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
Filed by the Registrant |
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Filed by a Party other than the Registrant |
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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 Section240.14a-12 |
HURCO COMPANIES, INC.
(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 paid previously with preliminary materials. |
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Fee computed on table in exhibit required by Item 25(b) per Exchange
Act Rules 14a-6(i)(1) and 0-11. |
HURCO
COMPANIES, INC.
ONE TECHNOLOGY
WAY
P.O. BOX
68180
INDIANAPOLIS,
INDIANA 46268
(317) 293-5309
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held March
9, 2023
The 2023 Annual Meeting of Shareholders
(the “2023 Annual Meeting”) of Hurco Companies, Inc. (the “Company”), will be held at our corporate headquarters,
at One Technology Way, Indianapolis, Indiana 46268, at 10:00 a.m. Eastern Time on Thursday, March 9, 2023, for the following purposes:
| 1. | To elect eight directors
to serve until the next Annual Meeting of Shareholders and until their successors are duly
elected and qualify; |
| 2. | To approve, in an advisory (non-binding)
“say-on-pay” vote, the compensation paid to our named executive officers; |
| 3. | To solicit an advisory (non-binding)
“say-on-frequency” vote on whether future advisory shareholder say- on-pay votes
should be solicited every (a) 1 year, (b) 2 years, or (c) 3 years; |
| 4. | To ratify the appointment of RSM US
LLP as our independent registered public accounting firm for the fiscal year ending October
31, 2023; and |
| 5. | To transact such other business as may properly come before the meeting
or any adjournments thereof. |
The Board of Directors recommends
a vote FOR items 1, 2, and 4 and a vote for ANNUAL frequency for item 3. The persons named as proxies will use their discretion to vote
on any other matters that may properly arise at the 2023 Annual Meeting.
The foregoing items of business
are more fully described in our proxy statement accompanying this notice. Please read our proxy statement carefully.
Please mark, sign, and date the
enclosed proxy card and return it in the enclosed return envelope, which requires no postage if mailed in the United States, or vote
your shares via the Internet or by telephone as described in the proxy statement and on the proxy card.
Only shareholders of record as
of the close of business on the record date of January 13, 2023, are entitled to notice of and to vote at the 2023 Annual Meeting or
any adjournments thereof. In the event there are not sufficient votes for approval of one or more of the above matters at the time of
the 2023 Annual Meeting, the Company may adjourn the 2023 Annual Meeting to permit further solicitation of proxies.
| | By order of the
Board of Directors, |
| | Jonathon D. Wright, Corporate Secretary |
Indianapolis, Indiana
January 23, 2023
YOUR VOTE IS IMPORTANT—Even
if you plan to attend the 2023 Annual Meeting, we urge you to mark, sign, and date the enclosed proxy card and return it promptly in
the enclosed envelope or to vote your shares via the Internet or by telephone as described on the proxy card.
Important Notice Regarding
the Availability of Proxy Materials for the 2023 Annual Meeting to Be Held on March 9, 2023
In accordance with the rules
of the Securities and Exchange Commission, we are advising our shareholders of the availability on the Internet of our proxy materials
related to the 2023 Annual Meeting. These rules allow companies to provide access to proxy materials in one of two ways. Because we have
elected to utilize the “full set delivery” option, we are delivering to all shareholders paper copies of all of the proxy
materials, as well as providing access to those proxy materials on a publicly-accessible website.
This Notice of 2023 Annual
Meeting and the corresponding proxy statement, form of proxy card, and our most recent annual report on Form 10-K are available at www.hurco.com/proxymaterials.
If you plan to attend the 2023 Annual Meeting in person, you may obtain directions to the meeting site by written request directed to
Jonathon D. Wright, Corporate Secretary, Hurco Companies, Inc., One Technology Way, P.O. Box 68180, Indianapolis, Indiana 46268, or by
telephone at (317) 293-5309.
Table of Contents
Cautionary Note Regarding
Forward-Looking Statements
The statements included in this
proxy statement regarding future performance and results, expectations, plans, strategies, priorities, commitments, and other statements
that are not historical facts are forward-looking statements within the meaning of the federal securities laws. Forward-looking statements
are based upon current beliefs, expectations, and assumptions and are subject to significant risks, uncertainties, and changes in circumstances
that could cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks and uncertainties
that could cause actual results and events to differ materially from such forward-looking statements is included in the section titled
“Risk Factors” in our Annual Report on Form 10-K for the year ended October 31, 2022. Readers of this proxy statement are
cautioned not to place undue reliance on these forward- looking statements, since there can be no assurance that these forward-looking
statements will prove to be accurate. We expressly disclaim any obligation to update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.
HURCO
COMPANIES, INC.
One Technology
Way
P. O.
Box 68180
Indianapolis,
Indiana 46268
2023 Annual Meeting of Shareholders
March
9, 2023
PROXY
STATEMENT
This proxy statement and accompanying
proxy are being furnished to the holders of common stock of Hurco Companies, Inc. (the “Company,” “Hurco,” “we,”
or “us”) in connection with the solicitation of proxies by the Board of Directors for the Company’s 2023 Annual Meeting
of Shareholders (the “2023 Annual Meeting”), to be held at 10:00 a.m. Eastern Time on Thursday, March 9, 2023, at our corporate
headquarters, at One Technology Way, Indianapolis, Indiana 46268, and any adjournments thereof. This proxy statement and the accompanying
form of proxy are being mailed to our shareholders on or about January 23, 2023.
QUESTIONS
AND ANSWERS ABOUT THE 2023 ANNUAL MEETING AND VOTING
Who is entitled to vote at
the meeting and what are my voting rights?
Shareholders of record as of
the close of business on the record date of January 13, 2023, are entitled to vote at the 2023 Annual Meeting or any adjournments thereof.
As of that date, there were 6,702,736 shares of our common stock outstanding and entitled to vote at the 2023 Annual Meeting. Holders
of our common stock as of the record date are entitled to one vote per share with respect to each matter submitted to a vote of the shareholders.
There is no cumulative voting on election of directors or any other matter.
How many shares must be
present to hold the meeting?
The presence in person or by
proxy of the holders of a majority of the outstanding shares entitled to vote at the 2023 Annual Meeting is necessary to constitute a
quorum for the transaction of business.
What matters will be voted
on at the meeting?
There are four matters to be
considered at the meeting, as follows:
| 1. | Election of eight directors
to serve until the 2024 Annual Meeting of Shareholders and until their successors are duly
elected and qualify; |
| 2. | An advisory vote to
approve the compensation paid to our named executive officers, also referred to as the “say-on-pay”
vote; |
| 3. | An advisory vote on the frequency as
to which we hold the say-on-pay vote, also known as the “say-on-frequency” vote;
and |
| 4. | Ratification of the appointment of RSM
US LLP as our independent registered public accounting firm for the fiscal year ending October
31, 2023. |
How are votes counted?
All shares that have been properly
voted, and not revoked, will be voted at the meeting in accordance with the instructions of the voting shareholders.
Brokers are not entitled to exercise
discretion to vote shares on any of the matters to be voted on at the meeting other than the ratification of the appointment of the auditor,
unless the shareholder gives voting instructions to the broker. Accordingly, if you hold your shares in “street name” and
wish your shares to be voted by your broker on the election of directors, the say-on-pay vote, or the say- on-frequency vote, you must
give your broker voting instructions.
What vote is required
to approve each proposal?
To approve each of the proposals,
the following votes are required from the holders of voting shares. Except as set forth below, abstentions and broker non-votes will
not count as votes cast on the proposals and will not affect the outcome of the votes.
Proposal |
|
Vote
Required |
1 |
Election of directors |
|
The election of director
nominees will be determined by a plurality of the shares voting on such election, which means
that the director nominees receiving the most FOR votes will be elected up to the
maximum number of directors to be elected at the 2023 Annual Meeting. |
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2 |
Say-on-pay vote |
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More votes are cast FOR than AGAINST. |
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3 |
Say-on-frequency vote |
|
The say-on-frequency vote will be determined
by a plurality of the shares voting on Proposal 3, which means that the FREQUENCY
receiving the MOST votes will be our shareholders’ preference for how often
we should solicit a say-on-pay vote. |
|
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4 |
Ratification of auditors |
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More votes are cast FOR than AGAINST. |
With respect to the election
of directors, although there is a plurality voting standard, our Amended and Restated By-Laws (the “By-Laws”) provide that
in an uncontested election, any incumbent director nominee who does not receive more FOR votes than WITHHOLD votes must tender his or
her resignation as a director to the Board of Directors (the “Board”), subject to acceptance by the Board. The Nominating
and Governance Committee of the Board will consider any resignation tendered under this policy and will recommend to the Board whether
to accept or reject it, or whether other action should be taken. The Board will act on the tendered resignation, taking into account
the Nominating and Governance Committee’s recommendation, within 90 days following the certification of the shareholder director
election, and will promptly issue a press release regarding its decision. If the resignation is not accepted, the director shall continue
to serve until the 2024 Annual Meeting of Shareholders and until his or her successor has been elected and qualified, or unless he or
she is removed, resigns, dies, or becomes so incapacitated he or she can no longer perform any of his or her duties as a director.
How can I vote my shares
without attending the meeting?
Whether you hold your shares
directly as a registered shareholder or beneficially in street name, you may vote without attending the meeting. If you are a shareholder
of record, you can vote your shares by granting a proxy via the Internet, over the telephone, or by mailing your signed proxy card. If
you hold your shares in street name, your broker, bank, or other nominee will provide you with materials and instructions on voting your
shares.
How do I vote my shares
at the meeting?
Proof of stock ownership and
some form of government-issued, photo identification (such as a valid driver’s license or passport) will be required for admission
to the meeting. Only shareholders who owned our common stock as of the close of business on January 13, 2023, are entitled to attend
the meeting.
| • | If you are
a shareholder of record, you must bring some form of government-issued, photo identification
to be admitted to the meeting. You may vote your shares in person at the meeting by completing
a ballot at the meeting. |
| • | If your shares
are held in street name, you must request a legal proxy from your broker, bank, or other
nominee that holds your shares. If you do not obtain a legal proxy from your broker, bank,
or other nominee, you will not be entitled to vote your shares at the meeting, but you can
still attend the meeting if you bring a recent bank or brokerage statement showing that you
owned shares of our common stock on January 13, 2023. |
Even if you currently plan to
attend the 2023 Annual Meeting, we recommend that you vote by proxy in advance of the meeting, either via the Internet, by telephone,
or by mail, so that your vote will be counted if you later decide not to, or cannot, attend the meeting.
What can I do if I change
my mind after I submit my proxy?
If you are a shareholder of record,
you may revoke your proxy at any time before it is voted at the meeting by: (1) giving timely written notice of the revocation to our
Corporate Secretary, (2) timely submitting a later-dated proxy via the Internet, by telephone, or by mail, or (3) attending the meeting
and voting in person.
If your shares are held in street
name, you may submit new voting instructions by contacting your broker, bank, or other nominee holder. In the alternative, you may vote
at the 2023 Annual Meeting if you have obtained a legal proxy issued by your broker, bank, or other nominee as described above.
What are the Board’s
recommendations on how I should vote my shares?
The Board recommends that you
vote your shares as follows:
| • | FOR the election of the eight nominees as directors. |
| • | FOR the say-on-pay vote. |
| • | for ANNUAL frequency on the say-on-frequency vote. |
| • | FOR the ratification of
the appointment of RSM US LLP as our independent registered public accounting firm for the
fiscal year ending October 31, 2023. |
How would my shares be voted
if I do not specify how they should be voted?
If you sign and return a proxy
card without indicating how you want your shares to be voted, the persons named as proxies will vote your shares as follows:
| • | FOR the election of the eight nominees as directors. |
| • | FOR the say-on-pay vote. |
| • | for ANNUAL frequency on the say-on-frequency vote. |
| • | FOR the ratification of
the appointment of RSM US LLP as our independent registered public accounting firm for the
fiscal year ending October 31, 2023. |
What is the effect of the
say-on-pay and say-on-frequency votes?
The say-on-pay and say-on-frequency
votes are advisory and not binding on the Company, the Board or the Compensation Committee. We could, if the Board or the Compensation
Committee concluded it was in our best interests to do so, choose not to follow or implement the outcome of one or both of the advisory
votes. However, as was the case with the results of the say-on-pay and say-on-frequency votes at prior Annual Meetings of Shareholders,
we expect that the Compensation Committee and the Board will consider the outcome of the votes when making future compensation decisions
for our named executive officers and with respect to the frequency at which future say-on-pay votes will be submitted to our shareholders.
What happens if additional
matters are presented at the 2023 Annual Meeting?
We know of no other matters other
than the items of business described in this proxy statement that will be presented at the 2023 Annual Meeting. If you grant a proxy,
the persons named as proxy holders will have discretion to vote your shares on any additional matters properly presented for a vote at
the meeting in accordance with Indiana law and our By-Laws.
Who will count the votes?
Our Corporate Secretary will
count the votes.
Can I review the list of
shareholders entitled to vote at the meeting?
A list of shareholders entitled
to vote at the meeting will be available for inspection by shareholders of record at the meeting, and for five business days prior to
the meeting between the hours of 9:00 a.m. and 4:30 p.m., Eastern Time, at our offices at One Technology Way, Indianapolis, Indiana 46268.
If you would like to view the shareholder list, please contact our Corporate Secretary to schedule an appointment.
Who pays for the cost of
proxy preparation and solicitation?
We will pay the cost of preparing,
assembling, and mailing this proxy statement and form of proxy. We will also request that banks, brokers, and other holders of record
send the proxy materials to, and obtain proxies from, beneficial owners, and will reimburse them for their reasonable expenses in doing
so.
Is this proxy statement
the only way that proxies are being solicited?
Our directors, officers, and
other employees may also solicit proxies personally by telephone, facsimile, electronic mail, personal contact, or otherwise. They will
not be specifically compensated for doing so.
Can I receive future proxy
statements and annual reports electronically?
Yes. If you are a shareholder
of record, you may request and consent to electronic delivery of future proxy statements, annual reports, and other shareholder communications
by following the instructions on the proxy card to vote using the Internet and when prompted, indicate that you agree to receive or access
shareholder communications electronically in future years. You may also contact our Transfer Agent, Computershare Investor Services,
by calling (781) 575-4223 or toll-free at (800) 368-5948, or by writing regular mail to: Computershare Investor Services, P.O. Box 43006,
Providence, RI 02940-3006. If your shares are held beneficially in street name, please contact your bank, broker, or other nominee, and
ask about the availability of electronic delivery.
Are you planning on making
the proxy materials only available by Internet this year, unless paper copies are requested?
No. Although many public companies
mail a notice to their shareholders so they can provide proxy materials through the Internet, we have elected to use the “full
set delivery” option and so are providing paper copies of proxy materials to all of our shareholders, unless otherwise previously
requested by the shareholder. Our proxy materials and Annual Report on Form 10-K are also available via the Internet at www.hurco.com/proxymaterials.
We may decide not to use the “full set delivery” option in the future; however, you will still have the right to request
a free set of proxy materials by mail.
Are you planning on making
the 2023 Annual Meeting available virtually this year?
Consistent with historical practice,
at this time, we plan to host the 2023 Annual Meeting solely in person. However, the health, safety, and well-being of our shareholders,
employees, directors, and other attendees is of the utmost importance to us. Therefore, if the continued public health impact of the
coronavirus pandemic (“COVID-19”) makes an in-person format unsafe, impractical, or otherwise undesirable, we may choose
to modify our plans and, instead, host the meeting in a virtual format only. If we do so, we will file and deliver notice thereof, including
instructions to pre-register for, and attend, the virtual meeting, in accordance with all applicable legal requirements.
PROPOSAL
1. ELECTION OF DIRECTORS
The Board currently consists
of eight members. The Board, acting on the recommendation of our Nominating and Governance Committee, has nominated the eight individuals
identified below for election as directors. Each of the nominees is currently a director. No fees were paid to any third parties to identify
or evaluate potential nominees. Unless authority is specifically withheld, the shares being voted by proxy will be voted in favor of
each of these nominees. Each nominee who is elected will serve for a term of one year, which expires at our next Annual Meeting of Shareholders
or such later date as his or her successor has been elected and qualified. Proxies cannot be voted for a greater number of persons than
eight, which is the number of nominees named in this proxy statement.
If any of these nominees becomes
unable to serve, we expect that the persons named in the proxy will exercise their voting power in favor of such other person or persons
as the Board may recommend. Each of the nominees has consented to being named in this proxy statement and to serve if elected. The Board
knows of no reason why any of the nominees would be unable to serve.
Director Nominees
The names of the persons who
are nominees for election and their current positions and offices with Hurco, if any, are set forth below. There are no family relationships
among any of our directors or officers.
Nominees |
|
Positions and Offices Held with Hurco |
Thomas A. Aaro |
|
Director |
|
|
|
Michael Doar |
|
Executive Chairman and
Director |
|
|
|
Cynthia Dubin |
|
Director |
|
|
|
Timothy J. Gardner |
|
Director |
|
|
|
Jay C. Longbottom |
|
Director |
|
|
|
Richard Porter |
|
Director |
|
|
|
Janaki Sivanesan |
|
Director |
|
|
|
Gregory S. Volovic |
|
President, Chief Executive
Officer, and Director |
Thomas A. Aaro, age 65,
has been a member of the Board since March 2015. From 2002 to 2017, Mr. Aaro was the founder and Managing Partner of BlueBlack LLC, an
independent integrated/shopper marketing agency that provides strategic and promotional consulting, training, and implementation services
to consumer-packaged goods (“CPG”) companies, marketing agencies, marketing services, and digital marketing companies. Previously,
he served as the Partner/Chief Executive Officer of Marketing Drive-MGR, an integrated promotional marketing agency and as Chief Marketing
Officer/Consultant for a number of technology-oriented companies, including Supermarkets Online, a division of Catalina, a CPG internet
savings site, and Wavetel, a startup wireless Internet Service Provider in North Carolina.
Mr. Aaro brings to our Board
extensive knowledge of marketing and entrepreneurship. His over 30 years of experience leading marketing strategy for numerous CPG and
technology companies and experience as an entrepreneur provides valuable insight to our Board.
Michael Doar, age 67,
has been a member of the Board since 2000. Mr. Doar was elected Chairman of the Board and appointed our Chief Executive Officer (“CEO”)
in fiscal year 2001, a position he held until March 2021, when he transitioned to the role of Executive Chairman. Mr. Doar also served
as our President from November 2009 to March 2013. Prior to joining Hurco, Mr. Doar served as Vice President of Sales and Marketing of
Ingersoll Contract Manufacturing Company, a subsidiary of Ingersoll International, an international engineering and machine tool systems
business, having previously held various management positions with Ingersoll International from 1989. Mr. Doar also serves as a director
of Twin Disc, Incorporated, a manufacturer of marine and heavy duty off- highway power transmission equipment.
Mr. Doar led Hurco for more than
20 years. As our current Executive Chairman and former CEO, Mr. Doar brings to our Board his in-depth knowledge of our business, strategy,
people, operations, competition, and financial position.
Cynthia Dubin, age 61,
has been a member of the Board since March 2019. Ms. Dubin is an experienced chief financial officer and board director. In February
2019, Ms. Dubin was appointed to the board of the U.K. Competition and Markets Authority (“CMA”) and is currently the Chair
of its Nominations Committee and Audit and Risk Assurance Committee. The CMA is a non-ministerial government department in the United
Kingdom, responsible for strengthening business competition and preventing and reducing anti-competitive activities. Ms. Dubin served
as the CFO of Pivot Power LLP, an emerging leader in power storage and electric vehicle infrastructure in the U.K., from August 2018
to March 2019. Ms. Dubin was also the CFO for JKX Oil & Gas Ltd. from 2011 to 2016 and CFO for Canamens Ltd. from 2006 to 2011. These
companies were London Stock Exchange listed and private equity-backed oil and gas exploration and production companies, respectively.
Additionally, Ms. Dubin was European CFO for Edison Mission Energy, a builder, owner, and operator of large-scale power generation projects,
and started her career as a project finance banker with Irving Trust Company. From 2015 to September 2020, she served on the Board of
Directors of Babcock & Wilcox Enterprises, Inc., a New York Stock Exchange-listed global provider of advanced energy and environmental
technologies and services for the power and industrial markets with operations, subsidiaries, and joint ventures worldwide. During her
service, she served as the Chair of its Audit and Finance Committee and a member of its Governance Committee. From September 2020 through
November 2022, Ms. Dubin served as a director for Synthomer plc, a publicly-traded chemicals manufacturer specializing in aqueous polymers,
and during such time was also the Chair of its Audit Committee and a member of its Remuneration and Nomination Committees. Since December
2020, Ms. Dubin has also served as a director for ICE Futures Europe, an exchange for futures and options contracts for crude oil, interest
rates, equity derivatives, natural gas, power, coal, emissions, and soft commodities, and is currently also the chair of its Audit Committee.
Ms. Dubin became a director and Chair of the Audit Committee and member of the Compensation Committee for Franchise Group, Inc. in May
2021. Franchise Group is a holding company for a franchising platform for an increasingly diverse collection of market-leading and emerging
brands.
Ms. Dubin brings to our Board
thorough knowledge and understanding of complex international corporate finance, mergers and acquisitions, capital markets, and risk
management and oversight.
Timothy J. Gardner,
age 67, has been a member of the Board since March 2017. A seasoned leader in industrial and international manufacturing operations, from
2016 to March 2021, Mr. Gardner served as the Managing Director of Akoya Capital, responsible for leading Akoya’s industrial product
sector. From 2015 to December 2020, Mr. Gardner also served as a Senior Advisor for Pritzker Private Capital (“Pritzker”)
and a board member of LBP Manufacturing, a packaging company acquired by Pritzker. From 2009 to 2014, Mr. Gardner served as the Executive
Vice President of Illinois Tool Works (“ITW”) and led ITW’s consumer products segment, a $1.6 billion business focused
on packaging and specialty decorating. Between 1997 and 2009, Mr. Gardner held various leadership positions within ITW.
Mr. Gardner brings
to our Board extensive leadership experience in industrial and international manufacturing operations, as well as extensive knowledge
and experience in finance and acquisitions and divestitures. During his tenure at ITW, Mr. Gardner led ten acquisitions and four divestitures
and managed multiple division and group financial controllers.
Jay C. Longbottom,
age 69, has been a member of the Board since March 2015. Mr. Longbottom is currently an Operating Partner of the BERKS Group, a privately
held investment initiative, a position he has held since 2018. Previously, from 2013 to 2017, Mr. Longbottom was CEO of Robert Family
Holdings (“RFH”), a privately-held company that manages a portfolio of specialty manufacturers, was a board member of RFH
from 2008 to 2017, and served as RFH’s Audit Committee Chair from 2008 to 2013. For one year prior to his RFH tenure, Mr. Longbottom
served as CEO of Trostel, LLC, a rubber products company. Additionally, from 2002 to 2012, Mr. Longbottom was an executive of Haldex AB,
a Swedish, publicly-traded, company that provides proprietary and innovative solutions to improve safety, vehicle dynamics, and environmental
sustainability in the global commercial vehicle industry. Mr. Longbottom served as the CEO and President of Haldex AB from 2011 to 2012.
