UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
SCHEDULE
14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment
No. __)
Filed
by the Registrant ☑
Filed
by a Party other than the Registrant ☐
Check
the appropriate box:
☐
Preliminary Proxy Statement
☐
Confidential, For Use of the Commission Only (As Permitted by Rule
14a-6(e)(2))
☑
Definitive Proxy Statement
☐
Definitive Additional Materials
☐
Soliciting Material under Rule 14a-12
Perceptron, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment
of Filing Fee (Check the appropriate box):
☑
No fee required
☐
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1)
Title of each class of securities to which transaction
applies:
(2)
Aggregate number of securities to which transaction
applies:
(3) Per
unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was
determined):
(4)
Proposed maximum aggregate value of transaction:
(5)
Total fee paid:
☐
Fee paid previously with preliminary materials.
☐
Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date
of its filing.
(1)
Amount Previously Paid:
(2)
Form, Schedule or Registration Statement No.:
(3)
Filing Party:
(4)
Date Filed:
September 27,
2016
47827
Halyard Drive
Plymouth, Michigan
48170-2461
(734)
414-6100
Facsimile:
(734) 414-4700
Dear
Perceptron Shareholder:
You are
cordially invited to attend the 2016 Annual Meeting of Shareholders
of Perceptron, Inc. (the “Company”) to be held on
Thursday, November 10, 2016, at 9:00 a.m. Eastern Time, at 47827
Halyard Drive, Plymouth, Michigan 48170.
The
attached notice of the meeting and Proxy Statement describe the
items of business to be transacted:
(a)
The election of
seven directors,
(b)
A non-binding
resolution to approve the compensation of our named executive
officers,
(c)
The ratification of
the selection of BDO USA, LLP as the Company’s independent
registered public accounting firm for fiscal 2017, and
(d)
Such other business
as may properly come before the meeting or any adjournment
thereof.
The
Board of Directors encourages you to read the Proxy Statement
carefully. We have also made available a copy of our Annual Report
for fiscal year 2016. We encourage you to read the Annual Report,
which includes information about our business and products, as well
as our audited financial statements.
After
the formal business session at the Annual Meeting of Shareholders,
there will be a report to the shareholders on the progress of the
Company along with a discussion period. I look forward to seeing
you at the Annual Meeting and hope you will make plans to attend.
Whether or not you plan to attend the meeting, I urge you to sign,
date and return the accompanying proxy in the postage-paid envelope
enclosed for your convenience so that as many shares as possible
may be represented at the meeting. No postage is required if the
envelope is mailed in the United States.
Sincerely,
W.
Richard Marz
Chairman
of the Board, President and Chief Executive Officer
NOTICE
OF THE 2016 ANNUAL MEETING OF SHAREHOLDERS
TIME
AND DATE
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9:00
a.m., Eastern Time, on Thursday, November 10, 2016
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PLACE
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Perceptron,
Inc. Corporate Headquarters
47827
Halyard Drive
Plymouth,
MI 48170-2461
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ITEMS
OF BUSINESS
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1. To
elect seven directors to serve until the 2017 Annual Meeting of
Shareholders and until their successors are elected and
qualified;
2. To
approve the compensation of our named executive
officers;
3. To
ratify the selection of BDO USA, LLP as the Company’s
independent registered public accounting firm for fiscal 2017;
and
4. To
transact such other business as may properly come before the
meeting or any adjournments thereof.
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RECORD
DATE
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In
order to vote, you must have been a shareholder at the close of
business on September 16, 2016.
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MATERIALS
TO REVIEW:
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We are
distributing our proxy materials to our stockholders primarily via
the Internet under the “Notice and Access” rules of the
Securities and Exchange Commission (“SEC”). This
approach saves printing and mailing costs and reduces the
environmental impact of our Annual Meeting, while providing a
convenient way to access the materials and vote. On September 29,
2016, we commenced mailing a Notice of Internet Availability of
Proxy Materials to stockholders of record at the close of business
on September 16, 2016, containing instructions about how to access
our proxy materials and vote online.
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PROXY
VOTING
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It is
important that your shares be represented and voted at the Annual
Meeting. If you hold your shares beneficially in street name with a
broker, you should have received a vote instruction form from your
bank or broker and you should follow the instructions given by that
institution. If you are a shareholder of record you can vote your
shares by telephone, Internet, written proxy or attending the
annual meeting as described in more detail in this Proxy Statement.
All shareholders will have the ability to access the proxy
materials on the website referred to in the notice or request a
printed set of the proxy materials. Instructions on how to access
the proxy materials over the Internet or request a printed copy may
be found in the notice. You can revoke a proxy at any time prior to
its exercise at the Annual Meeting by following the instructions in
the Proxy Statement.
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A
certified list of shareholders entitled to vote at the meeting will
be available for examination by any shareholder during the meeting
at the corporate offices at 47827 Halyard Drive, Plymouth, Michigan
48170-2461.
A copy
of the 2016 Annual Report for the fiscal year ended June 30, 2016
and Proxy Statement accompanies this notice.
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By the Order of the
Board of Directors
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Thomas S. Vaughn
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Secretary
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September 27, 2016
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The vote of every shareholder is important, and your cooperation in
promptly voting by returning your marked, dated and signed proxy is
greatly appreciated. The proxy is revocable and will not affect
your right to vote in person if you attend the meeting. Your proxy
will, however, help to assure a quorum and to avoid added proxy
solicitation costs.
PERCEPTRON,
INC.
2016 ANNUAL MEETING OF SHAREHOLDERS
PROXY
STATEMENT
TABLE OF
CONTENTS
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Page
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Introduction
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1
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Matters to Come Before the Meeting
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3
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Proposal 1 – Election of Directors
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3
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Director
Compensation for Fiscal 2016
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5
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Standard
Director Compensation Arrangements
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6
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Corporate Governance
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7
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Board
Leadership Structure and Board and Committee
Information
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7
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Board
Role in Risk Oversight
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10
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Shareholder
Communications with the Board of Directors
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10
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Code
of Ethics
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10
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Audit
Committee Report
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11
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Management
Development, Compensation and Stock Option Committee
Interlocks
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and
Insider Participation
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11
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Proposal 2 – Advisory Vote on Executive
Compensation
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12
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Proposal 3 – Ratification of Company’s Independent
Registered Public Accounting Firm
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13
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Share Ownership of Management and Certain Shareholders
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14
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Principal
Shareholders
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14
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Beneficial
Ownership by Directors and Executive Officers
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15
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Section 16(a) Beneficial Ownership Reporting
Compliance
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16
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Executive Officers
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16
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Compensation of Executive Officers
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16
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Compensation
Discussion and Analysis
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16
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Key
Elements of Compensation for Fiscal 2016
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18
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Report
of the Management Development, Compensation and Stock Option
Committee
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25
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Consideration
of Last Year’s Advisory Shareholder Vote on Executive
Compensation
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25
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Summary
Compensation Table
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26
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Grants
of Plan-Based Awards
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28
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Employment
Agreements
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30
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Outstanding
Equity Awards at Fiscal Year-End
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30
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Option
Exercises
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31
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Potential
Payments upon Termination or Change in Control
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34
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Related Party Transactions
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35
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Independent Registered Public Accounting Firm
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35
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Policy
for Pre-Approval of Audit and Non-Audit Services
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35
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Fees
Paid to Independent Registered Public Accounting Firm
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36
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Shareholder Proposals and Nominees for 2017 Annual
Meeting
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36
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Shareholder
Proposals
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36
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Shareholder
Nominees
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36
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Other Matters
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37
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PROXY STATEMENT
_____________________________
PERCEPTRON, INC.
2016 ANNUAL MEETING OF SHAREHOLDERS
TO
BE HELD AT 9:00 A.M. ON NOVEMBER 10, 2016
_____________________________
INTRODUCTION
This
Proxy Statement and the accompanying Notice of the 2016 Annual
Meeting of Shareholders, 2016 Annual Report and proxy card are
furnished in connection with the solicitation of proxies by the
Board of Directors (the “Board”) of Perceptron, Inc., a
Michigan corporation (the “Company”, “we”,
“us”, “our”). The proxies are being
solicited for use at the 2016 Annual Meeting of Shareholders
(“Annual Meeting”) to be held at the Company’s
corporate offices on Thursday, November 10, 2016, at 9:00 a.m.,
Eastern Time, and at any adjournment of that meeting. The
Company’s corporate offices are located at 47827 Halyard
Drive, Plymouth, Michigan 48170-2461, and the Company’s
telephone number is (734) 414-6100. The Company expects that this
Proxy Statement and the accompanying materials will be first sent
or given to shareholders on or about September 30,
2016.
Only
shareholders of record of the Company’s Common Stock, $0.01
par value (the “Common Stock”) at the close of business
on September 16, 2016 (the “Record Date”) will be
entitled to notice of and to vote at the Annual Meeting or any
adjournments thereof. Shareholders of record on the Record Date are
entitled to one vote per share on any matter that may properly come
before the Annual Meeting. As of the Record Date, there were
9,371,063 shares of Common Stock outstanding and entitled to vote.
The Company has no other class of stock outstanding. The presence,
either in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock is necessary to
constitute a quorum at the Annual Meeting. See “Share
Ownership of Management and Certain Shareholders” for a
description of the beneficial ownership of the Common
Stock.
Important
Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to be Held on November 10, 2016.
●
The Notice of the
2016 Annual Meeting of Shareholders, Proxy Statement and our 2016
Annual Report are available at http://www.proxyvote.com. The Notice
of the 2016 Annual Meeting of Shareholders, Proxy Statement, our
2016 Annual Report and form of proxy have been made available to
you on the Internet, or upon your request, has delivered printed
versions of these materials to you by mail, on or about September
30, 2016. If you requested printed versions by mail, these
materials also include the proxy card or vote instruction form for
the Annual Meeting.
Pursuant to rules
adopted by the SEC, the Company uses the Internet as the primary
means of furnishing proxy materials to shareholder. Accordingly,
the Company is sending the Notice of Internet Availability of Proxy
Materials (the “Notice”) to the Company’s
shareholders. All shareholders will have the ability to access the
proxy materials on the website referred to in the Notice or request
a printed set of the proxy materials. Instructions on how to access
the proxy materials over the Internet or to request a printed copy
may be found in the Notice. In addition, shareholders may request
to receive proxy materials in printed form by mail or
electronically by email on an ongoing basis. The Company encourages
shareholders to take advantage of the availability of the proxy
materials on the Internet to help reduce the environmental impact
of its annual meetings.
Directors, officers
and other employees of the Company may solicit, without additional
compensation, proxies by any appropriate means, including personal
interview, mail, telephone, courier service and facsimile
transmissions. Arrangements will also be made with brokerage houses
and other custodians, nominees and fiduciaries which are record
holders of the Common Stock to forward proxy soliciting material to
the beneficial owners of such shares and the Company will reimburse
such record holders for their reasonable expenses incurred in
connection therewith. The cost of soliciting proxies, including the
preparation, assembling and mailing of the Notice of the 2016
Annual Meeting of Shareholders, the Proxy Statement, the 2016
Annual Report and the accompanying proxy card, as well as the cost
of forwarding such material to the beneficial owners of Common
Stock, will be borne by the Company. Only one Notice of the 2016
Annual Meeting of Shareholders, Proxy Statement and Annual Report
or Notice of Internet Availability of Proxy Materials, as
applicable, will be delivered to multiple shareholders sharing an
address unless the Company has received contrary instructions from
one or more of the shareholders. Upon written or oral request from
a shareholder who shares an address with another shareholder, the
Company shall deliver a separate copy of the Notice of the 2016
Annual Meeting of Shareholders, Proxy Statement and 2016 Annual
Report or Notice of Internet Availability of Proxy Materials.
Shareholders can call or write the Company for a separate notice,
annual report or proxy statement for the 2016 Annual Meeting or for
a future meeting of shareholders at (734) 414-6100 or 47827 Halyard
Drive, Plymouth, MI 48170-2461. Similarly, those shareholders who
share an address and wish to receive only one copy of the notice,
annual report or proxy statement when they are receiving multiple
copies can also call or write the Company at the number and address
given above.
Shares
may be voted by record holders in four separate ways as follows:
(i) by Internet, going to the voting site
www.proxyvote.com
and following
the
instructions outlined on the secured website using certain
information provided on the Notice of Internet Availability of
Proxy Materials, or if you requested printed proxy materials, by
following the instructions provided on your proxy card or vote
instruction form,
(ii) by telephone, following the
instructions on your proxy card,
(iii) by
completing and
mailing the written proxy if you received your proxy by mail, or
(vi) by ballot at the Annual Meeting. Shares represented by a duly
executed proxy, unless previously revoked, will be voted at the
Annual Meeting in accordance with the instructions of the
shareholder thereon if the proxy is received by the Company before
the close of business on November 9, 2016. Shares represented by a
proxy received after this time will be voted if the proxy is
received by the Company in sufficient time to permit the necessary
examination and tabulation of the proxy before the vote of
shareholders is taken.
IF NO
INSTRUCTIONS ARE PROVIDED ON A PROXY RETURNED BY THE SHAREHOLDER,
SUCH SHARES WILL BE VOTED “FOR” THE ELECTION OF
DIRECTORS NAMED IN THIS PROXY STATEMENT, “FOR” THE
APPROVAL OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE
OFFICERS AND “FOR” THE RATIFICATION OF THE
COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
DESCRIBED IN THIS PROXY STATEMENT
. A proxy also gives
Messrs. W. Richard Marz and David L. Watza discretionary authority,
to the extent permitted by law, to vote all shares of Common Stock
represented by the proxy on any other matter that is properly
presented for action at the meeting, including the election of any
person to the Board where a nominee named in this Proxy Statement
is unable to serve or, for good cause, will not serve; however, the
Board does not intend to present any other matters at the Annual
Meeting. Any proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before it is voted.
Proxies may be revoked by (i) filing with the Assistant Secretary
of the Company, at or before the Annual Meeting, a written notice
of revocation bearing a later date than the proxy, (ii) voting
again by telephone or Internet since only your last vote will be
counted, (iii) duly executing a subsequent proxy relating to the
same shares and delivering it to the Assistant Secretary of the
Company at the Company’s corporate offices at or before the
Annual Meeting, or (iv) attending the Annual Meeting and voting in
person, if the shareholder is a shareholder of record (although
attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy).
If a
shareholder owns shares through a bank or brokerage firm in street
name, the shareholder’s bank or brokerage firm is required to
vote the shares according to the shareholder’s instructions.
In order to vote the shares, a shareholder will need to follow the
directions that the bank or brokerage firm provides. Many banks and
brokerage firms also offer the option of voting over the Internet
or by telephone, instructions for which would be provided by the
bank or brokerage firm on its vote instruction form. Under the
rules of The New York Stock Exchange (“NYSE”), if a
shareholder does not give instructions to a brokerage firm, it may
still be able to vote your shares with respect to certain
“discretionary” matters that are deemed by the NYSE to
be routine (e.g., the ratification of the appointment of
independent auditors), but it will not be allowed to vote shares
with respect to certain “non-discretionary” items. If a
shareholder does not provide voting instructions to a broker with
respect to non-discretionary items such as the election of
directors or the advisory vote on executive compensation, the
shares will not be voted for any such proposal. In such case, the
shares will be treated as “broker non-votes.” The
ratification of the Company’s independent auditors is
considered a routine matter, so a bank or broker will have
discretionary authority to vote such shares held in street name on
that proposal. A broker non-vote may also occur if a broker fails
to vote shares for any reason.
Abstentions, broker
non-votes (i.e., shares held by brokers in street name, voting on
certain matters due to discretionary authority or instructions from
the beneficial owners but not voting on other matters due to lack
of authority to vote on such matters from the beneficial owner) and
withheld votes with respect to the election of directors, are
counted only for purposes of determining whether a quorum is
present at the 2016 Annual Meeting. Broker non-votes and withheld
votes will be excluded entirely from the vote on the election of
directors and will, therefore, have no effect on the election.
Directors are elected by a plurality of the votes cast, so that
only votes cast “for” directors are counted in
determining which directors are elected. The advisory vote on
executive compensation and the ratification of the Company’s
independent auditors require a majority of the votes cast on the
matters. For purposes of determining the number of votes casted
with respect to the advisory vote on executive compensation and the
ratification of the Company’s independent auditors, only
those cast “for” or “against” are included;
abstentions and broker non-votes are not counted for this
purpose.
MATTERS
TO COME BEFORE THE MEETING
PROPOSAL 1—
ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF
THE NOMINEES
At the
Annual Meeting, Shareholders will be asked to elect a Board of
seven directors to hold office, in accordance with the Bylaws of
the Company, until the 2017 annual meeting and until the election
and qualification of their successors, or until their resignation
or removal. The shares represented by properly executed proxies
will be voted in accordance with the specifications made therein.
P
ROXIES WILL BE VOTED
“FOR” THE ELECTION OF SUCH NOMINEES UNLESS THE
SPECIFICATION IS MARKED ON THE PROXY INDICATING THAT AUTHORITY TO
DO SO IS WITHHELD
. If a nominee is unable to serve or, for
good cause, will not serve, the proxy confers discretionary
authority to vote with respect to the election of any person to the
Board. The nominees receiving a plurality of votes cast at the
Annual Meeting will be elected to the Board. Shares may not be
voted cumulatively for the election of directors.
The
nominees named below have been selected by the Board of the
Company. Each of the nominees is currently a director of the
Company. The following table sets forth information regarding the
nominees for election to the Company’s Board. In addition, a
description of the specific experience, qualifications, attributes
and skills that led our Board to conclude that each of the nominees
and each of the continuing members of the Board should serve as a
director follows the biographical information of each nominee
below. Messrs. Bryant, Ratigan and Taylor were appointed to the
Board and are being nominated pursuant to the Standstill Agreement
dated August 9, 2016 between the Company, Harbert Discovery Fund
LP, Harbert Discovery Fund GP, LLC, Harbert Fund Advisors Inc. and
Harbert Management Corporation and the Voting Agreement dated
August 9, 2016 between the Company, Moab Partners, L.P. and Moab
Capital Partners, LLC.
