UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN
PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. )
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| ☒ | Definitive Proxy Statement | ||||
| ☐ | Definitive Additional Materials | ||||
| ☐ | Soliciting Material under § 240.14a-12 | ||||
MITEK SYSTEMS, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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MITEK SYSTEMS, INC.
600 B STREET, SUITE 100
SAN DIEGO, CALIFORNIA 92101
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 4, 2020
TO THE STOCKHOLDERS OF MITEK SYSTEMS, INC.
The annual meeting of stockholders of Mitek Systems, Inc. will be held at 9:00 a.m., local time, on Wednesday, March 4, 2020, at Mitek Systems, Inc. 600 B. Street. Suite 100, San Diego, California 92101, for the following purposes:
| 1 | . | To elect the following seven directors to serve until our 2020 annual meeting of stockholders and until their respective successors have been elected and qualified: William K. “Bill” Aulet, Scipio “Max” Carnecchia, James C. Hale, Bruce E. Hansen, Alex W. “Pete” Hart; Jane J. Thompson, and Donna C. Wells; | ||||||
| 2 | . | To approve the Mitek Systems, Inc. 2020 Incentive Plan; | ||||||
| 3 | . | To ratify the selection of Mayer Hoffman McCann P.C. as our independent registered public accounting firm for the fiscal year ending September 30, 2020; | ||||||
| 4 | . | To approve, on an advisory (non-binding) basis, the compensation of our named executive officers as presented in the Proxy Statement accompanying this notice; and | ||||||
| 5 | . | To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. | ||||||
These items of business are more fully described in the Proxy Statement accompanying this notice.
Our Board of Directors has fixed the close of business on January 17, 2020 as the record date for the determination of stockholders entitled to notice of and to vote at the annual meeting and all adjournments or postponements thereof. A list of these stockholders will be open to examination by any stockholder at the annual meeting and for ten days prior thereto during normal business hours at our executive offices located at 600 B Street, Suite 100, San Diego, California 92101. Enclosed for your convenience is a proxy card which may be used to vote your shares at the annual meeting. The proxy materials, including a proxy card and our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, are available online at www.proxydocs.com/MITK.
You are invited to attend the annual meeting in person. Even if you expect to attend the annual meeting, it is important that you complete, sign, date and return the enclosed proxy card as promptly as possible in the enclosed return envelope (which is postage prepaid if mailed in the United States) in order to ensure that your shares are represented at the annual meeting. Even if you have voted by proxy, you may still revoke such proxy and vote in person if you attend the annual meeting. However, please note that if your shares are held of record by a broker, bank or other agent and you wish to vote at the annual meeting, you must obtain a proxy card issued in your name from such record holder.
| By Order of the Board of Directors | ||||||||
 | ||||||||
| San Diego, California | Scipio “Max” Carnecchia | |||||||
| January 24, 2020 | Chief Executive Officer | |||||||
TABLE OF CONTENTS
MITEK SYSTEMS, INC.
600 B STREET, SUITE 100
SAN DIEGO, CALIFORNIA 92101
PROXY STATEMENT
FOR THE 2020 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 4, 2020
QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
Why am I receiving these materials?
We sent you this proxy statement (the “Proxy Statement”) and the enclosed proxy card because the Board of Directors (the “Board”) of Mitek Systems, Inc. (sometimes referred to as “we”, “us”, “our”, “Mitek” or the “Company”) is soliciting your proxy to vote at our 2020 annual meeting of stockholders, or any adjournment or postponement thereof (the “Annual Meeting”). You are invited to attend the Annual Meeting and we request that you vote on the proposals described in this Proxy Statement. However, you do not need to attend the Annual Meeting to vote your shares. Instead, you may simply complete, sign, date and return the enclosed proxy card or submit your proxy through the Internet or by telephone according to the instructions contained in the enclosed proxy card.
We intend to mail this Proxy Statement and the accompanying materials to all stockholders of record entitled to vote at the Annual Meeting on or about January 30, 2020.
When and where will the Annual Meeting be held?
The Annual Meeting will be held at 9:00 a.m., local time, on Wednesday, March 4, 2020, at Mitek Systems, Inc. 600 B. Street. Suite 100, San Diego, California 92101.
Who can vote at the Annual Meeting and how many votes do I have?
Only stockholders of record at the close of business on January 17, 2020 will be entitled to vote at the Annual Meeting. At the close of business on this record date, there were 40,894,897 shares of common stock outstanding and entitled to vote. With respect to each proposal to be voted upon at the Annual Meeting, you are entitled to one vote for each share of common stock held as of the record date.
Stockholder of Record: Shares Registered in Your Name
If at the close of business on January 17, 2020, your shares of common stock were registered directly in your name with our transfer agent, Computershare Trust Company, NA, then you are the stockholder of record of these shares. As a stockholder of record, you may vote either in person at the Annual Meeting or by proxy. Whether or not you plan to attend the Annual Meeting, we urge you to complete, sign, date and return the enclosed proxy card or submit your proxy through the Internet or by telephone by following the instructions provided in the enclosed proxy card to ensure that your vote is counted.
Beneficial Owner: Shares Registered in the Name of Your Broker, Bank or Other Agent
If at the close of business on January 17, 2020 your shares of common stock were held, not in your name, but rather in an account at a brokerage firm, bank or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As the beneficial owner, you have the right to direct your broker, bank or other agent regarding how to vote the shares in your account. Certain of these institutions offer the ability to direct your agent how to vote through the Internet or by telephone. You are also invited to attend the Annual Meeting. However, because you are not the stockholder of record, you may not vote your shares in person at the Annual Meeting unless you request and obtain a valid proxy card issued in your name from your broker, bank or other agent in whose name the shares are registered prior to the Annual Meeting.
What am I voting on?
There are four matters scheduled for a vote at the Annual Meeting:
•Election of the seven nominees for director named in this Proxy Statement to serve until our 2021 annual meeting of stockholders and until their respective successors have been elected and qualified;
•Approve our 2020 Incentive Plan (“2020 Plan”);
•Ratification of the selection of Mayer Hoffman McCann P.C. (“Mayer Hoffman”) as our independent registered public accounting firm for the fiscal year ending September 30, 2020; and
•Approval, on an advisory (non-binding) basis, of the compensation paid to our named executive officers as presented in this Proxy Statement.
Will there be any other items of business on the agenda?
Other than the election of directors, the approval of the 2020 Plan, the ratification of the selection of Mayer Hoffman as our independent registered public accounting firm, and the advisory vote on the compensation of our named executive officers, the Board knows of no other matters to be presented at the Annual Meeting. If any other matter should be presented at the Annual Meeting upon which a vote may properly be taken, shares represented by all proxies received by the Board will be voted with respect to such matter in accordance with the judgment of the persons named as attorneys-in-fact in the proxies.
What is the Board’s voting recommendation?
The Board recommends that you vote your shares:
•“For” each of the seven nominees for director named in this Proxy Statement;
•“For” the approval of the 2020 Plan;
•“For” the ratification of the selection of Mayer Hoffman as our independent registered public accounting firm for the fiscal year ending September 30, 2020; and
•“For” the approval, on an advisory (non-binding) basis, of the compensation paid to our named executive officers as presented in this Proxy Statement.
How do I vote?
With respect to the election of directors, you may either vote “for” any or all of the nominees proposed by the Board or you may “withhold” your vote for any or all of the nominees. For each of the other matters to be voted on, you may vote “for” or “against” or abstain from voting. The procedures for voting are described below, based upon the form of ownership of your shares.
Stockholder of Record: Shares Registered in Your Name
If you do not wish to vote in person or you will not be attending the Annual Meeting, you may vote by proxy. You may vote by proxy using the enclosed proxy card, vote by proxy through the Internet or vote by proxy over the telephone. The procedures for voting by proxy are as follows:
•To vote by proxy using the enclosed proxy card, complete, sign and date your proxy card and return it promptly in the envelope provided.
•To vote by proxy through the Internet, go to the website address set forth on the enclosed proxy card and follow the instructions provided at the website.
•To vote by proxy over the telephone, dial the toll-free phone number listed on your proxy card under the heading “Vote by Phone” using a touch-tone phone and follow the recorded instructions.
If you vote by proxy, your vote must be received by 11:59 p.m. Eastern Standard Time on Tuesday, March 3, 2020, to be counted. If you are a stockholder of record and attend the Annual Meeting in person, you may vote in person at the Annual Meeting. We will give you a ballot when you arrive and any previous proxy that you submitted, whether by mail, Internet or telephone, will be superseded by the vote that you cast in person at the Annual Meeting. If you have any questions regarding how to submit your proxy or vote your shares at the Annual Meeting, please call our Corporate Secretary at (619) 269-6800.
We provide Internet and telephone proxy voting with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your Internet and telephone access, such as usage charges from Internet access providers and telephone companies.
Beneficial Owner: Shares Registered in the Name of Your Broker, Bank or Other Agent
If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from the Company. To ensure that your vote is counted, simply complete, sign, date and mail the proxy card or, if provided by your agent, follow the instructions for submitting your proxy through the Internet or by telephone. To vote in person at the Annual Meeting, you must obtain a proxy card issued in your name from your broker, bank or other agent in whose name the shares are registered prior to the Annual Meeting. Follow the
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instructions from your broker, bank or other agent included with these proxy materials or contact your broker, bank or other agent to request a proxy card.
Who is paying for this proxy solicitation?
We will pay the expenses of soliciting proxies for the Annual Meeting, including the cost of preparing, assembling and mailing the proxy materials. Proxies may be solicited personally, by mail, by telephone, by facsimile or by electronic mail by our directors, officers or other employees. Our directors, officers or other employees will not receive additional compensation for soliciting proxies. We may request that any person holding stock in their name for the benefit of others, such as a broker, bank or other agent, forward the proxy materials to such beneficial owners and request authority to execute the proxy. We will reimburse any such broker, bank or other agent for their expenses in connection therewith.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign, date and return each proxy card to ensure that all of your shares are voted.
Can I change my vote after submitting my proxy?
Yes. You may change your vote with respect to any proposal by revoking your proxy at any time prior to the commencement of voting with respect to such proposal at the Annual Meeting. If you are a stockholder of record, you may revoke your proxy in any one of three ways:
•You may submit another properly completed proxy with a later date by mail, through the Internet or by telephone (your latest Internet or telephone instructions submitted prior to the deadline will be followed);
•You may send a written notice that you are revoking your proxy to our Corporate Secretary at Mitek Systems, Inc., 600 B Street, Suite 100, San Diego, California 92101, Attn: Corporate Secretary by no later than the close of business on Tuesday, March 3, 2020; or
•You may attend the Annual Meeting and vote in person. However, simply attending the Annual Meeting will not, by itself, revoke your proxy.
If your shares are held of record by a broker, bank or other agent, you must contact such record holder to revoke any prior voting instructions or obtain a proxy card issued in your name from such record holder in order to vote in person at the Annual Meeting. Following the commencement of voting with respect to a proposal, you may not revoke your proxy or otherwise change your vote with respect to such proposal.
Votes will be counted by the inspector of elections appointed for the Annual Meeting.
How are my shares voted if I give no specific instruction?
We must vote your shares as you have instructed. If there is a matter on which a stockholder of record has given no specific instruction but has authorized us generally to vote the shares, they will be voted as follows:
•“For” each of the seven nominees for director named in this Proxy Statement;
•“For” the approval of the 2020 Plan;
•“For” the ratification of the selection of Mayer Hoffman as our independent registered public accounting firm for the fiscal year ending September 30, 2019; and
•“For” the approval, on an advisory (non-binding) basis, of the compensation paid to our named executive officers as presented in this Proxy Statement.
This general authorization would exist, for example, if a stockholder of record merely signs, dates and returns the proxy card but does not indicate how its shares are to be voted on one or more proposals. If other matters properly come before the Annual Meeting, or any adjournment or postponement thereof, and you do not provide specific voting instructions, your shares will be voted as recommended by the Board.
If your shares are held of record by a broker, bank or other agent, see “What is a broker non-vote?” below regarding the ability of brokers, banks and other such holders of record to vote the uninstructed shares of their clients or other beneficial owners in their discretion and for an explanation of broker non-votes.
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What is a broker non-vote?
Under rules that govern brokers, banks and other agents that are record holders of company stock held in brokerage accounts for their clients who beneficially own the shares, such record holders who do not receive voting instructions from their clients have the discretion to vote uninstructed shares on certain matters (“discretionary matters”), but do not have discretion to vote uninstructed shares as to certain other matters (“non-discretionary matters”). Accordingly, a broker may submit a proxy card on behalf of a beneficial owner from whom the broker has not received voting instructions that casts a vote with regard to discretionary matters but expressly states that the broker is not voting as to non-discretionary matters. The broker’s inability to vote on non-discretionary matters with respect to which the broker has not received voting instructions from the beneficial owner is referred to as a “broker non-vote.”
What are the voting requirements that apply to the proposals discussed in this Proxy Statement?
The election of directors contemplated by Proposal No. 1 will be decided by a plurality of the votes cast. Accordingly, the seven director nominees receiving the highest number of votes will be elected. The approval of the 2020 Plan contemplated by Proposal No. 2, the ratification of the selection of Mayer Hoffman as our independent registered public accounting firm contemplated by Proposal No. 3 and approval, on an advisory (non-binding) basis, of the compensation of our named executive officers contemplated by Proposal No. 4 each requires the affirmative vote of the holders of a majority of the shares of common stock present and entitled to vote either in person or by proxy at the Annual Meeting.
What is the effect of withhold authority votes, abstentions and broker non-votes?
Withhold Authority Votes: Shares subject to instructions to withhold authority to vote on the election of directors will not be voted. This will have no effect on Proposal No. 1—Election of Directors because, under plurality voting rules, the seven director nominees receiving the highest number of “for” votes will be elected.
Abstentions: Under Delaware law (under which Mitek is incorporated), abstentions are counted as shares present and entitled to vote at the Annual Meeting. Therefore, abstentions will have the same effect as a vote “against”, Proposal No. 2—Approval of the 2020 Plan, Proposal No. 3—Ratification of the Selection of our Independent Registered Public Accounting Firm and Proposal No. 4—Approval, on an Advisory (Non-Binding) Basis, of the Compensation Paid to our Named Executive Officers. However, abstentions will have no effect on Proposal No. 1—Election of Directors because under the plurality voting rules, the seven director nominees receiving the highest number of “for” votes will be elected.
Broker Non-Votes: As a result of a change in the rules related to discretionary voting and broker non-votes, brokers, banks and other agents are no longer permitted to vote the uninstructed shares of their clients on a discretionary basis in the election of directors. Because broker non-votes are not considered under Delaware law to be entitled to vote at the Annual Meeting with respect to “non-discretionary” matters, they will have no effect on the outcome of the vote on Proposal No. 1—Election of Directors. Proposal No. 2—Approval of the 2020 Plan, and Proposal No. 4—Approval, on an Advisory (Non-Binding) Basis, of the Compensation Paid to our Named Executive Officers, are considered “non-discretionary” matters on which your broker, bank or other agent will not be able to vote on your behalf if it does not receive instructions from you and, therefore, there may be broker non-votes on Proposal Nos. 2 and 4. If you hold your shares in street name and you do not instruct your broker, bank or other agent how to vote your shares on Proposal Nos. 1, 2 and 4, no votes will be cast on your behalf on these proposals. Therefore, it is important that you indicate your vote on these proposals if you want your vote to be counted. Proposal No. 3—Ratification of the Selection of our Independent Registered Public Accounting Firm is considered a routine or “discretionary” matter on which your broker, bank or other agent will be able to vote on your behalf even if it does not receive instructions from you and, therefore, no broker non-votes are expected to exist in connection with Proposal No. 3.
What is the quorum requirement?
A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if at least a majority of the shares of our common stock outstanding on the record date are present either in person or by proxy at the Annual Meeting. At the close of business on January 17, 2020, the record date for the Annual Meeting, there were 40,894,897 shares of common stock outstanding. Thus, a total of 40,894,897 shares are entitled to vote at the Annual Meeting and holders of common stock representing at least 20,447,449 votes must be represented at the Annual Meeting either in person or by proxy to have a quorum.
Your shares will be counted towards the quorum only if you submit a valid proxy (or if one is submitted on your behalf by your broker, bank or other agent) or if you vote in person at the Annual Meeting. Votes withheld from a director nominee and abstentions will be counted as present for purposes of establishing the required quorum. Broker non-votes will be counted as present for purposes of establishing the required quorum. If there is no quorum, the chairman of the meeting or a majority of the shares present in person or by proxy at the Annual Meeting may adjourn the Annual Meeting to another date.
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I have also received a copy of the Company’s Annual Report on Form 10-K. Is that a part of the proxy materials?
Our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 (the “Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on December 6, 2019, accompanies this Proxy Statement. This document constitutes our Annual Report to Stockholders and is being made available to all stockholders entitled to receive notice of and to vote at the Annual Meeting. Except as otherwise stated, the Form 10-K is not incorporated into, and is not part of, this Proxy Statement and should not be considered proxy solicitation material.
How can I find out the results of the voting at the Annual Meeting?
Voting results are expected to be announced at the Annual Meeting and will also be disclosed in a Current Report on Form 8-K (the “Current Report on Form 8-K”) that we will file with the Securities and Exchange Commission (“SEC”) within four business days of the date of the Annual Meeting. In the event the results disclosed in the Current Report on Form 8-K are preliminary, we will subsequently amend the Current Report on Form 8-K to report the final voting results within four business days of the date that such results are known.
When are stockholder proposals due for next year’s annual meeting of stockholders?
Stockholders may submit proposals regarding matters appropriate for stockholder action for consideration at our next annual meeting of stockholders consistent with Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and our second amended and restated bylaws (the “Bylaws”). To be considered for inclusion in the proxy materials for our 2021 annual meeting of stockholders, a stockholder proposal, including a proposal for the nomination of directors, must be submitted in writing no later than October 2, 2020 to our Corporate Secretary at Mitek Systems, Inc., 600 B Street, Suite 100, San Diego, California 92101, Attn: Corporate Secretary. Pursuant to the terms of our Bylaws, stockholders wishing to submit proposals or director nominations, including those that are not to be included in our 2021 proxy statement and proxy, must provide timely notice in writing to our Secretary. To be timely, a stockholder’s notice must be delivered to or mailed and received at our principal executive offices not later than the close of business on December 4, 2020, nor earlier than November 4, 2020, subject to certain exceptions. Stockholders are advised to review our Bylaws, which contain additional requirements with respect to advance notice of stockholder proposals and director nominations.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
Background
Pursuant to our Bylaws, the Board has fixed the number of authorized directors at seven. The seven director nominees receiving the highest number of votes at the Annual Meeting will be elected to the Board, to serve until our next annual meeting of stockholders and until their successors have been duly elected and qualified.
Unless authorization to do so is withheld, it is intended that the persons named in this Proxy Statement will vote for the election of the seven director nominees proposed by the Board. All incumbent directors have been recommended by the Nominating and Corporate Governance Committee of the Board (the “Nominating Committee”) as nominees for re-election to the Board. If any of the director nominees should become unavailable for election prior to the Annual Meeting, the proxy will be voted for a substitute nominee or nominees, if any, designated by the Board.
Specific Skills and Attributes to Be Represented on the Board
In consultation with our outside advisors, we have undertaken a review of the skills and attributes most critical for our Board of Directors to possess and evaluated each member of our current Board based on these qualities.
