UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
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[X] | Definitive Proxy Statement |
[ ] | Definitive Additional Materials |
[ ] | Soliciting Material Pursuant to §240.14a-12 |
SIERRA MONITOR CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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SIERRA MONITOR CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 10, 2018
TO OUR SHAREHOLDERS:
You are cordially invited to attend the 2018 Annual Meeting of Shareholders of Sierra Monitor Corporation (“we,” the “Company” or “Sierra Monitor”). The Annual Meeting will be held on Thursday, May 10, 2018 at 2:00 p.m., Pacific Time. The Annual Meeting will be a completely virtual meeting of shareholders, which will be conducted via live webcast. You will be able to attend the virtual Annual Meeting and submit your questions during the meeting by visitinghttp://www.meetingcenter.io/233228778 with the password SRMC2018. The Annual Meeting will be held for the following purposes, as more fully described in the accompanying proxy statement (the “Proxy Statement”):
1. | To elect the Board of Directors of the Company to serve for the ensuing year and until their successors are duly elected and qualified; | |
2. | To ratify the appointment of Squar Milner LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018; | |
3. | To hold a non-binding vote to approve the Company’s executive compensation; and | |
4. | To transact such other business as may properly come before the Annual Meeting or any postponements or adjournments thereof. |
These items of business are more fully described in the Proxy Statement, which accompanies this Notice of Annual Meeting. Please read the Proxy Statement carefully.
Only shareholders of record at the close of business on April 10, 2018 are entitled to vote at the Annual Meeting. If you attend the virtual Annual Meeting, you will be able to vote and submit questions during the meeting by following the instructions athttp://www.meetingcenter.io/233228778 and using the password SRMC2018. The Annual Report on Form 10-K for the year ended December 31, 2017 was filed with the Securities Exchange Commission on April 2, 2018 and is available for review on the Sierra Monitor investor relations web site. This Notice and the Proxy Statement are first being mailed and made available to shareholders on or about April 16, 2018. Whether or not you plan to attend the virtual Annual Meeting, please vote at//www.investorvote.com/SRMC or by phone by calling toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone or complete, sign, date and return the accompanying proxy card in the enclosed postage-paid envelope. The Proxy Statement describes the proxy voting in more detail.
By Order of the Board, | |
/s/ Gordon R. Arnold | |
Gordon R. Arnold | |
Secretary |
Milpitas, California
April 16, 2018
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YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the VIRTUAL Annual Meeting, we urge you to submit your vote online atwww.INVESTORVOTE.COM/SRMCOR BY CALLING TOLL FREE 1-800-652-VOTE (8683) WITHIN THE USA, US TERRITORIES & CANADA ON A TOUCH TONE TELEPHONE or via mail as soon as possible so that your shares can be voted at the Annual Meeting in accordance with your instructions.
The Proxy Statement and Annual Report on Form 10-K are available at www.investor.sierramonitor.com.
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SIERRA MONITOR CORPORATION
PROXY STATEMENT FOR
2018 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 10, 2018
INFORMATION CONCERNING SOLICITATION
The enclosed proxy is solicited on behalf of the Board of Directors (the “Board”) of Sierra Monitor Corporation (“we,” the “Company” or “Sierra Monitor”) for use at the Company’s 2018 Annual Meeting of Shareholders (the “Annual Meeting”) to be held on Thursday, May 10, 2018, at 2:00 p.m., Pacific time, or at any continuations, adjournments or postponements of the Annual Meeting. The purposes of the Annual Meeting are described in the accompanying Notice of Annual Meeting of Shareholders and in this Proxy Statement. The Annual Meeting will be held via live webcast athttp://www.meetingcenter.io/233228778 with the password SRMC2018.
This Proxy Statement and the accompanying form of proxy are being mailed and made available on the Internet at www.investor.sierramonitor.com beginning on or about April 16, 2018 to shareholders entitled to vote at the Annual Meeting. Our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the Securities and Exchange Commission (“SEC”) on April 2, 2018, includes our financial statements. Shareholders may obtain a copy of this Proxy Statement, the Company’s Annual Report on Form 10-K and form of proxy, without charge, by sending a written request with such shareholder’s name and mailing address to: Sierra Monitor Corporation, 1991 Tarob Court, Milpitas, California 95035, Attention: Secretary, calling the Company at 800-727-4377, or by sending an email with such shareholder’s name and mailing address to investor_relations@sierramonitor.com. The Company will promptly deliver a Proxy Statement, Annual Report and/or proxy card upon receipt of such request. Our Annual Report on Form 10-K and any exhibits thereto may also be obtained from the SEC’s website at www.sec.gov or our Company investor relations website at www.investor.sierramonitor.com. Our telephone number is 800-727-4377.
GENERAL INFORMATION ABOUT THE MEETING AND VOTING
Why is the Company soliciting my proxy? | Our Board is soliciting your proxy to vote at the Annual Meeting to be held at our headquarters on May 10, 2018 at 2:00 p.m., Pacific Time, and any adjournments or postponements of the meeting. This Proxy Statement along with the accompanying Notice of Annual Meeting of Shareholders summarizes the purposes of the meeting and the information you need to know to vote at the Annual Meeting.
We have sent you this Proxy Statement, the Notice of Annual Meeting of Shareholders and the proxy card because you owned shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), as of the close of business on April 10, 2018, which is referred to as the “Record Date.” | |
Who may vote? | You may vote at the Annual Meeting if you owned your shares as of the close of business of the Record Date. As of the Record Date, we had a total of 10,203,995 shares of Common Stock outstanding, which were held of record by approximately 121 shareholders. As of the Record Date, we had no shares of preferred stock outstanding. | |
How many votes do I have? | On each proposal to be voted upon, you are entitled to one vote for each share of Common Stock that you own as of the Record Date. For Proposal One (election of directors), shareholders may “cumulate” votes. See section entitled “What vote is required for the proposals?” for additional information on this procedure. |
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How do I vote my proxy? | Whether you plan to attend the virtual Annual Meeting or not, we urge you to vote by proxy. If you vote by proxy, the individuals named on the proxy card, or your “proxies,” will vote your shares in the manner you indicate.
If your shares of Common Stock are held by a broker, bank or other nominee, you will receive instructions from them that you must follow in order to have your shares voted.
If you hold your shares in your own name as a holder of record, you may instruct the proxy holders how to vote your shares by either voting online at www.investorvote.com/SRMC or by calling toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone or by mail. | |
To vote on the Internet | Please submit your vote online at www.investorvote.com/SRMC.
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To vote by phone | Please submit your vote by phone by calling toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone. Follow the instructions provided by the recorded message.
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To vote by mail | Sign and return the proxy card in the enclosed postage-paid and addressed envelope. If you receive more than one proxy card, your shares are held in multiple accounts. Please sign and return all proxy cards to ensure that all of your shares are voted. | |
To vote while attending the Annual Meeting on the Internet | If your shares are registered directly in your name, you are considered the shareholder of record and you have the right to vote while attending the Annual Meeting on the Internet.
