UNITED STATES
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Washington, D.C. 20549
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CPI AEROSTRUCTURES, INC.
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CPI AEROSTRUCTURES, INC. 200A Executive Drive
91 Heartland Blvd.
Edgewood, New York 11717
(516)
(631) 586-5200
Notice of Annual Meeting of Shareholders
To Be Held On June 22, 1999
to be held on October 6, 2020
To the Shareholders of CPI Aerostructures, Inc.:
You are cordially invited to attend the Annual Meetingannual meeting of Shareholdersshareholders of CPI Aerostructures, Inc. ("Company") to be held at the executive offices of
the Company, on Tuesday, June 22, 1999,October 6, 2020, at 10:9:00 a.m., for at our offices at 91 Heartland Boulevard, Edgewood, New York 11717.
At the following
purposes,annual meeting, you will be asked to consider and act upon the following matters:
1. To elect one Class I Director to serve for the ensuing three-year
period until his respective successor is elected and qualified;
2. To authorize an amendment to the Company's Certificate of
Incorporation to implement a reverse stock split of the Company's
Common Stock of between one-for-two and one-for-four with the exact
ratio to be determined in the sole discretion of the Board of
Directors;
3. To approve an amendment to the Company's 1998 Performance Equity Plan
to increase the number of shares issuable under such plan by 390,000
shares on a pre-split basis; and
4. To transact such other business as may properly come before the
Meeting and any and all adjournments thereof.
(1) | To elect one Class I director to serve for the ensuing three-year period until a successor is elected and qualified; | |
(2) | To amend the Company’s 2016 Long-Term Incentive Plan (“2016 Plan”) to increase the total number of shares of common stock available for issuance under the 2016 Plan by 800,000 shares, from 600,000 shares to 1,400,000 shares; | |
(3) | To approve, on an advisory basis, the executive compensation of our named executive officers; | |
(4) | To ratify the appointment of CohnReznick LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020; and | |
(5) | To transact such other business as may properly come before the annual meeting of shareholders and any and all postponements or adjournments thereof. |
Only shareholders of record at the close of business on May 3, 1999August 21, 2020 will be entitled to notice of, and to vote at, the Meetingannual meeting of shareholders and any postponements or any adjournments thereof.
You are earnestly requested
Please read the enclosed proxy statement carefully, because it contains information relevant to date, sign and return the accompanying
form of proxy inactions to be taken at the envelope enclosed for that purpose (to which no postage
need be affixedannual meeting.
Even if mailed in the United States) whether or not you expectplan to attend the Meetingannual meeting in person. The proxy is revocable byperson, we encourage you at any time prior to
its exercise and will not affect your right to vote your shares in person inadvance by following the event you
attend the Meeting or any adjournment thereof. The prompt return of the proxy
will be of assistance in preparing for the Meetingvoting instructions provided. Every vote is important, and your cooperation in this
respect will be appreciated.
we look forward to hearing from you.
By Order of the Board of Directors
Edward J. Fred, Secretary
Douglas McCrosson, Chief Executive Officer
Edgewood, New York
May 17, 1999
PRELIMINARY COPY
CPI AEROSTRUCTURES, INC.
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Proxy Statement
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August 25, 2020
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 6, 2020
Our 2020 proxy statement and our annual report for the fiscal year ended December 31, 2019 are available at http://www.cstproxy.com/cpiaero/2020/.
PROXY STATEMENT
Annual Meeting of Shareholders
to Be Heldbe held on June 22, 1999
----------------
October 6, 2020
This Proxy Statementproxy statement and the accompanying form of proxy is furnished to shareholders of CPI Aerostructures, Inc. ("Company"(the “Company”, “we”, or “us”) in connection with the solicitation of proxies by the Boardour board of Directors of the Companydirectors for use in voting at the Annual Meetingour annual meeting of Shareholders ("Meeting"shareholders (the “Annual Meeting”) to be held at the executiveour offices of the Company, 200A Executive Drive,at 91 Heartland Boulevard, Edgewood, New York 11717, on Tuesday, June 22, 1999,October 6, 2020, at 10:9:00 a.m., and at any and all postponements or adjournments thereofthereof.
This proxy statement, the proxy card, and the Annual Report on Form 10-K for the purposes set forthyear ended December 31, 2019 are being mailed on or about [●], 2020 to shareholders of record as of August 21, 2020. We are bearing all costs of this solicitation.
What matters am I voting on?
You are being asked to vote on the following matters:
(1) | To elect one Class I director to serve for the ensuing three-year period until a successor is elected and qualified; | |
(2) | To amend the Company’s 2016 Long-Term Incentive Plan (“2016 Plan”) to increase the total number of shares of common stock available for issuance under the 2016 Plan by 800,000 shares, from 600,000 shares to 1,400,000 shares; | |
(3) | To approve, on an advisory basis, the executive compensation of our named executive officers; | |
(4) | To ratify the appointment of CohnReznick LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020; and | |
(5) | To transact such other business as may properly come before the Annual Meeting and any and all postponements or adjournments thereof. |
What are the recommendations of the board of directors?
Our board of directors recommends that you vote:
✓ “FOR” the election of the director nominee named in this proxy statement;
✓ “FOR” the amendment of the 2016 Plan;
✓ “FOR” the advisory approval of executive compensation; and
✓ “FOR” the ratification of the appointment of CohnReznick LLP as the Company’s independent registered public accounting firm.
Who is entitled to vote?
Holders of our common stock as of the close of business on August 21, 2020, the record date, are entitled to vote at the Annual Meeting. As of the record date, we had issued and outstanding 11,876,610 shares of common stock, our only class of voting securities outstanding. Each holder of our common stock is entitled to one vote for each share held on the record date. There is no cumulative voting.
How do I attend the Annual Meeting?
In-person attendance at the Annual Meeting is limited due to due to the coronavirus pandemic and its concern for the safety of the Company's shareholders, officers, and directors and mandated social distancing protocols in the accompanying NoticeState of New York. If you would like to attend the Annual Meeting.
Any proxy given pursuantMeeting in person, you must reserve your attendance at least two (2) business days in advance of the Annual Meeting by contacting us at 91 Heartland Boulevard, Edgewood, NY 11717, telephone (516) 586-5200. Reservations will be accepted in the order in which they are received.
For security reasons, be prepared to this solicitation mayshow a form of government-issued photo identification upon arrival. If you do not reserve your attendance in advance, you will be revokedadmitted only if space is available and you provide photo identification and satisfactory evidence that you were a shareholder as of the record date. Additionally, in accordance with federal and local guidelines, we require all persons visiting our office to wear face masks, and attendees of the Annual Meeting are encouraged to bring their own masks. If you do not have a face mask, the Company will endeavor to provide you with one. Social distancing and local and state requirements concerning occupancy will be enforced.
How do I submit my vote?
Record holders can vote by the shareholder
at any time before it is exercised by written notification deliveredfollowing methods:
● | By Internet. You may vote by proxy via the internet. The proxy card enclosed with this proxy statement provides instructions for submitting a proxy by internet. |
● | By Mail. You may vote by completing the proxy card and returning it in the postage-paid return envelope. |
● | In Person. You may attend the Annual Meeting and vote in person using the ballot provided to you at the Annual Meeting, provided that you have registered in advance and you follow the Company’s COVID-19 protocol. See “How do I attend the Annual Meeting?” |
Beneficial owners of shares held in street name may instruct their bank, broker, or other nominee how to vote their shares. Beneficial owners should refer to the Secretary of the Company,materials provided to them by their bank, broker, or other nominee for information on communicating these voting instructions. Beneficial owners may not vote their shares in person at the Annual Meeting unless they obtain a legal proxy from the shareholder of record, present it to the inspector of election at the Annual Meeting, and produce valid identification. Beneficial owners should contact their bank, broker, or other nominee for instructions regarding obtaining a legal proxy.
Whether or not you plan to attend the Annual Meeting, please vote as soon as possible.
What is the difference between a “record holder” and a “beneficial owner” of the Company’s common stock?
If your shares are registered in your name with the Company’s transfer agent, Continental Stock Transfer and Trust Company, then you are considered the record holder for those shares. If you are the record holder of your shares, you have the right to vote your shares by proxy or to attend the Annual Meeting and vote in person.
If your shares are held through a bank, broker, or other nominee, then you are considered to hold your shares in “street name.” While you are the “beneficial owner” of those shares, you are not considered the record holder. As the beneficial owner of shares of the Company’s common stock, you have the right to instruct your bank, broker, or other nominee how to vote your shares. However, since you are not the record holder of your shares, you may not vote these shares in person at the Annual Meeting unless you obtain a legal proxy from the shareholder of record. You must bring this legal proxy to the Annual Meeting, present it to the inspector of election and produce valid identification. If you hold your shares in street name, your bank, broker, or other holder of record will not be permitted to vote on your behalf on certain matters, including with respect to the election of our directors, unless it receives voting instructions from you. To ensure that your vote is counted, please communicate your voting instructions to your broker, bank, or other holder of record before the Annual Meeting, or obtain a legal proxy and arrange to attend the Annual Meeting.
What is the effect of giving a proxy?
The persons named on the proxy card that accompanies this proxy statement have been designated as proxies by delivering
anotherour board of directors. If you are a record holder and return the proxy bearing a later date. Attendancecard in accordance with the procedures set forth in this proxy statement, the persons designated as proxies by a shareholderour board of directors will vote your shares at the Annual Meeting does not alone serve to revoke his or her proxy. Unless otherwiseas specified in your proxy.
If you are a record holder and return your proxy in accordance with the form ofprocedures set forth in this proxy statement but you do not provide any instructions as to how your shares represented by proxiesshould be voted, your shares will be voted "FOR"FOR the election of the director nominee described below under Proposal 1, "FOR"(Proposal.1), FOR amendment of the 2016 Plan (Proposal 2), FOR the advisory approval of executive compensation (Proposal 3), and FOR the amendment to the Company's Certificate of Incorporation to implement a
reverse stock split of Common Stock, as described below under Proposal 2
("Reverse Split"), "FOR" the approvalratification of the increase toappointment of CohnReznick LLP as our independent registered public accounting firm for the number offiscal year ending December 31, 2020 (Proposal 4).
If you give your proxy, your shares authorized under the Company's 1998 Performance Equity Plan by 390,000 shares on
a pre-split basis, as described under Proposal 3, and,also will be voted in the discretion of the persons designated as proxies named on the proxy card, with respect to any other matters properly brought before the Annual Meeting and any postponements or adjournments thereof. In such unanticipated
event thatIf any other matters are properly presented atbrought before the Annual Meeting, for action, the persons named in the proxydesignated as proxies will vote the proxies in accordance with their best judgment. This Proxy Statement, the accompanying Notice of Meeting of
Shareholders, the Proxy and
May I change my vote after I give my proxy?
You may revoke your proxy at any time before it is exercised by:
● | delivering written notification of your revocation to our secretary; |
● | delivering another proxy bearing a later date; or |
● | voting in person at the Annual Meeting. |
Please note that your attendance at the Annual ReportMeeting will not alone serve to Shareholdersrevoke your proxy.
What is a quorum?
A quorum is the minimum number of shares required to be present at the Annual Meeting for the year ended
December 31, 1998 are expectedmeeting to be mailed commencing on or about May 17, 1999
to shareholders of record on May 3, 1999 ("Record Date"). All costs of this
solicitation are to be borne by the Company.
VOTING SECURITIES
The Board of Directors has fixed the close of business on May 3,
1999, as the Record Date for the determination of shareholders of the Company
who are entitled to receive notice of,properly held under our bylaws and to vote at, the Meeting. Only
shareholders of record at the close of business on that date will be entitled to
vote at the Meeting or any and all adjournments thereof. As of the Record Date,
the Company had issued and outstanding 7,945,342 shares of Common Stock, the
Company's only class of voting securities outstanding. Each shareholder of the
Company will be entitled to one vote for each share of Common Stock registered
in his or her name on the Record Date.New York law. The presence, in person or by proxy, of a majority of all of the outstanding shares of Common Stockvotes entitled to be cast at the Annual Meeting will constitute a quorum atquorum. In certain instances, shares which are not considered present and entitled to vote on a particular matter will count for purposes of determining the Meeting. Proxiespresence of a quorum. For example, a proxy submitted by a shareholder may indicate that all or a portion of the shares represented by the proxy are marked "abstain" and proxies relatingnot being voted (“shareholder withholding”), or that the shareholder is abstaining, with respect to "street name"a particular matter. Similarly, a broker may not be permitted to vote (“broker non-vote”) with respect to shares thatheld in street name on a particular matter in the absence of instructions from the beneficial owner of the shares. The shares which are returnednot being voted on a particular matter due to the Company but marked by brokers as
"not voted" ("either shareholder withholding, abstention, or broker non-votes")non-vote will not be treated asconsidered shares present and entitled to vote on that matter but will count for purposes of determining the presence of a quorum if the shares are being voted with respect to any other matter at the Annual Meeting. If the proxy indicates that the shares are not being voted on all matters unless authority to vote
is completely withheld onany matter at the proxy. Annual Meeting, the shares will not be counted for purposes of determining the presence of a quorum.
How many votes are needed for approval of each matter?
The election of directorsthe director nominee. The election of the director nominee requires a plurality vote of the votes cast at the Meeting with respect to the election of
directors. "Plurality"Annual Meeting. “Plurality” means that the nomineeindividual who receives the largest number of votes cast "FOR" will be“FOR” is elected as director. Accordingly,Consequently, any shares not voted “FOR” such nominee, whether as a result of a direction of the shareholder to withhold authority, abstentions, andor a broker non-votesnon-vote, will not affecthave any effect on the outcomeelection.
Amendment of the election of directors. The
proposal to amend the Company's Certificate of Incorporation to implement the
Reverse Split requires the affirmative vote of a majority of all2016 Plan. Approval of the outstanding sharesamendment of Common Stock. Accordingly, abstentions and broker
non-votes will have the same effect as a vote against the proposal. Any other
matters to be voted on, including the increase in the number of shares
authorized under the 1998 Performance Equity2016 Plan will be decided byrequires the affirmative vote of a majority of the votes cast byat the holders of shares
1
entitled to vote thereon. On any such matter, abstentionsAnnual Meeting. Abstentions and broker non-votes will not be counted in determining the number of votes required for a majority and will therefore have no effect on the outcome.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENToutcome of this matter.
Advisory approval of executive compensation (“Say on Pay”). The following table sets forth certain information asresults of the Record Date with respect to (i) those persons or groups known toSay on Pay vote are advisory and non-binding on our board of directors. A vote “FOR” the Company to
beneficially own more than 5% of the Company's Common Stock, (ii) each director
and nominee, (iii) the Chief Executive Officer and the Company's other executive
officers whose total compensation exceeded $100,000, and (iv) all directors and
executive officers asSay on Pay proposal by a group. The information is determined in accordance with
Rule 13d-3 promulgated under the Securities Exchange Act of 1934 based upon
information furnished by the persons listed or contained in filings made by them
with the Securities and Exchange Commission.
Beneficial Shares Percent of
Name and Address of Beneficial Owner (1) Owned(2) Class
- --------------------------------------- ----------------- --------
Arthur August 1,170,000(3) 14.3%
Edward J. Fred 70,000(4) *
Walter Paulick 30,000(5) *
Kenneth McSweeney 5,000(6) *
Daniel Liguori 1,000,000(7) 11.2%
All Directors and Executive Officers 2,275,000(8) 24.4%
as a group (five persons)
- ---------------------------------
* Less than 1%
(1) Unless otherwise noted, the address of each person is j CPI
Aerostructures, Inc., 200A Executive Drive, Edgewood, New York 11717.
(2) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all of
the shares of Common Stock beneficially owned by them, subject to
community property laws, where applicable. A person is deemed to be the
beneficial owner of securities that can be acquired by such person
within 60 days from the Record Date upon the exercise of warrants or
options.
(3) Includes 250,000 shares of Common Stock which Mr. August has the right
to acquire upon exercise of options. Excludes (i) an aggregate of
120,000 shares of Common Stock owned by Mr. August's children or held in
trust for Mr. August's grandchildren and 9,000 shares of Common Stock
owned by Mr. August's wife, all of which shares Mr. August disclaims
beneficial ownership.
(4) Represents 70,000 shares of Common Stock which Mr. Fred has the right to
acquire upon the exercise of options.
(5) Represents 30,000 shares of Common Stock which Mr. Paulick has the right
to acquire upon the exercise of options.
(6) Represents 5,000 shares of Common Stock which Mr. McSweeney has the
right to acquire upon the exercise of options.
(7) Represents the aggregate number of shares which Mr. Liguori has the
right to acquire by converting the promissory note he received in
connection with the Company's purchase of Kolar Machine, Inc. The
business address of such person is care of Kolar, Inc., 407 Cliff
Street, Ithaca, New York, New York 14850.
(8) Includes those shares of Common Stock deemed to be included in Messrs.
August, Fred, Paulick, McSweeney and Liguori respective beneficial
ownership as disclosed in notes 3, 4, 5, 6 and 7.
2
PROPOSAL 1:
ELECTION OF DIRECTOR
The Board of Directors is divided into three Classes with only one Class
of directors being elected in each year. The term of office of the first class
of directors (Class I), presently consisting of Kenneth McSweeney, will expire
at the Meeting. The terms of office of the second class of directors (Class II),
presently consisting of Walter Paulick, will expire in 2000, and the term of
office of the third class of directors (Class III), presently consisting of
Edward J. Fred and Arthur August, will expire in 2001. If elected, Mr. McSweeney
will serve for a term of three years. To be elected, Mr. McSweeney must receive
a pluralitymajority of the votes cast at the Meeting.
Unless authority is withheld,Annual Meeting with respect to such proposal will constitute the proxies solicited by the Boardshareholders’ non-binding approval of Directors will be voted "FOR" the election of Mr. McSweeney. Management has no
reason to believe that Mr. McSweeneyour current executive compensation and related policies and procedures. Abstentions and broker non-votes will not be counted in determining the number of votes required for a candidate ormajority and will therefore have no effect on the outcome of this matter.
Ratification of independent registered public accounting firm. The ratification of the appointment of CohnReznick LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020 must be unableapproved by a majority of the votes cast at the Annual Meeting with respect to serve. However,the proposal. Abstentions will not be counted in determining the number of votes required for a majority and will therefore have no effect on the outcome. Brokerage firms do have authority to vote customers’ shares on this proposal in the event he should become unableabsence of instructions from the beneficial owner of the shares. To the extent any brokerage firms do not vote on this proposal, such broker non-votes will not have any effect on the outcome of this matter.
PROPOSAL 1 — ELECTION OF DIRECTOR NOMINEE
Our board of directors is divided into three classes with one class of directors typically being elected in each year and each class serving a three-year term. The term of office of our Class I directors expires at this year’s Annual Meeting. Our current Class I directors are Janet Cooper and Terry Stinson. Ms. Cooper will not stand for re-election as a Class I director; her seat will remain vacant at this time. The term of office of our Class II directors, Walter Paulick and Eric Rosenfeld, expires at the 2021 Annual Meeting. The term of office of our Class III directors, Carey Bond, Michael Faber, and Douglas McCrosson, expires at the 2022 Annual Meeting.
Our board of directors has nominated Terry Stinson, a current Class I director, for re-election as a Class I director. Following the Annual Meeting, our board of directors will have one vacancy. Under our bylaws, vacancies on the board of directors may be filled by the remaining directors or unwillingby the shareholders at an annual or special meeting called for that purpose.
Mr. Stinson has agreed to be named in this proxy statement and to serve as a director if elected. Unless otherwise specified by you when you give your proxy, the shares subject to your proxy will be voted for“FOR” the election of suchMr. Stinson as a Class I director. In case Mr. Stinson becomes unavailable for election to our board of directors, an event which is not anticipated, the proxy holders, or their substitutes, shall have full discretion and authority to vote or refrain from voting your shares for any other person as shallin accordance with their best judgment. Biographical information about Mr. Stinson and the entire board of directors can be designated byfound under the Board of Directors.
Information About heading “Directors, and Executive Officers, Set forth below is certain information concerning eachand Corporate Governance” beginning on page 19 below.
