DEF 14A of CPS Technologies Corp/De/
Filed Mar 14, 2024 · FY20230001437749-24-007815
PROPOSAL 1. ELECTION OF DIRECTORS
PROPOSAL 1. ELECTION OF DIRECTORS Pursuant to the Company’s By-laws, the number of directors which shall constitute the whole Board is determined by a resolution of the stockholders or Board, but in no event may be less than one director. The Board is currently authorized to consist of five members. Each director holds office until the next annual meeting of stockholders and until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. Directors need not be stockholders. In the event of a vacancy on the Board, the remaining directors may exercise the powers of the full Board until the vacancy is filled except as otherwise provided by law. Unless and until filled by stockholders, any vacancy in the Board, however occurring and including a vacancy resulting from an enlargement of the Board, may be filled by a vote of the majority of the directors then in office, even though less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy is elected for the unexpired term of his or her predecessor, and a director chosen to fill a vacancy resulting from an enlargement of the Board holds office until the next annual meeting of stockholders and until the director’s successor shall have been elected and qualified or until his or her earlier death, resignation or removal.
Nominees for Director
Nominees for Director Five directors are to be elected at the Meeting. The Board, as recommended by its Compensation and Nominating Committee, has nominated each of Grant C. Bennett, Thomas M. Culligan, Francis J. Hughes, Jr., Ralph M. Norwood and Daniel C. Snow for election to the Board. Each of Messrs. Bennett, Culligan, Hughes and Norwood and Dr. Snow is currently a director of the Company and each has consented to being named in this Proxy Statement and to serve if elected. If elected, the nominees will hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. The affirmative vote of a plurality of the votes cast at the Meeting with respect to a particular director’s election is required to elect such director. Thus, the number of votes cast with respect to each director’s election excludes abstentions and broker non-votes with respect to that director’s election. It is intended that, unless you give contrary instructions, shares represented by proxies solicited by the Board will be voted for the election of the nominees listed below.
COMPENSATION DISCUSSION AND ANALYSIS
| ● | For employees generally, to monitor and review all general compensation strategies and programs of the Company, including equity incentives and benefit programs. |
Compensation Philosophy and Objectives
| ● | We maintain annual incentive opportunities sufficient to provide motivation to achieve specific operating goals and to generate rewards that are intended to bring total compensation to competitive levels. |
Compensation Philosophy and Objectives
| ● | We provide meaningful equity-based incentives for executives and other key employees to ensure that individuals are motivated over the long-term to respond to our business challenges and opportunities as owners and not just as employees. |
Procedure
Procedure Compensation decisions are tied to the Company’s fiscal year for officers, and for non-officer employees, of the Company. For each employee, a performance evaluation is conducted by his or her supervisor, the results of which are shared with the employee. The evaluation encompasses a review of the employee’s individual performance over the course of the year and includes recognition of the achievement by CPS of its objectives and priorities. Compensation decisions are made after the results of the performance evaluations have been considered and an analysis is completed that considers the goals of market competitiveness and enhancement of stockholder value. Compensation levels at peer companies are considered as part of the process. No upward adjustment is made to an employee’s compensation if the individual’s performance does not merit, or if the Company’s financial condition and performance do not support, such an adjustment. For each non-officer employee who earns more than $150,000 per year and reports directly to the Chief Executive Officer, the Chief Executive Officer recommends and the Compensation Committee must approve compensation. For all other non-officer employees the Chief Executive Officer sets compensation levels and presents the aggregate information to the Compensation Committee for its information. Bonuses, if any, are typically paid in the first quarter following the employee’s evaluation, and salary increases are effective January 1, excluding mid-year merit increases or promotions, which are based on the effective date or the increase or promotion. Compensation packages for CPS’s corporate officers are analyzed and discussed individually by the Compensation Committee, and decisions are made once the Compensation Committee has obtained all of the information it deems necessary. Information that is considered in making officer compensation decisions may include information provided to the Compensation Committee via presentations made to the committee by the officers themselves. The Compensation Committee also considers the Company’s financial condition and performance, as well as the performance, financial condition and compensation levels of peer companies. For officers, bonuses are typically paid in the first quarter of the year following the year to which the bonus relates, and salary increases are effective January 1 of the current year. Beginning in 2022, officer salary increases were made retroactive to the first of the year of approval. The accounting and tax treatment of compensation decisions generally have not been material factors in determining the amount and type of compensation given to executive officers, other than to balance the potential cost to the Company with the benefit or value to the executive. The tax and accounting treatment of different compensation arrangements may play a greater role in the decision-making process in the future. The effects on Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) also would be considered when applicable. The Compensation Committee has not to date employed any compensation consultants to assist it with compensation decisions, although it is authorized by its charter to do so and reserves the right to engage such consultants when and if deemed necessary or advisable. The Compensation Committee also has the authority to form, and delegate any of its responsibilities to, subcommittees as it deems appropriate, although to date it has not done so.