Name and Age
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Position, Principal Occupations and Other
Directorships
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W.
Richard Marz, 72
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Director since
2000, Chairman of the Board since January 2008, and President and
Chief Executive Officer since January 2016. Mr. Marz has been
President of MMW Group, a private technology consulting group he
founded, since 2006. From August 2005 to August 2006, he was a
technical consultant to LSI Corporation (“LSI”), and
prior to that time he was Executive Vice President, Worldwide
Strategic Marketing (December 2003 to August 2005), Executive Vice
President, Communications and ASIC Technology (July 2001 to
December 2003) and Executive Vice President, Geographic Markets
(May 1996 to July 2001) of LSI. LSI is a semiconductor
manufacturer. Mr. Marz served as a director of one other public
company, Lattice Semiconductor, Inc., during the past five
years.
Mr.
Marz brings to the Company extensive sales, marketing and design
engineering experience in semiconductor and related industries. For
nearly 30 years, Mr. Marz managed field sales, field applications
engineering and corporate marketing activities in two multi-billion
dollar, global, semiconductor companies. Mr. Marz also brings
significant governance experience to the Company by way of his
service on the boards of directors of various public and private
companies and leadership experience gained through his experience
as the Company’s President and Chief Executive Officer and as
an executive in industry.
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John F.
Bryant, 32
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Director since
August 2016. Mr. Bryant has been a Director and Co-Portfolio
Manager of the Harbert Discovery Fund GP, LLC, an investment
management firm that serves as the General Partner of Harbert
Discovery Fund, LP, since 2014. Prior to joining Harbert,
from 2007 until 2012, Mr. Bryant served as Vice President of
BlackRock, Inc., a multinational investment corporation, where he
focused on developing, seeding, and launching new proprietary
investment funds.
Mr.
Bryant’s brings extensive financial capital market and
investment management experience to the Board.
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Name and Age
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Position, Pricipal Occupations and Other
Directorships
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C.
Richard Neely, Jr., 62
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Director since
2014. Mr. Neely has been Senior Vice President and Chief Financial
Officer at Intermolecular, Inc., an intellectual property
development and services company, since October 2013. From August
2012 to June 2013, Mr. Neely was Executive Vice President and Chief
Financial Officer at Tessera Technologies Inc., a company that
develops, invests in, licenses and delivers innovative
miniaturization technologies and products for next-generation
electronic devices. Mr. Neely served as Chief Financial Officer and
Vice President of Supply Chain at Livescribe, Inc. from February
2011 to August 2012 and Senior Vice President and Chief Financial
Officer at Monolithic Power Systems, Inc. from 2005 to January
2011. Mr. Neely served as a director of one other public company,
Aviza Technology, Inc., during the past five years.
Mr.
Neely’s extensive financial and executive management
experience and financial expertise provide important insight to the
Board.
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Robert
S. Oswald, 75
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Director since
1996. Mr. Oswald has been Chief Executive Officer and a director of
Paice, LLC, which is in the business of developing hybrid electric
power train technology, since March 2006. Mr. Oswald was Chairman,
Bendix Commercial Vehicle Systems, LLC, a manufacturer of air
brakes and other safety systems, from October 2003 to December 2009
and served as Chairman and Chief Executive Officer from March 2002
to September 2003. Mr. Oswald was Chairman, President and Chief
Executive Officer of Robert Bosch Corporation, a manufacturer of
automotive components and systems, and a member of the Board of
Management of Robert Bosch, GmbH from July 1996 to December
2000.
Mr.
Oswald brings a deep understanding of the automotive and commercial
products industries from his many years serving in senior
leadership roles at automotive and commercial product companies, as
well as technical expertise from his engineering education and
various operational positions throughout his career.
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James
A. Ratigan, 68
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Director since
August 2016. Mr. Ratigan has served as an Adjunct Professor of
Business Administration at Delaware Valley University since
2015. Prior to that, he served as Chief Financial Officer of
Nitric BioTherapeutics, Inc., a privately held specialty
pharmaceutical, drug delivery systems and biotechnology company,
from 2005 to 2014. From August 2003 to April 2006, Mr.
Ratigan was an independent consultant providing consultative
services to two specialty pharmaceutical companies, a biotechnology
company and a private equity firm. Mr. Ratigan was Executive
Vice President, Chief Financial Officer and Secretary of Orapharma,
Inc. from June 1997 to August 2003, a publicly-held specialty
pharmaceutical company that was acquired by Johnson and Johnson,
Inc. Mr. Ratigan was a director of Perceptron from 1989 to
1996 and from 2003 to 2013. He served as Perceptron’s Chief
Operating Officer from May 1994 to April 1996 and Chief Financial
Officer from December 1993 to June 1996. Mr. Ratigan holds a B.S.
in Accounting and Finance from LaSalle University.
Mr.
Ratigan’s historical knowledge of the Company and its
operations, including his previous experience serving on the
Company’s Board, his extensive financial and executive
management experience and financial expertise, provide important
insight to the Board.
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Terryll
R. Smith, 66
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Director since
1996. Mr. Smith has been President and Chief Executive Officer of
Water Security Corp., an early stage technology start-up focused on
drinking water applications, since January 2007. He was President
and Chief Executive Officer of Novation Environmental Technologies
Inc., a water purification company, from January 2000 to January
2007. From 1998 to 1999, Mr. Smith was President and Chief
Executive Officer of picoNetworks, an integrated circuits and
software services company. From 1989 to 1998, Mr. Smith held
various senior sales and marketing positions including Group Vice
President, Sales and Marketing, Group Vice President, Applications
Solutions Products and Vice President, International Sales and
Marketing with Advanced Micro Devices, Inc., a manufacturer of
integrated circuits.
Mr.
Smith brings considerable sales and marketing experience to the
Board including extensive experience in international
markets.
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William
C. Taylor, 65
|
Director since
August 2016. Mr. Taylor has served as President of the Economic
Development Partnership of Alabama (the “EDPA”), a
private, statewide organization that works to attract and retain
business and industry and address other critical issues affecting
economic development such as workforce development, since
2009. Prior to joining the EDPA, Mr. Taylor worked for
Mercedes-Benz U.S. International, Inc., where he served as
President and CEO from 1999 to 2009 and Vice President Operations
from 1993 to 1999. Prior to joining Mercedes-Benz, Mr. Taylor
served as the Vice President Manufacturing of Toyota Motor
Manufacturing Canada from 1987 to 1993 and held various roles with
Ford Motor Company Canada from 1969 to 1987.
Mr.
Taylor’s automotive background, knowledge of global
operations and executive management bring important expertise to
the Board.
|
Director
Compensation for Fiscal 2016
The
following table provides information as to compensation paid by the
Company for services rendered in all capacities to the Company and
its subsidiaries during the fiscal year ended June 30, 2016
(“fiscal 2016”) by the members of our Board of
Directors, other than Mr. Marz, whose compensation is described
under “Compensation of Executive Officers.” All
payments to members of the Board of Directors set forth in the
table are made pursuant to the standard director compensation
arrangements described under “Standard Director Compensation
Arrangements.”
DIRECTOR
COMPENSATION FOR FISCAL 2016
Name
|
Fees Earned or
Paid in Cash ($)
(1)
|
Stock Options
($)
(2)(3)
|
Total
($)
|
Kenneth
R. Dabrowski
(4)
|
44,500
|
29,843
|
74,343
|
Philip
J. DeCocco
(4)
|
48,250
|
29,843
|
78,093
|
C.
Richard Neely, Jr.
|
46,000
|
29,843
|
75,843
|
Robert
S. Oswald
|
46,000
|
29,843
|
75,843
|
Terryll
R. Smith
|
44,500
|
29,843
|
74,343
|
(1)
On March 3, 2016,
as part of the announced financial improvement plan, the Board of
Directors suspended payment of retainer and meeting fees payable to
the non-management directors from March 2, 2016 through December 1,
2016.
(2)
Represents the full
grant date fair value associated with stock option awards awarded
prior to the end of fiscal 2016 calculated in accordance with FASB
ASC Topic 718, excluding any forfeiture reserves recorded for these
awards. There can be no assurance that the stock option award
amounts shown above will ever be realized. The assumptions we used
to calculate these amounts are included in Note 9 to our audited
consolidated financial statements included in our Annual Report on
Form 10-K for fiscal 2016. See “Standard Director
Compensation Arrangements” below for a description of these
stock option awards.
(3)
At June 30, 2016,
the members of our Board of Directors, other than Mr. Marz, held
the following aggregate number of stock options and restricted
stock awards:
Name
|
Stock Options
|
Stock Awards
|
Kenneth
R. Dabrowski
(1)
|
41,570
|
2,369
|
Philip
J. DeCocco
(1)
|
49,570
|
2,369
|
C.
Richard Neely, Jr.
|
17,570
|
2,369
|
Robert
S. Oswald
|
49,570
|
2,369
|
Terryll
R. Smith
|
33,570
|
2,369
|
(4)
On August 9, 2016
Messrs. Dabrowski and DeCocco resigned from the Board of Directors.
The Management Development Committee accelerated the vesting of
2,000 stock options and 1,579 stock awards held by each of Messrs.
Dabrowski and DeCocco at the time of their
resignation.
Standard Director
Compensation Arrangements
Our
standard compensation arrangements for our Board of Directors who
are not our employees (the “Eligible Directors”)
include the following retainers:
Type of Compensation
|
Director
|
Non-Executive
Board Chair
|
Board
Annual Retainer
|
$45,000
|
$100,000
|
Committee
Chair Annual Retainers:
|
|
|
Audit
and Management Development
|
$8,000
|
-
|
Nominating
|
$5,000
|
-
|
Committee
Members Annual Retainers Per Committee
|
$3,000
|
-
|
In
November 2015, the Board increased the non-executive
Chairman’s annual retainer to $150,000, but reduced it back
to the historic level of $100,000 in March 2016 as part of the
financial improvement plan. Mr. Marz will continue to receive the
Chairman’s annual retainer while he serves as interim
President and Chief Executive Officer. The annual cash retainers
identified above are typically paid quarterly on September 1,
December 1, March 1 and June 1. All Eligible Directors, other than
a non-executive Board Chair, also receive $1,250 for each Board
meeting attended. On March 3, 2016, as part of the announced
financial improvement plan, the Board of Directors suspended
payment of retainer and meeting fees payable to the non-management
directors from March 2, 2016 through December 1, 2016.
Following the Annual Meeting of Shareholders on November 10, 2016,
the Board will consider whether to reinstate payment of retainer
and meeting fees for the non-management directors for periods after
December 1, 2016. Directors are reimbursed for their
out-of-pocket expenses incurred in attending Board and committee
meetings.
Eligible Directors
are also eligible to participate in the First Amended and Restated
2004 Stock Incentive Plan (“2004 Stock Plan”), which
replaced the Directors Stock Option Plan. The Management
Development, Compensation and Stock Option Committee (the
“Management Development Committee”) or, if there is no
such committee or similar committee, the Board, administers the
2004 Stock Plan. Unless otherwise specified in the 2004 Stock Plan,
the Management Development Committee has the power to select the
recipients of awards under the 2004 Stock Plan, including Eligible
Directors, and has broad power to determine the terms of awards and
to change such terms in various ways subsequent to grant. The 2004
Stock Plan permits grants to Eligible Directors of non-qualified
stock options, restricted stock, restricted stock units, stock
appreciation rights, performance share awards, including cash, and
deferred stock units at any time prior to August 27, 2023. Except
for a single incentive stock option grant of 10,000 options, the
Management Development Committee has only awarded non-qualified
stock options and restricted stock grants under the 2004 Stock
Plan.
The
exercise price for a non-qualified stock option will be not less
than 100% of the fair market value of Common Stock on the date of
grant. Fair market value means, for purposes of determining the
value of Common Stock on the grant date, the closing sale price of
the Common Stock on The NASDAQ Stock Market’s Global Market
(“NASDAQ Global Market”) on the grant date. Such
options have typically vested one fourth or one third on each of
the first four or three, respectively, anniversaries of the date of
grant. During fiscal 2016, all Eligible Directors received a grant
of 9,570 stock options at an exercise price equal to the fair
market value of the Company’s Common Stock as of December 1,
2015. During fiscal 2017, in conjunction with their appointment as
members of the Board, Messrs. Bryant, Ratigan and Taylor each
received a grant of 8,000 stock options at an exercise price equal
to the fair market value of the Company’s Common Stock as of
September 1, 2016. Such options generally will vest one-third on
each of the first three anniversaries of the grant date and become
immediately exercisable in the event that the Eligible Director is
re-nominated for election to the Board, but is not re-elected or,
following a Change in Control, the Eligible Director’s
service on the Board is terminated by the Company, he is not
re-nominated by the Company to serve on the Board, or voluntarily
resigns from the Board at the request of the Company. All options
granted under the 2004 Stock Plan are exercisable for a period of
ten years from the date of grant, unless earlier terminated due to
the termination of the Eligible Director’s service as a
director of the Company.
During
fiscal 2016, no Eligible Directors received a restricted stock
award under the 2004 Stock Plan. In the event of a failure of the
Eligible Director to be reelected to the Board after being
re-nominated for election by the Board, or following a Change in
Control of the Company, a termination by the Company of the
Eligible Director’s membership on the Board, or failure to
re-nominate the Eligible Director for election to the Board, or
voluntary resignation by the Eligible Director from the Board at
the request of the Board, the shares of restricted stock that an
Eligible Director holds shall become fully vested and
non-forfeitable and all restrictions shall lapse.
The
exercisability of options and the vesting of restricted stock
awards under the 2004 Stock Plan is accelerated in the event of the
occurrence of certain changes in control of the Company. See
“Compensation of Executive Officers Potential Payments Upon
Termination or Change in Control.”
The
2004 Stock Plan also permits Eligible Directors to purchase shares
of Common Stock through the 2004 Stock Plan in exchange for all or
a portion of the cash fees payable to them for serving as a
director of the Company (“Directors Stock Purchase Rights
Option”). By December 31 of each year, a director must make
his or her election to purchase shares of Common Stock in exchange
for all or a portion of a director’s fees payable from
December 1 of that year to November 30 of the next year. No
Eligible Director made an election under the Directors Stock
Purchase Rights Option in fiscal 2016.
Directors’
fees are typically payable in cash on September 1, December 1,
March 1 and June 1 of each year. On each of these dates, we
determine the number of shares of Common Stock each Eligible
Director who has elected to participate in the Directors Stock
Purchase Rights Option has earned on that date. This determination
is made by dividing all director’s fees payable on each of
those dates that the Eligible Director has elected to exchange for
Common Stock, by the fair market value of the Common Stock on that
date. Any portion of the director’s fees payable on each of
those dates that the Eligible Director has not elected to receive
in Common Stock will be paid to the Eligible Director in cash. The
fair market value of the Common Stock will be determined by using
the closing price of the Common Stock on the NASDAQ Global Market
on the grant date (the first day of the month in which the
quarterly payment date for directors’ fees falls). We will
issue share certificates for all shares of Common Stock purchased
in a calendar year by December 15th of such year unless an Eligible
Director requests to receive his or her share certificate at any
time during the year by sending written notice to the
Company.
CORPORATE
GOVERNANCE
Board Leadership
Structure and Board and Committee Information
The
Company’s Board consists of six independent directors and one
management director, Mr. Marz. The Board is responsible for
direction of the overall affairs of the Company. The Board has
established three standing committees, being 1) the Audit
Committee, 2) the Management Development, Compensation and Stock
Option Committee (the “Management Development
Committee”) and 3) the Nominating and Corporate Governance
Committee (the “Nominating Committee”), as further
detailed below. Each of the committees is comprised solely of
independent directors and each committee has a different chair. The
Company believes that it is beneficial to have a non-executive
Chairman who is responsible for leading the Board, however, in
connection with the departure of our prior President and Chief
Executive Officer on January 26, 2016, our Chairman agreed to
become our interim President and Chief Executive Officer until the
Board appoints a new President and Chief Executive Officer. As a
result, during this interim period, the Company does not have a
non-executive Chairman. The Board determined not to appoint a lead
independent director during the interim period because it was
expected that Mr. Marz would resume his role as non-executive
Chairman following the appointment of a new President and Chief
Executive Officer. The Company also believes that a predominantly
independent Board, mixed with the experience of its management
director, constitutes a leadership structure that is most
appropriate for the Company and its shareholders at this time
because it supports strategy development and execution and
facilitates information flow between senior management and the
Board. The Board retains the authority to modify this structure to
best address the Company’s unique circumstances as and when
appropriate.
Our
directors are elected to serve until their successors are elected.
The Board, and each committee thereof, meets formally from time to
time and also takes action by consent resolutions. During the
fiscal year ended June 30, 2016, the Board met a total of thirteen
times. All of the current directors who are standing for
re-election attended at least 75% of the total meetings of the
Board, and of any committee on which they served, held during the
period in fiscal 2016 in which they served as directors or members
of any such committees. Our policy is that each director is
strongly encouraged to attend the Annual Meeting of Shareholders if
reasonably possible. All of the directors attended the 2015 Annual
Meeting of Shareholders in person.
Chairman
. Mr. Marz has been elected by
the directors to serve as Chairman of the Board. The Chairman
provides leadership to enhance the Board’s effectiveness,
presides over meetings of the directors, and serves as liaison
between the Board and management. The Chairman is responsible for
determining when to hold executive sessions held by the independent
directors.
The
Board has delegated certain authority to an Audit Committee, a
Management Development Committee and a Nominating Committee to
assist it in executing its duties. The Board has adopted charters
for each of these Committees. The charters are available on our
website at www.perceptron.com. The Board determined that all of the
directors, other than Mr. Marz, are “independent
directors” as defined in Marketplace Rule 4200(a)(15) of The
NASDAQ Stock Market, Inc. (“NASDAQ”).