Our bylaws provide that a director director-nominee and executive officersnominee that receives the affirmative vote of a plurality of the Company:
Name Age Position
- ---------------- ---- ------------
Arthur August 64 Chairmanissued and outstanding shares of the BoardCompany’s common stock, represented in person or by proxy at the Annual Meeting and entitled to vote thereon, will be elected as a director.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
“FOR” THE CLASS I DIRECTOR NOMINEE.
6
PROPOSAL 2 – AMENDMENT OF 2016 PLAN
The Company’s 2016 Long-Term Incentive Plan was approved by shareholders at the annual meeting held in 2016 and reserves 600,000 shares of Directors, President,
Chief Executive Officercommon stock for issuance to employees, officers, directors, and Director
Edward J. Fred* 40 Vice President, Chief Financial Officer,
Secretaryconsultants, in accordance with the 2016 Plan’s terms. On May 22, 2020, the board approved and Director
Walter Paulick* 52 Director
Kenneth McSweeney* 67 Directoradopted, subject to the approval of our shareholders at the Annual Meeting, an amendment to the 2016 Plan to increase the total number of shares available under the 2016 Plan. The compensation and Nominee
- --------------
* Memberhuman resources committee of both the board of directors (“Compensation Committee& Human Resources Committee”) has recommended an increase of 800,000 shares of common stock, from 600,000 shares to 1,400,000 shares available under the 2016 Plan. At the Annual Meeting, shareholders will vote on a proposal to approve this amendment.
Reasons for the Amendment
The Company plans to make equity grants in connection with new hires and promotions and in connection with its annual employee reviews. The Company believes its employees are valuable assets. Offering a broad-based equity compensation program is vital to attract and retain the Audit Committee.
Arthur August,most highly skilled people in the Company’s industry. In addition, the Company believes that employees who have a founderstake in the future success of its business become highly motivated to achieve the Company’s long-term business goals and to expend maximum effort in the creation of shareholder value, thereby linking the interests of such individuals with those of shareholders generally.
As of the record date, the Company has been the Chairmangranted, net of forfeitures, awards to purchase 527,655 out of the Board, President600,000 shares presently available under the 2016 Plan. Our board of directors believes that increased capacity to make equity awards provided by the amendment is essential to the Company’s continued growth, and Chief Executive Officertherefore in the best interest of its shareholders.
In determining the number of shares to request for approval by our shareholders, our management team worked with the Compensation & Human Resources Committee to evaluate a number of factors, including our recent share usage and our stock price trends. The increase of 800,000 shares represents approximately 6.8% of our outstanding common stock, for an aggregate market value of $$2,568,000, based on the closing price of $3.21 per share as reported by the NYSE American exchange of our common stock on August 21, 2020, the record date. We currently anticipate that the 800,000 additional shares, combined with the remaining shares available for future awards, will last for about two (2) years based on our recent grant rates and the approximate current share price, but could last for a shorter or longer period of time if actual compensation practice does not match recent rates or if our share price changes materially. We recognize that equity compensation awards dilute shareholder equity and we carefully manage our equity incentive compensation to be both competitive and consistent with market practices as well as mindful of shareholder interests.
Why you should Vote to Approve the Amendment
We manage our equity award use carefully
We have three equity incentive plans: the Performance Equity Plan 2000, the Performance Equity Plan 2009, and the 2016 Long-Term Incentive Plan. The total number of shares of common stock subject to awards granted in the last three years has, on average, been 1.50% of the Company since January 1980.
From 1956weighted average number of shares of our common stock outstanding during the corresponding year.
The following table provides certain information regarding our share usage under each of our incentive plans.
| As of August 21, 2020 (record date) | ||||
| Number of shares of common stock subject to outstanding full value awards | 450,567 | |||
| Number of shares of common stock available under the 2000 Plan | — | |||
| Number of shares of common stock available under the 2009 Plan | 75,236 | |||
| Number of shares of common stock available under the 2016 Plan | 72,345 | |||
Burn Rate(1) | 1.25 | % | ||
Adjusted Burn Rate(2) | 1.50 | % | ||
________________
| (1) | “Burn Rate” refers to how many shares are subject to awards that we grant over a particular period of time, in relation to the weighted average number of shares of common stock issued and outstanding during that period. |
| (2) | “Adjusted Burn Rate” gives effect to a 1.5x multiplier for grants of restricted stock and RSUs made under the 2016 Long-Term Incentive Plan. |
Focus on performance-based equity awards
Fifty percent of the equity awards made to 1979, Mr. August was employed by Northrop Grumman Corporation
("Grumman"), an aerospace products manufacturer, where he last heldour executive officers each year are subject to performance-based vesting requirements, with the positionremaining fifty percent subject to time-based vesting over four years. Our performance metrics typically focus on the achievement of Deputy Director. Mr. August holds a degreefinancial targets such as revenue and free cash flow, which we believe aligns our executives’ pay with the Company’s financial results and the creation of shareholder value. Equity-based compensation paid to our non-employee directors vests over one year.
We have implemented compensation and governance best practices
The 2016 Plan includes provisions that are designed to protect our shareholders’ interests and to reflect compensation and corporate governance best practices, including:
| ✓ | management independence: the Compensation & Human Resources Committee, a committee of our board which is composed entirely of independent directors, manages the 2016 Plan and approves grants made to executive officers and directors; |
| ✓ | vesting: vesting period of awards is typically four years; |
| ✓ | limited share recycling: shares of common stock subject to awards that are forfeited or terminated will be available for future award grants, but shares that are reacquired or withheld to satisfy the exercise or purchase price of an award are not available for future award grants; |
| ✓ | “multiplier” for full value awards: awards of restricted stock, restricted stock units, and other stock-based awards count against the plan limit at 1.5x for every share granted; |
| ✓ | no evergreen provision: shareholder approval is required to increase the number of shares available for grant; |
| ✓ | forfeiture: awards are generally subject to forfeiture or clawback; |
| ✓ | options priced at fair market value: the exercise price of options may not be less than the fair market value of the underlying common stock on the date of grant; |
| ✓ | no repricing: repricing and cash-out of underwater awards is not permitted without shareholder approval. |
If shareholders do not approve the amendment to the 2016 Plan, the current share limit under the 2016 Plan will remain in Aeronautical Engineering fromeffect.
Summary of the Academy of Aeronautics (1956), a B.S. degree in Industrial Management from
C. W. Post College (1963), a Masters degree in Engineering from New York
University (1965) and2016 Plan
The following is a graduatesummary of the Program for Management Development at
the Harvard Graduate School of Business (1977).
Edward J. Fred was appointed to be Secretary and a directorprincipal features of the Company effective December 31, 1998. Mr. Fred was appointed2016 Plan. This summary is qualified in its entirety by reference to the position of
Vice President on December 15, 1998. He was Controllerfull text of the Company from
February 19952016 Plan, which is incorporated by reference to April 1998, when he was appointed as Chief Financial Officer.
For approximately ten years prior to joining the Company, Mr. Fred served in
various positions for the international division of Grumman, where he last held
the position of Controller.
Walter Paulick has been a directorExhibit 10.2 of the Company since April 1992. Mr.
Paulick is currently a self employed financial consultant. From 1982 to November
1992, Mr. Paulick was a Vice President of Parr Development Company, Inc., a real
estate development company. From 1980 to 1982, Mr. Paulick was employed by Key
Bank, where he last held the position of Vice President. From 1971 to 1980, Mr.
Paulick was a Vice President of National Westminster U.S.A.
3
Kenneth McSweeney has been a director of the Company since February
1998. He has also provided various consulting services to the CompanyCompany’s Annual Report on a per
diem basis since January 1995. Mr. McSweeney is currently an independent
consultant to various aerospace corporations. From 1961 to 1995, Mr. McSweeney
served in various management positions for Grumman, most recently as the Vice
President of their Aerostructures Division and a Director of Business
Development for the Middle East. Mr. McSweeney has extensive experience in
aerostructures and logistics support products and is a licensed professional
engineer in New York State. He holds a Bachelor and Master of Science Degree in
Electrical Engineering from the Polytechnic Institute of Brooklyn and a Masters
in Business Management from C.W. Post College. He also completed the Executive
Development Program at the Cornell School of Business and Public Administration.
The Board of Directors unanimously recommends that shareholders vote
"FOR" the election of the nominee named above.
Board of Directors Compensation
Currently, Directors who are not employed by the Company receive $750
for attending each meeting and are reimbursed for the reasonable expenses they
incur in attending meetings. The Company's two non-officer directors have each
received stock options from the Company. Mr. Paulick received options to
purchase 5,000 shares of Common StockForm 10-K for the year ended December 31, 1998. Mr.
McSweeney received options to purchase 5,000 shares of Common Stock for the year
ended December 31, 1998. See "Stock Options" below.
Executive Officers and Board of Directors Meetings and Committees
Officers are appointed by and serve at the discretion of the Board of
Directors.2019. The Company held two meetings of the Board of Directors 1998 and took
action by unanimous written consent in lieu of a meeting on one occasion.
Messrs. Fred, Paulick and McSweeney serve on the Company's Compensation
Committee, which reviews and approves the compensation to be paid to certain
officers of the Company. Messrs. Paulick (Chairman), Fred and McSweeney also
serve on the Company's Audit Committee. The Compensation Committee and the Audit
Committee each held one meeting during 1998. No member of the Board of Directors
attended fewer than 75% of the total number of meetings of the Board and
committees thereof upon which he served during 1998.
4
Executive Compensation
The following table sets forth all compensation awarded to, earned by,
or paid for all services renderedonly change to the Company during the fiscal years ended
December 31, 1998, 1997 and 1996, by the Company's Chief Executive Officer and
the Company's only other executive officer whose total compensation exceeded
$100,000.
===================================================================================================================================
SUMMARY COMPENSATION TABLE
===================================================================================================================================
Long-Term
Annual Compensation Compensation
----------------------------------------------------------------
Name and Principal Position Year Salary Bonus Securities Underlying
($) ($) Options(#)
- -----------------------------------------------------------------------------------------------------------------------------------
Arthur August, 1998 321,102 0 100,000
President and Chief Executive 1997 294,730 22,500 200,000
Officer 1996 271,148 12,611 0
- -----------------------------------------------------------------------------------------------------------------------------------
Theodore J. Martines, 1998 185,807 0 75,000
Executive Vice President(1) 1997 172,145 9,000 115,000
1996 164,211 5,044 0
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel Liguori, 1998 160,470 0 0
President-Kolar(2) 1997 31,375 0 0
1996 0 0 0
===================================================================================================================================
(1) Retired in December 1998.
(2) Compensation is for the period subsequent to the October 9, 1997 closing
date of the acquisition of Kolar Machine, Inc.
===============================================================================
OPTION GRANTS IN LAST FISCAL YEAR
===============================================================================
Percent of Exercise
Total Options or Base
Granted to Price Expiration
Options Employees in o Date
Fiscal Year (1)
- --------------------------------------------------------------------------------
Arthur August 100,000 28.2% 2.30 6/05/03
- -------------------------------------------------------------------------------
Theodore J. Martines 75,000 21.1% 2.09 6/05/08
- -------------------------------------------------------------------------------
(1) The Company granted a total of 355,000 options to employees in the fiscal
year ended December 31, 1998.
5
===========================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY END OPTION VALUES
===========================================================================================================
Number of Value of
Securities Underlying Unexercised
Unexercised In-The-Money
Options at Options
Shares FYE(#) at FYE at
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------
Arthur August -0- -0- 250,000/100,000 -0-
- -------------------------------------------------------------------------------------------------------------
Theodore J. Martines -0- -0- 163,500/66,500 -0-
- -------------------------------------------------------------------------------------------------------------
Employment Agreements
Messrs. August and Fred are employed by the Company as Chairman of the
Board, President and Chief Executive Officer, and Vice President, Chief
Financial Officer and Secretary, respectively, pursuant to employment agreements
which expire on December 31, 2001. The employment agreements provide Messrs.
August and Fred with annual base salaries of $300,000, and $100,000,
respectively, during the term of their contracts. Mr. August is entitled to
receive an annual bonus equal to 4% of the Company's net income for the years
ending December 31, 1999, 2000 and 2001. The agreements with Messrs. August and
Fred provide that during the term of employment with the Company, and for a
period of one-year thereafter, the employees will not compete with the Company
or engage in any activities2016 Plan that would interfere with the performance of their
duties as employees of the Company. The agreements provide that the Company will
maintain hospital and health insurance benefits for the employee following
retirement.
The Company employed Mr. Theodore Martines as its Executive Vice
President from December 1984 through his retirement in December 1998. Pursuantbe implemented is to his agreement with the Company, Mr. Martines received an annual base salary
of $185,807 and $172,145 in 1998 and 1997, respectively.
Daniel Liguori is employed as President of Kolar pursuant to an
employment agreement which expires on October 9, 2000 unless extended, at Mr.
Liguori's election, for an additional three years. The employment agreement
provides Mr. Liguori with an annual base salary of $168,000 and also provides
that Mr. Liguori will not compete with Kolar during the term of employment and
for a period of five years thereafter.
Employee Benefit Plans
On February 1, 1991, the Company adopted a Qualified Sick Pay Plan
("QSP Plan") which covers full-time executive officers and managers. The QSP
Plan provides covered employees with income during periods of disability due to
sickness or injury and is funded through the purchase of disability income
insurance policies.
On September 11, 1996, the Company instituted a fully-qualified 401(k)
Employees Savings Plan. The plan is totally voluntary and employee contributions
to the plan commenced on October 1, 1996. The Company has the option to make
voluntary matching and profit-sharing contributions to the account of its
employees.
Stock Options
1998 Performance Equity Plan
On April 27, 1998, the Board of Directors adopted the 1998 Performance
Equity Plan ("1998 Plan") which was subsequently approved by the shareholders of
the Company on June 16, 1998. See discussion under Proposal 3 for details of the
1998 Plan.
6
1995 Employee Stock Option Plan
The 1995 Employee Stock Option Plan ("1995 Option Plan"), authorizes
the grant of 600,000 options, of which options to purchase 493,400 shares of
Common Stock are outstanding, at exercise prices ranging from $1.06 to $3.00 per
share, to certain employees, executive officers and directors of the Company
including: five-year options to purchase an aggregate of 250,000 shares of
Common Stock to Arthur August, Chairman of the Board of Directors, Chief
Executive Officer and President, at exercise prices ranging from $1.44 to $2.27
per share; five-year options to purchase 10,000 shares of Common Stock to Edward
J. Fred, Vice President, Chief Financial Officer, Secretary and a director;
five-year options to purchase an aggregate of 159,000 shares of Common Stock to
Stanley Wunderlich, a former director; five year options to purchase 15,000
shares of Common Stock to Walter Paulick, a director, five year options to
purchase 5,000 shares of Common Stock to Kenneth McSweeney, a director, and
five-year options to fourteen non-executive officer employees to purchase an
aggregate of 153,400 shares of Common Stock. As of April 1, 1999, options to
purchase 40,000 additional shares remain eligible for the grant of options. 1992
Employee Stock Option Plan
The 1992 Employee Stock Option Plan ("1992 Plan") authorizes the grant
of 250,000 options, of which options to purchase 79,000 shares are outstanding
at exercise prices ranging from $1.31 to $3.00 per share to certain employees,
executive officers and directors of the Company, including: 10,000 shares to
Walter Paulick, a director, exercisable at $1.00 per share, and 5,000 shares
exercisable at $2.00 per share; and 10,000 shares to Edward J. Fred, Vice
President, Chief Financial Officer, Secretary and a director, exercisable at
$1.31 per share. As of April 1, 1999, options to purchase 122,836 additional
shares remain eligible for the grant of options.
Other Options
In October 1994, the Company granted an option to purchase 10,000
shares at $3.00 per share (as amended) to a consultant. On January 26, 1995, the
Company granted an option to purchase 120,000 shares of Common Stock at $3.00
per share to Rickel and Associates, in consideration of business consulting
services to be performed for the Company. This option was canceled in April
1996, because of Rickel & Associates' non-performance and is the subject of a
lawsuit. An option to purchase 20,000 shares of Common Stock was issued to the
Company's former counsel in April 1995 exercisable at $2.00 per share. In April
1998, the Company issued 100,000 warrants to Gaines, Berland Inc. as
compensation for acting as the Company's investment banker, at an exercise price
of $1.50 per share.
Certain Relationships and Related Transactions
For information concerning employment agreements with, compensation of,
and stock options granted to, the Company's executive officers and directors,
see "Employment Agreements" and "Stock Options."
On January 1, 1996, the Company entered into a consulting agreement
with Stanley Wunderlich. Mr. Wunderlich was a director of the Company from
November 1995 until February 1, 1998, when he resigned from the Board of
Directors. The agreement terminated by its own terms on December 31, 1997. The
Company and Mr. Wunderlich entered into a new consulting agreement on January 1,
1998, which terminates on December 31, 1999, unless sooner terminated on sixty
days notice of either party. Pursuant to the agreement, Mr. Wunderlich provides
the Company with financial advisory consulting services including, but not
limited to, assisting with financial public relations, arranging meetings with
securities analysts and money managers, rendering advice with regard to changes
in the capitalization or corporate structure of the Company, and advising the
Company in connection with potential mergers or acquisitions. In consideration
for these services, Mr. Wunderlich is compensated at the rate of $1,000 per
month, including reasonable expenses. In addition, in January 1998, as further
compensation for these consulting services, Mr. Wunderlich was granted 75,000
non-qualified stock options exercisable at a price of $2.50 per share for a
period of five years.
Compliance with 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
7
Officers, directors and ten percent shareholders are required by regulation to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on the Company's copies of such forms received or written representations
from certain reporting persons that no Form 5's were required for those persons,
the Company believes that, during the fiscal year ended December 31, 1998, all
the Company requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
PROPOSAL 2
AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO IMPLEMENT A REVERSE STOCK SPLIT
General
The Board of Directors has unanimously approved a proposal to amend the
Company's Certificate of Incorporation to implement a reverse stock split of the
Company's Common Stock of between one-for-two and one-for-four with the exact
ratio to be determined in the sole discretion of the Board of Directors. This
means that as few as two shares or as many as four shares of Common Stock would
be combined into one New Share (defined below).
Assuming the Reverse Split is approved by the Company's shareholders,
the Reverse Split will be effective after the filing of an amendment to the
Certificate of Incorporation ("Amendment") with the New York Secretary of State
("Effective Date"). Each certificate representing a certain number of shares of
Common Stock outstanding immediately prior to the date of such filing ("Old
Shares") will be deemed automatically, without any action on the part of the
shareholders, to represent a fraction of such number of shares of Common Stock
after the Reverse Split ("New Shares"); provided, however, that no fractional
New Shares will be issued as a result of a Reverse Split. In lieu thereof, each
shareholder whose Old Shares are not evenly divisible will receive one
additional New Share for the fractional New Share that such shareholder would
otherwise be entitled to receive as a result of a Reverse Split. After the
Reverse Split becomes effective, shareholders will be asked to surrender
certificates representing Old Shares in accordance with the procedures set forth
in a letter of transmittal to be sent by the Company. Upon such surrender, a
certificate representing the New Shares will be issued and forwarded to the
shareholders; however, each certificate representing Old Shares will continue to
be valid and represent New Shares equal to a fraction of the number of Old
Shares (plus one additional New Share where such Old Shares are not evenly
divisible).
The number of shares of capital stock authorized by the Certificate of
Incorporation will not change as a result of the proposed Reverse Split. The
Common Stock issued pursuant to the Reverse Split will be fully paid and
nonassessable. The voting and other rights that presently characterize the
Common Stock will not be altered by the Reverse Split.
