|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Name of Beneficial Owner(1)
|
|
Number of
Shares
|
|
Percent of
Class(1)
|
|
Geoffrey S. M. Hedrick
|
|
|
3,535,567
|
|
|
21.1
|
%
|
Shahram Askarpour(2)
|
|
|
539,500
|
|
|
3.2
|
%
|
Robert E. Mittelstaedt, Jr.
|
|
|
186,480
|
|
|
1.1
|
%
|
Winston J. Churchill
|
|
|
130,483
|
|
|
*
|
|
Robert H. Rau
|
|
|
90,254
|
|
|
*
|
|
Glen R. Bressner
|
|
|
98,182
|
|
|
*
|
|
Roger A. Carolin(3)
|
|
|
10,179
|
|
|
*
|
|
Relland M. Winand
|
|
|
|
|
|
*
|
|
All executive officers and directors as a group (8 persons)
|
|
|
4,590,645
|
|
|
27.4
|
%
|
-
*
-
Less
than 1%.
-
(1)
-
As
used in this table, beneficial ownership means the sole or shared power to vote or direct the voting of a security, or the sole or shared investment power with
respect to a security (i.e., the power to dispose, or direct the disposition, of a security). A person is deemed as of any date to have beneficial ownership of any security that such person has
the right to acquire within 60 days after such date. Percentage ownership is based upon 16,783,129 shares of common stock outstanding as of January 23, 2017.
-
(2)
-
Includes
2,000 common shares owned beneficially by Dr. Askarpour, 535,000 common shares which Dr. Askarpour has the right to acquire pursuant to vested
stock options as of January 23, 2017 and 2,000 common shares owned by Dr. Askarpour's wife.
-
(3)
-
Shares
are held jointly with Mr. Carolin's wife.
5
Table of Contents
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about ISS common stock that may be issued upon the exercise of options and rights under all of the
Company's existing equity compensation plans and arrangements as of September 30, 2016, including the 1998 Stock Option Plan (the "1998 Plan"), and the 2009 Stock-Based Incentive Compensation
Plan (the "2009 Plan").
|
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of Securities
to be issued upon
exercise of outstanding
options warrants and rights
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
Number of Securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in second column)
|
|
Equity compensation plans approved by security holders
|
|
|
656,283
|
|
$
|
3.41
|
|
|
257,264
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
656,283
|
|
$
|
3.41
|
|
|
257,264
|
|
In
the fiscal years ended September 30, 2016, 2015 and 2014, awards issued to non-employee directors under the Company's existing equity compensation plan and arrangements were
56,376, 21,640 and 12,890 shares, respectively.
2009 Stock-Based Incentive Compensation Plan
The Company's 2009 Plan was approved by the Company's shareholders at the Company's Annual Meeting of Shareholders held on March 12,
2009. The 2009 Plan authorizes the grant of stock appreciation rights, restricted stock, options and other equity-based awards (collectively referred to as "Awards"). Options granted under the 2009
Plan may be either "incentive stock options" as defined in section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or nonqualified stock options, as determined by the
Compensation Committee of the Company's Board of Directors (the "Compensation Committee").
Subject
to an adjustment necessary upon a stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or
share exchange, extraordinary or unusual cash distribution, or similar corporate transaction or event, the maximum number of shares of common stock available for awards under the 2009 Plan is
1,200,000, all of which may be issued pursuant to Awards of incentive stock options or nonqualified stock options. In addition, the 2009 Plan provides that no more than 300,000 shares may be awarded
in any calendar year to any employee as a performance-based award under Section 162(m) of the Code. As of September 30, 2016, there were 257,264 shares of common stock available for
Awards under the 2009 Plan.