Prior to 2011, he was the Executive Vice President and Head of the Commercial Vehicle Systems Division and the President of the Hydraulics
Division of Haldex Group.
Mr. Longbottom brings
to our Board significant knowledge in finance, mergers and acquisitions, and international manufacturing operations. His experience as
a CEO of a Swedish, publicly-traded, company is especially relevant to understanding regulations and capital market requirements. Mr.
Longbottom also currently serves as a director of two privately-held companies, was a director of RFH for nine years, and has served as
a director for a number of international companies.
Richard Porter,
age 67, has been a member of the Board since 2012. Mr. Porter has managed a private equity portfolio of manufacturing companies since
2007. Previously, he was President of CB Manufacturing, a cutting tool company, and President of Ingersoll Contract Manufacturing Company,
a subsidiary of Ingersoll International.
Mr. Porter brings
to our Board extensive experience in the machine tool industry, particularly in product and contract manufacturing. Mr. Porter also has
experience serving on the boards of a number of private companies with annual revenues ranging from approximately $40 million to $480
million.
Janaki
Sivanesan, age 51, has been a member of the Board since 2008. Ms. Sivanesan is a practicing attorney and founding principal of a
private equity firm focused on middle-market investments. She previously served as a partner at a large, New York law firm. She was
admitted to the bars of the States of New York and Georgia in 2007 and 1996, respectively. Since 2020, Ms. Sivanesan has also served
as a director of Essential Properties Realty Trust, Inc., a publicly-traded real estate investment trust that acquires, owns, and
manages primarily single-tenant properties that are net leased on a long-term basis to companies operating service-oriented or
experience-based businesses. Ms. Sivanesan has experience in a wide range of corporate transactions, from mergers and acquisitions
to corporate finance, including private debt, equity investments, and venture capital transactions. Ms. Sivanesan also has
experience in cross-border transactions related to manufacturing and outsourcing and is particularly knowledgeable with respect to
business operations in India. Ms. Sivanesan served as the General Counsel and Chief Compliance Officer of Hayfin Capital Management,
LLC (formerly known as Kingsland Capital Management, LLC), from 2011 to 2018, and has been self-employed as an attorney in private
practice since 2009.
Ms. Sivanesan provides to the
Board and Audit Committee thorough knowledge and understanding of complex legal and capital markets transactions, as well as corporate
mergers and acquisitions.
Gregory S. Volovic,
age 59, has been a member of the Board since March 2019. He has been employed by us since March 2005, was appointed as our President in
March 2013, and served as our Chief Operating Officer from March 2019 until he was appointed as our CEO in March 2021. Mr. Volovic oversees
all of Hurco’s operations, including worldwide sales, service, end-to-end management of research and development, new product development
activities, and operational initiatives. He has held various positions within Hurco, most recently Executive Vice President, Software
and Engineering, before becoming President in 2013. Prior to joining Hurco, Mr. Volovic led the advanced manufacturing equipment development
program for the CRT division of RCA/Thomson and the worldwide development of Information Technology (IT) and E- business/Knowledge Management
technologies. He also held various positions within Thomson, including Director of E-Business, Engineering, and Information Technology.
Mr. Volovic started his career as a software developer for Unisys Corporation, where he was a Linux programmer. Mr. Volovic also serves
on the boards of two privately held companies and is a board member of the Association of Manufacturing Technology (AMT).
Mr. Volovic brings
to our Board his significant knowledge of the machine tool industry, as well as his experience and understanding of our technologies,
product development, business strategies, people, and operations. Mr. Volovic also provides leadership and vision for the development
and execution of our strategic plans and the achievement of our business goals and objectives.
Board Diversity,
Director Experience and Qualifications, and Board Composition
While neither the
Board nor the Nominating and Governance Committee has a formal written policy regarding director diversity, each body considers the diversity
of backgrounds and experience when selecting nominees for director election and in evaluating Board composition and performance. Not only
has this informal approach to the promotion of diversity resulted in a group of director nominees that we believe to be individuals of
substantial accomplishment with demonstrated leadership capabilities, but, as indicated in the following charts, it has also resulted
in a group of director nominees possessing diversity of thought, perspective, experience, and backgrounds.
Director Experience & Qualifications |
| |
Thomas
A.
Aaro | |
Michael
Doar | |
Cynthia
Dubin | |
Timothy J.
Gardner | |
Jay C.
Longbottom | |
Richard
Porter | |
Janaki
Sivanesan | |
Gregory
S.
Volovic |
Public Company Board | |
| |
X | |
X | |
| |
| |
| |
X | |
|
Public Company Executive | |
| |
X | |
X | |
X | |
X | |
| |
| |
X |
Manufacturing Industry | |
X | |
X | |
X | |
X | |
X | |
X | |
| |
X |
International Business / Global Operations | |
| |
X | |
X | |
X | |
X | |
X | |
X | |
X |
Risk Management | |
X | |
X | |
X | |
| |
| |
| |
X | |
|
Financial Analysis / Accounting | |
X | |
X | |
X | |
X | |
X | |
X | |
X | |
|
Information Technology | |
| |
| |
| |
| |
| |
| |
| |
X |
Project Management | |
X | |
X | |
X | |
X | |
X | |
X | |
| |
X |
Environmental Sustainability | |
| |
X | |
X | |
X | |
X | |
| |
| |
|
Sales & Marketing | |
X | |
X | |
X | |
X | |
X | |
X | |
X | |
X |
Supply Chain / Logistics | |
X | |
| |
| |
X | |
X | |
X | |
| |
X |
Strategic Planning | |
X | |
X | |
X | |
X | |
X | |
X | |
X | |
X |
Government Relations, Public Policy or Regulatory | |
| |
| |
X | |
X | |
| |
| |
| |
|
Mergers & Acquisitions / Business Development | |
| |
X | |
X | |
X | |
X | |
X | |
X | |
X |
Talent Management | |
| |
X | |
| |
X | |
X | |
X | |
| |
X |
Board Diversity Matrix (As of January 23, 2023 and January 24, 2022) |
|
|
Thomas
A.
Aaro |
|
Michael
Doar |
|
Cynthia
Dubin |
|
Timothy J.
Gardner |
|
Jay C.
Longbottom |
|
Richard
Porter |
|
Janaki
Sivanesan |
|
Gregory
S.
Volovic |
Gender Identity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Male |
|
X |
|
X |
|
|
|
X |
|
X |
|
X |
|
|
|
X |
Female |
|
|
|
|
|
X |
|
|
|
|
|
|
|
X |
|
|
Non-Binary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Did Not Disclose Gender |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demographic Background |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
African American or Black |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alaskan Native or Native American |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asian |
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
Hispanic or Latinx |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Native Hawaiian or Pacific Islander |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
White |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
|
X |
Two or More Races or Ethnicities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGBTQ+ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Did Not Disclose Demographic Background |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In further demonstration
of the value the Board places on diversity, it also considers the diversity of background and experience when appointing our executive
officers. To that end, and as indicated in the chart below, our executive officer team is a diverse group of individuals representative
of both Hurco’s global footprint and the communities in which we operate.
|
|
Gregory S.
Volovic |
|
Michael
Doar |
|
Sonja K.
McClelland |
|
HaiQuynh
Jamison |
|
Jonathon
D.
Wright |
Gender Identity |
|
|
|
|
|
|
|
|
|
|
Male |
|
X |
|
X |
|
|
|
|
|
X |
Female |
|
|
|
|
|
X |
|
X |
|
|
Non-Binary |
|
|
|
|
|
|
|
|
|
|
Did Not Disclose Gender |
|
|
|
|
|
|
|
|
|
|
Demographic Background |
|
|
|
|
|
|
|
|
|
|
African American or Black |
|
|
|
|
|
|
|
|
|
|
Alaskan Native or Native American |
|
|
|
|
|
|
|
|
|
|
Asian |
|
|
|
|
|
|
|
X |
|
|
Hispanic or Latinx |
|
|
|
|
|
|
|
|
|
|
Native Hawaiian or Pacific Islander |
|
|
|
|
|
|
|
|
|
|
White |
|
X |
|
X |
|
|
|
|
|
X |
Two or More Races or Ethnicities |
|
|
|
|
|
X |
|
|
|
|
LGBTQ+ |
|
|
|
|
|
|
|
|
|
|
Did Not Disclose Demographic Background |
|
|
|
|
|
|
|
|
|
|
The Board of
Directors recommends a vote “FOR” each of the nominees for director.
CORPORATE GOVERNANCE
Policies on Corporate
Governance
Our Board believes
that good corporate governance is important to ensure that our Company is managed for the long-term benefit of our shareholders. The Board
or one of its committees periodically reviews our Corporate Governance Principles, the written charters for each of the standing committees
of the Board, and our Code of Business Conduct and Ethics, and amends them as appropriate to reflect new policies or practices.
Board Leadership
Structure
Our Board is currently
led by our Executive Chairman, Mr. Doar. Mr. Doar has held this position since March 2021. Prior to transitioning to the role of Executive
Chairman, Mr. Doar served as our Chairman and CEO since 2001. Therefore, he has experience in leading the Company through a range of changes
in business environments and has vast institutional knowledge about our business, industry, and people.
The Board regularly
reevaluates our Board leadership structure and succession planning and may determine that a different leadership structure is appropriate
in the future. The Board currently believes that it is most efficient and effective for an executive officer of the Company to serve as
Executive Chairman of the Board. Assumption of the Chairman role by an executive officer facilitates continuous and broad Board access
to, and communication with, the CEO, management team, and the Company’s outside advisors. It also promotes responsibility and accountability,
effective decision-making, and a cohesive corporate strategy. Our Board possesses considerable experience and knowledge of the challenges
and opportunities that we face as a company. We feel the Board is well qualified to evaluate our current and future needs and to assess
how the capabilities of our senior management can be most effectively organized to meet those needs.
Our Board currently
has six independent directors. We have three standing committees, and one of our independent directors serves as our Presiding Independent
Director. The independent directors have designated Mr. Porter to serve as Presiding Independent Director. The Presiding Independent Director
oversees executive sessions of the independent directors and plays an active role in setting Board agendas and facilitating interactions
between the independent directors, on the one hand, and the full Board or management, on the other. The Board evaluates the appropriateness
of its leadership structure on an ongoing basis and may change it as circumstances warrant. We believe that each of these measures counterbalances
any risk that may exist in having Mr. Doar serve as both an executive employee of the Company and as Executive Chairman of the Board.
For these reasons, our Board believes this leadership structure is effective for our company.
Board Role in Risk
Oversight
Our
Board regularly receives reports from our CEO and other members of our senior management team regarding areas of significant risk to
us, including strategic, operational, financial, legal, regulatory, and reputational risks. However, management is responsible for
assessing and managing our various risk exposures on a day-to-day basis. In this regard, management, with the assistance, where
appropriate, of counsel and other advisors, has established functions that focus on particular risks, such as legal matters,
regulatory compliance, treasury management, research and development, supply chain, and quality control, and has developed a
comprehensive and integrated approach to overall risk management, which includes the identification of risks and mitigation plans in
the strategic planning process.
Our Board’s
role is primarily one of oversight. Our Board oversees our risk management processes to determine whether those processes are functioning
as intended and are consistent with our business and strategy. Our Board conducts this oversight primarily through the Audit Committee,
although some aspects of risk oversight are performed by the full Board or another committee. The Audit Committee is assigned with, among
other things, oversight of our risks relating to accounting matters, financial reporting, and legal and regulatory compliance. The Audit
Committee meets regularly with our Chief Financial Officer (“CFO”), external auditors, internal auditors, legal counsel, and
management to discuss our major financial risk exposures and the steps management has taken to monitor and control such exposures, including
our risk assessment and risk management policies. The Audit Committee also receives regular reports regarding issues such as the status
and findings of audits being conducted by our independent auditors, the status of material litigation, and material accounting changes
or proposed audit adjustments that could affect our financial statements. Our Audit Committee has standing items on its quarterly meeting
agendas relating to these responsibilities. The Audit Committee members, as well as all other directors, have access to our CFO, internal
auditors, and any other member of our management for discussions between meetings, as warranted. The Audit Committee provides reports
to the full Board on risk-related items.
The activities
of the Compensation Committee with respect to risks relating to our compensation policies and procedures are discussed below in the Executive
Compensation section of this proxy statement.
Director Independence
and Board Meetings
The Board has determined
that each of our non-employee directors – Mr. Aaro, Ms. Dubin, Mr. Gardner, Mr. Longbottom, Mr. Porter, and Ms. Sivanesan –
is “independent” as defined by the listing standards of The Nasdaq Stock Market (the market in which our common stock trades),
or Nasdaq, and the director independence rules of the Securities and Exchange Commission, or SEC. The Board has affirmatively determined
that none of the persons who served as independent directors during fiscal year 2022 has any relationship with us that would impair their
independence.
Directors are expected
to attend Board meetings, meetings of committees on which they serve, and our Annual Meeting of Shareholders, and to spend the time needed
and meet as frequently as necessary to properly discharge their responsibilities. The Board held five meetings during fiscal year 2022.
All directors attended at least 75% of the aggregate number of meetings of the Board and the committees on which they served during fiscal
year 2022. All incumbent directors and director nominees, as of that date, attended our 2022 Annual Meeting of Shareholders.
Board Committees
and Committee Meetings
The Board of Directors
has three standing committees: the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee. The members
of the committees, as of the date of this proxy statement, are identified in the following table.
|
|
Audit |
|
Compensation |
|
Nominating and |
Name of Director |
|
Committee |
|
Committee |
|
Governance
Committee |
Thomas A. Aaro |
|
|
|
X |
|
X |
Michael Doar |
|
|
|
|
|
|
Cynthia Dubin |
|
X |
|
|
|
|
Timothy J. Gardner |
|
|
|
Chair |
|
|
Jay C. Longbottom |
|
|
|
X |
|
X |
Richard Porter |
|
X |
|
|
|
Chair |
Janaki Sivanesan |
|
Chair |
|
|
|
|
Gregory S. Volovic |
|
|
|
|
|
|
Audit Committee
The Audit Committee
oversees our accounting, financial reporting, and internal audit activities. It appoints our independent registered public accounting
firm and meets with that firm, our internal audit team, and our CFO to review the scope, cost, and results of our annual audit and to
review our internal accounting controls, policies, and procedures. The Report of the Audit Committee is included on page 63 of this proxy
statement.
All members of the
Audit Committee are “independent” as such term is defined for audit committee members under the Nasdaq rules and SEC Rule
10A-3 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The Board has determined that each of Ms.
Dubin and Ms. Sivanesan qualifies as an “audit committee financial expert,” as defined in Item 407(d)(5)(ii) of Regulation
S-K of the Exchange Act.
The Audit Committee held
five meetings during fiscal year 2022.
The Audit Committee
operates under a written charter, a copy of which is available on our website at www.hurco.com/investors under “Corporate
Governance.”
Compensation
Committee
The Compensation
Committee reviews and recommends to the Board the compensation of our officers and managers and guidelines for the general wage structure
of our entire workforce. The Compensation Committee also oversees the administration of our employee benefit plans and discusses with
management the Compensation Discussion and Analysis and, if appropriate, recommends its inclusion in our Annual Report on Form 10-K and
proxy statement. In determining the compensation of the executive officers other than our CEO and Executive Chairman, the Compensation
Committee considers the recommendations of the CEO. The Report of the Compensation Committee is included on page 41 of this proxy statement.
All members of the
Compensation Committee are “independent” as such term is defined for compensation committee members under the Nasdaq rules
and SEC Rule 10C-1 promulgated under the Exchange Act.
The Compensation Committee
held five meetings during fiscal year 2022.
The Compensation
Committee operates under a written charter, a copy of which is available on our website at www.hurco.com/investors under “Corporate
Governance.”
Compensation Committee
Interlocks and Insider Participation
No member of our
Compensation Committee was, at any time during fiscal year 2022, or at any other time before fiscal year 2022, an officer or an employee
of the Company. In addition, none of the members of the Compensation Committee was involved in a relationship requiring disclosure as
an interlocking executive officer or director under Item 407(e)(4) of Regulation S-K of the Exchange Act. None of our executive officers
served as a member of the Compensation Committee at any time during or before fiscal year 2022.
Nominating and
Governance Committee
The Nominating and
Governance Committee assists the Board by identifying individuals qualified to become Board members, maintains our Corporate Governance
Principles and Code of Business Conduct and Ethics, leads the Board in an annual self-evaluation, recommends members and chairs for each
standing committee, and determines and evaluates succession plans for our CEO.
All members of the
Nominating and Governance Committee are independent directors as defined by Nasdaq rules.
The Nominating and Governance
Committee held four meetings during fiscal year 2022.
The Nominating
and Governance Committee is responsible for identifying potential Board members or nominees. The Nominating and Governance Committee does
not have a formal written policy regarding the consideration of diversity in identifying nominees for directors. It does, however, consider
the diversity of backgrounds and experiences of director candidates when identifying director nominees and evaluating the Board’s
composition and performance. The Nominating and Governance Committee also examines the following qualifications and skills of director
candidates, among other things: their business or professional experience, their integrity and judgment, their records of public service,
their ability to devote sufficient time to the affairs of the Company, and the needs of the Board for certain skills or experiences. The
Nominating and Governance Committee also believes that all nominees should be individuals of substantial accomplishment with demonstrated
leadership capabilities.
The Nominating and
Governance Committee will consider candidates for director who are recommended by shareholders. A shareholder who wishes to recommend
a director candidate for consideration by the committee should send such recommendation to our Corporate Secretary at One Technology Way,
Indianapolis, Indiana 46268, who will forward it to the committee. Any such recommendation should include a description of the candidate’s
qualifications for Board service and contact information for the shareholder and the candidate.
A shareholder who
wishes to nominate an individual as a candidate for director without the recommendation of the Nominating and Governance Committee must
comply with the advance notice and informational requirements set forth in our By-Laws, which are more fully explained later in this proxy
statement under “Shareholder Proposals for our 2024 Annual Meeting.”
The Nominating and
Governance Committee operates under a written charter, a copy of which is available on our website at www.hurco.com/investors
under “Corporate Governance.”
Shareholder Communications
The Board has implemented
a process whereby shareholders may send communications to its attention. The process for communicating with the Board is set forth in
our Corporate Governance Principles, which are available on our website at www.hurco.com/investors under “Corporate
Governance.”
Delinquent Section
16(a) Reports
Section 16(a) of
the Exchange Act requires our directors and executive officers, and persons who own more than 10% of our common stock, to file reports
of ownership with the SEC and Nasdaq.
Based solely on
our review of such forms filed with the SEC, and written representations from certain reporting persons that they were not required to
file a Form 5 to report previously unreported ownership or changes in ownership, we believe that, during our fiscal year ended October
31, 2022, all of our executive officers, directors, and greater than 10% beneficial owners complied with all filing requirements under
Section 16(a), except as described immediately below.
On Sunday, January
2, 2022, certain outstanding restricted stock awards for each of Mr. Doar and Mr. Volovic vested, resulting in the following amounts of
shares being withheld to satisfy these officers’ respective tax obligations for the vested portion of the underlying awards: (1)
for Mr. Doar, 1,943 shares; and (2) for Mr. Volovic, 1,161 shares. However, due to an administrative error and temporary technical difficulties
experienced by our outside filing service provider with the EDGAR filing system, each Form 4, used to report such tax withholding dispositions
on behalf of these individuals, was not filed until January 5, 2022 – one day late with respect to such tax withholding dispositions
under applicable beneficial ownership reporting rules. The Form 4 filed on behalf of each such executive was only late with respect to
the transactions specifically referenced above.
Code of Business
Conduct and Ethics
We have adopted
a Code of Business Conduct and Ethics, which applies to all of our directors, executive officers, and employees, including our principal
executive officer and principal financial officer. If we grant any waiver to the Code of Business Conduct and Ethics that applies to our
principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions,
we will disclose the nature of such waiver in a Current Report on Form 8-K that we will file with the SEC or on our website at www.hurco.com/investors
under “Corporate Governance.” A copy of the Code of Business Conduct and Ethics is available on our website at www.hurco.com/investors
under “Corporate Governance.” We will disclose any amendments or updates to our Code of Business Conduct and Ethics by posting
such amendments or updates on our website.
Environmental, Social,
and Governance Matters
Our Board has adopted
an Environmental, Social, and Governance Policy (the “ESG Policy”), which is both set forth immediately below and available
on our website at www.hurco.com/investors under “Corporate Governance.”
Hurco Companies,
Inc. (“Hurco,” “we,” “us,” or “our”) believes that: (1) business, at its best, serves
the public good, improves the quality of peoples’ lives, and leaves the world a better place; (2) it is an inherent and critical
component of sound corporate citizenship to be responsive to environmental, social, and governance-related (“ESG”) matters
that directly impact our business, industry, stakeholders, and the communities in which we operate; (3) as a global, industrial technology
company, we are in a unique position to help address a variety of ESG issues; and (4) profitable growth and meaningful responsiveness
to ESG matters are not mutually exclusive.
Accordingly, Hurco
is committed to being responsive to ESG matters that are important to our business and stakeholders, including our customers, employees,
shareholders, business partners, and the communities in which we operate. We are dedicated to operating our business with integrity; being
responsible fiscal and environmental stewards; maintaining a diverse, inclusive, and caring culture with an emphasis on employee safety,
development, and wellbeing; and having strong corporate governance practices that foster principled actions, informed and effective decision-making,
appropriate monitoring of our compliance and performance, and accountability. To that end, our Board of Directors has direct oversight
of our ESG strategy and its implementation.
We believe Hurco’s
approach in addressing ESG matters should be thoughtful, proactive, practical, and risk-based – with priority given to ESG issues
that are both material to our business and otherwise aligned with our corporate strategies. Through our business activities, we want to
be economically successful and create value for society. In that regard, Hurco will strive to evaluate and respond to ESG issues in a
manner that is intended to create long-term value both for our stakeholders and for our business. More specifically, we will aim to focus
on ESG initiatives that we believe are the most impactful to both and that will make Hurco a better company.
Our Board has direct
oversight over ESG matters pertaining to the Company. In addition, the Charter of the Nominating and Governance Committee requires that
committee to periodically review the Company’s environmental, social, and sustainability programs, initiatives, and policies, and
such committee may make recommendations to the Board and/or our management regarding the same, to the extent the committee determines
such recommendations are justified, in each case after taking into account the interests of all of the Company’s stakeholders, including
shareholders. A copy of the charter of the Nominating and Governance Committee is available on our website at www.hurco.com/investors
under “Corporate Governance.”
