UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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II-VI INCORPORATED
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375 Saxonburg Boulevard
Saxonburg, Pennsylvania 16056
Notice of Annual Meeting of Shareholders
TO BE HELD ON NOVEMBER 4, 2016
DATE AND TIME: Friday, November 4, 2016, at 1:30 p.m. local time
PLACE: Marriott Pittsburgh North, 100 Cranberry Woods Drive, Cranberry Township, Pennsylvania 16066, Phone (724) 772-3700
VOTING
Shareholders are asked to vote on the following items at the 2016 Annual Meeting:
1. | Election of three (3) Class Two directors, each for a three-year term to expire in 2019. |
2. | Non-binding advisory vote to approve compensation paid to our named executive officers in fiscal year 2016, as disclosed in these materials. |
3. | Ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2017. |
4. | Any other matters that properly come before the meeting. |
RECORD DATE
Shareholders of record at the close of business on September 2, 2016 are entitled to notice of and to vote at the 2016 Annual Meeting and any adjournment or postponements of the meeting.
AVAILABILITY OF MATERIALS
We are furnishing proxy materials to shareholders that hold shares through a broker, bank or other nominee (commonly referred to as held in street name), via the internet. If you received a Notice of Internet Availability of Proxy Materials (the Notice) by mail from your broker, bank or other nominee, you will not receive a printed copy of the proxy materials unless you request one. The Notice instructs you how to access and review all of the important information contained in the proxy materials over the Internet. The Notice also provides instructions for submitting your proxy over the Internet. If you received a Notice and would like to receive a printed copy of our proxy materials, please follow the instructions for requesting materials included in the Notice. Shareholders of record will automatically receive a printed set of proxy materials, including a proxy card.
This Proxy Statement and Proxy Card will first be made available to shareholders on or about September 16, 2016.
By Order of the Board
WALTER R. BASHAW II, Secretary
September 16, 2016
YOUR VOTE IS IMPORTANT. WE URGE YOU TO CAST YOUR VOTE AS INSTRUCTED IN THE NOTICE OR PROXY CARD AS PROMPTLY AS POSSIBLE. IF YOU DID NOT RECEIVE A PAPER PROXY CARD, YOU MAY REQUEST ONE TO VOTE BY MAIL IF YOU PREFER.
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375 Saxonburg Boulevard
Saxonburg, Pennsylvania 16056
Annual Meeting of Shareholders
TO BE HELD ON NOVEMBER 4, 2016
2016 Notice of Meeting and Proxy Statement | 1 |
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How Do I Vote?
2 | 2016 Notice of Meeting and Proxy Statement |
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MATTERS OF BUSINESS, VOTES NEEDED AND
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
For More Information |
Board Recommended | |||
Proposal 1 Election of Directors | Page 4 | ü For Each | ||
Each outstanding share of our Common Stock is entitled to one vote for as many separate nominees as there are directors to be elected. There are three directors nominated for election to Class Two of our Board at the Annual Meeting Francis J. Kramer, Wendy F. DiCicco and Shaker Sadasivam. A majority of the shares entitled to vote and cast in person or represented by proxy at the Annual Meeting is required to elect each of the nominees for director. Abstentions and broker non-votes have no effect on this matter. This means that each nominee must receive more votes for than against him or her to be elected. The Board of Directors recommends that you vote FOR the election of each of the Boards nominees for director. | Nominee | |||
Proposal 2 Non-Binding Advisory Vote to Approve 2016 Named Executive Officer Compensation | Page 56 | ü For | ||
The affirmative vote of a majority of the shares entitled to vote and present in person or represented by proxy at the Annual Meeting is required to approve on an advisory basis the compensation of our named executive officers for fiscal year 2016. Abstentions have the effect of an against vote and broker non-votes have no effect. Because this is an advisory vote, it will not be binding on the Company or Board of Directors. However, the Compensation Committee will consider the voting results of this advisory and non-binding proposal, among other factors, when making future decisions regarding executive compensation. The Board of Directors recommends that you vote FOR the resolution approving the Companys fiscal year 2016 named executive officer compensation. | ||||
Proposal 3 Ratification of Selection of Independent Registered Public Accounting Firm | Page 58 | ü For | ||
The affirmative vote of a majority of the shares entitled to vote and present in person or represented by proxy at the Annual Meeting is required to ratify the appointment of Ernst & Young LLP to audit the Companys financial statements for 2017. Abstentions have the effect of an against vote and broker non-votes have no effect. The Audit Committee is responsible for appointing the Companys independent registered public accounting firm. The Audit Committee is not bound by the outcome of this vote but, if the appointment of Ernst & Young LLP is not ratified by shareholders, the Audit Committee will reconsider the appointment. The Board of Directors recommends that you vote FOR the ratification of the selection of Ernst & Young LLP as the Companys independent registered public accounting firm for the fiscal year ending June 30, 2017. |
2016 Notice of Meeting and Proxy Statement | 3 |
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PROPOSAL 1ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, each consisting of as nearly an equal number of directors as practicable. At present, the Board of Directors consists of nine members, with three directors in each Class. |
The current term of our Class Two Directors expires at the Annual Meeting. Accordingly, three directors have been nominated for election to Class Two positions, for a term of three years or until such time as their respective successors are elected and qualified, or until his or her earlier death, resignation or removal. Any Board vacancy may be filled by the remaining directors then in office, and any director so elected will serve for the predecessors remaining term, or until his or her earlier death, resignation or removal.
The persons named as proxies for this Annual Meeting were selected by the Board and have advised the Board that, unless authority is withheld, they intend to vote the shares represented by them at the Annual Meeting as follows:
| FOR the election of Francis J. Kramer, who has served as a director of the Company since 1989; |
| FOR the election of Wendy F. DiCicco, who has served as a director of the Company since 2006; and |
| FOR the election of Shaker Sadasivam, who has served as a director of the Company since 2016. |
Each of the nominees has consented to serve if elected. However, if any of them is unable or unwilling to serve as a director, the Board may designate a substitute nominee, in which case, the persons named as proxies will vote for any such substitute nominee proposed by the Board of Directors.
DIRECTOR CONDITIONAL RESIGNATION POLICY
Each incumbent director nominee has submitted an irrevocable conditional resignation in the event the nominee receives a greater number of votes AGAINST than votes FOR such persons election. If this occurs, the Corporate Governance and Nominating Committee will make a recommendation to the Board as to whether to accept or reject the resignation previously tendered by such director or if other action should be taken. The Board will act on the tendered resignation, taking into account the Committees recommendation, and publicly disclose its decision regarding the tendered resignation, as well as the underlying rationale, within 90 days from the date of the certification of the election results. The incumbent director will remain as a member of the Board during this process.
INFORMATION REGARDING THE COMPANYS BOARD
The professional and personal experience, qualifications, attributes and skills of each of the director nominees are described below, and reflect the qualities that the Company seeks in its Board members. In addition to the specific examples set forth below, the Board and the Company believe that broad-based business knowledge, commitment to ethical and moral values, personal and professional integrity, sound business judgment and commitment to corporate citizenship demonstrated by the nominees make them exceptional candidates for these positions.
4 | 2016 Notice of Meeting and Proxy Statement |
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Proposal 1
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Name | Class | Expiration of Term |
Age | Director Since |
Position(s) With II-VI |
Audit Committee |
Compensation Committee |
Corporate Governance and Nominating Committee |
Subsidiary Committee | |||||||||
NON-EMPLOYEE DIRECTORS: | ||||||||||||||||||
Marc Y.E. Pelaez |
One | 2018 | 70 | 2002 | Lead Independent Director | Member | Chair | Member | ||||||||||
Howard H. Xia |
One | 2018 | 55 | 2011 | Director | Member | Member | Chair | ||||||||||
Wendy F. DiCicco |
Two | 2016 | 49 | 2006 | Director | Chair | Member | |||||||||||
Shaker Sadasivam |
Two | 2016 | 56 | 2016 | Director | |||||||||||||
Thomas E. Mistler |
Three | 2017 | 74 | 1977 | Director | Member | Member | Member | ||||||||||
Joseph J. Corasanti |
Three | 2017 | 52 | 2002 | Director | Chair | Member | Member | ||||||||||
William A. Schromm |
Three | 2017 | 58 | 2015 | Director | Member | Member | (2) | ||||||||||
EMPLOYEE DIRECTORS: |
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Francis J. Kramer(3) |
Two | 2016 | 67 | 1989 | Chairman and Chief Executive Officer; Director | |||||||||||||
Vincent D. Mattera, Jr.(1) |
One | 2018 | 60 | 2012 | President, Director |
(1) | Dr. Mattera previously served as a non-employee director from 2000 through 2002, and as an employee from 2004. |
(2) | Mr. Schromm withdrew from the Subsidiary Committee to concentrate on his responsibilities as a member of the Audit and Compensation Committees. |
(3) | Mr. Kramer retired as Chief Executive Officer effective September 1, 2016 and will remain Chairman of the Board as a non-employee director. Dr. Mattera was named Chief Executive Officer effective September 1, 2016. All references in this document, except those referring to fiscal year 2017, refer to their respective roles as they existed for fiscal year 2016. Those roles are Mr. Kramer as the Chairman and Chief Executive Officer and Dr. Mattera as President. |
2016 Notice of Meeting and Proxy Statement | 5 |
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Proposal 1
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CLASS TWO DIRECTORS STANDING FOR ELECTION
Francis J. Kramer. Mr. Kramer joined II-VI in 1983, served as its President from 1985 to 2014, its Chief Executive Officer since 2007, and its Chairman and CEO from 2014 to 2016. He now serves as the Companys Chairman of the Board of Directors. Mr. Kramer holds a B.S. degree in Industrial Engineering from the University of Pittsburgh and an M.S. degree in Industrial Administration from Purdue University. Mr. Kramer has served as director of Barnes Group Inc., a publicly traded aerospace and industrial manufacturing company (NYSE: B), since 2012. Mr. Kramer provides our Board and the Company with guidance on our growth strategy, in particular on the profitable and sustainable execution of the strategy to achieve sustainable competitive advantage. He contributes considerable business development experience, having completed 20 acquisitions in 20 years adding nearly $700 million of revenue and significant operations experience, relevant to our vertical integration strategy and globalization. Based on these factors, the board has concluded that he should continue to serve as a director of the Company.
Wendy F. DiCicco. Ms. DiCicco is currently President and Chief Operating Officer of Camber Spine Technologies, a private developer and manufacturer of spinal implants, where she has been since November 2014. From April 2012 through October 2014, she served as Vice President, Chief Financial Officer and Treasurer of Nuron Biotech, Inc., a privately held biotech company. During the period from 2008 through 2012, she served as the Chief Financial Officer of private equity backed companies. From 1996 to 2008, she served as the principal financial officer of Kensey Nash Corporation (as controller for two years and then as Chief Financial Officer for ten years), a publicly-traded medical technology company specializing in cardiology and orthopaedics and now part of Royal DSM, a Netherlands company. Ms. DiCicco was an Accounting and Audit Manager with Deloitte LLP from 1990 to 1996, where she served clients in the manufacturing and retail industries. Ms. DiCicco graduated from Philadelphia College of Textiles and Science with a B.S. degree in Accounting. Ms. DiCicco is a Certified Public Accountant in Pennsylvania and is a member of AICPA, the PICPA and the NACD. She also serves on the boards of SynCardia Systems, Inc., a private equity-backed cardiovascular medical device company and the Philadelphia Chapter of the NACD. Ms. DiCicco adds financial reporting and management skills to our Board, including her experience with a large public accounting firm and as a chief financial officer of both public and private companies. Based on these factors, the board has concluded that she should continue to serve as a director of the Company.
Shaker Sadasivam. Dr. Sadasivam is currently President and Chief Executive Officer of SunEdison Semiconductor LLC (NASDAQ:SEMI), a leading manufacturer of advanced semiconductors for electronics, which was separated from SunEdison, Inc. in 2015. From 2009 to 2014, he served as President, Semiconductor Materials Business Unit of SunEdison, Inc. (formerly known as MEMC Electronic Materials, Inc.). From 2002 to 2009, Dr. Sadasivam served as Senior Vice president, Research and Development of SunEdison, Inc. Dr. Sadasivam holds a B.S. and M.S. in Chemical Engineering from University of Madras and Indian Institute of Technology, an M.B.A from Olin School of Business and a Ph.D. in Chemical Engineering from Clarkson University. Dr. Sadasivam will bring to the Board of Directors his extensive experience related to the semiconductor industry and insight into areas including operations, product development and engineering management. Based on these factors the Board has concluded that he should continue to serve as a director of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES NAMED ABOVE FOR ELECTION AS A CLASS TWO DIRECTOR.
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6 | 2016 Notice of Meeting and Proxy Statement |
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Proposal 1
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EXISTING CLASS THREE DIRECTORS WHOSE TERMS EXPIRE IN 2017
Thomas E. Mistler. Mr. Mistler retired in 2009 as an operating partner for Buckingham Capital Partners, a private investment firm, where he served beginning in 2003. He will retire from the Board of Directors of II-VI Incorporated in November, 2016. Mr. Mistler was President, Chief Executive Officer and a director of ESCO Holding Corp. and Engineered Arresting Systems Corporation, a manufacturer of aircraft and vehicle arresting systems, from 1999 to 2003. Previously, he was Senior Vice President of Energy Systems Business for Westinghouse Electric Corporation (Westinghouse), where he was employed from 1965 to 1998. Mr. Mistler served in various engineering, marketing and general management capacities with Westinghouse, including serving as President of Westinghouse Saudi Arabia Limited from 1981 to 1984. Mr. Mistler graduated from Kansas State University with B.S. and M.S. degrees in Engineering. Mr. Mistler possesses executive management, operational and corporate governance experience in multiple markets, which contribute greatly to our Board. In addition, his engineering background and the international business experience that he has developed throughout his career add value to our Board.