If
any Award is forfeited, or if any option terminates, expires or lapses without being exercised, the related shares of common stock subject to such Award will again be available for
future grant. Any shares tendered by a participant in payment of the exercise price of an option or the tax liability with respect to an Award (including, in any case, shares withheld from any such
Award) will not be available for future grant under the 2009 Plan. If there is any change in the Company's corporate capitalization, the Compensation Committee must proportionately and equitably
adjust the number and kind of shares of common stock which may be issued in connection with future Awards, the number and type of shares of common stock covered by Awards then outstanding under the
2009 Plan, the number and type of shares of common stock available under the 2009 Plan, the exercise or grant price of any Award, or if deemed appropriate, make provision for a cash payment with
respect to any outstanding Award, provided that no adjustment may be made that would adversely affect the status of any Award that is intended to be a performance-based Award under
Section 162(m) of the Code, unless otherwise determined by the Compensation Committee. In addition, the Compensation Committee may make
6
Table of Contents
adjustments
in the terms and conditions of any Awards, including any performance goals, in recognition of unusual or nonrecurring events affecting the Company or any subsidiary, or in response to
changes in applicable laws, regulations or accounting principles, provided that no adjustment may be made that would adversely affect the status of any Award that is intended to be a performance-based
Award under Section 162(m) of the Code, unless otherwise determined by the Compensation Committee.
The
2009 Plan will terminate on March 12, 2019, unless earlier terminated by the Board. Termination will not affect Awards outstanding at the time of termination. The Board may
amend, alter, suspend, discontinue or terminate the 2009 Plan without shareholder approval, provided that shareholder approval is required for any amendment which (i) would increase the number
of shares subject to the 2009 Plan; (ii) would decrease the price at which Awards may be granted; or (iii) would require shareholder approval by law, regulation, or the rules of any
stock exchange or automated quotation system.
1998 Stock Option Plan
The Company's 1998 Plan was adopted in order to recognize the contributions made by the Company's employees, directors, consultants and
advisors, to provide such persons with additional incentives to devote their efforts to the Company's future success and to improve the Company's ability to attract, retain and motivate individuals
through the receipt of Company stock options. The maximum number of shares of the Company's common stock available under the 1998 Plan was 3,389,025 (after giving effect to stock splits). The 1998
Plan authorized the grant of "incentive stock options" (within the meaning of Section 422 of the Code) and non-qualified stock options, such options to vest and become exercisable as specified
in separate written agreements between the Company and the option recipient. Unless otherwise specified in such agreement, all outstanding options become fully vested and exercisable upon a change in
control. The 1998 Plan expired on November 13, 2008; therefore, no further options can be awarded under the 1998 Plan.
7
Table of Contents
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's officers (as defined under
Section 16(a) of the Exchange Act), directors and persons who own greater than 10% of a registered class of the Company's equity securities to file reports of ownership and changes in ownership
with the SEC. Based solely on a review of the forms the Company has received and on written representations from certain reporting persons that no such forms were required for them, the Company
believes that during the fiscal year ended September 30, 2016, the officers, directors and 10% beneficial owners of the Company complied with all of the applicable Section 16(a) of the
Exchange Act filing requirements, except that (i) on October 3, 2016 a late Form 4 was filed on behalf of each of our non-employee directors (other than Mr. Bressner)
reporting a grant of 14,234 restricted stock units to each such director on November 12, 2015, (ii) on October 5, 2016 a late Form 4 was filed on behalf of
Mr. Bressner reporting an identical grant to Mr. Bressner and (iii) on October 3, 2016 a late Form 4 was filed on behalf of Mr. Carolin reporting a grant of
10,179 restricted stock units to Mr. Carolin on September 26, 2016.
8
Table of Contents
ELECTION OF DIRECTOR
(Item 1 on Proxy Card)
At the annual meeting, the shareholders will elect two Class II directors and one Class I director to hold office until the annual
meetings of shareholders in 2020 and 2019, respectively, or until their respective successors have been duly elected and qualified. The Board is divided into three classes serving staggered three-year
terms, the term of one class of directors to expire each year. The term of the Class II directors expires at the 2017 annual meeting of shareholders.
Upon
the recommendation of the Nominating/Corporate Governance Committee, the Board has nominated Mr. Glen R. Bressner and Mr. Robert E. Mittelstaedt, Jr. to serve as
Class II directors. Both men serve presently as Class II directors and each has indicated a willingness to continue serving as a director. In April 2016, Mr. Roger A. Carolin was
elected by the Board of Directors as a Class I director to fill a vacancy on the Board of Directors. According to the Company's bylaws, when a director is
elected to fill a vacancy on the Board of Directors, he or she shall be elected to serve a term expiring at the next annual meeting of shareholders, regardless of the class to which the director is
elected. At such next annual meeting of shareholders, that director shall stand for re-election to a term expiring at the annual meeting when the term of a director in such class would naturally
expire. Upon the recommendation of the Nominating/Corporate Governance Committee, the Board has nominated Mr. Roger A. Carolin to serve as a Class I director. Mr. Carolin
currently serves as a Class I director and has indicated a willingness to continue serving as a director for a term expiring at the annual meeting of shareholders in 2019.
