to United States federal income tax generally will not be taxed upon the grant of a restricted share award, but rather will recognize ordinary income for United States federal income tax purposes in an amount equal to the fair market value of the shares at the time the restricted shares are no longer subject to a substantial risk of forfeiture (within the meaning of the Code). The Company or employer subsidiary generally will be entitled to a deduction at the time when, and in the amount that, the participant recognizes ordinary income on account of the lapse of the restrictions, subject to the limitations under Section 162(m) of the Code. A participant's tax basis in the shares will equal his or her fair market value at the time the restrictions lapse, and the participant's holding period for capital gains purposes will begin at that time. Any cash dividends paid on the shares before the restrictions lapse will be taxable to the participant as additional compensation (and not as dividend income). Under Section 83(b) of the Code, a participant may elect to recognize ordinary income at the time the restricted shares are awarded in an amount equal to their fair market value at that time, notwithstanding the fact that such shares are subject to restrictions and a substantial risk of forfeiture. If such an election is made, no additional taxable income will be recognized by such participant at the time the restrictions lapse, the participant will have a tax basis in the restricted shares equal to their fair market value on the grant date, and the participant's holding period for capital gains purposes will begin at that time. The Company or employer subsidiary generally will be entitled to a tax deduction at the time when, and to the extent that, ordinary income is recognized by such participant, subject to the limitations under Section 162(m) of the Code.
Restricted Stock Units. A participant subject to United States federal income tax who is granted a restricted stock unit will not recognize ordinary income for United States federal income tax purposes upon the receipt of the restricted stock unit, but rather will recognize ordinary income in an amount equal to the fair market value of the shares at the time the shares of our common stock are delivered to the participant, and the Company or employer subsidiary will have a corresponding deduction at that time, subject to the limitations under Section 162(m) of the Code.
Other Share-Based and Other Cash-Based Awards. In the case of other share-based and other cash-based awards, depending on the form of the award, a participant subject to United States federal income tax will not be taxed upon the grant of such an award, but, rather, will recognize ordinary income for United States federal income tax purposes when such an award vests or otherwise
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is free of restrictions. In any event, the Company or employer subsidiary will be entitled to a deduction at the time when, and in the amount that, a participant recognizes ordinary income.
Section 162(m) of the Code. Section 162(m) of the Code generally limits to $1 million the amount that a publicly held corporation is allowed each year to deduct for the compensation paid to the corporation’s chief executive officer, chief financial officer and certain of the corporation’s current and former executive officers.
New Plan Benefits and Historical Equity Awards
The plan administrator has the discretion to grant awards under the Amended and Restated Omnibus Plan and, therefore, it is not possible as of the date of this proxy statement to determine future awards that will be received by participants under the Amended and Restated Omnibus Plan. Please see Proposal No. 5 for a summary of the number of restricted stock units and stock options that have been granted under the Omnibus Plan to NEOs and the other individuals and groups indicated since the inception of the Omnibus Plan.
As discussed above, this Proposal for increase of the Insider limit is being submitted for approval by our disinterested stockholders at the Annual Meeting. If our disinterested stockholders approve this Proposal, the increase of the Insider limit from 10% to 15% in the Amended and Restated Omnibus Plan will become effective as of the date on which this Proposal is so approved. If this Proposal No. 6 is not approved, then the Board and Compensation Committee will re-evaluate our executive compensation and director compensation program in order to continue to provide compensation to attract, retain and motivate our executive officers and directors.
If this Proposal does not pass, we believe it may have a significant negative impact on the Company’s ability to attract, engage and retain key executives that are critical to the Company’s future success. We believe this will be the case as equity-based compensation is typically a key component to an executive’s pay package and without this increase in the Insider limit we will be restricted in our ability to award equity-based compensation to our key executives.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a description of transactions since January 1, 20192021 to which we have been a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years and in which any of our directors, executive officers, beneficial holders of more than 5% of our capital stock or entities affiliated with them had or will have a direct or indirect material interest.
