|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Name of Beneficial Owner
|
|
Number of
Shares
|
|
Percent of
Class(1)
|
|
Geoffrey S. M. Hedrick(2)
|
|
|
3,535,567
|
|
|
21.0
|
%
|
Shahram Askarpour(3)
|
|
|
539,500
|
|
|
3.2
|
%
|
Robert E. Mittelstaedt, Jr.
|
|
|
210,281
|
|
|
1.2
|
%
|
Winston J. Churchill(4)
|
|
|
141,977
|
|
|
*
|
|
Robert H. Rau(5)
|
|
|
101,748
|
|
|
*
|
|
Glen R. Bressner
|
|
|
109,676
|
|
|
*
|
|
Roger A. Carolin(6)
|
|
|
21,673
|
|
|
*
|
|
Relland M. Winand
|
|
|
|
|
|
*
|
|
All executive officers and directors as a group (8 persons)
|
|
|
4,660,422
|
|
|
27.7
|
%
|
-
*
-
Less
than 1%.
-
(1)
-
As
used in this table, beneficial ownership means the sole or shared power to vote or direct the voting of a security, or the sole or shared investment power with
respect to a security (i.e., the power to dispose, or direct the disposition, of a security). A person is deemed as of any date to have beneficial ownership of any security that such person has
the right to acquire within 60 days after such date. Percentage ownership is based upon 16,840,599 shares of common stock outstanding as of February 1, 2018.
-
(2)
-
Includes
408 shares owned by Mr. Hedrick's spouse.
-
(3)
-
Includes
2,000 common shares owned beneficially by Dr. Askarpour, 535,000 common shares which Dr. Askarpour has the right to acquire pursuant to vested
stock options as of February 1, 2018, and 2,000 common shares owned by Dr. Askarpour's wife.
-
(4)
-
Includes
28,808 shares owned by CIP Capital LP. Mr. Churchill is chairman of the board of CIP Management, Inc., the general partner of CIP
Capital LP.
-
(5)
-
Includes
47,198 shares owned by a family trust of Mr. Rau.
-
(6)
-
Shares
are held jointly with Mr. Carolin's wife.
5
Table of Contents
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about ISS common stock that may be issued upon the exercise of options and rights under all of the
Company's existing equity compensation plans and arrangements as of September 30, 2017, including the 1998 Stock Option Plan (the "1998 Plan"), and the 2009 Stock-Based Incentive Compensation
Plan (the "2009 Plan").
|
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of securities
to be issued upon
exercise of outstanding
options, warrants, and rights
|
|
Weighted-average
exercise price of
outstanding options,
warrants, and rights
|
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in second column)
|
|
Equity compensation plans approved by security holders
|
|
|
586,834
|
|
$
|
3.47
|
|
|
259,598
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
586,834
|
|
$
|
3.47
|
|
|
259,598
|
|
In
the fiscal years ended September 30, 2017, 2016, and 2015, awards issued to non-employee directors under the Company's existing equity compensation plan and arrangements were
67,115, 56,376 and 21,640, shares, respectively.
2009 Stock-Based Incentive Compensation Plan
The Company's 2009 Plan was approved by the Company's shareholders at the Company's Annual Meeting of Shareholders held on March 12,
2009. The 2009 Plan authorizes the grant of stock appreciation rights, restricted stock, options, and other equity-based awards (collectively referred to as "Awards"). Options granted under the 2009
Plan may be either "incentive stock options", as defined in section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or nonqualified stock options, as determined by the
Compensation Committee of the Company's Board of Directors (the "Compensation Committee").
Subject
to an adjustment necessary upon a stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or
share exchange, extraordinary or unusual cash distribution, or similar corporate transaction or event, the maximum number of shares of common stock available for awards under the 2009 Plan is
1,200,000, all of which may be issued pursuant to Awards of incentive stock options or nonqualified stock options. In addition, the 2009 Plan provides that no more than 300,000 shares may be awarded
in any calendar year to any employee as a performance-based award under Section 162(m) of the Code. As of September 30, 2017, there were 259,598 shares of common stock available for
Awards under the 2009 Plan.
If
any Award is forfeited, or if any option terminates, expires, or lapses without being exercised, the related shares of common stock subject to such Award will again be available for
future grant. Any shares tendered by a participant in payment of the exercise price of an option or the tax liability with respect to an Award (including, in any case, shares withheld from any such
Award) will not be available for future grant under the 2009 Plan. If there is any change in the Company's corporate capitalization, the Compensation Committee must proportionately and equitably
adjust the number and kind of shares of common stock which may be issued in connection with future Awards, the number and type of shares of common stock covered by Awards then outstanding under the
2009 Plan, the number and type of shares of common stock available under the 2009 Plan, the exercise or grant price of any Award, or if deemed appropriate, make provision for a cash payment with
respect to any outstanding Award, provided that no adjustment may be made that would adversely affect the status of any Award that is intended to qualify for an exemption from the deductibility
limitation under Section 162(m) of the Code, unless otherwise determined by the Compensation Committee. In addition, the
6
Table of Contents
Compensation
Committee may make adjustments in the terms and conditions of any Awards, including any performance goals, in recognition of unusual or nonrecurring events affecting the Company or any
subsidiary, or in response to changes in applicable laws, regulations, or accounting principles, provided that no adjustment may be made that would adversely affect the status of any Award that is
intended to qualify for an exemption from the deductibility limitation under Section 162(m) of the Code, unless otherwise determined by the Compensation Committee.
