GENERAL
INFORMATION
We
are providing these proxy materials in connection with the solicitation by our Board of Directors of proxies to be voted at our
2016 annual meeting of shareholders (“2016 Annual Meeting”) and at any adjournment or postponement of the meeting.
You are invited to attend the 2016 Annual Meeting, which will take place on October 18, 2016, beginning at 5:00 p.m., Eastern
Time, at the Company’s headquarters at 195 Clarksville Road, Princeton Junction, New Jersey 08550. See the back cover of
this proxy statement for directions. Shareholders will be admitted to the 2016 Annual Meeting beginning at 4:45 p.m., Eastern
Time. Seating will be limited.
The
terms “Mistras,” the “Company,” “we,” “our” and “us” mean Mistras
Group, Inc. and the term “Board” means our Board of Directors, unless the context indicates otherwise. We are incorporated
in the State of Delaware, our common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “MG”
and our fiscal year ends May 31. All references to a year or fiscal year means the one year period ending on May 31 of that year,
unless the context indicates otherwise.
Proxy
Solicitation.
The accompanying proxy is being solicited by our Board. The Notice of Annual Meeting and Notice of Internet
Availability of Proxy Materials are first being distributed to shareholders on or about September 7, 2016 (see
Internet
Availability of Proxy Materials
below
)
. In addition to this solicitation, employees of the Company may solicit
proxies in person or by telephone. All costs of the solicitation of proxies will be borne by the Company. On the proxy included
in the materials, a shareholder of record (that is, a shareholder who holds the shares in his or her own name with our transfer
agent, American Stock Transfer & Trust Company) may substitute the name of another person in place of those persons presently
named as proxies. In order to vote, a substitute proxy must present adequate identification to the Corporate Secretary or Inspector
of Election for the meeting before the voting occurs. If you hold your shares in “street name” (that is, in the name
of a bank, broker or other holder of record), contact your bank, broker or other holder of record for instructions and authorization
to have someone attend the meeting for you.
At
the 2016 Annual Meeting, the proxies appointed by the Board (the persons named in the proxy card or voting instructions) will
vote your shares as you instruct. If you complete and submit your proxy as instructed without indicating how you would like to
vote your shares, your proxy will be voted as the Board recommends.
Internet
Availability of Proxy Materials.
We are using the Internet as our primary means of furnishing proxy materials to shareholders
as permitted by the rules of the Securities and Exchange Commission (“SEC”). Consequently, most shareholders will
not receive paper copies of our proxy materials. We will instead send shareholders a Notice of Internet Availability of Proxy
Materials with instructions for accessing the proxy materials, including our proxy statement and annual report, and voting via
the Internet. The Notice of Internet Availability of Proxy Materials also provides information on how shareholders may obtain
paper copies of our proxy materials if they so choose. This makes the proxy distribution process more efficient and less costly,
and helps conserve natural resources. If you previously elected to receive our proxy materials electronically, these materials
will continue to be sent via email unless you change your election.
Voting
Recommendation of the Board
.
The Board recommends that shareholders vote:
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FOR
each of the seven nominees of the Board of Directors (Item 1);
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FOR
the ratification of the appointment of KPMG LLP as our independent registered public
accounting firm for fiscal year 2017 (Item 2);
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FOR
the approval of an amendment to our certificate of incorporation to allow shareholders
to remove directors with or without cause (Item 3);
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FOR
the approval of the Mistras Group, Inc. 2016 Long-Term Incentive Plan (Item 4); and
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FOR
the approval, on an advisory basis, of the compensation of our named executive officers
(Item 5).
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Shareholders
Entitled to Vote, Quorum.
Shareholders of record of our common stock at the close of business on August 22, 2016 are entitled
to notice of and to vote at the 2016 Annual Meeting and any adjournments or postponements of the meeting. Each share entitles
its owner to one vote. The holders of a majority of the shares entitled to vote at the meeting must be present in person or represented
by proxy in order to constitute a quorum for all matters to come before the meeting. Both abstentions and broker non-votes are
counted for the purpose of determining the presence of a quorum. On the record date, we had 29,098,566 shares outstanding.
Votes
Needed
.
The following sets forth votes
needed for each agenda item to pass.
Agenda
Item
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Votes
Needed
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1. Election
of Directors
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Plurality,
meaning the seven directors receiving the most votes for their election will be elected.
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2. Ratification
of Appointment of Auditors
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Majority
of the shares of common stock present or represented at the meeting.
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3. Approval
of an Amendment of the Certificate of Incorporation
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Majority
of the shares of common stock outstanding as of the record date.
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4. Approval
of the Mistras Group, Inc. 2016 Long-Term Incentive Plan
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Majority
of the shares of common stock present or represented at the meeting.
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5. Advisory
Vote on Executive Compensation
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Majority
of the shares of common stock present or represented at the meeting.
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For
Item 1, Election of Directors, as set forth in the Director Resignation Policy described on Page 7, each director has agreed that
if he or she receives more “Withheld” votes than “For” votes, the director will tender his or her resignation
for consideration by the Corporate Governance Committee and the Board. Abstentions from voting on Item 2 will have the practical
effect of a vote against that proposal because an abstention results in one less vote for the proposal. For any of Items 3 through
5, abstentions from voting and broker non-votes will have the practical effect of a vote against the proposal because an abstention
or broker non-vote results in one less vote for the proposal. In addition, any shares which are not present or represented at
the 2016 Annual Meeting, will in effect be a vote against Item 3 because an amendment to our certificate of incorporation requires
the approval of a majority of our outstanding shares of common stock.
If
you hold your shares through a bank or broker and you do not instruct your bank or broker how to vote your shares, these shares
are considered broker non-votes. Brokers may not vote your shares on the election of directors or on Items 3, 4 or 5 in the absence
of your specific instructions as to how to vote
.
See “
Effect of Not Casting Your Vote
” below.
How
to Vote.
Shares held in your name as the shareholder of record may be voted by you in person at the 2016 Annual
Meeting. Shares held beneficially in street name may be voted by you in person at the 2016 Annual Meeting only if you obtain a
legal proxy from the broker, trustee or nominee that holds your shares giving you the right to vote the shares. Even if you plan
to attend the 2016 Annual Meeting, we recommend that you also submit your proxy or voting instructions as described below so that
your vote will be counted if you later decide not to attend the meeting.
You
have the option of voting your shares over the Internet, by telephone or completing and returning a proxy card or voting instruction
card. Voting over the Internet or telephone authorizes the named proxies to vote your shares as you direct. If you receive paper
copies of our proxy materials and a proxy card or voting instruction card, you can vote by marking, signing, and returning your
proxy card or voting instruction card as directed in the materials you receive. More information on how to vote by proxy is included
in the proxy materials.
If
any matters are properly presented for consideration at the 2016 Annual Meeting, including, among other things, consideration
of a motion to adjourn the 2016 Annual Meeting to another time or place (including for the purpose of soliciting additional proxies),
the persons named in the proxy card will have discretion to vote on those matters in
accordance with their best judgment. We do
not currently anticipate that any other matters will be raised at the 2016 Annual Meeting.
Changing
Your Vote.
You may change your vote at any time before the proxy is exercised. If you vote by mail, you may revoke your
proxy at any time before it is voted by executing and delivering a timely and valid later-dated proxy, by voting by ballot at
the meeting or by giving written notice to the Secretary at Mistras Group, 195 Clarksville Road, Princeton Junction, New Jersey
08550. If you vote over the Internet or by telephone, you may also change your vote with a timely and valid later Internet or
telephone vote, as the case may be, or by voting by ballot at the meeting and notifying the Corporate Secretary or Inspector of
Election that you are changing your earlier vote. Attendance at the meeting will not have the effect of revoking a proxy unless
you give proper written notice of revocation to the Corporate Secretary or Inspector of Election before the proxy is exercised
or you vote by ballot at the meeting.
Effect
of Not Casting Your Vote.
If your shares are registered directly in your name with our transfer agent, American Stock
Transfer & Trust Company, you are a record holder of your shares of Mistras common stock. If you hold your shares through
a bank, broker or other intermediary, which is commonly referred to as holding your shares in “street name,” you are
a beneficial holder but not a record holder. If you hold your shares in street name and want your shares to count in the election
of directors, Item 1, or on Item 3, 4 or 5, you will need to instruct your bank or broker how you want your shares voted.
If you hold your shares in street name and you do not instruct your bank or broker how to vote in the election of directors or
on Items 3, 4, or 5, no votes will be cast on your behalf on any of these items for which you did not provide voting instructions.
Your bank or broker will have discretion to vote any uninstructed shares on the ratification of the appointment of the Company’s
independent registered public accounting firm (Item 2).
If
you are a shareholder of record and do not return your proxy or attend the meeting, your shares will not be considered present
at the meeting for voting purposes or determining whether we have a quorum and no votes will be cast for your shares at the meeting.
If you return your proxy but do not cast your vote on your proxy, your shares will be voted as directed by the Board, which will
be in favor of all the nominees listed in Item 1 and in favor of Items 2 through 5. If you return your proxy but abstain, no votes
will be cast on your behalf on any of the items of business at the meeting, but your shares will be counted for determining whether
a quorum is present to conduct the meeting.
Tabulating
the Votes.
A representative from Broadridge Financial Services will tabulate the votes and will serve as Inspector of
Election at the 2016 Annual Meeting.
Voting
Results.
We will announce preliminary voting results at the meeting. Voting results will also be disclosed in a Form 8-K
filed with the SEC soon after the meeting, which will be available on our website.
CORPORATE
GOVERNANCE
Overview
Our
Board is committed to maintaining good corporate governance practices and believes this is an important element of our long-term
success and the enhancement of shareholder value. The Board has adopted and adheres to corporate governance guidelines and practices
that the Board and senior management believe are sound and promote this purpose. Our Board continuously reviews our governance
practices and updates them, as appropriate, based upon Delaware law (the state in which we are incorporated), NYSE rules and listing
standards, and SEC regulations, as well as best practices suggested by recognized governance authorities.
All
of our relevant corporate governance documents are available on the corporate governance section of the investor page at our website
at
http://investors.mistrasgroup.com/governance.cfm
. At this site, shareholders can view our:
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Audit
Committee Charter
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Certificate
of Incorporation
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Code
of Ethics for Executive Officers, Senior Financial Officers and Managers
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Compensation
Committee Charter
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Complaint
Procedures for Accounting and Auditing Matters
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Corporate
Governance Committee Charter
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Corporate
Governance Guidelines
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Director
Nominating Process and Policy
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Director
Qualification Criteria
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Director
Resignation Policy
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Incentive
Compensation Recoupment Policy
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Securityholder
Communication Policy
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Stock
Ownership Guidelines
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Board
of Directors and Director Independence
Our
Board has set the number of directors for the Board at seven and currently the seven members consist of Nicholas DeBenedictis,
James J. Forese, Richard H. Glanton, Michael J. Lange,
Manuel N. Stamatakis, Sotirios J. Vahaviolos
and W. Curtis Weldon.
In
July 2016, the Board and Corporate Governance Committee undertook a review of the independence of the directors and considered
whether any director has a relationship with us that would preclude a determination of independence within the meaning of the
rules of the NYSE. As a result of this review, our Board determined that and Messrs. DeBenedictis, Forese,
Glanton, Stamatakis and Weldon, representing five of our seven directors and all of our non-employee directors, are “independent
directors” as defined under the NYSE rules because none of these directors had any material relationships with the Company.
In
making this determination, the Board took into account that one of Mr. Stamatakis’ companies, Capital Management Enterprise
(“CME”), provides benefits consulting services to the Company. The Company did not pay any fees to CME in fiscal 2016.
Taking into account all the facts and circumstances, the Board determined that this relationship does not interfere with or impair
Mr. Stamatakis’ ability to be independent from management.
Committees
of the Board
Our
Board has established three standing committees: Audit Committee, Compensation Committee and Corporate Governance Committee. Each
committee operates pursuant to a written charter and all committees are comprised solely of independent directors. The composition
of the committees is set forth below and a description of each committee follows.
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Director
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Audit
Committee
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Compensation
Committee
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Corporate
Governance
Committee
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Nicholas
DeBenedictis
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Member
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James
Forese
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Chair
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Member
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Richard
Glanton
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Chair
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Member
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Manuel
Stamatakis
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Member
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Member
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Chair
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Curtis
Weldon
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Member
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Audit
Committee
Our
Board has determined that each member of our Audit Committee meets the requirements for independence and financial literacy, and
that Mr. Forese qualifies as an audit committee financial expert, under the applicable requirements of the NYSE and SEC rules
and regulations. The Audit Committee is responsible for, among other things:
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selecting
and hiring our independent registered public accounting firm and approving the audit
and non-audit services to be performed by our independent registered public accounting
firm;
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evaluating
the qualifications, performance and independence of our independent registered public
accounting firm;
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monitoring
the integrity of our financial statements and our compliance with legal and regulatory
requirements as they relate to financial statements and accounting matters;
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reviewing
the adequacy and effectiveness of our internal control policies and procedures;
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discussing
the scope and results of the audit with the independent registered public accounting
firm and reviewing with management and the independent registered public accounting firm
our interim and year-end operating results; and
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preparing
the audit committee report included in our proxy statement.
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Compensation
Committee
All
of the members of our Compensation Committee qualify as independent. The Compensation Committee is responsible for, among other
things:
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reviewing
and approving the following for our executive officers: annual base salaries, cash and
equity incentive compensation, including specific goals, targets and amounts, other equity
compensation, employment agreements, severance and change in control arrangements and
any other benefits, compensation or arrangements;
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reviewing
and recommending, in conjunction with the Corporate Governance Committee, compensation
programs for outside directors;
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reviewing
and approving the compensation discussion and analysis and issuing the compensation committee
report included in our proxy statement;
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appointing,
overseeing and determining the work and compensation of any compensation consultant,
independent legal counsel or other adviser retained by the compensation committee; and
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administering,
reviewing and making recommendations with respect to our equity compensation plans.
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Corporate
Governance Committee
Our
Corporate Governance Committee is responsible for, among other things:
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assisting
our Board in identifying prospective director nominees and recommending to the Board
nominees for election at each annual meeting of shareholders;
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reviewing
our corporate governance principles and practices and recommending changes, as appropriate,
in light of developments in governance practices;
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overseeing
the evaluation of our Board and management;
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reviewing
succession planning;
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recommending
members for each Board committee to our Board; and
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reviewing
and monitoring our code of conduct and actual and potential conflicts of interest of
members of our Board and our executive officers.
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Board
Leadership Structure
Under
our corporate governance guidelines, the Board does not have a policy on whether or not the roles of the Chairman and Chief Executive
Officer, or CEO, should be separate or combined. The Board believes it should be free to determine what is best for the Company
at a given point in time. We have not separated the roles of Chairman and CEO, with the Company’s founder and 43% shareholder,
Sotirios Vahaviolos, serving in that dual role. The independent directors believe that the Company’s current model of the
combined Chairman/CEO role in conjunction with the Lead Director position is the appropriate leadership structure for Mistras
at this time.
The
independent directors believe that each of the possible leadership structures for a board of directors has its own advantages
and disadvantages, which must be considered in the context of the specific circumstances, culture and challenges facing a company.
The combined Chairman/CEO model is a leadership model that has served our shareholders well, as our Chairman and CEO, Dr. Vahaviolos,
is the founder who built the Company from the beginning. Dr. Vahaviolos’ combined role enables decisive leadership, ensures
clear accountability, and enhances the Company’s ability to communicate its message and strategy clearly and consistently
to our shareholders, employees, customers and other constituents. Dr. Vahaviolos possesses detailed, in-depth knowledge of the
issues, opportunities and challenges we face and is thus best positioned to develop agendas that ensure that the time and attention
of the Board are focused on the most critical matters. This structure also enables our Chairman and CEO to act as a bridge between
management and the Board, helping both to act with a common purpose. In addition, the Corporate Governance Committee and the other
independent directors take into account Dr. Vahaviolos’ 43% ownership interest in the Company and how that aligns him with
the interests of all shareholders. The Corporate Governance Committee and the independent directors intend to review periodically
this structure to ensure it remains appropriate for us.
Effective
June 1, 2016, Dennis Bertolotti was promoted to President and Chief Operating Officer and Jonathan Wolk and Michael Lange were
elevated to Senior Executive Vice President. These changes enable Dr. Vahaviolos to provide the Board with broader interaction
with senior management, provide a leadership structure better suited for a larger company and enhance the succession planning
for Dr. Vahaviolos in the future. This also provides Dr. Vahaviolos and the Board with a more flexible alternative should a change
in the Board leadership structure be appropriate in the future.
Lead
Director
The
Board established the position of independent Lead Director, which the Board determined should be the chair of the Corporate Governance
Committee. Mr. Stamatakis currently serves as the chair of the Corporate Governance Committee and the Lead Director. The Lead
Director serves as a liaison between management and non-management members of the Board; participates in setting the agenda for
Board meetings; leads the executive sessions, including follow up actions; and is involved in other governance matters.
Code
of Ethics and Code of Conduct
We
have a Code of Ethics for Executive Officers, Senior Financial Officers and Managers, which applies to our Chief Executive Officer,
Chief Financial Officer and all other executive officers, accounting officers, controllers, persons performing similar functions,
and other senior finance and accounting managers. This code of ethics requires that our executive officers and financial leaders
act with honesty, integrity and a high level of ethics. This code also requires full, fair, timely and accurate reporting and
disclosure of information in reports to the SEC and to the public. We have also adopted a Code of Conduct that applies to all
of our employees, officers and directors. Our Code of Conduct establishes guidelines for honesty and professionalism we expect
all Mistras directors, officers and employees to follow at all times when representing or working for Mistras and is intended
to foster an atmosphere of high integrity and accountability. The Code of Conduct requires all employees to comply with all laws
and regulations and addresses issues such as dealing with customers and suppliers, protecting valuable company assets, avoiding
conflicts of interest, and other matters involving good corporate conduct.
Nomination
of Directors
The
Corporate Governance Committee is responsible for identifying individuals qualified to become Board members and for recommending
nominees to the Board for election at the annual meeting of shareholders. To facilitate this process, the Corporate Governance
Committee and the Board adopted our Director Nominating Process and Policy and the Director Qualification Criteria. The Director
Nominating Process and Policy and the Director Qualification Criteria articulate a process and qualifications that are clear,
specific and prudent to help the Corporate Governance Committee and the Board identify and select the most qualified directors
to meet our needs and provide a well-functioning Board.