The areas in which each Board member is most equipped to provide leadership are noted in their individual biographies. It is important to note that not every Board member needs to be a leader in every area, nor does leadership in a larger number of areas make a Board member “better”; it is only critical that each quality is represented on our Board.
| Skills and Attributes | Importance to Mitek | ||||
| Industry knowledge | Mitek benefits from significant trends across several sectors including financial services, e-commerce, mobile, cellular, identity solutions and technology. Relevant industry expertise helps identify areas for growth or improvement as well as to craft the best business responses to market conditions. | ||||
| Product marketing & sales | Mitek operates in competitive sectors and seeks to quickly launch and grow market share across its products. Product and marketing expertise helps in bringing new products to market & creating new markets as well as organizational design & delivery to achieve high revenue growth. | ||||
| Strategic planning | Mitek operates in a highly dynamic field. Board members who have experience making strategic decisions for companies of various sizes, in various industries and at various stages in their development aid our continued high performance. | ||||
| Technology leadership | The specific nature of Mitek’s businesses makes the ability to assess its technological competitiveness crucial. | ||||
| Operational excellence | Strong management and a commitment to high performance are critical to maintaining and growing Mitek’s competitive position. | ||||
| Human resources, compensation and succession planning | Mitek’s competitiveness depends on its ability to recruit and retain top-tier talent and to plan for its long-term needs. | ||||
| Investor relations and fund-raising ability | The ability to explain Mitek’s story to the market is critical to maximizing stockholder value and ensuring the company has adequate access to capital. | ||||
| Financial expertise | An understanding of Mitek’s financial position and outlook is essential to making informed strategic decisions for the Company. | ||||
| Corporate governance leadership | Expertise in corporate governance supports assessment of the effectiveness of Mitek’s Board and proposing any necessary changes. | ||||
| Mergers & acquisitions (M&A) experience | Ability to evaluate M&A opportunities is essential to delivering stockholder value. | ||||
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| Skills and Attributes | Importance to Mitek | ||||
| Diverse perspective | Diversity in perspective, background and experience is critical to our ability to serve our customers, identify opportunities and address problems. A demonstrated commitment to diversity of backgrounds and experiences is crucial to our ability to attract and retain talent. | ||||
| Global experience | Success in our industry requires constant expansion to new markets, and our Board members need to be equipped to evaluate the state of our business in global markets. | ||||
The following table includes the names and certain information about the nominees for director. All of the nominees named below have consented to being named herein and to serve on the Board, if elected.
| Name | Age | Position | ||||||||||||
| William K. “Bill” Aulet(1)(3) | 62 | Director | ||||||||||||
| Scipio “Max” Carnecchia | 57 | Chief Executive Officer and Director | ||||||||||||
| James C. “Jim” Hale(1)(2) | 67 | Director | ||||||||||||
| Bruce Hansen (1)(3) | 60 | Chairman of the Board and Director | ||||||||||||
| Alex W. “Pete” Hart(2) | 79 | Director | ||||||||||||
| Jane J. Thompson (2)(3) | 68 | Director | ||||||||||||
| Donna C. Wells (1)(2) | 58 | Director | ||||||||||||
(1)Member of the Audit Committee of the Board (the “Audit Committee”)
(2)Member of the Compensation Committee of the Board (the “Compensation Committee”)
(3)Member of the Nominating Committee
William K. “Bill” Aulet. Mr. Aulet has served as a director since January 2015. Since 2017, Mr. Aulet has been a Professor of the Practice at the MIT Sloan School of Management. Since 2009, he has served as the managing director for the Martin Trust Center for MIT Entrepreneurship at MIT. From 2005 to 2009, Mr. Aulet was a Senior Lecturer and Entrepreneur in Residence at the MIT Sloan School of Management. From 2003 to 2005, he served as Senior Vice President and Chief Financial Officer of Viisage Technology, a security technology company with a dual focus in the areas of drivers’ licenses and facial recognition. From 1996 to 2002, he served as President and Director of SensAble Technologies, a provider of force-feedback haptic devices and touch-enabled 3D modeling software solutions. Prior to joining SensAble, Mr. Aulet started his career at IBM as a Systems Engineer, and then was rapidly promoted through various jobs where he gained training and experience in technical, marketing, sales, financial and international business operations and management. His last job with IBM was the Finance and Planning Manager for the IBM New England Region. Mr. Aulet holds a Bachelor of Engineering from Harvard University and a Master of Management Science from the MIT Sloan School of Management. Mr. Aulet is a visiting Professor at University of Strathclyde (Scotland) as well as a 2018 Nannerl Keohane Distinguished Visiting Professor at the University of North Carolina at Chapel Hill and Duke University. Mr. Aulet’s experience in finance, technology entrepreneurship, and specifically his experience in document and facial recognition, makes him well qualified to serve on the board. Mr. Aulet is the author of the award-winning international best-selling book, Disciplined Entrepreneurship, and its companion book, the Disciplined Entrepreneurship Workbook.
Skills and attributes: Product marketing and sales; strategic planning; technology leadership; operational excellence; human resources; investor relations and fundraising ability; financial expertise; corporate governance leadership; M&A experience.
Scipio “Max” Carnecchia. Mr. Carnecchia has served as the Chief Executive Officer and as a director of Mitek since November 2018. From October 2017 until July 2018, Mr. Carnecchia served as the Chief Executive Officer and board member of Illuminate Education, Inc., the market-leading software as a services education platform. Prior to Illuminate, Mr. Carnecchia was the President and Chief Executive Officer of Accelrys, Inc., and has also served on the Accelrys board from 2009 until its acquisition in 2014 by Dassault Systemes. After the acquisition, Mr. Carnecchia continued to service as Chief Executive Officer of that business, which was renamed BIOVIA. Mr. Carnecchia previously served as President and Interim Chief Executive Officer of Interwoven, Inc., a content management software company, which was acquired by Autonomy Corporation plc in January 2009. Prior to joining Interwoven; Mr. Carnecchia served as Vice President of Global Sales of Xoriant Corporation, a software product development company, from April 2000 to January 2001, and as Vice President of Sales and Services of SmartDB Corporation, a provider of data integration toolkits for systems integrators and IT organizations, from September 1996 to February 2000. Mr. Carnecchia has demonstrated significant leadership skills in his Chief Executive Officer roles at Accelrys, Interwoven, BIOVIA and Illuminate Education, Inc. and as Vice President of Xoriant and SmartDB, and brings more than two decades of high technology experience to his position on the Board. During the past five years, Mr. Carnecchia has served as a member of the boards of directors of: Guidance Software, Inc., Agilysys,
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Inc., Accelrys, Inc., and DHI, Inc. Mr. Carnecchia holds a Bachelor of Engineering in Electrical Engineering from Stevens Institute of Technology. Mr. Carnecchia’s extensive knowledge of the industry in which we operate, as well as his unique role in the day-to-day operations of the Company as our Chief Executive Officer allows him to bring to the Board a broad understanding of the operational and strategic issues facing the Company.
Skills and attributes: Industry knowledge; product marketing and sales; strategic planning; technology leadership;
operational excellence; human resources; investor relations and fundraising ability; M&A experience; global experience
James C. Hale. Mr. Hale has served as one of our directors since November 2014. Prior to joining the Board, Mr. Hale served on our advisory board from September 2012 until November 2014. Mr. Hale has launched and grown multiple businesses that leveraged his vision of the evolving financial services marketplace, knowledge of emerging financial technologies, and global network at top financial service companies built over several decades in commercial and investment banking. Since 2011, Mr. Hale has been advising growth companies as a consultant at Columbus Strategic Advisors, LLC, a firm he co-founded. In 1998, Mr. Hale co-founded and served as Senior Managing Member and Chief Executive Officer of Financial Technology Ventures, now FTV Capital, an investment firm specializing in venture capital and private growth equity investments in financial technology companies worldwide, where he is currently a Partner Emeritus. From 1982 to 1998, Mr. Hale was with BancAmerica Securities (formerly Montgomery Securities) where he was the Senior Managing Partner and Head of the Financial Services Group, a practice that he founded. From 2015, Mr. Hale has served as a director and risk committee chairman of ACI Worldwide (NASDAQ: ACIW), a global software company, and as a director of Visual Edge Technology, a national provider of office technology solutions. From 2014, Mr. Hale has served as a director and audit committee chairman of Bank of Marin Bancorp (NASDAQ: BMRC), an independent commercial and retail bank in Northern California. Mr. Hale was a director of ExlService Holdings, Inc. (NASDAQ: EXLS), a business process outsourcing company, from 2001 to 2009 and a director and board chairman of Official Payments (NASDAQ: OPAY), a global electronic payments software company, from 2010 to 2014. In addition, Mr. Hale was a director of the State Bank of India (California), a California state chartered bank, and Public Radio International, a media company, among other private company boards. Mr. Hale currently serves as a member of the board of directors of Nebula Acquisition Corp. He holds a B.S. in Finance and Accounting from the University of California, Berkeley, an M.B.A. from Harvard Business School, and is a Certified Public Accountant (inactive). Mr. Hale is well qualified to serve on our Board of Directors due to his 35 years of management experience in the banking, payments, financial services and technology industries and his expertise and his experience as a corporate director and board chairman of other public and private companies.
Skills and attributes: Industry knowledge; strategic planning; technology leadership; investor relations and fundraising ability; financial expertise; corporate governance leadership; M&A experience; global experience
Bruce E. Hansen. Mr. Hansen has served as a director since October 2012, as our lead independent director from March 2016 until September 2018, and as our Chairman since September 2018. From August 2018 until the hiring of our new Chief Executive Officer in November 2018, Mr. Hansen served as our Principal Executive Officer. From October 2010 until October 2012 he served as a member of our advisory board. In 2002, he co-founded ID Analytics Inc., a consumer risk management company, and served as its Chairman and Chief Executive Officer from its inception until it was acquired by LifeLock, Inc. in March 2012. Prior to founding ID Analytics, he was President at HNC Software Inc., a global provider of analytic software solutions for financial services, telecommunications and healthcare firms, from 2000 to 2002. Mr. Hansen’s previous experience also includes the role of Chief Executive Officer of the Center for Adaptive Systems Applications and executive roles at CitiCorp (now CitiGroup), Automatic Data Processing (ADP) and Chase Manhattan Bank (now JP Morgan Chase). He currently serves as a member of the board of directors of Verisk Analytics, GDS Link, LLC, and RevSpring, Inc. Mr. Hansen holds a B.A. in economics from Harvard University and an M.B.A. from the University of Chicago. As a proven leader with decades of analytics industry experience ranging from concept-stage companies to established financial services companies, Mr. Hansen brings to the Board a unique perspective, an expansive knowledge base and domain expertise in the fields of identity verification and big data systems. The Board believes that Mr. Hansen’s experience as both a key executive and director will enable him to contribute to the Board with respect to both general governance matters and industry-specific operations.
Skills and attributes: Industry knowledge; product marketing and sales, strategic planning; technology leadership; operational excellence; human resources, compensation and succession planning; investor relations and fundraising ability; financial expertise; corporate governance leadership; M&A experience; global experience
Alex W. “Pete” Hart. Mr. Hart has served as a director since February 2011. In April 2012, he retired as Chairman of the Silicon Valley Bank Financial Group and has worked as an independent consultant in the financial services industry since 1997. He served as Chief Executive Officer of Advanta Corporation, a public diversified financial services company, from 1995 to 1997, where he had previously served as Executive Vice Chairman from 1994 to 1995. Prior to joining Advanta, he was President and Chief Executive Officer of MasterCard International, the worldwide payment service provider, from 1988 to 1994. In addition to SVB Financial, Mr. Hart has also previously served as a member of the board of directors of the following companies: BrightVolt, VeriFone Holdings, Inc. (Chairman), Global Payments, Inc., FICO, Inc., HNC Software Inc., Retek Inc., Shopping.com, Sanchez Computer Associates,
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US Encode, eHarmony.com and Sequal Technologies, Inc. Mr. Hart holds a B.A. in social relations from Harvard University. As an experienced leader in the financial services industry, Mr. Hart combines extensive general business expertise with a deep knowledge of the financial services and payments industry. His experience on the boards of directors of other companies in the financial services industry further augments his range of knowledge, providing experience on which he can draw while serving as a member of the Board.
Skills and attributes: Industry knowledge; product marketing and sales; strategic planning; technology leadership; operational excellence; human resources, compensation and succession planning; financial expertise; corporate governance leadership; M&A experience; global experience
Jane J. Thompson. Ms. Thompson joined our Board in September of 2017. Prior to joining the Board, Ms. Thompson served on Mitek’s advisory board from September 2012 until September 2017. Ms. Thompson also currently serves on the board of directors of Navient Corporation (since May 2014), and OnDeck Capital, Inc. (since October 2014). She previously served as a member of the board of directors of VeriFone Holdings, Inc., Blackhawk Network Holdings, The Fresh Market, and ConAgra with experience on Audit, Compensation, Risk, Finance and Operations, and Nominating and Governance committees. She served on the inaugural Consumer Advisory Board of the Consumer Financial Protection Bureau from September 2012 until October 2015. Ms. Thompson is currently the Chief Executive Officer and Founder of Jane J. Thompson Financial Services, LLC. From May 2002 through June 2011, Ms. Thompson founded and was President of Walmart Financial Services, where she was recognized as Innovator of the Year by American Banker for the large and comprehensive array of financial services and products designed for underserved customers in America. For over a decade she served at senior executive levels at Sears, leading corporate strategy and subsequently three large operating groups: Sears Credit, Sears Home Services, and Sears On-Line, transforming these businesses into leading, fast-growing economic drivers for Sears. Her career began at Procter & Gamble and she was a partner in the consumer practice of McKinsey & Company where she worked for more than 10 years. Ms. Thompson holds a B.B.A. in Marketing from the University of Cincinnati (summa cum laude) and an M.B.A. from Harvard Business School (Baker Scholar). She has over 40 years of leadership experience and a proven track-record as an independent board member and advisor to a wide range of start-up and multi-billion dollar organizations across financial services, fintech, management consulting, private equity and consumer goods industries.
Skills and attributes: Industry knowledge; product marketing and sales; strategic planning; operational excellence; human resources, compensation and succession planning; financial expertise; corporate governance leadership; M&A experience; diverse perspective.
Donna C. Wells. Ms. Wells has served as a director since November 2019. Prior to joining the Board, she served on our advisory board from September 2017 until November 2019. Ms. Wells is a serial entrepreneur, an experienced public and private company board director, and an innovator in the financial services, FinTech and cloud software industries. She is currently Chief Executive Officer of Valencia Ventures, a private company that provides strategic consulting and corporate governance services. From 2010-2017, Ms. Wells served as Board Director, President and Chief Executive Officer of Mindflash Technologies, Inc., an innovative venture-backed enterprise software startup that built a corporate training platform for businesses. In that capacity, she led the company from SaaS product launch to market leadership and to recognition as a Top 50 Small US Company to Work for by Fortune. Mindflash was acquired by Turn River Capital, a private equity firm. Prior to her role at Mindflash, Ms. Wells was Chief Marketing Officer at Mint Software, Inc. from 2007-2009. There, she led the growth strategy for this breakthrough, mobile personal finance software company from product launch to the company’s acquisition by Intuit. Prior to Mint, Ms. Wells had a 20-year career in strategic consumer and product marketing with The American Express Company and The Charles Schwab Corporation and led US marketing for two Fortune 500 companies, Intuit and the Expedia Group. She currently serves as a Board Member of Apex Technology Acquisition Corporation (Nasdaq: APXT) and of two private FinTech innovators: Betterment, a digital investment advisor, and Happy Money, an online lending company. She was previously a director at Boston Private Financial Holdings, Inc. (Nasdaq: BPFH), a bank holding company, from 2014 to 2018. In September 2019, Ms. Wells was appointed by the Center for Entrepreneurial Studies at the Stanford University Graduate School of Business as a Lecturer in Management. She holds a B.S. in Economics from The Wharton School at the University of Pennsylvania and an M.B.A. from Stanford University.
Skills and attributes: Industry knowledge; product marketing and sales; strategic planning; technology leadership; operational excellence; financial expertise; diverse perspective
None of our directors or director nominees has any family relationships with any of our other directors or executive officers. There currently are no legal proceedings, and during the past 10 years there have been no legal proceedings, that are material to the evaluation of the ability or integrity of any of our directors or director nominees.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION TO THE BOARD OF THE DIRECTOR NOMINEES DISCUSSED IN THIS PROPOSAL NO. 1.
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PROPOSAL NO. 2
APPROVAL OF OUR 2020 INCENTIVE PLAN
At the annual meeting, stockholders will be asked to approve the Mitek Systems, Inc. 2020 Incentive Plan (the “2020 Plan”), which was adopted, subject to stockholder approval, by the Board on January 21, 2020, upon the recommendation of the Compensation Committee of the Board (the “Compensation Committee”).
Why Stockholders Should Vote to Approve the 2020 Plan
•Equity Incentive Awards are an Important Part of Our Compensation Philosophy. Our equity compensation plans are critical to our ongoing effort to build stockholder value. As discussed in the Compensation Discussion and Analysis section of this Proxy Statement, equity incentive awards are central to our compensation program. Our Board and the Compensation Committee believe that our ability to grant equity incentive awards to new and existing employees, directors and eligible consultants has helped us attract, retain and motivate world-class talent which has contributed to our financial results, including an increase in revenue of 33% during the past fiscal year. Historically, we have primarily issued restricted stock units and stock options because these forms of equity compensation provide a strong retention value and incentive for employees to work to grow the business and build stockholder value, and are attractive to employees who share the entrepreneurial spirit that has made us a success. Also, our equity incentive programs are broad-based. The equity incentive programs we have in place have worked to build stockholder value by attracting and retaining talented employees. The Board believes that the effective use of equity-based compensation and performance-based compensation has been integral to the Company’s success in the past and is vital to its ability to achieve continued strong performance in the future.
◦ As of January 17, 2020, 214 of our employees and all of our non-employee directors held outstanding equity awards. Over the past three fiscal years, we have granted equity-based incentive compensation to approximately 173 individuals on an annual average basis. During that period, the number of individuals that received awards has increased by approximately 155% as the Company’s total employee count has increased by approximately 200% to support business growth and through acquisitions. We believe these broad-based grants help align incentives throughout the organization.
•Our Existing Plans Will No Longer Have Shares Available for Grant. Under our current forecasts, the Existing Incentive Plans (as defined below) will run out of shares available for grant within the first quarter of calendar year 2020, and we will not be able to continue to issue equity to our employees unless our stockholders approve the 2020 Plan. This assumes we continue to grant awards consistent with our historical usage and current practices, as reflected in our historical burn rate discussed below. While we could increase cash compensation if we are unable to grant equity incentives, we anticipate that we will have difficulty attracting, retaining and motivating our employees and directors if we are unable to make equity grants to them. We believe that outcome could negatively impact our ability to align employee compensation with the interests of stockholders.
◦The Company currently maintains the 2002 Stock Option Plan, the 2006 Stock Option Plan, the 2010 Stock Option Plan, and the Amended and Restated 2012 Incentive Plan ( collectively the “Existing Incentive Plans”), which permit the issuance of equity incentive awards to plan participants, including the Company’s employees, directors and consultants. As of January 17, 2020, a total of 4,644,319 shares of the Company’s common stock were subject to outstanding awards granted under the Existing Incentive Plans or as executive inducement awards outside of the Existing Incentive Plans, and an additional 107,903 shares of the Company’s common stock were available for new award grants under the Existing Incentive Plans. The Company also maintains the Director Restricted Stock Unit Plan (the “Director Plan” and collectively with the Existing Incentive Plans, the “Existing Plans”), which permits the discretionary award of restricted stock units to the Company’s employee and non-employee directors. As of January 17, 2020, a total of 471,186 shares of the Company’s common stock were subject to outstanding awards under the Director Plan, and an additional 287,385 shares of the Company’s common stock were available for new awards granted under the Director Plan.
