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(a)	Amounts listed in this column may include Shares held in partnerships or trusts that are counted in more than one individual’s total.

 

*	less than 1%

 

(1)

Includes 2,850,315 Shares owned by Mr. Richard Leeds directly, 1,295,148 Shares owned by the Richard Leeds 2016 GRAT, 906,745 Shares owned by the Richard Leeds 2015 GRAT, and 299,868 Shares owned by the Richard Leeds 2012 GRAT. Also, includes 1,838,583 Shares owned by a limited partnership of which Mr. Richard Leeds is a general partner, 235,850 Shares owned by a limited partnership of which a limited liability company controlled by Mr. Richard Leeds is the general partner, 4,697,521 Shares owned by trusts for the benefit of his brothers’ children for which Mr. Richard Leeds acts as co-trustee and 519,800 Shares owned by a limited partnership in which Mr. Richard Leeds has an indirect pecuniary interest.

 

(2)

Includes 2,366,859 Shares owned by Mr. Bruce Leeds directly, 1,805,224 Shares owned by the Bruce Leeds 2016 GRAT, 423,148 Shares owned by the Bruce Leeds 2015 GRAT, and 191,831 Shares owned by the Bruce Leeds 2012 GRAT. Also, includes 1,838,583 Shares owned by a limited partnership of which Mr. Bruce Leeds is a general partner, 4,132,007 Shares owned by trusts for the benefit of his brothers’ children for which Mr. Bruce Leeds acts as co-trustee and 519,800 Shares owned by a limited partnership in which Mr. Bruce Leeds has an indirect pecuniary interest.

 

(3)

Includes 830,556 Shares owned by Mr. Robert Leeds directly, 1,564,897 Shares owned by the Robert Leeds 2016 GRAT, 1,269,444 Shares owned by the Robert Leeds 2015 GRAT, 593,337 Shares owned by the Robert Leeds 2015 GRAT, and 318,834 Shares owned by the Robert Leeds 2012 GRAT.  Also, includes 1,838,583 Shares owned by a limited partnership of which Mr. Robert Leeds is a general partner, 4,685,656 Shares owned by trusts for the benefit of his brothers’ children for which Mr. Robert Leeds acts as co-trustee and 519,800 Shares owned by a limited partnership in which Mr. Robert Leeds has an indirect pecuniary interest.

 

(4)

Includes options to acquire a total of 150,000 Shares that are currently exercisable or become exercisable within 60 days pursuant to the terms of the Company’s 1999 Long-Term Stock Incentive Plan, options to acquire a total of 62,500 Shares that are currently exercisable or become exercisable within 60 days pursuant to the terms of the Company’s 2010 Long-Term Incentive Plan and 17,500 restricted stock units granted pursuant to the Company’s 2010 Long-Term Incentive Plan that will vest within 60 days.

 

(5)	Includes options to acquire a total of 12,500 Shares that are currently exercisable or become exercisable within 60 days pursuant to the terms of the Company’s 2010 Long-Term Incentive Plan.

 

(6)

Includes options to acquire a total of 10,000 Shares that are currently exercisable or become exercisable within 60 days pursuant to the terms of the Company’s 1999 Long-Term Stock Incentive Plan, options to acquire a total of 62,500 Shares that are currently exercisable or become exercisable within 60 days pursuant to the terms of the Company’s 2010 Long-Term Incentive Plan.

 

(7)	Includes options to acquire a total of 87,500 Shares that are currently exercisable or become exercisable within 60 days pursuant to the terms of the Company’s 2010 Long-Term Incentive Plan.

 

(8)	Includes 4,435 restricted stock units granted pursuant to the Company’s 2006 Stock Incentive Plan for Non-Employee Directors that will vest within 60 days.

 

(9)	Includes 4,435 restricted stock units granted pursuant to the Company’s 2006 Stock Incentive Plan for Non-Employee Directors that will vest within 60 days.

 

(10)

Includes options to acquire a total of 5,000 Shares that are currently exercisable or become exercisable within 60 days pursuant to the terms of the Company’s 2006 Stock Incentive Plan for Non-Employee Directors and 4,435 restricted stock units granted pursuant to the Company’s 2006 Stock Incentive Plan for Non-Employee Directors that will vest within 60 days.

 

(11)

Includes options to acquire a total of 17,500 Shares that are currently exercisable or become exercisable within 60 days pursuant to the terms of the Company’s 1999 Long-Term Stock Incentive Plan and options to acquire a total of 65,000 Shares that are currently exercisable or become exercisable within 60 days pursuant to the terms of the Company’s 2010 Long-Term Incentive Plan.

 

(12)

Based on information supplied by Prescott General Partners LLC (“PGP”), Prescott Associates L.P. (“Prescott Associates”), Prescott Investors Profit Sharing Trust (“PIPS”) and Thomas W. Smith in a Schedule 13G/A filed with the SEC on February 14, 2017. The Schedule 13G/A modifies the Schedule 13G to reflect, among other things, (i) the addition of PIPS as a Reporting Person and (ii) the removal of Scott J. Vassalluzzo as a Reporting Person.

 

 

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For 2015, such financial and non-financial goals, the percentage of the executive’s entire cash bonus tied to such goals and the weighting of each component under such goal, are as follows:

·

Financial Goals for 2015 (80% of total cash bonus target)

–

Adjusted Operating Income Performance (60%):  The Compensation Committee believes this is the most important individual component and aligns the interests of our executives with those of our stockholders, in addition to building long-term value. Adjusted Operating Income is defined as operating income adjusted for unusual or nonrecurring items as determined by our Compensation Committee.

–

Sales Performance (20%): The Compensation Committee believes sales performance is key to our Company achieving the scale necessary to remain competitive with larger companies.  Sales are defined as sales revenue net of returns on a constant currency basis.  Sales are further adjusted for the impact of any acquisition which is completed during the plan year.

·

Non-Financial Goals for 2015 (20% of total cash bonus target)

–

Strategic Accomplishments (16%):  Strategic goals were established surrounding accomplishments within our Industrial Products Group, and our North American and European Technology Products Groups.  These distinct goals relate to various strategic initiatives including enhancing our worldwide information technology systems by continued migration to a new platform specially designed for our needs; improving performance and grow in our UK Operations as well as stabilizing the performance of and improving service levels in our Shared Service Center in Europe; integration of the PEG Group acquisition and continued organic growth within our Industrial Products Group,  and successful completion of the previously announced B2B restructuring activities for our North American Technology Products Group (“NA Tech”).  The Compensation Committee believes these initiatives will enhance the Company’s operational infrastructure and efficiency.

–

Corporate Governance Goals (4%):   These goals relate to continuing improvements in our internal control processes, ethics compliance procedures and safety protocols that the Compensation Committee believes will generally benefit stockholders as evidenced by the absence of material weaknesses in internal controls and financial reporting, prompt investigation and disposition of any ethical or governance issues that may arise, and the absence of any serious OSHA matters.

Achievement of each of the target financial goals generates a variable target bonus payment (base case); reduced bonuses are payable on a pro rata basis for each financial goal component.  The bonus for the sales target financial component is payable starting at achievement of in excess of 80% of the sales target financial goal component amount up to 140% of the sales target financial goal component amount.  Each 1% variance in actual achievement from the 100% level generates a 5% variance in the target bonus amount. No bonus is payable in respect of this component if achievement is 80% or less of the sales target while increased bonuses (up to 300% of the target bonus amount for this financial component) are payable on a pro rata basis for over achievement of the sales target financial goal component.    The adjusted operating income financial goal component is payable at a level of 100% if the target is achieved.  Each $1,000,000 variance in actual achievement below the 100% level will generate a 5% negative variance in the target bonus amount.  Each $1,000,000 variance in actual achievement above the 100% level will generate a 5% positive variance in the target bonus amount up to 300% of the target bonus amount for this financial component.  The non-financial goals are measured based on whether or not the goal is either accomplished or not accomplished during the fiscal year.  Accomplishment can be measured at 0%, 25%, 50%, 75%, or 100% levels with target bonus paid out accordingly.