In
accordance with the policy, the Corporate Governance Committee will take into account the Board’s current and anticipated
strengths and needs. Among the criteria considered by the committee are experience or expertise in accounting, finance, management,
international business, compensation, corporate governance, strategy, general business matters and industry knowledge, as well
as diversity within the Board. While the Board does not have a specific policy on Board diversity, it is one aspect the Corporate
Governance Committee and the Board take into account when considering potential director candidates.
As
set forth in the Director Qualification Criteria, the Board seeks candidates for director who possess the following: (1) the
highest level of integrity and ethical character, (2) personal and professional reputation consistent with the Company’s
image and reputation, (3) sound judgment, (4) financial literacy, (5) independence, (6) significant experience
and proven superior performance in professional endeavors, (7) an appreciation for board and team performance, (8) the
commitment to devote the time necessary for service on our Board, (9) skills in areas that will benefit the Board and (10) the
ability to make a long-term commitment to serve on the Board. The Corporate Governance Committee is also cognizant of having at
least one independent director who meets the definition of an audit committee financial expert under SEC rules.
The
Corporate Governance Committee may rely on various sources to identify potential director nominees. These include input from directors,
management, others the Corporate Governance Committee considers reliable, and professional search firms. The Corporate Governance
Committee will consider director nominations made by a shareholder or other sources (including self-nominees) if these individuals
meet our Director Qualification Criteria. If a candidate proposed by a shareholder or other source meets the criteria, the individual
will be considered on the same basis as other candidates. For consideration by the Corporate Governance Committee, the submission
of a candidate must be sent to the attention of the Corporate Secretary at our headquarters at 195 Clarksville Road, Princeton
Junction, New Jersey 08550. The submission should be received by June 1, 2017 in order to receive adequate consideration for the
2017 annual meeting and must include sufficient details to demonstrate that the potential candidate meets the Director Qualification
Criteria.
Director
Resignation Policy
The
Board has a Director Resignation Policy which provides that, in an uncontested election for directors, if a nominee for director
receives more votes “withheld” or “against” than votes “for” his or her election, the director
will promptly tender an offer of his or her resignation following certification of the shareholder vote. An uncontested election
is any election of directors in which the number of nominees for election is less than or equal to the number of directors to
be elected.
The
Corporate Governance Committee will consider and recommend to the Board whether to accept the resignation offer, which the independent
members of the Board will decide. The Corporate Governance Committee and Board will evaluate any such tendered resignation based
upon the best interests of the Company and its shareholders. When deciding the action to take, the Board could accept or turn
down the offer of resignation or decide to pursue additional actions such as the following:
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allow
the director to remain on the Board but not be nominated for re-election to the Board
at the next election of directors;
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defer
acceptance of the resignation until the vacancy the resignation will create can be filled
by the Board with a replacement director meeting the necessary qualifications; or
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allow
the director to remain on the Board if, in the view of the Corporate Governance Committee,
the director has or is expected to correct the reason for the negative vote.
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In
addition, the policy provides that if a director’s principal occupation or business association changes substantially during
his or her tenure as a director, the director shall tender his or her resignation for consideration by the Corporate Governance
Committee. The Corporate Governance Committee, in consultation with the Chairman of the Board, will recommend to the Board the
action, if any, to be taken with respect to the resignation.
Stock
Ownership Guidelines and Incentive Compensation Recoupment Policy
The
Board adopted stock ownership guidelines for all directors and executive officers. Non-employee directors are required to hold
all shares awarded during the prior three years (excluding shares a director has elected to take in lieu of cash fees). The guidelines
for our executive officers are discussed on page 34 in the Compensation Discussion and Analysis. The Board has also adopted an
Incentive Compensation Recoupment Policy (often referred to as a clawback policy), which is also discussed on page 34 in the Compensation
Discussion and Analysis.
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ITEM 3:
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APPROVAL OF AN AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO ALLOW
SHAREHOLDERS TO REMOVE DIRECTORS WITH OR WITHOUT CAUSE
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Article
VIII of our Second Amended and Restated Certificate of Incorporation provides that directors can be removed from the Board only
for cause by the holders of a majority of our common stock. Recent cases in the Delaware have held that if all the members of
the board of directors of a Delaware corporation are elected each year, a majority of the holders of stock may remove directors
with or without cause. In response to this, the Board has unanimously adopted resolutions, subject to shareholder approval, approving
and declaring the advisability of an amendment to Article VIII of our Second Amended and Restated Certificate of Incorporation
to allow the holders of a majority of our common stock to remove directors with or without cause. The proposed amendment to our
Second Amended and Restated Certificate of Incorporation is set forth in Exhibit A, and we have shown the changes to the relevant
portions of Article VIII resulting from the amendment, with deletions indicated by strike-outs and additions indicated by underlining.
If approved by the requisite vote of shareholders as set forth below, our Second Amended and Restated Certificate of Incorporation
will be amended to allow the holders of a majority of our common stock to remove directors with or without cause. The Board has
already adopted amendments to our by-laws that are consistent with the proposed amendment to the Second Amended and Restated Certificate
of Incorporation contained in Exhibit A.
If
approved, this proposal will become effective upon the filing of a Certificate of Amendment to our Second Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of Delaware, which we plan to do promptly after the 2016
Annual Meeting.
Vote
Required and Recommendation of the Board.
The affirmative vote of majority of all outstanding shares of our common stock entitled
to vote will be required for approval of this proposal. An abstention on this proposal is not an affirmative vote and therefore
will have the same effect as a negative vote on this proposal. Therefore, it is important that you vote your shares either at
the meeting or by proxy. The Board intends to vote all proxies to approve the amendment, unless you indicate otherwise on your
proxy card or pursuant to your voting instructions.
The Board unanimously recommends a vote “FOR” the proposal
to amend our Second Amended and Restated Certificate of Incorporation to allow for the removal of directors with or without cause.
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ITEM 4:
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APPROVAL
OF THE MISTRAS GROUP, INC. 2016 LONG-TERM INCENTIVE PLAN
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Overview
Our
shareholders are being asked to approve the Mistras Group, Inc. 2016 Long-Term Incentive Plan (“2016 Plan”). The 2016
Plan was adopted by our Board of Directors on August 20, 2016, subject to approval by our shareholders at the 2016 Annual Meeting.
A copy of the 2016 Plan is set forth in Exhibit B to this proxy statement.
The
2016 Plan would replace our 2009 Long-Term Incentive Plan (the “2009 Plan”) which was adopted at the time of our IPO
in 2009. As of August 31, 2016, the number of shares of our common stock available for new grants under the 2009 Plan was approximately
361,000. Therefore, we anticipate that the 2009 Plan will soon run out of authorized shares available for new grants. The 2016
Plan would allow us to issue up to 1,700,000 shares of our
common stock under new equity compensation awards, which should be
sufficient to allow us to continue making equity-based incentive compensation awards similar to those authorized by the 2009 Plan
for the next four to five years. The 2016 Plan also contains provisions to reflect best practices that have evolved since the
adoption of the 2009 Plan. Also, if approved by our shareholders, the 2016 Plan would allow us to grant performance-based equity
and cash incentive awards that are intended to be exempt from the tax deduction limitations of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the “Code”). Upon the approval by shareholders of the 2016 Plan, no more awards
will be made under the 2009 Plan.
Long
term equity-based and other forms of incentive compensation have been and are expected to continue to be necessary and key components
of our overall compensation program. The Board believes that our ability to grant equity-based incentive compensation under the
2016 Plan will enable us to meet several objectives that are important to the success and growth of our business, including, for
example, fostering an ownership mentality that aligns the interests of our management and other personnel with those of our shareholders,
and enabling us to attract, motivate, reward and retain talented individuals whose skills, experience and efforts are essential
to the continuing success and development of our business and the enhancement of shareholder value. If the 2016 Plan is not approved,
we will still be able to make equity-based awards under our 2009 Plan but, as indicated, the 2009 Plan will be of limited utility
given the relatively low number of shares that remain available for future awards. We could also lose our ability to make incentive
compensation awards that are exempt from the deduction limitations of Section 162(m) of the Code. Based upon the foregoing, the
Board believes strongly that approval of the 2016 Plan is in the best interests of the Company and our shareholders.
Reason
for Shareholder Approval of the 2016 Plan
Shareholder
approval of the 2016 Plan is required by the equity compensation rules of the NYSE, on which our shares are listed and, as noted
above, will enable us to grant awards under the 2016 Plan that qualify for tax deductibility without limitation under Section
162(m) of the Code. Shareholder approval of the 2016 Plan will also permit us to grant “incentive stock options” (within
the meaning of Section 422 of the Code), which may provide favorable tax treatment to employees. In addition, we regard shareholder
approval of the 2016 Plan to be necessary under and consistent with corporate governance best practices generally.
Features
Included in the 2016 Plan
The
2016 Plan includes a number of features that are designed to reflect best corporate governance and compensation practices and
otherwise take into account our shareholders’ interests, including:
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·
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The
2016 Plan would allow us to grant various forms of equity- and cash-based incentive compensation
opportunities, including stock options, stock appreciation rights, restricted stock,
restricted stock units and performance-based stock or cash awards and, in turn, provide
us with sufficient flexibility to structure appropriate incentives and respond to market-competitive
changes in compensation practices.
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There
is no “evergreen” provision for automatically replenishing the authorized
pool of shares available for awards under the 2016 Plan.
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There
are limitations on the number of shares and the value of cash incentive awards that may
be made to any individual in any fiscal year.
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Repricing
of stock options or stock appreciation rights or cash buyouts of underwater stock options
or stock appreciation rights is prohibited without shareholder approval.
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The
granting of discounted stock options and stock appreciation rights and the granting of
“reload” or replacement options are all prohibited.
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Shares
repurchased by us on the open market with proceeds from the exercise of stock options
may not be returned to the pool of shares available for awards under the 2016 Plan.
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Awards
that are continued or assumed in connection with a change in control are subject to “double
trigger” vesting.
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Awards
are generally subject to minimum vesting of at least one year, and we have only limited
authority to accelerate vesting of outstanding awards.
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Awards
made under the 2016 Plan are subject to our executive incentive compensation claw back
policies and certain stock ownership requirements.
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We
will be permitted to grant performance-based awards under the 2016 Plan that are intended
to qualify for exemption from the compensation deduction limitations of Section 162(m)
of the Code.
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Description
of the 2016 Plan
The
following summary describes the principal features of the 2016 Plan as adopted by the Board and is qualified in its entirety by
reference to the full terms of the 2016 Plan document set forth in Exhibit B.
Eligibility
The
2016 Plan would enable us to grant equity-based and cash incentive awards to our and any of our subsidiaries’ present or
future non-employee directors, officers, employees, consultants or advisers and to grant “incentive stock options”
(within the meaning of Section 422 of the Code) to our and any of our subsidiaries’ employees. We estimate that the total
number of eligible persons currently is approximately 5,700 and approximately 350 employees and directors hold outstanding equity
awards under our 2009 Plan. The types of awards that may be granted under the 2016 Plan are described below under the heading
“Forms of Awards.”
Shares
Issuable Under the 2016 Plan
We
have reserved up to 1,700,000 shares of our common stock for issuance under the 2016 Plan, subject to the following share-counting
requirements:
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The
total number of shares covered by an award of stock appreciation rights that is settled
in shares (and not just the number of shares issued in settlement of the award) will
be deemed to have been issued.
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Shares
that are used or withheld to satisfy the exercise price or tax withholding obligations
under an award will be deemed to have been issued under the 2016 Plan and will not be
available for issuance under future grants.
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Shares
purchased by us with cash received from the exercise of an option will not be available
for awards made under the 2016 Plan.
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All
forms of equity based awards will be counted against the 1,700,000 share reserve on a
one-for-one basis, whether the award consists of options, restricted stock units or other
types of equity awards.
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The
following shares will be deemed not to have been issued and will remain available for
issuance under new awards: (a) shares covered by an option or stock appreciation right
that is forfeited or otherwise terminated or canceled for any reason other than exercise,
(b) shares covered by restricted stock, restricted stock unit or other awards that are
forfeited, and (c) shares covered by an award that is settled in cash or that otherwise
terminates without shares being issued.
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Individual
Award Limitations
No
more than 400,000 shares may be issued pursuant to awards granted in a single calendar year to any individual participant other
than a non-employee director, and no more than 50,000 shares may be issued pursuant to awards
granted to any non-employee director
in any single calendar year. No participant may earn a cash incentive award for any calendar year exceeding the lesser of (a)
four times the participant’s base salary, or (b) $5,000,000.
Adjustments
for Capital Changes
In
the event of a split-up, spin-off, stock dividend, recapitalization, consolidation of shares or similar capital change involving
the outstanding shares of our common stock, the aggregate number of shares that may be issued under the 2016 Plan, the annual
limitations on individual stock-based awards, and the number, class and exercise price of shares covered by outstanding awards
will be subject to equitable adjustment in order to avoid undue dilution or enlargement of the benefits available under the 2016
Plan and any outstanding awards.
Plan
Administration
The
2016 Plan will be administered by the Compensation Committee of the Board. Subject to the terms of the 2016 Plan, the Compensation
Committee, acting in its discretion, may select the persons to whom awards will be made, prescribe the terms and conditions of
each award and make amendments thereto, construe, interpret and apply the provisions of the 2016 Plan and of any award agreement,
and make any determinations and take any other actions as it deems necessary or desirable in order to carry out the terms of the
2016 Plan or of any award. The Compensation Committee’s determinations and decisions as to matters relating to the operation
and administration of the 2016 Plan are final and binding on all persons. We will indemnify the members of the Compensation Committee
and others to whom authority is delegated for claims they may incur in connection with the administration of the 2016 Plan, unless
attributable to fraud or willful misconduct.
Limitations
on Compensation Committee Authority
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Minimum
Vesting
. The 2016 Plan requires that equity awards for all but 85,000 shares
(5% of the share allowance under the 2016 Plan) must have a vesting period of at least
one year following the grant date. We anticipate that the 5% exception will be used almost
exclusively for equity-based compensation awards made to our non-employee directors.
The Compensation Committee has no authority to accelerate the vesting of an outstanding
award except (a) in connection with the termination of a participant’s employment
on account of death or disability or (b) in connection with a change in control as described
on page 23.
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Re-Pricing
Prohibited
. In general, the Compensation Committee may not (a) reduce the
exercise price or base price under outstanding options or SARs; (b) cancel outstanding
options or SARs in exchange for options or SARs with a lower exercise price or base price;
or (c) cancel outstanding options or SARs in exchange for cash or other securities at
a time when the per share exercise or base price under such options or SARs is higher
than fair market value.
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No
Reloading of Options
. The Compensation Committee may not grant an option that
includes a “reload” feature or make any other awards that have the effect
of providing a “reload” feature with respect to shares used to satisfy the
option exercise price or applicable withholding tax.
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Forms
of Awards
Awards
under the 2016 Plan may be in the form of stock options, restricted stock, restricted stock units, stock appreciation rights,
other forms of equity-based awards and performance-based cash incentive awards. The following is a description of some of the
equity-based awards that may be granted under the 2016 Plan:
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Stock
Options.
Stock options represent the right to purchase shares of our common stock
within a specified period of time for a specified price, subject to vesting, forfeiture
and other terms and conditions as may be determined by the Compensation Committee, acting
in accordance with the 2016 Plan. The purchase price per share must be at least equal
to the fair market value per share on the date the option is granted. Stock options granted
under the 2016 Plan may have a maximum term of ten years. The Compensation Committee
has the flexibility to grant stock options to employees that are intended to qualify
as “incentive
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stock options” (within the meaning of Section 422 of the
Code), subject to special rules imposed by the Code.
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Restricted
Stock.
Restricted stock awards consist of the issuance of shares of our common stock
subject to such continuing service and/or performance-based vesting conditions as the
Compensation Committee may determine in accordance with the 2016 Plan. Unless the Compensation
Committee determines otherwise, the holder of a restricted stock award may vote the shares
covered by the award and receive dividends on those shares (subject to such vesting conditions
as the Compensation Committee may impose).
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Restricted
Stock Units (RSUs).
RSUs represent the right to receive shares of our common stock
in the future, subject to such continuing service and/or performance-based vesting conditions
as the Compensation Committee may determine in accordance with the 2016 Plan. RSUs that
vest may be settled in the form of shares of common stock or in cash (based upon the
fair market value of our shares on the applicable settlement date). The holder of an
RSU shall have no rights as a shareholder with respect to shares covered by the RSU until
the award vests and the shares are issued, except that the Compensation Committee may
award dividend equivalents with respect to shares covered by an unvested RSU award, subject
to the same vesting and payment conditions that apply to those shares.
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Stock
Appreciation Rights (SARS).
Stock appreciation rights represent the right to receive
any appreciation in the fair market value of the shares of our common stock covered by
the award from the date the award is granted to the date the award is exercised. SARs
are subject to such vesting and forfeiture conditions as the Compensation Committee may
impose in accordance with the 2016 Plan. Upon exercise, a vested SAR may be settled in
the form of cash or shares of our common stock in an amount or with a value equal to
the amount of such appreciation.
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Other
Forms of Stock Awards; Performance-Based Cash Incentive Awards
. The Compensation
Committee may grant other forms of awards under the 2016 Plan that are denominated or
payable in, valued in whole or in part by reference to, or otherwise based upon or related
to, shares of our common stock, including, for example, performance share awards, performance
unit awards, stock bonus awards and dividend equivalent awards. Any such other awards
will be settled in the form of cash and/or shares of our common stock and will be subject
to the provisions of the 2016 Plan and any other terms and conditions prescribed by the
Compensation Committee. In addition, the 2016 Plan authorizes the Compensation Committee
to make annual and/or long-term cash incentive awards that are contingent on the achievement
of pre-established performance goals and subject to such other terms and conditions as
the Compensation Committee may prescribe.
