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HENNESSY ADVISORS, 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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LETTER FROM OUR PRESIDENT
ANDand
PROXY STATEMENT
Year Ended September 30, 2014for the
2016 ANNUAL MEETING OF SHAREHOLDERS
Hennessy Advisors, Inc.
7250 Redwood Boulevard, Suite 200
Novato, California 94945
800-966-4354
www.hennessyadvisors.com
Dear Hennessy Advisors Shareholder: | December |
As you know, I look back at 2014,always try to use common sense when I realize thatread social, political, and economic news. I think the news affects investor behavior and consumer confidence, and those factors are important not only to Hennessy Advisors, Inc. and those of us in this age of rapidly evolving technology, information is delivered and absorbed so quickly that it is difficultthe investment business, but also to remember what happened last week, let alone what’s happenedbusinesses all over the course of an entire year.world. That is why I’dI like to take a momentquick “look back” to recall some of the year’s highs and lows, economically, politically and socially, hereto reflect.
2015 was another year marked by global unrest, as witnessed by the tragic events in Paris, the civil turmoil in Baltimore, and the continuing immigration issues in the U.S. and aroundin Europe. China is experiencing economic difficulties, as are many countries in Europe. Here in the globe. 2014 was scarred byU.S., we continued to struggle with political partisanship, wildfires in the Governor Christie bridge scandal, civil unrest in Ukraine and many other countries, the arrival of terrorist group ISIS, wildfires anddrought-stricken West, flooding in many areas of the U.S.,several states, and the tragedies of school shootings and the outbreak of Ebola.random violence. However, it was also a year markedof triumph and progress in many areas: American Pharaoh won the Triple Crown; we have a new Speaker of the House, Paul Ryan; the U.S. women’s soccer team defeated Japan in the World Cup; the World Trade Center is open for business 14 years after the events of 9-11; we opened diplomatic relations with may positive memories: weCuba; Tom Brady and the Patriots survived a government shutdown over healthcare reform, Russia hosted“deflate-gate” and won their 4th Super Bowl; the Winter Olympics, the Seattle SeahawksKansas City Royals won their first ever Super Bowl,World Series since 1985; and our home team San Francisco Giantshome-town Golden State Warriors won their third World Seriesfirst NBA Championship in five years, jobs40 years. I would be remiss in my summary of reflections for the year if I did not mention the theatrical political atmosphere created by the searches for a candidate for both the Republicans and the Democrats. So far, the debates, the interviews, Tweets, Facebook posts, and even traditional news reports, haveall feel like fodder for Saturday Night Live, not Presidential platform topics. We’ve been consistently, albeit anemically, improvingprivy to upheaval created by Hilary Clinton’s emails, Ben Carson’s resume writing, Chris Christie’s ride on the quiet train, and home prices remained relatively stable, after climbing back in 2013.
There have also been positive events in the financial services industry. During our fiscal year, Janet Yellen became the head of the Federal Reserve, calming the nerves of business and political leaders alike. Her strong leadership will be a life preserverjust about anything to those of us running businesses,do with Donald Trump, including his infamous hair. Stay tuned for “Election 2016” as the Fed continuesit’s going to be a voice of reason inquite a sea of political and economic rhetoric. The Fed has also supported the economy and corporate America by helping keep interest rates reasonable and low. The stock market has continued its determined comeback from the lows of 2009, setting record highs.show.
Through all typesthe ups and downs of headlines and economic cycles, we have remained focused onremain committed to our proven business model. This fiscal year, was no exception. In good and bad times,as in years past, we have remained steadfast in the mission of our company to provide value for our shareholders. That is why we focusfocused on protecting our cash, searching for strategic acquisitions, maintaining a consistent marketing and distribution campaign,campaigns, fostering a strong culture of compliance and retaining a great team of professionals. We believe that by pursuing this strategy we can continue to be successful in our mission to provide value for our shareholders.
For the fiscal year ended in September 2015, I am proud to report that the Hennessy team hasonce again provided fantasticproduced excellent financial results.
Fiscal year 20142015 was a fantastic and record-breaking year for Hennessy Advisors. We earned $7.7$11.4 million in net income on revenue of $34.5$44.7 million. Our earnings per share grew 57%47% from $0.83$1.30 to $1.30.$1.91. Our financial results were a direct result of our growth in assets under management. Total assets under management increased almost 37%8.5% from $4.03$5.52 billion at the beginning of the fiscal year surpassing $5 billion under management in May, and reaching $5.52to $5.99 billion at the end of our fiscal year. While total assets under management increased by $467 million for the fiscal year, (September 30, 2014).average assets under management, upon which fees are calculated, increased by nearly $1.2 billion, or 24%, driving the increases in revenue, net income and earnings per share versus the prior year. Our asset growth was driven by net inflows of approximately $837$642 million, and strongpartly offset by market appreciationdepreciation of approximately $650$175 million. Fifteen
During a year in which both the S&P 500 and the Dow posted negative total returns, six of our sixteen mutual funds posted positive total returns throughfor the end of our fiscal year,twelve months ended September 30, 2015, and every one of our mutual funds had positive returns over the three- and five-year periods. Our company is fueled bywell-performing funds, robust marketing and distribution efforts and our commitment to grow by strategic acquisitions.
Hennessy Advisors, Inc.Advisors’ stock benefitted fromperformed well during the year, rising 19.5%, which was driven both by strong financial results and a self-tender offer announced on August 20, 2015 to purchase 1 million shares, or approximately 17% of our solid financial results. Fromoutstanding common stock, for a price of $25.00 per share. And over the long term, Hennessy Advisor’s stock has delivered very handsome returns. Since our initial public offering in May 2002, our stock price has performed better thanrisen over seven-fold, easily outpacing the Dow Jones Industrial Average, handsomelyreturn of all major indices in the U.S. over the same period and rewarding the confidence of our original shareholders for their continued confidence. During fiscal year 2014, our stock price more than doubled.loyal shareholders. I am also very proud of the fact that beginning insince early 2005 we have consistently rewardedbeen able to return capital to our shareholders within the form of a dividend. This fiscal year, we increased the dividend andtwice, by 25% on October 30, 2014 we increased that dividendand by 25%.20% on January 29, 2015.
Our strong financial performance this year was also complemented by many noteworthy milestones.achievements. Our top performing funds won national independent recognition from Forbes, Barron’s and The Wall Street Journal. Our marketing team won four Mutual Fund Education Alliance (MFEA) STAR Awards for our communications to retail mutual fund shareholders and to financial advisors, bringing our total to 17 awards over the past seven years from this well-respected industry organization. And for the third year in a row, our company was once again named one of the “Best Places to Work” by the North Bay Business Journal. Our marketing team won four Mutual Fund Education Alliance (MFEA) Star Awards
Investors, reporters and friends always ask me “What’s next?” The market has been in a volatile, sideways correction for our communications to retail mutual fund shareholdersover a year now and to Financial Advisors, bringing our total to 13 awards over the past five years fromthroughout this well-respected industry organization.
period of volatility, I realize that the economic and political landscapes still have some potholes. Economic progress and growth remain steady but slow, and unemployment, though improving, remains high. Oil prices are falling, giving consumers a bit more money in their pockets. While the midterm elections may not end all of the gridlock in Washington, hopefully we will receive clarity on the political headwinds of taxes and regulations, which have not advanced over the past several years. However, no matter how you slice politics, Republicans and Democrats will need to work together to resolve these important and difficult issues.
When the market fell 300 points on July 31st, I appeared on CNBC andconsistently advised investors to stay the course. I appeared again on October 16th in the midst of another market drop (nearly 5%), and I advised viewers and investors alike that the best thing they could do would be to remain calm and continue to look atfocus on the long-term fundamentals of the market.
In my view, the basic fundamentals of the market are in good shape. The economy is growing slowly but steadily. Inflation is low, so we expect that the Fed, once they do start to raise rates, will not raise them by very much. The labor market has continued to recover over the last 12 months, consumer confidence is buoyant and the price of oil is down 55% over the last 18 months, benefitting both consumers and businesses. Investor sentiment, meanwhile, is subdued. Investors today are truly at playdeeply troubled by many things, including a slowdown in the Chinese economy, slower earnings growth, recent market today.
