UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of
the
Securities Exchange Act of 1934 (Amendment No. )
Filed
by the Registrant ☒
Filed
by a Party other than the Registrant ☐
Check
the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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HOUSTON
WIRE & CABLE COMPANY
(Name
of Registrant as Specified in its Charter)
(Name
of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per
Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction
applies:
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Aggregate number of securities to which transaction
applies:
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(3)
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Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and
state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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Total fee paid:
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Fee paid previously with preliminary
materials.
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Check box if any part of the fee
is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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Date Filed:
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NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD MAY 8, 2018
To
Our Stockholders:
The
2018 annual meeting of stockholders of Houston Wire & Cable Company will be held at our corporate headquarters, 10201 North
Loop East, Houston, Texas 77029 on Tuesday May 8, 2018, at 8:30 a.m., Central Time. The annual meeting of
stockholders is being held for the following purposes:
1. To
elect five directors to serve on the Board of Directors until the 2019 annual meeting of stockholders and until their successors
have been elected and qualified (Proposal No. 1);
2. To
ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year
ending December 31, 2018 (Proposal No. 2);
3. To
approve the Company’s executive compensation on an advisory basis (Proposal No. 3);
4. To
approve the 2017 Stock Plan (Proposal No. 4); and
5. To
transact such other business as may properly come before the annual meeting and any adjournment or postponement thereof.
Only
stockholders of record at the close of business on March 9, 2018 are entitled to vote at the meeting or at any postponement or
adjournment thereof.
Please
act promptly to vote your shares with respect to the proposals described above. You may vote your shares by marking, signing,
dating and mailing the enclosed proxy card. You may also vote by telephone or through the Internet by following the instructions
set forth on the proxy card. If you attend the annual meeting, you may vote in person, even if you have previously submitted a
proxy.
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By
Order of the Board of Directors,
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Nicol G. Graham
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Vice President,
Chief Financial Officer, Treasurer and Secretary
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March
28, 2018
TABLE
OF CONTENTS
HOUSTON
WIRE & CABLE COMPANY
10201
North Loop East
Houston,
Texas 77029
PROXY
STATEMENT
The
accompanying proxy is solicited on behalf of the Board of Directors of Houston Wire & Cable Company (the “Company,”
“we” or “us”) for the 2018 annual meeting of stockholders that will be held at our corporate headquarters,
10201 North Loop East, Houston, Texas 77029, on Tuesday, May 8, 2018, at 8:30 a.m., Central Time, and at any postponement
or adjournment thereof. We are first mailing notice of availability of this proxy statement and the accompanying proxy card and
2017 annual report to stockholders (which includes our annual report on Form 10-K for the year ended December 31, 2017) on
or about March 28, 2018.
ABOUT
THE MEETING
What
is the purpose of this proxy statement?
This
proxy statement provides information regarding matters to be voted on at the 2018 annual meeting of our stockholders. Additionally,
it contains certain information that the Securities and Exchange Commission (the “SEC”) requires us to provide annually
to stockholders. The proxy statement is also the document used by our board to solicit proxies to be used at the 2018 annual meeting.
Proxies are solicited to give all stockholders of record an opportunity to vote on the matters to be presented at the annual meeting,
even if they cannot attend the meeting. The board has designated James L. Pokluda III and William H. Sheffield as proxies, who
will vote the shares represented by proxies solicited by the board at the annual meeting in accordance with the stockholders’
instructions.
What
proposals will be voted on at the annual meeting?
Stockholders
will vote on the following proposals at the annual meeting:
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the
election of five directors, each to serve until the next annual meeting and until a successor is duly elected and qualified
(Proposal No. 1);
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the
ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm
for the year ending December 31, 2018 (Proposal No. 2);
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the
approval of our executive compensation on an advisory basis (Proposal No. 3);
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the
approval of the Houston Wire & Cable Company 2017 Stock Plan (the “2017 Stock Plan”) (Proposal No. 4); and
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any
other business properly coming before the annual meeting and any adjournment or postponement thereof.
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Who
is entitled to vote?
Only
stockholders of record at the close of business on the record date, March 9, 2018, are entitled to receive notice of the annual
meeting and to vote the shares of common stock that they held on that date at the meeting, or any postponement or adjournment
of the meeting. If your shares are held in “street name,” please refer to the information forwarded to you by your
bank, broker or other holder of record to see what you must do to vote your shares.
A
complete list of stockholders entitled to vote at the annual meeting will be available for examination by any stockholder at our
corporate headquarters, 10201 North Loop East, Houston, Texas 77029, during normal business hours for a period of ten days
before the annual meeting and at the annual meeting.
What
is the difference between a stockholder of record and a beneficial holder of shares?
If
your shares are registered directly in your name with our transfer agent, American Stock Transfer and Trust Company
,
you
are considered a stockholder of record with respect to those shares. If this is the case, we have sent or provided
the stockholder proxy materials directly to you.
If
your shares are held in a stock brokerage account or by a bank or other nominee (also known as held “in street name”),
you are considered the “beneficial holder” of the shares, and your brokerage firm, bank or other nominee is the stockholder
of record. If this is the case, the proxy materials have been forwarded to you by your brokerage firm, bank or other nominee.
As the beneficial holder, you have the right to direct your broker, bank or other nominee how to vote your shares. Please contact
your broker, bank or other nominee for instructions on how to vote any shares you beneficially own.
Who
can attend the meeting?
All
stockholders of record as of March 9, 2018, or their duly appointed proxies, may attend the meeting. If you hold your shares in
street name, you will need to bring a copy of a brokerage or other account statement reflecting your stock ownership as of the
record date and check in at the registration desk at the meeting.
What
constitutes a quorum?
A
quorum of stockholders is necessary to hold the annual meeting. The presence at the meeting, in person or by proxy, of the holders
of a majority of the shares of common stock outstanding on the record date will constitute a quorum. As of the record date, 16,482,383
shares of our common stock were outstanding. Shares covered by proxies received will be considered present at the meeting for
purposes of establishing a quorum.
How
do I vote?
You
may vote in person at the meeting or by proxy by any of the following methods:
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Telephoning
the toll-free number listed on the proxy card;
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Using
the Internet site listed on the proxy card; or
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Marking,
dating, signing and returning the enclosed proxy card.
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We
recommend that you vote by proxy even if you plan to attend the meeting so that we will know as soon as possible that enough votes
will be present for us to hold the meeting. If you vote by proxy, your shares will be voted as you direct on the proxy card, by
telephone or via the Internet. If you are a stockholder of record and attend the meeting, you may vote at the meeting or deliver
your completed proxy card in person, even if you previously sent in a proxy card or voted by telephone or via the Internet.
If
your shares are held in street name, please refer to the information forwarded to you by your broker, bank or other holder of
record to see what you must do in order to vote your shares. If you are a street name stockholder and you wish to vote in person
at the meeting, you will need to obtain a proxy from the institution that holds your shares and present it to the inspector of
elections with your ballot when you vote at the annual meeting.
Can
I change my vote after I give my proxy?
You
can revoke your proxy, whether it was given by telephone, Internet or mail, before it is voted by:
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Delivering
to our Secretary at the address on the first page of this proxy statement a written notice of revocation of your proxy before
or at the annual meeting and prior to voting;
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Delivering
a new proxy bearing a later date by telephone, via the Internet or by submitting a duly executed proxy card; or
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Voting
in person at the annual meeting.
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The
last vote you submit chronologically (by any means) will supersede all prior votes.
The
powers of the proxy holders with regard to your shares will be suspended if you attend the meeting in person and so request, although
attendance at the meeting will not, by itself, revoke a previously granted proxy.
How
many votes are required for the proposals to pass?
Each
outstanding share entitles its holder to cast one vote on each matter to be voted upon at the annual meeting. Directors are elected
by a plurality vote, meaning that the five director nominees receiving the greatest numbers of votes will be elected. The approval
of a majority of the votes present, in person or by proxy, at the annual meeting and entitled to vote is required to ratify the
selection of our independent public accounting firm, to approve our executive compensation and to approve the 2017 Stock Plan.
How
are abstentions and broker non-votes treated?
If
a stockholder withholds authority to vote on the election of directors, it will have no effect on the vote. If a stockholder abstains
from voting on any other proposal, it will have the same effect as a vote against that proposal.
Broker
non-votes with respect to any proposal will have no effect on the outcome of the vote on that proposal. A “broker non-vote”
occurs on a proposal when shares held of record by a broker are present or represented at the meeting but the broker is not permitted
to vote on that proposal without instruction from the beneficial owner of the shares and no instruction has been given.
What
if I do not specify a choice for a matter when returning a proxy?
Stockholders
should specify their choice for each matter on the enclosed proxy. If no specific instructions are given, validly submitted proxies
will be voted “FOR” the election of all five nominees for director, “FOR” the ratification of the appointment
of Ernst & Young LLP as our independent registered public accounting firm, “FOR” the approval of our executive
compensation and “FOR” the approval of the 2017 Stock Plan.
Will
anyone contact me concerning this vote?
No
arrangements or contracts have been made or entered into with any solicitors as of the date of this proxy statement, although
we reserve the right to engage solicitors if we deem them necessary. If done, such solicitations may be made by mail, telephone,
facsimile, e-mail or personal interviews.
What
are the board’s recommendations?
The
board’s recommendations, together with the description of each proposal, are set forth in this proxy statement. In summary,
the board unanimously recommends that you vote:
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“FOR”
the election of each nominee for director (see page 8);
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“FOR”
the ratification of Ernst & Young LLP as our independent registered public accounting firm (see page 31);
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“FOR”
the approval of the compensation of our named executive officers (see page 31); and
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“FOR” the approval
of the 2017 Stock Plan (see page 32).
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What
happens if additional matters are presented at the annual meeting?
Other
than the four proposals described in this proxy statement, we are not aware of any other business to be acted upon at the annual
meeting. If you grant a proxy, the persons named as proxy holders on the enclosed proxy card will vote your shares on any additional
matters properly presented for a vote at the meeting as recommended by the board or, if no recommendation is given, in their own
discretion.
Who
will tabulate and certify the vote?
Representatives
of Broadridge Financial Solutions, Inc. will tabulate the votes. A representative of Schiff Hardin LLP, the Company’s legal
counsel, will be the inspector of elections.
STOCK
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth the beneficial ownership of shares of our common stock for each stockholder who is known by us to own
beneficially more than 5% of the outstanding shares of our common stock.
Name
and Address of Beneficial Owner
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Amount
and
Nature of
Beneficial
Ownership
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Percent
of Class
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Nierenberg
Investment Management Company, Inc.
(1)
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19605
NE 8
th
St.
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Camas,
WA 98607
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1,487,830
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9.0
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%
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FMR
LLC (2)
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245
Summer Street
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Boston,
MA 02210
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1,444,555
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8.8
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%
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Royce
& Associates, LP
(3)
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745
Fifth Avenue
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New
York, NY 10151
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1,208,781
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7.3
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%
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Dimensional Fund Advisors
LP
(4)
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Building
One
6300
Bee Cave Road
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Austin, TX 78746
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1,009,162
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6.1
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%
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Rutabaga Capital Management
(5)
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64 Broad Street, 3
rd
Floor
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Boston, MA 02109
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956,388
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5.8
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%
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Thomson Horstmann &
Bryant, Inc.
(6)
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501 Merritt 7
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Norwalk, CT 06851
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827,378
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5.0
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%
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(1)
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As
reported in an amendment to Statement on Schedule 13D filed with the SEC on behalf of
Nierenberg Investment Management Company, Inc., on January 4, 2018. Nierenberg Investment
Management Company, Inc. is deemed to be the beneficial owner of these shares on behalf
of various investment companies registered under the Investment Company Act of 1940.
Nierenberg Investment Management Company, Inc. had shared voting and shared dispositive
power with respect to all 1,487,830 shares reported as beneficially owned.
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(2)
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As
reported in an amendment to Statement on Schedule 13G filed with the SEC on behalf of
FMR LLC and Abigail P. Johnson, its chairman, on February 13, 2018. Fidelity Management
& Research Company, a wholly-owned subsidiary of FMR LLC, is deemed to be the beneficial
owner of these shares as a result of acting as investment adviser to various investment
companies registered under the Investment Company Act of 1940. One of those investment
companies, Fidelity Series Intrinsic Opportunities Fund, beneficially owned 1,348,500
shares, or 8.17%, of our common stock. Fidelity Management & Research Company had
sole voting power with respect to 13,564 shares, shared voting power with respect to
no shares and sole dispositive power with respect to all 1,444,555 shares reported as
beneficially owned.
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(3)
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As
reported in an amendment to Statement on Schedule 13G filed with the SEC on behalf of
Royce & Associates, LP on January 22, 2018. Royce & Associates, LP is deemed
to be the beneficial owner of these shares as a result of its acting as investment adviser
to various accounts. Royce & Associates, LP had sole voting and sole dispositive
power for all 1,208,781 shares reported as beneficially owned.
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(4)
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As
reported in an amendment to Statement on Schedule 13G filed with the SEC on behalf of
Dimensional Fund Advisors LP on February 9, 2018. Dimensional Fund Advisors LP is deemed
to be the beneficial owner of these shares as a result of its acting as investment adviser
to various investment companies registered under the Investment Company Act of 1940.
Dimensional Fund Advisors LP has sole voting power with respect to 957,630 shares, shared
voting power with respect to no shares and sole dispositive power with respect to all
1,009,162 shares reported as beneficially owned.
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(5)
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As
reported in an amendment to Statement on Schedule 13G filed with the SEC on behalf of
Rutabaga Capital Management on February 9, 2018. Rutabaga Capital Management is deemed
to be the beneficial owner of these shares as a result of its acting as investment adviser
to various clients. Rutabaga Capital Management had sole voting power with respect to
956,388 shares, shared voting power with respect to no shares and sole dispositive power
with respect to all 956,388 shares reported as beneficially owned
.
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(6)
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As
reported in the Statement on Schedule 13G filed with the SEC on behalf of Thomson Horstmann
& Bryant, Inc. on February 12, 2018. Thomson Horstmann & Bryant, Inc. is deemed
to be the beneficial owner of these shares as a result of its acting as investment adviser
to various clients. Thompson Horstmann & Bryant, Inc. had sole voting power with
respect to 408,368 shares, shared voting power with respect to no shares and sole dispositive
power with respect to all 827,378 shares reported as beneficially owned
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The
following table sets forth the beneficial ownership of shares of our common stock for (i) each of our directors and nominees,
(ii) each of our executive officers named in the Summary Compensation Table on page 23 and (iii) all of our directors and
executive officers as a group. Except as noted below, the nature of beneficial ownership for shares shown in this table is sole
voting and sole dispositive power. The information below is as of March 15, 2018, unless otherwise indicated.
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Amount
and Nature of Beneficial Ownership
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Name
of Beneficial Owner
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Shares
Owned
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Shares
Under
Options/Restricted Stock Units
Exercisable/Vesting
Within 60 Days
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Total
Number
of
Shares
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Percent
of
Class
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Michael
T. Campbell
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17,044
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(1)
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52,519
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69,563
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*
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Roy
W. Haley
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10,000
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—
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10,000
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*
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James
L. Pokluda III
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176,371
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(2)
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87,910
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264,281
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1.6
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Mark
A. Ruelle
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12,000
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16,810
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28,810
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*
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William
H. Sheffield
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20,000
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(3)
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42,519
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62,519
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*
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G.
Gary Yetman
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—
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14,390
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14,390
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*
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Nicol
G. Graham
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187,639
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(4)
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20,000
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207,639
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1.3
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All
directors and executive officers as a group (7 persons)
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423,054
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234,148
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657,202
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3.9
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(1)
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Owned
by Mr. Campbell’s individual retirement account.
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(2)
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Includes 64,287
unvested restricted shares.
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(3)
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Mr.
Sheffield has shared voting power and shared dispositive power with respect to 7,000 of these shares.
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(4)
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Includes
60,772 shares owned by Mr. Graham’s individual retirement account and 8,499 unvested restricted shares.
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PROPOSAL NO.
1 — ELECTION OF DIRECTORS
Our
amended and restated bylaws provide for each director to stand for election each year at our annual meeting and to serve until
the next annual meeting and until a successor is duly elected and qualified.
At
the recommendation of the Nominating and Corporate Governance Committee, the board has nominated the persons listed below to serve
as directors, each for a one-year term, beginning at the annual meeting on May 8, 2018 and continuing until the 2019 annual meeting.
The nominees include four independent directors, as defined in the NASDAQ Listing Rules, and the President and Chief Executive
Officer of the Company. All of the nominees currently serve as members of the Board of Directors. Effective as of the 2018 annual
meeting, Mark A. Ruelle will retire from the board, and the size of the board will be reduced to five members. The board intends
to expand the board to six as soon as it has identified a replacement for Mr. Ruelle.
It
is the intention of the persons named in the accompanying proxy card, unless otherwise instructed, to vote to elect the nominees
named below as the directors. Each nominee has consented to serve as a director if elected at this year’s annual meeting.
In the event any nominee is unable to serve as a director, discretionary authority is reserved to the board to vote for a substitute.
The board has no reason to believe that any nominee named below will be unable to serve if elected.
The
nominees for election to the office of director, and certain information with respect to their backgrounds, are set forth below.
Nominees
Standing for Election to the Board
James
L. Pokluda III, age 53. Director since 2012
President
and Chief Executive Officer of the Company
Mr.
