UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.     )

 

 

 

CHASE CORPORATION

295 University Avenue
Westwood, MA  02090
Telephone (781) 332-0700

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

Notice is hereby given that the annual meeting of shareholders of Chase Corporation will be held at 9:30 a.m. on Tuesday, February 7, 2017 at the Hilton Boston-Dedham, 25 Allied Drive, Dedham, MA 02026 for the following purposes:

 

 

 

 

Only shareholders of record on the books of Chase Corporation at the close of business on November 30, 2016 are entitled to notice of and to vote at the meeting.

 

The Board of Directors hopes that all shareholders who can conveniently do so will personally attend the meeting.

 

 

 

SHAREHOLDERS ARE REQUESTED TO SIGN AND DATE THE ACCOMPANYING PROXY CARD AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE

 

 

CHASE CORPORATION
295 University Avenue
Westwood, MA  02090
Telephone (781) 332-0700

PROXY STATEMENT
December 22, 2016

 

The enclosed proxy is solicited by and on behalf of the Board of Directors of Chase Corporation (the “Company”) for the annual meeting of the Company’s shareholders to be held on February  7,  2017 at 9:30 a.m., and at any adjournment thereof (the “Meeting”).  The cost of solicitation will be borne by the Company.  In addition to solicitation by mail, directors, officers and regular employees of the Company may solicit proxies personally or by telephone.

 

The authority granted by a duly executed proxy may be revoked at any time before it is exercised by filing with the Secretary of the Company a written revocation or a duly executed proxy bearing a later date or by voting in person at the Meeting. Shareholders who attend the Meeting in person will not be deemed thereby to have revoked their proxies unless they affirmatively indicate at the meeting their intention to vote their shares in person.  Unless a proxy is revoked, the shares represented thereby will be voted as directed.  If no specifications are made, then proxies will be voted “for” the election of the directors nominated by the Board of Directors, “for” the ratification of the appointment of the Company’s independent registered public accounting firm, and in accordance with the judgment of the proxy holders as to any other matter that may be properly brought before the Meeting or any adjournment or postponement thereof.

 

On November 30, 2016, there were 9,344,559 outstanding shares of the Company’s common stock, $0.10 par value per share, which is the only class of voting stock outstanding.  Shareholders of record at the close of business on November 30, 2016 are entitled to vote at the Meeting.  With respect to all matters that will come before the Meeting, each shareholder may cast one vote for each share of common stock registered in his or her name on the record date.

 

A majority in interest of the Company's common stock outstanding and entitled to vote represented at the Meeting in person or by proxy will constitute a quorum for the transaction of business at the Meeting.   Directions to withhold authority, abstentions, and broker non-votes will be counted as present at the Meeting for purposes of determining the existence of a quorum at the Meeting.  A “broker non-vote” occurs when a registered broker holding a customer’s shares in the name of the broker has not received voting instructions on a matter from the customer and is barred by applicable rules from exercising discretionary authority to vote on the matter and so indicates on the proxy.

 

The approximate date on which this proxy statement and accompanying proxy card will be first sent or given to shareholders is December 23, 2016.  The Company’s annual report for the fiscal year ended August 31, 2016 will be sent to shareholders on the same date.

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on February 7, 2017:

 

The Notice of Annual Meeting of Shareholders, this proxy statement, and the Company's annual report to shareholders are available at https://materials.proxyvote.com/16150R.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information regarding ownership of the Company's common stock as of November 30, 2016 by (i) all persons known to the Company to be beneficial owners of more than 5% of the Company's outstanding common stock, (ii) each of our directors, (iii) each of the executive officers named in our summary compensation table, and (iv) all of our directors and executive officers as a group.

 

*     Less than one percent

 

 

 

 

 

 

 

 

 

Certain Transactions

The Edward L. Chase Trust (the “Trust”), owners of two insurance policies on the life of Claire E. Chase, reimbursed the Company for premiums paid on the policies in exchange for the Company’s release of any claims on such policies. In August 2016, the Trust reimbursed the Company $1,238,348 related to the John Hancock (formerly Manufacturers’ Life Insurance Company) policy, the full value of premiums paid to date by the Company. In September 2016, subsequent to fiscal 2016, the Trust reimbursed the Company $1,504,134 related to the Metropolitan Life Insurance policy, its then cash surrender value, plus an additional prepaid premium related to the policy. Claire E. Chase is the spouse of a former executive of the Company, Edward L. Chase (deceased), and who in each case are the parents of Peter R. Chase (the Executive Chairman of the Company) and the grandparents of Adam P. Chase (the President and CEO of the Company). The Trust is a greater-than-5% owner of the Company’s common stock. Terms and conditions of these transactions were reviewed and approved by the independent members of the Company's Board of Directors in advance.  

During the fourth quarter of fiscal 2016, the Company recognized a gain of $877,000 to selling, general and administrative expenses related to a life annuity payable to Barbara A. Chase (deceased). Upon Ms. Chase’s passing in August 2016, the Company’s payment obligation under the annuity ceased, and the previously recorded liability was released. Barbara A. Chase is the spouse of a former executive of the Company, Francis M. Chase (deceased) and who are in each case the respective aunt and uncle of Peter R. Chase and the great-aunt and great-uncle of Adam P. Chase.

 

In October 2016, subsequent to the fiscal year end, Chase entered into an agreement to sell its now former corporate headquarters and executive office in Bridgewater, MA. This transaction is conditional upon the execution of a definitive asset purchase and sale agreement. It is anticipated that this transaction will close in fiscal 2017, if all conditions are met. The Company has determined these assets’ net book value are not material to the financial statements for the fiscal year ended August 31, 2016, and that these assets will qualify for held for sale disclosure under ASC Topic 360, “Property, Plant and Equipment” for subsequent periods. The potential buyer has been deemed a related party given professional connections between it and two members of the Company’s Board of Directors, including Peter R. Chase (the Executive Chairman of the Company). The terms and conditions of the proposed transaction were reviewed and approved by all members of the Company's Board of Directors who were not parties related to the potential buyer. They concluded that the sale price was appropriate, after considering a recent market appraisal of the land and building performed by an independent third party valuation firm.

