PRINCIPAL STOCKHOLDERS
The following table presents the number of shares of our Common Stock beneficially owned as of the Record Date, by (i) each director, (ii) each executive officer named in the Summary Compensation Table below, (iii) all directors and executive officers as a group, and (iv) each person who, to our knowledge, owns beneficially more than five percent (5%) of our Common Stock. Unless otherwise indicated, beneficial ownership is direct and the person indicated has sole voting and investment power.
|
|
Shares
|
|
Beneficial
|
|
|
|
Beneficially
|
|
Ownership
|
|
Name and Address
|
|
Owned (1)
|
|
Percentage (1)
|
|
Rainer H. Bosselmann (2)
|
|
452,411
|
|
2.90
|
%
|
William F. Griffin, Jr. (3)
|
|
316,150
|
|
2.04
|
%
|
James W. Quinn (4)
|
|
89,570
|
|
*
|
|
Brian R. Sherras (5)
|
|
62,965
|
|
*
|
|
William F. Leimkuhler (6)
|
|
62,000
|
|
*
|
|
W.G. Champion Mitchell (7)
|
|
57,500
|
|
*
|
|
Henry A. Crumpton (8)
|
|
50,000
|
|
*
|
|
Cynthia A. Flanders (9)
|
|
42,000
|
|
*
|
|
David H. Watson (10)
|
|
32,700
|
|
*
|
|
Daniel L. Martin
|
|
20,094
|
|
*
|
|
Peter W. Getsinger (11)
|
|
19,900
|
|
*
|
|
Officers and Directors, as a group (12 persons) (12)
|
|
1,215,290
|
|
7.64
|
%
|
Renaissance Technologies (13)
|
|
1,075,800
|
|
6.95
|
%
|
BlackRock, Inc. (14)
|
|
872,519
|
|
5.63
|
%
|
John W. Blackburn (15)
|
|
817,106
|
|
5.28
|
%
|
Dimension Fund Advisors (16)
|
|
820,100
|
|
5.30
|
%
|
*
Less than 1%.
(1)
Applicable percentage of ownership is based on 15,485,719 shares of Common Stock outstanding as of the Record Date, together with applicable options for each stockholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to options that are currently exercisable or exercisable within 60 days of the Record Date are deemed to be beneficially owned by the person holding such options for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise noted in the footnotes below, the address for each of the individuals listed in the table above is c/o Argan, Inc., One Church Street, Suite 201, Rockville, Maryland 20850.
(2)
Includes 325,170 shares owned by Mr. Bosselmann and 2,241 shares owned by Mr. Bosselmann and his wife, as joint tenants. Also includes options to purchase 125,000 shares of Common Stock which are held by Mr. Bosselmann and are fully vested.
(3)
Includes 306,150 shares owned by the William F. Griffin, Jr. Revocable Trust DTD 12/09/04; Mr. Griffin is a trustee of the trust. Also includes options to purchase 10,000 shares of Common Stock which are fully vested.
(4)
Includes options to purchase 40,000 shares of Common Stock held by Mr. Quinn which are fully vested. Does not include 275,019 shares of Common Stock held by Allen & Company LLC and affiliates. Mr. Quinn disclaims beneficial ownership of the shares held by Allen & Company LLC and affiliates.
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(5)
Includes options to purchase 35,000 shares of Common Stock which are fully vested.
(6)
Includes options to purchase 45,000 shares of Common Stock which are fully vested.
(7)
Includes options to purchase 50,000 shares of Common Stock which are fully vested.
(8)
Includes options to purchase 30,000 shares of Common Stock which are fully vested.
(9)
Includes options to purchase 30,000 shares of Common Stock which are fully vested.
(10)
Includes options to purchase 30,000 shares of Common Stock which are considered to be fully vested.
(11)
Includes options to purchase 7,000 shares of Common Stock which are fully vested.
(12)
Includes options to purchase 412,000 shares of Common Stock held by the executive officers and members of our Board of Directors which are considered to be fully vested.
(13)
Based upon a Schedule 13G/A filed with the SEC on February 14, 2017 by Renaissance Technologies LLC (RTL) which reports sole voting and dispositive power with respect to 1,072,722 shares of Common Stock, sole dispositive power with respect to 2,794 shares of Common Stock and shared dispositive power with respect to 284 shares of Common Stock. The address for RTL is 800 Third Ave, New York, New York 10022.
(14)
Based upon a Schedule 13G filed with the SEC on January 30, 2017 by BlackRock Inc. and subsidiaries (BRI), which reports sole voting power with respect to 847,719 shares of Common Stock and sole dispositive power with respect to 872,519 shares of Common Stock. The address for BRI is 55 East 52
nd
Street, New York, New York 10055.
(15)
Based upon a Schedule 13G filed jointly with the SEC on June 3, 2010 by Prairie Fire Capital, LLC (PFC), a Delaware limited liability company; Ptolemy Capital, LLC (PC), a Delaware limited liability company; Westwind Investors, LP (WI), a Delaware limited partnership; the Stone Family Foundation, a Delaware not-for-profit corporation; and John W. Blackburn (together the Reporting Persons). The filing reports 817,106 shares of Common Stock beneficially owned by Mr. Blackburn, a manager of PFC, PC and WI, who has sole voting and dispositive powers with respect to the shares. The address for the Reporting Persons is 917 Tahoe Boulevard, Suite 200, Incline Village, Nevada 89451.
(16)
Based upon a Schedule 13G Holdings Report filed with the SEC on February 9, 2017 by Dimensional Fund Advisors LP (DFA) which reports sole voting and dispositive power with respect to 785,732 shares of Common Stock and sole dispositive power with respect to 34,368 shares of Common Stock.. The address for DFA is 6300 Bee Cave Rd, Austin, Texas 78746.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This section of the Proxy Statement highlights our performance during Fiscal 2017 and provides an overview and also analysis of our executive compensation program. The following discussion describes the programs compensation principles and objectives, the compensation-setting process, the major elements of compensation paid under the program and other compensation-related policies. This section also reviews the actions taken by the Compensation Committee for Fiscal 2017.
For Fiscal 2017, the Companys executive officers described in this Proxy Statement (our Named Executive Officers) were:
·
Rainer H. Bosselmann, Chairman and Chief Executive Officer;
·
William F. Griffin, Jr, Vice Chairman and Chief Executive Officer, Gemma;
·
David H. Watson, Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary;
·
Daniel L. Martin, President, Gemma.
19
The Compensation Committee establishes our overall executive compensation philosophy and oversees the executive compensation program in accordance with its charter. This charter is available on our website at
www.arganinc.com
.
Executive Summary
Fiscal 2017 Financial
Overview and Strategic Developments.
Argans primary business is providing a full range of services to the power industry, including the engineering, procurement and construction of gas-fired and biomass-fired power plants, along with related commissioning, operations management, maintenance, project development and consulting services. We provide these services through our Gemma Power Systems (Gemma) and Atlantic Projects Company (APC) subsidiary operations. Argan also owns Southern Maryland Cable, which provides telecommunications infrastructure services, and The Roberts Company (TRC), which is a fully integrated fabrication, construction and plant services company.
In Fiscal 2017, we experienced record year-over-year growth in the following key financial and operational measurements:
·
Revenues increased 63.3% to $675.0 million for Fiscal 2017 as compared to $413.3 million for the prior year.
·
Our overall gross profit percentage remained strong at 22% for Fiscal 2017 as compared to 24% for the prior year. The resulting gross profit amount increased 48% to $146.7 million for Fiscal 2017 as compared to $99.5 million for the prior year.
·
Net income attributable to the stockholders of Argan increased 94% to $70.3 million for Fiscal 2017 as compared to $36.3 million for the prior year.
·
EBITDA(1) attributable to the stockholders of Argan increased 76% to $110.6 million for Fiscal 2017 as compared to $62.9 million for the prior year.
·
We declared and paid $1.00 per share in cash dividends during Fiscal 2017.
·
Our tangible net worth(2) increased by 45% to $248.5 million as of January 31, 2017 from $171.8 million as of January 31, 2016.
·
Our liquidity, or working capital(3), increased by 46% to $237.2 million as of January 31, 2017 from $162.9 million as of January 31, 2016.
·
Our contract backlog was $1.0 billion as of January 31, 2017.
·
During Fiscal 2017, we achieved contractual final completion on the Panda Liberty and Panda Patriot projects and we continued to ramp up work on four other gas-fired power plant projects which are all expected to be completed during the fiscal year ending January 31, 2019.
(1)
EBITDA is a measure not recognized under generally accepted accounting principles (GAAP). We have defined EBITDA as earnings before interest, taxes, depreciation and amortization.