Pokluda was appointed President in May 2011 and Chief Executive Officer in January 2012. From 2007 until 2011, he served as Vice
President – Sales and Marketing. During his 30 years with the Company, Mr. Pokluda has a demonstrated history of substantial
contributions to the Company including the construction and leadership of our long-term growth plan, implementation of the National
Service Center, the commercialization of our private branded products, co-leadership of the initial public offering in 2006, follow-on
offering in 2007 and acquisitions. Mr. Pokluda served on the Board of Directors of Houston Electrical League (HEL) for several
years, is an affiliate member of the National Association of Electrical Distributors (NAED), and a graduate of the College of
Engineering at Texas A&M University. In 2012, Mr. Pokluda completed the University of Chicago’s Booth School of Business
Executive Education Advanced Management Program. As the only management representative on our board, and someone with experience
in all aspects of our business, Mr. Pokluda provides an insider’s perspective in board discussions about our industry and
the business and strategic direction of the Company.
Michael
T. Campbell, age 73. Director since 2008
Independent
Director
Mr.
Campbell serves on the Board of Directors of Natural Grocers by Vitamin Cottage, Inc., and served on the Board of Advisors of
Lee Truck Equipment, Inc. (d/b/a Casper’s Truck Equipment) from 2007 until 2017. He performed project work as a financial
and accounting consultant both individually and with Resources Connection from January 2003 to December 2005. Mr. Campbell served
in the technical support department of the National Office of Deloitte & Touche LLP, and he was the lead technical accounting
and auditing partner in the Denver office prior to his retirement in June 2001. Mr. Campbell is a Certified Public Accountant
and holds an M.B.A. degree from the University of Michigan and a B.S. degree from the United States Military Academy. As a result,
he has significant expertise with the financial reporting issues facing the Company, including SEC reporting and internal control
design and implementation. Mr. Campbell also has extensive experience with mergers and acquisitions, and capital markets transactions.
Mr. Campbell is recognized as both a Governance Fellow and a Certified Professional Director in the United States by the National
Association of Corporate Directors.
Roy
W. Haley, age 71. Director since August 2017
Independent
Director
Mr.
Haley served as the Chairman of the Board of WESCO International, Inc. (“WESCO”) from 1998 until his retirement in
2011 and as Chief Executive Officer of WESCO from 1994 to 2009. WESCO is a leading North American-based distributor of products
and provider of advanced supply chain management and logistics services used primarily in industrial, construction, utility, and
commercial, institutional and government markets. From 1988 to 1993, Mr. Haley served as Chief Operating Officer, President and
a director of American General Corporation, a diversified financial services company. Mr. Haley is a director of Essendant Inc.
(formerly United Stationers, Inc.), a national wholesale distributor of workplace items, where he served as the chair of the Audit
Committee from 1999 to 2017, and was a director of BlueLinx Holdings Inc., a wholesale supplier of building materials, from 2013
to 2016 and Non-Executive Chairman of the Board from 2014 to 2016.
William
H. Sheffield, age 69. Director since 2006
Independent
Director
Mr.
Sheffield is a corporate director and serves on the boards of directors of Canada Post Corporation, Velan Inc., Burnbrae Farms
Limited and Longview Aviation Capital and served on the board of Ontario Power Generation Inc. until 2014 and Corby Distilleries
Limited until 2009. Mr. Sheffield served as Chief Executive Officer of Sappi Fine Paper from 2001 until 2003. With his knowledge
of complex issues surrounding global companies and his understanding of what makes businesses work effectively and efficiently,
Mr. Sheffield provides valuable insight to our board and offers particular expertise in labor relations, critical end user markets
and board governance issues. He holds an MBA and a BSc, and is recognized as both a Governance Fellow and a Certified Professional
Director by the National Association of Corporate Directors in the United States and the Institute of Corporate Directors in Canada.
G.
Gary Yetman, age 63. Director since 2014
Independent
Director
Mr.
Yetman served as the Chief Executive Officer and President of Coleman Cable, Inc. from 1999 until his retirement following the
sale of Coleman Cable in 2014. Prior to that, Mr. Yetman held various senior management positions with Coleman Cable’s predecessor
and within the electrical industry. Mr. Yetman’s extensive experience and proven track record within the electrical wire
and cable industry make him an excellent addition to our Board of Directors. Mr. Yetman holds an M.B.A. degree from the Lake Forest
Graduate School of Management and a B.S. degree from West Virginia University.
Board
Recommendation and Stockholder Vote Required
The
Board of Directors recommends a vote “FOR” the election of the nominees named above (Proposal No. 1 on the
accompanying proxy card).
The
five nominees who receive the greatest number of votes will be elected directors.
CORPORATE
GOVERNANCE AND BOARD COMMITTEES
The
Company is committed to good corporate governance. We regularly review our policies and procedures, giving due consideration to
current developments and “best practices.” We believe that we comply with all applicable SEC and NASDAQ rules and
regulations, and we have adopted additional corporate governance practices that we believe are in the best interests of the Company
and its stockholders.
Our
commitment to good corporate governance can be seen through practices such as:
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Annual
election of directors
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All
independent directors, other than the CEO
|
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Independent
chairman of the board
|
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Independent
Audit, Compensation and Nomination and Corporate Governance Committees
|
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Regular
executive sessions of independent directors
|
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Risk
oversight by full board and committees
|
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Regular
board and committee self-evaluations
|
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Annual
advisory vote on executive compensation
|
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Pay
for performance philosophy
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Stock
ownership guidelines for directors and executive officers
|
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Prohibitions
on hedging, short sales and other speculative transactions
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Related
Person Transaction Policy
|
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Clawback
policy for incentive compensation awards
|
These
practices and policies are described in further detail below.
Board
Composition
Our
Board of Directors currently consists of six directors. Mark A. Ruelle will retire from the board at the 2018 annual meeting,
at which time the size of the board will be reduced to five directors. Each director is elected for a term of one year and serves
until a successor is duly elected and qualified or until his or her death, resignation or removal. There are no family relationships
between any of our directors or executive officers. Our executive officers are elected by and serve at the discretion of the Board
of Directors.
Board
Leadership Structure and Risk Oversight
Since
our IPO, the offices of Chairman and Chief Executive Officer of the Company have been held by different individuals. Our board
is led by an independent Chairman, which since January 1, 2012, has been Mr. Sheffield. Our Chief Executive Officer, Mr. Pokluda,
is the only member of the board who is not an independent director. We believe that this leadership structure enhances the accountability
of the Chief Executive Officer to the board and strengthens the board’s independence from management. In addition, separating
these roles allows Mr. Pokluda to focus his efforts on running our business and managing the Company in the best interests
of our stockholders, while we are able to benefit from Mr. Sheffield’s experience as a member of other public company
boards.
The
board takes an active role in monitoring and assessing the Company’s risks, which include risks associated with operations,
credit, financing and capital investments. Management is responsible for the Company’s day-to-day risk management activities,
and our board’s role is to engage in informed risk oversight. The Nominating and Corporate Governance Committee with the
assistance of management compiled, prioritized and periodically updates a list of risks to which the Company could be subjected.
It also identifies the significant risks, which are then reviewed by the board and assigned to one of the standing committees
of the board for oversight. In fulfilling this oversight role, our Board of Directors focuses on understanding the nature of our
enterprise risks, including our operations and strategic direction, as well as the adequacy of our risk management process and
overall risk management system. There are a number of ways our board performs this function, including the following:
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at
its regularly scheduled meetings, the board receives management updates on our business operations, financial results and
strategy and discusses risks related to the business;
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the
Audit Committee assists the board in its oversight of risk management by discussing with management, particularly the Chief
Executive Officer and Chief Financial Officer, our guidelines and policies regarding financial and enterprise risk management
and risk appetite, including major risk exposures, and the steps management has taken to monitor and control such exposures;
and
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through
management updates and committee reports, the board monitors our risk management activities, including the enterprise risk
management process, risks relating to our compensation programs, and financial and operational risks being managed by the
Company.
|
Director
Independence
The
Board of Directors has determined that each person who served as a director in 2017, and each director nominee for 2018, except
Mr. Pokluda, is “independent” under NASDAQ Listing Rule 5605(a)(2). Under Rule 5605(a)(2), a director is
considered independent as long as he or she does not have a relationship with the Company or management which would interfere
with the exercise of independent judgment in carrying out the director’s responsibilities. The NASDAQ Listing Rules also
enumerate certain relationships which preclude a finding of independence and generally provide that an individual cannot be considered
independent if, among other things, he or she is a current officer or other employee of the issuer or directly or indirectly receives
certain significant payments from the issuer other than in his or her capacity as a director or board committee member.
Related
Person Transaction Policy
The
purpose of the Related Person Transaction Policy, as adopted by the Board of Directors, is to provide for the identification,
review and consideration of transactions between the Company and any related person. “Related person” means anyone
who is, or within the past year was, a director, nominee for director or executive officer of the Company or greater than five
percent beneficial owner of the Company’s voting securities or any member of their immediate families.
Under
the policy, any related person transaction must be reviewed, considered, and approved or ratified by the Audit Committee of the
Board of Directors directly or through the Chairman of the Audit Committee. The Policy applies to all related person transactions,
even if the amount involved does not exceed the $120,000 threshold required for disclosure under the SEC rules. Review of a proposed
related person transaction takes into consideration the purpose of, and the potential benefits to the Company from, the related
person transaction, and the impact of the related person transaction on a director’s independence in the event that the
related person is a director or an immediate family member of a director. No member of the Audit Committee may participate in
any review, consideration, or approval of any related person transaction with respect to which such member or any of his or her
immediate family members is the related person.
The
policy provides that the Company may undertake certain pre-approved related person transactions (e.g., transactions in which the
related person’s interest derives solely from his or her service as a director of another corporation or entity that is
a party to the transaction) without further specific review, consideration and approval. The Company engaged in no related person
transactions in 2017.
Board
Meetings
The
board met eight times during 2017. Each person who was a director during 2017 attended at least 75% of the meetings of the board
and of the committees on which he served during the period he was a director. Absent special circumstances, each director is expected
to attend the annual meeting of stockholders. All of the current directors attended the 2017 annual meeting of stockholders, other
than Mr. Haley, who joined the Board in August 2017.
Executive
Sessions
The
Company’s Corporate Governance Guidelines require the independent directors to meet in executive session separate from management
at least two times a year. The independent directors met in executive session five times during 2017.
Committees
Established by the Board of Directors
The
board has three standing committees: (1) Audit Committee; (2) Nominating and Corporate Governance Committee; and (3) Compensation
Committee. As Chairman of the Board, Mr. Sheffield is not a member of any standing committee, but he attends all committee meetings
on an ex officio basis. On December 11, 2017, the board chartered a new non-standing committee, the Budget Planning and Strategy
Committee, the purpose of which is outlined below.
Audit
Committee.
The Audit Committee consists of Messrs. Campbell, Haley, and Ruelle, each of whom is independent for purposes
of Rules 5605(a)(2) and (c)(2) of the NASDAQ Listing Rules and Rule 10A-3(b)(1) under the Securities Exchange Act of
1934. Mr. Campbell serves as the Chairman. Each of the Audit Committee members is financially literate as determined by our board
in its business judgment. The board has also determined that Mr. Campbell is an “audit committee financial expert,”
as such term is defined under the applicable SEC rules.
The
Audit Committee met five times in 2017. The Audit Committee operates under a charter approved by the Board of Directors, which
can be found on the “Investors” page of our website at
http://ir.houwire.com
and clicking on the “Corporate
Governance” link
.
Copies will be provided to stockholders upon request
.
The
principal duties and responsibilities of the Audit Committee are to assist the board in its oversight of:
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the
accounting and financial reporting processes of the Company and the audits of the financial statements of the Company;
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the
independent auditors’ qualifications and independence; and
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the
performance of the independent auditors.
|
Our
Audit Committee is also responsible for:
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maintaining
free and open communication among the committee, the independent auditors and management of the Company;
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reviewing
and approving related person transactions; and
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preparing
the report required to be prepared pursuant to the rules of the SEC for inclusion in the Company’s
annual proxy statement.
|
The
Audit Committee has the resources and authority appropriate to discharge its duties and responsibilities, including the authority
to select, retain, terminate and approve the fees and other retention terms of counsel, accountants or other experts and advisors,
as it deems necessary or appropriate. See “Report of the Audit Committee” on page 29.
Nominating
and Corporate Governance Committee.
The Nominating and Corporate Governance Committee consists of Messrs. Campbell,
Ruelle, and Yetman. Mr. Ruelle serves as the Chairman. The board has determined that all committee members are independent for
purposes of Rule 5605(a)(2) of the NASDAQ Listing Rules.
The
Nominating and Corporate Governance Committee met four times in 2017. The Nominating and Corporate Governance Committee
operates under a charter approved by the Board of Directors, which can be found on the “Investors” page of our website
at
http://ir.houwire.com
and clicking on the “Investors” link and then clicking on “Corporate
Governance.” Copies will be provided to stockholders upon request.
The
principal duties and responsibilities of the Nominating and Corporate Governance Committee are to:
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identify
persons that the Committee believes are qualified to be directors of the Company and consider and evaluate other candidates
for director brought to the attention of the Committee, including persons nominated by stockholders in accordance with the
nomination procedures specified in the Company’s By-laws or otherwise recommended by stockholders;
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recommend
to the board (1) the nominees for election as directors at each annual meeting of stockholders or at any special meeting of
stockholders at which directors are to be elected and (2) the persons to be appointed by the board to fill any vacancy on
the board (including any vacancy resulting from an increase in the size of the board);
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review
the committee structure of the board and the membership of the board committees, and recommend to the board nominees for appointment
to each of the committees;
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review
and reassess, at least annually, the adequacy of the Company’s Corporate Governance Guidelines and recommend to the
board for approval any changes that the Committee deems necessary or appropriate;
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review
any proposals properly submitted by stockholders for inclusion in the Company’s proxy statement and recommend to the
board any action to be taken in response to such proposals; and
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oversee
the annual evaluation of the board.
|
In
screening and recommending candidates as directors of the Company, the Nominating and Corporate Governance Committee considers
the nature of the expertise and experience required for the performance of the duties of a director of a corporation engaged in
the Company’s business and such matters as the relevant business and industry experience, professional background, age,
current employment, community service and other board service of candidates for directors, as well as the racial, ethnic and gender
diversity of the board. The committee seeks to identify, as candidates for director, persons with a reputation for, and record
of, integrity and good business judgment who (1) have experience in positions with a high degree of responsibility and are leaders
in the organizations with which they are affiliated, (2) are free from conflicts of interest that could interfere with a director’s
duties to the Company and its stockholders, and (3) are willing and able to make the necessary commitment of time and attention
required for effective board service. The Nominating and Corporate Governance Committee also takes into account the candidate’s
level of financial literacy. The Nominating and Corporate Governance Committee monitors the mix of skills and experience of the
directors in order to assess whether the board has the necessary tools to perform its oversight function effectively. The Nominating
and Corporate Governance Committee will consider nominees for our Board of Directors recommended by stockholders, using the same
criteria as for other candidates.
The
Nominating and Corporate Governance Committee has the authority to retain advisors, including a search firm to be used to identify
director candidates. The Nominating and Corporate Governance Committee has the authority to approve the firm’s fees and
other retention terms and to terminate any advisor. The Company will provide for appropriate funding, as determined by the Nominating
and Corporate Governance Committee, for payment of compensation to any search firm or other advisors.
Stockholder
Recommendations for Director Nominations.
As noted above, the Nominating and Corporate Governance Committee considers and
establishes procedures regarding recommendations for nomination to the board, including nominations submitted by stockholders.
For information on how to nominate a person for election as a director at the 2019 annual meeting, please see the discussion under
the heading “Stockholder Proposals and Nominations for 2019 Annual Meeting.” The Nominating and Corporate Governance
Committee will evaluate all potential candidates in the same manner, regardless of the source of the recommendation. Based
on the information provided to the Nominating and Corporate Governance Committee, it will make an initial determination whether
to conduct a full evaluation of a candidate. As part of the full evaluation process, the Nominating and Corporate Governance Committee
may conduct interviews, obtain additional background information and conduct reference checks of the candidate, among other things.
The Nominating and Corporate Governance Committee may also ask the candidate to meet with management and other members of the
board.
Compensation
Committee.
The Compensation Committee consists of Messrs. Campbell, Haley, and Yetman. Mr. Yetman serves as the Chairman.
The board has determined that all committee members are (1) independent for purposes of Rules 5605(a)(2) and (d)(2) of
the NASDAQ Listing Rules, (2) “non-employee directors” as defined in Rule 16b-3 under the Securities Exchange
Act of 1934, and (3) “outside directors” as defined by Section 162(m) of the Internal Revenue Code.
The
Compensation Committee met twelve times in 2017. The Compensation Committee operates under a charter approved by the Board of
Directors and can be found by accessing the “Investors” page of our website at
http://ir.houwire.com
and clicking
on the “Investors” link and then clicking on “Corporate Governance.” Copies of the charter will be sent
to stockholders upon request.
The
principal duties and responsibilities of the Compensation Committee are as follows:
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make
recommendations to the board with respect to the CEO’s compensation;
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●
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consider
the Company’s performance and relative stockholder return, the value of similar incentive awards to the CEOs at comparable
companies, and the awards given to the Company’s CEO in past years when determining the long-term component of the CEO’s
compensation;
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●
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review
the CEO’s recommendations on compensation of the executive officers of the Company and make recommendations to the board
with respect thereto and with respect to the Company’s major compensation policies and practices;
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administer
and review the Company’s stock plans, including approving the number and distribution of awards under the 2017 Stock
Plan; and
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review
and make recommendations to the board concerning management development and succession planning activities, including an appropriate
successor in the event of the unexpected death, incapacity or resignation of the CEO.
|
The
Compensation Committee has the authority to delegate any of its responsibilities to subcommittees as it deems appropriate, provided
the subcommittees are composed entirely of independent directors. The Compensation Committee also may retain a compensation consultant
or other advisors to assist in the evaluation of CEO or executive officer compensation. The Compensation Committee has authority
to approve the retention terms and terminate any such consulting firm. The Company will provide for appropriate funding, as determined
by the Compensation Committee, for payment of compensation to any consulting firm or other advisors employed by the Compensation
Committee. In December 2016, the Compensation Committee engaged Meridian Compensation Partners LLC as its independent compensation
consultant, to perform a comparative analysis of CEO compensation for the Company and a group of peer companies and advise the
Committee with respect to a revised compensation package for Mr. Pokluda, and Meridian completed this engagement in early 2017.