Registration Rights Agreement
In connection with our initial public offering, we entered into a registration rights agreement with the Tricor Funds (the “Registration Rights Agreement”). Under the Registration Rights Agreement, the Tricor Funds are entitled to request that we register shares of our common stockCommon Stock on a long-form or short-form registration statement on one or more occasions in the future, provided that we will not be obligated to register such shares within 90 days after the effective date of a registration statement previously filed pursuant to a request under the Registration Rights Agreement and otherwise for up to 60 days from the date of a request under the Registration Rights Agreement in certain circumstances. The Tricor Funds also are entitled to participate in certain registered offerings that we may conduct in the future, subject to certain restrictions. We will pay the Tricor Funds’ expenses in connection with the exercise of these rights. The registration rights described in this paragraph apply to (i) shares of our common stockCommon Stock held by the Tricor Funds as of the closing of our initial public offering, (ii) any of our capital stock (or that of our subsidiaries) issued or issuable with respect to the common stockCommon Stock described in clause (i) with respect to any dividend, distribution, recapitalization, reorganization or certain other corporate transactions, and (iii) any shares of our common stockCommon Stock owned or acquired following the closing of our initial public offering by the Tricor Funds (“Registrable(collectively, “Registrable Securities”). These registration rights are also for the benefit of any subsequent holder of Registrable Securities; provided that any particular securities will cease to be Registrable Securities when they have been sold in a registered public offering, sold in compliance with Rule 144 under the Securities Act or repurchased by us or our subsidiaries. In September 2021, we filed a registration statement on Form S-3 with respect to the shares of Common Stock held by the Tricor Funds in compliance with our obligations under the Registration Rights Agreement.
Director Nomination Agreement
In connection with our initial public offering, we entered into a Director Nomination Agreement with the Tricor Funds that provides the Tricor Funds the right to designate nominees for election to our Board for so long as the Tricor Funds collectively beneficially own 5% or more of the total number of shares of our common stockCommon Stock then outstanding. The number of nominees that the Tricor Funds are entitled to designate under the Director Nomination Agreement bears the same proportion to the total number of members of our Board as the number of shares of common stockCommon Stock beneficially owned by the Tricor Funds bears to the total number of shares of common stockCommon Stock outstanding, rounded up to the nearest whole number. In addition, the Tricor Funds shall be entitled to designate the replacement for any of its board designees whose board service terminates prior to the end of such designee’s term regardless of the Tricor Funds’ beneficial ownership at such time. In addition, for so long as the Tricor Funds collectively beneficially own 10% or more of the total number of shares of our common stockCommon Stock then outstanding, the Tricor Funds shall also have the right to have their designees participate on committees of our Board, subject to compliance with applicable law and stock exchange rules. The Director Nomination Agreement will terminate at such time as the Tricor Funds collectively own less than 5% of our outstanding common stock.Common Stock. Nicholas Peters and Bradley Seaman have been designated by the Tricor Funds as nominees to be included in the Company’s proxy statementelection of directors commencing in 2016. H. Sanford Riley has been designated by the Tricor Funds to stand as a nominee for the first time at the Annual Meeting.
Policies and Procedures for Related Party Transactions
Our Board has adopted a written related party transaction policy setting forth the policies and procedures for the review and approval of related party transactions. The policy covers transactions involving us in which the aggregate amount involved exceedsin any calendar year will or may be expected to exceed the lesser of $120,000 or one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years$100,000 and in which a related person has or will have a direct or indirect material interest.interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). For purposes of this policy, a related person is defined as a director,an executive officer, director, nominee for director, or a greater than 5% beneficial owner of our common stock,Common Stock, in each case since the beginning of the most recently completed fiscal year, and any immediate family member of or person sharing a household with any of these individuals. All related party transactions must be presented to the Audit Committee for review, consideration and approval. In approving or rejecting any such proposed transaction, the Audit Committee will consider, among other factors, the related party’s relationship to the Company and interest in the transaction, the material facts of the transaction, includingthe benefits to the Company of the transaction, the availability of other sources of comparable products or services (if applicable), whether the transaction is on terms no less favorable thanthat are comparable to the terms generally available to an unaffiliatedunrelated third party, underwhether the same or similar circumstancestransaction has the potential to impair director independence and whether the extenttransaction constitutes a conflict of the related party’s interest in the transaction.interest.