If your shares are held in the name of your broker or other nominee, you are considered the “beneficial owner” of shares held in “street name.” If this is the case you must follow the voting instructions provided by your broker or other nominee in order to instruct your broker or other nominee on how to vote your shares. | |
How will the proxy holders vote? | If you provide instructions in your completed proxy card, the proxy holders will vote your shares in accordance with those instructions. If you sign and return a proxy card without giving specific voting instructions, your shares will be voted:
● “FOR” the election of all of the directors listed in Proposal One;
● “FOR” ratification of the appointment of Squar Milner LLP as our independent registered public accounting firm listed in Proposal Two; and
● “FOR” the non-binding shareholder approval of executive compensation listed in Proposal Three. | |
What matters are being presented at the Annual Meeting? | We are not aware of any matters to be presented at the Annual Meeting other than those described in the Notice of Annual Meeting of Shareholders and this Proxy Statement. |
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Will the proxy holders have discretionary voting power? | If any matters not described in this Proxy Statement are properly presented at the Annual Meeting, the proxy holders will use their own judgment to determine how to vote your shares. If the Annual Meeting is adjourned or postponed, the proxy holders can vote your shares on the new Annual Meeting date as well, unless you have subsequently revoked your proxy. | |
How can I change my vote? | If you are a holder of record and would like to change your vote, you can do so in the following ways:
● deliver written notice of the revocation of your proxy to our Secretary prior to the Annual Meeting;
● deliver a properly executed, later dated proxy prior to the Annual Meeting;
● vote again on a later date on the Internet (only your latest proxy submitted prior to the Annual Meeting will be counted); or
● at the virtual Annual Meeting by following the instructions athttp://www.meetingcenter.io/233228778 with the password SRMC2018.
Please note that your attendance at the virtual Annual Meeting in and of itself is not enough to revoke your proxy.
If your shares are held by a broker, bank or other nominee, you must contact them in order to find out how to change your vote. | |
What do I need to do to attend the Annual Meeting?
| The Annual Meeting will be a completely virtual meeting of shareholders, which will be conducted via live webcast. You are entitled to participate in the Annual Meeting only if you were a holder of our Common Stock as of the close of business on April 10, 2018 or if you hold a valid proxy for the Annual Meeting.
You will be able to attend the virtual Annual Meeting and submit your questions during the Annual Meeting by visitinghttp://www.meetingcenter.io/233228778 with the password SRMC2018. You also will be able to vote your shares electronically at the Annual Meeting.
To participate in the virtual Annual Meeting, you will need the control number included on your Notice or proxy card. If you hold your shares through an intermediary, such as a bank or broker, you must register in advance using the instructions below.
The live webcast will begin promptly at 2:00 p.m. Pacific Time on May 10, 2018. We encourage you to access the meeting prior to the start time. Online check-in will begin at 1:45 p.m. Pacific Time, and you should allow ample time for the check-in procedures. |
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How do I register to attend the Annual Meeting virtually on the Internet? | If you are a registered shareholder (i.e., you hold your shares through our transfer agent, Computershare), you do not need to register to attend the Annual Meeting virtually on the Internet. Please follow the instructions on the proxy card that you received.
If you hold your shares through an intermediary, such as a bank or broker, you must register in advance to attend the Annual Meeting virtually on the Internet.
To register to attend the Annual Meeting online by webcast you must submit proof of your proxy power (legal proxy) reflecting your Sierra Monitor Corporation holdings along with your name and email address to Computershare. Requests for registration should be directed to:
Computershare
Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m., Eastern Time, on May [9], 2018.
You will receive a confirmation of your registration by email after we receive your registration materials. | |
Why are you holding a virtual meeting instead of a physical meeting? | We are excited to embrace the latest technology to provide expanded access, improved communication and cost savings for our shareholders and the Company. We believe that hosting a virtual meeting will enable more of our shareholders to attend and participate in the meeting since our shareholders can participate from any location around the world with Internet access. | |
Who is paying the cost of this proxy solicitation? | We will pay the cost of this proxy solicitation. We may, on request, reimburse brokerage firms and other nominees for their expenses in forwarding proxy materials to beneficial owners. In addition to soliciting proxies by mail, we expect that our directors, officers and employees may solicit proxies in person or by telephone or facsimile. None of these individuals will receive any additional or special compensation for doing this. | |
What constitutes a quorum for the Annual Meeting? | The Annual Meeting will be held if a majority of our outstanding shares of Common Stock entitled to vote at the Annual Meeting are represented in person or by proxy. | |
What are the recommendations of the Board? | Our Board recommends that you vote:
● “FOR” the election of each of the director nominees to the Board listed in Proposal One;
● “FOR” the ratification of Squar Milner LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018 as listed in Proposal Two; and
● “FOR” the non-binding shareholder approval of executive compensation listed in Proposal Three. |
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What vote is required for the proposals? | For Proposal One (Election of Directors), the nominees receiving the highest number of “FOR” votes in person or represented by proxy at the Annual Meeting and entitled to vote will be elected as directors of the Company to serve for the ensuing year and until their successors are duly elected and qualified. For Proposal One (Election of Directors), shareholders may cumulate votes and give one candidate a number of votes equal to the number of directors to be elected (five) multiplied by the number of votes to which the shareholder’s shares are entitled, or a shareholder may distribute votes on the same principle as the shareholder sees fit, provided that votes may not be cast for more than five candidates. In order to cumulate votes, a shareholder must give notice to the Company prior to the voting on Proposal One of the intention to cumulate votes. As of the date of this Proxy Statement, we have not received notice that any shareholder has requested the ability to cumulate votes for directors.
For Proposal Two (Ratification of Squar Milner LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018), ratification requires the affirmative vote of a majority of the shares present and entitled to vote at the Annual Meeting.
For Proposal Three (Non-binding vote to approve the Company’s executive compensation), approval requires the affirmative vote of a majority of the shares present and entitled to vote at the Annual Meeting. | |
How are abstentions, withheld, and broker non-votes counted? | We treat shares that are voted “WITHHELD” or “ABSTAIN” in person or by proxy as being:
● present for purposes of determining whether or not a quorum is present at the Annual Meeting; and
● entitled to vote on a particular subject matter at the Annual Meeting.
Therefore, a “WITHHELD” or “ABSTAIN” vote is the same as voting against a proposal that has a required, affirmative voting threshold (e.g., Proposal Two (Ratification of Squar Milner LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018) and/or Proposal Three (Non-binding vote to approve the Company’s executive compensation)) but will have no effect on a proposal that is determined by a plurality of votes (e.g., Proposal One (Election of Directors)).
If you hold your Common Stock through a broker, the broker may be prevented from voting shares held in your brokerage account on some proposals (a broker non-vote) unless you have given the broker voting instructions. In particular if you hold your Common Stock through a broker, it is critical that you give your broker voting instructions if you want your vote to count in Proposal One (Election of Directors) or Proposal Three (Non-binding vote to approve the Company’s executive compensation). Certain regulations restrict the ability of your broker to vote your uninstructed shares on a discretionary basis in the election of directors and, with respect to non-binding votes to approve the Company’s executive compensation. Thus, if you hold your Common Stock through a broker and you do not instruct your broker how to vote on Proposal One or Proposal Three it will be considered a broker non-vote and no votes will be cast on your behalf with respect to the relevant proposal or proposals. Shares that are subject to a broker non-vote are counted for purposes of determining whether a quorum exists but do not count for or against any particular proposal.
