ITEM 10.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
.
|
Board
of Directors
The
following table sets forth certain information concerning the current directors:
Name
|
|
Age
|
|
|
Positions with the Company
|
|
Class
|
|
Year
Term
Expires and Class
|
|
Shevach Saraf
|
|
|
73
|
|
|
Chairman of the Board, Chief Executive Officer, President and Chief Financial Officer
|
|
Class III
|
|
|
2016
|
|
Dwight P. Aubrey
(1)(2)(3)
|
|
|
70
|
|
|
Director
|
|
Class I
|
|
|
2017
|
|
John F. Chiste
(1)((2)(3)
|
|
|
60
|
|
|
Director
|
|
Class I
|
|
|
2017
|
|
Tim Eriksen
(1)
|
|
|
47
|
|
|
Director
|
|
Class II
|
|
|
2018
|
|
David W. Pointer
(2)(3)
|
|
|
46
|
|
|
Director
|
|
Class II
|
|
|
2018
|
|
(1)
|
Member of the Audit Committee.
|
(2)
|
Member of the Compensation Committee.
|
(3)
|
Member of the Nominating Committee.
|
Shevach
Saraf
Mr.
Saraf was appointed a director of the Company on November 2, 1992. Mr. Saraf has been President of the Company since November
1992, Chief Executive Officer of the Company since December 1992, Chairman of the Board since September 1993 and Chief Financial
Officer since 2000. He has 47 years of experience in operations and engineering management with electronics and electromechanical
manufacturing companies.
Before
joining Solitron in 1992, Mr. Saraf was Vice President of Operations and a member of the Board of Directors of Image Graphics,
Inc. ("Image Graphics"), a military and commercial electron beam recorder manufacturer based in Shelton, Connecticut.
As head of Image Graphics’ engineering, manufacturing materials and field service operations, he turned around the firm’s
chronic cost and schedule overruns to on-schedule and better-than-budget performance. Earlier, he was President of Value Adding
Services, a management consulting firm in Cheshire, Connecticut. This company provided consulting and turnaround services to electronics
and electromechanical manufacturing companies with particular emphasis on operations. From 1982 to 1987, Mr. Saraf was Vice President
of Operations for Harmer Simmons Power Supplies, Inc., a power supplies manufacturer in Seymour, Connecticut. He founded and directed
all aspects of the company’s startup and growth, achieving $12 million in annual sales and a staff of 180 employees. Mr.
Saraf also previously held executive positions with Photofabrication Technology, Inc. and Measurements Group of Vishay Intertechnology,
Inc.
Born
and raised in Tel Aviv, Israel, he served in the Israeli Air Force from 1960-1971 as an electronics technical officer. He received
his master’s in business administration from Rensselaer Polytechnic Institute, Troy, NY, and his master’s in management
from Rensselaer at Hartford (formerly known as Hartford [CT] Graduate Center). He also received associate degrees from the Israeli
Institute of Productivity, the Teachers & Instructors Institute, and the Israeli Air Force Technical Academy.
The
Company believes that Mr. Saraf’s extensive experience, his depth of skills, executive management experience, and industry
expertise when coupled with his success starting manufacturing companies, turning around failing companies and his leadership
since leading the Company out of bankruptcy proceedings in 1993, as Chairman, President, and CEO of the Company highly qualifies
him as a member of our Board of Directors.
Dwight
P. Aubrey
Mr.
Aubrey was appointed a director on January 12, 2015. Mr. Aubrey also serves as Chairman of the Compensation Committee and a member
of the Audit Committee and Nominating Committee. Mr. Aubrey has served as the President of ES Components LLC, a franchised distributor
for wire bondable die and surface mountable components used by hybrid and microelectronic component manufacturers, since 1981.
ES Components was originally a joint venture with Elmo Semiconductor and Mr. Aubrey acquired Elmo Semiconductor's interest in
ES Components LLC in 1995. Mr. Aubrey also served as the President and Owner of Compatible Components, Inc., a manufacturer's
representative company supplying micro electronic components, from 1979 until 2005 when he elected to close the business due to
the growth of ES Components. Mr. Aubrey received an Associate of Arts in Business Administration from Central N.E. College in
1975.
The
Company believes that Mr. Aubrey's extensive operational and business background in microelectronic component manufacturing highly
qualifies him as a member of the Board of Directors.