 

Consistent with the requirements of the NYSE MKT, the Audit Committee of the Board of Directors of the Company reviews and oversees any transactions with a “related person” within the scope of the SEC’s rules on disclosure of such transactions.  From time to time, the Board of Directors has formed a special independent committee of the Board comprised of independent and non-interested directors to review and oversee proposals relating to specific transactions with related persons on an ad hoc basis.  The Company does not have a written policy relating to such review. 

 

Other than as described above, and other than the compensation and severance arrangements with the Company’s named executive officers and the director compensation arrangements described in “Executive Officer and Director Compensation,” the Company is not a participant in any transaction since the beginning of its last completed fiscal year, or any presently proposed transaction, involving more than $120,000 in which any shareholder holding more than 5% of the Company’s common stock, any of its executive officers, directors, director nominees or the immediate family members of any of them, has or will have a direct or indirect material interest.

 

Compensation Committee Interlocks and Insider Participation

 

The current members of the committee are Messrs. Wroe (Chairman), Derby and Hughes.  None of the Company’s executive officers serves as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as a member of the Company’s Board of Directors or Compensation and Management Development Committee.

PROPOSAL 1
ELECTION OF DIRECTORS

 

Ten directors are to be elected at the Meeting.  The Board of Directors recommends that the ten nominees named below be elected as directors.  The directors elected at the Meeting will hold office until the next annual meeting and until their successors are elected and qualified.  When a proxy in the accompanying form is properly executed and returned, unless marked to the contrary, all shares represented by such proxy will be voted for the election of the persons named below.  If any nominee should become unable or unwilling to serve as director, then the persons voting the accompanying proxy may in their discretion vote for a substitute.  The Board of Directors is not presently aware of any reason that would prevent any nominee from serving as a director if elected.

 

Vote Required

 

As long as a quorum is present, the nominees for director shall be elected by a plurality of the votes cast at the Meeting by the holders of shares entitled to vote at the Meeting.  Votes may be cast in favor of the election of the nominees for director or withheld; votes that are withheld and broker non-votes will have no effect on the outcome of the election of directors. 

 

Nominees

 

The following table contains certain information about the nominees for director, as of the record date, including their business experience, qualifications, and other directorships.  In addition to the qualifications and other attributes presented below, the Company also believes that each of the nominees has demonstrated the personal and professional integrity, good business judgment, adherence to high ethical standards, and commitment to service to the Company that are required of all directors.  All of the directors’ present terms expire in 2017.  All of the nominees below are current standing directors of the Company.  

 

 

 

 

 

 

 

 

 

Adam P. Chase, President and Chief Executive Officer of the Company, is the son of Peter R. Chase, grandson of Edward L. Chase (deceased) and the nephew of Mary Claire Chase.

 

Peter R. Chase, Executive Chairman of the Company, is the father of Adam P. Chase, the son of Edward L. Chase (deceased) and the brother of Mary Claire Chase.

 

Mary Claire Chase is the daughter of Edward L. Chase (deceased), the sister of Peter R. Chase and the aunt of Adam P. Chase.

 

Corporate Governance

 

The Company has long believed that good corporate governance and high corporate ethics are important to ensure that the Company is managed for the long-term benefit of its shareholders.

 

The Company’s Board of Directors held five meetings during the fiscal year ended August 31, 2016.  Each director attended at least 75% of the aggregate of all meetings of the Board of Directors and all meetings held by committees of the Board on which he or she served, with the exception of Ronald Levy, who did not stand for re-election at our 2016 annual meeting of shareholders.  The Company does not have a formal policy with respect to director attendance at annual shareholders meetings; however it does encourage all directors to attend.  Nine out of the ten directors nominated and elected attended last year’s annual shareholders meeting held in February 2016.

 

The Company has adopted the Chase Corporation Code of Ethics, which is applicable to all of our employees, including our Executive Chairman, President and Chief Executive Officer,  Treasurer and Chief Financial Officer, Corporate Controller and other employees with important roles in the financial reporting process.  The Company has also adopted a Code of Business Conduct and Ethics for Directors of Chase Corporation, which is applicable to members of our Board of Directors.  The Chase Corporation Code of Ethics and the Code of Business Conduct and Ethics for Directors of Chase Corporation are both available on the Chase Corporation web site www.chasecorp.com.  It is the Company’s intent to disclose any amendment to these codes of ethics, as they apply to our directors and executive officers, and to disclose any waiver, including an implicit waiver, from the provisions of these codes of ethics as they relate to such directors and officers, on its web site.   

 

Shareholders may contact an individual director, the Board as a group, or a specified Board committee or group, including the non-employee directors as a group, by writing to:  Chase Corporation, 295 University Avenue, Westwood, MA 02090 Attn: Board of Directors.

 

The Board undertakes a review of director independence annually.  As a result of its most recent review, the Board has determined that the following directors are independent, as defined in the listing standards of the NYSE MKT:  Everett Chadwick, Jr.,  John H. Derby III, Lewis P. Gack, George M. Hughes,  Chad A. McDaniel, Dana Mohler-Faria and Thomas Wroe, Jr.  In making this decision, the Board considered all relationships between the Company and the directors, including: Mr. Chadwick’s consulting services performed for the Company prior to becoming a Board member and his former employment relationship with the Company which ended in 2006; Mr. Derby’s consulting services performed for the Company prior to becoming a Board member; and Mr. Hughes’ role as outside general counsel to the Company (and $84,000 in related compensation paid), as well as his administrative role as corporate secretary, which is a non-employee and non-officer position.  The Board determined each such relationships, and the aggregate of such relationships, to be immaterial to the applicable director’s ability to exercise independent judgment.