We also believe
that all companies have a responsibility to respect human rights. In recognition of the foregoing, our Board has adopted a Human Rights
Policy representing the Company’s public expression of (1) its commitment to respect internationally recognized fundamental human
rights standards and (2) its belief that all human beings should be treated with dignity, fairness, and respect. A copy of the Company’s
Human Rights Policy is available at our website at www.hurco.com/investors under “Corporate Governance.”
Through our Supplier
Code of Conduct, we communicate our expectation that our suppliers, vendors, and other supply chain partners adhere to certain standards
related to corporate integrity, fair and ethical business practices, responsible product sourcing, and the safety and wellbeing of workers
across our global supply chain. A copy of our Supplier Code of Conduct is also available on our website at www.hurco.com/investors
under “Corporate Governance.”
Below are just a few representative examples
demonstrating Hurco’s commitment to ESG matters:
| · | Commitment to fostering a strong corporate culture that promotes high standards
of ethics and compliance for our businesses, including policies that set forth principles to guide employee, officer, director, and vendor
conduct, such as our Code of Business Conduct and Ethics, ESG Policy, Human Rights Policy, and Supplier Code of Conduct. |
| · | Commitment to the development, training, and maintenance of a skilled manufacturing
and machinist workforce to support advancements in manufacturing technology and the industries it serves, including the donation and/or
consignment of our products and software to educational organizations, trade schools, or other public-private partnerships. For example,
in 2020, we created and implemented the Hurco Apprenticeship Program, a robust advanced manufacturing apprenticeship program aimed at
educating and training the next generation of skilled machinists, advanced manufacturing skilled labor, and automation specialists. |
| · | Developing software, hardware, and product design enhancements that have the potential
to reduce the amount of power or energy required by end users to produce parts. More specifically, our software enhancements, such as
UltiMotion, and product design changes have significantly reduced the amount of power required by a Hurco machine tool to produce similar
parts over time. By way of example, an internal Hurco study found that, assuming consistent levels of part geometry, finishing, and quality
for the same production operation, a 2021 VMX42 requires approximately 28% less power (i.e., 7,049 kWh/a) than a 2011 VMX42 (i.e., 9,756
kWh/a) to produce the same part. |
| · | Maintenance of a whistleblower policy providing for the confidential reporting
of any suspected policy violations or unethical business conduct on the part of our businesses, employees, officers, directors, or vendors
and the provision of training and education to our global workforce with respect to our Code of Business Conduct and Ethics and anti-corruption
and anti-bribery policies. |
| · | Commitment to the development and fair treatment of our global workforce, including
generous healthcare and benefit programs for our employees, equal employment opportunity hiring practices and policies, anti-harassment,
workforce safety, and anti-retaliation policies, and tuition- reimbursement for qualifying continuing educational expenses. |
| · | Commitment to supporting charitable organizations that support the communities
in which we operate our business and/or that promote ESG matters. For example, in 2022, we partnered with One Tree Planted®
and donated funds to plant one tree for every machine sold by the Company during fiscal year 2022. |
| · | Promoting the acceptance of emerging and clean technologies that support environmental
sustainability – for example, by (1) increasing the number of electric vehicles that operate as part of our owned or leased automobile
sales and service fleets and installing electric vehicle charging stations at several of our locations to promote the use of such automotive
technology by our workforce, more generally; and (2) installing LED or other energy efficient lighting sources at our corporate headquarters,
corporate warehousing and manufacturing facilities, and several of our international subsidiaries’ locations. |
| · | Fostering environmental awareness and education, including evaluating our products
and supply chain for conflict minerals and holding our suppliers to high quality standards, our Code of Business Conduct and Ethics and
our Supplier Code of Conduct. |
| · | Commitment to provide safe and high-quality products and services that meet customer
and regulatory requirements and to demonstrate continuous improvement, including ISO 9001 certification. |
| · | Commitment to an inclusive and diverse workforce and environment that is representative
of our global footprint and the communities in which we operate at all levels of the organization, including the composition of our Board,
our executive officers, managerial positions, and global workforce. See section titled “Proposal 1. Election of Directors”
for more information about the diversity of our Board and executive officers. |
| · | Inclusion of ESG-related metrics as strategic objectives in the short-term executive
compensation arrangements for all named executive officers for fiscal years 2022 and 2023. |
PROPOSAL
2. ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
The second proposal
to be considered at the 2023 Annual Meeting is the advisory vote to approve the compensation paid to our named executive officers as disclosed
in this proxy statement pursuant to the SEC’s compensation disclosure rules (which disclosure includes the Compensation Discussion
and Analysis, the compensation tables, and the narrative discussion following the compensation tables), also known as the say-on-pay vote.
Consistent with the preference expressed by shareholders at the 2011 and 2017 Annual Meetings of Shareholders, we have been conducting
say-on-pay votes on an annual basis.
The Compensation
Discussion and Analysis beginning on page 21 of this proxy statement describes our executive compensation program, in detail, and explains
the philosophy of the program, the elements of compensation, and the factors considered by the Compensation Committee in determining the
compensation of our named executive officers for fiscal years 2022 and 2023.
From 2014 through
2019, votes cast in favor of the Company’s annual say-on-pay vote ranged from 97% to 99%. Although the 81% approval rating received
in 2020 was a notable decrease from historical approval levels, after a careful evaluation of our compensation policies and practices
with the Company’s independent compensation consultant, the Compensation Committee determined that our overall executive compensation
program structure was generally aligned with prevailing market practices and met shareholders’ expectations. Nevertheless, in consideration
of the extraordinary challenges presented by the COVID-19 pandemic, the continually evolving roles and responsibilities of the senior
executive team, and input from management, the Compensation Committee made several decisions regarding executive compensation for fiscal
years 2020 and 2021 to manage overall program costs during that uncertain time. Please see the section below in the Compensation Discussion
and Analysis titled “Alignment of Recent Executive Pay-for-Performance and Impact of the COVID-19 Pandemic.” The Compensation
Committee believes that at least partially in response to those actions and based upon the shareholders’ assessment of our executive
compensation program at those times, approximately 99% of the votes cast on the annual say-on-pay vote at each of our 2021 and 2022 Annual
Meetings of Shareholders were voted to approve the proposal. Based on the foregoing, the Compensation Committee continues to believe that
our executive compensation program is well aligned with prevailing market practices and meets shareholders’ expectations.
Accordingly, the
Board of Directors recommends that our shareholders vote FOR the following resolution at the 2023 Annual Meeting:
“Resolved,
that the compensation paid to Hurco Companies, Inc.’s named executive officers, as disclosed pursuant to the compensation disclosure
rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables, and narrative
discussion in this proxy statement, is approved.”
Because it is advisory,
the results of the say-on-pay vote are not binding upon the Board or the Compensation Committee. However, as was the case with the results
of the say-on-pay vote at prior Annual Meetings of Shareholders, we expect that the Compensation Committee, which is responsible for designing
and administering our executive compensation program, will consider the outcome of the vote when making future compensation decisions
for our named executive officers.
The Board of Directors
recommends a vote “FOR” the advisory proposal to approve the compensation of our named executive officers as disclosed in
this proxy statement.
EXECUTIVE
COMPENSATION
Compensation Discussion
and Analysis
This section and
the tables that follow it provide information regarding our compensation program and practices as they relate to our “named executive
officers,” which consist of the following officers for fiscal year 2022:
| · | Gregory S. Volovic, our President and Chief Executive Officer; |
| · | Michael Doar, our Executive Chairman; |
| · | Sonja K. McClelland, our Executive Vice President, Treasurer, and Chief Financial Officer; |
| · | HaiQuynh Jamison, our Corporate Controller and Principal Accounting Officer; and |
| · | Jonathon D. Wright, our General Counsel and Corporate Secretary. |
We currently do not have
any executive officers who are not also named executive officers.
In March 2021, we
announced that, in connection with our long-term succession planning strategy, Michael Doar would transition from the role of CEO to the
position of Executive Chairman. In that capacity, Mr. Doar has continued to serve as an executive officer and director of the Company
and has focused on growth and acquisition plans; corporate governance and sustainability; board development and engagement; managerial
succession planning; and other critical strategic initiatives. In connection with Mr. Doar’s transition to Executive Chairman, the
Board appointed Gregory S. Volovic (then President and Chief Operating Officer) as the Company’s President and CEO.
Also in March 2021,
the Board appointed HaiQuynh Jamison as the Company’s Corporate Controller. In that capacity, Ms. Jamison has since served as our
principal accounting officer. At that time, we also announced that Jonathon D. Wright, then the Company’s General Counsel and Assistant
Secretary, had been appointed General Counsel and Corporate Secretary. Ms. McClelland, who was the Company’s principal accounting
officer and Corporate Secretary immediately prior to such appointments, has continued to serve in her roles as Executive Vice President,
Treasurer, and CFO.
We believe the
overall construct of our executive compensation programs and practices, in addition to strong management and internal communication, have
contributed to the ability to have successful internal succession planning.
The responsibilities
of the Compensation Committee of the Board (referred to as the Committee in this section) include administering our compensation programs
and approving or ratifying all compensation-related decisions for the named executive officers.
Philosophy
The
goals of our executive compensation program are to foster the creation of shareholder value while, at the same time, motivating and
retaining managerial personnel. Our executive compensation program has been designed to hold executives accountable for the
financial and operational performance of the Company, as well as to reflect the value of the Company’s stock. Therefore, a
substantial amount of an executive’s compensation is at risk and tied to the performance of the Company on both a short-term
and long-term basis. Our compensation program includes the use of Company common stock and stock ownership guidelines that serve to
align the interests of our executives with the interests of our shareholders. Our compensation program is designed to reward
executives at levels comparable to our peers to promote fairness and success in attracting and retaining executives. We believe that
our compensation program does not promote excessive risk- taking and various elements of our policies that are in place (such as
capped incentive opportunities, use of capital return metrics, stock ownership guidelines, recoupment policies, and governance
processes) serve to mitigate excessive risk. Any written employment agreements with our named executive officers that provide for a
change in control severance benefit have a “double-trigger” (i.e., requires both a change in control and termination of
the executive’s employment in order to receive that benefit).
Fiscal Year 2022
Overview
We are an industrial
technology company that designs, produces, and sells computerized machine tools. Our strategic plans focus on market expansion to reach
more customers with more products on a global basis. We have made five acquisitions since 2013, and the products we have added through
these acquisitions have provided more advanced products with significant improvements in our machine tool accuracy and precision, allowed
us to seek higher productivity in complex manufacturing environments, provided automation for machine tending solutions, and reduced dependencies
associated with volatilities from economic and geographic cyclicality. While the Hurco-branded computerized machine tools have been, and
continue to be, our premium flagship product line, we have added other products to our portfolio that provide product diversity and market
penetration opportunity in a variety of different industries, and at different price points. We have not changed our overall strategy
to design, manufacture, and sell a comprehensive line of computerized machine tools; rather, we have enhanced this strategy through growth
both organically and through acquisitions to attain long-term stability and profitability.
During
fiscal year 2022, our sales and service fees were $250.8 million, an increase of $15.6 million, or 7%, compared to fiscal year 2021
and included an unfavorable currency impact of $13.9 million, or 6%, when translating foreign sales to U.S. Dollars for financial
reporting purposes. For fiscal year 2022, we reported net income of $8.2 million, or $1.23 per diluted share, compared to net income
of $6.8 million, or $1.01 per diluted share, for fiscal year 2021. During fiscal year 2022, sales increased year-over-year due
primarily to inflationary price increases and an increased volume of shipments of higher-performance machines across Europe and
North America.
Alignment of
Executive Pay-for-Performance
The compensation
program for our named executive officers is designed to provide competitive pay opportunities while aligning the incentive compensation
realized by our named executive officers with the interests of our shareholders – by linking pay with Company and stock performance.
The Committee regularly reviews the alignment of the Company’s performance with its compensation to named executive officers and
annually engages its independent compensation consultant to provide reports comparing such alignment to that of its peers.
In January 2022,
the Committee approved the following four types of incentive compensation opportunities for our named executive officers, which are intended
to align their pay with Company and individual performance:
| · | cash award opportunities under the short-term incentive compensation plan based
on the Company’s operating income margin and certain strategic objectives set for fiscal year 2022; |
| · | restricted
shares that vest in equal installments over three years granted to promote executive retention; |
| · | performance
stock units (“PSUs”) that will be earned based on the Company’s average
return on invested capital, or ROIC, for fiscal years 2022 through 2024; and |
| · | PSUs
that will be earned based on the Company’s total shareholder return, or TSR, relative
to companies in the established 2022 peer group, for fiscal years 2022 through 2024. |
The incentive
compensation realized by all of our named executive officers related to fiscal year 2022 consisted of cash awards earned and paid based
on fiscal year 2022 operating income margin and achievement of strategic objectives set for fiscal year 2022, the vesting in 2022 of
a portion of the restricted shares granted in fiscal years 2019, 2020, and 2021, and, except for Ms. Jamison and Mr. Wright, the following:
| · | PSUs
granted in fiscal year 2020 that were earned based on the Company’s average ROIC for
fiscal years 2020 through 2022; and |
| · | PSUs
granted in fiscal year 2020 that were earned based on the Company’s TSR performance,
relative to companies in the established peer group, for fiscal years 2020 through 2022. |
Because
Ms. Jamison and Mr. Wright did not become executive officers until March 2021, for fiscal years 2021 and prior, they participated in
a non-named executive officer compensation program for other managerial and key employees of the Company. Ms. Jamison and Mr. Wright
participated in the Company’s named executive officer executive compensation program for fiscal year 2022 and will also participate
in such program for fiscal year 2023. See “Compensation Decisions for Fiscal Year 2022” and “Compensation Decisions
for Fiscal Year 2023.”
During
fiscal years 2021 and 2022, the Committee engaged Pay Governance, LLC (“Pay Governance”), its independent compensation consultant,
to assess whether pay and performance were aligned for our CEO over the immediately preceding three-year and five-year fiscal periods.
The Committee believes realizable pay-for-performance assessments provide the Committee and investors an alternative view of pay-for-performance
alignment based on compensation actually earned relative to actual Company performance. The assessments considered
our CEO’s “total realizable compensation” (as defined below), as well as certain key Company performance metrics, relative
to those of our peer group.
“Total
realizable compensation” is defined as (1) base salary paid over the period; (2) actual bonus earned and paid during the period;
(3) the aggregate current value of restricted stock or restricted stock unit grants made during the period; (4) the aggregate in-the-money
value of stock option grants made during the period; (5) the actual payouts of performance-based equity awards with performance periods
beginning and ending during the period; and (6) the estimated payout for performance-based equity awards that were granted during the
period but remained unvested at its conclusion. Total realizable compensation for our CEO was calculated in the same manner as for the
CEOs of our peer group companies.
In defining
the Company’s performance relative to peers, the assessments used the following indicators: (1) operating income margin –
a measure of profitability used in the Company’s annual incentive plan; (2) ROIC – a measure of capital efficiency used in
the Company’s long-term incentive plan; and (3) TSR – a measure of shareholder value creation used in the Company’s
long-term incentive plan. In developing a composite performance ranking, the assessments average the Company’s percentile rank
for each performance metric relative to its peer group for compensation purposes based on their most recent fiscal year-end.
The result
of the assessments indicated that (1) our CEO’s three-year total realizable compensation for fiscal years 2019 through 2021 was
positioned at the 40th percentile of our peer group, which was strongly aligned with Hurco’s composite performance over
the same period, which ranked at the 31st percentile; and (2) our CEO’s five-year total realizable compensation for
fiscal years 2017 through 2021 was positioned at the 41st percentile, which is strongly aligned with Hurco’s composite
performance over the same period, which ranked at the 43rd percentile.
Based on
the results of the above-referenced realizable pay-for-performance assessments, the Committee believes the Company’s executive
compensation program continues to have a strong pay- for-performance orientation, namely attributable to setting rigorous financial performance
goals within the annual and long-term plans; to using incentive metrics that align with shareholder value creation; and to using a pay
mix that is largely focused on variable compensation remaining at risk based on Company performance.
Alignment
of Recent Executive Pay-for-Performance and Impact of the COVID-19 Pandemic
During
fiscal year 2020, the Company experienced reduced demand resulting from extraordinary uncertainty associated with the COVID-19 pandemic,
including business disruptions from government-mandated stay-at-home or shelter orders in many of the largest machine tool markets in
the world. Despite the Company’s ability to achieve certain strategic objectives and maintain a strong balance sheet during this
period – improving its cash position, supporting global operations, executing a stock repurchase program, and continuing its cash
dividend program, all without incurring indebtedness – the reduced demand and changes in the business macroenvironment had a negative
impact on the Company’s fiscal year 2020 financial performance.
The Committee
believes that the impact to compensation realized by the named executive officers during this period also indicates a strong pay-for-performance
alignment between the Company’s executive compensation program and Company performance. More specifically, as further described
in the Company’s proxy statements for its 2021 and 2022 Annual Meetings of Shareholders and the section below titled “Compensation
Decisions for Fiscal Year 2022,” the Committee recognized the following impacts to executive pay based, at least in part, upon
the Company’s fiscal years 2020 and 2021 performance: (1) delayed increases in base salaries for named executive officers for fiscal
year 2021; (2) no bonuses payable to the named executive officers under their 2020 short-term incentive compensation arrangements and/or
under the non-named executive officer discretionary bonus program, as applicable, despite their attainment of certain strategic objectives
– some previously- established as part of the short-term incentive compensation arrangement and others critically important that
were established during the year as a result of extremely challenging business, political, and public health environments; (3) no PSUs
– TSR or PSUs – ROIC payable to the named executive officers under their respective 2018 long-term incentive compensation
arrangements for the three-year performance period ending October 31, 2020, even though that performance period also included a record
revenue year and two years of historically high earnings per share; (4) a decrease of approximately 33% in the 2021 grant value of the
CEO’s total long-term incentive award; (5) no PSUs – TSR or PSUs – ROIC payable to the named executive officers under
their respective 2019 long-term incentive compensation arrangements for the three-year performance period ending October 31, 2021; and
(6) no PSUs – ROIC payable to the named executive officers under their respective 2020 long-term incentive compensation arrangements
for the three-year performance period ending October 31, 2022. The Committee also recognized that these impacts on executive pay are
likely amplified by the fact that (1) some of the named executive officers’ base salary is positioned at or slightly below market,
based on assessments conducted by its independent compensation consultant, and (2) a large percentage of the named executive officers’
total target compensation is both at-risk and performance-based.
Consideration
of Say-on-Pay Votes
From 2014
through 2019, votes cast in favor of the Company’s annual say-on-pay vote ranged from 97% to 99%. Although the 81% approval rating
received in 2020 was a notable decrease from historical approval levels, after a careful evaluation of our compensation policies and
practices with the Company’s independent compensation consultant, the Committee determined that our overall executive compensation
program structure was generally aligned with prevailing market practices and met shareholders’ expectations. Nevertheless, in consideration
of the extraordinary challenges presented by the COVID-19 pandemic, the continually evolving roles and responsibilities of the senior
executive team, and input from management, the Compensation Committee made several decisions regarding executive compensation for fiscal
years 2020 and 2021 to manage overall program costs during that uncertain time. Please see the previous section in the Compensation Discussion
and Analysis titled “Alignment of Recent Executive Pay-for-Performance and Impact of the COVID-19 Pandemic.” The Committee
believes that at least partially in response to those actions and based upon the shareholders’ assessment of our executive compensation
program at those times, approximately 99% of the votes cast on the annual say-on-pay vote at each of our 2021 and 2022 Annual Meetings
of Shareholders were voted to approve the proposal. Based on the foregoing, the Committee continues to believe that our executive compensation
program is well aligned with prevailing market practices and meets shareholders’ expectations.
Elements
of Compensation
The compensation
package under our named executive officer compensation program consists primarily of a base salary, short-term incentive compensation,
and long-term incentive compensation. As part of the Committee’s continuous effort to strengthen the executive compensation program,
the Committee annually engages its independent compensation consultant, Pay Governance, to conduct a competitive market assessment for
each executive position using publicly-available data from the Company’s applicable peer group and executive compensation surveys.
In addition, the Committee’s compensation consultant also provides reports and assessments on changes in executive compensation
programs, generally, and executive compensation within comparable industries, specifically, to evaluate trends and recommend changes
to better align our executive compensation programs with similarly situated companies in comparable industries. The assessment focuses
on the competitiveness of compensation delivered to each executive by compensation element (base salary, target annual incentive, target
total cash compensation, expected value of long-term incentives, and target total direct compensation). The objectives of the assessment
are to understand changes in market compensation from year to year, to analyze the competitiveness of current pay levels relative to
the market, and to serve as an input for making compensation adjustments if necessary.
The following
charts display the total compensation mix for our named executive officers based on actual compensation for fiscal year 2022. The chart
on the left summarizes the breakdown of total compensation for the named executive officers for fiscal year 2022 among base salary, short-term
incentive compensation, and long-term incentive compensation. The chart on the right summarizes the allocation of compensation mix for
the named executive officers based upon fixed, time-based, and performance-based compensation for fiscal year 2022.
2022
Executive Compensation Mix
Base
Salaries. Our industry is highly cyclical, and we believe that offering competitive base salaries is a key factor in attracting
and retaining talent, particularly since our program places a significant proportion of executive compensation at-risk and tied to company
performance. In deciding on the appropriate base salary for each named executive officer, the Committee takes into consideration the
results of the most recent competitive market assessment, as well as the individual’s performance, his or her roles and responsibilities,
related experience in those roles, and long-term executive succession planning strategies.
Short-Term
Incentive Compensation. For the fiscal year 2022 short-term incentive compensation arrangement, pursuant to the Hurco Companies,
Inc. Cash Incentive Plan (“Cash Incentive Plan”), which was approved by shareholders at our 2016 Annual Meeting of Shareholders,
the Committee selected the applicable performance measures, specified the performance goals based on those performance measures, and
specified the method for calculating the amount payable to named executive officers if the performance goals are satisfied. Like the
2021 short-term incentive compensation plan, the 2022 arrangement provides for cash incentives tied to the achievement of targets for
objective performance measures that are based on our fiscal year 2022 operating income margin and certain strategic objectives for each
named executive officer. The Committee determined to maintain operating income margin and strategic objectives as the performance measures
for the short-term incentive compensation arrangement for fiscal year 2023 under the Cash Incentive Plan, since the Committee believes
those performance measures appropriately align executive compensation with Company and individual performance. See “Compensation
Decisions for Fiscal Year 2023.”