Purposes of a Reverse Split
The Board of Directors believes that the Reverse Split is desirable for
several reasons. The Board of Directors expects a Reverse Split to help the
Company satisfy the maintenance requirements established by the Nasdaq SmallCap
Market ("Nasdaq") necessary for continued listing, which among other things,
requires that the Company's Common Stock maintain a bid price of at least $1.00
per share. Over the past several months, the bid price of the Company's shares
of Common Stock has fallen below $1.00. The Company received a letter from
Nasdaq stating that the Company must demonstrate compliance with the Nasdaq
minimum $1.00 bid price before July 13, 1999. Management believes that if the
Reverse Split is approved by the shareholders, then the Company's shares of
Common Stock will have a minimum bid price in excess of $1.00 per share and,
therefore continue to be listed and traded on Nasdaq. A range for the Reverse
Split is being proposed instead of a specific ratio since the price at which the
Common Stock trades may fluctuate between now and the time the Reverse Split is
implemented. If the Reverse Split is not approved by the shareholders, then it
is highly likely that the Company's shares of Common Stock will cease to be
listed and traded on Nasdaq. In such event, the shares of Common Stock will
likely be quoted on the OTC Bulletin Board.
In addition, a Reverse Split should enhance the acceptability of the
Common Stock by the financial community and investing public. A variety of
brokerage house policies and practices tend to discourage individual brokers
within those firms from dealing with lower priced stocks. Some of those policies
8
and practices pertain to time-consuming procedures that function to make the
handling of lower priced stocks economically unattractive to brokers. In
addition, the structure of trading commissions also tends to have an adverse
impact upon holders of lower priced stock because the brokerage commission on a
sale of lower priced stock generally represents a higher percentage of the sales
price than the commission on a relatively higher priced issue. A Reverse Split
should result in a price level for the Common Stock that will reduce, to some
extent, the effect of the above-referenced policies and practices of brokerage
firms and diminish the adverse impact of trading commissions on the market for
the Common Stock. The expected increased price level also may encourage interest
and trading in the Common Stock and possibly promote greater liquidity for the
Company's shareholders, although such liquidity could be adversely affected by
the reduced number of shares of Common Stock outstanding after the Effective
Date.
There can be no assurance that any or all of these results will occur.
If, for example, a one-for-four Reverse Split is implemented, there can be no
assurance that the market price per New Share after the Reverse Split will be
four times the market price per Old Share before the Reverse Split, or that such
price will either exceed or remain in excess of the current market price.
Shareholders should note that the Board of Directors cannot predict what effect
a Reverse Split will have on the market price of the Common Stock.
The Board of Directors will determine the exact ratio for the Reverse
Split based upon the market price of the Common Stock at the time of
implementation. It can be anticipated that management will select a ratio that
will result in a new market price that is sufficiently in excess of the $1.00
minimum bid price required by Nasdaq, so that a decrease in the bid price for
the Common Stock would not cause the Common Stock to be delisted from the Nasdaq
SmallCap Market.
Effect on Market for Common Stock. On May 10, 1999, the closing sale
price of the Common Stock on the Nasdaq SmallCap Market was $0.__ per share. By
decreasingincrease the number of shares of Common Stock outstanding without altering the
aggregate economic interest in the Company represented by such shares, the Board
of Directors believes that the trading price will be increased to a price more
appropriate for a publicly-traded security. The following table illustrates the
principal effect of the proposed Reverse Split (assuming a whole number is
chosen for the ratio split) and the decrease in outstanding shares of Common
Stock assuming no additional shares are issued prior to the Effective Date as a
result of the exercise of any options or warrants.
Shares of Prior to After
Reverse Split Common Stock Reverse Split Reverse Split
---------------- ------------ -------------- ------------------
One-for-two Authorized 50,000,000 50,000,000
Outstanding 7,945,342 3,972,671*
One-for-three Authorized 50,000,000 50,000,000
Outstanding 7,945,342 2,648,447*
One-for-four Authorized 50,000,000 50,000,000
Outstanding 7,945,342 1,986,335*
- --------------------------------
* Does not include New Shares to be issued in lieu of fractional shares.
Effect on Outstanding Options, Warrants and Preferred Stock. As of
December 31, 1998, the Company had outstanding options to purchase 1,122,400
shares of Common Stock with per-share exercise prices ranging from $1.00 to
$3.00. In addition, as of December 31, 1998, the Company had outstanding 702,304
warrants ("Warrants") with per-share exercise prices ranging from $1.00 to $2.50
per share. Upon the effectiveness of the Reverse Split, the 1992 Plan, the 1995
9
Plan, the 1998 Plan and the Warrants will provide for a proportional downward
adjustment to the number of shares subject to outstanding options and warrants
and a corresponding upward adjustment in the per-share exercise prices to
reflect the Reverse Split. In addition, under the 1992 Plan, the 1995 Plan and
the 1998 Plan, the number of shares reservedcommon stock eligible for issuance under future awards
will be proportionally decreased.
Exchange of Stock Certificates
As soon as practicable after the Effective Date of a Reverse Split, the
Company will send a letter of transmittalthereunder by 800,000 shares, from 600,000 shares to each holder of record of Old Shares
outstanding on the Effective Date. 1,400,000 shares.
Administration
The letter of transmittal will contain
instructions for the surrender of certificate(s) representing such Old Shares to
North American Transfer Co., the Company's exchange agent ("Exchange Agent").
Upon proper completion and execution of the letter of transmittal and return
thereof to the Exchange Agent, together with the certificate(s) representing Old
Shares, a shareholder will be entitled to receive a certificate representing the
number of New Shares into which his Old Shares have been reclassified and
changed as a result of the Reverse Split.
Shareholders should not submit any certificates until requested to do
so. No new certificate will be issued to a shareholder until he has surrendered
his outstanding certificate(s) together with the properly completed and executed
letter of transmittal to the Exchange Agent.
Federal Income Tax Consequences
The following summary of the federal income tax consequences of a
Reverse Split is not, and should not be relied on as, a comprehensive analysis
of the tax issues arising from or relating to the proposed Reverse Split.
ACCORDINGLY, SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS FOR AN
ANALYSIS OF THE EFFECT OF THE TRANSACTION CONTEMPLATED BY THE PROPOSED AMENDMENT
ON THEIR RESPECTIVE TAX SITUATIONS.
The exchange of Old Shares for New Shares will not result in
recognition of gain or loss. The holding period of the New Shares will include
the shareholders' holding period for the Old Shares exchanged therefor, provided
that the Old Shares were held as a capital asset. The shares of Common Stock to
be issued to each shareholder will have an aggregate basis, for computing gain
or loss, equal to the aggregate basis of the Old Shares.
The Board of Directors recommends voting "FOR" Proposal 2.
PROPOSAL 3
APPROVAL OF AN AMENDMENT TO THE
1998 PERFORMANCE EQUITY PLAN TO INCREASE
THE NUMBER OF SHARES ISSUABLE UPON EXERCISE OF OPTIONS
The Company's has reserved 1,000,000 (pre-split) shares of Common Stock
for issuance upon exercise of options and other stock-based awards which may be
granted under the 1998 Plan. On March 30, 1999, the Board approved an amendment
to the 1998 Plan, pursuant to which the number of shares available for issuance
pursuant to grants thereunder was increased, subject to approval by the
Company's shareholders at the Meeting, by 390,000 shares, on a pre-split basis
(or 4.9% of the Company's outstanding Common Stock). If the shareholders approve
the Reverse Split described in Proposal 2 above, the proposed increase to the
number of shares reserved under the 1998 Plan would be proportionally adjusted
downward. For example, if the Board of Directors approves a one-for-three
Reverse Split, the shares subject to the 1998 Plan would be increased by 130,000
shares if Proposal 3 is approved by the shareholders.
The 1998 Plan is intended to assist the Company and its subsidiaries in
attracting, retaining and motivating employees, officers, directors and
consultants of particular merit. Management of the Company is actively pursuing
acquisition opportunities and does not believe that the amounts remaining under
the 1998 Plan combined with the 1992 Plan and 1995 Plan are sufficient to carry
10
out its acquisition strategy and compensation policy designed to attract and
retain employees, directors and consultants who contribute to the Company's
success. The cost of retaining employees acquired in connection with an
acquisition could be significantly less if the Company had the flexibility to
issue options and other types of awards which may be granted under the 1998
Plan.
As of the date hereof, options to purchase an aggregate of 180,000
shares of Common Stock are outstanding under the 1998 Plan, at exercise prices
ranging from $2.09 to $2.30 per share, to certain employees and executive
officers of the Company. These include five year options to purchase 100,000
shares of Common Stock granted to Arthur August, Chairman of the Board of
Directors, Chief Executive Officer and President at an exercise price of $2.30
per share; ten-year options to purchase 40,000 shares of Common Stock to Edward
J. Fred, Vice President, Chief Financial Officer, Secretary and a director, at
an exercise price of $2.09 per share; and ten-year options to one non-executive
officer to purchase 40,000 shares of Common Stock. As of April 1, 1999, options
to purchase 820,000 additional shares (on a pre-split basis) remain eligible for
the grant of options
If the 1998 Plan, as summarized below under "Summary of the 1998 Plan,"
is amended as proposed, then, if all the shares reserved thereunder were issued,
upon the exercise of options and other awards, such shares would be equal to
approximately 17.5% of the total shares that would then be outstanding (assuming
no exercise of other outstanding options and convertible securities).
The Board of Directors recommends voting "FOR" Proposal 3.
Summary of the 1998 Plan
Administration
The 19982016 Plan is administered by the BoardCompensation & Human Resources Committee of Directors or by a
committee ("Committee") appointed by the Boardour board of Directors, whose members will
serve at the pleasure of the Board of Directors. If no Committee is so
designated, then the 1998 Plan will be administered by the Board of Directors.
The Board of Directors or, if appointed, Committee, has full authority, subject
to the provisions of the 1998 Plan, to award (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) other stock-based awards (collectively, "Awards").directors. Subject to the provisions of the 19982016 Plan, the Board of Directors or
theCompensation & Human Resources Committee determines, among other things, the persons to whom from time to time Awardsawards may be granted, ("Holders"), the specific type of Awardsawards to be granted, (e.g., Stock Option, Restricted Stock, etc.), the number of shares subject to each Award,award, share prices, any restrictions or limitations on such
Awardsthe awards, and any vesting, exchange, deferral, surrender, cancellation, acceleration, termination, exercise or forfeiture provisions related to such
Awards. The interpretation and construction by the Board of Directors or the
Committee of any provisions of, and the determination of any questions arising
under, the 1998 Plan or any rule or regulation established by the Board of
Directors or the Committee pursuant to the 1998 Plan will be final, conclusive
and binding on all persons interested in the 1998 Plan.
Sharesawards.
Stock Subject to the Plan; General Terms
The 19982016 Plan authorizes
Assuming shareholder approval of the granting of Awardsamendment to the exercise of which
would allow up to an aggregate of 1,000,0002016 Plan, we will have 872,345 shares of Common Stock of the
Company to be acquired by the Holders of said Awards. In order to prevent the
dilution or enlargement of the rights of Holderscommon stock available for grant under the 1998 Plan,2016 Plan.
Full Value Awards. Any shares of common stock granted in connection with awards other than stock options and stock appreciation rights are counted against the number of shares reserved for issuance under the 2016 Plan as one and one-half shares of Common Stock authorized by the 1998 Plan is subject to adjustment
by the Boardcommon stock for every one share of common stock granted in the eventconnection with such award. Any shares of any increase or decreasecommon stock granted in connection with stock options and stock appreciation rights are counted against the number of shares reserved for issuance under the 2016 Plan as one share for every one share of outstandingcommon stock issuable upon the exercise of such stock option or stock appreciation right awarded.
Award Limitation. No participant may be granted options and/or stock appreciation rights with respect to more than 100,000 shares of Common Stock resulting from acommon stock dividend, stock split,
reverse stock split and certainin the aggregate or any other changes affecting all theawards for more than 50,000 shares of Common
Stockcommon stock in the aggregate or incentive bonuses for more than $500,000 in the aggregate, in any calendar year. A non-employee director may not be granted awards covering more than 50,000 shares of the Company, as a whole. Ifcommon stock in any Award granted under the 1998 Plan iscalendar year.
Limited Recycling Provision. Shares of common stock subject to awards that are forfeited or terminated the shares of Common Stock of the Company that were
available pursuant to such Award will again be available for distribution in
connection with Awards subsequently grantedfuture award grants under the 19982016 Plan. Any equity security granted pursuantIf a holder pays the exercise price of a stock option by surrendering any previously owned shares of common stock, or if a holder arranges to have the 1998appropriate number of shares otherwise issuable to him withheld to cover the withholding tax liability associated with the exercise of a stock option or the grant of shares of restricted stock, restricted stock units, or other full-value awards, the shares surrendered by the holder or withheld by the Company will not be available for future award grants under the 2016 Plan.
Eligibility
We may grant awards under the 2016 Plan must be held for
six months from the date of grant or in the case of an option, at least six
months must elapse from the date of acquisition of the option to the date of
disposition of the option (other than upon exercise or conversion) or its
underlying equity security.
11
Eligibility
Subject to the provisions of the 1998 Plan, Awards may be granted to
key employees, officers, directors consultants and other personsconsultants who are deemed to have rendered, or to be able to render, significant services to the Company or
its subsidiariesus and who are deemed to have contributed, or to have the potential to contribute, to the success of the Company. Incentive Options (as hereinafter
defined) may be awarded only to persons who, at the time of such awards, are
employees of the Company or its subsidiaries.
Types of Awards
Options. The 1998 Plan provides both for "incentiveour success. An “incentive stock options"
("Incentive Options")option” as defined in Section 422 of the Internal Revenue Code of 1986, as amended (“Code”), may be granted under the 2016 Plan only to a person who, at the time of the grant, is an employee of ours.
Types of Awards
Options. The 2016 Plan provides both for incentive stock options, and for options not qualifying as Incentive Options ("Non-qualified Options"),incentive options, both of which may be granted with any other stock-basedstock based award under the 19982016 Plan. The Board or theCompensation & Human Resources Committee will determinedetermines the exercise price per share of Common Stockcommon stock purchasable under an Incentiveincentive or Non-qualified Option (collectively,
"Options"). The exercise price of an Optionnon-qualified stock option, which may not be less than 100% of the fair market value on the last trading day before the date of the grant (or inor, if greater, the casepar value of a share of common stock. However, the exercise price of an Incentive Optionincentive stock option granted to a person possessing at the time of
grant more than 10% of the total combined voting power of all classes of our common stock of the Company,may not be less than 110% of suchthe fair market value).value on the date of grant. The Board oraggregate fair market value of all shares of common stock with respect to which incentive stock options are exercisable by a participant for the Committee determines when Options are to be granted
and when they may be exercised. However, an Incentive Option may be granted only
within a ten-year period commencing on April 27, 1998 and may be exercised only
within ten yearsfirst time during any calendar year (under all of our plans), measured at the date of the grant, (ormay not exceed $100,000 or such other amount as may be subsequently specified under the Code or the regulations thereunder.
An incentive stock option may only be granted within ten years of June 28, 2016, which is the date that our shareholders initially approved the 2016 Plan. Incentive stock options may only be exercised within ten years from the date of the grant, or within five years in the case of an Incentive Optionincentive stock option granted to a person who, at the time of the grant, owns common stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or any subsidiary).our stock. Subject to any limitations or conditions of the 1998 Plan and the Board or theCompensation & Human Resources Committee may impose, Optionsstock options may be exercised, in whole or in part, at any time during the term of the Optionstock option by giving written notice of exercise to the Companyus specifying the number of shares of Common Stock of the Companycommon stock to be purchased. SuchThe notice must be accompanied by payment in full of the purchase price, either in cash or, atif provided in the Company's discretion,agreement, in our securities or in combination of the Company, or any combination thereof.
Optionstwo.
Generally, stock options granted under the 1998 Plan are exercisable only by the Holder during
his or her lifetime. The Options granted under the 19982016 Plan may not be transferred other than by will or by the laws of descent and distribution.
distribution and all stock options are exercisable, during the holder’s lifetime, only by the holder, or in the event of legal incapacity or incompetency, the holder’s guardian or legal representative. However, a holder, with the approval of the Compensation & Human Resources Committee, may transfer a non-qualified stock option by gift to a family member of the holder, by domestic relations order to a family member of the holder, or by transfer to an entity in which more than 50% of the voting interests are owned by the holder or family members of the holder in exchange for an interest in that entity.
Generally, if the Holder received an option asholder is an employee, of the
Company or a subsidiary, no Option, or any portion thereof,stock options granted under the 19982016 Plan may be exercised by the Holderholder unless he or she is employed by the
Companyus or a subsidiary of ours at the time of the exercise and has been so employed continuously from the time the Option wasstock options were granted. However, in the event the Holder'sholder’s employment with the Company is terminated due to disability, the Option
will be fully vested and the Holderholder may still exercise his or her Optionvested stock options for a period of one year (or12 months or such other greater or lesser period as the Board or theCompensation & Human Resources Committee may specify at the time of grant)determine, from the date of such termination or until the expiration of the stated term of the Option,stock option, whichever period ifis shorter.
Similarly, should a Holderholder die while in the employment of the Company or a
subsidiary, the Option will be fully vested on the date of death andemployed by us, his or her legal representative or legatee under his or her will may exercise the decedent Holder's Optionholder’s vested stock options for a period of one year12 months from the date of his or her death, (oror such other greater or lesser period as the Board or theCompensation & Human Resources Committee specifies at the time of grant)may determine or until the expiration of the stated term of the Option,stock option, whichever period is shorter. Further, ifIf the Holder'sholder’s employment is terminated without cause or due to normal retirement, (upon attaining the ageholder may still exercise his vested stock options for a period of 65),12 months from the date of termination or until the expiration of the stated term of the stock option, whichever period is shorter. If the holder’s employment is terminated for any reason other than death, disability or normal retirement, the stock option will automatically terminate, except that if the holder’s employment is terminated by us without cause, then the portion of any Optionstock option that hasis vested byon the date of such retirement or termination may be exercised for the lesser of three months after retirementtermination of employment, or such other greater or lesser period as the Compensation & Human Resources Committee may determine but not beyond the balance of the Option'sstock option’s term.
Stock Appreciation Rights. The Board or the Committee may grant
Stock Appreciation Rights ("SARs". Under the 2016 Plan, we may grant stock appreciation rights to plan participants who have been, or singularly "SAR") in conjunction with all or part
of any Optionare being, granted stock options under the 19982016 Plan as a means of allowing the participants to exercise their stock options without the need to pay the exercise price in cash, or we may grant SARs on a free-standing
basis.them alone and unrelated to an option. In conjunction with Non-qualified Options, SARsnonqualified stock options, stock appreciation rights may be granted either at or after the time of the grant of such Non-qualified Options.the non-qualified stock options. In conjunction with Incentive Options, SARsincentive stock options, stock appreciation rights may be granted only at the time of the grant of such Incentive Options. An SARthe incentive stock options. A stock appreciation right entitles the Holder thereofholder to receive an amount
(payable in cash and/ora number of shares of Common Stock of the Company, as determined by
the Board or the Committee)common stock having a fair market value equal to the excess fair market value of one share of Common Stock of the Companycommon stock over the SAR price or the exercise price of the related Option,stock option, multiplied by the number of shares subject to the SAR.
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Restricted Stock Awards. The Board or. Under the Committee2016 Plan, we may award shares of restricted stock ("Restricted Stock") either alone or in addition to other Awardsawards granted under the 19982016 Plan. The Board orCompensation & Human Resources Committee determines the Committee shall determinepersons to whom grants of restricted stock are made, the number of shares to be awarded, the price if any to be paid for the restricted period duringstock by the person receiving the stock from us, the time or times within which the sharesawards of restricted stock may be forfeited if, for
example,subject to forfeiture, the Holder's employment withvesting schedule and rights to acceleration thereof, and all other terms and conditions of the Company is terminated.restricted stock awards.
Restricted stock awarded under the 2016 Plan may not be sold, exchanged, assigned, transferred, pledged, encumbered or otherwise disposed of, other than to us, during the applicable restriction period. In order to enforce these restrictions, the forfeiture provisions, the 19982016 Plan requires that all shares of Restricted Stockrestricted stock awarded to the Holderholder remain in theour physical custody of the
Company until the restrictions have terminated and all vesting requirements with respect to the restricted stock have been fulfilled. Other than regular cash dividends and other cash equivalent distributions as we may designate, pay, or distribute, we will retain custody of all distributions made or declared with respect to the restricted stock during the restriction period. A breach of any restriction regarding the restricted stock will cause a forfeiture of the restricted stock and any retained distributions. Except for the foregoing restrictions, the holder will, even during the restriction period, have all of the rights of a shareholder, including the right to receive and retain all regular cash dividends and other cash equivalent distributions as we may designate, pay, or distribute on such shares have terminated.
