UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934
Filed
by the Registrant ☒
Filed
by a Party other than the Registrant ☐
Check
the appropriate box:
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Preliminary Proxy Statement
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Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Rule 14a-12
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Mistras
Group, Inc.
(Name
of Registrant as Specified in Its Charter)
(Name
of Person(s) Filing Proxy Statement, if Other Than Registrant)
Payment
of Filing Fee (Check the appropriate box):
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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Mistras
Group, Inc.
195
Clarksville Road
Princeton
Junction, New Jersey 08550
April
17, 2017
Dear
Mistras Shareholder:
I
am pleased to invite you to attend the 2017 Annual Shareholders Meeting of Mistras Group, Inc. The meeting will be held at our
headquarters located at 195 Clarksville Road, Princeton Junction, New Jersey on Tuesday, May 16, 2017 at 2:00 p.m., Eastern Time.
At
the meeting, you and our other shareholders will be asked to vote on the following:
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the
election of seven directors to our Board of Directors;
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the
ratification of the appointment of KPMG LLP as our independent registered public accounting
firm for 2017;
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an
advisory vote on our executive compensation;
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an
advisory vote on the frequency of future advisory votes on executive compensation; and
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any
other business which properly comes before the meeting.
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Regardless
of whether or not you expect to attend the meeting in person, please read the accompanying proxy statement and vote as soon as
possible. Information about how to vote is included in the accompanying proxy statement or proxy card or in the voting instructions
you will receive from your bank or broker. It is important that your shares be represented.
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Sincerely,
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Sotirios J. Vahaviolos, Ph.D.
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Chairman of the Board and
Chief Executive Officer
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Mistras
Group, Inc.
195
Clarksville Road
Princeton
Junction, New Jersey 08550
April
17, 2017
The
Annual Shareholders Meeting of Mistras Group, Inc. will be held on Tuesday, May 16, 2017 at 2:00 p.m., Eastern Time at the Company’s
headquarters located at 195 Clarksville Road, Princeton Junction, New Jersey 08550. The details of the meeting are as follows:
When:
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2:00
p.m., Eastern Time, Tuesday, May 16, 2017
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Where:
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Mistras
Group Headquarters
195
Clarksville Road
Princeton Junction, New Jersey 08550
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Items
of Business:
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● Election
of seven directors, constituting the entire Board of Directors.
● Ratification
of KPMG LLP as our independent registered public accounting firm for 2017.
● An
advisory vote on the Company’s executive compensation.
● An
advisory vote on the frequency of future advisory votes on executive compensation.
● Such
other matters as may properly come before the meeting or at any adjournment or postponement thereof.
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Who
can vote:
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Holders
of record of Mistras Group, Inc. common stock at the close of business on April 6, 2017 are entitled to vote at the meeting
and any adjournment or postponement of the meeting.
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Voting
by proxy:
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Please
submit your proxy and/or voting instructions as described in the accompanying proxy statement or other proxy materials you
receive promptly so that a quorum may be represented at the meeting.
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By
order of the Board of Directors
Michael
C. Keefe
Executive
Vice President,
General Counsel and Secretary
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IMPORTANT NOTICE REGARDING THE AVAILABILITY
OF PROXY MATERIALS.
This Proxy Statement and Mistras Group, Inc.’s 2016 Transition Period Report are available electronically on the
Internet at
www.proxyvote.com
and on the Company’s website at
http://investors.mistrasgroup.com/financials.cfm
.
TABLE
OF CONTENTS
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
2017 annual meeting of shareholders (“2017 Annual Meeting”) and at any adjournment or postponement of the meeting.
You are invited to attend the 2017 Annual Meeting, which will take place on May 16, 2017, beginning at 2:00 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 2017 Annual Meeting beginning at 1:45 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.”
Previously, our fiscal year was June 1 to May 31, and reference to a fiscal year means the year ending May 31 of that year. For
example, fiscal 2016 means the year ended May 31, 2016. On January 3, 2017, our Board approved changing our fiscal year to a calendar
year effective with the year ended on December 31, 2016. Any reference to 2017 or a later year means that calendar year. This
change in the fiscal year resulted in us having a seven-month transition period, commencing June 1, 2016 and ending
on December 31, 2016, which will be referred to in this proxy statement as the “transition period” or “transition
2016.”
Proxy
Solicitation.
The accompanying proxy is being solicited by our Board. The Notice of Annual Meeting and this proxy statement
and proxy card or voting instructions are first being distributed to shareholders on or about April 17, 2017. 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 2017 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.
While we are mailing proxy materials to shareholders, we are also using the Internet
as a means of furnishing proxy materials to shareholders as permitted by the rules of the Securities and Exchange Commission (“SEC”).
Consequently, many shareholders will not receive paper copies of our proxy materials. 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 2017 (Item 2);
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FOR
the approval, on an advisory basis, of the compensation of our named executive officers (Item 3); and
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FOR
an annual advisory vote on the frequency of future advisory votes on executive compensation (Item 4).
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Shareholders
Entitled to Vote, Quorum.
Shareholders of record of our common stock at the close of business on April 6, 2017 are entitled
to notice of and to vote at the 2017 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 28,581,251 shares outstanding.
Votes
Needed
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The following sets forth the 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 nominees 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. 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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4. Advisory Vote on the Frequency of Future Advisory Votes 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
4, 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.
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 or 4 in the absence
of your specific instructions as to how to vote
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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 2017 Annual
Meeting. Shares held beneficially in street name may be voted by you in person at the 2017 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 2017 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 also 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 2017 Annual Meeting, including, among other things, consideration
of a motion to adjourn the 2017 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 2017 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 or 4, 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 or 4, 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 4. 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 2017 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 and 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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Insider
Trading Compliance Policy
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Related
Person Transaction 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
February 2017, 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 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 calendar
2016, including transition 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.
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 Messrs. DeBenedictis and Forese qualify as audit committee financial experts 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 42% 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’ 42% 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
each 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 and 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 January 5, 2018 in order to receive adequate consideration for
the 2018 annual meeting and must include sufficient details to demonstrate that the potential candidate meets the Director Qualification
Criteria. For a shareholder to nominate a director for election, the shareholder must meet the requirements of our bylaws and
make the nomination in the time required by our bylaws, as set forth on page 32 under “Shareholder Proposals and Other Matters.”
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:
|
●
|
allow
the director to remain on the Board but not be nominated for re-election to the Board
at the next election of directors;
|
|
●
|
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
|
|
●
|
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.
|
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 25 in the Compensation Discussion and
Analysis. The Board has also adopted an
Incentive Compensation Recoupment Policy (often referred to as a claw-back policy), which is also discussed on page 25 in the
Compensation Discussion and Analysis.
Other
Key Governance Matters
Executive
Sessions.
The Audit Committee met four times and the Compensation Committee met once during transition 2016 in executive
session without the Chairman and CEO or any other members of management present. The independent directors met twice during transition
2016 in executive session, without the Chairman and CEO or any other member of management present.
Board
Oversight of Risk Management.
The Board believes that overseeing how management manages the various risks the
Company faces is one of its important responsibilities. The risk oversight function is led by the Board and the Audit Committee,
but some areas are administered by committees tasked by the Board with oversight of specific risks, as summarized below.
Board/Committee
|
|
Primary
Areas of Risk Oversight
|
Full
Board of Directors
|
|
Strategic,
financial and execution risks and exposures associated with the annual plan, and strategic planning (including matters affecting
capital allocation); other matters that may present material risk to the company’s operations, plans, prospects or reputation;
and acquisitions and divestitures (including through post-closing reviews).
|
|
|
Audit
Committee
|
|
Risks
and exposures associated with financial matters, particularly financial reporting, tax, accounting, disclosure, internal control
over financial reporting, financial policies, investment guidelines and credit and liquidity matters; compliance matters;
and management’s risk management programs.
|
|
|
Corporate
Governance
Committee
|
|
Risks
and exposures relating to our programs and policies for corporate governance and succession planning.
|
|
|
Compensation
Committee
|
|
Risks
and exposures associated with leadership assessment, management development, and executive compensation programs and arrangements,
including incentive plans. The Compensation Committee reviews compensation arrangements and programs to ensure that they do
not create incentives for employees to take excessive or inappropriate risks which could have a material adverse effect on
the Company.
|
The
Board and its committees receive information and reports from management on the status of the Company and the risks associated
with the Company’s strategy and business plans.
