Item 10. Directors, Executive Officers and
Corporate Governance.
The
directors and executive officers of the Company as of March 17,
2017 and their ages are as follows:
Name
|
|
Age
|
|
Position
|
Director Since
|
Timothy D. Morrison
|
|
58
|
|
Chief Executive Officer and Chairman
|
2009
|
J. R. Brian Hanna
|
|
64
|
|
Chief Financial Officer
|
N/A
|
Randall D. Gottlieb
|
|
43
|
|
President and Director
|
2015
|
Brent D. Gwatney
|
|
54
|
|
Senior Vice-President – Sales and Marketing
|
N/A
|
Alford E. Drinkwater
|
|
65
|
|
Senior Vice-President – Dev & Gov'tl Affairs
|
N/A
|
Vernon J. Richardson
|
|
50
|
|
Director
|
2010
|
Michael R. Phillips
|
|
42
|
|
Director
|
2011
|
Todd J. Ofenloch
|
|
41
|
|
Director
|
2011
|
Bobby J. Sheth
|
|
39
|
|
Director and Secretary
|
2011
|
Timothy D.
Morrison
joined
AERT as President in March 2008
and has served as a director since June 2009. On August 8,
2013, by special resolution of the Board of Directors, Mr. Morrison
was appointed the Chief Executive Officer for AERT. He was
appointed Chairman of the Board July 1, 2015, replacing Joe G.
Brooks who resigned on June 30, 2015.
Mr.
Morrison has a background in polymer engineering as well as
experience in turnaround management. He began his career with
Dow Chemical in the hydrocarbons and polyethylene group where he
held both operations and business positions. He led the Promix
Joint Venture with Dow, Texaco, and Enterprise Products before
moving to Harris Chemical in 1992 as an equity partner where he led
the turnaround of operations, customer service, information
technology (IT), purchasing, and logistics for the leveraged buyout
group. In 2000, Mr. Morrison joined Cyctec’s engineered
products composite business, managing the composites and adhesives
business. He brings experience in successfully servicing the
needs and requirements of big box retailers from Valspar, where he
served most recently as manager for Valspar’s Texas
Division.
Mr.
Morrison’s qualifications to serve on the Board include the
same demonstrated skills that qualify him to serve as Chief
Executive Officer of the Company, including his industry and
technology experience as a manager in various manufacturing
companies and with a chemical engineering background. Mr. Morrison
has a B.S. in Chemical Engineering from the University of Alabama,
an M.B.A. from the University of Southern California, and training
in both Lean Manufacturing and Six Sigma.
J. R. Brian Hanna
joined AERT as Chief Financial Officer
in November 2008. Mr. Hanna had most recently served as
Chief Financial Officer of JT Sports (formerly Brass Eagle Inc.)
from December 1, 1997 to October 31, 2008. Mr. Hanna
obtained his Chartered Accountant’s designation with Deloitte
& Touche in 1982 and later became a Certified Public
Accountant. Mr. Hanna’s background includes merger and
acquisition integrations, financial system/IT implementations in
addition to establishing internal controls, strategic planning, and
treasury functions.
Randall D. Gottlieb
joined AERT in 2013 assuming the role
of President. Mr. Gottlieb has a background in general management,
sales, and production. Mr. Gottlieb graduated from Miami University
in Oxford, Ohio in 1995 with a B.S. in Manufacturing
Engineering,
cum laude.
He received his M.B.A. from Duke University in
Durham, North Carolina in 2001.
Mr.
Gottlieb began his career in 1995 with Accenture of Chicago,
Illinois, where he resolved business and technical issues for a
variety of industries, including Caterpillar, Inc. for whom he
redesigned an order filling process and implemented changes through
software design. In 2001, through the North Mississippi Broadband
Access Initiative in Tupelo, Mississippi, Mr. Gottlieb created a
plan to provide broadband internet access within an underserved
16-county region in north Mississippi. During 2002 and 2003, while
at Tefen USA of New York City, Mr. Gottlieb worked with Pfizer,
Pharmacia and Schering Plough to increase testing efficiency. Mr.