The
composition and principal functions of each Committee are as
follows:
Audit Committee
. The Audit Committee is
comprised of three outside members of the Board. Members of the
Audit Committee prior to August 9, 2016 were: Messrs. Neely, who
serves as Chairman, Dabrowski and Oswald. Subsequent to August 9,
2016, the members of the Audit Committee are: Messrs. Neely, who
serves as Chairman, Oswald and Ratigan. The Board determined that
all of the members of the Audit Committee are independent as
required by the rules of the Securities and Exchange Commission
(“SEC”) and NASDAQ listing standards for audit
committee members. In addition, the Board determined that both
Messrs. Neely and Ratigan qualified as an “audit committee
financial expert” as defined by applicable SEC rules and that
each of the Audit Committee members satisfies all other
qualifications for Audit Committee members set forth in the
applicable NASDAQ rules. The Audit Committee held eight meetings in
fiscal 2016.
On
November 3, 2014 the Board approved and adopted the Audit
Committee’s revised charter. The Audit Committee’s
primary responsibilities include the following:
(i)
oversee
the Company’s financial reporting process on behalf of the
Board;
(ii)
review,
appoint, compensate, retain and oversee the accounting firm to be
appointed as the Company’s independent registered public
accounting firm;
(iii)
review
in advance the nature and extent of all services provided to the
Company by its independent registered public accounting
firm;
(iv)
review
the independence of the Company’s independent registered
public accounting firm;
(v)
review
the scope, purpose and procedures of the audit;
(vi)
review
the Company’s annual earnings press release, the audited
financial statements and the proposed footnotes to be included in
the Company’s Annual Report on Form 10-K with management and
the auditors;
(vii)
report
annually to the Board whether the Audit Committee recommends to the
Board that the audited financial statements be included in the
Company’s Annual Report on Form 10-K for filing with the
SEC;
(viii)
review
with such auditors its experience, findings and recommendations
upon completion of the audit and receive from the auditors their
required communications under generally accepted auditing
standards;
(ix)
review
the Company’s quarterly earnings releases and financial
statements with management and the auditors;
(x)
review
the Company’s Quarterly Reports on Form 10-Q for filing with
the SEC;
(xi)
review
the Company’s proxy statement when authority is delegated by
the Board;
(xii)
review
the adequacy of the Company’s internal accounting procedures
and financial controls and management’s report on internal
control over financial reporting required by applicable SEC
rules;
(xiii)
oversee
compliance by the Company with legal and regulatory
requirements;
(xiv)
establish
procedures for receipt, retention and handling of complaints and
concerns regarding financial matters;
(xv)
act
as the Qualified Legal Compliance Committee;
(xvi)
review
and approve any related party transactions;
(xvii)
monitor
the Company’s risk management activities; and
(xviii)
review
and reassess annually the adequacy of the Audit Committee’s
charter and performance.
Management Development, Compensation and Stock
Option Committee
. The Management Development Committee is
comprised of three outside members of the Board. Members of the
Management Development, Committee prior to August 9, 2016 were:
Messrs. DeCocco, who served as Chairman until his resignation on
August 9, 2016, Dabrowski and Smith. Subsequent to August 9, 2016,
members of the Management Development, Compensation and Stock
Option Committee are: Messrs. Smith, who serves as Chairman, Neely
and Taylor. The Board determined that all members of the Management
Development Committee are independent as required by the NASDAQ
listing standards for compensation committees responsible for
determining compensation of executive officers. The committee held
nine meetings in fiscal 2016.
On
November 11, 2014, the Board approved and adopted the Management
Development Committee’s revised charter. The Management
Development Committee’s primary responsibilities include the
following:
(i)
review
the Company’s compensation programs and
policies;
(ii)
establish
and administer the compensation programs and policies for the
Company’s CEO and other officers and key employees under its
purview;
(iii)
administer
the Company’s stock-based compensation plans;
(iv)
review
and recommend compensation for service on the Board;
(v)
provide
a compensation committee report for inclusion in the
Company’s proxy statement;
(vi)
monitor
the Company’s succession planning; and
(vii)
review
and reassess annually the adequacy of the Management Development
Committee’s charter and performance.
Six
employees are currently under the purview of the Management
Development Committee, including all of the executive officers
named in the Summary Compensation Table included herein. Mr. Marz
participates in meetings of the Management Development Committee
and makes recommendations with respect to the annual compensation
of employees under the Committee’s purview. The Management
Development Committee reviews and approves the compensation of
employees under its purview other than Mr. Marz. The Management
Development Committee separately determines the compensation of Mr.
Marz in executive session. Pursuant to its charter, the Management
Development Committee is authorized to retain its own compensation
consultants and outside legal, accounting, and other advisers at
the Company’s expense. Such consultants and advisers report
directly to the Management Development Committee and the Committee
has the sole authority to hire and fire any compensation
consultants or advisers. The Management Development Committee does
not delegate its authority to such consultants or advisers. In
fiscal 2016, the Management Development Committee engaged the
services of Rahmberg, Stover and Associates, LLC
(“Rahmberg”), a compensation consulting firm, and has
considered such firm’s input in evaluating compensation
trends and best practices, identifying peer group companies and
benchmarking compensation data, developing its short and long term
executive incentive plans and other aspects of administering the
Company’s executive compensation program and equity
compensation programs. Rahmberg serves at the discretion of the
Management Development Committee.
Nominating and Corporate Governance
Committee.
The Nominating Committee is comprised of three
outside members of the Board. Members of the Nominating Committee
prior to August 9, 2016 were: Messrs. Oswald, who serves as the
Chairman, DeCocco and Smith. Subsequent to August 9, 2016, members
of the Nominating Committee are: Messrs. Oswald, who serves as the
Chairman, Bryant and Smith The Board determined that all members of
the Nominating Committee are independent as required by the NASDAQ
listing standards for nominating committee members. The committee
held four meetings in fiscal 2016.
On
November 12, 2007, the Board approved and adopted the Nominating
Committee’s revised charter. The Nominating Committee’s
primary responsibilities include the following:
(i)
establish
criteria for the selection of new Board members;
(ii)
conduct
searches and interviews for individuals qualified to become Board
members;
(iii)
make
recommendations to the Board regarding director nominees to stand
for election as directors at each annual meeting of shareholders or
to fill vacancies on the Board;
(iv)
recommend
to the Board the directors to serve on the standing committees of
the Board and the structure and functions of such
committees;
(v)
develop
policies and procedures for Board consideration of shareholder
recommendations of Board nominees and handling of shareholder
proposals;
(vi)
develop
a process for shareholders to communicate with the
Board;
(vii)
advise
the Board on corporate governance matters, including development,
review and assessment of corporate governance
principles;
(viii)
oversee
the Board and committee self-evaluation process;
(ix)
evaluate
independence of each Board member; and
(x)
review
and reassess annually the adequacy of the Nominating
Committee’s charter and performance.
The
Nominating Committee may use various methods to identify director
candidates, including recommendations from existing Board members,
management, shareholders, professionals and other sources outside
the Company, which could include third-party search firms. The
Nominating Committee will evaluate and screen the list of potential
nominees and narrow the list to individuals they believe best
satisfy the needs of the Company. The Nominating Committee will
conduct interviews and gather additional information concerning the
individuals, as they deem appropriate. Based on the foregoing, the
Nominating Committee will recommend to the Board the number of
members of the Board to be elected at the next annual meeting of
shareholders of the Company and the persons to be nominated for
election to the Board. Director candidates need not possess any
specific minimum qualifications. Rather, a candidate’s
suitability for nomination and election to the Board will be
evaluated in light of the portfolio of skills, experience,
perspective and background required for the effective functioning
of the Board. While the Company does not have a formal written
diversity policy, the Nominating Committee considers diversity of
director nominees in terms of background, experience, skill set and
expertise in matters relating to the Company’s business in an
effort to promote balanced deliberation and consideration of
matters presented to the Board. Among the desired qualities that
the Nominating Committee will consider are: (i) high ethical
character; (ii) practical intelligence and judgment, an inquiring
mind and a good range of problem solving skills; (iii)
independence; (iv) ability to work in a collaborative culture; (v)
high-level leadership experience and personal achievement; (vi)
sufficient personal commitment and time to devote to
responsibilities as a director; and (vii) capacity and desire to
represent the balanced best interests of the shareholders as a
whole. In addition, while not a requirement, the Nominating
Committee will take into consideration a director’s age after
he or she reaches 75 and tenure of any director who has served on
the Board for more than ten years.
The
Nominating Committee will consider candidates recommended by
shareholders using the same procedures and standards utilized for
evaluating candidates recommended by other sources except that the
Nominating Committee will not consider a director nominee proposed
by a shareholder if (i) the shareholder does not submit the
required information timely; (ii) the shareholder or group of
shareholders proposing the director nominee do not beneficially
own, in the aggregate, more than 5% of the Common Stock, with the
Common Stock used to satisfy this requirement owned for at least
one year prior to the date of the recommendation, or (iii) the
shareholder proposes as the nominee himself or herself, or an
affiliate or affiliated party. See “Shareholder Proposals and
Nominees for 2017 Annual Meeting – Shareholder
Nominees” for a description of the procedures to be used by
shareholders to submit recommendations of possible director
nominees to the Nominating Committee.
Board Role in Risk
Oversight
The
Company’s management team is responsible for identifying and
monitoring the material risks facing the Company, while the Board
is responsible for oversight of management’s efforts with
respect to risk, which oversight occurs at both the Board and the
committee level. For example, the Audit Committee focuses on
financial and accounting exposures and compliance; the Management
Development Committee monitors risks arising from compensation
policies and practices; and the Nominating Committee oversees risks
associated with the Company’s fiduciary responsibilities,
which include board membership, board structure and corporate
governance. Management provides regular updates throughout the year
regarding the management of the risks they oversee.
The
Company’s risk structure allows the Company’s
independent directors to exercise effective oversight of the
actions of management, led by Mr. Marz as Chairman of the Board,
President and Chief Executive Officer, in identifying the risks and
implementing effective risk management policies and
controls.
Shareholder
Communications with the Board of Directors
Shareholders
desiring to communicate with the Board or any individual director
may send communications to the Board in writing by mail addressed
to the Board of Directors or an individual director, c/o Assistant
Secretary, Perceptron, Inc., 47827 Halyard Drive, Plymouth, MI
48170-2461 or by e-mail addressed to
boardofdirectors@perceptron.com.
Code of
Ethics
We have
adopted a Code of Business Conduct and Ethics (“Code of
Ethics”) that applies to the Company’s directors,
executive officers and other employees. The Code of Ethics is
available on our website at www.perceptron.com. Shareholders may
also obtain a written copy of the Code of Ethics, without charge,
by sending a written request to the Investor Relations Department,
Perceptron, Inc., 47827 Halyard Drive, Plymouth, Michigan
48170-2461. We will disclose any amendments to, or waivers from,
the provisions of the Code of Ethics applicable to the directors or
executive officers on the Company’s website.
Certain
information relating to corporate governance matters can be viewed
at www.perceptron.com, free of charge, including our (i) charters
for the Audit Committee, Management Development Committee and
Nominating Committee and (ii) Code of Ethics. We intend to post
additional information on this website from time to time as the
Board adopts or revises policies and procedures. The information
found on our website is not part of this or any report we file
with, or furnish to, the SEC.
Audit Committee
Report
In
accordance with its revised charter, which was approved and adopted
by the Board on November 3, 2014, the Audit Committee provides
assistance to the Board in fulfilling its responsibility to the
shareholders, potential shareholders and investment community
relating to corporate accounting, reporting practices of the
Company and the quality and integrity of the accounting policies,
internal controls and financial reports of the Company. In doing
so, it is the responsibility of the Audit Committee to maintain
free and open communication between the Board, the Company’s
independent registered public accounting firm and the financial
management of the Company.
The
Company’s management is primarily responsible for the
preparation, presentation and integrity of the Company’s
financial statements. The Company’s independent registered
public accounting firm, BDO USA, LLP, is responsible for performing
an independent audit of the Company’s financial statements
and expressing an opinion as to the conformity of the financial
statements with generally accepted accounting
principles.
The
Audit Committee received from the independent registered public
accounting firm and reviewed a formal written statement describing
all relationships between the firm and the Company that might bear
on the firm’s independence consistent with the applicable
requirements of the Public Company Accounting Oversight Board
(PCAOB) regarding the independent registered public accounting
firm’s communications with the Audit Committee concerning
independence, and has discussed with the auditors any relationships
that may impact their objectivity and independence and satisfied
itself as to the auditors’ independence.
The
Audit Committee discussed with the independent registered public
accounting firm the matters required to be discussed by Auditing
Standard No. 16, Communications with Audit Committees, issued by
the PCAOB, and, with and without management present, discussed and
reviewed the results of the independent registered public
accounting firm’s examination of the financial statements,
their evaluation of the Company’s internal controls over
financial reporting, and the overall quality of the Company’s
accounting and financial reporting.
The
Audit Committee reviewed and discussed with management and the
independent registered public accounting firm the audited financial
statements of the Company as of and for the fiscal year ended June
30, 2016, including the quality of accounting principles and
significant judgments affecting the financial statements and the
results of BDO’s independent audit described
above.
The
members of the Audit Committee are not engaged in the practice of
auditing or accounting. In performing its functions, the Audit
Committee necessarily relies on the work and assurances of the
Company’s management and the independent registered public
accounting firm.
Based
on the above-mentioned reviews and discussions with management and
the independent registered public accounting firm and in light of
its role and responsibilities, the Audit Committee recommended to
the Board that the Company’s audited financial statements as
of and for the fiscal year ended June 30, 2016 be included in the
Company’s Annual Report on Form 10-K for the year ended June
30, 2016 for filing with the Securities and Exchange Commission.
Further, the Audit Committee approved the engagement of BDO USA,
LLP as the Company’s independent registered public accounting
firm for the fiscal year ended June 30, 2017.
AUDIT
COMMITTEE:
|
C.
Richard Neely, Jr.
|
|
Robert
S. Oswald
|
|
James
A. Ratigan
|
Management
Development, Compensation and Stock Option Committee Interlocks and
Insider Participation
During
fiscal 2016, the Management Development Committee consisted of
Messrs. DeCocco, Dabrowski and Smith. During fiscal 2016, no member
of the Management Development Committee served as an officer or
employee of the Company or any of its subsidiaries nor had any
member of the Management Development Committee formerly served as
an officer of the Company or any of its subsidiaries. See
“Proposal 1 – Election of Directors.” During
fiscal 2016, none of our executive officers served on the board of
directors or on the compensation committee of any other entity, any
of whose executive officers served either on our Board or on our
Management Development Committee.
PROPOSAL 2 —
ADVISORY VOTE ON EXECUTIVE COMPENSATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL
2
The
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
or the Dodd-Frank Act, provides shareholders with the opportunity
to vote to approve, on a non-binding advisory basis, the
compensation of the Company’s named executive officers. This
advisory vote is commonly known as “Say-on-Pay.”
Accordingly, the Board is asking our shareholders to indicate their
support for the compensation of the Company’s named executive
officers, as disclosed in this Proxy Statement.
At the
2013 Annual Meeting of Shareholders, our shareholders expressed a
preference that advisory votes on executive compensation be held on
an annual basis. Consistent with this preference, the Board
determined to implement an advisory vote on executive compensation
on an annual basis until the next required vote on the frequency of
shareholder votes on the compensation of executive
officers.
This
proposal is not intended to address the specific item of
compensation, but rather the overall compensation of our named
executive officers and the Company’s executive compensation
program and practices. Please read the “Compensation of
Executive Officers,” together with the related compensation
tables and narrative disclosure, below, for a detailed explanation
of the Company’s executive compensation program and
practices.
The
Board is asking our shareholders to vote “FOR” the
following non-binding resolution:
“Resolved,
that the compensation paid to the Company’s named executive
officers, as disclosed pursuant to Item 402 of Regulation S-K,
including the Compensation Discussion and Analysis and the related
compensation tables and narrative disclosure, in the Proxy
Statement is hereby approved on an advisory
basis.”
Required
Vote
The
approval of this proposal requires the affirmative vote of a
majority of the votes cast on the matter. As an advisory vote, the
result will not be binding on the Board; however, the Management
Development Committee, which is comprised solely of independent
directors, will consider the outcome of the vote when evaluating
the effectiveness of the Company’s compensation policies and
practices.
PROXIES WILL BE VOTED “FOR” THE
APPROVAL OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE
OFFICERS UNLESS OTHERWISE INDICATED ON THE
PROXY
.
PROPOSAL 3 —
RATIFICATION OF COMPANY’S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL
3
As
provided in its charter, the Audit Committee selects our
independent registered public accounting firm, reviews the scope of
the annual audit and approves all audit and non-audit services
permitted under applicable law to be performed by the independent
registered public accounting firm. The Audit Committee has
evaluated the performance of BDO USA, LLP (“BDO”) and
has selected them as our independent registered public accounting
firm to audit our consolidated financial statements for the fiscal
year ended June 30, 2017. BDO has served as our independent
registered public accounting firm since January 7, 2013. You are
requested to ratify the Audit Committee’s appointment of BDO.
Representatives of BDO are expected to be present at the annual
meeting and will be given the opportunity to make a statement, if
they desire to do so, and to respond to appropriate questions from
shareholders present at the meeting.
A
majority of the votes cast at the Annual Meeting is required for
ratification. However, by NASDAQ and SEC rules, selection of the
Company’s independent registered public accounting firm is
the direct responsibility of the Audit Committee. Therefore, if
shareholders fail to ratify the selection, the Audit Committee will
seek to understand the reasons for such failure and will take those
views into account in this and future appointments. Even if the
current selection is ratified by shareholders, the Audit Committee
reserves the right to appoint a different independent registered
public accounting firm at any time during the fiscal year if the
Audit Committee determines that such change would be in the best
interests of the Company and its shareholders.
Additional
information regarding the Company’s independent registered
public accounting firm can be found under “Independent
Registered Public Accounting Firm”.
Required
Vote
Ratification of the
Company’s independent auditors requires a majority of the
votes cast on the matter.
PROXIES WILL BE
VOTED “FOR” THE RATIFICATION OF THE COMPANY’S
INDEPENDENT AUDITORS UNLESS OTHERWISE INDICATED ON THE
PROXY.