Long-Term
Incentive Compensation. The Company has a shareholder-approved plan that permits the Committee to grant several types of equity-based
awards. The Committee believes that equity- based awards that include certain vesting requirements provide our executive officers with
an ownership stake in the Company and promote executive retention. The Committee also believes that grants of restricted shares are an
effective means to align the interests of executives more closely with those of our shareholders and that grants of PSUs directly link
executive compensation with Company performance. In fiscal year 2022, the Committee awarded a combination of restricted shares and PSUs
to the named executive officers, which have a three-year vesting or performance period, respectively. Similar to previous years, the
PSUs under the fiscal year 2022 long-term incentive plan were tied to relative TSR and ROIC performance measures. For the fiscal year
2023 long-term incentive compensation plan, the Committee determined to maintain the general allocation of award value between restricted
shares and PSUs but decided to use performance measures tied to net income and free cash flow for the PSU awards. See “Compensation
Decisions for Fiscal Year 2023.”
Stock
Ownership Guidelines. Our Corporate Governance Principles include stock ownership guidelines for our executive officers and independent
directors. The Committee is responsible for interpreting and reviewing compliance with the stock ownership guidelines as they relate
to the executive officers. The Committee believes that the executive stock ownership guidelines align executives’ interests with
those of shareholders through equity-based incentives and stock ownership guidelines that facilitate a culture of ownership. The guidelines
provide that the executive officers are expected to acquire and maintain ownership of shares of our common stock (including unvested
restricted stock awards) having an aggregate market value that is at least equal to five times annual base salary for the CEO, three
times annual base salary for the President, if separate from the CEO role, and two times annual base salary for the CFO and other executive
officers. The executive officers are expected to retain ownership of all net shares (shares of common stock acquired as a result of the
exercise or vesting of equity incentive awards granted, reduced by any shares sold, tendered, or retained to pay exercise price or tax
withholding requirements related to such awards) acquired with respect to awards granted under the Company’s equity incentive plans,
until the requisite ownership has been achieved. If an executive officer fails to comply with the guidelines, the Committee may determine
that such person is not eligible for awards under the Company’s equity incentive plan until such time as he or she is in compliance.
Any shares of stock subject to pledges or security interests will not be considered as owned in determining compliance with the stock
ownership guidelines.
Hedging
Prohibitions. Our Corporate Governance Principles prohibit our executive officers and directors from hedging the economic risk
of ownership of our common stock. More specifically, our Corporate Governance Principles contain the following prohibition against hedging
and derivative transactions related to the Company’s securities:
“Transactions
in derivative securities may reflect a short-term and speculative interest in the Company’s securities and may create the appearance
of impropriety, even where a transaction does not involve trading on inside information. Trading in derivatives may also focus attention
on short- term performance at the expense of the Company’s long-term objectives. In addition, the application of securities laws
to derivatives transactions can be complex, and persons engaging in derivatives transactions run an increased risk of violating securities
laws. As a result, the Company’s directors and executive officers are prohibited from engaging in transactions in publicly-traded
options, such as puts and calls, collars, and other derivative securities with respect to the Company’s securities. This prohibition
also extends to any hedging or similar transaction designated to decrease the risks associated with holding Company securities including
‘zero cost collars,’ variable prepaid forward contracts, equity swaps and exchange funds. Stock options, stock appreciation
rights, other securities issued pursuant to a Company equity incentive plans or other compensatory arrangements with the Company, and
broad-based index options, futures or baskets are not subject to this prohibition.”
Our Corporate
Governance Principles can be accessed through our website at www.hurco.com/investors under “Corporate Governance.”
Medical,
Disability and Life Insurance. All full-time employees, including the named executive officers, are eligible to participate in
insurance benefits coverage to help manage the financial impact of ill health, disability, and death. In addition, our named executive
officers are provided supplemental disability benefits and our Executive Chairman and President and CEO are each provided with split-dollar
life insurance benefits.
Retirement
Benefits. We sponsor a 401(k) plan in which all full-time employees are eligible to participate. The purpose of the plan is to
provide an incentive for employees to save for their retirement income needs and to assist in our attraction and retention of employees.
Our named executive officers participate in the 401(k) plan on the same basis as other eligible employees. We currently match 100% of
the first 6% of a participant’s annual earnings that he or she contributes, up to the maximum permitted by law. We also maintain
a deferred compensation program in which our named executive officers and other senior management employees may voluntarily participate.
For additional information regarding the deferred compensation program, see “Nonqualified Deferred Compensation in 2022.”
Perquisites.
The Committee believes that, even though the level of perquisites provided to the named executive officers is relatively minimal,
perquisites are an integral component in establishing the competitiveness of our overall compensation program. Perquisites offered to
the named executive officers include the use of company leased vehicles. For additional information regarding perquisites, see “Tabular
Compensation Information.”
Employment
Agreements
We have
employment agreements with the following named executive officers: Mr. Volovic, Mr. Doar, and Ms. McClelland. Information regarding these
employment agreements is found in this section under the heading “Employment Agreements” on page 55. Under the heading “Potential
Payments upon Termination” on page 57, we also estimate the benefits that we would have paid to any of our named executive officers
if their employment had terminated on October 31, 2022, under various scenarios.
The Committee
believes that these agreements are an important part of the overall compensation arrangements for the applicable executives by helping
to secure for us the continued employment and dedication of the executives (as well as certain noncompetition and other restrictive covenants),
while simultaneously providing a reasonable amount of assurance of continued employment to them.
Compensation
Decisions for Fiscal Year 2022
Details
of the compensation payable to the named executive officers for fiscal year 2022 are disclosed in the tables and related discussion that
follow this Compensation Discussion and Analysis.
Base
Salaries. On November 9, 2021, employing the methodology described above under “Elements of Compensation,” the Committee
established annual base salaries for the named executive officers for fiscal year 2022, which became effective January 1, 2022. The salary
increases for Mr. Volovic, Ms. Jamison, and Mr. Wright were approximately 24%, 23%, and 32%, respectively, and intended to bring their
respective base salaries more in line with market competitive ranges for their new respective roles and responsibilities. The salary
increase for Ms. McClelland was approximately 3% and was in line with the average merit increase received by all U.S.-based Company employees.
The salary decrease for Mr. Doar was approximately 8% and was intended to bring his base salary more in line with a market competitive
range for his new role as Executive Chairman. The following table sets forth the annual base salary of each of the named executive officers
for fiscal year 2021 and the annual base salary established by the Committee for each of those officers for fiscal year 2022, as well
as the percentage change between the two years:
| |
Fiscal
Year 2021 Base
Salary | | |
Fiscal
Year 2022 Base
Salary | | |
Percentage Change | |
Gregory S. Volovic | |
$ | 458,865 | | |
$ | 569,000 | | |
| 24.0 | % |
Michael Doar | |
$ | 509,850 | | |
$ | 469,000 | | |
| -8.0 | % |
Sonja K. McClelland | |
$ | 378,525 | | |
$ | 390,000 | | |
| 3.0 | % |
HaiQuynh Jamison | |
$ | 162,740 | | |
$ | 200,000 | | |
| 23.0 | % |
Jonathon D. Wright | |
$ | 173,744 | | |
$ | 230,000 | | |
| 32.0 | % |
Short-Term
Incentive Compensation. On January 4, 2022, pursuant to the Cash Incentive Plan, the Committee approved the short-term incentive
compensation arrangement for fiscal year 2022 for all named executive officers, with payout to occur thereunder in January 2023, if and
to the extent the performance goals were attained during fiscal year 2022. Similar to fiscal year 2021, the Committee selected operating
income margin and certain strategic objectives for the named executive officers as the performance measures, which are among the performance
measures set forth in the Cash Incentive Plan. In determining the required performance levels for operating income margin that it established
for fiscal year 2022, the Committee considered many factors including the Company’s short- and long-term strategic plan objectives
that take into account the importance of factors such as the impact of recently completed acquisitions, research and development of new
products, market penetration into new and sometimes price-competitive markets, diversification of products to include entry-level, mid-range,
and premium products, and continued growth of the existing markets and product lines – all of which can significantly impact the
level of operating income the Company achieves from year to year.
The performance
goals related to our fiscal year 2022 operating income margin and certain strategic objectives for the named executive officers and payouts
were weighted 70% on operating income margin and 30% on strategic objectives for each named executive officer.
Operating
income margin was chosen as the primary performance metric because the Committee believes it continues to most directly correlate to
our executives’ performance. An executive could earn a short-term incentive award due to success in achieving individual strategic
objectives, even if performance fell below threshold on the operating income margin; however, the weighting of the two performance metrics
encourages decisions that should benefit our overall profitability. Further, the Committee provided that if the fiscal year 2022 operating
income margin was zero or negative, then no amounts would be paid under the 2022 short-term incentive arrangement, even if all or a portion
of the performance goals under the strategic objectives component were attained. Participants had the ability to earn between 50% of
target for achieving threshold performance and 200% of target for achieving maximum performance for each metric.
In January
2022, the Committee established the following payout levels that would be associated with the degree to which the operating income margin
was attained for fiscal year 2022, which were the same as those approved by the Committee under the short-term incentive compensation
plan for fiscal year 2021:
Operating Income
Margin | |
Threshold | | |
Target | | |
Exceeds | | |
Maximum | |
Actual Results | |
| 3 | % | |
| 6 | % | |
| 8 | % | |
| 10 | % |
Percentage Payout Level | |
| 50 | % | |
| 100 | % | |
| 150 | % | |
| 200 | % |
Payout
levels will be interpolated for results between 3% and 6%, 6% and 8%, and 8% and 10%
In reaching
its decision with respect to setting operating income margin threshold, target, exceeds, and maximum levels as set forth above, the Committee
took into consideration the impact of COVID- 19 and other macroeconomic factors on the Company’s business; the Company’s
current projections, business plan, and strategic plan; the negative operating profit recorded by the Company in recent periods; the
desire to motivate and incentivize the named executive officers to perform and return the Company to consistent levels of profitability;
and similar permissible factors.
In January
2022, the Committee also approved the strategic objectives set for each participating named executive officer and the associated payout
levels for fiscal year 2022. Participants had the ability to earn between 50% and 200% of the target amount based on the overall achievement
of the applicable 2022 strategic objectives set for each participant. The strategic objectives approved by the Committee for each of
the participating named executive officers, and the related performance categories, were as follows:
|
Performance
Categories |
Objectives |
Gregory
S. Volovic |
Strategic
Product Initiatives/Market Share |
Identify
and pursue next generation machine tool designs and expand upon current machine tool designs including: live tooling for lathes,
alternative drive/motor solutions, and control technologies for Hurco, Milltronics, and Takumi branded products. |
Strategic
Initiatives/Cost Reductions/Profit Improvement |
Execute
fiscal year 2022 business plan. Roll out growth initiatives for long-term strategies that include improved volume, pricing, and cost
reductions to maximize profitability. Establish Central American Sales/Service Center for Hurco. Evaluate capital allocation plans
based upon ongoing acquisition opportunities, dividend strategy, stock repurchase plan, and cashflow needs for the business. Continue
identifying/evaluating possible target acquisition opportunities. |
Strategic
Product Initiatives/Company Culture |
Promote
a collaborative, trust-based, and risk-tolerant culture. Establish a manufacturing risk mitigation strategy that includes an action
plan that can be implemented as needed based upon specific criteria. Continue to build and cultivate employees to engage in our “Promote
From Within First” initiative. Develop ESG initiatives to drive environmental and social responsibility into our products and
supply chain. |
|
|
|
Michael
Doar |
Strategic
Initiatives/Leadership Development |
Participate
in transition activities and leadership development of executive team. |
Strategic
Initiatives/Capital Allocation Plan |
Evaluate
capital allocation plans based upon ongoing acquisition opportunities, dividend strategy, stock repurchase plan, and cashflow needs
for the business. |
Board
Governance |
Assist
in the evaluation of members for standing committees. |
Investor
Relations |
Shareholder
outreach. |
Corporate
Governance/Sustainability Initiatives |
Evaluate
and assist the board and executive team in executing measurable sustainability plans. |
Strategic
Initiatives/Market Share/Product Development |
Evaluate
acquisition opportunities (domestic and foreign) to accelerate growth of geographic market share and/or product development. |
|
Performance
Categories |
Objectives |
Sonja
K. McClelland |
Strategic
Initiatives/Profit Improvement |
Execute
2022 business plan sales and production. |
Asset
Management/Profit Improvement/Cost Reduction |
Execute
the annual business plan initiatives for profitability and return on corporate assets. Execute 2022 targeted return on invested capital
and total shareholder return. |
Strategic
Initiatives/Liquidity and Capital Allocation |
Evaluate
capital allocation strategies and priorities, including: capital expenditures, M&A, dividends, and stock repurchases. Evaluate
funding of strategic growth initiatives, including: sources and uses of cashflows, cost of capital, return on investment, and short-term
and long-term financing options. |
Corporate
Governance/Sustainability Initiatives |
Evaluate
sustainability initiatives, including: assess financial and operational reporting metrics; and evaluate policies and disclosures. |
Strategic
Initiatives/Market Share/Product Development |
Evaluate
acquisition opportunities (domestic and foreign) to accelerate growth of geographic market share and/or product development. |
|
|
|
HaiQuynh
Jamison |
Strategic
Initiatives/ERP Systems Management |
ERP
system update: Assist international operations/personnel to assess and develop a multi-year plan for global systems upgrade. |
Succession
Planning/Leadership Development |
Corporate
finance training and development: Assist in the evaluation and development of the global finance team to ensure successful transition
and promotion of talent in key roles. |
Corporate
Governance/Financial Reporting/Compliance |
Assess
and implement necessary changes to simplify/ streamline financial reporting processes, systems, and consolidation of information.
Assess and implement necessary changes as required to comply with changes in regulatory and statutory requirements for financial
reporting and disclosures. |
Corporate
Governance/Sustainability Initiatives |
Evaluate
sustainability initiatives, including: assess financial and operational reporting metrics; and evaluate policies and disclosures. |
Strategic
Initiatives/Market Share/Product Development |
Evaluate
acquisition opportunities (domestic and foreign) to accelerate growth of geographic market share and/or product development. |
|
|
|
Jonathon
D. Wright |
Strategic
Initiatives/Cost Reduction/Profit Improvement/Corporate Structure |
Evaluate
legal and other corporate governance service providers; revise and/or negotiate alternative fee structure to manage program cost.
Evaluate global corporate and legal entity structuring. |
Strategic
Initiatives/Risk Management |
Implement
business unit and/or global policies to support risk management and compliance programs and assess brokers, consultants and service
providers. |
Corporate
Governance/Sustainability Initiatives |
Evaluate
ESG initiatives and implement ESG strategy. Increase public ESG disclosure, evaluate reporting standards, and implement data collection
controls for ESG initiatives. |
Strategic
Initiatives/Market Share/Product Development |
Evaluate
acquisition opportunities (domestic and foreign) to accelerate growth of geographic market share and/or product development |
In January
2022, the Committee also established the target percentage by which the base salary of each named executive officer paid during fiscal
year 2022 would be multiplied in order to determine the dollar amount that would be multiplied by the weighted-average percentage payout
level applicable to each named executive officer following determination of such based on actual performance. The target amount for each
named executive officer is set forth below:
| |
Target
Amount of Fiscal Year 2022 Base Salary | |
Gregory S. Volovic | |
| 100 | % |
Michael Doar | |
| 85 | % |
Sonja K. McClelland | |
| 75 | % |
HaiQuynh Jamison | |
| 35 | % |
Jonathon D. Wright | |
| 35 | % |
On January
3, 2023, the Committee determined the degree to which the operating income margin metric and the strategic objectives for fiscal year
2022 were attained, and the resulting payout level relative to the target amount for each metric. For fiscal year 2022, the Company achieved
a 5.1% operating income margin and, therefore, the Committee determined that the resulting percentage payout level relative to the target
amount for that metric was 85.0%. In determining the potential payout level associated with the above strategic objectives set for fiscal
year 2022 for each of the named executive officers, the Committee assessed the level of achievement of those strategic objectives. As
a result, the Committee determined that the resulting percentage payout level relative to the target amount for the strategic objectives
was: for Mr. Volovic – 100%; for Mr. Doar – 100%; for Ms. McClelland – 100%; for Ms. Jamison – 100%; and for
Mr. Wright – 200%.
The weightings
applicable to each of the operating income margin metric and the 2022 strategic objectives metric set forth above for each named executive
officer were then applied to the percentage payout level for each metric as determined by the Committee, resulting in a weighted- average
percentage payout level relative to the target amount for each such executive. The weighted- average percentage payout level applicable
to each named executive officer was then multiplied by his or her target amount of fiscal year 2022 base salary listed above.
The Committee
retained the discretion to adjust downward, but not upward, the amount of the compensation that would otherwise be payable under the
2022 short-term incentive compensation arrangement. The Committee did not exercise that discretion with respect to the amounts payable
under the 2022 short-term incentive compensation arrangement.
The following
table sets forth the total short-term incentive compensation amounts awarded to each named executive officer related to fiscal year 2022:
| |
Operating
Income Margin | | |
Strategic Objectives | | |
Total
Short-Term Compensation | |
Gregory S. Volovic | |
$ | 338,555 | | |
$ | 170,700 | | |
$ | 509,255 | |
Michael Doar | |
$ | 237,197 | | |
$ | 119,595 | | |
$ | 356,792 | |
Sonja K. McClelland | |
$ | 174,038 | | |
$ | 87,750 | | |
$ | 261,788 | |
HaiQuynh Jamison | |
$ | 41,650 | | |
$ | 21,000 | | |
$ | 62,650 | |
Jonathon D. Wright | |
$ | 47,898 | | |
$ | 48,300 | | |
$ | 96,198 | |
Long-Term
Incentive Compensation.
Earned
PSU Awards for Fiscal Years 2020-2022. On January 3, 2023, the Committee also determined the degree to which the long-term incentive
compensation arrangement approved for the fiscal years 2020-2022 performance period was attained, and the resulting payout level relative
to the target amount for each metric.
The performance
and payout standards for the PSUs – TSR for the fiscal years 2020-2022 performance period that were established by the Committee
in 2020 are set forth immediately below:
PSUs
– TSR |
Threshold |
Target |
Maximum |
Performance
Range |
30th
Percentile |
55th
Percentile |
90th
Percentile |
Payout
Range |
50%
of Target Shares |
100%
of Target Shares |
200%
of Target Shares |
Awards
will be interpolated for results between the 30th and 55th percentiles and the 55th and 90th
percentiles
For fiscal
years 2020 through 2022, the Company’s TSR performance over the three-year period of (21.9%) is positioned between the 30th percentile
TSR of (27.4%) and the 55th percentile TSR of (0.3%), relative to the TSR of the companies in our 2020 peer group. As such
and based on the applicable performance and payout standards noted above, the Committee determined that the resulting interpolated percentage
payout level relative to the target amount for the fiscal years 2020- 2022 PSUs – TSR was 60.1%.
The performance
and payout standards for the PSUs – ROIC for the fiscal years 2020-2022 performance period that were established by the Committee
in 2020 are set forth immediately below.
PSUs
– ROIC |
Threshold |
Target |
Maximum |
Average
ROIC |
7% |
8% |
13% |
Payout
Range |
50%
of Target Shares |
100%
of Target Shares |
200%
of Target Shares |
Awards
will be interpolated for results between 7% and 8% and 8% and 13%
As calculated
under our 2020 long-term incentive compensation arrangement, the Company’s average ROIC for fiscal years 2020 through 2022 was
1.4%. As such and based on the applicable performance and payout standards previously noted, the Committee determined that the resulting
percentage payout level relative to the target amount for the fiscal years 2020-2022 PSUs – ROIC was zero.
Based on
these determinations, the Committee approved the following number of PSUs earned and vested pursuant to the long-term incentive compensation
plan for each named executive officer, except Ms. Jamison and Mr. Wright, who did not hold any PSUs with the fiscal years 2020-2022 performance
period:
| |
Target
Performance Shares | | |
Grant Date
Fair Value | | |
Actual
Performance Shares Earned | | |
Vest Date
Fair Value | |
| |
TSR | | |
ROIC | | |
$1 | | |
TSR | | |
ROIC | | |
$2 | |
Gregory S. Volovic | |
| 7,691 | | |
| 8,336 | | |
| 675,033 | | |
| 4,622 | | |
| - | | |
| 121,928 | |
Michael Doar | |
| 12,818 | | |
| 13,892 | | |
| 1,124,988 | | |
| 7,703 | | |
| - | | |
| 203,205 | |
Sonja K. McClelland | |
| 6,409 | | |
| 6,946 | | |
| 562,495 | | |
| 3,851 | | |
| - | | |
| 101,589 | |
(footnotes
on following page)
1 |
Amounts related to target PSU awards represent the value at the grant date based upon the probable outcome of the performance conditions.
Amounts related to the PSUs designated as “PSUs-TSR” were calculated using the Monte Carlo approach. Amounts related to the
PSUs designated as “PSUs-ROIC” were calculated using the closing sales price of our common stock on the grant date. |
2 |
Amounts related to PSU awards that were earned and vested represent the value at the vest date based upon the actual outcome of the performance
conditions. Amounts were calculated using the closing sales price of our common stock on the vest date of January 3, 2023. |
Because
Ms. Jamison and Mr. Wright were not executive officers in January 2020 when the PSUs described above were granted to our executive officers,
they did not receive such grants. However, Ms. Jamison and Mr. Wright each received 559 restricted shares in November 2019 as part of
the fiscal year 2020 annual equity grants to key employees, which restricted shares vest in thirds on each of the three anniversaries
of the date of grant.
Restricted
Share and PSU Awards for Fiscal Years 2022-2024. On January 4, 2022, the Committee approved a long-term incentive compensation
arrangement for the named executive officers in the form of restricted shares and PSUs awarded under the Hurco Companies, Inc. 2016 Equity
Incentive Plan (as amended, the “2016 Plan”). The awards were weighted as approximately 25% time-based vesting (in equal
installments over three years) and approximately 75% performance-based vesting (at the end of a three-year period, to the extent certain
performance metrics or criteria are satisfied). The three-year performance period for those awards is fiscal years 2022 through 2024.