Gottlieb came to AERT from Oldcastle, North America’s largest
manufacturer of building products and materials. During his time at
Oldcastle, Mr. Gottlieb was also General Manager of two production
facilities and later was responsible for the sales and marketing
effort related to Lowe’s in six product
categories.
Brent D. Gwatney
joined AERT in October
2007 as the National Sales Manager for MoistureShield
®
sales. Mr.
Gwatney has over twenty-nine years in the building industry,
fourteen of which were as a manager of operations and sales in the
composite industry. He attended the Carlson School of Management
and Strategic Planning at the University of Minnesota. He served on
the board of NADRA (North American Deck and Rail Association) from
2012 through 2015. In August 2008, he was promoted to Vice
President of MoistureShield
®
Sales and in
2011 he was promoted to Senior Vice President of Sales and
Marketing for AERT.
Alford E. Drinkwater
has served as Senior Vice
President
in various capacities since September 2003, and is
currently the Company’s Senior Vice President of Development
and Governmental Affairs.
Prior to
joining the Company in May 2000, Mr. Drinkwater had been
the Assistant Director for the Established Industries Division of
the Arkansas Department of Economic Development. From
September 1986 until July 1988, he owned and operated
Town and Country Waste Services, Inc. a waste services company
engaging in the development of waste recycling, energy recovery,
and disposal systems. From April 1981 until January 1987,
Mr. Drinkwater was the Resource Recovery Manager for
Metropolitan Trust Company, and was primarily involved in
waste-to-energy systems development. From July 1974 until
April 1981, Mr. Drinkwater worked for the State of
Arkansas as Assistant to the Chief of the Solid Waste Control
Division of the Arkansas Department of Pollution Control &
Ecology and as the Manager of the Biomass and Resource Recovery
Program of the Arkansas Department of Energy.
Dr. Vernon J. Richardson
is the
distinguished professor of Accounting in the Sam M. Walton College
of Business at the University of Arkansas. He received an M.B.A.
and undergraduate degrees in accounting from Brigham Young
University prior to receiving a Ph.D. in accounting from the
University of Illinois at Urbana-Champaign. Dr. Richardson then
joined the faculty of the University of Kansas, holding assistant
and associate professor positions from 1997 to 2005. He has been a
professor in the Sam M. Walton College of Business at the
University of Arkansas since 2005 and is currently the S. Robson
Walton Endowed Chair in Accounting. He served as department chair
of the accounting department for 8 years. Dr. Richardson has
served in various positions with the American Accounting
Association, and performs expert witness and consulting services.
He has served as a director at Reassure America Life Insurance
Company. Director qualifications include leadership, research,
technology and finance experience as an accounting professor and
chair of a university level accounting department.
Michael R. Phillips
is a Partner with
Highland Consumer Partners, an independent venture capital firm.
Mr. Phillips has many years of experience in investing in and
advising middle market companies. Prior to Highland Consumer
Partners, Mr. Phillips was a Managing Director at H.I.G. Capital,
and also worked at Bain & Company, Electra Partners, and Lehman
Brothers. Mr. Phillips earned his B.S.in Engineering from Princeton
University and an M.B.A. from the Wharton School at the University
of Pennsylvania. Mr. Phillips’ experience in investment
banking, financial consulting, and risk management gives him a
valuable perspective and insight into the issues facing our company
today and is applicable to our business needs.
Todd J. Ofenloch
is Managing Director in
the Boston office of H.I.G. Capital, a global private equity and
alternative assets investment firm. Mr. Ofenloch is responsible for
evaluating and executing new investment opportunities, as well as
working with certain existing portfolio companies. He has many
years of experience investing in middle market private equity
transactions and has worked on investments in a broad range of
industries. Prior to H.I.G. Capital, Mr. Ofenloch was an
investment professional at Parthenon Capital Partners and GTCR. He
began his career as an investment banker at Lazard Frères,
specializing in mergers and acquisitions advisory services.