The
2009 Plan will terminate on March 12, 2019, unless earlier terminated by the Board. Termination will not affect Awards outstanding at the time of termination. The Board may
amend, alter, suspend, discontinue, or terminate the 2009 Plan without shareholder approval, provided that shareholder approval is required for any amendment which (i) would increase the number
of shares subject to the 2009 Plan; (ii) would decrease the price at which Awards may be granted; or (iii) would require shareholder approval by law, regulation, or the rules of any
stock exchange or automated quotation system.
1998 Stock Option Plan
The Company's 1998 Plan was adopted in order to recognize the contributions made by the Company's employees, directors, consultants, and
advisors, to provide such persons with additional incentives to devote their efforts to the Company's future success and to improve the Company's ability to attract, retain, and motivate individuals
through the receipt of Company stock options. The maximum number of shares of the Company's common stock available under the 1998 Plan was 3,389,025 (after giving effect to stock splits). The 1998
Plan authorized the grant of "incentive stock options" (within the meaning of Section 422 of the Code) and non-qualified stock options, such options to vest and become exercisable as specified
in separate written agreements between the Company and the option recipient. Unless otherwise specified in such agreement, all outstanding options become fully vested and exercisable upon a change in
control. The 1998 Plan expired on November 13, 2008; therefore, no further options can be awarded under the 1998 Plan.
7
Table of Contents
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's officers (as defined under
Section 16(a) of the Exchange Act), directors, and persons who own greater than 10% of a registered class of the Company's equity securities to file reports of ownership and changes in
ownership with the SEC. Based solely on a review of the forms the Company has received and on written representations from certain reporting persons that no such forms were required for them, the
Company believes that during the fiscal year ended September 30, 2017, the officers, directors, and 10% beneficial owners of the Company complied with all of the applicable filing requirements
of Section 16(a) of the Exchange Act, except that on January 18, 2017, a late Form 4 was filed on behalf of Mr. Bressner reporting a grant of 14,234 restricted stock units
to Mr. Bressner on January 2, 2017.
8
Table of Contents
AMENDMENT TO AMENDED & RESTATED BYLAWS
(Item 1 on Proxy Card)
BACKGROUND OF THE PROPOSAL
The Company's Amended & Restated Bylaws (the "Bylaws") currently provide for a classified Board of Directors divided into three classes,
with each class being elected for a three-year term. On February 15, 2018, the Board approved, and recommended that the shareholders approve, an amendment (the "Bylaws Amendment") to the Bylaws
to declassify the Board and provide for the annual election of directors, effective at the 2018 Annual Meeting.
PROPOSED AMENDMENT TO SECTION 3-1 OF THE BYLAWS
After careful consideration, the Board has determined that it is advisable and in the best interests of the Company and its shareholders to
declassify the Board to allow the Company shareholders to vote on the election of directors generally on an annual basis, rather than on a staggered basis.
The
Board carefully considered the advantages and disadvantages of the current classified structure. In reaching its determination to propose the declassification of the Board, it
concluded that the benefits of a classified structure, including maintaining continuity of experience and encouraging a person seeking control of the Company to initiate arm's length discussions with
management and the Board, were outweighed by the following considerations:
-
-
The Board's belief that providing the Company shareholders with the opportunity to annually register their views on the collective performance
of the Board and on each director individually will further the Company's goal of ensuring that its corporate governance policies conform to best practices and maximize accountability to the
shareholders;
-
-
Discussions with certain of Company shareholders who prefer the annual election of directors; and
-
-
The growing sentiment among the investment community in favor of the annual election of directors.
If
the Bylaws Amendment is adopted by the Company shareholders, beginning at the 2018 Annual Meeting and at each annual meeting of shareholders thereafter, all directors scheduled to
stand for election will be eligible to serve a one-year term expiring at the subsequent annual meeting of shareholders.
If
the Bylaws Amendment is not adopted by the Company shareholders, the Board will remain classified and the current Class III directors standing for election at the 2018 Annual
Meeting will be eligible to serve a three-year term expiring at the 2021 annual meeting of shareholders.
TEXT OF THE PROPOSED AMENDMENT
The text of the proposed Bylaws Amendment is as follows:
(a)
General Powers.
Except as otherwise provided by law and these Bylaws, all powers of the Corporation shall be
exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of the Board of Directors. Unless the Pennsylvania BCL permits otherwise,
this Section 3-1(a) may be modified only by a Bylaw amendment adopted by the shareholders.
(b)
Number.
The number of members of the Board of Directors shall be the number of Directors serving at the time
of adoption of this Section 3-1, or such other number as may thereafter
9
Table of Contents
from
time to time (i) be determined by the Board of Directors, or (ii) be set forth in a notice of a meeting of shareholders called for the election of a full Board of Directors;
provided, that if such notice contemplates a change in the size of the Board of Directors, such change shall take effect as of the time the election called for by the notice is held.