Deferred Stock. The Board or the Committeerestricted stock and the right to vote the shares.
Restricted Stock Units. Under the 2016 Plan, we may award sharesrestricted stock units, which are an unfunded, unsecured right to receive, on the applicable settlement date, one share or an amount in cash or other consideration determined by the Compensation & Human Resources Committee to be of deferredequal value as of such settlement date, subject to certain vesting conditions and other restrictions. Restricted stock ("Deferred Stock")units may be awarded either alone or in addition to other Awardsawards granted under the 19982016 Plan. The BoardCompensation & Human Resources Committee determines the persons to whom grants of restricted stock units are made, the number of restricted stock units to be awarded, the time or times within which awards of restricted stock units may be subject to deferral or forfeiture, the Committee shall determine the deferral
period during which time the receiptvesting schedule and rights to acceleration thereof, and all other terms and conditions of the restricted stock is deferred.units. The Awardholder will have no rights of a shareholder with respect to shares subject to any restricted stock unit unless and until the shares are delivered in settlement of the restricted stock unit. If the Compensation & Human Resources Committee provides, a grant of restricted stock units may specify, for example, thatprovide the Holder must remain employed byholder with the Company during
the entire deferral period in order to be issued the stock.
Stock Reload Options. A Stock Reload Option permits a Holder who
exercises an Option by delivering already owned stock (i.e., the stock-for-stock
method)right to receive back from the Company a new Option (at the current market
price)dividend equivalents. Dividend equivalents may be paid currently or credited to an account for the holder, settled in cash or shares and subject to the same number of shares deliveredrestrictions on transferability and forfeitability as the restricted stock units with respect to exercisewhich the Option, which new
Option may not be exercised until one year after it was granted and expires ondividend equivalents are granted.
Other Stock-Based Awards. Under the date the original Option would have expired (had it not been previously
exercised). The Board or the Committee2016 Plan, we may grant Stock Reload Optionsother stock-based awards, subject to limitations under applicable law, that are denominated or payable in, conjunctionvalued in whole or in part by reference to, or otherwise based on, or related to, shares of common stock, as deemed consistent with any Option granted under the 1998purposes of the 2016 Plan. In conjunction with
Incentive Options, Stock Reload OptionsThese other stock-based awards may be granted only atin the timeform of the
grant of such Incentive Option. In conjunction with Non-qualified Options, Stock
Reload Options may be granted either at or after the time of the grant of such
Non-qualified Options.
Other Stock-Based Awards. The Board or the Committee may grant
performance shares andpurchase rights, shares of common stock awarded that are not subject to any restrictions or conditions, convertible or exchangeable debentures or other rights convertible into shares of common stock and awards valued withby reference to the value of securities of, or the performance of, the Company,one of our subsidiaries. These other stock-based awards may include performance shares or options, whose award is tied to specific performance criteria. These other stock-based awards may be awarded either alone, or in addition to, or in tandem with Stock Options,
Restricted Stockany other awards under the 2016 Plan or Deferred Stock. Subjectany of our other plans.
Incentive Bonuses. Under the 2016 Plan, we may grant incentive bonuses that confer upon the holder the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance goals for a performance period established by the Compensation & Human Resources Committee. The terms of any incentive bonus will be set forth in an agreement. Each agreement evidencing an incentive bonus shall contain provisions regarding (i) the 1998 Plan,target and maximum amount payable to the Board orholder as an incentive bonus, (ii) the Committee has complete discretion toperformance goal(s) and level of achievement versus the performance goal(s) that shall determine the amount of such payment, (iii) the term of the performance period as to which performance shall be measured for determining the amount of any payment, (iv) the timing of any payment earned by virtue of performance, (v) restrictions on the alienation or transfer of the incentive bonus prior to actual payment, (vi) forfeiture provisions, and (vii) such further terms and conditions, applicablein each case not inconsistent with the 2016 Plan as may be determined from time to time by the Compensation & Human Resources Committee. The Compensation & Human Resources Committee establishes the performance goal(s) and level of achievement versus the performance goal(s) that shall determine the target and maximum amount payable under an incentive bonus. These incentive bonuses may be awarded either alone, in addition to, or in tandem with any such stock-based awards. Such terms and conditions
may require, among other things, continued employment and/or the attainment of
specified performance objectives.
Withholding Taxes
Upon the exercise of any Award grantedawards under the 19982016 Plan the Holder
may be required to remit to the Company an amount sufficient to satisfy all
Federal, stateor any of our other plans.
Accelerated Vesting and local withholding tax requirements prior to delivery of any
certificate or certificates for shares of Common Stock of the Company. Subject
to certain stringent limitations under the 1998 Plan and at the discretion of
the Board, the Holder may satisfy these requirements by electing to have the
Company withhold a portion of the shares to be received upon the exercise of the
Award having a value equal to the amount of the withholding tax due under
applicable federal, state and local laws.
Acceleration in VestingExercisability. If any "person" (as such term is used in Sections 13(d) and 14(d)one person, or more than one person acting as a group, acquires the ownership of the Securities Exchange Act of 1934 ("Exchange Act")), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securitiesstock of the Company representing 25%that, together with the stock held by such person or group, constitutes more than 50% of the total fair market value or combined voting power of the Company's then outstanding securities in one or
more transactions,stock of the Company, and the BoardCompany’s board of directors does not authorize or otherwise approve such acquisition, then the vesting periods of any and all Optionsstock options and other Awardsawards granted and outstanding under the 19982016 Plan shall be accelerated and all such Optionsstock options and Awardsawards will immediately and entirely vest, and the respective holders thereof will have the immediate right to purchase and/or receive any and all Common Stockcommon stock subject to such Optionsstock options and awards on the terms set forth in the 19982016 Plan and the respective agreements respecting such Optionsstock options and Awards.
Agreements
Options, Restricted Stock, Deferred Stock,awards, and SARsall performance goals will be deemed achieved at 100% of target levels and all other terms and conditions will be deemed met. An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the Company acquires its stock in exchange for property is not treated as an acquisition of stock.
The Compensation & Human Resources Committee may, in the event of an acquisition by any one person, or more than one person acting as a group, together with acquisitions during the 12-month period ending on the date of the most recent acquisition by such person or persons, of assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions, or if any one person, or more than one person acting as a group, acquires the ownership of stock of the Company that, together with the stock held by such person or group, constitutes more than 50% of the total fair market value or combined voting power of the stock of the Company, which has been approved by the Company’s board of directors, (i) accelerate the vesting of any and all stock options and other stock-based awards granted and outstanding under the 2016 Plan, or (ii) require a holder of any award granted under the 19982016 Plan willto relinquish such award to the Company upon the tender by the Company to the holder of cash, stock or other property, or any combination thereof, in an amount equal to the repurchase value of such award; provided, however, that the obligation to tender the repurchase value to such holders may be evidenced by agreements
consistentsubject to any terms and conditions to which the tender of consideration to the Company’s shareholders in connection with the 1998acquisition is subject, including any terms and conditions of the acquisition providing for an adjustment to or escrow of such consideration; and provided, further, that in the case of any stock option or stock appreciation right with an exercise price that equals or exceeds the price paid for a share of common stock in connection with the acquisition, the Compensation & Human Resources Committee may cancel the stock option or stock appreciation right without the payment of consideration therefor; and/or (iii) terminate all incomplete performance periods in respect of awards in effect on the date the acquisition occurs, determine the extent to which performance goals have been met based upon such information then available as it deems relevant and cause to be paid to the holder all or the applicable portion of the award based upon the Compensation & Human Resources Committee’s determination of the degree of attainment of performance goals, or on such other basis determined by the Compensation & Human Resources Committee. For this purpose, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
Notwithstanding any provisions of the 2016 Plan inor any award granted thereunder to the contrary, no acceleration shall occur with respect to any award to the extent such formacceleration would cause the 2016 Plan or an award granted thereunder to fail to comply with Code Section 409A.
Repurchases. The Compensation & Human Resources Committee may at any time offer to repurchase a stock option previously granted, at a purchase price not to exceed the repurchase value and under such terms and conditions as the Board orCompensation & Human Resources Committee shall establish and communicate to the holder of stock at the time of the offer.
Other Limitations. The Compensation & Human Resources Committee may prescribe. Neither the 1998 Plan nor agreements thereunder confernot modify or amend any outstanding option or stock appreciation right to continued employmentreduce the exercise price of such option or stock appreciation right, as applicable, below the exercise price as of the date of grant of such option or stock appreciation right. In addition, no payment of cash or other property having a value greater than the repurchase value may be made, and no option or stock appreciation right with a lower exercise price may be granted in exchange for, or in connection with, the cancellation or surrender of an option or stock appreciation right. However, under the 2016 Plan, upon a change in the number of shares of our common stock as a result of a dividend on shares of common stock payable in shares of common stock, common stock forward split or reverse split or other extraordinary or unusual event that results in a change in the shares of common stock as a whole, the terms of the outstanding award may be proportionately adjusted.
Withholding Taxes
Upon the exercise of any Holder.
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Term and Termination of the 1998 Plan
The 1998 Plan was effective as of April 27, 1998 ("Effective Date").
Amendments
Unless terminated by the Board,board, the 19982016 Plan shall continue to remain effective until such time as no further Awardsawards may be granted and all Awardsawards granted under the 19982016 Plan are no longer outstanding. Notwithstanding the foregoing, grants of Incentive Optionsincentive stock options may only be made duringonly until June 28, 2026, which is ten years from the ten-year period followingdate of shareholder approval of the Effective Date.
Amendments to the Plan2016 Plan. The Boardboard may at any time, and from time to time, amend alter, suspend
or discontinue any of the provisions of the 19982016 Plan, butprovided that no amendment alteration, suspension or discontinuance shallwill be made that would impair the rights of a Holder ofholder under any Award theretofore granted,agreement entered into pursuant to the 2016 Plan without his or herthe holder’s consent.
Federal Income Tax Consequences
The following discussion of the federal income tax consequences of participation in the 19982016 Plan is only a summary of the general rules applicable to the grant and exercise of stock options and other awards and does not purport to give specific details on every variable and does notor cover, among other things, state, local and foreign tax treatment of participation in the 19982016 Plan. The information contained in this section is based on present law and regulations, which are subject to being changed prospectively or retroactively.
Incentive Options. The HolderStock Options. Participants will recognize no taxable income upon the grant of an incentive stock option. The participant generally will realize no taxable income when the incentive stock option is exercised. The excess, if any, of the fair market value of the shares on the date of exercise of an incentive stock option over the exercise price will be treated as an item of adjustment for a participant’s taxable year in which the exercise occurs and may result in an alternative minimum tax liability for the Companyparticipant. We will not qualify for any deduction uponin connection with the grant or exercise of an
Incentive Option.incentive stock options. Upon a disposition of the shares underlying the Option after the later of two years from the date of grant or one year after the issuancetransfer of the shares to a participant, the Holder, the Holderparticipant will recognize the difference, if any, between the amount realized and the exercise price as long-term capital gain or long-term capital loss, (asas the case may be)be, if the shares are capital assets.
The excess, if any, of the fair market value of the shares on the date of
exercise of an Incentive Option over the exercise price will be treated as an
item of adjustment in computing the alternative minimum tax for a Holder's
taxable year in which the exercise occurs and may result in an alternative
minimum tax liability for the Holder.
If the Common Stock of the Companycommon stock acquired upon the exercise of an Incentive Option areincentive stock option is disposed of beforeprior to the expiration of the necessary holding period of two years fromperiods described above, the date of the
grant of the Option and one year after the exercise of the Option, (i) the
Holderparticipant will recognize ordinary compensation income in the taxable year of disposition in an amount equal to the excess, if any, of the lesser of the fair
market value of the shares on the date of exercise or the amount realized on the
disposition of the shares, over the exercise price paid for such shares; and
(ii) the Company will qualify for a deduction equal to any such amount
recognized, subject to the limitation that the compensation be reasonable. The
Holder will recognize the excess, if any, of the amount realized over the fair
market value of the shares on the date of exercise, if the shares are capital
assets, as short-term or long-term capital gain, depending on the length of time
that the Holder held the shares, and the Company will not qualify for a
deduction with respect to such excess. In the case of a disposition of shares in
the same taxable year as the exercise of the Option, where the amount realized
on the disposition is less than the fair market value of the shares on the date
of exercise, there will be no adjustment since the amount treated as an item of
adjustment, for alternative minimum tax purposes, is limited to the excess of
the amount realized on such disposition over the exercise price, which is the
same amount included in regular taxable income.
Non-qualified Options. With respect to Non-qualified Options (i) upon
grant of the Option, the Holder will recognize no income; (ii) upon exercise of
the Option (if the Common Stock of the Company is not subject to a substantial
risk of forfeiture), the Holder will recognize ordinary compensation income in an amount equal to the excess, if any, of the fair market value of the shares on the date of exercise over the exercise price paid for the shares; and the Companywe will qualify for a deduction in the sameequal to any amount recognized, subject to the requirementlimitation that the compensation be reasonable; and (iii) the Company will be required to comply with applicable
Federal income tax withholding requirements withreasonable.
Non-Qualified Stock Options. With respect to the amount of
ordinary compensation income recognized by the Holder. non-qualified stock options:
● | upon grant of the stock option, the participant will recognize no income provided that the exercise price was not less than the fair market value of our common stock on the date of grant; | |
● | upon exercise of the stock option, if the shares of common stock are not subject to a substantial risk of forfeiture, the participant will recognize ordinary compensation income in an amount equal to the excess, if any, of the fair market value of the shares on the date of exercise over the exercise price, and we will qualify for a deduction in the same amount, subject to the requirement that the compensation be reasonable; and | |
● | we will be required to comply with applicable federal income tax withholding requirements with respect to the amount of ordinary compensation income recognized by the participant. |
On a disposition of the shares, the Holderparticipant will recognize gain or loss equal to the difference between the amount realized and the sum of the exercise price and the ordinary compensation income recognized. SuchThe gain or loss will be treated as capital gain or loss if the shares are capital assets and as short-term or long-term capital gain or loss, depending upon the length of time that the Holderparticipant held the shares.
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If the shares acquired upon exercise of a Non-qualified Optionnon-qualified stock option are subject to a substantial risk of forfeiture, the Holderparticipant will recognize ordinary income at the time when the substantial risk of forfeiture is removed, unless the participant timely files under Section 83(b) of the Code to elect to be taxed on the receipt of shares, and the Companywe will qualify for a corresponding deduction at suchthat time. The amount of ordinary income will be equal to the excess of the fair market value of the shares at the time the income is recognized over the amount, if any, paid for the shares.
Stock Appreciation Rights.Rights. Upon the grant of a SAR,stock appreciation right, the Holderparticipant recognizes no taxable income and the Company receiveswe receive no deduction. The Holderparticipant recognizes ordinary income and the Company receiveswe receive a deduction at the time of exercise equal to the cash and fair market value of Common Stockcommon stock payable upon suchthe exercise.
Restricted Stock.Stock. A Holderparticipant who receives Restricted Stockrestricted stock will recognize no income on the grant of the Restricted Stockrestricted stock and the Companywe will not qualify for any deduction. At the time the Restricted Stockrestricted stock is no longer subject to a substantial risk of forfeiture, a Holderparticipant will recognize ordinary compensation income in an amount equal to the excess, if any, of the fair market value of the Restricted Stockrestricted stock at the time the restriction lapses over the consideration paid for the Restricted Stock.restricted stock. A Holder'sparticipant’s shares are treated as being subject to a substantial risk of forfeiture so long as his or her sale of the shares at a profit could subject him or her to a suit under Section 16 (b)16(b) of the Securities Exchange Act.Act of 1934, as amended (“Exchange Act”). The holding period to determine whether the Holderparticipant has long-term or short-term capital gain or loss begins when the Restriction Periodrestriction period expires, and the tax basis for the shares will generally be the fair market value of the shares on suchthis date.
A Holderparticipant may elect under Section 83(b) of the Code, within 30 days of the transfer of the Restricted Stock,restricted stock, to recognize ordinary compensation income on the date of transfer in an amount equal to the excess, if any, of the fair market value on the date of such transfer of the shares of Restricted Stock
(determinedrestricted stock, as determined without regard to the restrictions)restrictions, over the consideration paid for the Restricted Stock.restricted stock. If a Holderparticipant makes suchan election and thereafter forfeits the shares, no ordinary loss deduction will be allowed. SuchThe forfeiture will be treated as a sale or exchange upon which there is realized loss equal to the excess, if any, of the consideration paid for the shares over the amount realized on such forfeiture. SuchThe loss will be a capital loss if the shares are capital assets. If a Holderparticipant makes an election under Section 83(b), the holding period will commence on the day after the date of transfer and the tax basis will equal the fair market value of shares, (determinedas determined without regard to the restrictions)restrictions, on the date of transfer.
On a disposition of the shares, a Holderparticipant will recognize gain or loss equal to the difference between the amount realized and the tax basis for the shares.
Whether or not the Holderparticipant makes an election under Section 83(b), the
Companywe generally will qualify for a deduction, (subjectsubject to the reasonableness of compensation limitation)limitation, equal to the amount that is taxable as ordinary income to the Holder,participant, in itsthe taxable year in which suchthe income is included in the Holder'sparticipant’s gross income. The income recognized by the Holderparticipant will be subject to applicable withholding tax requirements.
Dividends paid on Restricted Stock whichrestricted stock that is subject to a substantial risk of forfeiture generally will be treated as compensation that is taxable as ordinary compensation income to the Holderparticipant and will be deductible by the Companyus subject to the reasonableness limitation. If, however, the Holderparticipant makes a Section 83(b) election, the dividends will be treated as dividends and taxable as ordinary income to the Holder,participant, but will not be deductible by the Company.
Deferred Stock.us.
Restricted Stock Units. A Holderparticipant who receives an award of Deferred Stockrestricted stock units generally will recognize no income onupon the grant of such award. However, he or sherestricted stock units. Instead, a participant will recognize as ordinary compensation income, onand we receive a corresponding deduction, any cash delivered and the transferfair market value of any common stock delivered in payment of an amount due under the restricted stock unit. The income recognized by the participant will be subject to applicable withholding tax requirements. Upon selling any common stock received by a participant in payment of an amount due under a restricted stock unit, the participant generally will recognize a capital gain or loss in an amount equal to the difference between the sale price of the Deferred Stock (orcommon stock and the later lapse of a substantial risk of forfeiture to whichparticipant’s tax basis in the Deferred Stock
is subject, ifcommon stock (i.e., the Holder does not make a Section 83(b) election), in accordance
withordinary income recognized by the same rules as discussed above under the caption "Restricted Stock."
participant).
Other Stock-Based Awards.Awards. The federal income tax treatment of Other
Stock-Based Awardsother stock-based awards will depend on the nature of any such award and the restrictions applicable to suchthe award.
Certain Awards Deferring or Accelerating the Receipt of Compensation. Section 409A of the Code, enacted as part of the American Jobs Creation Act of 2004, imposes certain new requirements applicable to “nonqualified deferred compensation plans.” If a nonqualified deferred compensation plan subject to Section 409A fails to meet, or is not operated in accordance with, these new requirements, then all compensation deferred under the 2016 Plan may become immediately taxable. Stock appreciation rights and deferred stock awards that may be granted under the 2016 Plan may constitute deferred compensation subject to the Section 409A requirements.
It is our intention that any award agreement governing awards subject to Section 409A will comply with these rules.
New Plan Benefits
The benefits or amounts that will be received by or allocated to any executive officers or employees under the 2016 Plan are not currently determinable since no specific grants have been decided upon.
Recommendation and Vote Required
Approval of the amendment to the 2016 Plan to increase the number of shares authorized for issuance thereunder by 800,000 shares, from 600,000 shares to 1,400,000 shares, will require the affirmative vote of the holders of a majority of the votes cast at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
“FOR” THE AMENDMENT TO THE 2016 PLAN.