Mr. Ofenloch graduated from the University of Illinois with a
B.S. in Accountancy and received an M.B.A. from Columbia Business
School. Mr. Ofenloch’s experience with business development,
strategic planning, and risk management is applicable to our
company needs. His knowledge and expertise in finance and assorted
business markets are beneficial on our Board.
Bobby J. Sheth
is a Managing Director
and Head of Roynat Equity Partners, a private equity firm and
division of Roynat, Inc. and Scotiabank. Prior to joining Roynat
Equity Partners, Mr. Sheth worked for H.I.G. Capital as an
investment professional, where he participated in a variety of new
deal processes, divestitures, and financings. Mr. Sheth also sat on
the boards of several H.I.G. Capital's portfolio companies. Earlier
in his career Mr. Sheth worked as a consultant for Alvarez &
Marsal and as an Investment Banker for Citigroup. Mr. Sheth earned
a Bachelor of Commerce in Finance from the University of Toronto
and an M.B.A. from Harvard Business School. He is also a Chartered
Financial Analyst. Mr. Sheth's experience as a private equity
investor, investment banker as well as his knowledge in risk
management, business development, and strategic planning provides a
strong perspective into the needs of our company. Mr. Sheth has
also served as our Secretary since 2011.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section
16(a) of the Exchange Act requires executive officers and
directors, a company’s chief accounting officer and persons
who beneficially own more than 10% of a company’s common
stock, to file initial reports of ownership and reports of changes
in ownership with the SEC. Executive officers, directors, the chief
accounting officer and beneficial owners of more than 10% of our
common stock are required by SEC regulations to furnish us with
copies of all Section 16(a) forms they file.
Based
solely on our review of copies of such reports and written
representations from our executive officers and directors, we
believe that our executive officers and directors complied with all
Section 16(a) filing requirements during 2016.
Corporate Governance
The
number of directors that serve on the Board is currently set at
seven. In accordance with the Company’s bylaws, directors are
elected for a term of one year and until their successors are duly
elected and qualified. Messrs. Morrison, Gottlieb and Richardson
were elected at the 2016 annual meeting of stockholders, and
Messrs. Phillips, Sheth, Ofenloch and Brain James were elected as
Series E Directors by H.I.G. AERT, LLC in 2016. Mr. James submitted
his resignation to the Board of Directors on October 28, 2016. The
resulting vacancy has not been filled.
Officers serve at
the discretion of the Board of Directors. No current-standing
director or officer of the Company has any pending or prior legal
involvement that would be material to an evaluation of the ability
or integrity of any director.
Independence of Directors
Our
common stock is listed on the OTCQB Tier of the OTC Markets Group,
Inc. The OTCQB does not have any director independence standards.
Therefore, pursuant to the regulations promulgated by the SEC under
the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), we have adopted the definition of
independent director as described in Rule 5605 of the NASDAQ
Listing Standards. Our Board has determined that Dr. Vernon J.
Richardson, a current director, qualifies as
“independent” under the rules promulgated by the SEC
under the Exchange Act and NASDAQ Listing Standards.
Board Leadership
Our
Board of Directors’ current leadership structure includes a
Chairman of the Board and Audit, Compensation and Governance
Committees. The Audit Committee is chaired by an independent
director.
Our Board has
reviewed our current Board leadership structure in light of the
composition of the Board, the Company’s size, the nature of
the Company’s business, the regulatory framework under which
the Company operates, and other relevant factors. Considering these
factors, the Board determined to have the same individual, Timothy
D. Morrison, serve as Chief Executive Officer and Chairman of the
Board. The Board does not have or appoint a lead independent
director. Combining the roles of Chief Executive Officer and
Chairman promotes unified leadership and direction of the Company,
allowing for operation effectiveness and efficiencies that ensure
the implementation of strategic initiatives and business plans to
optimize stockholder value.
The
Audit Committee provides oversight of management and handling risk.
Our Audit Committee oversees the integrity of our consolidated
financial statements; the overall effectiveness of our system of
internal controls; our policies and procedures for assessing and
managing risk; along with compliance, regulatory and legal matters.