Joseph J. Corasanti. Mr. Corasanti presently serves as a member of the Board of Directors for SRC, Inc., a non-profit research and development company advancing technologies in the areas of defense, environment and intelligence. From 2006 to July 2014 Mr. Corasanti served as President and Chief Executive Officer of CONMED Corporation (CONMED), a publicly traded medical technology company (NASDAQ: CNMD). From 1999 to 2006, he served as President and Chief Operating Officer of CONMED. From 1998 to 1999, he was Executive Vice President/General Manager of CONMED and prior to that, he served as General Counsel and Vice President-Legal Affairs for CONMED from 1993 to 1998. From 1990 to 1993, he was an Associate Attorney with the Los Angeles office of the law firm of Morgan, Wenzel & McNicholas. Mr. Corasanti holds a B.A. degree in Political Science from Hobart College and a J.D. degree from Whittier College School of Law. He served as a director of CONMED from 1994 to 2014. Mr. Corasantis past executive positions and his prior public company board experience have provided him with leadership skills and experience in a variety of matters that he contributes to the Companys Board. His experience and skill set, including his legal background and acquisition experience, are valuable to our Board.
William A. Schromm. Mr. Schromm has served in various roles at ON Semiconductor Corporation (NASDAQ: ON), a leading manufacturer of energy-efficient, low-cost, high-volume analog, logic and discrete semiconductors, which was separated from Motorola in 1999. At ON Semiconductor, Mr. Schromm has served as Executive Vice President and Chief Operating Officer since 2014; prior to that time he served as Senior Vice President, Operating Systems and Technology from 2012 to 2014 and as Senior Vice President, General Manager, Computing and Consumer Products from 2006 to 2012. Prior to joining ON Semiconductor Corporation, he worked for 19 years at Motorola in various roles, including Process Engineer, Product Manager, Operations Manager and Marketing Director. He brings extensive engineering, management and marketing experience to our Board.
2016 Notice of Meeting and Proxy Statement | 7 |
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Proposal 1
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CONTINUING DIRECTORS
EXISTING CLASS ONE DIRECTORS WHOSE TERMS EXPIRE IN 2018
Marc Y.E. Pelaez. Mr. Pelaez is a Rear Admiral, United States Navy (retired). Rear Admiral Pelaez is currently a private consultant to defense and commercial companies. He was Vice President of Engineering and later Vice President of Business and Technology Development for Newport News Shipbuilding from 1996 until 2001, when it was acquired by Northrop Grumman Corporation. From 1993 to 1996, Rear Admiral Pelaez served as Chief of Naval Research. He served as the Executive Assistant to the Assistant Secretary of the Navy (Research, Development, and Acquisition) from 1990 to 1993. From 1968 to 1990, he held numerous positions, including command assignments, in the United States Navy. He is a graduate of the United States Naval Academy. Rear Admiral Pelaez has a broad background and understanding of technology and technology development, a seasoned knowledge of military procurement practices, and management leadership and consulting skills developed throughout his military and civilian careers.
Howard H. Xia. Dr. Xia currently serves as a consultant to the telecommunications industry. Dr. Xia had served as General Manager of Vodafone China Limited, a wholly-owned company of Vodafone Group Plc, a publicly traded telecommunication company (NASDAQ: VOD), from 2001 to 2014. From 1994 to 2001, he served as a Director-Technology Strategy for Vodafone AirTouch Plc and AirTouch Communications, Inc. He served as a Senior Staff Engineer at Telesis Technology Laboratory from 1992 to 1994 and was a Senior Engineer at PacTel Cellular from 1990 to 1992. Dr. Xia holds a B.S. in Physics from South China Normal University and an M.S. in Physics and Electrical Engineering and a Ph.D. in Electrophysics from Polytechnic School of Engineering of New York University. Dr. Xias extensive knowledge of and experience in the telecommunications industry, his knowledge of international business including that with China, and strong leadership skills make him a valuable member of our Board of Directors. In particular, his experience and knowledge of telecommunications in Asia contributes to the Boards breadth of knowledge in this area.
Vincent D. Mattera, Jr. Dr. Mattera joined II-VI in 2004, and was recently named the Companys Chief Executive Officer effective September 1, 2016. Dr. Mattera has been serving in the role of President since 2014 and Chief Operating Office since 2013. Prior to that time, he served in several executive capacities. Dr. Mattera joined II-VI following a 20 year career at Agere Systems, Lucent Technologies, and AT&T Bell Laboratories. Dr. Mattera previously served as a non-employee director of the Company from 2000 through 2002. Dr Mattera was reappointed as a member of the Board in 2014. Dr. Mattera holds B.S. and Ph.D. degrees in Chemistry from the University of Rhode Island and Brown University, respectively.
8 | 2016 Notice of Meeting and Proxy Statement |
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Proposal 1
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MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS
The Companys Board held seventeen (17) meetings during fiscal year 2016. Each scheduled quarterly meeting occurred over a two-day period. In fiscal year 2016, each director attended 100% of the meetings of the Board, as well as at least 75% of the aggregate of (a) the total number of meetings of the Board and (b) the total number of meetings for the committees of which he or she was a member. The Board and committees of the Board have the authority to hire independent advisors to help fulfill their respective duties.
The Board of Directors has four standing committees: Audit; Compensation; Corporate Governance and Nominating; and Subsidiary. All Committees have written charters that may be found on the Companys website at www.ii-vi.com/investor/investors.html.
Committee and Members | Primary Committee Functions | Number of Meetings |
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Audit: |
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Wendy F. DiCicco (Chair)* Thomas E. Mistler William A. Schromm Howard H. Xia *Qualifies as a financial expert, as defined by the Securities and Exchange Commission |
Oversees the Companys discharge of its financial reporting obligations Monitors the Companys relationship with its independent public accounting firm Monitors performance of the Companys business plan Reviews the internal accounting methods and procedures Reviews certain financial strategies Establishes procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding accounting or auditing matters Periodically reviews of the Companys risk assessment approach and activities undertaken by management |
Four (4) | ||||
Compensation: | ||||||
Joseph J. Corasanti (Chair) Wendy F. DiCicco Marc Y.E. Pelaez William A. Schromm |
Determines and oversees compensation of the Companys directors and executive officers Administers and interprets the Companys equity and incentive plans Establishes terms and conditions of equity awards Reviews succession plans for CEO and other senior executives of the Company Further information regarding the functions of the Compensation Committee is provided in the Compensation Discussion and Analysis section on page 34 |
Eleven (11) | ||||
Corporate Governance and Nominating: | ||||||
Marc Y.E. Pelaez (Chair) Joseph J. Corasanti Thomas E. Mistler Howard H. Xia |
Develops and implements policies and processes regarding corporate governance matters Assesses Board membership needs and makes recommendations regarding potential director candidates to the Board of Directors |
Five (5) | ||||
Subsidiary: | ||||||
Howard H. Xia (Chair) Joseph J. Corasanti Thomas E. Mistler Marc Y. E. Pelaez |
Oversees the activities of the Companys operating subsidiaries, as directed from time to time by the Board of Directors Attends selected quarterly meetings of the Companys operating subsidiaries and reports to the Board on material developments and risks Focuses on risks related to operations, markets, customers and technology |
Four (4) |
2016 Notice of Meeting and Proxy Statement | 9 |
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DIRECTOR INDEPENDENCE AND CORPORATE GOVERNANCE POLICIES
10 | 2016 Notice of Meeting and Proxy Statement |
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Corporate Governance
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2016 Notice of Meeting and Proxy Statement | 11 |
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Corporate Governance
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12 | 2016 Notice of Meeting and Proxy Statement |
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Corporate Governance
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2016 Notice of Meeting and Proxy Statement | 13 |
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DIRECTOR COMPENSATION IN FISCAL YEAR 2016
14 | 2016 Notice of Meeting and Proxy Statement |
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Director Compensation
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DIRECTOR COMPENSATION STRUCTURE FOR FISCAL YEAR 2016
DIRECTOR CASH COMPENSATION
Annual Retainer | ||||||||||||
Compensation Item | Member | Chair(1) | Meeting Fee | |||||||||
Full Board Membership |
$ | 50,000 | $ | 30,000 | $ | | ||||||
Lead Independent Director |
10,000 | | | |||||||||
Audit Committee |
10,000 | 20,000 | | |||||||||
Compensation Committee |
7,500 | 15,000 | | |||||||||
Governance & Nominating Committee |
5,000 | 10,000 | | |||||||||
Subsidiary Committee |
| 5,000 | 1,500 | (2) |
(1) | Retainers paid to committee Chairs are in lieu of, and not in addition to, retainers otherwise paid to members of said committee. |
(2) | Per-day meeting fee. |
DIRECTOR EQUITY PROGRAM
In addition to the cash compensation outlined above, directors receive annual equity awards, typically in August of each fiscal year. In August 2015, each director (other than Mr. Sadasivam, who joined the Board in February 2016) received a grant of 8,970 stock options at an exercise price of $17.84 per share and a restricted stock award grant of 4,485 shares of Common Stock. Stock options granted to directors generally have the same terms as those granted to our employees, including vesting occurring in five equal annual installments and a term of ten years, but do not automatically vest upon a directors departure from the Board. The Compensation Committee may determine, in its sole discretion that a stock option award will vest upon departure from the Board and with an exercise period not to exceed five years. Restricted stock awards also generally have the same terms as those granted to our employees, including three-year cliff vesting, but do not automatically vest upon a directors departure from the Board. The Compensation Committee may determine, in its sole discretion, that a restricted stock award will vest upon a directors departure from the Board.
DIRECTOR COMPENSATION TABLE FOR FISCAL YEAR 2016
Non-Employee Director | Fees Earned ($)(1) |
Stock Awards ($)(2) |
Option Awards ($)(3) |
Total ($) |
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Joseph J. Corasanti |
$ | 71,500 | $ | 80,013 | $ | 80,013 | $ | 231,256 | ||||||||
Wendy F. DiCicco |
77,500 | 80,013 | 80,013 | 237,526 | ||||||||||||
Thomas E. Mistler |
87,500 | 80,013 | 80,013 | 247,526 | ||||||||||||
Marc Y.E. Pelaez |
109,000 | 80,013 | 80,013 | 269,026 | ||||||||||||
William A. Schromm |
67,500 | 80,013 | 80,013 | 227,526 | ||||||||||||
Howard H. Xia |
94,000 | 80,013 | 80,013 | 254,026 | ||||||||||||
Shaker Sadasivam(4) |
37,672 | | | 37,672 |
(1) | Amounts reflect fees actually paid during fiscal year 2016. Director fees are usually paid in January of the applicable fiscal year. |
(2) | Represents the aggregate grant date fair value of restricted stock issued to the non-employee directors under the 2012 Omnibus Incentive Plan, computed in accordance with Financial Accounting Standards Board (FASB) ASC Topic 718 (excluding the effect of forfeitures). The grant date fair value of restricted stock was computed based upon the closing price of the Companys Common Stock on the date of grant, which was $17.84. |
(3) | Represents the aggregate grant date fair value of option awards issued by the Company to the non-employee directors under the 2012 Omnibus Incentive Plan, computed in accordance with FASB ASC Topic 718. The grant date fair value of stock option awards is based on the Black-Scholes option pricing model. The actual value, if any that a director may realize upon exercise of stock options will depend on the excess of the stock option price over the strike value on the date of exercise. As such, there is no assurance that the value realized by a director will be at or near the value estimated by the Black-Scholes model. Refer to Note 10 to the Consolidated Financial Statements in the Companys Annual Report on Form 10-K for fiscal year 2016 filed with the SEC on August 26, 2016 for relevant assumptions used to determine the valuation of option awards, except that any estimate of forfeitures for service-based conditions have been disregarded. |
(4) | Mr. Sadasivam was appointed to serve on the Board on February 4, 2016. The above fees paid to Mr. Sadasivam represented his board retainer on a pro-rata basis for 2016. |
2016 Notice of Meeting and Proxy Statement | 15 |
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Director Compensation
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DIRECTOR EQUITY AWARDS OUTSTANDING
The following table sets forth the aggregate number of shares of restricted stock and shares underlying stock options held by the named directors as of June 30, 2016.
Non-Employee Director | Restricted (#) |
Total Option Awards Held (#) |
Exercisable Option Awards (#)(1) |
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Joseph J. Corasanti |
14,340 | 128,020 | 99,628 | |||||||||
Wendy F. DiCicco |
14,340 | 126,020 | 97,628 | |||||||||
Thomas E. Mistler |
14,340 | 128,020 | 99,628 | |||||||||
Marc Y.E. Pelaez |
14,340 | 114,620 | 86,228 | |||||||||
Howard H. Xia |
14,340 | 46,600 | 18,208 | |||||||||
William A. Schromm |
4,485 | 8,970 | | |||||||||
Shaker Sadisivam(2) |
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(1) | Includes options exercisable within 60 days of June 30, 2016. |
(2) | Mr. Sadisivam was appointed to serve on the Board on February 4, 2016 and did not receive any restricted shares or stock options as of June 30, 2016. |
16 | 2016 Notice of Meeting and Proxy Statement |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
STOCK BENEFICIALLY OWNED BY PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the ownership by any person, including any group as defined in Section 13(d) (3) of the Securities Exchange Act of 1934, as amended (the Exchange Act), known to us to be the beneficial owner of more than five percent of the issued and outstanding shares of Common Stock as of August 31, 2016. Unless otherwise indicated, each of the shareholders named in the table has sole voting and investment power with respect to the shares beneficially owned. Ownership information is as reported by the shareholder in their respective filings with the SEC.
