DEF 14A 1 ny20004540x2_def14a.htm DEF 14A

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

 

Filed by the Registrant

 

Filed by a Party other than the Registrant  

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Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to §240.14a-12

 

MOTORCAR PARTS OF AMERICA, INC.

 

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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Dear Valued Shareholders:

 

I am excited to share with you our progress on our strategic initiatives and our outlook for the near, medium and long term. Over the past five years we embarked on an aggressive enhancement to our then base infrastructure and business by increasing production capacity in both our Mexican and Malaysian facilities, adding consolidated distribution capacity in our new Mexican distribution facility, and a new state of the art lean remanufacturing facility and core sorting facility for brake calipers.

 

Before I discuss the capabilities, we have added let me summarize our key strategic initiatives:

 

v Enable consolidation of our distribution into low cost locations;

 

v Enhance our capabilities to manufacture our own new wheel hubs in Malaysia resulting in enhanced quality and reduced tariffs;

 

v Launch a new product line which is agnostic to EV technology and that could sustain our growth. We decided to become a full line brake supplier to penetrate the over $10 billion market. We felt that we could build a brake related business of more than $300 million in three to five years; and

 

v Become the standard for rotating electrical diagnostics and embark on developing a strong EV business primarily focused on the OE EV market and secondarily positioning MPA as a strong player in the EV aftermarket.

 

We believe that we will see continued strong growth in the near, medium and long term for both our brake related products and our EV initiatives. We are moving toward implementing a SaaS model in our EV business to improve and expedite the customer experience while growing our return on invested capital. We believe these initiatives will fuel our growth to more than $1 billion in sales and leverage both human and physical infrastructure. We expect this business to generate strong cash flow and add significant incremental profitability in the near term.

 

We have now substantially completed all the infrastructure enhancements. With the growth of multiple categories and the success of our Mexican operations we set out to establish a distribution center that is capable of shipping our multiple product lines from a single low cost location. This enables our customers to combine purchase orders over multiple product lines. This capability allows our customers to reach minimum order levels more easily and helps us minimize LTL (less than a truckload) shipments, leveraging freight costs. In addition, we were able to move distribution from more expensive domestic locations to a lower cost location and incorporate distribution of the brake caliper, brake rotor and brake pad business which will create excellent synergies. We have completed this project along with the launch of our successful brake caliper business and the recent launch of our proprietary brake pad and our brake rotor business. All three of these product lines are experiencing excellent demand and showing great prospects for growth. In addition, due to the consolidation of our Mexican distribution center we have also been able to substantially move the remanufacturing operations for our brake booster line into Mexico.

 

 


 

With regard to the diagnostic business, we have made great progress with our bench top tester which has been ordered by all three of our major retail customers. This is the beginning of our initiatives to be a SaaS provider which will accelerate with the remote testing planned at our Detroit testing center, both of which should enhance the return on invested capital. We expect significant sales from these testers as they have potential to be in 15,000 plus stores. We have also embarked on expanding our EV testing capabilities with new products in the power emulation market that enable testing with hardware in the loop for simulated design models, vastly reducing the need for early EV proto typing. In addition, we opened the contract test center in Detroit to test electric powertrain components, allowing our customers to speed up testing and eliminate substantial capital investment. While we have been working on this significant enhancements to our Company we have been able to accomplish significant goals during the past fiscal year 2022.

 

To summarize we are proud of our accomplishments during these extraordinary times, including the following:

 

ü We achieved organic sales growth of more than 20 percent;

 

ü We developed a comprehensive line of brake pads utilizing an industry-leading formulation, and brake rotors, serving the professional installer market under the company’s Quality-Built brand.

 

ü We secured new multi-year business commitments of more than $100 million, primarily across multiple brake-related products;

 

ü We successfully expanded sales through additional product line offerings in Mexico;

 

ü We completed a multi-year expansion program of our facilities in Mexico, including completion of a new brake caliper manufacturing facility;

 

ü We added capacity to support anticipated future growth with limited additional capital investment

 

ü We extended the maturity date of our Credit Facility from June 2023 to May 2026 to enhance our liquidity and capital resources;

 

ü We secured purchase orders from all major automotive retailers for rotating electric bench-top testing equipment;

 

ü We opened an EV contract testing center in Detroit, Michigan;

 

ü We continued a series of prestigious Tier-1 wins for our EV technology with orders from major global automotive, aerospace and research institutions;

 

Committed to the Environment, Social and Corporate Responsibility

 

During the past year, we continued with initiatives to better manage resources, improve operating efficiencies, and promote conservation. We are constantly focused on opportunities to improve and leverage the Company’s position as a leader in the automotive aftermarket part industry — particularly our expertise in remanufacturing with inherent energy benefits compared with the requirements to produce new parts.

 

We are also passionately committed to social responsibility – including proactive health and safety initiatives to protect employees, subsidized food programs, donations to community organizations, sponsorships of sport teams and weekend family events. In this spirit, we have launched an Agri-farm organic food and community program in Mexico; and we look forward to sharing more details as the year evolves.

 

We continued our efforts in Fiscal 2022 to enhance our annual incentive awards program for our employees — increasing the equity incentive targets based on performance measures, and choosing financial performance metrics that complement our continued focus on increasing shareholder returns. We believe our efforts and these changes will properly reward and even further motivate our employees.

 

I should emphasize that all the Company’s initiatives mentioned above regarding strategic expansion, environmental, social and compensation programs have the full-support and encouragement of our diverse board of directors. I also emphasize that that with the successful execution of the infrastructure and product launches we are optimistic for our future. We believe that this strategy will lead to excellent operating and financial metrics and consequently build value for our shareholders.

 

 


 

In summary, we are proud of our accomplishments and look forward to reporting further milestones in the quarters ahead. We appreciate your continued support.

 

Stay Safe and Healthy.

 

Sincerely,

 

 

Selwyn Joffe

 

Chairman, President and Chief Executive Officer

 

 

 

 


 

 

 

MOTORCAR PARTS OF AMERICA, INC.

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held On September 8, 2022

 

To Our Shareholders:

 

We will hold our annual meeting of the shareholders of Motorcar Parts of America, Inc. (the “Company”) on

 

September 8, 2022, at 10:00 a.m. (PT) at the offices of the Company at 2929 California Street, Torrance, California 90503. As further described in the accompanying Proxy Statement, at this meeting we will consider and act upon:

 

  (1) The election of the nine directors named in the accompanying proxy statement to our Board of Directors to serve for a term of one year or until their successors are duly elected and qualified;

 

  (2) The ratification of the appointment of Ernst & Young LLP as our independent registered public accountants for the Fiscal year ending March 31, 2023;

 

  (3)
The approval, on a non-binding advisory basis, of the compensation of our named executive officers (“say on pay”);

 

 

(4)

The approval of the Motorcar Parts of America, Inc. 2022 Incentive Award Plan (“2022 Plan”); and


 
(5) The transaction of such other business as may come properly before the meeting, or any meetings held upon adjournment or postponement of the meeting.

 

Our Board of Directors (the “Board”) has fixed the close of business on July 20, 2022, as the record date for the determination of shareholders entitled to vote at the meeting or any meetings held upon adjournment or postponement of the meeting. Only record holders of our common stock at the close of business on that day will be entitled to vote. A copy of our Annual Report on Form 10-K for the year ended March 31, 2022, that we filed with the Securities and Exchange Commission on June 14, 2022, is enclosed with this notice, but is not part of the proxy soliciting material.

 

We invite you to attend the meeting and vote in person. If you cannot attend, to ensure that you are represented at the meeting, please sign and return the enclosed proxy card as promptly as possible in the enclosed postage prepaid envelope. If you attend the meeting, you may vote in person, even if you previously returned a signed proxy.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on September 8, 2022.

 

Our proxy statement and our Annual Report on Form 10-K for the year ended March 31, 2022, that we filed with the Securities and Exchange Commission on June 14, 2022, are available at https://materials.proxyvote.com/620071.

 

By order of the Board of Directors

 

 

Juliet Stone, Secretary

Torrance, California

July 29, 2022

 

 


 

YOUR VOTE IS EXTREMELY IMPORTANT

 

In order to assure your representation at the Annual Meeting, you are requested to vote, at your earliest convenience, by any of the methods described in the accompanying Proxy Statement. If you decide to attend the Annual Meeting and vote in person, any previous vote by proxy will be revoked automatically and only your vote at the Annual Meeting will be counted.

 

YOUR vote is extremely important.

 

If you have questions or need assistance voting your shares, please contact:

 

 

1407 Broadway, 27th Floor

 

New York, New York 10018

proxy@mackenziepartners.com

Call Collect: (212) 929-5500

or

Toll-Free (800) 322-2885

 

Your vote is extremely important, no matter how many or how few shares you own. Even if you plan to attend the Annual Meeting in person, please promptly sign, date and return the enclosed proxy card in the enclosed postage-paid envelope by following the instructions provided on the enclosed proxy card to be sure that your shares are voted at the Annual Meeting.

 

 


 

TABLE OF CONTENTS

 

Letter to Shareholders ​ ​
Notice of Annual Meeting of Shareholders ​ ​
  ​ ​  
GENERAL INFORMATION ​ ​ 1
PROPOSAL NO. 1 – ELECTION OF DIRECTORS ​ ​ 3
Information Concerning our Board of Directors and our Nominees to our Board of Directors ​ ​ 3
Corporate Governance Overview ​ ​ 7
Our Core Values ​ ​ 8
Environmental, Social Responsibility and Corporate Governance ​ ​ 8
Highlights of MPA’s ESG Commitments ​ ​ 8
Our Environmental Commitment in Practice ​ ​ 9
How Remanufacturing Can Address Climate Change ​ ​ 9
Committed to Social Responsibility ​ ​ 9
Human Rights Policy ​ ​ 9
Health and Safety 1​0
Governance Policies and Guidelines 10
Certain Relationships and Related Transactions  11
Director Independence, Board of Directors and Committees of the Board of Directors 11
Information about Our Executive Officers 13
Compensation Discussion and Analysis ​ ​ 15
Executive Compensation Summary ​ ​ 16
Compensation Components and Key Elements ​ ​ 17
Engagement with Shareholders
​ ​ 19
Determination of Compensation Decisions ​ ​ 21
Company Peformance Goal
​ ​​​22
Fiscal 2022 Equity Grants 26
Tax Considerations ​ ​ 28
Accounting Considerations ​ ​ 28
Compensation Committee Report ​ ​ 29
Compensation Practices Modifications in Fiscal 2022
29
Compensation Risk Analysis ​ ​ 30
Summary Compensation Table ​ ​ 30
Fiscal 2022 Grants of Plan-Based Awards ​ ​ 31
Outstanding Equity Based Awards at Fiscal Year End ​ ​ 32
Option Exercises and Stock Vested ​ ​ 33
Nonqualified Deferred Compensation ​ ​ 33
Employment Agreements ​ ​ 34
Potential Payments Upon Termination of Change in Control Table ​ ​ 36
Pay Ratio ​ ​ 37
2022 Director Compensation ​ ​ 38
Indemnification of Executive Officers and Directors ​ ​ 38
Compensation Committee Interlocks and Insider Participation ​ ​ 39
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
​ ​ 40
PROPOSAL NO. 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS ​ ​ 42
Audit Committee Report ​ ​ 43
PROPOSAL NO. 3 – ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS ​ ​ 45
PROPOSAL NO. 4 – APPROVAL OF THE MOTORCAR PARTS OF AMERICA, INC. 2022 INCENTIVE AWARD PLAN
​ ​ 46
Introduction
46
Why Shareholders Should Vote to Approve the 2022 Plan
46
Background of Reasons for the Determination of Shares Under the 2020 Plan
46
48
48
53
54
APPENDIX A
​ ​ 55
Miscellaneous ​ ​ 57
Shareholder Proposals ​ ​ 57
Shareholder Communication with our Board ​ ​ 57
Other Matters ​ ​ 57
Annual Report on Form 10-K ​ ​ 57
Proxies ​ ​ 57
Householding of Proxy Materials ​ ​ 57
59

 



 

 

MOTORCAR PARTS OF AMERICA, INC.

2929 California Street

Torrance, California 90503

GENERAL INFORMATION

 

We are making this proxy statement available, on or about July 29, 2022, in connection with the solicitation of proxies by our Board of Directors. The proxies are for use at our annual meeting of shareholders, which we will hold at 10:00 a.m. (PT) on September 8, 2022, at the offices of the Company at 2929 California Street, Torrance, California 90503. The proxies will remain valid for use at any meetings held upon adjournment or postponement of that meeting. The record date for the meeting is the close of business on July 20, 2022. All holders of record of our common stock at the close of business on the record date are entitled to notice of the meeting and to vote at the meeting and any meetings held upon adjournment or postponement of that meeting. Our principal executive offices are located at 2929 California Street, Torrance, California 90503, and our telephone number is (310) 212-7910. The date of this Proxy Statement is July 29, 2022.

 

A proxy form is enclosed. Whether or not you plan to attend the meeting in person, please date, sign and return the enclosed proxy as promptly as possible, in the postage prepaid envelope provided, or online at www.proxyvote.com, to ensure that your shares will be voted at the meeting. If you are a shareholder of record, you may revoke your proxies at any time prior to the voting at the meeting by submitting a later dated proxy, giving timely written notice of revocation to our secretary or attending the meeting and voting in person. If you are a holder in street name, you may revoke your proxy by following the specific voting directions provided to you by your bank, broker or other intermediary to change or revoke any instructions you have already provided to your bank, broker or other intermediary.

 

Unless you instruct otherwise in the proxy, any proxy, if not revoked, will be voted at the meeting:

 

for our Board of Directors’ slate of nominees;

 

to ratify the appointment of Ernst & Young LLP as our independent registered public accountants for the fiscal year ending March 31, 2023;

 

for the approval on a non-binding advisory basis of the compensation of our named executive officers;



for the approval of Motorcar Parts of America, Inc. 2022 Incentive Award Plan; and

 

as recommended by our Board of Directors with regard to all other matters, in its discretion.

 

Our only voting securities are the outstanding shares of our common stock. At the record date, we had 19,225,269 shares of common stock outstanding and approximately 8 shareholders of record. If the shareholders of record present in person or represented by their proxies at the meeting hold at least a majority of our outstanding shares of common stock, a quorum will exist for the transaction of business at the meeting. Shareholders of record who abstain from voting, including brokers holding their customers’ shares who cause abstentions to be recorded, are counted as present for quorum purposes.

 

For each share of common stock, you hold on the record date, you are entitled to one vote on each of the matters that we will consider at this meeting. You are not entitled to cumulate your votes. Brokers holding shares of record for their customers generally are not entitled to vote on certain matters unless their customers give them specific voting instructions. If the broker does not receive specific instructions, the broker will note this on the proxy form or otherwise advise us that it lacks voting authority. The votes that the brokers would have cast if their customers had given them specific instructions are commonly called “broker non-votes.” Broker non-votes will be counted for purposes of determining whether a quorum is present but will not be counted or deemed to be present or represented for the purpose of determining whether shareholders have approved a matter.

 

 

1

 

 

Pursuant to our Amended and Restated By-Laws, the voting standard for the election of directors of the Company in an uncontested election is a majority voting standard. The majority voting standard provides that to be elected in an uncontested election, a director nominee must receive a majority of the votes cast in the election such that the number of shares properly cast “for” the nominee exceeds the number of votes properly cast “against” that nominee, with abstentions and broker non-votes not counting as votes “for” or “against.” “Votes cast” means the votes actually cast “for” or “against” a particular proposal, whether in person or by proxy. In contested elections where the number of nominees exceeds the number of directors to be elected, the voting standard is a plurality of votes cast.

 

We also have adopted a director election and resignation policy (the “Director Election Policy”). The Director Election Policy requires an incumbent director, in order to be nominated by our Board of Directors for re-election as a director, to tender an irrevocable resignation effective upon (1) the failure to receive the required number of votes for re-election and (2) the acceptance of the director’s resignation by our Board of Directors. The Nominating and Corporate Governance Committee of our Board of Directors will assess the appropriateness of such nominee continuing to serve as a director and will recommend to our Board of Directors the action to be taken with respect to such tendered resignation. The Director Election Policy requires that we promptly disclose the decision of our Board of Directors with respect to the tendered resignation in a filing with the Securities and Exchange Commission (the “SEC”) of a current report on Form 8-K.