(c)
Election.
Except as provided in Section 3.1(d) of these Bylaws, each Director shall hold office until
the next annual meeting of shareholders and until such Director's successor is elected and qualified or until such Director's earlier death, resignation or removal.
(d)
Term; Vacancies.
Each Director shall hold office until the expiration of the term for which he was elected
and until his successor has been elected and qualified or until his earlier death, resignation or removal. Any vacancies on the Board of Directors, including vacancies resulting from an increase in
the number of Directors, may be filled by a majority vote of the remaining members of the Board of Directors (though less than a quorum) or by a sole remaining Director or by the shareholders. A
director elected by the Board of Directors to fill a vacancy on the Board of Directors shall be elected for an initial term expiring at the next annual meeting of shareholders. If that Director is
re-elected by the shareholders at such annual meeting, the Director shall then serve for a term expiring at the annual meeting when the term of a Director would naturally expire.
(e)
Qualification.
A Director must be a natural person at least 18 years of age.
Effective
Date of Amendment. This amendment shall become effective on the date that the Bylaws Amendment is approved by the vote of shareholders entitled to cast at least a majority of
the votes which all shareholders are entitled to cast thereon.
BOARD RECOMMENDATION
The Board of Directors recommends voting "FOR" the approval of the Bylaws Amendment.
REQUIRED VOTE
Proposal 1 will only be approved if it is approved by the vote of shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast thereon.
10
Table of Contents
ELECTION OF DIRECTORS
(Item 2 on Proxy Card)
As described in Proposal 1, on February 15, 2018, the Board approved, and recommended that the shareholders approve, an amendment to the
Company's Amended and Restated Bylaws (as amended, the "
Bylaws
") to declassify the Board, effective at the 2018 Annual Meeting. If the Company
shareholders approve Proposal 1 at the Annual Meeting, the shareholders will elect six (6) directors to hold office until the annual meeting of shareholders in 2019, or until their respective
successors have been duly elected and qualified. If the Company shareholders do not approve Proposal 1, this Proposal 2 will not be submitted to a vote of the shareholders at the Annual
Meeting, and instead, Proposal 3 (Election of Class III Directors) will be submitted in its place.
Upon
the recommendation of the Nominating & Corporate Governance Committee of the Board (the "Nominating & Corporate Governance Committee"), the Board has nominated
Messrs. Geoffrey S. M.
Hedrick, Winston J. Churchill, Robert H. Rau, Roger A. Carolin, Robert E. Mittelstaedt, Jr. and Glen R. Bressner to serve as directors. Each of the foregoing persons
currently serves as a director, and each has indicated a willingness to continue to serve as a director; and
Unless
contrary instructions are given, the shares represented by a properly executed proxy will be voted "
FOR
" the elections of each of
the nominees. Shareholders must cast a separate vote
"FOR"
the candidacy of each nominee or to
"WITHHOLD
AUTHORITY"
with respect thereto. Each nominee must receive a majority of the votes cast to be elected. Should either nominee become unavailable to accept election as a
director, the persons named in the enclosed proxy will vote the shares that they represent for the election of such other person as the Board may recommend.
The Board of
Directors recommends voting "FOR" the nominees for directors.
11
Table of Contents
ELECTION OF CLASS III DIRECTORS
(Item 3 on Proxy Card)
Shareholders will be asked to vote on this Proposal 3 solely in the event that, at the Annual Meeting, the shareholders do not approve the
adoption of the amendment to the Company's Amended and Restated Bylaws to declassify the Board, effective at the 2018 Annual Meeting, as described in Proposal 1. If the shareholders approve Proposal
1, then the Company will amend its Bylaws to eliminate the classified Board and the shareholders will proceed to vote on Proposal 2, and not this Proposal 3. If, however, the shareholders do not
approve Proposal 1, a vote will be taken on this Proposal 3.
If
the shareholders do not approve Proposal 1, the shareholders will elect two Class III directors to hold office until the annual meeting of shareholders in 2021, or until their
respective successors have been duly elected and qualified. If the shareholders do not approve Proposal 1, the Board will continue to be divided into three classes serving staggered three-year terms,
the term of one class of directors to expire each year. The current term of the Class III directors expires at the Annual Meeting.
Upon
the recommendation of the Nominating & Corporate Governance Committee, the Board has nominated Mr. Geoffrey S. M. Hedrick and Mr. Winston J.
Churchill to serve as Class III directors.
Mr. Hedrick and Mr. Churchill serve presently as Class III directors, and each has indicated a willingness to continue to serve as a director.
Unless
contrary instructions are given, the shares represented by a properly executed proxy will be voted "FOR" the elections of Mr. Hedrick and Mr. Churchill. Shareholders
must cast a separate vote
"FOR"
the candidacy of each nominee or to
"WITHHOLD AUTHORITY"
with respect
thereto. Each nominee must receive a majority of the votes cast to be elected. Should either nominee become unavailable to accept election as a director, the persons named in the enclosed proxy will
vote the shares that they represent for the election of such other person as the Board may recommend.
The Board of Directors recommends voting "FOR" the nominees for
Class III directors.