(2)
We define tangible net worth as our total stockholders equity less goodwill and intangible assets, net.
(3)
We define working capital as our total current assets less our total current liabilities.
The following table presents our annualized one-year, three-year and five-year total stockholder returns, or TSR (defined as total stock market value appreciation plus dividends paid for the relevant period), and our performance relative to the Peer Group (our peer group of selected publicly traded companies defined under Competitive Market Positioning on page 25 of this Proxy Statement):
Total Stockholder Return: Argan v. Peer Group (1)
TSR
|
|
Argan
|
|
Peer Group Average
|
|
Peer Group Percentile Rank
|
|
1-year TSR
|
|
103.5
|
%
|
33.3
|
%
|
100
|
%
|
3-year TSR
|
|
39.0
|
%
|
9.8
|
%
|
85
|
%
|
5-year TSR
|
|
41.5
|
%
|
14.4
|
%
|
100
|
%
|
(1)
TSR data is sourced from FactSet Research Systems Inc. and is calculated on an annualized basis as of May 1, 2017.
20
We continued to take action to create long-term value for stockholders by executing on the Companys strategic goals and operating plan. In particular, we accomplished the following:
·
Declared and paid regular
and
special cash dividends of $0.70 and $0.30 per share of common stock, respectively, in Fiscal 2017 compared to a regular annual dividend of $0.70 per share of Common Stock in Fiscal 2016, which demonstrates our commitment to paying cash dividends on a regular basis as well returning additional value to stockholders when performance is significant.
·
Integrated two acquisitions from Fiscal 2016 which resulted in increased diversification of our revenues, with over $100 million in revenue collectively coming from our two new subsidiaries, APC and TRC, and SMC. In addition, corporate overhead costs were further spread over a larger number of businesses, where overall selling, general and administration decreased to 4.8% of revenues, from 6.1% in the prior year. Lastly, APC and TRC both performed work for Gemma and collaborated on a number of intiatives and activities, ranging from increasing overall efficiencies to sales efforts.
In addition to the progress made with our newly acquired companies, our existing subsidiaries, most importantly Gemma, continued to generate profits for the Company. Since the acquisition of Gemma in December 2006, over ten years ago, we have responded through challenging industry economic cycles with the growth in revenues and profitability trending upwards as illustrated below. Note that the amounts in the chart for Net Income and EBITDA are attributable to the stockholders of Argan (dollars in millions):
Since fiscal year ended January 31, 2007 (the year during which we acquired Gemma), we have achieved an average annual growth in revenues of 14% per year and an average growth in EBITDA (attributable to the stockholders of Argan) of 36% per year. To underscore the importance of Gemma to us, prior to the acquisition of Gemma in December 2006, the Company reported $35 million in revenues and EBITDA of only $1.2 million from its other segments at the time for the fiscal year ended January 31, 2007.
2016 Say-On-Pay Advisory Vote Results
. We value the opinions of our stockholders as expressed through their votes and other communications and, therefore, we annually submit the executive compensation program to a non-binding stockholder advisory say-on-pay vote. In June 2016, we held our annual say-on-pay vote and the executive compensation program presented last year was approved. We were pleased with the results, which we believe, in part, reflected the changes made by the Compensation Committee which had performed a detailed review of the executive compensation program to ensure that it is aligned with our pay-for-performance philosophy and general market practices.
21
These changes included the following:
·
Implemented stock ownership guidelines for the Named Excutive Officers and non-employee directors;
·
Adopted a Clawback Policy which provides the Board of Directors with discretion to seek reimbursement of all or part of paid incentive compensation awarded to executive officers under specific circumstances;
·
Adopted a No Pledging Policy where there is a prohibition on pledging Argan equity interests obtained under Company compensation plans;
·
Adopted an Anti-Hedging Policy which prohibits all Company insiders from hedging Argan equity interests and trading in derivatives of the Company equity securities; and
·
Designed and implemented the 2016 Executive Compensation Plan for William F. Griffin, Jr., in order to align performance with the amount of awards and to preserve tax deductions for compensation payments.
Pay Is At Risk and Aligned with Performance
. The executive compensation program is designed to maintain a strong link between pay and performance. At risk compensation includes discretionary incentive cash compensation (cash bonus awards) and long-term equity incentive awards (stock options) through which the performance of the individual is recognized.
It is important to differentiate between the Named Executive Officers who are officers of Argan, a holding company, and the Named Executive Officers who are the officers and senior managers of Gemma, our principal operating company. The CEO, Mr. Bosselmann, and the CFO, Mr. Watson (together, the Holding Company Named Excutive Officers ), are employees of the holding company and are responsible for the overall strategic direction of the Company, mergers and acquisitions, monitoring the financial performance of all subsidiaries, consolidated financial reporting in compliance with the rules and regulations of the SEC, corporate wide initiatives, income tax planning and compliance, investor relations and other activities. The Holding Company Named Executive Officers have a compensation program that sets base salaries at the lower end of the Peer Group. This reflects, in part, that they are not directly responsible for the profitability and performance of the primary subsidiary. Our two operating company Named Executive Officers, Mr. Griffin and Mr. Martin, are specifically responsible for the management of our largest subsidiary, Gemma, and its ongoing operations and performance.
In order to achieve its objectives, the Compensation Committee has designed the executive compensation program utilizing three major pay elements that may apply to Messrs. Bosselmann, Watson and Martin:
·
Base salary
. Provides a fixed amount of cash compensation for completing day-to-day responsibilities. The Compensation Committee reviews the base salary of each Named Executive Officer annually and periodically approves increases based on a competitive review of Peer Group compensation amounts, general market practices and the particular Named Executive Officers level of responsibility, experience and individual performance.
·
Annual cash bonus compensation.
Provides the opportunity for discretionary based annual cash bonus awards for successful short-term financial performance that is aligned with our business strategy.
·
Long-term equity-based incentive compensation.
Provides stock option holders with opportunities to participate in, and be rewarded for, long-term growth in the value of the Companys Common Stock. Awarded stock options vest, or become exercisable, based on the satisfaction of service conditions. Awards also facilitate executive stock ownership.
In addition, a nonqualified deferred compensation plan for key employees of Gemma was approved by our Board of Directors on April 6, 2017 (see Exhibit 10.7 to our Annual Report on Form 10-K for the year ended January 31, 2017 that was filed with the SEC on April 11, 2017) with the objective of keeping the management team of Gemma in place for the long term. The unfunded, cash-based plan has five to seven year vesting periods with a continuous employment requirement. Based on Gemmas and each key employees performance each year, a dollar amount is set aside each year for key employees in the deferred compensation plan. Mr. Martin was awarded $200,000 on April 6, 2017 related to this plan and performance in Fiscal 2017. 50% of the awarded amount will vest on the fifth anniversary of the date of award and 25% of the awarded amount will vest on the sixth and seventh anniversary dates, respectively. Except in the events of Mr. Martins disability or death, vesting is dependent on Mr. Martins continuous
22
employment
with Gemma up to the applicable vesting date. None of the other Named Executive Officers are currently participants in this plan.
The Compensation Committee considers each pay element in crafting the individual executive compensation package that will provide the properly balanced incentives for the achievement of short and long-term objectives of the Company for each Named Executive Officer.
As it relates to Mr. Griffin, his compensation is subject to the 2016 Executive Compensation Plan, which was approved by the Companys stockholders last year, discussed further below.
Fiscal 2017 Compensation Decisions.
The Compensation Committee periodically reviews the executive compensation program and makes appropriate adjustments to further enhance pay-for-performance alignment. For Fiscal 2017, the Compensation Committee took the following actions:
·
Approved the payment of a $225,000 annual cash bonus and the award of a stock option covering 50,000 shares of our Common Stock to Mr. Bosselmann.
·
Reviewed and certified the results of the calculations pursuant to the performance criteria established in Mr. Griffins employment agreement for Fiscal 2017 resulting in non-equity incentive plan compensation of $4,000,000.
·
Approved the payment of a $200,000 annual cash bonus and the award of a stock option covering 40,000 shares of our Common Stock to Mr. Watson.
·
Approved the payment of $415,000 in cash bonuses to Mr. Martin.
For Fiscal 2017, over 74% and 100% of all cash and equity compensation, respectively, were At Risk for our Named Excutive Officers. In determining its recommendations for the most recently completed fiscal year, the Compensation Committee discussed with the CEO the performance of the executive management team. Decisions of the Compensation Committee were based primarily on recommendations received from our CEO, the Compensation Committees evaluation of each executives performance, the overall financial performance of the Company and our overall compensation strategy. Included in the deliberations conducted by the members of the Compensation Committee was a discussion of the CEOs performance and the historic level of his annual awards. The Compensation Committee made its individual bonus amount and stock option award recommendations to the full Board of Directors for approval. These recommendations were approved by the independent directors of the Board of Directors.