Compensation Components
Compensation Components The components of compensation provided to named executive officers (as well as non-officer employees) typically include base salary, annual discretionary bonuses, and equity incentives. In general, base salaries are reviewed annually and modified when corporate and/or individual performance dictates. Our Chief Executive Officer’s annual salary was increased from $275,000 to $290,000 effective January 1, 2023 based on performance and market competitiveness. Our Chief Financial Officer’s annual salary was increased from $190,000 to $200,000 effective January 1, 2023 and in April 2023 was increased to $210,000 based on performance and market competitiveness. No other changes were made to salaries in fiscal 2023. Our Chief Executive Officer, Michael McCormack, resigned effective April 21, 2023. Effective August 1, 2023, Brian Mackey was hired and became Chief Executive Officer and President at an initial annual salary of $300,000. Bonuses and equity incentives have historically been granted in periods during which the Company’s financial performance has supported such awards; such components of compensation are not granted when the Company’s operating results have not been positive and/or the recipients have not achieved specified performance milestones. In fiscal year 2023, bonuses in the aggregate amount of $280,000 were granted to our named executive officers. The Company also granted our new Chief Executive Officer stock options to purchase an aggregate 200,000 shares of Common Stock in fiscal year 2023 and our Chief Financial Officer stock options to purchase an aggregate 15,000 shares of Common Stock in fiscal year 2023. The Company’s named executive officers also participate in the group benefits offered to all employees, such as medical and life insurance and a retirement savings plan. Base Salary Base salary levels for the Company’s officers typically are reviewed annually and are tied to the Company’s fiscal year. Among those factors taken into consideration when setting executive officer salaries are individual and corporate performance, level of responsibility, prior experience, breadth of knowledge of the industry, and competitive pay practices. Specific weight is not given to any particular factor when establishing base salaries, although most weight is typically given for individual performance. In unusual cases salaries may be reviewed more frequently. Annual Bonuses We believe that executive performance may be maximized through a system of incentive awards. Toward this end, the Company has established a discretionary cash incentive plan. Bonuses, when paid, are designed to tie awards to the achievement of specific corporate sales and earnings targets and individual performance objectives; the amount of the bonus award earned depends primarily on the extent to which such performance objectives are achieved. The Compensation Committee establishes the annual sales and earnings objectives for CPS and the specific goals for each named executive officer, along with the milestones required to be achieved at each bonus level, and shares them with each individual officer. At year-end, the Compensation Committee evaluates each individual’s performance compared with each individual’s specific goals and makes a determination as to whether the specified milestones have been reached. Equity Incentives As with base salary and bonus determinations, equity compensation awards are determined on an annual basis, typically in the first half of each fiscal year. An important objective of this component of compensation is to strengthen the relationship between the long-term value of the Company’s stock price and the potential financial gain for employees, as well as retention of personnel. Historically the Company has awarded stock options to its employees, officers and directors as the equity component of compensation, which provide recipients the opportunity to purchase shares of our Common Stock upon vesting and become valuable only if the trading price of the Common Stock increases. The recipient is therefore motivated to remain with the Company until the options vest and motivated to improve individual performance in support of improved Company performance as reflected in an improved trading price. In selecting employees eligible to receive equity compensation grants (whether at the initial hire date or through periodic grants) and determining the size of such grants, a variety of factors are considered. Determination of the employees eligible to receive awards and the size of such awards is based on a subjective analysis by the Compensation Committee, with input from Mr. Mackey, of each individual’s position within the Company, his or her performance, his or her growth potential and that of the Company, and awards made to similarly situated employees at CPS’s peer companies. For our named executive officers, consideration has also been given in the last several years, and is expected to continue to be given, to long-term beneficial ownership goals. An informal beneficial ownership target has been established for each officer, which is intended to be achieved within a specified time period, and the Compensation Committee considers such targets – along with competitive practices at peer companies, individual performance, and seniority, among other factors – when making decisions about the size of option awards for such officers. Equity Plans The Board currently administers the CPS Technologies Corp. 2009 Stock Incentive Plan, adopted in December 2009 and amended and restated in 2014 (as amended and restated, the “2009 Plan”). The 2009 Plan, which expired in December 2019 but which will remain in effect until all awards outstanding under such plan have been exercised or expire, provided for the grant of equity incentive compensation to officers, directors and employees, as well as consultants and advisors, of the Company. As of December 30, 2023, the Company had issued awards representing 2,848,000 shares under the 2009 Plan, of which 319,600 were outstanding at fiscal year-end. The Board also administers the CPS Technologies Corp. 2020 Equity Incentive Plan, which was adopted by the Board in March 2020 and approved by stockholders in April 2020 at the 2020 annual meeting of stockholders (the “2020 Plan”). The 2020 Plan provides for the issuance of up to 1,500,000 shares of Common Stock to employees, officers, directors, consultants and advisors to the Company pursuant to the award of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. The stated purpose of the 2020 Plan is to advance the interests of the Company’s stockholders by enhancing the Company’s ability to attract, retain and motivate persons who are expected to make important contributions to the Company and by providing such persons with equity ownership opportunities and performance-based incentives that are intended to better align the interests of such persons with those of the Company’s stockholders. As of December 30, 2023, the Company had issued awards representing 969,500 shares under the 2020 Plan, of which 583,900 were outstanding at fiscal year-end.