See “Executive Compensation – Compensation Discussion and Analysis – 2018 Compensation Decisions.”
The
CEO may not be present during any deliberations on his compensation.
Budget
Planning and Strategy Committee
. On December 11, 2017 the board chartered a new committee to consider and make recommendations
regarding the process and procedures by which the Board of Directors oversees the development of the Company’s annual budget.
This committee consists of Messrs. Haley, Sheffield and Yetman. Mr. Haley serves as chairman. All committee members are (1) independent
for purposes of Rules 5605(a)(2) and (d)(2) of the NASDAQ Listing Rules, (2) “non-employee directors” as
defined in Rule 16b-3 under the Securities Exchange Act of 1934, and (3) “outside directors” as defined
by Section 162(m) of the Internal Revenue Code.
The
duties and responsibility of the Budget Planning and Strategy Committee are to develop an enhanced level of understanding of the
Company’s planning process, assess the annual budgets, update the multi-year strategic plan and related multi-year financial
targets and assist the board in overseeing risk management and business continuity.
The
Budget Planning and Strategy Committee did not meet in 2017. The board expects this committee to be disbanded after it achieves
its mission.
Stock
Ownership Guidelines
The
Board of Directors has adopted stock ownership guidelines encouraging each director and executive officer to invest in the Company’s
common stock. The recommended level for an independent director is an amount equal to three times an independent director’s
annual cash retainer, for the CEO, is an amount equal to two times his base salary and for the CFO, is an amount equal to one
time his base salary. The amount invested includes the grant date value of shares of restricted stock and restricted stock units.
The recommended ownership level should be achieved within five years after becoming a director or executive officer. All of the
current directors and executive officers, with the exception of Mr. Haley (appointed in 2017), meet the ownership guidelines.
Transactions
in the Company’s common stock by directors, officers and employees are subject to the Company’s Insider Trading Policy.
That policy prohibits the Company’s directors, officers and employees from participating in aggressive or speculative transactions
with respect to the Company’s stock, including short sales and hedging strategies.
Clawback
Policy
The
Board of Directors has adopted an Incentive Compensation Recoupment Policy entitling the Company to recover certain cash or equity
based incentive compensation paid to officers (including the CEO and the CFO) in the event of a restatement of the Company’s
financial statements due to material noncompliance with financial reporting requirements, regardless of fault, or in the event
of certain acts of misconduct by the officer. Recoupment covers any incentive compensation that is awarded or paid or that vests
within 36 months preceding the date of the restatement or 36 months following the occurrence of the misconduct.
Communications
with Directors
Stockholders
may communicate any concerns they have regarding the Company, including recommendations of candidates for director, to the Board
of Directors or to any member of the board via web form by accessing the “Investors” page of our website at
http://ir.houwire.com
and clicking on the “Corporate Governance” and “Contact the Board” links, through our Corporate Governance
Hotline at 866-254-2275 or by writing to them at the following address:
Houston
Wire & Cable Company
Attention:
[Board of Directors]/[Board Member]
c/o
Chief Financial Officer
10201
North Loop East
Houston,
TX 77029
Communications
directed to the independent directors should be sent to the attention of the Chairman of the Nominating and Corporate Governance
Committee, c/o Chief Financial Officer, at the address indicated above.
Any
stockholder or other interested person who has a particular concern regarding accounting, internal accounting controls or other
audit matters that he or she wishes to bring to the attention of the Audit Committee may communicate those concerns to the Audit
Committee or its Chairman, using the address indicated above.
The
independent directors of the Company have unanimously approved procedures with respect to the receipt, review and processing of,
and any response to, written communications sent by stockholders and other interested persons to the Board of Directors. Any written
communication regarding accounting, internal accounting controls, or other matters are processed in accordance with procedures
adopted by the Audit Committee.
Code
of Business Conduct
The
board has adopted a Code of Conduct, most recently updated in March 2018 and reviewed annually, a copy of which may be found by
accessing the “Investors page of our website at
http://ir.houwire.com
and clicking on the “Investors”
link and then clicking on “Corporate Governance” Under the Code of Conduct, we insist on honest and ethical conduct
by all of our directors, officers, employees and other representatives, including but not limited to the following:
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Our
directors, officers and employees are required to avoid situations in which their personal, family
or financial interests conflict with those of the Company;
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Our
directors, officers and employees must refrain from engaging in any activities that compete with the Company, or which may
compromise its interests;
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|
Our
directors, officers and employees must refrain from taking any business or investment opportunity discovered in the course
of employment with or service to the Company that the director, officer or employee knows, or should have known or has reason
to know, would benefit the Company; and
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Our
directors, officers and employees must comply with all applicable governmental laws, rules and regulations.
|
We
are also committed to ensuring that all disclosures in reports and documents that the Company files with the SEC, as well as other
public communications made by the Company, are full, fair, accurate, timely and understandable. Further, we will comply with all
laws, rules and regulations that are applicable to our activities and expect all of our directors, officers and employees to obey
the law. Any violation of applicable law or any deviation from the standards embodied in the Code of Conduct will result in appropriate
corrective and disciplinary action, up to and including termination of employment.
DIRECTOR
COMPENSATION
Each
non-employee member of the Board of Directors receives an annual cash retainer of $60,000, paid quarterly. The Chairman of the
Board receives an additional fee of $50,000 per year, and the Chairmen of the Audit, Compensation, Nominating and Corporate Governance,
and Budget Planning and Strategy Committees receive additional annual fees of $12,000, $9,000, $6,000 and $9,000, respectively,
also paid quarterly. There are no additional fees for meeting attendance. Mr. Pokluda does not receive any additional compensation
for his service as a director.
The
Company has adopted the Nonemployee Directors’ Deferred Compensation Plan. This plan permits a nonemployee director of the
Company to make an advance election to defer receipt of all or a portion of the board fees (including annual retainers for board
service and additional retainers for service as Chairman or as a chair of a board committee) that are otherwise payable to the
director for services performed during a calendar year. The deferred board fees are converted into stock units as of the date
the fees would otherwise be paid to the director and credited to a stock unit account, which is credited with dividend equivalents
to the extent applicable. The stock unit account is distributed in shares of common stock on the date previously elected by the
director (or, if no date is elected, on the January 31 following the date the director’s board service ends), or upon a
change in control of the Company, if earlier.
In
addition, following election or reelection to the board, each non-employee director receives a grant of restricted stock units
having a fair market value of $60,000, based on the price of the Company’s common stock on the date of grant. The restricted
stock units vest on the date of the Company’s annual meeting of stockholders the following year and are settled in shares
of common stock when the director’s service on the board terminates for any reason, provided that until the 2017 Stock Plan
is approved by the Company’s stockholders, any restricted stock units granted under that plan will be settled in cash. Any
dividends declared on the common stock during the term of the restricted stock units will be accrued and paid to the director
when the restricted stock units are settled.
We
reimburse members of our Board of Directors for any out-of-pocket expenses they incur in connection with services provided as
directors. The Nominating and Corporate Governance Committee has adopted a policy encouraging each director to devote at least
one day each year to director education and we pay for the cost of attending continuing education programs, up to $5,000 per director
per year. Perquisites paid or provided to individual directors in 2017 were significantly less than the SEC’s minimum threshold
for disclosure ($10,000).
The
following table sets forth all compensation paid to each of our non-employee directors in 2017:
Name
|
|
Fees Earned
or Paid in Cash
($)
|
|
|
Stock
Awards
($)
(1)
|
|
|
Total
($)
|
|
Michael
T. Campbell
|
|
|
69,000
|
|
|
|
55,125
|
|
|
|
124,125
|
|
I.
Stewart Farwell
(2)
|
|
|
44,375
|
|
|
|
—
|
|
|
|
44,375
|
|
Roy
W. Haley
(3)
|
|
|
30,000
|
|
|
|
45,000
|
|
|
|
75,000
|
|
Mark
A. Ruelle
|
|
|
63,250
|
|
|
|
55,125
|
|
|
|
118,375
|
|
William
H. Sheffield
|
|
|
105,000
|
|
|
|
55,125
|
|
|
|
160,125
|
|
G. Gary Yetman
|
|
|
64,250
|
|
|
|
55,125
|
|
|
|
119,375
|
|
|
(1)
|
This
column shows the aggregate grant date fair value of the restricted stock unit awards granted on August 4, 2017 based on the
closing price of the Company’s common stock on the date of grant, in accordance with FASB Accounting Standards Codification
(“ASC”) Topic 718. The number of restricted stock units granted to each of Messrs. Campbell, Ruelle, Sheffield
and Yetman had a value of $60,000 based on the closing price of the Company’s common stock on May 5, 2017, the date
of the 2017 annual meeting of stockholders, when the grants would normally have been made.
|
|
(2)
|
Mr.
Farwell retired from the Board on August 3, 2017.
|
|
(3)
|
Mr.
Haley was appointed as a director on August 4, 2017.
|
The
following table sets forth the aggregate number of stock options and restricted stock units for each of our non-employee directors
outstanding as of December 31, 2017. For information regarding Mr. Pokluda’s outstanding equity awards, see the 2017 Outstanding
Equity Awards at Fiscal Year End table.
Name
|
|
Stock Options
|
|
|
Restricted Stock Units
(1)
|
|
Michael
T. Campbell
|
|
|
25,000
|
|
|
|
36,894
|
|
Roy
Haley
|
|
|
—
|
|
|
|
7,653
|
|
Mark
A. Ruelle
|
|
|
—
|
|
|
|
26,185
|
|
William
H. Sheffield
|
|
|
15,000
|
|
|
|
36,894
|
|
G.
Gary Yetman
|
|
|
—
|
|
|
|
23,765
|
|
|
(1)
|
Until
the 2017 Stock Plan is approved by the Company’s stockholders, 9,375 of the restricted
stock units held by each of Messrs. Campbell, Ruelle, Sheffield and Yetman and all of
the restricted stock units held by Mr. Haley, will be settled in cash rather than shares
of the Company’s common stock.
|
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
This
section of the proxy statement is intended to provide stockholders with information about the compensation awarded in fiscal 2017
to the Company’s executives, including our “named executive officers.” Our named executive officers are James
L. Pokluda III, President & Chief Executive Officer, and Nicol G. Graham, Chief Financial Officer.
2017
Executive Compensation
|
●
|
Executive
compensation is based on (1) base salary, (2) annual incentive cash bonuses and (3) long-term,
equity-based incentive awards.
|
|
●
|
Annual
incentive cash bonuses for 2017 were based on three primary financial measures –
(1) EBITDA (net income, plus interest expense, income tax provision, depreciation and
amortization), (2) sales of targeted products (“Strategic Sales”) and (3)
working capital efficiency (“Working Capital Efficiency”). We exceeded the
target amount of EBITDA, and exceeded the maximums for Strategic Sales and Working Capital
efficiency.
|
|
●
|
The
Compensation Committee in 2017 continued its practice of awarding equity in the form
of time-based restricted stock. It also awarded Mr. Pokluda time-based restricted stock
units and performance stock units.
|
In
December 2016, the Compensation Committee engaged Meridian Compensation Partners LLC (“Meridian”) as its independent
compensation consultant, to perform a comparative analysis of CEO compensation and advise the Committee with respect to a revised
compensation package for Mr. Pokluda. As an initial step, Meridian proposed a peer group of companies designed to reflect the
Company’s market for executive talent. As revised to reflect the Company’s input, the peer group consisted of the
following companies:
Advanced
Energy Industries, Inc.
Badger
Meter Inc.
CECO
Environmental Corp.
Columbus
McKinnon Corp.
Flotek
Industries Inc.
L.
B. Foster Co.
Hill
International Inc.
Huttig
Building Products Inc.
|
Insteel
Industries
Lawson
Products
LMI
Aerospace Inc.
NN
Inc.
Northwest
Pipe Co.
Powell
Industries Inc.
Raven
Industries Inc.
Transcat
Inc.
|
Meridian’s
analysis focused on the “target total compensation” opportunity for the CEO at the Company and each of the peer group
companies, as reported in recent proxy filings. Meridian’s report concluded that, while the Company is on the low end of
the peer group in terms of size, its CEO total target compensation was the lowest of the group.
The
Compensation Committee used the peer group data as general guidance, together with other information such as industry trends,
the competitiveness of the markets in which we operate, Mr. Pokluda’s individual performance, and its own judgment in determining
an appropriate total target compensation opportunity for Mr. Pokluda. The Compensation Committee did not target a particular percentile
of the peer group, although it recognized that, given the Company’s relative size, the total target compensation for its
CEO would likely fall below the median.
After
the Compensation Committee determined a target amount for Mr. Pokluda, it sought Meridian’s advice in designing a compensation
package that would provide the desired opportunity. Following those discussions, in January 2017, the Compensation Committee took
the following actions:
|
●
|
Increased Mr. Pokluda’s
base salary to $500,000, effective January 1, 2017.
|
|
●
|
Revised Mr. Pokluda’s
annual incentive program to provide a target cash bonus opportunity equal to 80% (from 75%) of his base salary and a maximum
bonus opportunity equal to 120% of his base salary, based on achievement of performance goals established by the Compensation
Committee.
|
|
●
|
Awarded shares of
time-based restricted stock with a grant date value of $450,000, of which $150,000 was intended to supplement the award made
in December 2016.
|
|
●
|
Awarded performance
stock units with a grant date value of $300,000, which will vest based on the Company’s achievement of cumulative EBITDA
and stock price performance goals over a three-year period.
|
On
March 24, 2017, the Company and Mr. Pokluda entered into an Amended and Restated Employment Agreement that, among other things,
reflects the revised compensation package.
Objectives
of Compensation Program
Our
compensation program aims to attract, motivate and retain qualified, energetic employees who are enthusiastic about our mission
and culture. A further objective of our compensation program is to provide incentives and reward each employee for his or her
contribution to the Company. In addition, we strive to promote an ownership mentality among key leadership and the Board of Directors.
Finally, we endeavor to ensure that our compensation program is perceived as fundamentally fair to all stakeholders.
What
Our Compensation Program is Designed to Reward
Our
compensation program is designed to reward each employee’s contribution to the Company. In measuring senior management’s
contributions, the Compensation Committee considers a number of factors, including our profitable growth and the achievement of
financial performance targets. The total compensation package for each member of our senior management includes annual incentive
compensation that is based primarily on the achievement of financial performance targets. For 2017, the Compensation Committee
kept the same three performance measures that were used in 2016: EBITDA, Strategic Sales and Working Capital Efficiency. Each
December, the Compensation Committee establishes targets for each applicable factor for the upcoming fiscal year based in part
upon the incremental improvement in those measures over the prior fiscal year. The Compensation Committee retains full discretion
to adjust the EBITDA amount in the event the Company makes an acquisition during the year or to reflect unusual items.
The
total compensation package for each member of senior management also includes an equity component. For the past several years,
this has consisted of time-based restricted stock or restricted stock units that vest over three years, which focuses the executives
on delivering results that drive stockholder value.
Elements
of the Company’s Compensation Plan and How Each Element Relates to Our Objectives
Annual
senior management compensation consists of a base salary component, an incentive component and equity awards, which may include
stock options, restricted stock, restricted stock units and performance stock units. The Compensation Committee considers each
executive’s current and prior compensation when setting future compensation and does not have a formula for allocations
among each component. Our CEO provides recommendations to the Compensation Committee regarding the compensation of other members
of senior management.
Base
Salary.
We seek to provide members of our senior management with a level of a base salary in the form of cash compensation
appropriate to their roles and responsibilities. Base salaries for members of our senior management are established based on each
officer’s qualifications and experience, scope of responsibilities, future potential and past performance. We do not generally
target a particular percentile of compensation paid by any peer group. Base salaries are reviewed annually and adjusted as necessary
to realign salaries with general market levels, after taking into account individual responsibilities, performance and experience.
For 2017, the Compensation Committee increased Mr. Pokluda’s base salary from $440,000 to $500,000 and increased Mr. Graham’s
base salary from $246,764 to $254,166.
Incentive
Cash Bonuses.
Our practice is to award incentive cash bonuses to our senior management based upon performance objectives
of the Company.
Under
Mr. Pokluda’s employment agreement, Mr. Pokluda has a target bonus of 80% of his base salary and can earn an annual
bonus of up to 120% of his base salary based on achievement of one or more performance targets for the fiscal year that are agreed
to by the Board of Directors (or Compensation Committee) and Mr. Pokluda and consistent with the Company’s annual business
plan. For 2017, the Compensation Committee selected three performance measures: EBITDA, Strategic Sales and Working Capital Efficiency,
weighted 60%, 20% and 20%, respectively. There were three benchmarks (threshold, target and maximum) for each of the three performance
measures. Performance between any of the benchmarks is adjusted on a straight-line basis.
For
2017, Mr. Graham and all other members of senior management (other than Mr. Pokluda) participated in our Senior Management Bonus
Program. Under that Program, each participant could earn an annual bonus of up to 50% of his or her base salary based on achievement
of benchmarks with respect to the same three performance measures of EBITDA, Strategic Sales and Working Capital Efficiency established
for purposes of Mr. Pokluda’s annual incentive compensation.
Under
the Program, all bonuses are paid the year following the year for which performance is being measured, after receipt of (and subject
to) the audit of the financial statements for the relevant year. No award is payable under the Program to any participant whose
employment terminates prior to the time the bonus is paid. In all cases, the payment is at the discretion of the Compensation
Committee, and the Compensation Committee retains the right to terminate a participant’s participation in the bonus program
at any time, in which case no bonus may be paid.