 

The affirmative vote of a majority of the votes cast at the meeting by the holders of shares entitled to vote is required to approve Proposal No. 2 (ratification of Ernst & Young LLP as our independent registered public accountants for the fiscal year ending March 31, 2023). The affirmative vote of a majority of the votes cast at the meeting by the holders of shares entitled to vote is required to approve, on a non-binding advisory basis, Proposal No. 3 (advisory vote on the compensation of our named executive officers). The affirmative vote of a majority of the votes cast at the meeting by the holders of shares entitled to vote is required to approve Proposal No. 4 (approval of the 2022 Incentive Award Plan). An abstention from voting on these matters will be treated as “present” for quorum purposes. However, since an abstention is not treated as a “vote” for or against these matters, it will have no effect on the outcome of the vote. Broker non-votes will not be counted and will have no effect on the outcome of the voting for these matters.

 

We will pay for the cost of preparing, assembling, printing, and mailing this proxy statement and the accompanying form of proxy to our shareholders, if requested, as well as the cost of soliciting proxies relating to the meeting. We have requested banks and brokers to solicit their customers who beneficially own our common stock in nominee name. We will reimburse these banks and brokers for their reasonable out-of-pocket expenses regarding these solicitations. Our officers, directors and employees may supplement this solicitation of proxies by telephone and personal solicitation. We will pay no additional compensation to our officers, directors, and employees for these activities. We have engaged MacKenzie Partners, Inc. as our proxy solicitor to solicit proxies for us, at an anticipated cost of approximately $25,000. In addition to the use of mail, solicitation may be made by our proxy solicitor or our employees personally or by telephone, facsimile, or electronic transmission.

 

 

2

 

PROPOSAL NO. 1

 

ELECTION OF DIRECTORS

 

We are asking our shareholders to elect nine members to serve on our Board of Directors for a one-year term of office or until their respective successors are elected and qualified. Our Board of Directors has nominated the nine individuals named below for election as directors. Each nominee has agreed to serve as a director if elected.

 

Each of our nominees, Selwyn Joffe, Rudolph J. Borneo, Philip Gay, Barbara Whittaker, Jeffrey Mirvis, Dr. David Bryan, Joseph Ferguson, Jamy P. Rankin and Patricia (Tribby) W. Warfield, is currently serving as a director, and other than Patricia (Tribby) W. Warfield, each of our nominees was elected at our last annual meeting of shareholders. Our directors will hold office until the next annual meeting of shareholders, or until their successors are elected and qualified.

 

The persons named as proxies in the accompanying form of proxy have advised us that at the meeting, they will vote for the election of the nominees named below, unless a contrary direction is indicated. If any of these nominees becomes unavailable for election to our Board of Directors for any reason, the persons named as proxies have discretionary authority to vote for one or more alternative nominees designated by our Board of Directors.

 

No arrangement or understanding exists between any nominee and any other person or persons pursuant to which any nominee was or is to be selected as a director.

 

The Board of Directors recommends that shareholders vote FOR each of the nominees named below.

 

Information Concerning our Board of Directors and our Nominees to our Board of Directors

 

The nominees for election to our Board of Directors, their ages and present positions with the Company, are as follows:

 

Selwyn Joffe, 64, has been our Chairman of the Board of Directors, President and Chief Executive Officer since February 2003. He has been a director of our Company since 1994 and Chairman since November 1999. From 1995 until his election to his present positions, he served as a consultant to us. Prior to February 2003, Mr. Joffe was Chairman and Chief Executive Officer of Protea Group, Inc. a company specializing in consulting and acquisition services. From September 2000 to December 2001, Mr. Joffe served as President and Chief Executive Officer of Netlock Technologies, a company that specializes in securing network communications. In 1997, Mr. Joffe co-founded Palace Entertainment, Inc., a roll-up of amusement parks and served as its President and Chief Operating Officer until August 2000. Prior to the founding of Palace Entertainment, Inc., Mr. Joffe was the President and Chief Executive Officer of Wolfgang Puck Food Company from 1989 to 1996. Mr. Joffe serves on the board of directors of the California, Arizona and Nevada Automotive Wholesaler’s Association (CAWA), an industry trade association. Mr. Joffe was a founding director of MERA (Motor and Equipment Remanufacturers Association). Mr. Joffe is a graduate of Emory University with degrees in both Business and Law and is a Certified Public Accountant. As our most senior executive, Mr. Joffe provides the Board of Directors with insight into our business operations, management and strategic opportunities. His history with our Company and industry experience has led the Board of Directors to conclude that he should serve as a director of our Company.

 

 

3

 

Rudolph J. Borneo, 81, joined our Board of Directors on November 30, 2004. Mr. Borneo chairs our Compensation Committee. Mr. Borneo retired from R.H. Macy’s, Inc. on March 31, 2009. At the time of his retirement, his position was Vice Chairman and Director of Stores of Macy’s West, a division of R.H. Macy’s, Inc. Mr. Borneo served as President of Macy’s California from 1989 to 1992 and President of R.H. Macy’s West from 1992 until his appointment as Vice Chairman and Director of Stores in February 1995. In addition, Mr. Borneo is currently Board Chairman of Smoke Eaters Hot Wings Inc., a privately held company. He earned a Bachelor of Science degree in business administration from Monmouth University. Mr. Borneo’s extensive experience in management of employees, organizational management, general business and retail knowledge and financial acumen have led the Board of Directors to conclude that he should serve as a director of our Company.

 

Dr. David Bryan, 70, joined our Board of Directors on June 9, 2016. Dr. Bryan is a member of our Compensation and Nominating and Corporate Governance Committees. Dr. Bryan currently directs The Center for The Common Good, a joint venture of The Herb Alpert Foundation and New Roads School to incubate creative innovation in business, education and community partnerships. In addition, Dr. Bryan consults privately with several San Francisco and Los Angeles based not-for-profit and for-profit businesses on matters of board and workplace organization, employee training and online education, and generational workplace dynamics. He taught part time in the Economics Department of University of California at Santa Cruz from 2014 to 2020. Dr. Bryan was Co-founder and Founding Head of New Roads School from 1995 to 2013. Dr. Bryan is currently the Chair of the board of the Ojai Foundation and the Chair of the Governance Committee at Brave New Films. Dr. Bryan received a B.A. from the State University of New York at Stony Brook, an M.S. from the University of California at Los Angeles and a J.D. and Ph.D. from the State University of New York at Buffalo. Dr. Bryan’s extensive experience in the education industry and a variety of businesses, as well as his extensive experience with information security, have led the Board of Directors to conclude that he should serve as a director of our Company.

 

Joseph Ferguson, 55, joined our Board of Directors on June 9, 2016. Mr. Ferguson is our Lead Independent Director, and a member of our Audit Committee. Mr. Ferguson is a Co-Founder and Managing Partner at Vicente Capital Partners, a Los Angeles-based investment firm providing capital to privately held growth companies across North America. Prior to co-founding Vicente in 2009, Mr. Ferguson was a partner at Kline Hawkes & Company, which he joined at the firm’s inception in 1995. Mr. Ferguson began his career as an investment banker for Merrill Lynch & Co where he was a member of the Energy and Natural Resources Group and the General Corporate Finance Group. From 1989 to 1994, he worked on over 30 public and private transactions for numerous emerging growth and middle market companies. Mr. Ferguson currently serves on the board of directors of SMT and Intellectual Technology, Inc., each of which is privately held. Mr. Ferguson received a B.B.A in Finance from Southern Methodist University and an M.B.A from the UCLA Anderson School of Management. Mr. Ferguson’s business skills and experience, leadership expertise, knowledge of complex global business and financial matters have led the Board of Directors to conclude that he should serve as a director of our Company.

 

Philip Gay, 64, joined our Board of Directors on November 30, 2004. He chairs our Audit Committee. Mr. Gay currently serves as Managing Director of Triple Enterprises, a business advisory service firm that assists mid-cap sized companies with financing, mergers and acquisitions and strategic financing, which he had previously managed from March 2000 until June 2004. From April 2018 through January 2020, Mr. Gay served as co-CEO of Giggles N Hugs, Inc., a publicly traded company. From March 2015 to May 2015 Mr. Gay served as a director and chief executive officer at Diego Pellicer Worldwide Inc., a publicly traded company. From July 2006 until June 2010, Mr. Gay served as President, Chief Executive Officer and a Director of Grill Concepts, Inc., a company that operates a chain of upscale casual restaurants throughout the United States. From March 2000 to November 2001, Mr. Gay served as an independent consultant with El Paso Energy from time to time and assisted El Paso Energy with its efforts to reduce overall operating and manufacturing overhead costs. Previously he has served as chief financial officer for California Pizza Kitchen (1987 to 1994) and Wolfgang Puck Food Company (1994 to 1996), and he has held various Chief Operating Officer and Chief Executive Officer positions at Color Me Mine and Diversified Food Group from 1996 to 2000. Mr. Gay is also a retired Certified Public Accountant, a former audit manager at Laventhol and Horwath and a graduate of the London School of Economics. Mr. Gay’s leadership experience, general business knowledge, financial literacy and expertise, accounting skills and competency and overall financial acumen have led the Board of Directors to conclude that he should serve as a director of our Company.

 

Jeffrey Mirvis, 58, joined our Board of Directors on February 3, 2009. Mr. Mirvis is a member of our Audit, Compensation and Nominating and Corporate Governance Committees. Mr. Mirvis is currently the Chief Executive Officer of MGT Industries, Inc. (“MGT”), a privately held apparel company based in Los Angeles. As Chief Executive Officer of MGT, Mr. Mirvis successfully moved all production and sourcing to Asia. During his twenty-year tenure as chief executive, Mr. Mirvis has gained valuable knowledge of manufacturing in Asia. Prior to joining MGT in 1990, Mr. Mirvis served as a commercial loan officer at Union Bank of California following his completion of the Union Bank of California’s Commercial Lending Program. He earned a Bachelor of Arts degree in economics from the University of California at Santa Barbara. He served as a board member of Wildwood School in Los Angeles, for nine years. Mr. Mirvis’ international business experience, operational and production expertise, leadership experience and organizational management have led the Board of Directors to conclude he should serve as a director of our Company.

 

Jamy P. Rankin, 59, jointed our Board of Directors on December 30, 2020. Ms. Rankin is currently the President and CEO of The Rankin Group, LLC and the Co-owner and General Manager of the River Forest Country Club. Ms. Rankin retired from Ford having worked there in roles of increasing responsibility from 2001 to 2016. She last served as the President and Chief Executive Officer of Ford Component Sales, LLC from 2012 to 2016. As President and CEO, she led the company through double digit growth for three consecutive years through collaboration, market penetration and product offering expansion while managing four operational divisions and supporting functions including finance, engineering, information technology, and human resources. She also created a strategic plan for international growth in Brazil, China, and Mexico. From 2010 to 2012, she served as Global Director of strategy and vehicle personalization where she created an aggressive strategic plan, which resulted in significant growth in vehicle accessory sales, while reducing costs. Before arriving at Ford, she led marketing and sales organizations at Case New Holland and Navistar. Ms. Rankin currently serves on the boards of Bronner Brothers Inc., and the visiting committee at the University of Pittsburgh, school of industrial engineering. She was previously recognized as one of the top African American women in the automotive industry in On-Wheels magazine. Ms. Rankin received her Bachelor of Science degree in Industrial Engineering from the University of Pittsburgh and her Master of Marketing and Strategy degree from the University of Chicago. Ms. Rankin’s automotive experience, strategic planning and marketing knowledge have led the Board of Directors to conclude that she should serve as a director of Company.

 

 

4

 

Patricia (Tribby) W. Warfield, 62, joined our Board in January 2022. Ms. Warfield most recently served as the chairman and CEO of APC Automotive Technologies, from 2019 to 2020, overseeing a restructuring and a strategic refocusing on braking and exhaust related products. From 2017 - 2019, she served as SVP, business development and strategy for Nitta Corporation, a Japanese global provider of power transmission and conveyor belting products for Europe, Middle East & Africa. Previously, while from 2014 - 2017, Warfield held dual positions at Kaman Corporation, as SVP and general manager for Kaman Fluid Power and Kaman Automation. Her career includes 25 years, from 1988 - 2013 with the Gates Corporation including 11 consecutive years in Europe in key senior management and operational positions. Warfield currently serves on the board of two private equity-sponsored global diversified manufacturing portfolio companies. She is an advisor board member of the University of Colorado Denver Business School, and formally served as an adjunct professor and guest lecturer at the Daniels College of Business at the University of Denver, from 2014 to 2016. She is a member of the National Association of Corporate Directors, as well as The Committee of 200, comprised of the world’s most successful women entrepreneurs and corporate innovators.  Warfield graduated cum laude with a bachelor’s degree in Business Administration from National University, San Diego. Ms. Warfield’s automotive and manufacturing experience, strategic understanding of our core customer, and strong understanding of markets outside the United States have led the Board of Directors to conclude that she should serve as a director of Company.

 

Barbara L. Whittaker, 71, joined our Board of Directors on February 21, 2017. Ms. Whittaker chairs our Nominating and Governance Committee. Ms. Whittaker is a business strategist and procurement and supply chain expert with extensive experience in the automotive industry, with both original equipment manufacturers and suppliers, and in the aftermarket. In 2010 Ms. Whittaker founded BW Limited LLC, which provides companies business and procurement strategies that lead to improved performance. Previously, Ms. Whittaker worked for the General Motors Corporation and Delphi Automotive in leadership positions of increasing responsibility. Prior to her retirement from General Motors, Ms. Whittaker’s position was Executive Director of Global Purchasing. Ms. Whittaker previously served in Chevrolet’s Division of General Motors Corporation in Production Control and Scheduling, with an emphasis on Supply Chain. Ms. Whittaker holds a Bachelor of Industrial Administration degree from General Motors Institute (now Kettering University), MBA degree from Wayne State University, and has also completed the Advanced Management Program at INSEAD in France, and the Executive Development program at University of Michigan. In addition to this formal education, she holds Six Sigma Green Belt certification and is well versed in lean production systems (including General Motors’ Global Manufacturing System). She currently serves on the board of directors of ChannelNet and has also held board of director’s positions for Detroit Manufacturing Systems and Piston Group, each of which is privately held. Ms. Whittaker’s automotive experience, supply chain expertise, leadership experience and organizational management have led the Board of Directors to conclude that she should serve as a director of Company.

 

 

5

 

Snapshot of Director Nominees

The following tables provide summary information about our director nominees. Additional information about our director nominees can be found above in their biographies.

 

Name Age

Director

Since

Principal

Occupation

Independent

Committee

Member

Other Public

Company Boards

Selwyn Joffe 64 Director 1994, Chairman of the Board 1999 President and Chief Executive Officer of Motorcar Parts of America, Inc.      
Rudolph J. Borneo 81 November 30, 2004 Retired Vice Chairman and Director of Stores of Macy’s West, a division of R.H. Macy’s, Inc. v ▪Compensation (C)  
David Bryan 70 June 9, 2016 Directs Center of the Common Good, Co-Founder, Former Head of New Roads School

 

v

▪Compensation

▪Nominating and Corporate Governance

 
Joseph Ferguson 55 June 9, 2016 Managing Partner of Vicente Capital Partners   ▪Audit

 

1

Philip Gay 64 November 30, 2004 Managing Director of Triple Enterprises

 

v

▪Audit (C)  
Jeffrey Mirvis 58 February 3, 2009 Chief Executive Officer of MGT Industries, Inc.

 

v

▪Audit

▪Compensation

▪Nominating and Corporate Governance

 
Jamy P. Rankin 59 December 30, 2020 Retired President of Ford Component Sales LLC and Co-owner /GM of the River Forest Country Club v    
Barbara L. Whittaker 71 February 21, 2017 Founder of BW Limited LLC

v

 

▪Nominating and Corporate Governance (C)  
Patricia (Tribby) W. Warfield 62 January 26, 2022 Recently served as Chairwoman and CEO of APC Automotive Technologies v    

 

(C) Committee Chair

 

Gender Diversity Average Age Racial/Ethnic Diversity Average Tenure Independence
33.33% 64.8 Years 44.44% 10.8 Years 88.89%

 

 

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Corporate Governance Overview

 

Our corporate governance policies and practices reflect our values and allow our Board to effectively oversee the Company in the interest of creating long-term value. The key elements of our program and their benefits to our shareholders are described below.