Unless
contrary instructions are given, the shares represented by a properly executed proxy will be voted "
FOR
" the election of
Messrs. Bressner, Mittelstaedt and Carolin. Shareholders must cast a separate vote
"FOR"
the candidacy of each nominee or to
"WITHHOLD AUTHORITY"
with
respect thereto. The three nominees receiving a plurality of the votes cast for director will be elected. Should any nominee
become unavailable to accept election as a director, the persons named in the enclosed proxy will vote the shares that they represent for the election of such other person as the Board may recommend.
The Board of Directors
recommends voting "FOR" the nominee for Class I director and "FOR" the nominees for Class II director
.
9
Table of Contents
DIRECTORS AND NOMINEE
The members of the Board as of the date of the Annual Meeting, including the nominee for Class I director standing for election at this
meeting, together with certain information about them, are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Director
Since
|
|
Term
Expires
|
|
Positions with the Company
|
Director Standing For Election
|
|
|
|
|
|
|
|
|
|
|
|
Class II Directors
|
|
|
|
|
|
|
|
|
|
|
|
Robert E. Mittelstaedt, Jr.
|
|
|
73
|
|
|
1989
|
|
|
2017
|
|
Director
|
Glen R. Bressner
|
|
|
56
|
|
|
1999
|
|
|
2017
|
|
Director, Vice-Chairman of the Board
|
Class I Director
|
|
|
|
|
|
|
|
|
|
|
|
Roger A. Carolin
|
|
|
61
|
|
|
2016
|
|
|
2017
|
|
Director
|
Director Not Standing For Election
|
|
|
|
|
|
|
|
|
|
|
|
Class III Directors
|
|
|
|
|
|
|
|
|
|
|
|
Geoffrey S.M. Hedrick
|
|
|
74
|
|
|
1988
|
|
|
2018
|
|
Director, Chairman of the Board, Chief Executive Officer
|
Winston J. Churchill
|
|
|
76
|
|
|
1990
|
|
|
2018
|
|
Director
|
Class I Director
|
|
|
|
|
|
|
|
|
|
|
|
Robert H. Rau
|
|
|
80
|
|
|
2001
|
|
|
2019
|
|
Director
|
Directors and Nominee
Robert E. Mittelstaedt, Jr.
Mr. Mittelstaedt served as Non-Executive Chairman of the Board of Directors from 1989 to 1997.
Mr. Mittelstaedt is Dean Emeritus of the W. P. Carey School of Business at Arizona State University where he served as Dean and Professor of Management from 2004 to 2013. Prior to that,
Mr. Mittelstaedt was Vice Dean of The Wharton School of the University of Pennsylvania since 1989. Mr. Mittelstaedt also serves on the Board of Directors of Laboratory Corporation of
America Holdings, Inc. and is a member of the Board of Directors of W. P. Carey, Inc. Mr. Mittelstaedt holds a Bachelor of Science degree in Mechanical Engineering from Tulane
University and a Masters of Business Administration degree from The Wharton School of the University of Pennsylvania.
Glen R. Bressner.
Mr. Bressner is Managing Partner of Originate Ventures which he co-founded in 2008. He is also a shareholder and
a director
on the board of Alum-a-Lift, Inc., a family-owned manufacturer of material handling solutions. He has also been a Managing Partner of Mid Atlantic Venture Funds since 1985. From 1996 to 1997,
Mr. Bressner served as the Chairman of the Board of the Greater Philadelphia Venture Group. Mr. Bressner holds a Bachelor of Science, cum laude, in Business Administration from Boston
University and a Masters of Business Administration degree from Babson College.
Roger A. Carolin.