Name and Address | Number of Shares of Common Stock |
Percent of Common Stock(1) |
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BlackRock, Inc.(2) |
4,863,327 | 7.64 | % | |||||
40 East 52nd Street New York, NY 10022 |
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Carl J. Johnson(3) |
4,711,676 | 7.40 | % | |||||
18 Windsor Ridge |
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Frisco, TX 75034 |
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Barrow, Hanley, Mewhinney & Strauss, LLC(4) |
4,566,235 | 7.17 | % | |||||
2200 Ross Avenue, 31st Floor |
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Dallas, TX 75201-2761 |
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The Vanguard Group(5) |
4,047,188 | 6.36 | % | |||||
100 Vanguard Blvd |
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Malvern, PA 19355 |
(1) | As of August 31, 2016. |
(2) | Based solely on a Schedule 13G/A filed with the SEC on January 26, 2016. BlackRock, Inc. reported sole voting power over 4,740,067 shares of Common Stock and sole dispositive power over 4,863,327 shares of Common Stock. As reported in the Schedule 13G/A, certain shares reported by BlackRock, Inc. are owned by various investment companies affiliated with BlackRock, Inc. |
(3) | Based solely on a Schedule 13D/A filed with the SEC on February 8, 2016. Mr. Johnson reported sole voting power over 291,293 shares of Common Stock, shared voting power over 4,420,383 shares of Common Stock, sole dispositive power over 291,293 shares of Common Stock and shared dispositive power over 4,420,383 shares of Common Stock. |
(4) | Based solely on a Schedule 13G filed with the SEC on February 2, 2016. Barrow, Hanley, Mewhinney & Strauss, LLC, a registered investment advisor, reported sole voting power over 2,481,620 shares of Common Stock, shared voting power over 2,084,615 shares of Common Stock and sole dispositive power over 4,566,235 shares of Common Stock. |
(5) | Based solely on a Schedule 13G/A filed with the SEC on February 10, 2016. The Vanguard Group, Inc. reported sole voting power over 66,008 shares, shared voting power over 5,700 shares of common stock, sole dispositive power over 3,978,580 shares and shared dispositive power over 68,608 shares of Common Stock. |
2016 Notice of Meeting and Proxy Statement | 17 |
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Beneficial Ownership
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STOCK BENEFICIALLY OWNED BY DIRECTORS AND OFFICERS
The following table shows the number of shares of II-VI Common Stock beneficially owned by all directors, our named executive officers (as reflected in the Summary Compensation Table), and all of our directors and executive officers as a group, as of August 31, 2016. This includes shares that could have been acquired within 60 days of that date through the exercise of stock options. The number of shares beneficially owned is defined by Rule 13d-3 under the Exchange Act. Unless otherwise indicated, each individual and member of the group has sole voting power and sole investment power with respect to shares owned. None of the shares reflected in the table below have been pledged as security.
Beneficial Ownership of Common Stock |
||||||||
Shares | Percent | |||||||
Joseph J. Corasanti(1)(2) |
113,294 | * | ||||||
Wendy F. DiCicco(1)(2) |
141,894 | * | ||||||
Francis J. Kramer(1)(2)(3) |
1,326,174 | 2.1 | % | |||||
Vincent D. Mattera, Jr.(1)(2)(4) |
470,434 | * | ||||||
Thomas E. Mistler(1)(2)(5) |
1,740,556 | 2.8 | % | |||||
Marc Y.E. Pelaez(1)(2) |
138,793 | * | ||||||
William A. Schromm(1)(2) |
9,975 | * | ||||||
Howard H. Xia(1)(2)(6) |
62,524 | * | ||||||
Shaker Sadasivam(2) |
3,696 | * | ||||||
Giovanni Barbarossa(1)(2) |
81,422 | * | ||||||
Mary Jane Raymond(1)(2) |
67,468 | * | ||||||
Gary A. Kapusta(2) |
49,915 | * | ||||||
All Executive Officers and Directors as a Group (Fourteen persons)(7) |
4,325,135 | 6.8 | % |
* | Less than 1% |
(1) | Includes the following amounts subject to stock options that are exercisable within 60 days of August 31, 2016: 75,548 options exercisable by Mr. Corasanti, 106,948 options exercisable by Ms. DiCicco, 493,096 options exercisable by Mr. Kramer, 248,448 options exercisable by Dr. Mattera, 108,948 options exercisable by Mr. Mistler, 95,548 options exercisable by Rear Admiral Pelaez, 1,794 options exercisable by Mr. Schromm, 27,528 options exercisable by Dr. Xia, 30,490 options exercisable by Dr. Barbarossa, and 18,072 options exercisable by Ms. Raymond. |
(2) | Includes 13,901 shares of restricted stock held by each of Mr. Corasanti, Ms. DiCicco, Rear Admiral Pelaez and Dr. Xia, 8,181 shares of restricted stock held by Mr. Schromm, 3,696 shares of restricted stock held by Mr. Sadasivam, 11,189 shares of restricted stock held by Mr. Mistler, 116,476 shares of restricted stock held by Mr. Kramer, 83,846 shares of restricted stock held by Dr. Mattera, 41,928 shares of restricted stock held by Dr. Barbarossa, 46,492 shares of restricted stock held by Ms. Raymond and 49,915 shares of restricted stock held by Gary Kapusta. |
(3) | Includes 285,401 shares held in a Spousal Limited Access Trust as to which Mr. Kramer disclaims beneficial ownership and 180,815 shares held on behalf of Mr. Kramer in the II-VI Incorporated Nonqualified Deferred Compensation Plan. |
(4) | Includes 21,135 shares held on behalf of Dr. Mattera in the II-VI Incorporated Nonqualified Deferred Compensation Plan. |
(5) | Includes 346,512 shares held in trust and 1,269,772 shares held in limited partnerships for which Mr. Mistler serves as a general partner. |
(6) | Includes 4,000 shares held in a trust, as to which he disclaims beneficial ownership except to the extent of his pecuniary interest therein. |
(7) | Includes a total of 1,265,806 shares subject to stock options exercisable within 60 days of August 31, 2016 and a total of 449,754 shares of restricted stock held by all executive officers and directors as a group. |
(8) | There were 62,033,300 shares of our common stock outstanding as of August 31, 2016. In accordance with the rules and regulations of the SEC, in computing the percentage ownership for each person listed, any shares which the listed person had the right to acquire within 60 days are deemed outstanding; however, shares which any other person had the right to acquire within 60 days are disregarded in the calculation. Therefore, the denominator used in calculating beneficial ownership among the persons listed may differ for each person. |
18 | 2016 Notice of Meeting and Proxy Statement |
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Beneficial Ownership
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires the Companys directors, executive officers and persons who beneficially own more than ten percent of a class of the Companys registered equity securities to file with the SEC and deliver to the Company initial reports of ownership and reports of changes in ownership of such registered equity securities.
The Companys directors and executive officers timely filed all reports due under Section 16(a) for the period from July 1, 2015 through June 30, 2016 with the exception of one Form 4 for Thomas E. Mistler that was filed with the Securities and Exchange Commission (SEC) two days late. That Form 4 reported multiple sale transactions completed on one trading day.
2016 Notice of Meeting and Proxy Statement | 19 |
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Beneficial Ownership
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Set forth below is certain information concerning five of our Named Executive Officers (NEOs) discussed herein as of June 30, 2016. This information does not reflect Mr. Kramers retirement as our Chief Executive Officer effective September 1, 2016 and Dr. Matteras appointment as our Chief Executive Officer effective September 1, 2016.
Name | Age | Position | ||||
Francis J. Kramer |
67 | Chairman and Chief Executive Officer; Director | ||||
Vincent D. Mattera, Jr. |
60 | President; Director | ||||
Mary Jane Raymond |
56 | Chief Financial Officer and Treasurer and Assistant Secretary | ||||
Gary A. Kapusta |
56 | Chief Operating Officer | ||||
Giovanni Barbarossa |
56 | Chief Technology Officer and President II-IV Laser Solutions |
20 | 2016 Notice of Meeting and Proxy Statement |
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FISCAL YEAR 2016 COMPENSATION DISCUSSION AND ANALYSIS
MESSAGE FROM THE COMPENSATION COMMITTEE
The Compensation Committee takes seriously its responsibilities to govern competitive pay practices to achieve competitive results. Shareholder views and feedback are an essential component to the design and refinement of the Companys compensation program. The Committee directed management to hold discussions with shareholders and report the outcome of these discussions at each of the meetings. The Chair participates in many of these discussions and helps guide the Committees analysis of the information gathered to incorporate it into the compensation program decisions.
In response to shareholder feedback and after review of market benchmarks provided by Radford, the Companys independent compensation firm, the Compensation Committee made significant changes to the fiscal years 2016 and 2017 compensation programs pursuant to shareholder feedback. The feedback and the changes to compensation are discussed below.
Shareholder Outreach Program
The Company has had a rigorous shareholder outreach program for several years reaching shareholders holding 60% or more of the total shares outstanding. These meetings have included most frequently the Chief Executive Officer, the Chairman, the President, the Chairman of the Compensation Committee, the Vice President of Human Resources and/or the Chief Financial Officer. In some of the meetings, other members of the Board and other members of the senior management team participated. Approximately 25 meetings or calls are held with unique investors each year, with some investors having multiple interactions. In addition, the Company typically had between one and five meetings and/or telephone calls with new investors prior to their taking an equity position in the Company. The main topics discussed are (1) the company strategy, (2) the rationale for acquisitions, (3) the progress on financial improvements, (4) review of the management team and company culture, (5) compensation goals and philosophy, and (6) request for ongoing feedback.
In the years 2013, 2014 and 2015, most of the comments from shareholders were on their dissatisfaction with the Companys financial performance, questions about the rationale for acquisitions, comments about the average tenure of the Board as well as the number of insiders on the Board, and the desire to see a more simplified presentation of the Company. From time to time, shareholders suggested alternative metrics to help simplify the analysis of the Companys performance and the Company has included an evaluation of these alternative metrics as part of our ongoing work to improve the Companys performance and design of compensation programs.
In response to the shareholder comments, in 2013 the Company implemented the June Award in an effort to move 100% of the long term equity to performance based. In 2014 the Company replaced its Performance Share Plan revenue metric with a Relative Total Shareholder Return metric having a three-year measurement period. With this change, the metrics of long term incentive plan and those of the short term incentive plan have no overlap.
In October 2015 before the annual meeting and as part of our ongoing shareholder outreach, the Chair of the Compensation Committee, the Vice President of Human Resources and the Chief Financial Officer reached out again to the top 22 shareholders or those holding at least 1 percent of the shares outstanding with a specific agenda to discuss the contents of the proxy statement. This group accounted for approximately 55% of the shares outstanding. A total of 20 meetings were held, of which 8 included the
2016 Notice of Meeting and Proxy Statement | 21 |
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Executive Compensation
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Compensation Committee Chair. The purpose of these meetings was to specifically identify shareholder comments and concerns on our 2015 proxy statement.
The shareholder feedback from these contacts included:
| Company Performance It was generally acknowledged that the Companys financial performance improved significantly over the prior year. |
| June Award Many of our investors considered the construction to be too complex, did not favor arrangements that were very unique, and felt the June timing indicated a certain retrospective aspect that was not objective. Some investors even thought this portion of the compensation was new even though it was in the compensation program in the prior year. |
| Cash component Several of our investors considered cash in any form to be a short term incentive, no matter how long the performance period. |
| Length of performance period All of our investors considered two years to be too short to be considered long term. They felt long term needed to be three years in duration or greater. |
| 100% performance based long term equity Most of our investors did not favor trying to achieve 100% performance based long term equity incentive programs. They felt some time-based awards helped retention. More importantly, they recognized that trying to achieve a 100% performance based equity incentive plan led to too much complexity. Our shareholders indicated that they look for the majority of the award to two-thirds of the award to be tied to performance. |
| Stock options Because the proxy advisor firms do not consider stock options to be performance-based compensation, we asked our shareholders for their views. Many of our shareholders that we talked to considered stock options to be performance-based equity. Some investors did not have a preference. |
| Other comments expressed by one or two investors included: |
| Two investors asked for a double trigger upon change of control |
| Two investors suggested for the introduction of a linked income statement/balance sheet metric such as Return on Equity, Return on Assets, or Return on Invested Capital |
| Two investors asked for greater minority shareholder rights, such as the ability to call a special meeting |
| One investor expressed a view that performance should be improved for more than one year before compensation is increased markedly |
The Compensation Committee met at least 6 times to consider the input of the shareholders to determine the appropriate actions for 2016 and forward to respond to the feedback from shareholders. Consequently, for fiscal years 2016 and 2017, the Committee made significant improvements to our compensation programs which are discussed below.
Specific Program Changes Based on Shareholder Feedback
| The June Award was eliminated for fiscal year 2016 and future years. The shareholder feedback questioning the complexity of the metrics, the degree of deviation from standard programs, and the perception that it was viewed as an additional award contributed to this decision. Most shareholders found this element of the compensation program to be confusing and inconsistent with their desires for clear, objective and trackable metrics. When asked what alternatives they would favor, shareholders were clear that they expected that the majority of long term equity to be performance based, and that they considered stock options to be performance based. Many specifically said they do not expect 100% of |
22 | 2016 Notice of Meeting and Proxy Statement |
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Executive Compensation
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long term equity to be performance based, which was the original objective of the Company that led to the design of the June Award. As noted above, shareholders felt that time-based restricted stock provides for a good retention tool and superior to additional increases in cash compensation. Therefore the June Award was replaced in November 2015 (effective for fiscal year 2016) with a time-based restricted stock award. Following the implementation of this decision, we asked shareholders as part of the ongoing shareholder outreach program their views about this decision, and we got positive feedback. |
| No portion of long term incentive compensation may be earmarked or paid out in cash for fiscal year 2016 and forward. The Companys long term incentive plan is now exclusively equity based. |
| NEOs are required to hold stock (net of tax) for one year after vesting of all stock vesting in 2016. The holding period requirement was effective for all stock vesting in fiscal year 2016 and will be in effect for all future vesting stock. The one year holding period is required in addition to the NEOs ownership requirements set forth in the Companys policy. |
Certain items contained in shareholder feedback were adopted for the fiscal year 2017 to avoid the accounting penalties and potential regulatory inquiries associated with modifying an existing equity award and to maintain the 162(m) treatment for the year. Effective for fiscal year 2017, the Company will implement the following:
| All performance share awards now have a three (3) full year measurement period and interim-period re-measurement was eliminated for fiscal year 2017 grants. The Company elected not to modify past awards to change the cash-flow-based performance shares from a two year performance period to a three year performance period due to the accounting penalties that would have been incurred. However, all performance based awards will move to a three year performance period beginning in fiscal year 2017. |
| A double trigger was added to the long term equity award program. The Company previously only had a single trigger. This is effective for grants made in fiscal year 2017. A double trigger means that in the event of the change of control, the NEOs change of control payment are only paid if 1. the change in control is accompanied by 2. a significant reduction in responsibility or loss of employment (second trigger). |
| Individual non-financial goals for the NEOs have been eliminated for fiscal year 2017. Consistent with the shareholder feedback. The Company will measure the short term cash incentive strictly on the basis of financial goals. |
| The GRIP cash incentive plan is now capped at 200% payout with the entry threshold funding being 30% of the target. The prior boundaries were an entry threshold funding of 20% of the target and a maximum payout of 250%. This change was implemented to align our approach with the general market practices. |
| The long term equity incentive plan percentage of TDC did not change but was rebalanced for fiscal year 2017. To not incur the adverse accounting effects caused by modifying existing awards, the new mix of equity is 40% performance shares, 30% restricted shares and 30% stock options effective for grants given for fiscal year 2017. Prior mix was 30% performance shares, 30% restricted shares and 40% stock options. |
Feedback received from two shareholders was to create an income-statement/balance sheet metric. The Company has taken these suggestions under consideration to consider whether inclusion in our compensation program is appropriate.