Under the 2015 Bonus Plan, the Compensation Committee set the following cash bonus target amounts for each of Mr. Richard Leeds, Mr. Bruce Leeds, Mr. Robert Leeds and Mr. Reinhold, assuming achievement of the 2015 Bonus Plan financial and non-financial goals at 100% base case target levels; and in the case of Mr. Dooley achievement of such 2015 Bonus Plan goals at 100% base case target levels (25% of the bonus) as well as achievement of the financial and non-financial goals of the Industrial Products Group at 100% base case target levels (75% of the bonus); and in the case of Mr. Lerner achievement of such 2015 Bonus Plan goals at 100% base case target levels (50% of the bonus) as well as achievement of performance objectives established for him by the Company (50% of the bonus):

 

 

The 2015 Bonus Plan imposes a cap on the total bonus that could be payable to any executive whose bonus is 100% earned based upon the NEO plan at 260% of the target base case bonus.  The cap on Mr. Dooley’s total bonus is 200% of the target base case bonus, and the cap on Mr. Lerner is 180% of the target base case bonus.  The Compensation Committee has the discretion to adjust financial targets based on such events as acquisitions or other one-time charges or gains, or other unforeseen circumstances that can skew normal operating results.  Targets and bonuses are also subject to adjustment to prevent unreasonable results in the strict application of these formulas.  Executives must generally be employed with the Company at the time the bonuses are paid out to receive the bonus.

 

In addition, the Board can demand repayment to the Company of any cash bonuses paid in the event that (i) the executive’s misconduct caused the Company to restate its reported financial results; (ii) the reported results created a bonus that would not have been paid based on the restated results, or (ii) the executive engages in serious ethical misconduct.

As indicated above, 75% of Mr. Dooley’s cash bonus is tied to achievement of certain Industrial Products Group objectives, 80% of this portion of the bonus (60% of total target bonus) is tied to achievement of financial objectives and 20% of this portion of the bonus (15% of total target bonus) is tied to achievement of strategic objectives for the Industrial Products Group. The financial objective is based on an operating income target and each $1.0 million variance above or below the target generates a 10% positive or negative variance of the bonus payable. The bonus payout for over achievement of the financial objective is capped at 200% of the target amount. The strategic objectives are tied to achievement of various sales, customer service, integration and marketing initiatives and are measured on whether or not the goal is achieved.

 

As described above, 50% of Mr. Lerner’s cash bonus is tied to achievement of certain legal group objectives, 20% of this portion of the bonus (10% of total target bonus) is tied to cost management and 80% of this portion of the bonus (40% of total target bonus) is tied to achievement of individual strategic objectives including enhancing efficiency, automation and cost of the contract and litigation management process.  The cost management and the strategic objectives were met or exceeded in 2015, resulting in a 100% payout of this bonus component.

2014 NEO Cash Bonus Plan*

 

In 2014, pursuant to the 2010 Long-Term Incentive Plan previously adopted by the Board of Directors and by the stockholders at the 2010 Annual Meeting, our Compensation Committee, with input from our Chief Executive Officer, established our 2014 NEO Cash Bonus Plan (“2014 Bonus Plan”) providing for target cash bonuses for the NEOs based on the achievement of certain financial and non-financial performance-based criteria in 2014.  The 2014 Bonus Plan implements for 2014 the 2010 Long-Term Incentive Plan and pertains specifically to the payment of non-equity incentive compensation to NEOs for 2014.

 

The following discussion applies to 100% of the 2014 total non-equity incentive compensation for each of Mr. Richard Leeds, Mr. Bruce Leeds, Mr. Robert Leeds and Mr. Reinhold; the 25% portion of Mr. Dooley’s 2014 total non-equity incentive compensation that is based on the 2014 Bonus Plan; and the 50% portion of Mr. Lerner’s 2014 total non-equity incentive compensation that is based on the 2014 Bonus Plan.

 

For 2014, such financial and non-financial goals, the percentage of the executive’s entire cash bonus tied to such goals and the weighting of each component under such goal, are as follows:

·

Financial Goals (80% of total cash bonus target)

–

Adjusted Operating Income Performance (60%):  The Compensation Committee believes this is the most important individual component and aligns the interests of our executives with those of our stockholders, in addition to building long-term value. Adjusted Operating Income is defined as operating income adjusted for unusual or nonrecurring items as determined by our Compensation Committee.

–

Sales Performance (20%): The Compensation Committee believes sales performance is key to our Company achieving the scale necessary to remain competitive with larger companies.  Sales are defined as sales revenue net of returns on a constant currency basis.

·

Non-Financial Goals for 2014 (20% of total cash bonus target)

–

Strategic Accomplishments (16%):  Strategic goals were established surrounding accomplishments within our Industrial Products Group, and our North American and European Technology Products Groups.  These distinct goals relate to various strategic initiatives including enhancing our worldwide information technology systems by continued migration to a new platform specially designed for our needs; transforming our EMEA operating model to a Pan-European approach, including substantially completing the implementation of our shared services center in Hungary; expanding the Industrial business through foreign sales initiatives and continued organic growth;  and continued  shift to a B2B oriented operation along with a stabilization of a profitable consumer business for our North American Technology Products Group.  The Compensation Committee believes these initiatives will enhance the Company’s operational infrastructure and efficiency.

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^* Mr. Clark was not a Named Executive Officer prior to October 2016, and therefore there is no disclosure in this Section for fiscal year 2014 or 2015.

 

–

Corporate Governance Goals (4%):   These goals relate to continuing improvements in our internal control processes, ethics compliance procedures and safety protocols that the Compensation Committee believes will generally benefit stockholders.

Achievement of each of the target financial goals generates a variable target bonus payment (base case); reduced bonuses are payable on a pro rata basis for each financial goal component.  The bonus for the sales target financial component is payable starting at achievement of in excess of 80% of the sales target financial goal component amount up to 140% of the sales target financial goal component amount.  Each 1% variance in actual achievement from the 100% level generates a 5% variance in the target bonus amount. No bonus is payable in respect of this component if achievement is 80% or less of the sales target while increased bonuses (up to 300% of the target bonus amount for this financial component) are payable on a pro rata basis for over achievement of the sales target financial goal component.    The adjusted operating income financial goal component is payable at a level of 100% if the target is achieved.  Each $500,000 variance in actual achievement below the 100% level will generate a 5% negative variance in the target bonus amount.  Each $500,000 variance in actual achievement above the 100% level will generate a 5% positive variance in the target bonus amount up to 300% of the target bonus amount for this financial component.  The non-financial goals are measured based on whether or not the goal is either accomplished or not accomplished during the fiscal year.

Under the 2014 Bonus Plan, the Compensation Committee set the following cash bonus target amounts for each of Mr. Richard Leeds, Mr. Bruce Leeds, Mr. Robert Leeds and Mr. Reinhold, assuming achievement of the 2014 Bonus Plan financial and non-financial goals at 100% base case target levels; and in the case of Mr. Dooley achievement of such 2014 Bonus Plan goals at 100% base case target levels (25% of the bonus) as well as achievement of the financial and non-financial goals of the Industrial Products Group at 100% base case target levels (75% of the bonus); and in the case of Mr. Lerner achievement of such 2014 Bonus Plan goals at 100% base case target levels (50% of the bonus) as well as achievement of performance objectives established for him by the Company (50% of the bonus):

 

 

The 2014 Bonus Plan imposes a cap on the total bonus that could be payable to any executive whose bonus is 100% earned based upon the NEO plan at 260% of the target base case bonus.  The cap on Mr. Dooley’s total bonus is 200% of the target base case bonus, and the cap on Mr. Lerner is 180% of the target base case bonus.  The Compensation Committee has the discretion to adjust financial targets based on such events as acquisitions or other one-time charges or gains, or other unforeseen circumstances that can skew normal operating results.  Targets and bonuses are also subject to adjustment to prevent unreasonable results in the strict application of these formulas.  Executives must generally be employed with the Company at the time the bonuses are paid out to receive the bonus.

In addition, the Board can demand repayment to the Company of any cash bonuses paid in the event that (i) the executive’s misconduct caused the Company to restate its reported financial results; (ii) the reported results created a bonus that would not have been paid based on the restated results, or (ii) the executive engages in serious ethical misconduct.