For Proposal Two, your broker will continue to have discretion to vote your shares on this matter even if no instructions are received by you.
If you are a shareholder of record and you do not sign and return a proxy card or you do not otherwise cast your vote, no votes will be cast on your behalf on any of the items of business at the Annual Meeting. |
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How can I find the voting results of the 2018 Annual Meeting? | We will announce the results for the proposals voted upon at the 2018 Annual Meeting in a Form 8-K filed within four business days after the 2018 Annual Meeting. | |
What is the deadline for receipt of shareholder proposals for the 2019 Annual Meeting? | Shareholders may present proposals for action at a future annual meeting only if they comply with the requirements of the proxy rules established by the SEC. Shareholder proposals, including nominations for the election of directors, which are intended to be presented by such shareholders at our 2019 Annual Meeting of Shareholders, must be received by us no later than December 17, 2018 to be considered for inclusion in the proxy statement and proxy card relating to that meeting. |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE VIRTUAL ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 10, 2018
The Notice and Proxy Statement and Annual Report on Form 10-K are available at www.investor.sierramonitor.com. You are encouraged to access and review all of the important information contained in the proxy materials before voting.
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PROPOSAL ONE:
ELECTION OF DIRECTORS
Nominees
The Board is currently comprised of five members. The Board has authorized the nomination at the Annual Meeting of the five persons named below as nominees. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the five nominees listed below, each of whom is currently a director of the Company. In the event that any such nominee is unable or declines to serve as a director at the time of the Annual Meeting, the shareholders may vote for any nominee who shall be designated by the current Board to fill the vacancy. It is not expected that any nominee will be unable or will decline to serve as a director. The directors elected will hold offices until the next annual meeting of shareholders and until their successors are elected and qualified. The names of the five nominees and certain information about them is set forth below:
Name of Nominee | Age | Principal Occupation | Director Since | |||
Jeffrey S. Brown | 58 | President, Chief Executive Officer and Director of the Company | 2017 | |||
Gordon R. Arnold | 72 | Executive Advisor, Secretary and Director of the Company | 1989 | |||
C. Richard Kramlich | 82 | Director of the Company, Co-Founder, New Enterprise Associates – Venture Capital | 1989 | |||
Robert C. Marshall | 86 | Director of the Company, Managing Director, Selby Venture Partners | 1998 | |||
James D. Norrod | 63 | Director of the Company, Chief Executive Officer, Tellabs | 2017 |
Jeffrey S. Brown joined the Company as President and Chief Executive Officer in October 2017 from Accuris Networks, where he was the President and Chief Executive Officer from September 2014 to July 2017. While at Accuris’, he led the company’s pivot to a SaaS model and deployed a worldwide cloud solution for some of the largest wireless service providers. From May 2009 to July 2014 Mr. Brown served as President and Chief Executive Officer of Kineto Wireless until it was sold to Taqua. Mr. Brown holds a Bachelor of Arts from the University of California, Berkeley, and a Master of Business Administration from Golden Gate University. His business administration education and more than thirty years of industry experience qualify him to serve as Chief Executive Officer and as a member of our Board.
Gordon R. Arnold joined Sierra Monitor Corporation, a California corporation (“Old Sierra”), in December 1979 as Operations Manager and Vice President. He became President in 1984 and Chief Executive Officer of Old Sierra in April 1985. In September 1989, Old Sierra merged into UMF Systems, Inc., a California corporation (“UMF”), and UMF changed its name to “Sierra Monitor Corporation.” Mr. Arnold served as the Company’s President, Chief Executive Officer and Chief Financial Officer since the merger and as the Company’s Secretary since February 1993 until July 2014. Mr. Arnold was also a director from 1984, becoming Executive Chairman in July 2014. Mr. Arnold then served as interim President and Chief Executive Officer from May 2017 until October 2017, and, subsequently, Executive Advisor since October 2017. He is a past President of the Measurement Control and Automation Association. Mr. Arnold’s specific qualifications and experience to serve as a member of our Board include his business management education, more than forty years of direct industry experience and over thirty-five years of full-time employment as an executive of the Company.
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C. Richard Kramlich has been a director of the Company since 1980. Mr. Kramlich, who has more than thirty-five years of venture capital experience, is a co-founder of New Enterprise Associates, a venture capital firm. Mr. Kramlich is presently a director of Zhone Technologies and has been since 1999. He received a Master of Business Administration from the Harvard University Graduate School of Business and a Bachelor of Science in History from Northwestern University. Mr. Kramlich’s specific qualifications and experience to serve as a member of our Board include over thirty years as managing general partner of a highly successful venture capital company, his membership on numerous boards of private and public companies, and over thirty years of participation on our Board.
Robert C. Marshall has been a director of the Company since 1998. Since 1997, Mr. Marshall has been the Managing General Partner of Selby Venture Partners, a venture capital firm. Mr. Marshall received a Bachelor’s degree in Electrical Engineering from Heald Engineering and a Master of Business Administration from Pepperdine University. Mr. Marshall’s specific qualifications and experience to serve as a member of our Board include his participation in the founding of the first redundant computer manufacturing company, his founding of a highly successful venture capital company, his involvement in the management and turn-around of various electronic companies and his seventeen-year participation on our Board.
Mr. James D. Norrod became a director of the Company in October 2017. Since October 2017, Mr. Norrod has served as the President and Chief Executive Officer of Tellabs, Inc. Prior to that, he served as the President and Chief Executive Officer of Zhone Technologies from July 2014 to September 2017, leading the successful merger of Zhone Technologies into DASAN Zhone Solutions Inc. From May 2013 through May 2014, Mr. Norrod served as the Executive Chairman of GreenBytes until it was acquired by Oracle. Beginning in December 2010, Mr. Norrod served as the Chairman and Chief Executive Officer of Infinite Power Solutions until it was acquired in February 2013. Mr. Norrod holds a Bachelor of Science in Economics from Oakland University and a Master of Business Administration in Marketing from the University of Detroit. Mr. Norrod’s specific qualifications and experience to serve as a member of our Board include his education and his membership on numerous boards of private and public companies.
Vote Required
The five nominees receiving the highest number of affirmative votes of the shares of the Company’s Common Stock that are present in person or by proxy and are entitled to vote at the Annual Meeting shall be elected as directors of the Company. Votes withheld from election of any directors are counted for purposes of determining the presence or absence of a quorum but have no other legal effect under California law. Shareholders may cumulate votes in the election of directors.
Recommendation of the Board
The Board recommends VOTING “FOR” the re-election of the above-named directors to the Board.
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INFORMATION ABOUT OUR BOARD
Board Leadership Structure and Role in Risk Oversight
Our Chairman, Gordon Arnold, continues to be active at the company on a daily basis as Executive Advisor and therefore maintains frequent communication with our Chief Executive Officer, Jeff Brown. Mr. Kramlich receives operational updates from both Mr. Arnold and Mr. Brown and therefore functions as the lead independent director through his advice to the Company and his communication with the other directors.