Mr. Carolin is currently a Venture Partner at SCP Partners, a multi-stage venture capital firm that invests in
technology-oriented companies, a position he has held since 2004. Mr. Carolin works to identify attractive investment opportunities and assists portfolio companies in the areas of strategy
development, operating management and intellectual property. Mr. Carolin co-founded CFM Technologies, Inc., a global manufacturer of semiconductor process equipment, and served as its
Chief Executive Officer for 10 years until the company was acquired. Mr. Carolin formerly worked for Honeywell, Inc. and General Electric Co., where he developed test
equipment and advanced computer systems for on-board missile applications. Mr. Carolin is also a director of Amkor Technology (NASDAQ: AMKR), a supplier of outsourced semiconductor assembly and
test services.
10
Table of Contents
Mr. Carolin
holds a B.S. in Electrical Engineering from Duke University and an M.B.A. from the Harvard Business School.
Geoffrey S. M. Hedrick.
Mr. Hedrick founded the Company in February 1988 and has been Chairman of the Board since 1997.
Mr. Hedrick
resigned from his position as Chief Executive Officer of the Company on November 30, 2007 but continued as Chairman of the Board. He reassumed his former duties as Chief Executive Officer on
September 8, 2008. Prior to founding the Company, Mr. Hedrick
served as President and Chief Executive Officer of Smiths Industries, North American Aerospace Companies. He also founded Harowe Systems, Inc. in 1971, which was acquired subsequently by Smiths
Industries plc. Mr. Hedrick has over 45 years of experience in the avionics industry, and he holds a number of patents in the electronics, optoelectric, electromagnetic, aerospace
and contamination-control fields.
Winston J. Churchill.
Mr. Churchill has been managing general partner of SCP Partners since he founded it in 1996, and has over
35 years' experience in private equity investing. Previously, he had formed Churchill Investment Partners, Inc. in 1989 and CIP Capital, L.P., another venture capital fund, in
1990. Prior to that, he was a managing partner of a private investment firm that specialized in leveraged buyouts on behalf of Bessemer Securities Corporation. From 1967 to 1983, he practiced law at
the Philadelphia firm of Saul, Ewing LLP and served as Chairman of its Banking and Financial Institutions Department, Chairman of the Finance Committee and a member of its Executive Committee.
He is a director of a number of public companies including Amkor Technology, Inc., Recro Pharma, Inc. and Griffin Land and Nurseries, Inc., as well as a number of private
companies. From 1989 to 1993, he served as Chairman of the Finance Committee of the Pennsylvania Public School Employees' Retirement System. He is currently a Trustee Fellow of Fordham University,
Chairman of Scholar Academies, Vice-Chair of The Gesu School, and a trustee of American Friends of New College Oxford, England; he was also for many years a trustee of Georgetown University. He earned
a Bachelor of Science in Physics, summa cum laude, from Fordham University, a Master of Arts in Economics from Oxford University, where he studied as a Rhodes Scholar, and a Juris Doctor from Yale Law
School.
Robert H. Rau.
Mr. Rau retired December 31, 1998 as President of the Aerostructures Group of The Goodrich Company. Prior to
its merger
with The Goodrich Company, Mr. Rau was President and Chief Executive Officer of Rohr, Inc. from 1993 to 1997. Before joining Rohr, he was an Executive Vice President of Parker Hannifin
Corporation and President of its Aerospace Sector. In addition, Mr. Rau is a past member of the Board of Governors of the Aerospace Industries Association and a past Chairman of the General
Aviation Manufacturers Association. Mr. Rau received a Bachelor of Arts degree in Business Administration from Whittier College in 1962.
Director Qualifications
The Board believes that each of the directors and the nominee for director listed above has the sound character, integrity, judgment and record
of achievement necessary to be a member of the Board. In additional, each of the directors and the nominee for director has exhibited during his prior service as a director the ability to operate
cohesively with the other members of the Board and to challenge and question management in a constructive way. Moreover, the Board believes that each director and nominee for director brings a strong
and unique background and skill set to the Board, giving the Board as a whole competence and experience in diverse areas, including corporate
governance and board service, finance, management and aviation industry experience. Set forth below are certain specific experiences, qualifications and skills that led to the Board's conclusion that
each of the directors and the nominee for director listed above should continue to serve as a director.