4433
STOCKHOLDER PROPOSALS FOR 20222024 ANNUAL MEETING OF STOCKHOLDERS
Stockholders who intend to present proposals at the Company’s annual meeting of stockholders in 20222024 pursuant to Rule 14a - 814a-8 under the Exchange Act must send notice of their proposal to us so that we receive it no later than December 14, 2021.15, 2023. Stockholders who intend to present proposals at the annual meeting of stockholders in 20222024 other than pursuant to Rule 14a-8 must comply with the notice provisions in our By-Laws. The notice provisions in our By-Laws require that, for a proposal to be properly brought before the annual meeting of stockholders in 2022,2024, proper notice of the proposal be received by us not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, however that in the event next year’s annual meeting is more than 30 days before or after such anniversary date, notice must be delivered not less than the later of 90 days prior to next year’s annual meeting or the 10th day following the day the Company first publicly announces next year’s annual meeting date. Under these requirements, the deadline for proposals brought under our By-Laws ismust be received no earlier than January 25, 2024 and no later than February 26, 2022. 24, 2024.
In addition to satisfying the foregoing requirements under the By-Laws, to comply with the universal proxy rules, stockholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must provide notice to the Company that sets forth the information required by Rule 14a-19 under the Exchange Act no later than March 25, 2024.
Stockholder proposals and notices should be addressed to CPI Card Group Inc., 10368 West Centennial Road, Littleton, Colorado 80127; Attention: Sarah Kilgore, Chief Legal and Compliance Officer and Corporate Secretary.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires directors, executive officers and certain persons who beneficially own more than 10% of CPI’s common stock (“Reporting Persons”) to file certain reports with the SEC concerning their beneficial ownership of CPI’s common stock. Because of the complex nature of these reports, CPI files them on behalf of executive officers and directors. To our knowledge, based solely on our review of the Section 16(a) reports filed electronically with the SEC, we believe that all Reporting Persons were in compliance with all Section 16(a) filing requirements with respect to the year ended December 31, 2020, except that a Form 3 for Mr. Schneewind was inadvertently filed late. We filed such Form 3 with the SEC on Mr. Schneewind’s behalf on January 29, 2021.
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We know of no other matters to be submitted to the stockholders at the Annual Meeting. If any other matters properly come before the Annual Meeting, persons named in the proxy intend to vote the shares they represent in accordance with their own judgments.
Upon written request by any stockholder entitled to vote at the Annual Meeting, we will promptly furnish, without charge, a copy of the Annual Report on Form 10-K for the fiscal year ended December 31, 20202022, which we filed with the SEC, including the financial statements. If the person requesting the report was not a stockholder of record on April 1, 2021, the request must contain a good faith representation that he or she was a beneficial owner of our common stock at the close of business on that date.statements therein. Requests should be addressed to CPI Card Group Inc., 10368 West Centennial Road, Littleton, Colorado 80127; Attention: Sarah Kilgore, Chief Legal and Compliance Officer and Corporate Secretary.
YOUR VOTE IS IMPORTANT. WE URGE YOU TO VOTE TODAY OVER THE TELEPHONE, VIA THE INTERNET OR BY MAIL.