SHARE OWNERSHIP OF
MANAGEMENT AND CERTAIN SHAREHOLDERS
Principal
Shareholders
The
following table sets forth information with respect to beneficial
ownership of the Common Stock by each person known by us to be the
beneficial owner of more than five percent of our outstanding
Common Stock. The number of shares reported is as of the dates
indicated in the footnotes below. The percentage of class is based
on 9,371,063 shares of Common Stock outstanding on September 16,
2016. The information has been furnished by each such
person.
Name and Address
of Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
(1)
|
Percent
of Class
|
Ariel
Investments, LLC
200 E.
Randolph Dr., Suite 2900
Chicago, IL
60601
|
1,628,189
(2)
|
17.37
|
Royce
& Associates, LLC
745
Fifth Avenue
New
York, NY 10151
|
890,726
(3)
|
9.51
|
Moab
Capital Partners, LLC, Moab Partners, L.P. and Michael R.
Rothenberg
15 East
62
nd
Street
New
York, NY 10065
|
844,898
(4)
|
9.01
|
Dimensional
Fund Advisors LP
Palisades West,
Building One
6300
Bee Cave Road
Austin,
TX 78746
|
664,552
(5)
|
7.09
|
Harbert
Discovery Fund, LP, Harbert Discovery Fund GP, LLC, Harbert Fund
Advisors, Inc., Harbert Management Corporation, Jack Bryant, Kenan
Lucas and Raymond Harbert
2100
Third Avenue North, Suite 600
Birmingham, AL
35203
|
504,100
(6)
|
5.38
|
Renaissance
Technologies LLC and Renaissance Technologies Holdings
Corporation
800
Third Avenue
New
York, New York 10022
|
499,200
(7)
|
5.33
|
(1)
Unless otherwise
indicated below, each shareholder listed has sole voting and sole
investment power with respect to all shares beneficially owned by
such person.
(2)
Based upon a
Holding Report on Schedule 13F-HR, dated and filed with the SEC on
August 15, 2016 by Ariel Investments, LLC (“Ariel”),
which disclosed that Ariel owned 1,628,189 shares as of June 30,
2016. In its statement on Schedule 13G, filed with the SEC on
February 12, 2016, Ariel reported that it had sole power to dispose
of 1,611,673 shares and sole power to vote 1,059,904 shares of
Common Stock. Further, based upon its statement on Schedule 13G,
the shares of Common Stock are beneficially owned by accounts which
are advised by Ariel and none of which own more than 5% of the
shares of Common Stock.
(3)
Based upon a
Holding Report on Schedule 13F-HR, dated and filed with the SEC on
August 8, 2016 by Royce & Associates LLC (“Royce”),
which disclosed that Royce owned 890,726 shares as of June 30,
2016. In its statement on Schedule 13G, filed with the SEC on
January 20, 2016, Royce reported that it had sole power to dispose
and vote 1,135,880 shares of Common Stock.
(4)
Based upon a
Schedule 13D filed with the SEC on August 12, 2016 jointly by (i)
Moab Capital Partners, LLC (“Moab LLC”), (ii) Moab
Partners L.P. (“Moab L.P.”) and (iii) Michael R.
Rothenberg, which disclosed that each of Moab LLC and Michael R.
Rothenberg has sole power to dispose of and to vote 844,898 shares
of Common Stock and Moab L.P. has sole power to dispose of and to
vote 791,762 shares of Common Stock.
(5)
Based upon a
Holding Report on Schedule 13F-HR, dated and filed with the SEC on
August 9, 2016 by Dimensional Fund Advisors LP
(“Dimensional”), which disclosed that Dimensional owned
664,552 shares as of June 30, 2016. In its statement on Schedule
13G dated and filed with the SEC on February 9, 2016, by
Dimensional reported that it had sole power to dispose of 702,202
shares and sole power to vote 690,601 shares of Common Stock.
Further, based upon its statement on Schedule 13G, the shares of
Common Stock are beneficially owned by investment companies, trusts
and accounts which are advised by Dimensional and none of which own
more than 5% of the shares of Common Stock. Dimensional disclaims
beneficial ownership of such shares of Common Stock.
(6)
Based upon a
Schedule 13D filed with the SEC on August 11, 2016 jointly by (i)
Harbert Discovery Fund, LP (“Harbert LP”), (ii) Harbert
Discovery Fund GP, LLC (“Harbert GP”), (iii) Harbert
Fund Advisors, Inc. (“HFA”), (iv) Harbert Management
Corporation (“HMC”), (v) Jack Bryant, (vi) Kenan Lucas
and (vii) Raymond Harbert, which disclosed that each of Harbert LP,
Harbert GP, HFA, HMC, Jack Bryant, Kenan Lucas and Raymond Harbert
has shared power to dispose of and to vote 504,100 shares of Common
Stock.
(7)
Based upon a
Holding Report on Schedule 13F-HR, dated and filed with the SEC on
August 12, 2016 by Renaissance Technologies LLC
(“Renaissance”), which stated that Renaissance owned
499,200 shares as of June 30, 2016. In their statement on Schedule
13G, filed with the SEC on February 11, 2016, Renaissance and its
majority owner, Renaissance Technologies Holdings Corporation, had
the sole power to dispose of, and to vote 492,500 shares of Common
Stock. Further, based upon its statement on Schedule 13G, the
shares of Common Stock are beneficially owned by accounts which are
advised by Renaissance and none of which own more than 5% of the
shares of Common Stock.
Beneficial
Ownership by Directors and Executive Officers
The
following table sets forth information with respect to beneficial
ownership of the Common Stock by each of our directors and director
nominees, the persons named in the Summary Compensation Table and
by all our directors and executive officers as a group as of
September 16, 2016, unless otherwise indicated. The information as
to each person has been furnished by such person and, except as
where otherwise indicated, each person has sole voting power and
sole investment power with respect to all shares beneficially owned
by such person.
Name
of Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
(1)
|
Percent
of Class
|
John C.
Bryant
(2)(3)
|
504,100
|
5.38
|
W.
Richard Marz
(2)(4)
|
273,680
|
2.87
|
C.
Richard Neely, Jr.
(2)(5)
|
6,369
|
*
|
Robert
S. Oswald
(2)(6)
|
156,174
|
1.66
|
James
A. Ratigan
(2)
|
0
|
*
|
Terryll
R. Smith
(2)(7)
|
35,369
|
*
|
William
C. Taylor
(2)
|
0
|
*
|
Jeffrey
M. Armstrong
(8)
|
22,100
|
*
|
Song
Yop Chung
(9)
|
9,199
|
*
|
David
L. Watza
(10)
|
14,000
|
*
|
All
current executive officers and directors as a group (8
persons)
(11)
|
989,692
|
10.31
|
* Less
than 1% of class
(1)
To the best of the
Company’s knowledge, based on information reported by such
directors and officers or contained in the Company’s
shareholder records.
(2)
Serves as a member
of the Board of the Company.
(3)
Each of Harbert LP,
Harbert GP, HFA, HMC, Mr. Bryant, Kenan Lucas and Raymond Harbert
has shared power to dispose of and vote 504,100 shares of Common
Stock.
(4)
Includes options to
purchase 155,000 shares of Common Stock, which are presently
exercisable or which are exercisable within 60 days of September
16, 2016.
(5)
Includes options to
purchase 4,000 shares of Common Stock, which are presently
exercisable or which are exercisable within 60 days of September
16, 2016.
(6)
Includes options to
purchase 38,000 shares of Common Stock, which are presently
exercisable or which are exercisable within 60 days of September
16, 2016.
(7)
Includes options to
purchase 22,000 shares of Common Stock, which are presently
exercisable or which are exercisable within 60 days of September
16, 2016.
(8)
Mr.
Armstrong’s employment as President and Chief Executive
Officer and as a member of the Board of Directors terminated on
January 26, 2016.
(9)
Mr. Chung’s
employment as Senior Vice President and Chief Technology Officer
terminated on March 2, 2016.
(10)
Includes options to
purchase 10,000 shares of Common Stock, which are presently
exercisable or which are exercisable within 60 days of September
16, 2016.
(11)
Includes options to
purchase 229,000 shares of Common Stock, which are presently
exercisable or which are exercisable within 60 days of September
16, 2016.
Section
16(a) Beneficial Ownership Reporting Compliance
Under
the securities laws of the United States, our directors, executive
(and certain other) officers and any persons holding more than ten
percent of the Common Stock are required to report their ownership
of the Common Stock and any changes in that ownership to the SEC.
Directors, officers and greater than ten percent shareholders are
required by the SEC to furnish us with copies of all Section 16(a)
reports they file. Specific due dates for these reports have been
established and we are required to report in this proxy statement
any failure to file by these dates during our last fiscal year. To
our knowledge, all of these filing requirements were satisfied
during our last fiscal year by our officers, directors and ten
percent shareholders, except that Mr. Armstrong’s (our former
President and Chief Executive Officer) failed due to an
administrative oversight to timely file a Form 4 to report a
purchase of Common Stock. In making this statement, we have relied
solely on the representations of our directors, officers and ten
percent shareholders and copies of the reports that have been filed
with the SEC.
EXECUTIVE
OFFICERS
The
executive officers listed below were appointed by the Board and
serve in the capacities indicated. Executive officers are normally
appointed annually by the Board and serve at the pleasure of the
Board.
Name and Age
|
Position and Principal Occupations
|
W.
Richard Marz, 72
|
Chairman
of the Board, President and Chief Executive Officer of the Company
since January 2016. Mr. Marz’ business experience is
described under “Proposal 1 - Election of
Directors.”
|
David
L. Watza, 50
|
Senior
Vice President, Finance and Chief Financial Officer of the Company
since October 2015. From July 2005 until September 2015 Mr. Watza
was employed at TriMas Corporation, and its subsidiaries, where he
held a number of positions including serving as the Vice President
of Corporate Development and Treasury with responsibility for
acquisitions, divestures, and global treasury operations from March
2015 until September 2015, Vice President Finance, Business
Planning & Analytics with responsibility for strategic
planning, annual operating planning and forecasting, and certain
company-wide information technology initiatives from June 2013
until March 2015, division Finance Officer for Cequent APEA in
Australia from March 2011 until June 2013, and division Finance
Officer and Vice President of Finance for Cequent Performance
Products from July 2005 until March 2011.
|
COMPENSATION OF
EXECUTIVE OFFICERS
Compensation
Discussion and Analysis
Executive Summary
. This Compensation
Discussion and Analysis (“CD&A”) is intended to
provide information about our compensation objectives and policies
for our principal executive officer, our principal financial
officer and our other named executive officers ( the
“NEOs”) included in the Summary Compensation Table that
follows this discussion. This CD&A is intended to place in
perspective the compensation information contained in the tables
that follow this discussion.
During
fiscal 2016, the Management Development Committee, after reviewing
the Company’s executive compensation programs, determined to
not change the principal components of our programs as discussed
below. This approach was supported by the results of the advisory
vote by shareholders of the Company at the Annual Meeting of
Shareholders held on November 10, 2015 at which the “Say on
Pay” Advisory Vote on Executive Compensation was approved by
95.5% of the shareholders voting on the proposal.
General Philosophy
. Our objective is to
provide a superior return to shareholders. To support this
objective, we believe that we must attract, retain and motivate top
quality executive talent. Our executive compensation program is a
critical tool in this process.
Our
executive compensation program consists of five
components:
●
Annual cash
incentive opportunities;
●
Long-term
incentives represented by stock-based awards;
●
Severance and
change in control benefits.
Our
compensation philosophy at all levels of the organization
emphasizes performance-based compensation. This is particularly
true of our executive compensation program, which has been designed
to link executive compensation to Company performance through
at-risk compensation opportunities, providing significant reward to
executives who contribute to our success. A significant portion of
our NEOs and other executives’ potential annual cash
compensation is tied to our revenue and profitability goals. We
provide long-term incentives to our team through periodic stock
awards. Through stock awards to our NEOs and other executives, we
have tied a significant portion of their future compensation
potential to the creation of long-term shareholder value. Further,
we believe that stock-based incentives for team members, in
addition to providing an incentive for their continued employment,
more closely align their interests with those of the Company and
its shareholders.
Our
approach to NEO base salaries is to ensure that they are
competitive so that they are effective in attracting and retaining
a high quality executive team. Similarly, in designing our employee
benefit programs and severance and change in control benefits, we
strive to offer benefits consistent with the general practice of
comparable companies.
We
believe that compensation should be simple, straightforward and
easily understood by the recipients. As a result, our incentive
compensation programs have generally been tied to a limited number
of key Company-wide performance metrics that can be objectively
measured.
We have
announced and are implementing a corporate strategy designed to
leverage our leading technologies and market position to accelerate
the next evolution of growth of the Company as well as increase
diversification across industries. The four components of our
strategy are: profitable growth in core markets; broaden and extend
our technical leadership; pursue prudent market diversification;
and maintain operational excellence and fiscal
discipline.
In the
coming years, we will continue to revise and refine our executive
and non-executive compensation programs to properly motivate our
executives and team to implement this strategy. We will directly
reward them for growth on a Company-wide basis.
Equity Ownership Guidelines
. The
Management Development Committee determined to implement equity
ownership guidelines for our executive team. We are in the process
of implementing these guidelines.
The Role of the Management Development
Committee and Chief Executive Officer in the Compensation
Process
. The Management Development Committee is responsible
for the planning, review and administration of our executive
compensation program and stock-based executive compensation
programs. During the fiscal year ended June 30, 2016, all members
of this Committee were non-employee directors of the Company. The
Management Development Committee generally meets in conjunction
with regularly scheduled Board meetings and between Board meetings
at the request of the Chief Executive Officer or the Management
Development Committee.
The
Management Development Committee generally reviews the components
of executive compensation on an annual basis to determine whether
there should be any adjustments in base salary, to establish the
annual cash incentive plan, to establish a long term equity
incentive plan, to determine if other stock-based incentives should
be granted and to review the terms of our other executive
compensation programs. Each year the Chief Executive Officer
presents an evaluation of the performance of the NEOs and other
executive team members to the Management Development Committee.
Based upon this evaluation, the Chief Executive Officer makes
recommendations to the Management Development Committee regarding
compensation for the NEOs and other executives, other than himself.
The Chief Executive Officer may make recommendations regarding
changes in a particular NEO or other executive’s compensation
more frequently than annually as a result of changes in
circumstances, such as the assumption of increased executive level
responsibilities. The Management Development Committee considers
the recommendations of the Chief Executive Officer, as well as the
other information provided to them by the Company, and then
establishes compensation for the NEOs and other executives, either
annually or periodically as the need arises.
The
Management Development Committee independently assesses the
performance of the Chief Executive Officer. Based upon that
assessment, the performance of the Company and the Management
Development Committee’s decisions regarding the compensation
of the other NEOs and executives, the Management Development
Committee independently establishes the compensation of the Chief
Executive Officer, without any recommendations from or
participation by the Chief Executive Officer in that
process.
The
Management Development Committee has not established a set
percentage relationship between the size of the Chief Executive
Officer’s compensation package as compared to the other NEOs.
However, historically one of the factors considered by the
Management Development Committee in setting the Chief Executive
Officer’s compensation is the level of compensation awarded
to the other NEOs for each element of compensation.
The
base salary, annual cash incentive opportunity, stock-based
incentives and other compensation terms for new executive officers
are established by the Management Development Committee based upon
the executive’s qualifications, position and level of
responsibility as compared with our other executives, our
profitability and other factors, such as assessments of individual
performance and market practices, and, in the case of executive
officers other than the Chief Executive Officer, upon the
recommendation of the Chief Executive Officer.
The
Chief Executive Officer typically proposes the terms of an annual
cash incentive plan and equity incentive plan to the Management
Development Committee for consideration. The Committee revises the
plans as it deems appropriate and approves the final plans, usually
in the first quarter of the fiscal year.
The
Management Development Committee generally reviews all elements of
compensation as a whole in establishing executive compensation. It
does not have a pre-set formula for the proper mix of the elements,
other than the annual cash incentive and equity incentive plans. In
the case of our annual cash incentive and equity incentive plans,
each of our NEOs and other executives has a set target percentage
of his or her base salary that can be earned as an annual cash
incentive and an equity incentive for achievement of Company-wide
performance metrics.
The Role of Risk Assessment in Compensation
Planning
. As part of its process of developing and
implementing the Company’s compensation programs for both
executive and non-executive team members, the Management
Development Committee considers whether the programs being proposed
have the potential to create risks that could have a material
adverse effect on the Company. The Management Development Committee
believes that the Company’s compensation programs have been
structured with an appropriate balance between providing strong
compensation-related incentives to the team to drive revenue and
profit growth, without encouraging them to take excessive risks to
achieve growth. For instance, while the Company uses
performance-based compensation at all levels of its compensation
program, base salary still represents the largest single portion of
all team members’ cash compensation. This encourages team
members to take appropriate risks to achieve established goals, but
tempered by the need to maintain the Company’s long-term
established business assets and value. Further, Company revenue and
operating income targets used in incentive plans are based upon the
Company’s operating budget for the fiscal year generally
developed by the executives and the team and approved by the
Company’s Board of Directors. By setting targets in this
fashion, the Management Development Committee strives to set
realistic targets to drive reasonably achievable growth. In
addition, the amount that can be earned by the executives and the
team under this plan are capped at a percentage of the team
member’s base salary, discouraging risk taking to achieve
performance levels significantly above the expected levels of
performance.
Key Elements of
Compensation for Fiscal 2016
Base Salary
. The
Management Development Committee recognizes the importance of a
competitive compensation structure in retaining and attracting
valuable senior executives. Executive salary levels are reviewed
and established annually. The salaries received by our executives
generally reflect their levels of responsibility, our profitability
and other factors, such as assessments of individual performance
and market practices.
In
connection with the appointment of Mr. Marz as interim President
and Chief Executive Officer in January 2016, the Management
Development Committee set Mr. Marz’ base salary at $217,500.