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Section
162(m) Performance-Based Awards and Performance Goals
Section
162(m) of the Code imposes a $1 million deduction limit on annual compensation paid to each of our named executive officers (other
than our Chief Financial Officer). Section 162(m) deduction limit does not apply to “performance-based compensation”
that meets certain conditions, including a shareholder approval condition. The 2016 Plan authorizes our Compensation Committee
to grant restricted stock, restricted stock units, cash and other incentive awards that are intended to qualify for the performance-based
compensation exemption. In general, a performance-based award made under the 2016 Plan may qualify for the performance-based compensation
exemption if, among other things, the amount earned under the award and/or vesting of the award is conditioned upon the attainment
of objective performance goals that are pre-established by the Compensation Committee and that are based upon any one or more
of the following performance factors, in each case taking into account such adjustments and other objective factors that the Compensation
Committee may specify at the time a performance goal is established:
(a) Income
measures (including, but not limited to, gross profit; operating income; earnings before or after taxes; earnings before interest,
taxes, depreciation and amortization (EBITDA); earnings before interest, taxes, depreciation, amortization and share-based compensation
(EBITDAS); EBITDA or EBITDAS with adjustments for non-recurring or non-operational items; or earnings per share);
(b) Return
measures (including, but not limited to, return on assets, investment, equity, or sales);
(c) Profit
margin measures (including but not limited to operating income as a percentage of revenue, EBITDA, EBITDAS, adjusted EBITDA or
adjusted EBITDAS as a percentage of revenue; net income as a percentage of revenue);
(d) Cash
flow or liquidity measures, such as cash flow return on investments, which equals net cash flows divided by owner equity, or other
cash flow measures including but not limited to operating cash flow, free cash flow (meaning cash flow from operating activities
less capital expenditures), with or without adjustments;
(e) Earnings
per common share;
(f) Gross
revenues;
(g) Debt
measures (including, without limitation, debt multiples on any earnings or income measure);
(h) Market
value added;
(i) Economic
value added; and
(j) Share
price (including, but not limited to, growth measures and total shareholder return).
In
establishing performance goals with respect to an award intended to qualify for the performance-based compensation exemption under
Section 162(m) of the Code, performance factors listed above may be expressed solely by reference to our performance and/or the
performance of any one or more subsidiaries and/or the performance of any of our or any subsidiary’s divisions, business
segments or business units, and may be based upon comparisons of any of the indicators of performance relative to other companies
(or subsidiaries, divisions, business segments or business units of other companies). Subject to compliance with the U.S. Treasury
regulations under Section 162(m) of the Code, the Compensation Committee may adjust performance goals as necessary or appropriate
in order to account for changes in law or accounting or to reflect the impact of extraordinary or unusual items, events or circumstances
which, if not taken into account, would result in windfalls or hardships that are not consistent with the intent and purposes
of an award, including without limitation (1) restructurings, discontinued operations, extraordinary items, and other unusual
or non-recurring charges, (2) an event either not directly related to the operations of the Company or not within the reasonable
control of the Company’s management, (3) acquisitions and divestitures, or (4) changes in generally accepted accounting
principles. The Compensation Committee will be responsible for determining whether and the extent to which performance objectives
have been achieved and the amount of cash and/or number of shares of our common stock earned and payable as a result of such achievement.
The Compensation Committee may not increase the amount payable under an award that is intended to qualify for the exemption from
Section 162(m) but does retain the discretion to adjust such awards downward.
Transferability
of Awards
In
general, awards made under the 2016 Plan may not be transferred or assigned, except as may be permitted by the Compensation Committee.
Recoupment
of Awards
The
2016 Plan provides that awards made under the 2016 Plan are subject to the Company’s incentive compensation claw back policies
as in effect from time to time, and, as applicable, the claw back requirements of Section 954 of the Dodd-Frank Act.
Payment
of Exercise Price and Tax Withholding
In
general, the exercise price under a stock option and the tax withholding obligation resulting from the exercise or settlement
of an award may be satisfied in cash and/or in such other ways as the Compensation Committee may permit, including, for example,
by the participant’s surrender of previously-owned shares or by our issuing net shares pursuant to which we hold back shares
that would otherwise be issued in connection with such exercise or settlement.
Change
in Control Provisions
If
a “change in control” (as defined in the 2016 Plan) occurs, the parties to the change in control transaction can agree
that outstanding 2016 Plan awards will be assumed by, or converted into economically equivalent awards for securities of, the
acquiring or successor company and continued on substantially the same vesting and other terms and conditions as the original
award. The 2016 Plan also contains a “double trigger” vesting provision pursuant to which vesting of an assumed or
converted award will accelerate if the participant’s employment with the acquiring or successor company is involuntarily
terminated (e.g., by the successor without “cause” or by the participant for “good reason, as defined in the
2016 Plan) within two years after the date of the change in control. If an outstanding 2016 Plan award is not assumed or substituted
by the acquiring or successor company, however, the award will be deemed to be fully vested and will be cancelled in exchange
for the transaction value. Notwithstanding the above, if the original award is subject to the satisfaction of performance conditions,
then such performance conditions shall be deemed to have been satisfied immediately prior to the change in control on the basis
of actual performance as of the date of the change in control and/or on a pro rata basis for the time elapsed during an ongoing
performance period. No consideration will be payable for the cancellation of an option or stock appreciation right if the transaction
value per share is not greater than the exercise or base price per share under the award.
Termination
and Amendments
Unless
sooner terminated by the Board, the 2016 Plan shall expire on the tenth anniversary of the date of its approval by our shareholders.
The Board may amend or terminate the 2016 Plan at any time, provided, however, that no such action may adversely affect outstanding
awards without the holder’s consent. Amendments to the 2016 Plan will be subject to shareholder approval if and to the extent
required in order to comply with applicable legal or stock exchange requirements.
Certain
Federal Income Tax Consequences
The
following paragraphs summarize the principal federal income tax consequences generally applicable to U.S. taxpayers who receive
awards under the 2016 Plan and to us. The following summary does not purport to be a complete discussion of the federal income
tax issues relating to an award under the 2016 Plan and may not be relied upon as tax advice.
Nonstatutory
Stock Options
. A nonstatutory stock option is an option that does not qualify as an “incentive stock option” under
Section 422 of the Code. No taxable income is realized by a participant upon the grant of a nonstatutory stock option. If the
option is exercised, the participant will generally realize ordinary income on the exercise date in an amount equal to the excess
of the then fair market value of the shares purchased on that date over the exercise price paid for those shares, and we will
generally be entitled to a corresponding deduction. The participant’s tax basis for the shares will be equal to the value
of the shares on the date the option is exercised, and the participant’s holding period for the shares will begin on that
date. Gain or loss on a subsequent sale of the shares will be long- or short-term capital gain or loss, depending on whether the
sale occurs more than one year after the participant’s holding period begins.
Incentive
Stock Options
. No taxable income is realized by a participant upon the grant or exercise of an “incentive stock option”
(within the meaning of Section 422 of the Code), although the exercise may have alternative minimum tax consequences to the participant.
A participant will realize taxable income (or loss) when shares acquired upon the exercise of an “incentive stock option”
are subsequently sold. If the participant sells the shares more than two years after the grant date and more than one year after
the exercise date, any gain or loss realized on the sale will be long-term capital gain or loss, and we will not be entitled to
a deduction. If the participant sells the shares before the
end of either of those two holding periods, any gain realized on the
sale will be taxable as ordinary income to the extent that the value of the shares on the date the option is exercised exceeds
the option exercise price paid for the shares, and any remaining gain will be capital gain. In general, we will be entitled to
a deduction equal to any ordinary income realized by the participant upon the sale of the shares.
Restricted
Stock Awards
. In general, a participant who receives shares of restricted stock will not realize taxable income unless and
until the shares become vested, at which time the participant will realize ordinary income equal to the then fair market value
of the vested shares and we will be entitled to a corresponding deduction. The participant’s tax basis for the shares will
be equal to their fair market value on the vesting date and, upon a subsequent sale of the vested shares, the participant will
realize long- or short-term capital gain, depending on whether the sale occurs more than one year after the vesting date (when
ordinary income was realized). A participant may make an “early income election” within 30 days of the receipt of
restricted shares, in which case the participant will realize ordinary income on the date the restricted shares are received equal
to the fair market value of the shares on that date, and we would be entitled to a corresponding deduction. If the early election
is made, no income will be realized by the participant if and when the shares become vested.
Restricted
Stock Units, Stock Appreciation Rights and Other Awards
. In general, a participant who receives shares of our common stock
and/or cash in settlement of a RSU award will realize ordinary income equal to the then fair market value of the shares and/or
amount of cash received, and we will have a corresponding deduction. No taxable income is realized upon the receipt of SARs. In
general, a participant will realize ordinary income when SARs are exercised, equal to the excess of the value of the shares covered
by the exercise on the exercise date over the fair market value of those shares on the SAR grant date, and we will have a corresponding
deduction. Similarly, if a participant receives cash and/or shares pursuant to another form of award under the 2016 Plan, he or
she will generally realize ordinary income at that time equal to the then fair market value of the shares and/or the amount of
cash received, and we will be entitled to a corresponding deduction.
Section
162(m) of the Code
. Section 162(m) of the Code imposes an annual $1 million limit on the amount of compensation that may be
deducted with respect to the chief executive officer and the next three most highly compensated named executive officers other
than the chief financial officer. Certain “performance-based” compensation is not taken into account in applying the
annual deduction limitation. If approved by our shareholders, the 2016 Plan will allow us to make performance-based equity and
cash incentive awards that are intended to qualify for the “performance-based” compensation exemption. Nevertheless,
deductibility is only one of many factors that would be considered in connection with awards made under the 2016 Plan, and, as
it deems appropriate, the Compensation Committee may grant awards which are not intended to (or which ultimately do not) qualify
for the “performance-based” compensation exemption.
Tax
Withholding
. We have the right to deduct or withhold, or require a participant to remit to us, any amounts sufficient to satisfy
applicable tax withholding requirements arising in connection with the exercise, vesting, lapse of restrictions or other taxable
event pertaining to any awards made under the 2016 Plan. The Compensation Committee may, at the time an award is granted or thereafter,
require or permit any such withholding requirement to be satisfied, in whole or in part, by delivery of, or withholding from the
award, shares having a fair market value on the date of withholding equal to the applicable withholding amount.
THE
ABOVE SUMMARY PERTAINS SOLELY TO CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES ASSOCIATED WITH AWARDS MADE UNDER THE 2016 PLAN
AND DOES NOT PURPORT TO BE COMPLETE. THE SUMMARY DOES NOT ADDRESS ALL FEDERAL INCOME TAX CONSEQUENCES AND IT DOES NOT ADDRESS
FEDERAL ESTATE TAX CONSIDERATIONS OR STATE, LOCAL AND NON-U.S. INCOME, ESTATE AND OTHER TAX CONSIDERATIONS.
INTERNAL
REVENUE SERVICE CIRCULAR 230 NOTICE
: TO ENSURE COMPLIANCE WITH INTERNAL REVENUE SERVICE CIRCULAR 230, SHAREHOLDERS ARE HEREBY
NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES CONTAINED OR REFERRED TO IN THIS PROXY STATEMENT IS NOT INTENDED OR WRITTEN
TO BE USED, AND CANNOT BE USED, BY ANY SHAREHOLDER FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE SHAREHOLDER
UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING OF THE TRANSACTIONS
OR MATTERS ADDRESSED HEREIN; AND (C)
SHAREHOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT
TAX ADVISOR.
Shares
Authorized for Issuance under Our Equity Compensation Plans
The
following table provides information as of May 31, 2016 concerning the shares of our common stock that may be issued under our
existing equity compensation plans.
Plan
Category
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Number
of securities
to be issued upon
exercise of
outstanding options
(2)
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Weighted
average
exercise price of
outstanding options
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Number
of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities to be issued
upon
the exercise of
outstanding options) (3)
|
Equity
Compensation Plans Approved by Security Holders(1)
|
|
2,232,000
|
|
$13.21
|
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658,000
|
|
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|
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Equity
Compensation Plans Not Approved by Security Holders
|
|
—
|
|
—
|
|
—
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Total
|
|
2,232,000
|
|
$13.21
|
|
658,000
|
Number
of securities are rounded to the nearest thousand.
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(1)
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Includes
all the Company’s plans: 1995 Incentive Stock Option and Restricted Stock Plan
(“1995 Plan”), 2007 Stock Option Plan (“2007 Plan”) and the 2009
Plan. Since our IPO in October 2009, we ceased awarding any new grants under the 1995
Plan or the 2007 Plan. Upon shareholder approval of the 2016 Plan, we will cease awarding
any new grants under the 2009 Plan.
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(2)
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The
weighted average remaining term for all outstanding stock options as of May 31, 2016
was 3.14 years.
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(3)
|
There
were also approximately 902,000 unvested restricted stock units and earned performance-based
units outstanding as of May 31, 2016.
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Vote
Required and Recommendation of the Board
. The vote on approval of the 2016 Plan will be considered approved if a majority
of the shares of common stock present or represented by proxy at the 2016 Annual Meeting vote FOR this item. The Board intends
to vote all proxies to approve the 2016 Plan, unless you indicate otherwise on your proxy card or pursuant to your voting instructions.
The Board unanimously recommends that you vote FOR the approval of the 2016 Plan.
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis section
of the Company’s 2016 Proxy Statement. Based on our review and discussions, we have recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement for 2016.
Richard
Glanton (Chairman)
James
Forese
Manuel
Stamatakis
COMPENSATION
DISCUSSION AND ANALYSIS
Executive
Summary
Our
executive compensation programs and policies have been developed to link incentive compensation to Company performance and increases
in shareholder value and pay amounts that are reasonably competitive, fair and based upon each executive officer’s contributions
to performance. In fiscal 2016, we kept the annual cash bonus plan as it has been for the past few years, as we and the Compensation
Committee believe this plan achieves our overall executive compensation objectives. In fiscal 2016, we changed the equity incentive
compensation as we discussed in last year’s proxy statement. We previously had a program that measured earning per share
growth and the return to our shareholders relative to other companies in our sector over a three year period. We changed our program
in 2016 because the previous plan was not meeting our needs as discussed below.
Overview
and Philosophy
Our
executive compensation objectives are to have compensation programs and policies that (1) align individual performance with our
operational objectives, (2) attract and retain talent that is needed to be successful and achieve our strategic objectives,
and (3) pay for performance. Overall, the objectives of our executive compensation programs are to achieve strategic business
objectives that are aimed at growing our business profitably and aligning the long-term interests of our executives and shareholders.
Our
current compensation program for our executive officers includes our “named executive officers,” who are listed in
the Summary Compensation Table below. We have two incentive programs, an annual cash incentive or “bonus plan” and
an equity compensation plan or equity plan. The awards for both plans are based primarily on the Company’s financial performance,
with the bonus plan being a cash program, while the equity plan awards equity
interests in the Company. The objective of the bonus
plan is to pay executive officers currently in cash based on the Company’s and the executives’ performance that year.
The “equity plan” offers the opportunity for long-term rewards that will provide incentives for our executive officers
to remain with us and enhance the long-term value of the Company for the shareholders.
Role
of Compensation Committee
The
Compensation Committee is responsible for the executive compensation program design and decision-making process, with input from
the Chairman and CEO. The Compensation Committee annually reviews the Chairman and CEO’s performance, establishes his compensation,
and reviews with the Chairman and CEO his assessment of the other members of senior management and his recommendations for their
compensation. The Compensation Committee consists of three directors who meet the independence requirements of the NYSE (Messrs.
Forese, Glanton and Stamatakis).
The
Compensation Committee has an active role in overseeing the design and implementation of the two incentive programs. In addition,
the Compensation Committee worked closely with senior management to develop a peer group for purposes of benchmarking compensation.
The Compensation Committee retained an independent compensation consultant, Pay Governance LLC, to review the compensation programs
and assist in the development of the incentive plans. Pay Governance has been retained directly by the Compensation Committee
and any services rendered for us are as directed by the Compensation Committee.
Components
of Executive Compensation for Fiscal 2016
The
principal components of our current executive compensation program are base salary, the bonus plan and the equity plan awards.
Although each element of compensation described below is considered separately, our Compensation Committee takes into account
the aggregate compensation package for each executive officer in its determination of each individual component of that package.
We also provide some benefits, such as car allowances, but these are not a significant portion of our compensation program.
Base
salary is a fixed compensation amount paid during the course of the fiscal year. Each named executive officer’s base salary
is reviewed annually by the Compensation Committee. The Compensation Committee takes into account benchmarking information regarding
our executive officers’ base salary against an industry peer group and broader database when determining adjustments to
executive officers’ salaries.
The
bonus plan and equity plan for our executive officers are performance based, and are tied to our results as described below. The
objective of these plans is to link compensation to our performance. The Compensation Committee believes that our named executive
officers should have a meaningful portion of their total compensation opportunity linked to increasing shareholder value through
the Company’s business strategy of focusing upon growth opportunities and continued improvements in profitability. Reflecting
this philosophy, at target levels of awards for the bonus plan and equity plan, more than 50% of total compensation for all of
our named executive officers is performance-based, and almost 75% of our Chairman and CEO’s compensation is performance-based.
Under
the bonus plan, executive officers can earn a percentage of their base salary based upon our performance against specific metrics.
The equity plan provides executive officers with the opportunity to earn restricted stock units (“RSUs”) based on
our performance against specific metrics. The metrics are given different weightings, and executive officers earn their awards
based upon our performance relative to the specific metrics. In addition, each metric has a minimum threshold, below which no
bonus or RSUs can be earned for that metric.
Each
executive has a target award potential he or she can earn under each program expressed as a percentage of the executive’s
base salary. If the performance for a specific metric is at the target level, the executive will receive 100% of his or her target
award related to that metric. Each executive officer can earn between 0% and 200% of his or her target award, based upon performance
against specific metrics.
The
following are the 2016 target awards for our named executive officers under each program.
|
|
Percentage
of Base Salary
|
Name
|
2016
Position
|
Bonus
Plan
|
Equity
Plan
|
Sotirios
Vahaviolos
|
Chairman,
Chief Executive Officer and President
|
85%
|
200%
|
Jonathan
Wolk
|
Executive
Vice President, Chief Financial Officer and Treasurer
|
55%
|
80%
|
Michael
Lange
|
Vice
Chairman and Group Executive Vice President, Strategic Planning and Business Development
|
60%
|
100%
|
Dennis
Bertolotti
|
Group
Executive Vice President, Services Americas
|
55%
|
80%
|
Michael
Keefe
|
Executive
Vice President, General Counsel and Secretary
|
50%
|
80%
|
Bonus
Plan
For
fiscal 2016, performance metrics for the bonus plan were (i) EBITDAS, which is net income before interest, taxes, depreciation,
amortization, non-cash stock-based compensation expense, acquisition related items, and other unusual and/or nonrecurring expenses,
which accounted for 30% of the award, (ii) revenue, which accounted for 30% of the award and (iii) EBITDAS as a percent of revenue,
also known as EBITDAS margin, which accounted for 20% of the award. These metrics were established at the beginning of fiscal
2016 based upon the Company’s internal plan and budget. With respect to the Chief Executive Officer, the Chief Financial
Officer, the General Counsel, and other executive officers who are not responsible for one particular business unit or segment,
the Company’s overall performance accounted for 100% for these three metrics under the bonus plan (which comprised 80% of
the award opportunity). For the Group Executive Vice Presidents and other executive officers whose primary responsibilities are
to manage a business unit or segment, the EBITDAS, revenue and EBITDAS margin metrics under the bonus plan were based 75% on their
specific business unit’s or segment’s performance and 25% on the Company’s overall performance. The remaining
20% of the award potential for all executive officers was based upon the individual executive officer’s performance relative
to specific individual objectives.