| By Order of the Board of Directors, |
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| Sarah Kilgore |
| Chief Legal and Compliance Officer and Corporate Secretary |
4634
AnnexANNEX A – RECONCILIATION OF NON-GAAP MEASURES
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Year Ended December 31, | ||||||
| 2020 |
| 2019 | |||
Reconciliation of net income (loss) from continuing operations (GAAP) to EBITDA and Adjusted EBITDA | (dollars in thousands) | (dollars in thousands) | ||||
Net income (loss) from continuing operations | $ | 16,190 | $ | (4,993) | ||
Interest expense, net | 25,397 | 24,891 | ||||
Income tax (benefit) expense | (3,305) | 3,474 | ||||
Depreciation and amortization | 16,827 | 17,251 | ||||
EBITDA | $ | 55,109 | $ | 40,623 | ||
Adjustments to EBITDA | ||||||
Litigation and related charges (1) | — | 46 | ||||
Sales tax expense(2) | 926 | 584 | ||||
Stock-based compensation expense | 136 | 250 | ||||
Restructuring and other charges (3) | 1,269 | 720 | ||||
Loss on Revolving Credit Facility termination(4) | 92 | — | ||||
Litigation settlement gain (5) | — | (6,000) | ||||
Foreign currency (gain) loss (6) | 7 | 1,335 | ||||
Subtotal of adjustments to EBITDA | 2,430 | (3,065) | ||||
Adjusted EBITDA | $ | 57,539 | $ | 37,558 | ||
Net income (% change 2020 vs. 2019) | 415.2% | |||||
Adjusted EBITDA growth (% change 2020 vs. 2019) | 53.2% |
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| | Year Ended December 31, | ||||
| | 2022 | | 2021 | ||
Reconciliation of net income to EBITDA and Adjusted EBITDA: | | | | | | |
Net income | | $ | 36,540 | | $ | 15,941 |
Interest expense, net | |
| 29,616 | |
| 30,608 |
Income tax expense | |
| 12,607 | |
| 7,881 |
Depreciation and amortization |
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| 14,886 |
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| 15,098 |
EBITDA | | $ | 93,649 | | $ | 69,528 |
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Adjustments to EBITDA: | |
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Sales tax expense (benefit)(1) | | $ | 18 | | $ | (614) |
Stock-based compensation expense | |
| 3,479 | |
| 1,250 |
Severance and other charges(2) | |
| — | |
| 1,250 |
Loss on debt extinguishment(3) | |
| 474 | |
| 5,048 |
Foreign currency loss (gain) | |
| 83 | |
| (15) |
Subtotal of adjustments to EBITDA | | $ | 4,054 | | $ | 6,919 |
Adjusted EBITDA | | $ | 97,703 | | $ | 76,447 |
Net income margin (% of Net sales) | |
| 7.7% | |
| 4.2% |
Net income (% Change 2022 vs. 2021) | |
| 129.2% | |
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Adjusted EBITDA margin (% of Net sales) | |
| 20.5% | |
| 20.4% |
Adjusted EBITDA growth (% Change 2022 vs. 2021) | |
| 27.8% | |
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Note that the table in this annex is presented on a continuing operations basis.
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(3) | The Company redeemed a portion of the | ||
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A-1
CPI CARD GROUP INC.OMNIBUS INCENTIVE PLAN(as amended and restated effective September 25[ ], 20172021)
The name of the Plan is the CPI Card Group Inc. Omnibus Incentive Plan, as amended and restated (the “Plan”). The Plan intends to: (i) encourage the profitability and growth of the Company through short-term and long-term incentives that are consistent with the Company’s objectives; (ii) give Participants an incentive for excellence in individual performance; (iii) promote teamwork among Participants; and (iv) give the Company a significant advantage in attracting and retaining key Employees, Directors and Consultants. To accomplish such purposes, the Plan provides that the Company may grant Options, Stock Appreciation Rights, Restricted Shares, Restricted Stock Units, Performance-Based Awards (including performance-based Restricted Shares and Restricted Stock Units), Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing.
For purposes of the Plan, the following terms shall be defined as set forth below:
B-1
For each Award that constitutes deferred compensation under Code Section 409A, a Change in Control shall be deemed to have occurred under the Plan with respect to such Award only if a change in the ownership or effective control of the Company or a change in ownership of a substantial portion of the assets of the Company shall also be deemed to have occurred under Code Section 409A.
Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the holders of Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.
B-2
Notwithstanding the foregoing, and solely with respect to non-Canadian residents, “Consultant” means any consultant or independent contractor of the Company or an Affiliate thereof, in each case, who is not an Employee, Executive Officer or non-employee Director.
B-3
B-4
B-5
B-6
In the event of any Change in Capitalization, an equitable substitution or proportionate adjustment shall be made, in each case, as may be determined by the Administrator, in its sole discretion, in (i) the aggregate number of Shares reserved for issuance under the Plan and the maximum number of Shares that may be subject to Awards granted to any Participant in any calendar or fiscal year, (ii) the kind, number and Exercise Price subject to outstanding Options and Stock Appreciation Rights granted under the Plan, provided, however, that any such substitution or adjustment with respect to Options and Stock Appreciation Rights shall occur in accordance with the requirements of Code Section 409A, and (iii) the kind, number and purchase price of Shares subject to outstanding Restricted Shares or Other Share-Based Awards granted under the Plan, in each case as may be determined by the Administrator, in its sole discretion; provided, however, that any fractional Shares resulting from the adjustment shall be eliminated. Such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Administrator may provide, in its sole discretion, for the cancellation of any outstanding Award granted hereunder in exchange for payment in cash or other property having an aggregate Fair Market Value of the Shares covered by such Award, reduced by the aggregate Exercise Price or purchase price thereof, if any. Notwithstanding anything contained in the Plan to the contrary, any adjustment with respect to an Incentive Stock Option due to an adjustment or substitution described in this Section 5 shall comply with the rules of Code Section 424(a), and in no event shall any adjustment be made which would render any Incentive Stock Option granted hereunder to be disqualified as an incentive stock option for purposes of Code Section 422. The Administrator’s determinations pursuant to this Section 5 shall be final, binding and conclusive.
B-7
The Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among Eligible Recipients.
B-8
B-9
B-10
The Company may require that the stock certificates, if any, evidencing Restricted Shares granted hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed, and that, as a condition of any award of Restricted Shares, the Participant shall have delivered a stock power, endorsed in blank, relating to the Shares covered by such Award.
Notwithstanding anything in the Plan to the contrary, any Restricted Shares (whether before or after any vesting conditions have been satisfied) may, in the Company’s sole discretion, be issued in uncertificated form pursuant to the customary arrangements for issuing shares in such form.
B-11
B-12
The Administrator may provide in the applicable Award Agreement that an Award will vest on an accelerated basis upon the Participant’s termination of employment or service in connection with a Change in Control or upon the occurrence of any other event that the Administrator may set forth in the Award Agreement. If the Company is a party to an agreement that is reasonably likely to result in a Change in Control, such agreement may provide for: (i) the continuation of any Options and Stock Appreciation Rights by the Company, if the Company is the surviving corporation; (ii) the assumption of any Options and Stock Appreciation Rights by the surviving corporation or its parent or subsidiary; (iii) the substitution by the surviving corporation or its parent or subsidiary of equivalent awards for any Options and Stock Appreciation Rights, provided, however, that any such substitution with respect to Options and Stock Appreciation Rights shall occur in accordance with the requirements of Code Section 409A; or (iv) settlement of any Options and Stock Appreciation Rights for the Change in Control Price (less, to the extent applicable, the per share exercise or grant price), or, if the per share exercise or grant price equals or exceeds the Change in Control Price, such Options and Stock Appreciation Rights shall terminate and be canceled. To the extent that Restricted Shares, Restricted Stock Units or other Awards settle in Shares in accordance with their terms upon a Change in Control, such Shares shall be entitled to receive as a result of the Change in Control transaction the same consideration as the Shares held by shareholders of the Company as a result of the Change in Control transaction. For purposes of this Section 12, “Change in Control Price” shall mean the Fair Market Value of a Share upon a Change in Control. To the extent that the consideration paid in any such Change in Control transaction consists all or in part of securities or other non-cash consideration, the value of such securities or other non-cash consideration shall be determined in good faith by the Administrator.