Corrections and volatility are normal in bull markets, and we’ve had several quarters without any real significant downturn. The pullbacks we experienced over the past few months were short-lived, as evidenced by the quick rebound to record high market levels. Additionally, seasonal factors and presidential cycles are also working in favor of the stock market. Historically since 1950, two of the best months for stocks have been November and December, and the period from late October throughprospect of rising interest rates. I do not see any solid enthusiasm for the first half of year seven during the eight years of a two-term presidency has been the strongest period for stocks.market – no euphoria. And it feels tothis makes me like the current rally is right on track with these historical trends, andbullish. Most importantly, I firmlydo not believe that westocks are still in a secular bull market. All bull markets experience corrections, and this bull run is in its 5th year, which means we have to be prepared to weather some volatility. Companies comprising theexpensive. The Dow Jones Industrial Average (DJIA) and the S&P 500 Index continuehave forward PE (price-to-earnings) ratios of 15x and 16x, respectively, close to have strong balance sheets, respectablelong-term averages. The dividend yield on the Dow is 2.4% versus a 2.2% yield from 10-year Treasuries. In my view, taken together, these fundamentals and record cash flows and profits. I have consistently believed and believe today that the DJIA is headed tosignal a level of 20,000 in the next three to four years.
U.S. corporations have driven shareholder value by making acquisitions, initiating and raising dividends, investing in internal infrastructure and buying back their stock. However, this year I began to see a shift in those business strategies. The easier to execute acquisitions seem to be a thingcontinuation of the past, and firms now have to be even more creative to execute accretive deals. I also believebull market that while firms may continue to initiate dividends, fewer firms will raise their dividends and fewer firms will participate in stock buyback programs going forward. What will these cash-rich companies do with their capital if they are not raising dividends or buying back stock? I believe they will begin to initiate capital expenditure programs that will truly benefit economic growth.began six years ago.
I believe firms will choose to improve their margins by spending money to expand their sales, and they may even begin to hire in earnest. Once a competitor begins to move in this way, the cost to defer becomes real for companies. This movement to expansion may well be a catalyst to propel the financial markets. I do believe this will be a slow shift, but one that will keep the economy improving, and should, in my opinion, help generate reasonable market returns over the next few years. With approximately $3 trillion in cash and short-term investments sitting on the balance sheets of S&P 500 companies, the strategic shift to spend their idle capital should further the economic growth in the U.S.
While I am encouraged by the strong returns for the major U.S. financial market indices and performance of the Hennessy Funds,A final positive note: I still do not believe that investors have fully returned to investing in U.S. equities. InvestmentsInvestors have $3.4 trillion in fixed income and $2.7 trillion in money market funds, and only $5.8 trillion in domestic equity funds. I believe investments in fixed income and money market vehicles will continue to trickle into equities, and as they do, that willshould have a positive effect on the market.
Looking ahead to 2015, we will continue our proven business model, and2016, we are excited to continue strengtheningour efforts to strengthen every aspect of our firm:firm, including in the areas of expanding and refining our marketing and distribution efforts, consistently and strategically branding the Hennessy Funds, improving our cash flow and broadening our operations. We are fortunate to have what we believe is a motivated and talented team to focus on our business and our shareholders, as well as a diligent and respected Board of Directors to help guide this company today and into the future.
Thank you for your continued confidence and investment in Hennessy Advisors, Inc. If you have any questions or would like to speak with us directly, please don’t hesitate to call us at (800) 966-4354.
Best regards,
Neil J. Hennessy
President, Chairman, and CEO
Sincerely, |
Neil J. Hennessy |
President, Chairman and CEO |
HENNESSY ADVISORS, INC.
NOTICE AND PROXY STATEMENT
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 29, 201528, 2016
TO THE HOLDERS OF OUR COMMON STOCK:DEAR SHAREHOLDER:
The annual meeting of shareholders of Hennessy Advisors, Inc. will be held on Thursday, January 29, 2015,28, 2016, at 6:30 pm,p.m., PST, at StoneTree Golf Club, 9 StoneTree Lane, Novato, California 94945 (business casual recommended).
The meeting will be held for the following purposes:
1. | to elect all director nominees named in the |
2. |
to ratify the selection of Marcum LLP as the independent registered public accounting firm for Hennessy Advisors, Inc. for the fiscal year |
to transact such other business as may properly come before the meeting or any adjournment or postponement thereof. |
Our board of directors recommends a vote “FOR” Proposals 1 2, and 3.2. Only shareholders of record at the close of business on December 2, 20141, 2015 will be entitled to vote at the annual meeting.
We hope you will be able to attend the meeting, but in any event we would appreciate if you would date, sign, and return the enclosed proxy as promptly as possible, or vote by calling toll-free (800) 652-8683 (if calling within the United States) or by voting over the Internet at www.Investorvote.com/HNNA.
By Order of the Board of Directors, |
/s/ Teresa M. Nilsen |
Teresa M. Nilsen, Secretary |
Dated: December 15, 201414, 2015
Important Notice Regarding the Availability of Proxy Materials for the ShareholderAnnual Meeting to be Held on January 29, 2015.28, 2016. The notice, proxy statement, annual report and form of proxy are available atwww.hennessyadvisors.com/proxy.htm.
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HENNESSY ADVISORS, INC.
7250 Redwood Boulevard, Suite 200
Novato, California 94945
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON JANUARY 29, 201528, 2016
This proxy statement and the enclosed form of proxy are first being sent to shareholders of Hennessy Advisors, Inc. (“Hennessy Advisors,” the “company,” “we,” “us” or “our”) on or about December 15, 201414, 2015 in connection with the solicitation by our board of directors of proxies to be used at the 20152016 annual meeting of shareholders. The meeting will be held on Thursday, January 29, 2015,28, 2016, at 6:30 p.m., PST, at StoneTree Golf Club, 9 StoneTree Lane, Novato, California 94945 (business casual recommended).
The board of directors has designated Neil J. Hennessy and Teresa M. Nilsen, and each or either of them, as proxy agents to vote the shares of common stock solicited on its behalf. If you sign and return the enclosed form of proxy, or give your proxy by calling toll-free (800) 652-8683 (if calling within the United States) or by voting over the Internet at www.Investorvote.com/HNNA, you may nevertheless revoke your proxy at any time insofar as it has not been exercised by: (1) giving written notice to our corporate secretary, (2) delivering a later dated proxy, or (3) attending the meeting and voting in person. If your shares are held in “street name,” by your broker, fiduciary, custodian or other nominee, you may vote your shares in person at the annual meetingONLY if you bring a legal proxy to the annual meeting. You must request this legal proxy from your bank or broker as indicated on the proxy card as they will not automatically supply one to you. The shares represented by your proxy will be voted unless the proxy is mutilated or otherwise received in such form or at such time as to render it not votable.
The record of shareholders entitled to vote was taken at the close of business on December 2, 2014.1, 2015. As of December 2, 2014,1, 2015, we had outstanding and entitled to vote 6,024,6215,065,255 shares of common stock.stock, no par value. Each share of common stock entitles the holder to one vote. Holders of a majority of our outstanding common stock must be present in person or represented by proxy to constitute a quorum at the annual meeting. Abstentions and “broker non-votes” (explained below) are counted as present for purposes of determining a quorum.
If you are a record holder (namely,(namely, you own your common stock in certificate form), you may vote by marking your vote on the enclosed proxy card and then signing it, dating it, and mailing it in the postage-paid envelope we have provided. Alternatively, you may vote by calling toll-free (800) 652-8683 (if calling within the United States) or by voting over the Internet at www.Investorvote.com/HNNA. If your shares are held in “street name” by a broker, nominee, fiduciary or other custodian (collectively referred to herein as a “broker”), follow the directions given by your broker regarding how to instruct them to vote your shares. Your broker may permit you to vote by the Internet or by telephone. Whether or not you plan to attend the annual meeting, we urge you to vote your shares now.