The Compensation Committee reviewed and approved the following results as they relate to the performance-based Executive Compensation Plan for Mr. Griffin, the Chief Executive Officer of Gemma. Mr. Griffin plan has three performance-based criteria for each fiscal year, including the adjusted EBITDA of Gemma, Gemmas safety record and project development success fees received by Gemma. For the first criteria, if the adjusted EBITDA (as defined in Mr. Griffins plan) of Gemma for any fiscal year equals or exceeds $40,000,000, Mr. Griffin shall be entitled to a bonus equal to the sum of (i) $1,000,000, and (ii) six and sixty-seven hundreds percent (6.67%) of the amount by which the adjusted EBITDA of Gemma exceeds $40,000,000. For Fiscal 2017, the adjusted EBITDA of Gemma was $116.9 million. For the second criteria, if the project safety performance on Gemmas projects, as measured by the OSHA Recordable Incident Rate (RIR), for any calendar year during his employment term is less than the national average, Mr. Griffin shall be entitled to receive a performance-based compensation payment of either $125,000 or $250,000. For 2016, Gemmas RIR equaled 0.43, which is below the national average and less than 1.00, entitling Mr. Griffin to the higher amount. For the third criteria, in the event that success fees, related to the development of power plants and received by Gemma during any fiscal year, equal or exceed $100,000, Mr. Griffin shall be entitled to performance-based compensation based thereon equal to $5,000 for each full $100,000 of success fees so received. For Fiscal 2017, Gemma did not receive any success fees. The total amount of performance-based compensation for any fiscal year earned as a result of the attainment of one or more of the performance goals described above shall not exceed a total amount of $4,000,000. As such, Mr. Griffin earned non-equity incentive plan compensation of $4,000,000 for Fiscal 2017.
Highlights of Compensation Governance
Practices
. We are committed to sound compensation governance practices that support the Companys pay-for-performance philosophy and that align our executive compensation program with the financial interests of our stockholders. We believe this is demonstrated by the fact that over 74% and 100% of all cash and equity compensation, respectively, were At Risk for our Named Excutive Officers for Fiscal 2017. In addition, these compensation governance practices assess whether the level of risk embedded in its plans is appropriate. The Compensation Committee continually reviews the executive compensation program and may, from time to time, modify certain aspects to ensure it remains effective.
23
In April 2016, the Company adopted the following policies and guidelines to reflect evolving best practices in executive compensation and compensation disclosure:
·
Stock ownership guidelines for Named Executive Officers and non-employee directors;
·
Clawback Policy;
·
No Pledging Policy;
·
Anti-Hedging Policy; and
·
Disclosures of incentive plan and related performance goals for Mr. Griffin.
Compensation Principles and Objectives
Our executive compensation program is designed to reward executive officers who contribute to our consistent performance and successful attainment of strategic goals and operating plans with total direct compensation that is comparable to those companies with which we compete for executive talent. The executive compensation program is designed to maintain a strong link between compensation and performance and is intended to achieve the following objectives:
·
First and foremost, attract, retain and motivate highly-performing executives who drive our businesses and financial performance;
·
Support our business goals and strategies by encouraging profitable growth and increased stockholder value;
·
Align the interests of the Named Executive Officers with the long-term interests of our stockholders;
·
Promote Common Stock ownership of the Company; and
·
Discourage excessive risk-taking.
As discussed below, overall levels of executive compensation are established based on an assessment of our performance as a whole. Individual executive compensation is determined based on an assessment of the experience and performance of each Named Executive Officer, as well as the compensation levels of comparable positions in the Peer Group and general market practices. Variation in compensation among the Named Executive Officers reflects the different roles, responsibilities, and performance of the Named Executive Officers, as compared to comparable positions in the Peer Group with which we compete for talent. As noted before, the Holding Company Named Excutive Officers perform substantially different functions from the operating subsidiary Named Excutive Officers, and are thus compensated with relatively lower base salaries and generally receive a greater mix of stock options.
Role of the Compensation Committee
The written charter for the Compensation Committee, which was originally adopted in April 2004, was updated in June 2013. The Compensation Committee is responsible for implementing and reviewing executive compensation plans, policies and programs in an effort to ensure the attraction and retention of executive officers in a reasonable and cost-effective manner, to motivate their performance in the achievement of our business objectives and to align the interests of executive officers with the long-term interests of our stockholders. To that end, it is the responsibility of the Compensation Committee to develop and approve periodically a general compensation plan and salary structure for our executive officers that considers business and financial objectives, industry and market pay practices and/or such other information as may be deemed appropriate. It is the responsibility of the Compensation Committee to review and recommend for approval by the independent directors of the full Board of Directors the compensation (salary, bonus and other compensation) of our Chief Executive Officer, to review and certify the results of the calculations pursuant to the performance criteria established in Mr. Griffins Executive Compensation Plan, to review and approve the compensation (salary, bonus and other compensation) of our other Named Executive Officers, and to review and approve perquisites that may be offered to our Named Executive Officers. The Compensation Committee shall also review and approve corporate goals and objectives relevant to the compensation of our Named Executive Officers, evaluate performance in light of the goals and objectives, and review and approve all employment, retention and severance agreements for our Named Executive Officers.
24
The Compensation Committee acts on behalf of the Board of Directors in administering compensation plans approved by the Board and/or the stockholders (including the Stock Plan) in a manner consistent with the terms of such plans, reviews and makes recommendations to the Board of Directors with respect to new compensation, incentive and equity-based plans, and reviews and makes recommendations to the Board on changes in major benefit programs for our Named Executive Officers. The Compensation Committee is also responsible for the development of management succession plans for the Chief Executive Officer and selected other executive officers. The Board of Directors has determined that each member of the Compensation Committee is independent within the meaning of the New York Stock Exchange corporate governance listing standards and our Corporate Governance Guidelines.
Competitive Market Positioning
Although the Compensation Committee possesses the authority under its charter to hire outside advisors to provide it with information as needed in making compensation decisions, it has not used the services of any external advisor in connection with this process. In view of the holding company structure and the special factors relating to our business, the Compensation Committee believes that the engagement of a compensation consultant would not provide significant information beyond that which is available to us at this time.
The executive compensation program seeks to provide a mix of target total direct compensation that is aligned with the programs pay-for-performance principles and is competitive with compensation provided by a peer group of selected publicly traded companies. In determining executive compensation, the Compensation Committee considers a number of factors and data from a market-relevant group of peer companies that are potential competitors for executive talent and each Named Executive Officers performance and experience. For Fiscal 2017, the peer group (the Peer Group) consisted of the following 12 companies from the specialty construction and engineering services industry:
Peer Group
|
Dycom Industries, Inc.
Granite Construction Incorporated
Integrated Electrical Services Corporation
Matrix Service Company
McDermott International, Inc.
MYR Group Inc.
|
|
Primoris Services Corporation
Orion Marine Group, Inc.
Sterling Construction Company, Inc.
Team, Inc.
Tutor Perini Corporation
Willbros Group, Inc.
|
The Compensation Committee periodically reviews the composition of the Peer Group and updates such composition based on available market information when appropriate. The companies in the Peer Group were selected because, in the judgment of the Compensation Committee, such companies, when taken as a whole, represent companies with which we would compete for executive talent. There were no changes to the composition of our peer group from Fiscal 2016.
We do not view benchmarking as a stand-alone tool for setting compensation due to the aspects of our business and objectives that may be unique to us, but we believe that gathering and reviewing this information should be a part of our compensation-related decision-making process. In using its collective judgment in setting executive pay, the Compensation Committee uses benchmarking as one consideration; however, at this time the Compensation Committees decisions are based primarily on recommendations from our Chief Executive Officer, the Compensation Committees evaluation of the executives performance, the Companys overall performance, the specific accomplishments of Gemma and our overall compensation strategy.
Role of Executive Officers
The Chief Executive Officer, in consultation with the Compensation Committee, establishes the strategic direction of our executive compensation program. During the first quarter of each fiscal year, the Chief Executive Officer consults with the Chairman of the Compensation Committee to discuss the prior year financial results and to evaluate and to assess the performance of the other Named Executive Officers. This assessment, together with the Compensation Committees own judgment taking into account the results of the most recent competitive market positioning review, is used to evaluate the individual performance and compensation of those Named Executive Officers. The Compensation Committee reviews and certifies the calculations of the performance-based results of Mr. Griffins Executive Compensation Plan in consultation with the Chief Financial Officer. The Compensation Committee is solely responsible for evaluating the Chief Executive Officers performance and setting the level and elements of his compensation. The Chief Executive Officer is not present when the Compensation Committee discusses and determines his compensation.