John
F. Chiste
Mr.
Chiste was appointed a director on January 12, 2015. Mr. Chiste also serves as Chairman of the Audit Committee and Nominating
Committee and a member of the Compensation Committee. Mr. Chiste has served as the Chief Financial Officer of Encore Housing Opportunity
Fund I and Fund II and Rescore Property Corp., a group of private equity funds with assets under management in excess of $1.0
billion focused on acquiring opportunistic and distressed residential real estate primarily in Florida, Texas, Arizona and California,
since 2010. Mr. Chiste has also served since 2005 as Chief Financial Officer of the Falcone Group which owns a diversified real
estate portfolio of companies. Mr. Chiste previously served as Chief Financial Officer of Bluegreen Corporation, a NYSE listed
developer and operator of timeshare resorts, residential land and golf communities, from 1997 until 2005. He also served as Chief
Financial Officer of Computer Integration Corp., a Nasdaq listed provider of information products and services, from 1992 until
1997. From 1983 until 1992, Mr. Chiste served as a Senior Manager with Ernst & Young LLP, a nationally recognized accounting
firm. Mr. Chiste received a Bachelor of Business Administration in Accounting from Florida Atlantic University in Boca Raton.
Mr. Chiste is a licensed Certified Public Accountant in the State of Florida. Mr. Chiste was a director and Chairman of the Audit
Committee of Forward Industries, Inc., a Nasdaq listed manufacturer and distributor of specialty and promotional products, primarily
for hand held electronic devices, from February 2008 through January 2015.
The
Company believes that Mr. Chiste's extensive financial and accounting experience highly qualifies him as a member of the Board
of Directors.
Tim
Eriksen
Mr.
Eriksen was elected a director on August 4, 2015. Mr. Eriksen also serves as a member of the Audit Committee. Mr. Eriksen founded
Eriksen Capital Management LLC ("ECM"), a Lynden, Washington based investment advisory firm, in 2005. Mr. Eriksen is
the Managing Member of ECM and Cedar Creek Partners LLC ("CCP"), a hedge fund founded in 2006 that focuses primarily
on micro-cap and small cap stocks. Prior to founding ECM, Mr. Eriksen worked for Walker’s Manual, Inc., a publisher of books
and newsletters on micro-cap stocks, unlisted stocks and community banks. Earlier in his career, Mr. Eriksen worked for Kiewit
Pacific Co, a subsidiary of Peter Kiewit Sons, as an administrative engineer on the Benicia Martinez Bridge project. Mr. Eriksen
received a B.A. from The Master’s College and an M.B.A. from Texas A&M University.
The
Company believes that Mr. Eriksen’s extensive financial expertise, including knowledge of unlisted micro-cap companies and
capital allocation, and his role as an officer of one of the Company's largest institutional stockholders highly qualifies him
as a member of the Board of Directors and provides the Board with the perspective of a significant stockholder.
David
W. Pointer
Mr.
Pointer was elected a director on August 4, 2015. Mr. Pointer also serves as a member of the Compensation Committee and Nominating
Committee. Mr. Pointer is the founder and managing partner of VI Capital Management, LLC (“VICM”). VICM was founded
on January 1, 2008, and is the general partner for VI Capital Fund, LP, a value oriented investment limited partnership. Prior
to founding VICM, Mr. Pointer served as Senior Vice President and Senior Portfolio Manager for ICM Investment Management (“ICM”).
Prior to ICM, Mr. Pointer served as a Portfolio Manager for Invesco, Inc., where he worked with a senior partner in managing two
mutual funds with assets in excess of $15 billion. Mr. Pointer has been a member of the Board of Directors of CompuMed, Inc.,
a healthcare services company, since January 2014 (and has served as Chairman of the Board since November 2014). From September
2014 to June 2015, he was a member of the Board of Directors of ALCO Stores, Inc., a publicly traded retailer in liquidation under
the provisions of Chapter 11 of Title 11 of the United States Code. Mr. Pointer has an M.B.A. from the University of Pennsylvania
and holds the Chartered Financial Analyst designation.
The
Company believes that Mr. Pointer’s experience as a director at other companies and his ability to relate to the broader
investment community highly qualifies him as a member of the Board of Directors.
Executive
Officers
Our
executive officer is Shevach Saraf. Mr. Saraf's position with the Company, his age and his biographical and business experience
appear above under the caption "Board of Directors."