This amount was determined in order to provide Mr. Marz with a base
salary level for his full time services that, when taken together
with his $150,000 annual retainer as Chairman of the Board, was
commensurate with that of the former President and Chief Executive
Officer. In March 2016, in conjunction with the implementation of
the financial improvement plan, the Board reduced the annual
retainer for the Chairman of the Board to $100,000.
In
fiscal 2016, the Management Development Committee increased Mr.
Armstrong’s base salary by 5%, his first increase since he
was hired in 2013, and increased Mr. Chung’s base salary by
6%.
In
connection with the appointment of Mr. Watza as Senior Vice
President, Finance and Chief Financial Officer, in September 2015,
the Management Development Committee set his base salary at
$260,000, an increase of 18% from his predecessor and consistent
with competitive market pay considerations. Mr. Watza also received
a standard signing bonus of $25,000, which was payable in January
2016, as an incentive for Mr. Watza to leave his prior employment
to join the Company. The signing bonus has to be repaid to the
Company by Mr. Watza if he terminates his employment with the
Company prior to the first anniversary of his start of
employment.
Annual Non-Equity Incentive
Plan
. Our executives and director-level team members are
eligible for annual cash incentive opportunities. Generally, at the
beginning of each fiscal year, the Management Development Committee
develops a cash incentive plan applicable to the Chief Executive
Officer of the Company, the other NEOs and our other executives and
director-level team members.
In the
case of our annual cash incentive, each of our executives and
director-level team members, including the NEOs, has a set target
percentage of their base salary that can be earned as an annual
cash profit sharing incentive for achievement of Company-wide
performance metrics and individual strategic goals.
For
fiscal 2016, the Management Development Committee adopted the
Fiscal 2016 Executive Short Term Incentive Plan, which applied to
Mr. Armstrong, the other NEOs excluding Mr. Marz, our other
executives and director-level team members. Under the Fiscal 2016
Executive Short Term Incentive Plan, participants could earn annual
incentive cash compensation based upon performance against
pre-established Company financial targets and individual strategic
objectives.
In
January 2016, Mr. Marz was named as the Company’s interim
President and Chief Executive Officer. Due to the fact that the
Company is searching for a permanent Chief Executive Officer, it
was determined that Mr. Marz would not participate in the
Company’s Fiscal 2016 Executive Short Term Incentive
Plan.
The
amount of the award of any cash incentives under the Fiscal 2016
Executive Short Term Incentive Plan for fiscal 2016 performance was
based on the Company’s achievement of specified results with
respect to Company revenue and operating income targets for fiscal
2016, as well as the achievement of individual strategic
objectives. The weightings of these targets for fiscal 2016 were as
follows:
Fiscal 2016 Targets
|
Weighting
|
Company
Revenue
|
40%
|
Company
Operating Income
|
40%
|
Individual
Strategic Objectives
|
20%
|
The
financial targets include progressive threshold (85% of target),
target and maximum (115% of target) level incentive performance
objectives.
An
annual incentive cash compensation payout can be made under the
Fiscal 2016 Executive Short Term Incentive Plan if either financial
target equals or exceeds 85% of its specified minimum performance
threshold point or at least 85% of the individual strategic
objectives are achieved. The specific amount that such participant
receives is dependent on company financial performance, a scaled
payout multiplier (75% at threshold, 100% at target and 150% at
maximum) applied to his or her predetermined participation level, a
discretionary multiplier (80% to 120%), the participant’s
base salary and his or her predetermined participation level stated
as a percentage of base salary (60% for Mr. Armstrong and 40% for
other NEOs).
The
amount that could have been received by Mr. Armstrong under the
Fiscal 2016 Executive Short Term Incentive Plan ranged from 0%
(assuming the threshold objectives were not met) to 108% (assuming
the maximum objectives were met) of base salary, with a cash
incentive amount of 60% of base salary if both of the target
financial performance objectives are met, the individual strategic
objectives are met and a 100% discretionary multiplier is used. For
each of the other NEOs, the amount such officers could have
received under the Fiscal 2016 Executive Short Term Incentive Plan
ranged from 0% (assuming the threshold objectives were not met) to
72% (assuming the maximum objectives were met) of base salary, with
a threshold cash incentive amount of 40% of base salary if both of
the target financial performance objectives are met, the individual
strategic objectives were met and a 100% discretionary multiplier
is used.
Participating team
members under the Fiscal 2016 Executive Short Term Incentive Plan
had to be employed on or before December 31, 2015 in order to be
eligible. Participating team members hired between July 1, 2015 and
December 31, 2015, were eligible for a pro-rata portion of their
individual participation level. Participating team members had to
be employed by the Company at the date of the payouts in fiscal
2017, except as otherwise provided under any severance agreement
applicable to the participant. See “Compensation of Executive
Officers – Potential Payments Upon Termination or Change in
Control.” The Management Development Committee reserved the
right to increase, decrease or eliminate any payout under the
Fiscal 2016 Executive Short Term Incentive Plan for any
participant, including to provide for no payout even if the
financial performance targets or strategic objectives were achieved
by the participant.
Our
fiscal 2016 adjusted revenue and operating income for purposes of
the Fiscal 2016 Executive Short Term Incentive Plan were
approximately 83% and (123%), respectively, of the target
thresholds. Accordingly, no cash incentive was earned for the
revenue target, nor the operating income target. Based on these
results, the Management Development Committee also determined that
the individual strategic objectives were not achieved.
Long Term Equity Incentive
Plan
. Our executives and director-level team members are
eligible for equity incentive opportunities. Generally, at the
beginning of each fiscal year, the Management Development Committee
develops an equity incentive plan applicable to the Chief Executive
Officer of the Company, the other NEOs and our other executives and
director-level team members.
For
fiscal 2016, the Management Development Committee adopted the
Fiscal 2016 Executive Long Term Incentive Plan, which applied to
Mr. Armstrong, the other NEOs excluding Mr. Marz, our other
executives and director-level team members. Under the Fiscal 2016
Executive Long Term Incentive Plan, each of our executives and
director-level team members, including the NEOs, had a set target
percentage of their base salary that could be earned in the form of
a restricted stock award of Common Stock as determined by the
Management Development Committee, based upon an earned award
denominated in dollars for performance against pre-established
Company-wide financial targets.
In
January 2016, Mr. Marz was named as the Company’s interim
President and Chief Executive Officer. Due to the fact that the
Company is searching for a permanent Chief Executive Officer, it
was determined that Mr. Marz would not participate in the
Company’s Fiscal 2016 Executive Long Term Incentive
Plan.
The
number of shares to be awarded under the Fiscal 2016 Executive Long
Term Incentive Plan for fiscal 2016 performance was based on the
Company’s achievement of specified results with respect to
Company revenue and operating income targets for fiscal 2016. The
weightings of these targets for fiscal 2016 were as
follows:
Fiscal Targets
|
Weighting
|
Company
Revenue
|
50%
|
Company
Operating Income
|
50%
|
The
financial targets include progressive threshold (85% of target),
target and maximum (115% of target) level incentive performance
objectives.
An
incentive equity compensation payout can be made under the Fiscal
2016 Executive Long Term Incentive Plan if either financial target
equals or exceeds 85% of its specified minimum threshold point. The
specific number of shares of restricted stock that such participant
receives is determined by dividing a dollar amount dependent on
Company financial performance, a scaled payout multiplier (75% to
150%) applied to his or her predetermined participation level, a
discretionary multiplier (50% to 200%), the participant’s
base salary and his or her predetermined participation level stated
as a percentage of base salary (40% for Mr. Armstrong and 25% for
the other NEOs), by (i) the closing price of the Common Stock on
the NASDAQ Stock Market’s Global Market on the equity award
date in fiscal 2017, in the case of restricted stock
awards.
Under
the Fiscal 2016 Executive Long Term Incentive Plan, the grant date
value of the equity award that could be received by Mr. Armstrong
ranged from 0% (assuming the threshold objectives were not met) to
120% (assuming the maximum objectives were met) of base salary,
with a grant date value of 40% of base salary if both of the target
financial performance objectives are met and a discretionary
multiplier of 100% is used. Under the Fiscal 2016 Executive Long
Term Incentive Plan, the grant date value of the equity award that
could be received by the Company’s other NEOs ranged from 0%
(assuming the threshold objectives were not met) to 75% (assuming
the maximum objectives were met) of base salary, with a grant date
value of 25% of base salary if both of the target financial
performance objectives are met and a discretionary multiplier of
100% is used.
After
completion of fiscal 2016, the Management Development Committee
determined the extent to which the specified goals relating to the
financial targets were achieved, the discretionary multiplier to be
used and the type of equity award to be used.
Participating team
members under the Fiscal 2016 Executive Long Term Incentive Plan
had to be employed on or before December 31, 2015 in order to be
eligible. Participating team members hired between July 1, 2015 and
December 31, 2015 were eligible for a pro-rata portion of their
individual participation level. Participating team members had to
be employed by the Company at the date of the payout in fiscal
2017, except as otherwise provided under any severance agreement
applicable to the participant. See “Compensation of Executive
Officers – Potential Payments Upon Termination or Change in
Control.” The Management Development Committee reserved the
right to increase, decrease or eliminate any payout under the
Fiscal 2016 Executive Long Term Incentive Plan for any participant,
even if the financial performance targets were
achieved.
Our
fiscal 2016 adjusted revenue and operating income for purposes of
the Fiscal 2015 Executive Long Term Incentive Plan were
approximately 83% and (123%), respectively, of the target
thresholds. Accordingly, an equity award was not earned for either
the revenue target or the operating income target.
Stock-Based
Incentives
. The 2004 Stock Plan permits the Management
Development Committee to grant stock appreciation rights,
restricted stock, restricted stock units, performance share awards
and deferred stock units, in addition to incentive and
non-qualified stock options.
Mr.
Armstrong was granted options under the 2004 Stock Plan to purchase
100,000 shares of Common Stock in November 2015, on the second
anniversary of his hire date, as required by his offer
letter.
As
reported in last year’s Compensation Discussion and Analysis,
in September 2015, the Management Development Committee made stock
option grants under the 2004 Stock Plan to purchase 24,000 and
16,000 shares of Common Stock to Messrs. Armstrong and Chung,
respectively. These awards were made in recognition of the level of
effort made by Messrs. Armstrong and Chung in connection with the
identification, negotiation, closing and integration of the
acquisitions of Coord3 s.r.l. and Next Metrology Software s.r.o
during fiscal 2015. These options were issued on September 29,
2015.
On
August 18, 2015, Mr. Watza was awarded non-qualified options to
purchase 30,000 shares of the Company’s Common Stock with a
grant date effective November 2, 2015 in connection with his
appointment as Senior Vice President, Finance and Chief Financial
Officer, which is consistent with the level of options granted to
other executive officers when they joined the Company.
The
options granted to Messrs. Armstrong, Chung and Watza become
exercisable in three equal annual installments, beginning one year
from their date of initial grant, at an exercise price equal to
100% of the fair market value of the Common Stock on the date of
grant. The options expire ten years from the date of grant, or if
earlier, one year after the executive’s death or permanent
disability or three months after the executive’s termination
of employment. In addition, any portion of these options that is
not exercisable becomes exercisable immediately upon a Change in
Control of the Company as described under “Compensation of
Executive Officers – Potential Payments Upon Termination or
Change in Control.” All of the options granted were
non-qualified stock options.
Because
the employment of Messrs. Armstrong and Chung terminated prior to
these options first becoming exercisable, their options expired
unexercised at the time of such termination.
Under
the terms of the Fiscal 2016 Executive Long Term Incentive Plan,
Mr. Armstrong and the other NEOs, other than Mr. Marz, has the
opportunity to earn an award of restricted stock or stock options
under the 2004 Stock Plan in fiscal 2016 as described above under
“Compensation of Executive Officers – Compensation
Discussion and Analysis – Key Elements of Compensation for
Fiscal 2016 – Long Term Equity Incentive
Plan.”
In
February 2016, in connection with the appointment of Mr. Marz as
interim President and Chief Executive Officer, the Management
Development Committee made a non-qualified stock option grant to
purchase 100,000 shares of Common Stock and a restricted stock
award of 25,000 shares to Mr. Marz. Both awards were made under the
2004 Stock Plan. These awards were made in recognition of Mr.
Marz’ willingness to assume the full time duties of Chief
Executive Officer, in additional to his duties as Chairman and to
more closely align his interest with those of our shareholders. The
vesting terms of both awards were tied, in part, to the timing of
the Company’s engagement of a permanent Chief Executive
Officer to encourage Mr. Marz to continue to serve until his
replacement was engaged and to remain involved with the Company for
a transition period thereafter.
The
stock option grant will become exercisable (i) 75% upon the earlier
of the effective date of the appointment of a new Chief Executive
Officer or August 31, 2016, and (ii) 25% on the one year
anniversary of the first vesting date, which will be August 31,
2017. The restricted stock award will vest (i) 75% upon the earlier
of the effective date of the appointment of a new Chief Executive
Officer or August 31, 2016, and (ii) 25% on the one year
anniversary of the first vesting date, which will be August 31,
2017. The options have an exercise price equal to 100% of the fair
market value of the Common Stock on the date of grant. The options
expire ten years from the date of grant, or if earlier, one year
after the Mr. Marz’ death or permanent disability or three
months after Mr. Marz’ termination of services as a Member of
the Board. In addition, any portion of these options that is not
exercisable becomes exercisable immediately upon a Change in
Control of the Company as described under “Compensation of
Executive Officers – Potential Payments Upon Termination or
Change in Control.” All of the options granted were
non-qualified stock options.
The
Management Development Committee does not have a set time of the
year in which it makes discretionary equity awards under the 2004
Stock Plan, nor does it make such awards every year.
The
Management Development Committee periodically reviews the various
stock-based incentive alternatives available to the Company under
the 2004 Stock Plan as part of its development of a program to
provide appropriate long-term incentives to the executive team and
more closely align their interests with the Company and its
shareholders. Historically, the Management Development Committee
used grants of non-qualified stock options as the Company’s
principal long-term stock incentive program for the executive team.
More recently, the Management Development Committee also has used
restricted stock awards to the executive team, members of the Board
of Directors and other team members. We have increased our use of
restricted stock awards in order to reduce the number of shares
being issued by the Company as equity incentive awards. Because
recipients of restricted stock awards are not required to pay an
exercise price to realize the benefits of the award, as compared to
stock option grants where they are required to do so, we are able
to award fewer shares of restricted stock to participants than if
we granted stock options, yet provide participants with equivalent
value to a stock option grant. In the future, the Management
Development Committee plans to use a combination of stock option
grants and restricted stock awards.
The
Management Development Committee generally provides for stock
options grants and restricted stock awards to become exercisable
immediately upon a Change in Control. This provides executives with
the appropriate incentives to act in the best interests of the
Company and its shareholders, without concern for their own
personal interests, and to provide for continuity of management
during the pendency of a transaction that could result in a Change
in Control of the Company.
The
Management Development Committee uses a single trigger structure
for acceleration of vesting of stock option grants and restricted
stock awards upon a change in control of the Company so that
vesting occurs upon the occurrence of the change of control. It
believes that a single trigger structure best achieves its
objective of providing executives with appropriate incentives to
act in the best interests of the Company and its shareholders,
without concern for their own personal interests, during a change
in control transaction.
Employee Benefits
.
We believe it is important to the retention of our team members
that we maintain a competitive benefit package at all levels within
the Company. Further, we believe a well-designed employee benefit
program further promotes the creation of value for our shareholders
by enhancing job productivity by encouraging our team members to
maintain a healthy lifestyle and providing a reasonable level of
financial support in the event of an illness, injury or
death.
All of
our team members, including the NEOs and our other executives,
receive customary benefits such as medical, dental and vision
plans, short and long-term disability and group life insurance.
However, Mr. Marz was not eligible to participate in the
Company’s executive life or disability insurance program. In
addition, the NEOs and certain other executives receive enhanced
life insurance (in lieu of group life) and supplemental long-term
executive disability benefits, commensurate with their higher
compensation levels.
We also
maintain a 401(k) Profit Sharing Plan (the “401(k)
Plan”) in which all team members employed in the United
States, including the NEOs and our other executives, are eligible
to participate on the same basis. All team members are eligible to
contribute up to 75% of their salaries on a pre-tax basis to the
401(k) Plan. For calendar year 2016, the annual maximum
contribution limit is $18,000 for employees under 50 years of age
and $24,000 for employees 50 years of age or older. In addition,
the Board of Directors may authorize the Company, from time to
time, to match a portion of the team members’ contributions
to the 401(k) Plan. During fiscal 2015 and 2014 as well as a
portion of fiscal 2016, until early March 2016, the Company matched
50% of each team member’s voluntary contributions to the
401(k) Plan up to the annual maximum contribution limit set forth
above, including those made by the NEOs and our other executives.
In March 2016, as part of our financial improvement plan, the
Company indefinitely suspended the Company match for all employees,
including our NEOs and other executives.
To
facilitate the performance of their management responsibilities, we
provide certain key employees selected perquisites and other
personal benefits, such as an automobile expense allowance and,
when key employees join us, relocation benefits, such as temporary
housing and reimbursements of travel costs prior to
relocation.
Severance
Agreements
. The Board, upon recommendation of the Management
Development Committee, authorized the implementation of formal
severance agreements for the Company’s executive officers
beginning in fiscal 2005. The terms of the severance agreements are
described under “Compensation of Executive Officers –
Potential Payments upon Termination or Change in Control.”
The Board determined it appropriate to formalize the
Company’s general severance policies and practices for its
executive team and at the same time institute enhanced severance
arrangements payable in the event of a termination of the
executive’s employment following a change in control of the
Company. The Board and Management Development Committee believe
that the enhanced severance arrangements are necessary in order to
provide executives with the appropriate incentives to act in the
best interests of the Company and its shareholders, without concern
for their own personal interests, and to provide for continuity of
management during the pendency of a transaction that could result
in a change in control of the Company. The Management Development
Committee, in developing its recommendations to the Board,
consulted with an outside compensation consultant hired by the
Committee and the Company’s outside legal counsel. Based upon
the foregoing, the Management Development Committee believes that
the severance agreements contain terms and conditions which are
comparable to those used by other companies that are similar in
size to the Company.