25
Compensation and Risk
The Compensation Committee evaluates risks and rewards associated with our overall compensation principles and structure, and determines the compensation for the Named Executive Officers. Management and the Compensation Committee identify potential risks and reflect those risks in the design of our executive compensation program. With respect to the elements of compensation:
·
Base salary provides a fixed level of compensation based on industry standards and our objectives.
·
Annual discretionary cash bonuses are designed to reward achievement of short-term performance objectives.
·
Long-term equity-based compensation is administered in a number of ways to mitigate risk.
·
The executive compensation program is designed to deliver a significant portion of a Holding Company executives compensation in the form of long-term incentive opportunities which focuses the executive on maximizing long-term stockholder value and overall financial performance.
·
We have established stock ownership guidelines for the Named Excutive Officers and non-employee directors.
The Compensation Committee has reviewed and discussed the findings of this risk assessment with management and believes that our executive compensation program does not motivate employees to take risks that are reasonably likely to have a material adverse effect on the Company.
Major Pay Elements of the Executive Compensation Program and Analysis of Fiscal 2017 Compensation Decisions
The Compensation Committee considers each pay element under the executive compensation program individually and in the aggregate when making decisions regarding amounts for each Named Executive Officer.
Annual Base Salaries.
Named Executive Officers are provided with a base salary which recognizes the value of the executives skills, experience, prior record of achievement, and importance to the Company. Base salary levels are intentionally set to attract quality executives, to provide a fixed base of cash compensation, and to recognize the challenges and varied skill requirements of different positions.
Base salaries are reviewed annually and from time to time in connection with a promotion or other change in responsibility. In making his recommendation to the Compensation Committee, the Chief Executive Officer reviews the performance of the other Named Executive Officers, market compensation levels for comparable positions, the executives potential attractiveness to other companies, and the overall financial health and performance of the Company. The Compensation Committee reviews the Chief Executive Officers recommendations, and together with its own judgments, sets base salaries relative to the recommendations.
The Compensation Committee directly sets the base salary for the Chief Executive Officer. In so doing, the Compensation Committee reviews the performance of the Chief Executive Officer and other relevant information.
Based upon the recently completed reviews and the negotiation of a new employment agreement with Mr. Griffin (see the Summary of Employment Arrangements below), his base salary was increased to $1,000,000 in Fiscal 2017 while the guaranteed bonus portion of his previous employment agreement was eliminated. Mr. Griffins base salary, which has not been adjusted since 2011, was increased due to superior performance at Gemma when compared to peers over the past several years. Mr. Martin base salary increased 5.1% in Fiscal 2017 reflecting the increased size and activity at Gemma. No other changes were made to the base salaries of the Named Executive Officers for the fiscal year ending January 31, 2017.
The base salary paid to each Named Executive Officer for the fiscal years ended January 31, 2017, 2016 and 2015 is set forth in the Salary column of the Summary Compensation Table presented below.
Annual Cash Bonuses.
The Compensation Committee provides Named Executive Officers with annual cash bonus awards in order to recognize and to reward individual performance that has meaningfully enhanced the operations and financial results of the Company during the most recently completed fiscal year. Awards are designed to communicate to executives that good performance is recognized and valued. Furthermore, we believe that annual cash bonus awards strongly encourage executives to continuously improve their efforts in delivering annual results that are aligned with our long-term goals.
26
At the conclusion of each fiscal year, the Chief Executive Officer submits to the Compensation Committee recommended annual cash bonus award amounts for each of the other Named Executive Officers.
After reviewing the recommendations of the Chief Executive Officer, the Fiscal 2017 financial performances of the Company as a whole and the business of Gemma in particular and the individual performances of Mr. Martin, Mr. Watson and Mr. Bosselmann, the Compensation Committee approved an aggregate amount of $840,000 in annual cash bonus awards for Fiscal 2017 as identified above under the caption
Fiscal 2017 Compensation Decisions.
These annual cash incentive awards were primarily paid in March and April 2017. The annual incentive awards earned by each Named Executive Officer for the fiscal years ended January 31, 2017, 2016 and 2015 are set forth in the Bonus column of the Summary Compensation Table presented below.
For Fiscal 2017, Mr. Griffin received non-equity incentive plan compensation pursuant to his Executive Compensation Plan, in lieu of annual cash bonuses which he received in prior years. The Compensation Committee reviewed and certified the calculations for Mr. Griffins plan resulting in $4,000,000 in non-equity incentive plan compensation, paid in April 2017, and set forth in the Non-equity Incentive Plan Compensation column of the Summary Compensation Table presented below.
Long-Term Equity-Based Compensation.
For Fiscal 2017, Named Executive Officers were eligible to receive grants of long-term equity-based compensation awards under our 2011 Stock Plan. Equity-based awards made to the Named Executive Officers have historically been comprised of time vesting stock options which the Compensation Committee believes best achieves the executive compensation programs objectives of:
·
Linking incentive compensation to the Companys long-term performance;
·
Creating long-term stockholder value;
·
Aligning the financial interests of the Named Executive Officers with the financial interests of stockholders; and
·
Rewarding actions that enhance long-term stockholder returns.
In making each award determination, the Compensation Committee takes into consideration key business priorities, Peer Group trends, potential stockholder dilution and the general economic environment. Stock options emphasize our commitment to stockholder returns. Stock options generally align the Named Executive Officers incentives with those of our stockholders because stock options provide value to the holder only if our stock price increases from the date of grant. Stock options also inherently reward performance as it is our performance over an extended period that causes the value of our Common Stock and the value of outstanding stock options, to increase.
Except with respect to certain terminations following a change of control of the Company, the continued employment of a stock option holder is required for the vesting of each stock option. Thus, the value of outstanding but unvested stock option awards meaningfully encourages executives to remain with the Company, as leaving the Company results in the forfeiture of the value associated with any unvested stock option awards.
As a result of the factors discussed above, the Compensation Committee granted stock option awards to Mr. Bosselman and Mr. Watson on April 6, 2017 having a grant date fair value of approximately $818,500 and $654,800, respectively, based on the Black-Scholes valuation model at an option exercise price equal to the closing price of the underlying Common Stock on the date of grant ($64.25 per share). No stock options were granted to Mr. Griffin or Mr. Martin during or after Fiscal 2017 related to service as an executive officer. However, a nonqualified deferred compensation plan for key Gemma employees was approved by our Board of Directors on April 6, 2017. This long-term retention plan is cash based and has a five to seven year vesting period with a continuous employment requirement. Mr. Martin was awarded $200,000 on April 6, 2017 related to this plan.
Information regarding stock options awarded to Named Executive Officers during Fiscal 2017 is shown in the Grant of Plan-Based Awards Table of this Proxy Statement that is presented below. The fair value of stock options awarded to Named Executive Officers during the fiscal years ended January 31, 2017, 2016 and 2015 is set forth in the Stock Option Awards column of the Summary Compensation Table presented below.
Severance and Change in Control Benefits
In the event of a change in control of the Company, Messrs. Bosselmann and Griffin are entitled to receive benefits under individual arrangements negotiated with the Company. In the event of employment termination, Messrs. Bosselmann, Griffin and Watson may be paid severance benefits under certain circumstances pursuant to each executives individual agreement negotiated with the Company and described below in the section entitled Summary of Employment Arrangements.
27
The estimated severance benefits, that would be payable to each executive under their respective arrangements upon the occurrence of certain events, are set forth in the chart that is included in the section Potential Payments upon Termination below. The employment arrangement with Mr. Martin contains no such provisions. Providing severance and change in control benefits assists the Company in attracting and retaining executive talent. Additional details regarding the severance and change in control provisions of each Named Executive Officers employment arrangement are also provided below in the Summary of Employment Arrangements section of this Proxy Statement.
The change in control benefit, or single-trigger severance benefit, should be viewed in light of stockholder value creation by this management team and the Companys desire to retain these talented individuals. The Gemma CEO, Mr. Griffin, is a key member of, and has led, the management team of Gemma since it was acquired by the Company in December 2006. The change in control provision is a negotiated term and was put in place for specific reasons in December of 2013, and was carried over in the recent amendment to his employment agreement.