Pay Versus Performance
Pay Versus Performance
Pay Versus Performance
| Year # | Summary Compensation Table Total for Principal Executive Officer (“PEO”) | "Compensation Actually Paid" to PEO | Average Summary Compensation Table Total for Non-PEO NEOs (1) | Average "Compensation Actually Paid" to Non-PEO Named Executive Officers (“NEOs”) | Value of Initial Fixed $100 Investment Based on Total Shareholder Return | Net Income (thousands $) | | 2023 | 493.428 | 466,495 | 317,183 | 314,230 | 102.62 | 1,370 | | 2022 | 540,424 | 412,789 | 249,700 | 249,700 | 117.47 | 2,131 | | 2021 | 463,734 | 245,192 | 206,183 | 193,386 | 189.52 | 3,216 |
Pay Versus Performance
Note 1: Non-PEO consists of Charles Griffith, Chief Financial Officer, but excludes the $20,000 bonus for service as acting PEO, which is included in the PEO compensation above, see note (3) to the Summary Compensation Table below. Officer compensation (both named and un-named) is determined by the Board. In terms of base salary the Board considers the market for similarly situated employees at peer companies and the employee’s overall performance both individually and as it relates to the overall results. Variable compensation considers revenue and profitability during the year as they relate to the financial plan submitted to and approved by the Board prior to the beginning of the fiscal year. Compensation actually paid to the PEO and Non-PEO NEO in 2023 was based upon 2022 financial results. Given that 2022 produced record results, both top and bottom line, CPS significantly outperformed its 2022 plan. Similarly, the 2022 compensation was based on 2021 results and 2021 based on 2020 results. The Board elected not to consider shareholder return as a factor in 2022 results that would impact 2023 compensation. From the beginning of 2021 to mid-February 2021, CPS experienced 12 significant increases in its stock price, similar to what other similarly-situated stocks were experiencing at the time. Due to these drastic increases, despite the fact that the Company’s stock price experienced a steady decline for the remainder of 2021, stockholders still received an approximate 90% return for fiscal year 2021. The Board felt it would not be appropriate to base compensation decisions on these factors which were predominantly outside of management control.
Summary Compensation Table
Summary Compensation Table
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | | Brian T. Mackey President, Chief Executive Officer | 2023 2022 | $119,505(1) -- | -- -- | $26,933(6) -- | $44,154(1)(4) -- | $190,592 -- | | Charles K. Griffith, Jr. | 2023 | $206,483(5) | $115,000(2)(3) | $2,953(7) | $12,747(4) | $337,183 | | Chief Financial Officer | 2022 | $189,760(5) | $55,250(2) | -- | $4,690(4) | $249,700 | | Michael E. McCormack Former President and Chief Executive Officer | 2023 2022 | $110,453(7) $274,039(7) | $165,000(2) $138,750(2) | -- $127,635(8) | $7,383(9) -- | $282,836 $540,424 |
Summary Compensation Table
| (1) Mr. Mackey’s annual base salary was set at $300,000 upon his date of hire in August 2023. He was also paid $40,000 for costs associated relocating to Massachusetts. |
Summary Compensation Table
| (2) The Company instituted a bonus plan for 2021, to be reviewed and paid in 2022. It included personal goals, Company revenue goals and Company profitability goals. In 2023, due to record results, 25% of 2022 operating income was included in a pool for both senior management as well as all other salaried employees. |
Summary Compensation Table
| (3) The Board issued an additional $20,000 bonus to Mr. Griffith for the three-month period in which he served as acting President of CPS. |
Summary Compensation Table
| (4) In addition to the $40,000 (see footnote (1)), amount represents Company payments to employee 401k accounts. These amounts were made under the same formula as are made to all employees participating in the Company 401(k) plan. |
Summary Compensation Table
| (5) Mr. Griffith’s annual base salary was $190,000 for 2022 and was increased to $210,000 in April 2023. | | (6) Amount represents an award on August 1, 2023 of an option to purchase 200,000 shares of Common Stock at $2.93 per share, which vests in five equal annual installments commencing the first anniversary of the date of grant and has a 10 year term. The dollar amount presented represents the aggregate fair value of the award on the date of grant computed pursuant to FASB ASC Topic 718 in the Company’s financial statements, not reduced by the estimated forfeiture rate. The fair value of the option was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in fiscal 2023: dividend yield of 0%, expected volatility of 59.7%, risk-free interest rate of 4.24%, and expected life of 5 years. |