Brokers holding shares of common stock for beneficial owners in “street name” must vote those shares according to any specific instructions they receive from the beneficial owner of the
shares. However, brokers have discretionary authority to vote on “routine” proposals, like the vote to ratify the selection of the independent registered public accounting firm, which means that a broker may vote on behalf of a beneficial owner in the broker’s discretion if the beneficial owner does not provide specific instructions to the broker. In the case of “non-routine” proposals, like the election of directors, and the approval of the amendment to our Second Amended and Restated Bylaws, a broker may not vote on such proposals unless it receives specific instructions from the beneficial owner. A “broker non-vote” occurs when a broker does not vote on a particular proposal because the broker does not have discretionary voting authority for that particular proposal and has not received specific instructions from the beneficial owner.owner or otherwise does not vote.Under applicable rules, if you hold your shares through a broker and do not instruct your broker how to vote with respect to ProposalsProposal 1, and 2, your broker may not vote with respect to such proposals.proposal.
For the election of directors, assuming a quorum is present, the director nominees for director that receive the highest number of votes, up to the number of directors to be elected, shall be elected. Abstentions and brokernon-votes are not counted as votes “for”“FOR” or “against”“AGAINST” a director nominee for director and will have no effect on the outcome of the election.
For the approvalratification of the amendment to our Second Amended and Restated Bylaws, the vote required is the affirmative vote of the majority of the shares entitled to vote for the proposal. Abstentions and broker non-votes will have the same effect as a vote “against” this proposal.
For the ratification of selection of the independent registered public accounting firm, assuming a quorum is present, the vote required is the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “against”“AGAINST” this proposal. We do not expect any brokernon-votes on this proposal because brokers have discretion under applicable rules to vote uninstructed shares on this proposal. In any event, brokernon-votes will have no effect on the outcome of this proposal.
The following table shows information relating to the beneficial ownership as of December 2, 20141, 2015 of: (1) each person known to us to be the beneficial owner of more than 5% of our common stock, (2) each director, (3) each of the executive officers named in the summary compensation table elsewhere in this proxy statement, and (4) all directors and executive officers as a group. Except as otherwise indicated, the shareholders listed exercise sole voting and dispositive power over the shares.
Amount and Nature of Shares Beneficially Owned
Name | Number of Shares Owned | Percent of Class | ||||||
Neil J. Hennessy(1)(2) | 1,880,269 | 31.2 | % | |||||
Teresa M. Nilsen(1)(3) | 80,578 | 1.3 | % | |||||
Daniel B. Steadman(1)(4) | 29,311 | 0.5 | % | |||||
Henry Hansel(1) | 113,219 | 1.9 | % | |||||
Brian A. Hennessy(1)(5) | 225,671 | 3.8 | % | |||||
Daniel G. Libarle(1)(6) | 52,922 | 0.9 | % |
Name | Number of Shares Owned | Percent of Class | ||||||||||||||
Neil J. Hennessy(1)(2) | 1,635,146 | 32.28 | % | |||||||||||||
Teresa M. Nilsen(1)(3) | 71,673 | 1.42 | % | |||||||||||||
Daniel B. Steadman(1)(4) | 18,651 | 0.37 | % | |||||||||||||
Henry Hansel(1) | 100,300 | 1.98 | % | |||||||||||||
Brian A. Hennessy(1)(5) | 195,768 | 3.86 | % | |||||||||||||
Daniel G. Libarle(1)(6) | 48,658 | 0.96 | % | |||||||||||||
Rodger Offenbach(1)(7) | 73,485 | 1.2 | % | 65,391 | 1.29 | % | ||||||||||
Thomas L. Seavey(1) | 40,461 | 0.7 | % | 32,903 | 0.65 | % | ||||||||||
Susan W. Pomilia(1)(8) | 50,625 | 0.8 | % | 47,188 | 0.93 | % | ||||||||||
Charles M. Almond(9) | 448,999 | 7.5 | % | |||||||||||||
All directors and executive officers (9 individuals) | 2,546,541 | 42.3 | % | 2,215,678 | 43.74 | % |
(1) | The mailing address for this person is c/o Hennessy Advisors, Inc., 7250 Redwood Boulevard, Suite 200, Novato, California 94945. |
(2) | Includes (a) |
(3) | Includes (a) |
(4) | Includes |
(5) | Includes (a) |
(6) | Includes |
(7) | Includes (a) |
(8) |
ELECTION OF DIRECTORS
At the meeting, nine directors will be elected to serve for a one-year term, until their successors are elected and qualified. EachThe board of directors has nominated, upon the recommendation of the nominating committee, each of our nominees is currently a director who, with the exception of Ms. Pomilia, was previously elected by the shareholders. Ms. Pomilia was recommended as a directornine current directors to our nominating committee by our Chief Executive Officer.stand for reelection. Directors will be elected by a plurality of votes cast by shares entitled to vote at the meeting.
Proxies will be voted, if authority to do so is not withheld, for the election as directors of each of the board’s nominees for director.director nominees. Each director nominee for director is presently available for election, and has consented to being named in this proxy statement and to serve, if elected. If any director nominee for director should become unavailable, which is not now anticipated, the persons voting the accompanying proxy may, in their discretion, vote for a substitute.
Our board of directors recommends a vote “FOR” the election of each of its nominees for director.director nominees. Proxies solicited by the board will be so voted unless shareholders specify in their proxies a contrary choice.
The information presented below for our incumbent directors includes information that each director has given us about his or her age, all positions he or she holds, his or her principal occupation and business experience for the past five years, and the names of other companies, some of which are publicly-held,publicly held, of which he or she currently serves as a director or has served as a director during the past five years.
In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills that led our board to the conclusion that he or she should serve as a director, we also believe that all of our director nominees for director have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to the company and our board.
Neil J. Hennessy (age 58)59) has served as chairman of the board, president, and chief executive officer of Hennessy Advisors since 1989 and as director and portfolio manager of our mutual funds since 1996. Mr. Hennessy started his financial career over 3435 years ago as a broker at Paine Webber. He subsequently moved to Hambrecht & Quist and later returned to Paine Webber. From 1987 to 1990, Mr. Hennessy served as a nominated member of the National Association of Securities Dealers, Inc.’s District 1 Business Conduct Committee. From January 1994 to January 1995, Mr. Hennessy served his elected term as chairman of the District 1 Business Conduct Committee. Mr. Hennessy earned a bachelor of business administration from the University of San Diego. Mr. Hennessy has amassed considerable business acumen in his career. Since founding the company in 1989, he has successfully navigated the company through many economic cycles. His significant experience in managing the company enables him to provide the board with invaluable knowledge and guidance. Mr. Hennessy is the brother of Dr. Brian A. Hennessy.
Teresa M. Nilsen (age 48)49) has served as a director, executive vice president, chief financial officer and secretary of Hennessy Advisors since 1989, and received an additional officer designation as the chief operating officer in October 2010. Ms. Nilsen is also the executive vice president and treasurer of our mutual funds. Ms. Nilsen has worked in the securities industry for over 2627 years, and earned a bachelor of arts in economics from the University of California, Davis. Ms. Nilsen’s qualifications to serve on our board include her significant financial management, operational and leadership experience gained during her extensive career in the securities industry.
Daniel B. Steadman (age 58)59) has served as a director and executive vice president of Hennessy Advisors since 2000 and as the chief compliance officer of Hennessy Advisors since 2010. Mr. Steadman is also the executive vice president and secretary of our mutual funds. Mr. Steadman has been in the banking and financial services industry for over 3840 years, serving as vice president of WestAmerica Bank from 1995 through 2000, vice president of Novato National Bank from its organization in 1984 through 1995, assistant vice president and branch manager of Bank of Marin from 1980 through 1984 and banking services officer of Wells Fargo Bank from 1974 through 1980. Mr. Steadman’s substantial experience in the financial services industry, as well as his significant experience in managing the strategic development of the company, enables him to provide the board with valuable insights and advice.
Henry Hansel (age 66)67) has served as a director of Hennessy Advisors since 2001. He has been president of The Hansel Auto Group, which includes nine automobile dealerships, since 1982.
Mr. Hansel served as a director of the Bank of Petaluma from its organization in 1987 until it was sold in 2002. Mr. Hansel earned a bachelor of science degree in economics from the University of Santa Clara. Mr. Hansel’s experience with running a large and economically cyclical business provides him with excellent financial statement and operational knowledge. His corporate business experience, combined with his attentive and thorough service as a director over the years, allows him to provide the board with valuable recommendations and ideas.