The current leadership structure is appropriate due to the small size of the Company and the low number of officers (five) and independent directors (three). Due in part to the significant continuity in the Company’s leadership structure over the past fifteen years, the independent directors are satisfied that the Executive Advisor has the education, experience and judgment necessary to perform the functions of Chairman of the Board.
The members of the Board are proactive in both their formal and their informal interface with the Company. The three independent Board members also comprise the Audit Committee. The Board and the Audit Committee meet formally on a quarterly basis. The members receive periodic briefings from the independent auditors and they require regular reports regarding the Company’s internal controls practices and third-party audits. The Board believes that maintaining the current structure of combined Executive Advisor and Chairman of the Board positions is appropriate due to its confidence in Mr. Arnold and his broad skills in investing, managing and directing numerous other public and private companies.
Risk is inherent with every business and the Board as a whole is responsible for overseeing our risk management function. The Board meets regularly to receive Audit Committee reports, as well as management reports with respect to areas of material risk to the Company, including legal, operational, financial and strategic risks. In addition, the Audit Committee oversees and reviews at least annually our policies related to risk management. In its risk oversight role, the Board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.
Director Independence
While shares of the Company’s Common Stock are traded on an over-the-counter market, the Board uses the rules of the NASDAQ Stock Market as a benchmark in determining director independence. Based on the review by the Board of all relevant information, the Board has determined that each of our directors and director nominees, other than Messrs. Arnold and Brown, are “independent” as defined under the rules of the NASDAQ Stock Market. Going forward the proposed Board will be comprised of a majority of independent directors (Messrs. Kramlich, Marshall and Norrod) and two directors who do not meet the definition of “independent” directors (Messrs. Arnold and Brown), as determined by our Board using the definition provided under the rules of the NASDAQ Stock Market.
Board Meetings and Committees
The Board held five meetings during the fiscal year ended December 31, 2017. We encourage our directors to attend the Annual Meeting and a majority of our directors attended our 2017 Annual Meeting of Shareholders. During fiscal year 2017, each then current director attended at least 75% of the aggregate of (i) the total number of meetings of the Board and (ii) the total number of meetings held by all committees of the Board on which he served. The Board has a standing Audit Committee but does not have a standing nominating or compensation committee or any other committees performing similar functions.
Audit Committee
The Audit Committee is primarily responsible for overseeing the services performed by the Company’s independent registered public accounting firm and internal audit processes, evaluating the Company’s accounting policies and its system of internal controls and reviewing significant financial transactions. The Audit Committee met four times during fiscal year 2017. Messrs. Kramlich and Marshall were the members of the Audit Committee during the full year 2017 and Mr. Norrod joined the audit committee on his appointment to the Board on October 16, 2017.
The Board has previously approved and adopted an Audit Committee Charter, a copy of which may be obtained at the Company’s website athttp://www.investor.sierramonitor.com/essential-governance-documents.
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Independence; Audit Committee Financial Expert
As stated above, while the shares of the Company’s Common Stock are traded on an over-the-counter system, the Board has elected to apply the rules of the NASDAQ Stock Market in determining director independence. The Board believes that all Audit Committee members are independent directors as defined by the rules of the SEC and under the rules of the NASDAQ Stock Market. The Board has determined that the Company has at least one audit committee financial expert serving on its Audit Committee. C. Richard Kramlich is the Company’s audit committee financial expert as defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC.
Nominating Committee
The Board has no standing nominating committee nor does it have a committee performing similar functions. Furthermore, it has no nominating committee charter. In light of the relatively small size of the Company and the number of directors, the Board has determined that it is more efficient for the entire Board to consider nominees for director instead of a separate nominating committee. The Board will continue to evaluate on an ongoing basis the desirability of a separate nominating committee, and will establish such a committee when, if at all, it deems that doing so would benefit the Company.
The Board has no formal policy with regard to the consideration of any director candidates recommended by shareholders because, in its view, a shareholder that desires to nominate a person for election to the Board may do so directly by following the requirements set forth in Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Nevertheless, the Board will consider candidates recommended by shareholders. Shareholders who wish to have their recommendations considered by the Board should direct the recommendation in writing to Sierra Monitor Corporation, 1991 Tarob Court, Milpitas, CA 95035, Attention: Secretary. The candidate recommended should possess the qualities that are necessary for any member of the Board, as described in the guidelines set forth below.
The guidelines of the Board for evaluating and identifying candidates for the Board, which are the same for any candidate regardless of whether the candidate was recommended by a shareholder or the Board, are as follows:
● | Regular review of the current composition and size of the Board. | |
● | Regular review of the qualifications of any candidates. Such review may include a review solely of information provided to the Board and also may include discussions with persons familiar with the candidate, an interview with the candidate or other actions that the Board deems proper. | |
● | The Board may evaluate its performance as a whole and evaluate the performance and qualifications of individual members of the Board eligible for re-election at the annual meeting of shareholders. | |
● | The Board may consider the suitability of each candidate, including the current members of the Board, in light of the current size and composition of the Board. The Board seeks highly-qualified and experienced candidates, but presently has no stated minimum qualifications that must be met by each candidate. In evaluating the qualifications of the candidates, the Board considers many factors, including issues of character, judgment, independence, background, expertise, diversity of experience, length of service, other commitments and the like. The Board evaluates such factors, among others, and does not assign any particular weight or priority to any of these factors. Also, the Board considers each individual candidate in the context of the current perceived needs of the Board as a whole. The Board believes that candidates and nominees must reflect a board comprised of directors who: (i) are mostly independent, (ii) are of high integrity, (iii) have qualifications that will increase the overall effectiveness of the board and (iv) meet other requirements as may be required by applicable rules, such as financial literacy or financial expertise with respect to Audit Committee members. |
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In addition, while we do not have a formal written policy on director diversity, the Board also considers diversity when reviewing the overall composition of the Board and considering the slate of nominees for annual election to the Board and the appointment of individual directors to the Board. Diversity, in this context, includes factors such as experience, specialized expertise, geographic location, cultural background, gender and ethnicity.
Corporate Governance
As part of our system of corporate governance, we adopted a code of business conduct and ethics that applies to all directors, officers and employees. Our code of business conduct and ethics is posted on our website at www.investor.sierramonitor.com (by including the foregoing Internet address link, we do not intend to incorporate by reference to this Proxy Statement material not specifically referenced herein). We intend to disclose any future amendments to certain provisions of our code of business conduct and ethics, or waivers of such provisions, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or our directors on our website identified above. The inclusion of our website address in this report does not include or incorporate by reference the information on our website into this report.
Compensation of Directors
The following table shows, for the fiscal year ended December 31, 2017, the compensation earned by our directors, which is discussed below under “Executive Compensation and Other Matters.” During the fiscal year ended December 31, 2017, Mr. Arnold earned the compensation set forth below under “Executive Compensation and Other Matters.” Mr. Arnold and Mr. Brown, our President and Chief Executive Officer, do not receive compensation for serving on our Board.