Members of our Board of Directors receive frequent updates from
management regarding all aspects of the enterprise risk management,
including our performance versus budget. Our Board of
Directors’ leadership structure is consistent with our
approach to risk oversight, as the Chief Executive Officer is
involved directly with management, and the corporate governance
role is enacted by the Board of Directors as a whole.
Stockholder and Interested Parties Communications with the
Board
Stockholders and
other interested parties may contact any of the Company’s
directors, a committee of the Board of Directors, the Board’s
independent director, or the Board generally, by writing to them at
Advanced Environmental Recycling Technologies, Inc., c/o Corporate
Secretary, at the address shown on the cover of this report. In
general, any communication delivered to the Corporate Secretary for
forwarding to any of the Company’s directors individually, a
committee of the Board or the Board’s independent directors
will be forwarded in accordance with the stockholder’s or
other interested party’s instruction, except that the
Corporate Secretary reserves the right not to forward any abusive,
threatening or otherwise inappropriate materials.
The
Company has also implemented a “Corporate Compliance
Line” through which the Compensation Committee, the Audit
Committee, the Board of Directors, and the corporate compliance
officer may be contacted, as appropriate. This service and number
is available on our corporate website.
Code of Ethics
The Company has established a Code of Ethics that
demonstrates our commitment to conduct our affairs in compliance
with all applicable laws and regulations and observe the highest
standards of business ethics and seeks to identify and mitigate
conflicts of interest between our directors, officers and
employees, on the one hand, and AERT on the other hand. We intend
that the spirit, as well as the letter, of the Code of Ethics be
followed by all our directors, officers, and employees, including
our principal executive officer, principal financial officer, and
principal accounting officer. This is communicated to each new
officer and employee and will be communicated to any new director.
Any waiver of our Code of Ethics with respect to our executive
officers and directors may only be authorized by our Board of
Directors. Our Code of Ethics is available under the Corporate
Governance section of our website,
www.aert.com
.
We intend to satisfy the disclosure requirements of Form 8-K
regarding any amendment to, or a waiver from, any provision of our
Code of Business Conduct and Ethics by posting such amendment or
waiver on our website.
Board Meetings and Certain Committee Reports and
Meetings
During
the Company’s fiscal year ended December 31, 2016, the
Board of Directors held two meetings. All Board members attended
the January meeting and six of seven attended the June
meeting.
Three
of the seven Board members attended the 2016 annual stockholders
meeting. The Company encourages, but does not require, directors to
attend annual meetings of stockholders. During fiscal 2016, the
Company did not hold any executive sessions of the Board of
Directors in which only independent members of the Board were
present.
The Board has three standing committees: Audit
Committee, the Compensation Committee, and the
Corporate
Governance and Nominating Committee
.
The charters of the Audit and Compensation Committees are available
on the corporate website at
http://www.aert.com
.
The Corporate Governance and
Nominating Committee does not have a charter. The Board may
establish other committees as it deems necessary or appropriate
from time to time.
Audit Committee
The
Audit Committee consists of Dr. Richardson and Messrs. Sheth and
Ofenloch, with Dr. Richardson serving as the chair. During the year
ended December 31, 2016, the Audit Committee met four times. The
Board of Directors has determined that Vernon Richardson qualifies
as an “audit committee financial expert” as such term
is defined in rules of the SEC implementing requirements of the
Sarbanes-Oxley Act of 2002.
The
Audit Committee is directly responsible for the engagement of the
Company’s independent accountants and is responsible for
approving the services performed by the Company’s independent
accountants and for reviewing and evaluating the Company’s
accounting principles and its system of internal accounting
controls. In 2016, the Audit Committee engaged in quarterly
discussions with the Company’s auditors concerning their
quarterly reviews and annual audit of the Company’s financial
statements and with management concerning their preparation of the
financial statements.
Compensation Committee
The
Compensation Committee consists of Messrs. Phillips, Sheth and Dr.
Richardson, with Mr. Phillips serving as the chair.