The
revenue, EBITDAS and EBITDAS margin metrics were selected for the bonus plan because these are the primary metrics management
and the Board use to evaluate the Company’s performance. The EBITDAS margin metric was selected to provide incentives for
management to continue growing the business while maintaining an appropriate level of profitability
A
minimum of 90% of the target performance level of a metric must be achieved for an executive officer to receive any award for
that metric. At 90% of the target performance level, the executive officer will receive 50% of his target award related to that
metric. If performance is between 90% and 100% of the target performance level for a metric, the executive officer will receive
a percentage of his target award for that metric based upon a straight line interpolation between 50% and 100%, with each 1% increase
in performance against target above the 90% performance level equating to a 5% increase in percentage of target award. If the
performance for a specific metric exceeds 100% of the target performance level, the executive officer will receive in excess of
100% of his target award related to that metric, to a maximum of 200% of his target award if the performance for the metric equals
or exceeds 120% of the target performance level. If performance is between 100% and 120% of target performance level for a metric,
the executive officer will receive a percentage of his target award for that metric based upon a straight line interpolation between
100% and 200%, with each 1% increase in performance against target above the 100% level equating to a 5% increase in percentage
of target award. The Compensation Committee determines the individual performance portion of the bonus plan award for the Chairman
and Chief Executive Officer. The Chairman and Chief Executive Officer and the Compensation Committee determine the individual
performance portion of the bonus plan awards for the other executive officers.
Equity
Plan
The
Compensation Committee approved changes to our equity compensation plan for our executive officers for fiscal 2016. The Compensation
Committee approved modifications to the plan to eliminate the three-year measurement period and the relative TSR for several reasons.
First, given that we are still growing and maturing,
setting fixed financial performance metrics over a three-year period is very
challenging. The Compensation Committee believed that this task is difficult even for mature, long-tenured companies. For example,
the dramatic drop in oil prices and the impact that had on us and our industry and customers is difficult to predict over a three-year
period. Second, the Compensation Committee was concerned with keeping the executive team motivated. With a three year performance
period, a poor first year, in which unusual market conditions result in performance far below target, the long-term awards lose
much of their value if the executive officers do not perceive much value in the award. The same can occur with a one year measurement
period, but the Compensation Committee believes that establishing new targets based upon the business plan and budget for the
very next fiscal period provides greater incentive for the executive team. Another factor was that the relative TSR metric has
been expensive to administer relative to its benefit, due the costs of having a third party value the awards, which then need
to be audited and evaluated by experts at our independent auditors, and then having the results verified. Given that very few
individuals received these awards, and that only 25% of equity incentive awards were based upon relative TSR, management and the
Compensation Committee believed that the cost of administration outweighed the benefits of using this metric versus other metrics
that align management with shareholder interests. Finally, the plan did not provide for any performance award based upon individual
performance, which can be important when executive officers need to take action in difficult times. Accordingly, the Compensation
Committee decided that changes were warranted that would take into account our financial plans over a shorter time period and
allow for a discretionary portion of the award based upon individual performance.
Accordingly,
the Compensation Committee approved modifications to the equity plan for fiscal 2016 which required that we meet one year performance
metrics based upon our financial plan and forecast for the fiscal year. The revised plan also includes a component for individual
performance. Based upon performance, executive officers are awarded restricted stock units, or RSUs, which vest over a four year
period.
The
equity plan for fiscal 2016 had three metrics that were based upon our fiscal 2016 performance: (i) operating income, which accounted
for 35% of the award, (ii) adjusted EBITDAS, which is net income before interest, taxes, depreciation, amortization, non-cash
stock-based compensation expense, acquisition related items, and other non-routine items as determined by the Compensation Committee,
and accounted for 25% of the award, and (iii) revenue, which accounted for 20% of the award. The remaining 20% of the award potential
was based upon the individual executive officer’s performance. The target for each metric was based on our plan set at the
beginning of fiscal year 2016 and reviewed by the Board, which was also the basis for the guidance we provided to the market at
the beginning of the fiscal year for our fiscal 2016 performance.
Under
the 2016 equity plan, if the performance for a specific metric is at target level, the executive will receive 100% of his target
award related to that metric. Each executive officer can earn between 0% and 200% of his target award, based upon performance.
A minimum of 80% of the target performance level of a metric must be achieved for an executive officer to receive any award for
that metric. At 80% of performance level, the executive officer will receive 50% of his target award related to that metric. If
performance is between 80% and 100% of target for a metric, the executive officer will receive a percentage of his target award
for that metric based upon a straight line interpolation between 50% and 100%, with each 1% increase in performance against target
above the 80% level equating to a 2.5% increase in the percentage of target award. If the performance for a specific metric exceeds
100% of the target level, the executive officer will receive in excess of 100% of his target award related to that metric, to
a maximum of 200% of his target award if the performance for the metric equals or exceeds 120% of target. If performance is between
100% and 120% of target performance for a metric, the executive officer will receive a percentage of his target award for that
metric based upon a straight line interpolation between 100% and 200%, with each 1% increase in performance against target above
the 100% level equating to a 5% increase in the percentage of target award. The Compensation Committee determines the individual
performance portion of the award for the Chairman and Chief Executive Officer. The Chairman and Chief Executive Officer and the
Compensation Committee determine the individual performance portion of the awards for the other executive officers.
Under
the revised equity plan, the target award for each executive officer was established in RSUs based upon the stock price in August
2015 after we released results for fiscal year 2015. At the end of the fiscal year, an executive officer will be awarded RSUs
based upon our performance against the metrics and the executive officer’s individual performance, which is then applied
to the executive officer’s target award of RSUs. For example, if an executive officer has a target award of 10,000 RSUs
and the Company and individual performance results in the executive
officer achieving 115% of target award, that executive officer
would be awarded 11,500 RSUs. The RSUs an executive officer receives will vest 25% per year on each of the first four one-year
anniversary dates of end of the fiscal year for which the RSUs are earned, the first such vesting being May 31, 2017 for the RSUs
awarded for fiscal 2016.
As
a condition for receiving any awards for fiscal 2016 under the revised plan, an executive officer was required to surrender and
release all rights to receive any shares or other compensation under the PSU awards for the three-year periods of fiscal 2014
to 2016 and fiscal 2015 to 2017. All of our executive officers surrendered and released all such rights under those awards.
Benchmarking
and the Role of Compensation Consultant
To
assist in the assessment of the appropriateness and competiveness of our compensation programs, management and the Compensation
Committee, with the assistance of Pay Governance, developed a peer group, which was modified in 2016 to take into account the
growth of the Company. In deciding the companies to include in the compensation peer group, management and the Compensation Committee
focused on companies that are involved in or related to the asset protection industry or industrial business services, and primarily
selected firms that were generally in the range of 50% to 200% of our size with respect to revenues and/or market capitalization.
The
compensation peer group consists of the following companies:
Aegion Corporation
|
Badger Meter Inc.
|
Circor International, Inc.
|
Exponent Inc.
|
Furmanite Corporation *
|
Matrix Service Company
|
Team, Inc.
|
|
*
Acquired by Team, Inc. on February 29, 2016.
The
Compensation Committee used the peer group to assess the competiveness of our compensation programs and the various components
and to assist the Compensation Committee in making compensation decisions. The Compensation Committee considered base salaries,
target award levels, total cash compensation (base salary and cash bonus awards), long-term equity compensation, and total compensation
in this assessment.
Pay
Governance does not perform any work for our management and is retained only by the Compensation Committee.
2016
Compensation
The
following is a discussion of the decisions made on the various components of executive compensation for fiscal 2016 for our named
executive officers.
Base
Salary
Executive
officers are reviewed and provided with salary adjustments, if any, after the conclusion of the fiscal year. This enables the
Compensation Committee and the Chairman and CEO to make decisions after reviewing our financial performance during the then just
completed fiscal year and evaluating the executive officers’ performance during that period. Our executive officers’
salaries for fiscal 2016 were $504,400 for Sotirios Vahaviolos; $338,000 for Jonathan Wolk; $316,400 for Michael Lange; $310,000
for Dennis Bertolotti; and $263,120 for Michael Keefe. For fiscal 2016, no increases were made to base salaries for our executive
officers (other than Mr. Bertolotti) in light of industry conditions and the freeze in wages for our technicians. Mr. Bertolotti
received an increase in his base salary to reflect his increased responsibilities leading the entire Services business in the
Americas.
Bonus
Plan and Equity Plan Results
The
Company achieved above the target level for all the metrics and therefore all of our named executives received more than 100%
of their target bonus. Set forth below for the annual bonus plan for corporate and our Services
Segment (which accounts for 75%
of performance metric-based bonus for Dennis Bertolotti’ and Michael Lange) are the performance metrics, the weight of each
metric, the target performance for the metric and the fiscal year results for the respective metric.
|
Corporate
Performance
|
|
Services
Segment Performance
|
Metric
|
Weight
|
Target
|
Result
|
|
Weight
|
Target
|
Result
|
Revenue
|
20%
|
$717.5
|
$719.2
|
|
20%
|
$548
|
$553
|
Adjusted
EBITDA
|
30%
|
$75
|
$88.1
|
|
30%
|
$75
|
$81.4
|
Adjusted
EBITDA Margin
|
30%
|
10.5%
|
12.2%
|
|
30%
|
13.7%
|
14.7%
|
(All
dollar amounts in millions)
Similarly,
we overachieved on the metrics for the equity plan and therefore all our named executive officers received more than 100% of their
target RSU award. Set forth below are the metrics for the equity plan, the weight of each metric, the target performance for the
metric, the fiscal year results for the respective metric. The equity plan is based completely on corporate performance for all
of our named executive officers.
Metric
|
Weight
|
Target
|
Result
|
Revenue
|
20%
|
$717.5
|
$719.2
|
Adjusted
EBITDA
|
25%
|
$75
|
$88.1
|
Operating
Income
|
35%
|
$33
|
$43.2
|
(All
dollar amounts in millions)
In
addition, the Compensation Committee awarded each named executive officer 150% of his target for individual performance for both
the bonus plan and the equity plan, which accounts for 20% of the weighting under each plan. The Compensation Committee believed
these higher individual performance awards were warranted because the Company overachieved on its financial goals and significantly
increased its levels of profitability over prior years, both in terms of a dollar amount and a percentage of revenue. All of this
was accomplished in a market in which many of our competitors were having declines in revenue and decreased profitability and
margins. The Compensation Committee believed the named executive officers should be rewarded for their excellent execution on
the plans developed in the prior year to improve profitability by improving processes and streamlining operations through various
initiatives.
Accordingly,
the following are the target awards for each named executive officer for the bonus plan and the equity plan and his actual awards
under each plan based upon fiscal 2016 results.
|
Annual
Bonus plan ($)
|
|
Equity
Plan (RSUs) (#)
|
Name
|
Target
|
Actual
Award
|
Actual
as a
% of target
|
|
Target
|
Actual
|
Actual
as a
% of target
|
Sotirios
Vahaviolos
|
$428,740
|
$699,839
|
163%
|
|
67,705
|
113,348
|
167%
|
Jonathan
Wolk
|
$185,900
|
$303,447
|
163%
|
|
18,148
|
30,382
|
167%
|
Dennis
Bertolotti
|
$170,500
|
$242,770
|
142%
|
|
16,644
|
27,865
|
167%
|
Michael
Lange
|
$189,840
|
$270,307
|
142%
|
|
21,235
|
35,550
|
167%
|
Michael
Keefe
|
$131,560
|
$214,747
|
163%
|
|
14,127
|
23,651
|
167%
|
Additional
Awards for Fiscal 2016
In
October 2015, the Compensation Committee awarded RSUs to the named executives, other than Sotirios Vahaviolos, to help retain
the named executives. The oil and gas industry was fluctuating significantly, and we were in the process of implementing various
initiatives which we believed would improve our processes and operations and therefore also improve our long-term profitability.
The Compensation Committee believed that these RSUs would help ensure that the named executive officers remain with us through
the difficult times. In addition, Sotirios Vahaviolos was undergoing medical treatment, and while he was still involved in the
business, the Compensation Committee used these awards help keep the senior management team in place to continue assisting Sotirios
run the business. These RSUs have a three year cliff vesting, with 100% of the RSUs vesting on the third anniversary date of the
October 20, 2015 grant date. The amounts of the grants are as follows:
Dennis Bertolotti – 20,500
|
Jonathan Wolk – 17,500
|
Michael Lange – 17,500
|
Michael Keefe – 14,000
|
In
addition, at the conclusion of fiscal 2016, the Compensation Committee decided to award special bonuses and RSU awards to Dennis
Bertolotti, Jonathan Wolk and Michael Lange. These awards were made in recognition of their outstanding performance in fiscal
2016, during which we performed very well and overachieved all of our targets when most in the industry were performing below
expectations and the prior year’s results. Each of them led key initiatives which improved our profitability through streamlined
processes and more efficient operations. In addition, during periods when Sotirios Vahaviolos was undergoing medical treatment,
Messrs. Bertolotti, Wolk and Lange kept the business operating smoothly and effectively and collaborated with and helped Dr. Vahaviolos
oversee the management of the international operations, and assisted the international businesses with their improved performance.
Accordingly, they were awarded the following additional cash bonuses and RSUs. The RSUs will vest 25% per year on each of the
first four anniversary dates of the grant date.
|
Cash
Bonus
|
RSUs
|
Dennis
Bertolotti
|
$50,000
|
10,000
|
Jonathan
Wolk
|
$25,000
|
5,000
|
Michael
Lange
|
$25,000
|
5,000
|
Actions
for 2017
For
fiscal 2017, the Compensation Committee has retained the same bonus plan and equity plan for incentive compensation as was used
in fiscal 2016. The targets for the metrics have been updated to reflect our 2017 plan and budget. Sotirios Vahaviolos’
compensation, including base salary, will not be changed for fiscal 2017. Dennis Bertolotti received an increase in his base salary
and his target awards for both plans to reflect his new role as our President and Chief Operating Officer. The other named executive
officers received increases in base salary to reflect their work in improving the Company’s operations, foregoing salary
increases in fiscal 2016 and to keep their compensation competitive. In addition, Jonathan Wolk and Michael Lange received increases
to their target awards for both plans to reflect their increased responsibilities managing and running the business operations
and developing strategy. Below are the changes in base salary and the targets for the bonus plan and the equity plan, as a percentage
of base salary, for our named executive officers.
|
Base
Salary
|
|
Bonus
Plan Target
|
|
Equity
Plan Target
|
|
2016
|
2017
|
|
2016
|
2017
|
|
2016
|
2017
|
Sotirios
Vahaviolos
|
$504,400
|
$504,400
|
|
85%
|
85%
|
|
200%
|
200%
|
Jonathan
Wolk
|
$338,000
|
$368,000
|
|
55%
|
65%
|
|
80%
|
110%
|
Dennis
Bertolotti
|
$310,000
|
$380,000
|
|
55%
|
70%
|
|
80%
|
130%
|
Michael
Lange
|
$316,400
|
$345,000
|
|
60%
|
65%
|
|
100%
|
110%
|
Michael
Keefe
|
$263,120
|
$283,000
|
|
50%
|
50%
|
|
80%
|
80%
|
Overall
Compensation for 2016 Performance
The
Compensation Committee reviews compensation awarded to our executive officers based on compensation and awards related to a particular
fiscal year, and our performance for that fiscal year. Due to the SEC disclosure rules for the Summary Compensation Table under
“Executive Compensation,” the compensation set forth in that table for a particular year does not necessarily align
with the actual compensation related to that year. For example, PSUs granted in October 2014 for the period of fiscal 2015 to
2017 pertain to and are earned based upon performance from 2015 to 2017. However, the Summary Compensation Table includes the
entire value of these grants in fiscal 2015 based upon the value used for stock compensation accounting under FASB ASC Topic 718,
as required by the SEC rules for summary compensation table disclosure. Similarly, the amounts actually earned for the granted
PSUs included in fiscal 2014 for the one and two year transition awards were substantially less than the amount reported in the
summary compensation table. Finally, as described above, our executive officers have surrendered and released all rights to receive
any shares or other compensation under the PSU awards included in fiscal 2014 for the three year period of 2014 to 2016 and in
fiscal 2015 for the three year period of 2015 to 2017, but the entire value for
accounting purposes is included in the summary
compensation table under stock awards for fiscal 2014 and 2015, respectively.
Equity
Grants and Awards Outstanding
The
following chart illustrates the equity awards that have been granted during each of our past three fiscal years to our employees,
including our named executive officers, and our non-employee directors.
Fiscal
year ended May 31,
|
Options/SARs
Granted
|
Time-Based
RSUs
Granted
|
Performance-Based
RSUs Earned
|
Shares
issued to
Non-employee
Directors
|
2016
|
—
|
264
|
239
|
28
|
2015
|
—
|
192
|
34
|
21
|
2014
|
—
|
295
|
55
|
19
|
(All
share amounts in thousands)
As
of August 31, 2016 the following is information regarding outstanding awards under our existing equity plans, the 2009 Plan and
the 2007 Plan:
Stock
options outstanding
|
2,187,508
|
Weighted
average exercise price of stock options outstanding
|
$13.28
|
Weighted
average remaining term of stock options outstanding
|
2.94
years
|
Outstanding
RSUs (unvested time-based, performance based earned but not vested and unearned performance-based at target)
|
1,064,896
|
As
of August 31, 2016, the 2009 Plan had 360,757 shares available for future grants.
Role
of Executive Officers in Setting Compensation
Dr.
Vahaviolos plays a role in setting compensation for executive officers, as has been the case historically since he founded the
Company over 38 years ago. Dr. Vahaviolos has been operating in the NDT and asset protection industry for close to 40 years and
possesses a detailed and in-depth knowledge of the industry and our competitors, which enables him to assess the performance of
our executive officers as compared to our competitors. In 2016, Dr. Vahaviolos continued to play a role in making recommendations
to the Compensation Committee regarding our other executive officers and the level of overall equity awards, but his recommendations
are subject to the Compensation Committee’s independent review and approval. We expect this practice will continue in the
future, as the Compensation Committee values Dr. Vahaviolos’ input and guidance regarding compensation for other executive
officers.