Because
Mr. Marz’ appointment as interim President and Chief
Executive Officer was intended to be temporary while the Company is
searching for a permanent Chief Executive Officer, it was
determined that it was not necessary for the Company to enter into
a severance agreement with him.
The
NEOs, other than Mr. Marz, have all entered into our standard
executive agreement not to compete, restricting the
executive’s right to compete with us for the longer of twelve
months following the termination of employment or the period
post-termination during which we are required to make payments to
the executive, and standard employee proprietary information and
inventions agreement, containing confidentiality provisions and a
two-year post-termination restriction on soliciting our employees.
We have the right to cease all further payments under the
NEO’s severance agreement in the event that the NEO violates
the executive non-competition agreement. The NEOs must sign a
standard release to receive payments under the severance
agreements, including standard non-disparagement
provisions.
Payments under the
severance agreements, when aggregated with any other
“parachute payments” (defined under Section 280G of the
Internal Revenue Code of 1986, as amended (the “Code”)
as compensation that becomes payable or accelerated due to a Change
in Control) payable under any of our other plans, agreements or
policies, are capped so as to not be treated as “excess
parachute payments” under Code Sections 280G and 4999. See
“Compensation of Executive Officers – Compensation
Discussion and Analysis – Golden Parachute Excise Tax”
below for a further discussion of our policy with respect to golden
parachute amounts.
Deductibility of Executive
Compensation
. Code Section 162(m) restricts the
deductibility of executive compensation paid to the chief executive
officer and any of the three most highly compensated executive
officers (other than the chief financial officer) at the end of the
fiscal year to the extent such compensation (including gains from
the exercise of certain stock options) exceeds $1,000,000 in any
year. There are exceptions to the limitation for performance-based
compensation that is based on nondiscretionary, pre-established
performance measures.
Our
Board established certain restrictions on the granting of options
under the 2004 Stock Plan so that compensation realized in
connection with the stock-based grants under the 2004 Stock Plan
could be structured to be exempt from the restrictions on
deductibility under Section 162(m). For instance, the 2004 Stock
Plan restricts stock grants to any participant in any fiscal year
as follows: (i) up to 200,000 shares of Common Stock may be subject
to stock option grants, (ii) up to 200,000 shares of Common Stock
may be subject to stock appreciation right grants, (iii) up to
200,000 shares of Common Stock may be subject to restricted stock
awards, (iv) up to 200,000 shares of Common Stock may be subject to
restricted stock units and (v) up to 200,000 shares of Common Stock
may be subject to performance share awards. It is important to note
that while these restrictions allow the Management Development
Committee continuing discretion in establishing executive officer
compensation, they do limit such discretion by restricting the size
of stock awards which the Management Development Committee may
grant to any single individual. The permitted size of the stock
awards to a single individual was established based on the
determination of the maximum number of shares which would be
required to be granted in any fiscal year to retain or attract a
chief executive officer of the Company. The stock option grants
under the 2004 Stock Plan have been designed to be exempt from the
restrictions on deductibility under Section 162(m). While the
restricted stock awards under the 2004 Stock Plan, to date, have
not been designed to be exempt from the restrictions on
deductibility under Section 162(m), they have been small enough in
number to not likely result in payments to any executive officer in
any year which would be subject to such restrictions.
We do
not believe that other components of our compensation program are
likely to result in payments to any executive officer in any year
which would be subject to the restriction on deductibility under
Section 162(m). Accordingly, we believe that we have taken
appropriate actions to preserve the deductibility of most of the
annual performance bonuses and long-term performance incentive
awards the Management Development Committee is likely to award in
any given year. We will continue to evaluate the advisability of
qualifying future executive compensation programs for deductibility
under the Code.
The
Management Development Committee recognizes the need to retain
flexibility to make compensation decisions that may not meet
Section 162(m) standards to enable us to attract, retain and
motivate highly qualified executives. It has the authority to
approve non-deductible compensation in appropriate circumstances.
Also, because of ambiguities and uncertainties as to the
application and interpretation of Section 162(m) and the related
regulations and guidance, no assurance can be given that
compensation intended by us to satisfy the requirements for
deductibility under Section 162(m) will in fact do so.
Stock Awards
Expense
. We are required under Financial Accounting
Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 718
“Compensation – Stock
Compensation”
to record compensation expense
associated with stock awards to our employees, including the NEOs,
as more fully discussed in Note 9 to our audited consolidated
financial statements included in our Annual Report on Form 10-K for
the fiscal year ended June 30, 2016. As discussed above, the
Management Development Committee does consider the impact of FASB
ASC Topic 718 in determining to use grants of non-qualified stock
options and restricted stock as our principal long-term incentive
program for the executive team. Further, the Management Development
Committee does consider the amount of compensation expense required
to be recorded in determining the size of stock option grants and
restricted stock awards to the Chief Executive Officer and the
aggregate grants and awards made to the remainder of the executive
team and team members generally.
Golden Parachute Excise
Tax
. Code Section 280G imposes tax penalties on golden
parachute payments associated with a Change in Control of the
Company if they exceed a specified level. These penalties include a
20% excise tax on executives receiving these excess payments and
the elimination of a portion of our tax deduction when these excess
payments are triggered. Payments under our severance agreements and
from the acceleration of the exercisability of our stock options
and vesting of our restricted stock in the event of a Change in
Control of the Company are potentially subject to these tax
penalties. Currently, payments under our severance agreements are
capped at an amount that will not trigger the excise tax. There is
no similar limitation on the acceleration of the exercisability of
stock options and vesting of restricted stock since we believe it
is unlikely that the acceleration of options and vesting of
restricted stock alone would cause an executive to exceed the
specified level. The Management Development Committee recognizes
the need to retain flexibility to make compensation decisions that
may cause payments to executives to exceed the levels specified in
Code Section 280G to enable us to attract, retain and motivate
highly qualified executives. It therefore has the authority to
approve compensation that would exceed the specified level or to
remove the cap contained in the severance agreements in appropriate
circumstances.
Deferred
Compensation
. We have also structured our executive
compensation program with the intention that it complies with or be
exempt from Code Section 409A which may impose additional taxes on
our executives for certain types of deferred compensation that are
not in compliance with or exempt from Code Section
409A.
Because
the Company’s policy is to either comply with or exempt
payments from Code Section 409A, it does not generally assume
responsibility for any additional tax, interest, or penalties under
Code Section 409A, although it has the authority to do so in
appropriate circumstances. Also, because of ambiguities and
uncertainties as to the application and interpretation of Code
Section 409A and the related regulations and guidance, no assurance
can be given that compensation intended by us to comply with or be
exempt from Code Section 409A will in fact do so.
Report of the
Management Development, Compensation and Stock Option
Committee
The
only current member of the Management Development, Compensation and
Stock Option Committee and Board who participated in the review,
discussions and recommendations of the Management Development
Committee covered by the foregoing Compensation Discussion and
Analysis has reviewed and discussed the same with management. Based
on the review and discussion with management, he has recommended to
the Board of Directors that the Compensation Discussion and
Analysis be included in this Proxy Statement.
MANAGEMENT
DEVELOPMENT COMPENSATION AND STOCK OPTION COMMITTEE
|
Terryll
R. Smith, Chairman
|
Consideration of
Last Year’s Advisory Shareholder Vote on Executive
Compensation
At the
2015 Annual Meeting of Shareholders, approximately 95.5% of the
votes cast by the shareholders were voted to approve the
compensation of the Company’s named executive officers as
discussed and disclosed in the 2015 Proxy Statement. The Board and
the Management Development Committee appreciate and value the views
of our shareholders. In considering the results of this advisory
vote on executive compensation, the Management Development
Committee concluded that the compensation paid to our named
executive officers and the Company’s overall pay practices
enjoy shareholder support and did not make any material changes to
the executive compensation program in response to the shareholder
vote.
Going
forward, future advisory votes on executive compensation will serve
as an additional tool to guide the Board and the Management
Development Committee in evaluating the alignment of the
Company’s executive compensation program with the interests
of the Company and its shareholders. Shareholders may communicate
with the Board, the Management Development Committee or individual
directors regarding the Company’s executive compensation
program by submitting such communications in writing to Perceptron,
Inc., Attention: Board of Directors (or the Management Development
Committee or the individual director(s)), 47827 Halyard Drive,
Plymouth, Michigan 48170-2461. Communications should be sent by
overnight or certified mail, return receipt requested. Such
communications will be delivered directly to the Board, the
Management Development Committee or the individual director(s), as
designated on such communication.
At the
2013 Annual Meeting of Shareholders, our shareholders expressed a
preference that advisory votes on executive compensation be held on
an annual basis. Consistent with this preference, the Board
determined to implement an advisory vote on executive compensation
on an annual basis until the next required vote on the frequency of
shareholder votes on the compensation of executive
officers.
Summary
Compensation Table
The
following table sets forth certain information as to compensation
paid by us for services rendered in all capacities to the Company
and its subsidiaries during fiscal 2016, 2015 and 2014 (except as
otherwise noted) to (i) persons serving as our Chief Executive
Officer at any time during fiscal 2016, (ii) persons serving as our
Chief Financial Officer at any time during fiscal 2016, (iii) our
other executive officer as of June 30, 2016 (as to compensation
paid by us for services rendered in all capacities to the Company
during fiscal 2016); and (iv) persons serving as our executive
officers at any time during fiscal 2016, who were not serving as
our executive officers as of June 30, 2016, whose total
compensation exceeded $100,000 in fiscal 2016 (collectively, the
“named executive officers” or “NEOs”).
Please see the Compensation Discussion and Analysis for additional
detail regarding the Company’s compensation philosophy,
practices and fiscal 2016 compensation decisions.
SUMMARY
COMPENSATION TABLE
Name and Principal Position
|
Fiscal Year
|
Salary ($)
|
Bonus ($)
|
Stock Awards ($)
(1)
|
Option Awards ($)
(2)
|
Non-Equity Incentive Plan Compensation
($)
(3)
|
All Other Compensation
($)
(4)
|
Total
|
W. Richard Marz,
Chairman of the Board,
President and Chief Executive Officer
(5)
|
2016
|
94,259
(6)
|
-
|
160,250
(7)
|
283,661
(8)
|
-
|
160,860
|
$699,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David L. Watza,
Senior Vice President,
Finance and Chief Financial Officer
(9)
|
2016
|
194,000
|
25,000
|
48,750
(10)
|
95,595
(11)
|
-
|
7,647
|
$370,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey M. Armstrong,
Former President and
Chief Executive Officer
(12)
|
2016
|
215,452
|
-
|
144,083
(10)
|
384,671
(13)
|
-
|
179,957
|
$924,163
|
2015
|
350,000
|
50,000
|
92,920
(14)
|
548,968
(15)
|
124,250
|
31,267
|
$1,197,405
|
2014
|
220,769
|
-
|
39,570
(16)
|
290,102
(17)
|
-
|
30,522
|
$580,963
|
Song Yop Chung,
Former Senior Vice President
and Chief Technology Officer
(18)
|
2016
|
158,227
|
-
|
54,863
(10)
|
48,557
(13)
|
-
|
9,161
|
$270,808
|
2015
|
205,569
|
28,000
|
49,680
(14)
|
51,500
(15)
|
58,504
|
11,088
|
$404,341
|
|
|
|
|
|
|
|
|
(1)
Represents the full
grant date fair value associated with restricted stock awards,
calculated in accordance with FASB ASC Topic 718, excluding any
forfeiture reserves recorded for these awards. There can be no
assurance that the FASB ASC Topic 718 restricted stock award
amounts shown above will ever be realized. The assumptions we used
to calculate these amounts are included in Note 9 to our audited
consolidated financial statements included in our Annual Report on
Form 10-K for fiscal 2016. Except as otherwise set forth in the
footnotes below, one third of these restricted stock awards vest
and risk of forfeiture and other restrictions lapse on such shares
on each anniversary of the date of grant if the executive’s
services or employment has not terminated on or prior to such date.
The restricted stock awards become immediately vested and risk of
forfeiture and other restrictions lapse in the event of a change in
control as described under “Compensation of Executive
Officers – Potential Payments Upon Termination or Change in
Control.”
(2)
Represents the full
grant date fair value associated with stock option awards,
calculated in accordance with FASB ASC Topic 718, excluding any
forfeiture reserves recorded for these awards. There can be no
assurance that the FASB ASC Topic 718 option award amounts shown
above will ever be realized. The assumptions we used to calculate
these amounts are included in Note 9 to our audited consolidated
financial statements included in our Annual Report on Form 10-K for
fiscal 2016. Except as otherwise set forth in the footnotes below,
one-third of the option awards generally become exercisable on each
anniversary of the date of grant if the executive’s services
or employment has not terminated on or prior to such date. The
options become immediately exercisable in the event of a change in
control as described under “Compensation of Executive
Officers – Potential Payments Upon Termination or Change in
Control.” These options expire ten years from their date of
grant or, if earlier, one year after the optionee’s death or
permanent disability or three months after the optionee’s
termination of employment or, in the case of Mr. Marz, service as a
member of the Board of Directors if later. All of the options
granted were non-qualified stock options.
(3)
Represents cash
incentive payments earned under our Fiscal 2015 Executive Short
Term Incentive Plan. The plan provides for annual cash incentive
payments based on annual Company revenue and operating income
performance goals and achievement of individual strategic
performance goals for fiscal 2015.
(4)
“All Other
Compensation” in fiscal 2016 is comprised of (i)
contributions made by us to the accounts of the named executives
under our 401(k) Plan with respect to fiscal 2016 as follows: Mr.
Marz $0, Mr. Watza $0, Mr. Armstrong $7,250, Mr. Chung $2,400, (ii)
reimbursements for personal commuting expenses for Mr. Marz in the
amount of $22,168, (iii) reimbursements for temporary housing for
Mr. Marz in the amount of $13,342, (iv) the dollar value of any
life insurance premiums we paid in fiscal 2016 with respect to term
life insurance for the benefit of the named executives, other than
Mr. Marz, (v) the dollar value of any supplemental executive
disability insurance premiums we paid in fiscal 2016 for the
benefit of the named executives, other than Mr. Marz (vi) the
dollar value of a monthly automobile allowance to the named
executives, other than Mr. Marz (vii) payment of a retainer fee to
Mr. Marz for his services as Chairman of the Board in the amount of
$125,000 (viii) the dollar value of payments made to Messrs. Marz,
Watza and Armstrong for periods during which they opted out of the
Company’s health plans and (ix) the dollar value of severance
payments made to Mr. Armstrong in the amount of
$158,308.
(5)
Mr. Marz was
appointed as interim President and Chief Executive Officer on
January 26, 2016.
(6)
The
amount reported in this column reflects the salary paid to Mr. Marz
for his services as President and Chief Executive Officer. See
footnote 4 above for a discussion of the retainer fee paid to Mr.
Marz for his services as Chairman of the Board.
(7)
On February 2,
2016, Mr. Marz received restricted stock awards for 25,000 shares
of the Company’s Common Stock under the Company’s 2004
Stock Plan, in connection with his appointment as interim President
and Chief Executive Officer. Seventy-five percent of these shares
vested on August 31, 2016 and the remaining twenty-five percent
will vest on August 31, 2017.
(8)
On
December 1, 2015, Mr. Marz received an option to purchase 9,570
shares of Common Stock the Company’s Common Stock under the
Company’s 2004 Stock Plan for his services as Chairman of the
Board. The full grant-date fair value associated with that option
is $29,843. Additionally, on February 2, 2016, Mr. Marz was awarded
an option to purchase 100,000 shares of the Company’s Common
Stock, under the Company’s 2004 Stock Plan in connection with
his appointment as President and Chief Executive Officer. The full
grant-date fair value associated with that option is $253,818.
Seventy-five percent of these options vested on August 31, 2016 and
the remaining twenty-five percent will vest on August 31,
2017.
(9)
Mr.
Watza was appointed as Senior Vice President, Finance and Chief
Financial Officer on October 5, 2015.
(10)
The full grant date
fair value was determined assuming achievement of the performance
goals was at target levels, which would result in application of a
100% scaled payout multiplier, and assuming the Management
Development Committee applied a 100% discretionary multiplier. If
the highest level of performance conditions had been met under the
Fiscal 2016 Executive Long Term Incentive Plan, the full grant date
fair value associated with restricted stock awards during fiscal
2016 under such plan, calculated in accordance with FASB ASC Topic
718, excluding any forfeiture reserves recorded for those awards,
would have been as follows: Mr. Watza $117,000, Mr. Armstrong
$264,600, and Mr. Chung $100,170. As discussed under
“Compensation of Executive Officers – Compensation
Discussion and Analysis – Key Elements of Compensation for
Fiscal 2016 – Long Term Equity Incentive Plan,” no
restricted stock awards were granted pursuant to the Fiscal 2016
Executive Long Term Incentive Plan.
(11)
On November 2,
2015, Mr. Watza received an option to purchase 30,000 shares of the
Company’s Common Stock, under the Company’s 2004 Stock
Plan, in connection with his appointment as Senior Vice President,
Finance and Chief Financial Officer.
(12)
Mr. Armstrong also
served as the Company’s principal financial officer following
the termination of our prior chief financial officer’s
employment with the Company on May 8, 2015 until Mr. Watza was
hired in that capacity on October 5, 2015. Mr. Armstrong resigned
from the Company on January 26, 2016 as President and Chief
Executive Officer.
(13)
On
September 29, 2015, Messrs. Armstrong, and Chung received an option
to purchase 24,000 and 16,000 shares, respectively, of the
Company’s Common Stock under the 2004 Stock Plan. The full
grant-date fair value associated with these options is $72,836 and
$48,557, respectively. Additionally, on December 1, 2015, Mr.
Armstrong received an option to purchase 100,000 shares of Common
Stock under the 2004 Stock Plan pursuant to his offer letter. The
full grant date fair value associated with that option is $311,836.
Messrs. Armstrong’s and Chung’s unvested options were
terminated upon their termination of employment.
(14)
On October 13,
2014, Messrs. Armstrong and Chung, received restricted stock awards
for 10,100 shares and 5,400 shares, respectively. Messrs.