The Board believes the combined role of Chairman
and CEO is an effective structure for the Board to understand the risks associated with the Company’s strategic plans and
objectives, particularly in light of Dr. Vahaviolos’ 42% ownership, his history as our founder and his stature in and knowledge
of the asset integrity management and non-destructive testing, or NDT, industry. Additionally, maintaining an independent Board
with a Lead Director permits open discussion and assessment of our ability to manage these risks.
Board Meetings.
During
transition 2016, the Board, the Compensation Committee and the Corporate Governance Committee each had two meetings and the Audit
Committee held five meetings. Each director attended at least 75% of the total meetings of the Board and the committees on which
he served.
Annual Meeting Attendance
. The
Company expects all directors to attend the annual meeting of shareholders. All of our directors elected at our 2016 annual shareholders
meeting attended the meeting.
Communication with
the Board
. Shareholders, employees and others may contact the Board or any of the Company’s directors
(including the Lead Director) by writing to them c/o Corporate Secretary, Mistras Group, 195 Clarksville Road, Princeton Junction,
New Jersey 08550. The Company’s process for handling communications to the Board or the individual directors is set forth
in our Securityholder Communication Policy
.
Term Limits; Mandatory Retirement
.
The Board has decided not to have term limits or a mandatory retirement age for directors. The Board believes that directors should
be evaluated based upon their abilities and contributions to the Board; and upon assessment of that individual’s qualities
and qualifications to continue to serve as a director on the board. Term limits and mandatory retirement may deprive the Board
of a valuable member with great insight and detailed knowledge of us and our industry.
DIRECTOR COMPENSATION
For transition 2016, non-employee
directors received fees of $15,000 per quarter and an equity grant of $37,500 in shares of our common stock. The committee chairperson
quarterly fees were $2,500 for the Audit Committee and $1,875 for the Compensation Committee and for the Corporate Governance Committee.
The director fees and committee chair fees are paid quarterly in cash, but directors could elect to receive these cash fees in
shares of our common stock, which Mr. Stamatakis and Mr. DeBenedictis have elected to do. The quarterly fees are the same on an
annualized basis as the fiscal 2016 fees.
The following is the compensation of our non-employee directors in transition 2016.
|
Cash
|
Stock (1)
|
Total(2)
|
Nicholas DeBenedictis
|
—
|
$67,504
|
$67,504
|
James Forese
|
$52,500
|
$37,499
|
$89,999
|
Richard Glanton
|
$50,625
|
$37,499
|
$88,124
|
Manuel Stamatakis
|
—
|
$71,239
|
$71,239
|
W. Curtis Weldon
|
$45,000
|
$37,499
|
$82,499
|
|
(1)
|
Stock awards are valued based upon the grant date fair
value in accordance with FASB ASC Topic 718, which utilizes the closing price on the grant date. However, for purposes of determining
the number of shares awarded to directors, the Company used the average of the high and low trading prices over a three trading
day period ending on the grant date, which is the reason for the difference between the award values above and the intended market
value, using the three trading day average.
|
|
(2)
|
Differences in compensation resulted from the timing
of payments for cash compensation versus grants of equity which were taken in lieu of cash.
|
For
2017, the director compensation will remain the same as the fiscal 2016 compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
During transition 2016, Messrs. Forese, Glanton and Stamatakis
served as members of our Compensation Committee. None of the members of our Compensation Committee has been an officer or employee
of Mistras, or had any other relationship with us requiring disclosure in this proxy statement. None of our executive officers
currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving on our Board or Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED PERSON
TRANSACTIONS
Policy and Procedure for Approval of Related Person
Transactions
We have a written Related Person Transaction Policy,
which requires the approval or ratification by the Corporate Governance Committee for any transaction or series of transactions
exceeding $120,000 in which we are a participant and any related person has a material interest for which disclosure is required
under Item 404(a) of SEC Regulation S-K. Related persons include our directors, director nominees, executive officers and their
family members and persons controlling more than 5% of our common stock.
Under the Related Person Transaction Policy,
all our directors and executive officers have a duty to report to the Chairman, General Counsel or Lead Director potential conflicts
of interest or transactions with related persons. Management has established procedures for monitoring transactions that could
be subject to approval or ratification under the Policy.
Once a related person transaction has been identified, the Corporate Governance
Committee, and in some cases the Audit Committee, will review all the relevant facts and circumstances and approve or disapprove
of the entry into the transaction. The Corporate Governance Committee will take into account, among other factors, whether the
transaction is on terms no less favorable to us than terms generally available from an unaffiliated third-party under the same
or similar circumstances and the extent of the related person’s interest in the transaction. If advance approval of a transaction
by the Corporate Governance Committee is not feasible, the transaction will be considered for ratification at the Corporate Governance
Committee’s next regularly scheduled meeting.
Transactions with Related Persons
There are no family relationships between
or among any of our directors, nominees and executive officers.
The following are transactions between
us and related persons during transition 2016. The Corporate Governance Committee and all independent directors reviewed and preapproved
the stock repurchase agreement with Dr. Vahaviolos described below. The Corporate Governance Committee has reviewed all the other
transactions previously and has either pre-approved or ratified each transaction which required the committee’s approval
or ratification.
On August 17, 2016, we entered into an agreement with Dr. Vahaviolos, which provides for us to repurchase up to
1 million shares of our common stock from Dr. Vahaviolos. Pursuant to the terms of the agreement, we will repurchase $2 million
worth of shares each month, based upon a purchase price equal to 98% of the average daily closing price of our common stock for
the preceding month. No repurchases will be made for any month in which the average daily closing price is below $21.00 or above
$29.00. The agreement will terminate upon the earlier of the following to occur: (a) 1 million shares are repurchased, (b) for
a period of 4 consecutive months, no shares are repurchased because the average daily closing price for each of those months was
either below the minimum of $21.00 or above the maximum of $29.00, or (c) upon written notice by either party (in which case Dr.
Vahaviolos and the Company will not enter into a similar agreement for a period of six months). Pursuant to this agreement, we
purchased approximately 274,000 shares for $6 million at an average purchase price of $21.90 during transition 2016; and we purchased
approximately 256,000 shares for $6 million at an average purchase price of $23.41 during the first quarter of 2017.
We lease our
headquarters located at 195 Clarksville Road, Princeton Junction, New Jersey, from an entity majority-owned by Dr. Vahaviolos.
The lease provides for monthly payments of approximately $74,000 through October 31, 2015, with annual increases of 3% to a maximum
monthly payment of approximately $96,500 during the last year of the lease term, which expires October 31, 2024. The monthly payments
during transition 2016 were approximately $76,000 for June to September and $78,500 for November and December 2016.
Our French
subsidiary leases office space located at 27 Rue Magellan, Sucy-en-Brie, France, which is partly owned by Dr. Vahaviolos. The lease
terminated January 2016, after which the lease was extended on a month-to-month basis. During transition 2016, our French subsidiary
paid approximately $100,000 in rent.
Our subsidiary in Greece entered into an employment agreement with the daughter of Dr. Vahaviolos
pursuant to which she serves as its Vice President and Managing Director. The employment agreement provides for a monthly salary
and other compensation, including incentive bonuses, plus reimbursement of certain expenses. During transition 2016, Dr. Vahaviolos’
daughter received less than $100,000 in total compensation and benefits. In addition, Dr. Vahaviolos’ daughter personally
guaranteed payments on a lease for office space and other obligations of our Greek subsidiary. We have agreed to indemnify Dr.
Vahaviolos’ daughter should she make any payments or incur any costs or loss on account of her guaranty.
In connection with
our Class B Convertible Redeemable Preferred Stock financing prior to our initial public offering in October 2009, we entered into
an investor rights agreement with our preferred stockholders, including
Dr. Vahaviolos. This agreement grants Dr.
Vahaviolos registration rights with respect to shares of our common stock which were issued to him at the time of our IPO resulting
from the conversion of his shares of preferred stock.
STOCK OWNERSHIP
AND SECTION 16 COMPLIANCE
Stock Ownership
The following table sets forth information regarding
the beneficial ownership of our common stock as of March 31, 2017 by (1) each of our directors, (2) each of the executive officers
named in the summary compensation table, (3) all our directors and executive officers as a group, and (4) all other shareholders
known by us to own beneficially more than five percent of our common stock.
Beneficial ownership is determined in accordance with
the rules of the SEC and includes voting or investment power with respect to the securities. Shares of common stock that may be
acquired by an individual or group within 60 days of March 31, 2017 (May 30, 2017), pursuant to the exercise of options or warrants,
are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not for
the purpose of computing the percentage ownership of any other person shown in the table. As of March 31, 2017, we had 28,581,251
shares of common stock outstanding.