To keep the change in control provision in perspective, it is important to note that the Companys market capitalization was approximately $30,000,000 prior to the Companys acquisition of Gemma. Based upon the closing market price of the Companys common stock at January 31, 2017, the Companys market capitalization was approximately $1,140,000,000, or approximately 38 times higher than that at the time of the acquisition. This increase does not reflect an aggregate of $61,000,000 in dividends paid to the Companys stockholders over the past five years. The principal reason for this market capitalization expansion and the source for the dividends that have benefitted the stockholders was the allocation of capital to, and the performance of, Gemma. This stockholder value creation significantly exceeds the potential additional $2,000,000 that might be due Mr. Griffin upon change in control. It is unlikely that this payment would represent any meaningful impediment to the legitimate interest of a potential acquirer of the Company.
Moreover, most of the Gemma CEOs potential compensation is performance based, and there is no guarantee that he will continue to receive such compensation beyond the term of his agreement. For this reason, it would not be unlikely for him to experience a significant decrease in compensation if there were to be a change in control.
The Stock Plan describes the effect on outstanding stock options of employment termination, including the provision in the Stock Plan that all outstanding stock options shall become fully vested and exercisable upon a change in control of the Company, as defined in the plan document.
Other Benefits
We provide a range of retirement and health and welfare benefits. The Named Executive Officers are eligible for the following benefits:
401(k) Plan.
We maintain three tax qualified defined contribution retirement plans (the 401(k) Plans) that cover substantially all salaried and hourly employees. Each of the Named Executive Officers participates in a 401(k) Plan. Each employee is entitled to participate in only one of the 401(k) Plans. We do not maintain any defined benefit pension plan or non-tax qualified supplemental retirement plan.
Health and Welfare Plans.
Group benefits for active employees such as medical, dental, vision, life insurance and disability coverages are available to substantially all salaried and hourly employees, including Named Executive Officers, through our flexible benefits plan.
Clawback Policy
Effective April 13, 2016, we adopted a Clawback Policy covering performance-based incentive compensation. Under this policy, the Board of Directors may, in its sole discretion and to the extent that it determines it is in the Companys best interest to do so, require the reimbursement of all or a portion of any performance-based incentive compensation, if:
·
This compensation was based on the achievement of certain financial results that were subsequently the subject of, or affected by, a restatement of all or a portion of the Companys financial statements;
·
The executive officer engaged in gross negligence, intentional misconduct or fraud that caused or partially caused the need for the restatement;
and
28
·
The amount of performance-based incentive compensation that would have been awarded to, or the profit realized by the executive officer would have been lower, had the financial results been properly reported.
No Pledging Policy
Effective April 13, 2016, our Board of Directors approved as part of new stock ownership guidelines that are discussed below that no officer of the Company may pledge, hypothecate, create any lien or security interest on, or enter into a margin contract secured by, any shares, options to purchase shares, or any other interest in shares of our Common Stock.
Anti-Hedging Policy
Effective April 13, 2016, our Board of Directors approved an anti-hedging policy which prohibits all of our directors, employees, and agents from (i) speculative trading in our securities; (ii) engaging in hedging transactions using our securities; (iii) short selling our securities; and (iv) trading derivative securities, such as put options, call options, swaps, or collars related to our securities.
Stock Ownership Guidelines
Effective April 13, 2016, the Board of Directors established stock ownership guidelines for the Named Executive Officers and the non-employee directors to further align their economic interests with those of our stockholders. Under these guidelines, stock ownership includes shares owned directly or held in trust by an individual. It does not include shares that an individual has the right to acquire through stock options. The Board of Directors will require that each Named Executive Officer own a minimum number of shares of our Common Stock under the guidelines set forth in the table below. Each non-employee member of our Board of Directors shall own a minimum of 10,000 shares of our Common Stock.
In order to satisfy the ownership requirements, each individual is required to retain shares of common stock with a total value of at least 50% of the intrinsic value, net of taxes, of any shares that he or she acquires under the Companys stock option plans until the applicable ownership requirement is achieved. Excluding sales of shares related to taxes associated with the exercising of stock options, no sales of existing stockholdings are permitted until the required stock ownership quantities are attained but, once attained, the individual may sell any shares that exceed the applicable minimum requirement.
The Board of Directors will periodically review the stock ownership guidelines and may make adjustments. The guidelines are expected to be met within five years of the date they were established. Each non-employee director has either exceeded the stock ownership threshold or is making satisfactory progress toward achieving the threshold.
Name
|
|
Required Ownership
(multiple of salary)
|
|
Ownership
Requirement
|
|
Shares Held
|
|
Value as of April
25, 2017
|
|
Meets
Requirement
|
|
Rainer H. Bosselmann
|
|
CEO - 5X
|
|
$
|
1,125,000
|
|
327,411
|
|
$
|
22,345,801
|
|
Yes
|
|
William F. Griffin, Jr
|
|
CEO, Gemma - 5X
|
|
$
|
5,000,000
|
|
306,150
|
|
$
|
20,894,738
|
|
Yes
|
|
David H. Watson
|
|
CFO - 1X
|
|
$
|
200,000
|
|
2,700
|
|
$
|
184,275
|
|
In Process
|
|
Daniel L. Martin
|
|
President, Gemma - 1X
|
|
$
|
310,000
|
|
20,094
|
|
$
|
1,371,416
|
|
Yes
|
|
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code (and the regulations promulgated thereunder) precludes a public corporation from taking an income tax deduction in any one year for compensation in excess of $1,000,000 for certain of its executive officers (excluding the Chief Financial Officer) employed on the last day of the fiscal year, unless certain specific performance goals are satisfied. The 2016 Executive Performance Plan for William F. Griffin, Jr. was approved by stockholders at the 2016 Annual Meeting. We expect that the amount of incentive compensation earned by Mr. Griffin for Fiscal 2017 pursuant to the terms of the plan, $4,000,000, will be deductible under Section 162(m) for Fiscal 2017. There were no other performance plans in place for Fiscal 2017 for the other Named Executive Officers. The compensation amounts for the other Named Executive Officers not related to the exercise of non-qualified stock options generally do not exceed the $1,000,000 compensation excess threshold.
29
Internal Revenue Code Section 409A
Internal Revenue Code Section 409A regulates the income tax treatment of most forms of nonqualified deferred compensation. We believe we are in compliance with Code Section 409A and the regulations promulgated thereunder.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with management the preceding Compensation Discussion and Analysis as required by Item 402(b) of Regulation S-K. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended January 31, 2017.
The foregoing report has been furnished on behalf of the Board of Directors by the undersigned members of the Compensation Committee.
Compensation Committee
James W. Quinn, Chair
Peter W. Getsinger
William F. Leimkuhler
Summary Compensation Table
The following table sets forth the total amount of compensation paid to or earned by the Named Executive Officers for services in all capacities for the fiscal years ended January 31, 2017, 2016 and 2015.
For the year ended January 31, 2017, we are reporting compensation for the four executive officers identified below (the Named Executive Officers), including the Companys CEO and CFO, the CEO of Gemma and the President of Gemma during the year.
Name and Principal
Position
|
|
Fiscal
Year Ended
January 31,
|
|
Salary
Earned
|
|
Bonus
Earned
|
|
Stock Option
Awards (1)
|
|
Non-equity
Incentive Plan
Compensation (2)
|
|
All Other
Compensation (3)
|
|
Total
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rainer H. Bosselmann
|
|
2017
|
|
$
|
225,000
|
|
$
|
225,000
|
|
$
|
450,500
|
|
$
|
|
|
$
|
1,200
|
|
$
|
901,700
|
|
Chief Executive Officer
|
|
2016
|
|
225,000
|
|
175,000
|
|
445,000
|
|
|
|
1,200
|
|
846,200
|
|
|
|
2015
|
|
225,000
|
|
175,000
|
|
335,500
|
|
|
|
1,200
|
|
736,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David H. Watson
|
|
2017
|
|
$
|
200,000
|
|
$
|
200,000
|
|
$
|
428,200
|
|
$
|
|
|
$
|
1,800
|
|
$
|
830,000
|
|
Senior Vice President,
|
|
2016
|
|
58,333
|
|
|
|
|
|
|
|
|
|
58,333
|
|
Chief Financial Officer,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasurer and Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William F. Griffin, Jr.
|
|
2017
|
|
$
|
1,000,000
|
|
$
|
|
|
$
|
|
|
$
|
4,000,000
|
|
$
|
35,600
|
|
$
|
5,035,600
|
|
Chief Executive Officer,
|
|
2016
|
|
600,000
|
|
3,000,000
|
|
|
|
|
|
33,600
|
|
3,633,600
|
|
Gemma
|
|
2015
|
|
600,000
|
|
1,900,000
|
|
|
|
|
|
38,338
|
|
2,538,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel L. Martin (4)
|
|
2017
|
|
$
|
310,000
|
|
$
|
615,000
|
|
$
|
|
|
$
|
|
|
$
|
35,600
|
|
$
|
960,600
|
|
President, Gemma
|
|
2016
|
|
295,000
|
|
525,000
|
|
|
|
|
|
33,600
|
|
853,600
|
|
|
|
2015
|
|
292,500
|
|
550,000
|
|
|
|
|
|
38,338
|
|
880,838
|
|
(1)
Amounts represent the aggregate award date fair value computed in accordance with GAAP and reflect the assumptions discussed in Note 13 Stock-Based Compensation to our consolidated financial statements that are included in Item 8 of our Form 10-K Annual Report for the year ended January 31, 2017.