Name | Fees earned or paid in cash ($) (1) | Total ($) | ||||||
C. Richard Kramlich (1)(2) | 12,800 | 12,800 | ||||||
Robert Marshall (1)(2) | 12,800 | 12,800 | ||||||
James D. Norrod (2) | 12,500 | 12,500 |
(1) | Prior to 6/1/2017, all independent, non-employee directors received a payment of $100 per meeting of the Board. | |
(2) | Effective 6/1/2017, outside directors receive an annual payment of $25,000 |
Compensation of Executive Officers
The Board has no standing compensation committee nor does it have a committee performing similar functions. Furthermore, it has no compensation committee charter. In light of the relatively small size of the Company, the Board has determined that it is more efficient for the Chief Executive Officer to determine and recommend the amount and form of executive and director compensation to be approved by the entire Board. The Board will continue to evaluate on an ongoing basis the desirability of a separate compensation committee, and will establish such a committee when, if at all, it deems that doing so would benefit the Company.
With the exception of stock option grants that are approved by the Board, the Chief Executive Officer establishes executive officer target compensation each year coincident with wage reviews of all employees. The two primary components of officer compensation are base salary and performance based bonuses.
The Chief Executive Officer establishes annual salary levels based on a combination of factors including competitive salary benchmarks and individual performance. Executive team bonuses are based on corporate financial performance targets.
Communicating with Our Directors
Shareholders may contact any or all of our directors directly by writing to them at Sierra Monitor Corporation, 1991 Tarob Court, Milpitas, CA 95035, Attn: Board of Directors.
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Report of the Audit Committee of the Board
The material in this report shall not be deemed to be (i)”soliciting material,” (ii) “filed” with the SEC, (iii) subject to Regulations 14A or 14C of the Exchange Act, or (iv) subject to the liabilities of Section 18 of the Exchange Act. The report shall not be deemed incorporated by reference into any filing of Sierra Monitor Corporation under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent we specifically incorporate the report by reference into such filing.
The Audit Committee has reviewed and discussed the Company’s audited financial statements for the fiscal year ended December 31, 2017 with the Company’s management.
The Audit Committee has discussed with Squar Milner LLP (“Squar Milner”) those matters required to be discussed by Statement of Auditing Standards No. 16, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. Squar Milner has discussed with the Audit Committee that firm’s independence from management and the Company and provided the Audit Committee with the written disclosures and the letter required by the Public Company Accounting Oversight Board Ethics and Independence Rule 3526.
Based upon the review and discussions referred to above, the Audit Committee has recommended to the Board that the Company’s audited financial statements for the fiscal year ended December 31, 2017 be included in the Company’s Annual Report on Form 10-K for fiscal year 2017, as filed with the SEC on April 2, 2018. The foregoing report is respectfully submitted by the following members of the Company’s Board, who constitute the Audit Committee:
C. Richard Kramlich, Chairman
Robert C. Marshall
James D. Norrod
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PROPOSAL TWO:
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board has appointed Squar Milner as the independent registered public accounting firm for the Company for the current fiscal year ending December 31, 2018. Squar Milner previously audited the Company’s financial statements from fiscal year 2002 through the fiscal year ended December 31, 2017.
It is expected that representatives of Squar Milner will be present by telephone at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to answer any appropriate questions.
Principal Accountant Fees and Services
The aggregate fees billed for professional accounting services by Squar Milner for the fiscal years ended December 31, 2017 and 2016 are as follows:
Audit Fees
The aggregate fees billed by Squar Milner for professional services rendered for the reviews of the condensed financial statements included in the Company’s Quarterly Reports on Form 10-Q for each of fiscal years 2017 and 2016, and for their audit of the annual financial statements for each of fiscal years ended December 31, 2017 and 2016 were $82,100 and $79,700, respectively.
Tax Fees
There were no fees billed by Squar Milner for tax services in the fiscal years 2017 and 2016 as the Company engaged another firm for tax preparation/consulting.
Audit-Related Fees
The aggregate fees billed by Squar Milner for audit-related services in each of fiscal years 2017 and 2016 were approximately $12,700 and $12,470, respectively.
All Other Fees
During fiscal years 2017 and 2016, the Company did not engage Squar Milner to provide products or services other than those reported under the sections above.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
All services, whether audit or non-audit services, performed by Squar Milner must be pre-approved by the Audit Committee. Pre-approval must be obtained before Squar Milner performs the services but cannot be obtained more than a year before performance begins. Approval can be for general classes of permitted services such as “annual audit services” or “tax consulting services.” A written engagement letter, including a description of the permitted services, the dates of the engagement and the fees for such services, must be approved in accordance with these procedures before performance begins.
Percentage of Audit Fees Pre-Approved
During fiscal years 2017 and 2016, 100% of all audit and permissible non-audit services were pre-approved by the Audit Committee.
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Independence of Squar Milner
The Audit Committee has determined that the accounting advice provided by Squar Milner is compatible with maintaining Squar Milner’s independence.
Vote Required
Although shareholder ratification of Squar Milner as the Company’s independent registered public accountants is not required by law, as a matter of good corporate governance, we are requesting that our shareholders ratify the appointment. To ratify the appointment of Squar Milner as the Company’s independent registered public accountants for the fiscal year ending December 31, 2018, the affirmative vote of a majority of shares of the Company’s Common Stock that are present in person or by proxy and entitled to vote at the Annual Meeting is required.
Recommendation of the Board
The Board UNANIMOUSLY recommends VOTING “FOR” the ratification of the appointment of Squar Milner as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018.
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PROPOSAL THREE:
NON-BINDING VOTE TO APPROVE THE COMPANY’S EXECUTIVE COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) enables our shareholders to vote to approve, on an advisory or non-binding basis, the compensation of our named executive officers as disclosed in accordance with the SEC’s rules in the “Executive Compensation” section of this Proxy Statement. The Company currently holds such an advisory vote annually, and this proposal, commonly known as a “say-on-pay” proposal, gives our shareholders the opportunity to express their views on the compensation of our named executive officers. This vote is not intended to address any specific item of compensation or any specific named executive officer, but rather the overall compensation of all of our named executive officers and the philosophy, policies and practices described in this Proxy Statement.
The say-on-pay vote is advisory, and therefore not binding on us or our Board. The say-on-pay vote will, however, provide information to us regarding investor sentiment about our executive compensation philosophy, policies and practices. Our Board values the opinions of our shareholders and to the extent there is any significant vote against the named executive officer compensation as disclosed in this Proxy Statement, we will consider our shareholders’ concerns and evaluate whether any actions are necessary to address those concerns.
Our compensation philosophy with respect to executive officers is designed to attract, retain, motivate and reward highly qualified executives who contribute to the success of the Company and its shareholders. To achieve these goals, we strive to provide a comprehensive compensation package for each executive officer that is competitive with those offered by companies of similar type and size, in the same geographical area and whose executives perform functions similar to those performed by our executives.
Accordingly, the Board recommends that shareholders vote in favor of the following resolution:
“Resolved, that the shareholders approve the compensation of the Company’s named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, including the compensation tables and the related footnotes and narrative disclosures.”
Vote Required
If a quorum is present, the affirmative vote of the holders of a majority of the shares present and entitled to vote is necessary to approve the non-binding vote to approve the Company’s executive compensation.