As indicated above, 75% of Mr. Dooley’s cash bonus is tied to achievement of certain Industrial Products Group objectives, 80% of this portion of the bonus (60% of total target bonus) is tied to achievement of financial objections and 20% of this portion of the bonus (15% of total target bonus) is tied to achievement of strategic objectives for the Industrial Products Group. The financial objective is based on an operating income target and each $1.5 million variance above or below the target generates a 10% positive or negative variance of the bonus payable. The bonus payout is capped at 200% of the target amount. The strategic objectives are tied to achievement of various sales, customer service, and marketing initiatives and are measured on whether or not the goal is achieved.  In 2014, the Industrial Products Group’s adjusted operating income performance resulted in an earned bonus of 80% of the bonus tied to this Industrial Products Group financial objective. The strategic objectives were met or partially met, and Mr. Dooley achieved 70% of the bonus for this component.

As described above, 50% of Mr. Lerner’s cash bonus is tied to achievement of certain legal group objectives, 20% of this portion of the bonus (10% of total target bonus) is tied to cost management and 80% of this portion of the bonus (40% of total target bonus) is tied to achievement of individual strategic objectives including enhancing the contract management process, enhancing the litigation management and budget process and strengthening the Company’s overall risk management function.  The cost management and the strategic objectives were met or exceeded in 2014, resulting in a 219% payout of this bonus component.

 

Compensation of NEOs in 2016

In determining the compensation of the Company’s Chief Executive Officer for fiscal year 2016 and approving the compensation of the Company’s other NEOs, the Committee considered, among the other factors discussed above, the achievement of the performance based criteria established under the 2016 Bonus Plan.

The Compensation Committee determined that the Company and management had performed adequately, particularly given trends in the general economic environment and in the technology products industry in which the Company’s former European Technology Group (sold in March 2017) competed throughout fiscal year 2016.  It was the view of the Compensation Committee that management had executed acceptably on strategic business initiatives to position the Company for growth while managing risk.  Based on Company and individual performance, the Compensation Committee believes that compensation levels for fiscal year 2016 were consistent with the philosophy and objectives of the Company’s compensation programs.  The Compensation Committee determined that the Company met its 2016 corporate governance non-financial goals, but only achieved 50% of its Industrial Products Group strategic objectives, 75% of the European Technology Products Group strategic non-financial objectives and 75% of the strategic objectives within its Corporate Segment.  The Compensation Committee also exercised its discretion to reset the sales growth target and adjusted operating income growth target to eliminate, as applicable, any revenue and earnings contributable to its NA Tech business exited in 2015, or contributable to its former German business exited in 2016.  The Company’s revised sales target was 95.6%% achieved, which resulted in participants’ earning 75% of available target bonus related to this financial metric.  Furthermore, the Company’s revised operating income target only partially achieved, which resulted in participants’ earning 30% of the available target for this bonus component. Accordingly, pursuant to the 2016 Bonus Plan formulas, 2016 non-equity incentive plan/bonus compensation for each Named Executive Officer was paid at 41% of the target level.

The 2016 threshold, target and maximum bonus amounts for each of our Named Executive Officers are found in the Grants of Plan-Based Awards table on page 39.

Employment Arrangements of the Named Executive Officers

Richard Leeds

Richard Leeds has no employment agreement and is an “at will” employee.  Base salary accounted for 61% and bonus accounted for 36% of Mr. Leeds total cash compensation for 2016.  Mr. Leeds’ bonus for 2016 was determined as described above under the heading 2016 NEO Cash Bonus Plan.  Mr. Leeds salary for 2017 is set at $726,000.

 

Bruce Leeds

Bruce Leeds has no employment agreement and is an “at will” employee.  Base salary accounted for 61% and bonus accounted for 37% of Mr. Leeds total cash compensation for 2016.  Mr. Leeds’ bonus for 2016 was determined as described above under the heading 2016 NEO Cash Bonus Plan.  Mr. Leeds salary for 2017 is set at $601,000.

Robert Leeds

Robert Leeds has no employment agreement and is an “at will” employee.  Base salary accounted for 61% and bonus accounted for 36% of Mr. Leeds total cash compensation for 2016.  Mr. Leeds’ bonus for 2016 was determined as described above under the heading 2016 NEO Cash Bonus Plan.  Mr. Leeds salary for 2017 is set at $610,000.

Lawrence Reinhold

The Company entered into an employment agreement with Mr. Reinhold on January 17, 2007.  The agreement provides for a minimum base salary of $400,000 (which may be increased at the discretion of the Company) and a bonus (which the agreement states is expected to be at least equal to 50% of the base salary) assuming Mr. Reinhold meets certain performance objectives (including the Company’s financial performance objectives) established for him by the Company.  He is entitled to receive a car allowance or a Company-leased car.

Base salary accounted for 53% and bonus accounted for 43% of Mr. Reinhold’s total cash compensation for 2016.  Mr. Reinhold’s bonus for 2016 was determined as described above under the heading 2016 NEO Cash Bonus Plan.  Mr. Reinhold’s salary for 2017 is set at $715,000.  Compensation that may become payable following the termination of his employment or a change in control of the Company, and other terms of the employment agreement related to such events, are discussed below under “—Potential Payments Upon Termination or Change in Control.”

In February 2016, Mr. Reinhold received a grant of 50,000 restricted stock units under the 2010 Long-Term Incentive Plan, which vest in three installments: 16,667 Shares on February 1, 2017; 16,667 Shares on February 1, 2018; and 16,666 Shares on February 1, 2019.  In addition, in February 2016, Mr. Reinhold was granted an option to purchase 50,000 Shares of common stock pursuant to the 2010 Long-Term Incentive Plan (vesting over a period of four years with 25% of the options vesting on the first, second, third and fourth anniversary dates of the grant date).  In December 2016, Mr. Reinhold was granted an option to purchase 100,000 Shares of common stock pursuant to the 2010 Long-Term Incentive Plan (vesting over a period of four years with 25% of the options vesting on the first, second, third and fourth anniversary dates of the grant date).

 

Thomas Clark

Mr. Clark has no employment agreement and is an “at will” employee.  Base salary accounted for 73% and bonus accounted for 24% of Mr. Clark’s total cash compensation for 2016.  Mr. Clark’s bonus for 2016 was determined as described above under the heading 2016 NEO Cash Bonus Plan.  Mr. Clark’s salary for 2017 is set at $362,000.  Compensation that may become payable following the termination of his employment or a change in control of the Company, are discussed below under “—Potential Payments Upon Termination or Change in Control.”

In February 2016, Mr. Clark received a grant of 25,000 restricted stock units under the 2010 Long-Term Incentive Plan, which vest in three installments: 8,334 Shares on February 1, 2017; 8,333 Shares on February 1, 2018; and 8,333 Shares on February 1, 2019.  In addition, in February 2016, Mr. Clark was granted an option to purchase 10,000 Shares of common stock pursuant to the 2010 Long-Term Incentive Plan (vesting over a period of four years with 25% of the options vesting on the first, second, third and fourth anniversary dates of the grant date).  In November 2016, Mr. Clark was granted an option to purchase 50,000 Shares of common stock pursuant to the 2010 Long-Term Incentive Plan (vesting over a period of four years with 25% of the options vesting on the first, second, third and fourth anniversary dates of the grant date).

Robert Dooley

Mr. Dooley has no employment agreement and is an “at will” employee.  Base salary accounted for 75% and bonus accounted for 22% of Mr. Dooley’s total cash compensation for 2016.  Mr. Dooley’s bonus for 2016 was determined as described above under the heading 2016 NEO Cash Bonus Plan.  Mr. Dooley’s salary for 2017 is set at $520,000.   Compensation that may become payable following the termination of his employment or a change in control of the Company, are discussed below under “—Potential Payments Upon Termination or Change in Control.”

In February 2016, Mr. Dooley was granted an option to purchase 50,000 Shares of common stock pursuant to the 2010 Long-Term Incentive Plan (vesting over a period of four years with 25% of the options vesting on the first, second, third and fourth anniversary dates of the grant date).   In addition, in December 2016 Mr. Dooley was granted an option to purchase 50,000 shares of common stock pursuant to the 2010 Long-Term Incentive Plan (vesting over a period of four years with 25% of the options vesting on the first, second, third and fourth anniversary dates of the grant date).