Committees
The
standing committees of the Board of Directors are the Audit Committee, the Compensation Committee and the Nominating Committee.
Audit
Committee
The
Audit Committee consists of Messrs. Chiste (Chairman), Aubrey and Eriksen. The Board of Directors has determined that the members
of the Audit Committee are independent pursuant to the Nasdaq Rules. The Company’s Audit Committee generally has responsibility
for appointing, overseeing and approving the compensation of our independent certified public accountants, reviewing and approving
the discharge of our independent certified public accountants, reviewing the scope and approach of the independent certified public
accountants’ audit, reviewing our audit and control functions, approving all non-audit services provided by our independent
certified public accountants and reporting to our full Board of Directors regarding all of the foregoing. Additionally, our Audit
Committee provides our Board of Directors with such additional information and materials as it may deem necessary to make our
Board of Directors aware of significant financial matters that require its attention. The Company has adopted an Audit Committee
Charter, a copy of which is published on the Company’s web site at www.solitrondevices.com on the Investor Relations page.
The Company has determined that the "audit committee financial expert" is Mr. Chiste. The Audit Committee met four times
during fiscal year 2016.
Compensation
Committee
The
members of the Compensation Committee are Messrs. Aubrey (Chairman), Chiste and Pointer. The Board of Directors has determined
that the members of the Compensation Committee are independent pursuant to the Nasdaq Rules. The responsibilities and duties of
the Compensation Committee consist of, but are not limited to: reviewing, evaluating and approving the agreements, plans, policies
and programs of the Company to compensate the officers and directors of the Company and otherwise discharging the Board of Directors’
responsibilities relating to compensation of the Company’s officers and directors. The Compensation Committee has determined
that no risks exist arising from the Company’s compensation policies and practices for its employees that are reasonably
likely to have a material adverse effect on the Company. During fiscal year 2016, the Compensation Committee did not retain a
compensation consultant to review our policies and procedures with respect to executive compensation. The Company has adopted
a Compensation Committee Charter, a copy of which is published on the Company's website at www.solitrondevices.com on the Investor
Relations page. The Compensation Committee met three times during fiscal year 2016.
Nominating
Committee
The
members of the Nominating Committee are Messrs. Chiste (Chairman), Aubrey and Pointer. The Board of Directors has determined
that the members of the Nominating Committee are independent pursuant to the Nasdaq Rules. The responsibilities and duties
of the Nominating Committee consist of, but are not limited to: developing and periodically reviewing the criteria used
to evaluate the suitability of potential candidates for members on the Board of Directors; identifying and evaluating potential
director candidates and submitting to the Board of Directors the candidates for director to be recommended by the Board of Directors
for election at each annual meeting and to be added by the Board of Directors at any other times due to expansions to the Board
of Directors, director resignations or retirements, and candidates for membership on each committee of the Board of Directors;
making recommendations to the Board of Directors regarding the size and composition of the Board of Directors and its committees;
and receiving and evaluating any stockholder nominations for directors received in accordance with Article II, Section 12 of the
Company's By-laws in the same manner the Nominating Committee would evaluate a nomination received from any other party. The
Company has adopted a Nominating Committee Charter, a copy of which is published on the Company's website at www.solitrondevices.com
on the Investor Relations page. The Nominating Committee met three times during fiscal year 2016.
Communications
with our Board of Directors
Any
stockholder who wishes to send a communication to our Board of Directors should address the communication either to the Board
of Directors or to the individual director c/o Shevach Saraf, Chairman of the Board, Chief Executive Officer, President and Chief
Financial Officer, Solitron Devices, Inc., 3301 Electronics Way, West Palm Beach, Florida 33407. Mr. Saraf will forward the communication
either to all of the directors, if the communication is addressed to the Board, or to the individual director, if the communication
is addressed to a specific director.
Nominees
for Director
The
Nominating Committee will consider all qualified director candidates identified by various sources, including members of the Board,
management and stockholders. Candidates for directors recommended by stockholders will be given the same consideration as those
identified from other sources. The Nominating Committee is responsible for reviewing each candidate’s biographical information
and assessing each candidate’s independence, skills and expertise based on a number of factors. While we do not have a formal
policy on diversity, when considering the selection of director nominees, the Nominating Committee considers individuals with
diverse backgrounds, viewpoints, accomplishments, cultural backgrounds, and professional expertise, among other factors.