After the decisions were made, the Company incorporated into its ongoing shareholder meetings a discussion of these compensation changes to solicit further feedback. Shareholders who did not have
2016 Notice of Meeting and Proxy Statement | 23 |
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Executive Compensation
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objections to the prior compensation methods appreciated the extensive efforts the Company undertook. Shareholders who did have concerns expressed no disagreement with the changes. Several expressed that they thought the actions were very good. We pointedly spent time on three topics in every call. First, the elimination of the June Award and the replacement with time based restricted stock. We did not receive any objections to the fact that the replacement was time-based vesting. Second, we asked shareholders who had an opinion about stock options whether they had any different view on stock options as a performance based component of long term compensation, and we received no objections thus far. Third, we reviewed the changes adopted for fiscal year 2017, and not in fiscal year 2016, due to the financial consequences of modifying an existing equity award. Shareholders understood this rationale. The Compensation Committee Chair participated in these follow-up meetings with shareholders holding at least 20 percent of our shares. As of this writing, the Company remains engaged in arranging further meetings to include the Compensation Committee Chair.
Key Elements of Fiscal Year 2016 Performance Compared to Fiscal Year 2015
24 | 2016 Notice of Meeting and Proxy Statement |
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Executive Compensation
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Alignment of Executive Pay and Company Performance
| The annual cash incentives for NEOs were awarded approximately at 160% of target based on Companys performance as compared to the challenging targets set for these programs. The Companys revenue increased 11% and the adjusted EPS increased 41%. |
| Performance shares for the fiscal years 2015 and 2016 performance period were awarded based on the Companys achievement of 121% of cash flow (resulting in an actual award of 152% of the target number of performance shares). |
| The CEO and all other NEOs are in compliance with the requirement to own Company stock. The CEO is required to hold the equivalent of three times his annual base salary in Company stock, and all other NEOs who have served as executive officers for more than three years are required to hold the equivalent of their annual base salary in Company stock. Executives of shorter tenure have three years from the time they are appointed as an executive officer to meet this requirement. All NEOs are required to hold vested equity at least one year net of taxes. |
(1) | The earnings release stock price reflects the Companys closing stock price on the day of its fiscal year end earnings release. |
2016 Notice of Meeting and Proxy Statement | 25 |
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Executive Compensation
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COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company believes in setting challenging objectives and requires talented and committed people to achieve them. The Companys executive compensation program is designed to align our executives compensation with the interests of our shareholders and to attract, motivate and retain high-quality executive talent.
The Companys executive compensation philosophy is based on the principle of pay-for-performance, with a substantial portion of TDC being at-risk and tied to performance. We target TDC at the median level of pay of our Comparator Group for performance at target. For fiscal year 2016, which ran from July 1, 2015 to June 30, 2016, we used the Comparator Group data available in public filings.
The primary objectives of our fiscal year 2016 executive compensation program were:
| Shareholder Returns Above Median: Maximize Company performance to enhance total shareholder return (TSR). |
| Stable Leadership: Attract and retain a high calibre of executive talent. |
| Continuous Improvements in Performance: Ensure that a significant portion of TDC is at risk, based on Company and individual performance. |
| Sustainable Achievement of Results: Encourage a long-term focus by our NEOs while recognizing the importance of short-term performance, with goals that are challenging yet attainable and discourage excessive risk taking. |
| Strategic Innovation: Provide incentive for innovation, productivity, quality management, responsiveness to customer needs, talent management, compliance, environmental, health and safety performance, and an action-oriented approach to identifying and seizing opportunities in the marketplace. |
| Commitment: Align executive and shareholder interests by requiring NEOs to meet minimum share ownership guidelines and prohibit them from hedging or pledging Company stock. |
26 | 2016 Notice of Meeting and Proxy Statement |
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Executive Compensation
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SUMMARY OF PAY ELEMENTS AND MIX OF VARIABLE AND FIXED COMPENSATION
A specific objective of our compensation program is to drive continuous improvement in performance. We believe this is best accomplished by having a majority of total direct compensation (TDC) be variable and based on performance. TDC includes base salary, cash incentive awards granted under our Bonus Incentive Program (BIP) and Goals/Results Incentive Program (GRIP), and equity awards in the form of non-qualified stock options (Stock Options), restricted stock awards (RSAs) and performance stock awards (PSAs). The chart below shows that variable compensation makes up approximately 65% of fiscal year 2016 target TDC of our NEOs.
2016 CEO Target Total Compensation Mix
2016 Average Target Total Compensation Mix for Continuing NEOs
PSA and RSA dont balance due to the impact of new hire grants
2016 Notice of Meeting and Proxy Statement | 27 |
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Executive Compensation
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NEO compensation for fiscal year 2016 included the following elements. For ease of understanding, the term non-equity incentive plan compensation in the Summary Compensation Table and other tables set forth below is referred to as cash incentives throughout this narrative:
Element | Description | 2016 Pay Action | Primary Metrics Used | |||
Base Salary |
Market-competitive fixed pay reflective of an NEOs role, responsibilities and individual performance. | Increased NEO salaries based on individual performance and evaluation against our Comparator Group. Increases ranged from 3.0% to 10% of base salary. | Comparator Group benchmarking at the 50th percentile | |||
BIP Cash Incentive |
Payable to all NEOs with at least one year of service based on the achievement of corporate wide income goals. This cash incentive payment is based on a targeted Bonus Operating Profit, as pre-determined by the Compensation Committee. | During fiscal year 2016, BOP performance for our NEOs was 144% of target. | Operating profit before reduction for variable compensation paid (Bonus Operating Profit) | |||
GRIP Cash Incentive |
Payable to NEOs based on achievement of Company consolidated and/or business unit results. | Board approved revenue and earnings per share (EPS) goals incentivizing growth over the prior fiscal years results. Actual payout for fiscal year 2016 was 183% of the target applicable to the Companys consolidated results. | Revenue and EPS For Dr. Barbarossa only, metrics are a combination of consolidated and divisional goals | |||
Equity-Based Awards |
Time-based and performance-based awards provide incentive to focus on long-term growth and financial success, to balance short- and long-term performance, and to align executive and shareholder interests. | NEO target equity compensation for 2016 consisted of 40% Stock Options, 30% Restricted Stock and 30% PSAs. | Russell 2000 for relative TSR and Board approved budget for cash flow from operations (PSAs) |
28 | 2016 Notice of Meeting and Proxy Statement |
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Executive Compensation
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RECAP OF THE COMPANYS PERFORMANCE IN FISCAL YEAR 2016
Detailed below are the abbreviated results of the Companys performance for fiscal year 2016. For a more detailed review of the Companys financial performance for fiscal year 2016, please see the Companys Annual Report on Form 10-K for the fiscal year 2016 filed with the SEC on August 26, 2016.
FY 2016 | FY 2015 | Change | ||||||||||
Revenue |
$ | 827 million | $ | 742 million | 11% | |||||||
Gross Margin % |
37.8% | 36.6% | 120 bps | |||||||||
Bonus Operating Profit |
$ | 161 million | $ | 111 million | 45% | |||||||
Diluted EPS |
$ | 1.04/share | $ | 1.05/share | (1%) | |||||||
Adjusted Diluted EPS* |
$ | 1.33/share | $ | 0.94/share | 41% | |||||||
* excludes one-time transaction charges and restructuring charges, purchase accounting charges and acquired company losses for fiscal year 2016 and excludes acquisition settlement of $0.11/share for fiscal year 2015 | ||||||||||||
Cash flow from operations |
$ | 123 million | $ | 129 million | (5%) |
The Company pays incentive compensation only after the Compensation Committee has certified the Companys operating results. In certifying the results, the Committee ensures that it is in receipt of the audit of our financial performance by the independent auditors and the report of the Audit Committee with respect to the Companys audited financial statements.
DETERMINATION OF TDC AT TARGET FOR FISCAL YEAR 2016
Target TDC is set for the NEOs at the median of the Comparator Group, with the advice of our independent advisor, Radford.
Once TDC is determined, the relative proportions of the compensation elements described above are set with two principles in mind:
| A substantial portion of TDC should be variable (for fiscal year 2016, approximately 65%) |
| The variable portion should be a mix of equity and cash. |
2016 Notice of Meeting and Proxy Statement | 29 |
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Executive Compensation
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The Compensation Committee reviewed the NEOs base salaries to ensure recognition of performance and alignment to the market median for similar positions at companies in the Comparator Group. Accordingly, annual merit increases may be made after an assessment to the current market medians and in light of individual performance.
The increases in base salary noted in the chart below for the NEOs reflect adjustments based on performance to allow their salaries to remain comparable to those of the Comparator Group. Mr. Kapusta joined the Company in February 2016.
Named Executive Officer | Fiscal Year 2016 Base Salary |
Fiscal Year 2015 Base Salary |
Percentage Increase |
|||||||||
Francis J. Kramer |
$ | 686,400 | $ | 666,400 | 3.0 | % | ||||||
Vincent D. Mattera, Jr. |
424,000 | 412,000 | 2.9 | % | ||||||||
Mary Jane Raymond |
330,000 | 300,000 | 10 | % | ||||||||
Gary A. Kapusta |
350,000 | N/A | N/A | |||||||||
Giovanni Barbarossa |
351,200 | 319,300 | 10 | % |
Bonus Incentive Program (BIP). The Bonus Incentive Plan is a Company-wide bonus program that has been successfully used by the Company throughout the majority of its history to directly tie the interests of all of our employees who have at least one year of service, regardless of position, to the operating earnings of the Company, a major driver of shareholder value. The Bonus Incentive Plan is evaluated on the metric of Bonus Operating Profit (BOP). BOP is the Companys annual operating profit before reduction for variable employee compensation (both cash and equity). At the beginning of the Companys fiscal year, the Compensation Committee determines the percentage of final approved budgeted annual operating profit available to be paid under the BIP. This determination is based on total budgeted annual salary of all eligible employees. Actual payouts under the BIP, if any, could deviate from the budgeted payout due to changes in actual operating results as compared to budgeted operating results, and changes in the participant pool. The BIP is paid at 75% of the earned amount the end of each of the first three fiscal quarters based on interim financial performance. The final payment is made after fiscal year end, at which time the balance of the full-year payout is paid. Mr. Kapusta did not participate in the BIP for 2016 as he did not have at least one year of service with the Company.
The bonus operating profit target and performance for fiscal year 2016 compared to fiscal year 2015 is (in millions) except %:
2016 | 2015 | |||||||
Budgeted Bonus Operating Profit | $ | 126.1 | $ | 118.1 | ||||
Actual Bonus Operating Profit Achieved | $ | 160.7 | $ | 110.7 | ||||
Actual BIP Performance % as Compared to Budget(1) | 144.0% | 84.4% |
(1) | The 144% performance is a function of the actual payout of 24% versus budgeted payout of 16.67%. |
30 | 2016 Notice of Meeting and Proxy Statement |
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Executive Compensation
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The related NEO payout under our BIP was:
Named Executive Officer | Fiscal Year 2016 BIP |
Fiscal Year 2015 BIP |
||||||
Francis J. Kramer |
$ | 164,736 | $ | 93,962 | ||||
Vincent D. Mattera, Jr |
101,856 | 58,092 | ||||||
Mary Jane Raymond(1) |
79,200 | 11,687 | ||||||
Gary A. Kapusta(2) |
| | ||||||
Giovanni Barbarossa |
84,288 | 45,021 |
(1) | Mary Jane Raymond was only eligible to participate for two months during fiscal year 2015 |
(2) | Gary Kapusta had not entered the plan during fiscal year 2016 |
Goals/Results Incentive Program (GRIP). The purpose of the GRIP cash incentive program is to link pay to the major drivers of increasing shareholder value growth in revenue and growth in earnings per share. For fiscal year 2016, the last year this will be the case, the GRIP has both financial and non-financial components. The first is the achievement of revenue and EPS targets set by the Compensation Committee. This component accounts for 90% of the GRIP compensation for the CEO and 80% of GRIP compensation for the other NEOs. The second component is the achievement of specific individual non-financial goals that are deemed by the Compensation Committee and the Board to be important to the accomplishment of the Companys strategic initiatives. This component accounts for up to 10% of the CEOs GRIP compensation and up to 20% of GRIP compensation for the other NEOs. Commencing with fiscal year 2017, the non-financial goals component of the GRIP has been eliminated and all of the GRIP incentive will be paid based on the financial results of revenue and EPS.
The revenue and EPS calculation methodology, is derived from the GRIP Matrix applicable to our NEOs. The bottom left of this matrix, or the threshold, is normally the prior fiscal year results for revenue and EPS. At the threshold, payout is 20 percent of the target payout. Below the threshold, the payout is zero. The middle of the matrix is the current years revenue and EPS targets as approved by the Compensation Committee. These targets are designed to motivate achievement of reasonably challenging goals and drive TSR. The upper right of the matrix is the achievement maximum, set at 115% of the revenue and EPS targets, at which the payout is 250 percent of the target payout. In fiscal year 2017, threshold will be 30 percent and maximum will be 200 percent. The GRIP payout is calculated via interpolation within the matrix ranging from the prior years actuals to 115% of the target on both Revenue and EPS. Revenue and EPS are equally weighted.