 

Board Leadership Structure

 

As part of the Company’s succession plan, effective with its annual shareholders meeting held in February 2015, and as approved by the Board at that time, Adam P. Chase was named President and Chief Executive Officer of Chase Corporation and Peter R. Chase was named Executive Chairman of Chase Corporation. The Company had previously combined the offices of Chairman and Chief Executive Officer.  Both the current Executive Chairman and the current President and Chief Executive Officer have long histories with the Company, and the Board believes that its leadership structure makes the best use of their combined extensive knowledge of the Company and its industry, and enables clear communication between management and the Board. 

 

While the independent directors meet regularly in executive session, the Board currently has elected not to have a designated lead independent director to chair meetings at which only independent directors are present.  The Board’s view is that given the relatively small size of the Board, the appointment of a lead independent director is not necessary at this time.  The standing committees of the Board all have one or more overlapping members, and the Board feels that communication among committees is relatively efficient in light of this cross-fertilization of membership.  The Board believes that it is appropriate to choose the director to lead a particular discussion on a case by case basis, depending on the matter to be discussed, and that the existing structure fosters collaboration among independent directors.

 

Board’s Role in Risk Oversight

 

The Board is responsible for monitoring the risks that affect the Company, including operational, legal, regulatory, strategic and financial risks. As part of the regular Board meetings, management presents the Board with updates regarding key facets of the Company’s operations. The Board is responsible for assessing risks based on its working knowledge of the Company and the risks inherent in the Company’s business. As discussed below, the Audit Committee monitors the Company’s financial and audit-related risks.   The Compensation and Management Development Committee monitors any risks that may arise from the Company’s compensation policies and practices.

 

Committees of the Board of Directors

 

The Board has the following standing committees: (a) Audit, (b) Compensation and Management Development, and (c) Nominating and Governance.  All members of the committees serve at the pleasure of the Board of Directors.  The functions and current membership of each committee are as follows:

 

Audit Committee.   The Audit Committee recommends to the Board of Directors the engagement of the Company’s registered public accounting firm, reviews the scope and extent of its audit of the Company’s financial statements, reviews the annual financial statements with the registered public accounting firm and with management, and makes recommendations to the Board of Directors regarding the Company’s policies and procedures as to internal accounting and financial controls.  The current members of the Audit Committee are Lewis P. Gack, Chairman, Everett Chadwick Jr., Dana Mohler-Faria, and Thomas Wroe, Jr. Each member of the committee is independent, as independence for audit committee members is defined in the listing standards of the NYSE MKT and the applicable regulations of the Securities and Exchange Commission.  The Board has determined that Mr. Gack is an audit committee financial expert as defined in Securities and Exchange Commission regulations.  The Audit Committee held five meetings during the fiscal year ended August 31, 2016.  The Audit Committee operates under a written charter that is available through the Company's website at www.chasecorp.com.    

 

Compensation and Management Development Committee.   The Compensation and Management Development Committee advises the Board of Directors on matters of management, organization, and succession, recommends persons for appointments to key employee positions, and makes the final decisions regarding compensation for directors, officers and key employees.  The committee also administers the Company’s equity incentive plans.  The role of our Executive Chairman and our Chief Executive Officer in reporting their evaluations of our other named executive officer and making recommendations as to his compensation (and in the case of the Executive Chairman, his evaluation of and recommendation as to the compensation of the Chief Executive Officer), as well as the committee’s use of compensation consultants from time to time in benchmarking base salaries and providing other industry data, are described in more detail in the Compensation Discussion and Analysis presented elsewhere in this proxy statement.  The members of the committee are Thomas Wroe, Jr., Chairman, John H. Derby III and George M. Hughes.  Each member of the committee is independent, as independence for compensation committee members is defined under the listing standards of the NYSE MKT and the applicable regulations of the Securities and Exchange Commission.  The committee held two meeting during the fiscal year ended August 31, 2016.  The Compensation and Management Development Committee operates under a written charter that is available through the Company's website at www.chasecorp.com.    

 

Nominating and Governance Committee.  The Nominating and Governance Committee recommends persons for election as directors of the Company, and makes recommendations to the Board of Directors regarding the structure and membership of the various committees of the Board of Directors, including the Nominating and Governance Committee itself.  The members of the Nominating and Governance Committee are George M. Hughes, Chairman, Lewis P. Gack and Chad A. McDaniel.  Each member of the committee is independent, as independence for nominating committee members is defined in the listing standards of the NYSE MKT.  The Nominating and Governance Committee held two meetings during the fiscal year ended August 31, 2016. The Nominating and Governance Committee operates under a written charter that is available through the Company’s website at www.chasecorp.com. 

 

Director Nomination Process

 

The Nominating and Governance Committee identifies individuals believed to be qualified to become Board members and recommends individuals to fill vacancies.  In nominating candidates, the Committee takes into consideration such factors as it deems appropriate, including judgment, experience, skills and personal character, as well as the needs of the Company.  The Nominating and Governance Committee will consider nominees recommended by shareholders if such recommendations are made in writing to the committee.  The Nominating and Governance Committee does not plan to change the manner in which the committee evaluates nominees for election as a director based on whether the nominee has been recommended by a shareholder or otherwise. 

 

The Company’s Bylaws provide that the Nominating and Governance Committee shall recommend the Chief Executive Officer of the Company for the election to the Board.

 

The Company’s Bylaws provide that the Nominating and Governance Committee may recommend to the Board of Directors any individual or individuals for election to the Board of Directors if, after such election, a majority of the Board of Directors shall consist of “non-affiliated directors.”  “Non-affiliated directors” are directors (i) who are not lineal descendants of Edward L. Chase (whether by blood or adoption); (ii) who are not the spouse of Edward L. Chase or of any of such spouse’s lineal descendants; (iii) who are not at the time of determination, and shall not have been at any time within three years preceding such time, officers or employees of the Company (or its predecessor) or any of its subsidiaries, affiliates or divisions; (iv) who are not at the time of determination the beneficial owners of more than 10% of the issued and outstanding shares of any class of the Company’s stock; (v) who are not officers, employees, directors or partners of any person who at the time of determination is a holder of more than 10% of the issued and outstanding shares of any class of the Company’s stock; and (vi) who satisfy the standards for independence under the listing rules of any registered national securities exchange on which the Company’s stock may be listed. 