The
annual cash bonus opportunities for 2017 at the threshold, target and stretch levels for the named executive officers are set
forth in the tables below:
James
L. Pokluda III
|
|
|
Threshold
|
|
|
Target
|
|
|
Stretch
|
|
Performance
Goal
|
|
$
Amount
|
|
|
%
of Base Salary
|
|
|
$
Amount
|
|
|
%
of Base Salary
|
|
|
$
Amount
|
|
|
%
of Base Salary
|
|
EBITDA
|
|
|
120,000
|
|
|
|
24
|
|
|
|
240,000
|
|
|
|
48
|
|
|
|
360,000
|
|
|
|
72
|
|
Strategic
Sales
|
|
|
40,000
|
|
|
|
8
|
|
|
|
80,000
|
|
|
|
16
|
|
|
|
120,000
|
|
|
|
24
|
|
Working
Capital Efficiency
|
|
|
40,000
|
|
|
|
8
|
|
|
|
80,000
|
|
|
|
16
|
|
|
|
120,000
|
|
|
|
24
|
|
Nicol
G. Graham
|
|
|
|
Threshold(1)
|
|
|
|
Target
|
|
|
|
Stretch
|
|
Performance
Goal
|
|
|
$
Amount
|
|
|
|
%
of Base Salary
|
|
|
|
$
Amount
|
|
|
|
%
of Base Salary
|
|
|
|
$
Amount
|
|
|
|
%
of Base Salary
|
|
EBITDA
|
|
|
0
|
|
|
|
0
|
|
|
|
38,125
|
|
|
|
15
|
|
|
|
76,250
|
|
|
|
30
|
|
Strategic
Sales
|
|
|
—
|
|
|
|
—
|
|
|
|
12,708
|
|
|
|
5
|
|
|
|
25,416
|
|
|
|
10
|
|
Working
Capital Efficiency
|
|
|
—
|
|
|
|
—
|
|
|
|
12,708
|
|
|
|
5
|
|
|
|
25,416
|
|
|
|
10
|
|
|
(1)
|
Applies
only to EBITDA. EBITDA must exceed the threshold amount for a bonus to be payable.
|
|
|
|
|
|
Our actual performance in
2017 compared to the target and maximum levels was:
|
Performance Goal ($ in millions)
|
|
Target
|
|
|
Maximum
|
|
|
Actual
|
|
EBITDA
|
|
$
|
6.5
|
|
|
$
|
8.8
|
|
|
$
|
7.60
|
|
Strategic
Sales
|
|
$
|
34.0
|
|
|
$
|
36.0
|
|
|
$
|
42.4
|
|
Working
Capital Efficiency
|
|
|
1.0
|
|
|
|
0.98
|
|
|
|
0.97
|
|
Based
on the above performance the target amounts and actual bonus amounts earned for Mr. Pokluda and Mr. Graham are shown in the table
below:
Named
Executive Officer
|
Target
Bonus
|
Actual
Bonus
|
James
L. Pokluda III
|
$400,000
|
$537,548
|
Nicol
G. Graham
|
$63,541
|
$107,241
|
Equity
Awards.
In addition to base salary and annual incentive compensation, each member of our senior management is eligible to
receive stock option, restricted stock or restricted stock units, and performance stock unit grants under our stock plan. We believe
that through our broad-based plan, the economic interests of our employees, including our executives, are more closely aligned
to those of the stockholders. The number of stock options, shares of restricted stock, restricted stock units or performance stock
units granted to each executive officer is made on a discretionary basis by the Compensation Committee after consideration of
the CEO’s recommendations, rather than pursuant to a formula. Grants are generally made in December of each year. Mr. Pokluda
was the only named executive officer to receive equity awards in 2017. In light of Mr. Graham’s upcoming retirement, the
Compensation Committee did not grant him any equity awards.
When
the Compensation Committee made the annual equity grant to Mr. Pokluda on December 19, 2016 (22,388 shares of restricted stock
with a grant value of $150,000), it did so with the expectation that the grant would be supplemented once Meridian completed its
analysis of Mr. Pokluda’s compensation. As a result of Meridian’s report, on January 30, 2017, the Compensation Committee
granted Mr. Pokluda (i) 60,000 shares of restricted stock (20,000 of which supplemented the 2016 award) and (ii) 40,000 performance
stock units. The 60,000 shares of restricted stock vest in one-third increments on January 30, 2018, December 19, 2018 and December
19, 2019, in each case as long as Mr. Pokluda is then employed by the Company. The performance stock units vest on December 31,
2019 based on and subject to the Company’s achievement of cumulative EBITDA and stock price performance goals over a three-year
period, as long as Mr. Pokluda is then employed by the Company (the target number can be adjusted at levels ranging from 50% to
150% depending on cumulative EBITDA and stock price performance). Upon vesting, the shares of restricted stock will be settled
in shares of the Company’s common stock.
On
December 11, 2017, as part of its annual grant procedures, the Compensation Committee granted to Mr. Pokluda 46,154 restricted
stock units and an additional 46,154 performance stock units. The restricted stock units vest in equal thirds on December 11,
2018, 2019 and 2020. The performance stock units will vest on December 31, 2020 based on the Company’s achievement of cumulative
EBITDA and stock price performance goals over a three-year period, as long as Mr. Pokluda is then employed by the Company.
Equity
Grant Practices
With
respect to current employees, we establish stock plan grant dates well in advance of any actual grant. The timing of each grant
is determined to coincide with a scheduled meeting of our Board of Directors and Compensation Committee and, except in highly
unusual circumstances, we will not allow discretionary grants at other dates. The grant date is established when our Compensation
Committee approves the grant and all key terms have been determined. The exercise price of each of our stock options is the market
closing price on the grant date. If at the time of any planned stock plan grant any member of our Board of Directors or any executive
officer is aware of material non-public information, we would not generally make the planned grant. In such event, as soon as
practical after material information is made public, the Compensation Committee would call a special meeting and otherwise take
all necessary steps to authorize the delayed grant. Regarding the grant process, the Compensation Committee does not delegate
any related function, and executive officers are not treated differently from other employees.
2017
Advisory Vote on Executive Compensation
At
our 2017 annual meeting of stockholders, we held a non-binding advisory vote on our executive compensation. Over 97% of the shares
voting voted to approve our executive compensation. Given this high percentage of votes in favor of our executive compensation,
and except with respect to Mr. Pokluda’s compensation, the Compensation Committee determined not to make any significant
changes in our compensation practices for 2018.
2018
Compensation Decisions
The
Compensation Committee decided to increase Mr. Pokluda’s annual base salary to $515,000 effective January 1, 2018 and maintain
Mr. Graham’s annual base salary at $254,166 for 2018. The design of both Mr. Pokluda’s annual incentive program and
the 2018 Senior Management Bonus Program remains unchanged from 2017, except that the performance goals and threshold, target
and stretch amounts have been updated. Incentive cash bonuses will again be based upon three performance measures – EBITDA,
Strategic Sales and Working Capital Efficiency, weighted 60%, 20% and 20%, respectively – and range from 0% to 120% of Mr.
Pokluda’s base salary or 0% to 50% of base salary for other members of senior management.
Employment
Agreement with Mr. Pokluda
On
March 24, 2017, the Company and Mr. Pokluda entered into a second amended and restated employment agreement that (i) extends the
term through December 31, 2018 (with automatic one-year extensions thereafter), (ii) increases his base salary and annual incentive
opportunity as discussed above and (iii) provides for immediate vesting of any unvested restricted stock awards and performance
stock unit awards granted as of January 31, 2017 in the event of a termination by the Company without cause, termination by Mr.
Pokluda for good reason, or termination due to death or disability. The other material terms of the employment agreement remain
unchanged.
Mr.
Pokluda will be entitled to receive as severance the payments described under “Potential Payments upon Termination of Employment
or Change in Control of the Company” below. The agreement limits Mr. Pokluda’s ability to compete with the Company
for a period of one year following the termination of his employment for any reason or two years if he is receiving severance
benefits due to a qualifying termination prior to a change in control.
Our
other members of senior management are elected by and serve at the discretion of the Board of Directors.
Tax
Considerations
Section
162(m) of the Internal Revenue Code as in effect for 2017 imposed a limitation on tax deductions of any publicly-held corporation
for compensation paid to certain executives in excess of $1,000,000 in any taxable year, unless the compensation is performance-based.
We have no individuals with non-performance based compensation paid in excess of the Section 162(m) tax deduction limit. Section
409A of the Internal Revenue Code addresses certain nonqualified deferred compensation benefits payable to an executive and provides
that if such benefits do not comply with Section 409A, they will be taxable in the first year they are not subject to a substantial
risk of forfeiture. In such case, the executive is subject to regular federal income tax, interest and an additional federal income
tax of 20% of the benefit includible in income. We have structured our compensation to comply with Section 409A.
Compensation
Committee Report
The
Compensation Committee of the Board of Directors has furnished the following report to the stockholders of the Company in accordance
with rules adopted by the SEC.
The
Compensation Committee of the Company states that the committee reviewed and discussed with management the Company’s Compensation
Discussion and Analysis contained in this proxy statement.
Based
upon the review and discussions referred to above, the Compensation Committee recommended to the Board of Directors that the Company’s
Compensation Discussion and Analysis be included in this proxy statement.
This
report is submitted on behalf of the members of the Compensation Committee:
|
G. Gary Yetman, Chairman
Michael T. Campbell
Roy W. Haley
|
Dated:
March 11, 2018
Compensation
Committee Interlocks and Insider Participation
The
Compensation Committee consists of Messrs. Yetman, Campbell and Haley. Mr. Yetman serves as the Chairman. None of the members
of the Compensation Committee is or ever was an officer or employee of the Company or any of its subsidiaries, and none of the
executive officers of the Company served on the board of directors or compensation committee of any entity whose officers served
either on the Company’s Board of Directors or Compensation Committee.
Compensation
Tables
Summary
Compensation Table
The
following table and related notes set forth information concerning the compensation paid to our Chief Executive Officer and President
and our Chief Financial Officer for fiscal years 2017, 2016 and 2015. Because our Chief Executive Officer and President and our
Chief Financial Officer are our only executive officers, the following compensation disclosures have been limited to those two
individuals. We collectively refer to these executive officers throughout this section as our “named executive officers.”
Name
and Principal
Position
|
|
Year
|
|
|
Salary
($)
(1)
|
|
|
Bonus
($)
(2)
|
|
|
Stock
Awards
($)
(3)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
(4)
|
|
|
All
Other
Compensation
($)
(5)
|
|
|
Total
($)
|
|
James
L. Pokluda III,
|
|
|
2017
|
|
|
|
498,847
|
|
|
|
—
|
|
|
|
1,350,000
|
(6)
|
|
|
537,548
|
|
|
|
14,075
|
|
|
|
2,400,470
|
|
President &
|
|
|
2016
|
|
|
|
439,846
|
|
|
|
44,000
|
|
|
|
306,000
|
|
|
|
60,500
|
|
|
|
13,500
|
|
|
|
863,846
|
|
Chief
Executive Officer
|
|
|
2015
|
|
|
|
445,538
|
|
|
|
—
|
|
|
|
150,000
|
|
|
|
—
|
|
|
|
12,337
|
|
|
|
607,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicol G. Graham,
|
|
|
2017
|
|
|
|
254,024
|
|
|
|
—
|
|
|
|
—
|
(7)
|
|
|
107,241
|
|
|
|
13,727
|
|
|
|
374,992
|
|
Chief
Financial Officer
|
|
|
2016
|
|
|
|
246,653
|
|
|
|
49,352
|
|
|
|
35,250
|
|
|
|
22,621
|
|
|
|
11,537
|
|
|
|
365,413
|
|
|
|
|
2015
|
|
|
|
248,330
|
|
|
|
—
|
|
|
|
18,690
|
|
|
|
—
|
|
|
|
11,390
|
|
|
|
278,410
|
|
|
(1)
|
Salary
adjustments were effective as of January 1, 2017 for Mr. Pokluda and Mr. Graham.
|
|
(2)
|
Reflects
a discretionary bonus.
|
|
(3)
|
This
column shows the aggregate grant date fair value of the shares of restricted stock, restricted
stock units and the target number of performance stock units granted, computed in accordance
with FASB ASC Topic 718. The grant date value of the performance stock units granted
in 2017 to Mr. Pokluda is based upon the probable outcome ($600,000), and assuming the
performance goal was met at the maximum level, would be $900,000. See note 9 of Notes
to Consolidated Financial Statements contained in our Annual Report on Form 10-K for
the year ended December 31, 2017 for a discussion of the assumptions made in the valuation
of these awards.
|
|
(4)
|
Reflects
the performance based annual bonus earned for Mr. Pokluda pursuant to his employment
agreement and for Mr. Graham pursuant to the Company’s Senior Management Bonus
Program (no bonus was earned in 2015).
|
|
(5)
|
All
Other Compensation reported for Mr. Pokluda for 2017 represents a matching contribution
by the Company to our 401(k) Plan of $2,650; group term life and long-term disability
insurance premiums of $1,667; and personal use of an automobile of $9,757. All Other
Compensation reported for Mr. Graham for 2017 represents a matching contribution by the
Company to our 401(k) Plan of $1,840; group term life and long-term disability insurance
premiums of $5,968; and personal use of an automobile of $5,919.
|
|
(6)
|
Until
the 2017 Stock Plan is approved by the Company’s stockholders, $600,000 of these
stock units will be settled in cash rather than shares of the Company’s common
stock.
|
|
(7)
|
In
light of Mr. Graham’s upcoming retirement, he did not receive any stock awards.
|
2017
Grants of Plan Based Awards
The
following table sets forth information for each named executive officer with respect to (i) estimated possible payouts under non-equity
incentive plan awards and equity incentive plan awards for 2017 and (ii) restricted stock granted in 2017.
|
|
|
|
Estimated future payouts under
non-equity incentive plan awards
(1)
|
|
Estimated future payouts under
equity incentive plan awards
(6)
|
|
All other
stock awards:
Number of
shares of
stock or
|
|
All
other
option
awards:
Number of securities
underlying
|
|
Exercise
or
base price of option
|
|
Grant date
fair value of
stock and
option
|
Name
|
|
Grant
date
(2)
|
|
Threshold
($)
(3)
|
|
Target
($)
(4)
|
|
Maximum
($)
(5)
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Maximum
(#)
|
|
units
(#)
|
|
options
(#)
|
|
awards
($/Sh)
|
|
awards
($)
(7)
|
James L. Pokluda III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/30/17
|
|
—
|
|
400,000
|
|
600,000
|
|
20,000
|
|
40,000
|
|
60,000
|
|
60,000
|
|
|
|
|
|
750,000
|
|
|
12/11/17
|
|
|
|
|
|
|
|
23,077
|
|
46,154
|
|
69,231
|
|
46,154
|
|
—
|
|
—
|
|
600,000
|
Nicol G. Graham
|
|
|
|
—
|
|
63,541
|
|
127,082
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1)
|
The
amounts in these columns reflect the estimated possible payouts for 2017 and were established under Mr. Pokluda’s employment
agreement or, for Mr. Graham, the Senior Management Bonus Program adopted in December 2017. A description of the bonus terms
can be found under “Compensation Discussion and Analysis” above.
|
|
(2)
|
The
“Grant Date” reflects the date on which the Compensation Committee acted to approve the grant of the award.
|
|
(3)
|
Non-Equity
Incentive Plan Awards – Threshold.
Applies only to EBITDA. Pursuant to our employment agreement with Mr. Pokluda
and the Senior Management Bonus Program for 2017, no amount is payable to Mr. Pokluda and Mr. Graham respectively, with respect
to EBITDA, unless our performance exceeds the applicable thresholds.
|
|
(4)
|
Non-Equity
Incentive Plan Awards – Target.
Pursuant to our employment agreement with Mr. Pokluda, the amount shown in this
column for Mr. Pokluda represents 80% of his base salary for 2017. Pursuant to the 2017 Senior Management Bonus Program, the
amount shown in this column represents 25% of Mr. Graham’s salary for 2017.
|
|
(5)
|
Non-Equity
Incentive Plan Awards – Maximum.
Pursuant to our employment agreement with Mr. Pokluda, the amount shown in this
column for Mr. Pokluda represents 120% of his base salary for 2017, the maximum percentage of his salary that is available
under his employment agreement. Pursuant to the 2017 Senior Management Bonus Program, the amount shown in this column represents
50% of Mr. Graham’s salary for 2017, the maximum percentage of salary that is available under the program.
|
|
(6)
|
Equity
Incentive Plan Awards.