For purposes of calculating the relevant EPS for fiscal year 2016, the Company used adjusted EPS, and excluded the effects of the two acquisitions and the subsequent divestiture of a part of one of the acquisitions, because these were not contemplated in the original targets. The excluded items consist of the 3.5 months of operating results, the transaction fees, the outstanding liabilities II-VI paid on behalf of the acquired companies, and the one-time costs associated with severance and other restructuring.
The targets and performance for the Revenue and EPS for GRIP for fiscal year 2016 are:
Financial GRIP for Fiscal Year 2016 (in millions, except per-share data) |
||||||||||||||||
Metric | Threshold | Target | Maximum | Actual Performance |
||||||||||||
Revenues |
$ | 742.00 | $ | 802.00 | $ | 922.30 | $ | 813.30 | ||||||||
Earnings per Share |
$ | 0.94 | $ | 1.10 | $ | 1.26 | $ | 1.32 |
2016 Notice of Meeting and Proxy Statement | 31 |
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Executive Compensation
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For the individual performance goals under GRIP, on which 10% or 20% of total GRIP compensation is based, the Compensation Committee (a) assessed Mr. Kramers and Dr. Matteras performance and (b) conducted a review and approved Mr. Kramers and Dr. Matteras performance assessment recommendation for all other NEOs. For fiscal year 2016, the NEOs areas of focus were:
Name | Areas of Focus | |
Francis J. Kramer |
Direct the initiation of a worldwide Quality Driven Program, initiate a broader Employee Engagement platform, launch a worldwide Manufacturing Excellence strategy to support growth, initiate processes to measure revenue from Innovation, formalize a global Customer Satisfaction program, continue the focus on long term Strategic Planning | |
Vincent D. Mattera, Jr. |
Implement the Quality Driven Program, define the key parameters to drive Employee Engagement, complete a worldwide Manufacturing Excellence strategy, prepare for the Board the selected platforms needed to drive Innovation, Customer Satisfaction, Strategic Planning | |
Mary Jane Raymond |
Succession planning and team effectiveness, Supply Chain Efficiencies, Strategic Planning and Increased Coverage by Equity Analysts | |
Gary A. Kapusta |
Global Manufacturing Strategy, Succession Planning and Orientation, Supply Chain Efficiencies, SAP Adoption, Customer Engagement | |
Giovanni Barbarossa |
Product line transitions, Reorganize Laser Solutions sales and marketing, significant growth in key product lines, R&D platform investments for long term growth, meet NRE contract deliverables |
Total payout to our NEOs under our GRIP was:
Fiscal Year 2016 | Fiscal Year 2015 | |||||||||||||||
Named Executive Officer | GRIP | Total | GRIP | Cash Portion of June Award |
||||||||||||
Francis J. Kramer |
$ | 1,604,885 | $ | 1,042,623 | $ | 544,891 | $ | 497,732 | ||||||||
Vincent D. Mattera, Jr |
1,003,130 | 475,952 | 250,901 | 225,051 | ||||||||||||
Mary Jane Raymond |
458,649 | 468,009 | 376,401 | 91,608 | ||||||||||||
Gary A. Kapusta(1) |
125,000 | | | | ||||||||||||
Giovanni Barbarossa |
321,037 | 345,492 | 185,492 | 159,899 |
(1) | The 2016 GRIP payment for Mr. Kapusta represented a partial year as Mr. Kapusta joined the Company in February 2016. |
The equity compensation for NEOs consists of (a) non-qualified stock options granted in August 2015, (b) performance shares granted in August 2015 and (c) restricted shares granted in November 2015, with the exception of Gary Kapusta who as a new hire was granted stock options and restricted shares on his hire date, and no performance shares.
Non-Qualified Stock Options (Stock Options). Because financial gain from stock options is only possible if the price of our Common Stock increases during the term of the stock option, we believe grants encourage NEOs and other employees to focus on actions and initiatives that should lead to a longer-term increase in the price of our Common Stock, aligning the interests of our NEOs and employees with those of our shareholders. Typically, stock options are granted in August and have been 40% of the total targeted equity award to the NEO. The strike price is set on the date of the grant and represents the fair market value of the Companys Common Stock on that day. The options do not have any tangible value if the stock price does not appreciate.
32 | 2016 Notice of Meeting and Proxy Statement |
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Performance Share Awards (PSAs). The Compensation Committee believes that longer term awards tied directly to elements of shareholder return are essential to the sustainable management of the Company. TSR and cash flow from operations influence increases in shareholder value over time and therefore the Company has based its PSAs on those metrics in order to reward both carefully considered strategic actions and excellent management and execution. Typically, PSAs are granted at the beginning of the fiscal year and have been 30% of the total targeted equity award to the NEO. The value of the PSA actually earned is determined as of the date of the expiration of the performance period based on the achievement of the performance conditions.
Restricted Stock Award (RSAs). To align long-term equity compensation with the feedback received from the shareholders, the Company eliminated the June Award and reintroduced a portion (30%) of the targeted equity awarded to NEOs as time-based. As discussed in further detail above in Shareholder Outreach Program, shareholders stated that they did not expect 100% of long-term equity to be performance based and that time-based equity was a good retention tool.
Equity Grants for Fiscal Year 2016 in the Summary Compensation Table
Stock Options were granted with a strike price $17.84, the closing price of the Companys stock on August 15, 2015, which was the fair market value on the date of grant for all NEOs other than Mr. Kapusta. Mr. Kapustas stock options were granted with a strike price of $20.50, the closing price of the Companys stock on February 1, 2016, the day of his employment. The stock options have a ten year term and vest in five equal annual installments. Stock options granted to the NEOs on August 15, 2015 and February 1, 2016 were as follows:
Named Executive Officer | Stock Options Granted |
Grant Date Fair Value(1) |
||||||
Francis J. Kramer |
95,970 shares | $ | 856,052 | |||||
Vincent D. Mattera, Jr. |
57,580 shares | 513,614 | ||||||
Mary Jane Raymond |
30,360 shares | 270,811 | ||||||
Gary A. Kapusta |
30,000 shares | 223,411 | ||||||
Giovanni Barbarossa |
31,360 shares | 279,731 |
(1) | The Company uses the Black-Scholes option pricing model to determine fair value. |
Performance Share Awards (PSAs) granted in fiscal year 2016 are dependent on the achievement of two metrics cash flow from operations and relative total shareholder return (TSR) as described below.
Cash Flow from Operation Awards
These awards (the 2016 Cash Flow Performance Awards) will be earned based on the achievement of specific consolidated cash flow metrics established for the twenty-four month period ending June 30, 2017. The 2016 Cash Flow Performance Awards will be earned as follows:
Performance vs. Target | Payout vs. Target | |
0.00% to 79.99% |
0% | |
80.00% to 99.99% |
50.00% to 99.99% | |
100% |
100% | |
100.01% to 139.99% |
100.01% to 199.99% | |
140% or Greater |
200% |
2016 Notice of Meeting and Proxy Statement | 33 |
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The number of PSAs earned is determined by the Compensation Committee and is based upon (A) performance against target for the full performance period or (B) performance against the applicable target for each of the four six-month periods comprising the performance period, though this feature will be eliminated in fiscal year 2017. It was not implemented in fiscal year 2016 due to the monetary cost of modifying an existing equity award. The calculation (either A or B) that yields the higher percentage versus target determines the number of PSAs earned.
Relative Total Shareholder Return Awards
These awards (the 2016 TSR Performance Awards) focus on achieving certain levels of relative shareholder return compared to the Russell 2000 index. The Compensation Committee believes that TSR is one important reflection of Company performance, and recognizes that our shareholders invest in the Company with the expectation that we will deliver a level of performance that creates value. As such, the 2016 TSR Performance Awards will be earned based on the achievement of cumulative TSR for the thirty-six month period ending June 30, 2018 compared to returns on the Russell 2000 index, as follows:
Cumulative Total Shareholder Return | Payout vs. Target | |
Below the Russell 2000 50th percentile by more than 40 percentage points or an absolute negative cumulative Total Shareholder Return | 0% | |
Between 0 and 40 percentage points below the Russell 2000 50th percentile and an absolute positive cumulative Total Shareholder Return | 50.00% to 99.99% | |
Equal to the Russell 2000 50th percentile and an absolute positive cumulative Total Shareholder Return | 100% | |
Between 0 and 40 percentage points above the Russell 2000 50th percentile and an absolute positive cumulative Total Shareholder Return | 100.01% to 199.99% | |
More than 40 percentage points above the Russell 2000 50th percentile and an absolute positive cumulative Total Shareholder Return | 200% |
Target award amounts for PSAs granted on August 15, 2015 for fiscal year 2016 for the NEOs are as follows:
Named Executive Officer | Target Relative TSR-Based Awards |
Target Cash Flow-Based Awards |
Aggregate Fair Value at Target |
Aggregate Fair Value at |
||||||||||||
Francis J. Kramer |
17,995 shares | 17,995 shares | $ | 642,062 | $ | 1,284,124 | ||||||||||
Vincent D. Mattera, Jr |
10,800 shares | 10,800 shares | 385,344 | 770,688 | ||||||||||||
Mary Jane Raymond |
5,695 shares | 5,695 shares | 203,198 | 406,396 | ||||||||||||
Gary A Kapusta |
| | | | ||||||||||||
Giovanni Barbarossa |
5,880 shares | 5,880 shares | 209,798 | 419,596 |
(1) | Mr. Kapusta joined the Company in February 2016, as such they did not receive a 2016 PSA. |
Performance Share Awards Earned in Fiscal Year 2016
At June 30, 2016, each of the Companys NEOs, other than Mr. Kapusta, had a PSA granted in August 2014 under the 2012 Omnibus Incentive Plan (the 2014 PSAs) and for which the 24-month performance period ended on June 30, 2016 (the 2014 Performance Period). The 2014 PSAs are earned based on consolidated cash flow from operations. During the 2014 Performance Period, the Company achieved cash flow from operations as summarized in the table below. At performance of 121%, (a function of the actual result compared to the target), the payout falls between 100.01% to 199.99% as shown in the table on the prior page. The result of 121% is 52% of the range between 100.01% and 199.99% or 152%.
Targets | Actual Results |
Performance Against Target |
Payout Percentage of Target |
|||||||||||||
Consolidated Cash Flow from Operations |
$ | 209 million | $ | 252 million | 121 | % | 152 | % |
34 | 2016 Notice of Meeting and Proxy Statement |
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The Companys target and actual shares earned under the 2014 PSAs were as follows:
Named Executive Officer | Cash Flow- Based Awards Target |
Overall % of Cash Flow- |
Cash Flow- Based Awards Earned |
|||||||||
Francis J. Kramer |
17,690 shares | 152 | % | 26,888 shares | ||||||||
Vincent D. Mattera, Jr |
8,045 shares | 152 | % | 12,228 shares | ||||||||
Mary Jane Raymond |
3,265 shares | 152 | % | 4,962 shares | ||||||||
Gary A. Kapusta(1) |
| | | |||||||||
Giovanni Barbarossa |
5,725 shares | 152 | % | 8,702 shares |
(1) | Mr. Kapusta joined the Company in February 2016, as such they did not receive a 2015 PSA. |
The number of PSAs earned is determined by the Compensation Committee and is based upon (A) performance against target for the full performance period or (B) performance against the applicable target for each of the four six-month periods comprising the performance period. The calculation (either A or B) that yields the higher percentage versus target determines the number of PSAs earned. Again, this (B) portion will be eliminated in fiscal year 2017.
2016 Notice of Meeting and Proxy Statement | 35 |
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PROCESS FOR SETTING COMPENSATION FOR FISCAL YEAR 2016
Companies in the Comparator Group have revenues ranging from $0.3 billion to $1.3 billion, with median revenues of $0.8 billion. In structuring the Comparator Group, the Compensation Committee focuses on (a) industry, (b) total revenue and profitability, (c) market capitalization, (d) annual revenue growth and (e) global footprint. The Comparator Group also has executive officer functions that are generally comparable to ours in terms of complexity and scope of responsibilities. For fiscal year 2016 compensation decisions, the Comparator Group consisted of:
Brooks Automation, Inc. | Franklin Electric Co., Inc. | Polypore International, Inc. | ||
Cabot Microelectronics Corp. | GrafTech International Ltd. | Powell Industries Inc. | ||
Cognex Corporation | HEICO Corporation | Rofin-Sinar Technologies, Inc. | ||
Coherent Inc. | IPG Photonics Corporation | Semtech Corporation | ||
Diodes, Incorporated | MKS Instruments, Inc. | Silicon Laboratories, Inc. | ||
Entegris, Inc. | Microsemi Corporation | |||
Finisar Corporation | Newport Corp. |
In 2016, the Company removed Veeco Instruments, Inc. from its Comparator Group because the market capitalization of this company was outside the established parameters for the group. The Company did not replace Veeco Instruments, Inc. with a new comparator as the Committee believed 19 companies within the Comparator Group was sufficient to aid the Committee in its setting of compensation.