The Committee
granted the awards of restricted shares and target number of PSUs to the named executive officers effective as of January 4, 2022, as
follows:
| |
Restricted Shares | | |
PSUs – TSR | | |
PSUs – ROIC | |
Gregory S. Volovic | |
| 8,225 | | |
| 12,001 | | |
| 11,517 | |
Michael Doar | |
| 7,404 | | |
| 10,801 | | |
| 10,365 | |
Sonja K. McClelland | |
| 6,169 | | |
| 9,001 | | |
| 8,637 | |
HaiQuynh Jamison | |
| 822 | | |
| 1,200 | | |
| 1,151 | |
Jonathon D. Wright | |
| 822 | | |
| 1,200 | | |
| 1,151 | |
The PSUs
designated as “PSUs – TSR” were weighted as approximately 40% of the overall long- term incentive compensation arrangement
and will vest and be paid based on our TSR over the three- year period, relative to the TSR over that period of the companies in our
peer group. The companies comprising the peer group for the purposes of this award are set forth below under “The Committee’s
Processes and Analyses – Use of Peer Group Data.” Participants will have the ability to earn between 50% of the target number
of PSUs for achieving threshold performance and 200% of the target number of PSUs for achieving maximum performance. The performance
and payout standards for the PSUs – TSR are as follows:
PSUs – TSR |
Threshold |
Target |
Maximum |
Performance
Range |
30th
Percentile |
55th
Percentile |
90th
Percentile |
Payout
Range |
50%
of Target Shares |
100%
of Target Shares |
200%
of Target Shares |
Awards
will be interpolated for results between the 30th and 55th percentiles and the 55th and 90th
percentiles
The PSUs designated as
“PSUs – ROIC” were weighted as approximately 35% of the overall long- term incentive compensation arrangement and will
vest and be paid based on the achievement of pre- established goals related to our average ROIC over the three-year period. Average ROIC
may be hereafter adjusted by the Committee to exclude the effects of unanticipated material transactions or events such as acquisitions,
divestitures, accounting changes, restructurings, and special charges or gains (determined according to objective criteria established
by the Committee). Participants will have the ability to earn between 50% of the target number of PSUs for achieving threshold performance
and 200% of the target number of PSUs for achieving maximum performance. The performance and payout standards for the PSUs – ROIC
are as follows:
PSUs – ROIC |
Threshold |
Target |
Maximum |
Average
ROIC |
4% |
6% |
12% |
Payout
Range |
50%
of Target Shares |
100%
of Target Shares |
200%
of Target Shares |
Awards
will be interpolated for results between 4% and 6% and 6% and 12%
From time to time, the
Committee reassesses the threshold, target, and maximum performance levels relating to newly-granted performance-based awards, considering
a number of factors, including, among others: (1) the impact of recent acquisitions on the overall product portfolio and strategy of
the Company, including entry into more price-competitive and lower-margin product and/or brand categories; (2) whether historical experience
or payout levels indicate that the previously established threshold, target, or maximum payout levels may have been too high or too low
to accomplish the compensation program’s objectives; (3) the disproportionate impact a year with low or negative financial performance
can have on the average over a three-year performance period, particularly in a highly-cyclical industry or market and in light of COVID-19’s
impact on the Company’s business; (4) recruitment and retention of a skilled and experienced management team; (5) the review of
other market practices and peer group information in the executive compensation context; and (6) an assessment of other macroeconomic
factors and indicators with a high probability of impacting our business. Based on the factors described above, and as described in our
Proxy Statement for our 2022 Annual Meeting of Shareholders, in January 2021, the Committee determined to reduce the threshold and target
levels for PSUs – ROIC subject to a performance period of fiscal years 2021-2023 from 6% and 8%, to 4% and 6%, respectively. In
doing so, the Committee determined that an appropriate adjustment should be made to reflect the fact that it would likely take some period
of time for our business to normalize after experiencing significant impact from the COVID-19 pandemic and that any interim normalization
period would present a significant drag on one-year performance and a three-year ROIC average. The Committee also considered the Company’s
strategic plan and the importance of incentivizing a senior executive team during performance periods containing interim periods with
a challenging business environment. However, the Committee decided to retain the maximum performance payout level for the above-referenced
PSUs – ROIC awards at 12%, to both incentivize significant and quick improvement in the Company’s return on invested capital
metrics and to manage program costs in the event business conditions normalized more quickly than anticipated. In January 2022, the Committee
reconsidered these factors, and based upon the continuance of many of them, determined to maintain the threshold and target levels for
PSUs – ROIC subject to a performance period of fiscal years 2022-2024 at 4% and 6%, respectively, and also to maintain the maximum
level at 12%.
Compensation
Decisions for Fiscal Year 2023
Base Salaries.
On November 9, 2022, employing the methodology described above under “Elements of Compensation,” the Committee established
annual base salaries for all of our named executive officers for fiscal year 2023, to become effective January 1, 2023. The salary increases
for Ms. Jamison of approximately 5% and for Mr. Wright of approximately 14% were intended to bring their salaries more in line with market
competitive ranges for their respective roles and responsibilities. The salary increases for Mr. Volovic of 4% and for Ms. McClelland
of 3% were generally in line with the average merit increase received by all U.S.-based Company employees. The salary decrease for Mr.
Doar was approximately 4% and was intended to bring his base salary more in line with a market competitive range for his role as Executive
Chairman.
The following
table sets forth the annual base salary of each of the named executive officers for 2022 and the annual base salary established by the
Committee for each of those officers for 2023, as well as the percentage change between the two years:
| |
Fiscal Year 2022 Base Salary | | |
Fiscal Year 2023 Base Salary | | |
Percentage Change | |
Gregory S. Volovic | |
$ | 569,000 | | |
$ | 591,760 | | |
| 4 | % |
Michael Doar | |
$ | 469,000 | | |
$ | 450,240 | | |
| -4 | % |
Sonja K. McClelland | |
$ | 390,000 | | |
$ | 401,700 | | |
| 3 | % |
HaiQuynh Jamison | |
$ | 200,000 | | |
$ | 210,000 | | |
| 5 | % |
Jonathon D. Wright | |
$ | 230,000 | | |
$ | 262,200 | | |
| 14 | % |
Short-Term
Incentive Compensation. On January 3, 2023, pursuant to the Cash Incentive Plan, the Committee approved the short-term incentive
compensation arrangement for fiscal year 2023 for all named executive officers, with payout to occur thereunder in January 2024, if and
to the extent the performance goals are attained during fiscal year 2023. Similar to fiscal year 2022, the Committee selected operating
income margin and certain strategic objectives for the named executive officers as the performance measures, which are among the performance
measures set forth in the Cash Incentive Plan. While the Committee decided to maintain the performance measures for the short- term incentive
compensation arrangement, the Committee also reassessed the required performance levels for operating income margin that it established
for fiscal year 2023.
Following
the end of fiscal year 2023, the Committee will determine the degree to which the operating income margin goal and the strategic objectives
were attained, and the resulting payout level relative to the target amount for each metric. The Committee retains the discretion to
adjust downward, but not upward, the amount of compensation that would otherwise be payable under the 2023 short-term incentive compensation
arrangement.
Long-Term
Incentive Compensation. On January 3, 2023, employing the methodology described above under “Elements of Compensation,”
the Committee also determined the amount, terms, and conditions of the long-term incentive compensation arrangement for the named executive
officers for the performance period of fiscal years 2023-2025. Although the Committee retained the overall general allocation of award
value between restricted shares (targeted at approximately 25% of long- term incentive compensation award value) and PSUs (targeted at
approximately 75% of long-term incentive compensation award value), the Committee decided to tie the vesting and earning of the PSUs
to the performance measures of net income (“PSUs – NI”) and free cash flow (“PSUs – FCF”), which
are among the performance measures permitted by the 2016 Plan.
In reaching its decision
to select net income and free cash flow as the performance measures under the long-term incentive compensation arrangement for the performance
period of fiscal years 2023- 2025, the Committee considered a number of factors, including, among others, that: (1) net income remains
a powerful, yet simple, metric of company profitability by concentrating crucial information into a single number; (2) net income for
public companies is readily available through many third- party intermediary sources, which facilitates accountability by allowing investors
to compare investments across sectors and industries and against alternative investments among peers; (3) as a measure of profitability,
assuming appropriate thresholds are set, net income performance measures would generally avoid vesting and payment of awards in periods
of sustained company unprofitability; (4) free cash flow may provide insight into how financially capable a company is at having quick
access to cash in case of unexpected debts or obligations, which is particularly important to companies operating in cyclical industries
like ours; (5) net income and free cash flow both align with our balanced approach to capital allocation strategy of prioritizing a strong
balance sheet and liquidity position while recognizing the importance of accretive growth and returning value to shareholders through
dividends and stock repurchases when appropriate; and (6) net income and free cash flow remain among some of the most popular performance
measures for public company executive compensation arrangements and, therefore, are likely in line with market and shareholder expectations.
For all these reasons, the Committee believes that net income and free cash flow appropriately align executive compensation with Company
and individual performance.
In reaching
its decision to move away from relative TSR and average ROIC, the Committee considered a number of factors, including among others, that:
(1) profit margin and profitability are already sufficiently taken into consideration by virtue of the operating income margin performance
measure under the fiscal year 2023 short-term incentive arrangement and the net income performance measure under the new 2023 long-term
incentive compensation arrangement; and (2) relative TSR has inherent limitations when representative peer groups are difficult to establish
and maintain due to the following: (a) our position as a small or mid-cap industrial company results in few options for comparably sized
peers; (b) our significant geographic footprint and contributions from international business are less applicable to many other small
or mid-cap industrial companies; (c) our non- calendar fiscal year-end could distort relative share performance due to natural seasonality
in capital markets and/or other timing differences among the peer group and normally-recurring earnings announcements; (d) the additional
inherent relative business cyclicality in a business focused on capital goods specifically, rather than industrials, more generally;
and (e) the frequent disqualification of peers due to business combination transactions or other external factors or forces. For these
reasons and others, the Committee believes it was an appropriate time to consider alternative performance measures under its 2023 long-term
incentive compensation arrangement that might better focus executive compensation with Company and individual performance.
Therefore,
effective January 3, 2023, the Committee granted the awards below of restricted shares and target number of PSUs to each of the named
executive officers. The restricted shares will vest in equal installments over three years and the three-year performance period for
the PSUs will be fiscal years 2023 through 2025.
| |
Restricted Shares | | |
PSUs – NI | | |
PSUs - FCF | |
Gregory S. Volovic | |
| 11,846 | | |
| 18,953 | | |
| 16,584 | |
Michael Doar | |
| 8,529 | | |
| 13,646 | | |
| 11,940 | |
Sonja K. McClelland | |
| 7,107 | | |
| 11,372 | | |
| 9,950 | |
HaiQuynh Jamison | |
| 947 | | |
| 1,516 | | |
| 1,326 | |
Jonathon D. Wright | |
| 947 | | |
| 1,516 | | |
| 1,326 | |
The PSUs
designated as “PSUs – NI” were weighted as approximately 40% of the overall long-term incentive compensation arrangement
and will vest and be paid based on our average net income for the performance period, relative to pre-established threshold, target,
and maximum payout levels. Participants will have the ability to earn between 50% of the target number of shares for achieving threshold
performance and 200% of the target number of shares for achieving maximum performance.
The PSUs designated
as “PSUs – FCF” were weighted as approximately 35% of the overall long- term incentive compensation arrangement and
will vest and be paid based on the achievement of pre- established goals related to our average free cash flow over the three-year period.
Free cash flow for any fiscal year in the performance period is defined as cash flow from operating activities (as reported in our audited
financial statements for the period in question), minus capital expenditures (including software capitalization, since it represents
a normal, recurring feature of our business). Participants will have the ability to earn between 50% of the target number of shares for
achieving threshold performance and 200% of the target number of shares for achieving maximum performance.
The Committee’s
Processes and Analyses
Role of Committee
and Input from Management. The Committee is responsible for determining our executive compensation philosophy, objectives, policies,
and programs and approves or ratifies all compensation-related decisions for the named executive officers. When making executive compensation
decisions, the Committee considers the input of Pay Governance and, for all executives other than our CEO and our Executive Chairman,
the recommendation of our CEO. Our CEO recommends salary levels, short-term incentive compensation awards, equity-based compensation awards,
and perquisites for our other named executive officers other than the Executive Chairman. Our CEO’s and Executive Chairman’s
compensation are determined solely by the Committee with the assistance of Pay Governance. The Compensation Committee applies the same
principles for executive compensation in determining our CEO’s and Executive Chairman’s compensation that it applies in determining
the compensation of our other named executive officers.
Role of Compensation
Consultant. In 2021 and 2022, the Committee engaged Pay Governance to advise and assist the Committee related to executive compensation
matters. Pay Governance is retained directly by the Committee, reports directly to the Committee, and participates in certain Committee
meetings. In this regard, from time to time, Pay Governance advises and assists the Compensation Committee:
· | in determining the appropriate objectives and goals of our executive compensation program; |
· | in designing compensation programs that fulfill those objectives and goals; |
· | in reviewing the primary components of that compensation; |
· | in evaluating the effectiveness of our compensation programs, including pay-for performance alignment; |
· | in identifying appropriate pay positioning strategies and pay levels in our executive compensation program; |
· | in identifying comparable companies and compensation surveys for the Committee to use to benchmark
the appropriateness and competitiveness of our executive compensation program; and |
· | in determining the appropriate share reserve level and other amendments to incorporate into the 2016
Plan, which were approved by our shareholders at our 2022 Annual Meeting of Shareholders. |
Pay Governance may,
from time to time, contact our executive officers for information necessary to fulfill its assignment and may make reports and presentations
to and on behalf of the Committee that our executive officers also receive.
Pay Governance
and its affiliates did not provide any other services to us or our affiliates during 2021 or 2022. In addition, the Committee has determined
that the work of Pay Governance and its employees has not raised any conflict of interest.
Use of Peer
Group Data. With the assistance of Pay Governance, in 2021 and 2022, the Committee approved the composition of a peer group of
publicly-traded companies that were selected on the basis of industry, revenue, global operations, employee size, and market capitalization
for use in the Committee’s 2022 fiscal year and 2023 fiscal year analyses of executive compensation.
The following companies
made up the peer group utilized for fiscal year 2022 executive compensation determinations:
· | Ampco-Pittsburgh Corporation |
· |
Graham Corporation |
· |
Proto Labs, Inc. |
· | Broadwind, Inc. |
· |
Helios Technologies |
· |
QAD Inc. |
· | Douglas Dynamics, Inc. |
· |
IEC Electronics Corp. |
· |
Transcat, Inc. |
· | DMC Global Inc. |
· |
Key Tronic Corporation |
· |
Twin Disc, Incorporated |
· | The Eastern Company |
· |
The L.S. Starrett Company |
· |
UFP Technologies, Inc. |
· | Energy Recovery, Inc. |
· |
Omega Flex, Inc. |
· |
Vishay Precision Group, Inc. |
· | FARO Technologies, Inc. |
· |
Onto Innovation Inc. |
|
|
The following companies
made up the peer group utilized for fiscal year 2023 executive compensation determinations:
· | Ampco-Pittsburgh Corporation |
· |
Graham Corporation |
· |
Proto Labs, Inc. |
· | Broadwind, Inc. |
· |
Helios Technologies |
· |
Transcat, Inc. |
· | Douglas Dynamics, Inc. |
· |
Key Tronic Corporation |
· |
Twin Disc, Incorporated |
· | DMC Global Inc. |
· |
The L.S. Starrett Company |
· |
UFP Technologies, Inc. |
· | The Eastern Company |
· |
Omega Flex, Inc. |
· |
Vishay Precision Group, Inc. |
· | Energy Recovery, Inc. |
· |
Onto Innovation Inc. |
|
· | FARO Technologies, Inc. |
|
|
|
The Committee uses
the peer group data as one of several inputs when making compensation determinations. Periodically, the Committee also reviews trends
data for the manufacturing industry from Willis Towers Watson to obtain a general understanding of current compensation practices in that
industry as part of its analysis of executive compensation. In addition to the market data, the Committee may consider other factors such
as an executive’s individual performance, experience in his or her position, and responsibilities that may not necessarily be benchmarked
in market data.
Recoupment Policy
Our Corporate Governance
Principles contain a compensation recoupment policy. Our Corporate Governance Principles are available on our website at www.hurco.com/investors under
“Corporate Governance.” The recoupment policy provides that in the event that the Company restates previously released
financial results, the Committee shall determine whether any incentive compensation (defined as all equity-based and non-equity
based compensation, the amount, payment and/or vesting of which was determined based wholly or in part on the value of the
Company’s financial results or the achievement of specified performance measures) paid or awarded to executive officers during
the three years preceding the restatement should be recovered by the Company. If the Committee determines that the amount of any
incentive compensation paid to executive officers (the “Awarded Compensation”) during the three-year period preceding the
date of restatement exceeded the amount that would have been paid based on the restated financial results (the “Adjusted
Compensation”), and the restatement resulted from the Company’s material noncompliance, due in whole or part to
intentional fraud or ethical misconduct, with any financial reporting requirement under the federal securities laws, then the
Committee shall determine whether the Company should, except as provided below, recover the after-tax portion of the difference
between the Awarded Compensation and the Adjusted Compensation for the affected executive officer.
In making the determination
whether the Company should recover any incentive compensation, the Committee will take any appropriate considerations into account, including
the role the executive officer played in contributing to the events that caused the restatement, the likelihood of success in recovering
the amounts under applicable law, the costs of seeking recovery, and whether the assertion of a claim may prejudice the interests of the
Company in any related proceeding or investigation relating to the circumstances giving rise to the restatement.
The SEC recently
adopted final rules under the Dodd-Frank Act directing national securities exchanges to establish listing standards requiring listed companies
to adopt compensation recoupment policies containing certain provisions. The Committee will consider appropriate modifications to the
Company’s recoupment policy to comply with the new rules and listing standards once they are finalized.
Tax Considerations
Section 409A of
the Internal Revenue Code affects the payments of certain types of deferred compensation to key employees and includes requirements relating
to when payments under such arrangements can be made, acceleration of benefits, and timing of elections under such arrangements. Failure
to satisfy these requirements will generally lead to an acceleration of the timing for including deferred compensation in an employee’s
income, as well as certain penalties and interest. Our nonqualified deferred compensation arrangements are intended to comply with the
effective requirements of Section 409A as required by law or regulation.
Report of the Compensation
Committee
The information
contained in this report shall not be deemed to be “soliciting material,” to be “filed” with the SEC, or to be
subject to Regulation 14A or Regulation 14C (other than as provided in Item 407 of Regulation S-K) or to the liabilities of Section 18
of the Exchange Act, and shall not be deemed to be incorporated by reference in future filings with the SEC except to the extent that
we specifically incorporate it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Act,
or the Exchange Act.
The Committee has
reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on that review and those discussions,
the Committee recommended to the Board of Directors that this Compensation Discussion and Analysis be included in this proxy statement
on Schedule 14A and incorporated by reference in the Company’s Annual Report on Form 10-K for its 2022 fiscal year.
|
Timothy
J. Gardner, Chairman |
|
Thomas A. Aaro
Jay Longbottom |
Assessment of Compensation-Related
Risks
On an ongoing basis
as part of our strategic business planning process, the named executive officers and key senior management conduct an assessment of the
current risks arising from our compensation policies and practices. This team reviews and discusses the characteristics and approval policies
of compensation programs for all employees, including salaries, equity awards, and cash bonuses, to determine whether any of these policies
or programs could create risks that are reasonably likely to have a material adverse effect on us.
In November 2022,
we reviewed and discussed all components of our compensation policies and practices with our Board as part of our business plan review
and approval process. In addition, the Compensation Committee met separately to review the management team’s assessment of the risks
that could arise from our compensation policies and practices. As part of their review, the Compensation Committee specifically considered
factors that reduce the likelihood of excessive risk- taking, such as our overall compensation levels being competitive with the market,
the balance between fixed components like salary and benefits, and short and long-term incentive compensation. The Committee has discretion
to adjust downward the amount of compensation that would otherwise be payable under the short-term incentive compensation program, which
it could do if it determines that an executive caused the Company to incur unnecessary or excessive risk. The compensation mix of cash
(salary and short-term incentive) and equity incentives align with the market and the Company’s peers and are linked to business
performance. The short-term and long-term incentive plans are linked to specific formulas and have payout ceilings. The fiscal years 2022
and 2023 short- term incentive compensation arrangements also provide that no amounts will be paid under the strategic objectives component
if our operating income margin is zero or negative. Our stock ownership guidelines link executives’ and non-employee directors’
interests to the interests of shareholders, and our incentive compensation recoupment policy would permit us to recover certain incentive
compensation paid to executive officers in the event of wrongdoing on the part of the executives.
Based on such assessments,
we believe that any risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect
on us.
Tabular Compensation Information
The following table summarizes the compensation
information for our named executive officers for each of the fiscal years ended October 31, 2022, 2021, and 2020:
SUMMARY COMPENSATION
TABLE
Name
and Principal
Position | |
Fiscal
Year | | |
Salary
$ | | |
Bonus
$1 | | |
Stock
Awards $2 | | |
Non-Equity
Incentive Plan Compensation $3 | | |
All
Other Compensation $4 | | |
Total
$ | |
Gregory S. Volovic | |
2022 | | |
| 547,820 | | |
| - | | |
| 999,953 | | |
| 509,255 | | |
| 82,987 | | |
| 2,140,015 | |
President and Chief | |
2021 | | |
| 435,601 | | |
| - | | |
| 899,980 | | |
| 312,770 | | |
| 34,804 | | |
| 1,683,155 | |
Executive Officer | |
2020 | | |
| 417,072 | | |
| - | | |
| 899,997 | | |
| - | | |
| 32,399 | | |
| 1,349,468 | |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Michael Doar | |
2022 | | |
| 476,856 | | |
| - | | |
| 899,998 | | |
| 356,792 | | |
| 92,620 | | |
| 1,826,266 | |
Executive Chairman | |
2021 | | |
| 509,850 | | |
| - | | |
| 999,976 | | |
| 408,849 | | |
| 90,564 | | |
| 2,009,239 | |
| |
2020 | | |
| 509,755 | | |
| - | | |
| | | |
| - | | |
| 78,460 | | |
| 2,088,194 | |
| |
| | |
| | | |
| | | |
| 1,499,979 | | |
| | | |
| | | |
| | |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sonja K. McClelland | |
2022 | | |
| 387,793 | | |
| - | | |
| 749,958 | | |
| 261,788 | | |
| 23,447 | | |
| 1,422,986 | |
Executive Vice | |
2021 | | |
| 368,473 | | |
| - | | |
| 749,975 | | |
| 227,655 | | |
| 22,469 | | |
| 1,368,572 | |
President, | |
2020 | | |
| 360,433 | | |
| - | | |
| 749,971 | | |
| - | | |
| 20,592 | | |
| 1,130,996 | |
Treasurer and | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Chief Financial | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Officer | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
HaiQuynh Jamison5 | |
2022 | | |
| 192,835 | | |
| - | | |
| 99,955 | | |
| 62,650 | | |
| 13,963 | | |
| 369,403 | |
Corporate Controller | |
2021 | | |
| 160,097 | | |
| 33,750 | | |
| 19,983 | | |
| - | | |
| 9,840 | | |
| 223,670 | |
and Principal | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Accounting Officer | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Jonathon D. Wright5 | |
2022 | | |
| 219,182 | | |
| - | | |
| 99,955 | | |
| 96,198 | | |
| 15,889 | | |
| 431,224 | |
General Counsel and | |
2021 | | |
| 170,922 | | |
| 40,000 | | |
| 19,983 | | |
| - | | |
| 10,490 | | |
| 241,395 | |
Corporate Secretary | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
1 | Represents discretionary cash bonuses awarded to Ms. Jamison
and Mr. Wright under the Company’s non-named executive officer discretionary cash bonus program related to fiscal year 2021 performance.