 

OUR POLICY OR

PRACTICE

DESCRIPTION AND BENEFIT TO OUR SHAREHOLDERS
SHAREHOLDER RIGHTS
Annual Election of Directors Our directors are elected annually, allowing our shareholders to hold them accountable for the discharge of their duties.

Single Class of Outstanding

Voting Stock

We have no class of preferred stock outstanding, meaning our common shareholders control our Company, with equal voting rights. All common shareholders are entitled to vote for each proposal.

Majority Voting for

Director Elections

We have a majority vote standard for uncontested director elections, which increases Board accountability to our shareholders.

Mandatory Director

Resignation Policy

Incumbent directors must tender their resignation effective upon the failure to receive the required number of votes and the acceptance by our Board.
Ability to Amend Bylaws Our shareholders have the ability to amend our bylaws by a majority vote.
No Exclusive Forum or Fee Shifting Bylaws Our bylaws do not require that certain shareholder disputes be brought in a particular forum nor are shareholders required to pay our legal fees if they do not substantially prevail in any litigation brought against our Company.
No Poison Pill We do not have a shareholder rights plan (commonly referred to as a “poison pill”).
BOARD STRUCTURE

Governance

Guidelines

Our Code of Business Conduct and Ethics provide shareholders with information regarding the policies applicable to our Board and officers.

Majority

Independent

Eight of our nine director nominees, or 89%, are independent, ensuring that our Board oversees our Company without undue influence from management.
Lead Independent Director Our Lead Independent Director is selected by our independent directors to preside at executive sessions of independent directors.

Director Ownership

Guidelines

Under our ownership guidelines, directors are required to own stock worth 3x their annual cash retainer within approximately 5 years of joining the Board.

Committee

Governance

Our Board Committees have written charters and are comprised exclusively of independent directors. Committee composition and charters are reviewed annually by our Board. Information is available on our website.
Overboarding None of our directors serve on more than three public company boards.

Board Refreshment

Process

Our Board or our Nominating and Governance Committee annually evaluates our directors and Board composition focused on the alignment of director skills and corporate strategy.
Performance Evaluations Our Board’s Nominating and Corporate Governance Committee oversees  performance evaluations and director succession planning of our Board and its Committees and leadership to ensure that they continue to serve the best interests of shareholders.

Access to Management

and Experts

Our Board and Committees have complete access to all levels of management and can engage advisors at our expense, giving them access to employees with direct responsibility for managing our Company and experts to help them fulfill their oversight responsibilities on behalf of our shareholders.
Succession Planning Our Board’s Compensation Committee and/or the full Board reviews executive successors to identify and develop our future leaders and ensure business continuity if any of these key employees were to leave our Company.

 

 

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Our Core Values

 

The mission of MPA is to be The Global Leader for Parts and Solutions that Move Our World Today and Tomorrow — driven by an EPICQ set of core values embraced by our employees and directors:

 

E – Excellence

P – Passion / Productivity

I – Integrity / Innovation

C – Community

Q – Quality

 

Environmental, Social Responsibility and Corporate Governance

 

The Company is a dedicated, responsible corporate citizen and an environmental leader, with policies focused to better manage resources, improve operating efficiencies, and promote conservation.

 

Highlights of MPA’s ESG Commitments:

 

Leveraging the Company’s leadership and more than 50-year history in remanufacturing to further improve the Company’s global environmental footprint. Examples include:

 

State of the art remanufacturing facilities in Torrance, California and Tijuana, Mexico which recycle almost all materials from copper to water

 

A new state-of-the art distribution center at the Company’s Tijuana, Mexico facility utilizing high-tech, energy efficient forklift machinery and a centralized recharging operation.

 

Opportunities to consolidate product shipments to customers — reducing fuel consumption with related air quality improvements. In Fiscal 2022, we are able to reduce 250 long haul truck trips, by utilizing the capacity of each trailer, and another 1800 loads by utilizing intermodal transportation which is more efficient, safer and secure.

 

Board diversity. Our Board is ethnically diverse and comprised of eight independent directors, one African, three African Americans, and three women. See chart detailing director nominees in Proposal No.1.

 

We continue to focus on increasing employee diversity, and have increased the percentage of females in our workforce from 34% to 39% on a global basis.

 

Promoting a respectful workplace environment has contributed to an employee retention rate of more than 87% in Fiscal 2022

 

Honoring traditions and customs of the communities where we have a presence.

 

Health and wellness programs including, medical staff stationed at our manufacturing facility, free and reduced food programs, trainings, union benefits, athletic facilities and employee sport league sponsorship. In Fiscal 2022, the Company provided 650,000 free or reduced cost meals and 117,000 free rides to and from work at a cost of $6 million dollars. Such programs improve the lives of our workers, increase productivity and loyalty while reducing pollution from individual vehicles and food waste and packaging.

 

One of founding members of PAS (“Parque Agroforestal Sestentable” or Sustainable Agroforestry Park), for a sustainable planet, to promote, fundraise and build a green initiative located in a disadvantaged area of Tijuana, MX to bring a large farming area to allow for sustainable agriculture, park space, and free groceries. The organization has secured a twenty year land lease, with drawings, design and land studies completed.

 

SMART (specific, measurable, attainable, realistic, and time-bound) performance metrics tied to incentive/bonus policies.

 

Strong culture of quality and innovation.

 

 

8

 

Our Environmental Commitment in Practice

 

Since its establishment in 1968, environmental and sustainable processes have been a hallmark of the Company.

 

With the potential to reduce material and energy consumption by up to 95 percent, industry sources believe that remanufacturing is the most efficient and sustainable process for producing aftermarket replacement parts, making MPA’s business practices green by nature, supported by the processes noted below.

 

Highlights of the Company’s eco-friendly remanufacturing processes and its industry leadership, include:

 

  Sorting the broken-down units returned by customers utilizing an innovative and efficient core-sorting process.

 

  Reconditioning and re-utilizing durable components after passing rigorous testing processes.

 

  Savings of approximately 56,658 tons of raw materials in Fiscal 2022, due to a reduction in the required materials in the remanufacturing production process, compared with new product processes.

 

  Recycling of approximately 4,000 tons of water per year.

 

  Recycling of approximately 5,000 tons of cardboard and 16,000 tons of metal and other raw materials in Fiscal 2022.

 

How Remanufacturing Can Address Climate Change

 

The remanufacturing process preserves the energy required in forging and forming durable components, an advantage to recycling alone; and it allows for recycling of metal scrap, such as copper, aluminum, and steel. Equally important, by reclaiming and reconditioning components, the remanufacturing process also conserves the energy and materials that would be required to create new parts. Manufacturing one new starter for instance requires more than 10 times the amount of energy and nine times the number of materials compared with producing remanufactured parts. Manufacturing a new alternator requires approximately seven times the amount of energy and eight times the amount of raw material necessary to produce a remanufactured part. One recent study found that a remanufactured brake caliper saves 95% of the raw materials by weight of new manufacturing and can be completed at least twice with the same core, leading to additional life cycle savings. As highlighted above, the Company reduced raw material usage in manufacturing by nearly 72,000 tons in Fiscal 2022 through its remanufacturing process. The energy savings translates into lower carbon dioxide output and overall lower consumption. In fact, industry sources estimate, remanufactured products conserve roughly the equivalent of 400 trillion BTUs of energy per year. The remanufacturing process and recycling employed by MPA takes real steps to mitigate the effects of climate change, by drastically reducing the greenhouse gas emissions that are normally generated by producing new parts.

 

Committed to Social Responsibility in Action

 

Motorcar Parts of America is firmly committed to social responsibility. While safety, respect and inclusion have always been fundamental to the Company, these qualities are more important than ever given the global pandemic and the impact it is having on employees, family members, and the community at large. Medical professionals are onsite or within close proximity to the Company’s operations, and management is doing everything possible to address the challenges, including onsite vaccination. In addition, socially responsible initiatives include subsidized food programs for certain employees and donations to community organizations, sponsorship of sport teams and weekend family events.

 

Human Rights Policy

 

As part of our Supplier Code of Conduct, suppliers are required to acknowledge compliance with MPA’s polices, and state, federal and international law, as applicable. MPA expects its suppliers to comply with all applicable laws, rules, and regulations, including, without limitation, the specific laws, rules, and regulations referenced below, and to refrain from any illegal conduct, including, without limitation, conduct that is illegal under the U.S. Foreign Corrupt Practices Act and applicable foreign anti-bribery laws. The Company expects its domestic and international suppliers to abide by the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) – Sanctions Programs.

 

 

9

 

Health and Safety

 

MPA’s operations in Torrance, California follows all local, state, and federal laws, rules, regulations and ordinances. Accordingly, management conducts ongoing audits, evaluations and reports for each of our subsidiaries. Our wholly owned Mexican subsidiaries’ health and safety policies meet and/or exceed applicable local and federal regulations and laws.  They are also shared with, reviewed annually and supported by union, Sindicato Mexico Moderno. Our wholly owned Canadian subsidiaries’ health and safety policies are reviewed and approved annually by management teams, as per the ESA and the Ontario Occupational Health & Safety Act. Monthly and quarterly meetings and inspections are conducted with the Company's safety committees. Management reviews all health and safety issues monthly and creates a report. Our operations in Malaysia follow similar procedures and comply with local laws and regulations including health and safety requirements.

 

Governance Policies and Guidelines

 

We have adopted a Code of Business Conduct and Ethics that provides policies for various matters relating to the conduct of our business, including the following key matters:

 

compliance with governmental laws, rules and regulations confidentiality

 

conflicts of interest and corporate opportunities

 

insider trading, which is supplemented by a robust policy applicable to the Company’s directors, officers and employees.

 

director qualifications, including a statement that the Company seeks directors with a diverse set of expertise and experience, that the Company values integrity and the ability to work with other members of the Board and senior management, and also that the Company will take into account the diversity of a candidate’s perspectives, background and other demographics and characteristics.

 

The Code of Business Conduct and Ethics is filed with the SEC and a copy is posted on our website at www.motorcarparts.com. We intend to disclose future amendments to certain provisions of the code, or waivers of such provisions granted to executive officers and directors, on our website within four business days following the date of such amendment or waivers. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request addressed to the Corporate Secretary at Motorcar Parts of America, Inc., 2929 California Street, Torrance, CA 90503.

 

Our Board has adopted a number of other policies and guidelines that are intended to ensure good governance and the alignment of interests between the directors and management, on the one hand, and shareholders on the other. Among the written policies are:

 

Related Person Transaction Policy. This policy makes certain material transactions between a company and related persons subject to approval or ratification in order to avoid conflicts of interest or the perception thereof. The policy includes the following terms:

 

“Related Person” includes directors, executive officers, beneficial owners of more than 5% of the

 

Company’s securities, immediate family members of the foregoing, and other related entities.

 

$120,000 materiality threshold for applicability of the policy.

 

The policy requires annual Audit Committee status reports on related person transactions.

 

Various types of transactions are automatically pre-approved under the policy, including regular executive compensation reported on the Company’s proxy statement pursuant to Item 402 of Regulation S-K and ordinary-course transactions where a related person owns 10% or less of the equity interest in another party to the related party transaction.

 

 

10

 

Clawback Policy. This policy allows the Company to recoup certain compensation awards paid to executives in the event of restatement of the financial results upon which the awards were based. The policy includes the following terms:

 

The policy is triggered when there is a restatement to the Company’s financial statements to correct a material error that the Board or Compensation Committee determines is a result of fraud or intentional misconduct of a participant in the Company’s incentive plans.

 

The policy applies to all bonuses, incentive compensation, and equity-based awards granted after the end of Fiscal 2017.

 

Stock Ownership Guidelines. These guidelines serve to align the interests of directors and officers with those of our shareholders by requiring them to acquire and hold an amount of stock with an aggregate market value equal to a specified multiple of their base salary or cash retainer (as applicable). The guidelines allow: 1) unvested restricted stock vesting purely on a time basis, and 2) shares held in trust to be counted toward the stock owned under the guidelines. Once a director and/or officer meets the stock ownership guidelines they will not fall out of compliance based solely on a stock price decline.

 

The policy includes the following terms:

 

The Chief Executive Officer is expected to hold, within approximately 5 years after attaining his or her position, shares of Company common stock worth 3 times his or her base salary.

 

Named executive officers other than the Chief Executive Officer are expected to hold, within approximately 5 years after attaining their position, shares of Company common stock worth 2 times their base salary.

 

Each non-employee director is expected to hold, within approximately 5 years after attaining his or her position, shares of Company common stock worth 3 times his or her annual cash retainer.

 

As of March 31, 2022, Mr. Joffe held shares of Company common stock worth well in excess of 3 times his base salary, and Mr. Lee held shares of Company stock in excess of 2 times his base salary. As of March 31, 2022, Mr. Schooner, Mr. Mochulsky and Ms. Stone each held shares of Company common stock less than 2 times their respective salaries. As of March 31, 2022, all of our non-employee directors, except for our newest directors Ms. Rankin and Ms. Warfield, held shares of Company common stock worth 3 times his or her annual cash retainer. Ms. Stone has until September 11, 2024, Ms. Rankin until December 30, 2025, and Ms. Warfield until January 26, 2027.

 

The Company is focused on adjusting stock grants to allow Mr. Schooner and Mr. Mochulsky to meet the stock ownership guidelines in the near future.

 

Certain Relationships and Related Transactions

 

As discussed above, we have a written policy applicable to any transaction, arrangement or relationship between us and a related party. Our practice with regards to related party transactions has been for our Audit Committee to review, approve and/or ratify such transactions as they arise in accordance with the policy.

 

Director Independence, Board of Directors and Committees of the Board of Directors

 

Board Independence. Each of Scott Adelson, Rudolph J. Borneo, Dr. David Bryan, Joseph Ferguson, Philip Gay, Duane Miller, Jeffrey Mirvis, Jamy P. Rankin, Patricia (Tribby) W. Warfield and Barbara J. Whittaker are independent within the meaning of the applicable SEC rules and the NASDAQ listing standards, and all of our committee members are independent within the meaning of the applicable SEC rules and NASDAQ listing standards.

 

Board Leadership Structure. The Board of Directors does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board as the Board of Directors believes it is in the best interests of our Company to make that determination based on the position and direction of our Company and the membership of the Board of Directors. The roles of Chairman of the Board and Chief Executive Officer are currently held by the same person, Selwyn Joffe. The Board of Directors believes that Mr. Joffe’s service as both Chairman of the Board and Chief Executive Officer is in the best interest of our Company and its shareholders. Mr. Joffe possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing our Company and its business and is in the best position to develop agendas that ensure that our Board of Directors’ time and attention are focused on the most critical matters. We believe that our Company has been well served by this model because the combined role of Chairman of the Board and Chief Executive Officer has ensured that our directors and senior management act with a common purpose and in the best interest of our Company. This model enhances our ability to communicate clearly and consistently with our shareholders, employees, customers and suppliers.

 

 

11

 

Lead Independent Director. Our Board has appointed Joseph Ferguson as our Lead Independent Director to preside at executive sessions of independent directors.

 

Board’s Role in Risk Oversight. Our Board of Directors as a whole has responsibility for risk oversight with certain categories of risk being reviewed by particular committees of the Board of Directors, which report to the full Board of Directors as needed. The Audit Committee reviews the financial risks, including internal control, audit, information and cyber security, financial reporting and disclosure matters including related person transactions, by discussing these risks with management and our internal and external auditors. The Compensation Committee reviews risks relating to our executive compensation plans and arrangements, human capital management, succession planning, corporate culture and diversity, equity, and inclusion. The Nominating and Corporate Governance Committee reviews risks related to our governance structure and processes, and our overall response to environmental, social and governance (ESG) issues. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is regularly informed about our overall risk profile and is charged with strategic planning oversight and risk mitigation. We believe this structure is appropriate for the Company as it assigns specific areas of risk and its mitigation to the committee best suited to understand and proactively manage such risk as part of its overall oversight of the Company, while having the full Board charged with oversight of the Company’s overall risk profile and mitigation.