36 | 2016 Notice of Meeting and Proxy Statement |
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THE COMMITTEES PROCESSES
The Compensation Committee has established a number of processes to assist it in ensuring that the Companys executive compensation program is achieving its desired objectives. Among those are:
| Meetings. The Compensation Committee meets at least quarterly, or more often as needed. For fiscal year 2016, the Committee met eleven times. Agendas are established in advance of the meetings and under the direction of the Compensation Committee Chair. |
| Independent Compensation Advisor. The Compensation Committee engages an independent compensation advisor to assist the Committee in setting executive compensation, and selects an advisor only after evaluating all factors relevant to that advisors qualifications and independence from Company management. The Committees independent advisor for fiscal year 2016 was Radford. |
| Assessment of Company Performance. The Compensation Committee uses objective measures of Company and Comparator Group performance in establishing total compensation targets. These include TSR, earnings growth, revenue growth, operating profit and cash flow from operations. |
| Assessment of Shareholder Feedback. The Compensation Committee, in particular the Chair of the Committee, directs and often participates in the collection of the shareholder feedback. Conversations are focused on listening to feedback in general, and asking specific questions about the elements of the Companys compensation program, and the key criteria the investor uses to evaluate pay and performance alignment. |
| Assessment of Individual Performance. Individual performance has a strong impact on the compensation of all employees, including our NEOs. During the course of the year, the Compensation Committee meets with the CEO and the Vice President, Human Resources to review recommendations on changes, if any, in the compensation of each NEO other than the CEO based on individual performance. With respect to the CEO, the Compensation Committee meets with the Vice President, Human Resources to review Comparator Group market data and CEO performance so that the Compensation Committee can recommend TDC targets to the full Board. |
| Target Pay Philosophy. The Compensation Committee considers relevant market pay practices when setting executive compensation. Its goal is to balance market alignment with the Companys performance and ability to recruit, motivate and retain high calibre talent. Based on the Compensation Committees judgment, current market practices, compensation data from the Comparator Group, compensation data from the independent compensation advisor and each employees contributions to the Company, the Compensation Committee makes a recommendation to the full Board regarding targeted TDC and actual payouts at year-end for each of our NEOs. |
2016 Notice of Meeting and Proxy Statement | 37 |
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The Compensation Committees and full Boards timeline for compensation-setting actions is:
2H Fiscal Year 1 | Fiscal Year 2 | 1H Fiscal Year 3 | ||||||||||||||||||||||||||||||||||||||||||||||||
Committee Activity / Calandar Year | J | F | M | A | M | J | J | A | S | O | N | D | J | F | M | A | M | J | J | A | S | O | N | D | ||||||||||||||||||||||||||
Select Independent Compensation Advisor for Fiscal Year 2 / Fiscal Year 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Establish Comparator Group for Fiscal Year 2 / Fiscal Year 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Gather Market Data/Practices from Comparator Group for Fiscal Year 2 / Fiscal Year 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Set NEO Target Total Direct Compensation and set Goals for Fiscal Year 2 / Fiscal Year 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Assess Performance and recommend Compensation for Fiscal Year 1 / Fiscal Year 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Board approves performance and compensation for Fiscal Year 1 / Fiscal Year 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Review Effectiveness of Prior Years Program for Fiscal Year 3 / Fiscal Year 4 |
38 | 2016 Notice of Meeting and Proxy Statement |
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COMPENSATION DECISIONS FOR FISCAL YEAR 2017
2016 Notice of Meeting and Proxy Statement | 39 |
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40 | 2016 Notice of Meeting and Proxy Statement |
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2016 Notice of Meeting and Proxy Statement | 41 |
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42 | 2016 Notice of Meeting and Proxy Statement |
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The Compensation Committee has:
(1) | reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management; and |
(2) | based on the review and discussions referred to in paragraph (1) above, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. |
The foregoing report of the Compensation Committee shall not be deemed to be soliciting material or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference in such filing.
Compensation Committee
Joseph J. Corasanti, Chair
Wendy F. DiCicco
Marc Y.E. Pelaez
William A. Schromm
2016 Notice of Meeting and Proxy Statement | 43 |
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The following table summarizes the compensation of the top five named executive officers for the fiscal years 2016, 2015 and 2014 discussed in this proxy document. Mr. Gary A. Kapusta joined the Company as its Chief Operating Officer on February 1, 2016 and his compensation is included for fiscal year 2016. All footnote references and explanatory statements relate to fiscal year 2016 unless otherwise noted.
Name and Principal Position | Year | Salary ($) |
Stock Awards ($)(1)(2) |
Option Awards ($)(3) |
Non-Equity Incentive Plan Compensation ($)(4) |
All Other Compensation ($)(5) |
Total ($) |
|||||||||||||||||||||
Francis J. Kramer |
2016 | $ | 686,400 | $ | 1,287,718 | $ | 856,052 | $ | 1,769,621 | $ | 45,668 | $ | 4,645,459 | |||||||||||||||
Chief Executive Officer |
2015 | 666,400 | 1,682,197 | 659,908 | 1,136,585 | 46,775 | 4,191,865 | |||||||||||||||||||||
2014 | 647,000 | 951,845 | 880,076 | 365,590 | 37,781 | 2,882,292 | ||||||||||||||||||||||
Vincent D. Mattera, Jr. |
2016 | $ | 424,000 | $ | 772,775 | $ | 513,614 | $ | 1,104,986 | $ | 39,578 | $ | 2,854,953 | |||||||||||||||
President |
2015 | 412,000 | 766,304 | 299,876 | 534,044 | 36,185 | 2,048,409 | |||||||||||||||||||||
2014 | 400,408 | 419,573 | 400,087 | 277,468 | 32,864 | 1,530,400 | ||||||||||||||||||||||
Mary Jane Raymond |
2016 | $ | 330,000 | $ | 407,524 | $ | 270,811 | $ | 537,849 | $ | 39,350 | $ | 1,585,534 | |||||||||||||||
Chief Financial Officer and Treasurer |
|
2015 2014 |
|
|
300,000 84,333 |
|
|
310,746 224,850 |
|
|
224,850 |
|
|
479,696 87,500 |
|
|
4,628 18,619 |
|
|
1,095,070 640,152 |
| |||||||
Gary A Kapusta |
2016 | $ | 145,833 | $ | 820,000 | $ | 223,411 | $ | 125,000 | $ | 20,314 | $ | 1,334,558 | |||||||||||||||
Chief Operating Officer |
||||||||||||||||||||||||||||
Giovanni Barbarossa |
2016 | $ | 351,200 | $ | 420,885 | $ | 279,731 | $ | 405,325 | $ | 37,557 | $ | 1,494,698 | |||||||||||||||
Chief Technology Officer |
2015 | 319,300 | 545,596 | 213,557 | 390,412 | 35,401 | 1,504,266 |
(1) | Represents the aggregate grant date fair value of restricted stock and performance shares issued by the Company during the fiscal years presented, computed in accordance with FASB ASC Topic 718 (excluding the effect of estimated forfeitures). The assumptions used by the Company in calculating these amounts are incorporated herein by reference to Note 10 to the Companys Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2016. For restricted stock, the grant date fair value was computed based upon the closing price of the Companys Common Stock on the date of grant multiplied by the number of shares awarded. The grant date fair value of the restricted stock awards reported in this column for fiscal year 2016 was as follows: Mr. Kramer, $645,656; Dr. Mattera, $387,431; Ms. Raymond, $204,326; Mr. Kapusta, $820,000 and Dr. Barbarossa, $211,087. |
(2) | The grant date fair value of the performance share awards included in this column was calculated based upon the estimate of aggregate compensation expense to be recognized over the service period. For the performance share awards earned based on a relative TSR performance, this was calculated based on a Monte Carlo simulation value as of the grant date of $18.97. For the performance share awards earned based on cash flow performance this was calculated based upon the number of shares projected to be earned multiplied by the stock price at the date the performance shares were awarded, based on a probable outcome at the date of grant of target. The grant date fair value of the performance share awards included in this column was calculated based on the probable outcome of the performance conditions, as determined at the grant date (which was target). The grant date fair value of the performance share awards reported in this column for fiscal year 2016 (measured at target) were as follows: Mr. Kramer, $642,062; Dr. Mattera, $385,344; Ms. Raymond, $203,198 and Dr. Barbarossa, $209,798. If these awards were to be paid out at the maximum (200%) payout, would be as follows: Mr. Kramer, $1,284,124; Dr. Mattera, $770,688; Ms. Raymond, $406,396 and Dr. Barbarossa, $419,596. Mr. Kapusta did not receive performance share awards in fiscal year 2016 as he was hired February 1, 2016. |
(3) | Represents the aggregate grant date fair value of stock option awards issued by the Company during the fiscal years presented, computed in accordance with FASB ASC Topic 718. Refer to Note 10 to the Companys Consolidated Financial Statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2016 for the relevant weighted-average assumptions underlying the valuation of the option awards, except that any estimate of forfeitures for service-based conditions have been disregarded. The grant date fair value of stock option awards is based on the Black-Scholes option pricing model. The actual value a named executive officer may realize upon exercise of stock options, if any, will depend on the excess of the price of the underlying stock on the date of exercise over the grant date fair market value. As such, there is no assurance that the value realized by a named executive officer will be at or near the value estimated by the Black-Scholes model. |
(4) | Amounts reflect the cash awards earned by our NEOs under the BIP and the GRIP, which are discussed in further detail in the Compensation Discussion and Analysis section of this Proxy Statement. The cash awards earned by Mr. Kramer, Dr. Mattera, Ms. Raymond and Dr. Barbarossa under the BIP for fiscal year 2016 were $164,736, $101,856, $79,200 and $84,288, respectively. Mr. Kapusta did not receive a BIP award as he has not completed one-year of service with the Company. The cash awards earned by Mr. Kramer, Dr. Mattera, Ms. Raymond, Mr. Kapusta and Dr. Barbarossa under the GRIP for fiscal year 2016 were $1,604,885, $1,003,130, $458,649, $125,000 and $321,037, respectively. |
(5) | Amounts reflect premiums paid for life and disability insurance and the Companys contributions under the Companys Profit Sharing Plan, which is qualified under Section 401(a) of the Code. Profit sharing contributions made by the Company on behalf of Mr. Kramer, Dr. Mattera, Ms. Raymond, and Dr. Barbarossa were $26,000, $26,250, $27,434, $26,000, respectively. 401(k) matching contributions made by the Company on behalf of Mr. Kramer, Dr. Mattera, Ms. Raymond and Dr. Barbarossa for fiscal year 2016 were $9,000, $8,750, $8,820 and $9,000, respectively. Mr. Kapusta did not receive a profit sharing contribution or 401(k) matching contributions as he had not satisfied the one-year service requirement. The amount shown in this column for Mr. Kapusta reflect customary relocation costs incurred in connection with Mr. Kapustas move to the Pittsburgh, PA area. |
44 | 2016 Notice of Meeting and Proxy Statement |
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GRANTS OF PLAN-BASED AWARDS FISCAL YEAR 2016
The following table sets forth each annual non-equity cash incentive award and long-term equity-based award granted by the Company to the NEOs in fiscal year 2016.
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) |
Estimated Future Payouts Under Equity Incentive Plan Awards(2) |
All Stock |
All Other of |
Exercise of |
Grant Fair of |
|||||||||||||||||||||||||||||||||||||||
Name | Grant Date |
Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||||||||||||||||
Francis J. Kramer |
| $ | | $ | 949,921 | $ | 1,804,842 | | | | | | $ | | $ | | ||||||||||||||||||||||||||||
| $ | | $ | 114,629 | $ | 171,944 | | | | | | $ | | $ | | |||||||||||||||||||||||||||||
8/15/2015 | $ | | | | 17,995 | 35,990 | 71,980 | | | $ | | $ | 642,062 | |||||||||||||||||||||||||||||||
8/15/2015 | $ | | | | | | | | 95,970 | $ | 17.84 | $ | 856,052 | |||||||||||||||||||||||||||||||
11/20/2015 | $ | | | | | | | 34,380 | $ | | $ | 645,656 | ||||||||||||||||||||||||||||||||
Vincent D. Mattera, Jr. |
| $ | | $ | 555,295 | $ | 999,590 | | | | | | $ | | $ | | ||||||||||||||||||||||||||||
| $ | | $ | 70,875 | $ | 106,313 | | | | | | $ | | $ | | |||||||||||||||||||||||||||||
8/15/2015 | $ | | | | 10,800 | 21,600 | 43,200 | | | $ | | $ | 385,344 | |||||||||||||||||||||||||||||||
8/15/2015 | $ | | | | | | | | 57,580 | $ | 17.84 | $ | 513,614 | |||||||||||||||||||||||||||||||
11/20/2015 | $ | | | | | | | 20,630 | $ | | $ | 387,431 | ||||||||||||||||||||||||||||||||
Mary Jane Raymond |
| $ | | $ | 291,840 | $ | 525,680 | | | | | | $ | | $ | | ||||||||||||||||||||||||||||
| $ | | $ | 55,110 | $ | 82,665 | $ | | $ | | ||||||||||||||||||||||||||||||||||
8/15/2015 | $ | | | | 5,695 | 11,390 | 22,780 | | | $ | | $ | 203,198 | |||||||||||||||||||||||||||||||
8/15/2015 | $ | | | | | | | | 30,360 | $ | 17.84 | $ | 270,811 | |||||||||||||||||||||||||||||||
11/20/2015 | $ | | | | | | | 10,880 | | $ | | $ | 204,326 | |||||||||||||||||||||||||||||||
Gary Kapusta |
| $ | | $ | 138,500 | $ | 525,680 | | | | | | $ | | $ | | ||||||||||||||||||||||||||||
$ | | | | |||||||||||||||||||||||||||||||||||||||||
2/1/2016 | $ | | | | | | | | 30,000 | $ | 20.50 | $ | 223,411 | |||||||||||||||||||||||||||||||
2/1/2016 | $ | | | | | | | 40,000 | | $ | | $ | 820,000 | |||||||||||||||||||||||||||||||
Giovanni Barbarossa |
| $ | | $ | 289,450 | $ | 520,900 | | | | | | $ | | $ | | ||||||||||||||||||||||||||||
| $ | | $ | 58,650 | $ | 87,975 | | | | | | $ | | $ | | |||||||||||||||||||||||||||||
8/15/2015 | $ | | | | 5,880 | 11,760 | 23,520 | | | $ | | $ | 209,798 | |||||||||||||||||||||||||||||||
8/15/2015 | $ | | | | | | | | 31,360 | $ | 17.84 | $ | 279,731 | |||||||||||||||||||||||||||||||
11/20/2015 | $ | | | | | | | 11,240 | $ | | $ | 211,087 |
(1) | These columns show the range of potential payouts for awards made to our NEOs in fiscal year 2016 under the GRIP and the BIP assuming the target or maximum goals are satisfied with respect to the applicable performance measures underlying such awards. The business measurements and performance goals underlying these awards are described in the Compensation Discussion and Analysis section of this Proxy Statement. The aggregate amounts actually paid to our named executive officers under these plans for fiscal year 2016 are set forth in the Summary Compensation Table in the column titled Non-Equity Incentive Plan Compensation and additional details regarding the specific pay-outs under each of the various plans are provided in the footnotes thereto. |
(2) | These columns show the range of pay-outs of performance share awards granted to our NEOs in fiscal year 2016 under the 2012 Omnibus Incentive Plan if threshold, target or maximum goals are achieved. See Equity Incentives Performance Share Awards on page 32 for additional information regarding our performance share awards. |
(3) | This column shows the number of shares underlying restricted stock awards granted to our named executive officers in fiscal year 2016 under the 2012 Omnibus Incentive Plan. These awards are subject to our standard three-year cliff-vesting schedule. |
(4) | This column shows the number of shares underlying stock options granted to our named executive officers in fiscal year 2016 under the 2012 Omnibus Incentive Plan. Options vest over a five year period, with 20% vesting to occur on each of the first, second, third, fourth and fifth anniversaries of the grant date. |
(5) | This column shows the exercise price for the stock options granted to our named executive officers in fiscal year 2016, which is equal to the closing market price of our Common Stock on the grant date. |
(6) | This column shows the full grant date fair value of the stock and option awards reported in this table, which were computed in accordance with FASB ASC Topic 718. Generally, the full grant date fair value of an award is the amount the Company would expense in its financial statements over the awards vesting period as determined at the grant date. For the performance share awards earned based on relative TSR performance, the grant date fair value is based on a Monte Carlo simulation value as of the grant date of $18.97 per share. For the performance share awards earned based on cash flow performance, the grant date fair value is based on a value of $17.84 per share, which was the closing price of our Common Stock on the grant date multiplied by the number of shares underlying the award at the target level which was the probable outcome for the award determined as of the grant date. The restricted stock awards grant date fair value is based on a value of $18.78 per share, which was the closing price of our Common Stock on the grant date multiplied by the number of shares underlying the award. Mr. Kapusta stock option and restricted share awards grant date fair value is based on a value of $20.50 per share, which was the closing price of our Common Stock on the grant date multiplied by the number of shares underlying the awards. Refer to Note 10 to the Companys Consolidated Financial Statements included in the Annual Report on Form 10-K for fiscal year 2016 for the relevant weighted-average assumptions underlying the valuation of the option awards, except that any estimate of forfeitures for service-based conditions have been disregarded. |
2016 Notice of Meeting and Proxy Statement | 45 |
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Executive Compensation
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
This table summarizes the long-term equity-based awards held by our NEOs outstanding as of June 30, 2016.