No performance-based restricted stock was granted to Mr. Graham during 2017.
|
|
(7)
|
The
grant date fair value of the restricted stock, restricted stock units and performance stock units was computed in accordance
with FASB ASC Topic 718.
|
2017
Outstanding Equity Awards at Fiscal Year-End
The
following table sets forth information for each named executive officer with respect to unexercised options to purchase common
stock that remained outstanding and shares of restricted stock, restricted stock units and performance stock units that remained
unvested at December 31, 2017. The Company’s executive officers currently do not have any other outstanding stock awards.
|
|
Option
awards
|
|
Stock
awards
|
|
Name
|
|
|
Number
of
securities
underlying
unexercised
options
exercisable
(#)
|
|
|
|
Number
of
securities
underlying
unexercised
options
unexercisable
(#)
|
|
|
|
Option
exercise
price
($)
|
|
|
Option
expiration
date
|
|
|
Number
of
shares
or
units of
stock
that
have not
vested
(#)
|
|
|
|
Market
value
of shares or
units
of stock
that have not
vested
($)
(3)
|
|
|
|
Equity
incentive
plan awards:
number
of
unearned shares,
units
or other rights
that have not vested
(#)
(3)
|
|
|
|
Equity
incentive plan
awards: market or
payout
value of
unearned shares, units
or other rights that
have
not vested
($)
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
L. Pokluda III
|
|
|
64,330
|
|
|
|
—
|
|
|
|
14.11
|
|
|
12/20/2021
|
|
|
130,442
|
(1)
|
|
|
939,182
|
|
|
|
86,154
|
|
|
|
620,309
|
|
|
|
|
8,580
|
|
|
|
—
|
|
|
|
14.11
|
|
|
12/20/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
12.03
|
|
|
12/14/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
9.27
|
|
|
12/17/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicol
G. Graham
|
|
|
5,000
|
|
|
|
|
|
|
|
14.11
|
|
|
12/20/2021
|
|
|
8,499
|
(2)
|
|
|
61,193
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
12.03
|
|
|
12/14/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
9.27
|
|
|
12/17/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
These
shares vest in installments of 9,363 shares on December 15, 2018, 7,463 shares on December
19, 2018 and 7,462 shares on December 19, 2019, 20,000 shares on each of January 30,
2018, December 19, 2018 and December 19, 2019, 15,385 shares on each of December 11,
2018 and 2019, and 15,384 on December 11, 2020.
|
|
(2)
|
These
shares vest in installments of 833 shares on each of December 8, 2018 and 2019, 1,167 shares on each of December 15, 2018
and 2019, 1,166 shares on December 15, 2020, 1,667 shares on December 12, 2018, and 1,666 on December 12, 2019.
|
|
(3)
|
Of
these shares, 40,000 vest on December 31, 2019 and 46,154 vest on December 31, 2020, in each case as adjusted based on the
level of attainment of the performance goals.
|
|
(4)
|
The
market value of the stock awards was determined using the closing price of the Company’s common stock on December 31,
2017 ($7.20 per share).
|
2017
Option Exercises and Stock Vested
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
Name
|
|
|
Number
of Shares
Acquired on Exercise
(#)
|
|
|
|
Value
Realized on
Exercise
($)
(1)
|
|
|
|
Number
of Shares
Acquired on Vesting
(#)
|
|
|
|
Value
Realized on
Vesting
($)
(2)
|
|
James L. Pokluda III
|
|
|
—
|
|
|
|
—
|
|
|
|
77,514
|
|
|
|
232,947
|
|
Nicol G. Graham
|
|
|
—
|
|
|
|
—
|
|
|
|
3,334
|
|
|
|
21,879
|
|
|
(1)
|
The
value realized on the exercise of stock options represents the pre-tax difference between the option exercise price and the
closing price of the Company’s common stock on the exercise date, multiplied by the number of shares covered by the
stock options exercised by the named executive officer.
|
|
(2)
|
The
value realized on the vesting of restricted stock represents the number of shares vested multiplied by the closing price of
the Company’s common stock on the vesting date.
|
Potential
Payments upon Termination of Employment or Change in Control of the Company
The
Company provides benefits to the named executive officers upon certain terminations of employment from the Company or upon a change
in control of the Company. These benefits are in addition to the benefits to which the executives would be entitled upon a termination
of employment generally (i.e., vested retirement benefits accrued as of the date of termination, stock-based awards that are vested
as of the date of termination and the right to elect continued health coverage pursuant to COBRA). The incremental benefits payable
to the executives are described as follows:
Employment
Agreement with Mr. Pokluda
Under
his employment agreement with the Company, Mr. Pokluda is entitled to certain benefits upon his termination of employment from
the Company. These benefits are in addition to the benefits to which the executive officers would be entitled upon a termination
of employment generally (
i.e.
, vested retirement benefits accrued as of the date of termination, stock-based awards that
are vested as of the date of termination and the right to elect continued health coverage pursuant to COBRA). The incremental
benefits are described below.
Termination
Prior to a Change in Control
. If prior to a Change in Control (as defined in Mr. Pokluda’s employment agreement) Mr.
Pokluda’s employment is terminated by the Company without Cause, Mr. Pokluda terminates his employment for Good Reason,
or his employment terminates due to Disability, he is entitled to (i) continued payment of then current base salary for 24 months,
(ii) two payments, each equal to the amount of his incentive bonus for the most recently completed fiscal year, paid when incentive
bonuses are paid to other executives for the year in which the termination occurs and the following year, (iii) continued participation
in the Company’s health plan for 36 months (provided that COBRA is elected) with the premiums for the first 18 months at
active employee rates, and (iv) immediate vesting of any unvested equity awards granted as of January 31, 2017, which as of December
31,2017 would include (a) the shares of restricted stock granted on December 15, 2015, which are scheduled to vest on December
31, 2018, (b) the shares of restricted stock granted on December 19, 2016, which are scheduled to vest on December 19, 2018 and
2019, (c) the shares of restricted stock granted on January 30, 2017, which are scheduled to vest on December 19, 2018 and December
19, 2019, and (d) the performance stock unit award granted on January 31, 2017, which is scheduled to vest at the end of the performance
period on December 31, 2019 (, the “Subject Awards”), provided that the number of performance stock units payable
pursuant to the Subject Award described in (d) shall be determined at the end of the performance period as if Mr. Pokluda’s
employment had continued through such date. Other outstanding equity awards will vest pursuant to the terms of the 2017 Stock
Plan.
Termination
Following a Change in Control
. If within two years following a Change in Control (as defined in Mr. Pokluda’s employment
agreement) Mr. Pokluda’s employment is terminated by the Company without Cause (other than for Disability) or Mr. Pokluda
terminates his employment for Good Reason, he is entitled to the same benefits as in the case of termination prior to a Change
in Control, except that the 24 months of base salary and two years of incentive bonuses are payable in a lump sum within ten days
after termination. If any excise tax under Section 280G of the Code would be triggered by the benefits paid to Mr. Pokluda, and
the net after-tax value of the benefits is less than the net after-tax value of the benefits reduced so that no excise tax is
payable, then the benefits will be reduced accordingly.
Termination
Due to Death
. If Mr. Pokluda’s employment is terminated due to his death, his estate will be entitled to a pro rata
portion of the bonus payable for the year of termination had he remained employed through the end of the year, and his surviving
spouse and dependents can elect continued participation in the Company’s health plan for 36 months (provided that COBRA
is elected) with the premiums for the first 18 months at active employee rates. The Subject Awards will vest as described above,
and other outstanding equity awards will vest pursuant to the terms of the 2017 Stock Plan.
In
each case, benefits are conditioned on the execution of a release of claims, and Mr. Pokluda is subject to a two-year non-compete
restriction.
Under
Mr. Pokluda’s employment agreement, the terms “Cause,” “Disability” and “for Good Reason”
are defined as follows:
“Cause”
means (i) a material neglect by Mr. Pokluda of his assigned duties, which includes any failure to follow the written direction
of the board or to comply with the Company’s code of ethics or written policies, or repeated refusal by Mr. Pokluda to perform
his assigned duties, in each case other than by reason of disability, which continues for 30 days following receipt of written
notice from the board; (ii) the commission by Mr. Pokluda of any act of fraud or embezzlement against Company or any of its affiliates
or the commission of any felony or act involving dishonesty; (iii) the commission by Mr. Pokluda of any act of moral turpitude
which actually causes financial harm to the Company or any of its affiliates; (iv) a material breach by Mr. Pokluda of the confidentiality
provisions of the employment agreement or any other confidentiality or non-disclosure agreement of Mr. Pokluda with the Company;
or (v) Mr. Pokluda’s commencement of employment with another company while he is an employee of the Company without the
prior consent of the board.
“Disability”
means, in the sole judgment of the board, Mr. Pokluda’s inability to engage in any substantial gainful activity by reason
of any medically-determinable physical or mental impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than 12 months.
“Good
Reason” means voluntary termination of the employment agreement by Mr. Pokluda if, without the prior consent of Mr. Pokluda:
(a) the Company shall relocate its principal executive offices to a location outside the Houston, Texas metropolitan area; (b)
there is a material reduction by the Company in Mr. Pokluda’s responsibilities, duties, authority, title or reporting relationship;
or (c) the Company materially reduces Mr. Pokluda’s base salary or takes action that adversely affects Mr. Pokluda’s
participation in, or materially reduces Mr. Pokluda’s benefit under, any benefit plan of the Company in which Mr. Pokluda
is participating; provided, however, that termination for Good Reason by Mr. Pokluda shall not be permitted unless (x) Mr. Pokluda
has given the Company at least 30 days’ prior written notice that he has a basis for a termination for Good Reason, which
notice shall specify the facts and circumstances constituting Good Reason, and (y) the Company has not remedied such facts and
circumstances constituting Good Reason within such 30-day period.
Stock
Plans
The
2006 Stock Plan provides that with respect to grants made after February 2014, the Compensation Committee has the discretion to
determine how awards are to be treated upon a Change in Control, provided that if the awards are assumed by the acquiring entity,
the vesting provisions continue and the Compensation Committee has the discretion to accelerate vesting only if there is a subsequent
termination of employment. Mr. Pokluda’s January 30, 2017 performance stock units and restricted stock award agreements
provide that if the awards are not assumed by the acquiring entity they will fully vest on a Change in Control. The 2017 Stock
Plan contains the same Change in Control language as the amended 2006 Stock Plan. The award agreements under the 2017 Stock Plan
provide that if the awards are not assumed by the acquiring entity they will fully vest on a Change in Control. These award agreements
also provide that upon termination of employment due to death or disability, a pro rata portion of restricted stock units, and
the target number of performance stock units, will vest.
The
tables set forth below quantify the additional benefits described above that would be paid to each named executive officer pursuant
to the arrangements described above, assuming a termination of employment and/or Change in Control occurred on December 31, 2017.
Name
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Accelerated
Vesting of
Options
(1)
($)
|
|
|
Accelerated
Vesting of
Restricted
Stock/Units
(2)
($)
|
|
|
Continued
Health
Coverage
($)
|
|
James L. Pokluda III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
to change in control
(3)
|
|
|
1,000,000
|
|
|
|
1,075,096
|
(3)
|
|
|
—
|
|
|
|
894,874
|
|
|
|
34,880
|
|
On
or after change in control
(3) (4)
|
|
|
1,000,000
|
|
|
|
1,075,096
|
(3)
|
|
|
|
|
|
|
1,559,491
|
|
|
|
34,880
|
|
Nicol G. Graham
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On or after change
in control
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(1)
|
As
of December 31, 2017, Mr. Pokluda and Mr. Graham had no unvested stock options.
|
|
(2)
|
Based
on the closing price of the Company’s stock at December 31, 2017.
|
|
(3)
|
Reflects
accelerated vesting of (i) the Subject Awards if termination of employment is by the Company for other than Cause, by Mr.
Pokluda for Good Reason, or due to death or Disability and (ii) the December 2017 performance stock unit award, if termination
is due to death or Disability.
|
|
|
|
|
(4)
|
Reflects
accelerated vesting of (i) the Subject Awards if termination of employment is by the Company for other than Cause (other than
Disability), by Mr. Pokluda for Good Reason, or due to death and (ii) all remaining awards, which consist of the December
1, 2017 performance stock unit and restricted stock unit awards. The December 1, 2017 performance stock unit and restricted
stock unit awards are included based on the assumption that the awards would not be assumed by the acquiring entity.
|
CEO
Pay Ratio
Pursuant
to the Dodd-Frank Wall Street Reform and Consumer Protection Ac, the SEC has adopted a final rule requiring annual disclosure
of the ratio of the median employee’s annual compensation to the annual compensation of the CEO. As required, we are including
this disclosure beginning with this Proxy Statement.
We
identified the median employee by examining the 2017 total cash compensation for all individuals, excluding our CEO, who were
employed by us on December 31, 2017, the last day of our payroll year. We included all employees, whether employed on a full-time,
part-time, or seasonal basis. We did not make any assumptions, adjustments, or estimates with respect to total cash compensation,
and we did not annualize the compensation for any employees that were not employed by us for all of 2017. We believe the use of
total cash compensation for all employees is a consistently applied compensation measure because we do not widely distribute annual
equity awards to employees. Approximately 6% of our employees receive annual equity awards.
After
identifying the median employee based on total cash compensation, we calculated annual total compensation for such employee using
the same methodology we use for our named executive officers as set forth in the 2017 Summary Compensation Table later in this
Proxy Statement. Mr. Pokluda had 2017 annual total compensation of $2,400,470, as reflected in the Summary Compensation Table
included in this Proxy Statement. Our median employee’s annual total compensation that would be reportable in the summary
compensation table for 2017 was $50,900. As a result, the CEO pay ratio is 47 : 1.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides information as of December 31, 2016 with respect to our compensation plans (including individual compensation
arrangements) under which our equity securities are authorized for issuance:
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Plan Category
|
|
|
Number
of
Securities
to be
Issued
upon
Exercise
of
Outstanding
Options,
Warrants
and
Rights
|
|
|
|
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants
and
Rights
(2)
|
|
|
|
Number
of Securities
Remaining
Available
for
Issuance under
Equity
Compensation
Plans
(Excluding
Securities
Reflected in
Column
(a))
|
|
Equity
compensation plans approved by security holders
(1)
|
|
|
309,648
|
|
|
$
|
9.45
|
|
|
|
—
|
|
Equity
compensation plans not approved by security holders
(3)
|
|
|
196,743
|
|
|
|
—
|
|
|
|
803,257
|
|
|
(1)
|
Amounts
shown in this row relate solely to stock options, restricted stock units and performance stock units granted under the 2006
Stock Plan, which expired in May 2017. This row excludes shares of restricted stock granted under the 2006 Stock Plan, which
were granted at no cost to the recipients.
|
|
(2)
|
Weighted-average
exercise price of outstanding stock options. The performance stock units and restricted stock units have no exercise price.
|
|
(3)
|
Amounts
shown in this row relate solely to restricted stock units and performance stock units granted under the 2017 Stock Plan, which
the board of directors approved on August 4, 2017. Until the 2017 Stock Plan is approved by the Company’s stockholders,
these units will be settled in cash rather than shares of the Company’s common stock.
|
REPORT
OF THE AUDIT COMMITTEE
The
Audit Committee of the board is responsible for providing oversight of our accounting and financial reporting functions. The board
appoints the Audit Committee annually, with the committee consisting of at least three directors. The Audit Committee operates
under a formal charter, which is available on the Company’s website at
http://ir.houwire.com
and by clicking on the
“Corporate Governance” link. The Audit Committee charter sets forth in detail, the duties and responsibilities of
the Audit Committee.
The
Audit Committee relies on the expertise and knowledge of management and Ernst & Young LLP, the Company’s independent
registered public accounting firm, in carrying out its oversight responsibilities. Management is responsible for the Company’s
financial reporting process including its system of internal controls, and for the preparation of the consolidated financial statements
in accordance with generally accepted accounting principles. Ernst & Young LLP is responsible for auditing those financial
statements and issuing a report thereon.
The
Audit Committee reviewed and discussed with management and Ernst & Young LLP the quarterly financial statements for each quarter
during the year ended December 31, 2017 and the audited financial statements of the Company for the year ended December 31, 2017.
The Audit Committee also reviewed and discussed with Ernst & Young LLP the matters required to be discussed by Auditing Standard
No. 1301, “Communications with Audit Committees,” issued by the Public Company Accounting Oversight Board (“PCAOB”).
In
addition, the Audit Committee received the written independence disclosures and the letter from Ernst & Young LLP that are
required by the applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit
Committee concerning independence. The disclosures described the relationships and fee arrangements between Ernst & Young
LLP and the Company. Consistent with the applicable requirements of the PCAOB and the rules and regulations of the SEC, the Audit
Committee considered whether the provision of non-audit services by the independent registered public accounting firm to the Company
for the fiscal year ended December 31, 2017 is compatible with maintaining Ernst & Young LLP’s independence and has
discussed with Ernst & Young LLP the firm’s independence from the Company.
Based
on the above-mentioned reviews and discussions with management and Ernst & Young LLP, the Audit Committee, exercising its
business judgment, recommended to the board that the Company’s audited financial statements be included in its Annual Report
on Form 10-K for the year ended December 31, 2017, for filing with the SEC.
This
report is submitted on behalf of the members of the Audit Committee:
|
Michael
T. Campbell, Chairman
|
|
Roy W. Haley
|
|
Mark A. Ruelle
|
|
|
Dated:
March 11, 2018
PRINCIPAL
INDEPENDENT ACCOUNTANT FEES AND SERVICES
The
Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of Ernst & Young LLP,
our independent registered public accounting firm. The independent registered public accounting firm reports directly to the Audit
Committee. As part of its responsibility, the committee established a policy requiring the pre-approval of all audit and permissible
non-audit services performed by the registered public accounting firm. In pre-approving services, the Audit Committee considers
whether such services are consistent with the SEC’s rules on auditor independence.
Prior
to the engagement of the registered public accounting firm for an upcoming audit/non-audit service period, defined as a twelve-month
timeframe, Ernst & Young LLP submits a detailed list of services expected to be rendered during that period as well as an
estimate of the associated fees for each of the following four categories of services to the Audit Committee for approval:
|
●
|
Audit
Services
consist of services rendered by an external auditor for the audit of our annual consolidated financial statements
(including tax services performed to fulfill the auditor’s responsibility under generally accepted auditing standards)
and internal controls and reviews of financial statements included in Forms 10-Q, and includes services that generally only
an external auditor can reasonably provide, such as comfort letters, statutory audits, attest services, consents and assistance
with and review of documents filed with the SEC.
|
|
●
|
Audit-Related
Services
consist of assurance and related services by an external auditor that are reasonably related to audit or review
of financial statements, including employee benefit plan audits, due diligence related to mergers and acquisitions, and accounting
consultations.
|
|
●
|
Tax
Services
consist of services not included in Audit Services above, rendered by an external auditor for tax compliance.
|
|
●
|
Other
Non-Audit Services
are any other permissible work that is not an Audit, Audit-Related or Tax Service.
|
Circumstances
may arise during the twelve-month period when it may become necessary to engage the independent registered public accounting firm
for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific
pre-approval before engaging the independent auditor.