 

Attendance of Board and Committees. Our Board of Directors met seven times during Fiscal 2022. Each of our then directors attended 75% or more of the total number of meetings of the Board of Directors and committees thereof during Fiscal 2022. Our last annual meeting of shareholders was held on September 13, 2021. All of our then directors attended our last annual meeting of shareholders. Each director is encouraged to attend each meeting of the Board of Directors and the annual meeting of our shareholders.

 

Audit Committee. The current members of our Audit Committee are Philip Gay, Joseph Ferguson, and Jeffrey Mirvis, with Mr. Gay serving as chair. Our Board of Directors has determined that all of the Audit Committee members are independent within the meaning of the applicable SEC rules and NASDAQ listing standards. Our Board of Directors has also determined that Mr. Gay, Mr. Ferguson and Mr. Mirvis are each a financial expert within the meaning of the applicable SEC rules. The Audit Committee oversees our auditing procedures, receives and accepts the reports of our independent registered public accountants, oversees our internal systems of accounting and management controls and makes recommendations to the Board of Directors concerning the appointment of our auditors. The Audit Committee met four times in Fiscal 2022.

 

Compensation Committee. The current members of our Compensation Committee are Rudolph Borneo, Dr. David Bryan, and Jeffrey Mirvis, with Mr. Borneo serving as chair. The Compensation Committee is responsible for developing our executive compensation policies. The Compensation Committee is also responsible for evaluating the performance of our Chief Executive Officer and other senior officers and making determinations concerning the salary, bonuses and equity-based awards to be awarded to these officers, as well as human capital management, and management succession planning. No member of the Compensation Committee has a relationship that would constitute an interlocking relationship with the executive officers or directors of another entity. For further discussion of our Compensation Committee, see below “Compensation Committee Interlocks and Insider Participation.” The Compensation Committee met seven times in Fiscal 2022.

 

Nominating and Corporate Governance Committee. The current members of our Nominating and Corporate Governance Committee are Dr. David Bryan, Jeffrey Mirvis and Barbara Whittaker, with Ms. Whittaker serving as chair. Each of the members of the Nominating and Corporate Governance Committee is independent within the meaning of applicable SEC rules. Our Nominating and Corporate Governance Committee is responsible for maintaining strong corporate governance within the Board and the Company as a whole, as well as identifying, vetting and ultimately nominating candidates to our Board of Directors, Board succession planning, as well as oversight of our response to ESG issues. Our Nominating and Corporate Governance Committee met once during Fiscal 2022.

 

 

12

 

In evaluating potential director nominees, including those identified by shareholders, for recommendation to our Board of Directors, our Nominating and Corporate Governance Committee seeks individuals with talent, ability and experience from a wide variety of backgrounds to provide a diverse spectrum of experience and expertise relevant to a diversified business enterprise such as ours. Our Company does not maintain a separate policy regarding the diversity of its Board members. However, the Nominating and Corporate Governance Committee considers individuals with diverse and varied professional and other experiences for membership. A candidate should represent the interests of all shareholders, and not those of a special interest group, have a reputation for integrity and be willing to make a significant commitment to fulfilling the duties of a director. Our Nominating and Corporate Governance Committee will screen and evaluate all recommended director nominees based on the criteria set forth above, as well as other relevant considerations. Our Nominating and Corporate Governance Committee will retain full discretion in considering its nomination recommendations to our Board of Directors.

 

Information about Our Executive Officers 

Our executive officers (other than executive officers who are also members of our Board of Directors), their ages and present positions with our Company, are as follows:

 

Name Age Position with the Company
David Lee 52 Chief Financial Officer
Richard Mochulsky 64 SVP, Sales and Marketing
Doug Schooner 53 Chief Manufacturing Officer, SVP
Kamlesh Shah     59     Chief Accounting Officer

Juliet Stone

49

Vice President, Secretary and General Counsel

 

Our executive officers are appointed by and serve at the discretion of our Board of Directors. A brief description of the business experience of each of our executive officers other than executive officers who are also members of our Board of Directors and significant employees is set forth below.

 

David Lee has been our Chief Financial Officer since February 2008. Prior to this, Mr. Lee served as our Vice President of Finance and Strategic Planning since January 2006, focusing primarily on financial management and strategic planning. Mr. Lee joined us in February 2005 as a Director of Finance and Strategic Planning. His primary responsibilities as Chief Financial Officer are treasury, budgeting and financial management. From August 2002 until he joined us in 2005, he served as corporate controller of Palace Entertainment, Inc., an amusement and water park organization. Prior to this, Mr. Lee held various corporate controller and finance positions for several domestic companies and served in the audit department of Deloitte LLP (formerly known as Deloitte & Touche LLP). Mr. Lee is a Certified Public Accountant. Mr. Lee earned his Bachelor of Arts degree in economics from the University of California, San Diego, and a Master’s in Business Administration degree from the UCLA Anderson School of Management.

 

Richard Mochulsky has been our Senior Vice President of Sales and Marketing since May 2019. Mr. Mochulsky joined the Company in 2005 as a Director of Traditional Sales, and became VP of Traditional Sales in 2009, before taking over the entire sales function in 2011 as VP of Sales. He was promoted to SVP of Sales in 2015. Mr. Mochulsky has been in the auto parts business since 1979, starting his career at Dayco Rubber Company, before taking positions at Four Seasons a division of Standard Motor Parts, and Compressorworks.

 

Douglas Schooner has been our Chief Manufacturing Officer since June 2014 and an SVP since 2018. Mr. Schooner joined us in 1993 and became the Vice President, Global Manufacturing Operations in January 2001 until his promotion in June 2014. Mr. Schooner has held the positions of Engineer, Production Manager, Assistant Vice President, Production and Vice President, Manufacturing prior to assuming his current position with Company. As Chief Manufacturing Officer, Mr. Schooner is responsible for all manufacturing, materials and logistic operations for our facilities. Mr. Schooner has a Bachelor of Science degree in Mechanical Engineering from the California State University, Long Beach.

 

Kamlesh Shah has been our Chief Accounting Officer since November 2019. Prior to this, Mr. Shah served as our Vice President, Corporate Controller since 2016, and has been with the Company since 2007, having joined as an Assistant Controller. Before joining us in 2007, he served as an Assistant Controller for Leiner Health Products Inc., a private label manufacturer of vitamins and pharmaceutical products. Prior to joining Leiner in 2000, Mr. Shah held various accounting positions at both domestic and international companies. Mr. Shah is a Certified Public Accountant. In addition, he holds a degree in Finance and Accounting from the University of Bombay, along with a diploma in Financial Management and Computer Management.  

 

 

13

 

Juliet Stone has been our Vice President, General Counsel and Corporate Secretary since September 2019. She acted as Senior Corporate Counsel at Stamps.com from February 2017 to August 2019, as General Counsel at Hanmi Financial Corporation from November 2013 to January 2017 and in various legal roles including General Counsel at BBCN Bancorp, Inc. FNA Nara Bancorp. Inc from 2006 to 2013. Ms. Stone is admitted to practice law in California and is a graduate of The University of Southern California Law Center and a recipient of a Bachelor of Arts in Economics-Business from University of California at Los Angeles.

 

There are no family relationships among our directors or named executive officers. There are no material proceedings to which any of our directors or executive officers or any of their associates, is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries. To our knowledge, none of our directors or executive officers has been convicted in a criminal proceeding during the last ten years (excluding traffic violations or similar misdemeanors), and none of our directors or executive officers was a party to any judicial or administrative proceeding during the last ten years (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. To our knowledge, none of our directors or executive officers are subject to any petition under federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing, with the following exception: to the extent that such persons were involved in bankruptcy proceedings related to the Company’s subsidiary.

 

14

 

Compensation Discussion and Analysis

 

A strong commitment to enhancing shareholder value has been a guiding force throughout the Company’s history. Consistent with the overall objective to enhance shareholder value, management consistently strives to communicate the Company’s success in reaching its near and long-term strategic goals. The Company completed its footprint of the future through the execution of the Company’s multi-year strategic growth program, and in Fiscal 2022 our goals focused on financial targets to benefit the Company and our shareholders. The Company achieved strong EBITDA after adjustments and Net Sales but suffered relative to Pre-tax ROIC and Net Cash Provided by Operating Activities. Knowing that it would hurt the Pre-tax ROIC and Net Cash Provided by Operating Activities, in Fiscal 2022, the Company made a conscious decision to invest cash in inventory for several reasons: 1) to serve our customers better given the ongoing supply chain issues, 2) to launch a new brake-related product line, and 3) to incentivize new customers to work with us. Though it may hurt ROIC in the short run, we believe our decision to invest in inventory should pay off in the long run. The increased inventory levels in a time of uncertainty with supply chain, significantly helped us land new business of approximately $65 million annualized. These inventory levels allowed the customers to be comfortable with our ability to meet the increased demand for our product. We have secured a large customer for our full line of brake products and believe that the line should significantly grow in the near and long-term. Specifically, we secured incremental business for our fast-growing brake rotor, pads and brake caliper businesses. The inventory also made us more competitive to retain our current customers and attract other new business.

 

It is important to note that in Fiscal 2019 the Company embarked on a strategy to launch non-discretionary hard parts in a category (full line brake supply) that is for the most part agnostic to the electric vehicle technology and that would position us for long term growth regardless of prevailing technology. Though COVID delayed the timing of the strategy, the Company believes that the initial success of this strategic initiative will pave the way for years of growth in shareholder value. In Fiscal 2022 the compensation strategy was meant to incentivize this successful strategic initiative, paving the way for sustained growth in shareholder value. In the next fiscal years compensation will be driven to incentivize successful execution and implementation of the plan.

 

With this strategic plan in place the Company believes that as it transitions to its next plateau of growth that the substantial majority of both its human and physical plant is in place. This in effect should allow us to leverage current overhead to grow profitability and to generate Net Cash Provided by Operating Activities. Shareholder return remains the main focus of the incentive compensation plans put in place by the Company in Fiscal 2022. Specifically, in response to shareholder comments, we have incorporated shareholder return metrics in all areas of total compensation, including in the individual and Company goals for our Fiscal 2022 Annual Cash Incentive Plan, the long-term PSUs granted to the named executive officers and the performance-based restricted stock grant to the CEO.

 

This Compensation Discussion and Analysis describes our executive compensation program for our named executive officers for Fiscal 2022. The following discussion and analysis of compensation arrangements of our named executive officers for Fiscal 2022 should be read together with the compensation tables and related disclosures set forth below.

 

We are proud of our accomplishments in achieving the key milestones related to the strategic plan discussed above during Fiscal 2022, including the following:

 

ü We achieved organic sales growth of more than 20 percent;

 

ü We secured new multi-year business commitments of more than $100 million, primarily across multiple brake-related products;

 

ü We developed a comprehensive line of brake pads utilizing an industry-leading formulation, and brake rotors, serving the professional installer market under the Company’s Quality-Built brand (we expect this business to exceed $300 million in the next three to five years);

 

ü We successfully expanded sales through additional product line launched in Mexico;

 

ü We completed a multi-year expansion program of our facilities in Mexico, including completion of a new brake caliper manufacturing facility, which enabled us to get significant new brake caliper business;

 

ü We added capacity to support anticipated future growth with limited additional capital investment;
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ü We secured purchase orders from all major automotive retailers for rotating electric bench-top testing equipment; potential opportunity is approximately $80 million, over the next three to five years, this is the start of us moving towards a “SaaS” model (Software as a Solution) for our diagnostic business;

 

ü We won various prestigious Tier-1 orders for our EV technology from major global automotive, aerospace and research institutions;

 

ü We opened an EV contract testing center in Detroit, Michigan which should accelerate our SaaS model once remote testing is launched; and

 

ü We extended the maturity date of our Credit Facility from June 2023 to May 2026 to enhance our liquidity and capital resources;

 

Executive Compensation Summary.

 

The Company’s strategic planning process OGSM has a singular objective each year – to build shareholder value.

 

OGSM stands for Objective, Goals, Strategies, and Measurement. As mentioned above the Objective is singular and has always been to build shareholder value; the Goals are the items to be accomplished that will result in building shareholder value; the Strategies are all the executables that must take place to accomplish the goals and last but not least Measurements are used to track the progress and serve as a benchmark for executive compensation and bonuses. The Board meets annually each year to discuss, develop and refine the Company’s strategic plan, subsequently the executive management team meets to develop the specific OGSM process keyed off the strategic planning initiatives recommended by the Board. Once the executive OGSM is completed and presented to and approved by the board a detailed business plan and budget is developed and presented to the Board for approval.

 

The CEO’s goals each year are set by the Board and Compensation Committee to align with the strategic planning initiatives set at OGSM each year. In turn each named executive officer is assigned goals meant to cascade off the CEO/Company goals. As such, OGSM serves as the backbone of designing and measuring our executive compensation.

 

The retention of experienced, highly capable and dedicated executives is crucial to the long-term success of our Company. To achieve the goal of recruiting, retaining and motivating our executives, our Compensation Committee has developed an overall executive compensation program that rewards these employees for their contributions to our Company.

 

The primary objectives of our practices with respect to executive compensation are to:

 

Provide appropriate incentives to our executive officers to implement our strategic business objectives and achieve the desired Company performance

 

Reward our executive officers for their contribution to our success in building long-term shareholder value

 

Provide compensation that will attract and retain superior talent and reward performance.

Specific measures taken to improve the alignment of our compensation practices with shareholder return and better align executive compensation with company performance (“pay for performance”) in Fiscal 2022 include:

 

· Replacing options with long term performance-based restricted stock units (PSUs) with shareholder-focused metrics to encourage greater alignment of interest between shareholders and executives;
· Increase in Mr. Joffe’s performance-based equity weighting to 80% of his equity compensation;
· Introduction of a three-year performance measurement period and cliff vesting for PSUs to place greater emphasis on longer-term performance;
· Use of a three-year relative total shareholder return metric to place greater emphasis on shareholder value creation and to better reflect shareholders’ expectation that the company should strive to create return greater than its peers;
· For Fiscal 2023, for the PSU grant, increased weighting to 30%, from 20% in Fiscal 2022, for relative total shareholder return to place greater emphasis on shareholder return;

· Reduction of Individual Performance weighting to 20% from 30%, as well as Mr. Joffe’s Individual Goals being fully aligned with the Company Performance Goals;
· Capping of Individual Goal payout to the achievement of Company Performance Goals;
· Slightly above-target payout on quantitative corporate performance metrics (EBITDA after adjustments, pre-tax ROIC, and Net Sales after adjustments) reflecting strong financial performance, despite this the second-year tranche of performance-based stock options, granted in Fiscal 2021 not vesting and being forfeited due to stock price target not being met, reinforcing pay for performance alignment.
 
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Compensation Components and Key Elements.

 

With our compensation objectives in mind, as further described below, our executive officer compensation program consists of five primary elements:

 

Base Salary. Base salary is the “fixed” component of our executive compensation intended to meet the objective of attracting and retaining the executive officers of superior talent that are necessary to manage and lead our Company.

 

Annual Cash Incentive Plan. We use a cash-based incentive plan to motivate the achievement of key short-term pre-determined financial and individual performance goals meant to enhance shareholder value.

 

The following table includes the target cash-based incentive compensation for each named executive officer in Fiscal 2022:

 

Named Executive Officer  

Target Incentive

Compensation

   
Targeted
Compensation for
Achieving the
Targeted Performance
on the Company
Performance Goal
(80% of Total)
    Targeted
Compensation for
Achieving
Individual Goals
(20%)
 
Selwyn Joffe   $ 993,907     $ 795,126     $ 198,781  
David Lee   $ 198,960     $ 159,168     $ 39,792  
Richard Mochulsky   $ 116,886     $ 93,509     $ 23,377  
Doug Schooner   $ 142,884     $ 114,307     $ 28,577  
Juliet Stone   $ 103,350     $ 82,680     $ 20,670  

 

Longer-term, Equity-Based Incentive Plan. Equity awards are a part of our overall executive compensation program to align the interests of our executives with those of shareholders while rewarding individual performance and ensuring we offer competitive compensation levels. In Fiscal 2022, half of the value of the equity awards granted to our named executive officers (not including Mr. Joffe’s performance-based restricted stock award) were performance based and included PSUs requiring three years of performance to vest.