Eric Lerner

The Company entered into an employment agreement with Mr. Lerner on April 12, 2012.  The agreement provides for a minimum base salary of $480,000 (which may be increased at the discretion of the Company) and a bonus (which the agreement states is expected to be at least equal to 50% of the base salary) assuming Mr. Lerner meets certain performance objectives  (50% of such bonus is based on the performance objective for the Company under its NEO cash bonus plan for the applicable year and 50% of such bonus is based on the achievement of performance objectives established for him by the Company).  He is entitled to receive a car allowance.

Base salary accounted for 79% and bonus accounted for 17% of Mr. Lerner total cash compensation for 2016.  Mr. Lerner’s bonus for 2016 was determined as described above under the heading 2016 NEO Cash Bonus Plan.  Mr. Lerner’s salary for 2017 is set at $576,000.  Compensation that may become payable following the termination of his employment, and other terms of the employment agreement related to such event, are discussed below under “—Potential Payments Upon Termination or Change in Control.”

In February 2016, Mr. Lerner received a grant of 25,000 restricted stock units under the 2010 Long-Term Incentive Plan, which vest in three installments: 8,334 Shares on February 1, 2017; 8,333 Shares on February 1, 2018; and 8,333 Shares on February 1, 2019.  In addition, in February 2016, Mr. Lerner was granted an option to purchase 25,000 Shares of common stock pursuant to the 2010 Long-Term Incentive Plan (vesting over a period of four years with 25% of the options vesting on the first, second, third and fourth anniversary dates of the grant date).

Pursuant to his employment agreement, in May 2012 Mr. Lerner was granted an option to purchase 25,000 Shares of common stock pursuant to the 2010 Long-Term Incentive Plan (vesting over a period of four years with 25% of the options vesting on the first, second, third and fourth anniversary dates of the grant date).  In addition, his employment agreement provides on each of the first, second and third anniversary dates of his commencement date he will receive an additional option to acquire at least an additional 25,000 Shares of Company’s common stock (each grant will vest over a period of four years with 25% of the options for each grant vesting on the first, second, third and fourth anniversary dates of such grant dates).  The decision by the Compensation Committee to award Mr. Lerner stock options was based on a desire to align his interests with those of the Company’s stockholders.

 

Compensation Committee Report to Stockholders*

The Compensation Committee of the Board has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K, which appears in this proxy statement, with our management.  Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement on Schedule 14A.

COMPENSATION COMMITTEE

Robert D. Rosenthal (Chairman)

Stacy Dick

Marie Adler-Kravecas

*

The information contained in this Compensation Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any filings under the Securities Act of 1933, as amended, which we refer to as the Securities Act, or under the Exchange Act, except to the extent that we specifically incorporate this information by reference into any such filing.

Compensation Committee Interlocks and Insider Participation

The members of the Company’s Compensation Committee for fiscal year 2016 were Mr. Rosenthal, Mr. Dick and Ms. Adler-Kravecas.  The Company does not employ any member of the Compensation Committee and no member of the Compensation Committee has ever served as an officer of the Company.  In addition, none of our directors serving on the Compensation Committee has any relationship that requires disclosure under SEC regulations.

 

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation earned by the Named Executive Officers for fiscal years 2014, 2015 and 2016:

 

 

(1)

This column represents the fair value of the stock award on the grant date determined in accordance with the provisions of ASC 718. As per SEC rules relating to executive compensation disclosure, the amounts shown exclude the impact of forfeitures related to service based vesting conditions. For additional information regarding assumptions made in calculating the amount reflected in this column, please refer to Note 9 to our audited consolidated financial statements, included in our Annual Report on Form 10-K for fiscal year 2016.

(2)

This column represents the fair value of the stock option on the grant date determined in accordance with the provisions of ASC 718. As per SEC rules relating to executive compensation disclosure, the amounts shown exclude the impact of forfeitures related to service based vesting conditions. These amounts were calculated using the Black-Scholes option-pricing model.  For additional information regarding assumptions made in calculating the amount reflected in this column, please refer to Note 9 to our audited consolidated financial statements, included in our Annual Report on Form 10-K for fiscal year 2016.

(3)

The 2014 figures in this column represent the amount earned in fiscal year 2014 (although paid in fiscal year 2015) pursuant to the 2014 Bonus Plan; the 2015 figures in this column represent the amount earned in fiscal year 2015 (although paid in fiscal year 2016) pursuant to the 2015 Bonus Plan; and the 2016 figures in this column represent the amount earned in fiscal year 2016 (although paid in fiscal year 2017) pursuant to the 2016 Bonus Plan.  For more information, see the Grants of Plan-Based Awards table below.  Because these payments were based on predetermined performance metrics, these amounts are reported in the Non-Equity Incentive Plan column.

(4)	Auto-related expenses.

(5)	Includes auto-related expenses ($30,000), Company 401(k) contributions ($3,900), and dividend equivalent payments on unvested restricted stock ($17,783).

(6)	Mr. Clark was not a Named Executive Officer prior to October 2016, and therefore no amounts are reported for fiscal years 2014 or 2015 in the Summary Compensation Table.

(7)	Includes auto-related expenses ($11,100), Company 401(k) contributions ($2,948), and dividend equivalent payments on unvested restricted stock ($2,500).

(8)	Includes auto-related expenses ($18,000), Company 401(k) contributions ($3,975), and dividend equivalent payments on unvested restricted stock ($3,000).

(9)	Includes auto-related expenses ($18,000), Company 401(k) contributions ($3,975), and dividend equivalent payments on unvested restricted stock ($2,500).

 

GRANTS OF PLAN-BASED AWARDS

The following table sets forth the estimated possible payouts under the cash incentive awards granted to our Named Executive Officers in respect of 2016 performance under the 2016 NEO Plan.

 

 

(1)	Amounts presented assume payment of threshold, target and maximum awards at the applicable level.

 

(2)	The options awarded to Messrs. Reinhold, Clark, Dooley and Lerner in 2016 vest in equal portions on the first, second, third and fourth anniversaries of the grant date, subject to certain restrictions.

 

(3)	The restricted stock vests in three installments: 16,667 Shares on February 1, 2017; 16,667 Shares on February 1, 2018; and 16,666 Shares on February 1, 2019.

 

(4)	The restricted stock vests in three installments: 8,334 Shares on February 1, 2017; 8,333 Shares on February 1, 2018; and 8,333 Shares on February 1, 2019.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END 2016

The following table sets forth information regarding stock option and restricted stock awards previously granted which were outstanding at the end of fiscal year 2016.

The market value of the unvested stock award is based on the closing price of one share of our common stock as of December 30, 2016, the last trading day of the 2016 fiscal year, which was $8.77.

 

 

(1)	Options vest 25% per year over four years from date of grant.

 

(2)	Restricted stock units vest in ten equal annual installments of 17,500 beginning May 15, 2011.

 

(3)	Restricted stock units vest in ten equal annual installments of 10,000 beginning November 14, 2012.

 

(4)	Restricted stock units vest in three installments: 16,667 Shares on February 1, 2017; 16,667 Shares on February 1, 2018; and 16,666 Shares on February 1, 2019.

 

(5)	Restricted stock units vest in three installments: 8,334 Shares on February 1, 2017; 8,333 Shares on February 1, 2018; and 8,333 Shares on February 1, 2019.

 

(6)	Restricted stock units vest in ten equal annual installments of 5,000 beginning March 1, 2013.

 

OPTION EXERCISES AND STOCK VESTED

The following table sets forth information regarding exercise of options to purchase Shares of the Company’s common stock and vesting of restricted stock units by the Named Executive Officers that exercised options or whose restricted stock units vested during fiscal year 2016:

 

 

(1)	The amount in this column reflects the aggregate dollar amount realized upon the vesting of the restricted stock unit, determined by the market value of the underlying Shares of common stock on the vesting date.

(2)	Pursuant to a grant of restricted stock units on August 25, 2010, the restricted stock units vest in ten equal annual installments of 17,500 units each, beginning on May 15, 2011.

(3)	Pursuant to a grant of restricted stock units on November 14, 2011, the restricted stock units vest in ten equal annual installments of 10,000 units each, beginning on November 14, 2012.