B-13
The Plan is intended to constitute an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company.
Each Participant shall, no later than the date as of which the value of an Award first becomes includible in the gross income of such Participant for federal, state and/or local income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any federal, state, or local taxes of any kind, domestic or foreign, required by law or regulation to be withheld with respect to the Award. The obligations of the Company under the Plan shall be conditional on the making of such payments or arrangements, and 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 such Participant. Whenever cash is to be paid pursuant to an Award granted hereunder, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. Whenever Shares are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any related federal, state and local taxes, domestic or foreign, to be withheld and applied to the tax obligations. With the approval of the Administrator, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery of Shares or by delivering already owned unrestricted shares of Common Stock, in each case, having a value equal to the amount required to be withheld or such other greater amount up to the maximum statutory rate under applicable law, as applicable to such Participant, if such other greater amount would not result in adverse financial accounting treatment, as determined by the Administrator (including in connection with the effectiveness of FASB Accounting Standards Update 2016-09). Fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion of the Shares to be delivered pursuant to an Award. The Company may also use any other method of obtaining the necessary payment or proceeds, as permitted by law, to satisfy its withholding obligation with respect to any Option or other Award.
Without amending the Plan, the Administrator may grant Awards to eligible persons residing in non-United States jurisdictions on such terms and conditions different from those specified in the Plan, including the terms of any award agreement or plan, adopted by the Company or any Subsidiary thereof to comply with, or take advantage of favorable tax or other treatment available under, the laws of any non-United States jurisdiction, as may in the judgment of the Administrator be necessary or desirable to foster and promote achievement of the purposes of the Plan and, in furtherance of such purposes the Administrator may make such modifications, amendments, procedures, subplans and the like as may be necessary or advisable to comply with provisions of laws in other countries or jurisdictions in which the Company or its Subsidiaries operates or has employees.
No purported sale, assignment, mortgage, hypothecation, transfer, charge, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any Award or any agreement or commitment to do any of the foregoing (each, a “Transfer”) by any holder thereof in violation of the provisions of the Plan or an Award Agreement will be valid, except with the prior written consent of the Administrator, which consent may be granted or withheld in the sole discretion of the Administrator. Any purported Transfer of an Award or any economic benefit or interest therein in violation of the Plan or an Award Agreement shall be null and void ab initio, and shall not create any obligation or liability of the Company, and any person purportedly acquiring any Award or any economic benefit or interest therein transferred in violation of the Plan or an Award Agreement shall not be entitled to be recognized as a holder of such Shares. Unless otherwise determined by the Administrator in accordance with the provisions of the immediately preceding sentence, an Option may be exercised, during the lifetime of the Participant, only by the Participant or, during any period during which the Participant is under a legal disability, by the Participant’s guardian or legal representative.
B-14
The adoption of the Plan shall not confer upon any Eligible Recipient any right to continued employment or service with the Company or an Affiliate thereof, as the case may be, nor shall it interfere in any way with the right of the Company or an Affiliate thereof to terminate the employment or service of any of its Eligible Recipients at any time.
The Plan originally became effective on October 8, 2015, the date of the effectiveness of the registration statement for the Company’s Initial Public Offering(the “Original Effective Date”). The Plan, as amended and restated, isshall be submitted to the shareholders of the Company for approval at the Company’s 2021 annual meeting of shareholders and, if approved, shall becomeeffective as of September 25, 2017, the date of its adoption by the Board on which the Plan was approved by shareholders(the “Effective Date”), subject to approval by the Company’s shareholders. The Plan will be unlimited in duration and, in the event of Plan termination, will remain in effect as long as any Shares awarded under it are outstanding and not fully vested; provided, however, that no Awards will be made under the Plan on or after the tenth anniversary of Effective Date. No Option that is intended to be an Incentive Stock Option may be granted under the Plan until the Approval Date. If the Approval Date does not occur within twelve (12) months after the Effective Date, then no Options that are intended to be Incentive Stock Options may be granted under the Plan.