Your
Board of Directors has established board candidate selection criteria to be applied by the Nominating Committee and by the full
Board of Directors in evaluating candidates for election to the Board. These criteria include general characteristics, areas of
specific experience and expertise and considerations of diversity. The criteria include the following:
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●
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Integrity
and commitment to ethical behavior;
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Personal
maturity and leadership skills, especially in related fields;
|
|
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|
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●
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Independence
of thought;
|
|
●
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Diversity
of background and experience;
|
|
|
|
|
●
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Broad
business and/or professional experience with the understanding of business and financial
affairs and the complexity of the Company's business;
|
|
●
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Commitment
to the Company's business and its continued well-being; and
|
|
|
|
|
●
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Board
members must be able to offer unbiased advice.
|
In
addition to the minimum qualifications for each candidate described above, the Nominating Committee shall recommend that the Board
of Directors select individuals to help ensure that:
|
●
|
Board
members have executive management experience;
|
|
●
|
Board
members have an understanding of the electronics/components industry;
|
|
|
|
|
●
|
A
majority of the Board consists of independent directors;
|
|
|
|
|
●
|
Each
of the Company's Audit Committee, Compensation Committee and Nominating Committee shall
be comprised entirely of independent directors; and
|
|
|
|
|
●
|
At
least one member of the Audit Committee shall have such experience, education and other
qualifications necessary to qualify as an "audit committee financial expert"
under SEC rules.
|
Only
persons who are nominated in accordance with the procedures set forth in Article II, Section 12 of our By-laws shall be eligible
for election as directors. Nominations of persons for election to the Board of Directors may be made at a meeting of stockholders
at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the
Company entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in Article
II, Section 12 of our By-laws. Such nominations, other than those made by or at the direction of the Board of Directors, shall
be made by timely notice in writing to the Secretary of the Company. To be timely, a stockholder’s notice must be delivered
or mailed to and received at the principal executive offices of the Company not less than 30 days prior to the date of the meeting,
provided, however, that in the event that less than 40 days’ notice or prior public disclosure of the date of the meeting
is given or made to stockholders, to be timely, a stockholder’s notice must be so received not later than the close of business
on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder’s notice shall set forth (i) as to each person whom such stockholder proposes to nominate for election
or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies
for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended (including each such person’s written consent to serving as a director if elected); and (ii) as to the
stockholder giving the notice (x) the name and address of such stockholder as they appear on the Company’s books, and (y)
the class and number of shares of the Company’s capital stock that are beneficially owned by such stockholder.
Code
of Ethics
The
Company has adopted a Code of Ethics for senior officers, which includes the Company’s principal executive officer, principal
financial officer and controller, pursuant to the Sarbanes-Oxley Act of 2002. The Code of Ethics is published on the Company’s
web site at www.solitrondevices.com on the Investor Relations page.
SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires directors and executive officers of the Company and ten percent
stockholders of the Company to file initial reports of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company with the Securities and Exchange Commission. Directors, executive officers, and ten percent stockholders
are required to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based
solely on a review of the copies of such reports furnished to the Company and representations that no other reports were required
during the year ended February 29, 2016, all Section 16(a) filing requirements applicable to directors and executive officers
of the Company and ten percent stockholders of the Company were timely filed.
ITEM 11.
|
EXECUTIVE COMPENSATION
|
Summary
Compensation Table
The
following table provides certain summary information concerning compensation paid by the Company, to or on behalf of the following
named executive officer for the fiscal years ended February 29, 2016 and February 28, 2015.
Name
and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
All
Other Compensation
($)
|
|
|
Total
($)
|
|
Shevach
Saraf
|
|
|
2016
|
|
|
|
311,607
|
(1)
|
|
|
70,000
|
(2)
|
|
|
52,621
|
(3)
|
|
|
434,228
|
|
Chairman
of the Board, President, CEO and CFO
|
|
|
2015
|
|
|
|
321,500
|
|
|
|
119,015
|
(4)
|
|
|
43,500
|
(5)
|
|
|
484,015
|
|
|
(1)
|
Mr.