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS VOTING “FOR” THE NON-BINDING VOTE TO APPROVE THE COMPANY’S EXECUTIVE COMPENSATION.
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Executive Officers
As of April 10, 2018 the current executive officers of the Company and their ages are as follows:
Name | Age | Position | ||
Gordon R. Arnold | 72 | Chairman of the Board, Executive Advisor, Secretary, and Director | ||
Jeffrey S. Brown | 58 | President, Chief Executive Officer, and Director | ||
Tamara S. Allen | 51 | Chief Financial Officer | ||
Michael C. Farr | 60 | Vice President, Operations |
See section entitled “Proposal One: Election of Directors – Nominees” for Messrs. Arnold’s and Mr. Brown’s biographical information.
Tamara S. Allen has served as the Company’s Chief Financial Officer since April 2014, having been Controller since March 2005. Ms. Allen joined the Company in January 1996. Prior to joining the Company, Ms. Allen held various finance and accounting positions at Philips Semiconductors and served on the board of directors for Horizon West Federal Credit Union.
Michael C. Farr joined Old Sierra in December 1983 as Operations Manager. He became Vice President of Operations in May 1986. Since the merger between Old Sierra and UMF, Mr. Farr has served as Vice President of Operations of the Company. His strong production control and operations management background resulted in the Company’s attainment of ISO-9001 registration for the Company’s quality system, and has supported the Company’s growth through multiple transitions of its supply chain process, partners, and systems.
There are no family relationships between any of the directors or executive officers of the Company or any of the nominees referenced in this Proxy Statement.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Under the SEC’s rules, a person who directly or indirectly has or shares voting power or investment power with respect to a security is considered a beneficial owner of the security. Voting power is the power to vote or direct the voting of shares, and investment power is the power to dispose of or direct the disposition of shares.
The following table sets forth certain information, as of April 10, 2018, regarding beneficial ownership of our Common Stock by:
● | each person who is known to us to own beneficially more than 5% of our Common Stock; | |
● | each director and each nominee for election as our director; | |
● | each executive officer named in the Summary Compensation Table of this Proxy Statement; and | |
● | all of our current directors and executive officers as a group. |
The information on beneficial ownership in the table and the footnotes is based upon our records and the most recent Schedule 13D or 13G filed by each such person and information supplied to us by such person. Unless otherwise indicated, each person has sole voting power and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares subject to options that are exercisable within 60 days after April 10, 2018 are deemed to be outstanding and to be beneficially owned by the person holding such options for the purpose of computing the percentage ownership of such person, but are not deemed to be outstanding and to be beneficially owned for the purpose of computing the percentage ownership of any other person.
Five-Percent Shareholders, Directors and Executive Officers (1) | Amount and Nature of Beneficial Ownership (2) | |||||||
Number of Shares | Percent of Total Outstanding (10) | |||||||
Five-Percent Shareholders: | ||||||||
Jay T. Last, Ph.D. (3) | 2,052,475 | 20.1 | % | |||||
Zeff Capital, LP (4) | 722,504 | 7.1 | % | |||||
——— | ——— | |||||||
Directors and Executive Officers: | ||||||||
C. Richard Kramlich (5) | 2,767,688 | 27.1 | % | |||||
Gordon R. Arnold (6) | 1,198,007 | 11.7 | % | |||||
Robert C. Marshall | 368,587 | 3.6 | % | |||||
Michael C. Farr (7) | 93,607 | 0.9 | % | |||||
Tamara S. Allen (8) | 196,203 | 1.9 | % | |||||
Jeffrey S. Brown | 4,000 | 0.0 | % | |||||
James D. Norrod | 10,000 | 0.10 | % | |||||
All directors and executive officers as a group (7 persons) (9) | 4,638,092 | 45.5 | % |
(1) | Unless otherwise indicated, the business address of each of the directors and executive officers listed in this table is: c/o Sierra Monitor Corporation, 1991 Tarob Court, Milpitas, California 95035. | |
(2) | Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. | |
(3) | Includes an aggregate of 14,200 shares of Common Stock held by Deborah R. Last, Dr. Last’s wife. | |
(4) | Based on information reported on Schedule 13G/A filed with the SEC on January 3, 2018, filed by Zeff Capital, LP, a Delaware limited partnership, Zeff Holding Company, LLC, a Delaware limited liability company, and Daniel Zeff, and individual, reporting Zeff Capital, LP with sole voting and dispositive power over the shares. The address for the shareholder is 885 Sixth Ave, New York, NY 10001. | |
(5) | Includes 211,500 shares of Common Stock held by Pamela P. Kramlich, Mr. Kramlich’s wife. | |
(6) | Includes (a) 1,098,007 shares of Common Stock held by The Gordon and Isabel Arnold Trust, of which Mr. Arnold is a grantor and trustee and (b) an aggregate of 100,000 shares of Common Stock subject to stock options exercisable within 60 days of April 10, 2018. | |
(7) | Includes an aggregate of 35,000 shares of Common Stock subject to stock options exercisable within 60 days of April 10, 2018. | |
(8) | Includes an aggregate of 120,417 shares of Common Stock subject to stock options exercisable within 60 days of April 10, 2018. | |
(9) | Shares outstanding includes an aggregate of 255,417 shares of Common Stock subject to stock options exercisable within 60 days of April 10, 2018. |
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EXECUTIVE COMPENSATION AND OTHER MATTERS
Executive Compensation
The following table shows for the fiscal years ended December 31, 2017 and 2016 the compensation of our named executive officers, who consist of our current Chief Executive Officer, each person that served in the role of chief executive officer for us during 2017 and the two most highly compensated executive officers other than our chief executive officer:
Summary Compensation Table | ||||||||||||||||||||||||||||
Name and Principal Position | Fiscal Year | Salary | Bonus | Equity Awards (1) | Non-Equity Incentive Plan Compensation (2) | All Other Compensation | Total | |||||||||||||||||||||
Jeffrey Brown, | 2017 | $ | 76,923 | $ | 31,250 | $ | 360,250 | - | $ | 24 | (6) | $ | 468,447 | |||||||||||||||
Chief Executive Officer (3) | 2016 | $ | - | $ | - | - | - | - | - | |||||||||||||||||||
Gordon Arnold | 2017 | $ | 250,000 | $ | 750 | - | - | $ | 687 | (7) | $ | 251,437 | ||||||||||||||||
Chief Executive Officer (4) | 2016 | $ | 248,000 | $ | - | - | - | $ | 687 | (7) | $ | 248,687 | ||||||||||||||||
Varun Nagaraj | 2017 | $ | 116,826 | $ | - | - | - | $ | 284,120 | (8) | $ | 400,946 | ||||||||||||||||
Chief Executive Officer (5) | 2016 | $ | 302,725 | $ | - | - | - | $ | 788 | (9) | $ | 413,170 | ||||||||||||||||
Anders Axelsson Vice | 2017 | $ | 95,152 | $ | - | - | - | $ | 271,620 | (10) | $ | 366,772 | ||||||||||||||||
President Sales & Marketing | 2016 | $ | 252,554 | - | - | - | $ | 788 | (9) | $ | 253,342 | |||||||||||||||||
Michael Farr | 2017 | $ | 264,896 | - | $ | 25,750 | $ | 25,000 | $ | 788 | (9) | $ | 316,434 | |||||||||||||||
Vice President of Operations | 2016 | $ | 252,554 | - | - | - | $ | 788 | (9) | $ | 253,342 |