 

The Nominating and Governance Committee does not have a formal policy relating to diversity among directors.   In considering new nominees and whether to re-nominate existing members of the Board, the committee examines each person’s specific skills and attributes in the context of the skill sets represented on the Board as a whole, and seeks to achieve a Board with strengths in its collective knowledge and a broad diversity of perspectives, skills and business and professional experience.  Among other items, the committee looks for a range of experience in strategic planning, sales, finance, executive leadership, legal and similar attributes.

 

In addition to the requirements relating to “non-affiliated directors” summarized above, at least a majority of the directors on the Board must be independent directors as defined in the rules of the NYSE MKT.

 

Audit Committee Report on Financial Statements for the Year Ended August 31, 2016

 

The Audit Committee of the Board of Directors is appointed by the Board of Directors.  The members of the Audit Committee meet the independence requirements of the NYSE MKT.  The Audit Committee, in accordance with its written charter, oversees the Company’s financial reporting process on behalf of the Board of Directors.  Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls.  In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements for the fiscal year ended August 31, 2016 with management including a discussion of the quality, not just the acceptability, of the Company’s accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

 

The Audit Committee has discussed with PricewaterhouseCoopers LLP, the Company’s Independent Registered Public Accounting Firm, the matters required to be discussed by the Statement of Auditing Standards No. 16, Communications with Audit Committees, as amended, as adopted by the Public Company Accounting Oversight Board (United States) (PCAOB),  which provides that certain matters related to the conduct of the audit of the Company’s financial statements are to be communicated to the Audit Committee.  The Audit Committee has also received the written disclosures and letter from PricewaterhouseCoopers LLP required by applicable requirements of the PCAOB regarding PricewaterhouseCoopers LLP’s communications with the audit committee concerning independence, and has discussed with PricewaterhouseCoopers LLP its independence from the Company.

 

The Audit Committee discussed with PricewaterhouseCoopers LLP, the overall scope and plans for its audit.  The Audit Committee met with PricewaterhouseCoopers LLP, with and without management present, to discuss the results of its examination, its evaluation of the Company’s internal controls and the overall quality of the Company’s financial reporting.

 

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board approved) that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2016 for filing with the Securities and Exchange Commission.  The Audit Committee has selected PricewaterhouseCoopers LLP to serve as the Company’s Independent Registered Public Accounting Firm for fiscal year 2017.

 

EXECUTIVE OFFICER AND DIRECTOR COMPENSATION

Compensation Discussion and Analysis

 

Introduction

 

This Compensation Discussion and Analysis is intended to provide a context for the disclosures contained in this proxy statement with respect to the compensation paid to our Executive Chairman, Peter R. Chase, our President and Chief Executive Officer, Adam P. Chase, and our Treasurer and Chief Financial Officer, Kenneth J. Feroldi. As part of the Company’s succession plan, effective with its annual shareholders meeting held in February 2015, and as approved by the Board at that time, Adam P. Chase, our then President and Chief Operating Officer, was named President and Chief Executive Officer of Chase Corporation and Peter R. Chase, our then Chief Executive Officer, was named Executive Chairman of Chase Corporation. Kenneth J. Feroldi was appointed Chief Financial Officer on September 1, 2014, coinciding with the start of our fiscal 2015.Together, these three officers are referred to as the “named executive officers,” and their compensation is detailed in the tables that follow this Compensation Discussion and Analysis.  Specifically, this Compensation Discussion and Analysis will explain the objectives and material elements of the compensation of the named executive officers during the fiscal year ended August 31, 2016.  

 

The Compensation and Management Development Committee of our Board of Directors has the responsibility of developing and overseeing a comprehensive compensation philosophy, with strategies and principles that have the support of the Board of Directors and management, and that ensure the fair and consistent administration of our compensation program.  The Compensation and Management Development Committee makes recommendations to the full Board for approval relating to the total compensation to be paid to the named executive officers, including salary, performance bonus, equity awards, long-term awards, benefits and perquisites. 

 

In this analysis, we refer to the Compensation and Management Development Committee as “the committee” or “the compensation committee.” 

 

Philosophy and Objectives of Our Compensation Program

 

The primary objectives of the compensation committee are to ensure that our executive compensation and benefits programs:

 

 

 

 

 

 

 

 

Our compensation committee believes that the most effective compensation program is one that will provide incentives that are directly linked to the achievement of company strategies through easily measured, company-wide performance targets, while providing a reasonable level of income security to the named executive officers through competitive base salaries and retirement benefits.  To this end, our executive compensation reflects a balance of cash and non-cash compensation, and a mix of currently paid compensation and long-term incentives.   The compensation committee does not set a rigid target for these mixes, and the mix will necessarily vary from year to year based upon our underlying financial performance.  Our incentive plans combine financial targets to reward performance with time-based vesting to assist retention. 

 

Committee Purposes and Responsibilities

 

One of the primary purposes of the compensation committee is to determine the total target compensation levels for the senior executive officers of the company and to establish and annually review the programs that will determine the actual rewards against those targets.

 

The committee is charged with ensuring that the target compensation levels and the allocation of short term and long term components are sufficient to attract, motivate and retain seasoned professional managers, while at the same time ensuring that the pay is reasonable and fair to our shareholders in light of the Company’s financial performance and when compared to executive officers of similar position and responsibility at other businesses.