Impact
of Tax Treatment
The
Company and the Compensation Committee consider tax, tax deductibility and accounting treatment of various compensation alternatives,
and strive to structure all compensation to be fully tax deductible. However, these are not the driving or most influential factors.
The Compensation Committee may approve non-deductible compensation arrangements if it believes they are in our best interests
and those of our shareholders, taking into account several factors, including our ability to utilize deductions based on projected
taxable income.
Employment
Agreements and Severance Arrangements
We
have an employment agreement with Dr. Vahaviolos for the positions of Chairman of the Board and Chief Executive Officer. The agreement
is currently in a one year term which automatically renews for successive one-year periods in the absence of an election by either
party to terminate. The employment agreement is described further under “Vahaviolos Employment Agreement” and the
subheading of “Dr. Vahaviolos” under “Potential Payments upon Termination of Employment.” We have established
a severance plan for our other named executives
officers that is further explained in “Potential Payments upon Termination
of Employment” under the subheading “Our Other Named Executive Officers.”
Compensation
Policies
Stock
Ownership Guidelines
The
Compensation Committee and Board have established stock ownership guidelines for our executive officers. Our CEO is required to
hold shares of our common stock with a value of at least five times his annual base salary and all other executive officers are
required to hold shares of our common stock with a value of at least two times their annual base salary. Our current executive
officers (other than Mr. Wolk) have until January 2017 to meet these guidelines, and Mr. Wolk and future executive officers will
have five years from their appointment to meet the guidelines. Unexercised options and unearned performance shares or performance
RSUs are not counted toward meeting the guidelines until earned. If an executive officer is not meeting the minimum ownership
guidelines (even if before date he must meet them), the executive officer is required to hold all shares received from the vesting
or exercise of an equity award during the preceding 36 months (other than shares withheld to pay withholding taxes and shares
acquired upon the exercise of options which are sold to cover the exercise price).
Claw-Back
Policy
We
have established an incentive compensation recoupment policy, pursuant to which we may recoup both cash and equity incentive compensation
from executive officers. If we have a significant restatement of previously issued financial statements caused by the fraud or
willful misconduct of one or more of our executive officers (such executives officer shall be referred to as “culpable officers”),
as determined by the Compensation Committee in its reasonable judgment after consultation with the Audit Committee, and the culpable
officers received incentive compensation based upon the results of the financial statements which are subject to the significant
restatement, the policy provides for the following.
The
Compensation Committee shall recalculate the incentive compensation for the period or periods related to the restated financial
statements that the culpable officers should have received, based upon the restated financial statements. If the incentive compensation
the culpable officers actually received is greater than the recalculated amount of incentive compensation as determined by the
Compensation Committee, then the Compensation Committee shall seek to recoup from the culpable officers such excess incentive
compensation. The Compensation Committee shall determine the manner and timing by which we will seek recovery from the culpable
officers, including the cancellation of equity awards and setoff against current or future compensation, to the extent permitted
by law.
Hedging
Prohibitions
Our
Insider Trading Compliance Policy prohibits all of our employees, including our executive officers and directors, from (i) trading
in options of any kind or other derivatives related to our securities, (ii) selling our securities short or (iii) purchasing our
securities on margin.
Continuing
Review of Compensation Practices
We
will continue to review our compensation practices and programs and will consider changes as the Compensation Committee deems
appropriate to meet our compensation goals. No material changes are planned for fiscal 2017.
Risk
Assessment of Compensation Practices and Programs
Our
Compensation Committee and senior management assessed whether our compensation practices and programs for our executive officers
and other employees pose any material risk to us and determined that our compensation practices and programs are not reasonably
likely to have a material adverse effect on us.
E
XECUTIVE COMPENSATION
S
ummary Compensation Table
The following table provides information regarding the
compensation of our Chief Executive Officer, our Chief Financial Officer, any persons who served in the role of principal financial
officer during fiscal 2016, and each of the next three most highly compensated executive officers in fiscal 2016. We refer to
these individuals as our “named executive officers.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and principal position
|
|
Fiscal
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
$(1)
|
|
Non-Equity
Incentive Plan
Compensation
($)(2)
|
|
All Other
Compensation
($)(3)
|
|
Total
($)
|
|
Sotirios J. Vahaviolos
|
|
|
2016
|
|
|
504,400
|
|
|
—
|
|
|
963,442
|
|
|
699,839
|
|
|
29,587
|
|
|
2,197,268
|
|
Chairman, President and
|
|
|
2015
|
|
|
500,699
|
|
|
—
|
|
|
748,759
|
|
|
312,096
|
|
|
26,273
|
|
|
1,587,827
|
|
Chief Executive Officer
|
|
|
2014
|
|
|
476,286
|
|
|
—
|
|
|
4,539,751
|
|
|
316,690
|
|
|
24,408
|
|
|
5,357,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan H. Wolk
|
|
|
2016
|
|
|
338,000
|
|
|
25,000
|
|
|
594,246
|
|
|
303,447
|
|
|
20,997
|
|
|
1,281,690
|
|
Executive Vice President, Chief
|
|
|
2015
|
|
|
335,500
|
|
|
—
|
|
|
200,693
|
|
|
135,323
|
|
|
12,221
|
|
|
683,737
|
|
Financial Officer and Treasurer
|
|
|
2014
|
|
|
168,750
|
|
|
—
|
|
|
1,648,459
|
|
|
137,315
|
|
|
42,509
|
|
|
1,997,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Lange
|
|
|
2016
|
|
|
316,400
|
|
|
25,000
|
|
|
638,174
|
|
|
270,307
|
|
|
10,494
|
|
|
1,260,375
|
|
Vice Chairman and Group Executive
|
|
|
2015
|
|
|
314,054
|
|
|
15,000
|
|
|
339,492
|
|
|
193,114
|
|
|
9,335
|
|
|
870,995
|
|
Vice President, Strategic Planning and
|
|
|
2014
|
|
|
302,040
|
|
|
—
|
|
|
1,614,507
|
|
|
150,332
|
|
|
8,488
|
|
|
2,075,367
|
|
Business Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis Bertolotti
|
|
|
2016
|
|
|
306,885
|
|
|
50,000
|
|
|
630,444
|
|
|
242,770
|
|
|
15,840
|
|
|
1,245,939
|
|
Group Executive Vice President,
|
|
|
2015
|
|
|
289,693
|
|
|
—
|
|
|
173,383
|
|
|
148,518
|
|
|
15,803
|
|
|
627,397
|
|
Services Americas
|
|
|
2014
|
|
|
272,615
|
|
|
50,800
|
|
|
1,388,859
|
|
|
140,310
|
|
|
16,541
|
|
|
1,869,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael C. Keefe
|
|
|
2016
|
|
|
263,120
|
|
|
—
|
|
|
469,827
|
|
|
214,747
|
|
|
16,302
|
|
|
963,996
|
|
Executive Vice President,
|
|
|
2015
|
|
|
261,174
|
|
|
—
|
|
|
156,236
|
|
|
95,767
|
|
|
11,879
|
|
|
525,056
|
|
General Counsel and Secretary
|
|
|
2014
|
|
|
248,754
|
|
|
14,800
|
|
|
1,003,370
|
|
|
97,177
|
|
|
14,322
|
|
|
1,378,423
|
|
(1)
|
This column represents the value of RSUs, PSUs or performance based RSUs based upon their grant date fair value for stock compensation under FASB ASC Topic 718.
|
|
|
(2)
|
The amounts in this column represent the cash payments under the annual incentive program made to each named executive officer after the conclusion of the fiscal year, based upon the Company’s performance against financial metrics and the individual performance of the named executive officer during the fiscal year.
|
|
|
(3)
|
For All Other Compensation in fiscal 2016, no named executive officer received any perquisite or personal benefit which individually exceeded $25,000 and generally consisted of vehicle allowance or usage and Company matching of 401-K plan contributions.
|
G
rants of Plan-Based Awards in Fiscal
2016
The following table provides information regarding grants
of non-equity plan-based awards to our named executive officers in fiscal 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under Non-Equity
Incentive Plan Awards
|
|
Name
|
|
Grant date
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Sotirios J. Vahaviolos
|
|
|
(1)
|
|
|
214,370
|
|
|
428,740
|
|
|
857,480
|
|
Jonathan H. Wolk
|
|
|
(1)
|
|
|
92,950
|
|
|
185,900
|
|
|
371,800
|
|
Michael J. Lange
|
|
|
(1)
|
|
|
94,920
|
|
|
189,840
|
|
|
379,680
|
|
Dennis Bertolotti
|
|
|
(1)
|
|
|
85,250
|
|
|
170,500
|
|
|
341,000
|
|
Michael C. Keefe
|
|
|
(1)
|
|
|
65,780
|
|
|
131,560
|
|
|
263,120
|
|
|
(1)
|
Amounts are potential payouts under the Company’s cash bonus plan for executive officers for fiscal 2016, which are based on Company performance. The threshold assumes minimum performance and minimal awards for individual performance, which pays at 50% of target award; maximum assumes performance at or above the levels needed for maximum payout and maximum award for individual performance, which pays out at 200% of target award level. The actual awards for fiscal 2016 are included under the Non-Equity Incentive Plan Compensation in the Summary Compensation Table for fiscal 2016.
|
The following table provides information regarding grants
of equity awards to our named executive officers in fiscal 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other stock
awards:
number of
shares of stock
or units (#)
|
|
|
Grant date
fair value of
stock and
option
awards ($)
|
|
|
|
|
|
Estimated Future Payouts Under Equity
Incentive Plan Awards (1)
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Maximum
(#)
|
|
|
|
|
|
|
Sotirios Vahaviolos
|
|
|
8/24/2015
|
|
|
33,853
|
|
|
67,705
|
|
|
135,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan Wolk
|
|
|
8/24/2015
|
|
|
9,074
|
|
|
18,148
|
|
|
36,296
|
|
|
|
|
|
|
|
|
|
|
|
10/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
|
336,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Lange
|
|
|
8/24/2015
|
|
|
10,618
|
|
|
21,235
|
|
|
42,470
|
|
|
|
|
|
|
|
|
|
|
|
10/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
|
336,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis Bertolotti
|
|
|
8/24/2015
|
|
|
8,322
|
|
|
16,644
|
|
|
33,288
|
|
|
|
|
|
|
|
|
|
|
|
10/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
20,500
|
|
|
393,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Keefe
|
|
|
8/24/2015
|
|
|
7,064
|
|
|
14,127
|
|
|
28,254
|
|
|
|
|
|
|
|
|
|
|
|
10/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
14,000
|
|
|
268,800
|
|
The grant date value for the stock awards is based upon
FASB ASC Topic 718:
|
|
|
|
(1)
|
Amounts are potential payouts under the Company’s equity plan for executive officers for fiscal 2016, which are based on Company performance. The threshold assumes minimum performance and minimal awards for individual performance, which pays at 50% of target award; maximum assumes performance at or above the levels needed for maximum payout and maximum award for individual performance, which pays out at 200% of target award level. The actual number of RSUs earned for 2016 are set forth on page 31.
|
O
utstanding Equity Awards at 2016 Fiscal
Year-End
The following table provides information regarding equity
awards granted to our named executive officers that were outstanding as of May 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number of
securities
underlying
unexercised
options
exercisable
(#)(1)
|
|
Option
exercise price
($/share)
|
|
Option
expiration
date
|
|
|
Number of
shares or
units of stock
that have not
vested (#)(2)
|
|
Market value
of shares or
units of stock
that have not
vested ($)(2)
|
|
Equity
incentive plan
awards:
number of
unearned
shares, units
or other rights
that have not
vested (#)(3)
|
|
Equity
incentive plan
awards:
market or
payout value
of unearned
shares, units
or other rights
that have not
vested ($)(3)
|
|
S. Vahaviolos
|
|
|
1,950,000
|
|
|
13.46
|
|
|
9/01/2019
|
|
|
52,064
|
|
|
1,291,708
|
|
|
67,705
|
|
|
1,679,761
|
|
|
J. Wolk
|
|
|
|
|
|
|
|
|
|
|
|
39,751
|
|
|
986,222
|
|
|
18,148
|
|
|
450,252
|
|
|
M. Lange
|
|
|
139,358
|
|
|
13.46
|
|
|
7/21/2019
|
|
|
49,180
|
|
|
1,220,156
|
|
|
21,235
|
|
|
526,840
|
|
|
D. Bertolotti
|
|
|
26,000
|
|
|
10.00
|
|
|
4/09/2019
|
|
|
42,940
|
|
|
1,065,341
|
|
|
16,644
|
|
|
412,938
|
|
|
M. Keefe
|
|
|
|
|
|
|
|
|
|
|
|
27,834
|
|
|
690,562
|
|
|
14,127
|
|
|
350,491
|
|
|
|
(1)
|
All options are exercisable; no unexercisable or unvested options are outstanding.
|
|
|
|
|
(2)
|
These columns represent earned but unvested PSUs and RSUs which have only time-based vesting restrictions remaining.
|
|
|
|
|
(3)
|
These columns represent the performance-based RSUs granted for fiscal 2016, at the target award.
|
O
ption Exercises and Stock Vesting in
Fiscal 2016
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
Number of
shares acquired
on vesting (#)
|
|
|
Value realized on
vesting ($)
|
|
Sotirios Vahaviolos
|
|
22,572
|
|
|
|
348,737
|
|
|
Jonathan Wolk
|
|
6,250
|
|
|
|
127,750
|
|
|
Michael Lange
|
|
9,504
|
|
|
|
152,183
|
|
|
Dennis Bertolotti
|
|
7,802
|
|
|
|
130,941
|
|
|
Michael Keefe
|
|
4,885
|
|
|
|
75,473
|
|
|
No options were exercised in fiscal 2016 by our named executive officers.
P
ension Benefits and Non-Qualified Deferred
Compensation
We do not currently provide our named executive officers
with pension benefits or nonqualified deferred compensation.
P
otential Payments upon Termination of
Employment
We have a severance plan that covers all of our executive
officers, providing them with benefits in connection with a termination of employment in certain circumstances. This severance
plan is designed to provide its participants with some level of continued income and benefits upon the termination of their employment
with the Company under certain circumstances.
All of our named executive officers will receive the
benefits of the severance plan, with the exception of Dr. Vahaviolos, who has an employment agreement with us which controls his
severance.
The following summarizes the payments and benefits that
would be owed by us to the named executive officers upon termination under the circumstances described below, in each case assuming
termination occurred on May 31, 2016.
Dr. Vahaviolos
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Event
|
|
Salary
|
|
|
Incentive
Bonus (1)
|
|
|
Unvested
Equity
Awards (2)
|
|
|
Healthcare
and Other
Benefits
|
|
|
Total
|
|
Termination by Company without cause/termination by Dr. Vahaviolos for good reason, with no change in control
|
|
|
$756,600
|
|
|
|
$643,110
|
|
|
|
$4,103,872
|
|
|
|
$66,335
|
|
|
|
$5,569,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of control and termination by Company without cause/termination by Dr. Vahaviolos for good reason
|
|
|
$1,008,800
|
|
|
|
$857,480
|
|
|
|
$4,103,872
|
|
|
|
$66,335
|
|
|
|
$6,036,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability or death
|
|
|
$252,200
|
|
|
|
—
|
|
|
|
$4,103,872
|
|
|
|
$23,706
|
|
|
|
$4,379,778
|
|
(1)
|
Dr. Vahaviolos is also entitled to 1-1/2 times (two times in case of change in control) of the greater of (a) bonus at 85% of salary or (b) current year’s bonus in case of termination by (i) the Company without cause or (ii) Dr. Vahaviolos for good reason. This amount does not include the amounts under the column Non-Equity Incentive Plan Compensation in the Summary Compensation Table, which would be paid to Dr. Vahaviolos as well.
|
|
|
(2)
|
Dr. Vahaviolos’ RSUs vest upon the termination of his employment for any of the events listed above and performance RSUs will be deemed earned and vested at target. The closing price of our common stock on May 31, 2016 was $24.11 per share, and Dr. Vahaviolos had 52,064 unvested RSUs and earned PSUs as of May 31, 2016 and 113,348 performance based RSUs that were earned for fiscal 2016.
|
Termination without cause occurs if Dr. Vahaviolos is
terminated for any reason other than: (1) a conviction of or a
nolo contendre
(uncontested) plea to a felony or an indictment
for a felony against Mistras that has a material adverse effect on our business; (2) fraud involving Mistras; (3) willful failure
to carry out material employment responsibilities; or (4) willful violation of a material company policy, in each case subject
to a 30 day cure period if the act or omission is curable by Dr. Vahaviolos.
Dr. Vahaviolos may terminate his employment for good
reason as follows: (1) a material reduction in his status or position, including a reduction in his duties, responsibilities or
authority, or the assignment to him of duties or responsibilities that are materially inconsistent with his status or position;
(2) a reduction in his base salary or failure to pay such amount; (3) a reduction in his total target incentive award opportunity;
(4) a breach by us of any of our material obligations under the employment agreement; (5) a required relocation of his principal
place of employment of more than 50 miles; or (6) in connection with a change in control, a failure by the successor company to
assume our obligations under his employment agreement.
Termination in connection with a change in control occurs
if we terminate Dr. Vahaviolos’ employment without cause at the request of an acquirer or otherwise in contemplation of a
change in control in the period beginning six months prior to the date of a change in control, or we terminate him without cause
or he terminates his employment for good reason within two years after a change in control.
Our Other Named Executive Officers
Under the severance plan, if an executive officer’s
employment is terminated, the executive officer would receive the following:
·
|
If an executive officer’s employment is terminated by the Company without cause or he terminates employment for good reason in a situation not involving a change in control, the executive officer will receive 12 month base salary plus a pro rata portion of the annual cash bonus for the year in which employment is terminated.
|
|
|
·
|
If the executive officer’s employment is terminated by the Company without cause or he terminates employment for good reason, in either case within 6 months before or 2 years after a change in control, he will receive 18 months base salary plus 1-1/2 time his annual cash bonus at the executive officer’s target bonus opportunity.
|
If an executive officer’s employment is terminated
by the Company without cause or the executive officer terminates employment for good reason, not in connection with a change in
control, then while he is receiving the termination payment (so long as he is complying with the confidentiality requirements and
the non-compete and non-solicitation restrictions which are conditions for severance benefits), all options and RSUs will continue
to vest. Any outstanding performance-based awards will be earned and vested pro rata to the date of termination and the amount
of any awards payable or vesting will be determined based on actual performance. Any vested stock options shall expire 90 days
after the end of the severance period.