•Reasonable Share Request. The total number of shares the Company is requesting under the 2020 Plan is 4,500,000, which the Company believes will be sufficient for equity compensation awards over approximately the next 2.5 - 3 years, and that such number of shares is reasonable and consistent with general market practices. This view is based on several assumptions, including that our grant practices under the 2020 Plan will be consistent with our historical practices and usage, and is dependent on a number of other factors that are difficult to predict or beyond our control, including the price of the Company’s common stock underlying future grants, our hiring activity, forfeitures of outstanding awards and other circumstances that may require us to change our equity grant practices. These underlying assumptions and factors cannot be predicted with certainty, and to the extent they change, the number of shares requested may not last the for the estimated period.
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The following table summarizes the awards outstanding and shares available for grant under the Existing Plans as of January 17, 2020, and the proposed increase in shares authorized for issuance under the 2020 Plan:
| As of January 17, 2020 | |||||
| Total number of shares of common stock subject to outstanding stock options (including inducement grants outside of the Existing Incentive Plans) | 2,430,375 | ||||
| Weighted-average exercise price of outstanding stock options | $ | 6.50 | |||
| Weighted-average remaining term of outstanding stock options | 4.2 years | ||||
| Total number of shares of common stock subject to Restricted Stock Units (including inducement grants made outside of the Existing Incentive Plans) | 2,685,130 | ||||
| Total number of shares available for grant under the Existing Incentive Plans | 107,903 | ||||
| Total number of shares available for grant under the Director Plan | 287,385 | ||||
| Total number of shares of common stock outstanding | 40,894,897 | ||||
| Per-share closing price of common stock as reported on Nasdaq Global Select Market | $ | 9.42 | |||
| Total number of shares proposed for new issuance under the 2020 Plan | 4,500,000 | ||||
•We Manage Our Equity Incentive Award Use Responsibly, and Dilution is Reasonable. We manage our long-term stockholder dilution by limiting the number of equity awards granted annually. Our Compensation Committee carefully monitors our annual net burn rate, which is the rate at which awards are granted as a percentage of outstanding shares of Common Stock, and potential stockholder dilution in order to maximize stockholder value, and the number of equity incentive awards granted is limited to the amount believed necessary to attract, retain and motivate key personnel.
•2020 Plan Best Practices. The 2020 Plan includes features designed to protect stockholder interests and reflect our compensation and governance principles, as described below.
•Director Compensation Limit. Awards under the 2020 Plan and all other compensation payable to each non-employee director is subject to an aggregate limit of $350,000 per year.
•No Liberal Share Recycling. Shares tendered or withheld to cover taxes or pay the exercise of an award are not made available again for grant under the 2020 Plan.
•Clawback Policy. Incentive compensation is subject to recoupment as required by law or if the Board determines that the award was predicated on achievement of certain financial results that were the subject of a material financial restatement, the participant engaged in fraud or misconduct that caused the material financial restatement, and a lower granting, vesting or payment of such award would have occurred. It applies to all participants (including executives) and covers all Awards granted under the 2020 Plan (including cash awards).
•No Discounted Options or Stock Appreciation Rights. Options and stock appreciation rights must have an exercise price or base price at or above the fair market value per share of our common stock on the date of grant.
•Prohibition on Repricing. Repricing of stock options and stock appreciation rights without the approval of our stockholders is expressly prohibited.
•No Liberal Change of Control Definition. The 2020 Plan does not include a “liberal” change in control definition (i.e., mergers require actual consummation).
•Transfer Restrictions. The 2020 Plan includes robust transfer restrictions, including that no award may be transferred to a third-party financial institution for value.
•Fixed Term and Fixed Share Authorization. The 2020 Plan has a term of ten years and no evergreen feature (i.e., the amount of shares authorized is fixed and can only be increased with stockholder approval).
•Minimum 1-year Vesting Term. The 2020 Plan requires a minimum one-year vesting term for all awards subject to an exclusion for 5% of the 2020 Plan’s share reserve.
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•No Dividends on Unvested Equity Awards. The 2020 Plan prohibits the payment of dividends prior to the time an award vests.
Exclusive Use of 2020 Plan for All Future Grants
If stockholders approve the 2020 Plan, no new awards will be granted under the Existing Incentive Plans after the Annual Meeting. In that case, the number of shares of the Company’s common stock that remain available for award grants under the Existing Incentive Plans immediately prior to the Annual Meeting will become available for award grants under the 2020 Plan. An additional 4,500,000 shares of the Company’s common stock will also be made available for award grants under the 2020 Plan. In addition, if stockholders approve the 2020 Plan, any shares of common stock subject to outstanding awards under the Existing Incentive Plans that are forfeited, cancelled or expire after the Annual Meeting will also be available for award grant purposes under the 2020 Plan. The Company can continue to grant awards pursuant to the Director Plan. Based solely on the closing price of the Company’s common stock as reported by NASDAQ on January 17, 2020, the maximum aggregate market value of the additional 4,500,000 new shares of common stock that could be issued under the 2020 Plan is approximately $42.4 million.
If stockholders do not approve the 2020 Plan, the Company will continue to have the authority to grant awards under the Existing Incentive Plans; however, given the limited number of shares available for new award grants, the Company will be unable to continue its historic incentive award practices. If stockholders approve the 2020 Plan, the termination of our grant authority under the Existing Incentive Plans will not affect awards then outstanding under the applicable plan.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 2 TO APPROVE THE 2020 PLAN.
Summary of the 2020 Plan
The following summary sets forth the primary features of the 2020 Plan. This summary is qualified in its entirety by the terms of the 2020 Plan, which is attached to this Proxy Statement as Annex A.
General. The 2020 Plan authorizes the grant of stock options, stock appreciation rights (“SARs”), restricted stock, RSUs, and cash awards (collectively referred to as “Awards”). Stock options granted under the 2020 Plan may be either options intended to constitute “incentive stock options,” as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options, in each case as determined by the Committee (as defined below) in accordance with the terms of the 2020 Plan. Incentive stock options will be subject to a restriction such that to the extent the aggregate fair market value of shares of our common stock subject to stock options designated as incentive stock options and that become exercisable for the first time by a participant during any calendar year exceeds $100,000 (based on grant date valuation), the excess options will be treated as nonqualified stock options.
Purpose. The purpose of the 2020 Plan is to make available certain equity and other incentives to motivate selected employees, directors and consultants of the Company to put forth their best efforts toward the continued growth, profitability and success of the Company and to align the interests of such individuals with those of our stockholders.
Administration. The authority to control and manage the operations and administration of the Plan will be vested in a committee of two or more independent non-employee directors designated by the Board in accordance with the terms of the 2020 Plan (the “Committee”). To the extent not inconsistent with applicable laws or stock exchange rules, the Committee may delegate all or any portion of its authority under the 2020 Plan to any one or more of its members or, with respect to Awards granted to participants who are not directors and officers subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to one or more executive officers of the Company. The Board also has the power to take action under the 2020 Plan, provided that, at the time of taking such action, the Board is comprised of a majority of directors who meet the criteria set forth in the 2020 Plan.
Subject to applicable laws and the terms of the 2020 Plan, the Committee has the authority, in its sole discretion, to, among other things, select the employees, directors and consultants to whom Awards may be granted, determine the terms and conditions of Awards (including the vesting schedule, repurchase provisions, rights of first refusal and satisfaction of any performance criteria), approve forms of award agreements, interpret the terms of the 2020 Plan and Awards, and subject to certain limitations set forth in the 2020 Plan (including obtaining stockholder approval in certain circumstances), amend the terms of any outstanding Award granted under the 2020 Plan.
Eligibility. The 2020 Plan provides that Awards may be granted to our employees, directors and consultants (as such terms are defined in the 2020 Plan), but that incentive stock options may be granted only to employees. It is not possible to state at this time the precise type and extent of Awards that any particular executive officer, all current executive officers as a group, any particular nominee for director, all current directors who are not executive officers as a group or all non-executive officers as a group will be granted under the 2020 Plan, since these matters will be determined by the Committee based on each participant’s level of responsibility, compensation and anticipated and actual contribution to our success. As of January 17, 2020, we expect that six non-employee directors, approximately 321 employees and no consultants will be eligible to receive awards under the 2020 Plan.
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Shares Reserved for Issuance Under the 2020 Plan. If this Proposal No. 2 is approved at the Annual Meeting, the total number of shares of our common stock that will be reserved for issuance under the 2020 Plan will be (i) 4,500,000 shares (the “Initial Shares”), plus (ii) such number of shares, not to exceed 107,903 as remained available for awards under the Existing Incentive Plans as of January 17, 2020, less one share for every one share granted under the Existing Incentive Plans after January 17, 2020 and prior to the effective date of the 2020 Plan, plus (iii) any shares underlying awards under the Existing Incentive Plans that are terminated, forfeited, cancelled, expire unexercised, or are settled in cash after January 17, 2020.
Counting Shares Issued under the 2020 Plan Against the Share Reserve and Returning Shares to Share Reserve. Under the 2020 Plan, (i) every share issued to a participant pursuant to the exercise of a stock option or SAR shall reduce the share reserve by one share and (ii) every share issued to a participant pursuant to an Award other than a stock option or SAR shall reduce the share reserve by 1.25 shares. If any shares issued to a participant under the 2020 Plan are subject to an Award (other than a stock option or SAR) that is terminated, forfeited or canceled or that expires unexercised, or if any shares subject to awards (other than stock options or SARs) granted under the Existing Incentive Plans (the “Previous Awards”) are terminated, forfeited, canceled or expire unexercised, in whole or in part, then, in any such case, the share reserve under the 2020 Plan shall be increased by 1.25 shares for every one share granted that is subsequently terminated, forfeited or canceled or that expires unexercised. If any shares issued to a participant under the 2020 Plan are subject to an Award that is a stock option or SAR that is terminated, forfeited or canceled or that expires unexercised, or if any shares subject to awards that are stock options or SARs granted under the Existing Incentive Plans are terminated, forfeited or canceled or that expires unexercised, in whole or in part, then, in any such case, the share reserve under the 2020 Plan shall be increased by 1.00 share for every one share granted that is subsequently terminated, forfeited, or canceled or that expires unexercised. However, the 2020 Plan provides that the following shares of our common stock will not be returned to the 2020 Plan or otherwise become available for issuance under the 2020 Plan: (i) shares of common stock tendered or withheld as full or partial payment of a stock option exercise price under the 2020 Plan or Existing Incentive Plan, as applicable; (ii) shares of common stock withheld by the Company to satisfy any tax withholding obligations (whether related to Awards or Previous Awards; and (iii) shares of common stock covered by the portion of any SAR that is exercised (whether or not such shares of common stock are actually issued to a participant upon exercise of the SAR).
Notwithstanding the foregoing, any shares of common stock covered by an Award (or portion of an Award) that are terminated, forfeited, canceled or expired (whether voluntarily or involuntarily) or issued (e.g., as substitution awards or inducement grants) in connection with an acquisition or merger shall be deemed not to have been issued from the 2020 Plan for purposes of determining the maximum aggregate number of shares of common stock that may be issued under the 2020 Plan.
Stock Options. Stock options will be granted pursuant to award agreements and will vest at the rate specified therein; provided that the vesting period with respect to any stock option grant shall be no less than one year from the stock option’s grant date. The exercise price of each stock option may not be less than 100% of the fair market value of the common stock on the date such option is granted (or 110%, in the case of an incentive stock option granted to any employee who, at the time of such grant, owns stock representing more than 10% of the combined voting power of the Company or any parent or subsidiary thereof). The exercise price is generally payable in cash, check, promissory note (if not otherwise prohibited), shares of common stock or payment through a broker-dealer sale and remittance procedure, a “net exercise” procedure or any combination of the foregoing methods of payment.
Stock Appreciation Rights. A SAR gives a participant the right to receive the appreciation in the fair market value of our common stock between the date of grant of such Award and the date of its exercise. The base appreciation amount of each grant of SARs may not be less than 100% of the fair market value of the common stock on the date of grant. SARs will be evidenced by an award agreement which shall specify the number of shares of common stock subject to such SARs and will vest and become exercisable at the times and on the terms established by the Committee; provided that the vesting period with respect to any SAR shall be no less than one year from the date of grant.
Restricted Stock. Awards of restricted stock will be evidenced by an award agreement which shall specify the number of shares of common stock subject to such Award and the period that must be satisfied before the restrictions pertaining to such grant of restricted stock will lapse and such stock will become vested. A restricted stock award may be issued for nominal or no cost and may be granted in consideration of the recipient’s past or future services performed for the Company. The Committee may grant restricted stock awards subject to conditions and the attainment of performance goals or may make such Awards subject to vesting conditions based on such service or performance criteria, including the Management Objectives (as defined below), as the Committee specifies. Each grant of restricted stock will specify the vesting period, which shall be no less than one year from the date of grant.
Restricted Stock Units. RSUs represent the right to receive shares of common stock at a future date. Awards of RSUs will be evidenced by an award agreement which shall specify the number of shares of common stock subject to such Award. RSUs may be issued for nominal or no cost and may be granted in consideration of the recipient’s past or future services performed for the Company. We may settle RSUs for cash, shares of common stock or other securities, or a combination thereof, as determined by the Committee. The Committee may grant RSUs subject to conditions and the attainment of specified performance goals, including the Management Objectives, or may make such Awards subject to vesting conditions based on such service or specified performance criteria . The grant of RSUs will specify the period that must be satisfied before the restrictions pertaining to such RSUs will lapse and the RSUs will become vested, which shall not be less than one year from the RSU’s grant date, and/or may provide that all or a portion
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of the restrictions pertaining to such RSUs will lapse upon achievement of specified performance criteria, subject to the one year vesting requirement. Participants have no voting rights with respect to RSUs until shares of common stock are issued in settlement of such Awards.
Limited Exception to Minimum Vesting. Notwithstanding the limitations regarding vesting set forth above, Awards covering up to 5% of the total share reserve may be issued with vesting periods shorter than one year from the date of grant of such Awards. In addition, the one-year minimum vesting requirements exclude any (i) Substitute Awards (as defined below), (ii) shares delivered in lieu of fully vested cash Awards and (iii) Awards to non-employee directors that vest on the earlier of the one year anniversary of the date of grant or the next annual meeting of stockholders which is at least 50 weeks after the immediately preceding year’s annual meeting); and, provided further, for the avoidance of doubt, that the foregoing restriction does not apply to the Committee’s discretion to provide for accelerated exercisability or vesting of any Award, including in cases of retirement, death, disability or a Change of Control, in the terms of the Award or otherwise. “Substitute Awards” means Awards granted or shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any subsidiary or with which the Company or any subsidiary combines.
Acquisitions and Other Transactions; Deferral of Award Payments; Separate Programs. To the extent permitted by applicable laws, the Committee may issue Awards under the 2020 Plan in settlement, assumption or substitution for outstanding awards or obligations to grant future awards in connection with the Company or a related entity engaging in an acquisition or merger (e.g., as currently permitted under Nasdaq Stock Market (“NASDAQ”) Listing Rule 5635(c)(3) and NASDAQ IM-5635-1) and may issue Awards under the 2020 Plan as inducement awards (e.g., as currently permitted under NASDAQ Listing Rule 5635(c)(4) and NASDAQ IM-5635-1). Such Awards would not count against the shares of common stock reserved under the 2020 Plan.
To the extent permitted by applicable laws, the Committee may issue Awards under the 2020 Plan in settlement, assumption or substitution for outstanding awards or obligations to grant future awards in connection with the Company or a related entity acquiring another entity, an interest in another entity or an additional interest in a related entity whether by merger, stock purchase, asset purchase or other form of transaction not described in the foregoing paragraph. To the extent required by applicable laws, such Awards would count against the shares of common stock reserved under the 2020 Plan.
The 2020 Plan provides that the Committee may establish one or more programs under the 2020 Plan to permit selected participants the opportunity to elect to defer receipt of the consideration payable upon exercise of an Award, satisfaction of performance criteria or other event that absent the election would entitle the participant to payment or receipt of shares of common stock or other consideration under the Award. The Committee also may establish one or more separate programs under the 2020 Plan for the purpose of issuing particular forms of Awards to one or more classes of participants on such terms and conditions as determined by the Committee from time to time.
Management Objectives. “Management Objectives” means the measurable performance objective or objectives established by the Committee with respect to any Award. Management Objectives may be described in terms of Company-wide objectives, objectives that are related to the performance of the individual participant or of a division, department or function within the Company or a subsidiary of the Company or based upon the relative performance of other companies or upon comparisons of any of the indicators of performance relative to other companies. Without limiting the generality of the foregoing, the Management Objectives applicable to any Award will be based on specified levels of, or relative peer company, performance in any one or more of the following objectives, or any combination thereof, as determined by the Committee in their sole discretion: (i) appreciation in and/or maintenance of the price of the shares or any other publicly-traded securities of the Company, (ii) earnings or loss per share, (iii) total stockholder return, (iv) operating margin, (v) gross margin, (vi) return on equity, (vii) return on assets or net assets, (viii) return on investment, (ix) operating income, (x) net operating income, (xi) pre-tax profit, (xii) cash flow or cash flow per share (before or after dividends), (xiii) revenue, (xiv) improvement in or attainment of expense levels or working capital levels, including cash, inventory and accounts receivable, (xv) earnings or losses (including earnings or losses before taxes, before interest and taxes, or before interest, taxes, depreciation, amortization, stock compensation, non-recurring charges and non-cash or other charges), (xvi) economic value added, (xvii) market share, (xviii) relative or absolute share price, or (xix) any other metrics the Committee determines appropriate. Notwithstanding anything to the contrary in this Plan, the Committee may make adjustments to include or exclude the impact of events the Committee determines are appropriate for adjustment.
Section 162(m) of the Code. Section 162(m) of the Code generally places a $1,000,000 limit on the amount of compensation a publicly held company can deduct in any tax year on compensation paid to “covered employees.” Prior to the passage of the Tax Cuts and Jobs Act of 2017, performance-based compensation paid to our “covered employees,” such as annual cash incentives, was generally excluded from this $1,000,000 deduction limit. As a result of changes in the tax law, this previously-available exclusion for performance-based compensation is generally no longer available after 2018. The Compensation Committee considers tax deductibility as one of many factors in determining executive compensation, including the impact of these tax law changes. However, the Compensation Committee retains discretion to award compensation that it determines to be consistent with the goals of our executive compensation program even if such compensation is not tax deductible by the Company.
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Limitations on Awards. The maximum number of shares with respect to which a participant may be granted stock options, SARs, restricted stock and/or RSUs in any calendar year shall be equal to the Initial Shares. The foregoing limitations will be adjusted proportionately by the Committee in connection with any change in our capitalization due to a stock split, stock dividend or similar event affecting our common stock and such determination shall be final, binding and conclusive. Notwithstanding anything to the contrary in the 2020 Plan, no non-employee director shall receive in excess of $350,000 of compensation in any calendar year, determined by adding (i) all cash compensation to such non-employee director and (ii) the fair market value of all equity-based awards granted to such non-employee director in such calendar, year whether governed by the 2020 Plan or not, based on fair market value of such equity-based awards on the grant date. The non-employee director compensation limitation shall be determined without regard to the amounts paid to a non-employee director during any period in which such individual was an employee or consultant (other than grants of Awards paid for service in their capacity as a non-employee director), and any severance and other payments shall not be taken into account in applying the $350,000 limit described above.
Term of Award. The term of any Award granted under the 2020 Plan may not be for more than 10 years (or five years in the case of an incentive stock option granted to any participant who owns stock representing more than 10% of the combined voting power of the Company or any parent or subsidiary thereof).
Transferability of Awards. Unless otherwise provided in the 2020 Plan or permitted by the Committee, Awards may not be pledged, assigned or otherwise transferred in any manner, other than by will or by the laws of descent or distribution, and may be exercised during the lifetime of the participant only by the participant or by such participant’s beneficiaries in the event of the participant’s death. In no event may an Award be transferred to a third party financial institution for value.