The
table below summarizes the fees billed by our independent registered public accounting firm, Ernst & Young LLP, for the audit
of our annual financial statements for the fiscal years ended December 31, 2017 and 2016 and fees billed for other services rendered
by Ernst & Young LLP during those periods.
Year
|
|
|
Audit
Fees
(1)
|
|
|
Audit-Related
Fees
|
|
|
Tax
Fees
(2)
|
|
|
All
Other Fees
|
|
|
Total
|
2017
|
|
|
$
|
448,000
|
|
|
$
|
124,000
|
|
|
$
|
67,025
|
|
|
$
|
—
|
|
|
$639,025
|
2016
|
|
|
$
|
587,371
|
|
|
$
|
—
|
|
|
$
|
52,200
|
|
|
$
|
—
|
|
|
$639,571
|
|
(1)
|
Audit
fees include fees for professional services rendered for the audit of our annual consolidated
financial statements (including services related to the audit of internal control over
financial reporting under the Sarbanes-Oxley Act of 2002) and the reviews of the interim
financial statements included in our Forms 10-Q.
|
|
(2)
|
Tax
fees represent professional services related to tax compliance.
|
For
the fiscal year ended December 31, 2017, none of the Audit-Related Fees, Tax Fees or Other Fees were approved in accordance with
the exceptions to the pre-approval requirements set forth in 16 CFR 210.2-01(c)(7)(i)(C).
PROPOSAL
NO. 2 — RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
General
Stockholder
ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for
the year ending December 31, 2018 is not required. However, the Board of Directors is submitting the selection of Ernst &
Young LLP as the Company’s independent registered public accounting firm to the stockholders for ratification to learn the
opinion of stockholders on this selection. If the stockholders fail to ratify Ernst & Young LLP as the independent registered
public accounting firm, the Audit Committee will reassess its appointment. Even if the selection is ratified, the Audit Committee
in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the
year if it determines that such change would be in the best interests of the Company and its stockholders. Representatives of
Ernst & Young LLP are expected to be at the annual meeting of stockholders and will have the opportunity to make a statement,
if they desire to do so, and to respond to appropriate questions from those attending the meeting.
Board
Recommendation and Stockholder Vote Required
The
Board of Directors recommends a vote “FOR” the ratification of the selection of Ernst & Young LLP as the Company’s
independent registered public accounting firm for the year ending December 31, 2018 (Proposal No. 2 on the proxy card).
The
affirmative vote of the holders of a majority of the votes represented at the annual meeting in person or by proxy will be required
for approval.
PROPOSAL
NO. 3 — ADVISORY VOTE TO APPROVE
EXECUTIVE
COMPENSATION
As
described in the Compensation Discussion and Analysis (“CD&A”) section of this proxy statement, the Compensation
Committee’s goal in setting executive compensation is to provide a compensation package that attracts, motivates and retains
executive talent and rewards executive officers for superior Company and individual performance while encouraging behavior that
is in the long-term best interests of the Company and its stockholders. Consistent with this philosophy, a significant portion
of the total compensation opportunity for each of our executives is performance-based and dependent upon the Company’s achievement
of specified financial goals and the performance of the Company’s shares on a long-term basis.
Stockholders
are urged to read the CD&A, which discusses how our compensation policies and procedures implement our compensation philosophy,
as well as the Summary Compensation Table and other related compensation tables and narrative disclosure which describe the compensation
of our named executive officers in fiscal 2017. The Compensation Committee and the Board of Directors believe that the policies
and procedures articulated in the CD&A are effective in implementing our compensation philosophy and in achieving our goals
and that the compensation of our named executive officers in fiscal 2017 reflects and supports these compensation policies and
procedures.
In
accordance with Rule 14a-21 under the Securities Exchange Act of 1934 and as a matter of good corporate governance, stockholders
will be asked at the 2018 annual meeting of stockholders to approve the following advisory resolution:
RESOLVED,
that the stockholders of Houston Wire & Cable Company approve, on an advisory basis, the compensation of the Company’s
named executive officers described in the Compensation Discussion and Analysis section of the Proxy Statement and disclosed in
the 2017 Summary Compensation Table and related compensation tables and narrative disclosure included in the Proxy Statement.
This
advisory vote, commonly referred to as a “say-on-pay” advisory vote, is not binding on the board. Although non-binding,
the board and the Compensation Committee will review the voting results and take them into consideration when making future decisions
regarding our executive compensation programs.
Board
Recommendation and Stockholder Vote Required
The
Board of Directors recommends a vote “FOR” the advisory approval of the Company’s executive compensation (Proposal
No. 3 on the proxy card).
The
affirmative vote of the holders of a majority of the votes represented at the annual meeting in person or by proxy will be required
for approval.
PROPOSAL
NO. 4:
APPROVAL
OF THE HOUSTON WIRE & CABLE COMPANY 2017 STOCK PLAN
On
August 4, 2017, the Board of Directors approved the Houston Wire & Cable Company 2017 Stock Plan (the “2017 Stock Plan”).
The 2017 Stock Plan provides for discretionary grants of stock options, stock awards, stock units and stock appreciation rights
(SARs) to employees and directors. Its purpose is to attract and retain outstanding individuals as employees and directors of
the Company and its subsidiaries and to provide them with additional incentive to expand and improve the Company’s profits
by giving them the opportunity to acquire or increase their proprietary interest in the Company.
The
2017 Stock Plan succeeds the Company’s 2006 Stock Plan, which expired by its terms on May 1, 2017. A new equity compensation
plan requires stockholder approval under the rules of the NASDAQ Stock Market. Until the 2017 Stock Plan is approved by stockholders,
only awards of cash-settled stock units and SARs may be granted under the 2017 Stock Plan. If stockholder approval is not obtained,
the provisions of the2017 Stock Plan as they pertain to all other types of awards will have no effect. If the 2017 Stock Plan
receives stockholder approval, all outstanding awards that subsequently vest will be settled in shares of the Company’s
common stock rather than cash.
Reasons
Why Stockholders Should Approve the 2017 Stock Plan
The
Company views its use of stock-based awards as an essential part of the Company’s compensation program and an important
element in achieving the program’s goals. These awards help align pay with performance and allow the Company to better link
the financial interests of employees and directors with stockholders. The Company also believes that equity compensation motivates
employees and directors to create stockholder value because the value they realize from equity compensation is based in large
part on the Company’s common stock price performance.
The
2017 Stock Plan contains certain restrictions that the Company believes further the objectives of the 2017 Stock Plan and reflect
sound corporate governance principles:
|
●
|
Dividends
on all stock awards and dividend equivalents on all stock unit awards are paid only to
the extent the awards vest.
|
|
●
|
Stock
options and SARs may not be granted with an exercise price less than the fair market
value of the underlying common stock on the date of grant, and the term is limited to
ten years from the date of grant.
|
|
●
|
Shares
that are used to pay the stock option or SAR exercise price or required tax withholding
on any award cannot be used for future grants under the 2017 Stock Plan.
|
|
●
|
Repricing
of stock options or SARs without stockholder approval is prohibited.
|
|
●
|
Awards
do not automatically vest on a change in control.
|
|
●
|
Under
its Incentive Compensation Recoupment Policy, the Company can recoup a participant’s
stock compensation in the event there is a restatement of the Company’s financial
statements or the participant has engaged in misconduct that results in material loss
or damage to the Company.
|
The
Company, through its Compensation Committee (the “Committee”), believes that it has prudently managed awards under
the 2006 Stock Plan, giving proper consideration to the dilutive impact of equity awards on stockholder equity. The Company has
not requested stockholder authorization for the issuance of shares pursuant to equity compensation plans since stockholder approval
of the 2006 Stock Plan in 2007.
Description
of the 2017 Stock Plan
The
following is a summary of the key terms of the 2017 Stock Plan. It is qualified in its entirety by reference to the full text
of the 2017 Stock Plan, which is attached as Exhibit A to this proxy statement. Stockholders are encouraged to review the 2017
Stock Plan carefully.
Plan
Administration
. The 2017 Stock Plan is administered by the Committee, which is comprised of directors who satisfy the “non-employee
director” definition under Rule 16b-3 of the Securities Exchange Act of 1934 and the “outside director” definition
under section 162(m) of the Internal Revenue Code. The Committee has full authority to select the employees and directors who
will receive awards under the 2017 Stock Plan, determine the form and amount of each of the awards to be granted, and establish
the terms and conditions of awards. The Committee may delegate to an officer of the Company its authority to grant awards to employees
who are not subject to Section 16 of the Securities Exchange Act of 1934 and are not “covered employees” as defined
in Section 162(m) of the Code.
Number
of Shares of Common Stock
. The number of shares of our common stock that may be issued under the 2017 Stock Plan is 1,000,000.
Shares issuable under the 2017 Stock Plan may be authorized but unissued shares or treasury shares. If any award granted under
the 2017 Stock Plan expires, terminates or is forfeited or cancelled for any reason, the shares subject to the award will again
be available for issuance. Any shares subject to an award that are delivered to the Company or withheld by the Company on behalf
of a participant as payment for the award (including the exercise price of a stock option or SAR) or as payment for any withholding
taxes due in connection with the award, or that are purchased by the Company with proceeds received from a stock option exercise,
will not again be available for issuance.
The
number of shares issuable under the 2017 Stock Plan is subject to adjustment in the event of any reorganization, recapitalization,
stock split, stock distribution, special or extraordinary dividend, merger, consolidation, split-up, spin-off, combination, subdivision
or any similar corporate transaction. In each case, the Committee will make adjustments it deems necessary to preserve the intended
benefits under the 2017 Stock Plan.
Of
the shares available for issuance: (i) the maximum number issuable as stock options or SARs to any employee in any calendar year
is 500,000; (ii) the maximum number issuable upon settlement of stock awards or stock unit awards intended to qualify as performance-based
compensation under Code Section 162(m) granted to any employee in any calendar year is 150,000; and (iii) the maximum number issuable
as incentive stock options is 1,000,000. As a result of the adoption of the Tax Cuts and Jobs Act of 2017, awards granted after
November 2, 2017 cannot qualify as performance-based compensation under Code Section 162(m).
Eligibility
.
All employees and directors of the Company and its subsidiaries are eligible to receive awards under the 2017 Stock Plan. The
Committee has full authority to select the eligible individuals who will receive awards under the 2017 Stock Plan. As of March
__, 2018, all five non-employee directors and approximately ___ employees were eligible to participate in the 2017 Stock Plan.
In 2017, 31 persons, including the named executive officers, received awards under the 2017 Stock Plan.
Performance
Goals
. The Committee may, in its discretion, provide that any award granted under the 2017 Stock Plan shall be subject to
the attainment of performance goals. Performance goals may be based on one or more metrics including, but not limited to: return
on equity; earnings or earnings per share; common stock price; return on assets; return on investment; cash flow; net income;
expense management; or revenue growth. Performance goals may be absolute in their terms or measured against or in relationship
to the performance of other companies or indices selected by the Committee. In addition, performance goals may be adjusted for
any events or occurrences (including acquisition expenses, extraordinary charges, losses from discontinued operations, restatements
and accounting charges, restructuring expenses, asset write-downs, administrative costs associated with debt and equity refinancing,
litigation or claim judgments or settlements, effect of changes in tax laws and foreign exchange gains and losses), as may be
determined by the Committee.
With
respect to each performance period established by the Committee, the Committee will establish performance goals relating to one
or more of the business criteria identified above and targets for participants for achievement of the performance goals. The performance
goals and performance targets established by the Committee may be identical for all participants for a given performance period
or, at the discretion of the Committee, may differ among participants. Following the completion of each performance period, the
Committee will determine the extent to which performance goals for that performance period have been achieved, and the related
performance-based restrictions will lapse in accordance with the terms of the applicable award agreement.
Types
of Awards
. The 2017 Stock Plan provides for discretionary awards of stock options, stock, stock units and SARs to selected
employees and directors. Each award made under the 2017 Stock Plan will be evidenced by an award agreement specifying the terms
and conditions of the award as determined by the Committee.
Stock
Options
. The Committee may grant non-qualified or incentive stock options to employees and non-qualified stock options to
non-employee directors. The Committee may set the terms and conditions applicable to the options, including the type of option
and the number of shares subject to the option, provided that (i) the exercise price of each option will not be less than the
closing sales price of the common stock on the date of grant (“fair market value”); and (ii) each option will expire
not later than 10 years from the date of the grant. Dividends or dividend equivalents are not paid on stock options.
In
addition, an incentive stock option is subject to the following rules: (i) the aggregate fair market value (determined at the
time the option is granted) of the shares of common stock with respect to which incentive stock options are exercisable for the
first time by an employee during any calendar year (under all of our stock option plans) cannot exceed $100,000, and, if this
limitation is exceeded, the portion of the incentive stock option that does not exceed this dollar limit will be an incentive
stock option and the remainder will be a non-qualified stock option; (ii) if an incentive stock option is granted to an employee
who owns stock possessing more than 10% of the total combined voting power of all classes of our stock, the exercise price will
be 110% of the closing price of our stock on the date of grant and the incentive stock option will expire no later than five years
from the date of grant; and (iii) no incentive stock option may be granted after 10 years from the date the 2017 Stock Plan was
adopted.
Stock
Awards
. The Committee may grant shares of common stock to any participant, either for no consideration or for such appropriate
consideration as the Committee determines. The Committee has the discretion to determine the number of shares awarded and the
restrictions, terms and conditions of the award. Unless otherwise specified in an award agreement, the recipient of an award will
be a stockholder with respect to the shares awarded to him or her and will have the rights of a stockholder with respect to the
shares, including the right to vote the shares and receive dividends, if any, on the shares, although dividends otherwise payable
on any stock award subject to restrictions will be held by the Company and paid only to the extent the restrictions lapse. Any
such dividends attributable to the portion of a stock award for which the restrictions do not lapse will be forfeited.
Stock
Units
. The Committee may grant stock units to any participant. Each stock unit entitles the participant to receive, on the
date or upon the occurrence of an event (including the attainment of performance goals) as described in the stock unit agreement,
one share of common stock or cash equal to the fair market value of a share of common stock on the date of such event. The Committee
has the discretion to determine the number of units awarded and the restrictions, terms and conditions of the award. Unless otherwise
specified in an award agreement, a participant will have no rights of a stockholder, including voting or dividend or other distribution
rights, with respect to any stock units prior to the date they are settled in shares of common stock. The award agreement may
provide that until any restrictions lapse, the participant will be paid an amount equal to the dividends that would have been
paid had the stock units been actual shares, although such dividend equivalents will be held by the Company and paid only to the
extent the restrictions lapse.
SARs
.
The Committee may grant SARs to any participant. Each SAR entitles the participant to receive the difference between the fair
market value of the common stock on the date of exercise of the SAR and the exercise price thereof, multiplied by the number of
shares with respect to which the SAR is being exercised. Upon exercise, the SAR will be paid in cash or in shares of common stock
(based upon the fair market value on the date of exercise) or a combination thereof, as set forth in the award agreement. The
Committee has the discretion to set the terms and conditions applicable to SARs, provided that the exercise price of each SAR
will not be less than the fair market value of the shares on the date the SAR is granted, and each SAR will expire not later than
ten years from the date of grant. Dividends or dividend equivalents are not paid on SARs.
Board
Recommendation and Stockholder Vote Required
The
Board of Directors recommends a vote “FOR” approval of the 2017 Stock Plan. (Proposal No. 4 on the proxy card).
The
affirmative vote of the holders of a majority of the votes represented at the annual meeting in person or by proxy will be required
for approval.
ANNUAL
REPORT TO STOCKHOLDERS
We
have enclosed our 2017 annual report to stockholders with this proxy statement. The annual report includes our annual report on
Form 10-K for the fiscal year ended December 31, 2017, as filed with the SEC. The annual report on Form 10-K contains our audited
financial statements, along with other financial information about us. We urge you to read these documents carefully.
You
can also obtain, free of charge, a copy of our annual report on Form 10-K by:
|
●
|
accessing
the Financials & Filings page of our website at
http://ir.houwire.com/financials.cfm
and clicking on the “SEC
Filings” link;
|
|
|
|
|
●
|
writing to:
|
Houston
Wire & Cable Company — Chief Financial Officer
10201
North Loop East
Houston,
Texas 77029; or
|
●
|
telephoning
us at: (713) 609-2200.
|
You
can also obtain a copy of our annual report on Form 10-K and other periodic filings that we make with the SEC from the SEC’s
website at
http://www.sec.gov
.
STOCKHOLDER
PROPOSALS AND NOMINATIONS FOR 2019 ANNUAL MEETING
The
proxy rules of the SEC permit our stockholders, after notice to the Company, to present proposals for stockholder action in our
proxy statement where such proposals are consistent with applicable law, pertain to matters appropriate for stockholder action
and are not properly omitted by us in accordance with the proxy rules. In order for any stockholder proposal to be considered
for inclusion in our proxy statement to be issued in connection with our 2019 annual meeting of stockholders, that proposal must
be received at our corporate headquarters, 10201 North Loop East, Houston, Texas 77029 (Attention: Chief Financial Officer), no
later than November 28, 2018.
Our
certificate of incorporation and by-laws provide that stockholder action can be taken only at an annual or special meeting of
stockholders and cannot be taken by written consent in lieu of a meeting. Our certificate of incorporation and by-laws provide
that, except as otherwise required by law, special meetings of our stockholders can only be called pursuant to a resolution adopted
by a majority of our Board of Directors or by our chief executive officer or the chairman of our Board of Directors. Stockholders
are not permitted to call a special meeting or to require our board to call a special meeting.