PROPOSAL 3 – SAY ON PAY
At the Annual Meeting, shareholders will vote on the following resolution:
RESOLVED, that the shareholders of CPI Aerostructures, Inc. approve, on an advisory basis, the compensation of CPI Aerostructures, Inc.’s Named Executive Officers as disclosed in this proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which include the compensation tables and related narrative discussion).
Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), and rules promulgated by the Securities and Exchange Commission (“SEC”) thereunder, enable our shareholders to vote to approve, on an advisory basis, the compensation of our Chief Executive Officer, and our two highest-paid executive officers other than the Chief Executive Officer (collectively, our “Named Executive Officers”) as disclosed in this proxy statement in accordance with the SEC’s rules. Our compensation policies are intended to ensure that executive compensation is competitive yet reasonable, supportive of organizational objectives and shareholder interests, and designed to align the interests of executive officers with the Company’s long-term performance and increase shareholder value. An explanation of our policies and procedures in determining executive compensation is found below under the heading “Executive Officer Compensation”and specific information regarding the current compensation of our Named Executive Officers is found in the compensation tables included below.
The Say on Pay vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers. We believe that the executive compensation as disclosed in our tabular disclosures and other narrative executive compensation disclosure in this proxy statement aligns with our compensation policies.
The Say on Pay vote is advisory, and therefore not binding on the Company, our board of directors, or the Compensation & Human Resources Committee. As a matter of policy, the Compensation & Human Resources Committee has decided to take into consideration the results of the most recent Say on Pay vote when making compensation decisions and reviewing its compensation policies and practices.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
“FOR” THE APPROVAL OF THE COMPANY’S COMPENSATION
OF ITS NAMED EXECUTIVE OFFICERS.
PROPOSAL 4 — RATIFICATION OF THE APPOINTMENT OF
OUR INDEPENDENT ACCOUNTANTS
REGISTERED PUBLIC ACCOUNTING FIRM
The Boardaudit and finance committee of Directorsour board of directors (“Audit & Finance Committee”) is directly responsible for the appointment, compensation, retention, and oversight of the independent registered public accounting firm that audits our financial statements and our internal control over financial reporting. The Audit & Finance Committee has selected theCohnReznick LLP (“CohnReznick”) as our independent registered public accounting firm for 2020. The Audit & Finance Committee annually reviews CohnReznick’s independence and performance in deciding whether to retain CohnReznick or engage a different independent registered public accounting firm. This review includes, among other things, consideration of Goldstein Golub Kessler & Company, P.C.CohnReznick’s historical and recent performance on our audit, CohnReznick’s capability and expertise in handling the breadth and complexity of our operations, the appropriateness of CohnReznick’s fees for audit and non-audit services, both on an absolute basis and as compared to its peer firms, and CohnReznick’s independence and tenure as our independent registered public accounting firm.
We propose that the auditorsshareholders ratify the appointment of the CompanyCohnReznick as our independent registered public accounting firm for thefiscal year ending December 31, 1999. A representative2020. We expect that representatives of Goldstein Golub
Kessler & Company, P.C., the auditors of the Company for the year ended December
15
31, 1998, is expected toCohnReznick will be present at the Annual Meeting and that they will be available to respond to appropriate questions submitted by shareholders at the Annual Meeting. The representativeCohnReznick will have the opportunity to make a statement if they desire to do so.
The following fees were paid to CohnReznick for services rendered in the years ended December 31, 2019 and 2018:
| Year Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Audit Fees(1) | $ | 331,500 | $ | 361,580 | ||||
| Audit-Related Fees(2) | — | 205,150 | ||||||
| Tax Fees | — | — | ||||||
| All Other Fees | — | — | ||||||
| Total Fees | $ | 331,500 | $ | 566,730 | ||||
______________________
(1) | Audit fees consist of fees billed for professional services by CohnReznick for audit and quarterly review of the Company’s consolidated financial statements during the years ended December 31, 2019 and 2018, and related services normally provided in connection with statutory and regulatory filings or engagements. |
(2) | Audit-related fees represent the aggregate fees billed for assurance and related professional services rendered by CohnReznick that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees.” Audit-related fees also include fees billed for professional services rendered by CohnReznick in connection with the acquisition of Welding Metallurgy, Inc. in 2018. |
Pre-Approval Policies and Procedures. In accordance with Section 10A(i) of the Exchange Act, before we engage our independent registered public accounting firm to render audit or non-audit services, the engagement is approved by our Audit & Finance Committee. Our Audit & Finance Committee approved all of the fees referred to in the rows titled “Audit Fees” and “Audit-Related Fees” in the table above.
Ratification by the shareholders of the appointment of an independent registered public accounting firm is not required, but our board of directors believes that it is desirable to submit this matter to the shareholders. If a majority of the votes cast at the Annual Meeting do not ratify the selection of CohnReznick, the selection of an independent registered public accounting firm will be availablereconsidered by our Audit & Finance Committee. Even if the appointment is ratified, our Audit & Finance Committee, at its discretion, may change the appointment at any time if it determines that doing so would be in the best interests of the Company and our shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
“FOR” THE RATIFICATION OF THE APPOINTMENT OF COHNREZNICK LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
18
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information about Directors, the Nominee, and Executive Officers
Our directors, director nominee, and Named Executive Officers are as follows:
Name |
| Age |
| Director Since |
| Position & Board Committees |
Carey Bond |
| 59 |
| 2016 |
| Vice Chairman of the Board of Directors |
|
|
|
|
|
| Compensation & Human Resources Committee (Chair), Nominating & Corporate Governance Committee, Oversight Committee (Chair)
|
Janet K. Cooper |
| 66 |
| 2019 |
| Director* |
|
|
|
|
|
| Audit & Finance Committee (Chair), Oversight Committee
|
Michael Faber |
| 60 |
| 2013 |
| Director |
|
|
|
|
|
| Audit & Finance Committee, Nominating & Corporate Governance Committee (Chair), Strategic Planning Committee
|
Kenneth Hauser |
| 57 |
| — |
| Vice President of Global Supply Chain Management and Quality |
|
|
|
|
|
|
|
Douglas McCrosson |
| 57 |
| 2014 |
| Chief Executive Officer, President, and Director |
|
|
|
|
|
| Strategic Planning Committee |
|
|
|
|
|
|
|
Walter Paulick |
| 73 |
| 1992 |
| Director |
|
|
|
|
|
| Audit & Finance Committee, Nominating & Corporate Governance Committee, Oversight Committee
|
Thomas Powers |
| 66 |
| — |
| Acting Chief Financial Officer**
|
Eric Rosenfeld |
| 63 |
| 2003 |
| Director |
|
|
|
|
|
| Compensation & Human Resources Committee, Nominating & Corporate Governance Committee, Strategic Planning Committee (Chair)
|
Terry Stinson |
| 78 |
| 2014 |
| Chairman of the Board of Directors, Director Nominee |
|
|
|
|
|
| Compensation & Human Resources Committee, Strategic Planning Committee |
_____________________
* Ms. Cooper will not stand for re-election as a Class I director at the Annual Meeting.
** Mr. Powers began his service as our Acting Chief Financial Officer on February 12, 2020. Previously, Dan Azmon served as our Chief Financial Officer from November 2019 until his resignation on February 10, 2020, and Vincent Palazzolo served as our Chief Financial Officer from 2004 until November 2019.
We believe that it is necessary for each of our directors to respondpossess qualities, attributes, and skills that contribute to appropriate questionsa diversity of views and perspectives among the directors and enhance the overall effectiveness of the board of directors. As described on page 28 under “Nominating & Corporate Governance Committee Information — Guidelines for Selecting Director Nominees,” the nominating and corporate governance committee of our board of directors (“Nominating & Corporate Governance Committee”) considers all factors it deems relevant when evaluating prospective candidates or current members of our board of directors for nomination to our board of directors, as prescribed in the committee’s written charter and established guidelines and the Company’s corporate governance guidelines. All of our directors bring to the board of directors leadership experience derived from shareholders.
1999 SHAREHOLDER PROPOSALSpast service. They also all bring a diversity of views and perspectives derived from their individual experiences working in a range of industries and occupations, which provide our board of directors, as a whole, with the skills and expertise that serve the needs of the Company. The Company's By-lawsfollowing skills matrix shows the diverse range of experience our directors provide to our Company.
Qualifications | Experience | ||||||
Executive Leadership | Public Company Director | Audit Committee Financial Expert(1) | Law | M&A | Corporate Governance & Supervision | Aerospace Industry Experience | |
Carey Bond | ✓ | ✓ | ✓ | ✓ | |||
Michael Faber | ✓ | ✓ | ✓ | ✓ | ✓ | ||
Douglas McCrosson | ✓ | ✓ | ✓ | ✓ | |||
Walter Paulick | ✓ | ✓ | ✓ | ||||
Eric Rosenfeld | ✓ | ✓ | ✓ | ✓ | |||
Terry Stinson | ✓ | ✓ | ✓ | ✓ | ✓ | ||
______________________
(1) | Indicates audit committee members who meet the criteria of an “Audit Committee Financial Expert” under applicable SEC rules. |
Certain individual experiences, qualifications, and skills of our directors that no shareholder nomination
forcontribute to the board of directors’ effectiveness as a whole are described in the biographies set forth below.
Carey E. Bond is the Non-Executive Vice Chairman of the Board of Directors, a position which he has held since August 2020. Mr. Bond has been a director since December 2016, chair of our Compensation & Human Resources Committee since June 2019, and chair of the Oversight Committee since March 2020. Mr. Bond’s career as a corporate executive in the aviation industry has spanned over 30 years, where he has held successful leadership roles in several areas such as aircraft development and production, sales, service, and profit and loss ownership. Mr. Bond spent 10 years at Sikorsky Aircraft Corporation, a corporation specializing in designing, manufacturing and servicing helicopters, as Vice President, Corporate Strategy, Chief Marketing Officer, and President, Commercial Systems and Services. Mr. Bond currently serves on the board of directors of TECT Aerospace, a business unit of TECT Corporation, a conglomerate of privately held aerospace companies. Mr. Bond has also served on the board of directors of domestic and international companies, namely Shanghai Sikorsky Aircraft Company Limited, New Eclipse Aerospace, and PZL Mielec Aircraft Company. Mr. Bond holds a Masters of Business Administration from Texas Christian University. Mr. Bond brings to our board of directors a seasoned expertise in the aerospace industry, an internationally-minded approach to business development, and general business acumen.
Michael Faber has been a director since August 2013 and chair of our Nominating & Corporate Governance Committee since June 2014. Since 1996, Mr. Faber has served as Chief Executive Officer of NextPoint Management Company, Inc., an investment and strategic advisory firm, advising family offices on a variety of issues, including asset manager selection and oversight, direct investing, and trust and estates. Additionally, Mr. Faber currently serves as a senior advisor to a family office with more than $2 billion in assets and as a director or proposalsenior advisor to a number of private companies and asset management firms. From 1990 to 2008, Mr. Faber was a General Partner of the NextPoint and Walnut family of investment funds, focusing on any other matter may be brought before
the shareholders without the giving of at least 120 days prior written noticeprivate equity, venture capital, and structured investments. Previously, Mr. Faber was a senior advisor to the law firm of Akerman, of counsel to the law firm of Mintz Levin, an attorney with the law firm of Arnold & Porter, and a senior consultant to The Research Council of Washington, the predecessor to The Corporate Executive Board Company. Mr. Faber has served on audit and compensation committees for a number of companies. Mr. Faber is an honors graduate and John M. Olin Fellow of the University of Chicago Law School and attended the Johns Hopkins University School of International Studies and the State University of New York. Mr. Faber brings to our board of directors his legal and financial expertise as well as his years of investment and general business experience.
Kenneth Hauser has been our Vice President of Global Supply Chain Management and Quality since 2020. Prior to that he was Vice President of Global Supply Chain Management since 2013. Prior to that, he held the position of Director, Global Supply Chain Management for which he was hired in 2011. Prior to joining CPI Aero, Mr. Hauser had a 30-year career at Northrop Grumman where he held various management positions for Manufacturing/Operations and Global Supply Chain. Mr. Hauser’s last position with Northrop Grumman was as the E-2D Global Supply Chain Program Manager, where he had responsibility for cost, quality and schedule performance of all procured parts and major aircraft structures. Mr. Hauser holds a Bachelor of Technology in Management of Technology from State University of New York at Farmingdale and a Master of Science in Management of Technology from Polytechnic University.
Douglas McCrossonhas been our Chief Executive Officer, President and a director since March 2014. Mr. McCrosson joined the Company in 2003 as Director of Business Development. During his tenure, he has held positions of increasing responsibility, including Vice President of Business Development and Senior Vice President of Operations, where he headed CPI’s business development, engineering, procurement and manufacturing operations. Subsequently, he was promoted to the position of Chief Operating Officer in January 2010 before becoming President and Chief Executive Officer. He has 35 years of aerospace experience, having started his career as a mechanical engineer at Grumman Corporation, now Northrop Grumman. Mr. McCrosson holds a Bachelor of Science degree in mechanical engineering from the State University of New York at Buffalo and a Master of Science degree in Management from the New York University Polytechnic School of Engineering. He is a member of the Board of Governors of the Aerospace Industries Association, a trade association representing major aerospace and defense manufacturers and suppliers in the United States. He is a member of the Board of Directors of the Long Island Association, the leading business association in the Long Island region. Mr. McCrosson provides our board of directors with unique knowledge of the Company’s business, operations and management and his other extensive experience in the Company’s industry.
Walter Paulickhas been a director since April 1992. He served as the chair of our Nominating & Corporate Governance Committee from March 2004 until June 2015 and as chair of our Audit Committee from June 2006 until April 2007. Mr. Paulick is a self-employed real estate development consultant. From 1982 to November 1992, Mr. Paulick was a vice president of Parr Development Company, Inc., a real estate development company. From 1974 to 1982, Mr. Paulick was a vice president of National Westminster U.S.A. Mr. Paulick holds an Associate degree in Applied Science from Suffolk Community College and a Bachelor of Business Administration from Dowling College. Mr. Paulick’s background in banking and real estate development, and his general business knowledge provides our board of directors with a diverse perspective on the Company’s industry and business in our region.
Thomas Powers has been our Acting Chief Financial Officer and Secretary since February 12, 2020. Mr. Powers has been employed by the Company since January 2019, serving as Director of Financial Planning and Analysis. Prior to joining the Company, Mr. Powers worked for Triumph Group, a multi-billion dollar publicly owned aerospace manufacturer, where he last served as Vice President of Financial Planning and Analysis. At Triumph, he previously held positions of Group Controller, Division Controller and served as Interim Chief Financial Officer.
Eric S. Rosenfeld is the Chairman Emeritus of our board of directors. Mr. Rosenfeld served as the non-executive chairman of our board of directors from January 2005 until November 2018. He has also served as chair of our Strategic Planning Committee since April 2003. Mr. Rosenfeld has been the President and Chief Executive Officer of Crescendo Partners, L.P., a New York based investment firm, since its formation in November 1998. Prior to forming Crescendo Partners, he held the position of Managing Director at CIBC Oppenheimer and its predecessor company, Oppenheimer & Co., Inc., for 14 years. Mr. Rosenfeld currently serves as a director for several companies, including Primo Water Corporation (formerly Cott) (NYSE: PRMW), a leading water service company, Pangea Logistics Solutions Ltd. (Nasdaq: PANL) (and Quartet Merger Corp. prior to its merger with Pangea Logistics Solutions Ltd., for which he also served as Chief Executive Officer), a maritime logistics and shipping company, and Aecon Group, Inc. (TSE: ARE), a construction company. He is also on the board of Canaccord Genuity (TSE: CF), a financial services company. Mr. Rosenfeld previously served on the board of directors of several companies, including Absolute Software Corporation (TSE: ABT), a provider of security and management for computers and ultra-portable devices, NextDecate LLC (Nasdaq: NEXT) (and Harmony Merger Corp. prior to its merger with NextDecade LLC, for which he also served as Chief Executive Officer), a natural gas company, SAExploration Holdings Inc. (Nasdaq: SAEX) (and Trio Merger Corp. prior to its merger with SAEX, for which he also served as Chief Executive Officer), a geophysical services company, Primoris Services Corporation (Nasdaq: PRIM) (and Rhapsody Acquisition Corporation prior to its merger with PRIM, for which he also served as Chief Executive Officer), a holding company for specialty contractor and infrastructure businesses, DALSA Corp., a digital imaging and semiconductor manufacturer, and Hill International Inc. (NYSE: HIL) (and Arpeggio Acquisition Corp. prior to its merger with HIL, for which he also served as Chief Executive Officer), a construction project management firm. He was also the Chief Executive Officer of Allegro Merger Corp., a blank check company previously listed on Nasdaq. Mr. Rosenfeld is a regular guest lecturer at Columbia Business School and has served on numerous panels at Queen’s University Business Law School Symposia, McGill Law School, the World Presidents’ Organization and the Value Investing Congress. He is a senior faculty member at the Director’s College. He has also been a guest host on CNBC. Mr. Rosenfeld received an A.B. in economics from Brown University and an M.B.A. from the Harvard Business School. Mr. Rosenfeld provides our board of directors with expertise in finance and financial markets and with experience derived from his service on the boards of other public and private companies.
Terry Stinson is the Non-Executive Chairman of the Board, a position which he has held since November 2018. Mr. Stinson was the chair of the compensation committee of the board from June 2014 until June 2018 and has been a director since June 2014. Mr. Stinson is Chief Executive Officer of his own consulting practice, Stinson Consulting, LLC, a position he has held since 2001. Stinson Consulting is engaged in strategic alliances and marketing for the aerospace industry. From January 2013 until May 31, 2014, he served as Executive Vice President of AAR CORP., an international, publicly traded aerospace manufacturing and services company. Mr. Stinson currently serves as an independent consultant to AAR CORP. From August 2007 until January 2013, Mr. Stinson served as Group Vice President of AAR CORP. From 2002 to 2005, Mr. Stinson served as Chief Executive Officer of Xelus, Inc., a collaborative enterprise service management solution company. From 1998 to 2001, Mr. Stinson was Chairman and Chief Executive Officer of Bell Helicopter Textron Inc., the world’s leading manufacturer of vertical lift aircraft, and served as President from 1996 to 1998. From 1991 to 1996, Mr. Stinson served as Group Vice President and Segment President of Textron Aerospace Systems and Components for Textron Inc. From 1986 to 1996, he was President of the Hamilton Standard division of United Technologies Corporation, a defense supply company. Mr. Stinson previously served as a director of Lennox International Inc., a company engaged in the design and manufacture of heating, ventilation, air conditioning, and refrigeration products, serving on such company’s Board Governance, Compensation, and Human Resources Committees. Mr. Stinson previously served as a director of Triumph Group, Inc., a company engaged in the manufacturing and repair of aircraft components, subassemblies, and systems, from September 2003 to March 2008. As a former senior executive of two Fortune 500 companies, Mr. Stinson contributes to our board of directors his extensive management and marketing experience in the aerospace industry, as well as his general business acumen and experience developed by serving on other public company boards.
Family Relationships
There are no family relationships among any of the Company’s directors or Named Executive Officers.
Independence of Directors
Our common stock is listed on the NYSE American LLC exchange (“NYSE American”), a stock exchange affiliated with the New York Stock Exchange. As a result, we follow the rules of the NYSE American exchange in determining whether a director is independent. The NYSE American exchange listing standards define an “independent director” generally as a person, other than an officer or employee of the Company, (basedwho does not have a relationship with the Company that would interfere with the director’s exercise of independent judgment. Our board of directors consults with our legal counsel to ensure that our board of directors’ determinations are consistent with NYSE American exchange rules and all relevant securities and other laws and regulations regarding the independence of directors. Consistent with these considerations, the Nominating & Corporate Governance Committee determined on May 21, 2020 that Carey Bond, Michael Faber, Walter Paulick, Eric Rosenfeld, and Terry Stinson will be independent directors of the Company for the ensuing year. The remaining director, Douglas McCrosson, is not independent because he is currently employed by us. All members of our Audit & Finance, Compensation & Human Resources, and Nominating & Corporate Governance Committees are independent.