Brian A. Hennessy (age 61)62) has served as a director of Hennessy Advisors since 1989 and served as a director of our mutual funds from 1996 to 2001. Dr. Hennessy was aself-employed dentist for more than 20 years, and is now retired. Dr. Hennessy earned a bachelor of science in biology from the University of San Francisco and a D.D.S. from the University of the Pacific. Dr. Hennessy’s qualifications to serve on our board include his considerable experience as a business owner. His many years running his own practice allowed him to navigate many business-related issues, making him a valuable source of knowledge to us. This, combined with his prior service as a director of our mutual funds, has provided him with a solid understanding of the company and the industry in which it operates. Dr. Hennessy is the brother of our chairman of the board, Neil J. Hennessy.
Daniel G. Libarle (age 73)74) has served as a director of Hennessy Advisors since 2001. Mr. Libarle is the owner and president of Lace House Linen, Inc. He served as a director and chairman of the board of directors for Bank of Petaluma from its organization in 1987 until it was sold in 2002 and served as a director of Greater Bay Bancorp and was a member of its audit committee from 2003 until its sale to Wells Fargo in October 2007. In January 2008, Mr. Libarle became a director of the Exchange Bank, where he currently serves on the bank’s audit and loan committees. Mr. Libarle earned a bachelor of arts in economics from the University of Oregon and San Jose State University. Mr. Libarle is an effective and knowledgeable member of our board of directors and brings with him years of essential business experience. Mr. Libarle employs his decades of experience on various boards and audit committees in the financial services industry to lead and guide our audit committee. He has extensive knowledge in reading and analyzing financial statements, and his role as a business owner also provides him with the operational knowledge to anticipate and mediate business-related issues.
Rodger Offenbach (age 63)64) has served as a director of Hennessy Advisors since 2001 and served as a director of our mutual funds from 1996 to 2001. Mr. Offenbach was the owner of Ray’s Catering and Marin-Sonoma Picnics from 1973 to 2010. Mr. Offenbach earned a bachelor of science in business administration from California State University, Sonoma. Mr. Offenbach’s long experience as an employer and businessman has honed his understanding of financial statements and the complex issues that confront businesses. This, combined with his diligent and thoughtful service as a director over the years, along with his prior service as a director of our mutual funds, has provided him with a solid understanding of the company and the industry in which it operates, enabling him to provide the board with valuable input and oversight.
Thomas L. Seavey (age 68)69) has served as a director of Hennessy Advisors since 2001. For the majority of Mr. Seavey’s business career, he has been involved in the sales and marketing of athletic and leisure products, as well as working with professional athletes. From 1981 to 1993, Mr. Seavey worked for Nike as the vice president of sales in the Midwest, as well as California, and spent three years at International Management Group as the vice president of products. In 1980, he formed Seavey Corp., now Continental Sports Group, which sells sport and leisure products. Mr. Seavey left Nike in 1993 and formally took over the management of Continental Sports Group, which he is still managing today. Mr. Seavey earned a bachelor of arts in English and history from Western Michigan University. Mr. Seavey’s experience working for a large corporation, where he led
worldwide marketing campaigns, provided him vast knowledge of the business world. His experience has sharpened his financial and operational knowledge, and he brings these assets to our board of directors in a relatable, effective way. This, combined with his diligent and focused service as a director of our company over the years, has provided him with an excellent understanding of the company and the industry in which it operates, making him a valuable resource to our board.
Susan W. Pomilia (age 48)49) has served as a director of Hennessy Advisors since 2014. Ms. Pomilia has worked in the mortgage industry for almostover 30 years. From 1985 to 2007, Ms. Pomilia worked for First Security Loan, where she opened the Larkspur branch. In 2007, she purchased her own branch of RPM mortgage and expanded locations to Mill Valley, Napa, San Rafael and Benicia. Ms. Pomilia’s experience managing dozens of employees and multiple branches provides her with excellent insight and business perception. This, combined with her exceptional service as the President of Cruisin’ with Susan non-profit organization and the Vice President of Pomilia Financial, Inc., provide her with a tremendous understanding of business in general and the financial industry specifically.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires executive officers, directors, and 10% shareholders to file reports of initial ownership of our common stock (on Form 3) and changes in such ownership (on Form 4) no later than the second business day after the date on which the transaction occurred, unless certain exceptions apply. Most transactions not reported on Form 4 must be reported on Form 5 within 45 days after the end of the company’s fiscal year. Based upon a review of Forms 4 and 5 filed with the Securities and Exchange Commission (the “SEC”) and information provided to us by our directors and officers during the fiscal year ended September 30, 2014,2015, all required reports were filed on a timely basis.
Board of Directors and Standing CommitteesDirector Attendance
Our board held four regular meetings and two special meetings during the fiscal year ended September 30, 2014.2015. All directors attended at least 75% of all meetings of the board and board committees on which they served during fiscal year 2014.2015.
We do not have a formal policy requiring directors to attend annual meetings of shareholders. However, because the annual meeting generally is held on the same day as a regular board meeting, we anticipate that directors will attend the annual meeting unless, for some reason, they are unable to attend the board meeting on the same date. All membersdirectors attended the 2015 annual meeting of theshareholders.
The board determined that all of our directors are independent under NASDAQ rules, except Neil J. Hennessy, Teresa M. Nilsen, Daniel B. Steadman and Brian A. Hennessy. The NASDAQ rules include several objective tests, as well as a subjective test, for determining who is an “independent director.” The subjective test requires that the board affirmatively determine, after reviewing all relevant information, that a director does not have any relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The board has not established categorical standards or guidelines to make this subjective determination, but considers all relevant facts and circumstances.
All of our directors other than Neil J. Hennessy, are considered independentTeresa M. Nilsen, Daniel B. Steadman and Brian A. Hennessy qualified as “independent” under NASDAQ rules.the objective tests. The Board then reviewed and discussed additional information provided by the directors and the company with regard to any transactions, relationships or arrangements that each such director had with the company during the three years prior to the independence determination. Matters reviewed included commercial and charitable transactions, relationships and arrangements, of which none were deemed by the board to be material. Based on this review, the board made a subjective determination that no relationships exist that impair the independence of such directors.
Board of Directors and Standing Committees
The board of directors has established three standing committees: an audit committee, a compensation committee and a nominating committee, which are described below. Members of these committees are elected annually, generally in the winter. Each committee has a written charter that is approved by the board of directors and reviewed for adequacy on an annual basis. Committee charters are available on our website at the regular board meeting held in conjunction with the annual shareholders’ meeting.www.hennessyadvisors.com.
Audit Committee. The audit committee presently is composed of Daniel G. Libarle (Chairman), Henry Hansel and Thomas L. Seavey, all of whom are considered independent under NASDAQ rules. The audit committee met four times during fiscal year 2014.2015. The principal responsibilities of and functions to be performed by the audit committee are established in the audit committee charter, which is available on our website at www.hennessyadvisors.com. The audit committee reviews and reassesses its charter for adequacy on an annual basis. The responsibilities and functions of the audit committee include reviewing our internal controls and the integrity of our financial reporting, approving the employment and compensation of and overseeing our independent auditors, and reviewing the quarterly reviews and annual audit with the auditors.
Our board of directors has determined that Daniel G. Libarle, who has served as Chairman of our audit committee since 2001, is an audit committee financial expert, as defined in the rules and regulations of the SEC, and is independent as defined by the rules adopted by the SEC and NASDAQ. Our board based its determination on the fact that Mr. Libarle has extensive experience evaluating financial statements prepared in accordance with generally accepted accounting principles and has also acquired an understanding of internal controls, procedures for financial reporting and audit committee functions as the founding chairman of the board of Bank of Petaluma from 1985 to 2002, as a member of the audit committee of the board of directors of Greater Bay Bancorp from 1999 to 2007, and as a director of the Exchange Bank, where he continues to serve on the bank’s audit and loan committees.