Saraf voluntarily reduced his annual base salary by 10% effective as of November 2, 2015
consistent with the reduction of the weekly work hours and weekly salary of exempt employees
by 10% that was instituted as part of a cost cutting strategy.
|
|
(2)
|
The
Company did not accrue any bonus for Mr. Saraf in fiscal year 2016 pursuant to the terms
of his Employment Agreement. On May 22, 2015, the Compensation Committee approved a discretionary
bonus of $70,000 to Mr. Saraf. The discretionary cash bonus was paid in June of 2015.
|
|
(3)
|
Represents
Life, Disability and Medical Insurance premiums plus personal auto expenses. For the
year ended February 29, 2016, Life, Disability and Medical Insurance premiums were $49,613
and car expenses were $3,008.
|
|
(4)
|
The
Company accrued $105,000 as a bonus to Mr. Saraf for his performance during the fiscal
year ended February 28, 2015. The Compensation Committee met on May 22, 2015
and approved the payment of a $119,015 bonus pursuant to the terms of Mr. Saraf's employment
agreement to be paid during June 2015.
|
|
(5)
|
Represents
Life, Disability, & Medical Insurance premiums plus personal auto expenses. For the
year ended February 28, 2015, Life, Disability, Medical Insurance premiums were $39,000
and car expenses were $4,500.
|
Outstanding
Equity Awards at Fiscal Year-End Table
The
following table sets forth certain summary information concerning outstanding equity awards as of February 29, 2016
held by the following named executive officer.
Option
Awards
Name
|
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Exercisable
(1)
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
(2)
|
|
Shevach Saraf
|
|
|
254,624
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
.40
|
|
|
|
-
|
|
|
|
|
35,449
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
1.05
|
|
|
|
-
|
|
(1)
|
These options were fully exercisable as of February
29, 2016.
|
(2)
|
These options do not have an expiration date.
|
Mr.
Saraf’s Employment Agreement
On
December 1, 2000, the Company entered into an employment agreement with Shevach Saraf, the Chairman of the Board, President, Chief
Executive Officer and Chief Financial Officer of the Company. On January 14, 2013, the Company amended the employment agreement
with Mr. Saraf. The description below summarizes the employment agreement, as amended.
The
initial term of employment agreement was five years. The employment agreement stipulates that the contract is automatically extended
for one-year periods unless a notice is given by either party at least 180 days prior to the scheduled expiration of the initial
term or any extensions. This agreement provides, among other things, for a minimum annual base salary of $240,000 and a bonus
pursuant to a formula tied to the Company's pre-tax income. The employment agreement provides that Mr. Saraf shall be entitled
to a bonus equal to fifteen percent (15%) of the Company’s pre-tax income in excess of $250,000. For purposes of the agreement,
"pre-tax income" means net income before taxes, excluding (i) all extraordinary gains or losses, (ii) gains resulting
from debt forgiveness associated with the buyout of unsecured creditors, and (iii) any bonus paid to Mr. Saraf. The bonus payable
thereunder shall be paid within ninety (90) days after the end of the fiscal year.
Upon
execution of the agreement, Mr. Saraf received a grant of stock options to purchase ten percent (10%) of the outstanding shares
of the Company’s common stock, par value $.01 per share, calculated on a fully diluted basis, at an exercise price per share
equal to the closing asking price of the Company’s common stock on the OTCBB on the date of the grant ($0.40). Fifty percent
(50%) of the initial stock options granted vested immediately upon grant. The remaining fifty percent (50%) of the initial stock
options vested in equal amounts on each of the first five anniversaries of the date of grant. All of these options are now fully
vested.
Under
the employment agreement, if Mr. Saraf’s employment is terminated due to his death, the Company will pay the following amounts
to his estate: (i) his base salary through the last day of the calendar month in which he dies, (ii) his bonus for the prior year
which has been earned but not paid, (iii) his bonus for the then current year of employment prorated for the actual number of
days of such year he was employed during such year (which shall be calculated by assuming that the bonus for such year would be
equal to the bonus for the previous year plus an amount equal to the percentage increase in the consumer price index for the prior
twelve month period) and (iv) a death benefit in an amount equal to three times Mr. Saraf’s then current base salary (including
any amount deferred under any deferred compensation plan) plus an amount equal to the most recent bonus awarded to him, to the
extent funded by life insurance policies as provided for in the employment agreement.