12
Table of Contents
DIRECTORS AND NOMINEES
The members of the Board as of the date of the Annual Meeting, including the nominees for directors standing for election at this meeting,
regardless of if Proposal 1 is approved, together with certain information about them, are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Director
Since
|
|
Current
Term Expires
|
|
Positions with the Company
|
Geoffrey S. M. Hedrick
|
|
|
75
|
|
|
1988
|
|
|
2018
|
|
Director, Chairman of the Board, Chief Executive Officer
|
Winston J. Churchill
|
|
|
77
|
|
|
1990
|
|
|
2018
|
|
Director
|
Robert H. Rau
|
|
|
81
|
|
|
2001
|
|
|
2019
|
|
Director
|
Roger A. Carolin
|
|
|
62
|
|
|
2016
|
|
|
2019
|
|
Director
|
Robert E. Mittelstaedt, Jr.
|
|
|
74
|
|
|
1989
|
|
|
2020
|
|
Director
|
Glen R. Bressner
|
|
|
57
|
|
|
1999
|
|
|
2020
|
|
Director, Vice-Chairman of the Board
|
Directors and Nominees
Geoffrey S. M. Hedrick.
Mr. Hedrick founded the Company in February 1988 and has been Chairman of the Board since 1997.
Mr. Hedrick
resigned from his position as Chief Executive Officer of the Company on November 30, 2007, but continued as Chairman of the Board. He reassumed his former duties as Chief Executive Officer on
September 8, 2008. Prior to founding the Company, Mr. Hedrick served as President and Chief Executive Officer of Smiths Industries, North American Aerospace Companies. He also founded
Harowe Systems, Inc. in 1971, which was acquired subsequently by Smiths Industries plc. Mr. Hedrick has over 45 years of experience in the avionics industry, and he holds a
number of patents in the electronics, optoelectric, electromagnetic, aerospace and contamination-control fields.
Winston J. Churchill.
Mr. Churchill has been managing general partner of SCP Partners since he founded it in 1996, and has over
35 years of experience in private equity investing. He formed Churchill Investment Partners, Inc. in 1989 and CIP Capital, L.P., another venture capital fund, in 1990. Prior to
that, he was a managing partner of a private investment firm that specialized in leveraged buyouts on behalf of Bessemer Securities Corporation. From 1967 to 1983, he practiced law at the Philadelphia
firm of Saul, Ewing LLP and served as Chairman of its Banking and Financial Institutions Department, Chairman of the Finance Committee, and a member of its Executive Committee. He is a director
of a number of public companies including Amkor Technology, Inc., Recro Pharma, Inc., and formerly of Griffin Industrial, as well as a number of private companies. From 1989 to 1993, he
served as Chairman of the Finance Committee of the Pennsylvania Public School Employees' Retirement System. He is currently a Trustee Fellow of Fordham University, Chairman of Young Scholars Charter
School, Vice-Chair of The Gesu School, and a trustee of American Friends of New College Oxford, England; for many years, he was also a trustee of Georgetown University, where he chaired the Committee
on Medical Affairs. He earned a Bachelor of Science in Physics, summa cum laude, from Fordham University, a Master of Arts in Economics from Oxford University, where he studied as a Rhodes Scholar,
and a Juris Doctor from Yale Law School.
Robert H. Rau.
Mr. Rau retired on December 31, 1998 as President of the Aerostructures Group of The Goodrich Company. Prior
to its
merger with The Goodrich Company, from 1993 to 1997, Mr. Rau was
President and Chief Executive Officer of Rohr, Inc. Before joining Rohr, he was an Executive Vice President of Parker Hannifin Corporation and President of its Aerospace Sector. In addition,
Mr. Rau is a past member of the Board of Governors of the Aerospace Industries Association and a past Chairman of the General Aviation Manufacturers Association. Mr. Rau received a
Bachelor of Arts degree in Business Administration from Whittier College in 1962.
13
Table of Contents
Roger A. Carolin.
Mr. Carolin is currently a Venture Partner at SCP Partners, a multi-stage venture capital firm that invests in
technology-oriented companies, a position he has held since 2004. Mr. Carolin works to identify attractive investment opportunities and assists portfolio companies in the areas of strategy
development, operating management, and intellectual property. Mr. Carolin co-founded CFM Technologies, Inc., a global manufacturer of semiconductor process equipment, and served as its
Chief Executive Officer for 10 years, until the company was acquired. Mr. Carolin formerly worked for Honeywell, Inc. and General Electric Co., where he developed test
equipment and advanced computer systems for on-board missile applications. Mr. Carolin is also a director of Amkor Technology (NASDAQ: AMKR), a supplier of outsourced semiconductor assembly and
test services. Mr. Carolin holds a B.S. in Electrical Engineering from Duke University and an M.B.A. from the Harvard Business School
Robert E. Mittelstaedt, Jr.
Mr. Mittelstaedt served as Non-Executive Chairman of the Board of Directors of the Company from 1989 to
1997.