 

The committee is also responsible for reviewing the annual compensation for service on our Board of Directors or for service as a member or chair of any of the various committees of our Board of Directors, and, if appropriate, for recommending to the Board for approval any changes to those programs. 

 

The committee has the authority to retain and terminate any legal counsel or any compensation or other consultant to be used to assist in the evaluation of director or executive compensation and has sole authority to approve the consultant’s fees or other retention terms.

 

It also reviews and administers our equity compensation plans, and reviews any existing or proposed employment agreement, change in control or severance agreement, or any special or supplemental benefits not offered as part of a broad-based plan that are made available to our named executive officers. Where appropriate, it recommends adoption, amendment, or termination of such programs or agreements to the full Board of Directors.

 

Role of Executive Officers in Compensation Decisions

 

Our compensation committee makes all determinations affecting the compensation for our named executive officers, including our Executive Chairman and our Chief Executive Officer, and recommends those determinations to the full Board of Directors for approval.  Our Executive Chairman may from time-to-time attend meetings of the committee as a non-voting advisory member, except that he is not present for any discussion of his individual compensation.  The compensation committee receives and considers our Executive Chairman’s and our Chief Executive Officer’s evaluations of the other named executive officer (and in the case of the Executive Chairman, his evaluation of the Chief Executive Officer), as well as their recommendations with respect to all components of compensation of the other named executive officer (and in the case of the Executive Chairman, his

recommendations with respect to all components of compensation of the Chief Executive Officer).  In reviewing and considering the evaluations and recommendations received, the committee takes into account the familial relationship between the Executive Chairman, Peter R. Chase and the President and Chief Executive Officer, Adam P. Chase, and satisfies itself that the recommendations are based solely on merit and performance.  The committee expressly reserves the right to exercise its discretion in modifying any adjustments or awards recommended by our Executive Chairman or our Chief Executive Officer, although historically the committee has given significant weight to the recommendations of our Executive Chairman and our Chief Executive Officer with respect to the other named executive officer (and in the case of the Executive Chairman, his recommendations with respect to the Chief Executive Officer).

 

Use of Compensation Consultants and Benchmarking Data

 

A description of the extent to which we have historically benchmarked our base salary levels against other companies is described below under “Base Salary.”  The committee has taken advice from expert compensation consultants engaged both by the committee and by management to set up the position values and salary ranges for executive officers and continues to adjust base salaries annually in order for the Company to be competitive with respect to executive compensation.  The compensation consultants have used similar benchmarking data in recommending the performance based components of the executive compensation package.  The committee engaged a compensation consultant, Pearl Meyer & Partners (“Pearl Meyer”) in fiscal 2013, and Pearl Meyer completed the process of performing a full review of executive and all exempt employee compensation in 2014. Pearl Meyer provided the committee and management with recommendations based on this review. Prior to engaging Pearl Meyer, the compensation committee assessed the independence of the consultant from management and, on the basis of that assessment and taking into consideration the independence factors that are required to be considered by applicable stock exchange rules, satisfied itself that no relationships exist that would create a conflict of interest or that would compromise Pearl Meyer’s independence from management. The committee will update our compensation market review in 2017.

 

Principal Elements of our 2016 Compensation Program

 

There were up to three principal elements of compensation for our named executive officers during fiscal 2016.  These were:

 

 

 

 

 

 

 

Beginning in fiscal 2013, as a result of discussions between the compensation committee and Peter R. Chase, at the time our Chief Executive Officer and currently our Executive Chairman, the committee determined that Mr. Chase would not participate in the equity component of the Company’s executive compensation programs going forward.  This shift in the allocation of annual pay components for Peter R. Chase away from equity-based awards reflects recognition that his equity accumulation from previous years of service has already fulfilled the primary purpose of equity awards, in aligning the interests of a key member of management with the long-term interests of shareholders and reinforcing an incentive to maximize shareholder value. The committee recognized the diminishing incremental benefit of additional equity awards in achieving these and other objectives such as retention. The Executive Chairman’s compensation program for 2016, therefore, consisted primarily of his salary and the cash incentive program.  The committee has retained the equity component of its executive compensation program for its other named executive officers.

 

The financial measurement metrics and targets used in both the annual cash incentive plan and the annual equity award plan are subject to annual review by the committee, which reserves the right to set different objectives on either the cash incentive plan or equity award program as it feels appropriate in light of the annual and long term objectives of the Company.  As discussed in more detail below, the committee utilizes differing financial performance targets for the cash incentive plan and the equity awards program. The two programs also differ in the dollar value of the target awards and in their vesting provisions, since payments under the cash incentive plan are made after the end of each fiscal year, and the equity awards (including those that are subject to additional performance-based vesting criteria) customarily vest over a period of three years from the time of grant.  The total compensation package thus provides a mix of (1) current cash payments in the form of salary, independent of year-to-year financial performance; (2) annual cash payments determined by reference to the Company’s actual results of operations for the year compared to a target; and (3) equity awards for named executive officers other than our Executive Chairman, subject to vesting provisions relating to the Company’s financial results, together with restricted stock and (in the case of our Chief Executive Officer) stock options that are not specifically tied to financial performance, but are subject to time-based vesting provisions in order to foster our retention objectives. 

 

The cash incentive plan for 2016 sets target compensation levels with respect to earnings before interest expense, taxes, depreciation and amortization (“EBITDA”), as adjusted at the discretion of the committee (“Adjusted EBITDA” or “EBITDA-based target”).  The equity award program sets target compensation levels with respect to our earnings per share (“EPS”) for the fiscal year in question, as adjusted at the discretion of the committee.  As a result, a substantial proportion of our named executive officers’ total compensation is tied to our earnings in each fiscal year.  The committee determined for 2016 that an Adjusted EBITDA-based target is the most appropriate tool for measuring the underlying performance of the Company and its management team for the annual incentive plan, while EPS is used for the equity plan as it is a more common and consistent measure for longer term incentive programs and aligns with how shareholders are rewarded.  In addition, the committee has chosen to emphasize company-wide achievement of financial objectives in this manner, as opposed to emphasizing more subjective individual performance criteria or measurements based upon business units or other operating data, because it believes it is important to use a metric that is easily measured and understood from the beginning of the year, that fosters teamwork among the management team, and that most directly aligns the interest of the named executive officers with those of all shareholders.  The committee does retain discretion to adjust or supplement the cash incentive awards paid, either upward or downward.