Compensation Committee. The compensation committee presently is composed of Thomas L. Seavey (Chairman), Daniel G. Libarle, Rodger Offenbach and Daniel G. Libarle,Susan W. Pomilia, all of whom are considered independent under NASDAQ rules. Ms. Pomilia was appointed to the compensation committee in November 2015. The compensation committee met twicethree times during fiscal 2014.2015. This committee has the responsibility of approving the compensation arrangements for our executive officers, including annual cash bonuses and equity awards, which were approved on September 23, 2014.14, 2015. It also recommends to the board of directors adoption of any compensation plans in which our officers and directors are eligible to participate, as well as makes grants of employee stock options and other stock awards under our incentive plan. Our executive officers do not determine their own compensation. However, the chief executive officer, after consultation with the other two members of the executive management team, recommends to the compensation committee the amount of base salary, cash bonus, company
401(k) contribution, and equity compensation of the company’s other two executive officers, as well as the amount of his own company 401(k) contribution and equity compensation, based on salary surveys, experience and performance of our executive officers. The compensation committee does not have any arrangements with compensation consultants. As a small company, our compensation committee relies upon its business judgment in making compensation decisions for our executive officers. Our compensation committee charter is available on our website atwww.hennessyadvisors.com. The compensation committee reviews and reassesses its charter for adequacy on an annual basis.
Nominating Committee. The nominating committee presently is composed of all directors who qualify asare considered independent under NASDAQ rules, which directors are presently Henry Hansel, Daniel G. Libarle, Rodger Offenbach, Susan W. Pomilia and Thomas L. Seavey. The nominating committee met once during fiscal 2014.2015. The principal responsibilities of and functions to be performed by the nominating committee are established in the nominating committee charter, and includesinclude making recommendations for director nominees for director to the full board of directors for the next annual meeting of shareholders. The nominating committee’s charter is available on our website at www.hennessyadvisors.com.
Qualifications for consideration as a director nominee for director may vary according to the particular areas of expertise being sought as a complement to the existing board composition. However, in making its nominations, the nominating committee will consider, among other things, an individual’s business experience, industry experience, financial background, breadth of knowledge about issues affecting Hennessy Advisors, time available for meetings and consultation regarding Hennessy Advisors’ matters, and other particular skills and experience possessed by the individual. In considering the diversity of a candidate, the committee considers a variety of factors including, but not limited to, age, gender, and ethnicity. We do not currently employ an executive search firm, or pay a fee to any other third party, to locate qualified candidates for director positions, although we may in the future retain a third party search firm, if the nominating committee deems it appropriate.
OurThe board currently believes it is in the best interests of the company to combine the positions of chairman and chief executive officer because this provides the company with unified leadership and direction. In addition, our current chairman and chief executive officer has an in-depth knowledge of our business that enables him to effectively set appropriate board agendas and ensure appropriate processes and relationships are established with both management and the board of directors, as our board works together to oversee our management and affairs. The board has not appointed a lead independent director. The board has determined that its leadership structure is appropriate for the company.
The board, together with the audit committee, has oversight for our risk management framework, both investment risk and operational risk, and is responsible for helping to ensure that our risks are managed in a sound manner. In this regard, the directors oversee an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and to enhance shareholder value. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the company. The involvement of the full board in setting our business strategy is a key part of the directors’ assessment of management’s appetite for risk and also a determination of what constitutes an appropriate level of risk for the company. The board has determined that its risk oversight is appropriate for the company. The board has adopted thea Code of Ethics for Hennessy Funds Trust and Hennessy Advisors, Inc. whichthat applies to our directors and employees, the full text of which is available at www.hennessyadvisors.com. Each of our directors and employees annually confirms in writing that he or she has reviewed and will fully comply with the Code of Ethics.
Policies and Procedures for Submitting Recommendations for Potential Director Nominees for Director and for Nominations for Directors by Shareholders for the 20162017 Annual Meeting of Shareholders
Shareholder Recommendations to Nominating Committee for Potential Nominees for Director
The nominating committee will considerconsiders recommendations for potential director nominees for director from many sources, including members of the board, advisors, and shareholders. The names of such suggested nominees for director, together with appropriate biographical information, should be submitted for nominating committee consideration to our principal executive offices no later than August 18, 2015. Any candidates duly submitted by a shareholder or shareholder group will be reviewed and considered inuses the same mannerprocess to evaluate director nominees recommended by shareholders as allit does to evaluate director nominees identified by other candidates as a potential nominee for the slate nominated by our board of directors.
sources. In order to be a valid submission for recommendation to the nominating committee for a potential director nominee, for director, the form of the recommendation must set forth:
The completed form of recommendation must be sentaddressed to the nominating committee, must be received at our principal executive offices: 7250 Redwood Boulevard, Suite 200, Novato, California 94945.offices no later than August 16, 2016, and must include all of the same information that our bylaws require for any director nominations proposed to presented at the annual meeting. The specific information that must be included with a recommendation for a potential director nominee has changed since we previously disclosed the requirements in our proxy statement for the 2015 annual meeting of shareholders, as described below. The mailing envelope should contain a clear notation indicating that the enclosed letter is a “Shareholder Recommendation for Director.”
Director Nominations by Shareholders The mailing address for 2016 Annual Meeting of Shareholders
A shareholder wishing to nominate his or her own candidate for election to our board at our 2016 annual meeting of shareholders must submit a written notice, in the form specified below, of his or her nomination of a candidate to our corporate secretary at our principal executive offices. The submission must be received at our principal executive offices no later than August 18, 2015. To be timely in the case of a special meeting called for the election of directors or in the event that the date of the applicable annual meeting is changed by more than 30 days from the date of our last annual meeting, a shareholder’s notice must be received at our principal executive offices no later than the close of business on the tenth day following the earlier of the day on which notice of the meeting date was mailed or public disclosure of the meeting date was made. In accordance with Article II, Section 16 of our amended and restated bylaws, shareholder nominations that do not comply with the submission deadline are not required to be recognized by the presiding officer at the annual meeting. Timely nominations will be brought before the meeting but will not be part of the slate nominated by our board of directors and will not be included in the company’s proxy materials.
In order to be valid, a submission for a shareholder director nomination must set forth:
The completed form of notice must be sent to our corporate secretary at our principal executive offices: 7250 Redwood Boulevard, Suite 200, Novato, California 94945.
The mailing envelope should containboard of directors adopted the Fourth Amended and Restated Bylaws of Hennessy Advisors, Inc. as of November 2, 2015. The Fourth Amended and Restated Bylaws included changes to the advance notice provisions governing director nominations proposed to be presented at an annual meeting of shareholders, and shareholders desiring to submit a clear notation indicatingrecommendation for a director nominee must satisfy the same informational requirements. These changes include (and are already included in the applicable discussion above, as well as below in the section entitled “Other Governance Matters”):
The foregoing description of certain changes to the Fourth Amended and Restated Bylaws is qualified in its entirety by reference to the full text of the Fourth Amended and Restated Bylaws attached as Exhibit 3.1 to our Current Report onForm 8-K filed with the SEC on November 2, 2015.
During the fiscal years ended September 30, 20142015 and 2013,2014, there have been no transactions of more than $120,000 between Hennessy Advisors and any more than 5% shareholder, director, or executive officer.officer and their immediate family members, except as described below.
On September 25, 2015, the company accepted for purchase a total of 1,000,000 shares of its common stock at a purchase price of $25.00 per share pursuant to the terms and conditions of itsself-tender offer set forth in the Offer to Purchase, dated August 20, 2015. Based on the final count by Computershare Inc. and its wholly owned subsidiary, Computershare Trust Company, N.A. (“Computershare”), the depositary for the self-tender offer, an aggregate of 1,805,122 shares were properly tendered and not properly withdrawn. Because more than 1,000,000 shares of common stock were properly tendered and not properly withdrawn, the self-tender offer was oversubscribed. Therefore, pursuant to the terms of the self-tender offer, shares were accepted for purchase on a pro rata basis, except for tenders of odd lots, which were accepted in full, and except for certain conditional tenders automatically regarded as withdrawn pursuant to the terms of the self-tender offer. Computershare informed the company that the final proration factor for the self-tender offer, after giving effect to the priority for odd lots and certain conditional tenders automatically regarded as withdrawn, was approximately 53.3%. Directors and executive officers were eligible to participate in theself-tender offer on the same basis as all other shareholders of the company. The following table shows the number of shares sold and the aggregate purchase price for such shares for each of our directors and executive officers.