 

Deferred Compensation Benefits. We offer participation in a non-qualified deferred compensation plan to selected executive officers which provides unfunded, non-tax qualified deferred compensation benefits. We believe this program helps promote the retention of our senior executives. Participants may elect to contribute a portion of their cash compensation to the plan. In Fiscal 2022 we made matching contributions of 100% of each participant’s elective contributions to the plan up to 3% of the participant’s cash compensation for the year.

 

Employee Benefits. All of our full-time employees, including our named executive officers, are eligible to participate in our health and welfare plans. The Company does not provide pension benefits, other than matching contributions under the Company’s 401(k) retirement plan. The Company may also from time to time provide perquisites such as Company-paid or reimbursed automobiles, additional coverage under our medical plans and participation in deferred compensation plans, as discussed in this proxy statement.

 

We believe that a significant portion of executive officer compensation should be at-risk and dependent upon the achievement of measurable and objective performance metrics tied to increased shareholder value. In Fiscal 2022, the awards under the Annual Cash Incentive Plan for all named executive officers were based on the achievement of pre-determined objective metrics of the Company and each individual named executive officer. Approximately 55% of the Chief Executive Officer’s total direct Fiscal 2022 compensation is comprised of stock awards (the “Equity Component”), including PSUs and performance-based restricted stock awards. These awards are subject to fluctuations in the Company’s stock price, which we believe aligns his interests with the interests of the Company’s shareholders going forward. This percentage compares with an Equity Component percentage (as compared to total direct compensation) of approximately 68% in Fiscal 2021, 50% in Fiscal 2020 (Mr. Joffe waived his right to receive the performance-based restricted stock, due under this Employment Agreement, in Fiscal 2020) and 75% in Fiscal 2019. A great majority of Mr. Joffe’s Equity Component consists of performance-based awards focused on enhanced shareholder value, even better aligning his compensation with the interests of our shareholders.

 

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With respect to our Annual Cash Incentive Plan, the individual performance metrics employed in recent years focused on the transformation of our business including the launch of our new full line brake program, consolidation of our operations into low-cost countries, and electric vehicle and aerospace initiatives. In Fiscal 2022 and the beginning of Fiscal 2023, we continued to invest in infrastructure and production processes needed for long term growth of the MPA franchise while investing more cash in inventory to assist in our long-term business objectives. Notwithstanding the effects of continuing supply chain issues, we believe our investments are bearing, and will continue to bear fruit in the coming periods.

 

Additionally, in Fiscal 2022, the Company granted to our named executive officers long-term cliff vesting PSUs which are tied to the achievement of EBITDA, after certain adjustments, Relative TSR against the Russell 3000, excluding financial and real estate companies and Net Sales, after certain adjustments. In Fiscal 2023, the Company again granted to our NEOs long-term cliff vesting PSUs which are tied to the achievement of similar shareholder return focused goals, with Relative TSR being weighted more heavily. Appendix A shows how EBITDA and Net Sales, each after certain adjustments was calculated in Fiscal 2022. The metrics for the grants made in Fiscal 2022 and Fiscal 2023 are each based on such numbers three years in the future but should be derived in a similar fashion. Relative TSR is calculated by a third party using a Monte Carlo simulation.

 

Moreover, we believe that the compensation program should serve the interests of shareholders. Accordingly, we have adopted various policies and practices that we believe are in shareholders’ interests, including:

 

What We Do What We Don’t Do
Align pay with performance No “single-trigger” equity acceleration in connection with a change in control
Formulaic cash-based incentive program, with 80% of total cash-based annual incentive award opportunity tied to objective financial performance goals Do not provide above-market interest rates on deferred compensation

Maintain rigorous stock ownership requirements:

3x base salary (CEO) and 2x base salary

(other named executive officers)

Do not re-price or exchange stock options without shareholder approval

Maintain a clawback policy (see “Governance

Policies and Guidelines—Clawback Policy” above)

Do not allow hedging or pledging of our equity securities
Annual say-on-pay vote  
Seek and respond to input from our shareholders regarding executive compensation  
Independent compensation consultant  

 

As discussed above under “Governance Policies and Guidelines—Stock Ownership Guidelines,” we have also adopted stock ownership guidelines, pursuant to which each of our directors and executive officers are required to hold a certain number of shares of our common stock, within a specified timeframe.

 

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Say on Pay Vote.

 

At the Annual Meeting held on September 13, 2021, 87% of the votes cast by our shareholders approved the non-binding advisory vote related to executive compensation. As a result, we engaged and expect to continue to engage our shareholders to understand their concerns with our executive compensation program, and with the goal of enhancing our shareholder communications. Please see Engagement of Shareholders section above for further details. In Fiscal 2022, we held discussions with nearly all of our major shareholders, representing 55% of the holders of Company common stock, regarding executive compensation and other governance and business performance issues. In response to the feedback we received in these meetings, we continued to enhance our incentive compensation goals of focusing on fulfilling our long-term strategic objectives and building shareholder value. The Annual Cash Incentive Plan for Fiscal 2022 employs Company and individual based objective metrics focused on building shareholder value and return. The equity granted in Fiscal 2022 and beyond include long term PSUs with cliff vesting three-year performance metrics for all Executive Committee members, including the named executive officers and a restricted stock grant to the CEO that vests upon the achievement of objective financial metrics intended to increase shareholder value and return. Our Executive Committee is a group of worldwide senior staff, including our named executive officers, who meet weekly and are responsible for management and oversight of the Company, including our subsidiaries. All members of the Executive Committee were given objective metrics focused on building shareholder value to align our entire management team.

 

In Fiscal 2022, the Company completed a multi-year investment program to support its expanded non-discretionary automotive product lines. The Company’s brake related products, including brake calipers, brake rotors and its comprehensive line of brake pads were formally launched in Fiscal 2022 for the professional market, are gaining significant momentum with exciting commitments and interest in the products. This will result in continuing growth and profitability in our hard parts business. Equally important, as these product lines grow, the Company’s entire manufacturing, distribution and organizational footprint should leverage fixed costs. These factors, combined with favorable long-term industry dynamics, will support the Company’s growth and profitability targets, and enhance shareholder value. In addition, the Company’s D&V subsidiary continued to gain traction in Fiscal 2022 with a series of global wins for its cutting-edge EV technology, as well as the ramp up of its Detroit Technical Center to support innovative and cost-effective solutions for electric vehicle manufacturers.

 

Engagement with Shareholders

 

We openly encourage direct dialogue between management and shareholders. And try at least on a quarterly basis to make contact with our shareholder base. We host an open conference call to discuss earnings and have a “no restriction” question and answer session for our participants. In addition we actively engage with our shareholders in person, by phone, and through written correspondence. During Fiscal 2022, we met via conference call / video and in person with most of our largest shareholders and many other shareholders. We consider the shareholders’ feedback offered during those meetings and continue to improve our corporate governance, communication and executive compensation practices.

 

Shareholders expressed a desire that a majority of equity awards granted to our named executive officers be based on metrics directly related to enhancing shareholder value. Starting in Fiscal 2022, of the equity awards granted to our named executive officers (other than Mr. Joffe’s restricted stock award) approximately fifty percent (50%) of the value of such awards were granted as restricted stock units that vest ratably over a three-year period subject to continued service, and approximately fifty percent (50%) of the value of such awards were granted as performance-based restricted stock units (PSUs) that are eligible to vest at the end of a three-year period based on the Company’s achievement of the following financial performance metrics tied to our projected budget for Fiscal 2024, at the time of grant: 1) EBITDA, with certain adjustments (50% weighting), 2) Relative Total Shareholder Return (TSR) to Russell 3000, with financial and real estate companies excluded (20% weighting), and 3) Net Sales, with certain adjustments (30% weighting), each of which, the Company believes focuses on driving shareholder value. In addition, the PSUs granted in Fiscal 2022 vest at the end of a three-year performance period, as opposed to performance-based stock awards granted in prior fiscal years which vest annually over a three-year period, which we believe focuses on driving long-term shareholder value.

 

With respect to our Fiscal 2022 annual incentive award (bonus) plan (the “Annual Cash Incentive Plan”) for executive officers, we chose three key metrics for the portion of the award based on the achievement of Company performance objectives: 1) Pre-tax return on invested capital (ROIC) (20% weighting), 2) EBITDA, with certain adjustments (50% weighting), and 3) Net Sales, after certain adjustments (30% weighting), each as explained in Appendix A. These three metrics are viewed as key indicators of our performance that our CEO, CFO and VP Investor Relations discussed with most of our shareholders. The Compensation Committee deemed that these key executable metrics in Fiscal 2022 were critical to the future success of the Company and would directly translate to building shareholder value. Please note that historically the sales metric applicable to annual performance awards was changed from Net Sales Run Rate for Fiscal 2021 awards to Net Sales, after certain adjustments for Fiscal 2022 awards. Though it may appear that the metric was reduced from Fiscal 2021 to Fiscal 2022, in fact the metric became more rigorous, as Net Sales Run Rate includes all sales actually made, plus those that are promised but may not be fulfilled for one to three years, while Net Sales, after certain adjustments is a number tied to sales actually made in the fiscal year.

 

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Additionally, the CEO’s Fiscal 2022 performance based restricted stock grant was tied to the following goals which we believe focus on increasing shareholder value: 1) EBITDA, after certain adjustments, 2) Net Sales, after certain adjustments, and 3) Pre-tax ROIC. Each of these measures is contained in the Company’s 8-K filing, of the press release to our earnings release made on June 14, 2022. We believe the historical multi-year capital investments made in inventory and other projects put the Company in a position to win new business, including the launch of a new product line (allow a full line of brake products) which should positively impact our overall sales, allowing continued sustained growth and profitably, in the brake line as well as our full product line.

 

When talking to shareholders in Fiscal 2022 we received input that shareholders wanted incentive-based compensation based on the generation of positive cash flow from operations and as a result we included such metric in our Fiscal 2023 incentive plans. In Fiscal 2023, we have continued to emphasize our focus on shareholder value and return by adding Net Cash Provided by Operating Activities as the largest portion of the performance metric in our short term incentive plan, as well as in the CEO’s restricted stock grant, as the Compensation Committee and the Board emphasized the ever increasing importance of positive cash flow in today’s fiscal environment, and increasing the weighting of the Relative TSR performance metric for the PSUs granted in Fiscal 2023 to 30% weighting from 20% in Fiscal 2022.

 

In Fiscal 2022, the CEO, General Counsel and the Chair of the Compensation Committee reached out to shareholders — representing more than 70 percent of ownership and receiving feedback from more than 55 percent. The Compensation Committee Chair and General Counsel exchanged perspectives with the shareholders and listened carefully to their concerns. The dialog focused on incentive compensation directly tied to short-term and long-term shareholder returns, the need for incentive compensation to properly reflect the fiscal results of the Company, and the blueprint to implement ESG disclosure to better capture the benefits of remanufacturing in general and MPA specifically.

 

As a direct result of shareholder feedback:

 

the Compensation Committee continued to engage Willis Towers Watson (“WTW”) to advise the Compensation Committee relative to the overall compensation program for executives and directors (please see, Engagement of Compensation Committee Consultant section below);

 

we continued our focus on and commitment to reducing our mark on the planet, bettering the conditions of our employees and the disclosure of our work relative to ESG, a natural fit for a company that focuses on remanufacturing and electrification of vehicles to substantially eliminate the automotive carbon footprint;

 

the Compensation Committee:

 

(a) sharpened the requirement of shareholder return metrics utilized in the Company and individual portion of our Annual Cash Incentive Plan in Fiscal 2022, and increased the weighting of such shareholder focused return metrics in Fiscal 2023;

 

(b) further enhanced the shareholder return metrics in a majority of the Fiscal 2023 grants, including grants of long-term PSUs vesting over three years and the CEO performance-based restricted stock grant; and

 

(c) continued our pattern of aligning the metrics for the CEO’s restricted stock grant to shareholder expectations as follows: 1) in Fiscal 2021, metrics balanced incentives for timely execution of the strategic initiatives discussed, and shareholder return metrics; 2) in Fiscal 2022, metrics focused on Company financials rather than strategic initiatives and included Pre-tax ROIC, EBITDA, after certain adjustments, and Net Sales, after certain adjustments; and 3) in Fiscal 2023, metrics will continue to focus on Company financials with a large focus on the generation of cash.
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Determination of Compensation Decisions.

 

The Compensation Committee is responsible for establishing, developing and maintaining our executive compensation program. The role of the Compensation Committee is to oversee our compensation and benefits plans and policies, administer our equity incentive plans and review and approve all compensation decisions relating to all executive officers and directors. For the Compensation Committee to perform its function, the following process for determining executive compensation decisions has been followed.

 

Engagement of Compensation Committee Consultant.

 

In Fiscal 2022, the Compensation Committee retained WTW to review the Board’s overall compensation. Please see Director Compensation below for a full discussion.


In Fiscal 2021, in response to comments from our shareholders, the Compensation Committee retained WTW to assist the Compensation Committee complete an overview of our compensation process and metrics, including: the review of our peer group, short and long-term equity incentive plan as well as overall compensation levels of our Executive Committee. Such work was completed and implemented in the compensation metrics utilized in Fiscal 2022, as our grants and metrics are set at the beginning of each fiscal year. WTW has assisted the Company to respond to our shareholders, focusing our incentive compensation on shareholder return metrics. WTW does not perform any other consulting work or any other services for our Company, reports directly to the Compensation Committee, and takes direction from the Chair of the Compensation Committee. The Compensation Committee has assessed the independence of WTW pursuant to the rules prescribed by the SEC and has concluded that no conflict of interest existed or currently exists that would prevent WTW from serving as an independent consultant to the Compensation Committee.

 

The Compensation Committee considered analysis and advice from WTW when making compensation decisions for the Chief Executive Officer and other senior executives with regard to Fiscal 2022 compensation, including WTW’s input on performance-based metrics for the annual cash and equity awards made, as well as the use of long term cliff vesting performance-based stock units.

 

Peer Group. WTW reviewed our peer group in Fiscal 2021 and determined that there were no meaningful changes that would improve our peer group, due to the lack of other public companies of similar market capitalization providing a similar product mix. As such the following peer group was maintained for Fiscal 2021: Dorman Products Inc., Fox Factor Holding Corp., Horizon Global Corporation, Modine Manufacturing Co., Myers Industries, Inc., Shyft Group Inc., Standard Motor Products Inc., Stoneridge Inc., Strattec Security Corp., Gentherm, Inc., Superior Industries International Inc. and Voxx International Corporation. Given the limitations of our peer group, WTW recommended that we assess compensation in relation to our peer group as well as other companies with similar revenue to obtain a more fulsome view of the market. Though the Compensation Committee does not itself undertake a formalized benchmarking process, it did engage WTW to perform such a review detailing the competitiveness of our executive compensation relative to that of a peer group and survey data of other companies with similar revenue.

 

Fiscal 2022 Total Executive Compensation Review.

 

In reaching its executive compensation decisions for Fiscal 2022, the Committee considered analysis and advice contained in the WTW review regarding the competitiveness of our executive compensation program in comparison to our peer group and compensation surveys. The Compensation Committee believes that executive compensation, in aggregate, was within a competitive range around the market 50th percentile for base salary, target total cash and target total direct both inclusive and exclusive of the CEO with variation by individual. The compensation levels assessed by WTW were based on actual base salary, target bonus and fair value of our most recent long-term incentives. When managing executive compensation towards our compensation philosophy, we focus on competitiveness in the aggregate with the understanding and expectation of individual variation relative to market.

 

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Determining Executive Compensation.