Dividend Equivalents. Subject to the provisions of the 2020 Plan and any award agreement, the recipient of an Award other than a stock option or SAR may, if so determined by the Committee, be entitled to receive, amounts equivalent to cash, stock or other property dividends on shares of our common stock with respect to the number of shares covered by the Award, as determined by the Committee, in its sole discretion. Dividend equivalents may accrue during the vesting period with respect to an Award, and will be paid out upon vesting of such Award. The 2020 Plan expressly prohibits the payment of dividend equivalents or dividends at any time prior to the time that the share underlying an Award are vested, and any such dividend equivalents or dividends (e.g. on restricted stock or RSUs) shall be forfeited to the same extent as the underlying Award.
Termination of Service. Unless otherwise provided in an award agreement, in the event of a participant’s death or termination of the participant’s status as an employee, director or consultant due to the participant’s disability, the participant’s beneficiary or the participant, as applicable, may exercise any vested Award at any time within the earlier to occur of: (i) one year after the date of the participant’s death or disability; or (ii) the date on which such Award expires by its terms.
Except as otherwise provided in an individual award agreement, in the event of a participant’s Termination Without Cause (as defined in the 2020 Plan), the participant may exercise any vested Award at any time within the earlier to occur of: (i) 90 days after such termination; or (ii) the date on which such Award expires by its terms. A participant who is terminated for Cause (as defined in the 2020 Plan) shall, unless otherwise determined by the Committee, immediately forfeit, effective as of the date the participant first engaged in such conduct giving rise to his or her termination for Cause, all unexercised, unearned and/or unpaid Awards.
Blackout Periods. Except as otherwise provided in an individual award agreement, or specifically indicated in the 2020 Plan, the Committee shall have the absolute discretion to impose a “blackout” period on the exercise of any stock options or SARs, as well as the settlement of any Award, with respect to any or all participants (including those whose continuous service with the Company has ended) to the extent the Committee determines that doing so is desirable or required to comply with applicable laws.
Adjustments Upon Change in Capitalization. In the event there is a specified type of change in our capital structure not involving the receipt of consideration by us, such as a stock split, stock dividend, combination, recapitalization or reclassification, or any other transaction with respect to our common stock, including a merger, reorganization, liquidation or similar transaction, the number of shares reserved under the 2020 Plan and the number of shares subject to and exercise price, if applicable, of all outstanding stock awards will be appropriately adjusted.
Recoupment of Awards / Clawback. Unless otherwise specifically provided in an award agreement, and to the extent permitted by applicable laws, the Committee may without obtaining the approval or consent of the Company’s stockholders or of any participant, require that: any participant reimburse the Company for all or any portion of any Awards granted under the 2020 Plan; the termination of any outstanding, unexpired, unpaid or deferred Awards, rescission of any delivery pursuant to the Award; or rescission or recapture of any shares (whether restricted or unrestricted) or proceeds from the participant’s sale of shares issued pursuant to the award, if and to the extent: (i) the granting, vesting or payment of such Award was predicated on the achievement of certain financial results that were subsequently the subject of a material financial restatement; (ii) in the Committee’s view, the participant engaged in fraud or misconduct that caused or partially caused the need for a material financial restatement by the Company or any affiliate; and (iii) a lower granting, vesting or payment of such Award otherwise would have occurred.
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In addition, the Committee may require the termination or rescission of, or the recapture related to, any Award, if and to the extent required by applicable laws.
Change of Control. Except as provided in an individual award agreement, upon the consummation of a Change of Control (as defined below), all outstanding Awards under the 2020 Plan may be assumed or replaced by the acquiring company. Any portions of Awards that have not been assumed, replaced or exercised in connection with a Change of Control will automatically become fully vested and exercisable and be released from any repurchase or forfeiture rights for all of the shares of common stock (or other consideration) represented by such Award (or portion thereof), immediately prior to the specified effective date of such Change of Control.
In the case of a proposed Change of Control, the Committee may, prior to the occurrence of the Change of Control, declare that some or all of the outstanding stock options and SARs granted under the 2020 Plan will accelerate and become exercisable in full and that all such stock options and SARs, whether or not exercisable prior to such acceleration, must be exercised within a specified period of time or they will terminate. In the event of such declaration, each such stock option and SAR granted under the 2020 Plan, to the extent not exercised prior to the Change of Control, shall be canceled at the time of, or immediately prior to, the Change of Control, as provided in the declaration. Under the 2020 Plan, a “Change of Control” generally includes:
• the acquisition of 50% or more of our outstanding stock by any person or group;
• a merger or consolidation of the Company after which our own stockholders as of immediately prior to the merger or consolidation own 50% or less of the outstanding stock of the surviving entity; or
• a sale of all or substantially all of our assets, subject to certain exceptions.
Term of the 2020 Plan; Amendment, Suspension or Termination of the 2020 Plan. The 2020 Plan will continue in effect until the earliest to occur of: (i) all shares of common stock subject to the 2020 Plan have been distributed; (ii) all Awards have expired or terminated; (iii) termination pursuant to Section 18 of the 2020 Plan; and (iv) 10 years from the date the 2020 Plan was last approved by the Company’s stockholders pursuant to applicable laws. The Board may at any time amend, suspend or terminate the 2020 Plan; provided, however, that no amendment can be made without the approval of our stockholders to the extent such approval is required by applicable laws, or if such amendment would lessen the stockholder approval requirements set forth in the 2020 Plan.
Anticipated U.S. Federal Income Tax Consequences
The following summary of the federal income tax consequences of the 2020 Plan and the Awards to be granted thereunder is based upon United States federal income tax laws in effect on the date of this Proxy Statement, all of which are subject to change (possibly to retroactive effect) and to differing interpretations. Any such change could affect the accuracy of the statements and conclusions set forth in this summary. This summary does not purport to be complete, and does not discuss non-U.S., state or local tax consequences or additional guidance that is expected to be issued by the Treasury Department under the Code.
Nonqualified Stock Options. The grant of a nonqualified stock option under the 2020 Plan will not result in any federal income tax consequences to the optionholder or to us. Upon exercise of a nonqualified stock option, the optionholder is subject to income taxes at the rate applicable to ordinary compensation income on the excess of the fair market value of the shares on the date of exercise over the option exercise price. This income is subject to withholding for federal income and employment tax purposes. We are entitled to an income tax deduction in the amount of the income recognized by the optionholder, subject to the possible limitations imposed by the $1,000,000 compensation limit under Section 162(m) or if the compensation is an “excess parachute payment” within the meaning of Section 280G of the Code (“Section 280G”) and so long as we withhold the appropriate taxes with respect to such income (if required) and the optionholder’s total compensation is deemed an ordinary and necessary business expense. Any gain or loss on the optionholder’s subsequent disposition of the shares of common stock will receive long- or short-term capital gain or loss treatment, depending on whether the shares are held for more than one year following exercise. We do not receive a tax deduction for any such gain.
If a nonqualified stock option is amended, such option may be considered deferred compensation and subject to the rules of Section 409A of the Code (“Section 409A”), which provide, among other things, rules regarding the timing of payment of deferred compensation. A stock option subject to Section 409A that fails to comply with the rules of Section 409A can result in the participant having acceleration of income recognition, an additional 20% tax obligation, plus penalties and interest.
Incentive Stock Options. The grant of an incentive stock option under the 2020 Plan will not result in any federal income tax consequences to the optionholder or to us. An optionholder recognizes no federal taxable income upon exercising an incentive stock option (subject to the alternative minimum tax rules) and we receive no deduction at the time of exercise. In the event of a disposition of stock acquired upon exercise of an incentive stock option, the tax consequences depend upon how long the optionholder has held the shares of common stock. If the optionholder does not dispose of the shares within two years after the incentive stock option was granted, nor within one year after the incentive stock option was exercised, the optionholder will recognize a long-term capital gain (or loss) equal to the difference between the sale price of the shares and the exercise price. We are not entitled to any deduction under these circumstances.
If the optionholder fails to satisfy either of the foregoing holding periods, he or she must recognize ordinary income in the year of the disposition (referred to as a “disqualifying disposition”). The amount of such ordinary income generally is the lesser of (i)
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the excess (if any) of the amount realized on the disposition over the exercise price; or (ii) the excess of the fair market value of the shares on the date of exercise over the exercise price. Any gain in excess of the amount taxed as ordinary income will be treated as a long or short-term capital gain, depending on whether the stock was held for more than one year. We, in the year of the disqualifying disposition, are entitled to a deduction equal to the amount of ordinary income recognized by the optionholder, subject to the possible limitations imposed by the $1,000,000 compensation limit imposed by Section 162(m) or if the compensation is an “excess parachute payment” within the meaning of Section 280G and so long as the optionholder’s total compensation is deemed an ordinary and necessary business expense.
In the event an incentive stock option is amended, such option may be considered deferred compensation and subject to the rules of Section 409A. A stock option subject to Section 409A which fails to comply with the rules of Section 409A can result in the participant having acceleration of income recognition, an additional 20% tax obligation, plus penalties and interest. In addition, the amendment of an incentive stock option may convert the option from an incentive stock option to a nonqualified stock option.
Restricted Stock. A recipient of restricted stock will not recognize any taxable income for federal income tax purposes in the year of the award, provided that the shares of common stock are subject to restrictions (that is, the restricted stock is nontransferable and subject to a substantial risk of forfeiture). However, the recipient may elect under Section 83(b) of the Code to recognize compensation income in the year of the award in an amount equal to the fair market value of the common stock on the date of the award, determined without regard to the restrictions, less any amount the recipient paid for the award. If the recipient does not make such a Section 83(b) election, the fair market value of the common stock on the date the restrictions lapse will be treated as compensation income to the recipient and will be taxable in the year the restrictions lapse. We are entitled to an income tax deduction in the amount of the income recognized by the recipient, subject to the possible limitations imposed by the $1,000,000 compensation limit imposed by Section 162(m) or if the compensation is an “excess parachute payment” within the meaning of Section 280G and so long as we withhold the appropriate taxes with respect to such income (if required) and the recipient’s total compensation is deemed an ordinary and necessary business expense.
Stock Appreciation Rights. Recipients of SARs generally should not recognize income until the SAR is exercised. Upon exercise, the recipient will normally recognize taxable ordinary income for federal income tax purposes equal to the amount of cash and the fair market value of the shares, if any, received upon such exercise. Recipients who are employees will be subject to withholding for federal income and employment tax purposes with respect to income recognized upon exercise of a SAR. Recipients will recognize gain upon the disposition of any shares received on exercise of a SAR equal to the excess of: (i) the amount realized on such disposition; over (ii) the ordinary income recognized with respect to such shares under the principles set forth above. That gain will be taxable as long- or short-term capital gain depending on whether the shares were held for more than one year. We are entitled to an income tax deduction in the amount of the income recognized by the recipient upon exercise of the SARs, subject to the possible limitations imposed by the $1,000,000 compensation limit imposed by Section 162(m) or if the compensation is an “excess parachute payment” within the meaning of Section 280G and so long as we withhold the appropriate taxes with respect to such income (if required) and the recipient’s total compensation is deemed an ordinary and necessary business expense.
A SAR can be considered non-qualified deferred compensation that is subject to the rules of Section 409A. A SAR subject to Section 409A that does not meet the requirements of Section 409A can result in the participant having acceleration of income recognition, an additional 20% tax obligation, plus penalties and interest.
Restricted Stock Units. Recipients of RSUs generally should not recognize income until such units are converted into cash or shares of stock. Upon conversion, the recipient will normally recognize taxable ordinary income for federal income tax purposes equal to the amount of the fair market value of the shares (or the amount of cash) received upon conversion. Recipients who are employees will be subject to withholding for federal income and employment tax purposes with respect to income recognized upon conversion of the RSUs. Participants will recognize gain upon the disposition of any shares received upon conversion of the RSUs equal to the excess of: (i) the amount realized on such disposition; over (ii) the ordinary income recognized with respect to such shares under the principles set forth above. That gain will be taxable as long- or short-term capital gain depending on whether the shares were held for more than one year. We are entitled to an income tax deduction in the amount of the income recognized by the recipient upon conversion of the RSUs into cash or shares of stock, subject to the possible limitations imposed by the $1,000,000 compensation limit imposed by Section 162(m) or if the compensation is an “excess parachute payment” within the meaning of Section 280G and so long as we withhold the appropriate taxes with respect to such income (if required) and the recipient’s total compensation is deemed an ordinary and necessary business expense.
RSUs also can be considered non-qualified deferred compensation that is subject to the rules of Section 409A. A grant of RSUs subject to Section 409A that does not meet the requirements of Section 409A can result in the participant having acceleration of income recognition, an additional 20% tax obligation, plus penalties and interest.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 2 TO APPROVE THE 2020 PLAN.
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PROPOSAL NO. 3
RATIFICATION OF THE SELECTION OF OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected the firm of Mayer Hoffman, independent certified public accountants, to serve as our independent registered public accounting firm for the fiscal year ending September 30, 2020. Representatives of Mayer Hoffman are expected to be present at the Annual Meeting and will have the opportunity to make a statement and respond to appropriate questions. Substantially all of Mayer Hoffman’s personnel, who work under the control of Mayer Hoffman shareholders, are employees of wholly-owned subsidiaries of CBIZ, Inc., which provides personnel and various services to Mayer Hoffman in an alternative practice structure.
Neither our governing documents nor applicable laws require stockholder ratification of the selection of Mayer Hoffman as our independent registered public accounting firm. However, the Board is submitting the selection of Mayer Hoffman to our stockholders for ratification as a matter of good corporate governance. If our stockholders fail to ratify the selection of Mayer Hoffman, the Audit Committee will reconsider whether or not to retain Mayer Hoffman. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of the Company and our stockholders.
Independent Registered Public Accounting Firm Fee Information
The following table sets forth the aggregate fees billed by Mayer Hoffman for the services indicated for the fiscal years ended September 30, 2019 and 2018. All fees described below were approved by the Audit Committee.
| Fiscal Year Ended September 30, 2019 | Fiscal Year Ended September 30, 2018 | ||||||||||
| Audit Fees(1) | $ | 686,568 | $ | 601,259 | |||||||
| Audit-Related Fees(2) | 59,436 | 67,977 | |||||||||
| Tax Fees | — | — | |||||||||
| All Other Fees | — | — | |||||||||
| Total Fees | $ | 746,004 | $ | 669,236 | |||||||
(1)This category represents fees paid to Mayer Hoffman for (i) the audit of our annual financial statements for the fiscal years ended September 30, 2019 and 2018 included in our annual reports on Form 10-K; (ii) the review of our unaudited interim period financial statements for the fiscal years ended September 30, 2019 and 2018 included in our quarterly reports on Form 10-Q; (iii) the audit of our internal control over financial reporting for the fiscal years ended September 30, 2019 and 2018; and (iv) the services that are normally provided by Mayer Hoffman in connection with statutory and regulatory filings or engagements.
(2)This category represents fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under Audit Fees. This category includes fees related to audit and attest services not required by statute or regulations, due diligence related to mergers, acquisitions and investments and consultations concerning financial accounting and reporting standards.
Pre-Approval Policies
The Audit Committee has established policies and procedures by which it approves in advance any audit and permissible non-audit services to be provided by our independent registered public accounting firm. Under these policies and procedures, prior to the engagement of the independent registered public accounting firm for pre-approved services, requests or applications for the independent registered public accounting firm to provide services must be submitted to the Audit Committee and must include a detailed description of the services to be rendered. Our Chief Financial Officer and the independent registered public accounting firm must ensure that the independent registered public accounting firm is not engaged to perform the proposed services unless those services are within the list of services that have received the Audit Committee’s pre-approval, and must cause the Audit Committee to be informed in a timely manner of all services rendered by the independent registered public accounting firm and the related fees.
Each request or application must include:
•a recommendation by our Chief Financial Officer as to whether the Audit Committee should approve the request or application; and
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•a joint statement of our Chief Financial Officer and the independent registered public accounting firm as to whether, in their view, the request or application is consistent with the SEC’s requirements for auditor independence of the Public Company Accounting Oversight Board (the “PCAOB”).
The Audit Committee also will not permit the independent registered public accounting firm to be engaged to provide any services to the extent that the SEC has prohibited the provision of those services by an independent registered public accounting firm, which generally include:
•bookkeeping or other services related to accounting records or financial statements;
•financial information systems design and implementation;
•appraisal or valuation services, fairness opinions or contribution-in-kind reports;
•actuarial services;
•internal audit outsourcing services;
•management functions;
•human resources;
•broker-dealer, investment adviser or investment banking services;
•legal services;
•expert services unrelated to the audit; and
•any service that the PCAOB determines is not permissible.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL NO. 3 TO RATIFY THE SELECTION OF MAYER HOFFMAN TO SERVE AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2020.
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PROPOSAL NO. 4
APPROVAL, ON AN ADVISORY (NON-BINDING) BASIS, OF
THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, we are providing our stockholders the opportunity to vote on an advisory (non-binding) resolution, commonly known as a “say-on-pay” resolution, to approve the compensation of our named executive officers as described in this Proxy Statement in the section titled “Executive Compensation,” beginning on page 30, the compensation tables beginning on page 33 and any related narrative discussion contained in this Proxy Statement. This proposal gives our stockholders the opportunity to express their views on the design and effectiveness of our executive compensation program.
Our executive compensation program is designed to optimize our ability to attract, reward and retain the executive leadership required to execute our business strategy in direct alignment with the interests of our stockholders. This is accomplished through utilizing an appropriate, market competitive mix of short and long term compensation components that allow balanced leveraging of fixed and at-risk variable cash and equity compensation components. These components include annual base salaries, performance-based annual equity incentive plans along with inducement and ongoing performance-based equity grants applied equitably relative to geographic, role, and level of contribution and performance criteria. Under these programs, our executive officers are rewarded for the achievement of specific financial and business strategic goals, which are set to result in increased stockholder value. Accordingly, Mitek triangulates compensation levels and mix at the time of hiring, and on an ongoing basis based upon competitive market data, value of the role to the business, and relative individual performance contribution. Using both internal and external compensation data and advisory services to guide us relative to the regulatory and competitive landscape of our competitive market and proxy peer groups within the technology sector, Mitek will ensure alignment of compensation and rewards with its greatest opportunities and business outcomes. Please read the section below entitled “Executive Compensation” for additional details about our executive compensation programs, including information regarding the 2019 fiscal year compensation of our named executive officers.
We believe that the compensation of our named executive officers for the 2019 fiscal year was appropriate and reasonable and that our compensation policies and procedures are sound and support the best interests of our company and our stockholders. Additionally, we believe that our compensation policies and procedures are effective in aligning the executives’ long-term interests with those of our stockholders.
Accordingly, the following resolution will be submitted for a stockholder vote at the Annual Meeting:
“RESOLVED, that the stockholders of Mitek Systems, Inc. (the “Company”) approve, on an advisory and non-binding basis, the compensation of the Company’s named executive officers, as disclosed in the Company’s Proxy Statement for the 2020 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the SEC, including the Executive Compensation, compensation tables and narrative discussion in the Proxy Statement.”
This vote is not intended to address any specific element of compensation, but rather the overall compensation of our named executive officers and the compensation philosophy, policies and practices described in this Proxy Statement. As an advisory vote, the outcome of the vote on this proposal is not binding upon us. However, the Board, with input from the Compensation Committee, which is responsible for designing and administering our executive compensation programs, values the opinions expressed by our stockholders in their vote on this proposal and will consider the outcome of this vote when making future compensation decisions for our named executive officers.
At our 2017 annual meeting of stockholders, we held an advisory (non-binding) stockholder vote on the frequency of future advisory (non-binding) shareholder votes to approve the compensation of our named executive officers. Our stockholders expressed a preference that future advisory (non-binding) stockholder votes to approve the compensation of our named executive officers be held every year with 49% of votes cast in favor of annual votes and 47% cast in favor of a vote every three years. In light of such preference the Board determined to hold an advisory (non-binding) vote to approve the compensation of our named executive officers every year. The next advisory (non-binding) vote to approve the frequency of the compensation of our named executive officers will be held at our 2023 annual meeting of stockholders.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL NO. 4 FOR THE APPROVAL, ON AN ADVISORY (NON-BINDING) BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board has furnished the following report to stockholders of the Company in accordance with rules adopted by the SEC.