(4)	Pursuant to a grant of restricted stock units on March 1, 2012, the restricted stock units vest in ten equal annual installments of 5,000 units each, beginning on March 1, 2013.

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

Lawrence Reinhold

Mr. Reinhold’s employment agreement is terminable upon death or total disability, by the Company for “cause” (as defined) or without cause, or by Mr. Reinhold voluntarily for any reason or for “good reason” (as defined).  In the event of termination for death, disability, cause or voluntary termination by Mr. Reinhold, the Company will owe no further payments other than as applicable under disability or medical plans and any accrued but unused vacation time (up to four weeks). In the event of termination for disability or death, Mr. Reinhold would also receive the pro rata portion of any bonus which would otherwise be paid based on the average annual bonus received for the prior two years.  If Mr. Reinhold resigns for good reason or if the Company terminates him for any reason other than disability, death or cause, he shall also receive in addition to the payments described above for other terminations, severance payments equal to 12 months’ base salary (or 24 months’ base salary if termination is within 60 days prior to or one year following a “change of control,” as defined), one year’s bonus based on his average annual bonus for the prior two years  and a reimbursement of costs for COBRA insurance coverage.  A “Change in Control” means: (i) approval by the stockholders of the Company of (I) a reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which the Majority Stockholders (as defined) cease to own, directly or indirectly, in the aggregate at least forty percent (40%) of the then outstanding shares of the Company’s common stock or the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities, in substantially the same proportions as their ownership immediately prior to such reorganization, merger, consolidation or other transaction, or (II) the sale of all or substantially all of the assets of the Company; (ii) the acquisition by any person, entity or “group”, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act, of beneficial ownership within the meaning of Rule 13-d promulgated under the Securities Exchange Act which would result in the Majority Stockholders ceasing to own, directly or indirectly, in the aggregate, at least forty percent (40%) of the then outstanding shares of the Company’s common stock; or (iii) the approval by the stockholders of the Company of the complete liquidation or dissolution of the Company.

Pursuant to Mr. Reinhold’s restricted stock unit agreements (dated August 25, 2010 and November 14, 2011), if Mr. Reinhold is terminated for cause, any unvested portion of his restricted stock units will terminate and be forfeited. In the event of a change in control, Mr. Reinhold will become immediately vested in all of the restricted stock units held by him as of the date of the change in control. If Mr. Reinhold’s employment is terminated without cause or for good reason, he will become immediately vested in all non-vested units and will become immediately entitled to a distribution of that number of Shares of common stock of the Company that are represented by those vested restricted stock units. If Mr. Reinhold’s employment is terminated due to disability or death, his estate or designated beneficiary(ies), whichever is applicable, will become immediately vested in 50% of the non-vested restricted stock units.

Pursuant to Mr. Reinhold’s restricted stock unit agreement (dated February 1, 2016), if Mr. Reinhold is terminated for cause, any unvested portion of his restricted stock units will terminate and be forfeited. In the event of a change in control, Mr. Reinhold will become immediately vested in all of the restricted stock units held by him as of the date of the change in control. If Mr. Reinhold’s employment is terminated without cause or for good reason, he will become immediately vested in all non-vested units and will become immediately entitled to a distribution of that number of Shares of common stock of the Company that are represented by those vested restricted stock units. If Mr. Reinhold’s employment is terminated due to disability or death, his estate or designated beneficiary(ies), whichever is applicable, will become immediately vested in all non-vested units and will become immediately entitled to a distribution of that number of Shares of common stock of the Company that are represented by those vested restricted stock units.

Pursuant to the Company’s standard option agreements, in the event Mr. Reinhold’s employment is terminated for any reason other than death, disability or cause, the vested portions of his options will be exercisable for up to three months, and the unvested portion will be forfeited.  In the event of death or disability, the vested portion of his option will be exercisable for up to one year, and the unvested portion will be forfeited.  In the event of termination for cause, all unexercised options (vested and unvested) will be forfeited.

 

Thomas Clark

Pursuant to Mr. Clark’s restricted stock unit agreement (dated February 1, 2016), if Mr. Clark is terminated for cause, any unvested portion of his restricted stock units will terminate and be forfeited. In the event of a change in control, Mr. Clark will become immediately vested in all of the restricted stock units held by him as of the date of the change in control. If Mr. Clark’s employment is terminated without cause or for good reason, he will become immediately vested in all non-vested units and will become immediately entitled to a distribution of that number of Shares of common stock of the Company that are represented by those vested restricted stock units. If Mr. Clark’s employment is terminated due to disability or death, his estate or designated beneficiary(ies), whichever is applicable, will become immediately vested in all non-vested units and will become immediately entitled to a distribution of that number of Shares of common stock of the Company that are represented by those vested restricted stock units.

 

Pursuant to the Company’s standard option agreements, in the event Mr. Clark’s employment is terminated for any reason other than death, disability or cause, the vested portions of his options will be exercisable for up to three months, and the unvested portion will be forfeited.  In the event of death or disability, the vested portion of his option will be exercisable for up to one year, and the unvested portion will be forfeited.  In the event of termination for cause, all unexercised options (vested and unvested) will be forfeited.

 

Robert Dooley

Pursuant to Mr. Dooley’s restricted stock unit agreement (dated March 1, 2012), if Mr. Dooley is terminated for cause, any unvested portion of his restricted stock units will terminate and be forfeited.  In the event of a change in control, Mr. Dooley will become immediately vested in all of the restricted stock units held by him as of the date of the change in control.  If Mr. Dooley’s employment is terminated without cause or for good reason, he will become immediately vested in all non-vested units and will become immediately entitled to a distribution of that number of shares of common stock of the Company that are represented by those vested restricted stock units. If Mr. Dooley’s employment is terminated due to disability or death, his estate or designated beneficiary(ies), whichever is applicable, will become immediately vested in 50% of the non-vested restricted stock units.

Pursuant to the Company’s standard option agreements, in the event Mr. Dooley’s employment is terminated for any reason other than death, disability or cause, the vested portions of his options will be exercisable for up to three months, and the unvested portion will be forfeited.  In the event of death or disability, the vested portion of his option will be exercisable for up to one year, and the unvested portion will be forfeited.  In the event of termination for cause, all unexercised options (vested and unvested) will be forfeited.

 

Eric Lerner

Mr. Lerner’s employment agreement is terminable upon death or total disability, by the Company for “cause” (as defined) or without cause, or by Mr. Lerner voluntarily for any reason or for “good reason” (as defined).  In the event of termination for death, disability, cause or voluntary termination by Mr. Lerner, the Company will owe no further payments other than as applicable under disability or medical plans and any accrued but unused vacation time (up to four weeks). In the event of termination for disability or death, Mr. Lerner would also receive the pro rata portion of any bonus which would otherwise be paid based on the average annual bonus received for the prior two years.  If Mr. Lerner resigns for good reason or if the Company terminates him for any reason other than disability, death or cause, he shall also receive in addition to the payments described above for other terminations, severance payments equal to 12 months’ base salary, one year’s bonus based on his average annual bonus for the prior two years and a reimbursement of costs for COBRA insurance coverage for twelve months.

Pursuant to Mr. Lerner’s restricted stock unit agreement (dated February 1, 2016), if Mr. Lerner is terminated for cause, any unvested portion of his restricted stock units will terminate and be forfeited. In the event of a change in control, Mr. Lerner will become immediately vested in all of the restricted stock units held by him as of the date of the change in control. If Mr. Lerner’s employment is terminated without cause or for good reason, he will become immediately vested in all non-vested units and will become immediately entitled to a distribution of that number of Shares of common stock of the Company that are represented by those vested restricted stock units. If Mr. Lerner’s employment is terminated due to disability or death, his estate or designated beneficiary(ies), whichever is applicable, will become immediately vested in all non-vested units and will become immediately entitled to a distribution of that number of Shares of common stock of the Company that are represented by those vested restricted stock units.