Name | Number of Securities Underlying Unexercised Options (#) Exercisable(1) |
Number of Securities Underlying Unexercised Options (#) Unexercisable(1) |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#)(2) |
Market Value of Shares or Units of Stock That Have Not Vested ($)(3) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(4) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(3) |
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Francis J. Kramer |
| | 59,577 | $ | 1,117,665 | |||||||||||||||||||||||||||
112,780 | $ | 2,115,753 | | | ||||||||||||||||||||||||||||
35,200 | | $ | 13.89 | 8/11/2017 | | | | | ||||||||||||||||||||||||
41,850 | | $ | 23.50 | 8/16/2018 | | | | | ||||||||||||||||||||||||
68,200 | | $ | 12.08 | 8/15/2019 | | | | | ||||||||||||||||||||||||
61,380 | | $ | 16.86 | 8/21/2020 | | | | | ||||||||||||||||||||||||
108,070 | | $ | 17.53 | 8/20/2021 | | | | | ||||||||||||||||||||||||
50,208 | 33,472 | $ | 18.93 | 8/18/2022 | | | | | ||||||||||||||||||||||||
36,348 | 54,522 | $ | 19.37 | 8/17/2023 | | | | | ||||||||||||||||||||||||
18,868 | 75,472 | $ | 13.99 | 8/16/2024 | | | | | ||||||||||||||||||||||||
| 95,970 | $ | 17.84 | 8/15/2025 | | | | | ||||||||||||||||||||||||
Vincent D. Mattera, Jr. |
| | 32,327 | $ | 606,455 | |||||||||||||||||||||||||||
55,430 | $ | 1,039,867 | | | ||||||||||||||||||||||||||||
7,000 | | $ | 13.89 | 8/11/2017 | | | | | ||||||||||||||||||||||||
8,000 | | $ | 18.35 | 5/3/2018 | | | | | ||||||||||||||||||||||||
9,450 | | $ | 23.50 | 8/16/2018 | | | | | ||||||||||||||||||||||||
15,800 | | $ | 12.08 | 8/15/2019 | | | | | ||||||||||||||||||||||||
29,000 | | $ | 13.17 | 2/21/2020 | | | | | ||||||||||||||||||||||||
18,100 | | $ | 16.86 | 8/21/2020 | | | | | ||||||||||||||||||||||||
55,680 | 13,920 | $ | 17.53 | 8/20/2021 | | | | | ||||||||||||||||||||||||
28,530 | 19,020 | $ | 18.93 | 8/18/2022 | | | | | ||||||||||||||||||||||||
16,524 | 24,786 | $ | 19.37 | 8/17/2023 | | | | | ||||||||||||||||||||||||
8,578 | 34,312 | $ | 13.99 | 8/16/2024 | | | | | ||||||||||||||||||||||||
| 57,580 | $ | 17.84 | 8/15/2025 | | | | | ||||||||||||||||||||||||
Mary Jane Raymond |
| | 15,744 | $ | 295,357 | |||||||||||||||||||||||||||
36,580 | $ | 686,241 | | | ||||||||||||||||||||||||||||
12,000 | 18,000 | $ | 14.99 | 3/20/2024 | | | | | ||||||||||||||||||||||||
| 30,360 | $ | 17.84 | 8/15/2025 | | | | | ||||||||||||||||||||||||
Gary A. Kapusta |
| | | | ||||||||||||||||||||||||||||
40,000 | $ | 750,400 | | | ||||||||||||||||||||||||||||
| 30,000 | $ | 20.50 | 2/1/2026 | | | | | ||||||||||||||||||||||||
Giovanni Barbarossa |
| | 19,394 | $ | 363,831 | |||||||||||||||||||||||||||
32,040 | $ | 601,070 | | | ||||||||||||||||||||||||||||
4,200 | 2,800 | $ | 16.45 | 11/2/2022 | | | | | ||||||||||||||||||||||||
5,204 | 7,806 | $ | 19.37 | 8/17/2023 | | | | | ||||||||||||||||||||||||
6,106 | 24,424 | $ | 13.99 | 8/16/2024 | | | | | ||||||||||||||||||||||||
| 31,360 | $ | 17.84 | 8/15/2025 | | | | |
(1) | This column shows the number of shares underlying stock options that were outstanding as of June 30, 2016. Generally, options vest over a five year period, with 20% vesting occurring on each of the first, second, third, fourth and fifth anniversaries of the grant date. |
(2) | This column shows the number of restricted shares outstanding as of June 30, 2016. These awards are subject to our standard three-year cliff-vesting schedule and will vest as set forth in the following table: |
Name | Shares Vesting in March 2017 |
Shares Vesting in |
Shares Vesting in June 2018 |
Shares Vesting in November 2018 |
Shares Vesting in February 2019 |
Total Unvested Shares |
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Francis J. Kramer |
| 20,500 | 57,900 | 34,380 | | 112,780 | ||||||||||||||||||
Vincent D. Mattera, Jr |
| 8,400 | 26,400 | 20,630 | | 55,430 | ||||||||||||||||||
Mary Jane Raymond |
15,000 | | 10,700 | 10,880 | | 36,580 | ||||||||||||||||||
Gary A. Kapusta |
| | | | 40,000 | 40,000 | ||||||||||||||||||
Giovanni Barbarossa |
| 2,000 | 18,800 | 11,240 | | 32,040 |
46 | 2016 Notice of Meeting and Proxy Statement |
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Executive Compensation
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(3) | These values are based on the closing market price of the Companys Common Stock on June 30, 2016 of $18.76 per share. |
(4) | This column shows the number of unvested performance shares outstanding as of June 30, 2016, and consists of shares underlying the 2015 Performance Share Awards, as well as TSR Awards granted in 2014 and 2015. The number of shares included for the 2015 Performance Awards are based on achieving performance goals at the target level. These awards are subject to both two-year and three-year cliff-vesting schedules and will vest as set forth in the following table: |
Name | 2014 TSR Shares Vesting |
2015 PSA Shares Vesting |
2015 TSR Shares Vesting |
Total Unvested Shares |
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Francis J. Kramer |
23,587 | 17,995 | 17,995 | 59,577 | ||||||||||||
Vincent D. Mattera, Jr |
10,727 | 10,800 | 10,800 | 32,327 | ||||||||||||
Mary Jane Raymond |
4,354 | 5,695 | 5,695 | 15,744 | ||||||||||||
Gary A. Kapusta |
| | | | ||||||||||||
Giovanni Barbarossa |
7,634 | 5,880 | 5,880 | 19,394 |
2016 Notice of Meeting and Proxy Statement | 47 |
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Executive Compensation
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OPTION EXERCISES AND STOCK VESTED
IN FISCAL YEAR 2016
The following table provides information related to (1) stock options exercised by our NEOs in fiscal year 2016, including the number of shares acquired upon exercise and the value realized and (2) the number of shares acquired upon the vesting of restricted stock awards and performance share awards in fiscal year 2016 and the value realized, before payment of any applicable withholding tax and broker commissions.
Option Awards | Stock Awards | |||||||||||||||
Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise ($)(1) |
Number of Shares Acquired Upon Vesting (#)(2) |
Value Realized Upon Vesting ($)(3) |
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Francis J. Kramer |
26,300 | $ | 272,714 | 61,659 | $ | 1,103,696 | ||||||||||
Vincent D. Mattera, Jr |
12,000 | 95,528 | 31,591 | 565,479 | ||||||||||||
Mary Jane Raymond |
| | | | ||||||||||||
Gary A. Kapusta |
| | | | ||||||||||||
Giovanni Barbarossa |
| | 4,335 | 77,597 |
(1) | The value realized upon exercise of this option award represents the difference between the market price of the underlying stock at exercise and the exercise price of the option multiplied by the number of shares underlying the option exercised. |
(2) | Includes 31,380 shares and 17,830 shares acquired by Mr. Kramer and Dr. Mattera, respectively, upon the vesting of the 2013 Restricted Share Awards. Includes 30,279 shares, 13,761 shares, and 4,335 shares acquired by Mr. Kramer, Dr. Mattera and Dr. Barbarossa, respectively, upon the vesting of the 2013 Performance Awards. |
(3) | The value realized upon vesting of the 2012 Restricted Share Awards represents the closing stock price of $17.90 per share on August 17, 2015 (the closing stock price on the day prior to the vest date) multiplied by the number of shares acquired upon vesting. The value realized upon vesting of the 2013 Performance Awards represents the closing stock price of $17.90 per share on August 17, 2015 (the closing stock price on the day prior to the vest date) multiplied by the number of shares acquired upon vesting. |
48 | 2016 Notice of Meeting and Proxy Statement |
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Executive Compensation
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NON-QUALIFIED DEFERRED COMPENSATION
FISCAL YEAR 2016
This table provides information regarding executive contributions to, and aggregate earnings under, the Deferred Compensation Plan for our NEOs as of and for the fiscal year ended 2016.
Name | Executive Contributions FY2016 ($) |
Registrant Contributions FY2016 |
Aggregate Earnings (Loss) in FY2016 ($)(1) |
Aggregate Withdrawals/ Distributions ($) |
Aggregate Balance at June 30, 2016 ($)(2) |
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Francis J. Kramer |
$ | 43,591 | $ | | $ | 168,635 | $ | | $ | 5,414,980 | ||||||||||
Vincent D. Mattera, Jr |
| | 24,799 | | 919,200 | |||||||||||||||
Mary Jane Raymond |
| | | | | |||||||||||||||
Gary Kapusta |
| | | | | |||||||||||||||
Giovanni Barbarossa |
| | | | |
(1) | Aggregate earnings include all changes in value based on performance of deemed investments elected by the NEO under the Deferred Compensation Plan. The Deferred Compensation Plan is administered by a third party and provides for deemed investment options similar to the investment options available under the Profit Sharing Plan with the exception that amounts under the Deferred Compensation Plan may be invested in the Companys Common Stock. Amounts that are deferred into the Companys Common Stock must remain invested in the Companys Common Stock and must be paid out in shares of Companys Common Stock upon a qualifying distribution event. |
(2) | All amounts shown in this column were reported in the Summary Compensation Table for previous fiscal years, other than earnings and other than the difference between the actual value of performance share awards at payout and the fair value of performance share awards as reported for the year in which such awards were granted. |
The Deferred Compensation Plan was established to provide retirement savings benefits for NEOs and other employees beyond what is available through the II-VI Incorporated Employees Profit Sharing Plan, which is subject to IRS limitations on annual contributions and compensation. Under the Deferred Compensation Plan, as it is currently implemented by the Company, eligible participants can elect to defer up to 100% of certain performance-based cash incentive compensation and certain equity awards into an account that will be credited with earnings at the same rate as one or more deemed investments chosen by the participant. The Company may make matching contributions and discretionary contributions to the Deferred Compensation Plan, but did not make any such contributions in fiscal year 2016. A participants right to receive benefits under the Deferred Compensation Plan is an unfunded, unsecured right, no greater than the claim of a general creditor of the Company. Any assets that the Company sets aside to pay benefits under the Deferred Compensation Plan are the property of the Company and subject to claims of the Companys creditors in case of the Companys insolvency. Participants are eligible to receive distributions from the Deferred Compensation Plan upon a separation from service (as defined in the Deferred Compensation Plan) and may also receive in-service distributions in certain scenarios and may elect to receive payments in a lump sum or in an annual installment over a specified term of years.
2016 Notice of Meeting and Proxy Statement | 49 |
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Executive Compensation
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EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about our Common Stock subject to our equity compensation plans that were in effect as of June 30, 2016.