Under
the employment agreement, if Mr. Saraf’s employment is terminated due to his failure to perform his duties under the employment
agreement due to Disability for a consecutive period of more than six months, the Company may terminate the employment agreement
upon thirty (30) days written notice to him. Mr. Saraf shall continue to receive compensation until the end of the thirty (30)
day notice period. For purposes of the employment agreement, the term "Disability" shall mean the inability to engage
in any substantial gainful activity with the Company by reason of any medically determinable physical or mental impairment for
at least six consecutive months. In addition, under the employment agreement, the Company shall maintain term life and disability
insurance policies providing benefits sufficient to cover any amounts payable to Mr. Saraf pursuant to the employment agreement
to the extent obtainable at commercially reasonable rates.
In
the event Mr. Saraf terminates his employment agreement for Good Reason, the Company shall pay Mr. Saraf a lump sum equal to his
base salary and bonus through the remainder of the term of the employment agreement. For purposes of the employment agreement,
"Good Reason" shall mean (a) breach of any provision of the employment agreement by the Company including, without limitation,
a reduction in his duties or responsibilities, (b) the appointment of any other person as Chairman of the Board, President or
Chief Executive Officer of the Company or the removal of the employee from that position, (c) the failure of the stockholders
to elect the employee as a director of the Company or the removal of the employee from the Board of Directors, or (d) the relocation
of the Company’s business operations or principal office more than 30 miles from its present location.
In
the event the Company terminates Mr. Saraf’s employment for "Cause" (other than a termination for Disability),
the Company shall pay Mr. Saraf his base salary through the date of termination stated in the notice, and Mr. Saraf shall, if
so requested by the Board of Directors, perform his duties under the employment agreement through the date of termination stated
in the notice. As used herein, "Cause" shall mean any willful (a) dissemination of genuine trade secrets or other material
confidences of the employer by employee for the personal gain of the employee, (b) dishonesty of employee in the course of his
employment which is punishable by criminal and civil law or is materially prejudicial to employer, (c) deliberate activity of
employee which is materially prejudicial to the financial interests of the Company as reasonably determined by a majority of the
Board of Directors of the Company, or any act, or failure to act, by employee involving fraud, willful malfeasance or gross negligence
in the performance of his duties hereunder as reasonably determined by a majority of the disinterested members of the Board of
Directors of the Company, or (d) Disability of employee.
In
the event the Company terminates Mr. Saraf’s employment for any reason other than for Cause or upon Mr. Saraf’s death
or disability, then (a) the employment agreement shall nonetheless be deemed terminated, and the Company shall pay Mr. Saraf upon
any such termination a lump sum equal to the larger of his base salary and bonus for the remaining term under the employment agreement
and his base salary and bonus for three (3) years, (b) employee shall not be required to mitigate his damages by finding alternative
employment or otherwise, and any income earned by him after such termination shall not be set-off against amounts due hereunder,
and (c) the Company will pay the premium for Mr. Saraf’s COBRA insurance benefits for Mr. Saraf and his family for 18 months
or provide equivalent coverage. The foregoing payments shall also be made in the event that Mr. Saraf’s employment with
the Company is terminated following a Change of Control notwithstanding the reason for such termination. For purposes of the employment
agreement, "Change in Control" of the Company shall mean: (1) any "person" (other than Employee) as such term
is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other than the employee
or any group of which the employee is a part, or any Company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the Company) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent
(30%) or more of the combined voting power of the Company’s then outstanding securities; (2) at any time, Incumbent Directors
cease, for any reason, to constitute at least a majority of the Board of Directors of the Company. As used herein, "Incumbent
Directors" means (a) the individuals who constitute the Board upon the execution of this Agreement and (b) any other director
whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least
two-thirds (2/3) of the Incumbent Directors then in office which two-thirds includes the employee; (3) the stockholders of the
Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting
power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;
provided, however that no "Change of Control" shall be deemed to have occurred until the closing of any such transaction;
and provided further, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction)
in which no person (as hereinabove defined) acquires more than 25% of the combined voting power of the Company’s then outstanding
securities shall not constitute a Change in Control of the Company; (4) the stockholders of the Company approve a plan of complete
liquidation of the Company or the sale or disposition by the Company of all or substantially all of the Company’s assets
or (5) the Company, in one or a series of transactions, sells all or substantially all of its assets.