Pursuant to the Mr. Lerner’s option agreements, in the event Mr. Lerner’s employment is terminated for any reason other than death, disability or cause, the vested portions of his options will be exercisable for up to three months, and the unvested portion will be forfeited.  In the event of death or disability, the vested portion of his option will be exercisable for up to one year, and the unvested portion will be forfeited.  In the event of termination for cause, all unexercised options (vested and unvested) will be forfeited.  If Mr. Lerner’s employment is terminated without cause or for good reason within six months following a “change in control”, he will become immediately vested in all outstanding unvested stock options, and all of Mr. Lerner’s outstanding options shall remain exercisable in accordance with their terms, but in no event for less than 90 days after such termination.

 

Termination of Employment Without Change in Control

The following table sets forth the severance payments that would have been made had the employment of Mr. Reinhold, Mr. Clark, Mr. Dooley or Mr. Lerner been terminated by the Company without cause or by them for “good reason” in a situation not involving a change in control, based on a hypothetical termination date of December 31, 2016, the last day of the Company’s fiscal year 2016, and using the closing price of our common stock on December 30, 2016, the last trading day of the 2016 fiscal year.  These amounts are estimates and the actual amounts to be paid can only be determined at the time of the termination of the officer’s employment.

 

(1)	Represents one year’s salary of $717,000 and an average yearly cash bonus of $699,000 paid to Mr. Reinhold for fiscal years 2015 and 2016.  Mr. Reinhold would also receive the bonus amount in the event of his death or disability.

 

(2)

Represents accelerated vesting of 170,000 unvested restricted stock units granted to Mr. Reinhold if terminated without cause or for good reason. Pursuant to Mr. Reinhold’s restricted stock unit agreements (dated August 25, 2010 and November 14, 2011), on the event of Mr. Reinhold’s death or disability, 60,000 restricted stock units (50% of the unvested restricted stock units granted under such agreements at December 31, 2016) would vest, having a value of $526,200, based on a termination date of December 31, 2016 and using a closing price of our stock on December 30, 2016, the last trading day of the 2016 fiscal year.   Pursuant to Mr. Reinhold’s restricted stock unit agreement (dated February 1, 2016), on the event of Mr. Reinhold’s death or disability, 50,000 restricted stock units (100% of the unvested restricted stock units granted under such agreement at December 31, 2016) would vest, having a value of $438,500, based on a termination date of December 31, 2016 and using a closing price of our stock on December 30, 2016, the last trading day of the 2016 fiscal year.

 

(3)	Represents reimbursement of medical and dental insurance payments under COBRA for twelve months.

(4)

Represents accelerated vesting of 25,000 unvested restricted stock units granted to Mr. Clark if terminated without cause or for good reason.  Pursuant to Mr. Clark’s restricted stock unit agreement (dated February 1, 2016), on the event of Mr. Clark’s death or disability, 25,000 restricted stock units (100% of the unvested restricted stock units granted under such agreement at December 31, 2016) would vest, having a value of $219,250, based on a termination date of December 31, 2016 and using a closing price of our stock on December 30, 2016, the last trading day of the 2016 fiscal year.

(5)

Represents accelerated vesting of 30,000 unvested restricted stock units granted to Mr. Dooley if terminated without cause or for good reason. Pursuant to Mr. Dooley’s restricted stock unit agreement (dated March 1, 2012), on the event of Mr. Dooley’s death or disability, 15,000 restricted stock units (50% of the unvested restricted stock units granted under such agreements at December 31, 2016) would vest, having a value of $131,550, based on a termination date of December 31, 2016 and using a closing price of our stock on December 30, 2016, the last trading day of the 2016 fiscal year.

(6)	Represents one year’s salary of $572,000 and an average yearly cash bonus of $212,500 paid to Mr. Lerner for fiscal years 2015 and 2016.  Mr. Lerner would also receive the bonus amount in the event of his death or disability.

(7)

Represents accelerated vesting of 25,000 unvested restricted stock units granted to Mr. Lerner if terminated without cause or for good reason.  Pursuant to Mr. Lerner’s restricted stock unit agreement (dated February 1, 2016), on the event of Mr. Lerner’s death or disability, 25,000 restricted stock units (100% of the unvested restricted stock units granted under such agreement at December 31, 2016) would vest, having a value of $219,250, based on a termination date of December 31, 2016 and using a closing price of our stock on December 30, 2016, the last trading day of the 2016 fiscal year.

 

Change in Control Payments

The following table sets forth the change in control payments that would have been made based on a hypothetical change of control date of December 31, 2016, the last day of the Company’s fiscal year 2016, and using the closing price of our common stock on December 30, 2016, the last trading day of the 2016 fiscal year.  These amounts are estimates and the actual amounts to be paid can only be determined at the time of the change of control.

 

(1)	Represents two year’s salary of $717,000 and an average yearly cash bonus of $699,000 paid to Mr. Reinhold for fiscal years 2015 and 2016.

 

(2)	Payments are made to Mr. Reinhold only if he is terminated without “cause” or resigns for “good reason” within 60 days prior to, or one year following, a Change of Control.

 

(3)	Represents accelerated vesting of 170,000 unvested restricted stock units.

(4)	Represents reimbursement of medical and dental insurance payments under COBRA for twenty-four months.

(5)	Represents accelerated vesting of 25,000 unvested restricted stock units.

(6)	Represents accelerated vesting of 30,000 unvested restricted stock units.

(7)	Represents one year’s salary of $572,000 and an average yearly cash bonus of $212,500 paid to Mr. Lerner for fiscal years 2015 and 2016.

(8)	Represents accelerated vesting of 62,500 unvested stock options (only if terminated without “cause” or resigns for “good reason” within six months following a Change of Control).  37,500 of these options on the hypothetical change of control date of December 31, 2016 have no intrinsic value.

(9)	Represents reimbursement of medical and dental insurance payments under COBRA for twelve months.

 

DIRECTOR COMPENSATION

The Company’s policy is not to pay compensation to directors who are also employees of the Company or its subsidiaries. Each non-employee director receives annual compensation as follows:  $65,000 per year as base compensation, $10,000 per year for each committee chair, except for the Audit Committee Chair who receives $20,000, and each year immediately following the annual stockholders meeting a grant of Shares of Company stock (restricted for sale for two years) in an amount equal to $40,000 divided by the closing price per share during the 20 trading days preceding the date of the annual meeting (rounded up to the nearest whole number of shares).  Through 2016 the annual restricted stock grants to non-employee directors were made pursuant to the Company’s 2006 Stock Incentive Plan for Non-Employee Directors, which was approved by the Company’s stockholders at the 2006 Annual Stockholders’ Meeting.  After the 2016 grant the annual restricted stock grants to non-employee directors will be made pursuant to the Company’s 2010 Long-Term Incentive Plan, which was approved by the Company’s stockholders at the 2010 Annual Stockholders’ Meeting.  The Lead Independent Director, currently Mr. Rosenthal, also receives an additional $20,000 per year.  In addition, each non-employee director received a one-time grant of 10,000 options on October 31, 2016 made pursuant to the Company’s 2010 Long-Term Incentive Plan.  Directors are reimbursed for reasonable travel and out-of-pocket expenses incurred for attending Board and Committee meetings and are covered by our travel accident insurance policy for such travel.

Director Compensation for Fiscal Year 2016

The following table sets forth compensation information regarding payments in 2016 to our non-employee directors:

 

 

(1)

This column represents the fair value of the stock award on the grant date determined in accordance with the provisions of ASC 718. As per SEC rules relating to executive compensation disclosure, the amounts shown exclude the impact of forfeitures related to service based vesting conditions. For additional information regarding assumptions made in calculating the amount reflected in this column, please refer to Note 9 to our audited consolidated financial statements, included in our Annual Report on Form 10-K for fiscal year 2016.

(2)

This column represents the fair value of the stock option on the grant date determined in accordance with the provisions of ASC 718. As per SEC rules relating to executive compensation disclosure, the amounts shown exclude the impact of forfeitures related to service based vesting conditions. These amounts were calculated using the Black-Scholes option-pricing model.  For additional information regarding assumptions made in calculating the amount reflected in this column, please refer to Note 9 to our audited consolidated financial statements, included in our Annual Report on Form 10-K for fiscal year 2016.

The following table presents the aggregate number of unvested restricted stock awards and stock option awards held by each of our non-employee directors at the end of fiscal year 2016:

 

 

PROPOSAL NO. 2

NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION

PROPOSAL NO. 3

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

Action is to be taken at the Annual Meeting to ratify the selection of Ernst & Young LLP as independent registered public accountants for the Company for fiscal year 2017.

Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and to be available to respond to appropriate questions.  They will have an opportunity to make a statement if they so desire.

Principal Accounting Fees and Services

The following are the fees billed by Ernst & Young LLP for services rendered during fiscal years 2015 and 2016:

Audit and Audit-related Fees

Ernst & Young billed the Company $1,577,655 for professional services rendered for the audit of the Company’s annual consolidated financial statements for fiscal year 2016 and its reviews of the interim financial statements included in the Company’s Forms 10-Q for that fiscal year and $3,081,000 for such services rendered for fiscal year 2015. Ernst & Young also billed the Company $181,544 related to subsidiary statutory audits in 2016.

In accordance with the SEC’s definitions and rules, “audit fees” are fees that were billed to the Company by Ernst & Young for the audit of the Company’s annual financial statements, to be included in the Form 10-K, and review of financial statements included in the Form 10-Qs; for the audit of the Company’s internal control over financial reporting with the objective of obtaining reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects; for the attestation of management’s report on the effectiveness of internal control over financial reporting; and for services that are normally provided by the auditor in connection with statutory and regulatory filings or engagements.  “Audit-related fees” are fees for assurance and related services that are reasonably related to the performance of the audit or review of the company’s financial statements and internal control over financial reporting, including services in connection with assisting the company in its compliance with its obligations under Section 404 of the Sarbanes-Oxley Act and related regulations.

Tax Fees

Ernst & Young LLP did not provide any professional services for tax compliance, planning or advice in 2016 and 2015.

All Other Fees

Other fees (i.e., those that are not audit fees, audit related fees, or tax fees) of $2,167 were billed by Ernst & Young LLP for each of the fiscal years 2015 and 2016.

The Audit Committee is responsible for approving every engagement of the Company’s independent registered public accountants to perform audit or non-audit services on behalf of the Company or any of its subsidiaries before such accountants can be engaged to provide those services.  The Audit Committee does not delegate its pre-approval authority.  The Audit Committee has reviewed the services provided to the Company by Ernst & Young LLP and believes that the non-audit/review services it has provided are compatible with maintaining the auditor’s independence.

Stockholder ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accountants is not required by the Company’s By-Laws or other applicable legal requirement.  However, the Board is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate practice.  If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to continue to retain that firm.  Even if the selection is ratified, the Audit Committee at its discretion may direct the appointment of different independent registered public accountants at any time during the year or thereafter if it determines that such a change would be in the best interests of the Company and its stockholders.

Vote Required for Approval

Ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accountants will require the affirmative vote of the holders of a majority of the Shares present in person or by proxy and entitled to vote on the issue.  There are no rights of appraisal or dissenter’s rights as a result of a vote on this issue.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR FISCAL YEAR 2017, WHICH IS DESIGNATED AS PROPOSAL NO. 3.

 

ADDITIONAL MATTERS

Solicitation of Proxies

We are using the Securities and Exchange Commission, or SEC, “Notice Only” rule that allows us to furnish our proxy materials over the internet to our stockholders instead of mailing paper copies of those materials to each stockholder.  As a result, beginning on or about April 24, 2017, we sent to most of our stockholders by mail a notice containing instructions on how to access our proxy materials over the internet and vote online.  This notice is not a proxy card and cannot be used to vote your Shares.  If you received only a notice this year, you will not receive paper copies of the proxy materials unless you request the materials by following the instructions on the notice or on the website referred to in the notice.

The Proxy Statement and Annual Report on Form 10-K for fiscal year 2016 are available at www.proxyvote.com.

The cost of soliciting proxies for the Annual Meeting will be borne by the Company.  In addition to solicitation by mail and over the internet, solicitations may also be made by personal interview, fax and telephone.  Arrangements will be made with brokerage houses and other custodians, nominees and fiduciaries to send proxies and proxy material to their principals and the Company will reimburse them for expenses in so doing.  Consistent with the Company’s confidential voting procedure, directors, officers and other regular employees of the Company, as yet undesignated, may also request the return of proxies by telephone or fax, or in person.

Stockholder Proposals

Stockholder proposals intended to be presented at the 2018 annual meeting, including proposals for the nomination of directors, must be received by December 26, 2017 to be considered for the 2018 annual meeting pursuant to Rule 14a-8 under the Exchange Act. Stockholders proposals should be mailed to Systemax Inc., Attention: Investor Relations, 11 Harbor Park Drive, Port Washington, NY 11050.

Other Matters

The Board does not know of any matter other than those described in this proxy statement that will be presented for action at the meeting.  If other matters properly come before the meeting, the persons named as proxies intend to vote the Shares they represent in accordance with their judgment.

A COPY OF THE COMPANY’S FORM 10-K FOR FISCAL YEAR 2016 IS INCLUDED AS PART OF THE COMPANY’S ANNUAL REPORT ALONG WITH THIS PROXY STATEMENT, WHICH ARE AVAILABLE AT www.proxyvote.com.

Available Information

The Company maintains an internet web site at www.systemax.com.  The Company files reports with the Securities and Exchange Commission and makes available free of charge on or through this web site its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, including all amendments to those reports.  These are available as soon as is reasonably practicable after they are filed with the SEC.  All reports mentioned above are also available from the SEC’s web site (www.sec.gov).  The information on the Company’s web site or any report the Company files with, or furnishes to, the SEC is not part of this proxy statement.

The Board has adopted the following corporate governance documents (the “Corporate Governance Documents”):

·

Corporate Ethics Policy for officers, directors and employees;

·

Charter for the Audit Committee of the Board;

·

Charter for the Compensation Committee of the Board;

·

Charter for the Nominating/Corporate Governance Committee of the Board; and

·

Corporate Governance Guidelines and Principles.

In accordance with the corporate governance rules of the New York Stock Exchange, each of the Corporate Governance Documents is available on the Company’s Company web site (www.systemax.com).  A copy of the Audit Committee Charter is also attached hereto as Appendix A

 

 

KEEP THIS PORTION FOR YOUR RECORDS

DETACH AND RETURN THIS PORTION ONLY

Important   Notice   Regarding   Internet   Availability of   Proxy   Materials   for   the   Annual   Meeting: The Annual Report, Notice & Proxy Statement are available at www.proxyvote.com

 

SYSTEMAX INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD

OF DIRECTORS

ANNUAL MEETING OF STOCKHOLDERS – JUNE 5, 2017

The stockholder(s) hereby appoint(s) Eric Lerner and Thomas Axmacher, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of SYSTEMAX INC. that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholder(s) to be held at 12:00 PM, Eastern Time on June 5, 2017, at the Company’s Corporate Offices 11 Harbor Park Drive, Port Washington, NY 11050, and any adjournment or postponement thereof.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE STOCKHOLDERS, IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE

Address change/comments:

(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side

 

(Continued, and to be marked, dated and signed, on the other side)

 

Appendix A

AUDIT COMMITTEE CHARTER

FOR

SYSTEMAX INC.

(revised March 15, 2017)

 

The purpose of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Systemax Inc. (the “Company”) is to (a) assist the Board with oversight of (i) the integrity of the Company’s financial statements, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the Company’s independent auditor’s qualifications and independence, and (iv) the performance of the Company’s internal audit function and independent auditors; and (b) prepare the report that U.S. Securities and Exchange Commission rules require be included in the Company’s annual proxy statement.

The function of the Committee is oversight. It is not the Committee’s responsibility to certify the Company’s financial statements or to guarantee the report of the independent auditor. The Company’s management is responsible for the (i) preparation, presentation and integrity of the Company’s financial statements, (ii) maintenance of appropriate accounting and financial reporting principles and policies, and (iii) maintenance of internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent auditor is responsible for planning and carrying out a proper audit and reviews. In fulfilling their responsibilities hereunder, it is recognized that members of the Committee are not full-time employees of the Company. As such, it is not the duty or responsibility of the Committee or its members to conduct auditing or accounting reviews or procedures, except to the extent described below under “Performance Evaluation”.