 

The following discussion seeks to explain why the compensation committee has chosen to pay each compensation element, how it determines the amount of each element, and how the element and the committee’s decisions regarding that element in fiscal 2016 fit into the Company’s overall compensation objectives and affect decisions regarding other elements. 

 

Base Salary.  We pay a base salary to each of our named executive officers.  The objective is to provide base compensation to the executive that is competitive with base compensation that the executive could earn in a similar position at other companies.  A range of base salary levels for key positions in the Company was established most recently in 2014 upon the recommendation of a compensation consultant, Pearl Meyer, which was engaged by the committee to provide analysis and input on executive pay and incentive plan design for the top three executive officers, in addition to all exempt employee compensation.  The ranges for these key positions were established taking into account benchmarking data provided by the compensation consultant which included a survey of the following 16 companies:

 

 

The companies surveyed had median revenues in the one year prior to the survey of approximately $298 million (putting us at the 29th percentile), median full time employees of 502 (putting us at the 72nd percentile) and median market capitalization of approximately $416 million (putting us at the 35th percentile).  Our market capitalization to revenue ratio was at the 49th percentile relative to the companies surveyed. At the time of the report, the positions of Chief Executive Officer, Chief Operating Officer and Chief Financial Officer constituted our named executive officers. In comparison to the peer group, Pearl Meyer reported that our Chief Executive Officer’s compensation at the time was in the top quartile with respect to cash compensation and at median with respect to total compensation, while our Chief Operating Officer’s total compensation and cash compensation were above median, and our Chief Financial Officer’s (Mr. Feroldi’s predecessor) compensation was above the median with respect to cash compensation and below median for total compensation.  Individual executives’ base salaries are set initially upon hiring or promotion to a position within the established range, taking into account each executive’s experience in the role and other subjective factors, and are reviewed annually thereafter.  As outlined above, the Executive Chairman and the Chief Executive Officer make salary adjustment recommendations to the committee with respect to the other named executive (and in the case of the Executive Chairman, makes an adjustment recommendation to the committee with respect to the Chief Executive Office).  Historically, salary increases have been aligned with movement of the market or higher in circumstances where executives are promoted to substantially increased responsibilities.   For fiscal 2016, the committee increased the salary of Adam P. Chase, our Chief Executive Officer,  and Kenneth J. Feroldi, our Chief Financial Officer by 11% and 10%, respectively. The committee did not change the base salary of Peter R. Chase, our Executive Chairman. The increase for Adam P. Chase was based on his outstanding performance in fiscal 2015, and 2016 marking his first full year as the Chief Executive Officer.  Kenneth J. Feroldi’s increase in 2016 reflected his anticipated salary level for his second year as Chief Financial

Officer as outlined in his August 19, 2014 offer letter.  The committee intends from time to time, to revisit the salary ranges used by reference to updated benchmark data, in order to ensure that salaries remain competitive but not excessive. The committee will also review the salaries of our named executive officers to align with our current organizational structure, maturation in role, and projected responsibilities as we move forward into 2017.

 

Cash Incentive Plan.  At the beginning of each fiscal year, following the annual budget presentation by management to the Board of Directors, the committee sets a corporate performance target for the upcoming fiscal year to be used in connection with the company’s incentive compensation programs.  As noted above, for the cash incentive plan this financial target was established as an Adjusted EBITDA-based target for fiscal 2016.  The Adjusted EBITDA-based target was set by the committee with reference to both historical performance and expected future performance.  The committee believes that the targets set as a general matter should be reasonably attainable through consistent performance as compared to recent years, and it is the committee’s expectation that the actual awards granted under the relevant plan will exceed the “target” awards where management achieves growth over historical annual Adjusted EBITDA levels.  The Adjusted EBITDA-based targets are set in a way that tends to generally reflect improvement over historical results, at least during periods of multi-year growth in Adjusted EBITDA, but do not always reflect improvement over the most immediately preceding fiscal year.  For fiscal 2016, the corporate Adjusted EBITDA-based target set by the committee was $57.2 million.

 

At the end of the fiscal year, actual results are compared to the target established at the beginning of the year.  In establishing the compensation program, it is the Board’s intent to exclude from actual performance measurements the effect of items generally consistent with items excluded in the Company’s definition of Adjusted EBITDA from the calculations.  The committee consequently has the discretion to decide, and has decided from time to time in the past, to exclude certain items or to make other adjustments in order to fairly reflect our underlying operating performance for the year. 

 

In order for any amounts to be payable under the plan, the Company must meet a threshold level of 90% of the Adjusted EBITDA-based target.  Actual payments are made under the plan by reference to the target awards established by the committee for each of the named executive officers as a percentage of their base salaries, although they can be subject to adjustment as described below.  The maximum award under the cash incentive plan is reached at 120% of the target performance measure.  The Company’s actual Adjusted EBITDA was $64.0 million for fiscal 2016, and represented achievement at approximately 112% of the target amount for the year.  Our calculation of Adjusted EBITDA is explained in greater detail in our Annual Report on Form 10-K for fiscal year 2016 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Important Performance Measures.”

 

Amounts potentially payable under the cash incentive plan, as a percentage of salary, and amounts actually paid are reflected in the table below for fiscal year 2016.  

 

 

A similar cash incentive program was approved by the committee and maintained and paid out of a bonus pool, with payments determined by reference to our Adjusted EBITDA-based target, for other key employees at the Company. In fiscal 2016,  approximately 100 employees participated in that program (with most payments at the discretion of the Executive Chairman and the Chief Executive Officer).