Summary Compensation Table
| (7) Amount represents an award on April 25, 2023 of an option to purchase 15,000 shares of Common Stock at $2.66 per share, which vests in five equal annual installments commencing the first anniversary of the date of grant and has a 10 year term. The dollar amount presented represents the aggregate fair value of the award on the date of grant computed pursuant to FASB ASC Topic 718 in the Company’s financial statements, not reduced by the estimated forfeiture rate. The fair value of the option was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in fiscal 2023: dividend yield of 0%, expected volatility of 59.7%, risk-free interest rate of 3.43%, and expected life of 5 years. |
Summary Compensation Table
| (8) Amount represents an award on January 28, 2022 of an option to purchase 50,000 shares of Common Stock at $2.90 per share, and an award on August 3, 2022 of an option to purchase 25,000 shares of Common Stock, both of which vest in five equal annual installments commencing the first anniversary of the date of grant and has a 10 year term. The dollar amount presented represents the aggregate fair value of the award on the date of grant computed pursuant to FASB ASC Topic 718 in the Company’s financial statements, not reduced by the estimated forfeiture rate. The fair value of the option was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in fiscal 2022: dividend yield of 0%, expected volatility of 54%, risk-free interest rate of 1.74% and 2.81%, respectively, and expected life of 7 years. | | (9) Amount represents the compensation recorded for the cashless exercise of 50,000 stock options at a weighted average price of $2.76. |
Summary Compensation Table
For further information on equity incentive awards granted to our named executive officers, see the disclosure below. For more information on compensation generally and information on severance and change of control rights, see the Compensation Discussion and Analysis section above.
Outstanding Equity Awards at Fiscal Year-End
Outstanding Equity Awards at Fiscal Year-End The following table sets forth certain information regarding unexercised options held by our named executive officers outstanding as of the end of the Company’s 2023 fiscal year, which date was December 30, 2023.
Outstanding Equity Awards at Fiscal Year-End
| | Option Awards | | | | | | Name | Number of Securities Underlying Unexercised Options | Number of Securities Underlying Unexercised Options | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price | Option Expiration Date | | | (#) Exercisable | (#) Unexercisable | (#) | ($) | | | Brian T. Mackey | -(1) | 200,000(1) | -- | 2.93 | 8/1/33 | | Charles K. Griffith, Jr. | 25,000(2) | 15,000(4) | -- | 1.55 | 4/8/29 | | | 0(3) 2,000(4) 0(5) | 6,000(5) 3,000(6) 15,000(7) | -- -- -- | 1.49 5.11 2.66 | 3/3/30 5/13/31 4/25/33 |
Outstanding Equity Awards at Fiscal Year-End
| (1) Granted on August 1, 2023 with vesting in five equal annual installments commencing on the first anniversary of the date of grant, with a term of 10 years. |
Outstanding Equity Awards at Fiscal Year-End
| (2) Granted on April 8, 2019 with vesting in five equal annual installments commencing on the first anniversary of the date of grant, with a term of 10 years. |
Outstanding Equity Awards at Fiscal Year-End
| (3) Granted on March 3, 2020 with vesting in five equal annual installments commencing on the first anniversary of the date of grant, with a term of 10 years. |
Outstanding Equity Awards at Fiscal Year-End
| (4) Granted on May 13, 2021 with vesting in five equal annual installments commencing on the first anniversary of the date of grant, with a term of 10 years. | | (5) Granted on April 25, 2023 with vesting in five equal annual installments commencing on the first anniversary of the date of grant, with a term of 10 years. |
Outstanding Equity Awards at Fiscal Year-End