(2)
Amounts represent cash earnings under the 2016 Executive Performance Plan for William F. Griffin, Jr.
(3)
Amounts represent matching and profit sharing contributions made pursuant to the Companys 401(k) plans, and car allowance payments made to Messrs. Griffin and Martin.
(4)
The bonus amount for Fiscal 2017 includes $200,000 awarded to Mr. Martin under the nonqualified deferred compensation plan for key Gemma employees which was approved by our Board of Directors on April 6, 2017.
30
Executive Officers Who Are Not Directors
Mr. Martin, age 59, has been the President of Gemma since February 8, 2010.
Prior to that date, Mr. Martin was Senior Vice President and General Manager of the operating division in Reading, Pennsylvania, for WorleyParsons, a provider of professional services to the energy sector. In that capacity, Mr. Martin was responsible for the performance of the division, which conducts preliminary engineering, detailed design, procurement, construction management and other support services for electricity generating facilities including those operating on fossil, nuclear and renewable fuels.
Mr. Watson, age 41, was appointed our
Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary, effective October 15, 2015. Mr. Watson is a certified public accountant and has held senior financial positions with public and private companies for over 15 years. Mr. Watson was the chief financial officer of Gladstone Investment Corporation from 2010 until 2015 and also served as its Treasurer from 2012 until 2015. In addition, Mr. Watson was the chief financial officer of Gladstone Capital Corporation from 2011 until 2013 and served as its Treasurer from 2012 until 2015. Gladstone Investment Corporation and Gladstone Capital Corporation are closed-end, non-diversified management investment companies. Prior to Gladstone, Mr. Watson served as Director of Portfolio Accounting of MCG Capital Corporation from 2007 until 2010. Mr. Watson holds a BS degree from Washington & Lee University and an MBA degree from the University of Maryland.
Summary of Employment Arrangements
Rainer H. Bosselmann.
On January 3, 2005, the Company entered into an employment agreement with Rainer H. Bosselmann as its Chief Executive Officer. Pursuant to the employment agreement, the Company agreed to employ Mr. Bosselmann for an initial term of one year, which term automatically renews for successive one-year periods unless the Company or Mr. Bosselmann provides at least 90 days prior written notice of its or his election not to renew. Currently, the employment term anniversary date is January 3. The agreement provides for an annual base salary during the employment period, subject to increase (but not reduction) from time to time in such amounts as the Company, in its reasonable discretion, deems to be appropriate. For the year ended January 31, 2017, the annual base salary for Mr. Bosselmann was $225,000.
The agreement also provides for an annual bonus with the payment and amount determined at the discretion of the Board of Directors of the Company, subject to the satisfaction of any reasonable performance criteria established for Mr. Bosselmann with respect to such year. The agreement further provides that he participate in any stock option, incentive and similar plans established by the Company and shall be granted stock options and other benefits similar to options and benefits granted to other executives, subject in all cases to the satisfaction by Mr. Bosselmann of the terms and conditions of such plans and to the reasonable exercise by the Board of any discretion granted to it or them thereunder. The Board of Directors awarded cash bonuses to Mr. Bosselmann in April 2017, April 2016 and March 2015 relating to the fiscal years ended January 31, 2017, 2016 and 2015, in the amounts of $225,000, $175,000 and $175,000, respectively.
Subsequent to each fiscal year end, options to purchase shares of Common Stock are typically awarded to the Chief Executive Officer by the Board of Directors. As the stock options usually vest on the one-year anniversary of the date of award, the compensation related to the stock option awards is recorded ratably over the one-year period subsequent to the award date. Non-qualified stock options were awarded to Mr. Bosselmann by the Board of Directors in April 2017 covering 50,000 shares of our Common Stock, with a per share exercise price of $64.25. This award becomes exercisable on the one-year anniversary of the grant date and expires on the ten-year anniversary of the grant date.
Under the employment agreement, in the event that Mr. Bosselmanns employment is terminated for any of the reasons specified below or there occurs a change in control, Mr. Bosselmann will receive as severance pay in a single lump sum payment, an amount equal to twenty-four (24) months of his base salary within thirty (30) days after his termination of employment or change in control, as the case may be, without reduction or offset for any other monies which he may thereafter earn or be paid. The reasons which cause severance pay to be paid include:
(i)
termination due to a material diminution of Mr. Bosselmanns duties, authority or responsibility, or a material impairment by action of the Company of his ability to perform his duties and responsibilities, regardless of whether such diminution is accompanied by a change in Mr. Bosselmanns title with the Company;
31
(ii)
termination due to a material breach by the Company of any provision of the employment agreement, which breach continues for a period of thirty (30) days after written notice of such breach is given by Mr. Bosselmann to the Company; and
(iii) termination by the Company at any time without cause, including notice of non-renewal of the employment agreement.
Mr. Bosselmann shall also be entitled for a period of twenty-four (24) months from the termination of his employment or a change in control, as the case may be, to the continuation of all benefits provided to Mr. Bosselmann, excluding sick and vacation time, subject to any applicable employee co-payments. If his employment is terminated by the Company by reason of his death, disability or for cause or voluntarily by Mr. Bosselmann for any reason other than as set forth in the preceding paragraph, the Company will not be obligated to make any payments to him by reason of his cessation of employment other than such amounts, if any, of his base salary that have accrued and remain unpaid and such other amounts which may then otherwise be payable to him from the Companys benefit plans or reimbursement policies, if any.
David H. Watson.
On October 13, 2015, the Company entered into an employment agreement with David H. Watson as Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary. Pursuant to the employment agreement, the Company agrees to employ Mr. Watson for an initial term of one and one-half years, commencing on October 15, 2015 and continuing until April 30, 2017, unless earlier terminated. At the end of the initial term, Mr. Watsons employment shall automatically renew for successive one-year terms unless the Company or Mr. Watson provides 60 days written notice of its or his election not to renew. The agreement provides for an annual base salary of $200,000.
The agreement also provides for an annual bonus payment at the sole discretion of our Board of Directors, subject to the satisfaction of reasonable performance criteria as shall be established for such year. During the term of the agreement, Mr. Watson shall be eligible to participate in any stock option, incentive and similar plans established by the Company from time to time. The Board of Directors awarded a cash bonus to Mr. Watson in March 2017 relating to the fiscal year ended January 31, 2017 in the amount of $200,000.
Subsequent to each fiscal year end, options to purchase shares of Common Stock are typically awarded to the Chief Financial Officer by the Board of Directors. As the stock options usually vest on the one-year anniversary of the date of award, the compensation related to the stock option awards is recorded ratably over the one-year period subsequent to the award date. Non-qualified stock options were awarded to Mr. Watson by the Board of Directors in April 2017 covering 40,000 shares of our Common Stock, with a per share exercise price of $64.25. This award becomes exercisable on the one-year anniversary of the grant date and expires on the ten-year anniversary of the grant date.
In the event that Mr. Watsons employment is terminated by the Company at its convenience or by him for good reason (as defined in the employment agreement), then he shall be entitled to (i) continue to receive his salary for the duration of six months, and (ii) continue to participate in our benefit plans and programs (other than the Companys 401(k) plan and any other qualified retirement plan(s) for a period of six months, or, in the case of the Companys health plan(s), until Mr. Watson becomes eligible for health insurance from another source other than Medicare.
William F. Griffin, Jr
. On April 13, 2016, the Company entered into an Amended and Restated Employment Agreement with Mr. Griffin. Pursuant to the employment agreement, the initial term of Mr. Griffins employment commenced on February 1, 2016 and shall continue until March 17, 2017 unless earlier terminated as provided in the employment agreement. Mr. Griffins employment will automatically renew for successive one (1) year periods, subject to earlier termination as provided in the employment agreement, unless the Company or Mr. Griffin delivers written notice to the other at least three (3) months prior to the expiration date of the initial term or any renewal term, as the case may be, of its or his election not to renew the term of employment.