Because Ms. Jamison and Mr. Wright were not executive officers at the time the fiscal year 2021 short-term incentive compensation parameters
for executive officers were established, they did not participate in that arrangement for fiscal year 2021. |
2 | Represents the grant date fair value of stock awards determined
in accordance with Accounting Standards Codification Topic 718, or ASC 718. The stock awards consist of restricted share awards and PSU
awards for Mr. Volovic, Mr. Doar and Ms. McClelland in fiscal years 2020 and 2021 and for all named executive officers in fiscal year
2022. Amounts related to restricted share awards are calculated using the closing sales price of our common stock on the grant date.
Amounts related to PSU awards represent the value at the grant date based upon the probable outcome of the performance conditions. Amounts
related to the PSUs designated as “PSUs – TSR” are calculated using the Monte Carlo approach. Amounts related to the
PSUs designated as “PSUs – ROIC” are calculated using the closing sales price of our common stock on the grant date. |
(footnotes continue next page)
The following table
presents the grant date fair value of the PSU awards included in the “Stock Awards” column and the grant date fair value of
these awards assuming that the highest level of performance conditions would be achieved:
| |
| |
| |
PSU Awards | |
|
|
Fiscal Year
of Grant |
|
Fiscal Years
Performance
Period |
|
Grant Date Fair
Value (Based on
Probable Outcome)
$ |
|
|
Grant Date Fair
Value (Based on
Maximum
Performance)
$ |
|
Gregory S. Volovic |
|
2022 |
|
2022-2024 |
|
|
749,995 |
|
|
|
1,499,990 |
|
|
|
2021 |
|
2021-2023 |
|
|
674,984 |
|
|
|
1,349,968 |
|
|
|
2020 |
|
2020-2022 |
|
|
675,033 |
|
|
|
1,350,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Doar |
|
2022 |
|
2022-2024 |
|
|
674,990 |
|
|
|
1,349,980 |
|
|
|
2021 |
|
2021-2023 |
|
|
749,983 |
|
|
|
1,499,966 |
|
|
|
2020 |
|
2020-2022 |
|
|
1,124,989 |
|
|
|
2,249,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sonja K. McClelland |
|
2022 |
|
2022-2024 |
|
|
562,482 |
|
|
|
1,124,964 |
|
|
|
2021 |
|
2021-2023 |
|
|
562,473 |
|
|
|
1,124,946 |
|
|
|
2020 |
|
2020-2022 |
|
|
562,495 |
|
|
|
1,124,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HaiQuynh Jamison |
|
2022 |
|
2022-2024 |
|
|
74,975 |
|
|
|
149,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathon D. Wright |
|
2022 |
|
2022-2024 |
|
|
74,975 |
|
|
|
149,950 |
|
| 3 | Represents amounts earned in the specified fiscal year and paid
in the following fiscal year under the specified fiscal year’s short-term incentive compensation arrangement. See “Compensation
Discussion and Analysis—Compensation Decisions for Fiscal Year 2022—Short-Term Incentive Compensation” for additional
information regarding the 2022 short-term incentive compensation arrangement. |
| 4 | The following table summarizes the information included in the
All Other Compensation column in the Summary Compensation Table: |
|
|
Fiscal Year |
|
|
Leased
Auto ($) |
|
|
Supplemental Disability Insurance ($) |
|
|
Matching 401(k) Plan Contributions ($) |
|
|
Split-Dollar Life Insurance ($) |
|
|
Total
($) |
|
Gregory S. Volovic |
|
|
2022 |
|
|
|
- |
|
|
|
18,054 |
|
|
|
18,300 |
|
|
|
46,633 |
|
|
|
82,987 |
|
|
|
|
2021 |
|
|
|
- |
|
|
|
17,404 |
|
|
|
17,400 |
|
|
|
- |
|
|
|
34,804 |
|
|
|
|
2020 |
|
|
|
- |
|
|
|
15,299 |
|
|
|
17,100 |
|
|
|
- |
|
|
|
32,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Doar |
|
|
2022 |
|
|
|
31,560 |
|
|
|
13,171 |
|
|
|
18,300 |
|
|
|
29,589 |
|
|
|
92,620 |
|
|
|
|
2021 |
|
|
|
29,441 |
|
|
|
10,761 |
|
|
|
17,400 |
|
|
|
32,962 |
|
|
|
90,564 |
|
|
|
|
2020 |
|
|
|
25,655 |
|
|
|
11,957 |
|
|
|
17,100 |
|
|
|
23,748 |
|
|
|
78,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sonja K. McClelland |
|
|
2022 |
|
|
|
- |
|
|
|
5,147 |
|
|
|
18,300 |
|
|
|
- |
|
|
|
23,447 |
|
|
|
|
2021 |
|
|
|
- |
|
|
|
5,069 |
|
|
|
17,400 |
|
|
|
- |
|
|
|
22,469 |
|
|
|
|
2020 |
|
|
|
- |
|
|
|
3,492 |
|
|
|
17,100 |
|
|
|
- |
|
|
|
20,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HaiQuynh Jamison |
|
|
2022 |
|
|
|
- |
|
|
|
323 |
|
|
|
13,640 |
|
|
|
- |
|
|
|
13,963 |
|
|
|
|
2021 |
|
|
|
- |
|
|
|
240 |
|
|
|
9,600 |
|
|
|
- |
|
|
|
9,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathon D. Wright |
|
|
2022 |
|
|
|
- |
|
|
|
323 |
|
|
|
15,566 |
|
|
|
- |
|
|
|
15,889 |
|
|
|
|
2021 |
|
|
|
- |
|
|
|
240 |
|
|
|
10,250 |
|
|
|
- |
|
|
|
10,490 |
|
The amounts shown
in the Leased Auto column represent either the portion of the lease cost for automobiles leased by us allocable to an executive’s
personal use of the automobile or the sum of a monthly car allowance that is added to an executive’s salary. For automobiles leased
by us where the automobile is used for both business and personal purposes, the percentage of personal use is calculated and applied to
the lease and operating expenses.
The Split-Dollar
Life Insurance amounts represent a portion of the premium paid on insurance policies we own on the life of the employee. All cash contributions
are returned to us upon employee separation or death of the insured. We pay the full amount of the premiums and are the beneficiary for
a portion of the policies’ death benefit. By policy endorsement, the employee has the right to designate the beneficiary for the
death benefit.
| 5 | As permitted by SEC rules, because fiscal year 2021 was Ms.
Jamison’s and Mr. Wright’s first year as a named executive officer, the compensation paid to them prior to fiscal year 2021
is not included in this table. |
GRANTS OF PLAN-BASED
AWARDS IN 2022 TABLE
The following table
provides information regarding awards related to the 2022 short-term incentive compensation arrangement (referred to as “2022 S-T
Compensation” in the table), PSU awards, and restricted share awards granted during fiscal year 2022 to the named executive officers.
Name &
Awards | |
Grant
Date | |
Estimated
Possible Payouts Under
Non-Equity Incentive Plan Awards | | |
Estimated
Possible Payouts Under
Equity Incentive Plan Awards | |
|
All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#) | | |
Grant
Date
Fair
Value
of
Stock
and
Option
Awards ($)1 | |
| |
| |
Threshold | | |
Target | | |
Maximum | | |
Threshold | | |
Target | | |
Maximum | |
|
| | |
| |
| |
| |
($) | | |
($) | | |
($) | | |
(#) | | |
(#) | | |
(#) | |
|
| | |
| |
Gregory
S. Volovic | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| | | |
| | |
2022
S-T Compensation | |
1/4/22 | |
| 284,500 | | |
| 569,000 | | |
| 1,138,000 | | |
| | | |
| | | |
| | |
|
| | | |
| | |
2022-2024
PSU-TSR | |
1/4/22 | |
| | | |
| | | |
| | | |
| 6,001 | | |
| 12,001 | | |
| 24,002 | |
|
| | | |
| 399,993 | |
2022-2024
PSU-ROIC | |
1/4/22 | |
| | | |
| | | |
| | | |
| 5,759 | | |
| 11,517 | | |
| 23,034 | |
|
| | | |
| 350,002 | |
2022-2024
Restricted Shares | |
1/4/22 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| 8,225 | | |
| 249,958 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| | | |
| | |
Michael
Doar | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| | | |
| | |
2022
S-T Compensation | |
1/4/22 | |
| 199,325 | | |
| 398,650 | | |
| 797,300 | | |
| | | |
| | | |
| | |
|
| | | |
| | |
2022-2024
PSU-TSR | |
1/4/22 | |
| | | |
| | | |
| | | |
| 5,401 | | |
| 10,801 | | |
| 21,602 | |
|
| | | |
| 359,997 | |
2022-2024
PSU-ROIC | |
1/4/22 | |
| | | |
| | | |
| | | |
| 5,183 | | |
| 10,365 | | |
| 20,730 | |
|
| | | |
| 314,992 | |
2022-2024
Restricted Shares | |
1/4/22 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| 7,404 | | |
| 225,008 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| | | |
| | |
Sonja
K. McClelland | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| | | |
| | |
2022
S-T Compensation | |
1/4/22 | |
| 146,250 | | |
| 292,500 | | |
| 585,000 | | |
| | | |
| | | |
| | |
|
| | | |
| | |
2022-2024
PSU-TSR | |
1/4/22 | |
| | | |
| | | |
| | | |
| 4,501 | | |
| 9,001 | | |
| 18,002 | |
|
| | | |
| 300,003 | |
2022-2024
PSU-ROIC | |
1/4/22 | |
| | | |
| | | |
| | | |
| 4,319 | | |
| 8,637 | | |
| 17,274 | |
|
| | | |
| 262,478 | |
2022-2024
Restricted Shares | |
1/4/22 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| 6,169 | | |
| 187,476 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| | | |
| | |
HaiQuynh
Jamison | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| | | |
| | |
2022
S-T Compensation | |
1/4/22 | |
| 35,000 | | |
| 70,000 | | |
| 140,000 | | |
| | | |
| | | |
| | |
|
| | | |
| | |
2022-2024
PSU-TSR | |
1/4/22 | |
| | | |
| | | |
| | | |
| 600 | | |
| 1,200 | | |
| 2,400 | |
|
| | | |
| 39,996 | |
2022-2024
PSU-ROIC | |
1/4/22 | |
| | | |
| | | |
| | | |
| 576 | | |
| 1,151 | | |
| 2,302 | |
|
| | | |
| 34,979 | |
2022-2024
Restricted Shares | |
1/4/22 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| 822 | | |
| 24,981 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| | | |
| | |
Jonathon
D. Wright | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| | | |
| | |
2022
S-T Compensation | |
1/4/22 | |
| 40,250 | | |
| 80,500 | | |
| 161,000 | | |
| | | |
| | | |
| | |
|
| | | |
| | |
2022-2024
PSU-TSR | |
1/4/22 | |
| | | |
| | | |
| | | |
| 600 | | |
| 1,200 | | |
| 2,400 | |
|
| | | |
| 39,996 | |
2022-2024
PSU-ROIC | |
1/4/22 | |
| | | |
| | | |
| | | |
| 576 | | |
| 1,151 | | |
| 2,302 | |
|
| | | |
| 34,979 | |
2022-2024
Restricted Shares | |
1/4/22 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| 822 | | |
| 24,981 | |
| 1 | Amounts represent the grant date fair value of the awards determined
in accordance with ASC 718, calculated using $30.39, the closing price of our common stock as reported by Nasdaq on January 4, 2022,
for the restricted shares and the PSUs designated as “PSUs – ROIC,” and $33.33, the calculated price using the Monte
Carlo approach, for the PSUs designated as “PSUs – TSR.” Amounts related to PSU awards represent the value at the grant
date based upon the probable outcome of the performance conditions. |
Our named executive
officers are eligible to participate in the 2016 Plan, which was approved by our shareholders in March 2016 and amended upon approval
by our shareholders in March 2022. The 2016 Plan provides for equity-based incentive awards in the form of stock options, stock appreciation
rights, restricted stock, stock units, and other stock-based awards. Under the 2016 Plan, the Compensation Committee has the authority
to determine the persons to whom awards will be granted, the timing, type and number of shares covered by each award, and the terms and
conditions of the awards. Prior to shareholder approval of the 2016 Plan, the named executive officers were eligible to participate in
the Hurco Companies, Inc. 2008 Equity Incentive Plan (the “Prior Plan”). Upon shareholder approval of the 2016 Plan, no further
awards have been or will be made under the Prior Plan.
The number of shares
of our common stock that may be the subject of awards and issued under the 2016 Plan is equal to the following: (1) 470,000, which was
the number of shares available under the 2016 Plan when it originally became effective; plus (2) 850,000, the number of additional shares
that became available when the 2016 Plan was amended and restated upon approval of our shareholders in March 2022; plus (3) 386,048 shares
that remained available for future grants under the Prior Plan on the date our shareholders originally approved the 2016 Plan. In addition,
any shares of our common stock subject to an award under the 2016 Plan, or to an award granted under the Prior Plan that was outstanding
on the date our shareholders approved the 2016 Plan, that expires, is cancelled, or forfeited, or is settled for cash will, to the extent
of such cancellation, forfeiture, expiration, or cash settlement, automatically become available for future awards under the 2016 Plan.
As of October 31, 2022, there were 949,112 shares of our common stock available for issuance of future awards under the 2016 Plan.
OUTSTANDING EQUITY AWARDS
AT 2022 FISCAL YEAR END TABLE
The following
table summarizes the outstanding equity awards held by the named executive officers as of October 31, 2022:
| |
Option Awards | | |
Stock Awards | |
| |
| |
| | |
| | |
| | |
Time-based Awards | | |
Performance-Based Awards | |
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
Equity | |
| |
| |
| | |
| | |
| | |
| | |
| | |
Equity | | |
Incentive | |
| |
| |
| | |
| | |
| | |
| | |
| | |
Incentive | | |
Plan | |
| |
| |
| | |
| | |
| | |
| | |
| | |
Plan | | |
Awards: | |
| |
| |
| | |
| | |
| | |
| | |
| | |
Awards: | | |
Market | |
| |
| |
| | |
| | |
| | |
| | |
| | |
Number | | |
or Payout | |
| |
| |
| | |
| | |
| | |
Number | | |
Market | | |
of | | |
Value of | |
| |
| |
| | |
| | |
| | |
of | | |
Value of | | |
Unearned | | |
Unearned | |
| |
| |
| | |
| | |
| | |
Shares | | |
Shares | | |
Shares, | | |
Shares, | |
| |
| |
| | |
| | |
| | |
or Units | | |
or Units | | |
Units or | | |
Units or | |
| |
Number of | |
Number of | | |
| | |
| | |
of Stock | | |
of Stock | | |
Other | | |
Other | |
| |
Securities | |
Securities | | |
| | |
| | |
That | | |
That | | |
Rights | | |
Rights | |
| |
Underlying | |
Underlying | | |
| | |
| | |
Have | | |
Have | | |
that Have | | |
that Have | |
Name | |
Unexercised | |
Unexercised | | |
Option | | |
Option | | |
Not | | |
Not | | |
Not | | |
Not | |
and | |
Options (#) | |
Options (#) | | |
Exercise | | |
Expiration | | |
Vested | | |
Vested | | |
Vested | | |
Vested | |
Grant Date | |
Exercisable | |
Unexercisable | | |
Price | | |
Date | | |
(#) | | |
($)1 | | |
(#) | | |
($)1 | |
Gregory S. Volovic |
|
01/02/20 | |
| | |
| | | |
| | | |
| | |
1,985 | 2 | |
$ | 45,953 | | |
| | |
| | |
01/05/21 | |
| | |
| | | |
| | | |
| | |
5,246 | 3 | |
$ | 121,445 | | |
24,327 | 7 | |
$ | 563,170 | |
01/04/22 | |
| | |
| | | |
| | | |
| | |
8,225 | 4 | |
$ | 190,409 | | |
23,518 | 8 | |
$ | 544,442 | |
Michael Doar |
| |
| | | |
| | | |
| | |
| | |
| | | |
| | |
| | |
12/12/12 | |
| 8,256 | |
| - | | |
$ | 23.30 | | |
12/12/22 | | |
| | |
| | | |
| | |
| | |
01/02/20 | |
| | |
| | | |
| | | |
| | |
3,307 | 2 | |
$ | 76,557 | | |
| | |
| | |
01/05/21 | |
| | |
| | | |
| | | |
| | |
5,826 | 3 | |
$ | 134,872 | | |
27,030 | 7 | |
$ | 625,745 | |
01/04/22 | |
| | |
| | | |
| | | |
| | |
7,404 | 4 | |
$ | 171,403 | | |
21,166 | 8 | |
$ | 489,993 | |
Sonja K. McClelland |
|
12/12/12 | |
| 3,303 | |
| - | | |
$ | 23.30 | | |
12/12/22 | | |
| | |
| | | |
| | |
| | |
01/02/20 | |
| | |
| | | |
| | | |
| | |
1,653 | 2 | |
$ | 38,267 | | |
| | |
| | |
01/05/21 | |
| | |
| | | |
| | | |
| | |
4,371 | 3 | |
$ | 101,189 | | |
20,272 | 7 | |
$ | 469,297 | |
01/04/22 | |
| | |
| | | |
| | | |
| | |
6,169 | 4 | |
$ | 142,812 | | |
17,638 | 8 | |
$ | 408,320 | |
HaiQuynh Jamison |
| |
| | | |
| | | |
| | |
| | |
| | | |
| | |
| | |
11/13/19 | |
| | |
| | | |
| | | |
| | |
187 | 5 | |
$ | 4,329 | | |
| | |
| | |
11/12/20 | |
| | |
| | | |
| | | |
| | |
455 | 6 | |
$ | 10,533 | | |
| | |
| | |
01/04/22 | |
| | |
| | | |
| | | |
| | |
822 | 4 | |
$ | 19,029 | | |
2,351 | 8 | |
$ | 54,426 | |
Jonathon D. Wright |
| |
| | | |
| | | |
| | |
| | |
| | | |
| | |
| | |
11/13/19 | |
| | |
| | | |
| | | |
| | |
187 | 5 | |
$ | 4,329 | | |
| | |
| | |
11/12/20 | |
| | |
| | | |
| | | |
| | |
455 | 6 | |
$ | 10,533 | | |
| | |
| | |
01/04/22 | |
| | |
| | | |
| | | |
| | |
822 | 4 | |
$ | 19,029 | | |
2,351 | 8 | |
$ | 54,426 | |
1 | Market value is calculated by multiplying the number
of shares by $23.15, the closing price of our common stock as reported by Nasdaq on October
31, 2022, the last trading day of our 2022 fiscal year. |
2 | These restricted shares vested on January 2,
2023. |
3 | One-half of these restricted shares vested on
January 5, 2023, and one-half will vest on January 5, 2024. |
4 | These restricted shares vest in thirds on each
of the first, second, and third anniversary of the grant date, provided the recipient remains
employed by the Company through that date. |
5 | These restricted shares vested on November 13,
2022. |
6 | One-half of these restricted shares vested on
November 12, 2022, and one-half will vest on November 12, 2023. |
(footnotes
continue next page)
7 | Represents PSUs designated as “PSUs
– TSR” and “PSUs – ROIC” that were granted in 2021 with a performance
period of fiscal years 2021-2023. The PSUs shown represent the target number of PSUs that
have not yet been earned. The actual number of PSUs that will be earned and will vest after
the 2021-2023 three-year performance period for the “PSUs – TSR” will be
based on our total shareholder return over the three-year period, relative to the total shareholder
return over that period of the companies in our 2021 peer group. The actual number of PSUs
that will be earned and will vest after the 2021-2023 three-year performance period for the
“PSUs – ROIC” will be based on the achievement of pre-established goals
related to our average ROIC over the three-year period. |
8 | Represents PSUs designated as “PSUs –
TSR” and “PSUs – ROIC” that were granted in 2022 with a performance
period of fiscal years 2022-2024. The PSUs shown represent the target number of PSUs that
have not yet been earned. The actual number of PSUs that will be earned and will vest after
the 2022-2024 three-year performance period will depend on the extent to which the performance
conditions outlined under “Compensation Discussion and Analysis – Compensation
Decisions for Fiscal Year 2022 – Long-Term Incentive Compensation” are
satisfied. |
OPTION EXERCISES AND
STOCK VESTED IN 2022
The following table provides
information regarding the exercise of stock options by the named executive officers during fiscal year 2022 and stock awards held by
the named executive officers that vested during fiscal year 2022.
| |
Option Awards | | |
Stock Awards | |
| |
Number of
Shares
Acquired
on
Exercise | | |
Value
Realized on
Exercise | | |
Number of
Shares
Acquired
on Vesting | | |
Value
Realized on
Vesting |
| |
(#) | | |
($)1 | | |
(#) | | |
($)2 | |
Gregory S. Volovic | |
| - | | |
| - | | |
| 11,305 | 3 | |
| 307,581 | |
Michael Doar | |
| - | | |
| - | | |
| 17,392 | 4 | |
| 468,413 | |
Sonja K. McClelland | |
| 5,437 | | |
| 158,760 | | |
| 9,423 | 5 | |
| 256,381 | |
HaiQuynh Jamison | |
| - | | |
| - | | |
| 579 | 6 | |
| 19,860 | |
Jonathon D. Wright | |
| - | | |
| - | | |
| 579 | 6 | |
| 19,860 | |
1 | Represents the difference between
the option exercise price and the closing price of our common stock, as reported on the Nasdaq
Global Select Market, on the date of exercise, multiplied by the number of shares of our
common stock underlying the stock option. |
| |
2 | Value realized is calculated (a) for the restricted
shares that vested, by multiplying the closing price of our common stock, as reported on
the Nasdaq Global Select Market, on the date of vesting by the number of restricted shares
that vested; and (b) for the PSUs that were earned and vested, by multiplying the closing
price of our common stock, as reported on the Nasdaq Global Select Market, on January 3,
2023, the date that the Compensation Committee certified the number of PSUs earned and vested,
by the number of PSUs that were earned and vested. |
| |
3 | Reflects (a) the vesting of 6,683 restricted shares,
from which 1,910 shares were withheld for tax purposes; and (b) 4,622 PSUs that were earned
and vested for the fiscal years 2020-2022 performance period that ended on October 31, 2022,
based on the attainment of the applicable performance measures, of which 1,321 shares were
withheld for tax purposes. |
| |
4 | Reflects (a) the vesting of 9,688 restricted shares,
from which 2,779 shares were withheld for tax purposes; and (b) 7,704 PSUs that were earned
and vested for the fiscal years 2020-2022 performance period that ended on October 31, 2022,
based on the attainment of the applicable performance measures, of which 2,210 shares were
withheld for tax purposes. |
| |
5 | Reflects (a) the vesting of 5,571 restricted shares,
from which 1,489 shares were withheld for tax purposes; and (b) 3,852 PSUs that were earned
and vested for the fiscal years 2020-2022 performance period that ended on October 31, 2022,
based on the attainment of the applicable performance measures, of which 1,101 shares were
withheld for tax purposes. |
| |
6 | Reflects the vesting of restricted shares. Because
Ms. Jamison and Mr. Wright were not executive officers in January 2020 when the PSUs for
the 2020-2022 performance period were granted to our executive officers, they did not receive
such grants. However, Ms. Jamison and Mr. Wright each received restricted shares in November
2018, November 2019, and November 2020, as part of the annual equity grants to key employees,
which restricted shares vest in thirds on each of the three anniversaries of the date of
grant. |
EQUITY COMPENSATION
PLAN INFORMATION AT 2022 FISCAL YEAR END
The following table sets
forth information regarding outstanding grants and shares available for grant under our existing equity compensation plans as of October
31, 2022.