Mr. Mittelstaedt,
having served as the Non-Executive Chairman of the Board for nine years, provides the Board with a comprehensive knowledge of the Company and its history. He was
CEO of
11
Table of Contents
an
IT firm that he co-founded, built and sold in the 1980s. In addition, Mr. Mittelstaedt has extensive academic business experience, having served as Dean of the W. P. Carey School of Business
at Arizona State University and Vice Dean at The Wharton School of the University of Pennsylvania. This experience has exposed Mr. Mittelstaedt to contemporary business strategies and practices
which he draws from in his service on the Board. Mr. Mittelstaedt's experience on various other boards of directors provides him with insight into corporate governance which he utilizes in his
service on the Compensation and Nominating & Corporate Governance Committees. Additionally, Mr. Mittelstaedt has been an active pilot for 50 years and holds a FAA Commercial Pilot
Certificate with Multi-Engine and Instrument ratings. Consequently, he has gained operational experience with state of the art avionics, which he brings to the Board.
Mr. Bressner
brings to the Board a wealth of experience managing financial investments from his service at venture capital firms. Mr. Bressner provides the Board with a
thorough understanding of capital markets and other financial issues. Mr. Bressner's experience in managing investments also provides him with extensive finance and accounting knowledge, and he
applies this expertise in his service as Chairman of the Audit Committee of the Board (the "Audit Committee"). Mr. Bressner's prior service as Chairman of the Board of Directors of the Greater
Philadelphia Venture Group and on numerous other boards of directors, including of several public entities, provided him also with valuable experience in corporate governance matters, which he draws
from in his service on the Audit Committee, the Investment Committee of the Board (the "Investment Committee") and the Nominating & Corporate Governance Committee.
Mr. Carolin,
with over a decade of experience in private equity investing and his prior work in advanced computer systems and on-board missile applications, has a significant
understanding our industry and our business and possesses particular knowledge and experience in the technology, new business opportunities, operations, management and finance areas relevant to our
business, which are among the key attributes which qualify Mr. Carolin for his service on the Board.
Mr. Hedrick,
as founder and Chief Executive Officer of the Company, provides the Board with a comprehensive knowledge of the Company, its history and its businesses. In addition,
Mr. Hedrick
brings to the Board his insight into the aviation industry from over 40 years of leadership experience in executive positions in aviation companies, including Smith Industries plc and
Harowe Systems, Inc.
Mr. Churchill
brings to the Board over twenty-five years of experience in private equity investing, during which he gained valuable insight into effective management of
investments. Mr. Churchill utilizes this insight to advise the Board on financial and investment matters. In addition, Mr. Churchill has extensive experience serving on the boards of
directors of other companies, both public and private. Mr. Churchill draws on his financial and corporate governance experience in his service on the Investment Committee and the
Nominating & Corporate Governance Committee. In addition, Mr. Churchill has maintained a pilot's license for twelve years and has Instrument and Multi-Engine ratings. Consequently, he
has gained operational experience with state of the art avionics, which he brings to the Board.
Mr. Rau
brings to the Board extensive experience in leadership positions with companies in the aviation industry. From this experience, he has gained in-depth knowledge of the
operational issues facing companies in the aviation industry, which he utilizes in advising the Board. Mr. Rau's prior service on the Board of Governors of the Aerospace Industries Association
and as Chairman of both the General Aviation Manufacturers Association and the International Advisory Panel of Singapore Aerospace, has provided him with a unique perspective on the issues facing the
aviation industry as a whole, which he draws upon in his service on the Board.
12
Table of Contents
INDEPENDENCE
The Board has determined in its business judgment that five (5) of the Company's six (6) directors are independent as defined in
the applicable NASDAQ Stock Market, LLC ("NASDAQ") listing standards, including that each member is free of any relationships that would interfere with his individual exercise of independent
judgment. The following directors were determined to be independent: Glen R. Bressner, Winston J. Churchill, Robert E. Mittelstaedt, Jr., Roger A. Carolin and Robert H. Rau (collectively, the
"Independent Directors").
BOARD LEADERSHIP
The Board does not have a formal policy on whether the roles of Chief Executive Officer and Chairman of the Board should be separate. Currently,
Mr. Geoffrey S.M. Hedrick serves in both of these positions. The Board believes that it is in the best interests of the Company's shareholders to combine these offices as it promotes
information flow between management and the Board, effective decision making and an alignment of corporate strategy. In addition, Mr. Glen R. Bressner, an Independent Director, serves as Vice
Chairman of the Board and as presiding director during executive sessions of Independent Directors. The Board believes that its structural features, including four independent directors on a board
currently consisting of five directors, regular meetings of Independent Directors in executive session, an independent Vice Chairman of the Board and key committees consisting wholly of Independent
Directors, provide for substantial independent oversight of the Company's management. However, the Board recognizes that, depending on future circumstances, other leadership models may become more
appropriate. Accordingly, the Board will continue to review periodically its leadership structure.