Each member of the Committee shall be entitled to rely on (i) the integrity of those persons and organizations within and outside the Company from which it receives information and (ii) the accuracy of the financial and other information provided to the Committee by such persons and organizations absent actual knowledge to the contrary (which shall be promptly reported to the Company’s Board). In addition, the evaluation of the Company’s financial statements by the Committee is not of the same scope as, and does not involve the extent of detail as, audits performed by the independent auditor, nor does the Committee’s evaluation substitute for the responsibilities of the Company’s management for preparing, or the independent auditor for auditing, the financial statements.

The duties and responsibilities of the Committee are to:

1.

Retain and terminate the Company’s independent auditors (subject, if applicable, to shareholder ratification). The Committee shall oversee the rotation of the audit partners of the independent auditors as required by the Sarbanes-Oxley Act of 2002. The Committee shall have the sole authority to approve and/or pre-approve all audit engagement fees and terms, as well as all non-audit engagement fees and terms with the independent auditor.   The Committee shall not engage the independent auditor to perform non-audit services proscribed by law or regulation. The Committee need not pre-approve non-audit services that fall within the “De Minimis Exception” set forth in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended;

2.

At least annually, obtain and review a report by the independent auditor consistent with Independence Standards Board of Directors Standard No. 1, describing: (a) the independent auditor’s internal quality-control procedures; (b) any material issues raised by the most recent internal quality-control review, or peer review, of the independent auditor, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the independent auditor, and any steps taken to deal with any such issues; and (c) (to assess the auditor’s independence) all relationships between the independent auditor and the Company. After reviewing the foregoing report and the independent auditor’s work throughout the year, the Committee shall evaluate the auditor’s qualifications, performance and independence. This evaluation shall include the review and evaluation of the lead partner of the independent auditor. In making its evaluation, the Committee shall take into account the opinions of management and the Company’s internal auditors (or other personnel responsible for the internal audit function). The Committee shall present its conclusions with respect to the independent auditor to the full Board;

 

3.

Review and discuss the annual audited financial statements and quarterly financial statements with management and the independent auditor, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and provide the annual Audit Committee report required by the SEC for inclusion in the Company’s annual report on Form 10-K, and otherwise report to the stockholders of the Company in accordance with the rules and regulations of the SEC.

4.

Review and discuss with management earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies. This discussion may be done generally (i.e., discussion of the types of information to be disclosed and the type of presentation to be made). The Committee is not required to discuss in advance each earnings press release or each instance in which the Company provides earnings guidance;

5.

As appropriate, obtain advice and assistance from outside legal, accounting or other advisors;

6.

Review and discuss with management policies with respect to risk assessment and risk management. While it is the job of the chief executive officer and senior management to assess and manage the Company’s exposure to risk under the oversight of the Board of Directors, the Committee shall discuss guidelines and policies to govern the process by which this is handled, including working together with the Compensation Committee regarding the Company’s compensation policies for all its employees as they relate to the Company’s risk management goals and objectives. The Committee shall discuss the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures;

7.

Periodically meet separately with management, with internal auditors (or other personnel responsible for the internal audit function), and with independent auditors;

8.

Annually discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management. The discussion shall address, to the extent applicable, any accounting adjustments that were noted or proposed by the independent auditor but were "passed" (as immaterial or otherwise), any communications between the audit team and the auditor's national office with respect to auditing or accounting issues presented by the engagement and any “management” or “internal control” letter issued, or proposed to be issued, by the independent auditor. The Committee shall discuss with the independent auditor:

(a)

the responsibilities, budget and staffing of the Company’s internal audit function;

(b)

the Company's critical accounting policies and practices;

(c)

alternative treatments of financial information within generally accepted accounting principles related to material items the independent auditors have discussed with management, ramifications of use of the alternative disclosures and treatments, and the treatment preferred by the independent auditors; and

(d)

other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.

The Company’s directors of internal audit shall report directly to the chief financial officer and the Committee at least four times per fiscal year, or more often as necessary;

9.

The Committee shall periodically review and discuss with management and the independent auditor: (a) any major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company's selection or application of accounting principles, and major issues as to the adequacy of the Company's internal controls and any special audit steps adopted in light of material control deficiencies; (b) analyses prepared by management and/or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements; and (c) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company.

 

10.

The Committee shall review disclosures made to the Committee by the Company's Chief Executive Officer and Chief Financial Officer during their certification process for the Form 10-K and Forms 10-Q about significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting and any fraud involving management or other employees who have a significant role in the Company's internal control over financial reporting. The Committee shall review with management, the senior internal auditing executive, and the independent auditor, as appropriate, attestations and reports by the independent auditor on internal control over financial reporting.

11.

Set clear hiring policies for the hiring by the Company of employees or former employees of the independent auditors;

12.

Establish procedures for (i) the receipt, retention and treatment of complaints received by the Company, regarding accounting, internal accounting controls, or auditing matters and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters;

13.

Report regularly to the Board. The Committee shall review with the full Board any issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, the performance and independence of the Company’s independent auditors, or the performance of the internal audit function;

14.

Review the content of CEO and CFO disclosures and certifications under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002; and

15.

The Committee shall obtain from the independent auditor assurance that Section 10A(b) of the Exchange Act (relating to reports by the independent auditor made to the Company of illegal acts discovered by the independent auditor) has not been implicated.

The Committee shall consist of at least three members of the Board, each of whom is, in the business judgment of the Board, “independent” under Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, the rules of the New York Stock Exchange and any other securities exchange on which the Company’s securities are listed. Each member of the Committee shall be financially literate (or shall become so within a reasonable period of time after appointment to the Committee), and at least one member of the Committee shall have “accounting or related financial management expertise” as such qualifications are interpreted by the Board in its business judgment, and qualify as a “financial expert” as defined by the U.S. Securities and Exchange Commission. No Committee member may serve on the audit committees of more than two other public companies, unless the Board has determined that such service will not impair the effectiveness of the member’s service on the Committee. The Board shall periodically determine (a) whether each Committee member meets such independence and experience requirements and (b) whether or not any member of the Committee is an "audit committee financial expert" as that term is defined by the rules and regulations of the Commission.

The members of the Committee shall be appointed by the Board, and shall serve at the pleasure of the Board for such term or terms as the Board may determine.

The compensation to be paid by the Company to any Committee member must consist solely of director’s fees; provided, however, that pension or other deferred compensation that is not contingent on future service to the Company will not be deemed to violate this requirement.

 

 

A majority of the Committee shall constitute a quorum. The Board shall designate a member of the Committee as its chairperson. The Committee may act by a majority of the members present at a meeting of the Committee. In the event of a tie vote on any issue, the chairperson’s vote shall decide the issue. The Committee shall meet in person or telephonically at least four times a year at a time and place determined by the Committee chairperson, with further meetings to occur when deemed necessary or desirable by the Committee or its chairperson. The Committee may delegate some or all of its duties to a subcommittee comprising one or more members of the Committee. The Committee may ask members of management or others whose advice and counsel are relevant to the issues then being considered by the Committee to attend any meetings and to provide such pertinent information as the Committee may request.

The Committee shall review the adequacy of this charter and evaluate its performance hereunder at least annually and present such report to the full Board. Such report shall include any recommended changes to this charter. The Board shall also review and approve this charter at least annually.

While the fundamental responsibility for the Company’s financial statements and disclosures rests with management and the independent auditor, the Committee shall review: (i) major issues regarding accounting principles, and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, and major issues as to the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies; (ii) analyses prepared by management and/or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of using alternative methods under generally accepted accounting principles (“GAAP”) on the financial statements; (iii) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company; and (iv) earnings press releases (paying particular attention to any use of “pro forma,” or “adjusted” non-GAAP, information), as well as financial information and earnings guidance provided to analysts and rating agencies.

In discharging its oversight responsibilities, the Committee shall have unrestricted access to the Company’s management, books and records and the authority to retain outside counsel, accountants or other consultants in the Committee’s sole discretion. The Committee may direct any officer of the Company, the independent auditor and/or the Company’s internal audit staff to inquire into and report to the Committee on any matter.

 

Nothing contained in this charter is intended to, or should be construed as, creating any responsibility or liability of the members of the Committee except to the extent otherwise provided under applicable Delaware law which shall continue to set the legal standard for the conduct of the members of the Committee.

 

 

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