Plan Category | |
Number
of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights1 | | |
Weighted
Average
Exercise Price
of
Outstanding
Options,
Warrants and
Rights2 | | |
Number
of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities
Reflected in the
First Column) 3 | |
Equity compensation plans approved by security
holders | |
| 130,574 | | |
$ | 23.30 | | |
| 949,112 | |
Equity
compensation plans not approved by security holders | |
| -- | | |
| -- | | |
| -- | |
Total | |
| 130,574 | | |
$ | 23.30 | | |
| 949,112 | |
1 | Consists of stock options and PSUs
granted under the Prior Plan and the 2016 Plan. On January 3, 2023, the Compensation Committee
determined the payouts of performance-based awards for the performance period of fiscal years
2020-2022. See section titled “Earned PSU Awards for Fiscal Years 2020-2022”
in the section titled “Compensation Decisions for Fiscal Year 2022—Long-Term
Incentive Compensation.” Thus, the number of PSUs included in these amounts consists
of (a) 16,176 PSUs with respect to the 2020-2022 PSUs, (b) the threshold number of shares
which participants are eligible to receive if anticipated threshold performance metrics are
fully achieved with respect to the fiscal years 2021-2023 PSUs, and (c) the target number
of shares which participants are eligible to receive if anticipated target performance metrics
are fully achieved with respect to the fiscal years 2022-2024 PSUs. The actual number of
PSU-related shares that will be issued under the awards referenced in clause (b) and (c)
above depend on the performance over each applicable three-year performance period. The Company
believes the use of threshold shares for performance-based awards with respect to fiscal
years 2021-2023 PSUs and target shares for performance-based awards with respect to fiscal
years 2022-2024 PSUs is a reasonable estimate, because achievement of higher payout levels
relative to such performance-based awards is highly unlikely based upon the recent impact
of COVID-19 and the corresponding Company results for such underlying performance periods
to date. Although highly unlikely, if, instead, the awards referenced in clause (b) and (c)
above paid out at the maximum number of shares which participants are eligible to receive
if applicable performance metrics are fully achieved with respect to such awards, the number
of securities to be issued would, rather, be 305,042. Because achievement of such performance
metrics relative to such PSU awards is highly unlikely, the Company believes that number
likely overstates dilution. |
| |
2 | Weighted average exercise price is calculated using
the exercise price for stock options. PSUs do not have an exercise price and, therefore,
they have been excluded from the weighted average exercise price calculation in this column. |
| |
3 | Consists of shares available for future issuance
as stock options, stock appreciation rights, restricted stock, stock units, and other stock-based
awards under the 2016 Plan, assuming threshold or target payouts under all performance and
time-based equity awards granted under the 2016 Plan and remaining outstanding as of October
31, 2022, (as described in footnote 1 immediately above). The Company believes the use of
threshold and target shares for performance-based awards with respect to fiscal years 2021-2023
and 2022-2024 PSUs is a reasonable estimate in calculating the number of securities remaining
available for future issuance under the 2016 Plan as of October 31, 2022, because achievement
of higher payout levels relative to such performance-based awards is highly unlikely based
upon the recent impact of the COVID-19 pandemic and the corresponding Company results for
such underlying performance periods to date. Indeed, as explained in footnote 1 above, because
achieving a payout level exceeding threshold for performance awards subject to a |
performance
period of fiscal years 2021-2023 is highly unlikely, the Company believes the estimate included
in the table assuming payouts for these awards at target level to be even more conservative.
Although highly unlikely, if, instead, the awards referenced in footnote 1 above paid out
at the maximum number of shares which participants are eligible to receive if applicable
performance metrics are fully achieved with respect to such awards, an additional 174,468
shares would be paid out pursuant to such awards. In such a case, the number of shares referenced
in the table as remaining available for grant would correspondingly be reduced by twice the
additional amount referenced in the immediately preceding sentence, due to the 2016 Plan's
requirement that full value awards thereunder reduce the underlying share reserve by a 2:1
ratio. Because achievement of such performance metrics relative to such PSU awards is highly
unlikely, the Company believes that number overstates dilution and that payouts for such
awards at target share levels is a more reasonable estimate of securities remaining available
for future issuance under the 2016 Plan.
NONQUALIFIED DEFERRED COMPENSATION
IN 2022
For Mr. Volovic and Mr.
Doar, the only two named executive officers participating in the nonqualified deferred compensation plan, the following table provides
information regarding fiscal year 2022 executive contributions, fiscal year 2022 earnings, and aggregate balances as of October 31, 2022.
There were no Company contributions or aggregate withdrawals or distributions in fiscal year 2022.
Name |
|
Executive
Contributions in Last Fiscal Year ($) |
|
|
Aggregate
Earnings in Last Fiscal Year ($) |
|
|
Aggregate
Balance at Last Fiscal Year End
($) |
|
Michael Doar |
|
$ |
28,611 |
|
|
$ |
(502,529 |
) |
|
$ |
1,350,261 |
|
Gregory S. Volovic |
|
$ |
117,336 |
|
|
$ |
(72,174 |
) |
|
$ |
415,180 |
|
The amounts shown in this
table are also included in the amounts shown in the “Salary” column of the Summary Compensation Table. All of the contributions
by Mr. Doar and Mr. Volovic in fiscal year 2022 and prior fiscal years were reported in the Summary Compensation Table in fiscal year
2022 or prior fiscal years, as applicable. The aggregate balance shown includes earnings on such contributions.
The Hurco Companies, Inc.
Deferred Compensation Plan II, or the DCPII, is a nonqualified deferred compensation plan in which senior managers and other highly compensated
employees are eligible to participate. A committee consisting of our CEO, CFO, and Director of Human Resources administers the DCPII.
This committee is authorized to interpret the DCPII, establish, amend, and rescind any rules and regulations relating to the DCPII, determine
the terms and provisions of any agreements made pursuant to the DCPII, and make all other determinations that may be necessary or advisable
for the administration of the DCPII.
Eligible participants are
able to defer between 2% and 50% percent of their base salary and up to 100% of their annual bonus less required and voluntary payroll
deductions in a given plan year. Deferral elections are made by eligible executives in January of each year for amounts to be earned
in the following year. The Board may declare a discretionary amount of matching credits for participants deferring compensation, up to
a maximum of 6% of compensation. The Board has not awarded any such matching credits to Mr. Doar or Mr. Volovic.
Participants are 100% vested
in all deferral and matching accounts under the DCPII at all times. Amounts deferred under the DCPII are credited with earnings at the
rate of return generated by the Vanguard mutual fund investment options elected by the participants that are offered in our 401(k) plan.
The earnings do not reflect any above-market or preferential rates of return. Participants may change their investment options under
the DCPII at any time by contacting Vanguard. Account balances in the DCPII are payable at the election of the participant either in
a single lump sum or in monthly, quarterly, or annual installments with a term of between two and ten years. Distributions under the
DCPII will not commence prior to the expiration of a six-month period from the date of separation of service or the participant’s
death, if earlier.
CEO Pay Ratio Disclosure
As required by the Dodd-Frank
Wall Street Reform and Consumer Protection Act and applicable SEC rules, the following is a reasonable estimate of the ratio of the annual
total compensation of our CEO to the annual total compensation of the median of the Company’s other employees, together with an
explanation of the Company’s methodology in calculating the same.
For fiscal year 2022:
| · | The
annual total compensation of the Median Employee (as defined below) was $42,228 using the
applicable average exchange rate for the fiscal year ended October 31, 2022, as reported
by the Wall Street Journal. |
| · | The
annual total compensation of the Company’s CEO, as reported in the above Summary Compensation
Table, was $2,140,015. |
| · | The
ratio of the annual total compensation of the Company’s CEO to the annual total compensation
of the Company’s Median Employee, was reasonably estimated to be 51 to 1. |
Because this pay ratio
is a reasonable estimate, and because SEC rules allow companies to adopt a variety of methodologies and assumptions and to apply certain
exclusions, the pay ratio reported by other companies may not be comparable to the pay ratio reported by the Company.
As permitted by the pay
ratio rule, because we did not experience changes in our employee population or employee compensation arrangements during fiscal year
2022 that we reasonably believe would result in a significant change to our pay ratio disclosure, we used the median employee identified
in fiscal year 2021 for purposes of calculating the pay ratio disclosure for fiscal year 2022 that is required in this proxy statement.
To identify the Company’s
median employee for fiscal year 2021, the Company determined that the Company and its subsidiaries employed approximately 749 employees
(excluding the CEO) as of an August 1, 2021, determination date (the “Non-CEO Employee Population”). The Company identified
“annual cash compensation” as its consistently applied compensation measure. The Company defined the term “annual cash
compensation” as gross amounts of cash compensation paid for the period beginning on January 1, 2020, and ending on December 31,
2020 (the “Measurement Period”), which included salary or hourly wages (including overtime pay), as applicable, plus sales
commissions and cash bonuses. For permanent employees within the Non-CEO Employee Population employed by the Company or its subsidiaries
for part but not all of the Measurement Period, the Company annualized their cash compensation paid. For permanent employees within the
Non-CEO Employee Population employed by the Company or its subsidiaries as of the August 1, 2021, determination date but not employed
during the Measurement Period, the Company applied an annual cash compensation equal to $0.
For non-U.S. employees,
the annual cash compensation was converted into U.S. currency using the applicable exchange rates as of October 29, 2021 (the last trading
date of fiscal year 2021), as reported by The Wall Street Journal. The Company did not apply any cost-of-living adjustments to non-US
employees. The Company then sorted the listing of the annual cash compensation of each employee in the Non-CEO Employee Population from
lowest to highest and selected the employee at the median (the “Median Employee”). The Company calculated the Median Employee’s
total annual compensation for fiscal year 2022 using the same rules that apply to reporting the compensation of our named executive officers
in the “Total” column of the Summary Compensation Table listed previously.
Employment Agreements
On March 15, 2012, following
approval by the Compensation Committee, we entered into employment agreements with each of Mr. Volovic, Mr. Doar and Ms. McClelland (such
employment agreements as of October 31, 2021, the “employment agreements”). The employment agreements terminated and superseded
any previously existing employment-related engagements between the Company and such named executive officers. The current term of employment
under each of the employment agreements would end October 31, 2023, with automatic one-year extensions unless either party gives 60-days’
notice prior to the expiration of the then-current term. Ms. Jamison and Mr. Wright are currently not parties to a written employment
agreement with the Company.
The employment agreements
provide for a minimum base salary, subject to increase or decrease at the discretion of the Company, and a discretionary annual cash
bonus. The employment agreements provide that each of the named executive officers is eligible to participate in any employee benefit
plans and programs generally made available to our employees.
Each of the employment
agreements provides that, if the Company terminates the executive’s employment without Cause (as defined in the employment agreements)
or he or she resigns for Good Reason (as defined in the employment agreements) prior to a Change in Control (as defined in the employment
agreements), then he or she will be entitled to severance payments (1) in the form of a salary continuation benefit at his or her base
salary then in effect for a period of nine months (12 months in the case of the CEO); (2) an additional monthly amount during the severance
period equal to 1/12 of the average of the executive’s annual cash bonuses for the preceding three years; and (3) an additional
monthly payment during the severance period equal to 140% of the Company’s monthly cost at the time of termination for continuation
of health insurance. In order to receive any of the severance payments, the executive must execute a release satisfactory to the Company.
If an executive officer’s employment is terminated by the Company without Cause or by the executive for Good Reason within 12 months
following a Change in Control, then the executive will be entitled to the severance amounts disclosed in the first sentence of this paragraph
for a period of 18 months (24 months in the case of the CEO). In the event of termination of the executive’s employment by reason
of death, disability, retirement, termination by the Company for Cause, or termination by the executive for any reason other than Good
Reason or for no reason, he or she is entitled to his or her base salary and benefits through the date of termination of employment.
The employment agreements
contain certain restrictive covenants prohibiting the executive from competing with the Company, selling products to certain customers,
and hiring certain employees for certain periods after termination of employment. The employment agreements also contain provisions protecting
our intellectual property and confidential information.
In November 2021, the Compensation
Committee approved amendments to the employment agreements between the Company, on the one hand, and Mr. Doar and Mr. Volovic, respectively,
to modify the respective severance benefits payable to them upon certain termination of employment events. More specifically, the amendments
to the employment agreements: (1) increased the severance period in Mr. Volovic’s employment agreement from nine to 12 months for
a termination by the Company without Cause or by Mr. Volovic for Good Reason, in each case outside of a Change in Control event; (2)
increased the severance period in Mr. Volovic’s employment agreement from 18 months to 24 months for a termination event by the
Company within certain periods after a Change in Control; (3) reduced the severance period in Mr. Doar’s employment agreement from
12 to nine months for a termination by the Company without Cause or by Mr. Doar for Good Reason, in each case outside of a Change in
Control event; and (4) reduced the severance period in Mr. Doar’s employment agreement from 24 months to 18 months for a termination
event by the Company within certain periods after a Change in Control (as such capitalized terms are defined in their respective employment
agreements and described in the footnotes to the Potential Payments upon Termination table set forth below). The amendments to the severance
periods set forth in Mr. Doar’s and Mr. Volovic’s employment agreements were based upon the Committee’s discussions
with its independent compensation consultant and were intended to bring each of the executive’s relative severance benefits more
in line with prevailing market practices for their new respective roles.
Equity Awards
There are no unvested stock
options currently outstanding held by the named executive officers. All stock options outstanding held by the named executive officers
as of October 31, 2022, are fully vested and were granted under the Prior Plan. Under the Prior Plan, all stock options held by the named
executive officers will terminate upon the first occurrence of (a) the date of termination of employment by the Company for cause, (b)
three months after the date on which the executive voluntarily terminates employment for any reason, including retirement (other than
death or disability), or on which employment is terminated by the Company without cause (other than within 12 months after a change in
control), (c) the expiration of one year after the date on which employment is terminated due to the executive’s death or disability
or on which the executive is terminated without cause within 12 months after a change in control, or (d) 10 years from the date of grant.
All currently outstanding
restricted shares and PSUs held by the named executive officers were granted under the 2016 Plan. Under the 2016 Plan, a named executive
officer’s rights with respect to unvested restricted shares or PSUs will terminate if the executive ceases continuous service for
any reason, except in the event of an involuntary termination without cause within 18 months after a change in control that involves
(i) a sale or other disposition of all or substantially all of the assets of the Company, or (ii) a merger, consolidation, share exchange
or similar transaction involving the Company (a “Corporate Transaction”). If in connection with a change in control that
involves a Corporate Transaction, an executive’s restricted shares and PSUs are not continued, assumed, or replaced, or if an executive’s
awards are continued, assumed, or replaced and the executive is involuntarily terminated without cause within 18 months after the Corporate
Transaction, unvested restricted shares will vest in full, and unvested PSUs will vest assuming the target level of performance for all
performance metrics and the vested portion of the award at that level of performance will be proportionate to the portion of the performance
period that has elapsed as of the effective time of the Corporate Transaction. Alternatively, if an executive’s restricted shares
or PSUs are not continued, assumed, or replaced in connection with a change in control that involves a Corporate Transaction, the Compensation
Committee may provide for the cancellation of the award in exchange for payment to the executive of the amount of consideration that
would have been received in the transaction for the number of shares subject to the award.
In addition, in the event
of a change in control that does not involve a Corporate Transaction, the Compensation Committee may, in its discretion, take such action
as it deems appropriate with respect to unvested restricted shares and PSUs, which may include providing for the cancellation of any
award in exchange for payment to the executive of the amount of consideration that would have been received in the change in control
for the number of shares subject to the award or making adjustments to any award to reflect the change in control, including the acceleration
of vesting in full or in part.
Potential
Payments upon Termination
| |
| | |
| | |
| | |
| | |
| | |
| | |
Certain | |
| |
| | |
| | |
| | |
| | |
Termination | | |
| | |
Terminations | |
| |
| | |
| | |
| | |
| | |
Without | | |
| | |
Within | |
| |
| | |
| | |
| | |
| | |
Cause or by | | |
| | |
Specified | |
| |
| | |
| | |
| | |
| | |
Executive | | |
| | |
Period After | |
| |
| | | |
| | | |
| | | |
| | | |
| for
Good | | |
| | | |
| Change in | |
| |
| | | |
| | | |
| | | |
| | | |
| Reason | | |
| | | |
| Control or | |
| |
| | | |
| | | |
| | | |
| | | |
| Prior
to a | | |
| | | |
| Equity | |
| |
| | | |
| | | |
| | | |
| | | |
| Change in | | |
| Termination | | |
| Awards
Not | |
| |
| Resignation | | |
| Death | | |
| Disability | | |
| Retirement | | |
| Control | | |
| For
Cause | | |
| Assumed | |
| |
| ($) | | |
| ($) | | |
| ($)1 | | |
| ($) | | |
| ($)2 | | |
| ($)2 | | |
| ($)2 | |
Gregory S. Volovic | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Severance Pay3 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 821,829 | | |
| - | | |
| 1,643,658 | |
Deferred Compensation4 | |
| 415,180 | | |
| 415,180 | | |
| 415,180 | | |
| 415,180 | | |
| 415,180 | | |
| 415,180 | | |
| 415,180 | |
Restricted Shares6 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 357,806 | |
Performance Shares7 | |
| - | | |
| 106,999 | | |
| 106,999 | | |
| 106,999 | | |
| 106,999 | | |
| - | | |
| 663,989 | |
Health Care Coverage8 | |
| - | | |
| - | | |
| 580,152 | | |
| - | | |
| 40,882 | | |
| - | | |
| 81,764 | |
Life Insurance9 | |
| - | | |
| 1,953,367 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Michael Doar | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Severance Pay11 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 549,052 | | |
| - | | |
| 1,098,104 | |
Deferred Compensation4 | |
| 1,350,261 | | |
| 1,350,261 | | |
| 1,350,261 | | |
| 1,350,261 | | |
| 1,350,261 | | |
| 1,350,261 | | |
| 1,350,261 | |
Stock Options5 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Restricted Shares6 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 382,832 | |
Performance Shares7 | |
| - | | |
| 178,348 | | |
| 178,348 | | |
| 178,348 | | |
| 178,348 | | |
| - | | |
| 759,294 | |
Health Care Coverage8 | |
| - | | |
| - | | |
| 378,498 | | |
| - | | |
| 30,661 | | |
| - | | |
| 61,322 | |
Life Insurance10 | |
| - | | |
| 1,092,082 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Sonja K. McClelland | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Severance Pay11 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 413,206 | | |
| - | | |
| 826,412 | |
Stock Options5 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Restricted Shares6 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 282,268 | |
Performance Shares7 | |
| - | | |
| 89,174 | | |
| 89,174 | | |
| 89,174 | | |
| 89,174 | | |
| - | | |
| 538,348 | |
Health Care Coverage8 | |
| - | | |
| - | | |
| 371,970 | | |
| - | | |
| 42,626 | | |
| - | | |
| 85,252 | |
Life Insurance12 | |
| - | | |
| 388,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
HaiQuynh Jamison | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Severance Pay11 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 46,154 | | |
| - | | |
| 46,154 | |
Restricted Shares6 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 33,892 | |
Performance Shares7 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 17,960 | |
Health Care Coverage8 | |
| - | | |
| - | | |
| 160,002 | | |
| - | | |
| - | | |
| - | | |
| - | |
Life Insurance12 | |
| - | | |
| 193,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Jonathon D. Wright | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Severance Pay11 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 26,538 | | |
| - | | |
| 26,538 | |
Restricted Shares6 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 33,892 | |
Performance Shares7 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 17,960 | |
Health Care Coverage8 | |
| - | | |
| - | | |
| 175,002 | | |
| - | | |
| - | | |
| - | | |
| - | |
Life Insurance12 | |
| - | | |
| 219,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
1 | “Disability” giving rise
to the Company’s right to terminate the employment agreements in question would exist
(a) when the executive is deemed disabled and entitled to benefits in accordance with any
Company-provided long-term disability insurance policy or plan, if any is applicable, covering
the executive; (b) upon the inability of the executive, because of injury, illness, disease
or bodily or mental infirmity, to perform, with or without reasonable accommodation, the
essential functions of the executive’s job for more than 90 days during any period
of 12 consecutive months; or (c) upon the written determination by a physician selected by
the Company that, because of an injury, illness, disease, or bodily or mental infirmity,
the executive is unable to perform, with or without reasonable accommodation, the essential
functions of the executive’s job, and, as of the date of determination, such condition
is reasonably expected to last for a period of 90 days or longer after the date of determination,
based on the medical information reasonably available to such physician at the time of determination. |
(footnotes continue next page)
| 2 | “Cause” for the Company’s termination of the
employment agreement would exist if the executive (a) is convicted of, or pleads no contest to, a felony, (b) engages in fraudulent or
dishonest conduct, (c) fails to follow the lawful instructions of a superior or the Company’s Board of Directors, (d) breaches
the terms of the employment agreement, (e) violates written policies or procedures, (f) engages in willful misconduct, or (g) misuses
alcohol or drugs. “Good Reason” for the executive’s termination of the employment agreement would exist if the Company
(a) fails to automatically extend the term of the employment agreement, (b) decreases the executive’s base salary by more than
5% a year unless the decrease is part of a broader cost reduction (and in the case of Mr. Doar, unless such reduction exceeding 5% is
in connection with his transition to the Executive Chairman or a different role with the Company), (c) demotes the executive or assigns
duties that are inconsistent with the executive’s position, (d) eliminates or materially reduces employee benefits other than as
part of a broader cost reduction, (e) requires the executive to relocate more than 30 miles from the Company office at which the executive
was based immediately prior to such relocation, (f) materially breaches any material term of the employment agreement, or (g) fails to
have the employment agreement assumed as part of a merger or sale of the Company. There are notice and cure provisions with respect to
certain grounds for termination for Cause or Good Reason. “Change in Control” means (a) the acquisition of 25% or more of
the voting securities of the Company, (b) a majority of the directors of the Company being elected who were not approved by a majority
of the persons who were previously serving as directors, or (c) a merger, other reorganization or liquidation involving the Company or
a sale of substantially all of the assets of the Company, unless (i) the Company’s shareholders would own 55% or more of the voting
power of the successor entity, (ii) no individual person would own 25% or more of the successor entity and (iii) a majority of the directors
of the successor entity were directors of the Company. Although Ms. Jamison and Mr. Wright are currently not parties to a written employment
agreement with the Company, they would potentially remain eligible for severance pay under the Company’s severance pay policy eligible
to all employees, which is based on the length of continuous service and annual wage at the time of termination. |
| 3 | If the Company terminates Mr. Volovic’s employment without
Cause or he resigns for Good Reason prior to a Change in Control, then he will be entitled to severance payments in the form of a salary
continuation benefit at base salary then in effect for a period of 12 months; an additional monthly amount during the severance period
equal to 1/12 of the average of his annual cash bonuses for the preceding three years; and an additional monthly payment during the severance
period equal to 140% of the Company’s monthly cost at the time of termination for continuation of health insurance. If Mr. Volovic’s
employment is terminated by the Company without Cause or by him for Good Reason within 12 months following a Change in Control, then
he will be entitled to the severance amounts disclosed in the preceding sentence for a period of 24 months. |
| 4 | Amounts can be paid in lump sum distribution or installments
depending on the participant’s election. |
| 5 | Reflects the excess of the closing price of $23.15 per share
for our common stock on October 31, 2022, over the exercise price of vested stock options and unvested stock options that would vest
as a result of the specified termination event occurring as of October 31, 2022, multiplied by the number of shares of common stock underlying
the stock options. Stock options shall terminate upon the first occurrence of (a) the date of termination of employment by the Company
for cause, (b) three months after the date on which the participant voluntarily terminates employment for any reason, including retirement
(other than death or disability), or on which employment is terminated by the Company without cause, (c) the expiration of one year after
the date on which employment is terminated due to the participant’s death or disability or on which the participant is terminated
without cause within 12 months after a change in control or (d) ten years from the date of grant. |
| 6 | Reflects the value of unvested
restricted shares that would vest as a result of the specified termination event occurring as of October 31, 2022, using $23.15 per share.