As described in its charter, the Audit Committee meets with the independent auditors and our officers or other personnel responsible for our financial reports. The Audit Committee is responsible for reviewing with the auditors the scope and the results of the audit. The Audit Committee is also responsible for discussing with the auditors the scope, reasonableness and adequacy of internal accounting controls. The Audit Committee is not responsible for the planning or conduct of the audits or the determination that our financial statements are complete and accurate and in accordance with generally accepted accounting principles. Among other matters, the Audit Committee considers and selects a certified public accounting firm as our independent auditor. The Audit Committee held four meetings during the 2019 fiscal year.
In accordance with rules adopted by the SEC, the Audit Committee states that:
•The Audit Committee has reviewed and discussed with management our audited financial statements for the 2019 fiscal year.
•The Audit Committee has discussed with Mayer Hoffman McCann P.C., our independent registered public accounting firm, the matters required to be discussed by the statement on Auditing Standards No. 1301, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T.
•The Audit Committee has received the written disclosures and the letter from Mayer Hoffman McCann P.C. required by applicable requirements of the Public Company Accounting Oversight Board regarding communications with the Audit Committee concerning independence, and has discussed with Mayer Hoffman McCann P.C. its independence.
Based upon the review and discussions referred to above, the Audit Committee recommended to the Board that our audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, for filing with the SEC.
Audit Committee
James C. Hale
William K. “Bill” Aulet
Bruce Hansen
This foregoing Audit Committee report is not “soliciting material,” is not deemed “filed” with the SEC and shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing of ours under the Securities Act of 1933, as amended, or under the Exchange Act, except to the extent we specifically incorporate this report by reference.
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INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
General
This section describes key corporate governance guidelines and practices that we have adopted. Complete copies of the charters of the committees of the Board and our Code of Business Conduct and Ethics described below may be viewed on our Internet website at www.miteksystems.com under “Investors.” You may also request a copy of any of these documents free of charge by writing to our Corporate Secretary at Mitek Systems, Inc., 600 B Street, Suite 100, San Diego, California 92101, Attn: Corporate Secretary.
Director Independence
The Board is responsible for establishing corporate policies and for the overall performance of the Company, although it is not involved in day-to-day operations. As required under NASDAQ listing standards, a majority of the members of a listed company’s board of directors must qualify as “independent,” as affirmatively determined by the company’s board of directors. The Board consults with our legal counsel to ensure that the Board’s determinations regarding the independence of our directors are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in applicable NASDAQ listing standards, as in effect from time to time. Consistent with these considerations, after review of all relevant transactions or relationships between each director (or former director, as applicable), or any of his or her family members, and the Company, our senior management and our independent auditors, the Board has determined that all of our directors other than Mr. Carnecchia (who is employed as an executive officer of the Company) are independent, in each case as defined in NASDAQ Listing Rule 5605(a)(2). In addition, the Board has determined that the members of the Audit Committee meet the additional independence criteria required for audit committee membership.
Meetings of the Board
The Board meets on a regular basis throughout the year to review significant developments affecting the Company and to act upon matters requiring its approval. The Board also holds special meetings as required from time to time when important matters arise requiring Board action between scheduled meetings. During the 2019 fiscal year, the Board met sixteen times and acted by unanimous written consent four times. No director attended fewer than 75% of the aggregate number of meetings held by the Board during the 2019 fiscal year.
Executive Sessions
As required under applicable NASDAQ listing standards, our independent directors periodically meet in executive session at which only they are present.
Director Attendance at Annual Meetings
Although we do not have a formal policy regarding attendance by members of the Board at our annual meeting of stockholders, we encourage all of our directors to attend. All of our directors from the director nominees discussed in Proposal No. 1 above who were directors at the time attended (either in person or via telephone) our 2019 annual meeting of stockholders.
Board Leadership Structure
Currently, the leadership structure of the Board is such that our Chairman and Chief Executive Officer positions are separate with Mr. Hansen, a member of the Board since October 2012, serving as the Chairman of the Board and Mr. Carnecchia serving as our Chief Executive Officer. The Board believes that the current structure, providing for the separation of the role of the Chairman and the Chief Executive Officer is appropriate at this time because it allocates the oversight of the business among the directors and the executive officers so that our Chief Executive Officer, who reports to our directors, can focus on the day-to-day business operations, and our Chairman, who has extensive experience leading the Company both as a director, lead independent director and recently as interim Principal Executive Officer, and other directors can oversee the activities of the Chief Executive Officer, other executive officers and the business as a whole. While the Board believes the current structure is appropriate at this time and provides the most effective leadership for the Company, the Board retains the flexibility to determine on a case-by-case basis whether the positions of Chief Executive Officer and Chairman of the Board should be combined or separated and whether an independent director should serve as Chairman. This flexibility permits the Board to organize its functions and conduct its business in a manner it deems most effective and in the best interest of the Company and its stockholders in then prevailing circumstances.
Board’s Role in Risk Oversight
The Board is responsible for oversight of risks facing the Company, while our management is responsible for day-to-day management of risk. The Board, as a whole, directly administers its risk oversight function. In addition, the risk oversight function is also
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administered through the standing committees of the Board, which oversee risks inherent in their respective areas of responsibility, reporting to the Board regularly and involving the Board in their performance of risk oversight, as necessary. For example, the Audit Committee oversees our financial exposure and financial reporting related risks and the Compensation Committee oversees risks related to our compensation programs and practices. The Board, as a whole, directly oversees our strategic and business risk, including, among other items, product development risk and cybersecurity risk, through regular interactions with our management and, from time-to-time, input from independent advisors. We believe the Board’s leadership structure supports its role in risk oversight, with our Chief Executive Officer, Chief Financial Officer and Chief Legal Officer responsible for assessing and managing risks facing the Company day-to-day and the members of our Board providing oversight of such risk management.
Information Regarding Board Committees
The Board has established standing Audit, Compensation, and Nominating and Corporate Governance Committees to devote attention to specific subjects and to assist it in the discharge of its responsibilities. The three committees operate under written charters adopted by the Board, each of which is available on our Internet website at www.miteksystems.com under “Investors.” The following table sets forth the number of meetings held and actions taken by written consent during the 2019 fiscal year for each of the committees of the Board and current membership for each of the committees of the Board. No member of the Board attended fewer than 75% of aggregate number of board and committee meetings on which such board member served during the 2019 fiscal year.
| Audit Committee | Nominating and Corporate Governance Committee | Compensation Committee | ||||||||||||||||||||||||||||||||||||
| Employee Director: | ||||||||||||||||||||||||||||||||||||||
| Scipio “Max” Carnecchia | — | — | 0 | |||||||||||||||||||||||||||||||||||
| Non-Employee Directors: | ||||||||||||||||||||||||||||||||||||||
| William K. “Bill” Aulet | X | X | (1) | 0 | ||||||||||||||||||||||||||||||||||
| James C. Hale | X | (1) | 0 | X | ||||||||||||||||||||||||||||||||||
| Bruce E. Hansen | X | X | 0 | |||||||||||||||||||||||||||||||||||
| Alex W. “Pete” Hart | 0 | X | ||||||||||||||||||||||||||||||||||||
| Jane J. Thompson | 0 | X | X | (1) | ||||||||||||||||||||||||||||||||||
| Donna C. Wells | X | X | ||||||||||||||||||||||||||||||||||||
| Total meetings in the 2019 fiscal year | 4 | 4 | 5 | |||||||||||||||||||||||||||||||||||
| Total actions by written consent in the 2019 fiscal year | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||
(1)Committee chairperson.
Audit Committee
We have a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(a) of the Exchange Act. The Audit Committee is responsible for overseeing our accounting and financial reporting processes and the audits of our financial statements, monitoring the integrity of our financial reporting process and systems of internal controls regarding finance, accounting and legal compliance, and reviewing the independence and performance of our independent registered public accountants. The current members of the Audit Committee are Messrs. Aulet, Hale and Hansen and Ms. Wells. The Board has determined that Mr. Hale is an “audit committee financial expert” in accordance with applicable SEC rules. Each of the members of the Audit Committee is an “independent” director within the meaning of the applicable NASDAQ listing standards, as well as applicable SEC rules and regulations.
Compensation Committee
The Compensation Committee reviews executive compensation, establishes executive compensation levels, recommends employee compensation programs, administers our incentive plans, and monitors the Company’s compliance with applicable SEC rules and NASDAQ listing standards. The current members of the Compensation Committee are Messrs. Hale and Hart and Mses. Thompson and Wells, each of whom is an “independent” director within the meaning of the applicable NASDAQ listing standards, as well as applicable SEC rules and regulations.
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Nominating and Corporate Governance Committee
The Nominating Committee is responsible for reviewing and making recommendations to the Board regarding the composition and structure of the Board, establishing criteria for Board membership and corporate policies relating to the recruitment of Board members, and establishing, implementing and monitoring policies and processes regarding principles of corporate governance. The current members of the Nominating Committee are Messrs. Aulet and Hansen and Ms. Thompson, each of whom is an “independent” director within the meaning of the applicable NASDAQ listing standards, as well as applicable SEC rules and regulations.
Consideration of Director Nominees
Director Qualifications
When evaluating nominees for election as directors (including all persons recommended by stockholders to become nominees for election as directors), the Nominating Committee takes into account: (i) all factors the Committee considers appropriate, which may include career specialization, relevant technical skills or financial acumen, diversity of viewpoint and industry knowledge; and (ii) the following minimum qualifications:
•the highest personal and professional ethics, integrity and values and sound business judgment;
•a background that demonstrates significant accomplishment in his or her respective field, with superior credentials and recognition and broad experience at the administrative and/or policy-making level in business, government, education, technology or public interest;
•relevant expertise and experience and an ability to offer advice and guidance to our chief executive officer based on such expertise and experience;
•independence from any particular constituency and an ability to be able to represent all of our stockholders and be committed to enhancing long-term stockholder value; and
•sufficient time available to devote to activities of the Board and to enhance his or her knowledge of our business;
The Nominating Committee retains the right to modify these criteria from time to time.
Diversity
Consistent with its proactive evaluation of director performance, skills and attributes, the Board is committed to a policy of inclusiveness and actively seeks out highly qualified diverse candidates (including race, gender and ethnicity) to include in the pool from which director nominees are chosen. The composition of our director nominees reflects these ongoing efforts and the importance of differentiating personal characteristics and diversity among our directors.
Stockholder Nominations
The Nominating Committee will consider director candidates recommended by our stockholders of record. The Nominating Committee does not intend to alter the manner in which it evaluates candidates, including the criteria set forth above, based on whether or not a candidate was recommended by a stockholder of record. Stockholders of record who wish to recommend individuals for consideration by the Nominating Committee to become nominees for election to the Board at an annual meeting of stockholders must do so by delivering a written recommendation and timely notice in accordance with our Bylaws to the Nominating and Corporate Governance Committee at Mitek Systems, Inc., 600 B Street, Suite 100, San Diego, California 92101, Attn: Corporate Secretary not later than the close of business on December 4, 2020 nor earlier than November 4, 2020; provided, however, that if the date of our next annual meeting is more than 30 days before or more than 60 days after the one-year anniversary of the Annual Meeting, notice by the stockholder to be timely must be so delivered, or mailed and received, not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the 90th day prior to such annual meeting or, if later, the 10th day following the day on which public disclosure of the date of such annual meeting was first made.
Each written recommendation must set forth, among other information:
•the name and address of the stockholder of record and any beneficial owner on whose behalf the nomination is being made;
•the class, series and number of shares of common stock of the Company, and any convertible securities of the Company, that are beneficially owned by the stockholder of record and any beneficial owner on whose behalf the nomination is being made;
•any option, warrant, convertible security, SAR, or similar right with an exercise or conversion privilege or settlement payment at a price related to any class or series of shares of the Company or with a value derived from the value of any class or series of shares of the Company, directly or indirectly, owned beneficially by such stockholder of record and any beneficial owner on whose behalf the nomination is being made;
•any proxy, agreement, arrangement, understanding, or relationship pursuant to which such stockholder of record and any beneficial owner on whose behalf the nomination is being made has or shares a right to vote any shares of any security of any class or series of the Company;
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•any short interest in any security of the Company held by such stockholder of record and any beneficial owner on whose behalf the nomination is being made;
•the proposed director candidate’s name, age, business address and residential address;
•complete biographical information for the proposed director candidate, including the proposed director candidate’s principal occupation or employment and business experience for at least the previous five years;
•the class and number of shares of common stock of the Company that are beneficially owned by the proposed director candidate and any convertible securities of the Company that are beneficially owned by the director candidate as of the date of the written recommendation;
•a completed and signed questionnaire, representation and agreement from the director candidate, as further described in our Bylaws; and
•any other information relating to the proposed director candidate that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A promulgated under the Exchange Act.
Director candidate nominations from stockholders must be provided in writing and must include the written consent of each proposed nominee to serve as a director if so elected. Stockholders are advised to review our Bylaws, which contain additional requirements with respect to director nominations. If a proposed director candidate is recommended by a stockholder in accordance with the procedural requirements discussed above and more fully set forth in our Bylaws, the Secretary will provide the foregoing information to the Nominating Committee.
Evaluating Nominees for Director
Our Nominating Committee considers director candidates that are suggested by members of the committee, other members of the Board, members of management, advisors and our stockholders who submit recommendations in accordance with the requirements set forth above. The Nominating Committee may, in the future, also retain a third-party search firm to identify candidates on terms and conditions acceptable to the Nominating Committee, but to date it has not paid a fee to any third party to assist in the process of identifying or evaluating director candidates. The Nominating Committee evaluates all nominees for director under the same approach whether they are recommended by stockholders or other sources.
The Nominating Committee reviews candidates for director nominees in the context of the current composition of the Board and committees of the Board, the operating requirements of the Company and the long-term interests of our stockholders. In conducting this assessment, the Nominating Committee considers the director nominee’s qualifications, diversity, age, skills and such other factors as it deems appropriate given the current needs of the Board, the committees of the Board and the Company, to maintain a balance of knowledge, experience, diversity and capability. In addition, the Nominating Committee seeks candidates with significant experience in the Company’s targeted markets. In the case of incumbent directors whose terms of office are set to expire, the Nominating Committee reviews such directors’ overall service to the Board, the committees of the Board and the Company during their respective terms, including the number of meetings attended, level of participation, quality of performance and any other relationships and transactions that might impair such directors’ independence. In the case of new director candidates, the Nominating Committee will also determine whether the nominee meets the minimum director qualifications set forth above, has at least the same level of education and experience as the Company’s then-current directors, and whether such nominee is independent for NASDAQ purposes, which determination will be based upon applicable NASDAQ listing standards and applicable SEC rules and regulations. Although we do not have a formal diversity policy, when considering diversity in evaluating director nominees, the Nominating Committee focuses on whether the nominees can contribute varied perspectives, skills, experiences and expertise to the Board.
The Nominating Committee will evaluate each proposed director’s candidacy, including proposed candidates recommended by security holders and recommend whether the Board should nominate such proposed director candidate for election by our stockholders.
Stockholder Communications to the Board
Stockholders may contact an individual director, the Board as a group or a specified committee or group of directors, including the non-employee directors as a group, at the following address: Mitek Systems, Inc., 600 B Street, Suite 100, San Diego, California 92101, Attn: Board of Directors. Additionally, stockholders may contact the Board by sending an email addressed to the Board to ir@miteksystems.com. Additional information and contact details may be found on our website at: www.miteksystems.com. We will receive and process communications before forwarding them to the addressee. Directors generally will not be forwarded stockholder communications that are primarily commercial in nature, relate to improper or irrelevant topics or request general information about the Company.
Members of our Board, our executive management and our investor relations teams regularly interact with our stockholders to discuss a variety of topics including, but not limited to, operations of the business, industry developments, competition, management compensation, legal topics and risks to the company. The Company interacts with our stockholders via telephone calls and in-person
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meetings at investor conferences, in non-deal road shows, and meetings at the Company’s headquarters. During our 2019 fiscal year, we estimate that we interacted with investors representing over 65% of the institutional ownership.
Certain Relationships and Related Party Transactions
Since October 1, 2017 we have not entered into any transactions or series of transactions, and we are not currently considering any proposed transaction or series of transactions, in which the amount involved in the transaction or series of transactions exceeds $120,000, and in which any of our directors, executive officers or persons who we know beneficially held more than five percent of any class of our common stock, including their immediate family members, had or will have a direct or indirect material interest.
Procedures for Approving Related Party Transactions
Under its charter, the Audit Committee is charged with reviewing and approving all potential related party transactions. All such related party transactions are then required to be reported under applicable SEC rules. Other than as may be required by the Audit Committee’s charter, we have not adopted additional procedures for review of, or standards for approval of, related party transactions but instead review such transactions on a case-by-case basis.
Non-Employee Director Compensation
For the 2019 fiscal year, our non-employee directors were compensated on a retainer-based model. We also reimburse our non-employee directors for their reasonable expenses incurred in attending Board and committee meetings. Members of the Board who are also employees of the Company receive no compensation for their services as a director.
The following table sets forth summary information concerning compensation paid or accrued for services rendered to us by members of the Board in their capacities as such, for the fiscal year ended September 30, 2019:
| Name(1) | Fees Earned or Paid in Cash ($)(2) | Stock Awards (3)(4) | All Other Compensation ($) | Total Compensation ($) | ||||||||||||||||||||||
| William K. “Bill” Aulet | $ | 30,000 | $ | 125,002 | $ | — | $ | 155,002 | ||||||||||||||||||
| Kenneth D. Denman (5) | $ | 30,000 | $ | 125,002 | $ | — | $ | 155,002 | ||||||||||||||||||
| James C. Hale | $ | 40,000 | $ | 125,002 | $ | — | $ | 165,002 | ||||||||||||||||||
| Bruce E. Hansen (6) | $ | 83,125 | $ | 125,002 | $ | — | $ | 208,127 | ||||||||||||||||||
| Alex W. “Pete” Hart | $ | 30,000 | $ | 125,002 | $ | — | $ | 155,002 | ||||||||||||||||||
| Jane Thompson | $ | 30,000 | $ | 125,002 | $ | — | $ | 155,002 | ||||||||||||||||||
(1)Scipio Maximus Carnecchia, a director our Chief Executive Officer and named executive officer, and James B. DeBello, a former director and former Chairman of the Board, and our former President and Chief Executive Officer and a named executive officer, are not included in this table as they were employees of the Company and therefore received no compensation for their service as directors. Messrs. Carnecchia’s and DeBello’s compensation are included in the “Summary Compensation Table” below. Ms. Wells was appointed to the Board on November 4, 2019 and therefore is not included in the table or corresponding footnotes.
(2)This annual $30,000 retainer is paid on a quarterly basis; the retainer for Mr. Hale contains an additional $10,000 for his role as chairman of the Audit Committee; the retainer for Mr. Hansen contains an additional pro-rated $52,500 for his role as Chairman of the Board from November 15, 2018 through September 30, 2019.
(3)The amounts shown under the “Stock Awards” column represent the aggregate grant date fair value of stock options and restricted stock units granted to each non-employee director computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation— Stock Compensation. A discussion of the assumptions used in calculating the grant date fair value is set forth in Note 7 to our financial statements included in our Form 10-K filed with the SEC on December 6, 2019.
(4)As of September 30, 2019, our non-employee directors had the following aggregate number of stock awards outstanding: Mr. Aulet—114,307 shares; Mr. Hale—114,307 shares; Mr. Hansen—144,896 shares; Mr. Hart—114,307 shares; and Ms. Thompson—79,050 shares. Mr. Hansen’s stock awards outstanding include 70,589 shares granted to him for his service as interim Principal Executive Officer (“PEO”).