The intent of the parties is that payments and benefits under the Plan comply with Code Section 409A to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and be administered to be in compliance therewith. Any payments described in the Plan that are due within the “short-term deferral period” as defined in Code Section 409A shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan, to the extent required in order to avoid accelerated taxation and/or tax penalties under Code Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six (6) month period immediately following the Participant’s termination of employment shall instead be paid on the first business day after the date that is six (6) months following the Participant’s separation from service (or upon the Participant’s death, if earlier). In addition, for purposes of the Plan, each amount to be paid or benefit to be provided to the Participant pursuant to the Plan, which constitute deferred compensation subject to Code Section 409A, shall be construed as a separate identified payment for purposes of Code Section 409A. Nothing contained in the Plan or an Award Agreement shall be construed as a guarantee of any particular tax effect with respect to an Award. The Company does not guarantee that any Awards provided under the Plan will satisfy the provisions of Code Section 409A, and in no event will the Company be liable for any or all portion of any taxes, penalties, interest or other expenses that may be incurred by a Participant on account of any non-compliance with Code Section 409A.
Section 21Code Section 162(m).
The Committee may not delegate its authority to establish Performance Goals, certify performance against the Performance Goals or take other actions with respect to Awards that are intended to be “qualified performance-based compensation” under Code Section 162(m). Performance Goals with respect to such Awards shall be established in writing before the earlier of (a) the ninetieth (90th) day of the performance period or (b) the date that twenty-five percent (25%) of the performance period has elapsed. The payment of Awards under the Plan that are subject to the achievement of Performance Goals (including any prorated Awards) shall occur no later than March 15 of the calendar year following the year in which the performance period ends. With respect to Awards intended to be “qualified performance-based compensation” under Code Section 162(m), (i) the Committee shall not have the discretion to pay in excess of the amount earned based on the attainment of the Performance Goals as certified by the Committee and (ii) in determining the amount of the Award earned based on the attainment of the Performance Goals, the Committee may, in its sole discretion, eliminate or reduce the size of such Award in a manner consistent with Code Section 162(m) to the extent the Committee determines that such elimination or reduction is appropriate.
The Plan and all Awards issued hereunder shall be subject to any compensation recovery and/or recoupment policy adopted by the Company to comply with applicable law, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or to comport with good corporate governance practices, as such policies may be amended from time to time.
B-15
The Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law of such state. Except as may otherwise be provided in an Award Agreement, the jurisdiction and venue for any disputes arising under, or any action brought to enforce (otherwise relating to) the Plan or an Award thereunder shall be exclusively in the courts in the State of Colorado, County of Arapahoe or Denver, including the federal courts located therein (should federal jurisdiction exist). The Company and all Participants and beneficiaries hereby submit and consent to said jurisdiction and venue.
B-16
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. PRELIMINARY PROXY CARD SUBJECT TO COMPLETION DATED MARCH 31, 2023 V09293-P89376 2. Ratification of KPMG LLP as independent registered public accounting firm for the year ending December 31, 2023. 3. Advisory vote to approve named executive officer compensation. 4. Approve an amendment to the Certificate of Incorporation to reflect new Delaware law provisions regarding officer exculpation. 1. Election of Directors For Against Abstain ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. CPI CARD GROUP INC. The Board of Directors recommends you vote FOR proposals 1, 2, 3 and 4: NOTE: The proxy holders will have discretion to vote on such other business as may properly come before the meeting or any adjournment thereof. CPI CARD GROUP INC. 10368 WEST CENTENNIAL ROAD LITTLETON, COLORADO 80127 For Against Abstain 1c. H. Sanford Riley 1b. Nicholas Peters 1a. Thomas Furey 1f. Marc Sheinbaum 1d. Scott Scheirman 1e. Bradley Seaman 1g. Valerie Soranno Keating Nominees: ! ! ! ! ! ! ! ! ! VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 p.m. Eastern Time on May |
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