RISK OVERSIGHT
The Company faces a number of risks, including technological and intellectual property risk, regulatory risk, credit risk, liquidity risk,
reputational risk and risk from adverse fluctuations in interest rates. Management is responsible for the day-to-day management of risks faced by the Company, while the Board, as a whole and through
its committees, has responsibility for the oversight of risk management. In its risk oversight role, the Board seeks to ensure that the risk management processes designed and implemented by management
are adequate. The Board consults periodically with management regarding the Company's risks.
While
the Board is ultimately responsible for risk oversight, the Company's board committees assist the Board in fulfilling its oversight responsibilities in certain areas of risk. The
Audit Committee assists the Board in its oversight of risk management in the areas of financial reporting and internal controls. The Compensation Committee assists the Board in oversight of risks
related to the Company's compensation policies and programs. The Investment Committee assists the Board in oversight of the risks related to the Company's cash investments. The Nominating &
Corporate Governance Committee assists the Board in oversight of risk associated with board organization, membership and structure, succession planning for directors and executive officers and
corporate governance.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board maintains four standing committees: Audit, Compensation, Investment, and Nominating & Corporate Governance.
Audit Committee.
The Audit Committee makes recommendations to the Board with respect to various auditing and accounting matters,
including the
selection and compensation of the Company's independent registered public accounting firm, the scope of the Company's annual audits, fees to be paid to the independent registered public accounting
firm, the performance and independence of the Company's independent registered public accounting firm, and the Company's accounting practices.
13
Table of Contents
The
Audit Committee approves all services provided to the Company by the independent registered public accounting firm. The Audit Committee has established procedures for the receipt,
retention, and treatment, on a confidential basis, of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous
submissions by employees of concerns regarding questionable accounting or auditing matters. In addition, the Audit Committee has responsibility for, among other things, the planning and review of the
Company's annual and periodic reports and accounts, and the involvement of the Company's independent registered public accounting firm in that process. The members of the Audit Committee are currently
Messrs. Bressner (Chairman), Rau and Churchill. The Audit Committee is comprised solely of independent members, as independence for audit committee members is defined by the applicable NASDAQ
listing standards. In addition, the Board has determined in its business judgment that each member of the Audit Committee is financially literate, and that at least one of the Audit Committee members,
Mr. Rau, is an audit committee financial expert, as defined by SEC rules and regulations. The Audit Committee has adopted a formal written charter that has been approved by the Board. The
charter specifies the scope of the Audit Committee's responsibilities and procedures for carrying out such responsibilities. A copy of the charter is available on the Company's website,
www.innovative-ss.com, under the heading Investor Relations. None of the information on the Company's website is incorporated by reference in this proxy statement.
Compensation Committee.
The members of the Compensation Committee are currently Messrs. Mittelstaedt and Rau, each of whom, in the
judgment of
the Board, was found to be
"independent" as defined by the applicable NASDAQ listing standards. The Compensation Committee is responsible for setting and administering the policies that govern all executive compensation
decisions, including annual base salaries, bonuses, and equity-based compensation programs. The Compensation Committee evaluates annually the performance of the Company's Chief Executive Officer and
determines or recommends to the full Board the annual base salary, bonus, and equity-based compensation for the Chief Executive Officer. The Compensation Committee relies on the recommendations of the
Chief Executive Officer, following the Chief Executive Officer's annual performance reviews of other executive officers, in setting annual base salaries, bonuses, and equity-based compensation for
other executive officers.
The
Compensation Committee is responsible for reviewing and overseeing the Company's benefit plans and equity incentive plans and other compensation plans and policies for employees,
consultants, directors, and other compensated individuals, including the Chief Executive Officer. The Compensation Committee has adopted a formal written charter that has been approved by the Board.
The charter specifies the scope of the Compensation Committee's responsibilities and procedures for carrying out such responsibilities. A copy of the charter is available on the Company's website,
www.innovative-ss.com under the heading "Investor Relations."