 

Equity Incentive Plan.  The third element of our compensation program is our equity-based long-term incentive plan.  In 2016 our equity incentive plan used a combination of three types of equity awards: performance-based restricted stock, time-vesting restricted stock and stock options.  For the reasons discussed above, Peter R. Chase does not participate in the equity incentive plan.

 

Our Chief Financial Officer, Kenneth J. Feroldi, received a combination of performance-based restricted stock and time-vesting restricted stock, but the components of his equity incentive plan award did not include a stock option grant in light of his relatively low direct equity ownership (having been appointed Chief Financial Officer in September 2014 and not having participated in the equity incentive plan prior to his appointment) and given that his equity award target represents a lower percentage of his salary than the total equity award for Adam P. Chase, our Chief Executive Officer.

 

The performance-based element measured annual performance against an earnings per share (“EPS”) based target for fiscal 2016 and represented 50% of the total target equity award for Adam P. Chase and 67% of the target equity award for Kenneth J. Feroldi.  The other half of the total target equity award for Adam P. Chase was split evenly between time-based vesting restricted stock and stock options and the entire remaining total equity award for Kenneth J. Feroldi consisted of time-based vesting restricted stock.

 

The following table shows, for each of the named executive officers participating in the equity incentive plan, the total target equity awards for each officer as determined at the beginning of the fiscal year.

 

 

 

 

In the event of a named executive officer’s retirement, death or disability or dismissal without cause before the scheduled vesting date, then the awards will vest pro rata to the date of the termination of employment.  In the event of a named executive officer’s voluntary termination of employment or termination for cause, all of the award will be forfeited.  Upon a change of control of the Company, any unvested awards will automatically vest. 

 

Each of the three types of equity awards that collectively comprise our equity incentive plan are described in more detail below:

 

 

The final award amounts are determined after the end of the fiscal year by reference to our actual performance for the year.  In order for any payments to be made under the equity incentive plan, the Company must achieve at least 90% of the EPS target.   If the Company achieves less than 90% of the performance target, the full award would be forfeited.  If the Company achieves 90% of that target, then the actual payment would be 50% of the target shares (with the other 50% being forfeited).  If the Company achieves 100% of the target, then the actual payment would be 100% of the targeted share amount.  Achievement between 90% and 100% would be pro-rated.  If the Company achieves 120% of the target then the executive’s equity award would be 200% of the targeted share amount.  Achievement between 100% and 120% would be pro-rated.  The total opportunity is capped at 200% of the targeted share amount.  Accordingly, there is no incremental award at performance levels above 120% of the earnings per share target.

 

EPS as defined in the plan may differ from earnings per share as calculated under generally accepted accounting principles, since the plan uses the fully diluted number of shares outstanding as of the first day of the fiscal year and may include other adjustments as determined by the compensation committee (no such other adjustments were made for fiscal 2016).  Our basic and diluted EPS as reported under U.S. generally accepted accounting principles for fiscal 2016 were  $3.55 and $3.50 per share, respectively. Using the fully diluted number of shares outstanding as of September 1, 2015, the EPS used for purposes of evaluating performance under the 2016 equity plan was $3.55, or approximately 118% of the target.  The actual payments made under the performance share component of the plan thus represented approximately 190% of the targeted share amount.

 

The final share amounts are calculated and approved by the compensation committee upon finalization of our financial results for the fiscal year.  Equity awards made for fiscal 2016 exceeded the target levels because of the strong earnings achieved by the Company during that year. The restricted stock will not vest, however, until the last day of the second fiscal year following the fiscal year that is used as the performance period.  In other words, the performance-based equity awards for fiscal 2016 will vest on August 31, 2018.

 

The committee believes that the combination of performance measures to determine the number of shares of common stock underlying each award, and the “cliff” vesting of the award two years after the end of the performance period, is useful in accomplishing the dual objectives of rewarding superior performance and encouraging retention of its qualified executives.

 

 

 

Discretionary Bonuses.  The committee does not consider discretionary bonuses to be a material part of the executive compensation program, outside of the cash incentive plan described above.  As noted above, the

committee has the discretion to adjust an award determined under the cash incentive plan upward or downward, and has exercised that discretion in prior years in a manner that has historically had a small impact on total compensation compared to the objective components.

 

In fiscal 2016, the committee determined not to issue any such discretionary payments.

 

Voting and Dividends on Stock Awards.  Participants in the equity award program are able to vote and receive dividends upon their restricted shares before the vesting period. The committee has determined that permitting the participants to vote and receive dividends prior to the vesting of the awards was appropriate and consistent with the committee’s retention and pay for performance objectives. The committee took into account the fact that dividends on unvested awards would typically represent a small percentage of the executives’ total compensation. Dividends paid on unvested awards are not required to be repaid if the vesting provisions are not met, but the underlying shares themselves remain subject to forfeiture through the vesting date, putting the bulk of the economic value of the award at risk and subject to the performance and time-based vesting conditions.

 

Retirement Programs

 

In addition to the primary components of executive pay described above, we maintain certain retirement plans and benefits for our executive officers.  Many of these plans are available to larger groups of employees.   The committee feels that the opportunity to participate in programs that assist the executives and other employees in saving for retirement is an important part of those employees’ compensation package.

 

 

 

 

 

Other Benefits

 

We own a life insurance policy on the life of Peter R. Chase as a mechanism to help fund our obligations under the unfunded, non-qualified excess benefit plan described above.

 

We also provide Peter R. Chase with a company car and a golf club membership.  We provide our other named executive officers a car allowance of $1,000 per month.  We provide each of our named executive officers reimbursement for certain financial planning and tax services up to $5,000 per year.  Our compensation committee considers these arrangements to be fair and reasonable in light of the relatively low cost to the Company. 