If an executive officer’s employment is terminated
by the Company without cause or he terminates employment for good reason within 6 months before or 2 years after a change in control,
all equity-based incentive awards granted to the executive officer which were not paid out or fully vested in connection with the
change in control shall become fully vested immediately, with the payout under any performance-based awards being equal to the
target amount.
The following sets forth the severance payments we would
pay to our other named executive officers if their employment was terminated at the conclusion of fiscal 2016 by us without cause
or by the executive officer for good reason. Under the severance policy, the terms termination “without cause” and
“for good reason” are substantially the same as described above for Dr. Vahaviolos.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Circumstance of Termination
|
|
Salary
|
|
|
Incentive
Bonus (1)
|
|
Unvested
Equity
Awards (2)
|
|
Healthcare
and Other
Benefits
|
|
|
Total
|
|
No Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan Wolk
|
|
|
$338,000
|
|
|
|
—
|
|
|
$585,429
|
|
|
$15,169
|
|
|
|
$938,598
|
|
Michael Lange
|
|
|
$316,400
|
|
|
|
—
|
|
|
$924,631
|
|
|
$5,236
|
|
|
|
$1,246,267
|
|
Dennis Bertolotti
|
|
|
$310,000
|
|
|
|
—
|
|
|
$650,227
|
|
|
$15,100
|
|
|
|
$975,327
|
|
Michael Keefe
|
|
|
$263,120
|
|
|
|
—
|
|
|
$473,319
|
|
|
$13,780
|
|
|
|
$750,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan Wolk
|
|
|
$507,000
|
|
|
|
$278,850
|
|
|
$1,740,000
|
|
|
$15,169
|
|
|
|
$2,541,019
|
|
Michael Lange
|
|
|
$474,600
|
|
|
|
$284,760
|
|
|
$2,097,189
|
|
|
$5,236
|
|
|
|
$2,861,785
|
|
Dennis Bertolotti
|
|
|
$465,000
|
|
|
|
$255,750
|
|
|
$1,756,672
|
|
|
$15,100
|
|
|
|
$2,492,522
|
|
Michael Keefe
|
|
|
$394,680
|
|
|
|
$197,340
|
|
|
$1,277,343
|
|
|
$13,780
|
|
|
|
$1,883,143
|
|
|
(1)
|
Does not include amounts paid under the column Non-Equity Incentive Plan Compensation in the Summary Compensation Table, which would be paid as well.
|
|
|
|
|
(2)
|
Includes fiscal 2016 performance RSUs paid based upon actual performance.
|
V
ahaviolos Employment Agreement
We have an employment agreement with Dr. Vahaviolos for the positions of executive
Chairman of the Board and Chief Executive Officer. The agreement currently is in effect for a one-year period which automatically
renews each August 31 in the absence of an election by either party to terminate. The employment agreement provides for an annual
review by the Compensation Committee of Dr. Vahaviolos’ base salary and for annual short-term incentive opportunities targeted
at no less than 75% of his annual base salary. Under this agreement, Dr. Vahaviolos was granted an option to purchase 1,950,000
shares of our common stock, which are now fully vested, with an exercise price equal to $13.46 per share.
Under his employment agreement, Dr. Vahaviolos may be
entitled to receive payments and other benefits upon the termination of his employment. These payments and other benefits are described
under “Potential Payments upon Termination of Employment” above. If Dr. Vahaviolos is subject to the federal excise
tax on “excess parachute payments” for benefits to which he is entitled under his employment agreement or otherwise
from us, he is entitled to receive an amount necessary to offset the excise taxes and any related income taxes, penalties and interest.
Post-employment payments and benefits under the employment
agreement are subject to compliance by Dr. Vahaviolos with the restrictive covenants in the agreement, including non-disclosure,
non-competition and non-solicitation covenants. The non-competition and non-solicitation covenants expire on the second anniversary
of the termination of Dr. Vahaviolos’ employment. The non-disclosure covenant does not expire. If Dr. Vahaviolos violates
any of these covenants, he will not be entitled to further payments and benefits under the employment agreement and must repay
us for the post-employment payments and benefits received under the agreement. All post-employment payments or benefits under the
employment agreement are conditioned on the execution of a general release of claims by Dr. Vahaviolos in favor of us, our affiliates,
and our officers, directors and employees.
S
HAREHOLDER PROPOSALS
AND OTHER MATTERS
Shareholders may submit proposals on matters appropriate
for shareholder action at meetings of the Company’s shareholders in accordance with Rule 14a-8 promulgated under the Securities
Exchange Act of 1934. If a shareholder wants us to include such a proposal in our proxy statement for presentation at our 2017
annual shareholders meeting of shareholders, the proposal must be received by our Corporate Secretary, at 195 Clarksville Road,
Princeton Junction, New Jersey 08550, no later than May 8, 2017, and all applicable requirements of Rule 14a-8 must be satisfied.
If the shareholder submitting the proposal is not the holder of record, the shareholder will need to submit to us proof of ownership
for at least one year. This can generally be obtained from the bank, broker or other nominee holding the shares. We are not required
to include any proposal received after May 8, 2017 in our proxy materials for the 2017 annual shareholders meeting.
A shareholder may also nominate directors or have other
business brought before the 2017 annual shareholders meeting by submitting the nomination or proposal to us on or after June 20,
2017, and on or before July 20, 2017, in accordance with Section 2.14 of our bylaws. If, however, our 2017 shareholders meeting
is held before September 18, 2017 or after December 17, 2017, the time period for a shareholder to submit a nomination or proposal
will be modified in accordance with Section 2.14 of our bylaws. The nomination or proposal must be delivered to our Corporate
Secretary at 195 Clarksville Road, Princeton Junction, New Jersey 08550, and meet all the requirements of our bylaws. Our bylaws
are available on our website at
http://investors.mistrasgroup.com/governance.cfm
.
EXHIBIT
A
CERTIFICATE
OF AMENDMENT
of
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
of
MISTRAS GROUP, INC.
The
Second Amended and Restated Certificate of Incorporation of the Corporation, filed with the Secretary of State of the State of
Delaware on October 14, 2009, is hereby amended by deleting Article VIII thereof in its entirety and substituting the following
in lieu thereof:
Any
director may be removed from the Board of Directors by the stockholders of the corporation
only for
with or
without
cause
, and in such case only
by the affirmative vote of the holders of at least a majority of the
voting power of the issued and outstanding shares of capital stock of the corporation then entitled to vote in the election of
directors. Vacancies occurring on the Board of Directors for any reason and newly created directorships resulting from an increase
in the authorized number of directors may be filled only by a vote of a majority of the remaining members of the Board of Directors,
although less than a quorum, or by a sole remaining director, at any meeting of the Board of Directors. A person so elected by
the Board of Directors to fill a vacancy or newly created directorship shall hold office until the next annual meeting of stockholders
and until his or her successor shall be duly elected and qualified. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
EXHIBIT
B
MISTRAS
GROUP, INC.
2016 LONG-TERM INCENTIVE PLAN
ARTICLE
1
GENERAL
1.1
Purpose
.
The purpose of the Plan is to enable the Company to provide equity-based and other incentive compensation opportunities in order
to facilitate the ability of the Company to attract, motivate, reward and/or retain qualified employees, directors and other service
providers who make or are expected to make significant contributions to the success of the Company and its Subsidiaries.
1.2
Eligibility
.
Awards may be granted under the Plan to any present or future non-employee director, officer or employee of, and any consultant
or adviser to, the Company or any of its Subsidiaries, provided that Incentive Stock Options may be granted only to employees
of the Company or a Subsidiary.
1.3
Types
of Awards
. Awards under the Plan may include, without limitation, Options, Stock Appreciation Rights, shares of Restricted
Stock, Restricted Stock Units, and other Share-based Awards and performance-based Cash Incentive Awards, all as described in Articles
5 through 7 hereof.
ARTICLE
2
Definitions
2.1 “Award”
means an award made to an eligible service provider under the Plan.
2.2 “Award
Agreement” means a written or electronic agreement between the Company and a Participant setting forth the terms and conditions
of an Award.
2.3 “Board”
means the Board of Directors of the Company.
2.4 “Cause”
means, with respect to any Participant and unless otherwise specified in a Participant’s Award Agreement, (a) if there is
an employment or other services agreement between the Participant and the Company or a Subsidiary that defines the term “cause”
(or a term of like import), the Participant’s engaging in conduct that constitutes “cause” (or a term of like
import) within the meaning of that agreement, or (b) if there is no employment or service agreement between the Participant and
the Company or a Subsidiary that defines the term “cause” (or a term of like import), (1) the Participant’s
failure (other than temporarily while physically or mentally incapacitated) or refusal to perform the duties of the Participant’s
employment or other service if such failure or refusal shall not have ceased or been remedied within fifteen days following written
warning from the Company or a Subsidiary; (2) the Participant’s engaging in conduct or activities materially damaging to
the property, business or reputation of the Company or a Subsidiary or to the ability of the Participant to perform the duties
of his or her employment or other services; (3) the Participant’s conviction of or plea of no contest to a felony; (4) a
material breach by the Participant of any material written restrictive covenant or agreement made by the Participant with the
Company or any successor or acquiring company (or any of their respective affiliates); (5) a material unauthorized disclosure
intentionally made by the Participant to any person of any confidential information or trade secrets of the Company or any of
its Subsidiaries; or (6) the Participant’s failure to comply in all material respects with the policies of the Company or
a Subsidiary or with any non-competition, non-solicitation or other restrictive covenants made by or the fiduciary duties of the
Participant to the Company or a Subsidiary; in each of such cases as determined by the Board or the Committee acting in its good
faith discretion.
2.5 “Change
in Control” means the occurrence of any of the following events:
(a) any
“person” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than (i) a subsidiary of the
Company, (ii) any trustee or other fiduciary holding securities under any employee benefit plan of the Company, (iii) Sotirios
Vahaviolos, or (iv) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of
stock of the Company) is or becomes the “beneficial owner” (as defined in Rule l3d-3
under the Exchange Act), directly or indirectly, of securities of the Company representing 40% or more of the combined voting
power of the Company’s then outstanding securities, other than an acquisition directly from the Company;
(b) there
is consummated a consolidation, merger or reorganization of the Company, unless (1) the stockholders of the Company immediately
before such consolidation, merger or reorganization own, directly or indirectly, at least a majority of the combined voting power
of the outstanding voting securities of the corporation or other entity resulting from such consolidation, merger or reorganization,
(2) individuals who were members of the Board immediately prior to the execution of the agreement providing for such consolidation,
merger or reorganization constitute a majority of the board of directors of the surviving corporation or of a corporation directly
or indirectly beneficially owning a majority of the voting securities of the surviving corporation, and (3) no person beneficially
owns more than 50% of the combined voting power of the then outstanding voting securities of the surviving corporation (other
than a person who is (A) the Company or a subsidiary of the Company, (B) an employee benefit plan maintained by the Company, the
surviving corporation or any subsidiary, or (C) the beneficial owner of 50% or more of the combined voting power of the outstanding
voting securities of the Company immediately prior to such consolidation, merger or reorganization); or
(c) there
is consummated a plan of complete liquidation or dissolution of the Company or the sale or disposition by the Company of all or
substantially all of the Company’s assets, in one transaction or a series of related transactions, other than a sale or
disposition by the Company of all or substantially all of the Company’s assets to an entity more than 50% of the combined
voting power of the voting securities of which is owned by stockholders of the Company in substantially the same proportion as
their ownership of the Company immediately prior to such sale.
2.6
“Code” means the Internal Revenue Code of 1986, as amended.
2.7 “Committee”
means the Compensation Committee of the Board.
2.8 “Company”
means Mistras Group, Inc., a Delaware corporation, and any successor thereto.
2.9 “Disability”
means a Participant’s inability to engage in any substantial gainful activity by reason of a physical or mental illness
or injury that is expected to result in death or to last for one year or more, as determined by a duly licensed physician designated
by the Company.
2.10 “Exchange
Act” means the Securities Exchange Act of 1934, as amended.
2.11 “Exercise
Price” means, with respect to an Option, the price at which a holder may purchase the Shares covered by the Option and,
with respect to a SAR, the basealine price of the Shares covered by the SAR; provided that in no event may the Exercise Price
per Share be less than 100% of the Fair Market Value per Share on the date the Option or SAR is granted (110% in the case of an
ISO granted to a Ten Percent Stockholder).
2.12 “Fair
Market Value” means, as of any relevant date, the closing price per Share on such date on the principal securities exchange
on which the Shares are traded or, if no Shares are traded on that date, the closing price per Share on the next preceding date
on which Shares are traded, or (2) the value determined under such other method or convention as the Committee, acting in a consistent
manner in accordance with the Plan and applicable tax law, may prescribe.
2.13 “Good
Reason” means actions or omissions by the Company or an affiliate at the time of or following a Change in Control resulting
in a material negative change in the employment relationship with a Participant which, for the purposes hereof, means, without
the advance written consent of the Participant:
(a) the
assignment to the Participant of any duties materially inconsistent with the Participant’s position, authority, duties or
responsibilities as in effect immediately prior to the Change in Control, or any other material diminution in such position, authority,
duties or responsibilities;
(b) any
reduction in the Participant’s annual base salary in effect immediately prior to the Change in Control;
(c) the
failure to provide the Participant with bonus opportunities at least as generous in the aggregate as those to which the Participant
was entitled immediately prior to the Change in Control;
(d) a
failure by the Company to timely pay the Participant any compensation earned by the Participant; or
(e) the
Company’s requiring the Participant (1) to be based at any office or location more than fifty (50) miles from the office
where the Participant was employed immediately prior to the Change in Control, or (2) to travel on Company business to a materially
greater extent than what was customarily required prior to the Change in Control.
Notwithstanding
the foregoing, a Participant will not have “Good Reason” to terminate his or her employment merely because the Participant
is no longer a senior executive of a public company and/or has a change in title, duties, authority, responsibilities or reporting
structure as a result of the Change in Control transaction (including having a reporting relationship within a larger company)
provided that the Participant retains a substantially similar level of responsibilities over the other portions and areas of the
business for which he or she exercised responsibility prior to the Change in Control transaction. In order to terminate for “Good
Reason,” a Participant must provide written notice to the Company his or her intent to terminate for Good Reason, together
with an description of the conduct or circumstances giving rise to such termination, which notice must be provided within 60 days
after the occurrence of such conduct or circumstances. The Company shall have the right to correct such conduct or circumstances
(and thereby avoid a termination for Good Reason) within 30 days after it receives the written notice described in the preceding
sentence. If the Company does not correct such conduct or circumstances within such 30-day cure period, then the Participant may
terminate his or her employment for Good Reason, provided that such termination is effective within 30 days (after the end of
such 30-day cure period).
2.14 “Incentive
Cash Award” means a performance-based Award described in Section 7.2.
2.15 “Incentive
Stock Option” or “ISO” means an Option that qualifies as an “incentive stock option” within the
meaning of Section 422 of the Code.
2.16 “Option”
means an option to purchase Shares granted pursuant to Section 5.1.
2.17 “Participant”
means any person who has been selected to receive an Award under the Plan or who holds an outstanding Award under the Plan.
2.18 “Performance-Based
Exemption” means the performance-based compensation exemption from the compensation deduction limitations imposed by Section
162(m) of the Code, as set forth in Section 162(m)(4)(C) of the Code.
2.19 “Performance
Factors” means any of the factors listed in Section 7.3(b) that may be used for Awards intended to qualify for the Performance-Based
Exemption.
2.20 “Plan”
means the long-term incentive plan set forth herein, as it now exists or is hereafter amended.
2.21 “Restricted
Stock” means stock issued in the name of a Participant pursuant to Section 6.1, subject to applicable transfer restrictions
and vesting and other conditions.
2.22 “Restricted
Stock Unit” or “RSU” means a contingent right to receive Shares in the future that is granted pursuant to Section
6.1.
2.23 “Retirement”
means termination by a Participant after reaching age 65 or termination with the consent of the Company that is designated a Retirement.
2.24 “Shares”
means shares of the Company’s common stock.
2.25 “Stock
Appreciation Right” or “SAR” means a right to receive appreciation in the value of Shares granted pursuant to
Section 5.2.
2.26 “Subsidiary”
means (a) a corporation or other entity in an unbroken chain of corporations or other entities at least 50% of the total value
or voting power of the equity securities of which is owned by the Company or by any other corporation or other entity in the chain,
and (b) any other corporation or entity in which the Company has a 20% controlling interest, directly or indirectly, as may be
designated by the Committee pursuant to the criteria set forth in Section 1.409A-1(b)(5)(iii)(E) of the Treasury regulations.
2.27 “Ten
Percent Stockholder” means a person who owns or is deemed to own (under Section 424(d) of the Code) more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company or any Subsidiary.
ARTICLE
3
ADMINISTRATION
3.1
General
.
Except as otherwise determined by the Board in its discretion, the Plan shall be administered by the Committee. The Committee
shall be composed of at least two persons who are “outside directors” (within the meaning of Section 162(m) of the
Code) with respect to Awards intended to qualify for the Performance-Based Exemption and at least two or more “non-employee
directors” (as defined in the regulations promulgated under Section 16 of the Exchange Act) with respect to Awards made
to a Participant who is subject to Section 16 of the Exchange Act.
3.2
Authority
of the Committee
. Subject to the provisions of the Plan (including, without limitation, the minimum vesting condition and
the restriction against vesting acceleration set forth in Section 3.4), the Committee, acting in its discretion, may select the
persons to whom Awards will be made, prescribe the terms and conditions of each Award and make amendments thereto, construe, interpret
and apply the provisions of the Plan and of any Award Agreement, and make any and all determinations and take any and all other
actions as it deems necessary or desirable in order to carry out the terms of the Plan or of any Award. The Committee shall have
full power and authority to carry out its responsibilities and functions under the Plan. The Committee may obtain at the Company’s
expense such advice, guidance and other assistance from outside compensation consultants and other professional advisers as it
deems appropriate.
3.3
Delegation
of Authority
.
(a)
General
.