Code of Ethics
Our board of directors has adopted a written code of ethics which applies to our directors, officers, and employees, and which is designed to deter wrongdoing and to promote ethical conduct, full, fair, accurate, timely, and understandable disclosure in reports that we file or submit to the SEC and others, compliance with applicable government laws, rules, and regulations, prompt internal reporting of violations of the code, and accountability for adherence to the code. A copy of the code of ethics may be found on our website at www.cpiaero.com/board.html.
Board of Directors Meetings and Committees
Our board of directors held 8 meetings in 2019 and acted by unanimous written consent 4 times. All directors attended the 2019 annual shareholder meeting. Although we do not have any formal policy regarding director attendance at annual shareholder meetings, we attempt to schedule our annual meetings so that all of our directors can attend. In addition, we expect our directors to attend all board and committee meetings and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. No director attended fewer than 75% of the meetings of the board and of the committees thereof upon which he served in 2019. We have 5 standing committees: the dayCompensation & Human Resources Committee, Audit & Finance Committee, Nominating & Corporate Governance Committee, Strategic Planning Committee, and Oversight Committee. Copies of our committee charters are available free of charge on our website at www.cpiaero.com/board.html.
Leadership Structure
Our board of directors has determined to keep separate the positions of board chairman and principal executive officer at this time. This permits our principal executive officer to concentrate his efforts primarily on managing the Company’s business operations and development. This also allows us to maintain an independent chairman of the board who oversees, among other things, communications and relations between our board of directors and senior management, consideration by our board of directors of the Company’s strategies and policies, and the monthevaluation of our principal executive officers by our board of directors.
Succession Planning
Our board of directors is responsible for overseeing management succession planning. At least annually, our board of directors reviews management’s succession plan with respect to the Chief Executive Officer role and other senior management roles. We have developed succession plans for both ordinary course succession and planning due to an unforeseen event.
Risk Oversight
The primary function of our board of directors is oversight. Our board of directors as a whole has responsibility for risk oversight and reviews management’s risk assessment and risk management policies and procedures. Each committee of our board of directors has been delegated oversight authority over specific risk areas identified by our board of directors. For instance, our Audit & Finance Committee discusses with management the Company’s major financial risk exposures, our Compensation & Human Resources Committee discusses with management the Company’s major human capital risk exposures, and our newly-formed Oversight Committee discusses with management the Company’s day-to-day operations. and reports its findings to our board of directors in connection with our board’s risk oversight review. Further information about each committee’s role in risk assessment and management is included below.
Cybersecurity
Our board of directors is charged with oversight of the lastCompany’s cybersecurity matters, and management reports to the board periodically regarding material risks concerning cybersecurity. We took several steps in 2018 to mitigate cybersecurity risks, such as upgrading detection, prevention and monitoring systems, as well as contracting with an outside cybersecurity firm to provide constant monitoring of our systems.
Stock Ownership Requirements
Non-executive directors are subject to a stock ownership policy whereby each non-executive director is required to own common stock of the Company valued at least four times his annual meeting). Therefore,cash compensation before and after any stock sales. We believe this policy promotes and strengthens the alignment of interests between our non-executive directors, management, and shareholders.
Prohibition on Short Sales and Hedging
The Company prohibits directors, officers, employees, and consultants from entering into transactions involving short sales of our securities. Transactions in orderput options, call options or other derivative securities that have the effect of hedging the value of our securities also are prohibited except in certain limited circumstances where the insider already owns the securities prior to effecting the transaction and the transaction has been pre-approved.
Corporate Governance Highlights
✓ Independent Chairman of the Board | ✓ Regular executive sessions of independent directors |
✓5 out of 6 directors are independent | ✓ Stock ownership requirements for independent directors |
✓ Robust risk oversight process for board and committees | ✓ Annual board and committee evaluations |
✓ Voting rights are proportional to economic interests |
Compensation & Human Resources Committee Information
Our Compensation & Human Resources Committee is currently comprised of Carey Bond (Chair), Eric Rosenfeld, and Terry Stinson. Our board of directors has determined that each member of the Compensation & Human Resources Committee is an independent director under the NYSE American exchange listing standards. Our board of directors has adopted a written Compensation & Human Resources Committee charter, which is reviewed annually and which the Compensation & Human Resources Committee intends to review at its next regularly scheduled meeting. The responsibilities of our Compensation & Human Resources Committee include:
● | establishing the general compensation policy for our Named Executive Officers, including the Chief Executive Officer and Chief Financial Officer; | |
● | reviewing and approving the compensation of our executive officers and employment agreements with our executive officers, including change in control agreements, indemnification agreements, and severance agreements; |
● | reviewing the compensation paid to non-executive directors and making recommendations to the board of directors for any adjustments; |
● | administering our stock option and performance equity plans and determining who participates in the plans, establishing performance goals, if any, and determining specific grants and bonuses to the participants; |
● | ensuring that any compensation plan for key executives does not encourage undue risk-taking; and | |
● | assisting the board in the discharge of its oversight responsibilities for risks related to human resources, including talent management, employee conduct, diversity and inclusion, and employee compensation. |
Our Compensation & Human Resources Committee held 5 meetings during 2019 to review, discuss, and make any necessary changes to our executive and non-executive director compensation and to exercise oversight over human resources matters. Our Compensation & Human Resources Committee makes all final determinations with respect to compensation of executive officers, considering, among other things, its assessment of the value of each executive officer’s contribution to the Company, the Company’s financial performance during recent fiscal years in light of prevailing business conditions, and the Company’s goals for shareholder proposalsthe ensuing fiscal year.
Our Compensation & Human Resources Committee may utilize the services of third parties, including subscriptions to executive compensation surveys and other databases, to assist with the review of compensation for executive officers. Our Compensation & Human Resources Committee is charged with performing an annual review of the compensation of our executive officers to determine whether they are provided with adequate incentives and motivation, and whether they are compensated appropriately in accordance with our compensation policies.
Audit & Finance Committee Information and Report
During 2019 and 2020 until the Annual Meeting, our Audit & Finance Committee was comprised of Janet Cooper (Chair), Michael Faber, and Walter Paulick. Following the Annual Meeting, we will have one vacancy on our Audit & Finance Committee. Our Audit & Finance Committee held 10 meetings during 2019. All of the members of our Audit & Finance Committee are “independent directors,” as defined under NYSE American exchange listing standards, and are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement.
Financial Experts on the Audit & Finance Committee
We must certify to the NYSE American exchange that our Audit & Finance Committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. Our board of directors determined that the qualifications of each of Janet Cooper and Michael Faber satisfied the NYSE American exchange’s definition of financial sophistication and also qualify them as an “audit committee financial expert,” as defined under the rules and regulations of the SEC.
Audit & FinanceCommittee Report
Our board of directors has adopted a written Audit & Finance Committee charter, which is reviewed annually and which the Audit & Finance Committee intends to review at its next regularly scheduled meeting. According to our Audit & Finance Committee charter, our Audit & Finance Committee’s responsibilities include, among other things:
● | meeting with the independent registered public accounting firm prior to the audit to review the scope, planning, and staffing of the audit; |
● | reviewing and discussing with management and our independent registered public accounting firm the annual audited financial statements, and recommending to our board of directors whether the audited financial statements should be included in our Annual Report on Form 10-K; |
● | reviewing and discussing with management and the independent registered public accounting firm the Company’s quarterly financial statements prior to the filing of Quarterly Reports on Form 10-Q, including the results of the independent registered public accounting firm’s review of the quarterly financial statements; |
● | discussing with management and our independent registered public accounting firm significant financial reporting issues and judgments made in connection with our financial statements, including the reporting requirements of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard 3101; |
● | discussing earnings press releases with management, including the use of pro forma or adjusted non-GAAP information, and financial information and earnings guidance provided to analysts and rating agencies; |
● | discussing with management and our independent registered public accounting firm the effect on our financial statements of regulatory and accounting initiatives and off-balance sheet structures; |
● | discussing with management major financial risk exposures and the steps management has taken to monitor and control such exposures, including our risk assessment and risk management policies; |
● | discussing with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management; |
● | reviewing disclosures made to our Audit & Finance Committee by our Chief Executive Officer and Chief Financial Officer during their certification process for our Form 10-Ks and Form 10-Qs about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in our internal controls; | |
● | reviewing the scope, planning, and staffing of the audit for the Company’s 401(k) plan and reviewing the audited financial statements for the 401(k) plan; |
● | verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law; | |
● | reviewing and discussing with our independent registered public accounting firm the firm’s written disclosures concerning independence as required by PCAOB Ethics and Independence Rule 3526; |
● | reviewing and approving all related-party transactions; |
● | discussing with management our compliance with applicable laws and regulations; |
● | pre-approving all audit services and permitted non-audit services to be performed by our independent registered public accounting firm, including the fees and terms of the services to be performed; |
● | appointing or replacing our independent registered public accounting firm; |
● | determining the compensation and oversight of the work of our independent registered public accounting firm (including resolution of disagreements between management and our independent registered public accounting firm regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; |
● | establishing procedures for the receipt, retention, and treatment of complaints received by us regarding accounting, internal accounting controls, or reports which raise material issues regarding our financial statements or accounting policies; |
● | reviewing and making recommendations with respect to the Company’s capital structure and its related policies and long-term financial objectives, including allocation of capital and capital budget, changes in capital structure, uses of cash, cash requirements and sources of cash, including debt or equity issuances, revolving credit facilities, or other debt instruments or facilities and the Company’s borrowing alternatives and levels; and | |
● | assessing and managing financial risk exposures. |
Management has reviewed the audited financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 with our Audit & Finance Committee, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant accounting judgments and estimates, and the clarity of disclosures in the financial statements. In addressing the quality of management’s accounting judgments, members of our Audit & Finance Committee asked for management’s representations and reviewed certifications prepared by the Chief Executive Officer and Acting Chief Financial Officer that the unaudited quarterly and audited annual financial statements of the Company fairly present, in all material respects, the financial condition and results of operations of the Company.
In performing all of these functions, our Audit & Finance Committee acts only in an oversight capacity. The Audit & Finance Committee reviews the Company’s annual reports and its quarterly reports prior to filing with the SEC. In its oversight role, our Audit & Finance Committee relies on the work and assurances of the Company’s management, which has the responsibility for financial statements and reports, and of our independent registered public accounting firm, who, in their report, express an opinion on the conformity of the Company’s annual financial statements to generally accepted accounting principles. Our Audit & Finance Committee has met and held discussions with management and the Company’s independent registered public accounting firm. Management represented to our Audit & Finance Committee that the Company’s financial statements were prepared in accordance with generally accepted accounting principles, and our Audit & Finance Committee has reviewed and discussed the financial statements with management and our independent registered public accounting firm. Our Audit & Finance Committee also discussed with our independent registered public accounting firm the matters required to be discussed by the applicable requirements of the Public Company Accounting and Oversight Board (“PCAOB”). The Company’s independent registered public accounting firm also provided our Audit & Finance Committee with the written disclosures required by applicable requirements of the PCAOB regarding independence, including with regard to fees for services rendered during the fiscal year and for all other professional services rendered. In reliance on these reviews, discussions, and the report of our independent registered public accounting firm, our Audit & Finance Committee recommended to our board of directors, and the board of directors approved, that the audited financial statements for the fiscal year ended December 31, 2019 and the restated financial statements for the fiscal year ended December 31, 2018 be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, for filing with the SEC.
Janet K. Cooper (Chair)
Michael Faber
Walter Paulick
Nominating & Corporate Governance Committee Information
Our Nominating & Corporate Governance Committee is currently comprised of Carey Bond, Michael Faber (Chair), Walter Paulick, and Eric Rosenfeld, each an independent director under NYSE American exchange listing standards. Our Nominating & Corporate Governance Committee held two meetings during 2019. Our Nominating & Corporate Governance Committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors and for developing and recommending corporate governance guidelines. Our Nominating & Corporate Governance Committee considers potential director nominees identified by its members, our board of directors, management, shareholders, investment bankers, and others.
Our board of directors has adopted a written charter for our Nominating & Corporate Governance Committee, which establishes guidelines for corporate governance, the selection of director nominees, and the method by which shareholders may propose to our Nominating & Corporate Governance Committee candidates for selection as nominees for director.
The Nominating & Corporate Governance Committee annually reviews its charter, along with the Company’s guidelines for corporate governance and the selection of director nominees, and intends to review such documents at its next regularly scheduled meeting.
Guidelines for Selecting Director Nominees
The guidelines for selecting director nominees generally provide that the nominee should be accomplished in his or her field, have a reputation that is consistent with that of the Company, have relevant experience and expertise, have an understanding of financial statements, corporate budgeting, and capital structure, be familiar with the requirements of a publicly traded company, be familiar with industries relevant to our business endeavors, be willing to devote significant time to the oversight duties of the board of directors of a public company, and be able to promote a diversity of views based on the person’s education, experience, and professional employment. Our Nominating & Corporate Governance Committee evaluates each individual in the context of the board as a whole, with the objective of recommending a group of persons that can best implement our business plan, perpetuate our business, and represent shareholder interests. Our Nominating & Corporate Governance Committee may require certain skills or attributes, such as financial or accounting experience, to meet specific needs that arise from time to time. Our Nominating & Corporate Governance Committee does not distinguish among nominees recommended by shareholders and other persons.
Procedure for Shareholders to Recommend Director Candidates
Shareholders and others who wish to recommend candidates to our Nominating & Corporate Governance Committee for consideration as directors must submit their written recommendations to our Nominating & Corporate Governance Committee and include all of the information described in the section “2021 Annual Meeting Shareholder Proposals and Nominations” on page 43 below.
On May 21, 2020 our Nominating & Corporate Governance Committee recommended to our board of directors to nominate Terry Stinson for election as a Class I director. Our Nominating & Corporate Governance Committee did not receive recommendations from any shareholders or others for director candidates.
Guidelines for Corporate Governance
Our corporate governance guidelines are intended to ensure that the board of directors has the necessary authority and practices in place to review and evaluate the Company’s business operations and to make decisions that are independent of the Company’s management. The corporate governance guidelines are also intended to align the interests of the Company’s directors and management with those of the Company’s shareholders. The guidelines establish the practices our board of directors follows with respect to the obligations of the board and each director, board composition and selection, board meetings and involvement of senior management, Chief Executive Officer performance evaluation and succession planning, board committee composition and meetings, director compensation, director orientation and education, and director access to members of management and to independent advisors.
The corporate governance guidelines were adopted by our board of directors in 2010 and are reviewed periodically and updated as necessary to reflect changes in regulatory requirements and evolving oversight practices. The guidelines comply with corporate governance requirements contained in the listing standards of the NYSE American exchange and enhance the Company’s corporate governance policies.
Strategic Planning Committee Information
The strategic planning committee of our board of directors (“Strategic Planning Committee”) is currently comprised of Douglas McCrosson, Michael Faber, Eric Rosenfeld (Chair), and Terry Stinson. The main role of the Strategic Planning Committee is to evaluate and analyze strategic options for the Company. The Strategic Planning Committee met twice during 2019.
Oversight Committee Information
The oversight committee of our board of directors (“Oversight Committee”) was formed in March 2020 to take a more active role in oversight over the Company’s day-to-day operations, including advising management as to profitability on the programs that the Company chooses to bid for, terminating programs that are not profitable for the Company, reducing overhead costs and operating inefficiencies, and generating free cash from operations. The Oversight Committee is currently comprised of Carey Bond (Chair), Janet Cooper, and Walter Paulick.
EXECUTIVE OFFICER COMPENSATION
Overview
References in this section to Employment Agreements are to the employment agreement in effect for each Named Executive Officer for the applicable period, giving effect to any and all amendments, unless context requires otherwise.
At our 2018 annual meeting of shareholders, we conducted an advisory Say on Pay Frequency vote, in which shareholders determined that an advisory Say on Pay vote should be held every year. In accordance with the shareholder vote, we will hold an advisory Say on Pay vote at this Annual Meeting, in which shareholders will be asked to approve, on an advisory basis, the current compensation of our Named Executive Officers. The Compensation & Human Resources Committee considers the results of shareholder advisory votes regarding compensation as one factor when reviewing compensation and making compensation decisions.
Compensation Objectives
Our compensation program is designed to attract, retain, and motivate highly qualified executive officers in the competitive aerospace and defense industry. Additionally, a substantial portion of total compensation of our Named Executive Officers is variable and delivers rewards based on Company and individual performance. Company performance is measured against metrics established by the Compensation & Human Resources Committee each year. Such metrics typically focus on the achievement of financial targets such as revenue and free cash flow, to align our executives’ pay with the Company’s financial results and the creation of shareholder value. Individual performance is measured against each individual’s contributions to the Company’s overall success.
There are three major components to our compensation program for our Named Executive Officers:
| ✓ | Base Salary - fixed compensation, designed to recognize responsibilities, experience, and performance. |
| ✓ | Short-Term Cash Incentives - annual cash incentive, as a percentage of base salary, paid upon the achievement of Company performance goals set by the Compensation & Human Resources Committee during the first fiscal quarter. This variable at-risk compensation motivates and rewards executives with respect to short-term performance. |
| ✓ | Long-Term Equity Incentives - annual grants of restricted stock, 50% of which is subject to time-based vesting, and 50% of which vests upon the achievement of Company financial performative-metric thresholds set by our Compensation & Human Resources Committee. This variable at-risk compensation aligns executive interests with long-term shareholder value creation. |
Summary Compensation Table
The following table sets forth the compensation paid to or earned by each of our Named Executive Officers for each of the fiscal years ended December 31, 2019 and 2018.
| Name and Position | Year | Salary | Stock | Non-Equity | All Other ($) | Total ($) | ||||||||||||||||||
| Douglas McCrosson | 2019 | 365,761 | 274,319 | (4) | — | (5) | 28,836 | (6) | 668,916 | |||||||||||||||
| Chief Executive Officer | 2018 | 365,761 | 274,320 | (7) | 135,215 | 23,341 | (8) | 798,637 | ||||||||||||||||
| Vincent Palazzolo* | 2019 | 272,195 | (9) | 108,019 | (10) | — | 339,614 | (11) | 719,828 | |||||||||||||||
| Former Chief Financial Officer | 2018 | 286,048 | 107,267 | (12) | 53,697 | 23,952 | (13) | 470,964 | ||||||||||||||||
| Dan Azmon* | 2019 | 34,615 | (14) | 73,700 | (15) | 30,000 | (16) | 577 | (17) | 138,892 | ||||||||||||||
| Former Chief Financial Officer | 2018 | — | — | — | — | — | ||||||||||||||||||
| Kenneth Hauser | 2019 | 228,021 | 55,419 | (18) | 48,171 | 2,801 | (19) | 328,067 | ||||||||||||||||
| Vice President of Global Supply Chain Management and Quality | 2018 | 223,646 | 54,333 | (20) | 64,936 | 2,921 | (21) | 339,519 | ||||||||||||||||
* Thomas Powers began his service as our Acting Chief Financial Officer on February 12, 2020. Previously, Dan Azmon served as our Chief Financial Officer from November 2019 until his resignation on February 10, 2020, and Vincent Palazzolo served as our Chief Financial Officer from 2004 until November 2019.