(5)Mr. Denman resigned from his position on the Board effective December 31, 2019.
(6)Mr. Hansen was appointed PEO on August 27, 2018, his compensation for his services as PEO can be found in the section entitled “Summary Compensation Table” below. During the year ended September 30, 2019 he received a pro-rated Board retainer of $83,125 and restricted stock units with a grant date fair value of $125,002 for his services as a director. This table
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excludes his compensation earned as PEO, which consists of a salary of $65,769. See the “Summary Compensation Table” below for more information.
Director Stock Ownership Requirements
The Board has stock ownership requirements designed to further link the interests of our Board with that of our stockholders. These requirements provide that each of our independent directors must have equity positions in the Company with a value equal to five times his or her annual retainer amount. Direct and indirect stock ownership, including the vested in-the-money portion of any stock options held by the independent director, are included in determining each director’s equity position. Each independent director has five years to achieve the target ownership level. A director who fails to meet the ownership guidelines within the five-year period will not be eligible for new equity awards until the director achieves his or her prescribed ownership level.
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INFORMATION REGARDING OUR EXECUTIVE OFFICERS
The officers of the Company serve at the pleasure of the Board. The following table includes the names and certain information about our current executive officers:
| Name | Age | Position | ||||||||||||
| Scipio “Max” Carnecchia | 57 | Chief Executive Officer and Director | ||||||||||||
| Jeffrey C. Davison | 55 | Chief Financial Officer | ||||||||||||
| Michael E. Diamond | 55 | Senior Vice President, General Manager—Payments | ||||||||||||
| Jason L. Gray | 49 | Chief Legal Officer and Chief Compliance Officer | ||||||||||||
| Stephen J. Ritter | 50 | Chief Technology Officer | ||||||||||||
Scipio “Max” Carnecchia. Mr. Carnecchia has served as the Chief Executive Officer and as a director of Mitek since November 2018. From October 2017 until July 2018, Mr. Carnecchia served as the Chief Executive Officer and board member of Illuminate Education, Inc., the market-leading software as a services education platform. Prior to Illuminate, Mr. Carnecchia was the President and Chief Executive Officer of Accelrys, Inc., and has also served on the Accelrys board from 2009 until its acquisition in 2014 by Dassault Systemes. After the acquisition, Mr. Carnecchia continued to service as Chief Executive Officer of that business, which was renamed BIOVIA. Mr. Carnecchia previously served as President and Interim Chief Executive Officer of Interwoven, Inc., a content management software company, which was acquired by Autonomy Corporation plc in January 2009. Prior to joining Interwoven; Mr. Carnecchia served as Vice President of Global Sales of Xoriant Corporation, a software product development company, from April 2000 to January 2001, and as Vice President of Sales and Services of SmartDB Corporation, a provider of data integration toolkits for systems integrators and IT organizations, from September 1996 to February 2000. Mr. Carnecchia has demonstrated significant leadership skills in his Chief Executive Officer roles at Accelrys, Interwoven, BIOVIA and Illuminate Education, Inc. and as Vice President of Xoriant and SmartDB, and brings more than two decades of high technology experience to his position on the Board. During the past five years, Mr. Carnecchia has served as a member of the boards of directors of: Guidance Software, Inc., Agilysys, Inc., Accelrys, Inc., and DHI, Inc. Mr. Carnecchia holds a Bachelor of Engineering in Electrical Engineering from Stevens Institute of Technology. Mr. Carnecchia’s extensive knowledge of the industry in which we operate, as well as his unique role in the day-to-day operations of the Company as our Chief Executive Officer allows him to bring to the Board a broad understanding of the operational and strategic issues facing the Company.
Jeffrey C. Davison. Mr. Davison joined Mitek as our Chief Financial Officer in June 2017. Prior to joining the Company, Mr. Davison was Senior Vice President, Sales Success of NetSuite Inc., one of the world’s leading providers of cloud-based financials, enterprise resource planning, human resources, professional services automation and omnichannel commerce software suites, from May 2014 through December 2016, where he was responsible for solution consulting, business development representatives, sales operations, sales enablement, and sales planning and analysis and oversaw approximately six hundred employees. From August 2013 through April 2014, Mr. Davison served as Chief Financial Officer of Outbrain Inc., a worldwide provider of content discovery platforms, where he was responsible for all aspects of finance and accounting, planning, business systems, insurance, and reporting. Prior to his position at Outbrain, Mr. Davison served as Chief Financial Officer of RightNow Technologies, Inc., from January 2008 through April 2012, and served as Vice President, Finance and Operations from April 2006 through January 2008 and Vice President, Sales Operations, from September 2000 through April 2006. While holding these positions, he managed financial aspects of RightNow’s transition from a privately held company through its initial public offering and eventually through its $1.8 billion acquisition by Oracle Corporation. Mr. Davison served as Chief Financial Officer of Blackmore Sensors & Analytics from October 2018 to November 2018. Mr. Davison holds a B.S. in Accounting from Montana State University-Bozeman and is a Certified Public Accountant.
Michael E. Diamond. Mr. Diamond has served as our Senior Vice President, General Manager—Payments since January 2016 and previously served as our Chief Revenue Officer from September 2013 to January 2016 and as our Senior Vice President, Sales and Business Development from June 2012 through September 2013. Prior to joining Mitek, from March 2008 to June 2012, Mr. Diamond served as Senior Vice President, Business Development, at Obopay Corporation, a global mobile payments company. From July 2004 to March 2008, he served as a Business Unit Executive at IBM Corporation. From January 2001 to July 2004, Mr. Diamond served as Vice President, Business and Corporate Development, at Alphablox Corporation, a provider of software for web-based enterprise analytics, and was directly involved in shaping and driving Alphablox’s acquisition by IBM Corporation. From November 1999 to January 2001, Mr. Diamond served in various roles, including Senior Vice President Business Development/General Manager, Latin America and Japan, at S1 Corporation, an online financial services technology provider. From March 1996 to November 1999, Mr. Diamond served in various management roles, including as Director, Channel Sales, at Edify Corporation, a provider of interactive voice response and online financial services software. Mr. Diamond earned a B.B.A. with an emphasis in international business from St. Norbert College.
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Jason L. Gray. Mr. Gray has served as our Chief Legal Officer, Chief Compliance Officer, and Corporate Secretary since November 2018. From March 2016 until November 2018 Mr. Gray served as Chief Administrative Officer, General Counsel, and Corporate Secretary. Prior to joining Mitek, in July 2014 Mr. Gray founded and ran Gradient Legal, Inc. a provider of outsourced general counsel services to small and mid-market technology companies and advisory services to private equity and venture capital funds. From May 2013 through July 2014, Mr. Gray was a Senior Vice President and General Counsel for Accelerys, Inc., a publicly traded software company that was sold to Dassault Systems in 2014. From November of 2002 until May 2013, Mr. Gray was the Senior Vice President of Strategic Development and General Counsel for Mitchell International. From 1999 through November 2002, Mr. Gray was a Vice President and General Counsel for Netratings, Inc. From 1997 through 1999 Mr. Gray was an attorney with Wilson, Sonsini, Goodrich & Rosati. Mr. Gray currently serves on the board of directors of Tensegrity, Inc. and OneLegacy. Mr. Gray received his J. D. from the University of Michigan Law School in 1995 and bachelor degrees in Economics and German from Andrews University in 1992.
Stephen Ritter. Mr. Ritter has served as our Chief Technology Officer since February 2016. Prior to joining Mitek, from June 2014 to February 2016 Mr. Ritter served as Chief Technology Officer for deep learning startup Emotient, acquired by Apple in January 2016. From September 2013 through June 2014, Mr. Ritter was Chief Technology Officer for cloud based genomics startup Cypher Genomics which was acquired by Human Longevity Incorporated. Mr. Ritter served as Vice President Engineering for Websense, a web, data and email security company, from June 2011 through August 2013. From April 2006 through June 2011, Mr. Ritter was Senior Director of Engineering for McAfee/Intel. Mr. Ritter joined McAfee as a result of the acquisition of security startup Preventsys where he served as Vice President of Engineering from November 2002 through April of 2006. From January 2000 through October of 2002 Mr. Ritter was Principal Architect for Medunite. Prior to joining Medunite, Mr. Ritter served as Senior Professional Services Engineer for Persistence Software. Persistence Software acquired Orbisys, where Mr. Ritter was Founder and Vice President of Engineering from January 1996 through January 1998. Between 1993 and 1996 Mr. Ritter was a Software Engineer for Titan Corporation; prior to that from 1992 through 1993 Mr. Ritter was a Scientific Programmer at the Computational Neurobiology Lab at the Salk Institute. Mr. Ritter received a B.S. in Cognitive Science with an emphasis in Computer Science from the University of California San Diego in 1992 and is an inventor on nine patents.
None of our executive officers has any family relationships with any of our other executive officers or directors. There currently are no legal proceedings, and during the past 10 years there have been no legal proceedings, that are material to the evaluation of the ability or integrity of any of our executive officers.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following discussion and analysis of compensation arrangements of our named executive officers for the fiscal year ended September 30, 2019 should be read together with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. The actual amounts and forms of compensation and the compensation programs that we adopt may differ materially from currently planned programs as summarized in this discussion.
Company Highlights
Our financial and operational performance for the fiscal year ended September 30, 2019 reflected our continued efforts to increase our top-line performance and cash flows. Our 2019 fiscal year highlights include:
•Revenues for the fiscal year ended September 30, 2019 were $84.6 million, an increase of 33% compared to revenues of $63.6 million for the fiscal year ended September 30, 2018.
•Net loss was $0.7 million, or $0.02 per share, for the fiscal year ended September 30, 2019, compared to a net loss of $11.8 million, or $0.33 per share, for the fiscal year ended September 30, 2018.
•Cash provided by operating activities was $14.3 million for the fiscal year ended September 30, 2019, compared to $5.6 million for the fiscal year ended September 30, 2018.
•During fiscal 2019 the total number of financial institutions licensing our technology exceeded 6,500. All of the top 10 U.S. retail banks, and nearly all of the top 50 U.S. retail banks utilize our technology.
•We added new patents to our portfolio during fiscal year 2019, bringing our total number of issued patents to 57 as of September 30, 2019. In addition, we have 25 patent applications as of September 30, 2019.
•The one-year total stockholder return (TSR) growth for Mitek was 36.88% which outperformed our Global Industry Classification Standard (GICS) peer group (code 4510) return of 36.54% as well as the Russell 3000 index TSR growth of 2.92%. Over a five-year time period, the Company also outperformed its GICS and Russell 3000 peers. The five-year TSR growth for Mitek was 300.41%, which outperformed our GICS peers (code 4510) return of 125.5% as well as the Russell 3000 index TSR growth of 10.35%.
Named Executive Officers
As required by SEC rules, this Compensation Discussion and Analysis discusses compensation decisions with respect to (i) all individuals who served as the Company’s principal executive officer; during the 2019 fiscal year; (ii) all individuals who served as the Company’s principal financial officer during the 2019 fiscal year; (iii) the three most highly compensated executive officers other than the Company’s principal executive officer and principal financial officer who were serving as executive officers at the end of the 2019 fiscal year; and (iv) up to two additional individuals for whom disclosure would have been provided pursuant to the preceding clause (iii) but for the fact that the individual was not serving as an executive officer of the Company at the end of the 2019 fiscal year. We refer to these executive officers collectively in this Compensation Discussion and Analysis and the related compensation tables as the “named executive officers.” For the fiscal year ended September 30, 2019, the named executive officers were:
•Scipio “Max” Carnecchia, our current Chief Executive Officer (“CEO”);
•James B. DeBello, our former President and Chief Executive Officer;
•Bruce E. Hansen, our former Principal Executive Officer (“PEO”) and current Chairman
•Jeffrey C. Davison, our Chief Financial Officer (“CFO”);
•Michael E. Diamond, our Senior Vice President, General Manager—Payments (“GM”);
•Stephen J. Ritter, our Chief Technology Officer (“CTO”); and
•Jason L. Gray, our Chief Legal Officer (“CLO”) and Chief Compliance Officer.
Chief Executive Officer Transition
In August of 2018, the Company announced that our then CEO and Board Chairman, James DeBello would leave the Company at the beginning of calendar year 2019. In connection with Mr. DeBello’s transition, we appointed our lead independent director, Bruce Hansen, to the role of Board Chairman and principal executive officer and retained a search firm to assist the Board in its efforts to identify new CEO candidates. On November 6, 2019, we appointed Scipio “Max” Carnecchia as our CEO and as a director. At this time, Mr. Hansen resigned from his role as our principal executive officer. Mr. Carnecchia brings decades of success in the enterprise
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software industry, and he has deep experience driving consistent profitability, margin expansion and revenue growth, resulting in significant stockholder value creation.
Compensation Philosophy and Objectives
Our compensation philosophy is built upon the principles of pay for performance, shared ownership and alignment with the long-term interests of our stockholders. We believe that every aspect of our compensation programs, including the mix of short-term and long-term cash and equity payments, should enhance the Company’s ability to maximize stockholder value over time. Our specific objectives consistent with that philosophy are to:
•align our executive officers’ compensation with our business objectives and the interests of our stockholders;
•foster a goal-oriented, highly motivated management team whose participants have a clear understanding of our business objectives and shared corporate values; and
•enable us to attract, motivate and retain the executive talent needed to enhance stockholder value in a competitive environment.
To meet these objectives, the Compensation Committee has designed a compensation program that combines “fixed” forms of compensation, such as base salaries and certain other benefits, with “at-risk” forms of compensation, such as performance-based annual bonuses, based upon the achievement of corporate and individual goals established by the Compensation Committee, and long-term equity incentive awards, which reward increasing the long-term value of the Company. While our objectives guide the development of our compensation programs, we may alter our programs and practices according to the evolving needs of the Company, within the constraints of any agreements in place with individual employees.
Consideration of 2019 Stockholder Advisory Vote
At our 2019 annual meeting of stockholders, our stockholders cast an advisory vote on the Company’s executive compensation decisions and policies, as disclosed in the proxy statement issued by the Company in January 2019, pursuant to Item 402 of Regulation S-K (commonly known as the “say-on-pay vote”). Our stockholders approved the compensation of our executive officers, with approximately 89% of shares cast voting in favor of the say-on-pay proposal. As we evaluated our compensation practices and talent needs throughout 2019, we were mindful of the support our stockholders expressed for our philosophy of linking compensation to our financial, operational and strategic goals to incentivize the enhancement of stockholder value. As a result, the Compensation Committee decided to retain our general approach with respect to our executive compensation program.
Process for Establishing Compensation
Role of the Compensation Committee and Executive Officers
The current members of the Compensation Committee are Ms. Thompson (Chairperson), Messrs. Hale and Hart and Ms. Wells. Each of these individuals qualifies as (i) an “independent director” under the requirements of NASDAQ listing rules, (ii) a ”non-employee director” under Rule 16b-3 of the Exchange Act and (iii) an “outside director” under Section 162(m) of the Code. The Compensation Committee is responsible for monitoring the performance and compensation of our named executive officers, reviewing compensation plans and administering our incentive plans.
The Compensation Committee operates under a written charter and is responsible for annually reviewing and approving (or recommending for the Board to approve) the amount and form of compensation of our CEO and making recommendations to the Board with respect to the amount and form of compensation of our other executive officers. The Compensation Committee considers recommendations from our CEO in determining executive compensation. Specifically, our CEO recommends base salary increases, equity award levels and the performance goals that are used in our annual bonus program and advises the Compensation Committee regarding the compensation program’s ability to attract, retain and motivate executive talent. The Compensation Committee has and exercises the ability to materially increase or decrease the compensation amounts recommended by our CEO. Our CEO is also involved in our executive compensation process by providing input on the performance targets for our annual bonus program, including the relative weight to be assigned to each performance target. Our Compensation Committee routinely meets in executive session, and our CEO is not in attendance during sessions of the Compensation Committee and sessions of the Board where decisions are made regarding his compensation. The Compensation Committee, by resolution passed by a majority of the committee, has the authority to designate one or more subcommittees, which subcommittee, to the extent not limited by applicable law or the NASDAQ listing standards, may have and exercise all the powers and authority of the Compensation Committee.
The Compensation Committee also considers the input of our compensation consultant. For the 2019 fiscal year, the Compensation Committee selected the consulting firm F.W. Cook & Company, Inc. (the “Compensation Consultant”) as our Compensation Consultant (see below under the heading “Role of the Compensation Consultant”). The Compensation Committee has again selected consulting firm F.W. Cook & Company, Inc. as our compensation consultant for fiscal year 2020. Although the Compensation
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Committee considers the input of our CEO and the Compensation Consultant, it is not bound by such recommendations, and the Compensation Committee’s determinations with respect to all executive compensation are submitted to the Board for final approval.
Role of the Compensation Consultant
In designing compensation programs and determining compensation levels for our named executive officers for the 2019 fiscal year, the Compensation Committee retained the services of the Compensation Consultant to formulate a report and make recommendations to the Compensation Committee regarding our compensation programs and executive compensation levels. The Chairman of the Compensation Committee worked directly with the Compensation Consultant to determine the scope of the work needed to assist the Compensation Committee in its decision-making processes. The Compensation Committee has assessed the independence of the Compensation Consultant and determined that no conflict of interest exists under the rules established by the SEC. The Compensation Committee reviews the independence of its advisors annually. In connection with its engagement, the Compensation Consultant provided the Compensation Committee with benchmark comparative data for our named executive officers with respect to base salaries, target and actual total cash compensation levels, long-term incentive values, and total direct compensation. In making compensation decisions for the 2019 fiscal year, the Compensation Committee compared each element of total direct compensation against a peer group of 19 publicly traded companies in the technology industry, with an emphasis on application software, and Internet software and services against which the Compensation Committee believes we compete in the market for executive talent. We collectively refer to this group as the “Compensation Peer Group.” The pay data for this group was analyzed by the Compensation Consultant using each company’s recent public filings. This Compensation Peer Group was used, when available, for all executive officers, including our named executive officers. We generally select Peer Group companies with broadly similar revenue and 12-month trailing market capitalizations. For the fiscal year 2019, the specific criteria utilized were: (i) annual revenue between $25 million and $200 million; (ii) market capitalizations between $100 million to $1.1 billion; (iii) projected revenue growth rates similar to the Company over the next two years; (iv) headquartered in major metropolitan areas (reflecting similar cost of living as the Company); and (v) with broadly similar equity valuation relative to revenues. The following is a list of the 19 companies comprising our Compensation Peer Group for the 2019 fiscal year:
| Agilysys, Inc.* | Digimarc Corporation | SITO Mobile, Inc. | ||||||||||||
| Amber Road, Inc. | eGain Corporation* | Telenav, Inc. | ||||||||||||
| American Software, Inc.* | Everbridge, Inc. | The Meet Group, Inc. | ||||||||||||
| Asure Software, Inc. | Limelight Networks* | Upland Software, Inc. | ||||||||||||
| Brightcove, Inc. | MobileIron, Inc. | Zix Corp.* | ||||||||||||
| ChannelAdvisor Corp. | Model N, Inc. | |||||||||||||
| Datawatch Corporation | Reis, Inc. | |||||||||||||
* Designates additions to our peer group for fiscal 2019 versus fiscal 2018
The Compensation Committee used the peer group data provided by the Compensation Consultant to make the initial determination of the competitiveness of total direct compensation for each executive. Our Compensation Committee makes adjustments down or up from such market-based determination based on its comprehensive assessment of retention risk for each executive, based in part on input from our CEO with regard to the positions that report to him.
Components of Executive Compensation
The Company’s executive compensation program consists of the following elements:
•base salary;
•annual bonuses;
•equity-based incentives;
•other benefits; and
•severance and change of control plans.