Except as limited by applicable law and as otherwise provided by Section 3.3(b) below, the Committee may delegate to any person
or subcommittee (who may, but need not be members of the Committee or the Board or officers of the Company) such Plan-related
administrative authority and responsibilities as it deems appropriate, provided, however, that the Committee may not delegate
its authority with respect to non-ministerial actions relating to (a) individuals who are subject to the reporting requirements
of Section 16(a) of the Exchange Act or (b) Awards that are intended to qualify for the Performance-Based Exemption.
(b)
Authority
to Grant Awards
. To the extent permitted by applicable law, the Board may, by resolution, authorize one or more executive
officers (each, an “Authorized Officer”) to do one or both of the following on the same basis as (and as if the Authorized
Officer for such purposes were) the Committee: (i) designate eligible employees to receive Awards and (ii) determine the size
and terms and conditions of any such Awards; provided, however, that the Board shall not delegate such responsibilities to any
executive officer for Awards to an eligible employee who is an executive officer, a non-employee director of the Company, a “covered
employee” (within the meaning of Section 162(m) of the Code) or a more than 10% beneficial owner of any class of the Company’s
equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined in accordance with Section 16 of
the Exchange Act. The Authorized Officer(s) shall report periodically to the Board or the Committee regarding the nature and scope
of the Awards granted by them pursuant to this Section 3.3(b).
3.4
Minimum
Vesting Condition; No Acceleration
. Any Award granted hereunder shall provide for a vesting period of at least one year following
the date of grant. Notwithstanding the preceding sentence, Awards
representing a maximum of five percent (5%) of the Shares initially
reserved for issuance under Section 4.1 hereof may be granted hereunder without any such minimum vesting condition. The Committee
shall not have the authority to accelerate the vesting of an Award except (a) in connection with a Participant’s termination
of employment on account of death or Disability, or (b) as specifically permitted or required under the terms hereof, including
Sections 9.1 and 9.2.
3.5
Decisions
Binding
. Any determination made by the Committee in the exercise of its authority with respect to the Plan or any Award shall
be made in the Committee’s sole discretion, and all such determinations shall be final, conclusive and binding on all persons.
3.6
Indemnification
.
No member of the Board or the Committee, nor any officer or employee of the Company or any Subsidiary acting on behalf of the
Board or the Committee (including an Authorized Officer), shall be personally liable for any action, omission, determination,
or interpretation taken or made in good faith with respect to the Plan. The Company shall indemnify and hold harmless each member
of the Committee and the Board and any such officer or employee of the Company or any Subsidiary to whom any duty or power relating
to the administration of the Plan or any Award is delegated from and against any loss, cost, liability (including any sum paid
in settlement of a claim with the approval of the Board), damage and expense (including reasonable legal and other expenses incident
thereto) arising out of or incurred in connection with the Plan, unless and except to the extent attributable to such person’s
fraud or willful misconduct.
ARTICLE
4
SHARES SUBJECT TO THE PLAN; Individual aWARD limitS
4.1
Shares
Issuable under the Plan
. Subject to Section 4.3, up to 1.700,000 Shares shall be available for grant and issuance pursuant
to Awards made under the Plan. The maximum number of Shares that may be issued pursuant to ISOs shall be 1,000,000. For purposes
of these limitations, (a) the total number of Shares covered by a grant of stock-settled SARs (and not just the number of Shares
issued in settlement of such SARs) shall be deemed to have been issued under the Plan, and (b) Shares covered and/or issued pursuant
to an Award will again be available for grant and issuance pursuant to subsequent Awards to the extent such Shares are (1) covered
by the unexercised portion of an Option or SAR that is forfeited or otherwise terminated or canceled for any reason other than
exercise, (2) covered by Restricted Stock Awards, RSU Awards and any other forms of Award that are forfeited, or (3) subject to
an Award that is settled in cash or that otherwise terminates without such Shares being issued. Shares that are used or withheld
to pay the exercise price of an Award or to satisfy the tax withholding obligations associated with the vesting or settlement
of an Award will not be available for future grant and issuance under the Plan. Shares issued under the Plan may be either authorized
and unissued Shares, or authorized and issued Shares held in the Company’s treasury, or any combination of the foregoing.
4.2
Individual
Award Limitations
. No more than 400,000 Shares may be issued pursuant to Awards granted in a single calendar year to any individual
Participant other than a non-employee director, and no more than 50,000 Shares may be issued pursuant to Awards granted to any
non-employee director in a single calendar year. No Participant may earn a Cash Incentive Award under Section 7.2 for any calendar
year in excess of $5,000,000 or, if less, 4 times the Participant’s salary for such calendar year. For this purpose, a Cash
Incentive Award is earned (if at all) for the calendar year with or within which ends the applicable performance period, even
if the amount so earned is not determined or payable until after end of that performance period.
4.3
Adjustments
for Capital Changes
. In the event of a split-up, spin-off, stock dividend, recapitalization, consolidation of shares or similar
capital change, the Board or the Committee shall make such adjustments to the number and class of shares that may be issued under
the Plan pursuant to Section 4.1, the number and class of Shares that may be issued pursuant to annual Awards granted to any Participant
pursuant to Section 4.2, and the number, class and/or Exercise Price of Shares subject to outstanding Awards, as the Committee,
in its discretion, deems appropriate in order to prevent undue dilution or enlargement of the benefits available under the Plan
or an outstanding Award, as the case may be, provided that the number of Shares subject to any Award shall always be a whole number.
Any determination or adjustment made by the Board or the Committee under this Section shall be binding and conclusive on all persons.
ARTICLE
5
STOCK OPTIONs; Stock Appreciation Rights
5.1
Grant
of Company Stock Options
. The Committee may grant Options to Participants upon such vesting, exercise, forfeiture and other
terms and conditions as the Committee, acting in its discretion in accordance with the Plan, may determine, either at the time
an Option is granted or, if the holder’s rights are not adversely affected, at any subsequent time. Each Option will be
deemed NOT to be an Incentive Stock Option unless and except to the extent that, at the time the Option is granted, the Committee
specifically designates such Option as an Incentive Stock Option. To the extent that the aggregate Fair Market Value (determined
at the time of grant) of Shares with respect to which Incentive Stock Options are exercisable for the first time by any Participant
during any calendar year (under all plans of the Company and its affiliates) exceeds $100,000, the Options or portions thereof
which exceed such limit (according to the order in which they were granted) shall not be treated as ISOs. If an Option is designated
as an ISO and if part or all of the Option does not qualify as an ISO, then the Option or the portion of the Option that does
not so qualify will nevertheless remain outstanding and will be characterized as a non-ISO.
5.2
Grant
of Stock Appreciation Rights
. The Committee may grant stock appreciation rights (“SARs”) to Participants, either
alone or in connection with the grant of an Option, upon such vesting and other terms and conditions as the Committee, acting
in its discretion in accordance with the Plan, may determine, either at the time the SARs are granted or, if the holder’s
rights are not adversely affected, at any subsequent time. Upon exercise, the holder of a SAR shall be entitled to receive cash
and/or a number of whole Shares (as determined by the Committee) having a value equal to the product of
X
and
Y
,
where--
X
= the number of whole Shares as to which the SAR is being exercised, and
Y
= the excess of (i) the Fair Market Value per Share on the date of exercise over (ii) the Exercise Price per Share covered
by the SAR.
5.3
Exercise
Price
. The Committee shall determine the Exercise Price per Share under each Option and each SAR, provided that (a) the Exercise
Price per Share shall be at least equal to the Fair Market Value per Share on the date the Option or SAR is granted; and (b) in
the case of an ISO granted to a Ten Percent (10%) Stockholder, the Exercise Price per Share shall be at least equal to 110% of
the Fair Market Value per Share on the date the ISO is granted.
5.4
Re-Pricing
Prohibited
. Options and SARs granted under the Plan may not be re-priced and may not be purchased or exchanged for cash, Shares
or other property or Awards without the approval of the Company’s stockholders. In no event may an Option or SAR be re-priced
if such re-pricing would cause the Option or SAR to be covered by Section 409A of the Code. In addition, Options and SARs shall
not be repurchased or exchanged for other Awards or cash.
5.5
Term
of Options and SARs
. Unless sooner terminated in accordance with its terms, each Option and each SAR shall automatically expire
on the tenth anniversary of the date the Option or SAR is granted (or, in the case of an ISO granted to a Ten Percent (10%) Stockholder,
on the fifth anniversary of the date the ISO is granted).
5.6
Exercise
of Options
. A Participant may exercise an outstanding Option that is vested and exercisable by transmitting to the Secretary
of the Company (or another person designated by the Company for this purpose) a written notice identifying the Option that is
being exercised and specifying the number of whole Shares to be purchased pursuant to such exercise, together with payment in
full of the aggregate Exercise Price payable for such Shares and any applicable withholding taxes. The Exercise Price shall be
payable in cash or by check or by any other means that the Committee may expressly permit, including, without limitation, (a)
by the Participant’s surrender of previously-owned Shares, or by the Company’s withholding Shares that otherwise would
be issued if the Exercise Price had been paid in cash, in each case having a Fair Market Value on the date the Option is exercised
equal to the Exercise Price, (b) by payment to the Company pursuant to a broker-assisted cashless exercise program established
and made available by the Company in connection with the Plan, (c) by any other method of payment that is permitted by applicable
law, or (d) by any combination of the foregoing. Applicable withholding taxes shall be payable in cash or by any other method
that may be permitted by the Committee in accordance with Section 11.1.
5.7
Exercise
of SARs
. A Participant may exercise an outstanding SAR that is vested and exercisable by transmitting to the Secretary of
the Company (or another person designated by the Company for this purpose) a written notice identifying the SAR that is being
exercised and specifying the number of whole Shares for which the SAR is being exercised, together with payment in full of the
withholding taxes due in connection with the exercise. The withholding tax amount shall be payable in cash or by any other method
that may be permitted by the Committee in accordance with Section 11.1.
5.8
Termination
of Employment or Service
. Unless otherwise determined by the Committee at grant, or thereafter if no rights of the Participant
are thereby reduced, the following rules apply with regard to outstanding Options and SARs held by a Participant at the time of
his or her termination of employment or other service with the Company and its Subsidiaries:
(a) If
the Participant’s employment or service is terminated for any reason other than for Cause or the Participant’s death,
Disability or Retirement, then (1) any unvested Options and SARs outstanding at the time of the Participant’s termination
of employment or other service will thereupon be canceled and of no further force or effect, and (2) any vested Options and SARs
outstanding at such time will expire and be of no further force or effect if and to the extent they are not exercised within ninety
(90) days after the date of such termination of employment or other service, provided that in no event may any such vested Options
and SARs be exercised after the expiration of the stated term thereof.
(b) If
the Participant’s employment or other service is terminated on account of the Participant’s death, Disability or Retirement,
then (1) any unvested Options and SARs outstanding at the time of the Participant’s termination of employment or other service
will thereupon be canceled and of no further force or effect, and (2) any vested Options and SARs outstanding at such time will
expire and be of no further force or effect if and to the extent they are not exercised within one hundred eighty (180) days after
the date of such termination of employment or other service, provided that, in no event may such vested Options and SARs be exercised
after the expiration of the stated term thereof.
(c) If
the Participant’s employment or other service is terminated by the Company or a Subsidiary for Cause (or at a time when
grounds for a termination for Cause exist), then, notwithstanding anything to the contrary contained herein, such outstanding
Options and/or SARs (whether or not otherwise vested) shall immediately terminate and shall have no further force or effect.
5.9
Rights
as a Stockholder
. A Participant shall have no rights to vote or receive dividends or any other rights of a stockholder with
respect to any Shares covered by an Option or SAR unless and until such Option or SAR is validly exercised and such Shares are
issued to the Participant. The Company will issue such Shares promptly after the exercise of such Option or SAR (to the extent
the SAR is settled in Shares) is completed.
ARTICLE
6
RESTRICTED stock and restricted stock unit awards
6.1
Grant
of Restricted Stock and RSU Awards
. The Committee may grant Restricted Stock Awards and/or Restricted Stock Unit Awards (RSUs)
to any Participant. Under a Restricted Stock Award, the Company issues Shares to the Participant when the Award is made and the
Shares are subject to such vesting and other terms and conditions as the Committee may prescribe. Under a Restricted Stock Unit
Award, the Participant receives the right to receive Shares in the future if the vesting and other terms and conditions imposed
by the Committee are satisfied. The vesting and other terms and conditions applicable to the Shares covered by a Restricted Stock
Award or the RSUs covered by a Restricted Stock Unit Award (including, but not limited to, conditions and restrictions tied to
the achievement of specified performance objectives and/or the completion of one or more specified periods of future service)
will be determined by the Committee, acting in its discretion in accordance with the Plan, when the Award is granted and will
be set forth in the applicable Award Agreement.
6.2
Minimum
Purchase Price for Shares
. Unless the Committee, acting in accordance with applicable law, determines otherwise, the purchase
price payable for Shares issued pursuant to a Restricted Stock Award or a Restricted Stock Unit Award must be at least equal to
the par value of the Shares.
6.3
Restricted
Shares
. Shares issued pursuant to a Restricted Stock Award may be evidenced by book entries on the Company’s stock transfer
records pending satisfaction of the applicable vesting conditions. If a stock certificate for restricted Shares is issued, the
certificate will bear an appropriate legend to reflect the nature of the conditions and restrictions applicable to the Shares.
The Company may retain physical possession of any such stock certificate and may require a Participant to deliver a stock power
to the Company, endorsed in blank, in order to facilitate the transfer back to the Company of restricted Shares that are forfeited.
Notwithstanding the foregoing, if a Participant forfeits Shares covered by a Restricted Stock Award, the Shares that are forfeited
shall automatically be cancelled on the books and records of the Company whether or not the Participant returns a certificate
for such Shares or otherwise fails or refuses to execute documents or take other action requested by the Company in connection
with the cancellation of the forfeited Shares. Except to the extent otherwise provided under the Plan or the Award Agreement,
a Participant who holds unvested Shares pursuant to a Restricted Stock Award shall have all of the rights of a stockholder with
respect to said Shares, including the right to vote the Shares and the right to receive dividends thereon (subject to the vesting
and payment conditions described in Section 6.5).
6.4
Shares
Covered by RSU Awards
. No Shares will be issued pursuant to a RSU Award unless and until the applicable vesting and other
conditions have been satisfied. The holder of a RSU Award shall have no rights as a stockholder with respect to Shares covered
by the RSUs unless and until the RSUs becomes vested and the Shares covered by the vested RSUs are issued to the Participant.
Subject to Section 6.5, the Committee may provide that a Participant who holds RSUs will be entitled to receive dividend equivalent
credits based upon the dividends that would have been payable with respect to the Shares covered by the RSUs if such Shares were
outstanding.
6.5
Dividends
on Restricted Stock and RSU Shares
. If a dividend is declared with respect to outstanding Shares, then, unless the Committee
determines otherwise, a corresponding dividend will be credited to a Participant with respect to Shares covered by an outstanding
Restricted Stock or RSU Award as if such Shares were outstanding and free of vesting and other conditions and restrictions. Dividend
credits (if any) will be made in the form of cash or in the form of additional Shares of Restricted Stock or RSUs (based upon
the then Fair Market Value per Share) or any combination thereof, all as determined by the Committee. Dividends credited with
respect to Restricted Stock and RSU Awards shall be subject to the same vesting and forfeiture conditions and the same payment
terms that are applicable to the Shares of Restricted Stock or RSU Shares to which such dividend credits apply and/or, if applicable,
such different terms and conditions that may be required in order to comply with Section 409A.
6.6
Non-Transferability
.
No Restricted Stock Award or RSU Award, and no Shares covered by a Restricted Stock Award or RSU Award may be sold, assigned,
transferred, disposed of, pledged or otherwise hypothecated other than to the Company or its designee in accordance with the terms
of the Award or the Plan, and any attempt to do so shall be null and void.
6.7
Termination
of Service Before Vesting; Forfeiture
. Unless otherwise specified in the Award Agreement or otherwise subsequently determined
by the Committee, unvested Shares held pursuant to a Restricted Stock Award and unvested RSUs held under a RSU Award shall be
forfeited and canceled upon the termination of a Participant’s employment or other service with the Company and its Subsidiaries.
Such cancellation shall not affect any right a Participant may have pursuant to the terms of the forfeited Award to receive all
or a portion of the purchase price (if any) paid by the Participant in connection with the issuance of unvested Shares.
6.8
Timing
Requirements for Settlement of RSUs
. Unless otherwise specified in the applicable Award Agreement, RSUs shall be settled in
the form of Shares or cash (as determined by the Committee) as soon as practicable after the RSUs become vested but in no event
later than the 15
th
day of the third month following the calendar year in which the vesting of such RSUs occurs. Notwithstanding
the foregoing, the original terms of a RSU Award may expressly provide that settlement of vested RSUs covered by the Award will
be deferred until a later date or the occurrence of a subsequent event, provided that any such deferral provision complies with
the election, distribution timing and other requirements of Section 409A of the Code.
6.9
Unrestricted
Shares
. A Participant who holds Shares that become vested under a Restricted Stock Award or who holds RSUs that become vested
(to the extent the vested RSUs are settled in Shares) will be entitled to receive Shares (in certificated or book entry form)
free and clear of the conditions and restrictions imposed by the Award Agreement and the Plan, subject, however, to the payment
or satisfaction of applicable withholding taxes.
ARTICLE
7
OTHER forms of AWARD
7.1
Other
Share-Based Awards
. Subject to applicable law, the Committee, acting in its discretion, may grant such other forms of Award
denominated or payable in, valued in whole or in part by reference to, or otherwise based upon or related to, Company Shares,
including, without limitation, performance share awards, performance unit awards, stock bonus Awards, dividend equivalent Awards
(either alone or in conjunction with other Awards), purchase rights for Shares, and Share-based Awards designed to comply with
or take advantage of applicable laws outside of the United States. Each such Share-based Award will be made upon such vesting,
performance and other terms and conditions as the Committee, acting in its discretion in accordance with the Plan, may determine.
If and when a Share-based Award granted under this Section becomes payable, payment may be made in the form of cash, whole Shares
or a combination of cash and whole Shares (as determined by the Committee).