We believe that the shareholders named in this table have sole voting and investment power
with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such
shareholders, except as disclosed otherwise. The address for the directors and named executive officers listed below is c/o Mistras
Group, 195 Clarksville Road, Princeton Junction, NJ 08550.
|
|
Shares Beneficially
|
Percentage of
|
Name
|
|
Owned
|
Class
|
|
Directors and Officers
|
|
|
Sotirios J. Vahaviolos (1)
|
|
12,990,475
|
42.4%
|
Nicholas DeBenedictis (2)
|
|
31,479
|
*
|
James J. Forese
|
|
68,606
|
*
|
Richard H. Glanton
|
|
15,408
|
*
|
Michael J. Lange (1)
|
|
428,643
|
1.5%
|
Manuel N. Stamatakis
|
|
43,676
|
*
|
W. Curtis Weldon
|
|
9,660
|
*
|
Jonathan H. Wolk (1)
|
|
84,968
|
*
|
Dennis Bertolotti (1)
|
|
126,889
|
*
|
Michael C. Keefe (1)
|
|
57,760
|
*
|
Directors and Executive Officers as a Group (1)
|
13,857,564
|
44.7%
|
|
Other 5% Holders
|
|
|
Wellington Management Group LLP and affiliates (3)
|
2,662,894
|
9.3%
|
*
Indicates beneficial ownership of less than 1% of the total outstanding common stock.
|
(1)
|
Includes options to purchase common stock exercisable
as of March 31, 2017 or within 60 days thereafter and all unvested restricted stock units with only time-based restrictions (“RSUs”)
for the following amounts:
|
|
Options
|
RSUs
|
Total
|
Sotirios J. Vahaviolos
|
1,950,000
|
127,587
|
2,077,587
|
Michael J. Lange
|
139,358
|
66,522
|
205,880
|
Jonathan H. Wolk
|
—
|
63,567
|
63,567
|
Dennis Bertolotti
|
—
|
66,975
|
66,975
|
Michael C. Keefe
|
—
|
40,799
|
40,799
|
Directors and Executive Officers as a Group
|
2,089,358
|
365,451
|
2,454,809
|
|
(2)
|
Includes 15,000 shares owned by Mr. DeBenedictis’
spouse.
|
|
(3)
|
Based upon a Schedule 13G filed with the SEC for the
year ended December 31, 2016 on behalf of Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment
Advisors Holdings LLP, and Wellington Management Company LLP. The address is c/o Wellington Management Company LLP, 280 Congress
Street, Boston, MA 02210.
|
Section 16(a) Beneficial Ownership Reporting
Compliance
We believe that during transition 2016, all
reports for our executive officers and directors that were required to be filed under Section 16(a) of the Securities Exchange
Act of 1934 were filed on a timely basis.
PROPOSALS
REQUIRING SHAREHOLDER APPROVAL
ITEM 1: ELECTION OF DIRECTORS
At the recommendation of the Corporate Governance Committee,
the Board has recommended that all of the current members of our Board of Directors be nominated for re-election to the Board.
Directors who are elected at the 2017 Annual Meeting will serve a one-year term expiring at the 2018 annual shareholders meeting
or until their successors have been elected and qualified, or until their death or resignation.
The following contains the background, experience and
other information about the nominees. Following each nominee’s biographical information, we have provided information concerning
the particular experience, qualifications, attributes and/or skills that contributed to the determination by the Corporate Governance
Committee and the Board that the nominee should serve as a director. A majority of our independent directors serve or have served
on boards and board committees (including, in many cases, as committee chairs) of other public companies, which we believe provides
them with additional board leadership and governance experience, exposure to best practices, and substantial knowledge and skills
that further enhance the functioning of our Board. In addition, Messrs. Forese, Lange and Stamatakis and Dr. Vahaviolos have been
on our Board for over ten years and have a wealth of knowledge about our business, industry and corporate culture that provides
great value to the functioning and decision-making of the Board.
We believe that each nominee for election as director will be
able to serve if elected. If any nominee is not able to serve, proxies will be voted in favor of the remainder of those nominated
and may be voted for substitute nominees, unless the Board chooses to reduce the number of directors serving on the Board.
Nominees:
Nicholas DeBenedictis
Director since 2015; Age 71
Nicholas DeBenedictis served as Chief Executive Officer
of Aqua America, Inc. from 1992 until his retirement in July 2015, and has been the Chairman of the Board of Aqua America since
May 1993, becoming the non-executive Chairman of the Board upon his retirement as CEO in 2015. He also served as Chairman and Chief
Executive Officer of Aqua America’s principal subsidiaries, including Aqua Pennsylvania, Inc. Mr. DeBenedictis served as
Senior Vice President for Corporate Affairs of PECO Energy Company (now known as Exelon Corporation) from 1989 until 1992; as President
of the Greater Philadelphia Chamber of Commerce from December 1986 to April 1989; and as the
Secretary of the Pennsylvania Department of Environmental
Resources from 1983 to 1986. Mr. DeBenedictis is also a director of Exelon Corporation and P.H. Glatfelter Company, and also serves
on the boards of Pennsylvania area non-profit, civic and business organizations. Mr. DeBenedictis received a B.S. in business administration
and a M.S. in environmental engineering and science from Drexel University.
The Board believes that Mr. DeBenedictis is a qualified
candidate because of his knowledge, experience and demonstrated success from serving for over 20 years as the chairman and chief
executive officer of a substantial public company. He has also served as an executive of a major electric utility, the head of
Pennsylvania’s environmental regulatory agency, and as a director of two other public companies in addition to his role as
Chairman at Aqua America, including, from time to time, as a member of the corporate governance, audit, finance and compensation
committees of those companies. The Board believes that the experience, insights and knowledge Mr. DeBenedictis has from his leadership
roles in business and community activities are important qualifications, skills and experience that will provide valuable assistance
to the Board and greatly contribute to the overall knowledge of the Board and its ability to address the issues the Board and the
Company confront.
James J. Forese
Director since 2005; Age 81
Mr. Forese is an Operating Partner and Chief Operating
Officer of HCI Equity Partners, positions he has held since he joined the firm in July 2003. Prior to joining HCI Equity Partners,
Mr. Forese served as Chairman, President and Chief Executive Officer of IKON Office Solutions, Inc. (formerly Alco Standard Corporation)
from 1998 to 2002 and retired as Chairman in 2003. Before IKON, Mr. Forese served as Controller and Vice President of Finance at
IBM Corporation and Chairman at IBM Credit Corporation. Mr. Forese was a director and a Chairman of the audit committee and a member
of the compensation committee and environmental, health & safety committee of Progressive Waste Solutions, and non-executive
chairman since January 2010 until its merger with Waste Connections, Inc. in January 2017, and serves on the board of directors
of several private companies. Mr. Forese also served as a director, audit committee chair and member of the compensation committee
of Anheuser-Busch Companies Inc. from April 2003 until November 2008 and was on the board of directors of SFN Group (formerly Spherion
Corporation) from 2003 until its acquisition by Randstad North America in September 2011, and was its non-executive chairman and
chairman of the corporate governance and nominating committee. Mr. Forese was also formerly a director of Lexmark International,
NUI Corporation, Southeast Bank Corporation, Unisource Worldwide, Inc. and American Management Systems, Incorporated. Mr. Forese
received a B.E.E. in Electrical Engineering from Rensselaer Polytechnic Institute and an M.B.A. from Massachusetts Institute of
Technology.
The Board believes Mr. Forese, as a result of his vast experience and demonstrated success as an executive, possesses
knowledge and experience in various areas, including business leadership, banking, finance, technology, and public and private
company board experience, which strengthens the Board’s overall knowledge, capabilities and experience. In addition, Mr.
Forese’s experience with audit committees and his tenure as Vice President of Finance and Controller at IBM provides the
Board with an audit committee financial expert which further strengthens key functions of the Board and Audit Committee, such as
oversight of financial reporting and internal controls.
Richard H. Glanton
Director since 2009; Age 70
Mr. Glanton is Chief Executive Officer and
Chairman of the Philadelphia Television Network, a privately-held media company and managing member of ElectedFace LLC, an on-line
service that connects people to elected officials. From May 2003 to May 2007, Mr. Glanton served as Senior Vice President of Corporate
Development for Exelon Corporation and from 1986 to 2003, he was a partner in the law firm of Reed Smith LLP in Philadelphia. Mr.