(1) | The amounts in the “Equity Awards” column include stock option grants made in 2017 and reflect the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718. The assumptions that we used to calculate these amounts are discussed in Note 4 to our financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and incorporated by reference herein. The amount also includes the value of restricted stock awarded during 2017. | |
(2) | Amounts in this column represent payouts based under the 2017 Bonus Plan and 2016 Bonus Plan described in the section entitled “Non-Equity Incentive Plans” below. | |
(3) | Mr. Brown has served as Chief Executive Office since October 16, 2017. | |
(4) | Mr. Arnold served as Chief Executive Office for the period May 10, 2017 through October 15, 2017. | |
(5) | Mr. Nagaraj served as Chief Executive Officer until May 10, 2017. | |
(6) | Includes $24 life insurance premium paid in 2017. | |
(7) | Includes a $500 contribution by the Company under its 401(k) plan, and $187 life insurance premium paid in 2017. | |
(8) | Includes $262,500 separation payment, $21,000 payment in lieu of COBRA insurance, a $500 contribution by the Company under its 401(k) plan, and $120 life insurance premium paid in 2017. | |
(9) | Includes a $500 contribution by the Company under its 401(k) plan, and $288 life insurance premium paid in 2017. | |
(10) | Includes $250,000 separation payment, $21,000 payment in lieu of COBRA insurance, a $500 contribution by the Company under its 401(k) plan, and $120 life insurance premium paid in 2017. |
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Outstanding Equity Awards at Fiscal 2017 Year-End
The following table provides the specified information concerning the number of outstanding equity awards held by each of the executive officers named in the Summary Compensation Table during the fiscal year ended December 31, 2017:
Option Awards | Stock Awards | |||||||||||||||||||||||
Number of Securities Underlying Unexercised Options: Exercisable | Number of Securities Underlying Unexercised Options: Unexercisable | Option Exercise Price | Option Expiration Date | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) | |||||||||||||||||||
Jeffrey Brown (1) | 0 | 350,000 | $ | 1.20 | 10/15/2027 | - | - | |||||||||||||||||
Tamara Allen (2) | 10,000 | 0 | $ | 1.75 | 5/11/2021 | - | - | |||||||||||||||||
Tamara Allen (3) | 25,000 | 0 | $ | 1.69 | 10/23/2023 | - | - | |||||||||||||||||
Tamara Allen (4) | 85,417 | 14,583 | $ | 1.45 | 2/09/2025 | - | - | |||||||||||||||||
Tamara Allen (1) | 0 | 50,000 | $ | 1.20 | 10/15/2027 | - | - | |||||||||||||||||
Michael Farr (2) | 10,000 | 0 | $ | 1.75 | 5/11/2021 | - | - | |||||||||||||||||
Michael Farr (3) | 25,000 | 0 | $ | 1.69 | 10/23/2023 | - | - | |||||||||||||||||
Michael Farr (1) | 0 | 50,000 | $ | 1.20 | 10/15/2027 | - | - |
(1) | Stock options vest as to 25% of the shares on the one-year anniversary of 10/16/2017, with the remaining shares vesting ratably thereafter over a 3-year period, and will be fully vested on 10/16/2021. |
(2) | Stock options vest as to 25% of the shares on the one-year anniversary of 5/12/2011, with the remaining shares vesting ratably thereafter over a 3-year period, and were fully vested on 5/12/2015. |
(3) | Stock options vest as to 25% of the shares on the one-year anniversary of 10/24/2013, with the remaining shares vesting ratably thereafter over a 3-year period, and were fully vested on 10/24/2017. |
(4) | Stock options vest as to 25% of the shares on the one-year anniversary of 2/10/2015, with the remaining shares vesting ratably thereafter over a 3-year period, and will be fully vested on 2/10/2019. |
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
Retention Agreements.Effective April 2, 2012, we entered into retention agreements with certain executive officers and employees of the Company, including Gordon R. Arnold, Executive Advisor, Michael C. Farr, Vice President of Operations, and Tamara Allen, our Chief Financial Officer (together, the “Executives”). Except as may be noted below, the Executives’ retention agreements (the “Retention Agreements”) have substantially the same terms and provide that in the event the Executives’ employment with the Company is terminated without “cause” (as defined in the Retention Agreements), or they resign for “good reason” (as defined in the Retention Agreements) within the period beginning three months prior to and ending 12 months following a change of control of the Company (as defined in the Retention Agreements), the Executives will receive:
● | continued base salary (less applicable withholding taxes) for a period of six months (other than for Mr. Arnold, who receives his continued base salary (less applicable withholding taxes) for a period of 12 months) following the date of termination; provided, however, that any such salary continuation will immediately terminate upon their commencement of full-time employment with another employer; | |
● | continuation of commission payments (less applicable withholding taxes) for a period of 12 months following the date of termination, each of which commission payments will be equal to the average of the commission payments received by them, if any, during the six months prior to the date of termination; | |
● | a pro-rata portion of target fiscal year bonus, if any (less applicable withholdings), for the fiscal year in which their termination of employment occurs; provided, however, that such amount will be paid only if and to the extent that the relevant performance targets by the Company and/or the Executives, if any, are achieved. Such amount will be pro-rated for the period of time during the fiscal year that they were an employee of the Company and such amount will be paid at the time bonuses for the completed fiscal year are paid to other employees of the Company (but in no event later than two and one-half months following the end of the Company’s fiscal year); |
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● | 50% acceleration of all then-outstanding and unvested equity awards and an extension of the post-termination exercise period for any outstanding equity awards for an additional 12 months following the date of termination; provided, however, that in no event may the outstanding equity awards be exercised beyond their original term(s) or expiration date(s); and | |
● | if continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), is timely elected, reimbursement for premiums paid for continued health benefits under COBRA for the Executives (and any eligible dependents) until the earlier of (i) six months from the date of termination of their employment with the Company, (ii) the date upon which they (and/or any eligible dependents) otherwise become eligible for health benefits under similar plans, or (iii) the date on which they (and/or any eligible dependents) are no longer eligible to receive continuation coverage pursuant to COBRA. |
In order to be eligible to receive benefits under the Retention Agreements, the Executives must sign and not revoke a release of claims agreement in favor of the Company (in a form acceptable to the Company). The Retention Agreements also provide that the Executives shall comply with a 12-month non-solicitation obligation and requirements of the Company’s proprietary information and inventions agreement and shall agree to not disparage the Company and its officers, directors, employees and shareholders.