(1) | Reflects actual base salary amounts paid to for each of the years indicated. |
(2) | Reflects grant date fair market value of restricted stock grants awarded to our Named Executive Officers as part of their performance-based annual bonus. |
(3) | Represents amounts awarded in cash to our Named Executive Officers as part of their performance-based annual bonus. Awards were earned in the year provided, but were not made until the following fiscal year. |
(4) | Does not reflect the aggregate of 18,930 shares which Mr. McCrosson will forfeit on the date that the Company’s Annual Report on Form 10-K is filed, in accordance with the terms of his restricted stock award agreements with the Company. |
(5) | Mr. McCrosson and the Compensation & Human Resources Committee agreed that Mr. McCrosson would forego $97,783 of short-term incentive cash bonus that Mr. McCrosson earned for 2019 in consideration of the recent decline in the Company’s stock price and the challenges the Company is facing due to economic conditions and uncertainties resulting from the COVID-19 pandemic. |
(6) | Represents (a) $17,156 of an automobile lease, insurance, and maintenance attributable to personal use; (b) $6,222 of disability insurance premiums; and (c) $5,459 of 401(k) contributions. |
(7) | Does not reflect the aggregate of 13,679 shares which Mr. McCrosson forfeited on April 2, 2019 in accordance with the terms of his restricted stock award agreements with the Company. |
(8) | Represents (a) $12,653 of an automobile lease, insurance, and maintenance attributable to personal use; (b) $6,595 of disability insurance premiums; and (c) $4,093 of 401(k) contributions. |
(9) | Represents a pro-rated amount of Mr. Palazzolo’s annual base salary of $286,048 through his termination by the Company without cause in November 2019. |
(10) | Does not reflect the aggregate of 38,906 shares which Mr. Palazzolo forfeited upon his termination by the Company without cause in November 2019 in accordance with the terms of his restricted stock award agreements with the Company. |
(11) | Includes an aggregate severance payment of $339,614 and the following perquisites paid in 2019: (a) $16,476 of an automobile lease, insurance, and maintenance attributable to personal use; (b) $5,082 of disability insurance premiums; and (c) $4,950 of 401(k) contributions. |
(12) | Does not reflect the aggregate of 6,224 shares which Mr. Palazzolo forfeited on April 2, 2019 in accordance with the terms of his restricted stock award agreements with the Company. |
(13) | Represents (a) $10,112 of an automobile lease, insurance and maintenance attributable to personal use, (b) $5,399 of disability insurance premiums; and (c) $8,441 of 401(k) contributions. |
(14) | Represents six weeks’ pro-rated salary at an annual rate of $300,000. |
(15) | Represents the equity portion of a signing bonus. Such amount was subsequently forfeited when Mr. Azmon resigned. |
(16) | Represents the non-equity portion of a signing bonus. Such amount was subsequently forfeited when Mr. Azmon resigned. |
(17) | Represents (a) $505 of an automobile lease, insurance and maintenance attributable to personal use and (b) $72 of disability insurance premiums. |
(18) | Does not reflect an aggregate of 3,904 shares which Mr. Hauser will forfeit on the date that the Company’s Annual Report on Form 10-K is filed, in accordance with the terms of his restricted stock award agreements with the Company. |
(19) | Represents (a) $1,920 of an automobile lease, insurance and maintenance attributable to personal use and (b) $881 of disability insurance premiums. |
(20) | Does not reflect an aggregate of 2,843 shares which Mr. Hauser forfeited on April 2, 2019 in accordance with the terms of his restricted stock award agreements with the Company. |
(21) | Represents (a) $2,040 of an automobile lease, insurance and maintenance attributable to personal use and (b) $881 of disability insurance premiums. |
Compensation Arrangements for Named Executive Officers
Douglas McCrosson
In 2016, Mr. McCrosson entered into a Severance and Change in Control Agreement with us (the “Severance and Change in Control Agreement”), the details of which are outlined below under the heading “Payments upon Termination or Change in Control.” Pursuant to the Severance and Change in Control Agreement, Mr. McCrosson is prohibited from disclosing confidential information and he has agreed not to compete with us without our consent during the term of employment and for 18 months thereafter, so long as we make severance payments to Mr. McCrosson pursuant to the agreement.
During 2018, Mr. McCrosson’s base salary was $365,761. He was entitled to receive a non-discretionary performance based cash bonus equal to 60% of his base salary upon the attainment of Company growth targets measured by pre-tax income, return on invested capital, free cash flow, and revenue, plus an additional non-discretionary performance based cash bonus equal to 3% of his base salary upon the attainment of each of five performance objectives, for an aggregate of 15%. For the year ended December 31, 2018, Mr. McCrosson received $135,215 in performance-based cash compensation, which was paid in 2019. In addition, Mr. McCrosson was awarded an aggregate of 33,251 shares of restricted stock (with a fair market value on the date of grant of $274,320) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2018 metrics were growth targets measured by backlog, revenue, and year-end inventory. The 2018 performance-based vesting metrics were not all met and, therefore, Mr. McCrosson forfeited 13,679 shares of restricted stock, representing the performance-based portion of the restricted stock granted in 2018, 2017, and 2016.
During 2019, Mr. McCrosson’s base salary was $365,761. He was entitled to receive a non-discretionary performance based cash bonus equal to 60% of his base salary upon the attainment of Company growth targets measured by pre-tax income, cash flow from operations, revenue, and book to bill ratio, plus an additional non-discretionary performance based cash bonus equal to 3% of his base salary upon the attainment of each of four performance objectives, for an aggregate of 12%. Mr. McCrosson and the Compensation & Human Resources Committee agreed that Mr. McCrosson would forego $97,783 of short-term incentive cash bonus that Mr. McCrosson earned for 2019 in consideration of the recent decline in the Company’s stock price and the challenges the Company is facing due to economic conditions and uncertainties resulting from the COVID-19 pandemic. In addition, during 2019, Mr. McCrosson was awarded an aggregate of 42,009 shares of restricted stock (with a fair market value on the date of grant of $274,319) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2019 metrics were growth targets measured by revenue, pre-tax income, and cash flow from operations. The 2019 performance-based vesting metrics were not all met and, therefore, Mr. McCrosson will forfeit 18,930 shares of restricted stock on the date that the Company’s Annual Report on Form 10-K is filed, representing the performance-based portion of the restricted stock granted in 2019, 2018, 2017, and 2016.
Vincent Palazzolo
During 2018, Mr. Palazzolo’s base salary was $286,048. He was entitled to receive a non-discretionary performance based cash bonus equal to 45% of his base salary upon the attainment of Company growth targets measured by pre-tax income, return on invested capital, free cash flow, and revenue. For the year ended December 31, 2018, Mr. Palazzolo received $53,697 in performance-based cash compensation. In addition, Mr. Palazzolo was awarded an aggregate of 13,002 shares of restricted stock (with a fair market value on the date of grant of $107,267) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2018 metrics were growth targets measured by backlog, revenue, and year-end inventory. The 2018 performance-based vesting metrics were not all met and, therefore, Mr. Palazzolo forfeited 6,224 shares of restricted stock, representing the performance-based portion of the restricted stock granted in 2018, 2017, and 2016.
During 2019, Mr. Palazzolo’s base salary was $272,195, representing an eleven-month pro-rated amount of his annual base salary of $286,048 through his termination in November 2019. Upon his termination, Mr. Palazzolo was entitled to severance payments in an amount of $339,614 and forfeited an aggregate of 38,906 shares of restricted stock.
Dan Azmon
Mr. Azmon served as our Chief Financial Officer from November 2019 until his resignation on February 10, 2020. During 2019, Mr. Azmon received a base salary of $34,615, representing a two-month pro-rated amount of his annual base salary of $300,000. Mr. Azmon also received a cash signing bonus in the amount of $30,000 and an equity grant of 10,000 shares of restricted common stock, which shares were subject to cliff vesting on November 18, 2022 subject to Mr. Azmon’s continuing employment with the Company. Upon Mr. Azmon’s resignation on February 10, 2020, he repaid the cash signing bonus and forfeited the equity portion of his signing bonus.
Kenneth Hauser
In 2016, Mr. Hauser entered into a Severance and Change in Control Agreement with us, the details of which are outlined below under the heading “Payments upon Termination or Change in Control.” Pursuant to the Severance and Change in Control Agreement, Mr. Hauser is prohibited from disclosing confidential information and he has agreed not to compete with us without our consent during the term of employment and for 12 months thereafter, so long as we make severance payments to Mr. Hauser pursuant to the agreement.
During 2018, Mr. Hauser’s base salary was $217,330. He was entitled to receive a non-discretionary performance based cash bonus targeted at 25% of his base salary upon the attainment of Company targets measured by revenue, inventory levels, and product deliveries, among other measures. For the year ended December 31, 2018, Mr. Hauser received $64,936 in performance-based cash compensation, which was paid in 2019. In addition, Mr. Hauser was awarded an aggregate of 6,586 shares of restricted stock (with a fair market value on the date of grant of $54,333) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2018 metrics were growth targets measured by backlog, revenue, and year-end inventory. The 2018 performance-based vesting metrics were not all met and, therefore, Mr. Hauser forfeited 2,843 shares of restricted stock, representing the performance-based portion of the restricted stock granted in 2018, 2017, and 2016.
During 2019, Mr. Hauser’s base salary was $221,677. He was entitled to receive a non-discretionary performance based cash bonus targeted at 25% of his base salary upon the attainment of Company targets measured by revenue, inventory levels, and product deliveries, among other measures. For the year ended December 31, 2019, Mr. Hauser received $48,171 in performance-based cash compensation, which was paid in 2020. In addition, during 2019, Mr. Hauser was awarded an aggregate of 8,487 shares of restricted stock (with a fair market value on the date of grant of $55,419) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2019 metrics were growth targets measured by revenue, pre-tax income, and cash flow from operations. The 2019 performance-based vesting metrics were not all met and, therefore, Mr. Hauser will forfeit 3,904 shares of restricted stock on the date that the Company’s Annual Report on Form 10-K is filed, representing the performance-based portion of the restricted stock granted in 2019, 2018, 2017, and 2016.
Outstanding Equity Awards at Fiscal Year-End
The following tables summarize the outstanding stock awards as of December 31, 2019 for each Named Executive Officer.
Stock Awards | ||||||||||||||||
| Name | Number of Shares of | Equity Incentive Plan | Market Value of | Equity Incentive | ||||||||||||
| Douglas McCrosson Chief Executive Officer | 85,239 | (4) | 37,801 | 5) | 254,402 | 573,657 | ||||||||||
| Vincent Palazzolo Chief Financial Officer* | — | (6) | 52,624 | (6) | — | 354,156 | ||||||||||
| Dan Azmon Chief Financial Officer* | 10,000 | (7) | — | 73,700 | — | |||||||||||
| Kenneth Hauser Vice President of Global Supply Chain Management and Quality | 16,829 | (8) | 8,378 | (9) | 107,202 | 56,387 | ||||||||||
*Dan Azmon served as our Chief Financial Officer from November 2019 until his resignation on February 10, 2020, and Vincent Palazzolo served as our Chief Financial Officer from 2004 until November 2019.
(1) | Reflects shares of restricted stock granted pursuant to the Company’s 2016 long-term incentive plan which have yet to vest. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance-based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2016 metrics were growth targets measured by EBITDA and revenue, the fiscal 2017 metrics were growth targets measured by revenue and year-end inventory, the fiscal 2018 metrics were growth targets measured by backlog, revenue, and year-end inventory, and the fiscal 2019 metrics were growth targets measured by measured by revenue, pre-tax income, and cash flow from operations. |
(2) | Reflects shares of restricted stock granted pursuant to the Company’s 2016 long-term incentive plan which were forfeited in 2017, 2018, and 2019, and shares of restricted stock withheld to satisfy tax obligations. Does not include shares of restricted stock granted pursuant to the Company’s 2016 long-term incentive plan which were or will be forfeited in 2020. |
(3) | Calculated using the closing price per share of the Company’s common stock on the last date of fiscal year 2019. |
(4) | Includes (i) 10,398 unvested shares of restricted stock initially granted on August 2, 2016, (ii) 17,295 unvested shares of restricted stock initially granted on March 2, 2017, (iii) 24,938 shares of restricted stock initially granted on March 20, 2018, and (iv) 42,009 unvested shares of restricted stock initially granted on April 2, 2019, less an aggregate of 9,401 shares withheld to satisfy tax obligations. |
(5) | Includes (i) the forfeiture of an aggregate of 15,596 shares of restricted stock initially granted on August 2, 2016, and (ii) the forfeiture of an aggregate of 8,648 shares of restricted stock initially granted on March 2, 2017, (iii) the forfeiture of an aggregate of 4,156 shares of restricted stock initially granted on March 20, 2018, (iv) no forfeiture of restricted stock initially granted on April 2, 2019 (as such shares had not vested or been forfeited as of December 31, 2019), and (v) and an aggregate of 9,401 shares withheld to satisfy tax obligations. |
(6) | Upon the termination of Mr. Palazzolo’s employment in November 2019, all unvested shares of restricted stock were forfeited. |
(7) | Such shares were forfeited upon Mr. Azmon’s resignation on February 10, 2020. |
(8) | Includes (i) 2,318 unvested shares of restricted stock initially granted on August 2, 2016, (ii) 3,442 unvested shares of restricted stock initially granted on March 2, 2017, (iii) 4,940 shares of restricted stock initially granted on March 20, 2018, and (iv) 8,487 unvested shares of restricted stock initially granted on April 2, 2019, less an aggregate of 2,357 shares withheld to satisfy tax obligations. |
(9) | Includes (i) the forfeiture of an aggregate of 3,477 shares of restricted stock initially granted on August 2, 2016, and (ii) the forfeiture of an aggregate of 1,721 shares of restricted stock initially granted on March 2, 2017, (iii) the forfeiture of an aggregate of 823 shares of restricted stock initially granted on March 20, 2018, (iv) no forfeiture of restricted stock initially granted on April 2, 2019 (as such shares had not vested or been forfeited as of December 31, 2019), and (iv) and an aggregate of 2,357 shares withheld to satisfy tax obligations. |
Pension Benefits
Other than our 401(k) plan, we do not maintain any other plan that provides for payments or other benefits at, following, or in connection with retirement.
Payments upon Termination or Change in Control
The Severance and Change in Control agreements with our Named Executive Officers provide for varying types and amounts of payments and additional benefits upon termination of employment, depending on the circumstances of the termination.
● | Termination without cause. If employment is terminated by the Company other than for cause, as defined in the agreements, then (i) with respect to Mr. McCrosson, he is entitled to (x) continued salary for 18 months, (y) any earned cash bonus not yet paid for the preceding fiscal year, and (z) a pro-rata cash bonus calculated using the prior year’s cash bonus amount, and (ii) with respect to Mr. Palazzolo, Mr. Azmon, Mr. Powers, or Mr. Hauser, he is entitled to (x) continued salary for 12 months, (y) any earned cash bonus not yet paid for the preceding fiscal year, and (z) a pro-rata cash bonus calculated using the prior year’s cash bonus amount. A non-competition provision will apply for as long as severance payments are being paid. Any unvested restricted stock will be forfeited and any unexercised options will expire. |
● | Termination for cause, or if the executive quits. If one of our Named Executive Officers voluntarily terminates his employment, or if the Company terminates his employment for cause, he is not entitled to any severance payments and is not bound by a non-compete clause, however he is still bound by any confidentially and non-disparagement duties. Any unvested restricted stock will be forfeited and any unexercised options will expire. |
● | Termination for disability. If one of our Named Executive Officers is terminated because of a disability, as defined in the Severance and Change in Control agreements, then he will receive severance as if he had been terminated without cause. |
● | Termination following a change in control. If the employment of one of our Named Executive Officers is terminated within 18 months following a change in control by the Company other than for cause or disability or by him for good reason (all such terms as defined in the Severance and Change in Control Agreements), he is entitled to (i) his base salary earned through the date of termination, (ii) any earned cash bonus not yet paid for the preceding fiscal year, and (iii) a pro rata portion of the his annual cash bonus for the portion of the year he worked, assuming all applicable targets had been met. In addition, he will be entitled to a change in control payment: (x) for Mr. McCrosson, in an amount equal to two times total compensation (base salary plus earned cash bonus) for either the prior full fiscal year, or the preceding fiscal year, whichever is the highest total compensation; (y) for Mr. Palazzolo, Mr. Azmon, Mr. Powers, or Mr. Hauser, in an amount equal to one and one-half times his base salary for the prior full fiscal year. Upon any change in control, all outstanding stock options and restricted stock will vest immediately for such Named Executive Officer. Health insurance and other fringe benefits will continue for the Named Executive Officer for a period of six months after termination. |
The following table summarizes the amounts payable upon termination of employment for our Named Executive Officers, assuming termination occurred on December 31, 2019 under the current Severance and Change in Control Agreements with each such Named Executive Officer. For purposes of presenting amounts payable over a period of time (e.g., salary continuation), the amounts are shown as a single total but not as a present value (the single sum does not reflect any discount). To the extent the termination accelerates vesting of equity awards, the value presented below is based upon the Company’s stock price as of December 31, 2019, and assumes the achievement of all applicable performance benefits.
Potential Termination Payments
| Name | Disability | By Company for Cause | By Company without Cause | Change in Control | ||||||||||||||||||||||||||||
| Cash ($) | Equity | Cash ($) | Equity | Cash ($) | Equity | Cash ($) | Equity | |||||||||||||||||||||||||
| Douglas McCrosson | 683,866 | — | — | — | 683,866 | — | 1,137,167 | 47,379 | ||||||||||||||||||||||||
| Vincent Palazzolo* | 339,614 | — | — | — | 339,614 | — | 482,769 | 38,907 | ||||||||||||||||||||||||
| Dan Azmon* | 300,000 | — | — | — | 300,000 | — | 450,000 | 10,000 | ||||||||||||||||||||||||
| Thomas Powers* | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Kenneth Hauser | 254,928 | — | — | — | 254,928 | — | 587,444 | 11,379 | ||||||||||||||||||||||||
*Mr. Powers began his service as our Acting Chief Financial Officer on February 12, 2020. Previously, Dan Azmon served as our Chief Financial Officer from November 2019 until his resignation on February 10, 2020, and Vincent Palazzolo served as our Chief Financial Officer from 2004 until November 2019.
Equity Award Plans
Long-term equity incentives are an important component of compensation and are designed to align the interests of our executive officers and directors who receive long-term equity awards with the Company’s long-term performance and to increase shareholder value. The Company has awarded long-term incentive compensation pursuant to three plans:
2016 Long-Term Incentive Plan. The 2016 Long-Term Incentive Plan registered 600,000 shares of our common stock, which may be granted in the form of stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards, to employees, officers, directors, and consultants of the company. As of December 31, 2019, we had granted 533,370 shares under this plan and 66,630 shares remained available for grant under this plan.
Performance Equity Plan 2009. The Performance Equity Plan 2009 authorizes the grant of 500,000 stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards. As of December 31, 2019, we had granted 366,984 shares under this plan and 133,016 shares remained available for grant.
Performance Equity Plan 2000. The Performance Equity Plan 2000 authorizes the grant of 1,230,000 stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards. As of December 31, 2018, options to purchase an aggregate of 1,283,333 shares of common stock had been granted under this plan, of which 35,000 options remained outstanding exercisable at a price of $6.60 per share. As of December 31, 2019, zero options/shares remained available for grant under this plan.
| Equity Compensation Plan Information | ||||||||||||
| Plan Category | Number of Securities to be issued upon exercise of outstanding options, warrants, and rights | Weighted-average exercise price of outstanding options, warrants, and rights ($) | Number of securities remaining available for future issuance under equity compensation plans (1) | |||||||||
| Equity compensation plans approved by shareholders | — | — | 199,646 | |||||||||
| Equity compensation plans not approved by shareholders | — | — | — | |||||||||
| Total | — | — | 199,646 | |||||||||
| (1) Excludes securities to be issued upon exercise of outstanding options, warrants, and rights, which are reflected in the first column. | |
Compensation of Directors
Directors who are employees of the Company do not receive separate compensation for their service as a director. Our non-executive directors receive a mix of cash compensation and stock compensation for their service to our Company. Each year, our Compensation & Human Resources Committee determines the total amount of non-executive director compensation, as well as the allocation among cash and stock compensation, and takes into consideration, among other things, the Company’s performance relative to its guidance, the extent to which director compensation aligns the interests of our directors with the interests of our shareholders, compensation awarded to directors of similarly sized companies in our industry, and past practices. Our Compensation & Human Resources Committee is also tasked with reviewing the compensation paid to non-executive directors and making recommendations to our board of directors for any adjustments deemed necessary as a result of their review. In December 2018, our board of directors determined that the following structure would properly incentivize non-executive directors and adequately recognize the additional work performed by board committee chairs: Chairman of the Board, $200,000; Chair of each of the Audit & Finance Committee and Strategic Planning Committee, $140,000 each; Chair of the Compensation & Human Resources Committee, $125,000; Chair of the Nominating & Corporate Governance Committee, $120,000; and all other non-executive directors, $100,000 each. Mr. Stinson, who served as both Non-Executive Chairman of the Board and Chair of the Compensation Committee (until Mr. Bond became Chair of the Compensation & Human Resources Committee in June 2019), waived his additional compensation as Chair of the Compensation Committee. In August 2020, our board of directors created a new position of Non-Executive Vice Chairperson of the Board and set the compensation for such role at $165,000. Mr. Bond was appointed to serve as Non-Executive Vice Chairperson of the Board in August 2020.