Glanton currently is a director of Aqua America, Inc., where he is chairman of the corporate governance committee and serves on
the executive committee of the Board; a director of The GEO Group, Inc., where he is chairman of the audit and finance committee
and the compensation committee and serves on the nominating and corporate governance committee, executive committee and various
other standing committees; and is a member of the Board of Trustees of Lincoln University. Mr. Glanton has more than 25 years of
legal experience in law firms, over a decade of executive experience and has close to 30 years of continuous experience serving
on boards of publicly traded companies. Mr. Glanton received a B.A. in English from West Georgia College and a J.D. from University
of Virginia School of Law.
The Board believes Mr. Glanton’s experience
and knowledge in acquisitions, the power utility industry, legal and general business matters, his extensive experience as a director
of publicly traded companies and his demonstrated leadership roles in other business activities are important qualifications, skills
and experience that benefits the Board. His extensive corporate finance and legal knowledge also contribute to the Board’s
collective knowledge, capabilities and experience.
Michael J. Lange
Director since 2003; Age 56
Mr. Lange is Vice Chairman and Senior Executive
Vice President, Strategic Planning and Business Development for the Company. Mr. Lange joined Mistras when it acquired Quality
Services Laboratories in November 2000. Mr. Lange is a well-recognized authority in radiography and has held an American Society
for Nondestructive Testing (ASNT) Level III Certificate for over 20 years. Mr. Lange received an Associate of Science degree in
NDT from the Spartan School of Aeronautics.
The Board believes that Mr. Lange’s extensive knowledge and experience in the
NDT field, and the business acumen and leadership he has demonstrated by the growth of the Services segment since he joined the
Company in 2000, provides an important operational and industry perspective that is valuable to the Board. In addition, Mr. Lange
has been instrumental in the successful integration of numerous NDT services companies Mistras has acquired over the past several
years, providing valuable insight and perspective to the Board as it considers strategies for future growth.
Manuel N. Stamatakis
Director since 2002; Age 69
Mr. Stamatakis is the President
and Chief Executive Officer of Capital Management Enterprises, Inc., a financial services and employee benefits consulting company
headquartered in Valley Forge, Pennsylvania. Mr. Stamatakis was also a founding member of First Financial Resources, a national
financial services organization with over 120 offices nationwide. Over the years, Mr. Stamatakis has served on the boards of numerous
not-for-profit, charitable and for-profit organizations, and currently serves, among others, as Chairman of the Board of Greater
Philadelphia Tourism Marketing Corporation, where he is also a member of the audit and finance committees; Chairman of Philadelphia
Shipyard Development Corporation; and Chairman of the Pennsylvania Supreme Court Investment Advisory Board. Mr. Stamatakis received
a B.S. in Industrial Engineering from Pennsylvania State University and received an honorary Doctorate of Business Administration
from Drexel University.
The Board believes that the vast skills, leadership, business experience and success Mr. Stamatakis has
demonstrated as a founder and leader of a successful services business provides the Board with important skills, knowledge and
experience, particularly those gained from starting and leading a business. Mr. Stamatakis also provides the Board with knowledge
of employee benefits and related matters and with strategic and leadership skills as a founder, President and CEO of a business
enterprise and as a board member of numerous not-for-profit and for-profit organizations, some of which are very significant in
size and scope.
Sotirios J. Vahaviolos
Director since 1978; Age 70
Dr. Vahaviolos has been the Chairman and Chief
Executive Officer since he founded Mistras in 1978 under the name Physical Acoustics Corp. Prior to forming Mistras, Dr. Vahaviolos
was a scientist and manager at AT&T Bell Laboratories. Dr. Vahaviolos received a B.S. in Electrical Engineering and graduated
first in his engineering class from Fairleigh Dickinson University and received a Master of Science (EE), Masters in Philosophy
and a Ph.D.(EE) from Columbia University School of Engineering. During Dr. Vahaviolos’ career in non-destructive testing,
he has been elected Fellow of (1) The Institute of Electrical and Electronics Engineers, (2) The American Society of Nondestructive
Testing, and (3) The Acoustic Emission Working Group (AEWG). Dr. Vahaviolos is also a member of The American Society for Nondestructive
Testing (ASNT), where he served as its President from 1992-1993 and its Chairman from 1993-1994, a member of AEWG and an honorary
life board member of the International Committee for Nondestructive Testing. Additionally, he was the recipient of ASNT’s
Gold Medal in 2001 and AEWG’s Gold Medal in 2005. He was also one of the six founders of NDT Academia International in 2008.
Mr. Vahaviolos brings to the Board his detailed
knowledge and unique perspective and insights regarding the strategic and operational opportunities and challenges, economic and
industry trends, and competitive and financial positioning of our business. In addition, his significant experience as the company’s
founder, Chairman and CEO, his leadership of our Company over three decades during various economic cycles and through its successful
initial public offering, and his 42% ownership interest in the Company, positions him well to serve as our Chairman.
W. Curtis Weldon
Director since 2014; Age 69
Mr. Weldon served 20 years in the
United States Congress as Representative for the 7
th
District of Pennsylvania from 1987 to 2007. Mr. Weldon retired
from Congress as Vice Chairman of the Armed Services Committee and Vice Chairman of the Homeland Security Committee and during
his tenure also served as Vice Chair, House Armed Services Committee; Chairman, Tactical Air and Land Forces Subcommittee; Chairman,
Military R&D Subcommittee; Vice Chair, Homeland Security Committee; and Member, House Science Committee. Mr. Weldon also organized
and chaired the National Disaster Fire and EMS Caucus for 20 years and served as America’s Honorary Fire Chief. Mr. Weldon
also served on 60 Bi-Partisan Congressional Delegations to over 125 countries. Since his retirement from Congress, Mr. Weldon founded
Jenkins Hill International in 2007, which provides national and international consulting services. Mr. Weldon also serves on the
board of advisors or directors of numerous organizations, including the U.S. Congress Defense & Security Task Force, Department
of Homeland Security Technical Advisory Panel, Center for Campus Fire Safety, and Transeco Energy Corporation, and is actively
involved in fire safety and prevention and first responders organizations. Mr. Weldon received his BA in Humanities with concentration
in Russian Studies from West Chester University, an associate’s degree in Fire Science from Delaware County Community College
and is a National Fire Prevention Association Certified Fire Protection Specialist.
The Board believes that Mr. Weldon’s
vast experience in Congress and his leadership roles in foreign affairs bring unique insight and experience to the Board. In addition,
Mr. Weldon’s experience in foreign relations in many countries will provide valuable assistance to the Company as we address
various issues involving our international business. Mr. Weldon’s experience with and knowledge of government will also assist
the Company as we look to grow our asset protection solutions offerings for public infrastructure, such as bridges, and military
equipment, such as aircrafts. Mr. Weldon’s leadership in fire safety and prevention is also complimentary to our emphasis
on safety and accident prevention.
Vote Required and Recommendation of the Board.
The seven nominees receiving the greatest
number of votes cast for their election as directors will be elected. The Board intends to vote all proxies for the election of
each of these nominees, unless you indicate otherwise on your proxy card or pursuant to your voting instructions.
The Board
unanimously recommends a vote FOR the election of the above-named nominees as directors.
|
ITEM 2.
|
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
|
The Audit Committee has appointed KPMG LLP
(“KPMG”) as our independent registered public accounting firm for 2017. Shareholder ratification of the appointment
is not required under the laws of the State of Delaware, but the Board has decided to ascertain the position of shareholders on
the appointment. The Audit Committee will reconsider the appointment of KPMG if shareholders do not ratify the appointment. Even
if the appointment is ratified, the Audit Committee will still have the discretion to appoint a different independent registered
public accounting firm if the committee determines that such a change would be in our and our shareholders’ best interests.
A representative of KPMG is expected to attend the 2017 Annual Meeting and will have the opportunity to make a statement if the
KPMG representative desires to do so and to respond to appropriate questions presented at the meeting.
Vote Required and Recommendation
of the Board.
The ratification of the appointment of the independent registered public accounting firm will be approved if
a majority of the shares of common stock present or represented by proxy at the 2017 Annual Meeting vote for this item. The Board
intends to vote all proxies for the ratification of KPMG, unless you indicate otherwise on your proxy card or pursuant to your
voting instructions.
The Board unanimously recommends a vote FOR the ratification of the appointment of KPMG as our independent
registered public accounting firm for 2017.
AUDIT COMMITTEE REPORT
The Audit Committee reports to and acts on behalf of
the Board of Directors of Mistras Group, Inc. (the “Company”) by providing oversight of the financial reporting process,
accounting policies and procedures and the system of internal controls of the Company. The Company’s management is responsible
for preparing the Company’s consolidated financial statements and designing and monitoring a system of internal controls.