Name | Number of Shares Sold | Aggregate Purchase Price | ||||||
Neil J. Hennessy | 251,373 | $ | 6,284,325 | |||||
Teresa M. Nilsen | 11,603 | $ | 290,075 | |||||
Daniel B. Steadman | 3,339 | $ | 83,475 | |||||
Henry Hansel | 15,419 | $ | 385,475 | |||||
Brian A. Hennessy | 30,403 | $ | 760,075 | |||||
Daniel G. Libarle | 4,264 | $ | 106,600 | |||||
Rodger Offenbach | 9,594 | $ | 239,850 | |||||
Thomas L. Seavey | 5,058 | $ | 126,450 | |||||
Susan W. Pomilia | 7,062 | $ | 176,550 | |||||
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338,115 | $ | 8,452,875 | ||||||
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A son of Neil J. Hennessy, our President, Chief Executive Officer, and Chairman of the Board of Directors, is employed by the company in anon-executive position and serves as an officer of our mutual funds. He earned $100,000 in base salary, a cash bonus of $75,000 and $12,125 with respect to vested restricted stock units (consisting of a 25% vesting of RSUs granted on October 1, 2013) for fiscal year 2015. In addition, he received other benefits on the same terms available to all other employees of the company, including eligibility for awards of restricted stock units. His compensation is commensurate with his peers’ compensation.
Our executive officers are listed below. Biographical information for each of our executive officers may be found under the heading “Election of Directors.”
Neil J. Hennessy | President, Chief Executive Officer, and Chairman of the Board of Directors | |||||
Teresa M. Nilsen | Executive Vice President, Chief Financial Officer, Chief Operating Officer, and Secretary | |||||
Daniel B. Steadman | Executive Vice President and Chief Compliance Officer |
We refer to these individuals as our “executive officers.”
COMPENSATION OF EXECUTIVE OFFICERSDISCUSSION AND DIRECTORSANALYSIS
Compensation Overview
The goal of our compensation program is the same as our broadercompany-wide goal: to create long-term value for our shareholders. In an effort to achieve this goal, we have designed and implemented our compensation program to (i)(1) encourage our executive officers to remain with us for long and productive careers and (ii)(2) align the interests of our executive officers with the interests of our shareholders. We believe that most of our compensation elements simultaneously fulfill both of these objectives. The principal elements of our compensation program are salary, bonus, equity awards, company 401(k) contributions, severance payments and payments in the event of a change of control.
Compensation Objectives
Retention. Given our small number of high level executives, all of our executive officers are essential to our success. Our executive officers are experienced in the mutual fund industry and are presented with other professional opportunities in the industry from time to time, including opportunities at potentially higher compensation levels. We believe it is critical to our success that turnover among our executive officers remains low and that our executive officers remain driven to achieve their individual and company-wide goals. Key elements of our compensation program that are designed to maximize executive officer retention include:
Alignment. We seek to align the interests of our executive officers with the interests of our interests.shareholders. Key elements of our compensation program that are designed to align the interests of our executive officers with the interests of our shareholdersdo so include:
Emphasis on variable “at risk” compensation. The compensation committee considers how our current compensation policies, including incentive opportunities, affect the company’s risk profile and does not believe that our compensation policies encourage excessive or inappropriate risk taking. The compensation committee seeks to align the interests of our executive officers with the interests of our shareholders by utilizing a balanced approach to total compensation, whereby a significant percentage of each executive officer’s total compensation is based on individual andcompany-wide performance on both a short andlong-term basis. For fiscal 2015, over half of the total amount of compensation and benefits paid to our employees, including our executive officers, was based on the financial performance of the company on both a short- andlong-term basis. In evaluating compensation risks, the compensation committee considers (1) the company’s key compensation policies from a risk perspective, (2) the risks disclosed in our most recent Annual Report on Form10-K and the impact of compensation policies and practices on such risk factors, (3) whether additional risks, not previously disclosed as a risk factor, might be created from our compensation policies and practices, and (4) whether any identified risks are reasonably likely to have a material adverse effect on the company. Based on the factors considered by the compensation committee, the committee has concluded that risks arising from our employee compensation policies and practices are not reasonably likely to have a material adverse effect on the company.
Say-on-Pay andSay-on-Frequency
An advisory vote relating to the compensation of our executive officers occurred at the 2014 annual meeting of shareholders. Shareholders indicated strong support of our executive compensation programs, with approximately 98% of votes cast approving, by anon-binding advisory vote, the compensation of our executive officers. In light of this strong support, which we believe demonstrates our shareholders’ satisfaction with the alignment of our executive officers’ compensation with the company’s performance, the compensation committee maintained the same compensation approach for fiscal 2015. In addition, because a substantial majority of the votes cast on oursay-on-frequency proposal were in favor of having asay-on-pay vote every three years, we will hold our nextsay-on-pay vote at the 2017 annual meeting of shareholders.
Process for Determining Compensation of our Executive Officers
The compensation committee is responsible for establishing and administering our policies governing the compensation of executive officers. Our chief executive officer receives a salary and a formulaic quarterly cash bonus pursuant to his employment agreement. He recommends to the compensation committee, after consultation with the other two members of the executive management team, to the compensation committee the amount of base salary, cash bonus, company 401(k) contributions, and equity compensation for the company’s other two executive officers, as well as the amount of his own company 401(k) contribution and equity compensation. The chief executive officer’s recommendations are based on salary surveys, his experience, and the performance of our executive officers and third party salary survey data from McLagan. McLagan has an extensive database on compensation for most investment management companies, including private companies for which information is not otherwise generally available. McLagan summarizes data by position across multiple companies without specifically identifying information for a particular company. We compare our executive positions to what we determine to be positions of similar scope and complexity. We believe this comparative data is useful and appropriate in establishing competitive compensation levels for our executive officers.
The compensation committee does not have any arrangements with compensation
consultants. In recognition of the fact that we are a smaller company, our compensation committee relies upon its business judgment in making compensation decisions for our executive officers. With respect to each area against which our executive officers are evaluated, the compensation committee reviews our performance and each executive officer’s performance during the year against targeted performance and then evaluates whether individual and company-wide goals set during the prior year review were achieved. Specific factors affecting compensation decisions for executive officers include, but are not limited to, the following:
Elements of our Compensation Program
Base Salaries. Base salaries are used to provide a fixed amount of compensation for an executive officer’s regular work. According to the most recent McLagan “2014 Management and Administration Survey” of asset management firms,salary survey, our executive officers’ cash compensation is in the bottom half of all financial services companies participating in the survey. TheBase salaries of all of ourfor executive officers are reviewed annually and may be adjusted from time to time.time by the compensation committee.
At the time of our initial public offering,
Bonuses. Mr. Hennessy receives a quarterly incentive-based bonus pursuant to an employment agreement we entered into an employment agreement with Neil J. Hennessyhim relating to his service as the chairman of the board of directors, president, and chief executive officer of Hennessy Advisors and as chief investment officer and portfolio manager for our mutual funds. On February 21, 2014, we amended and restated the employment agreement which provides for Mr. Hennessy’s continued service as chairman of the board, chief executive officer and president of the company and chief investment officer and portfolio manager for our mutual funds through February 21, 2019, with automatic one-year renewals unless either party gives written notice to the other at least 60 days prior to the expiration of the then-current term.
Under the terms of the employment agreement,Specifically, Mr. Hennessy is entitled to receive an annual base salary of $350,000, which amount may be increased in the board of directors’ sole discretion at the start of each calendar year, to receive certain performance-based incentive awards (as described below) and to participate in our benefit plans. In the event that (a) Mr. Hennessy’s employment is terminated by the company without cause (where cause is defined as felony convictions, willful or gross misconduct, or a material breach of the agreement; but not death or disability) or (b) Mr. Hennessy terminates his employment with the company for good reason (which is defined as a material change in position or alteration of duties), Mr. Hennessy is entitled to receive the greater of (i) his full base salary and 75% of the average annual bonus paid to Mr. Hennessy during the term of his employment for the remaining term in the agreement or (ii) one year’s full base salary and an
allocable bonus. In the event Mr. Hennessy is terminated for cause or voluntarily terminates his employment with the company, no severance will be payable. The board is not increasing Mr. Hennessy’s salary for fiscal year 2015.