The Compensation Committee establishes and
administers the Company’s compensation plans on behalf of the
Board of Directors and makes recommendations to the Board of
Directors as to stock options, restricted stock awards or other
awards granted thereunder and other compensation
matters.
Corporate Governance and Nominating Committee
The
Corporate Governance and Nominating Committee consists of all
members of the Board of Directors and identifies candidates for
election to the Board of Directors.
The
Committee
believes that candidates for director should have
certain minimum qualifications, including being able to read and
understand financial statements and having the highest personal
integrity and ethics. The Committee also considers such factors as
relevant expertise and experience, ability to devote sufficient
time to the affairs of the Company, demonstrated excellence in his
or her field, the ability to exercise sound business judgment and
the commitment to rigorously represent the long-term interests of
the Company’s stockholders. Candidates for director are
reviewed in the context of the current composition of the Board,
the operating requirements of the Company and the long-term
interests of stockholders. The
Committee
is responsible for recommending candidates for
nomination. When considering potential director nominees,
the
Committee
reviews available
information regarding each potential candidate including
qualifications, experience, skills and integrity as well as race,
gender and ethnic diversity. The
Committee
also considers past performance before nominating
any director for re-election. Although we do not have a formal
policy regarding diversity, the
Committee
views its diversity as a priority and seeks
diverse representation among members.
The
Corporate Governance and Nominating
Committee
does not have a formal
process for identifying and evaluating nominees for director.
Instead, it uses its network of contacts to identify potential
candidates. The
Committee
will
conduct any appropriate and necessary inquiries into the
backgrounds and qualifications of possible candidates after
considering the function and needs of the Board. The
Committee
will meet to discuss and
consider such candidates’ qualifications and then select a
nominee by majority vote.
Item 11. Executive Compensation.
Summary Compensation Table
The
following table sets forth the aggregate compensation the Company
paid for the two years ended December 31, 2016 and 2015 to the
Chief Executive Officer, the Chief Financial Officer, and the
President.
|
|
|
|
|
|
|
Name
and Principal Position
|
|
|
|
|
|
|
Timothy
D. Morrison
|
|
2016
|
260,000
|
428,000
|
-
|
688,000
|
Chief
Executive Officer
|
|
2015
|
270,000
|
100,000
|
-
|
370,000
|
J. R.
Brian Hanna
|
|
2016
|
230,792
|
393,000
|
-
|
623,792
|
Chief
Financial Officer
|
|
2015
|
238,846
|
70,000
|
-
|
308,846
|
Randall
D. Gottlieb
|
|
2016
|
230,518
|
393,000
|
-
|
623,518
|
President
|
|
2015
|
231,924
|
80,000
|
-
|
311,924
|
(1) Does not include perquisites and other personal benefits or
property with aggregate value of less than
$10,000.
Setting Executive Compensation
The
Compensation Committee strives to establish and periodically review
AERT’s compensation philosophy and the adequacy of
compensation plans and programs for directors, executive officers
and other AERT employees and make recommendations to the Board of
Directors regarding:
●
Compensation
arrangements and incentive goals for executive officers and
administration of the compensation plans and recommendations to the
Board of Directors with respect thereto;
●
The
performance of the executive officers and incentive compensation
awards and adjustment of compensation arrangements as appropriate
based upon performance; and
●
Management
development and succession plans and activities.
The
primary components of our executive compensation programs are: base
salary, discretionary awards, and long-term incentive
awards.
Base
Salary
Base
salaries are generally targeted at the middle of the competitive
marketplace (the “median”).
The
“market rate” for an executive position is determined
through an assessment by our human resources personnel under
the guidance and supervision of the Compensation Committee. This
assessment considers relevant industry salary practices, the
position’s complexity, and level of responsibility, its
importance to AERT in relation to other executive positions, and
the competitiveness of an executive’s total
compensation.
Subject
to the Compensation Committee’s approval, the level of an
executive officer’s base pay is determined on the basis
of:
●
Relevant
comparative compensation data; and
●
The
Chief Executive Officer’s assessment (except with respect to
himself) of the executive’s performance, experience,
demonstrated leadership, job knowledge, and management
skills.