The Company’s independent registered public accounting firm, KPMG LLP (“KPMG”), is responsible for performing
an independent, integrated audit of the Company’s consolidated financial statements and internal control over financial reporting,
and expressing its opinion on the Company’s consolidated financial statements and the effectiveness of the Company’s
internal control over financial reporting, based upon its audit. The Audit Committee is responsible for overseeing the conduct
of these activities by the Company’s management and KPMG.
In this context, the Audit Committee has met and held discussions
with management, the Company’s internal auditors and KPMG. These meetings also included private sessions with the internal
auditors, KPMG, the Chief Executive Officer, the Chief Financial Officer and other members of management at Audit Committee meetings
and such other times as the Audit Committee deemed appropriate. Management represented to the Audit Committee that the Company’s
consolidated financial statements as of and for the transition period ended December 31, 2016 were prepared in accordance with
U.S. generally accepted accounting principles. The Audit Committee has reviewed and discussed the consolidated financial statements
with management, the Company’s internal auditors and KPMG. The Audit Committee also discussed with the Company’s internal
auditors and KPMG the overall scope and plans for their respective audits, their evaluation of the Company’s internal control
over financial reporting and the overall quality of the Company’s financial reporting process.
The Audit Committee has discussed
with KPMG matters required to be discussed pursuant to Public Company Accounting Oversight Board Auditing Standard No. 16 (Communications
with Audit Committees). In addition, KPMG provided to the Audit Committee the written disclosures required by the applicable requirements
of the Public Company Accounting Oversight Board regarding KPMG’s communications with the Audit Committee concerning independence,
and the Audit Committee and KPMG have discussed KPMG’s independence from the Company and its management, including the matters
in those written disclosures. Additionally, the Audit Committee considered the non-audit services provided by KPMG and the fees
and costs billed and expected to be billed by KPMG for those services and concluded that the provision of these services by KPMG
is compatible with maintaining KPMG’s independence.
Based upon these reviews and discussions with management
and KPMG, the Audit Committee recommended to the Board of Directors, and the Board has approved, the inclusion of the Company’s
audited consolidated financial statements in the Company’s Transition Report on Form 10-K for the transition period ended
December 31, 2016 for filing with the Securities and Exchange Commission.
James Forese, Chairman
Nicholas DeBenedictis
Manuel Stamatakis
Fees of Our Independent Registered
Public Accounting Firm
The
following table sets forth the fees billed by KPMG for professional services rendered for the audit of transition 2016, fiscal
year 2016 and fiscal year 2015 financial statements and for the other services listed below.
|
|
|
|
|
|
|
|
|
|
|
|
Transition
2016
|
|
|
Fiscal
2016
|
|
|
Fiscal
2015
|
|
Audit
Fees
|
|
|
$2,235,000
|
|
|
|
$1,649,500
|
|
|
|
$1,410,000
|
|
Audit-Related Fees
|
|
|
49,000
|
|
|
|
72,000
|
|
|
|
23,000
|
|
Tax Fees
|
|
|
—
|
|
|
|
—
|
|
|
|
25,000
|
|
All
Other Fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
$2,284,000
|
|
|
|
$1,721,500
|
|
|
|
$1,458,000
|
|
Audit
Fees:
Audit fees for all periods consisted of aggregate fees billed for professional services rendered for the integrated
audit of our consolidated annual financial statements and internal control over financial reporting and, reviews of interim consolidated
financial information.
Audit-Related
Fees
: Consisted of fees for performing statutory audits for certain international subsidiaries.
Tax Fees:
Consisted
of fees for tax consultation services.
The
Audit Committee’s charter provides for review and pre-approval by the Audit Committee of all audit services and permissible
non-audit services, and related fees, conducted by our independent auditor. All the fees and services described above were approved
by the Audit Committee and the Audit Committee concluded that the provision of such services by KPMG did not impact KPMG’s
independence in the conduct of its auditing function.
ITEM
3: ADVISORY VOTE ON EXECUTIVE COMPENSATION
The
Board is asking our shareholders to cast an advisory vote on the compensation paid to our named executive officers as set forth
in the Summary Compensation Table and other compensation tables and narratives under the “Executive Compensation”
section of this proxy statement and as described in the “Compensation Discussion and Analysis” section of this proxy
statement.
The Compensation Committee of the Board recommends, approves and governs all of the compensation policies and actions
for all our named executive officers. The section of this proxy statement captioned “Compensation Discussion and Analysis”
provides an extensive discussion of our executive compensation programs, the role the Compensation Committee plays in overseeing
and developing our compensation programs and philosophy, and the reasons for our compensation programs and the compensation provided
to our named executive officers. We urge you to read the Compensation Discussion and Analysis and Executive Compensation sections
of this proxy statement so you may better understand our compensation programs on which you are being asked to vote.
Shareholders
are being asked to approve the adoption of the following resolution:
“RESOLVED,
that the shareholders of Mistras Group, Inc. (the “Company”) approve, on an advisory basis, the compensation of the
Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2017 annual meeting of shareholders
pursuant to rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation
tables, narrative disclosures and any other relevant information.”
While
the results of the shareholder vote on executive compensation is non-binding, the Compensation Committee and the Board value the
opinion of our shareholders and will consider the outcome of the vote when making future compensation decisions.
Vote Required
and Recommendation of the Board.
The advisory vote on executive compensation will be approved if a majority of the shares
of common stock present or represented by proxy at the 2017 Annual Meeting vote FOR
this item. The Board intends to vote all proxies
to approve executive compensation, unless you indicate otherwise on your proxy card or pursuant to your voting instructions.
The
Board unanimously recommends that you vote FOR adoption of the resolution approving on an advisory basis the executive compensation
of our named executive officers.
ITEM 4: ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION
The
Board is also asking for an advisory vote by our shareholders on whether an advisory vote on executive compensation of the type
described above should be presented at future annual shareholders meetings every one, two or three years hereafter.
We have held
this vote annually since we have asked shareholders to vote on our executive compensation programs. The Compensation Committee
and the Board believes that, at the present time, we should continue an annual advisory vote on executive compensation for a number
of reasons. First, it will facilitate the ability of the Compensation Committee and the Board to be responsive to shareholder
concerns relating to compensation. Second, it will prompt shareholders to review and evaluate the Company’s compensation
philosophy, policies and practices each year and provide a mechanism to voice their reaction, which will provide the Compensation
Committee with timely insight into whether shareholders generally believe that our compensation programs are aligned with their
interests. An advisory vote that is less frequent could mean delay in identifying and addressing any shareholder concerns. Finally,
an annual vote is also consistent with the annual election of directors and annual ratification of the independent auditors.
Although
the vote on the frequency of the shareholder advisory vote on executive compensation is non-binding, the Compensation Committee
and the Board will consider the results in the future when they assess the frequency of the shareholder advisory votes.
Vote
Required and Recommendation of the Board
.
Shareholders have a choice of selecting one of four choices (every one, two
or three years or abstaining). The period of years receiving the most number of votes will be viewed as the advisory vote on this
matter. The proxy committee appointed by the Board intends to select one year for all proxies, unless you indicate otherwise on
your proxy card or pursuant to your voting instructions.
The Board unanimously recommends an advisory vote on executive compensation
annually (1 year on the proxy card).
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis section of
the 2017 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 2017.
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 transition 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 the proxy statement for the 2016 annual shareholder meeting and we kept that program for transition
2016. As discussed below, awards under the bonus plan and equity plan were prorated for transition 2016 to account for the seven-month
transition period.
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, from time to time, utilizes the services of an independent
compensation consultant, Pay Governance LLC, to review the compensation programs, assist in the development of the incentive plans
and review the peer group. Pay Governance is retained directly by the Compensation Committee and any services rendered for us
are as directed by the Compensation Committee.
Components
of Executive Compensation for Transition Period 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 or company vehicles, but these are not a significant portion of our compensation
program.
Base salary is a fixed compensation amount paid during 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 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 transition 2016 target awards for our named executive officers under each program:
|
|
|
|
Percentage of Base Salary
|
|
Name
|
|
Transition 2016 Position
|
|
Bonus
Plan
|
|
Equity
Plan
|
|
Sotirios Vahaviolos
|
|
Chairman and Chief Executive Officer
|
|
85%
|
|
200%
|
|
Jonathan Wolk
|
|
Senior Executive Vice President, Chief Financial Officer and Treasurer
|
|
65%
|
|
110%
|
|
Dennis Bertolotti
|
|
President and Chief Operating Officer
|
|
70%
|
|
130%
|
|
Michael Lange
|
|
Vice Chairman and Senior Executive Vice President, Strategic Planning and Business Development
|
|
65%
|
|
110%
|
|
Michael Keefe
|
|
Executive Vice President, General Counsel and Secretary
|
|
50%
|
|
80%
|
|
Bonus
Plan
For
transition 2016, performance metrics for the bonus plan were (i) adjusted 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) adjusted 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 transition 2016 based upon the Company’s internal plan and budget. 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 metrics for all our named executive officers is based on the consolidated Company performance.