The
Compensation Committee has the authority under its charter to engage the services of outside consultants, advisors and others to assist the Compensation Committee. However, the
Compensation Committee has not retained an outside consultant or advisor to advise it regarding the Company's compensation practices. Instead, the Compensation Committee independently determines the
appropriate levels of compensation for executive officers taking into account, among other factors, the performance of such individuals (as determined in annual reviews conducted by the Compensation
Committee for the Chief Executive Officer or by the Chief Executive Officer for the other executive officers), the Company's financial performance, cost of living, prior compensation practices, and
recruitment and retention needs. The Compensation Committee relies on the recommendations of the Company's Chief Executive Officer in determining whether and how much of a discretionary bonus may be
paid to the Company's employees (including executive officers other than the Chief Executive Officer) if the Company's financial performance exceeds the Board's expectations.
14
Table of Contents
Compensation Committee Interlocks and Insider Participation.
No member of the Compensation Committee is a former or current executive
officer or
employee of the Company. There are no compensation committee interlocks between the Company and any other entity involving the Company or such entity's executive officers or board members.
Investment Committee.
The Investment Committee assists the Board in fulfilling its oversight responsibilities with respect to
recommendations
pertaining to the investment of excess capital, including with respect to the implementation of the Company's stock repurchase program. Messrs. Churchill (Chairman), Bressner and Rau are
currently the members of the Investment Committee.
Nominating & Corporate Governance Committee.
The Company has a Nominating & Corporate Governance Committee,
consisting of three
non-employee directors. The Nominating & Corporate Governance Committee has adopted a formal written charter that has been approved by the Board. The charter specifies the scope of the
Nominating & Corporate Governance Committee's responsibilities and procedures for carrying out such responsibilities. A copy of the charter is available on the Company's website,
www.innovative-ss.com, under the heading "Investor Relations." The Nominating & Corporate Governance Committee members are currently Messrs. Mittelstaedt (Chairman), Churchill and
Bressner, each of whom, in the determination of the Board, is "independent," as defined by the applicable NASDAQ listing standards.
The
Nominating & Corporate Governance Committee functions include establishing the criteria for selecting candidates for nomination to the Board, seeking candidates who meet those
criteria, making recommendations to the Board of nominees to fill vacancies on or as additions to the Board, and monitoring the Company's corporate governance structure.
The
Nominating & Corporate Governance Committee seeks director candidates based upon a number of qualifications and criteria, including independence, knowledge, judgment,
character, leadership skills, education, experience, financial literacy, standing in the community, and ability to foster a diversity of backgrounds and views and to complement the Board's existing
strengths relative to the Company's business. In the case of potential independent director candidates, such eligibility criteria must be in accordance with SEC and NASDAQ rules. While the
Nominating & Corporate Governance Committee does not have a formal policy with regard to the consideration of diversity in indentifying director nominees, the Nominating & Corporate
Governance and the Board believe that it is essential that the Board be able to draw on a wide variety of backgrounds and professional experience among its members. The Nominating & Corporate
Governance Committee desires to maintain the Board's diversity through the consideration of factors such as education, skills, and relevant professional experience. The Nominating & Corporate
Governance Committee does not intend to nominate representational directors, but instead considers the entirety of each candidate's credentials in the context of these standards and the
characteristics of the Board in its entirety.
The
Nominating & Corporate Governance Committee will consider nominees for election to the Board who are recommended timely by shareholders, provided that a complete description
of the nominees' qualifications, experience, and background, together with a statement signed by each nominee in which he or she consents to act as such, accompany the recommendations. Such
recommendations should be submitted in writing to the attention of Chairman, Nominating & Corporate Governance Committee, at the Company's address at 720 Pennsylvania Drive, Exton,
PA, 19341, and should not include
self-nominations. Section 3.10 of the Company's Amended and Restated Bylaws contains provisions setting forth the requirements applicable to a shareholder nomination for director. These
requirements are summarized in this Proxy Statement under the caption "Shareholder Proposals for 2018 Annual Meeting And Other Matters."