For each of the Companys fiscal years occurring within, or partially within, the employment term, the Company shall pay to Mr. Griffin his base compensation at the annual rate of $1,000,000 with any base compensation prorated for any partial fiscal year within the term. Also, for each fiscal year of the Company occurring within, or partially within, the term of Mr. Griffins employment, Mr. Griffin shall be entitled to additional compensation payable solely on account of the attainment of one or more of the performance goals that are fully described in the employment agreement and that are summarized below, with any performance-based compensation prorated for any partial fiscal year within the term:
32
1)
in the event that the adjusted EBITDA (as defined in the employment agreement) of Gemma for any fiscal year equals or exceeds $40,000,000, Mr. Griffin shall be entitled to a bonus equal to the sum of (i) $1,000,000, and (ii) six and sixty-seven hundreds percent (6.67%) of the amount by which adjusted EBITDA of Gemma exceeds $40,000,000. In the event that the adjusted EBITDA of Gemma for any fiscal year is less than $40,000,000, Mr. Griffin shall be entitled to no performance-based compensation based thereon;
2)
in the event that the OSHA Recordable Incident Rate of Gemma for any calendar year during the employment term is less than the national average, Mr. Griffin shall be entitled to receive a performance-based compensation payment of either $125,000 or $250,000; and
3)
in the event that success fees, related to the development of power plants and received by Gemma during any fiscal year, equal or exceed $100,000, Mr. Griffin shall be entitled to performance-based compensation based thereon equal to $5,000 for each full $100,000 of success fees so received.
Notwithstanding anything to the contrary contained in the foregoing provisions, the total amount of performance-based compensation for any fiscal year earned as a result of the attainment of one or more of the performance goals shall not exceed a total amount of $4,000,000.
Under the employment agreement, in the event that Mr. Griffins employment is terminated by us at our convenience or by Mr. Griffin for good reason, he will be entitled to receive severance benefits as follows: (i) Mr. Griffin will continue to receive his salary for the duration of the then-current term; (ii) a pro rata share of any performance-based compensation (calculated based upon the elapsed portion of our fiscal year in which the employment termination occurs); and (iii) continued participation in our health and benefit plans and programs for the duration of the then-current term, or, in the case of our health plan(s), until he becomes eligible for health insurance from another source other than Medicare.
In the event of a change in control as defined in the employment agreement, the Companies shall pay to Mr. Griffin, in a single lump sum payment, an amount equal to twenty-four (24) times the base compensation paid to Mr. Griffin for the thirty (30) day period ending on the date of the change in control, such payment to be made within thirty (30) days of the change in control. Mr. Griffin is also subject to certain confidentiality provisions under the employment agreement and, during the term of his employment and for two (2) years thereafter, he is subject to certain non-competition and non-solicitation covenants as more fully described in the employment agreement.
Daniel L. Martin.
Mr. Martin joined us as the President of Gemma in February 2010. His employment arrangement established a base annual salary of $275,000 (increased to $310,000 for calendar year 2016), provides for normal participation in the standard employee benefit programs of Gemma, and pays a monthly car allowance in the amount of $1,500. He is eligible for an annual cash bonus based on a combination of considerations including the EBITDA performance of Gemma for the previous fiscal year and his personal accomplishments. For the fiscal years ended January 31, 2017, 2016 and 2015, Mr. Martin was paid cash bonus amounts of $415,000, $525,000, and $550,000, respectively, and was awarded a deferred cash bonus in the amount of $200,000 in April 2017.
Code of Ethics
We have established a Code of Ethics for Senior Officers that applies to our chief executive officer and our chief financial officer. The Code of Ethics embodies our commitment to the highest standards of ethical and professional conduct and imposes a higher standard of honesty and integrity than the Companys Code of Conduct that applies to, and is acknowledged in writing by, all of our employees. The Board of Directors, or the Audit Committee, shall determine, or designate appropriate persons to determine, remedial actions to be taken in the event of a violation of the Code of Ethics and has full and discretionary authority to approve any amendment to or waiver from this Code of Ethics for senior officers. Any such amendment or waiver will be promptly disclosed as required by applicable law or regulation.
Potential Payments Upon Termination
The terms of the employment agreements with Mr. Bosselmann, Mr. Watson and Mr. Griffin provide that we pay certain severance benefits in the event that such executive officer is terminated by us other than for cause as that
33
term is defined in each applicable agreement. Mr. Bosselmann and Mr. Griffin are also entitled to receive the severance benefits described herein upon a change-in-control as that term is defined in each applicable agreement.
The following table presents amounts payable to our current executive officers under the scenarios that the executives are terminated without cause, and assumes that the terminating events occurred on January 31, 2017. The section entitled Summary of Employment Arrangements above includes descriptions of the payments which shall be made to Mr. Bosselmann and Mr. Griffin upon a change in control.
|
|
|
|
Cash Bonus/
|
|
|
|
|
|
Executive Officer
|
|
Base
Salary
|
|
Incentive Plan
Payments
|
|
Health Care
Benefits/Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Rainer H. Bosselmann
|
|
$
|
450,000
|
(1)
|
$
|
225,000
|
(2)
|
$
|
34,599
|
(1)
|
$
|
709,599
|
|
David H. Watson
|
|
100,000
|
(3)
|
200,000
|
(2)
|
8,561
|
(3)
|
308,561
|
|
William F. Griffin, Jr.
|
|
1,125,000
|
(4)
|
4,000,000
|
(5)
|
22,794
|
(4)
|
5,147,794
|
|
Daniel L. Martin
|
|
|
|
350,000
|
(2)
|
606
|
(6)
|
350,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Amounts represent the lump sum payment of an amount equal to twenty-four (24) months of base salary and the continuation of benefits payments for twenty-four months.
(2)
Amount represents the cash bonus amount earned for Fiscal 2017 but not paid as of January 31, 2017, and assumes the approval of the Compensation Committee which occurred subsequent to January 31, 2017.
(3)
Amounts represent the continuation of salary and benefits payments for six months.
(4)
Amounts represent the continuation of salary and benefits through the end of the amended term of the employment agreement (March 17, 2018).
(5)
Amount represents the non-equity incentive compensation earned for Fiscal 2017.
(6)
Amount represents accrued vacation pay.
Grants of Plan-Based Awards Table
The following table sets forth certain information with respect to plan-based awards made to the Named Executive Officers (identified in the Summary Compensation Table above and while serving in such capacity) during Fiscal 2017. In all cases, the grants presented in the table below represent non-qualified stock options awarded under our 2011 Stock Plan, and they represent the only plan-based awards involving our Common Stock made to these officers during the year. No stock awards have been made by us to any of the Named Executive Officers.
|
|
|
|
Number of Shares of
|
|
|
|
Grant Date
|
|
|
|
Grant
|
|
Common Stock
|
|
Exercise
|
|
Fair Value of
|
|
Name
|
|
Date (1)
|
|
Underlying the Award
|
|
Price/Share
|
|
Stock Option Awards (2)
|
|
|
|
|
|
|
|
|
|
|
|
Rainer H. Bosselmann
|
|
4/13/2016
|
|
50,000
|
|
$
|
33.85
|
|
$
|
450,500
|
|
David H. Watson
|
|
4/13/2016
|
|
10,000
|
|
33.85
|
|
90,100
|
|
David H. Watson
|
|
6/23/2016
|
|
30,000
|
|
41.68
|
|
338,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The grant date represents the date on which the Board of Directors approved the stock option award. The options to purchase shares of our Common Stock become exercisable on the one-year anniversary of the grant date.
(2)
Amounts represent the aggregate award date fair values computed in accordance with GAAP and reflect the assumptions discussed in Note 13 Stock-Based Compensation of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 31, 2017.
Stock Option Exercises Table
The following table presents certain information relating to the exercise of options to purchase shares of our Common Stock by Named Executive Officers during the year ended January 31, 2017.
|
|
Number of Shares
|
|
|
|
|
|
of Common Stock
|
|
Value Realized
|
|
Name
|
|
Acquired
|
|
upon Exercise (1)
|
|
|
|
|
|
|
|
Rainer H. Bosselmann
|
|
80,000
|
|
$
|
3,509,600
|
|
Daniel L. Martin
|
|
30,000
|
|
662,100
|
|
|
|
|
|
|
|
|
(1)
Amounts represent the aggregate fair market value of the Common Stock on the date of exercise less the purchase price paid by the executive officer.