The revenue, adjusted
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 more than 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 and this plan
was used for transition 2016.
The
equity plan for transition 2016 had three metrics that were based upon our transition 2016 performance: (i) operating income,
which accounted for 35% of the award, (ii) adjusted EBITDAS, which 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 transition 2016 and reviewed by the Board. The metrics
for all our named executive officers is based on the consolidated Company performance.
Under the 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
more than 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 equity plan, the target award for each executive officer was
established in RSUs based upon the stock price in August 2016 after we released results for fiscal year 2016. At the end of the
fiscal period, 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 December 31, 2017 for the RSUs awarded for transition 2016.
Adjustments
for Transition Period
On
January 3, 2017, our Board approved a change in our fiscal year from May 31 to December 31, commencing with the year ended December
31, 2016. As our last prior fiscal year ended May 31, 2016, the change in the fiscal year resulted in a seven-month transition
period of June 1, 2016 to December 31, 2016.
To align our executive compensation with the transition period, our Compensation
Committee agreed to pro-rate awards for the bonus plan and equity plan based upon 7/12 of the target award for a full year. As
for performance metrics, the Compensation Committee approved determining the performance versus target based upon the actual results
for the six month-period of June 1, 2016 to November 30, 2016, the first two fiscal quarters, versus the plan or budget for the
first two quarters of what would have been the fiscal year ending May 31, 2017 had we not changed the fiscal year. We used this
six-month period because more rigor and analysis goes into our quarterly planning and budgeting process versus monthly planning.
Accordingly, the Compensation Committee agreed that using full fiscal quarters provided a fairer method to measure performance
versus plan or budget for determining executive compensation.
Benchmarking
and the Role of Compensation Consultant
To
assist in the assessment of the appropriateness and competitiveness of our compensation programs, management and the Compensation
Committee, with the assistance of Pay Governance, developed a peer group. 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.
|
Team, Inc.
|
Matrix Service Company
|
The
Compensation Committee uses the peer group to assess the competitiveness of our compensation programs and the various components
and to assist the Compensation Committee in making compensation decisions. The Compensation Committee considers 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.
Transition
2016 Compensation
The
following is a discussion of the decisions made on the various components of executive compensation for transition 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 period. 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’
annual salaries during transition 2016 were $504,400 for Sotirios Vahaviolos;
$368,000 for Jonathan Wolk; $380,000 for Dennis
Bertolotti; $345,000 for Michael Lange; and $283,000 for Michael Keefe. For 2017, no increases are being made to base salaries
for our executive officers due to the industry conditions.
Bonus
Plan and Equity Plan Results
With
respect to the bonus plan, the Company achieved below the target level for all the metrics. Revenue and EBITDAS margin were above
the minimum threshold, but adjusted EBITDAS was below the minimum for payout. Therefore, all our named executives received more
well below 100% of their target bonus. Set forth below for the annual bonus plan are the performance metrics, the weight of each
metric, the target performance for the metric and the transition 2016 results for the respective metric.
|
Corporate
Performance
|
Metric
|
Weight
|
Target
|
Result
|
Revenue
|
20%
|
$369.7
|
$345.0
|
Adjusted EBITDAS
|
30%
|
$50.8
|
$42.8
|
EBITDAS Margin
|
30%
|
13.7%
|
12.4%
|
(All
dollar amounts in millions)
Similarly,
we performed below target on the metrics for the equity plan and therefore all our named executive officers received less than
100% of their target RSU awards. We were above the threshold of 80% of target for revenue and adjusted EBITDAS, but below the
minimum threshold for operating income. Set forth below are the metrics for the equity plan, the weight of each metric, the target
performance for the metric and the transition 2016 results for the respective metric.
Metric
|
Weight
|
Target
|
Result
|
Revenue
|
20%
|
$369.7
|
$345.0
|
Adjusted EBITDAS
|
25%
|
$50.8
|
$42.8
|
Operating Income
|
35%
|
$30.8
|
$24.3
|
(All
dollar amounts in millions)
The
following are the target awards for each named executive officer for the bonus plan and the equity plan and his actual awards
under each plan based upon transition 2016 results. Each named executive officer received 75% of his target for the individual
award under both the annual bonus plan and the equity plan. The Compensation Committee decided on awards below target because
the Company’s performance was below target, but determined that some level of awards was warranted because the Company was
still profitable in a very difficult market.
|
Annual
Bonus plan ($)
|
|
Equity
Plan (RSUs) (#)
|
Name
|
Target*
|
Actual
Award
|
Actual
as a
% of target
|
|
Target*
|
Actual
|
Actual
as a
% of target
|
Sotirios Vahaviolos
|
$250,098
|
$109,131
|
43.6%
|
|
23,633
|
11,053
|
46.8%
|
Jon Wolk
|
$139,533
|
$60,885
|
43.6%
|
|
9,483
|
4,435
|
46.8%
|
Dennis Bertolotti
|
$155,167
|
$67,707
|
43.6%
|
|
11,573
|
5,412
|
46.8%
|
Michael Lange
|
$130,813
|
$57,080
|
43.6%
|
|
8,891
|
4,158
|
46.8%
|
Michael Keefe
|
$82,542
|
$36,017
|
43.6%
|
|
5,304
|
2,480
|
46.8%
|
*These
targets are pro-rated amounts based on 7/12 of the annual target, to account for the seven-month transition period.
Actions
for 2017
For
calendar 2017, the Compensation Committee has retained the same equity plan for incentive compensation as was used in 2016. For
the annual bonus plan, the Compensation Committee is adding an additional performance metric of free cash flow, which is cash
flow from operating activities less cash used to purchase property, plant and equipment and intangible assets. Each of the four
metrics – revenue, adjusted EBITDAS, EBITDAS margin, and free cash flow – will have a 20% weighting. As mentioned
above, no increase in base salary has been awarded for 2017 and target
awards for incentive compensation will remain the same.
The incentive compensation plan for 2017 will be aligned with our new calendar year financial reporting.
Overall
Compensation for Transition 2016 Performance
The
Compensation Committee reviews compensation awarded to our executive officers based on compensation and awards related to a particular
fiscal period, and our performance for that period. 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, the amounts shown in the summary compensation table under stock awards for transition
2016 report the grant date value when the target award RSUs are established early in the fiscal period, based on accounting and
SEC rules. However, the actual awards for transition 2016 were much less because (a) the target awards were pro-rated for a seven-month
period, and (b) the awards were further reduced below the pro-rated target based upon Company performance. In addition, performance
share units, or 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, although no amounts were earned for these grants. Similarly, the amounts earned for PSUs included in fiscal
2014 for the were substantially less than the amount reported in the summary compensation table. Accordingly, the Compensation
Committee will consider awards based on the period or periods for which the named executive officer is being compensated, which
may not align with the summary compensation disclosures.
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 close to 40 years ago. Dr. Vahaviolos has been operating in the NDT and asset protection industry for almost 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 transition 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 executive 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 meet these guidelines. 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 the 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) until the guidelines are met.
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 executive officers 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 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 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 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.
EXECUTIVE COMPENSATION
Summary 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 transition 2016, and each of the next three most highly compensated executive officers in transition 2016. We refer
to these individuals as our “named executive officers.” The table discloses the compensation for transition 2016, which
is designated as “TP 2016” and for fiscal years 2016, 2015, 2014, which are designated “FY.”