 

Base Salaries. Our general policy is to initially set the base salaries of our named executive officers at levels that are competitive with our peers, and we generally only increase salaries in the case of promotions or significant increases to an officer’s duties and responsibilities. In Mr. Joffe’s case, his employment agreement provides for review of his base salary from time to time. Any increases to base salaries are reviewed by the Compensation Committee on a case-by-case basis. Mr. Joffe received a base salary increase from $752,960 to $828,256, as of June 18, 2021. Mr. Mochulsky received a base salary increase from $278,300 to $292,215, as of October 3, 2021, Mr. Lee received a base salary increase from $334,950 to $361,746, as of February 7, 2022, Ms. Stone received a base salary increase from $325,000 to $344,500, as of February 7, 2022, and Mr. Schooner received a base salary increase from $408,240 to $424,570, as of April 11, 2022. The Compensation Committee believed these increases were reasonable and meant to keep each officer closer to the target compensation percentile (50th for all named executive officers except the CEO who has a target of 75th percentile). The following table sets forth the Fiscal 2022 base salaries for each named executive officer:

 

Named Executive Officer   Base Salary  
Selwyn Joffe   $ 828,256  
David Lee   $ 361,746  
Rick Mochulsky   $ 292,215  
Doug Schooner   $ 408,240  
Juliet Stone   $ 344,500  

 

Annual Cash Incentive Plan. Each year we administer a cash-based incentive compensation program that aims to reward our named executive officers for the achievement of key financial (80%) and individual (20%) performance goals. In Fiscal 2022, the Company performance-based metrics included: (1) EBITDA with certain adjustments, (50%), which is calculated as earnings before interest expense, income tax expense, depreciation and amortization and other adjustments described in our earnings releases attached as exhibits to the Company’s Reports on Form 8-K reporting the Company’s results of operations and financial condition for the applicable fiscal year as filed with the SEC, (2) Pre-tax return on invested capital (ROIC) (20%), and (3) Net Sales after certain adjustments, shall mean the Company’s net sales as calculated including items impacting the results as described in the Company’s earnings releases filed with the SEC on Form 8-K (30%) (collectively, the “Company Performance Goal”) and an individualized set of quantitative goals for each individual officer (the “Individual Goals” and, together with the Company Performance Goal, the “Performance Goals”). See Appendix A for a description of Company Performance Goal. Please note that the sales metric was changed from Net Sales Run Rate to Net Sales after certain adjustments. Although it appears the metric was reduced from Fiscal 2021 to Fiscal 2022, the metric actually increased materially. A Net Sales Run Rate includes all sales actually made plus those that are promised but may not be fulfilled for one to three years. Net Sales after certain adjustments is a number tied to actual sales in the fiscal year.

 

The Company Performance Goals were established by the Compensation Committee following its review of the Company’s plan, strategic initiatives and budget, and are shown in the chart below. Achievement of these goals represented 80% of the NEOs’ annual cash-based incentive opportunity.

 

Company Performance Goal

 

 

% of Company

Performance Goal

target bonus

Threshold (50%) Target (100%) Maximum (150%)
EBITDA after adjustments 50% weight $74,000,000 $77,321,000 $82,000,000
Pre-tax ROIC 20% weight 18.5% 19.3% 20.5%
Net Sales after adjustments 30% weight $546,125,000 $570,590,000 $594,203,000

 

The Company’s actual performance with respect to the Company Performance Goals in Fiscal 2022 is shown in the chart below:

 

 

% of Company

Performance Goal

target bonus

Actual % of Target Reached Bonus
EBITDA after adjustments 50% weight $78,587,000 113.5% 56.75%
Pre-tax ROIC 20% weight  18.1% 0% 0%
Net Sales after adjustments 30% weight $652,563,000 150% 45%

 

 

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Total Bonus Earned by the named executive officers with respect to the Company Performance Goals was 101.8%.

 

Each named executive officer was eligible to receive payment with respect to a Company Performance Goal provided the Company achieved that goal at the threshold amount or above (the “Threshold Goal”). If the Company’s actual performance was lower or higher than the target amount established for the relevant metric the bonus earned with respect to that goal was interpolated between either the threshold and the target amounts (50% and 100%) or the target amount and the maximum amount (100% and 150%) for each goal, multiplied by the percentage weighting for that goal.

 

Twenty percent (20%) of our annual cash-based incentive program is tied to the attainment of individual performance goals, which in conjunction with and approval by the Board, are established for each named executive officer at the beginning of the fiscal year. The Board reviews and approves the overall Company strategy, as well as the individual goals and strategies used to achieve our overarching goals and long-term plans. The Compensation Committee established the Individual Performance Goals for Mr. Joffe using the same performance metrics underlying the Company Performance Goals, though with a different weighting. The Individual Goals established for Fiscal 2022 for each named executive officer are detailed in the tables below.

 

The performance management process employed to establish individual goals, included three steps: 1) develop SMART goals that are specific, measurable, attainable, realistic, and time-bound, 2) weight the goals to equal 100%, and 3) score the goals. To receive credit for an individual bonus the named executive officer must achieve an overall score of “meets most” of the total of metrics or at least 80%. A “meets all” will pay out at 100% of target, and an “EPICQ” pays out between 100% to the maximum of 150% credit. Achievement of a score between the levels results in a payout based on straight line interpolation. The maximum payout for the individual goals is set by the Company performance to best align pay rigor and pay and performance alignment, for instance in Fiscal 2022, the Company met 101.8%, so the maximum level for an individual is also 101.8%. The Compensation Committee reviewed the performance of each of the named executive officers and assessed their accomplishments against the pre-set goals for each executive, as discussed above. Mr. Joffe assists the Committee in reviewing each of the named executive officers, other than his own performance.

 

 

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At the end of Fiscal 2022, the Compensation Committee reviews the performance of each named executive officer and assesses each of their accomplishments against their respective Individual Goals. Mr. Joffe assists the Committee in reviewing each of the named executive officers, other than his own performance. Based on its review and evaluation, the Compensation Committee makes the final determination of the appropriate percentage of each of their Individual Goals that they have met. The Committee may exercise negative discretion or positive discretion if a named executive officer meets a measurable stretch goal in the execution of their performance metrics. The Company believes that the strategic initiatives supported by each of the Individual Goals has an immediate positive impact and, more importantly, will be critical to achievement of the Company’s five-year revenue growth and shareholder value targets. The Individual Goals established for each named executive officer and actual achievement of those goals are as follows:

 

Selwyn Joffe, Chief Executive Office

 

Strategic Performance Metric / %  Achievement Specifics  Percentage Achievement  Weighted Achievement
EBITDA after adjustments  / 50.0% Actual EBITDA after adjustments exceeded the target EBITDA 113.5% 56.8%
Net Sales after adjustments / 30.0% Net sales after adjustments exceeded the maximum 150.0% 45.0%
Pre-tax return on invested capital (ROIC)  / 20.0% Pre-tax ROIC did not exceed the threshold pre-tax ROIC. 0.0% 0.0%
Total Individual Weighted Achievement     101.8%
Maximum Individual Goal     101.8%

 

David Lee, Chief Financial Officer

 

Strategic Performance Metric / %  Achievement Specifics  Percentage Achievement  Weighted Achievement
Maximize company’s capital structure maintaining liquidity and optimal operating metrics, including cash flow to build shareholder value / 25.0% Optimal operating metrics achieved 75.0% 18.8%
Manage total shareholder return metrics / 20.0% Shareholder return targets not met 0.0% 0.0%
Successful completion of PNC Bank, 3rd amendment agreement  / 20% Completed 3rd amendment of credit agreement with PNC Bank 125.0% 25.0%
Enhance Auditor communication - Monthly Basis / 15% Faciliate more efficient audit 150.0% 22.5%
Optimize internal control and Sox compliance systems / 20.0% Met optimal internal control goals 150.0% 30.0%
Total Individual Weighted Achievement     96.3%
Maximum Individual Goal     101.8%

 

Rick Mochulsky, SVP Sales & Marketing

 

Strategic Performance Metric / %  Achievement Specifics  Percentage Achievement  Weighted Achievement
Achieve sales target by increasing sales / 35% Exceeded 100% of sales target 150.0% 52.5%
Expand sales of brake caliper products to Customer A / 15.0% Expanded sales of brake caliper products met 150.0% 22.5%
Successful group approval by "Alliance" and "the group" for calipers / 10.0% Number of groups approved met goal threshold 50.0% 5.0%
New Customers / 15.0% New customer metric not met -50.0% -7.5%
Expand sales of brake booster products / 10.0% Achieved expansion of sales of certain product lines 50.0% 5.0%
Increase Dixie heavy duty sales / 10.0% Achieved  increase in sales for Dixie 100.0% 10.0%
Increase Dixie light duty sales / 5.0% Achieved increase in sales for Dixie 150.0% 7.5%
Total Individual Weighted Achievement     95.0%
Maximum Individual Goal     101.8%

 

 

24

 

Doug Schooner, SVP, Chief Manufacturing Officer

 

Strategic Performance Metric / %  Achievement Specifics  Percentage Achievement  Weighted Achievement
Increase production capacity and quality standards / 25% Met or exceeded production capacity, improved customer fill rates, and maintained applicable quality standards and certificates at all locations. 140.0% 35.0%
Increase brake booster production and develop new brake booster products / 15% Goal achieved. 150.0% 22.5%
Support distribution, expanded capacity, and fill rate recovery for wheel hubs / 15% Expanded capacity and improved fill rates. 116.5% 17.5%
Dixie operations integration / 30.0% Record production achieved, warehouse consolidation achieved, increased core induction capacity, purchasing standardization achieved, operations integration achieved, and improved IATF16949 protocols. 133.5% 40.1%
Increase production capacity, packaging, and distribution of turbochargers / 5% Production capacity for turbochargers expanded. 100.0% 5.0%
Operations expansion / 10% Expanded capacity for brake calipers, launched distribution of brake pads and brake rotors. 150.0% 15.0%
Total Individual Weighted Achievement     135.0%
Maximum Individual Goal     101.8%

 

Juliet Stone, Vice President, Secretary and General Counsel

 

Strategic Performance Metric / %  Achievement Specifics  Percentage Achievement  Weighted Achievement
Reduce spending on outside legal counsel for non-litigation/regulatory matters over Fiscal 2021 / 40.0% Met cost savings goal 100.0% 40.0%
Provide legal counsel and advice while improving customer satisfaction / 30.0% Customer satisfaction met target goals 77.0% 23.1%
Legal and strategic advice on M&A/structural endeavors to executive management and the board of directors / 20.0% Majority of advice given/reliance on outside legal counsel only for major issues 110.0% 22.0%
Choose contract management system (Year 1), oversee implementation of contract management system (Year 2) / 10.0% Most of contract management system implemented 50.0% 5.0%
Total Individual Weighted Achievement     90.1%
Maximum Individual Goal     101.8%

 

 

25

 

The following table sets forth each named executive officer’s aggregate cash-based incentive opportunity and actual incentive payments earned with respect to Fiscal 2022.

 

Named Executive Officer  

Target Incentive

Payment

    Company Performance Related Incentive Payment     Individual Goal Incentive Payment     Total Actual Incentive Payment  
Selwyn Joffe     $ 993,907     $ 809,120     $ 202,288     $ 1,011,408  
David Lee     $ 198,960     $ 162,000     $ 38,200     $ 200,200  
Richard Mochulsky     $ 116,886     $ 95,120     $ 23,377     $ 118,497  
Doug Schooner     $ 142,884     $ 116,320     $ 29,091     $ 145,411  
Juliet Stone     $ 103,350     $ 84,160     $ 18,603     $ 102,763  

 

Equity-Based Incentive Program. The goal of our long-term, equity-based incentive awards is to align the interests of our named executive officers with the interests of our shareholders. Because vesting is generally based on continued service, in addition to performance-based metrics in most cases, our equity-based incentives also encourage the retention of our named executive officers during the award vesting period. In determining the mix of equity and size of awards to be granted to our named executive officers, we consider the value of equity awards issued by peer group companies, the total value of the compensation opportunity afforded to each named executive officer, and the individual’s position, scope of responsibility, and ability to affect profits and shareholder value. We have historically granted equity awards with 50% of value attributable to stock options and 50% to restricted stock units to balance the incentive to increase shareholder value with full value awards. Beginning in Fiscal 2020, the Company granted our named executive officers stock options with a performance requirement, increasing their alignment with shareholders. The performance stock options granted in 2020 exceeded the performance requirement in 2021 and the first third of the stock options vested; however, in 2022 the performance requirements were not met and the second third of the stock options granted in 2020 did not vest and were forfeited permanently. The performance stock options require that the stock price increase from its initial grant price of $15.12, by 8% in the first year ($16.33), 12% by the second year ($16.93) and 16% by the third year ($17.54). In year two, the stock price had reduced from the initial price of $15.12, and as such the increased stock price was not met. In line with shareholder recommendations, WTW recommended including in the total equity awards granted to our named executive officers in Fiscal 2022 a multi-year performance-based equity award. Accordingly, in Fiscal 2022 the Company granted three-year cliff vesting PSUs to the named executive officers to align the Company’s financial performance with each named executive officer’s equity incentive compensation in addition to awards of restricted stock units that vest upon continued service. They also recommended increased grants to the CFO and General Counsel to bring their equity compensation more in line with our peers, and WTW’s recommendations were employed in Fiscal 2022.

 

Fiscal 2022 Equity Grants

 

In Fiscal 2022, the Company granted to all of our named executive officers restricted stock units that vest upon continued service and long-term PSUs, and, to Mr. Joffe, performance based restricted stock. The following table sets forth the number of shares and grant date fair value of the equity awards granted to the named executive officers in Fiscal 2022.

 

Named Executive Officer  

Restricted

Stock Units

   

Grant Date

Fair Value of

Restricted

Stock Units

   

Long-term

Performance-

based

Restricted

Stock Units

   

Grant Date

Fair Value of

Long-term

Performance-based Restricted Stock Units

   

Performance-

based

Restricted

Stock

   

Grant Date

Fair Value of

Performance-

based

Restricted Stock

 
Selwyn Joffe     20,050     $ 446,514       20,050     $ 465,040       66,667     $ 1,484,674  
David Lee     7,767     $ 172,971       7,767     $ 180,146       -     $ -  
Richard Mochulsky     3,431     $ 76,408       3,431     $ 79,578       -     $ -  
Doug Schooner     4,244     $ 94,514       4,244     $ 98,436       -     $ -  
Juliet Stone     4,097     $ 91,240       4,097     $ 95,024       -     $ -  

 

 

26

 

Each restricted stock unit award listed above vests annually over a three-year period, subject to continued employment. The PSUs vest upon the attainment of the following performance metrics at the conclusion of a three-year performance period: 1) EBITDA after certain adjustments (See Appendix A for FY22 example), (50% weighting), 2) Relative TSR to Russell 3000 with financial and real estate companies excluded (20% weighting), and 3) Net Sales, after certain adjustments (30% weighting). The Compensation Committee believes these metrics promote profitability, aligning performance with shareholder value. The Compensation Committee chose to compare TSR because the Company is a member of the index but excluded financial and real estate companies because their financials differ from the Company’s. The PSUs will be eligible to vest with respect to 0% - 150% of the target number of PSUs granted.

 

In addition, in accordance with the terms of the Third Amendment to his employment agreement, Mr. Joffe waived his right to receive 75,000 shares of restricted stock for Fiscal Year 2020 and instead agreed to receive annual grants of 100,000 shares of restricted stock which vest upon the attainment of performance goals, for each of Fiscal 2021, Fiscal 2022 and Fiscal 2023. Each performance period is tied to the Company’s fiscal year. Mr. Joffe’s performance based Fiscal Year 2022 restricted stock award, granted on June 18, 2021, vested above the target of 66,667 shares, at 77.689% of the maximum, and 77,689 shares of stock vested on June 18, 2022.

 

June 18, 2021, Performance Based Restricted Stock Goals for CEO

 

      Threshold Target Maximum Actual Achievement
  Weighting 0% 33.3% 66.7% 100.0%  
EBITDA after Adjustments 50% <$72,000,000 $72,000,000 $77,321,000 >$80,321,000 $78,587,000
Net Sales after Adjustments 30% <$533,000,000 <$533,000,000 <$533,000,000 >$582,600,000 $652,563,000
Pre-Tax ROIC% 20% <18.0% 18.00% 19.30% >20.0% 18.1%

 

Vesting Schedule for Performance Based Stock Goals for CEO

 

Metric Allocation Vesting Total
EBITDA, after Adjustments 50% 80.93% 40,463
Net Sales, after Adjustments 30% 100% 30,000
Pre-Tax ROIC% 20% 36.13% 7,226
TOTAL   77.69% 77,689

 

 

27

 

Tax Considerations

 

Internal Revenue Code (“IRC”) Section 162(m) generally provides that public companies cannot deduct compensation paid to its covered employees in excess of $1 million per year. Prior to the Tax Cuts and Jobs Act of 2017 (the “Act”), covered employees generally consisted of a corporation’s chief executive officer and each of its other three most highly compensated officers, other than its chief financial officer, and remuneration that qualified as “performance-based compensation” within the meaning of the IRC was exempt from this $1 million deduction limitation. As part of the Act, the ability to rely on this exemption was, with certain limited exceptions, eliminated. In addition, the determination of covered employees was generally expanded. In light of the repeal of the performance-based compensation exception to IRC Section 162(m), we may not be able to take a deduction for any compensation in excess of $1 million that is paid to a covered employee. As has historically been the case, we continue to have the discretion to determine the compensation for our executives that we determine to be appropriate and in the best interests of the Company and its shareholders.