A participant’s rights with respect to the unvested portion of the restricted shares will terminate if a participant ceases continuous
service for any reason, except in the event of an involuntary termination without cause within 18
months after a change in control that involves a Corporate Transaction. Generally, if a participant is involuntarily terminated without
cause within 18 months after such a change in control, unvested restricted shares will vest in full. Further, if a participant’s
unvested restricted shares are not continued, assumed, or replaced in connection with a change in control that involves a Corporate Transaction,
such unvested restricted shares will vest in full. |
(footnotes continue next page)
| 7 | Reflects the value of unvested PSUs that would vest as a result
of the specified termination event occurring as of October 31, 2022, using $23.15 per share. A participant’s rights with respect
to unvested PSUs will terminate if a participant ceases continuous service for any reason, except in the event of an involuntarily termination
without cause within 18 months after a change in control that involves a Corporate Transaction. Generally, if a participant is involuntarily
terminated without cause within 18 months after such a change in control, unvested PSUs will vest assuming the target level of performance
for all performance metrics and the vested portion of the award at that level of performance will be proportionate to the portion of
the performance period that has elapsed as of the effective time of the Corporate Transaction. Further, if a participant’s unvested
PSUs are not continued, assumed, or replaced in connection with a change in control that involves a Corporate Transaction, such PSUs
will vest assuming the target level of performance for all performance metrics and the vested portion of the award at that level of performance
will be proportionate to the portion of the performance period that has elapsed as of the effective time of the Corporate Transaction. |
| 8 | “Health Care Coverage” includes the following: (a)
in the event of a termination due to Disability, payments and the market value of any supplemental disability insurance or plans for
which the executive would have been entitled, if such termination occurred on October 31, 2022, and that either discriminate in scope,
terms or operation, in favor of the executive, or that are not generally otherwise available to all salaried employees; and (b) in the
event of a termination by the Company without Cause or by the executive for Good Reason, an amount equal to 140% of the “COBRA
Premium Rate” during the applicable “Severance Period.” For purposes of the foregoing, (y) the term “COBRA Premium
Rate” means the monthly amount charged, as of the termination date, for COBRA continuation coverage options and coverage levels
applicable to the executive and the executive’s covered dependents immediately prior to the termination date; and (z) the term
“Severance Period” means (i) with respect to a termination without Cause by the Company or by the executive for Good Reason,
a period of nine months after employment termination for Mr. Doar and Ms. McClelland and a period of 12 months for Mr. Volovic; and (ii)
with respect to a termination without Cause by the Company or by the executive for Good Reason within 12 months after a Change in Control,
a period of 18 months for Mr. Doar and Ms. McClelland and a period of 24 months for Mr. Volovic. |
| 9 | Amount includes $2,000,000 maximum benefit for term life and
accidental death insurance policies, less cumulative premiums paid by the Company. |
| 10 | Amount includes split-dollar life insurance payment of two times
annual salary plus one times bonus, less cumulative premiums paid by the Company, and $870,000 maximum benefit for term life and accidental
death insurance policies. |
| 11 | If the Company terminates the executive’s employment without
Cause or he or she resigns for Good Reason prior to a Change in Control, then he or she will be entitled to severance payments in the
form of a salary continuation benefit at base salary then in effect for a period of nine months; an additional monthly amount during
the severance period equal to 1/12 of the average of the executive’s annual cash bonuses for the preceding three years; and an
additional monthly payment during the severance period equal to 140% of the Company’s monthly cost at the time of termination for
continuation of health insurance. If the executive’s employment is terminated by the Company without Cause or by the executive
for Good Reason within 12 months following a Change in Control, then he or she will be entitled to the severance amounts disclosed in
the preceding sentence for a period of 18 months. Although Ms. Jamison and Mr. Wright are currently not parties to a written employment
agreement with the Company, they would potentially remain eligible for severance pay under the Company’s severance pay policy eligible
to all employees, which is based on the length of continuous service and annual wage at the time of termination. |
| 12 | Amounts include life insurance of one-time annual salary, rounded
to the nearest thousand, up to a maximum annual salary of $400,000 under accidental death insurance policy. |
Compensation of
Directors
DIRECTOR COMPENSATION
TABLE
| |
Fees Earned or
Paid in
Cash | | |
Stock
Awards | | |
Total | |
| |
($) | | |
($)1 | | |
($) | |
Thomas A. Aaro | |
| 37,500 | | |
| 79,982 | | |
| 117,482 | |
Cynthia Dubin | |
| 42,500 | | |
| 79,982 | | |
| 122,482 | |
Timothy J. Gardner | |
| 45,000 | | |
| 79,982 | | |
| 124,982 | |
Jay C. Longbottom | |
| 37,500 | | |
| 79,982 | | |
| 117,482 | |
Richard Porter | |
| 57,500 | | |
| 79,982 | | |
| 137,482 | |
Janaki Sivanesan | |
| 47,500 | | |
| 79,982 | | |
| 127,482 | |
| 1 | Amounts reflect the grant date fair value of restricted shares
issued to each non-employee director during the year ended October 31, 2022, calculated in accordance with ASC 718. Each non-employee
director received 2,319 restricted shares on March 10, 2022, the date of our 2022 Annual Meeting of Shareholders. The grant date fair
value is calculated by multiplying the closing price of our common stock on Nasdaq on the date of grant, which was $34.49, by the number
of restricted shares awarded. The restricted shares vest one year from the date of grant or upon the Company’s next Annual Meeting
of Shareholders, whichever is earlier. |
In fiscal year 2022,
we paid our directors as follows: (1) the quarterly retainer for all non-employee directors was $11,250, (2) the Presiding Independent
Director quarterly retainer was $3,750, and (3) the fair market value of the annual grant of restricted shares to non-employee directors
was $79,982. In addition to the quarterly retainer for all non-employee members of the Board, we paid the chair of the Audit Committee
a quarterly retainer of $2,500, the chair of the Compensation Committee a quarterly retainer of $1,875, and each Audit Committee member
a quarterly retainer of $1,250. We also paid our directors’ travel expenses incurred to attend Board meetings, which are not included
in the Director Compensation Table above.
Mr. Doar’s
compensation and Mr. Volovic’s compensation for fiscal year 2022 are set forth in the Summary Compensation Table and the preceding
tables and narrative. Mr. Doar and Mr. Volovic are not included in this table because they did not receive any additional compensation
for their services as directors.
PROPOSAL 3. ADVISORY
SAY-ON-FREQUENCY VOTE
The third proposal
to be considered at the 2023 Annual Meeting is the advisory vote for shareholders to express a preference for the frequency as to which
we hold future shareholder say-on-pay votes, which is required pursuant to Section 14A of the Exchange Act. Companies subject to say-on-pay
rules are required to: (1) at least once every three calendar years, hold an advisory shareholder say- on-pay vote and (2) at least once
every six calendar years, hold an advisory shareholder say-on- frequency vote regarding whether shareholders prefer to conduct their advisory
say-on-pay vote annually, biannually, or triennially. When we conducted our last two say-on-frequency votes at our Annual Meeting of Shareholders
in each of 2011 and 2017, our shareholders expressed a preference to conduct say-on-pay votes on an annual basis. Consistent with that
preference, since that time, we have continued to hold the advisory shareholder say-on-pay vote annually. The Board of Directors has not
observed any reason why the previously expressed shareholder preferences should not continue to govern and notes that market practice
is for annual say-on-pay votes. The Board also believes that holding a vote every year allows our shareholders to provide timely input
on the Company’s executive compensation program and is consistent with the Company’s efforts to engage in an ongoing dialogue
with shareholders on executive compensation and corporate governance matters. As a result, the Board has determined to recommend that
shareholders vote in favor of holding the say-on-pay vote on an annual basis.
As required, we
are requesting shareholder input at the 2023 Annual Meeting on how often we should solicit future advisory shareholder say-on-pay votes
with respect to our executive compensation. Shareholders may (1) vote in favor of holding the say-on-pay vote on an annual basis (i.e.,
once every 1 year), (2) vote in favor of holding the say-on-pay vote biannually (i.e., once every 2 years), (3) vote in favor of
holding the say-on-pay vote triennially (i.e., once every 3 years), or (4) abstain from voting.
Because
it is advisory, the results of the say-on-frequency vote are not binding upon the Board of Directors. The
Board of Directors may decide that it is in the best interests of our shareholders and the Company to hold an advisory vote on executive
compensation more or less frequently than the frequency receiving the most votes cast by our shareholders. However,
as was the case with the results of the say-on-frequency vote at the Annual Meeting of Shareholders in each of 2011 and 2017, we expect
that the Board of Directors and the Compensation Committee will consider the outcome of this vote when determining how often to conduct
the advisory shareholder say-on-pay vote in future years. We will hold the Company’s next say-on-frequency vote at the 2029 Annual
Meeting of Shareholders.
The Board of
Directors recommends a vote for “ANNUAL” frequency of the advisory
shareholder say-on-pay vote with respect to executive
compensation.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table
sets forth information as of January 6, 2023, regarding beneficial ownership of our common stock held by each director, director nominee,
and named executive officer; by all current directors and executive officers as a group; and by all persons who are known to be beneficial
owners of more than 5% of our common stock. Each such person has sole voting and investment power with respect to such securities, except
as otherwise noted. The percentage ownership amounts are calculated using the number of shares of our common stock outstanding on January
6, 2023.
Directors and Officers |
| |
Shares
Owned | | |
% Ownership | |
Thomas A. Aaro | |
| 13,730 | 1 | |
| * | |
Michael Doar | |
| 173,950 | 2 | |
| 2.6 | % |
Cynthia Dubin | |
| 7,955 | 1 | |
| * | |
Timothy Gardner | |
| 11,122 | 1 | |
| * | |
Jay C. Longbottom | |
| 13,730 | 1 | |
| * | |
Richard Porter | |
| 10,132 | 1 | |
| * | |
Janaki Sivanesan | |
| 25,021 | 3 | |
| * | |
Gregory S. Volovic | |
| 74,294 | 4 | |
| 1.1 | % |
Sonja K. McClelland | |
| 66,517 | 5 | |
| 1.0 | % |
HaiQuynh Jamison | |
| 3,166 | 6 | |
| * | |
Jonathon D. Wright | |
| 3,161 | 6 | |
| * | |
Executive officers and directors as a group (11 persons) | |
| 402,778 | | |
| 6.0 | % |
Other Beneficial Owners
Name and Address | |
| | |
| |
Royce & Associates LP | |
| | | |
| | |
745 Fifth Avenue, New York, NY, 10151 | |
| 905,804 | 7 | |
| 13.5 | % |
Polar Asset Management Partners, Inc. | |
| | | |
| | |
16 York Street, Suite 2900, Toronto, A6 M5J0E6 | |
| 831,243 | 8 | |
| 12.4 | % |
Dimensional Fund Advisors LP | |
| | | |
| | |
6300 Bee Cave Road, Austin, TX 78746 | |
| 532,350 | 9 | |
| 7.9 | % |
FMR LLC | |
| | | |
| | |
245 Summer Street, Boston, MS 02210 | |
| 497,296 | 10 | |
| 7.4 | % |
| * | Less than one (1) percent. |
| 1 | Includes 2,319 unvested shares of restricted stock. |
| 2 | Includes 16,384 unvested shares of restricted stock. |
| 3 | Includes 2,319 unvested shares of restricted stock and 34 shares
held by an immediate family member of Ms. Sivanesan. |
| 4 | Includes 19,958 unvested shares of restricted stock. |
| 5 | Includes 13,412 unvested shares of restricted stock. |
| 6 | Includes 1,724 unvested shares of restricted stock. |
| 7 | Based solely on information supplied by the beneficial owner
on Schedule 13G/A filed with the SEC on January 21, 2022. |
| 8 | Based solely on information supplied by the beneficial owner
on Form 13F for the quarter ended September 30, 2022, which was filed with the SEC in November 2022. |
| 9 | Based solely on information supplied by the beneficial owner
on Schedule 13G/A filed with the SEC on February 8, 2022. |
| 10 | Based solely on information supplied by the beneficial owner
on Schedule 13G filed with the SEC on February 9, 2022. |
REPORT OF
THE AUDIT COMMITTEE
The Audit Committee
is comprised of the three directors named below. The Board of Directors and the Audit Committee have determined that the Committee’s
current composition satisfies the Nasdaq listing requirements, including the requirement that all Audit Committee members be “independent
directors” as defined by Nasdaq rules. The Board of Directors annually reviews the independence of the Audit Committee members under
both (1) Nasdaq rules and the SEC’s definition of independence for Audit Committee members and (2) the independence requirements
in our Corporate Governance Principles. The Board has determined that Ms. Dubin and Ms. Sivanesan each meet the SEC’s definition
of an “Audit Committee financial expert.”
The primary function
of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities by reviewing the financial information that
will be provided to shareholders and others, the system of internal controls that management has established, and the audit process. In
doing so, it is the responsibility of the Audit Committee to provide an open avenue of communication between the Board of Directors, management,
internal auditors, and the independent auditors.
The Audit Committee
has reviewed and discussed the audited financial statements of the Company for the fiscal year ended October 31, 2022, with the Company’s
management. The Audit Committee has discussed with RSM US LLP (“RSM”), the Company’s independent registered public accounting
firm, the matters required to be discussed by applicable requirements of the Public Company Accounting Oversight Board and the Securities
and Exchange Commission. The Audit Committee has also received the written disclosures and the letter from RSM required by applicable
requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit
Committee concerning independence, and the Audit Committee has discussed with RSM the independence of that firm.
The members of the
Audit Committee have also confirmed that there have been no new circumstances or developments since their appointment to the Committee
that would impair any member’s ability to act independently.
Based on the reviews
and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be
included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2022, for filing with the SEC.
|
Janaki Sivanesan, Chairperson |
|
Cynthia Dubin |
|
Richard Porter |
PROPOSAL 4. RATIFICATION
OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee
has appointed RSM as our independent registered public accounting firm for fiscal year 2023. The Board is submitting the appointment of
RSM for ratification in order to permit shareholders to express their approval or disapproval. In the event of a negative vote, the Audit
Committee may reconsider this appointment. Representatives of RSM are expected to be present at the meeting and will be given an opportunity
to respond to questions and make a statement, if they desire.
The Board of Directors recommends
a vote "FOR" the ratification of the appointment of RSM US LLP as our independent registered public accounting firm for the
fiscal year ending October 31, 2023.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Audit and Non-Audit
Fees
The following table sets forth fees paid
to RSM for the services provided during fiscal years 2022 and 2021:
| |
Fiscal Year 2022 | | |
Fiscal Year 2021 | |
Audit Fees1 | |
$ | 1,004,320 | | |
$ | 1,002,822 | |
Audit-Related Fees2 | |
| 19,110 | | |
| 15,000 | |
Tax Fees3 | |
| 237,795 | | |
| 186,302 | |
All Other Fees4 | |
| 311,000 | | |
| - | |
TOTAL | |
$ | 1,572,225 | | |
$ | 1,204,124 | |
| 1 | Represents fees for professional services provided in connection
with the audit of annual financial statements, the review of quarterly financial statements, and the audit of internal controls over
financial reporting. |
| 2 | Represents fees for employee benefit plan audits. |
| 3 | Represents fees for services provided in connection with tax
compliance and tax planning. |
| 4 | Represents fees for other non-audit services. |
Pre-Approval Policy
The Audit Committee's
policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm. These
services may include audit services, audit-related services, tax services, and other services. Pre-approval is generally provided for
up to one year. Any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific
budget. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding
the extent of services provided by the independent auditor in accordance with this pre-approval, and the fees for the services performed
to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. For fiscal years 2022 and 2021, all of
the fees reported above as Audit Fees, Audit-Related Fees, Tax Fees, and All Other Fees were pre-approved by the Audit Committee. The
Audit Committee has concluded that the provision of the services listed above is compatible with maintaining RSM’s independence.
CERTAIN RELATIONSHIPS
AND RELATED PERSON TRANSACTIONS
Under our Code
of Business Conduct and Ethics, which is available on our website at www.hurco.com/investors under “Corporate Governance,”
our directors, officers, and employees are not permitted to conduct business on our behalf with a member of his or her family, or a business
organization with which he or she or a family member has an interest or employment relationship that could be considered significant in
terms of potential conflict of interest, unless such business dealings have been disclosed to, and approved by, our Audit Committee.
Further, under our
Audit Committee’s charter, which is available on our website at www.hurco.com/investors under “Corporate Governance,”
our Audit Committee must review and approve all related person transactions in which any director, director nominee, executive officer,
or significant shareholder of the Company, or any of their immediate family members, has a direct or indirect material interest.
We had
no related person transactions during fiscal year 2022.
SHAREHOLDER
PROPOSALS FOR OUR 2024 ANNUAL MEETING
The date by which shareholder
proposals must be received by us for inclusion in proxy materials relating to the 2024 Annual Meeting of Shareholders is September 25,
2023.
Our By-Laws provide
that shareholders are required to give us advance notice of any business to be brought by a shareholder before an annual shareholders’
meeting. For business to be properly brought by a shareholder before an Annual Meeting of Shareholders, the shareholder must give timely
written notice thereof to our Corporate Secretary. In order to be timely, a shareholder’s notice must be delivered to or mailed
and received at our principal executive offices not less than sixty days prior to the meeting. In the event that less than 70 days’
notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder must be received
not later than the close of business on the tenth day following the day on which notice of the date of the meeting was mailed or public
disclosure was made. The notice must contain specified information about the proposed business and the shareholder making the proposal.
These procedures apply to any matter other than nomination of directors that a shareholder wishes to raise at the 2024 Annual Meeting
of Shareholders, including those matters raised pursuant to 17 C.F.R. §240.14a-8 of the rules and regulations of the SEC.
Shareholders who
wish to nominate a candidate for election as a director without the recommendation of the Nominating and Governance Committee must provide
timely written notice thereof to our Corporate Secretary. In order to be timely, a shareholder’s notice must be delivered to or
mailed and received by dates explained in the preceding paragraph with respect to shareholder proposals. In addition, the notice must
contain additional information concerning the shareholder, the nominee, and any “Shareholder Associated Person,” the nominee’s
consent to the nomination, an executed questionnaire in a form signed by our directors, nominees and representatives, and an agreement
establishing that there is no undisclosed understanding with respect to the nominee’s conduct as a director.
In addition to
satisfying the foregoing requirements, in order to comply with the universal proxy rules, a shareholder who intends to solicit proxies
in support of director nominees for election at the 2024 Annual Meeting of Shareholders, other than the Company’s nominees, must
provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than January 9, 2024.
Any shareholder
proposals or nominations that do not meet the previously noted requirements will be considered untimely, and any proxy solicited by us
may confer discretionary authority to vote on such proposal or nominee. A copy of our By-Laws is available upon request and may also be
obtained on the SEC’s website at www.sec.gov. Such requests and any shareholder proposals or nominations should be
sent to Jonathon D. Wright, Corporate Secretary, Hurco Companies, Inc., One Technology Way, P.O. Box 68180, Indianapolis, Indiana 46268,
our principal executive offices.
INCORPORATION
BY REFERENCE
Notwithstanding
anything to the contrary set forth in any of our previous filings under the Securities Act or the Exchange Act that may incorporate future
filings (including this proxy statement, in whole or in part), the preceding Report of the Audit Committee and the Report of the Compensation
Committee shall not be incorporated by reference in any such filings.
ANNUAL REPORT ON FORM
10-K
We have filed our
Annual Report on Form 10-K for the fiscal year ended October 31, 2022, with the SEC. Shareholders may obtain a copy of the Annual Report
on Form 10-K, free of charge, by writing to Jonathon D. Wright, Corporate Secretary, Hurco Companies, Inc., One Technology Way, P.O. Box
68180, Indianapolis, Indiana 46268. A copy of the Annual Report on Form 10-K can also be obtained at www.hurco.com/investors
=under “Proxy Materials.”
OTHER BUSINESS
The Board knows
of no other matters that may be presented at the 2023 Annual Meeting. If any other matters should properly come before the 2023 Annual
Meeting, the persons named in the enclosed form of proxy will vote in accordance with their business judgment on such matters.
CORRESP
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