Mr. Mittelstaedt is Dean Emeritus of the W. P. Carey School of Business at Arizona State University where he served as Dean and Professor of Management from 2004 to 2013. Prior to that,
Mr. Mittelstaedt was Vice Dean of The Wharton School of the University of Pennsylvania since 1989. Mr. Mittelstaedt also serves on the Board of Directors of Laboratory Corporation of
America Holdings, Inc. and previously served on the Board of Directors of W. P. Carey, Inc. Mr. Mittelstaedt holds a Bachelor of Science degree in Mechanical Engineering from
Tulane University and a Masters of Business Administration degree from The Wharton School of the University of Pennsylvania.
Glen R. Bressner.
Mr. Bressner is Managing Partner of Originate Ventures, which he co-founded in 2008. He is also a shareholder
and a director
on the board of Alum-a-Lift, Inc., a family-owned manufacturer of material handling solutions. He has also been a Managing Partner of Mid Atlantic Venture Funds since 1985. From 1996 to 1997,
Mr. Bressner served as the Chairman of the Board of the Greater Philadelphia Venture Group. Mr. Bressner holds a Bachelor of Science, cum laude, in Business Administration from Boston
University and a Masters of Business Administration degree from Babson College.
Director Qualifications
The Board believes that each of the directors and the nominees for director listed above have the sound character, integrity, judgment, and
record of achievement necessary to be a member of the Board. In addition, each of the directors and the nominees for director have exhibited, during their prior service as directors, the ability to
operate cohesively with the other members of the Board, and to challenge and question management in a constructive way. Moreover, the Board believes that each director and the nominees for director
bring a strong and unique background and skillset to the Board, giving the Board, as a whole, competence and experience in diverse areas, including corporate governance and board service, finance,
management, and aviation. Set forth below are certain specific experiences, qualifications, and skills that led to the Board's conclusion that each of the directors and the nominees for director
listed above should continue to serve as a directors.
Mr. Hedrick,
as founder and Chief Executive Officer of the Company, provides the Board with a comprehensive knowledge of the Company, its history, and its businesses. In addition,
Mr. Hedrick brings the Board his insight into the aviation industry from over 45 years of leadership experience in executive positions in aviation companies, including Smith
Industries plc and Harowe Systems, Inc.
Mr. Churchill
brings the Board over 35 years of experience in private equity investing, during which he gained valuable insight into effective management of investments.
Mr. Churchill utilizes this insight to advise the Board on financial and investment matters. In addition, Mr. Churchill has extensive experience serving on the boards of directors of
other companies, both public and private. Mr. Churchill draws on his financial and corporate governance experience in his service on the
14
Table of Contents
Investment
Committee of the Board (the "Investment Committee") (as Chairman), the Nominating & Corporate Governance Committee, and the Audit Committee of the Board (the "Audit Committee"). In
addition, Mr. Churchill has maintained a pilot's license for twelve years and has Instrument and Multi-Engine ratings. Consequently, he brings the Board operational experience with state of the
art avionics.
Mr. Rau
brings the Board extensive experience in leadership positions with companies in the aviation industry. From this experience, he has gained in-depth knowledge of the
operational issues facing companies in the aviation industry, which he utilizes in advising the Board and serving on the
Compensation Committee (as Chairman), the Audit Committee, and the Investment Committee. Mr. Rau's prior service on the Board of Governors of the Aerospace Industries Association and as
Chairman of both the General Aviation Manufacturers Association and the International Advisory Panel of Singapore Aerospace has provided him with a unique perspective on the issues facing the aviation
industry as a whole, which he draws upon in his service on the Board.
Mr. Carolin
has over a decade of experience in private equity investing, previously worked in advanced computer systems and on-board missile applications, and has a significant
understanding the Company's industry and its business. He possesses specific knowledge and experience in technology, new business opportunities, operations, management, and finance, all of which are
relevant and important to the Company's business.
Mr. Mittelstaedt,
having served as the Non-Executive Chairman of the Board for nine years, provides the Board with a comprehensive knowledge of the Company and its history. He was
CEO of an IT firm that he co-founded, built, and sold in the 1980s. In addition, Mr. Mittelstaedt has extensive academic business experience, having served as Dean of the W. P. Carey School of
Business at Arizona State University and Vice Dean at The Wharton School of the University of Pennsylvania. This experience has exposed Mr. Mittelstaedt to contemporary business strategies and
practices, which he draws from in his service on the Board. Mr. Mittelstaedt's experience on various other boards of directors provides him with insight into corporate governance, which he
utilizes in his service on the Nominating & Corporate Governance Committee (as Chairman) and the Compensation Committee. Additionally, Mr. Mittelstaedt has been an active pilot for over
50 years and holds a FAA Commercial Pilot Certificate with Multi-Engine and Instrument ratings. Consequently, he brings to the Board operational experience with state of the art avionics.
Mr. Bressner
brings the Board a wealth of experience managing financial investments from his service at venture capital firms. Mr. Bressner provides the Board with a
thorough understanding of capital markets and other financial issues. Mr. Bressner's experience in managing investments also provides him with extensive finance and accounting knowledge, and he
applies this expertise in his service on the Audit Committee (as Chairman), the Investment Committee, and the Nominating & Corporate Governance Committee. Mr. Bressner's prior service as
Chairman of the Board of Directors of the Greater Philadelphia Venture Group and on numerous other boards of directors, including of several public entities, provides him with valuable experience in
corporate governance matters.