Each
of the current nominees for director listed under the caption "ELECTION OF DIRECTORS" is an existing director standing for re-election. In connection with the Annual Meeting,
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the
Nominating & Corporate Governance Committee did not receive any recommendation for a candidate from any shareholder or group of shareholders owning more than 5% of the Company's common
stock.
The
Annual Meeting provides an opportunity each year for shareholders to ask questions of or otherwise communicate directly with members of the Company's Board on matters relevant to the
Company. Each director is requested to attend in person the Annual Meeting. All six of the Company's then-serving directors attended the Company's 2016 Annual Meeting of Shareholders.
In
addition, shareholders may communicate with the Board, or if applicable, to a specific individual director, by sending a written communication to the attention of the Board or such
individual director at the following address: 720 Pennsylvania Drive, Exton, PA, 19341, or by facsimile to (610) 646-0150.
Copies
of each written communication received at such address or facsimile number will be provided to the Board or to the specific individual director unless such communication is
considered, in the reasonable judgment of the Corporate Secretary or other appropriate company officer, to be improper for submission to the intended recipient. Examples of shareholder communications
that would be considered improper for submission include, without limitation, customer complaints, solicitations, communications that do not relate directly or indirectly to the Company or the
Company's business, or communications that relate to improper or irrelevant topics.
The
Nominating & Corporate Governance Committee conducts an annual assessment of the size and composition of the Board and its committees and reviews with the Board the
appropriate skills and characteristics required of Board members. The Nominating & Corporate Governance Committee has not relied upon third-party search firms to identify board candidates, but
reserves the right to do so as required. To date the Nominating & Corporate Governance Committee has relied upon recommendations from a wide variety of its business contacts, including current
executive officers, directors, community leaders, and shareholders as a source for potential board candidates.
Neither
the Nominating & Corporate Governance Committee nor the Company has engaged or paid any fees to a search firm in connection with the nomination of the directors for
election at the Annual Meeting covered by this Proxy Statement.
MEETINGS AND ATTENDANCE
During the fiscal year ended September 30, 2016, the full Board held four (4) meetings. From time to time during fiscal year 2016
the Board met in executive session without members of management present. The Audit Committee met seven (7) times, the Investment Committee met one (1) time, the Compensation Committee
met one (1) time and the Nominating & Corporate Governance Committees met one (1) time. All directors attended at least 75% of the meetings of the full Board and the meetings of
the committees on which they served, other than Mr. Carolin, who was appointed to the Board in April 2016. Mr. Carolin attended each of the Board meetings held during fiscal 2016
following his appointment.
SAY-ON-PAY FREQUENCY VOTE
(Item 2 on Proxy Card)
In accordance with the Dodd-Frank Act and Section 14A of the Exchange Act, the Company is seeking the input of its shareholders on the
frequency with which it will hold a non-binding advisory vote on the compensation of its named executive officers in the future. In voting on this Item 2, shareholders may indicate their
preference as to whether the advisory vote on the compensation of the Company's named executive officers should occur (a) once every three years, (b) once every two years or
(c) once every year. The Company currently holds such a vote once every three years.
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It is the opinion of the Board that the frequency of the shareholder vote on the compensation of the Company's named executive officers should continue to be once
every three years. The Company views the way it compensates its named executive officers as an essential part of its strategy to maximize the performance of the Company and deliver enhanced value to
the Company's shareholders. The Board believes that continuing the practice of holding such a vote every three years will permit the Company to focus on developing compensation practices that are in
the best long-term interests of its shareholders, while simultaneously giving shareholders the time frame they need to fully evaluate the design and effectiveness of those practices. The Board
believes that a more frequent advisory vote could have the unintended consequence of causing the Company to focus on the short-term impact of its compensation practices to the possible detriment of
the long-term performance of the Company.
The
Board believes that an advisory vote on named executive officer compensation is the most effective way for shareholders to communicate with the Company about its compensation
objectives, policies and practices, and it looks forward to receiving the input of the Company's shareholders on the frequency with which such a vote should be held in the future. Although the results
of this vote may impact how frequently the Company holds an advisory vote on executive compensation, this vote is not binding on the Company. The Board may decide, after considering the results of
this vote, that it is in the best interests of the Company's shareholders to hold the advisory vote on executive compensation on a different schedule than the option approved by the Company's
shareholders.
The Board of Directors recommends a vote "FOR" a frequency vote on say-on-pay of once every three years.