 

Accounting Considerations

 

ASC Topic 718, Compensation-Stock Compensation, or ASC Topic 718 requires us to recognize an expense for the fair value of equity-based compensation awards. Grants of stock options and restricted stock under our equity incentive award plans are accounted for under ASC Topic 718. The Compensation Committee regularly considers the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.

 

 

28

 

Compensation Committee Report

 

The following Compensation Committee Report is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to the SEC proxy rules or the liabilities of Section 18 of the Exchange Act and the report shall not be deemed to be incorporate by reference into any prior or subsequent filing by the Company under the Securities Act or the Exchange Act, except to the extent the Company specifically incorporates this Report by Audit Committee by reference therein.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and based on such review and discussions, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

The Compensation Committee also wishes to outline certain modifications made during Fiscal 2022:

 

Compensation Practices Modifications in Fiscal 2022

 

Compensation Structure for 2022. In designing our compensation program for Fiscal 2022 specifically, we focused on creating and increasing shareholder value in the long and short term. The Company implemented incentive-based compensation with quantitative metrics tied to enhanced shareholder value for all equity and cash-based programs. As such the Compensation Committee set metrics that rewarded the named executive officers for accomplishing substantive financial metrics. We continue to provide opportunities to our named executive officers to realize increases in their overall compensation if their efforts prove successful in generating growth and shareholder value while, at the same time, de-emphasizing those elements of compensation that are not directly related to our performance.

 

Improved Mix of Long-Term and Performance-Based Equity Compensation in 2022. In response to shareholder comments, the Compensation Committee increased the percentage of performance-based awards in Fiscal 2022 for the Executive Committee members and instituted awards of long-term PSUs instead of our traditional grant of stock options. Importantly, all performance-based equity awards granted in Fiscal 2022 utilized quantitative metrics including those focused on improved shareholder value, such as Pre-tax ROIC and relative TSR. Grants were also slightly increased for the named executive officers other than the CEO to improve their total compensation relative to peer and market survey, if the Company and their performance meets the quantitative metrics required. We hope to use the mix of equity vehicles to support our long-term compensation philosophy as well as emphasize performance and alignment of executives with our shareholders.

 

Advancement of ESG Items. Our Company’s very business structure as a remanufacturer has always been concerned with the importance of environmental stewardship, as remanufacturing saves more than 90% of raw materials, energy and water to create a product that is at least, if not better made than a new part. In Fiscal 2022 we continue to focus on additional granularity about our process and effect on the environment, as well as the steps we take to create a positive work environment worldwide. We also care deeply about and are committed to providing a positive environment for our employees and practice best practices relative to corporate governance practices.

 

By Members of the Compensation Committee

 

Rudolph Borneo, Chair

 

Dr. David Bryan

Jeffrey Mirvis

 

 

29

 

Compensation Risk Analysis

 

The preceding “Compensation Discussion and Analysis” section generally describes our compensation policies, plans and practices that are applicable for our executives and management. Our Compensation Committee reviews the relationship between our risk management policies and practices, corporate strategy, and compensation practices. Our Compensation Committee has determined that these plans and practices, as applied to all our employees, including our executive officers, does not encourage excessive risk taking at any level of our Company. The Compensation Committee does not believe that risks arising from its compensation plans, policies or practices are reasonably likely to have a material adverse effect on our Company. Risk related to compensation is also reviewed as part of the Company’s overall compliance process overseen by the Audit Committee of the Company.

 

Summary Compensation Table

 

The following table sets forth information concerning Fiscal 2022, 2021, and 2020 compensation of our named executive officers.

 

Name & Principal Position   Fiscal Year     Salary (1)     Bonus (2)     Stock Awards (3)     Options Awards (3)     Non-Equity Incentive Plan Compensation     Change in Pension Value and Nonqualified Deferred Compensation Earnings     All Other Compensation (4)     Total  
                                                       
Selwyn Joffe  
2022     $ 809,722     $ 100     $ 2,396,227     $ -     $ 1,011,408     $ -     $ 117,191     $ 4,334,649  
Chairman of the Board,     2021       596,036       100       2,512,204       662,343       795,233       -       108,914       4,674,829  
President and CEO     2020       752,960       100       709,109       775,039       747,622       -       102,115       3,086,945  
                                                                         
David Lee     2022     $ 334,913     $ 100     $ 353,117     $ -     $ 200,200     $ -     $ 76,857     $ 965,188  
Chief Financial Officer     2021       285,873       100       118,692       110,857       180,326       -       70,057       765,904  
      2020       319,000       100       118,683       129,718       165,895       -       68,164       801,560  
                                                                         
Richard Mochulsky     2022     $ 284,722     $ 100     $ 155,986     $ -     $ 118,497     $ -     $ 57,433     $ 616,739  
SVP, Sales and Marketing     2021       249,400       100       49,881       46,578       106,383       -       60,813       513,155  
      2020       274,894       100       49,865       54,503       104,473       -       52,218       536,053  
                                                                         
Doug Schooner     2022     $ 404,427     $ 100     $ 192,950     $ -     $ 145,411     $ -     $ 78,935     $ 821,824  
Chief Manufacturing Officer     2021       348,425       100       49,881       46,578       144,749       -       75,434       665,167  
      2020       362,216       100       49,865       54,503       119,952       -       69,460       656,096  
                                                                         
Juliet Stone     2022     $ 327,250     $ 100     $ 186,264     $ -     $ 102,763     $ -     $ 84,614     $ 700,991  
Vice President, Secretary and General Counsel     2021       291,250       100       49,881       46,578       99,605       -       78,217       565,632  

 

(1) Salaries reflect actual amounts earned and paid with respect to services in Fiscal 2022. Mr. Joffe’s salary includes $24,000 to pay for disability insurance, as discussed in his CEO Employment Agreement.

 

(2) Amounts in the “Bonus” column include a $100 bonus paid to each of the Company’s employees during December of each year, including the named executive officers, as a holiday gift to buy groceries.

 

(3) Amounts for 2022 reflect the grant date fair value of time-based restricted stock units and PSUs awarded in Fiscal 2022 to each named executive officer (and, with respect to Mr. Joffe, a restricted stock award), each calculated in accordance with FASB ASC Topic 718, rather than the amounts paid to or realized by the named executive officer. The grant date values relating to time-vested restricted stock units are $446,514, $172,971, $76,408, $94,514, and $91,240 for Messrs. Joffe, Lee, Mochulsky, and Schooner, and Ms. Stone, respectively. The PSUs are subject to both performance and market conditions. With respect to the portion of the PSUs subject to performance conditions, the amounts in the table represent the grant date fair value based on the probable outcome of results, which is the target value, in the following amounts: $357,211, $138,386, $61,131, $75,607, and $73,001 for Messrs. Joffe, Lee, Mochulsky, and Schooner, and Ms. Stone, respectively. With respect to the portion of the PSUs subject to market conditions, the amounts in the table represent the grant date fair value calculated using a Monte Carlo simulation, in the following amounts: $107,829, $41,760, $18,447, $22,830, and $22,023 for Messrs. Joffe, Lee, Mochulsky, and Schooner, and Ms. Stone, respectively. The grant date fair value of the portion of the PSU award subject to performance conditions, as of the grant date, assuming the maximum level of performance, is $535,816, $207,579, $91,697, $113,410, and $109,502 for Messrs. Joffe, Lee, Mochulsky, and Schooner, and Ms. Stone, respectively. Additionally, the 2022 amount for Mr. Joffe includes a restricted stock award that vests upon the attainment of performance conditions, with a grant date fair value of $1,484,674, representing the probable outcome of results, which is the target value. The grant date fair value of Mr. Joffe’s restricted stock award, as of the grant date, assuming the maximum level of performance, is $2,227,000. We provide information regarding the assumptions used to calculate the value of stock awards made to the named executive officers in Notes 2 and 18 to the Company’s consolidated financial statements contained in its Annual Report on Form 10-K filed on June 14, 2022. For more detail on these awards, see “Compensation Discussion and Analysis—Determining Executive Compensation—Equity-Based Incentive Programs.”

 

(4) Represents amounts awarded to named executive officers based on the achievement of Performance Goals under the Company’s Annual Cash-Based Incentive Program. See “Compensation Discussion & Analysis—Determining Executive Compensation—Annual Cash-Based Incentive Program” for more information. The monies listed have been earned, but not yet paid.

 

(5) The following chart is a summary of the items that are included in the “All Other Compensation” totals for the Fiscal 2022:

 

 

30

 

Name   Automobile
Expenses
    Insurance
Premiums (1)
    401K
Employer's
Contribution
    Deferred
Compensation
Plan
Employer's
Contribution
    Total  
Selwyn Joffe   $ 18,000     $ 44,415     $ 6,607     $ 48,169     $ 117,191  
David Lee   $ -     $ 66,810     $ 10,047     $ -     $ 76,857  
Richard Mochulsky   $ -     $ 44,415     $ 1,284     $ 11,734     $ 57,433  
Doug Schooner   $ -     $ 66,810     $ 12,126     $ -     $ 78,935  
Juliet Stone   $ -     $ 66,810     $ 4,999     $ 12,806     $ 84,614  

 

For all our named executive officers, these premiums include premiums for health insurance.

 

Fiscal 2022 Grants of Plan-Based Awards

 

        Estimated future  payouts under non-equity incentive  plan
awards
    Estimated future payouts under equity  incentive plan awards              
Name   Grant Date  

Threshold (50% of

Target)

    Target     Maximum (150%
of Target)
   

Threshold (50% of

Target)

    Target    

Maximum (150%

of Target)

   

All Other Stock

Awards: Number of
Shares of Stock or
Units (1)

    Grant Date Fair
Value of Stock and
Option Awards (3)
 
                                                     
Selwyn Joffe    6/18/2021                             10,025       20,050       30,075           $ 465,040  
Selwyn Joffe    6/18/2021                                                     20,050   $ 446,514  
Selwyn Joffe (4)    6/18/2021                             33,333       66,667       100,000           $ 1,484,674  
Selwyn Joffe    3/25/2021   $ 496,954     $ 993,907     $ 1,490,861                                        
David Lee    6/18/2021                             3,884       7,767       11,651           $ 180,146  
David Lee    6/18/2021                                                     7,767   $ 172,971  
David Lee    3/25/2021   $ 99,480     $ 198,960     $ 298,441                                        
Richard Mochulsky    6/18/2021                             1,716       3,431       5,147           $ 79,578  
Richard Mochulsky    6/18/2021                                                     3,431   $ 76,408  
Richard Mochulsky    3/25/2021   $ 58,443     $ 116,886     $ 175,329                                        
Doug Schooner    6/18/2021                             2,122       4,244       6,366           $ 98,436  
Doug Schooner    6/18/2021                                                     4,244   $ 94,514  
Doug Schooner    3/25/2021   $ 71,442     $ 142,884     $ 214,326                                        
Juliet Stone    6/18/2021                             2,049       4,097       6,146           $ 95,024  
Juliet Stone    6/18/2021                                                     4,097   $ 91,240  
Juliet Stone    3/25/2021   $ 51,675     $ 103,350     $ 155,025                                        

 

 

(1) Except as otherwise noted, represents awards of PSUs that vest upon the achievement of pre-determined performance metrics following the conclusion of a three-year performance period. For more information, see Compensation Discussion and Analysis—Determining Executive Compensation—Equity-Based Incentive Program.

 

(2) Represents awards of restricted stock units that vest over a three-year period, subject to continued employment. For more information see Compensation Discussion and Analysis—Determining Executive Compensation—Equity-Based Incentive Program.

 

(3) Amounts shown represent the grant date fair value calculated in accordance with ASC 718. The assumptions used with respect to the valuation of the equity awards are set forth in Notes 2 and 18 to the consolidated financial statements included in our Annual Report on Form 10-K, filed with the SEC on June 14, 2022. For the awards subject to performance-based conditions, the amounts shown represent the probable outcome of results, which is the target value.

 

(4) Represents an award of restricted stock that vests upon the attainment of pre-determined performance metrics over a one-year performance period. For more information see Compensation Discussion and Analysis—Determining Executive Compensation—Equity-Based Incentive Program.

 

 

31

 

Outstanding Equity Awards at Fiscal Year End


The following table summarizes information regarding equity awards granted to our named executive officers that remain outstanding as of March 31, 2022.

 

Name  
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Vested
   
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Unvested
    Number of
Securities
Underlying
Unexercised
Unearned Options
(#)
    Option
Exercise
Price ($)
    Option
Expiration Date
  Number of Shares or Units of Stock Unvested (#)     Market Value of Shares or Units of Stock Unvested ($)     Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have Not Vested (#)
    Equity Incentive Plan Awards: Market or Payout
Value of Unearned Shares, or Other Rights That Have Not Vested ($)
 
Selwyn Joffe                                                                    
      109,100       -       -     $ 6.46     12/27/2022                                
      124,100       -       -     $ 6.46     12/27/2022                                
      83,700       -       -     $ 9.32     9/2/2023                                
      26,200       -       -     $ 31.13     9/3/2025                                
      51,200       -       -     $ 28.68     6/23/2026                                
      54,800       -       -     $ 27.40     6/19/2027                                
      83,400       -       -     $ 19.00     6/17/2028                                
      59,250       29,625 (1)           $ 19.93     7/1/2029                                
      33,791       67,583 (2)           $ 15.12     6/16/2030                                
                                          11,860 (1)   $ 211,464                  
                                          31,270 (2)   $ 557,544                  
                                          20,050 (3)   $ 357,492                  
                                                          100,000 (4)   $ 1,783,000  
                                                          20,050 (5)   $ 357,492  
David Lee                                                                    
      30,900       -       -     $ 6.46     12/27/2022                                
      20,900       -       -     $ 9.32     9/2/2023                                
      9,300       -       -     $ 22.93     6/21/2024                                
      6,500       -       -     $ 31.13     9/3/2025                                
      10,800       -       -     $ 28.68     6/23/2026                                
      9,200       -       -     $ 27.40     6/19/2027                                
      14,000       -       -     $ 19.00     6/17/2028                                
      9,917       4,958 (1)           $ 19.93     7/1/2029                                
      5,656       11,311 (2)           $ 15.12     6/16/2030                                
                                          1,985 (1)   $ 35,393                  
                                          5,233 (2)   $ 93,304                  
                                          7,767 (3)   $ 138,486                  
                                                          7,767 (5)   $ 138,486  
Richard Mochulsky                                                                    
      4,700       -       -     $ 6.46     12/27/2022                                
      9,400       -       -     $ 9.32     9/2/2023                                
      4,200       -       -     $ 22.93     6/21/2024                                
      2,900       -       -     $ 31.13     9/3/2025                                
      5,900       -       -     $ 28.68     6/23/2026                                
      3,300       -             $ 27.40     6/19/2027                                
      5,000       -             $ 19.00     6/17/2028                                
      4,167       2,083 (1)           $ 19.93     7/1/2029                                
      2,376       4,753 (2)           $ 15.12     6/16/2030                                
                                          834 (1)   $ 14,870                  
                                          2,199 (2)   $ 39,208                  
                                          3,431 (3)   $ 61,175                  
                                                          3,431 (5)   $ 61,175  
Doug Schooner                                                                    
      6,400       -       -     $ 22.93     6/21/2024                                
      5,600       -       -     $ 31.13     9/3/2025                                
      9,000       -       -     $ 28.68     6/23/2026                                
      7,100       -       -     $ 27.40     6/19/2027                                
      5,000       -       -     $ 19.00     6/17/2028                                
      4,167       2,083 (1)           $ 19.93     7/1/2029                                
      2,376       4,753 (2)           $ 15.12     6/16/2030                                
                                          834 (1)   $ 14,870                  
                                          2,199 (2)   $ 39,208                  
                                          4,244 (3)   $ 75,671                  
                                                          4,244 (5)   $ 75,671  
Juliet Stone                                                                    
      9,533       4,767 (6)     -     $ 17.12     9/10/2029                                
      2,376       4,753 (7)           $ 15.12     6/16/2030                                
                                          2,199 (7)   $ 39,208                  
                                          4,097 (3)   $ 73,050                  
                                                          4,097 (5)   $ 73,050  

 

(1) This award vests in three equal annual installments beginning on the first anniversary of the July 2, 2019 grant date, subject to continued employment through the applicable vesting dates.