15
Table of Contents
INDEPENDENCE
The Board has determined, in its business judgment, that five (5) of the Company's six (6) directors are independent as
defined in the applicable NASDAQ Stock Market, LLC ("NASDAQ") listing standards, including that each member is free of any relationships that would interfere with his individual exercise of
independent judgment. The following directors were determined to be independent: Glen R. Bressner, Winston J. Churchill, Robert E. Mittelstaedt, Jr., Roger A.
Carolin and Robert H. Rau (collectively, the "Independent Directors").
BOARD LEADERSHIP
The Board does not have a formal policy on whether the roles of Chief Executive Officer and Chairman of the Board should be separate. Currently,
Mr. Geoffrey S. M. Hedrick serves in both of these positions. The Board believes that it is in the best interests of the Company's shareholders to combine these offices as it promotes
information flow between management and the Board, effective decision making, and an alignment of corporate strategy. In addition, Mr. Glen R. Bressner, an Independent Director, serves as Vice
Chairman of the Board and as presiding director during executive sessions of Independent Directors. The Board believes that its structural features, including five independent directors on a board
currently consisting of six directors, regular meetings of Independent Directors in executive session, an independent Vice Chairman of the Board, and key committees consisting wholly of Independent
Directors, provide for substantial independent oversight of the Company's management. However, the Board recognizes that, depending on future circumstances, other leadership models may become more
appropriate. Accordingly, the Board will continue to review periodically its leadership structure.
RISK OVERSIGHT
The Company faces a number of risks, including technological and intellectual property risk, regulatory risk, credit risk, liquidity risk,
reputational risk, and risk from adverse fluctuations in interest rates. Management is responsible for the day-to-day management of risks faced by the Company, while the Board, as a whole and through
its committees, has responsibility for the oversight of risk management. In its risk oversight role, the Board seeks to ensure that the risk management processes designed and implemented by management
are adequate. The Board consults periodically with management regarding the Company's risks.
While
the Board is ultimately responsible for risk oversight, the Company's board committees assist the Board in fulfilling its oversight responsibilities in certain areas of risk. The
Audit Committee assists the Board in its oversight of risk management in the areas of financial reporting and internal controls. The Compensation Committee assists the Board in oversight of risks
related to the Company's compensation policies and programs. The Investment Committee assists the Board in oversight of the risks related to the Company's cash investments. The Nominating &
Corporate Governance Committee assists the Board in oversight of risk associated with board organization, membership and structure, succession planning for directors and executive officers, and
corporate governance.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board maintains four standing committees: Audit, Compensation, Investment, and Nominating & Corporate Governance.
Audit Committee.
The Audit Committee makes recommendations to the Board with respect to various auditing and accounting matters,
including the
selection and compensation of the Company's independent registered public accounting firm, the scope of the Company's annual audits, fees to be paid to the independent registered public accounting
firm, the performance and independence of the Company's independent registered public accounting firm, and the Company's accounting practices.
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The
Audit Committee approves all services provided to the Company by the independent registered public accounting firm. The Audit Committee has established procedures for the receipt,
retention, and treatment, on a confidential basis, of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous
submissions by employees of concerns regarding questionable accounting or auditing matters. In addition, the Audit Committee has responsibility for, among other things, the planning and review of the
Company's annual and periodic reports and accounts, and the involvement of the Company's independent registered public accounting firm in that process. The members of the Audit Committee are currently
Messrs. Bressner (Chairman), Rau and Churchill. The Audit Committee is comprised solely of independent members, as independence for audit committee members is defined by the applicable NASDAQ
listing standards. In addition, the Board has determined, in its business judgment, that each member of the Audit Committee is financially literate, and that at least one of the Audit Committee
members, Mr. Rau, is an audit committee financial expert, as defined by SEC rules and regulations. The Audit Committee has adopted a formal written charter that has been approved by the Board.
The charter specifies the scope of the Audit Committee's responsibilities and procedures for carrying out
such responsibilities. A copy of the charter is available on the Company's website, www.innovative-ss.com, under the heading Investor Relations.
Compensation Committee.
The members of the Compensation Committee are currently Messrs. Rau (Chairman) and Mittelstaedt, each of
whom, in the
judgment of the Board, was found to be "independent" as defined by the applicable NASDAQ listing standards. The Compensation Committee is responsible for setting and administering the policies that
govern all executive compensation decisions, including annual base salaries, bonuses, and equity-based compensation programs. The Compensation Committee evaluates annually the performance of the
Company's Chief Executive Officer and determines or recommends to the full Board the annual base salary, bonus, and equity-based compensation for the Chief Executive Officer. The Compensation
Committee relies on the recommendations of the Chief Executive Officer, following the Chief Executive Officer's annual performance reviews of other executive officers, in setting annual base salaries,
bonuses, and equity-based compensation for other executive officers.
The
Compensation Committee is responsible for reviewing and overseeing the Company's benefit plans, equity incentive plans, and other compensation plans and policies for employees,
consultants, directors, and other compensated individuals, including the Chief Executive Officer. The Compensation Committee has adopted a formal written charter that has been approved by the Board.