Discretionary Awards
The
Compensation Committee may, at its discretion, authorize periodic
cash awards to executives. Discretionary awards are designed to
give the Compensation Committee the flexibility to provide
incentives that are comparable to those found in the marketplace in
which we compete for executive talent. In determining the extent
and nature of discretionary awards, the Compensation Committee
considers our cash flow, net income, progress toward short-term and
long-term business objectives, and other competitive compensation
programs.
When
considering discretionary awards, the Compensation Committee
identifies the employees who are eligible to participate and
computes and certifies the size of the discretionary pool based on
financial information supplied by our executive officers. The award
made to each eligible participant is based on the opportunity level
assigned to the participant and an assessment of his or her
performance and the performance of their business unit versus
corporate objectives.
Long-Term Incentive Awards
Long-term
executive incentives are designed to promote the interests of AERT
and its stockholders by attracting and retaining eligible
directors, executives and other key employees. The Compensation
Committee has the authority to determine the participants to whom
awards shall be granted.
The
Compensation Committee may issue incentive-based compensation under
the Company’s 2012 Stock Incentive Plan (the
“Plan”), which was approved by security holders at the
Company’s annual shareholders’ meeting on June 27,
2012. Awards may be granted under the Plan in the form of stock
options, restricted stock units, performance awards, and other
cash- and stock-based awards. No awards have been made under the
Plan.
Employment Agreements
On
March 12, 2012, the Company entered into employment agreements with
former President and current Chief Executive Officer, Timothy D.
Morrison and Chief Financial Officer, J. R. Brian Hanna. Both
agreements were effective January 1, 2012 and expired on December
31, 2015. Both agreements automatically renewed on the same terms
and conditions on January 1, 2016 and will continue to renew for
additional one-year periods unless the Company or the Executive
gives the other party written notice of its election not to renew
the employment period at least 60 days prior to the renewal
date.
The
Employment Agreements provide Messrs. Morrison, and Hanna an annual
base salary of no less than $260,000 and $220,000 (subject to
periodic review and increase), respectively, with an annual bonus
potential for each based on performance goals and criteria approved
by the Compensation Committee. Messrs. Morrison and Hanna are
eligible to participate in the Company’s equity incentive
plan which will be subject to customary vesting, buy back, and
other provisions as determined by the Compensation
Committee.
On
August 8, 2013, the Company entered into an employment agreement
with Randall D. Gottlieb, President. His current annual salary is
$232,000 with annual bonus potential based on performance goals and
criteria, approved by the Compensation Committee. The agreement is
considered “at-will” and can be terminated by either
party at any time.
In
addition, each of the foregoing executives is eligible to receive
discretionary awards as discussed in
“
Executive Compensation
–
Discretionary Awards
”
above.
Executive Compensation vs. Net Income
The
following chart shows a five-year comparison of the aggregate
compensation the Company paid its executive officers versus the net
income (loss) before preferred dividends and income
tax.
401(k) Plan
The
Company sponsors the A.E.R.T. 401(k) Plan (the “401(k)
Plan”) for the benefit of all eligible employees. The 401(k)
Plan qualifies under Section 401(k) of the Internal Revenue
Code thereby allowing eligible employees to make tax-deferred
contributions to the 401(k) Plan. The 401(k) Plan provides that the
Company may elect to make discretionary-matching contributions
equal to a percentage of each participant’s voluntary
contribution. The Company may also elect to make a profit sharing
contribution to the 401(k) Plan. The Company approved a
discretionary match of $75,000 for the year ended December 31,
2016.
Director Compensation
Directors who are
also employees of AERT or H.I.G. Capital are not entitled to any
additional compensation by virtue of their service as a director,
except for reimbursement of any specific expenses attributable to
such service. The following table shows the compensation paid to
the non-employee directors of AERT during 2016:
Name
|
Fees Earned or
Paid in Cash
|
|
Vernon J.
Richardson
|
$
26,685
|
$
26,685
|