Our
by-laws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders,
including proposed nominations of persons for election to our board. Stockholders at our annual meeting may only consider proposals
or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board or by a stockholder
who was a stockholder of record on the record date for the meeting and upon giving of notice and provided that the stockholder
has given to our Secretary timely written notice, in proper form, of the stockholder’s intention to bring that business
before the meeting. Specifically, our bylaws provide the following procedure in order that business may properly come before the
stockholders at the annual meeting. Among other things, stockholders intending to bring business before the annual meeting must
provide written notice of such intent to the Secretary of the Company. Such notice must be given no earlier than January 8, 2019
and no later than February 7, 2019. In addition, the following information must be provided in the written notice: (1) a brief
description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the
annual meeting, (2) the name and address, as they appear on the Company’s books, of the stockholder proposing such business,
(3) the class and number of shares of common stock that are beneficially owned by the stockholder, (4) any material interest of
the stockholder in such business and (5) a representation that the stockholder intends to appear in person or by proxy at the
annual meeting to bring such business before the meeting.
If
the stockholder proposes to nominate a person as a director, the written notice must be given no earlier than January 8, 2019
and no later than February 7, 2019 and must set forth the following information as to each proposed nominee: (1) the name, age,
business address and, if known, residence address of such nominee, (2) the principal occupation or employment of such nominee,
(3) the number of shares of common stock which are beneficially owned by such nominee, and (4) any other information concerning
the nominee that must be disclosed as to nominees in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, including such person’s written consent to be named as a nominee and to serve as a director if elected. As
to the stockholder giving the notice, the following information is required: (1) the name and address, as they appear on the Company’s
books, of such stockholder and (2) the number of shares of common stock beneficially owned by such stockholder. The Company may
require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility
of such proposed nominee to serve as a director of the Company.
GENERAL
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our officers, directors and persons who own more than ten percent of a registered
class of our equity securities to file reports of ownership and changes in ownership on Forms 3, 4 and 5, as applicable, with
the SEC. Officers, directors and stockholders owning more than ten percent of our common stock are required by the SEC regulations
to furnish us with copies of all Forms 3, 4 and 5 they file.
Based
solely upon a review of Forms 3 and 4 and any amendments furnished to us, we believe that our directors, officers and greater
than 10% beneficial owners complied with all applicable Section 16 filing requirements during 2017, except that two Forms 4 reporting
the payment of taxes by withholding shares incident to the vesting of restricted stock were filed late..
Other
Information
The
expenses of preparing and mailing this proxy statement and the accompanying proxy card and the cost of solicitation of proxies,
if any, will be the responsibility of the Company. In addition to the use of mailings, proxies may be solicited by personal interview,
telephone and by our directors, officers and regular employees without special compensation therefor. We expect to reimburse banks,
brokers and other persons for their reasonable out-of-pocket expenses in handling proxy materials for beneficial owners of our
common stock.
Our
board does not know of any other matters that are to be presented for action at the 2018 annual meeting of stockholders. Should
any other matter come before the annual meeting, however, the persons named in the enclosed proxy will have discretionary authority
to vote all proxies with respect to such matter in accordance with their judgment.
|
BY
ORDER OF THE BOARD OF DIRECTORS
|
|
|
|
|
|
|
|
Nicol G. Graham
|
|
Vice President,
Chief Financial Officer, Treasurer and Secretary
|
Dated:
March 28, 2018
EXHIBIT
A
HOUSTON
WIRE & CABLE COMPANY
2017
STOCK PLAN
Section
1. Purpose.
The
purpose of the Houston Wire & Cable Company 2017 Stock Plan (the “Plan”) is to attract and retain outstanding
individuals as Key Employees and Directors of Houston Wire & Cable Company (“HWC”) and its Subsidiaries (collectively,
the “Company”), and to provide such Key Employees and Directors with additional incentive to expand and improve the
Company’s profits by giving them the opportunity to acquire or increase their proprietary interest in the Company.
Section
2. Definitions.
As
used in the Plan, the following terms shall have the meanings set forth below:
2.1 “
Award
”
means any award or benefit granted under the Plan, which shall be a Stock Option, a Stock Award, a Stock Unit Award or an SAR
Award.
2.2 “
Award
Agreement
” means, as applicable, a Stock Option Agreement, a Stock Award Agreement, a Stock Unit Agreement or an SAR
Award Agreement evidencing an Award granted under the Plan.
2.3 “
Board
”
means HWC’s Board of Directors.
2.4 “
Change
in Control
” has the meaning set forth in Section 9.2 hereof.
2.5 “
Code
”
means the Internal Revenue Code of 1986, as amended from time to time.
2.6 “
Committee
”
means the Compensation Committee of the Board or such other committee as may be designated by the Board from time to time to administer
the Plan.
2.7 “
Common
Stock
” means the Common Stock, par value $.001 per share, of HWC.
2.8 “
Director
”
means a director of HWC.
2.9 “
Exchange
Act
” means the Securities Exchange Act of 1934, as amended from time to time.
2.10 “
Fair
Market Value
” means, as of any date, the closing price of the Common Stock on the Nasdaq National Market (as reported
in
The Wall Street Journal
, Midwest Edition) on such date or, if no trading occurred on such date, the trading day immediately
preceding such date.
2.11 “
Incentive
Stock Option
” or “
ISO
” means a Stock Option granted under Section 5 hereof that meets the requirements
of Code Section 422(b) or any successor provision.
2.12 “
Key
Employee
” means an employee of the Company selected to participate in the Plan in accordance with Section 3.
2.13 “
Non-Qualified
Stock Option
” or “
NSO
” means a Stock Option granted under Section 5 that is not an Incentive Stock
Option.
2.14 “
Participant
”
means a Key Employee or Director selected to receive an Award under the Plan.
2.15 “
Plan
”
means the Houston Wire & Cable Company 2017 Stock Plan.
2.16 “
Stock
Appreciation Right
” or “
SAR
” means a grant of a right to receive shares of Common Stock or cash under
Section 8 of the Plan.
2.17 “
Stock
Award
” means a grant of shares of Common Stock under Section 6 hereof.
2.18 “
Stock
Option
” means an Incentive Stock Option or a Non-Qualified Stock Option granted under Section 5.
2.19 “
Stock
Unit
” means a right to receive shares of Common Stock or cash under Section 7 of the Plan.
2.20 “
Subsidiary
”
means an entity of which HWC is the direct or indirect beneficial owner of not less than 50% of all issued and outstanding equity
interest of such entity.
Section
3. Administration.
3.1
Committee
.
The
Plan shall be administered by the Committee, provided that the Committee must be comprised of at least two members of the Board
who satisfy the “non-employee director” definition set forth in Rule 16b-3 under the Exchange Act and the “outside
director” definition under Code Section 162(m) and the regulations thereunder, and provided further that the Board shall
administer the Plan until such time as the Board has two members who are both such non-employee directors and outside directors.
3.2
Authority
of the Committee
.
(a) The
Committee, in its sole discretion, shall determine the Key Employees and Directors to whom, and the time or times at which Awards
will be granted, the form and amount of each Award, the expiration date of each Award, the time or times within which the Awards
may be exercised, the cancellation of the Awards and the other limitations, restrictions, terms and conditions applicable to the
grant of the Awards. The terms and conditions of the Awards need not be the same with respect to each Participant or with respect
to each Award.
(b) The
Committee may delegate its authority to grant Awards to Key Employees and to determine the terms and conditions thereof to such
officers of HWC as it may determine in its discretion, on such terms and conditions as it may impose, except with respect to Awards
to officers subject to Section 16 of the Exchange Act or officers who are or may be “covered employees” as defined
in Code Section 162(m), or to the extent prohibited by applicable law, regulation or rule of a stock exchange on which the Common
Stock is listed.
(c) The
Committee may, subject to the provisions of the Plan, establish such rules and regulations as it deems necessary or advisable
for the proper administration of the Plan, and may make determinations and may take such other action in connection with or in
relation to the Plan as it deems necessary or advisable. Each determination or other action made or taken pursuant to the Plan,
including interpretation of the Plan and the specific terms and conditions of the Awards granted hereunder, shall be final and
conclusive for all purposes and upon all persons.
(d) No
member of the Committee shall be liable for any action taken or determination made hereunder in good faith. Service on the Committee
shall constitute service as a Director so that the members of the Committee shall be entitled to indemnification and reimbursement
as Directors of HWC pursuant to HWC’s Certificate of Incorporation and By-Laws.
3.3
Performance
Goals
.
(a) The
Committee may, in its discretion, provide that any Award granted under the Plan shall be subject to performance goals, including
those that qualify the Award as “performance-based compensation” within the meaning of Code Section 162(m).
(b) Performance
goals may be based on one or more business criteria, including, but not limited to: (i) return on equity; (ii) earnings or earnings
per share; (iii) Common Stock price; (iv) return on assets; (v) return on investment; (vi) cash flow; (vii) net income; (viii)
expense management; or (ix) revenue growth. Performance goals may be absolute in their terms or measured against or in relationship
to the performance of other companies or indices selected by the Committee. In addition, performance goals may be adjusted for
any events or occurrences (including acquisition expenses, extraordinary charges, losses from discontinued operations, restatements
and accounting charges, restructuring expenses, asset write-downs, administrative costs associated with debt and equity refinancing,
litigation or claims, judgments or settlements, effects of changes in tax laws and foreign exchange gains and losses), as may
be determined by the Committee. Performance goals may be particular to one or more lines of business or Subsidiaries or may be
based on the performance of the Company as a whole.
(c) With
respect to each performance period, the Committee shall establish such performance goals relating to one or more of the business
criteria identified above, and shall establish targets for Participants for achievement of performance goals. Following the completion
of each performance period, the Committee shall determine the extent to which performance goals for that performance period have
been achieved and the related performance-based restrictions shall lapse in accordance with the terms of the applicable Stock
Award Agreement.
3.4
Award
Agreements
.
(a) Each
Award shall be evidenced by a written Award Agreement specifying the terms and conditions of the Award. In the sole discretion
of the Committee, the Award Agreement may condition the grant of an Award upon the Participant’s entering into one or more
of the following agreements with HWC: (a) an agreement not to compete with the Company which shall become effective as of the
date of the grant of the Award and remain in effect for a specified period of time following termination of the Participant’s
employment with the Company; (b) an agreement to cancel any employment agreement, fringe benefit or compensation arrangement in
effect between the Company and the Participant; and (c) an agreement to retain the confidentiality of certain information. Such
agreements may contain such other terms and conditions as the Committee shall determine. If the Participant shall fail to enter
into any such agreement at the request of the Committee, then the Award granted or to be granted to such Participant shall be
forfeited and cancelled.
(b) An
Award Agreement shall contain a vesting schedule as determined in the sole discretion of the Committee; provided that Options
and SARs shall not become exercisable until at least one year following the date of grant, and the restrictions on Stock Awards
and Stock Units shall not lapse for at least one year following the date of grant; and provided further that notwithstanding the
foregoing, no minimum vesting schedule shall apply to Awards that result in the issuance of up to an aggregate of 5% of the shares
of Common Stock reserved for issuance under Section 4 (50,000 shares).
Section
4. Shares of Common Stock Subject to Plan.
4.1
Total
Number of Shares
.
(a) The
total number of shares of Common Stock that may be issued under the Plan shall be 1,000,000. Such shares may be either authorized
but unissued shares or treasury shares and shall be adjusted in accordance with the provisions of Section 4.3 below.
(b) The
number of shares of Common Stock delivered by a Participant or withheld by HWC on behalf of any such Participant as full or partial
payment of the exercise price of a Stock Option or any withholding taxes on any Award shall not again be available for issuance
pursuant to subsequent Awards and shall count towards the aggregate number of shares of Common Stock that may be issued under
the Plan. Any shares of Common Stock purchased by the Company with proceeds from a Stock Option exercise shall not again be available
for issuance pursuant to subsequent Awards, shall count against the aggregate number of shares that may be issued under the Plan
and shall not increase the number of shares available under the Plan.
(c) If
there is a lapse, forfeiture, expiration, termination or cancellation of any Award for any reason, or if shares of Common Stock
are issued under such Award and thereafter are reacquired by HWC pursuant to rights reserved by HWC upon issuance thereof, the
shares of Common Stock subject to such Award or reacquired by the Company may thereafter be available for issuance pursuant to
subsequent Awards, and shall not count towards the aggregate number of shares of Common Stock that may be issued under the Plan.
4.2
Shares
Under Awards
.
Of
the 1,000,000 shares of Common Stock authorized for issuance under the Plan pursuant to Section 4.1:
(a) The
maximum number of shares of Common Stock as to which a Key Employee may receive Stock Options or SARs in any calendar year is
500,000.
(b) The
maximum number of shares of Common Stock that may be subject to Incentive Stock Options is 1,000,000.
(c) The
maximum number of shares of Common Stock that may be used for Stock Awards or Stock Units is 1,000,000.
(d) The
maximum aggregate number of shares of Common Stock that a Key Employee may receive upon settlement of performance-based Stock
Awards and Stock Units granted in any calendar year is 150,000, or in the event a Stock Unit Award is settled in cash, an amount
equal to the Fair Market Value of such number of shares. For purposes of this provision, “performance-based” means
Stock Awards and Stock Units intended to qualify as performance-based compensation within the meaning of Code Section 162(m).
The
numbers of shares described herein shall be as adjusted in accordance with Section 4.3.
4.3
Adjustment
.
In
the event of any reorganization, recapitalization, stock split, stock distribution, special or extraordinary dividend, merger,
consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure
of HWC or any similar corporate transaction, the Committee shall make such adjustments as it deems appropriate, in its sole discretion,
to preserve the benefits or intended benefits of the Plan and Awards granted under the Plan. Such adjustments may include: (a)
adjustment in the number and kind of shares reserved for issuance under the Plan; (b) adjustment in the number and kind of shares
covered by outstanding Awards; (c) adjustment in the exercise price of outstanding Stock Options or SARs or the price of other
Awards under the Plan; (d) adjustments to any of the shares limitations set forth in Section 4.1 or 4.2; and (e) any other changes
that the Committee determines to be equitable under the circumstances.
Section
5. Grants of Stock Options.
5.1
Grant
.
Subject
to the terms of the Plan, the Committee may from time to time grant Stock Options to Participants, provided that only NSOs may
be granted to Directors who are not employees of the Company.
5.2
Stock
Option Agreement
.
The
grant of each Stock Option shall be evidenced by a written Stock Option Agreement specifying the type of Stock Option granted,
the exercise period, the exercise price, the terms for payment of the exercise price, the expiration date of the Stock Option,
the number of shares of Common Stock to be subject to each Stock Option and such other terms and conditions established by the
Committee, in its sole discretion, not inconsistent with the Plan.
5.3
Exercise
Price and Exercise Period
.
With
respect to each Stock Option granted to a Participant:
(a) The
per share exercise price of each Stock Option shall not be less than the Fair Market Value of a share of Common Stock on the date
on which the Stock Option is granted.
(b) Each
Stock Option shall become exercisable as provided in the Stock Option Agreement; provided that subject to Section 3.4(b), the
Committee shall have the discretion to accelerate the date as of which any Stock Option shall become exercisable in the event
of the Participant’s termination of employment with the Company, or service on the Board, without cause (as determined by
the Committee in its sole discretion).
(c) Each
Stock Option shall expire, and all rights to purchase shares of Common Stock thereunder shall expire, on the date fixed by the
Committee in the Stock Award Agreement, which shall not be later than ten years after the grant date; provided however, if a Participant
is unable to exercise a Stock Option because trading in the Common Stock is prohibited by law or HWC’s insider-trading policy,
the Stock Option exercise date shall be extended to the date that is 30 days after the expiration of the trading prohibition.
5.4
Required
Terms and Conditions of ISOs
.
In
addition to the foregoing, each ISO granted to a Key Employee shall be subject to the following specific rules:
(a) The
aggregate exercise price of a Key Employee’s ISOs that become exercisable for the first time during a particular calendar
year shall not exceed $100,000. If this dollar limit is exceeded, the portion of the ISO that does not exceed the applicable limit
shall be an ISO and the remainder shall be a NSO; but in all other respects, the original Stock Option Agreement shall remain
in full force and effect.
(b) Notwithstanding
anything herein to the contrary, if an ISO is granted to a Key Employee who owns more than 10% of the Common Stock (or stock possessing
more than 10% of the total combined voting power of all classes of stock of HWC and its Subsidiaries): (i) the exercise price
of the ISO shall be not less than 110% of the Fair Market Value on the ISO’s grant date; and (ii) the ISO shall expire,
and all rights to purchase Common Stock thereunder shall expire, no later than the fifth anniversary of the ISO’s grant
date.
(c) No
ISOs shall be granted under the Plan after ten years from the earlier of the date the Plan is adopted or approved by stockholders
of HWC.
5.5
Exercise
of Stock Options
.
(a) A
Participant entitled to exercise a Stock Option may do so by delivering written notice in accordance with procedures established
by the Committee specifying the number of shares of Common Stock with respect to which the Stock Option is being exercised and
any other information the Committee may prescribe. All notices or requests provided for herein shall be delivered to the Secretary
of HWC.
(b) The
Committee in its sole discretion may make available one or more of the following alternatives for the payment of the Stock Option
exercise price:
(i) in
cash;
(ii) in
cash received from a broker-dealer to whom the Participant has submitted an exercise notice together with irrevocable instructions
to deliver promptly to HWC the amount of sales proceeds from the sale of the shares subject to the Stock Option to pay the exercise
price;
(iii) by
directing HWC to withhold such number of shares of Common Stock otherwise issuable in connection with the Award having an aggregate
Fair Market Value equal to the Stock Option exercise price; or
(iv) by
delivering previously acquired shares of Common Stock that have an aggregate Fair Market Value on the date of exercise equal to
the Stock Option exercise price.