 

Named executive officers may also participate in our medical and dental insurance offerings by electing to make payroll deductions designed to cover approximately 25% of the cost of these programs (with the company covering the other 75% of the cost).   We also provide disability and life insurance coverage for our named executive officers and pay a portion of the related premiums.

 

Named Executive Agreements

 

As any of our named executives were hired by us, promoted or have taken on additional responsibilities, we enter into agreements with them pursuant to which they would be entitled to receive severance benefits upon termination by us without cause, or upon the occurrence of certain enumerated events during the two years following a change in control.  The events that trigger payment are generally those related to termination of employment without cause or detrimental changes in the executive’s terms and conditions of employment. See “Payments Upon Termination or Change of Control” below for a more detailed description of these triggering events and the resulting benefits. We believe that this structure will help: (i) assure that the named executive officers can give their full attention and dedication to us, free from distractions caused by personal uncertainties and risks related to a pending or threatened change in control, (ii) assure the named executives’ objectivity in considering shareholders’ interests, (iii) assure the named executives of fair treatment in case of involuntary termination following a change in control, and (iv) attract and retain key executive talent in a competitive market.

 

Consideration of the 2015 Shareholder Advisory Vote on Executive Compensation

 

At the Company’s 2015 annual meeting of shareholders (held February 3, 2015), 98% of votes cast at the meeting with respect to the proposal were voted to approve, on an advisory basis, the compensation of our named executive officers. No specific component of our 2016 executive compensation program was altered based upon this voting result. However, the committee will continue to monitor shareholder feedback as it reviews and establishes future executive compensation plans and determines awards for our named executive officers. Our Board of Directors has determined that an advisory vote will be conducted on a triennial basis (next planned to be done at the Company’s 2018 annual meeting).  

 

Compensation Risks

 

The Compensation and Management Development Committee has considered the components of the Company’s compensation policies and practices.  We believe that risks arising from our compensation policies and practices for our employees, including our executive officers, are not likely to have a material adverse effect on us.  In addition, although a significant portion of executive compensation is performance based and “at-risk,” the committee believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive risk.  

 

The committee has reviewed the elements of executive compensation to determine whether any portion of executive compensation encourages excessive risk taking.  It concluded that:

 

 

Impact of Tax and Accounting Issues

 

Section 162(m) of the Internal Revenue Code denies a tax deduction to a public corporation for annual compensation in excess of one million dollars paid to its Executive Chairman, its Chief Executive Officer and certain of its other most highly compensated officers, unless such compensation is paid pursuant to one of the enumerated exceptions set forth in Section 162(m) of the Code, which include an exception for “performance based” compensation meeting certain requirements.  Where possible, the committee attempts to structure its compensation programs such that compensation paid will be tax deductible whenever it is consistent with our compensation philosophy.  However, the committee has not adopted a policy requiring all compensation to be tax deductible.  Our compensation committee believes that factors other than tax deductibility are more important in determining the forms and levels of executive compensation most appropriate and in the best interests of our shareholders.  Our compensation committee believes that it is important to retain the flexibility to design compensation programs consistent with our executive compensation philosophy, even if some executive compensation is not fully deductible.  Also, the deductibility of some types of compensation payments will depend on the timing of an executive’s vesting or exercise of previously granted rights.  Accordingly, our compensation committee may from time to time approve elements of compensation for certain executives that are not fully deductible.  

 

In addition, the compensation committee considers the impact of Section 409A of the Internal Revenue Code, which imposes certain requirements on “nonqualified deferred compensation plans.”  These may be particularly relevant in the case of compensation paid after termination of a named executive officer’s employment under the change in control and severance agreements discussed above.  We believe that this compensation is in compliance with the applicable requirements of Section 409A.

 

Report of the Compensation and Management Development Committee

 

The Compensation and Management Development Committee of the Chase Corporation Board of Directors has reviewed and discussed the foregoing Compensation Discussion and Analysis with management of the Company and, based on such review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

 

Executive Compensation

 

The following table contains a summary of the compensation paid or accrued during the fiscal years ended August 31, 2016, 2015 and 2014 to our Executive Chairman, our President and Chief Executive Officer, and to our Treasurer and Chief Financial Officer.

 

Summary Compensation Table

 

 

 

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards for Fiscal 2016

 

The following table sets forth information relating to potential payments to each of our named executive officers under our fiscal 2016 cash and equity-based incentive award programs.  The actual amounts that we paid under each of these programs are described in more detail under our Compensation Discussion and Analysis under the heading “Principal Elements of our 2016 Compensation Program—Cash Incentive Plan” and “—Equity Incentive Plan” and, except in the case of restricted stock with performance-based vesting conditions, are reflected in the Summary Compensation Table and its footnotes.

 

 

Amounts in the table above under “Threshold” represent cash amounts payable under the cash incentive plan if 90% of the corporate Adjusted EBITDA-based performance target is achieved, representing a specified percentage of the named executive officers’ base salaries, and share amounts payable under the performance based equity incentive program if 90% of the corporate EPS-based performance target is achieved.  Below those performance levels, no payments would be made under the respective plans.  Amounts under “Target” represent 100% of the target payout under each of those plans, which is set in each case as a specified percentage of the named executive officer’s base salary.   The maximum payout under either the cash incentive plan or the performance based equity award program is 200% of the target award.  The Compensation and Management Development Committee of the Board of Directors formally approved the equity awards on August 31, 2015. The grant date fair value of the possible equity awards reflects the fair value of our common stock on September 1, 2015, the first day of our fiscal year and the date on which awards were granted, multiplied by the total number of shares of restricted stock to be awarded assuming the target was met (assumed to be the probable outcome of the performance conditions at the grant date).   The awards were actually paid in accordance with the plans upon finalization of our annual financial results and certification of the awards by the compensation committee in November 2016.   In the case of both the performance-based equity award and the cash incentive plan, the actual payments for fiscal year 2016 reflected the achievement of an amount between the target and the maximum payout for the participating officers.