34
Outstanding Equity Awards Table
The following table sets forth certain information concerning exercisable and unexercisable options to purchase shares of Common Stock that were held by our Named Executive Officers as of January 31, 2017.
|
|
Number of Securities Underlying
|
|
|
|
|
|
|
|
Unexercised Stock Options
|
|
Exercise
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price/Share
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
Rainer H. Bosselmann
|
|
25,000
|
|
|
|
$
|
16.37
|
|
3/7/2023
|
|
|
|
50,000
|
|
|
|
32.68
|
|
4/16/2025
|
|
|
|
|
|
50,000
|
|
33.85
|
|
4/13/2026
|
|
|
|
|
|
|
|
|
|
|
|
David H. Watson
|
|
|
|
10,000
|
|
33.85
|
|
4/13/2026
|
|
|
|
|
|
30,000
|
|
41.68
|
|
6/23/2026
|
|
|
|
|
|
|
|
|
|
|
|
William F. Griffin, Jr.
|
|
10,000
|
|
|
|
18.87
|
|
12/18/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
None of the stock options presented in the table above have been repriced or otherwise materially modified. The 2011 Stock Plan does not permit repricing nor does it allow the cancellation of existing options in connection with the award of a new option.
COMPLIANCE UNDER SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 and related regulations require that the Companys directors, certain officers, and any persons holding more than 10% of our Common Stock (Reporting Persons) to report their initial ownership of our Common Stock and any subsequent changes in that ownership to the SEC. Specific due dates have been established, and we are required to disclose any failure to file by these dates during the fiscal year ended January 31, 2017 in this Proxy Statement.
In making this disclosure, we have relied solely on our review of copies of Section 16(a) reports filed with the SEC and representations received by us from Reporting Persons, without any independent investigations.
Except for the following, we believe that each of the Reporting Persons timely filed Forms 3, 4 and 5 with the SEC during the fiscal year ended January 31, 2017. Each of the Companys independent directors filed a Form 4 in Feburary 2017 related to a stock grant in January 2017, or approximately one month and and three weeks beyond their due date. Mr. Griffin did not report that he was no longer a co-trustee of a specific trust, and thus he was no longer deemed to be the beneficial owner of shares of our Common Stock in the specific trust, until such event was reported on Form 4 filed May 6, 2016. Additionally, Mr. Griffin filed a Form 4 on January 5, 2017, four days beyond its due date. For Messrs. Getsinger, Martin, Watson and Richard H. Deily, each filed a Form 4 one day beyond its respective due date.
STOCKHOLDER NOMINATIONS AND PROPOSALS; DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 2018 ANNUAL STOCKHOLDERS MEETING
Our Certificate of Incorporation provides that, for stockholder nominations to the Board of Directors or other proposals to be considered at an annual meeting, the stockholder must have given timely notice thereof in writing to our Corporate Secretary. To be timely for the 2018 Annual Meeting, a stockholders notice must be delivered to or mailed and received by our Corporate Secretary at the principal executive offices of the Company by January 13, 2018. A stockholders notice to the Corporate Secretary must set forth, as to each matter the stockholder proposes to bring before the annual meeting, the information required by Article Thirteen and Fourteen of our Certificate of Incorporation.
35
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Interested parties may communicate with the Board of Directors, or any of our individual Directors, about their concerns, questions or other matters by sending their communications to the Board of Directors, or to any individual Director, at the following mailing address in an envelope clearly marked Shareholder Communication:
Board of Directors
c/o Corporate Secretary
Argan, Inc.
One Church Street, Suite 201
Rockville, Maryland 20850
Our Corporate Secretary will forward such correspondence unopened to the Chairman of the Nominating/Corporate Governance Committee or, in the case of communications sent to an individual Director, to such Director.
Alternatively, you may send an electronic message to the Chairman, Nominating/Corporate Governance Committee at the following e-mail address,
governance@arganinc.com.
OTHER BUSINESS
We know of no other matters to be submitted to the Annual Meeting. If any other matters properly come before the Annual Meeting, it is the intention of the persons named in the enclosed proxy to vote the shares they represent as the Board of Directors may recommend.
36
YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY. Vote by Internet or Telephone - Q UICK EASY IMMEDI ATE - 24 Hours a Day, 7 Days a Week or by Mail Your phone or Internet vote authorizes the named ARGAN, INC. proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. Votes submitted electronically over the Internet or by telephone must be received by 7:00 p.m., Eastern Time, on June 21, 2017. INTERNET/MOBILE www.cstproxyvote.com Use the Internet to vote your proxy. Have your proxy card available when you access the above website. Follow the prompts to vote your shares. PHONE 1 (866) 894-0537 Use a touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares. MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope provided. FOLD HERE DO NOT SEPARATE INSERT IN ENVELOPE PROVIDED PROXY Please mark your votes like this UNLESS THE PROXY SPECIFIES THAT IT IS TO BE VOTED AS INDICATED OR IS AN ABSTENTION ON A LISTED MATTER, PROXIES WILL BE VOTED FOR THE ELECTION TO THE COMPANYS BOARD OF DIRECTORS OF EACH OF THE NINE NOMINEES, AND FOR PROPOSALS 2, 3 AND 4. 1. The election of nine directors to our Board of Directors, each to serve until our 2018 Annual Meeting of Stockholders and until his/her successor has been elected and qualified or until his/her earlier resignation, death or removal. 2. The amendment of our 2011 Stock Plan in order to increase the total number of shares of our common stock reserved for issuance thereunder from 2,000,000 shares to 2,750,000 shares. FOR all Nominees listed to the left WITHHOLD AUTHORITY to vote (except as marked to the contrary for all nominees listed to the left) FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN 3. The non-binding advisory approval of our executive compensation (the say-on-pay vote). (01) Rainer H. Bosselmann (02) Cynthia A. Flanders (03) Peter W. Getsinger (04) William F. Griffin, Jr. (05) John R. Jeffrey, Jr. (06) William F. Leimkuhler (07) W.G. Champion Mitchell (08) James W. Quinn (09) Brian R. Sherras 4. The ratification of the appointment of Grant Thornton LLP as our independent registered public accountants for the fiscal year ending January 31, 2018. FOR AGAINST ABSTAIN 5. The transaction of any other business that may properly come before the 2017 Annual Meeting of Stockholders or any adjournment or postponement of the meeting. COMPANY ID: (Instruction: To withhold authority to vote for any individual nominee, strike a line through that nominees name in the list above) PROXY NUMBER: ACCOUNT NUMBER: Signature Signature Date , 2017. Note: Please sign exactly as name appears hereon. When shares are held by joint owners, both should sign. When signing as attor ney, executor, administrator, tr ustee, guardian, or cor porate off icer, please give title as such. X PLEASE DO NOT RETURN THE PROXY CARD IF YOU ARE VOTING ELECTRONICALLY OR BY PHONE.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on June 22, 2017. The Proxy Statement and the 2017 Annual Report to Stockholders are available at http://www.cstproxy.com/arganinc/2017 FOLD HERE DO NOT SEPARATE INSERT IN ENVELOPE PROVIDED PROXY Argan, Inc. One Church Street, Suite 201 Rockville, Maryland 20850 June 22, 2017 The accompanying proxy is solicited on behalf of the Board of Directors of Argan, Inc., a Delaware corporation (referred to herein as Argan or the Company), for use at the 2017 Annual Meeting of Stockholders (the Annual Meeting) to be held on June 22, 2017 at 11:00 a.m., local time, at the Cambria Hotel and Suites, located at 1 Helen Heneghan Way, Rockville, Maryland 20850. The Proxy Statement and this accompanying proxy card are being mailed starting on or about May 12, 2017 to Stockholders of record on April 25, 2017. Our Annual Report on Form 10-K for the fiscal year ended January 31, 2017 is enclosed with the Proxy Statement. At the Annual Meeting, Stockholders will be asked to consider and to vote upon four proposals: (1) the election of nine directors to serve until the 2018 Annual Meeting of Stockholders, (2) the amendment of the Companys 2011 Stock Plan in order to increase the number of shares of the Companys common stock reserved for issuance thereunder from 2,000,000 shares to 2,750,000 shares, (3) the non-binding advisory approval of our executive compensation, and (4) the ratification of the appointment of the Companys independent registered public accountants. If a proxy is properly executed and returned to the Company via either the Internet, telephone or mail in time for the Annual Meeting and is not revoked prior to the time it is exercised, the shares represented by the proxy will be voted in accordance with the directions specified therein for the matters listed on the proxy card. Unless the proxy specifies that it is to be voted as indicated or is an abstention on a listed matter, proxies will be voted FOR the election to the Companys Board of Directors of each of the nine nominees, and FOR proposals 2, 3 and 4 as set forth on the reverse side and otherwise in the discretion of the proxy holders as to any other matter that may come before the Annual Meeting. (Continued, and to be marked, dated and signed, on the other side)
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