Name and
principal position
|
|
Fiscal
Period
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
$(1)
|
|
Non-Equity
Incentive Plan
Compensation
($)(2)
|
|
All
Other
Compensation
($)(3)
|
|
Total
($)
|
Sotirios J. Vahaviolos
|
|
TP 2016
|
|
310,400
|
|
—
|
|
1,008,789
|
|
109,131
|
|
16,454
|
|
1,444,783
|
Chairman and Chief Executive Officer
|
|
FY 2016
|
|
504,000
|
|
—
|
|
963,442
|
|
699,839
|
|
29,587
|
|
2,197,268
|
|
|
FY 2015
|
|
500,699
|
|
—
|
|
748,759
|
|
312,096
|
|
26,273
|
|
1,587,827
|
|
|
FY 2014
|
|
476,286
|
|
—
|
|
4,539,751
|
|
316,690
|
|
24,408
|
|
5,357,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan H. Wolk
|
|
TP 2016
|
|
225,654
|
|
—
|
|
527,349
|
|
60,885
|
|
8,922
|
|
822,810
|
Senior Executive Vice President, Chief
|
|
FY 2016
|
|
338,000
|
|
25,000
|
|
594,246
|
|
303,447
|
|
20,997
|
|
1,281,690
|
Financial Officer and Treasurer
|
|
FY 2015
|
|
335,500
|
|
—
|
|
200,693
|
|
135,323
|
|
12,221
|
|
683,737
|
|
|
FY 2014
|
|
168,750
|
|
—
|
|
1,648,459
|
|
137,315
|
|
42,509
|
|
1,997,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis Bertolotti
|
|
TP 2016
|
|
225,192
|
|
—
|
|
739,091
|
|
67,707
|
|
12,632
|
|
1,044,622
|
President and Chief Operating Officer
|
|
FY 2016
|
|
306,885
|
|
50,000
|
|
630,444
|
|
242,770
|
|
15,840
|
|
1,245,939
|
|
|
FY 2015
|
|
289,693
|
|
—
|
|
173,383
|
|
148,518
|
|
15,803
|
|
627,397
|
|
|
FY2014
|
|
272,615
|
|
50,800
|
|
1,388,859
|
|
140,310
|
|
16,541
|
|
1,869,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Lange
|
|
TP 2016
|
|
200,213
|
|
—
|
|
502,051
|
|
57,080
|
|
11,137
|
|
770,481
|
Vice Chairman and Senior Executive
|
|
FY 2016
|
|
316,400
|
|
25,000
|
|
638,174
|
|
270,307
|
|
10,494
|
|
1,260,375
|
Vice President, Strategic Planning and
|
|
FY 2015
|
|
314,054
|
|
15,000
|
|
339,492
|
|
193,114
|
|
9,335
|
|
870,995
|
Business Development
|
|
FY 2014
|
|
302,040
|
|
—
|
|
1,614,507
|
|
150,332
|
|
8,488
|
|
2,075,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael C. Keefe
|
|
TP 2016
|
|
170,331
|
|
—
|
|
226,391
|
|
36,017
|
|
10,867
|
|
443,606
|
Executive Vice President,
|
|
FY 2016
|
|
263,120
|
|
—
|
|
469,827
|
|
214,747
|
|
16,302
|
|
963,996
|
General Counsel and Secretary
|
|
FY 2015
|
|
261,174
|
|
—
|
|
156,236
|
|
95,767
|
|
11,879
|
|
525,056
|
|
|
FY 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 period, based upon
the Company’s performance against financial metrics and the individual performance of the named executive officer during
the fiscal period.
|
(3)
|
For All Other Compensation in transition 2016, no
named executive officer received any perquisite or personal benefit which individually exceeded $25,000 and generally consisted
of vehicle allowance or usage and Company matching of 401-K plan contributions.
|
Note on this table
:
The amounts
in this table, particularly in the column “Stock Awards,” may not reflect the value
of equity awards actually earned, due to the SEC rules for this column and accounting rules. In
addition, the target amounts for TP 2016 were reduced proportionately to account for the seven-month
transition period, but that reduction is not reflected in the “Stock Awards” column
of this table. See “Overall Compensation for Transition 2016 Performance” on page 24.
|
Grants of Plan-Based Awards in Transition 2016
The following table provides information
regarding grants of non-equity plan based awards to our named executive officers in transition 2016. These amounts are pro-rated
at 7/12 (or 58.3%) of the full year award to account for the seven-month transition period. Accordingly, the target column is
58.3% of the target column of the second table on this page, which reflects estimated payouts for a full fiscal year.
|
|
Estimated
Future Payouts Under Non-Equity
Incentive Plan Awards
|
Name
|
Grant
date
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
Sotirios
J. Vahaviolos
|
(1)
|
125,049
|
|
250,098
|
|
500,197
|
|
Jonathan H. Wolk
|
(1)
|
69,767
|
|
139,533
|
|
279,067
|
|
Dennis Bertolotti
|
(1)
|
77,583
|
|
155,167
|
|
310,333
|
|
Michael J. Lange
|
(1)
|
65,406
|
|
130,813
|
|
261,625
|
|
Michael C. Keefe
|
(1)
|
41,271
|
|
82,542
|
|
165,083
|
|
|
(1)
|
Amounts are potential payouts under the Company’s
cash bonus plan for executive officers for transition 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 transition 2016 are included under the Non-Equity Incentive Plan Compensation in the Summary Compensation
Table for transition 2016.
|
The following table provides information regarding grants of non-equity incentive
awards for our named executive officers, as approved at the beginning of transition 2016, based upon a fiscal year value, which
was approved by the Compensation Committee before the change in the fiscal year.
|
|
Estimated
Future Payouts Under Non-Equity
Incentive Plan Awards
|
Name
|
Grant
date
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Sotirios J. Vahaviolos
|
(1)
|
214,370
|
|
428,740
|
|
857,480
|
|
Jonathan H. Wolk
|
(1)
|
119,600
|
|
239,200
|
|
478,400
|
|
Dennis Bertolotti
|
(1)
|
133,000
|
|
266,000
|
|
532,000
|
|
Michael J. Lange
|
(1)
|
112,125
|
|
224,250
|
|
448,500
|
|
Michael C. Keefe
|
(1)
|
70,750
|
|
141,500
|
|
283,000
|
|
|
(1)
|
Amounts are potential payouts under the Company’s
cash bonus plan for executive officers for transition 2016, which are based on Company performance. The threshold assumes minimum
performance and minimal awards for individual performance, which pays at 50% of target award; maximum assumes performance at or
above the levels needed for maximum payout and maximum award for individual performance, which pays out at 200% of target award
level. The actual awards for transition 2016 are included under the Non-Equity Incentive Plan Compensation in the Summary Compensation
Table for transition 2016.
|
The following table provides information regarding grants
of equity awards to our named executive officers in transition 2016. These amounts are pro-rated at 7/12 (or 58.3%) of the full
year award to account for the seven-month transition period. Accordingly, the target column under Estimated Future Payments Under
Equity Incentive Plan Awards is 58.3% of the target column in the second table on this page.
|
|
|
|
|
|
|
|
|
|
All other stock
|
|
Grant date
|
|
|
|
Estimated Future Payouts Under Equity
|
|
|
awards:
|
|
fair value of
|
|
|
|
Incentive Plan Awards (1)
|
|
|
|
|
number of
|
|
stock and
|
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
|
shares of stock
|
|
option
|
Name
|
Grant Date
|
|
(#)
|
|
(#)
|
|
(#)
|
|
|
or units (#)
|
|
awards ($)
|
Sotirios Vahaviolos
|
8/17/2016
|
|
11,817
|
|
23,633
|
|
47,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan Wolk
|
8/17/2016
|
|
4,742
|
|
9,483
|
|
18,967
|
|
|
|
|
|
|
8/17/2016
|
|
|
|
|
|
|
|
|
5,000
|
|
122,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis Bertolotti
|
8/17/2016
|
|
5,786
|
|
11,573
|
|
23,146
|
|
|
|
|
|
|
8/17/2016
|
|
|
|
|
|
|
|
|
10,000
|
|
245,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Lange
|
8/17/2016
|
|
4,445
|
|
8,891
|
|
17,781
|
|
|
|
|
|
|
8/17/2016
|
|
|
|
|
|
|
|
|
5,000
|
|
122,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Keefe
|
8/17/2016
|
|
2,652
|
|
5,304
|
|
10,607
|
|
|
|
|
|
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 transition 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 transition 2016 are set forth on page 23.
|
The following table provides information regarding the estimated future payouts
of equity awards to our named executive officers, as approved at the beginning of transition 2016, based upon a full fiscal year,
which was approved by the Compensation Committee before the change in the Company’s fiscal year.
|
|
Estimated Future Payouts Under Equity
|
|
|
Incentive Plan Awards (1)
|
|
|
Threshold
|
Target
|
Maximum
|
Name
|
Grant Date
|
(#)
|
(#)
|
(#)
|
Sotirios Vahaviolos
|
8/17/2016
|
20,257
|
40,514
|
81,028
|
Jonathan Wolk
|
8/17/2016
|
8,129
|
16,257
|
32,514
|
Dennis Bertolotti
|
8/17/2016
|
9,920
|
19,839
|
39,678
|
Michael Lange
|
8/17/2016
|
7,621
|
15,241
|
30,482
|
Michael Keefe
|
8/17/2016
|
4,546
|
9,092
|
18,184
|
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 transition 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 transition 2016 are set forth on page 23.