Base Salary
We provide a base salary to our named executive officers and other employees to compensate them for services rendered on a day-to-day basis during the fiscal year. Base salary will typically be used to recognize the experience, skills, knowledge and responsibilities required of each named executive officer, and should reflect individual performance related to our overall financial performance as well as competitive practice. Salary reviews are typically performed annually in conjunction with performance reviews.
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Generally, the initial base salaries of our executive officers are established through arm’s-length negotiation at the time the individual executive officer is hired, taking into account his or her qualifications, experience and prior salary level. Thereafter, the Compensation Committee reviews and recommends adjustments, as necessary or appropriate, to the base salaries of our executive officers to the Board on an annual basis.
The Compensation Committee typically targets named executive officers’ salaries at a level that is near the median of salaries of executives with similar roles at comparable companies but other factors may lead to salaries that are higher or lower than the median. The Compensation Committee believes that the median for base salaries is generally the minimum cash compensation level that would allow us to attract and retain talented executives.
All employees’ base salaries are reviewed annually for possible merit increases taking into account the criteria referenced above, but merit increases are not automatic or guaranteed.
In November 2018, based on input from the Compensation Consultant, the Compensation Committee recommended and the Board approved increases in the base salaries for each of our named executive officers for the 2019 fiscal year other than Mr. DeBello who was transitioning out of the Company and Mr. Carnecchia who joined the Company in November of 2018. Messrs. Diamond and Ritter received increases of 3.0% of their respective base salaries consistent with market trends and practices. Mr. Davison received an increase of 10.2% of his base salary based on performance and for retention purposes. Mr. Gray received an increase of 11.2% of his base salary based on his promotion to Chief Legal Officer and Chief Compliance Officer. The following table summarizes the base salaries of our named executive officers for the fiscal years ending September 20, 2019 and 2018:
| Named Executive Officer | 2018 Base Salary | Increase for 2019 | 2019 Base Salary | |||||||||||||||||||||||
| Scipio Maximus Carnecchia | $ | — | N/A | $ | 450,000 | (1) | ||||||||||||||||||||
| James B. DeBello (2) | $ | 468,000 | —% | $ | 468,000 | |||||||||||||||||||||
| Bruce E. Hansen | $ | 480,000 | —% | $ | 480,000 | (3) | ||||||||||||||||||||
| Jeffrey C. Davison | $ | 304,000 | 10.2% | $ | 335,000 | |||||||||||||||||||||
| Michael E. Diamond | $ | 280,106 | 3.0% | $ | 288,565 | |||||||||||||||||||||
| Jason L. Gray | $ | 278,720 | 11.2% | $ | 310,000 | |||||||||||||||||||||
| Stephen J. Ritter | $ | 283,920 | 3.0% | $ | 292,438 | |||||||||||||||||||||
(1)Reflects the annualized base salary of Mr. Carnecchia. Mr. Carnecchia was appointed to his position as CEO in November 2018, and accordingly, the cash salary of $407,386 actually paid to him was less than the annualized base salary reflected herein.
(2)Reflects annualized base salary of Mr. DeBello. Mr. DeBello transitioned out of his role as our CEO, effective January 1, 2019, and accordingly, the cash salary of $172,773 actually paid to him was less than the annualized base salary reflected herein.
(3)Reflects the annualized base salary of Mr. Hansen. Mr. Hansen served as our PEO until November 2018 and accordingly, the cash salary of $65,768 actually paid to him was less than the annualized base salary reflected herein
Annual Bonus
Our annual bonus plan is one of the key components of the “at-risk” compensation we offer to our executives. We utilize our annual bonus plan to reward performance achievements with a time horizon of one year or less and such plan is intended to motivate and reward our executives for their contributions toward meeting longer-term corporate financial and strategic goals and to align the interests of such executives with those of our stockholders.
In developing our annual bonus plan, the Compensation Committee sets targets which it believes reflect the business conditions within our industry and are consistent with achieving our short- and long-term goals. The target achievement levels for our executives with respect to the applicable performance metrics are based on the Board-approved operating plan, which reflects the Company’s target performance for the upcoming fiscal year, and such targets are calibrated such that they are challenging enough to require strong and consistent effort by the executives in order to be achieved.
In December 2018, the Board, based upon the recommendation of the Compensation Committee, approved the Company’s executive bonus program for the fiscal year ended September 30, 2019 (the “2019 Bonus Plan”). Pursuant to the terms of the 2019 Bonus Plan, certain of the Company’s executives were eligible to receive cash bonuses based upon the achievement of certain corporate and individual performance goals during the 2019 fiscal year. When Mr. Carnecchia joined the Company, he reviewed the target achievement levels set forth in the 2019 Bonus Plan and worked with the Board to modify such levels to align with the Company’s strategic and other business goals.
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The Compensation Committee reviewed each executive’s bonus target as a percentage of their base salary. As part of this review, the bonus target for our CEO remained at 80% of his annualized salary, the bonus target for our CFO remained at 60% of his annualized salary, the bonus target of our GM remained at 50% of his annualized salary, and the bonus target for our CTO remained at 60% of his annualized salary. As a result of the review and based on market data we increased the bonus target for our CLO from 40% to 50% of his annualized salary. For our CEO, CFO, CLO, and CTO the 2019 Bonus Plan provided that up to 80% of the bonus target would be based upon the Company’s revenue and non-GAAP net income performance and the remaining 20% of the bonus target would be based upon achievement of certain individual performance goals. Our GM was eligible to receive a cash bonus equal to up to 50% of his annualized salary, with up to 87.5% of the bonus target based upon achievement or two financial metrics (revenue and non-GAAP net income) and the remaining 12.5% of the bonus target based upon achievement of certain individual performance goals. The maximum bonus payable to each executive under the 2019 Bonus Plan was 200% of the bonus target for the CEO and 150% of the respective bonus targets for the other executives.
In making its determination with respect to the achievement of performance objectives, the Compensation Committee considers our CEO’s recommendations with respect to the performance of his direct reports against their individual performance objective. Following the end of the 2019 fiscal year, the Compensation Committee assessed the Company’s performance against the corporate performance component and determined that the Company had achieved $84.6 million in revenue and $17.3 million of non-GAAP net income resulting in achievement or 99.5% of its revenue plan and 103.5% of its non-GAAP net income plan. Accordingly, after taking into account the named executive officers’ performance against their respective individual performance goals, the Compensation Committee awarded the following annual bonus amounts, which amounts were paid in November 2019:
| Named Executive Officer | 2019 Bonus Target (as a percentage of base salary) | 2019 Bonus Target (base * target %) (1) | 2019 Actual Bonus | |||||||||||||||||
| Scipio Maximus Carnecchia(2) | 80 | % | $ | 360,000 | $ | 330,000 | ||||||||||||||
| James B. DeBello(3) | — | % | — | — | ||||||||||||||||
| Bruce E. Hansen(3) | — | % | — | — | ||||||||||||||||
| Jeffrey C. Davison | 60 | % | 201,000 | 201,000 | ||||||||||||||||
| Michael E. Diamond | 50 | % | 144,282 | 145,437 | ||||||||||||||||
| Jason L. Gray | 50 | % | 155,000 | 147,250 | ||||||||||||||||
| Stephen J. Ritter | 60 | % | 175,463 | 163,180 | ||||||||||||||||
(1)Reflects the annualized target bonus of the named executive officer.
(2)Reflects the pro-rated bonus awarded to Mr. Carnecchia based upon the portion of the 2019 fiscal year during which Mr. Carnecchia served.
(3)Messrs. DeBello and Hansen were not participants in the 2019 Bonus Plan, and accordingly, did not have 2019 bonus targets set forth therein. In connection with Mr. DeBello’s departure from the Company, the Company agreed to pay him, among other things, a pro rata target bonus for fiscal year 2019 equal to $95,000 as further described under the section entitled “Potential Payments Upon Termination or Change in Control.”
Equity-Based Incentives
Our long-term equity-based incentives are another key component of our “at-risk” compensation package and are intended to reward longer-term performance and to help align the interests of our executive officers with those of our stockholders. We believe that long-term performance is achieved through an ownership culture that rewards performance by our executive officers through the use of equity incentives.
The Company’s current equity-based incentive practice is to grant a combination of RSUs and stock options to its executives with 50% of the grant value designated as RSUs and 50% of the grant value designated as stock options. Equity-based incentives are granted to our executive officers under the Mitek Systems, Inc. 2012 Incentive Plan (the “2012 Plan”). Stock options granted under the 2012 Plan generally vest as to 25% of the shares on the one-year anniversary of the date of grant and thereafter in equal monthly installments over a period of three years. RSUs granted under the 2012 Plan may be issued for nominal or no cost and may be granted in consideration of the recipient’s past or future services performed for the Company. RSUs generally vest in equal annual installments over a period of four years from the date of grant. Under our current forecasts, the 2012 Plan will run out of shares available for grant in less than one year. We do not have sufficient shares available to grant under the 2012 Plan to support our historic equity-based incentive grants to executives, which are typically made in November for service during the previous fiscal year. Accordingly, our stockholders are being asked to approve a new equity compensation plan, the 2020 Plan, as described above. If the 2020 Plan is approved, we intend to provide our executive officers with equity-incentive grants associated with their service during fiscal year 2020 in March 2020. If the 2020 Plan is not approved by our stockholders, the Compensation Committee will not be able to utilize our equity-based incentive component of executive compensation until a new plan is adopted or the Existing Incentive Plans are amended.
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Typically, the size and form of the initial equity awards for our executive officers is established through arm’s-length negotiation at the time the individual executive officer is hired. In formulating these awards, the Compensation Committee considers, among other things, the prospective role and responsibility of the executive officer, the amount of equity-based compensation held by the executive officer at his or her former employer, the cash compensation received by the executive officer, the Compensation Committee’s sense of the competitive market for similar positions (based on input from the Compensation Consultant), and the need to create a meaningful opportunity for reward predicated on the creation of long-term stockholder value. Thereafter, the Compensation Committee reviews the equity holdings of our executive officers annually and periodically recommends to the Board, based on input from the Compensation Consultant, the grant of equity awards in the form of stock options and/or RSUs to our executive officers to ensure that their overall equity position was consistent with our compensation objectives.
On November 6, 2018, Mr. Carnecchia was appointed as the Company’s CEO and was granted equity incentive awards as a material inducement to his appointment. Mr. Carnecchia was granted 90,939 stock options with an exercise price of $9.50 per share (the fair market value on the date of grant) and 47,369 RSUs. These RSUs and Options vest in four equal annual installments with the first vesting to occur one year from the date of grant. The Company also awarded him an additional grant of 81,240 stock options with an exercise price of $9.50 per share (the fair market value on the date of grant) and 47,369 RSUs. These additional grants also vest in four equal installments on an annual basis; however these additional grants were intended to serve as Mr. Carnecchia’s equity-based compensation for 2020 and, consequently, will not have an initial vest date until November 6, 2020 (the second anniversary of the grant date). Finally, as an additional inducement for Mr. Carnecchia to join the Company and to ensure increased alignment with our stockholders, the Company granted Mr. Carnecchia 800,000 performance based stock options (with an exercise price of $9.50 per share which was the fair market value on the date of grant). These performance based stock-options vest in 200,000 share increments for each 25% increase in the Company’s common stock price, which is maintained for at least twenty consecutive trading days, following the grant date (thus requiring 100% increase in our stock price to achieve full vesting). In addition, these performance based options have a minimum three year vesting period even if the performance requirements are otherwise met. Any shares not vested within five years from the grant date are forfeited.
In November 2018, Messrs. Davison, Diamond, Gray and Ritter were granted annual equity incentive awards, based in part on the performance of the Company during the year ended September 30, 2018 and based on input from the Compensation Consultant.
The following table sets forth the number of equity awards granted during the fiscal year ended September 30, 2019:
| Named Executive Officer | Restricted Stock Units | Stock Options | ||||||||||||||||||
| Scipio Maximus Carnecchia (1) | 94,738 | (2) | 972,179 | (3)(4) | ||||||||||||||||
| James B. DeBello | — | — | ||||||||||||||||||
| Bruce E. Hansen(5) | 13,172 | — | ||||||||||||||||||
| Jeffrey C. Davison | 21,053 | 40,624 | ||||||||||||||||||
| Michael E. Diamond | 31,579 | 60,626 | ||||||||||||||||||
| Jason L. Gray(6) | 40,790 | 30,313 | ||||||||||||||||||
| Stephen J. Ritter | 15,790 | 30,313 | ||||||||||||||||||
(1)In November 2018, as an inducement to join the Company, Mr. Carnecchia was granted stock options to purchase up to 172,179 shares of our common stock and, 94,738 RSUs; these awards were intended to represent Mr. Carnecchia’s equity-based compensation for fiscal years 2019 and 2020. In addition, as an inducement to join the Company and to ensure alignment with our stockholders, Mr. Carnecchia was awarded performance stock options to purchase 800,000 shares of our common stock in November 2018.
(2)47,369 shares of the RSUs granted were intended to represent Mr. Carnecchia’s equity-based compensation for fiscal year 2020. These RSU’s vest in four equal annual installments, with the first installment vesting on November 6, 2020 (the second anniversary of the grant date).
(3)81,240 of the stock options granted were intended to represent Mr. Carnecchia’s equity-based compensation for fiscal year 2020. These options vest in four equal annual installments, with the first installment vesting on November 6, 2020 (the second anniversary of the grant date).
(4)Includes up to 800,000 stock options with an exercise price of $9.50 per share (the fair market value of the Company’s common stock on the date of grant) which represent performance-based awards that will only vest upon the achievement of certain increases in the price of our common stock. The performance-based option award provides that 200,000 shares will vest upon a 25%, 50%, 75% and a 100% increase in the Company’s common stock price per share above the exercise price per share, such that the award would become fully vested upon a 100% increase in the price of our common stock price per share above the exercise price per share. Each vesting event requires that the per share closing market price of the Company’s common stock be maintained for at least twenty consecutive trading days. The options have a minimum time vesting requirement of three years, such that the options will not vest until the third anniversary of the grant date even if the underlying performance criteria have already been met. In addition, any shares that do not vest within five years of the date of grant are forfeited.
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(5)During the fiscal year ended September 30, 2019, Mr. Hansen served as both a member of the Board, for which he received 13,172 restricted stock units, as our PEO.
(6)25,000 RSUs were granted to Mr. Gray as a one-time special award in connection with his appointment as CLO in November 2018.
Other Benefits
We maintain a 401(k) plan that allows participating employees to contribute a percentage of their salary, subject to Internal Revenue Service annual limits, on a pre-tax basis pursuant to a cash or deferred arrangement under Section 401(k) of the Code. The Company made matching contributions to the plan for the fiscal years ended September 30, 2018, September 30, 2017 and September 30, 2016. The Company intends to make matching contributions to the plan for the fiscal year ended September 30, 2019.
In addition, we provide health care, dental, vision and life insurance, employee assistance plans, long-term disability and accidental death and dismemberment benefits to all full-time employees, including our named executive officers. These benefits are available to all employees, subject to applicable laws. We believe these benefits are consistent with benefits of companies with which we compete for employees.
Severance and Change of Control Plans
The Compensation Committee provides our executives with severance and change of control protection when it determines that such protection is necessary to attract or retain an executive. Under the terms of their respective executive severance and change of control plans, each named executive officer is entitled to receive certain severance payments and benefits in the event that he is terminated without cause or resigns for good reason and/or is terminated in connection with a change of control of the Company, subject in all cases to certain conditions. The severance payments and benefits that are payable under these plans are further described below in the section entitled “Potential Payments Upon Termination or Change of Control.”
Executive Compensation for the 2020 Fiscal Year
Components of Executive Compensation
Base Salary. Based on input from the Compensation Consultant, the Compensation Committee recommended and the Board approved increases in the base salaries for some of our named executive officers for the 2020 fiscal year. Messrs. Davison, Diamond, and Gray received increases of approximately 2.5% of their respective base salaries consistent with market trends and practices. The Company held the base salaries of Messrs. Carnecchia and Ritter at their 2019 levels as this component of compensation was deemed appropriate relative to competitive market levels. The following table summarizes the base salaries of our named executive officers for the fiscal years ending September 20, 2020 and 2019:
| Named Executive Officer(1) | 2019 Base Salary | Increase for 2020 | 2020 Base Salary | |||||||||||||||||
| Scipio Maximus Carnecchia | $ | 450,000 | —% | $ | 450,000 | |||||||||||||||
| Jeffrey C. Davison | $ | 335,000 | 2.5% | $ | 343,500 | |||||||||||||||
| Michael E. Diamond | $ | 288,565 | 2.6% | $ | 296,000 | |||||||||||||||
| Jason L. Gray | $ | 310,000 | 2.4% | $ | 317,500 | |||||||||||||||
| Stephen J. Ritter | $ | 292,438 | —% | $ | 292,438 | |||||||||||||||
(1) Mr. Hansen stepped down as our PEO on November 15, 2018 in connection with Mr. Carnecchia’s appointment as CEO. Accordingly, Mr. Hansen is no longer an employee of the Company and will only receive compensation in connection with his service as a director. Mr. DeBello’s employmet was terminated on January 1, 2019 and therefore will not receive compensation in fiscal year 2020.
Annual Bonus. On December 13, 2019, the Board, based upon the recommendation of the Compensation Committee, approved the Company’s executive bonus program for the fiscal year ending September 30, 2020 (the “2020 Bonus Plan”). Pursuant to the terms of the 2020 Bonus Plan, the Company’s executive officers will be eligible to receive cash bonuses based upon the achievement of certain corporate and individual performance goals during the 2020 fiscal year. These bonuses are designed to attract, motivate, retain and reward the Company’s executives. Under the 2020 Plan, our CEO has a bonus target at plan equal to 100% of his annualized salary; our CFO and CTO each have a bonus target at plan equal to 60% of their respective annualized salaries; and our CLO has a bonus target at plan of 50% of his annualized salary. The bonus target for the CEO is based upon achievement of two financial metrics (revenue and non-GAAP operating income). Up to 80% of the bonus target for the other executives is based upon achievement of two financial metrics (revenue and non-GAAP operating income) and the remaining 20% of the bonus target is based upon achievement of certain individual performance goals. In addition, our GM will be eligible to receive a cash bonus equal to up to 50% of his annualized salary, with up to 87.5% of the bonus target based upon achievement of two financial metrics (revenue and non-GAAP net operating income) and the remaining 12.5% of the bonus target based upon achievement of certain individual performance goals. The Board
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increased the maximum potential bonus payable to these individuals from 150% to 200% of their respective bonus targets (other than the CEO who already had a maximum potential bonus payable of 200%) to provide consistency in program structure across the executive team, and to provide alignment with typical practice among peers.
Equity-Based Incentives. As detailed under Proposal No. 2 —Approval of the 2020 Plan, the Company has minimal shares left available for granting under its existing equity plans. Consequently, in November of 2019, in order to ensure the Company’s ability to provide equity-based incentives to new hires and other employees, the Board deferred any decisions regarding the issuance of annual equity-based incentive awards to its NEOs pending approval of the 2020 Plan. As described in the Compensation Discussion and Analysis, annual equity-based incentive awards make up an essential component of our NEO’s total compensation packages.
Tax Considerations
Section 162(m) of the Code. Section 162(m) of the Code generally places a $1,000,000 limit on the amount of compensation a publicly held company can deduct in any tax year on compensation paid to “covered employees.” Prior to the passage of the Tax Cuts and Jobs Act of 2017, performance-based compensation paid to our “covered employees,” such as annual cash incentives and performance-based RSUs, was generally excluded from this $1,000,000 deduction limit. As a result of changes in the tax law, this previously-available exclusion for performance-based compensation is generally no longer available after 2018. The Compensation Committee considers tax deductibility as one of many factors in determining executive compensation, including the impact of these tax law changes. However, the Compensation Committee retains discretion to award compensation that it determines to be consistent with the goals of our executive compensation program even if such compensation is not tax deductible by the Company
Risks Related to Compensation Policies and Practices
The Compensation Committee has considered whether the Company’s overall compensation program for its employees creates incentives for employees to take excessive or unreasonable risks that could materially harm the Company. We believe that several features of our compensation policies for management employees appropriately mitigate such risks, including a mix of long- and short-term compensation incentives that we believe is properly weighted and the uniformity of compensation policies across the Company, which the Compensation Committee regards as setting an appropriate level of risk taking for the Company. We also believe the Company’s internal legal and financial controls appropriately mitigate the probability and potential impact of an individual employee committing the Company to a harmful long-term business transaction in exchange for short-term compensation benefits.