The following table summarizes the compensation of our non-executive directors for the year ended December 31, 2019.
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Total ($) | |||||||||
| Harvey Bazaar(2) | 28,000 | 42,003 | 70,003 | |||||||||
| Janet Cooper(3) | 37,823 | 56,733 | 94,556 | |||||||||
| Carey Bond(4) | 45,583 | 68,375 | 113,958 | |||||||||
| Michael Faber | 48,000 | 72,000 | 120,000 | |||||||||
| Walter Paulick | 40,000 | 60,000 | 100,000 | |||||||||
| Eric Rosenfeld | 56,000 | 84,000 | 140,000 | |||||||||
| Terry Stinson | 80,000 | 120,000 | 200,000 | |||||||||
_________________
(1) | Represents stock awarded to directors during 2019 in the form of RSUs, all of which had vested by December 31, 2019. The Company accounts for compensation expense associated with RSUs based on the fair value of the units on the date of grant. |
(2) | Mr. Bazaar retired from our board of directors in June 2019. Represents the pro-rated portion of compensation. |
(3) | Ms. Cooper joined our board of directors in May 2019 and became chair of our Audit & Finance Committee in June 2019. Represents the pro-rated portion of compensation. |
(4) | Mr. Bond became chair of our Compensation & Human Resources Committee in June 2019. Includes the pro-rated portion of his additional compensation. |
Non-Employee Director Stock Ownership Policy
In July 2019, upon the recommendation of the Compensation & Human Resources Committee, our board of directors revised its stock ownership policy for non-employee directors. Under the prior policy, non-employee directors were required to own stock of the Company valued at least four times his or her annual cash compensation before and following any stock sales. In order to better align the long-term interests of non-employee directors with our shareholders, our board revised the policy as follows: non-employee directors are now expected to own shares of stock equal to five times the then cash portion of the annual non-employee director’s compensation within five years of joining the board.
Certain Relationships and Related-Party Transactions
Related-Party Policy.
Our Code of Ethics requires us to avoid, wherever possible, all related-party transactions that could result in actual or potential conflicts of interest, except under guidelines approved by our board of directors (or our Audit & Finance Committee). SEC rules generally define related-party transactions as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our common stock, or (c) immediate family member of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.
Our Audit & Finance Committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. Our Audit & Finance Committee considers all relevant factors when determining whether to approve a related-party transaction, including whether the related-party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related-party’s interest in the transaction. No director may participate in the approval of any transaction in which he or she is a related-party, but that director is required to provide our Audit & Finance Committee with all material information concerning the transaction. Additionally, we require each of our directors and executive officers to complete a directors’ and officers’ questionnaire annually that elicits information about related-party transactions. These procedures are intended to determine whether any such related-party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee, or officer.
Related-Party Transactions.
There were no related-party transactions during the year ended December 31, 2019.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table and accompanying footnotes below set forth certain information as of August 21, 2020, the record date, with respect to the ownership of our common stock by:
● | each person or group who beneficially owns more than 5% of our common stock; |
● | each of our directors and our director nominees; |
● | each of our Named Executive Officers; and |
● | all of our directors and executive officers as a group. |
A person is deemed to be eligible for inclusionthe beneficial owner of securities that can be acquired by the person within 60 days from the record date. Accordingly, common stock issuable upon exercise of options that are currently exercisable, or exercisable within 60 days of August 21, 2020, have been included in the Company's Proxy Statement, they must be received bytable with respect to the Company at its
principal office in Edgewood, New York not laterbeneficial ownership of the person owning the options.
Name and Address of Beneficial Owner(1) | Shares Beneficially | Percent of Class(3) | ||||||
| Current Directors and Officers: | ||||||||
| Douglas McCrosson | 125,725 | (4) | 1.1 | % | ||||
| Thomas Powers | — | 0.0 | % | |||||
| Kenneth Hauser | 22,852 | (5) | * | |||||
| Carey Bond | 40,484 | * | ||||||
| Janet Cooper | 20,835 | * | ||||||
| Michael Faber | 43,134 | * | ||||||
| Walter Paulick | 59,324 | * | ||||||
| Eric Rosenfeld | 760,415 | (6) | 6.4 | % | ||||
| Terry Stinson | 80,748 | * | ||||||
| All current directors and named executive officers as a group (nine persons) | 1,153,517 | 9.7 | % | |||||
| Five Percent Holders: | ||||||||
| Jeffrey L. Feinberg | 983,443 | (7) | 8.3 | % | ||||
| Royce & Associates, LLC | 732,366 | (8) | 6.2 | % | ||||
| Dimensional Fund Advisors LP | 619,742 | (9) | 5.2 | % | ||||
| The Vanguard Group | 606,169 | (10) | 5.1 | % | ||||
| Russell Investments Group, Ltd. | 598,360 | (11) | 5.1 | % | ||||
| David W. Wright | 600,000 | (12) | 5.1 | % | ||||
________________
* Less than February 22, 2000.
1%
(1) | Unless otherwise noted, the business address of each of the following persons is c/o CPI Aerostructures, Inc., 91 Heartland Blvd., Edgewood, New York 11717. |
(2) | Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all common stock beneficially owned by them, subject to community property laws, where applicable. With respect to our executive officers, this includes both time-based and performance-based restricted stock awards that are forfeitable until the vesting date or performance certification date, as applicable. It does not include portions of restricted stock awards which have been forfeited. With respect to our non-executive directors, this includes time-based RSUs. RSUs are granted on the first day of the year and vest quarterly upon completion of service as a director. Such shares of restricted stock and such RSUs are included herein because they confer voting rights and therefore may be deemed to be beneficially owned under Rule 13d-3(a)(1) promulgated under the Exchange Act. |
(3) | As of August 21, 2020, there were 11,876,610 shares of our common stock issued and outstanding. Each person beneficially owns a percentage of our outstanding common stock equal to a fraction, the numerator of which is the number shares of our common stock held by such person plus the number of shares of our common stock that such person can acquire within 60 days the record date upon the exercise of options, if applicable, and the denominator of which is 11,876,610 (the number of shares of our common stock outstanding) plus the number of shares of our common stock such person can so acquire during such 60-day period. |
(4) | Includes an aggregate of 47,379 shares subject to time-based or performance-based vesting. Does not reflect shares which may be granted to Mr. McCrosson under the long-term incentive plan for 2020, or an aggregate of 18,930 shares which Mr. McCrosson will forfeit on the date that the Company’s Annual Report on Form 10-K is filed, representing the performance-based portion of the restricted stock granted in 2019, 2018, 2017, and 2016, in accordance with the terms of his restricted stock award agreements with the Company. |
(5) | Includes an aggregate of 9,022 shares subject to time-based or performance-based vesting. Does not reflect shares which may be granted to Mr. Hauser under the long-term incentive plan for 2020, or an aggregate of 3,904 shares which Mr. Hauser will forfeit on the date that the Company’s Annual Report on Form 10-K is filed, representing the performance-based portion of the restricted stock granted in 2019, 2018, 2017, and 2016, in accordance with the terms of his restricted stock award agreements with the Company. |
(6) | Represents 250,145 shares of common stock owned individually and 510,270 shares of common stock held by Crescendo Partners II, L.P. Series L (“Crescendo Partners II”). Mr. Rosenfeld is the senior managing member of the sole general partner of Crescendo Partners II. Mr. Rosenfeld disclaims beneficial ownership of the shares held by Crescendo Partners II, except to the extent of his pecuniary interest therein. |
(7) | The information with respect to Jeffrey L. Feinberg is derived from a Schedule 13G/A filed with the SEC on February 12, 2020. The business address of Jeffrey L. Feinberg is c/o Feinberg Investments Management LP, 972 Palisades Beach Road, Santa Monica, CA 90403. |
(8) | The information with respect to Royce & Associates, LLC is derived from an Amendment to Schedule 13G/A filed with the SEC on January 21, 2020. The business address of Royce & Associates, LLC is 745 Fifth Avenue, New York, NY 10151. |
(9) | The information with respect to Dimensional Fund Advisors LP is derived from a Schedule 13G/A filed with the SEC on February 12, 2020. Dimensional Fund Advisors LP, an investment adviser registered under Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager or sub-adviser to certain other commingled funds, group trusts and separate accounts (such investment companies, trusts and accounts, collectively referred to as the “Funds”). In certain cases, subsidiaries of Dimensional Fund Advisors LP may act as an adviser or sub-adviser to certain Funds. In its role as investment advisor, sub-adviser and/or manager, Dimensional Fund Advisors LP or its subsidiaries (collectively, “Dimensional”) may possess voting and/or investment power over the securities of the Issuer that are owned by the Funds, and may be deemed to be the beneficial owner of the shares of the Issuer held by the Funds. However, all securities reported in this schedule are owned by the Funds. Dimensional disclaims beneficial ownership of such securities. The business address of Dimensional is Building One, 6300 Bee Cave Road, Austin, TX 78746. |
(10) | The information with respect to The Vanguard Group is derived from a Schedule 13G filed with the SEC on February 11, 2020. Vanguard Fiduciary Trust Company (“VFTC”), a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 1,598 shares or 0.01% of the Common Stock outstanding of the Company as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd. (“VIA”), a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 0 shares or 0.00% of the Common Stock outstanding of the Company as a result of its serving as investment manager of Australian investment offerings. The business address of The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355. |
(11) | The information with respect to Russell Investments Group, Ltd. is derived from a Schedule 13G filed with the SEC on February 12, 2020. The business address of Russell Investments Group, Ltd. is 1301 Second Ave, Suite 1800, Seattle, WA 98101. |
(12) | The information with respect to David W. Wright is derived from a Schedule 13G filed with the SEC on June 12, 2020. The business address of Mr. Wright is 255 South 17th Street, Suite 1102, Philadelphia, PA 19103. Beneficial ownership includes 311,000 shares of common stock held by Henry Partners, L.P., 254,000 shares of common stock held by Matthew Partners, L.P., and 35,000 shares of common stock held by Mr. Wright individually. Mr. Wright is the President of Canine Partners, LLC, which is the sole general partner of Henry Investment Trust, L.P. Henry Investment Trust, L.P. is the sole general partner of each of Henry Partners, L.P. and Matthew Partners, L.P. |
SOLICITATION OF PROXIES
The solicitation of proxies in the enclosed form
Your proxy is madebeing solicited on behalf of the Companyour board of directors and we are bearing the cost of this solicitation is being paid by the
Company.solicitation. In addition to the use of the mails and the Internet, proxies may be solicited personally or by telephoneemail or telephone using the services of directors, officers, and regular employees of the Company at nominal cost. The Company has
engaged the services of Shareholder Communications Corporation ("SCC"), an
independent proxy solicitation firm, to help solicit proxies for this Meeting.
SCC anticipates that approximately 20 of its employees will participate in such
solicitation. Banks, brokerage firms, and other custodians, nominees, and fiduciaries will be reimbursed by the Companyus for expenses incurred in sending proxy material to beneficial owners of our common stock. We have retained MacKenzie Partners, Inc. (“MacKenzie”) to assist in the Company's stock.
solicitation of proxies for the Annual Meeting. We will pay MacKenzie a fee of $6,500 plus reimbursement for reasonable out-of-pocket expenses.
2021 ANNUAL MEETING SHAREHOLDER PROPOSALS AND NOMINATIONS
We intend to hold the 2021 annual meeting of shareholders on or about June 15, 2021. In order for any shareholder proposal to be presented at the 2021 annual meeting or to be eligible for inclusion in our proxy statement for such meeting pursuant to Rule 14a-8 under the Exchange Act, we must receive the shareholder proposal at our principal executive offices by March 31, 2021. Proposals received after March 31, 2021, will be considered untimely. Each proposal should include the exact language of the proposal, a brief description of the matter and the reasons for the proposal, the name and address of the shareholder making the proposal and the disclosure of that shareholder’s number of shares of common stock owned, length of ownership of the shares, a representation that the shareholder will continue to own the shares through the shareholder meeting, a statement of the shareholder’s intention to appear in person or by proxy at the shareholder meeting, the and material interest, if any, in the matter being proposed.
Shareholders who wish to recommend to our Nominating & Corporate Governance Committee a candidate for election to our board of directors must send the recommendation to CPI Aerostructures, Inc., 91 Heartland Boulevard, Edgewood, New York 11717, Attention: Nominating & Corporate Governance Committee, by May 7, 2021. The corporate secretary will promptly forward all such letters to the members of our Nominating & Corporate Governance Committee. Shareholders must follow certain procedures to recommend to our Nominating & Corporate Governance Committee candidates for election as directors, in addition to the procedures for other shareholder proposals, detailed above.
The recommendation must contain the following information about the candidate:
● | Name and age; |
● | Current business and residence addresses and telephone numbers, as well as residence addresses for the past 20 years; |
● | Principal occupation or employment and employment history (name and address of employer and job title) for the past 10 years (or such shorter period as the candidate has been in the workforce); |
● | Educational background; |
● | Permission for the Company to conduct a background investigation, including the right to obtain education, employment and credit information; |
● | The number of shares of common stock of the Company beneficially owned by the candidate; |
● | The information that would be required to be disclosed by the Company about the candidate under the rules of the SEC in a proxy statement soliciting proxies for the election of such candidate as a director (which currently includes information required by Items 401, 404 and 405 of Regulation S-K promulgated by the SEC); and |
● | A signed consent of the nominee to serve as a director of the Company, if elected. |
OTHER SHAREHOLDER COMMUNICATIONS WITH OUR BOARD OF DIRECTORS
Our board of directors provides a process for shareholders and interested parties to send communications to the board of directors. Shareholders and interested parties may communicate with our board of directors, any committee chairperson or the non-management directors as a group by writing to the board or committee chairperson in care of CPI Aerostructures, Inc., 91 Heartland Blvd., Edgewood, New York 11717. Each communication will be forwarded, depending on the subject matter, to the board of directors, the appropriate committee chairperson or all non-management directors.
DISCRETIONARY VOTING OF PROXIES
Pursuant to Rule 14a-4 promulgated by the SEC, shareholders are advised that our management will be permitted to exercise discretionary voting authority under proxies it solicits and obtains for our 2021 annual meeting of shareholders with respect to any proposal presented by a shareholder at such meeting, without any discussion of the proposal in our proxy statement for such meeting, unless we receive notice of such proposal at our principal office in Edgewood, New York, not later than March 31, 2021.
INCORPORATION BY REFERENCE
This proxy statement incorporates by reference certain information included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, including our audited financial statements and supplementary data, management’s discussion and analysis of financial condition and results of operations, and our quantitative and qualitative disclosures about market risk. You may request a free copy of any or all of the information incorporated by reference into the proxy statement (other than exhibits not specifically incorporated by reference into the text of such documents). Please direct any oral or written requests for such documents to CPI Aerostructures, Inc., 91 Heartland Blvd., Edgewood, New York 11717, Attention: Corporate Secretary.
OTHER MATTERS
The Board
Our board of Directorsdirectors knows of no matter whichthat will be presented for consideration at the Annual Meeting other than the matters referred to in this Proxy Statement.proxy statement. Should any other matter properly come before the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote suchthe proxy in accordance with their best judgment.
Edward J. Fred, Secretary
| By Order of the Board of Directors | |
| Douglas McCrosson, Chief Executive Officer |
Edgewood, New York
May 17, 1999
FRONT
August 25, 2020
YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY. |
Vote by Internet — QUICK EASY IMMEDIATE — 24 Hours a Day, 7 Days a Week or by Mail |
CPI AEROSTRUCTURES, INC. | Your internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. Votes submitted electronically over the internet must be received by 11:59 p.m., Eastern Time, on October 5, 2020. |
 | INTERNET/MOBILE — www.cstproxyvote.com/cpiaero/2020 | |
| Use the internet to vote your proxy. Have your proxy card available when you access the above website. Follow the prompts to vote your shares. | ||
 | MAIL – Mark, sign and date your proxy card and return it in the postage-paid envelope provided. |
| PLEASE DO NOT RETURN THE PROXY CARD IF YOU ARE VOTING ELECTRONICALLY . |
▲ FOLD HERE • DO NOT SEPARATE • INSERT IN ENVELOPE PROVIDED ▲
| PROXY | Please mark your votes like this | ☒ |
THE BOARD OF CARD:
CPI AEROSTRUCTURES, INC. - PROXY - Solicited By The Board Of Directors
DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSALS 1, 2, 3 AND 4.
| 1. | Election of the following director |
| FOR Nominee | WITHHOLD AUTHORITY for nominee | |||
| (1) | Terry Stinson | ☐ | ☐ | |
| 2. | Approval of an amendment to the 2016 Long-Term Incentive Plan to increase the shares available for issuance by 800,000 shares. | FOR ☐ | AGAINST ☐ | ABSTAIN ☐ |
| 3. | Advisory approval of the compensation of the Company’s Named Executive Officers. | FOR ☐ | AGAINST ☐ | ABSTAIN ☐ |
| 4. | Ratification of appointment of CohnReznick LLP as the Company’s independent registered public accounting firm. | FOR ☐ | AGAINST ☐ | ABSTAIN ☐ |
| 5. | In their discretion, the proxies are authorized to vote upon such other business as may come before the meeting or any adjournment thereof. |
| Mark here if you plan to attend the meeting.☐ |
| CONTROL NUMBER | ||
Signature________________________________ Signature, if held jointly______________________________ Date_____________, 2020
Note: Please sign exactly as name appears hereon. When shares are held by joint owners, both should sign. When signing as attorney, executor, administrator, trustee, guardian, or corporate officer, please give title as such.
Important Notice Regarding the Internet Availability of Proxy
Materials for the Annual Meeting of Shareholders To Be Held on June 22, 1999
P
The 2020 Proxy Statement and the 2019 Annual Report to
Shareholders are available at: http://www.cstproxy.com/cpiaero/2020
▲ FOLD HERE • DO NOT SEPARATE • INSERT IN ENVELOPE PROVIDED ▲
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CPI AEROSTRUCTURES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 6, 2020
The undersigned shareholder(s) of CPI AEROSTRUCTURES, INC., a New York corporation ("Company"(“Company”), hereby appoints Arthur Augustappoint(s) Walter Paulick and Edward J. Fred,
RDouglas McCrosson, or either of them, with full power of substitution and to act without the other, as the agents, attorneys and proxies of the undersigned, to vote the O shares standing in the name of the undersigned at the Company’s Annual Meeting of Shareholders to be held on June 22, 1999October 6, 2020 and at all adjournments thereof. This proxy will be
X voted in accordance with the instructions given below. If no instructions are given, this proxy will be voted FOR allelection of the following proposals:
Y
1. Election of the following Director: Kenneth McSweeneyClass I director nominee, FOR the nominee listed |_| WITHHOLD AUTHORITY |_|to vote for the nominee.
2. To approve an amendment to the Company's Certificate2016 Long-Term Incentive Plan, FOR the Say on Pay Proposal, and FOR the ratification of Incorporationthe appointment of CohnReznick LLP as the Company’s independent registered public accounting firm.
(Continued, and to implement a reverse stock split of between one-for-twobe marked, dated and one-for-four:
FOR |_| AGAINST |_| ABSTAIN |_|
BACK OF CARD:
3. To approve an amendment tosigned, on the Company's 1998 Performance Equity Plan
to increase the number of shares issuable under such plan by 390,000:
FOR |_| AGAINST |_| ABSTAIN |_|
4. In their discretion, the proxies are authorized to vote upon such other business as may come before the meeting or any adjournment thereof.
Date _____________________, 1999
________________________________
Signature
________________________________
Signature if held jointly
Please sign exactly as name
appears to the left. When
shares are held by joint
tenants, both must sign. When
signing as attorney, executor,
administrator, trustee or
guardian, give full title. If a
corporation or partnership,
please sign corporate or
partnership name by authorized
person, indicating position.
side)