Bonuses. Mr. Hennessy receives a quarterly incentive-based bonus pursuant to his employment agreement. The quarterly bonus formula in the amended and restated employment agreement remains the same, as follows: beginning on January 1, 2014, Mr. Hennessy is entitled to receive a quarterly incentive-based bonus in the amount of 10% of the company’s pre-tax profits for each fiscal quarter, as computed for financial reporting purposes in accordance with accounting principles generally accepted in the United States of America, except that pre-tax profit is computed without regard to (A)(1) bonuses payable to employees (including related payroll tax expenses) for the fiscal year, (B)(2) depreciation expense, (C)(3) amortization expense, (D)(4) compensation expense related to restricted stock units (or other stock-based compensation expense) and (E)(5) asset impairment charges (such amount, for each quarter, the “Quarterly Bonus”). The Quarterly Bonus year begins on October 1 of each year and continues until September 30 of the following year (the “Fiscal Year”). With respect to any fiscal quarter in which a Quarterly Bonus is earned, Mr. Hennessy will receivereceives 50% of such Quarterly Bonus within 75 days following the end of such fiscal quarter and the remaining 50% will beis held in a reserve account. If there is a quarterly pre-tax loss (computed in the same manner as pre-tax profit) during any fiscal quarter during the same Fiscal Year, the reserve account will beis reduced by an amount equal to 10% of such pre-tax loss. If there is a positive balance in the reserve account at the end of the Fiscal Year, such positive amount will beis paid to Mr. Hennessy within 75 days following the end of such Fiscal Year. If there is a negative balance in the reserve account at the end of the Fiscal Year, the negative reserve will beis cancelled and is not carried forward into the next Fiscal Year. More information regarding Mr. Hennessy must be an active employeeHennessy’s employment agreement is described below under “Potential Payments Upon Termination or Change of the company when any bonus is paid in order to be eligible to receive such bonus payment.Control.”
Bonuses for our executive officers other than Mr. Hennessy are paid out of a general bonus pool for all employees. The bonus pool in total is set as a percentage of pre-tax profits and therefore fluctuates based on our overall performance. Our executive management team (which is comprised of our three executive officers) determines the percentage amount to be accrued in the bonus pool each year and reviews that percentage amount quarterly based on the current performance of the company. Each executive officer’s (other than Mr. Hennessy’s) portion of the bonus pool is based approximately 40% on individual performance and approximately 60% oncompany-wide performance, as discussed in his or her compensation review. Each year, our executive management team setscompany-wide goals that are then presented to the board. Individual performance objectives are based on customer focus, teamwork, ethics, work product and quality, and attitude. For fiscal year 2014,2015, company-wide objectives wereincluded maintaining profitability, updating theremaining compliant with our bank loan covenants, maintaining and expanding our compliance program, developingmanaging our organizational structure, improving and expanding the distributionour marketing and sales program, hiring opportunistically, and pursuing strategic business opportunities. Because the bonus accrual is based on a percentage of pre-tax profits, the bonus is automatically aligned with our performance.
Equity Awards. We have determinedbelieve that the use of equity awards helps us to maintain a strong association between the compensation of our executive officers and thelong-term interests of our shareholders. Furthermore, we believe that restricted stock units are the most effective equity compensation tool for a company of our size, because restricted stock units can provide the same value to executive officers as stock options, but with less dilution to earnings per share. Because theyAll of our restricted stock unit awards vest over a four-year period, the equity awards are granted as a strategy forwhich we believe provide added incentive to our executive officers to focus onlong-term performance and profitability and which encourage executive retention. TheEach year, following its annual performance review of our executive officers, the compensation committee determines the amount of restricted stock units to award to our executive officers, if any, and sets the equity pool in total is set subjectivelyaggregate amount of restricted stock units to be awarded to employees, if any, on a subjective basis based on our budget limitations for future years. The quantities are adjusted based onyears and the fair valuenumber of shares available for issuance under the equity at the date of grant, which determines the total cost to us. The equity awards are granted annually, if at all, after the compensation committee completes its annual review of our executive officers.company’s Amended and Restated 2013 Omnibus Incentive Plan.
Company 401(k) Contributions. We use 401(k) contributions as a means of compensating and retaining our executive officers while also instilling in them the idea that retirement planning is essential. The company 401(k) contribution is optional from year to year and is awarded to our executive officers on the same basis that it is awarded to all employees. It is not based on performance or goal achievement. The percentage level of the contribution is subjective and is determined by our executive management team annually and approved by the compensation committee with respect to the executive officers.
Severance or Change of Control Agreements. Mr. Hennessy’s employment agreement provides for severancecertain payments inupon the event he is terminated by us for cause or he terminates his employment with us for good reason, as discussed elsewhere in this proxy statement.occurrence of specified events, including termination of employment. We believe that the right to these severance payments provide job security for Mr. Hennessy and allow him to focus on the performance of our company.
We have also entered into bonus agreements with Ms. Nilsen and Mr. Steadman that provide for payments in the event of a change of control, which are described elsewhere in this proxy statement.control. The change of control payments are intended to allow Ms. Nilsen and Mr. Steadman to focus on their performance and to ensure a smooth transition in the event of a change inof control. Ms. Nilsen and Mr. Steadman would be paid with or without termination in the event of a change of control in order forto allow them to stay focused on our best interests and interests of our shareholders in the event a change inof control is anticipated or occurs.
In addition, the restricted stock unit award agreements between the company and each of our executive officers provide that all restricted stock units held by an executive officer will immediately vest in full (1) if the executive officer’s employment terminates as a result of death, disability or retirement at a time when the company would not be able to terminate the executive officer for cause or (2) upon a change of control of the company.
More information regarding these agreements and an estimate of the amount of compensation that would have been payable to our executive officers upon a termination of employment or change of control, as if each such event had occurred on September 30, 2015, is described below under “Potential Payments Upon Termination or Change of Control.”
Pension Benefits. We do not sponsor any pension plans.
Other Compensation. Benefits and perquisites provided to our executive officers are generally the same as those offered to all employees. We pay for a car allowance, premiums on life insurance, and premiums on disability insurance for
Neil J. Hennessy as recommended bypursuant to the terms of his employment agreement. We also pay for club memberships for each of our board of directors.executive officers.
Tax Treatment
. Section 162(m) of the Internal Revenue Code of 1986, as amended, generally limits our income tax deduction for compensation paid in any taxable year to certainour executive officers, excluding our chief financial officer, that exceeds $1,000,000. However, certain forms ofperformance-based compensation are excluded from the $1,000,000 unless suchdeduction limit if certain requirements are met. The compensation falls within certain exceptions. Itcommittee considers the impact of Section 162(m) when determining base salary, cash bonuses, equity awards, and other compensation for our executive officers, but tax deductibility is the policyonly one of several factors considered by the compensation committee that we should usein the design and implementation of our best efforts to cause any compensation paid to executive officers in excess of this dollar limit to qualify for such exceptions and thereby continue to be deductible by us. Theprogram. Therefore, the compensation committee viewsmay approve compensation that will not meet the tax deductibilityrequirements of Section 162(m) in order to ensure competitive compensation levels and structures for our executive compensation as one of the many factors to be considered in the context of its overall compensation objectives.officers.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Table
The following table summarizes the total compensation of our executive officers for the fiscal years ended September 30,2015, 2014 and 2013.