As of June 30, 2016 | Number of (a) |
Weighted-average (b) |
Number of securities (c) |
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Equity compensation plans approved by security holders | 4,545,467 | (1) | $ | 17.15 | (2) | 2,805,911 | ||||||
Equity compensation plans not approved by security holders | | | | |||||||||
Total | 4,545,467 | $ | 17.15 | 2,805,911 | ||||||||
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(1) | Represents outstanding awards pursuant to the 2012 Omnibus Incentive Plan and includes both vested and unvested options, as well as 293,541 outstanding performance share awards at target level of performance. Amount does not include 760,915 shares underlying restricted stock awards. |
(2) | Does not take into account outstanding performance share awards. |
50 | 2016 Notice of Meeting and Proxy Statement |
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Executive Compensation
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POTENTIAL PAYMENTS UPON CHANGE IN CONTROL AND EMPLOYMENT TERMINATION
EQUITY AWARDS
Pursuant to the terms of the 2012 Omnibus Incentive Plan, the Companys stock option, performance share and restricted share awards may accelerate and vest in their entirety immediately prior to a change in control, provided that the Double Trigger provisions are met. Stock options accelerate and vest in their entirety in the event of death or disability, and continue to vest as set forth in the applicable award upon retirement, as defined in the agreement. Performance share awards are prorated in the event of death, disability or retirement, based on the months employed during the performance period and remain subject to actual performance results. Restricted stock awards accelerate and vest in their entirety in the event of death, disability or retirement from the Company, provided that an on-going consulting agreement and/or Board member relationship does not exist. If an on-going consulting agreement and/or Board member relationship does exist, the restricted stock award continues to vest as set forth in the applicable award. In all other circumstances, the awards terminate upon termination of service.
The following table sets forth for each of the NEOs the dollar amount that such NEO would have been entitled to receive as a result of the acceleration of vesting of unvested stock options, performance shares and restricted stock caused by (i) a change in control of the Company and (ii) the death, disability or retirement of the NEO, assuming the triggering event occurred on June 30, 2016. The values shown are calculated based on the closing price of the Companys Common Stock on June 30, 2016 of $18.76 per share and, for stock options, are calculated based on the difference between the exercise price of the unvested options and $18.76. These benefits are in addition to benefits available generally to salaried employees, such as accrued vacation pay. Due to the number of factors that affect the nature and amount of any benefits provided upon the events discussed below, such as the timing during the year of any such event and the Companys stock price, any actual amounts paid or distributed may be different.
Named Executive Officer | Acceleration of Unvested Stock Options, Performance Shares and Restricted Stock Upon Change in Control ($) |
Acceleration of Unvested Stock Options, Performance Shares and Restricted Stock Upon Death or Disability ($) |
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Francis J. Kramer |
$ | 3,681,711 | $ | 2,564,047 | ||||
Vincent D. Mattera, Jr |
1,880,085 | 1,273,630 | ||||||
Mary Jane Raymond |
1,077,389 | 754,101 | ||||||
Gary A. Kapusta |
1,500,800 | 1,500,800 | ||||||
Giovanni Barbarossa |
1,116,724 | 752,892 |
EMPLOYMENT AGREEMENTS NAMED EXECUTIVE OFFICERS
The following is an overview of the employment agreements the Company has entered into with its NEOs, as in effect on June 30, 2016 along with common definitions and terms applicable to all the employment agreements noted below.
Named Executive Officer | Employment Agreement Date | |
Francis J. Kramer |
September 19, 2008 | |
Vincent D. Mattera, Jr |
September 19, 2008 | |
Mary Jane Raymond |
March 20, 2014 | |
Gary A. Kapusta |
February 1, 2016 | |
Giovanni Barbarossa |
October 3, 2012 |
2016 Notice of Meeting and Proxy Statement | 51 |
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Executive Compensation
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52 | 2016 Notice of Meeting and Proxy Statement |
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Executive Compensation
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The following table summarizes the estimated severance payments that Mr. Kramer would have been entitled to receive assuming that a termination of his employment occurred as of June 30, 2016 under any of the circumstances described below.
Payments | Termination For Death or Disability or for Good Reason (No Change in Control) |
Termination With Cause |
Termination Without Cause or for Good Reason (No Change in Control) |
Termination Without Cause or for Good Reason (After Change in Control) |
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Cash Severance |
$ | | $ | | $ | 3,514,397 | $ | 4,168,213 | ||||||||
Health Benefits |
| | 19,962 | 19,692 | ||||||||||||
Life Insurance |
| | 3,800 | 3,800 | ||||||||||||
Post-termination Benefits |
| | 15,000 | 40,000 | ||||||||||||
$ | | $ | | $ | 3,552,889 | $ | 4,231,705 | |||||||||
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2016 Notice of Meeting and Proxy Statement | 53 |
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Executive Compensation
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54 | 2016 Notice of Meeting and Proxy Statement |
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Executive Compensation
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The following tables summarize the estimated severance payments that Dr. Mattera, Ms. Raymond, Mr. Kapusta and Mr. Barbarossa would have been entitled to receive assuming that a termination of their employment occurred as of June 30, 2016 under any of the circumstances described below.
VINCENT D. MATTERA, JR.
Payments | Termination For Death or Disability |
Termination With Cause |
Termination Without cause (No Change of Control) |
Termination Without Cause or for Good Reason (After Change of Control) |
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Cash Severance |
$ | | $ | | $ | 318,300 | $ | 2,482,910 | ||||||||
Health Benefits |
| | 9,846 | 19,692 | ||||||||||||
Post-termination benefits. |
| | | 20,000 | ||||||||||||
$ | | $ | | $ | 328,146 | $ | 2,522,602 | |||||||||
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MARY JANE RAYMOND
Payments | Termination For Death or Disability |
Termination With Cause |
Termination Without cause (No Change of Control) |
Termination Without Cause or for Good Reason (After Change of Control) |
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Cash Severance |
$ | | $ | | $ | 247,500 | $ | 2,028,262 | ||||||||
Health Benefits |
| | 3,717 | 3,717 | ||||||||||||
Post-termination benefits. |
| | | 20,000 | ||||||||||||
$ | | $ | | $ | 251,217 | $ | 2,051,979 | |||||||||
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GARY A. KAPUSTA
Payments | Termination For Death or Disability |
Termination With Cause |
Termination Without cause (No Change of Control) |
Termination Without Cause or for Good Reason (After Change of Control) |
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Cash Severance |
$ | | $ | | $ | 263,400 | $ | 418,181 | ||||||||
Health Benefits |
| | 12,000 | 12,000 | ||||||||||||
Post-termination benefits. |
| | | 20,000 | ||||||||||||
$ | | $ | | $ | 275,400 | $ | 450,181 | |||||||||
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GIOVANNI BARBAROSSA
Payments | Termination For Death or Disability |
Termination With Cause |
Termination Without cause (No Change of Control) |
Termination Without Cause or for Good Reason (After Change of Control) |
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Cash Severance |
$ | | $ | | $ | 263,400 | $ | 1,617,098 | ||||||||
Health Benefits(1) |
| | | | ||||||||||||
Post-termination benefits. |
| | | 20,000 | ||||||||||||
$ | | $ | | $ | 263,400 | $ | 1,637,098 | |||||||||
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(1) | Dr. Barbarossa did not participate in the Companys health benefits programs as of June 30, 2016. |
2016 Notice of Meeting and Proxy Statement | 55 |
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ADVISORY VOTE TO APPROVE THE COMPANYS 2016 NAMED EXECUTIVE OFFICER COMPENSATION (PROPOSAL 2)
In accordance with the requirements of Section 14A of the Securities Exchange Act of 1934, as amended, we are asking our shareholders to approve, on a non-binding advisory basis, the compensation of our NEOs for fiscal year 2016, as disclosed in this Proxy Statement. This Say on Pay vote is not intended to address any specific item of compensation, but rather the overall compensation paid to our NEOs in fiscal year 2016 as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis section of this Proxy Statement, the Summary Compensation Table and the related compensation tables and narrative following the Compensation Discussion and Analysis section. At the Companys 2011 Annual Meeting of Shareholders, shareholders voted to hold an annual advisory vote to approve executive compensation. |
As described in the Compensation Discussion and Analysis section of this Proxy Statement, we believe that our executive compensation program is designed to support the Companys long-term success by achieving the following objectives:
| Tying executive pay to Company and individual performance |
| Supporting our annual and long-term business strategies |
| Attracting and retaining talented senior executives |
| Mitigating risk |
| Aligning executives interests with those of our shareholders |
We urge shareholders to read the Compensation Discussion and Analysis, as well as the Summary Compensation Table and the related compensation tables and narrative following the Compensation Discussion and Analysis section of this Proxy Statement. This information provides detailed information regarding our executive compensation program, policies and processes, as well as the compensation paid to our NEOs. As has been our practice, the Company will continue responding to investor questions during various meetings occurring throughout the year.
The Board requests that shareholders vote to approve the following advisory resolution at the Annual Meeting:
RESOLVED, that the shareholders of II-VI Incorporated (the Company) approve, on an advisory basis, the compensation of the Companys Named Executive Officers as described and disclosed in the Compensation Discussion and Analysis, the compensation tables and any related material contained in this Proxy Statement for the Companys 2016 Annual Meeting of Shareholders.
Because this vote is advisory, it will not be binding upon the Board or the Compensation Committee. However, the Compensation Committee will take the outcome of the vote into account when considering future executive compensation arrangements.
The Board unanimously recommends a vote FOR the resolution approving, on a non-binding advisory basis, the Companys 2016 named executive officer compensation as disclosed in this Proxy Statement.
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56 | 2016 Notice of Meeting and Proxy Statement |
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2016 Notice of Meeting and Proxy Statement | 57 |
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INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM (PROPOSAL 3)
Ernst & Young LLP (EY) has served as the Companys independent registered public accountants since fiscal year 2008. For fiscal year 2016, EY rendered professional services in connection with the audit of our financial statements, including review of quarterly reports and other filings with the SEC. EY is knowledgeable about our operations and accounting practices and well qualified to act as our independent registered public accounting firm for fiscal year 2016, and the Audit Committee has selected them as such. |
The Company incurred the following fees and expenses for services performed by its Independent Registered Public Accounting Firm during fiscal years 2016 and 2015:
2016 | 2015 | |||||||
Audit Fees(1) |
$ | 1,794,000 | $ | 1,675,150 | ||||
Audit-Related Fees |
| | ||||||
Tax Fees(2) |
48,000 | | ||||||
All Other Fees |
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Total Fees |
$ | 1,842,000 | $ | 1,675,150 | ||||
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(1) | Includes fees and expenses associated with the annual audit, including the audit of the effectiveness of the Companys internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, and audit fees for the Companys statutory audit requirements. |
(2) | Includes fees and expenses associated with income tax compliance of ANADIGICs short-period income tax return. |
The Audit Committee pre-approves the retention of the independent registered public accounting firm and the independent registered public accounting firm fees for all audit and non-audit services provided by the independent registered public accounting firm, and determines whether the provision of non-audit services is compatible with maintaining the independence of the independent registered public accounting firm.
A representative of EY is expected to be present at the Annual Meeting to respond to appropriate questions and will have the opportunity to make a statement if such person so desires.
The Board unanimously recommends a vote FOR the ratification of the Audit Committees selection of Ernst & Young LLP as the Companys independent registered public accounting firm for fiscal year 2017.
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58 | 2016 Notice of Meeting and Proxy Statement |
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2016 Notice of Meeting and Proxy Statement | 59 |
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60 | 2016 Notice of Meeting and Proxy Statement |
II-VI INCORPORATED 375 SAXONBURG BOULEVARD SAXONBURG, PA 16056-9499 |
VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS If you would like to reduce the costs incurred by II-VI Incorporated in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years.
VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to II-VI Incorporated, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
E13306-P81958 | KEEP THIS PORTION FOR YOUR RECORDS | |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY |
II-VI INCORPORATED |
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS NUMBERED 1 THROUGH 3. |
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Vote on Directors
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Election of three Class II Directors nominated by the Board of Directors for a three-year term to expire at the annual meeting of shareholders in 2019. | |||||||||||||||||||||||||
Nominees:
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For
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Against
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Abstain
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1a. Francis J. Kramer |
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1b. Wendy F. DiCicco |
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1c. Shaker Sadasivam |
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Vote on Other Proposals |
For | Against | Abstain | |||||||||||||||||||||||
2. |
Non-binding advisory vote to approve the compensation of the Companys named executive officers for fiscal year 2016; and |
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3. |
Ratification of the Audit Committees selection of Ernst & Young LLP as the Companys independent registered public accounting firm for the fiscal year ending June 30, 2017. |
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PLEASE MARK, SIGN, DATE AND RETURN IMMEDIATELY. |
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Important: Shareholders sign here exactly as name appears hereon.
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Signature [PLEASE SIGN WITHIN BOX] |
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Signature (Joint Owners) |
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Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting to be held on November 4, 2016: The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com.
Please date, sign and mail your Proxy card back as soon as possible!
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E13307-P81958
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II-VI INCORPORATED Annual Meeting of Shareholders |
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November 4, 2016 |
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY |
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The undersigned hereby appoints Vincent D. Mattera, Jr. and Marc Y. E. Pelaez or either of them, with power of substitution to each, as proxies to represent and to vote as designated on the reverse all of the shares of Common Stock held of record at the close of business on September 2, 2016 by the undersigned at the annual meeting of shareholders of II-VI Incorporated to be held at Marriott Pittsburgh North, 100 Cranberry Woods Drive, Cranberry Township, Pennsylvania 16066, on November 4, 2016 at 1:30 p.m. local time, and at any adjournment thereof. |
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This proxy will be voted by the proxies as directed, or if no direction is indicated herein, the proxies shall vote in the election of the three Class II Directors (Proposal Number 1) FOR ALL the nominees listed, FOR Proposal Number 2 and FOR Proposal Number 3. |
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(PLEASE SIGN ON REVERSE SIDE AND RETURN PROMPTLY)
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