The charter specifies the scope of the Compensation Committee's responsibilities and procedures for carrying out such responsibilities. A copy of the charter is available on the Company's website,
www.innovative-ss.com under the heading "Investor Relations."
The
Compensation Committee has the authority under its charter to engage the services of outside consultants, advisors, and others to assist the Compensation Committee. However, the
Compensation Committee has not retained an outside consultant or advisor to advise it regarding the Company's compensation practices. Instead, the Compensation Committee independently determines the
appropriate levels of compensation for executive officers taking into account, among other factors, the performance of such individuals (as determined in annual reviews conducted by the Compensation
Committee for the Chief Executive Officer or by the Chief Executive Officer for the other executive officers), the Company's financial performance, cost of living, prior compensation practices, and
recruitment and retention needs. The Compensation Committee relies on the recommendations of the Company's Chief Executive Officer in determining whether and how much of a discretionary bonus may be
paid to the Company's employees (including executive officers other than the Chief Executive Officer) if the Company's financial performance exceeds the Board's expectations.
Compensation Committee Interlocks and Insider Participation.
No member of the Compensation Committee is a former or current executive
officer or
employee of the Company. There are no
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compensation
committee interlocks between the Company and any other entity involving the Company or such entity's executive officers or board members.
Investment Committee.
The Investment Committee assists the Board in fulfilling its oversight responsibilities with respect to
recommendations
pertaining to the investment of excess capital, including with respect to the implementation of the Company's stock repurchase program. Messrs. Churchill (Chairman), Bressner and Rau are
currently the members of the Investment Committee.
Nominating & Corporate Governance Committee.
The Company has a Nominating & Corporate Governance Committee,
consisting of three
non-employee directors. The Nominating & Corporate Governance Committee has adopted a formal written charter that has been approved by the Board. The charter specifies the scope of the
Nominating & Corporate Governance Committee's responsibilities and procedures for carrying out such responsibilities. A copy of the charter is available on the Company's website,
www.innovative-ss.com, under the heading "Investor Relations." The Nominating & Corporate Governance Committee members are currently Messrs. Mittelstaedt (Chairman), Churchill and
Bressner, each of whom, in the determination of the Board, is "independent," as defined by the applicable NASDAQ listing standards.
The
Nominating & Corporate Governance Committee functions include establishing the criteria for selecting candidates for nomination to the Board, seeking candidates who meet those
criteria, making recommendations to the Board of nominees to fill vacancies on or as additions to the Board, and monitoring the Company's corporate governance structure.
The
Nominating & Corporate Governance Committee seeks director candidates based upon a number of qualifications and criteria, including independence, knowledge, judgment,
character, leadership skills, education, experience, financial literacy, standing in the community, the ability to foster a diversity of backgrounds and views, and the ability to complement the
Board's existing strengths relative to the Company's business. In the case of potential independent director candidates, such eligibility criteria must be in accordance with SEC and NASDAQ rules.
While the Nominating & Corporate Governance Committee does not have a formal policy with regard to the consideration of diversity in indentifying director nominees, the Nominating &
Corporate Governance and the Board believe that it is essential that the Board be able to draw on a wide variety of backgrounds and professional experience among its members. The Nominating &
Corporate Governance Committee desires to maintain the Board's diversity through the consideration of factors such as education, skills, and relevant professional experience. The Nominating &
Corporate Governance Committee does not intend to nominate
representational directors, but instead, considers the entirety of each candidate's credentials in the context of these standards and the characteristics of the Board in its entirety.
The
Nominating & Corporate Governance Committee will consider nominees for election to the Board who are timely recommended by shareholders, provided that a complete description
of the nominees' qualifications, experience, and background, together with a statement signed by each nominee in which he or she consents to act as such, accompany the recommendations. Such
recommendations should be submitted in writing to the attention of Chairman, Nominating & Corporate Governance Committee, at the Company's address at 720 Pennsylvania Drive, Exton, PA, 19341,
and should not include self-nominations. Section 3.10 of the Company's Amended and Restated Bylaws contains provisions setting forth the requirements applicable to a shareholder nomination for
director. These requirements are summarized in this Proxy Statement under the caption "Shareholder Proposals for 2019 Annual Meeting And Other Matters."
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Each of the current nominees for director listed under the caption "ELECTION OF DIRECTORS" is an existing director standing for re-election. In connection with
the Annual Meeting, the Nominating & Corporate Governance Committee did not receive any recommendation for a candidate from any shareholder or group of shareholders owning more than 5% of the
Company's common stock.
The
Annual Meeting provides an opportunity each year for shareholders to ask questions of or otherwise communicate directly with members of the Company's Board on matters relevant to the
Company. Each director is requested to attend the Annual Meeting in person. All six of the Company's then-serving directors attended the Company's 2017 Annual Meeting of Shareholders.
In
addition, shareholders may communicate with the Board, or if applicable, to a specific individual director, by sending a written communication to the attention of the Board or such
individual director at the following address: 720 Pennsylvania Drive, Exton, PA, 19341, or by facsimile to (610) 646-0150.