Hedging and Pledging Prohibition
As part of our insider trading policy, our executives and directors (including their respective spouses, persons living in their households, minor children and entities over which such persons exercise control) are prohibited from short selling and buying or selling puts, calls or other derivative securities on our securities, and from engaging in hedging, forward sale and other similar derivative transactions of our securities. In addition our executives and directors are prohibited from holding our securities in a margin account or pledging our securities as collateral for loans.
Clawback Policy
Our 2020 Plan provides that all incentive compensation issued pursuant to the 2020 Plan is subject to recoupment as required by law or if the Board determines that the award was predicated on achievement of certain financial results that were the subject of a material financial restatement, the participant engaged in fraud or misconduct that caused the material financial restatement, and a lower granting, vesting or payment of such award would have occurred. This policy applies to all participants (including executives) and covers all Awards granted under the 2020 Plan (including cash awards).
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Summary Compensation Table
The following table sets forth certain information regarding the compensation earned by each of our named executive officers during the fiscal years ended September 30, 2019, 2018 and 2017:
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(1) | Non-Equity Incentive Plan Compensation ($)(2) | All Other Compensation ($)(3) | Total Compensation ($) | ||||||||||||||||||||||||||||||||||||||||||
| Scipio Maximus | 2019 | 407,386 | (4) | — | 900,011 | 3,340,106 | 330,000 | 2,910 | 4,980,413 | |||||||||||||||||||||||||||||||||||||||||
| Carnecchia | ||||||||||||||||||||||||||||||||||||||||||||||||||
CEO | ||||||||||||||||||||||||||||||||||||||||||||||||||
| James B. DeBello | 2019 | 172,773 | (5) | — | — | — | — | 986,239 | (5) | 1,159,012 | ||||||||||||||||||||||||||||||||||||||||
| Former President & | 2018 | 468,000 | — | 450,004 | 450,004 | 378,706 | 5,008 | 1,751,722 | ||||||||||||||||||||||||||||||||||||||||||
| CEO | 2017 | 450,000 | — | 1,660,752 | — | 360,000 | 421 | 2,471,173 | ||||||||||||||||||||||||||||||||||||||||||
| Bruce E. Hansen | 2019 | 65,768 | (6) | — | 125,002 | — | — | — | 190,770 | |||||||||||||||||||||||||||||||||||||||||
Former Principal Executive Officer | 2018 | 110,080 | (4) | — | 725,008 | — | — | — | 835,088 | |||||||||||||||||||||||||||||||||||||||||
| Jeffrey C. Davison | 2019 | 335,000 | — | 200,004 | 200,000 | 201,000 | 3,906 | 939,910 | ||||||||||||||||||||||||||||||||||||||||||
Chief Financial | 2018 | 304,000 | — | 66,667 | 66,669 | 184,498 | 4,542 | 626,376 | ||||||||||||||||||||||||||||||||||||||||||
Officer | 2017 | 84,092 | (4) | 48,808 | (7) | 2,040,302 | — | — | 50,106 | (8) | 2,223,308 | |||||||||||||||||||||||||||||||||||||||
| Michael E. Diamond | 2019 | 288,565 | — | 300,001 | 300,002 | 145,437 | 2,314 | 1,036,319 | ||||||||||||||||||||||||||||||||||||||||||
| General Manager | 2018 | 280,160 | — | 150,001 | 150,004 | 141,691 | 1,374 | 723,230 | ||||||||||||||||||||||||||||||||||||||||||
| 2017 | 206,000 | — | 569,726 | — | 206,000 | 289 | 982,015 | |||||||||||||||||||||||||||||||||||||||||||
| Jason L. Gray | 2019 | 310,000 | — | 387,505 | 150,001 | 147,250 | 3,541 | 998,297 | ||||||||||||||||||||||||||||||||||||||||||
Chief Legal Officer | 2018 | 278,720 | — | 150,001 | 150,004 | 112,770 | 1,084 | 692,579 | ||||||||||||||||||||||||||||||||||||||||||
| 2017 | 267,800 | — | 284,863 | — | 107,120 | 907 | 660,690 | |||||||||||||||||||||||||||||||||||||||||||
| Stephen J. Ritter | 2019 | 292,438 | — | 150,005 | 150,001 | 163,180 | 1,132 | 756,756 | ||||||||||||||||||||||||||||||||||||||||||
Chief Technology | 2018 | 283,920 | — | 300,002 | 300,003 | 172,311 | 1,094 | 1,057,330 | ||||||||||||||||||||||||||||||||||||||||||
Officer | 2017 | 272,950 | — | 1,107,168 | — | 109,180 | 383 | 1,489,681 | ||||||||||||||||||||||||||||||||||||||||||
(1)The amounts shown under the “Stock Awards” column and the “Option Awards” column represent the aggregate grant date fair value of RSUs (including Senior Executive Performance RSUs) and option awards, respectively, granted to each named executive officer in the year indicated, computed in accordance with FASB ASC Topic 718, Compensation—Stock Compensation. A discussion of the assumptions used in calculating the grant date fair value is set forth in Note 7 to our financial statements included in our Form 10-K filed with the SEC on December 6, 2019. As of January 14, 2020, the performance period for our Senior Executive Performance RSUs ended and the Company’s stock performance during the performance period did not result in the vesting of any Senior Executive Performance RSUs.
(2)The amounts shown under the “Non-Equity Incentive Plan Compensation” column represent annual cash bonuses earned pursuant to the 2019 Bonus Plan, the 2018 Bonus Plan, and the 2017 Bonus Plan, respectively.
(3)Represents group term life insurance and long term disability premiums and wellness benefits paid on behalf of our named executive officers in the fiscal years ended September 30, 2019, 2018 and 2017, unless otherwise noted.
(4)Represents the portion of the named executive officer’s base salary earned during the portion of the 2019, 2018, and 2017 fiscal years during which the named executive officer commenced his employment with the Company (November 2019, in the case of Mr. Carnecchia; August 2019, in the case of Mr. Hansen; and June 2017, in the case of Mr. Davison).
(5)Mr. DeBello’s compensation represents his base salary which was pro-rated based on his termination date. Mr. DeBello’s All Other Compensation includes $950,000 of severance, $35,417 of COBRA payments associated with his termination, and $822 of group term life insurance paid through his termination date.
(6)Mr. Hansen’s salary represents his pro rata compensation received for serving as our PEO during our 2019 fiscal year from October 1, 2018 until November 15, 2018.
(7)Represents a discretionary bonus of $48,808 with respect to the named executive officer’s service to the Company during the 2017 fiscal year. The named executive officer joined the Company during the 2017 fiscal year, and thus was not a participant in the 2017 Bonus Plan, but was awarded this discretionary bonus by the Board, based on recommendations of the Compensation Committee, consistent with the targets and criteria set forth in the 2017 Bonus Plan, pro-rated to reflect the portion of the year during which the named executive officer served in his position.
(8)Includes $50,000 for relocation expenses paid to the named executive officer in accordance with his offer letter.
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Grants of Plan-Based Awards
The following table sets forth information regarding grants of plan-based awards to each of our named executive officers during the fiscal year ended September 30, 2019:
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | All Other Option Awards: Number of Securities Underlying Options(2) | All Other Stock Awards: Number of Shares of Stock or Units(3) | Grant Date Fair Value of Stock and Option Awards (4) | |||||||||||||||||||||||||||||||||||||||||||||||
| Grant | Threshold | Target | Maximum | Exercise or Base Price of Option Awards | ||||||||||||||||||||||||||||||||||||||||||||||
| Name | Date | ($) | ($) | ($) | ||||||||||||||||||||||||||||||||||||||||||||||
| Scipio Maximus | 12/9/2018 | $ | 72,000 | $ | 360,000 | $ | 648,000 | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Carnecchia | 11/6/2018 | — | — | — | 800,000 | $ | 9.50 | — | $ | 2,440,099 | ||||||||||||||||||||||||||||||||||||||||
| 11/6/2018 | — | — | — | 90,939 | $ | 9.50 | — | $ | 450,003 | |||||||||||||||||||||||||||||||||||||||||
| 11/6/2018 | — | — | — | 81,240 | $ | 9.50 | — | $ | 450,005 | |||||||||||||||||||||||||||||||||||||||||
| 11/6/2018 | — | — | — | — | 47,369 | $ | 450,006 | |||||||||||||||||||||||||||||||||||||||||||
| 11/6/2018 | — | — | — | — | 47,369 | $ | 450,006 | |||||||||||||||||||||||||||||||||||||||||||
| James B. DeBello | N/A | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Bruce E. Hansen | 11/13/2018 | — | — | — | — | 13,172 | $ | 125,002 | ||||||||||||||||||||||||||||||||||||||||||
| Jeffrey C. Davison | 12/9/2018 | $ | 40,200 | $ | 201,000 | $ | 281,400 | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| 11/23/2018 | — | — | — | 40,624 | $ | 9.50 | — | $ | 200,000 | |||||||||||||||||||||||||||||||||||||||||
| 11/23/2018 | — | — | — | — | 21,053 | $ | 200,004 | |||||||||||||||||||||||||||||||||||||||||||
| Michael E. Diamond | 12/9/2018 | $ | 18,035 | $ | 144,282 | $ | 207,405 | — | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| 11/6/2018 | — | — | — | 60,626 | $ | 9.50 | — | $ | 300,002 | |||||||||||||||||||||||||||||||||||||||||
| 11/6/2018 | — | — | — | — | 31,579 | $ | 300,001 | |||||||||||||||||||||||||||||||||||||||||||
| Jason L. Gray | 12/9/2018 | $ | 31,000 | $ | 155,000 | $ | 217,000 | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| 11/6/2018 | — | — | — | 30,313 | $ | 9.50 | — | $ | 150,001 | |||||||||||||||||||||||||||||||||||||||||
| 11/6/2018 | — | — | — | — | 15,790 | $ | 150,005 | |||||||||||||||||||||||||||||||||||||||||||
| 11/6/2018 | — | — | — | — | 25,000 | $ | 237,500 | |||||||||||||||||||||||||||||||||||||||||||
| Stephen J. Ritter | 12/9/2018 | $ | 35,093 | $ | 175,463 | $ | 245,648 | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| 11/6/2018 | — | — | — | 30,313 | $ | 9.50 | — | $ | 150,001 | |||||||||||||||||||||||||||||||||||||||||
| 11/6/2018 | — | — | — | — | 15,790 | $ | 150,005 | |||||||||||||||||||||||||||||||||||||||||||
(1)Messrs. Carnecchia, Davison, Diamond, Gray and Ritter were participants in the 2019 Bonus Plan and were eligible to receive cash bonuses based upon the achievement of certain corporate performance goals as described in the “Compensation Discussion and Analysis” section of this Proxy Statement.
(2)Stock options were granted to Messrs. Davison, Diamond, Gray and Ritter on November 6, 2018 and Mr. Davison on November 23, 2018. Such stock options vest over four years from the date of grant, with 25% of the shares subject to the award vesting on the first anniversary of the date of grant and the remaining shares vesting in thirty-six equal monthly installments thereafter. As a material inducement for Mr. Carnecchia to join the Company, Mr. Carnecchia received three separate stock option grants on November 6, 2018. The first grant of 90,939 shares vests over four years from the date of grant, with 25% of the shares subject to the award vesting on the first anniversary of the date of grant and the remaining shares vesting in thirty-six equal monthly installments thereafter. The second grant of 81,240 shares is intended to be a portion of Mr. Carnecchia’s equity-based compensation for our 2020 fiscal year and, consequently, will vest over a period of five years from the date of grant with 25% of the shares subject to the award vesting on the second anniversary of the date of grant and the reamining shares vesting in thirty-six equal montly installments thereafter. Also as a material inducement for Mr. Carnecchia to join the Company, Mr. Carnecchia received a performance based stock option grant of 800,000 shares on November 6, 2018. The performance-based option award provides that 200,000 shares will vest upon a 25%, 50%, 75% and a 100% increase in the Company’s common stock price per share above the exercise price per share, such that the award would become fully vested upon a 100% increase in the price of our common stock price per share above the exercise price per share. Each vesting event requires that the per share closing market price of the Company’s common stock be maintained for at least twenty consecutive trading days. The options have a minimum time vesting requirement of three years, such that the options will not vest until the third anniversary of the grant date even if the underlying performance criteria have already been met. In addition, any shares that do not vest within five years of the date of grant are forfeited
(3)RSUs were granted to Messrs. Diamond, Gray and Ritter on November 6, 2018 and Mr. Davison on November 23, 2018. Such RSUs vest in equal annual installments over a period of four years from the date of grant. Mr. Carnecchia received two grants of RSUs on November 6, 2018 each in the amount of 47,369 shares. The first grant vests in equal annual installments over a period of four years from the date of grant. The second RSU grant to Mr. Carnecchia, intended as a portion of Mr.
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Carnecchia’s equity based compensation for our 2020 fiscal year, will vest over a period of five years from the date of grant with 25% of the shares vesting on the second anniversary of the date of grant and then in 25% increments annually thereafter. In connection with his service as a director for the fiscal year ended September 30, 2019, RSUs were granted to Mr. Hansen on November 13, 2018 and vest in full on the first anniversary of the date of grant.
(4)The amounts disclosed in the “Grant Date Fair Value of Stock and Option Awards” column are equal to the aggregate grant date fair value of each RSU and stock option award computed in accordance with ASC Topic 718. A discussion of the assumptions used in calculating the grant date fair value is set forth in Note 7 to our financial statements included in our Form 10-K filed with the SEC on December 6, 2019.
Narrative Discussion of Summary Compensation Table and Grants of Plan-Based Awards Table
For a narrative discussion of the Summary Compensation Table and the Grants of Plan-Based Awards table, see the footnotes to the tables as well as the Compensation Discussion and Analysis of this Proxy Statement. In addition, below is a description of the material compensation-related terms of all employment arrangements in effect during the fiscal year ended September 30, 2019 with our named executive officers, including annual base salaries during the fiscal year ended September 30, 2019 as well as their current annual base salaries. For a description of the payments and benefits that would be provided to our named executive officers in connection with a termination of their employment or a change of control, see the section below entitled “Potential Payments Upon Termination or Change of Control”.
Scipio "Max" Carnecchia
In November 2018, we entered in to an executive employment agreement with Scipio Maximus Carnecchia, our CEO. Mr. Carnecchia’s annual base salary for our 2019 fiscal year was $450,000 and his current annual base salary is $450,000. He is eligible to participate in the Company’s annual bonus plan, 401(k) plan and health, disability, insurance and other plans made available generally to our other salaried employees. Mr. Carnecchia is also entitled to receive certain severance payments and benefits in the event that his employment is terminated by us without cause or by him for good reason in connection with a change of control, as discussed below under the section entitled “Potential Payments Upon Termination or Change of Control.”
James B. DeBello
On August 27, 2018, Mr. DeBello and the Company entered into a Separation Agreement setting forth the details of Mr. DeBello’s departure from the Company. Under the terms of the Separation Agreement, in consideration for a general release of claims against the Company, the Company agreed to pay Mr. DeBello, in addition to amounts that he is entitled under his Executive Severance and Change of Control Plan, as described below in the section entitled “Potential Payments Upon Termination or Change of Control,” (i) a lump sum payment of $380,000, which was Mr. DeBello’s target bonus amount for fiscal 2018, (ii) a pro-rata target bonus for fiscal year 2019 (based on his then current annual base salary of $468,000, but otherwise pro-rated based on the number of days of his employment in fiscal year 2019), and (iii) up to an aggregate of $20,000 in reasonable, documented attorney’s fees incurred in connection with his negotiation, review and execution of the Separation Agreement.
Bruce E. Hansen
On August 27, 2018, we entered into a letter agreement with Bruce Hansen, pertaining to his employment as our interim PEO. The letter agreement provides that in consideration for Mr. Hansen’s services during the CEO transition period he will receive (i) an annualized base salary of $480,000, paid semi-monthly, until such time as a new CEO is hired, (ii) a restricted stock unit award equal to $600,000, which will vest upon the earlier of (a) one year from the date of his employment, (b) the commencement of employment of a new CEO, or (c) termination of his employment following a change in control, and will be settled on the two-year anniversary of the grant. Mr. Hansen was also eligible to participate in the Company’s 401(k) savings plan and the health, disability, insurance and other plans made available generally to the Company’s salaried employees.
Jeffrey C. Davison
In June 2017, we entered in to a letter agreement with Jeffrey C. Davison, our CFO. Mr. Davison’s annual base salary during our 2019 fiscal year was $335,000 and his current annual base salary is $343,500. He is eligible to participate in the Company’s annual bonus plan, 401(k) plan and health, disability, insurance and other plans made available generally to our other salaried employees. Mr. Davison is also entitled to receive certain severance payments and benefits in the event that his employment is terminated by us without cause or by him for good reason in connection with a change of control, as discussed below under the section entitled “Potential Payments Upon Termination or Change of Control.”
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Michael E. Diamond
In June 2012, we entered into a letter agreement with Michael E. Diamond, our GM. Mr. Diamond’s annual base salary during our 2019 fiscal year was $288,565 and his current annual base salary is $296,000. He is eligible to participate in the Company’s annual bonus plan, 401(k) plan and health, disability, insurance and other plans made available generally to our other salaried employees. Mr. Diamond is also entitled to receive certain severance payments and benefits in the event that his employment is terminated by us without cause or by him for good reason in connection with a change of control, as discussed below under the section entitled “Potential Payments Upon Termination or Change of Control.”
Jason L. Gray
In March 2016, we entered in to a letter agreement with Jason L. Gray, our CLO and Chief Compliance Officer. Mr. Gray’s annual base salary during our 2019 fiscal year was $310,000 and his current annual base salary is $317,500. He is eligible to participate in the Company’s annual bonus plan, 401(k) plan and health, disability, insurance and other plans made available generally to our other salaried employees. Mr. Gray is also entitled to receive certain severance payments and benefits in the event that his employment is terminated by us without cause or by him for good reason in connection with a change of control, as discussed below under the section entitled “Potential Payments Upon Termination or Change of Control.”
Stephen J. Ritter
In January 2016, we entered in to a letter agreement with Stephen J. Ritter, our CTO. Mr. Ritter’s annual base salary during our 2019 fiscal year was $292,438 and his current annual base salary is $292,438. He is eligible to participate in the Company’s annual bonus plan, 401(k) plan and health, disability, insurance and other plans made available generally to our other salaried employees. Mr. Ritter is also entitled to receive certain severance payments and benefits in the event that his employment is terminated by us without cause or by him for good reason in connection with a change of control, as discussed below under the section entitled “Potential Payments Upon Termination or Change of Control.”
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Outstanding Equity Awards at Fiscal Year-End
The following table sets forth the outstanding equity awards held by our named executive officers as of September 30, 2019:
| Outstanding Equity Awards at Fiscal Year-End | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Name and Principal Position | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price ($) | Option Expiration Date(1) | Number of Shares or Units of Stock Not Yet Vested | Market Value of Shares or Units of Stock That Have Not Vested (2) | |||||||||||||||||||||||||||||||||||||||||||||||||
Scipio Maximus Carnecchia | — | (3) | 81,240 | — | $ | 9.50 | 11/06/28 | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||
| CEO | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||