Equity Incentive Plans The Company currently administers the 2009 Plan, which expired in December 2019 but which will remain in effect until all awards outstanding under such plan have been exercised or expire, and the 2020 Plan. At December 30, 2023, options to purchase 903,500 shares were outstanding under the 2020 Plan. The goal of the Company’s equity incentive awards is to promote the success and interests of the Company and its stockholders by permitting and encouraging recipients to obtain a proprietary interest in the Company or any subsidiaries through the grant and exercise of such awards, and motivating such recipients to remain with the Company and work towards its success. Grants in Fiscal Year 2023 On February 28, 2023, the Board of Directors approved the grant to each of the members of the Board options under the 2020 Plan to purchase 10,000 shares of Common Stock, for an aggregate 50,000 shares. These non-qualified stock options, which are exercisable at $3.07 per share, vested immediately on grant and have a term of 10 years. On April 25, 2023, the Board approved the grant of options under the 2020 Plan to purchase 60,000 shares, including 15,000 shares to Mr. Griffith. These incentive stock options, which are exercisable at $2.66 per share, vest in equal annual installments over a five-year period commencing on the first anniversary of the date of grant and have a term of 10 years. On August 1, 2023, the Board approved the grant of options under the 2020 Plan to purchase 229,500 including 200,000 shares to Mr. Mackey. These incentive stock options, which are exercisable at $2.93 per share, vest in equal annual installments over a five-year period commencing on the first anniversary of the date of grant and have a term of 10 years. Such grants were the only grants of stock options made to the named executive officers and directors of the Company during the 2023 fiscal year.
Compensation of Directors
Compensation of Directors The following table sets forth all compensation of the Company’s non-employee directors for the fiscal year ended December 30, 2023.
Compensation of Directors
| Name | Fees Earned or Paid in Cash ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | | Francis J. Hughes, Jr. | $18,000(1)(2) | $17,520(3)(4) | -- | $35,520 | | Thomas M. Culligan | $18,000 (1) | $17,520(3)(4) | $170(5) | $35,690 | | Ralph M. Norwood | $18,000 (1) | $17,520(3)(4) | $4,160(5) | $39,680 | | Daniel C. Snow, Ph.D. | $18,000 (1) | $17,520(3)(4) | -- | $35,520 | | Grant C. Bennett | $18,000 (1) | $17,520(3)(4) | $661(5) | $36,181 |
Compensation of Directors
| (1) Includes quarterly stipend and fees paid for Board of Directors and committee meetings attended during the fiscal year. |
Compensation of Directors
| (2) Cash fees payable to Mr. Hughes for his service as a director are paid to ARD at his request, for which Mr. Hughes serves as President. |
Compensation of Directors
| (3) Amount represents the award on February 28, 2023 of a non-qualified option to purchase 10,000 shares of Common Stock at $3.07 per share, which vested in full on date of grant and has a 10 year term. The dollar amount presented represents the aggregate fair value of the award on the date of grant computed pursuant to FASB ASC Topic 718 in the Company’s financial statements, not reduced by the estimated forfeiture rate. The fair value of the option was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in fiscal 2023: dividend yield of 0%, expected volatility of 59.7%, risk-free interest rate of 4.15%, and expected life of 5.5 years. |
Compensation of Directors
| (4) Mr. Hughes had an aggregate of 128,100 options outstanding at the 2023 fiscal year-end, all of which were fully vested and exercisable. Mr. Culligan had an aggregate of 98,100 options outstanding at the 2023 fiscal year-end, all of which were fully vested and exercisable. Mr. Norwood had an aggregate of 118,100 options outstanding at the 2023 fiscal year-end, all of which were fully vested and exercisable. Dr. Snow had an aggregate of 23,100 options outstanding at the 2023 fiscal year-end, all of which were fully vested and exercisable. Mr. Bennett had an aggregate of 17,600 options outstanding at the 2023 fiscal year-end, all of which were fully vested and exercisable. |
Compensation of Directors
| (5) Amount represents expenses reimbursed for travel. |
Compensation of Directors
Board members are entitled to receive a Board meeting fee of $1,000 per meeting unless waived. Board members also received a quarterly stipend of $3,000 for their service during fiscal year 2023. Directors also are entitled to receive grants of stock options. In February 2023, the Board granted to each of Messrs. Hughes, Culligan, Bennett and Norwood and Dr. Snow options to purchase 10,000 shares of Common Stock at $3.07 per share, the closing price of the Common Stock on the date of grant. These options have a term of 10 years and were exercisable in full on the date of grant. The Company may reimburse members of the Board for their reasonable out-of-pocket expenses incurred in attending Board and committee meetings. The Company believes that members of the Board received compensation during fiscal year 2023 commensurate with their responsibilities to the Company and appropriate for a company of the Company’s size and revenues.