Armstrong’s and Chung’s unvested restricted stock
awards were forfeited upon their termination of
employment.
(15)
The full grant date
fair value was determined assuming achievement of the performance
goals was at target levels, which would result in application of a
100% scaled payout multiplier, and assuming the Management
Development Committee applied a 100% discretionary
multiplier. If the highest level of performance conditions
had been met under the Fiscal 2015 Executive Long Term Incentive
Plan, the full grant date fair value associated with stock option
awards during fiscal 2016 under such plan, calculated in accordance
with FASB ASC Topic 718, excluding any forfeiture reserves recorded
for those awards, would have been as follows: Mr. Armstrong
$419,999 and Mr. Chung $154,499. Pursuant to the Fiscal 2015
Executive Long Term Incentive Plan, Messrs. Armstrong and Chung
received a grant of an option to purchase 53,597 and 19,716 shares,
respectively, of Common Stock under the 2004 Stock Plan, based upon
the level of achievement of the corporate revenue and operating
income goals established under the Fiscal 2015 Executive Long Term
Incentive Plan. These options were issued on September 29,
2015 and have an exercise price equal to the closing market price
on that date. The full grant-date fair value associated with these
options is $162,400 and $59,740, respectively. Additionally, on
December 1, 2015, Mr. Armstrong received an option to purchase
100,000 shares of Common Stock under the 2004 Stock Plan pursuant
to his offer letter. The option was issued on December 1, 2015 and
has an exercise price equal to the closing market price on that
date. The full grant date fair value associated with that option is
$408,968. Twenty-five percent of the option becomes exercisable on
each anniversary of the date of grant if Mr. Armstrong’s
services or employment have not terminated on or prior to such
date. Messrs. Armstrong’s and Chung’s unvested options
terminated upon their termination of employment.
(16)
The restricted
stock awards were earned based on an individual’s achievement
of performance goals during fiscal 2014 with a subsequent one year
service vesting after the issuance date. The full grant date fair
value was determined assuming achievement of the performance goals
was at target levels. Compensation expense related to the
restricted stock awards for fiscal 2014 is based on the closing
price of the Common Stock on November 12, 2013, the date of grant,
multiplied by the number of restricted stock awards expected to be
issued and is amortized over the combined performance and service
periods. Pursuant to the 2014 Annual Incentive Plan, Mr. Armstrong
received a grant of 3,000 shares of restricted stock under the 2004
Stock Plan on October 13, 2014, based upon his level of achievement
of his personal goals. Mr. Armstrong’s unvested restricted
stock awards were forfeited upon his termination of
employment.
(17)
Twenty-five percent
of the option becomes exercisable on each anniversary of the date
of grant. Mr. Armstrong’s unvested options terminated upon
his termination of employment.
(18)
Mr. Chung was
appointed as an executive officer of the Company on May 19, 2015.
Mr. Chung’s employment with the Company as Senior Vice
President and Chief Technology Officer terminated on March 2,
2016.
Grants
of Plan-Based Awards
The
following table sets forth information concerning each grant of a
plan-based award made to a NEO during fiscal year
2016.
GRANTS OF PLAN-BASED AWARDS FOR FISCAL
2016
|
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
(1)
|
Estimated Future Payouts Under
Equity Incentive Plan Awards
(2)
|
|
Name
|
Grant Date
|
Date Approved by Management Development Committee
|
Threshold ($)
|
Target ($)
|
Maximum ($)
|
Threshold ($)
|
Target ($)
|
Maximum ($)
|
All Other Stock Awards: Number of Shares of Stock
|
All Other Option Awards; Number
of Securities Underlying Options (#)
(3)
|
Exercise or Base Price of Option
Awards ($/Sh)
(4)
|
Grant Date Fair Value of Stock and Option Awards ($)
|
W. Richard Marz
(5)
|
2/2/2016
|
2/2/2016
|
|
|
|
|
|
|
25,000
(6)
|
|
6.41
|
160,250
(7)
|
2/2/2016
|
2/2/2016
|
|
|
|
|
|
|
|
100,000
(8)
|
6.41
|
253,818
(9)
|
12/1/2015
|
11/9/2015
|
|
|
|
|
|
|
|
9,570
|
7.78
|
29,843
(9)
|
David L. Watza
|
|
|
58,500
|
78,000
|
140,400
|
|
|
|
|
|
|
|
9/26/2015
|
9/26/2015
|
|
|
|
36,563
|
48,750
|
87,750
|
|
|
|
48,750
(11)
|
11/2/2015
|
8/18/2015
(11)
|
|
|
|
|
|
|
|
30,000
|
7.95
|
95,595
(9)
|
Jeffrey M. Armstrong
(13)
|
|
|
162,094
|
216,125
|
389,025
|
|
|
|
|
|
|
|
9/26/2015
|
9/26/2015
|
|
|
|
108,062
|
144,083
|
259,350
|
|
|
|
144,083
(11)
|
12/1/2015
|
11/9/2015
|
|
|
|
|
|
|
|
100,000
|
7.78
|
311,836
(9)
|
9/29/2015
|
9/26/2015
|
|
|
|
|
|
|
|
24,000
|
7.63
|
72,835
(9)
|
Song Yop Chung
(14)
|
|
|
65,835
|
87,780
|
158,004
|
|
|
|
|
|
|
|
9/26/2015
|
9/26/2015
|
|
|
|
41,147
|
54,863
|
98,753
|
|
|
|
54,863
(11)
|
9/29/2015
|
9/26/2015
|
|
|
|
|
|
|
|
16,000
|
7.63
|
48,557
(9)
|
(1)
The amount reported
in these columns are the cash amounts that would have been paid
under our Fiscal 2016 Executive Short Term Incentive Plan if the
threshold, target and maximum financial performance objectives and
individual strategic goals were met. No cash incentive payments
were earned under our Fiscal 2016 Executive Short Term Incentive
Plan. As discussed under “Compensation of Executive
Officers – Compensation Discussion and Analysis – Key
Elements of Compensation for Fiscal 2016 – Annual Non-Equity
Incentive Plan,” the plan provides for annual cash payments
based on annual financial performance goals for fiscal 2016 which
were not achieved.
(2)
The amount reported
in these columns are the dollar values of the restricted stock that
would have been granted under our Fiscal 2016 Executive Long Term
Incentive Plan if the Company’s threshold, target and maximum
performance objectives were met. Under the Fiscal 2016 Executive
Long Term Incentive Plan, the final awards to reflect actual
performance are denominated in dollars and paid in shares of
restricted stock determined by dividing the dollar amount of the
award by the closing price of the Common Stock on the NASDAQ Stock
Market’s Global Market on the award date. No equity incentive
grants were earned pursuant to the Fiscal 2016 Executive Long Term
Incentive Plan. As discussed under “Compensation of
Executive Officers – Compensation Discussion and Analysis
– Key Elements of Compensation for Fiscal 2016 –
Long-Term Equity Incentive Plan,” the plan provides for
annual equity incentive payments based on annual financial
performance goals for fiscal 2016 which were not
achieved.
(3)
Except as set forth
in footnote 7 for the option granted to Mr. Marz, one-third of the
option becomes exercisable on each anniversary of the date of
grant. The options become immediately exercisable in the event of a
change in control as described under “Compensation of
Executive Officers – Potential Payments Upon Termination or
Change in Control.” These options expire ten years from their
date of grant or, if earlier, one year after the optionee’s
death or permanent disability or three months after the
optionee’s termination of employment or, in the case of Mr.
Marz, service as a member of the Board of Directors if
later.
(4)
The exercise price
of these stock option awards under the 2004 Stock Plan was set at
the closing sales price of the Common Stock on the NASDAQ Global
Market on the grant date.
(5)
In January 2016,
Mr. Marz was named as the Company’s interim President and
Chief Executive Officer. Due to the fact that the Company is
searching for a permanent Chief Executive Officer, it was
determined that Mr. Marz would not participate in the
Company’s Fiscal 2016 Executive Short Term or Long Term
Incentive Plan.
(6)
Seventy-five
percent of these shares vested on August 31, 2016 and the remaining
twenty-five percent vest on August 31, 2017.
(7)
Represents the full
grant date fair value associated with restricted stock awards,
calculated in accordance with FASB ASC Topic 718, excluding any
forfeiture reserves recorded for those awards. There can be no
assurance that the FASB ASC Topic 718 restricted stock award
amounts shown above will ever be realized. The assumptions we used
to calculate these amounts are included in Note 9 to our audited
consolidated financial statements included in our Annual Report on
Form 10-K for fiscal 2016.
(8)
Seventy-five
percent of these options vested on August 31, 2016 and the
remaining twenty-five percent vest on August 31, 2017.
(9)
Represents the full
grant date fair value associated with stock options awards,
calculated in accordance with FASB ASC Topic 718, excluding any
forfeiture reserves recorded for these awards. There can be no
assurance that the FASB ASC Topic 718 option award amounts shown
above will ever be realized. The assumptions we used to calculate
these amounts are included in Note 9 to our audited consolidated
financial statements included in our Annual Report on Form 10-K for
fiscal 2016.
(10)
The grant date for
these options was the first business day of the month following the
month in which the grant was approved by the Management Development
Committee.
(11)
Represents the full
grant date fair value associated with restricted stock awards under
our Fiscal 2016 Executive Long Term Incentive Plan, calculated in
accordance with FASB ASC Topic 718, excluding any forfeiture
reserves recorded for those awards. There can be no assurance that
the FASB ASC Topic 718 stock award amounts shown above will ever be
realized. The assumptions we used to calculate these amounts are
included in Note 9 to our audited consolidated financial statements
included in our Annual Report on Form 10-K for fiscal 2016. As
discussed under “Compensation of Executive Officers –
Compensation Discussion and Analysis – Key Elements of
Compensation for Fiscal 2016 – Long Term Equity Incentive
Plan,” the stock awards are earned based on an
individual’s achievement of performance goals during fiscal
2016. The full grant date fair value was determined assuming
achievement of the performance goals was at target levels, which
would result in application of a 100% scaled payout multiplier, and
assuming the Management Development Committee applied a 100%
discretionary multiplier. No restricted shares were awarded
pursuant to the Fiscal 2016 Executive Long Term Incentive
Plan.
(12)
The stock option
award was approved on the same date the Board acted on Mr.
Watza’ appointment. The grant date is the first business day
of the month following the month in which Mr. Watza began his
employment with the Company.
(13)
Mr.
Armstrong’s employment with the Company terminated on January
26, 2016 as President and Chief Executive Officer.
(14)
Mr. Chung’s
employment with the Company as Senior Vice President and Chief
Technology Officer terminated on March 2, 2016.
Employment
Agreements
None of
our executive officers has an employment agreement with us, other
than the agreements discussed under “Compensation of
Executive Officers – Potential Payments Upon Termination or
Change in Control.”
Outstanding Equity
Awards at Fiscal Year-End
The
following table provides information with respect to unexercised
options and unearned shares held by the NEOs as of June 30,
2016.
OUTSTANDING EQUITY
AWARDS AT 2016 FISCAL YEAR-END
Name
|
Option Awards
(1)
|
Stock Awards
(2)
|
Number of Securities Underlying Unexercised Options (#)
Exercisable
|
Number of Securities Underlying Unexercised Options (#)
Unexercisable
|
Option Exercise Price ($)
|
Option Expiration
Date
(3)
|
Number of Shares That Have Not Vested (#)
|
Market Value of Shares of Stock
That Have Not Vested ($)
(4)
|
Equity Incentive Plan Awards:
Number of Unearned Shares That Have Not Vested
(#)
(5)
|
Equity Incentive Plan Awards:
Market Value or Payout Value of Unearned Shares That Have Not
Vested ($)
(4)
|
W. Richard Marz
(6)
|
-
|
100,000
(7)
|
6.41
|
2/2/2026
|
1,579
(8)
|
7,390
|
-
|
|
-
|
9,570
(9)
|
7.78
|
12/1/2025
|
25,000
(10)
|
117,000
|
-
|
|
6,000
|
2,000
(11)
|
5.83
|
12/3/2022
|
-
|
-
|
-
|
|
8,000
|
-
|
6.14
|
9/1/2021
|
-
|
-
|
-
|
|
50,000
|
-
|
8.81
|
2/1/2018
|
-
|
-
|
-
|
|
8,000
|
-
|
11.78
|
9/4/2017
|
-
|
-
|
-
|
|
8,000
|
-
|
8.00
|
9/1/2016
|
-
|
-
|
-
|
|
David L. Watza
|
-
|
30,000
(12)
|
7.95
|
11/2/2025
|
-
|
-
|
-
|
|
-
|
-
|
-
|
-
|
-
|
-
|
7,546
|
35,317
|
Jeffrey M. Armstrong
(13)
|
-
|
-
|
-
|
-
|
-
|
-
|
22,304
|
104,383
|
Song Yop Chung
(14)
|
-
|
-
|
-
|
-
|
-
|
-
|
8,493
|
39,747
|
(1)
The option award
becomes immediately exercisable in the event of a change in control
as described under “Compensation of Executive Officers
– Potential Payments Upon Termination or Change in
Control.”
(2)
The restricted
stock awards become immediately vested and risk of forfeiture and
other restrictions lapse in the event of a change in control as
described under “Compensation of Executive Officers –
Potential Payments Upon Termination or Change in
Control.”
(3)
Except for options
granted to Mr. Marz, options expire on the date indicated or, if
earlier, one year after the optionee’s death or permanent
disability or three months after the optionee’s termination
of employment. Options granted to Mr. Marz expire on the date
indicated or, if earlier, one year after Mr. Marz’ death or
permanent disability or three months after Mr. Marz’
termination of services as a member of the Board.
(4)
Market value was
determined by multiplying the number of shares that have not vested
by the closing market price of the Common Stock on June 30,
2016.
(5)
As discussed under
“Compensation of Executive Officers – Compensation
Discussion and Analysis – Key Elements of Compensation for
Fiscal 2016 – Long Term Equity Incentive Plan,” the
restricted stock awards under the Fiscal 2016 Executive Long Term
Incentive Plan identified in the table above are based on the
assumption that the Company would achieve at the target level for
each of the two performance goals during fiscal 2016, which would
result in application of a 100% scaled payout multiplier, assuming
the Management Development Committee applied a 100% discretionary
multiplier and using the closing price of our Common Stock as of
September 1, 2016 of $6.46. Pursuant to the terms of the Fiscal
2016 Executive Long Term Incentive Plan, none of Messrs. Watza,
Armstrong and Chung received any restricted stock awards under the
2004 Stock Plan.
(6)
In January 2016,
Mr. Marz was named as the Company’s interim President and
Chief Executive Officer.
(7)
Seventy-five
percent of these options vest on August 31, 2016 and the remaining
twenty-five percent vest on August 31, 2017.
(8)
One half of these
shares will vest on each of November 11, 2016 and 2017 if the
executive’s services as a member of the Board have not
terminated on or prior to such date.
(9)
One third of these
shares will vest on each of December 1, 2016, 2017 and 2018 if the
executive’s services as a member of the Board have not
terminated on or prior to such date.
(10)
Seventy-five
percent of these shares vested on August 31, 2016 and the remaining
twenty-five percent vest on August 31, 2017.
(11)
These shares will
vest on December 3, 2016 if the executive’s services as a
member of the Board have not terminated on or prior to such
date.
(12)
One third of these
shares will vest on each of November 2, 2016, 2017 and 2018 if the
executive’s services or employment have not terminated on or
prior to such date.
(13)
Mr. Armstrong
terminated employment with the Company on January 26,
2016.
(14)
Mr. Chung
terminated employment with the Company on March 2,
2016.
Option
Exercises
The
following table provides information with respect to options
exercised by the NEOs, and restricted stock awards to the NEOs that
vested, during fiscal 2016.
OPTION EXERCISES
AND STOCK VESTED DURING FISCAL 2016
|
Option Awards
|
Stock Awards
|
Name
|
Number of Shares Acquired on Exercise
|
Value Realized on
Exercise
(1)
($)
|
Number of Shares Acquired on Vesting
|
Value Realized on
Vesting
(2)
($)
|
W. Richard Marz
|
-
|
-
|
790
|
5,783
|
David L. Watza
|
-
|
-
|
-
|
-
|
Jeffrey M. Armstrong
|
-
|
-
|
6,367
|
49,663
|
Song Yop Chung
|
-
|
-
|
3,800
|
29,640
|
(1)
Calculated by
multiplying the number of shares acquired upon exercise by the
closing price of the Common Stock on the NASDAQ Global Market on
the day preceding the exercise date less the exercise price of the
option.
(2)
Calculated by
multiplying the number of shares acquired upon vesting by the
closing price of the Common Stock on the NASDAQ Global Market on
the day preceding the vesting date.
Potential Payments
Upon Termination or Change in Control
We have
entered into a severance agreement with Mr. Watza. Under the terms
of Mr. Watza’ severance agreement, in the event that we
terminate his employment without “Cause” (provided such
termination constitutes a “separation from service”
under Code Section 409A), he will be paid an amount of cash
severance equal to one-half his current annual base salary, as in
effect immediately prior to his termination, a prorated portion of
any bonus he would have earned for the year of termination had Mr.
Watza been employed at the end of the applicable bonus period, and
continuation of Company-provided health, welfare and automobile
benefits for one-half of a year or, if earlier, his date of death.
All severance payments and benefits will be paid or provided over
the period during which we are required to provide the
benefit.
Mr.
Watza’ severance agreement also provides that, if the
employment of Mr. Watza is terminated for any reason other than
death, disability or Cause (provided such termination constitutes a
“separation from service” under Code Section 409A), or
he resigns for “Good Reason,” six months prior to or
within two years after a “Change in Control,” in lieu
of the severance described in the prior paragraph, Mr. Watza will
be entitled to an amount of severance equal to one time his current
annual base salary, as in effect immediately prior to his
termination, a prorated portion of his target bonus for the year of
termination, based on the number of days worked in the year of
termination, continuation of Company-provided health benefits for
one year or, if earlier, his date of death, automobile benefits for
one year or, if earlier, his date of death, other welfare benefits
for one year and continued coverage under director and officer
liability insurance policies for six years. Base salary and bonus
severance payments and other benefits will be provided over the
period during which we are required to provide the benefit. To the
extent that any severance payments would not be exempt from Code
Section 409A and Mr. Watza is determined to be a “specified
employee” as defined under Code Section 409A, then such
payments will be suspended for six months from the date of Mr.