Copies
of each written communication received at such address or facsimile number will be provided to the Board or to the specific individual director, unless such communication is
considered, in the reasonable judgment of the Corporate Secretary or other appropriate company officer, to be improper for submission to the intended recipient. Examples of shareholder communications
that would be considered improper for submission include, without limitation, customer complaints, solicitations, communications that do not relate directly or indirectly to the Company or the
Company's business, or communications that relate to improper or irrelevant topics.
The
Nominating & Corporate Governance Committee conducts an annual assessment of the size and composition of the Board and its committees and reviews with the Board the
appropriate skills and characteristics required of Board members. The Nominating & Corporate Governance Committee has not relied upon third-party search firms to identify board candidates, but
reserves the right to do so as required. To date, the Nominating & Corporate Governance Committee has relied upon recommendations from a wide variety of its business contacts, including current
executive officers, directors, community leaders, and shareholders as a source for potential board candidates.
Neither
the Nominating & Corporate Governance Committee nor the Company has engaged or paid any fees to a search firm in connection with the nomination of the directors for
election at the Annual Meeting covered by this Proxy Statement.
MEETINGS AND ATTENDANCE
During the fiscal year ended September 30, 2017, the full Board held four (4) meetings. From time to time during fiscal year 2017
the Board met in executive session without members of management present. The Audit Committee met eight (8) times, the Investment Committee met one (1) time, the Compensation Committee
met one (1) time and the Nominating & Corporate Governance Committees met one (1) time. All directors attended at least 75% of the meetings of the full Board and the meetings of
the committees on which they served.
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
(Item 4 on Proxy Card)
The Company has retained Grant Thornton LLP ("Grant Thornton") as the independent registered public accounting firm to audit the
Company's consolidated financial statements for the fiscal year ending September 30, 2018. Although action by the shareholders on these matters are not required, the Audit Committee and the
Board believe it is appropriate to seek shareholder
ratification of this selection in light of the role played by the independent registered public accounting firm in
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reporting
on the Company's consolidated financial statements. Ratification requires the affirmative vote of a majority of eligible shares present at the Annual Meeting, in person or by proxy, and
voting thereon. If this appointment is not ratified by the shareholders, the Audit Committee may reconsider its selection.
One
or more representatives of Grant Thornton are expected to attend the Annual Meeting. Representatives of Grant Thornton will have an opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions.
Principal Accountant Fees and Services
Services provided by Grant Thornton for the fiscal years ended September 30, 2017 and 2016 have included audits of the annual
consolidated financial statements of the Company, audits of the effectiveness of internal controls over financial reporting as required by the Sarbanes-Oxley Act of 2002, as amended
("Sarbanes-Oxley"), and other services related to filings made with the SEC. The aggregate fees billed by Grant Thornton in connection with services rendered during the fiscal years ended
September 30, 2017 and 2016, respectively, were:
|
|
|
|
|
|
|
|
|
|
FY 2017
|
|
FY2016
|
|
Audit Fees
|
|
$
|
360,180
|
|
$
|
343,539
|
|
Audit Related Fees
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
360,180
|
|
$
|
343,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fees
Audit fees for fiscal years 2017 and 2016 were for professional services rendered for the audit of the Company's annual consolidated financial
statements, auditing the effectiveness of the Company's internal controls over financial reporting, review of the interim consolidated financial statements included in quarterly reports, and services
that are normally provided by Grant Thornton in connection with statutory and regulatory filings or engagements.
Audit Related Fees
No audit-related fees were paid to Grant Thornton during fiscal years 2017 or 2016.
Tax-Related Fees
No tax-related fees were paid to Grant Thornton during fiscal years 2017 or 2016.
All Other Fees
No other fees were incurred in connection with services provided by Grant Thornton during fiscal years 2017 or 2016.
The Audit Committee's policy is to pre-approve the engagement of accountants to render all audit and tax-related services for the Company and
any changes to the terms of the engagement. The Audit Committee pre-approves all proposed non-audit related services to be provided by the Company's independent registered public accounting firm. The
Audit Committee reviews the terms of the engagement and a description of the services along with a fee proposal for the engagement. If agreed to by the Audit Committee, the Audit Committee formally
accepts the engagement letter and fee
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proposal.
Any proposal by the Company's independent registered public accounting firm for non-audit services must be specific as to the particular services to be provided. Management and the
independent registered public accounting firm must each confirm to the Committee that each proposed non-audit and non-audit related service is permissible under all applicable legal requirements.
Requests can be submitted to the Audit Committee and approved in one of the following ways: by a request for approval of services at a meeting of the Audit Committee, or through a written request to
the Audit Committee, which may be approved by a written consent by the Audit Committee or by a designated member of the Audit Committee. The Audit Committee approved all 2017 and 2016 fees paid to
Grant Thornton.
Pursuant
to the adoption of the Audit Committee Charter (as revised), the Board has adopted a policy which prohibits the Company from entering into non-audit related consulting
agreements for financial information systems design and implementation, for certain other services considered to have an impact on independence, and for all other services prohibited by Sarbanes-Oxley
and new SEC regulations. The policy also contains procedures requiring Audit Committee pre-approval of all audit and permitted non-audit services provided by the Company's independent registered
public accounting firm.
The Board of Directors recommends a vote "FOR" ratification of the appointment of Grant Thornton LLP as the Company's independent registered public
accounting firm.
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