7.2
Cash
Incentive Awards
. The Committee may make annual and/or long-term Cash Incentive Awards pursuant to which a Participant may
earn the right to receive a cash payment that is conditioned upon the achievement of specified performance goals established by
the Committee and communicated to the Participant within 90 days after the beginning of the applicable performance period or before
25% of the applicable performance period has elapsed, and may contain such other terms and conditions as the Committee, acting
in its discretion in accordance with the Plan, deems appropriate. A Cash Incentive Award earned by a Participant under the Plan
will be payable in the form of a single sum cash payment at or as soon as practicable after the expiration of the applicable performance
period or the satisfaction of the applicable performance vesting conditions, but in no event later than the 15
th
day
of the third month of the year following the calendar year in which such performance period ends or such performance vesting conditions
are satisfied. Notwithstanding the foregoing, the Committee may require or permit the deferred payment and/or installment payout
of all or part of any such Cash Incentive Award if (and only if) the Award is exempt from Section 409A of the Code or, if not
so exempt, complies with the applicable terms and conditions of Section 409A of the Code.
7.3
Termination
of Service Before Vesting; Forfeiture
. Unless otherwise specified in the Award Agreement or otherwise subsequently determined
by the Committee, unearned and/or unvested Share-based Awards and Cash Incentive Awards granted under this Article shall be forfeited
and canceled upon the termination of a Participant’s employment or other service with the Company and its Subsidiaries.
ARTICLE
8
PERFORMANCE-based compensation EXEMPTION awards
8.1
Performance-Based
Exemption--General
. If the Committee intends that an Award should qualify for the Performance-Based Exemption (other than
Options and SARs which otherwise qualify as “performance-based compensation” for purposes of Section 162(m) of the
Code), the grant, exercise, vesting, amount and/or settlement of such Award shall be contingent upon achievement of one or more
pre-established, objective performance goals, which shall be prescribed in writing by the Committee not later than 90 days after
the commencement of the applicable performance period and in any event before completion of 25% of such performance period in
accordance with the requirements of Section 162(m). Such performance goals may be based on any one or more of the Performance
Factors listed in Section 8.2 and may be expressed in absolute terms, relative to performance in prior periods and/or relative
to performance of other companies or an index of other companies or on such other basis as the Committee, acting in a manner consistent
with Section 162(m) of the Code, may determine. All determinations as to the establishment of performance goals, the amount and/or
the number of Shares that may be earned, the target level (and, if applicable, minimum and maximum levels) of actual achievement
required as a condition of earning the Award, and the earned value of any Performance Award shall be made by the Committee and
shall be recorded in writing.
8.2
Performance
Factors
. Any one or more of the following Performance Factors may be used by the Committee in establishing performance goals
for Awards intended to qualify for the Performance-Based Exemption:
(a) Income measures (including, but not limited to, gross profit; operating income; earnings before or after taxes;
earnings before interest, taxes, depreciation and amortization (EBITDA); earnings before interest, taxes, depreciation,
amortization and share-based compensation (EBITDAS); EBITDA or EBITDAS with adjustments for non-recurring or non-operational
items; or earnings per share);
(b) Return
measures (including, but not limited to, return on assets, investment, equity, or sales);
(c) Profit margin measures (including but not limited to operating income as a percentage of revenue, EBITDA,
EBITDAS, adjusted EBITDA or adjusted EBITDAS as a percentage of revenue; net income as a percentage of revenue);
(d) Cash
flow or liquidity measures, such as cash flow return on investments, which equals net cash flows divided by owner equity, or other
cash flow measures including but not limited to operating cash flow, free cash flow (meaning cash flow from operating activities
less capital expenditures), with or without adjustments;
(e)
Earnings per common share;
(f)
Gross revenues;
(g) Debt
measures (including, without limitation, debt multiples on any earnings or income measure);
(h) Market
value added;
(i)
Economic value added; and
(j)
Share price (including, but not limited to, growth measures and total shareholder return).
8.3
Performance
Goals
. In establishing performance goals with respect to an Award intended to qualify for the Performance-Based Exemption,
the applicable Performance Factors may be determined solely by reference to the Company’s performance and/or the performance of
any one or more Subsidiaries, divisions, business segments or business units of the Company and its Subsidiaries, and may be based
upon comparisons of any of the indicators of performance relative to other companies (or subsidiaries, divisions, business segments
or business units of other companies). Subject to compliance with the Treasury regulations under Section 162(m) of the Code, the
Committee may adjust performance goals as necessary or appropriate in order to account for changes in law or accounting or to
reflect the impact of extraordinary or unusual items, events or circumstances which, if not taken into account, would result in
windfalls or hardships that are not consistent with the intent and purposes of an Award, including without limitation (a) restructurings,
discontinued operations, extraordinary items, and other unusual or non-recurring charges, (b) an event either not directly related
to the operations of the Company or not within the reasonable control of the Company’s management, (c) acquisitions and
divestitures, or (d) changes in generally accepted accounting principles.
8.4
Discretion
.
The Committee shall have the authority, in its discretion, to reduce the formula amount otherwise payable pursuant to an Award
that is intended to qualify for the Performance-Based Exemption, but may not increase the amount that would otherwise be payable
under any such Award.
8.5
Certification
.
No amount shall be paid and no Shares shall be distributed or released pursuant to an Award intended to qualify for the Performance-Based
Exemption unless and until the Committee certifies in writing the extent of achievement of the applicable performance goal(s)
and the corresponding amount that is earned by the Participant under such Award. For this purpose, a written certification may
be in the form of approved minutes of the Committee meeting at which the certification is made or a unanimous Written Consent.
ARTICLE
9
cHANGE IN CONTROL
9.1
Assumption
or Substitution of Outstanding Awards
. If a Change in Control occurs, the parties may agree that outstanding Awards shall
be assumed by, or converted into a substitute award for or with respect to shares of common stock of, the successor or acquiring
company (or a parent company thereof) on an economically equivalent basis. The vesting and other terms of any such assumed or
substitute award shall be substantially the same as the vesting and other terms and conditions of the original Award, provided
that (a) if the assumed or substituted Award is an Option or SAR, the number of shares and Exercise Price shall be adjusted in
accordance
with the principles set forth in Sections 1.424-1(a)(5) and 1.409A-1(b)(5)(v)(D) of the Treasury regulations, and (b)
if the assumed or substituted Award is not an Option or SAR, the number of shares covered by the assumed or substitute Award will
be based upon the Change in Control transaction value of the Company’s outstanding Shares. If the original Award is subject
to the satisfaction of performance conditions, then such performance conditions shall be deemed to have been satisfied immediately
prior to the Change in Control on the basis of actual performance as of the date of the Change in Control and/or on a pro rata
basis for the time elapsed during an ongoing performance period. If, within two years following a Change in Control, a Participant’s
employment or other service terminates due to the Participant’s death or Disability or is terminated by the Company or a
successor or acquiring company (or any of its or their affiliates) without Cause or by the Participant for Good Reason, then any
outstanding assumed or substitute Awards held by such terminated Participant shall immediately be fully vested, and any outstanding
assumed or substitute Options and SARs will remain outstanding for 180 days after such termination of employment (or, if earlier,
until the expiration of their original stated terms).
9.2
Awards
Not Assumed or Substituted
. If a Change in Control occurs and if the parties do not agree that an outstanding Award shall
be assumed or substituted by the successor or acquiring company (or a parent company thereof) pursuant to Section 9.1, then such
Award will be deemed fully vested and any performance conditions applicable to such Award will be deemed to have been satisfied
immediately prior to the Change in Control on the basis of actual performance as of the date of the Change in Control and/or on
a pro rata basis for the time elapsed during an ongoing performance period. Each such Award shall be cancelled immediately prior
to the effective time of the Change in Control in exchange for an amount equal to the per Share consideration received by the
holders of outstanding Shares in the Change in Control transaction, reduced in the case of an Option or SAR by the Exercise Price
for such Shares. No consideration will be payable in respect of the cancellation of an Option or SAR with an Exercise Price per
Share that is equal to or greater than the value of the Change in Control transaction consideration per Share. The amount payable
with respect to the cancellation of an outstanding Award pursuant to this section will be paid in cash, unless the parties to
the Change in Control agree that some or all of such amount will be payable in the form of freely tradable shares of common stock
of the successor or acquiring company (or a parent company thereof). Subject to Section 9.4, the payments contemplated by this
Section 9.2 shall be made upon at or as soon as practicable following the effective time of the Change in Control.
9.3
No
Fractional Shares
. In the event of an adjustment in the number of shares covered by any Award pursuant to the provisions hereof,
any fractional shares resulting from such adjustment shall be disregarded, and each converted Award shall cover only the number
of full shares resulting from the adjustment.
9.4
Section
409A
. Notwithstanding anything to the contrary contained herein or in an Award Agreement, if a provision of the Plan or an
Award Agreement would cause an acceleration of the vesting or payment of deferred compensation that is subject to Section 409A
of the Code on account of the occurrence of a Change in Control, then such payment shall not be made unless such Change in Control
constitutes a “change in ownership,” “change in effective control” or “change in ownership of a
substantial portion of the Company’s assets” within the meaning of Section 409A of the Code or such accelerated
vesting and/or payment may otherwise be made without violating Section 409A. Any payment that would have been made except for
the application of the preceding sentence shall be made in accordance with the payment or settlement schedule that would have
applied under the Award in the absence of a Change in Control.
ARTICLE
10
AMENDMENT and TERMINATION
10.1
Amendment
and Termination of the Plan
. The Board, acting in its sole discretion, may amend the Plan at any time and from time to time
and may terminate the Plan at any time. Plan amendments will be subject to approval by the Company’s stockholders if and
to the extent such approval is required in order to satisfy applicable law and/or stock exchange listing rules. If not sooner
terminated, the Plan will terminate on the tenth anniversary of the date it is approved by the Company’s stockholders.
10.2
Outstanding
Awards
. Except as specifically required or permitted by Article 9, no amendment of an Award Agreement, and no termination,
amendment or modification of the Plan shall cause any then outstanding Award to be forfeited or altered in a material way that
adversely affects a Participant’s rights, unless the Participant consents thereto.
ARTICLE
11
tax withholding; Section 409a
11.1
Tax
Withholding
. Each Participant shall, no later than the date as of which the Participant realizes taxable income with respect
to an Award, pay to the Company, or make arrangements satisfactory to the Committee for the payment of, the minimum amount of
any such applicable taxes required by law to be withheld with respect to the Award (or such other amount that will not cause adverse
accounting consequences for the Company and is permitted under applicable withholding rules promulgated by the Internal Revenue
Service or other applicable governmental entity). The obligations of the Company under the Plan shall be conditional on the making
of such payments or arrangements, and the Company shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to such Participant (whether in settlement of the Award or otherwise). Whenever cash
is to be paid pursuant to an Award, the Company shall have the right to deduct therefrom an amount sufficient to satisfy the applicable
withholding tax requirements related thereto. Whenever Shares or property other than cash are to be delivered pursuant to an Award,
the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy the
related taxes to be withheld and applied to the tax obligations; provided, however, that, with the approval of the Committee (which
approval may be granted or withheld in its sole discretion and may but need not be applied on a uniform or consistent basis),
a Participant may satisfy some or all of the applicable tax withholding requirement by either (a) electing to have the Company
withhold from delivery of Shares or other property, as applicable, or (b) delivering already owned unrestricted Shares, in each
case, having a Fair Market Value on the date on which the amount of tax to be withheld is determined equal to the applicable taxes
to be withheld and applied to the tax obligations (with any fractional share amounts resulting therefrom settled in cash). The
Company may also use any other method of obtaining the necessary payment or proceeds, as permitted by law, to satisfy its withholding
obligation with respect to any Award.
11.2
Section
409A Compliance
. It is intended that Awards made under the Plan, including any deferred payment or settlement terms and conditions
shall be structured, applied and interpreted in a manner that is exempt from or in compliance with Section 409A of the Code. Without
limiting the generality of the preceding sentence, if a Participant becomes entitled to payments (cash or Shares) under an Award
on account of the “termination of the Participant’s employment or other service” or words of like import, and
if such payments constitute “deferred compensation” within the meaning of Section 409A of the Code, then (a) such
termination of employment or service will not be deemed to have occurred unless and until the Participant incurs a “separation
from service” within the meaning of Section 409A of the Code and the regulations issued thereunder, and (b) to the extent
required by Section 409A of the Code, if the Participant is a “specified employee” within the meaning of Section 409A
at the time of his or her separation from service, then such payment shall be delayed until the first business day after the expiration
of six months following the date of the such separation from service or, if earlier, the date of the Participant’s death.
On the delayed payment date, the Participant (or the Participant’s Beneficiary) will be entitled to receive a lump sum payment
or distribution of the payments that otherwise would have been made during the period that such payments are delayed. Notwithstanding
the foregoing, each Participant shall be solely responsible, and the Company shall have no liability to the Participant or otherwise,
for or with respect to any taxes, acceleration of taxes, interest or penalties arising under Section 409A of the Code.
ARTICLE
12
miscellaneous
12.1
Non-Transferability
.
Except as otherwise specifically permitted by the Plan or the applicable Award Agreement, no Award shall be assignable or transferable
except upon the Participant’s death to his or her “beneficiary” (as defined below), and, during a Participant’s
lifetime, an Option or SAR may be exercised only by the Participant or the Participant’s guardian or legal representative.
Notwithstanding the foregoing, subject to the consent of the Committee (which it may grant, condition or deny in its sole discretion
for any or no reason), a Participant may make an inter vivos transfer of an Option (other than an ISO) or a SAR to any “family
member” (within the meaning of Item A(1)(a)(5) of the General Instructions to SEC Form S-8 or a successor), including, without
limitation, to one or more trusts, partnerships, limited liability companies and other entities which qualify as family members,
provided that such transfer is not a transfer for value or is a transfer for value that the Committee determines is for estate
planning purposes. For the purposes hereof, a Participant’s “beneficiary” is any person or entity (including,
without limitation, a trust or estate) designated in writing by a Participant to succeed to the Participant’s Award(s) upon
the Participant’s death, subject to the provisions hereof and of the applicable Award
Agreement(s). A Participant may designate
a beneficiary by delivering a written beneficiary designation to the Committee (or its designee) in such form and in such manner
as the Committee (or its designee) may prescribe. Each beneficiary designation duly filed with the Committee (or its designee)
will have the effect of superseding and revoking any prior beneficiary designation. If a Participant does not designate a beneficiary,
or if no designated beneficiary survives the Participant, then the Participant’s estate will be deemed to be his or her
beneficiary. The term “Participant,” as used herein, shall be deemed to include the Participant’s beneficiary
if and to the extent the context requires.
12.2
Successors
.
All obligations of the Company with respect to Awards granted under the Plan shall be binding on any successor to the Company,
whether the existence of such successor is the result of a Change in Control or otherwise, and the term “Company”
as used herein shall be construed accordingly.
12.3
Legal
Construction
. If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity
shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
12.4
Requirements
of Law
. Notwithstanding anything to the contrary contained herein, the granting of Awards and the obligation of the Company
to sell, issue or deliver Shares with respect to any Award shall be subject to all applicable laws, rules and regulations, including
all applicable federal and state securities laws and Delaware law. The Committee may require, as a condition of the issuance and
delivery of Shares or certificates evidencing Shares pursuant to the terms hereof, that the recipient of such Shares make such
agreements and representations, and that such certificates bear such legends, as the Committee, in its sole discretion, deems
necessary or advisable.
12.5
Sub-Plans
.
The Committee may from time to time establish sub-plans under the Plan for purposes of satisfying securities, tax or other laws
of any foreign jurisdictions that may apply to Participants who receive Awards. Any such sub-plan shall contain such limitations
and other terms and conditions as the Committee determines are necessary or desirable and shall be in such form (including, without
limitation, as an Appendix to the Plan) as the Committee deems appropriate. Each sub-plan shall be deemed a part of the Plan, but
shall apply only to the Participants who are subject to the laws of the jurisdiction to which the sub-plan relates.
12.6
Uniformity
Not Required
. The provisions of the Award Agreements need not be uniform among all Awards, among all Awards of the same type,
among all Awards granted to the same Participant, or among all Awards granted at the same time.
12.7
Unfunded
Status of Plan
. The Plan is intended to constitute an “unfunded” plan for incentive compensation. With respect
to any payments not yet made to a Participant by the Company, nothing contained herein shall give the Participant any rights that
are greater than those of a general creditor of the Company.
12.8
Claw
Back Conditions
. Notwithstanding anything to the contrary contained herein or in an Award Agreement, Awards and benefits otherwise
provided by Awards made under the Plan shall be subject to the Company’s incentive compensation claw back policies as in
effect from time to time, and, as applicable, the claw back requirements of the Dodd-Frank Act Section 954.
12.9
Limitation
of Rights
. The Plan shall not interfere with or limit in any way the right of the Company or of any Subsidiary to terminate
any person’s employment or other service at any time, and the Plan shall not confer upon any person the right to continue
in the employ or other service of the Company or any Subsidiary. No employee, director or other person shall have any right to
be selected to receive an Award or, having been so selected, to be selected to receive a future Award.
12.10
Paperless
Administration
. In the event that the Company establishes, for itself or using the services of a third party, an automated
system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice
response, then the paperless documentation, granting or exercise of Awards by a Participant may be permitted through the use of
such an automated system.
12.11
Decisions
and Determinations Final
. All decisions and determinations made by the Board pursuant to the provisions hereof and, except
to the extent rights or powers under the Plan are reserved specifically to the
discretion of the Board, all decisions and determinations
of the Committee, shall be final, binding and conclusive on all persons.
12.12
Governing
Law
. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of
Delaware (without regard to the legislative or judicial conflict of laws rules of any state).
Directions
to Mistras Group Headquarters
195
Clarksville Road
Princeton
Junction, New Jersey 08550
From
Route 1 North from Trenton:
Take
exit for Quakerbridge Road (County Road 533) heading south. Merge onto Quakerbridge Road heading south, then make left at traffic
light at Clarksville Road (County Road 638). Stay on Clarksville Road for approximately 2 miles, and the entrance to Mistras headquarters
will be on the left. Upon entering the parking lot, Mistras headquarters is the building on the right.
From
Route 1 South from North Brunswick:
Take
the second exit for Alexander Road. Merge onto Alexander Road and take to the traffic circle. Take the first turn off the traffic
circle (¼ of the way around the traffic circle) on to North Post Road. Take North Post Road to the first traffic light,
and make a right onto Clarksville Road. Take Clarksville Road approximately ½ mile to Mistras headquarters on right. Upon
entering the parking lot, Mistras headquarters is the building on the right.
MISTRAS GROUP, INC.
195 CLARKSVILLE ROAD
PRINCETON JUNCTION, NJ 08550
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VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and
for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date, October 17, 2016. Have
your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic
voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company
in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically
via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet
and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions
up until 11:59
P.M. Eastern Time the day before the meeting date, October
17, 2016. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the
postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
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