The
Committee shall have the sole discretion to establish the terms and conditions applicable to any alternative made available for
payment of the Stock Option exercise price.
(c) As
soon as reasonably practicable after such exercise, HWC shall issue, in the name of the Participant, the total number of full
shares of Common Stock issuable pursuant to the exercise of any Stock Option and cash in an amount equal to the Fair Market Value
as of the date of exercise of any resulting fractional share.
(d) HWC
shall issue, in the name of the Participant, the total number of shares of Common Stock granted or sold to the Participant, as
soon as may be reasonably practicable after such grant or sale. If a grant of a Stock Award is represented by stock certificates,
such certificates shall be held by the Secretary of HWC until such time as the Common Stock is forfeited, resold to HWC, or the
restrictions lapse.
Section
6. Stock Awards.
6.1
Grant
.
The
Committee may, in its discretion, (a) grant shares of Common Stock under the Plan to any Participant without consideration from
such Participant or (b) sell shares of Common Stock under the Plan to any Participant for such amount of cash, Common Stock or
other consideration as the Committee deems appropriate.
6.2
Stock
Award Agreement
.
Each
share of Common Stock granted or sold hereunder shall be subject to such restrictions, conditions and other terms as the Committee
may determine at the time of grant or sale, the general provisions of the Plan, the restrictions, terms and conditions of the
related Stock Award Agreement, and the following specific rules:
(a) Shares
of Common Stock issued to a Participant under the Plan shall be evidenced by a Stock Award Agreement, which shall specify whether
the shares of Common Stock are granted or sold to the Participant and such other provisions, not inconsistent with the terms and
conditions of the Plan, as the Committee shall determine.
(b) The
restrictions to which the shares of Common Stock awarded hereunder are subject shall lapse as provided in Stock Award Agreement;
provided that subject to Section 3.4(b), the Committee shall have the discretion to accelerate the date as of which the restrictions
lapse with respect to any Award held by a Participant in the event of the Participant’s termination of employment with the
Company, or service on the Board, without cause (as determined by the Committee in its sole discretion).
(c) Subject
to the provisions of subsection (b) hereof and the restrictions set forth in the related Stock Award Agreement, the Participant
receiving a grant of or purchasing Common Stock shall thereupon be a stockholder with respect to all of such shares and shall
have the rights of a stockholder with respect to such shares, including the right to vote such shares and to receive dividends
and other distributions paid with respect to such shares. Notwithstanding the preceding sentence, in the case of a Stock Award
that provides for the right to receive dividends or distributions, HWC shall accumulate and hold such dividends or distributions,
and the accumulated dividends or other distributions shall be paid to the Participant only upon the lapse of the restrictions
to which the Stock Award is subject, and any such dividends or distributions attributable to the portion of a Stock Award for
which the restrictions do not lapse shall be forfeited.
Section
7. Stock Units.
7.1
Grant
.
The
Committee may, in its discretion, grant Stock Units to any Participant. Each Stock Unit shall entitle the Participant to receive,
on the date or upon the occurrence of an event (including the attainment of performance goals) as described in the Stock Unit
Agreement, one share of Common Stock or cash equal to the Fair Market Value of a share of Common Stock on the date of such event,
as provided in the Stock Unit Agreement; provided that until stockholders of HWC approve the Plan, the settlement of any Stock
Units shall be made in cash.
7.2
Stock
Unit Agreement
.
Each
grant of Stock Units to a Participant under this Section 7 shall be evidenced by a Stock Unit Agreement, which shall specify the
restrictions, if any, terms and conditions established by the Board in its sole discretion, not inconsistent with the Plan and
the following provisions:
(a) The
restrictions to which the Stock Units awarded hereunder may be subject shall lapse as set forth in the Stock Unit Agreement; provided
that subject to Section 3.4(b), the Committee shall have the discretion to accelerate the date as of which the restrictions lapse
with respect to any Stock Units held by a Participant in the event of a such Participant’s termination of employment with
the Company, or service on the Board, without cause (as determined by the Committee in its sole discretion).
(b) Except
as provided in this subsection (b), and unless otherwise provided in the Stock Unit Agreement, a Participant shall have no rights
of a stockholder, including voting or dividend or other distribution rights, with respect to any Stock Units prior to the date
they are settled in shares of Common Stock. A Stock Unit Agreement may provide that, until the Stock Units are settled in shares
of Common Stock or cash, the Participant shall receive, on each dividend or distribution payment date applicable to the Common
Stock, an amount equal to the dividends or distributions that the Participant would have received had the Stock Units held by
the Participant as of the related record date been actual shares of Common Stock. Notwithstanding the preceding sentence, in the
case of a Stock Unit Award that provides for the right to receive amounts related to dividends or distributions, HWC shall accumulate
and hold such amounts, and the accumulated amounts shall be paid to the Participant only upon the lapse of the restrictions to
which the Stock Unit Award is subject, and any such amounts attributable to the portion of a Stock Unit Award for which the restrictions
do not lapse shall be forfeited.
(c) Upon
settlement of Stock Units in Common Stock, HWC shall issue, in the name of the Participant, a number of shares of Common Stock
equal to the number of Stock Units being settled.
Section
8. SARs.
8.1
Grant
.
The
Committee may grant SARs to Participants. Upon exercise, an SAR entitles the Participant to receive from HWC the number of shares
of Common Stock having an aggregate Fair Market Value equal to the excess of the Fair Market Value of one share as of the date
on which the SAR is exercised over the exercise price, multiplied by the number of shares with respect to which the SAR is being
exercised. The Committee, in its discretion, shall be entitled to cause HWC to elect to settle any part or all of its obligations
arising out of the exercise of an SAR by the payment of cash in lieu of all or part of the shares it would otherwise be obligated
to deliver in an amount equal to the Fair Market Value of such shares on the date of exercise. Cash shall be delivered in lieu
of any fractional shares. The terms and conditions of any such Award shall be determined at the time of grant.
8.2
SAR
Agreement
.
(a) Each
SAR shall be evidenced by a written SAR Agreement specifying the terms and conditions of the SAR as the Committee may determine,
including the SAR exercise price, expiration date of the SAR, the number of shares of Common Stock to which the SAR pertains,
the form of settlement and such other terms and conditions established by the Committee, in its sole discretion, not inconsistent
with the Plan; provided, however, that no SAR shall be credited with any amounts equal to dividends and other distributions that
a Participant would have received had the Participant held the shares of Common Stock subject to an unexercised SAR.
(b) The
per Share exercise price of each SAR shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date
the SAR is granted.
(c) Each
SAR shall expire and all rights thereunder shall cease on the date fixed by the Committee in the SAR Agreement, which shall not
be later than ten years after the date of grant; provided however, if a Participant is unable to exercise an SAR because trading
in the Common Stock is prohibited by law or HWC’s insider-trading policy, the SAR exercise date shall be extended to the
date that is 30 days after the expiration of the trading prohibition.
(d) Each
SAR shall become exercisable as provided in the SAR Agreement; provided that subject to Section 3.4(b), the Committee shall have
the discretion to accelerate the date as of which any SAR shall become exercisable in the event of the Participant’s termination
of employment with the Company, or service on the Board, without cause (as determined by the Committee in its sole discretion).
(e) A
person entitled to exercise an SAR may do so by delivery of a written notice in accordance with procedures established by the
Committee specifying the number of shares of Common Stock with respect to which the SAR is being exercised and any other information
the Committee may prescribe. As soon as reasonably practicable after the exercise of an SAR, HWC shall (i) issue, in the name
of the Participant, the total number of full shares of Common Stock to which the Participant is entitled and cash in an amount
equal to the Fair Market Value, as of the date of exercise, of any resulting fractional share, and (ii) if the Committee causes
HWC to elect to settle all or part of its obligations arising out of the exercise of the SAR in cash, deliver to the Participant
an amount in cash equal to the Fair Market Value, as of the date of exercise, of the shares it would otherwise be obligated to
deliver.
Section
9. Change in Control.
9.1
Effect
of a Change in Control
.
Notwithstanding
any provisions in the Plan or Award Agreement, upon a Change in Control of HWC, the Committee is authorized, and has sole discretion,
as to any Award, either at the time such Award is granted hereunder or any time thereafter, to (a) provide that (i) all outstanding
Awards shall become fully vested and exercisable, (ii) all restrictions applicable to all Awards shall terminate or lapse; and
(iii) performance goals applicable to any Awards shall be deemed settled at the target level (or actual level, if higher); (b)
provide for the purchase of any outstanding Stock Option, for an amount of cash equal to the difference between the exercise price
and the then Fair Market Value of the Common Stock covered thereby had such Stock Option been currently exercisable; (c) make
such adjustment to any such Award then outstanding as the Committee deems appropriate to reflect such Change in Control; and (d)
cause any such Award then outstanding to be assumed by the acquiring or surviving corporation after such Change in Control. If
any Award is assumed or continued after the Change in Control, the vesting and restriction provisions shall be continued, provided
that the Committee may in the Award Agreement provide for accelerated vesting and lapse of restrictions if the Participant’s
employment terminates following the Change in Control.
9.2
Definition
of Change in Control
.
“Change
in Control” shall mean the occurrence, at any time during the specified term of an Award granted under the Plan, of any
of the following events:
(a) Any
individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other
entity (other than HWC or a trustee or other fiduciary holding securities under an employee benefit plan of the Company), or any
syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act, becomes the “beneficial owner”
(as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of securities
of HWC representing 25% or more of the combined voting power of HWC’s then outstanding securities entitled to vote generally
in the election of directors;
(b) HWC
is party to a merger, consolidation, reorganization or other similar transaction with another corporation or other legal person
unless, following such transaction, more than 50% of the combined voting power of the outstanding securities of the surviving,
resulting or acquiring corporation or person or its parent entity entitled to vote generally in the election of directors (or
persons performing similar functions) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners of HWC’s outstanding securities entitled to vote generally in the election of
directors immediately prior to such transaction, in substantially the same proportions as their ownership, immediately prior to
such transaction, of HWC’s outstanding securities entitled to vote generally in the election of directors;
(c) HWC
sells all or substantially all of its business and/or assets to another corporation or other legal person unless, following such
sale, more than 50% of the combined voting power of the outstanding securities of the acquiring corporation or person or its parent
entity entitled to vote generally in the election of directors (or persons performing similar functions) is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of HWC’s
outstanding securities entitled to vote generally in the election of directors immediately prior to such sale, in substantially
the same proportions as their ownership, immediately prior to such sale, of HWC’s outstanding securities entitled to vote
generally in the election of directors; or
(d) During
any period of two consecutive years or less (not including any period prior to the approval of the Plan by the Board), individuals
who at the beginning of such period constituted the Board (and any new Directors, whose appointment or election by the Board or
nomination for election by HWC’s stockholders was approved by a vote of at least two-thirds of the Directors then still
in office who either were Directors at the beginning of the period or whose appointment, election or nomination for election was
so approved) cease for any reason to constitute a majority of the Board.
Section
10. Payment of Taxes.
In
connection with any Award, and as a condition to the issuance or delivery of any shares of Common Stock to the Participant in
connection therewith, HWC shall require the Participant to pay HWC the minimum amount of the tax required to be withheld, and
in HWC’s sole discretion, HWC may permit the Participant to pay up to the maximum individual statutory rate of applicable
withholding. The Committee in its sole discretion may make available one or more of the following alternatives for the payment
of such taxes:
(a) in
cash;
(b) in
cash received from a broker-dealer to whom the Participant has submitted notice together with irrevocable instructions to deliver
promptly to HWC the amount of sales proceeds from the sale of the shares subject to the Award to pay the withholding taxes;
(c) by
directing HWC to withhold such number of shares of Common Stock otherwise issuable in connection with the Award having an aggregate
Fair Market Value equal to the amount of tax to be withheld; or
(d) by
delivering previously acquired shares of Common Stock that have an aggregate Fair Market Value equal to the amount to be withheld.
The
Committee shall have the sole discretion to establish the terms and conditions applicable to any alternative made available for
payment of the withholding taxes.
Section
11. Postponement.
The
Committee may postpone any grant or settlement of an Award or exercise of a Stock Option for such time as the Committee in its
sole discretion may deem necessary in order to permit HWC:
(a) to
effect, amend or maintain any necessary registration of the Plan or the shares of Common Stock issuable pursuant to an Award,
including upon the exercise of an Option, under the Securities Act of 1933, as amended, or the securities laws of any applicable
jurisdiction;
(b) to
permit any action to be taken in order to (i) list such shares of Common Stock on a stock exchange if shares of Common Stock are
then listed on such exchange or (ii) comply with restrictions or regulations incident to the maintenance of a public market for
its shares of Common Stock, including any rules or regulations of any stock exchange on which the shares of Common Stock are listed;
or
(c) to
determine that such shares of Common Stock and the Plan are exempt from such registration or that no action of the kind referred
to in (b)(ii) above needs to be taken; and HWC shall not be obligated by virtue of any terms and conditions of any Award or any
provision of the Plan to sell or issue shares of Common Stock in violation of the Securities Act of 1933 or the law of any government
having jurisdiction thereof.
Any
such postponement shall not extend the term of an Award and neither HWC nor its Directors or officers shall have any obligation
or liability to a Participant, the Participant’s successor or any other person with respect to any shares of Common Stock
as to which the Award shall lapse because of such postponement.
Section
12. Nontransferability.
Awards
granted under the Plan, and any rights and privileges pertaining thereto, may not be transferred, assigned, pledged or hypothecated
in any manner, or be subject to execution, attachment or similar process, by operation of law or otherwise, other than:
(a) by
will or by the laws of descent and distribution;
(b) pursuant
to the terms of a qualified domestic relations order to which the Participant is a party that meets the requirements of any relevant
provisions of the Code; or
(c) as
permitted by the Committee with respect to a NSO transferable by the Participant during his lifetime.
In
each case, the terms and conditions applicable to the transferability of the Award shall be established by the Committee.
Section
13. Stock Certificates; Uncertificated Shares.
Shares
of Common Stock issued pursuant to the settlement of an Award shall be represented by stock certificates or issued on an uncertificated
basis, with the ownership of such shares by the Participant evidenced solely by book entry in the records of HWC’s transfer
agent; provided, however, that upon the written request of the Participant, HWC shall issue, in the name of the Participant, stock
certificates representing such shares of Common Stock.
Section
14. Termination or Amendment of Plan and Award Agreements.
14.1
Termination
or Amendment of Plan
.
(a) Subject
to Section 14.3, the Board may terminate, suspend, or amend the Plan, in whole or in part, from time to time, without the approval
of the stockholders of HWC, unless such approval is required by applicable law, regulation or rule of any stock exchange on which
the shares of Common Stock are listed. No amendment or termination of the Plan shall adversely affect the right of any Participant
under any outstanding Award in any material way without the written consent of the Participant, unless such amendment or termination
is required by applicable law, regulation or rule of any stock exchange on which the shares of Common Stock are listed. Subject
to the foregoing, the Board may correct any defect or supply an omission or reconcile any inconsistency in the Plan or in any
Award granted hereunder in the manner and to the extent it shall deem desirable, in its sole discretion, to effectuate the Plan.
(b) The
Board shall have the authority to amend the Plan to the extent necessary or appropriate to comply with applicable law, regulation
or accounting rules in order to permit Participants who are located outside of the United States to participate in the Plan.
14.2
Amendment
of Award Agreements
.
The
Committee shall have the authority to amend any Award Agreement at any time; provided however, that no such amendment shall adversely
affect the right of any Participant under any outstanding Award Agreement in any material way without the written consent of the
Participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the shares
of Common Stock are listed.
14.3
No
Repricing of Stock Options or SARs
.
Notwithstanding
the foregoing and except as described in Section 4.3, there shall be no amendment to the Plan or any outstanding Stock Option
Agreement or SAR Agreement that results in the repricing of Stock Options or SARs without stockholder approval. For this purpose,
repricing includes a reduction in the exercise price of a Stock Option or SAR or the cancellation of a Stock Option or SAR in
exchange for cash, Stock Options or SARs with an exercise price less than the exercise price of the cancelled Stock Options or
SARs, other Awards or any other consideration provided by the Company.
Section
15. No Contract of Employment.
Neither
the adoption of the Plan nor the grant of any Award under the Plan shall be deemed to obligate the Company to continue the employment
of any Participant for any particular period, nor shall the granting of an Award constitute a request or consent to postpone the
retirement date of any Participant.
Section
16. Applicable Law.
All
questions pertaining to the validity, construction and administration of the Plan and all Awards granted under the Plan shall
be determined in conformity with the laws of the State of Delaware, without regard to the conflict of law provisions of any state,
and, in the case of Incentive Stock Options, Code Section 422 and regulations issued thereunder.
Section
17. Effective Date and Term of Plan.
17.1
Effective
Date
.
The
Plan has been adopted by the Board, and is effective, as of August 4, 2017; provided that until the Plan is approved by the stockholders
of HWC at HWC’s annual meeting of stockholders to be held on May 8, 2018 and any adjournment or postponement thereof, only
Stock Unit Awards and SARs may be granted and such Awards must be settled in cash. If the Plan is not so approved by the stockholders,
the provisions of the Plan as they pertain to all other Awards shall have no effect. Upon stockholder approval of the Plan, any
outstanding Stock Unit Awards and SARs shall be settled in shares of Common Stock.
17.2
Term
of Plan
.
Notwithstanding
anything to the contrary contained herein, no Awards shall be granted on or after the 10
th
anniversary of the Plan’s
effective date as determined in Section 17.1 above.
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