 

(2) This award vests in three equal annual installments beginning on the first anniversary of the June 17, 2020 grant date, subject to continued employment through each such date and the increase in stock price of at least 8%, 12% and 16% on each of the first, second and third anniversaries of the grant date respectively, for Mr. Joffe, Mr. Lee, Mr. Schooner and Mr. Mochulsky. The performance measurement for the second installment was not met and thus did not vest on June, 17, 2022, and such stock options were permanently forfeited.

 

(3) This award vests in three equal annual installments beginning on the first anniversary of the June 18, 2021 grant date, subject to continued employment through the applicable vesting dates.

 

(4) Represents shares of restricted stock that will vest upon the attainment of pre-determined performance measures on June 18, 2022. In accordance with SEC rules, the number of shares of restricted stock shown represents the number that may be earned based on maximum performance.

 

 

32

 

(5) Represents PSUs granted on June 18, 2021 that will vest upon the attainment of pre-determined performance metrics at the conclusion of a three-year performance period, subject to continued employment. In accordance with SEC rules, the number of PSUs shown represents the number of PSUs that may be earned based on target performance.

 

(6) This award vests in three equal annual installments beginning on the first anniversary of the September 11, 2019 grant date, subject to continued employment through the applicable vesting dates.

 

(7) This award vests in three equal annual installments beginning on the first anniversary of the June 17, 2020 grant date, subject to continued employment through the applicable vesting dates.

 

Option Exercises and Stock Vested

 

The following table sets forth information regarding stock awards vested during Fiscal Year 2022 for the NEOs:

 

    Option Awards     Stock Awards  
Name  

Number of

Shares

Acquired on

Exercise

   

Value

Realized on

Exercise

   

Number of

Shares

Acquired on

Vesting

   

Value

Realized on

Vesting

 
                         
Selwyn Joffe     -     $ -       137,610     $ 2,777,722  
David Lee       -     $ -       6,435     $ 147,203  
Richard Mochulsky     -     $ -       2,601     $ 59,562  
Doug Schooner     -     $ -       2,601     $ 59,562  
Juliet Stone     -     $ -       1,100     $ 26,026  

 

Nonqualified Deferred Compensation

 

The following table sets forth certain information regarding contributions, earnings and account balances under our Amended and Restated Executive Deferred Compensation Plan (the “DCP”), which provides for the deferral of compensation on a basis that is not-tax qualified, for each of the named executive officers for Fiscal 2022. Plan participants may elect to receive distributions under the DCP as lump sums or in installments. Mr. Joffe has elected to receive lump sum distributions in the case of death, disability or separation of service. Mr. Mochulsky has elected to receive payments over an eight year period starting when he turns 65 years of age. Ms. Stone has elected to receive payments over a two year period when she turns 55 years of age. A description of the other material terms and conditions of the DCP follows. Messrs. Lee and Schooner have elected not to participate in the DCP.

 

Name  

Executive

Contributions in

Last FY(1)

   

Registrant

contribution in last

FY(2)

   

Aggregate

Earnings in Last

FY (3)

   

Aggregate

Withdrawals/Distributions

   

Aggregate

Balance at Last

FY

 
                               
Selwyn Joffe   $ 48,169     $ 48,169     $ 15,570     $ -     $ 276,270  
David Lee   $ -     $ -     $ -     $ -     $ -  
Richard Mochulsky   $ 96,055     $ 11,734     $ (1,175 )   $ -     $ 723,901  
Doug Schooner   $ -     $ -     $ -     $ -     $ -  
Juliet Stone   $ 51,223     $ 12,806     $ (3,284 )   $ -     $ 135,676  

 

(1) Executive Contributions in Last FY, shows the amount that the named executive officer elected to defer in Fiscal 2022 under the DCP. These amounts represent compensation earned by the named executive officers in Fiscal 2022 and are therefore also reported in the appropriate column in the Summary Compensation Table above.

 

(2) Registrant Contributions in Last FY, shows the amounts credited in Fiscal 2022 as company contributions to the accounts of our named executive officers under the DCP. These amounts are also reported in the Summary Compensation Table above.

 

(3) Aggregate Earnings in Last FY, shows the net amounts credited to the DCP accounts of our named executive officer as a result of the performance of the investment vehicles in which their accounts were deemed invested, as more fully described in the narrative disclosure below. These amounts do not represent above-market earnings, and thus are not reported in the Summary Compensation Table.

 

 

33

 

Nonqualified Deferred Compensation Plan

 

We maintain the Motorcar Parts of America, Inc. Amended and Restated Executive Deferred Compensation Plan, an unfunded, non-qualified deferred compensation plan for a select group of management or highly compensated employees, including our named executive officers. Participants in the plan may elect to defer up to 100% of their gross cash compensation. We made matching contributions of 100% of each participant’s elective contributions to the plan, up to 3% of the participant’s compensation for the plan year. The plan is designed to defer taxation to the participant on contributions and notional earnings thereon until distribution thereof in accordance with a participant’s previously made distribution elections. Insurance annuity contracts provide funding for the plan; however, the annuity contracts are owned by us and remain subject to claims of our general creditors.

 

Employment Agreements

On May 18, 2012, we entered into an employment agreement (the “2012 Employment Agreement”) with Mr. Joffe, which terminated and superseded Mr. Joffe’s previous employment agreement that was to expire on August 31, 2012. The 2012 Employment Agreement provided for Mr. Joffe to serve as our Chairman, President and Chief Executive Officer for a term expiring on August 31, 2015, unless extended or earlier terminated. Pursuant to the 2012 Employment Agreement, Mr. Joffe’s base salary was set at $600,000 per year, to be reviewed from time to time in accordance with our established procedures for adjusting salaries for similarly situated employees. The 2012 Employment Agreement also provided that Mr. Joffe was eligible to participate in our Annual Incentive Plan adopted and amended from time to time by the Board (the “Annual Incentive Plan”), with a target bonus equal to 100% of Mr. Joffe’s salary (the “Annual Incentive Bonuses”).


In June 2014, the Company and Mr. Joffe entered into Amendment No. 1 to the 2012 Employment Agreement pursuant to which, effective as of July 1, 2014, (i) the last day of Mr. Joffe’s term of employment was changed from August 31, 2015, to July 1, 2019, and (ii) his base salary was increased from $600,000 to $700,000 per year. All other terms and conditions of the 2012 Employment Agreement remained the same. The 2012 Employment Agreement provided for the review of Mr. Joffe’s base salary from time to time. During Fiscal 2018, the Board approved Mr. Joffe’s base salary increase to $752,960 per annum.


In February 2019, the Company and Mr. Joffe entered into Amendment No. 2 to the 2012 Employment Agreement which, among other things, (i) changed the last day of Mr. Joffe’s term of employment from July 1, 2019, to July 1, 2023, (ii) provided that Mr. Joffe shall receive a long-term incentive compensation opportunity in the amount of no fewer than 75,000 shares of restricted stock on an annual basis for each of five fiscal years commencing with Fiscal 2019 (each such fiscal year a “Performance Cycle”), with the vesting of such restricted stock based on the achievement of specified performance measures set annually (the “Restricted Stock Awards”), (iii) made certain changes to the compensation paid to Mr. Joffe in the event that he terminates his employment with the Company following a breach by the Company or other good reason or is terminated by the Company without cause, and (iv) made certain changes to the compensation paid to Mr. Joffe in the event of a change of control of the Company.

 

In March 2020, the Company and Mr. Joffe entered into Amendment No. 3 to the 2012 Employment Agreement under which (i) Mr. Joffe agreed to not receive an annual Restricted Stock Award with respect to the Company’s fiscal year ending March 31, 2020, and instead increased his potential annual Restricted Stock Award for the next three fiscal years (ending March 31, 2021, March 31, 2022 and March 31, 2023), from 75,000 to 100,000 shares, (ii) the timing of each fiscal year’s Performance Cycle was slightly changed, to be on or as soon as practicable after the first date of the fiscal year, rather than prior to the start of each fiscal year, and (iii) the raw number of Restricted Stock that will be granted pursuant to Section 9(d) of the 2012 Employment Agreement, for each Performance Cycle commencing during the remainder of the Employment Term was changed from 50,000 to 66,667, to maintain the same percentage of the potential grant at two-thirds.

 

In May 2020, the Company and Mr. Joffe entered into Amendment No. 4 to the 2012 Employment Agreement which allowed Mr. Joffe to elect to defer payments of up to 50% of his base salary otherwise payable for that month, less required withholding, for each month starting in May 2020 through December 2020. Mr. Joffe deferred 50% of his base salary for the months of May 2020 – September 2020. Mr. Joffe elected to forgive the deferred salary.

 

In June 2021, the Company and Mr. Joffe entered into Amendment No. 5 to the 2012 Employment Agreement, pursuant to which, (i) the term of employment was extended one year from July 1, 2023, to July 1, 2024; (ii) Mr. Joffe’s base salary was increased to $828,256; and (iii) the Annual Cash Incentive Plan target bonus was set at 120% of Mr. Joffe’s salary.

 

The 2012 Employment Agreement as amended by Amendment No. 1 thereto, Amendment No. 2 thereto, Amendment No. 3 thereto, Amendment No. 4 thereto, and Amendment No. 5 thereto collectively is referred to below as the “Amended Employment Agreement.”

 

 

34

 

Pursuant to the Amended Employment Agreement, Mr. Joffe will also be eligible to receive annual awards under the 2010 Plan in such amounts as are determined by the Compensation Committee as administrator of the 2010 Plan in its sole and absolute discretion (the “Annual Awards”). Such awards may be in the form of options, restricted stock, restricted stock units, performance shares, PSUs or such other form of award as determined by the Compensation Committee as administrator of the 2010 Plan in its sole and absolute discretion.

 

Pursuant to the Amended Employment Agreement, Mr. Joffe will also receive: (i) four weeks paid vacation each year during the term of the Amended Employment Agreement pursuant to our written vacation policy; (ii) a $1,500 monthly automobile allowance and payment by us of certain automobile-related expenses; (iii) during the term of the Amended Employment Agreement, if Mr. Joffe does not elect medical insurance coverage for himself and his eligible family through us, an allowance for such medical insurance in an amount equal to the cost which would have been incurred by us in supplying such coverage for Mr. Joffe and his eligible family; and (iv) $24,000 per year to be used by Mr. Joffe to purchase disability insurance for his benefit, which has been included as part of his Base Salary for at least the last five years, (the “Disability Insurance Payment” and, together with the benefits described in clauses (i), (ii) and (iii), the “Benefits”).

 

The Amended Employment Agreement terminates on the date of Mr. Joffe’s death, in which event his accrued salary and Annual Incentive Bonus, if any, and reimbursable expenses and Benefits owing to him through the date of his death shall be paid to his estate, and his estate shall assume certain of his rights as specified in the Amended Employment Agreement.

 

In the event that Mr. Joffe’s employment is terminated as result of his physical or mental illness or incapacity as determined in accordance with the procedures set forth in the Amended Employment Agreement, he will be entitled to receive his accrued salary and Annual Incentive Bonus, if any, reimbursable expenses and Benefits owing to him through the date of termination and payment of the benefits pursuant to any disability insurance policy purchased by Mr. Joffe with the Disability Insurance Payment.

 

In the event that Mr. Joffe’s employment is terminated by us for Cause (as defined in the Amended Employment Agreement), we will be released from any and all further obligations under the Amended Employment Agreement, except that we will pay Mr. Joffe his accrued salary and Annual Incentive Bonus, if any, and reimbursable expenses and Benefits owing to him through the date of his termination.

 

In the event that Mr. Joffe’s employment is terminated by us without Cause (as defined in the Amended Employment Agreement) or Mr. Joffe voluntarily terminates the Amended Employment Agreement for Good Reason (as defined in the Amended Employment Agreement), then we will pay through the later of the date which is two years after the termination date or the last day of the term of the Amended Employment Agreement: (i) his salary as in effect immediately prior to the termination date; (ii) his average bonus earned for the two years immediately prior to the year in which the Amended Employment Agreement is terminated (or if such termination occurs within the first three months of our fiscal year, for the second and third years preceding the year in which such termination occurs); (iii) the Benefits; (iv) reimbursable expenses and (v) vested but undistributed shares of common stock (see footnote (6) to the table in “Potential Payments Upon Termination or Change in Control Table” for further details regarding vesting).

 

If a Change in Control (as defined in the Amended Employment Agreement) occurs and Mr. Joffe voluntarily terminates the Amended Employment Agreement for Good Reason (as defined in the Amended Employment Agreement) or Mr. Joffe’s employment is terminated by us without Cause (as defined in the Amended Employment Agreement) within two years following a Change in Control, then Mr. Joffe will be entitled to receive either the severance benefit as described in the next sentence of this paragraph or the benefits described in the immediately preceding paragraph, whichever is more favorable to Mr. Joffe, and we will pay Mr. Joffe any reimbursable expenses owed to him through the termination date. The severance benefit will be equal to (i) two times Mr. Joffe’s salary at the annual rate in effect immediately prior to the date of the Change in Control plus (ii) two times Mr. Joffe’s average bonus earned for the two years immediately prior to the year in which the Change in Control occurs. The severance benefit will be paid to Mr. Joffe in a lump sum as soon as practicable, but no later than 30 days following the termination date.

 

In the event that the benefits provided for in the Amended Employment Agreement or otherwise payable to Mr. Joffe constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and will be subject to the excise tax imposed by Section 4999 of the Code, Mr. Joffe will receive the greater of: (i) the largest portion, up to and including the total, of such benefits or (ii) the largest aggregate amount of such benefits that would result in no portion thereof being subject to excise tax under Section 4999 of the Code, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes and excise tax under Section 4999 of the Code, results in Mr. Joffe’s receipt, on an after-tax basis, of the greatest amount of the benefit.

 

 

35

 

The Amended Employment Agreement prohibits Mr. Joffe during the term of the Amended Employment Agreement or at any time thereafter from using or disclosing to any third party any of our confidential information and trade secrets. Pursuant to the Amended Employment Agreement, during the term of the Amended Employment Agreement, Mr. Joffe is also prohibited from: (i) competing with us; or (ii) soliciting or inducing any creditor, customer, supplier, officer, executive or agent of us or any of our subsidiaries or affiliates to sever its relationship with or leave the employ of any such entities.

 

In conformity with our policy, all of our directors and officers execute confidentiality and nondisclosure agreements upon the commencement of employment. The agreements generally provide that all inventions or discoveries by the employee related to our business and all confidential information developed or made known to the employee during the term of employment shall be our exclusive property and shall not be disclosed to third parties without our prior approval.

 

Potential Payments Upon Termination or Change in Control Table

 

The following table provides an estimate of the potential payments available to each named executive officer upon a change in control, assuming they were terminated on March 31, 2022, the last business day of Fiscal 2022.

 

Benefit  

Termination

by Company

for Cause (1)

    Death (2)     Disability (3)    

Voluntary

Termination by

Mr. Joffe for Good Reason or Termination by Company w/o Cause (4)

   

After Change in

Control:

Voluntary Termination by Mr. Joffe for Good Reason or Termination w/o Cause (5)

    Change in Control with Involuntary Termination  
Selwyn Joffe                                    
Salary Contribution   $ -     $ -     $ -     $ 1,863,576     $ 1,863,576     $ -  
Bonus   $ -     $ -     $ -     $ 1,806,742     $ 1,806,742     $ -  
Executive Awards (6)   $ -     $ 4,405,882     $ 4,405,882     $ 6,783,227     $ 6,783,227     $ -  
Healthcare   $ -     $ -     $ -     $ 99,934     $ 99,934     $ -  
Automobile Allowance (7)   $ -     $ -     $ -     $ 40,500     $ 40,500     $ -  
Equity (8)   $ -     $ -     $ -     $ -