|
Outstanding Equity Awards at December 31, 2016
The following table provides information regarding equity awards granted
to our named executive officers that were outstanding as of December 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
($)(3)
|
|
S. Vahaviolos
|
|
|
1,950,000
|
|
|
|
13.46
|
|
|
9/01/2019
|
|
|
|
116,534
|
|
|
|
2,987,932
|
|
|
|
40,514
|
|
|
|
1,038,779
|
|
J. Wolk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,132
|
|
|
|
1,516,144
|
|
|
|
16,257
|
|
|
|
416,829
|
|
D. Bertolotti
|
|
|
5,000
|
|
|
|
10.00
|
|
|
4/09/2019
|
|
|
|
64,063
|
|
|
|
1,642,575
|
|
|
|
19,839
|
|
|
|
508,672
|
|
M. Lange
|
|
|
139,358
|
|
|
|
13.46
|
|
|
7/21/2019
|
|
|
|
62,364
|
|
|
|
1,599,013
|
|
|
|
15,241
|
|
|
|
390,779
|
|
M. Keefe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,319
|
|
|
|
982,499
|
|
|
|
9,092
|
|
|
|
233,119
|
|
|
(1)
|
All options are exercisable; no un-exercisable or unvested options are outstanding.
|
|
(2)
|
These columns represent unvested RSUs which have only time-based vesting restrictions remaining.
|
|
(3)
|
These columns represent the performance-based RSUs granted for transition 2016, at the target award.
|
Option Exercises and Stock Vested in Transition 2016
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number of
shares acquired on exercise (#)
|
|
|
Value realized
on exercise ($)
|
|
|
Number of
shares acquired on vesting (#)
|
|
|
Value realized
on vesting ($)
|
|
Sotirios Vahaviolos
|
|
|
—
|
|
|
|
—
|
|
|
|
48,879
|
|
|
|
1,209,466
|
|
Jonathan Wolk
|
|
|
—
|
|
|
|
—
|
|
|
|
16,001
|
|
|
|
380,437
|
|
Dennis Bertolotti
|
|
|
21,000
|
|
|
|
314,370
|
|
|
|
16,740
|
|
|
|
391,412
|
|
Michael Lange
|
|
|
—
|
|
|
|
—
|
|
|
|
27,366
|
|
|
|
629,807
|
|
Michael Keefe
|
|
|
—
|
|
|
|
—
|
|
|
|
13,165
|
|
|
|
313,305
|
|
Pension Benefits and Non-Qualified Deferred
Compensation
We do not currently provide our named executive
officers with pension benefits or nonqualified deferred compensation.
Potential Payments upon Termination of Employment
We have a severance plan that covers all 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 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 December 31, 2016.
Dr. Vahaviolos
Event
|
|
Salary
|
|
Incentive
Bonus (1)
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Unvested
Equity
Awards (2)
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Healthcare
and Other Benefits
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Total
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Termination by Company without
cause/termination by Dr. Vahaviolos for good reason, with no change in control
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$756,600
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$643,110
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$2,992,593
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$67,159
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$4,459,462
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Change of control and termination by Company
without cause/termination by Dr. Vahaviolos for good reason
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$1,008,800
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$857,480
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$2,992,593
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$67,159
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$4,926,032
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Disability or death
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$252,200
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—
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$2,992,593
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$24,281
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$3,269,074
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(1)
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Dr. Vahaviolos is 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.
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(2)
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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 December 31, 2016
was $25.68 per share, and Dr. Vahaviolos had 116,534 unvested RSUs as of December 31, 2016 and 11,053 performance based RSUs that
were earned for transition 2016.
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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:
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●
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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 months of base
salary plus a pro rata portion of the annual cash bonus for the year in which employment is terminated.
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●
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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
of base salary plus 1-1/2 times his annual cash bonus at the executive officer’s target bonus opportunity.
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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 transition 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
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Salary
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Incentive
Bonus (1)
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Unvested Equity
Awards (2)
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Healthcare
and Other
Benefits
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Total
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No Change in Control
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Jonathan Wolk
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$368,000
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—
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$416,138
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$15,473
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$799,611
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Dennis Bertolotti
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$380,000
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—
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$570,507
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$14,048
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$964,555
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Michael Lange
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$345,000
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—
|
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$356,092
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$12,140
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$713,232
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Michael Keefe
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$283,000
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—
|
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$167,767
|
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$13,978
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$464,746
|
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Change in Control
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Jonathan Wolk
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$552,000
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$303,600
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$1,632,401
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$15,473
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$2,503,474
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Dennis Bertolotti
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$570,000
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$313,500
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$1,784,118
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$14,048
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$2,681,666
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Michael Lange
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$517,500
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$310,500
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$1,708,285
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$12,140
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$2,548,425
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Michael Keefe
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$424,500
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$212,250
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$1,047,718
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$13,978
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$1,698,447
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(1)
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Does not include amounts paid under the column Non-Equity Incentive Plan Compensation in the Summary
Compensation Table, which would be paid as well.
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(2)
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Includes transition 2016 performance based RSUs earned based upon actual performance.
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Vahaviolos 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 options
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.
SHAREHOLDER 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 2018
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 December 18, 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 December 18, 2017 in our proxy materials for the 2018 annual shareholders meeting.
A shareholder may also
nominate directors or have other business brought before the 2018 annual shareholders meeting by submitting the nomination or
proposal to us on or after January 16, 2018, and on or before February 15 2018, in accordance with Section 2.14 of our bylaws.
If, however, our 2018 shareholders meeting is held before April 16, 2018 or after July 15, 2018, 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
.
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.
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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, May 15, 2017. 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, May 15, 2017. 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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THIS
PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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For
All
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Withhold
All
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For All
Except
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To withhold authority to vote for any individual nominee(s), mark “For All Except” and write
the number(s) of the nominee(s) on the line below.
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The Board of Directors recommends you vote FOR
the following:
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☐
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☐
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☐
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1.
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Election of Directors
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Nominees
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01 Nicholas
DeBenedictis
02 James J. Forese
03 Richard
H. Glanton
04 Michael
J. Lange
05 Manuel
N. Stamatakis
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06 Sotirios J.
Vahaviolos
07 W. Curtis Weldon
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The Board of Directors recommends you vote FOR proposals 2 and 3.
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For
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Against
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Abstain
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2.
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To ratify the appointment by the Audit Committee of the Board of Directors of KPMG LLP as independent
registered public accounting firm of Mistras Group, Inc. for the year ending December 31, 2017.
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☐
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☐
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☐
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3.
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To approve on an advisory basis the compensation of Mistras Group named executive officers.
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☐
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☐
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☐
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The Board of Directors recommends you vote 1 YEAR on the following proposal:
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1 year
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2 years
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3 years
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Abstain
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4.
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To recommend, by non-binding vote, the frequency of executive compensation votes.
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☐
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☐
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☐
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☐
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NOTE:
Such other business as may properly come before the meeting or any adjournment thereof.
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For address change/comments, mark here.
(see reverse for instructions)
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☐
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator,
or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation
or partnership, please sign in full corporate or partnership name, by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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0000332989_1 R1.0.1.15
Important
Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice of Annual Meeting and Proxy Statement
and the Annual Report are available at
www.proxyvote.com
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MISTRAS
GROUP, INC.
Annual Meeting of Shareholders
May 16, 2017 2:00 PM
This proxy is solicited by the Board of Directors
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The
shareholder(s) hereby appoints Sotirios Vahaviolos, Michael Keefe and Jonathan Wolk,
and each of them, as proxies, each with the power to appoint his substitute, and hereby
authorizes each of them to represent and to vote, as designated on the reverse side of
this ballot, all of the shares of common stock of MISTRAS GROUP, INC. that the shareholder(s)
is/are entitled to vote at the annual meeting of shareholders to be held at 2:00 PM,
Eastern Time on May 16, 2017, at the Mistras Group Headquarters, 195 Clarksville Road,
Princeton Junction, New Jersey 08550, and any adjournment or postponement thereof.
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This
proxy, when properly executed, will be voted in the manner directed herein. If no such
direction is made, this proxy will be voted in accordance with the Board of Directors’
recommendations.
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Address change/comments:
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(If
you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.)
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Continued
and to be signed on reverse side
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0000332989_2 R1.0.1.15
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