Any
payments payable under the employment agreement to Mr. Saraf that are in the nature of compensation in the event of the Company’s
termination of Mr. Saraf under the employment agreement shall not exceed the maximum amount which may be paid to Mr. Saraf without
causing such payments or any other payments or benefits provided to Mr. Saraf to become subject to the deduction limitation provided
for in Section 280G(a) of the Internal Revenue Code of 1986, as amended, or the excise tax provided for in Section 4999 of the
Code, or any successor provisions of applicable law.
Under
the employment agreement, upon a termination by Mr. Saraf for Cause, termination by the Company without Cause, or the effectuation
of a Change of Control, all stock options of the Company held by Mr. Saraf upon the date of termination will immediately vest
upon termination and upon the effectuation of a Change of Control. Additionally, under the terms of Mr. Saraf's option agreements,
Mr. Saraf's options will expire one (1) year following such termination.
On
January 14, 2013, Mr. Saraf's annual base salary was increased to $293,000 pursuant to the cost-of-living increase adjustment
provided for under the employment agreement. On January 14, 2014, Mr. Saraf's annual base salary was increased to $296,500 pursuant
to the cost-of-living adjustment provided for under the employment agreement. On December 5, 2014, the Compensation Committee
approved an increase to Mr. Saraf's annual compensation to $321,500, effective December 1, 2014. On December 22, 2015, the Compensation
Committee approved the cost-of-living adjustment provided for under the employment agreement increasing Mr. Saraf's annual base
salary by .05%, resulting in an annual base salary of $323,107. Mr. Saraf voluntarily reduced his annual base salary by 10% effective
as of November 2, 2015 consistent with the reduction of the weekly work hours and weekly salary of exempt employees by 10% that
was instituted as part of a cost cutting strategy.
Mr.
Saraf may also participate in the Company’s 2000 Stock Option Plan, the Company’s 2007 Stock Incentive Plan and the
Company’s Employee 401-K and Profit Sharing Plan (the "Profit Sharing Plan"). During the fiscal year ended February
29, 2016, the Company did not match any employee contributions to the Profit Sharing Plan.
Based
upon the Compensation Committee’s review of the Company’s compensation design features, and the Company’s applied
compensation philosophies and objectives, the Compensation Committee determined that risks arising from the Company’s compensation
policies and practices for its employees are not reasonably likely to have a material adverse effect on the Company.
Director
Compensation
The
following table sets forth information regarding the compensation of our non-employee directors for the year ended February 29,
2016.
Name
(1)
|
|
Fees
Earned
Or
Paid
In Cash
($)
|
|
|
Total
($)
|
|
Dwight P. Aubrey
|
|
|
19,500
|
|
|
|
19,500
|
|
John F. Chiste
|
|
|
27,000
|
|
|
|
27,000
|
|
Jacob A. Davis
(2)
|
|
|
16,500
|
|
|
|
16,500
|
|
Tim Eriksen
(3)
|
|
|
7,500
|
|
|
|
7,500
|
|
Sidney H. Kopperl
(2)
|
|
|
16,500
|
|
|
|
16,500
|
|
David W. Pointer
(3)
|
|
|
7,500
|
|
|
|
7,500
|
|
|
(1)
|
As
of February 29, 2016, the current non-employee directors do not hold any stock options.
|
|
(2)
|
Mr.
Davis' term and Mr. Kopperl's term as directors ended on August 4, 2015, the date of
the 2015 annual stockholders' meeting. This table reflects the director fees earned by
Messrs. Davis and Kopperl from March 1, 2015 through August 4, 2015.
|
|
(3)
|
Messrs.
Eriksen and Pointer were elected as directors of the Company on August 4, 2015. This
table reflects the director fees earned by Messrs. Eriksen and Pointer from August 4,
2015 through February 29, 2016.
|
Each
director who is not employed by the Company receives $1,500 for each meeting of the Board he attends and $250 for each committee
meeting he attends on a date on which no meeting of the Board is held. In addition, all out-of-pocket expenses incurred by a director
in attending Board or committee meetings are reimbursed by the Company. The Chairmen of the Audit and Compensation Committees
receive $1,500 per quarter for their additional duties and responsibilities. In addition, annually each director who is not employed
by the Company may receive additional cash or equity awards for their services on the Board. For fiscal year 2016, the non-employee
directors did not receive any additional cash or equity compensation other than the director meeting fees.