Watza’ termination of employment. Suspended payments will be
paid in a lump-sum, plus interest at the prime rate, plus two
percent, at the end of the suspension period. The special severance
expires three years from the date of the severance agreement,
except that such expiration date shall be extended for consecutive
one year periods, unless, at least 180 days prior to the expiration
date, we notify Mr. Watza in writing that we are not extending the
term of these provisions.
Mr.
Watza has entered into our standard executive agreement not to
compete, restricting his right to compete with us for the longer of
twelve months or the period in which we are required to make
payments to the executive, and standard employee proprietary
information and inventions agreement, containing confidentiality
provisions and a two-year restriction on soliciting our employees.
We have the right to cease all further payments under Mr.
Watza’ severance agreement in the event that he violates the
executive non-competition agreement. Mr. Watza must sign a standard
release to receive payments under the severance agreements,
including standard non-disparagement provisions.
Payments under the
severance agreements, when aggregated with any other “golden
parachute” amounts (defined under Code Section 280G as
compensation that becomes payable or accelerated due to a Change in
Control) payable under this agreement or any of our other plans,
agreements or policies, shall not exceed the golden parachute cap
under Code Sections 280G and 4999.
Agreements relating
to stock options granted and restricted stock awards under the 2004
Stock Plan to each of the executive officers named in the Summary
Compensation Table, as well as stock options granted and restricted
stock awards under the 2004 Stock Plan to our other officers,
provide that such options become immediately exercisable and such
restricted stock awards become immediately vested in the event of a
Change in Control.
“Change in
Control” for purposes of the severance agreements and the
2004 Stock Plan is generally defined as:
●
A merger of the
Company in which the Company is not the survivor,
●
A share exchange
transaction in which our shareholders own less than 50% of the
stock of the survivor,
●
The sale or
transfer of all or substantially all of our assets, or
●
Any person, or
group of persons who agree to act together to acquire, hold, vote
or dispose of the Common Stock, acquires more than 50% of the
Common Stock.
To the
extent the agreement or award under the 2004 Stock Plan is subject
to Code Section 409A, the event shall not be considered a Change in
Control unless it is also a change in ownership, effective control
or in the ownership of a substantial portion of assets of the
Company, within the meaning of Code Section 409A.
“Cause”
is generally defined as the executive’s:
●
Personal dishonesty
in connection with the performance of services for the
Company,
●
Willful misconduct
in connection with the performance of services for the
Company,
●
Conviction for
violation of any law involving (A) imprisonment that interferes
with performance of duties or (B) moral turpitude,
●
Repeated and
intentional failure to perform stated duties, after written notice
is delivered identifying the failure, and it is not cured within 10
days,
●
Breach of a
fiduciary duty to the Company,
●
Breach of executive
agreement not to compete or employee proprietary information and
inventions agreement, or
●
Prior to Change in
Control, engaging in activities detrimental to interests of the
Company that have a demonstrable adverse effect on the
Company.
“Good
Reason” is generally defined as the occurrence of any of the
following events without the executive’s written consent, if
the executive terminates employment within one year following the
occurrence of such event:
●
Material diminution
in the executive’s position, duties, responsibilities or
status with the Company immediately prior to the Change in
Control,
●
Material diminution
in the executive’s base salary in effect immediately prior to
the Change in Control which shall be a reduction in such base
salary in effect immediately prior to the Change in Control which
shall be a reduction in such base salary of five (5%) percent or
more unless a greater reduction is required by Code Section 409A to
constitute an “involuntary separation” from
service,
●
Material required
relocation of the executive’s principal place of employment
which shall be a relocation of more than 50 miles from his or her
place of employment prior to the Change in Control unless a
relocation of a greater distance is required by Code Section 409A
to constitute an “involuntary separation” from service,
or
●
Breach of any
provision in the severance agreements.
The
payments and services to each NEO under the provisions of their
severance agreements, stock option agreements and restricted stock
agreements in the event of their termination of their employment
with the Company and/or a Change in Control of the Company are
estimated to aggregate the following amounts. The estimate assumes
that the termination of employment and/or Change in Control
occurred on June 30, 2016, except as otherwise noted.
ESTIMATED AGGREGATE PAYMENTS UNDER SEVERANCE,
STOCK OPTION
AND RESTRICTED
STOCK AGREEMENTS UPON TERMINATION OF
EMPLOYMENT AND/OR
CHANGE IN CONTROL
|
Type of Payment Benefit
|
Prior to Change in Control
|
Following Change in Control
|
|
|
Retirement, Voluntary Termination by NEO or For Cause Termination
by Company
|
Involuntary Termination Without
Cause By Company
(1)
|
No Termination of Employment
|
Voluntary Termination by NEO, Without Good Reason, or For Cause
Termination by Company
|
Voluntary Termination by NEO,
For Good Reason, or Involuntary Termination By Company, Other Than
For Cause
(2)
|
W. Richard Marz
(3)
|
Cash Payment
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
Stock Options
(4)
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
Stock Awards
(5)
|
$ -
|
$ -
|
$124,390
|
$124,390
|
$124,390
|
Benefits
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
Total
|
$ -
|
$ -
|
$124,390
|
$124,390
|
$124,390
|
David L. Watza
|
Cash Payment
|
$ -
|
$130,000
|
$ -
|
$ -
|
$338,000
|
Stock Options
(4)
|
$ -
|
$-
|
$ -
|
$ -
|
$ -
|
Stock Awards
(5)
|
$ -
|
$-
|
$ -
|
$ -
|
$48,750
|
Benefits
|
$
-
|
$18,210
|
$
-
|
$
-
|
$36,420
|
Total
|
$ -
|
$148,210
|
$ -
|
$ -
|
$423,170
|
Jeffrey M. Armstrong
(6)
|
Cash Payment
|
$ -
|
$367,500
|
$ -
|
$ -
|
$ -
|
Stock Options
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
Stock Awards
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
Benefits
|
$
-
|
$17,213
|
$
-
|
$
-
|
$
-
|
Total
|
$ -
|
$384,713
|
$ -
|
$ -
|
$ -
|
Song Yop Chung
(7)
|
Cash Payment
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
Stock Options
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
Stock Awards
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
Benefits
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
Total
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
(1)
In preparing the
above estimates we assumed that the annual bonus was payable at the
same level as the bonus was earned for fiscal 2016, valued the
executive life insurance and automobile benefits at the actual cost
incurred by the Company in fiscal 2016 for such benefits, and
valued the health and welfare plan benefits, other than executive
life insurance, at the cost of COBRA coverage for that employee as
of June 30, 2016.
(2)
In preparing the
above estimates we assumed that the executive would receive his or
her full target bonus for the year of termination, valued the
executive life insurance and automobile benefits at the actual cost
incurred by the Company in fiscal 2016 for such benefits, and
valued the health and welfare plan benefits, other than executive
life insurance, at the cost of COBRA coverage for that employee as
of June 30, 2016.
(3)
In January 2016,
Mr. Marz was named as the Company’s interim President and
Chief Executive Officer. Due to the fact that the Company is
searching for a permanent Chief Executive Officer, it was
determined that it was not necessary for the Company to enter into
a severance agreement with Mr. Marz.
(4)
Calculated by
multiplying the number of shares underlying unexercisable options
the exercisability of which is accelerated, and the exercise price
of which is less than such closing price, by $4.68, the closing
price of the Common Stock on the NASDAQ Global Market on June 30,
2016, less the exercise price of such option. The exercise prices
of the stock options held by the executive are in excess of the
closing price of the Common Stock on June 30, 2016.
(5)
Calculated by
multiplying the number of unearned shares of restricted stock the
vesting of which is accelerated, by $4.68, the closing price of the
Common Stock on the NASDAQ Global Market on June 30,
2016.
(6)
Mr. Armstrong
resigned from the Company on January 26, 2016 as President and
Chief Executive Officer. In connection with his resignation, he
received continuation of payment of his annual base salary,
continuation of Company-provided health, welfare and automobile
benefits for twelve months.
(7)
Mr. Chung’s
employment with the Company as Senior Vice President and Chief
Technology Officer terminated on March 2, 2016. Mr. Chung was not
eligible to receive any payments under a severance agreement nor
acceleration of the vesting of any stock options or stock awards
upon termination of his employment. Based on negotiations, on
August 5, 2016, the Company paid Mr. Chung $45,000 to settle all
claims made by Mr. Chung following the termination of his
employment with the Company and release him from certain provisions
of his executive non-compete agreement.
RELATED PARTY
TRANSACTIONS
Although we do not
have a written policy with regard to the approval of transactions
between the Company and its executive officers and directors, such
transactions are subject to the limitations on conflicts of
interest contained in the Company’s Code of Ethics and are
generally discouraged by the Company. To the extent any such
transactions are proposed, they would be subject to approval by the
Audit Committee of the Board of Directors in accordance with the
Audit Committee’s charter, applicable law and the NASDAQ
Marketplace Rules, which require that any such transactions
required to be disclosed in our proxy statement be approved by a
committee of independent directors of our Board of
Directors.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Policy for
Pre-Approval of Audit and Non-Audit Services
The
Audit Committee has adopted a policy regarding audit and non-audit
services that may be provided by our independent registered public
accounting firm. The policy sets forth the procedures and
conditions pursuant to which services proposed to be performed by
the independent registered public accounting firm must be
pre-approved. The policy provides that the Audit Committee will
consider whether services to be performed by the independent
registered public accounting firm are consistent with the
SEC’s rules on auditor independence. In particular, the
policy expressly names all services the independent registered
public accounting firm may not perform and, in the case of other
services, requires the Audit Committee to consider whether the
independent registered public accounting firm is the best
positioned to provide the most effective and efficient
service.
The
policy provides that the Audit Committee will review and
pre-approve annually, and periodically thereafter as required, the
services proposed to be provided by the independent registered
public accounting firm in the categories of audit services, audit
related services, tax services and all other services. In addition,
the Audit Committee is to determine the appropriate ratio of audit,
audit related and tax services to all other services. The Audit
Committee has delegated to the chairman of the Audit Committee and,
if he or she is unavailable, another member of the Audit Committee,
authority to pre-approve audit and non-audit services proposed to
be performed by the independent registered public accounting firm
not previously approved by the Audit Committee. Under the policy,
the Audit Committee is to be informed on a timely basis of services
actually rendered by the independent registered public accounting
firm, including those pre-approved by a member of the Audit
Committee. The Chief Financial Officer of the Company is to
immediately report to the Chairman of the Audit Committee any
breach of the policy.
All of
the services described below under audit fees, audit-related fees,
tax fees and all other fees arising in fiscal 2016 and 2015 were
approved by the Audit Committee pursuant to its pre-approval
policies and procedures prior to the service being provided. None
of the audit-related fees or tax fees described below arising in
fiscal 2016 and 2015 were approved by the Audit Committee after the
initiation of such services pursuant to an exemption from the
SEC’s requirements relating to approval of these types of
services by the Audit Committee prior to the provision of the
service under Section 2.01(c)(7)(i)(C) of SEC Regulation
S-X.
Fees Paid to
Independent Registered Public Accounting Firm
Audit Fees
. The aggregate fees and
expenses billed by BDO for professional services rendered for the
audit of our annual consolidated financial statements and internal
controls over financial reporting, reviews of the quarterly
consolidated financial statements included in our Forms 10-Q and
audit services provided in connection with other regulatory filings
were $466,437 in fiscal 2016 and $429,304 in fiscal
2015.
Audit-Related Fees
. BDO did not render
any audit-related services to the Company in fiscal 2016 or fiscal
2015.
Tax Fees
. BDO did not render any tax
related services to the Company in fiscal 2016 or
2015.
All Other Fees
. BDO did not render any
other services for the Company in fiscal 2016 or fiscal
2015.
The
Audit Committee of the Board does not consider the provision of the
services described above by BDO to be incompatible with the
maintenance of BDO’s independence.
SHAREHOLDER
PROPOSALS AND NOMINEES FOR 2017 ANNUAL MEETING
Shareholder
Proposals
Shareholder
proposals intended to be presented at the 2017 annual meeting which
are eligible for inclusion in our proxy statement for that meeting
under Rule 14a-8 promulgated under the Exchange Act, must be
received by the Secretary of the Company at 47827 Halyard Drive,
Plymouth, MI 48170-2461, no later than June 1, 2017 in order to be
considered for inclusion in our proxy statement relating to that
meeting. In order to curtail controversy as to the date on which a
proposal was received by us, it is suggested that proposals be
submitted by certified mail, return receipt requested.
Our
Bylaws provide that, in order for shareholder proposals to be
properly brought before the 2017 annual meeting, written notice of
such proposal, along with the information required by Article I,
Section 10 of our Bylaws, must be received by the Secretary of the
Company at our principal executive offices no earlier than the
close of business on August 12, 2017 and no later than September
11, 2017. If the annual meeting is advanced by more than 30 days or
delayed by more than 70 days from the anniversary date of the 2016
annual meeting, the notice must be delivered not earlier than the
close of business on the 90th day prior to the 2017 annual meeting
and not later than the close of business on the 60th day prior to
the 2017 annual meeting or, if later, the 10th day following the
day on which a public announcement of the date of the 2017 annual
meeting is first made by the Company.
We
expect the persons named as proxies for the 2017 annual meeting to
use their discretionary voting authority, to the extent permitted
by law, with respect to any proposal considered untimely at the
2017 annual meeting.
Only
persons who are shareholders, both as of the giving of notice and
the date of the shareholder meeting, and who are eligible to vote
at the shareholder meeting are eligible to propose business to be
brought before a shareholder meeting. The proposing shareholder (or
his qualified representative) must attend the shareholder meeting
in person and present the proposed business in order for the
proposed business to be considered.
Shareholder
Nominees
Shareholders
desiring to recommend candidates for consideration and evaluation
by the Nominating and Corporate Governance Committee for the 2017
annual meeting should submit such recommendations in writing to the
Nominating and Corporate Governance Committee, c/o Assistant
Secretary, Perceptron, Inc., 47827 Halyard Drive, Plymouth, MI
48170-2461 no later than May 2, 2017. The recommendation should be
accompanied by the following: (i) the name, address, e-mail address
(if any), and telephone number of the shareholder, the number of
shares of the Common Stock beneficially owned by the shareholder
and proof of the shareholder’s beneficial ownership of the
Common Stock by one of the means set forth in Rule 14a-8(b)(2)
promulgated under the Exchange Act; (ii) the name, address, e-mail
address (if any) and telephone number of the proposed nominee and
the number of shares of the Common Stock beneficially owned by the
nominee; (iii) a detailed description of the proposed
nominee’s business, professional, public, academic,
scientific or technological experience and other qualifications for
Board membership, including the name and address of other
businesses for which the proposed nominee has provided services, or
for which he or she has served as a director, in the last five
years, a description of the proposed nominee’s specific
experience in such position and the proposed nominee’s
academic achievements; (iv) a description of any potential
conflicts between the interests of the Company and its shareholders
and the proposed nominee; (v) a written agreement by the proposed
nominee to serve as a member of the Company’s Board if
nominated and elected; and (vi) a written representation by the
shareholder and the proposed nominee that the proposed nominee is
not an affiliate or affiliated party with respect to the
shareholder. The Assistant Secretary will forward any
recommendations to the Nominating and Corporate Governance
Committee. The nominating shareholder and proposed nominee may be
requested to provide additional information regarding the
shareholder or the proposed nominee and to attend one or more
interviews, in each case, as requested by the Board or Nominating
and Corporate Governance Committee.
Shareholders
proposing director nominees at the 2017 annual meeting of
shareholders must provide written notice of such intention, along
with the other information required by Article 1, Section 10 of our
Bylaws, to the Secretary of the Company at our principal executive
offices no earlier than the close of business on August 12, 2017
and no later than September 11, 2017. If the annual meeting is
advanced by more than 30 days or delayed by more than 70 days from
the anniversary date of the 2016 annual meeting, the notice must be
delivered not earlier than the close of business on the 90th day
prior to the 2017 annual meeting and not later than the close of
business on the 60th day prior to the 2017 annual meeting or, if
later, the 10th day following the day on which a public
announcement of the date of the 2017 annual meeting is first made
by the Company. Notwithstanding the foregoing, if the number of
directors to be elected is increased and there is no public
disclosure regarding such increase or naming all of the nominees
for director at least 70 days prior to the first anniversary of the
prior year’s annual meeting, then shareholder notice with
regard to nomination of directors shall be considered timely if
received by the Secretary of the Company no later than the 10th day
following public disclosure of the increase in the number of
directors to be elected. A proponent must also update the
information provided in or with the notice at the times specified
by our Bylaws. Nomination notices which do not contain the
information required by our Bylaws or which are not delivered in
compliance with the procedure set forth in our Bylaws will not be
considered at the shareholder meeting.
Only
persons who are shareholders both as of the giving of notice and
the date of the shareholder meeting and who are eligible to vote at
the shareholder meeting are eligible to nominate directors. The
nominating shareholder (or his qualified representative) must
attend the shareholder meeting in person and present the proposed
nominee in order for the proposed nominee to be
considered.
See
“Corporate Governance – Board Leadership Structure and
Board and Committee Information – Nominating and Corporate
Governance Committee” for a description of the standards used
by the Nominating and Corporate Governance Committee to evaluate
candidates recommended by shareholders.
OTHER
MATTERS
At the
date of this Proxy Statement, the Board is not aware of any matters
to be presented for action at the Annual Meeting other than those
described above. However, if any other matters requiring a
shareholder vote properly come before the meeting, it is the
intention of the persons named in the accompanying proxy to vote
such proxy in accordance with their best judgment, to the extent
permitted by law, on such matters.
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