Transition Agreement. Effective October 16, 2017, we entered into a transition agreement with Mr. Arnold to provide for an orderly transition of his day-to-day leadership of Sierra Monitor in connection with the hiring of new senior leadership and to continue his employment as Executive Advisor to the Company through October 31, 2018 (the “Transition Period”). As defined in such agreement, Mr. Arnold will receive:
● | compensation for his services of a base salary at the annualized rate of $250,000; | |
● | continued vesting of all stock options in accordance with the applicable vesting schedule; | |
● | continuation of vesting for all of Mr. Arnold’s other outstanding stock options or other equity (“Options”) in accordance with the applicable vesting schedule(s) and the terms and conditions of the Stock Plan and the applicable option agreement under which each such Option was granted during the Transition Period; | |
● | eligibility to participate in employee benefit plans currently and hereafter maintained by the Company of general applicability to other executive officers and accrual of vacation at the same rate in which Mr. Arnold accrues vacation as of immediately prior to the Effective Time during the Transition Period; and | |
● | eligibility for the severance and change of control benefits set forth in the Retention Agreement (to the extent applicable) and any severance and/or change of control benefits approved by the Board for other senior executive officers of the Company during the Transition Period. |
Employment Offer Letter. Effective October 16, 2017, pursuant to the terms of an employment offer letter dated October 16, 2017, Jeffrey Brown joined the Company as President and Chief Executive Officer. As defined in the offer letter, Mr. Brown will receive:
● | a starting base salary of $33,333.33 per month, which over a full year would equal $400,000 (the “Base Salary”). Commencing in January 2018, Mr. Brown is eligible to receive an annual bonus of up to 37.5% of the Base Salary in 2018 based upon the achievement of certain goals to be mutually agreed upon between Mr. Brown and the Board; |
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● | a standard benefits package on terms comparable to those provided to the Company’s other executive officers. During the term of employment with the Company, Mr. Brown shall be entitled to paid vacation in accordance with the Company’s vacation accrual policies for its executive officers; | |
● | a stock option covering 350,000 shares of our Common Stock and a restricted stock grant of 150,000 shares of our Common Stock (the “Equity Award”). Subject to his continued service to us and subject to accelerated vesting as specified below, 25% of the Equity Award will vest on the first anniversary of the employment commencement date and the remaining unvested covered shares will vest in 36 equal monthly installments thereafter until 100% of the Equity Award is vested on the fourth anniversary of the employment commencement date; | |
● | Subject to Mr. Brown executing and not revoking a release of claims in favor of the Company, in the event his employment is terminated by the Company without “Cause” or in the event he resigns for “Good Reason,” each as defined in his employment agreement, outside of the “Change in Control Period,” then Mr. Brown shall receive (A) severance payments of six months’ Base Salary and six months’ annual target bonus, paid in a lump sum, (B) six monthly payments of $3,500 in lieu of Company-subsidized COBRA, payable whether or not he or his covered dependents elect COBRA continuation benefits, and (C) 50% of his then-outstanding equity to acquire shares of the Company’s Common Stock or other equity awards shall immediately vest and become exercisable (the “Termination Release Payment”); and | |
● | Subject to Mr. Brown executing and not revoking a Release, in the event his employment is terminated by the Company other than for “Cause” within the period beginning on the date three months prior to, and ending on the date that is 12 months following the date upon which a “Change in Control” (as defined in his employment agreement) occurs (the “Brown Change in Control Period”), or in the event that within the Brown Change in Control Period Mr. Brown voluntarily terminates his employment for Good Reason, then he shall receive (A) severance payments of 12 months’ Base Salary and 12 months’ annual target bonus, paid in a lump-sum, (B) 12 monthly payments of $3,500 in lieu of Company-subsidized COBRA, payable whether or not he or his covered dependents elect COBRA continuation benefits, and (C) all of his then outstanding equity to acquire shares of Common Stock or other equity awards shall immediately vest and become exercisable. |
Previous Officers.For a discussion of the compensation arrangements with Varun Nagaraj, previously president and chief executive officer until May 2017, see the Company’s Current Report on Form 8-K filed with the SEC on May 11, 2017.
Non-Equity Incentive Plans
2018 Bonus Plan: On February 19, 2018, our Board approved an executive cash incentive compensation plan and target cash incentive awards for the Company’s executive officers and its other key employees for 2018 fiscal performance (the “2018 Bonus Plan”). Payouts under the 2018 Bonus Plan are based on the Company’s achievement against certain targets for fiscal 2018 revenue. It is anticipated that any 2018 Bonus Plan payouts will be made in the first quarter of the Company’s 2019 fiscal year.
2017 Bonus Plan: On February 24, 2017, our Board approved an executive cash incentive compensation plan and target cash incentive awards for the Company’s executive officers and its other key employees for 2017 fiscal performance (the “2017 Bonus Plan”). Payouts under the 2017 Bonus Plan are based on the Company’s achievement against certain targets for fiscal 2017 revenue.
2016 Bonus Plan: On February 23, 2016, our Board approved an executive cash incentive compensation plan and target cash incentive awards for the Company’s executive officers and its other key employees for 2016 fiscal performance (the “2016 Bonus Plan”). Payouts under the 2016 Bonus Plan are based on the Company’s achievement against certain targets for the following financial metrics in fiscal 2016: revenue (50% weighted) and EBITDA Income (50% weighted).
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Equity Compensation Plan Information
The following tables summarize information regarding the various stock-based compensation plans under which the Company was authorized to issue equity securities as of December 31, 2017:
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (2) | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | |||||||||
Equity compensation plans approved by security holders (1) | 1,643,000 | $ | 1.81 | 1,038,500 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 1,643,000 | $ | 1.81 | 1,038,500 |
(1) | Consists of the Company’s 2006 Stock Plan that expired in March 2016. |
(2) | Includes 88,501 shares of restricted stock issued under the Company’s 2006 Stock Plan. |
Certain Relationships and Related Transactions
During our last fiscal year, there has not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed 1% of the average of our total assets at the end of our fiscal years 2017 and 2016, which is $108,407, and in which any of our directors, executive officers, holders of more than 5% of our voting securities or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s executive officers, directors and persons who own more than 10% of a registered class of the Company’s equity securities during fiscal year 2017 to file reports of initial ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC. Such officers, directors and 10% shareholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that Form 5 was not required for such persons, the Company believes that, during the fiscal year ended December 31, 2017, all other Section 16(a) reports applicable to its officers, directors and 10% shareholders were timely filed.
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DELIVERY OF DOCUMENTS TO SHAREHOLDERS SHARING AN ADDRESS
A number of brokers with account holders who are our shareholders will be “householding” our proxy materials. A single Proxy Statement will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate Proxy Statement and Annual Report, please notify your broker and direct your written request to Sierra Monitor Corporation, 1991 Tarob Court, Milpitas, California 95035, Attention: Secretary, or call 800-727-4377. Shareholders who currently receive multiple copies of the Proxy Statement at their address and would like to request “householding” of their communications should contact their broker.
OTHER MATTERS
The Board does not know of any other matters to be presented at the Annual Meeting. If any additional matters are properly presented or otherwise allowed to be considered at the Annual Meeting, the persons named in the enclosed proxy will have discretion to vote shares they represent in accordance with their own judgment on such matters.
BY ORDER OF THE BOARD | |
/s/ Gordon R. Arnold | |
Gordon R. Arnold | |
Chairman | |
Milpitas, California | |
April 16, 2018 |
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