Summary Compensation Table for Fiscal Years 2014 and 2013
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) (1) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation (4) | Total | Year | Salary ($) | Bonus ($) | Stock Awards ($) (1) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation (4) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
Neil J. Hennessy | 2014 | $ | 350,000 | $ | — | $ | 279,750 | $ | — | $ | 1,749,515 | (2) (3) | $ | 58,940 | $ | 2,438,205 | 2015 | $ | 350,000 | $ | — | $ | 367,800 | $ | — | $ | 2,513,299 | (2)(3) | $ | 71,775 | $ | 3,302,874 | ||||||||||||||||||||||||||||||||
President and CEO | 2013 | $ | 350,000 | $ | — | $ | 90,000 | $ | — | $ | 1,171,340 | $ | 50,050 | $ | 1,661,390 | 2014 | $ | 350,000 | $ | — | $ | 279,750 | $ | — | $ | 1,749,515 | $ | 58,940 | $ | 2,438,205 | ||||||||||||||||||||||||||||||||||
2013 | $ | 350,000 | $ | — | $ | 90,000 | $ | — | $ | 1,171,340 | $ | 50,050 | $ | 1,661,390 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Teresa M. Nilsen | 2015 | $ | 300,000 | $ | — | $ | 367,800 | $ | — | $ | 675,000 | $ | 17,265 | $ | 1,360,065 | |||||||||||||||||||||||||||||||||||||||||||||||||
Executive Vice President, CFO, COO and Secretary | 2014 | $ | 250,000 | $ | — | $ | 279,750 | $ | — | $ | 450,000 | $ | 13,000 | $ | 992,750 | 2014 | $ | 250,000 | $ | — | $ | 279,750 | $ | — | $ | 450,000 | $ | 13,000 | $ | 992,750 | ||||||||||||||||||||||||||||||||||
2013 | $ | 225,000 | $ | — | $ | 135,000 | $ | — | $ | 350,000 | $ | 11,563 | $ | 721,563 | 2013 | $ | 225,000 | $ | — | $ | 135,000 | $ | — | $ | 350,000 | $ | 11,563 | $ | 721,563 | |||||||||||||||||||||||||||||||||||
Daniel B. Steadman | 2015 | $ | 225,000 | $ | — | $ | 367,800 | $ | — | $ | 425,000 | $ | 15,784 | $ | 1,033,584 | |||||||||||||||||||||||||||||||||||||||||||||||||
Executive Vice President and Chief Compliance Officer | 2014 | $ | 200,000 | $ | — | $ | 279,750 | $ | — | $ | 300,000 | $ | 10,313 | $ | 790,063 | 2014 | $ | 200,000 | $ | — | $ | 279,750 | $ | — | $ | 300,000 | $ | 10,313 | $ | 790,063 | ||||||||||||||||||||||||||||||||||
2013 | $ | 170,000 | $ | — | $ | 90,000 | $ | — | $ | 225,000 | $ | 8,875 | $ | 493,875 | 2013 | $ | 170,000 | $ | — | $ | 90,000 | $ | — | $ | 225,000 | $ | 8,875 | $ | 493,875 |
(1) | The amounts in this column include the aggregate grant date fair value, computed in accordance with FASB ASC Topic 718 |
(2) | Mr. Hennessy receives an incentive-based |
(3) | Mr. Hennessy’s bonus is 10% of our pre-tax profit. The pre-tax profits for fiscal year |
(4) | All other compensation for fiscal year 2015 for Neil J. Hennessy includes premiums on life insurance ($ |
Grants ofPlan-Based Awards in Fiscal Year 2015
The following table sets forth information regarding grants of plan-based awards granted in fiscal year 2015 to each of our executive officers.
Estimated Future Payouts | Estimated Future Payouts | All Other Stock | Grant Date Fair | |||||||||||||||||
Under Non-Equity | Under Equity Incentive | Awards: Number of | Fair Value of | |||||||||||||||||
Grant | Incentive Plan Awards | Plan Awards | Shares of Stock | Stock and Option | ||||||||||||||||
Name | Date | Target ($) (1) | Target ($) | or Units (#) (2) | Awards | |||||||||||||||
Neil J. Hennessy | ||||||||||||||||||||
President and CEO | 9/17/2015 | $ | 1,256,650 | $ | — | 15,000 | $ | 367,800 | ||||||||||||
Teresa M. Nilsen | ||||||||||||||||||||
Executive Vice President, CFO, COO and Secretary | 9/17/2015 | $ | — | $ | — | 15,000 | $ | 367,800 | ||||||||||||
Daniel B. Steadman | ||||||||||||||||||||
Executive Vice President and Chief Compliance Officer | 9/17/2015 | $ | — | $ | — | 15,000 | $ | 367,800 |
(1) | Mr. Hennessy receives an incentive-based bonus in the amount of 10% of our pre-tax profits before any bonuses, depreciation expense, amortization expense, compensation expense related to restricted stock units (or other stock-based compensation expense) and asset impairment charges for the fiscal year, as computed for financial reporting purposes in accordance with accounting principles accepted in the United States. For a discussion of the terms of Mr. Hennessy’s employment agreement, refer to page 19. |
(2) | Each executive officer was granted units of restricted stock with a zero exercise price on the grant date specified. The units will vest at a rate of 25% per year over four years. The fair value of the stock award per share on the date of grant was $24.52 based on the closing price of our common stock on the date of grant of 9/17/2015. |
Outstanding Equity Awards at Fiscal Year-End 20142015
The following table sets forth the outstanding equity awards held by our executive officers at September 30, 2014.
Outstanding Equity Awards at Fiscal Year-End 20142015.
Option Awards | Stock Awards (1) | |||||||||||||||||||||||||||||||||||||||||||
Number of | Number of | Number of | ||||||||||||||||||||||||||||||||||||||||||
Securities | Securities | Shares or | Market Value | |||||||||||||||||||||||||||||||||||||||||
Underlying | Underlying | Option | Units of | of Shares or | ||||||||||||||||||||||||||||||||||||||||
Unexercised | Unexercised | Exercise | Option | Stock That | Units of Stock | |||||||||||||||||||||||||||||||||||||||
Option Awards | Stock Awards (1) | Options (#) | Options (#) | Price | Expiration | Have Not | That Have Not | |||||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Exercisable | Unexercisable | ($) | Date | Vested (#) | Vested ($) | ||||||||||||||||||||||||||||||||
Neil J. Hennessy | ||||||||||||||||||||||||||||||||||||||||||||
President and CEO | — | — | $ | — | 22,500 | (2) | $ | 447,300 | — | — | $ | — | 31,250 | (2) | $ | 742,500 | ||||||||||||||||||||||||||||
Teresa M. Nilsen | ||||||||||||||||||||||||||||||||||||||||||||
Executive Vice President, | ||||||||||||||||||||||||||||||||||||||||||||
CFO, COO and Secretary | — | — | $ | — | 26,250 | (3) | $ | 521,850 | ||||||||||||||||||||||||||||||||||||
Executive Vice President, CFO, COO and Secretary | — | — | $ | — | 33,750 | (3) | $ | 801,900 | ||||||||||||||||||||||||||||||||||||
Daniel B. Steadman | ||||||||||||||||||||||||||||||||||||||||||||
Executive Vice President and | ||||||||||||||||||||||||||||||||||||||||||||
Chief Compliance Officer | — | — | $ | — | 22,500 | (2) | $ | 447,300 | ||||||||||||||||||||||||||||||||||||
Executive Vice President and Chief Compliance Officer | — | — | $ | — | 31,250 | (2) | $ | 742,500 |
(1) | Stock awards are units of restricted stock with a zero exercise price. The units vest at a rate of 25% per year over four years. Restricted stock units do not earn dividends or dividends equivalents. The market value of restricted stock units that have not vested are calculated as the number of unvested units times the fair market value of |
(2) | The non-vested awards have the following vesting |
(3) | The non-vested awards have the following vesting |
Option Exercises and Stock Vested in Fiscal Year 2015
The following table sets forth the number of options exercised by and amount of stock vested in fiscal year 2015 for each of our executive officers.
Option Awards | Stock Awards (1) | |||||||||||||||
Number of | Number of | |||||||||||||||
Shares Acquired | Value Realized | Shares Acquired | Value Realized | |||||||||||||
on Exercise | on Exercise | on Vesting | on Vesting | |||||||||||||
Name | (#) | ($) | (#) | ($) | ||||||||||||
Neil J. Hennessy | ||||||||||||||||
President and CEO | — | $ | — | 6,250 | $ | 152,375 | ||||||||||
Teresa M. Nilsen | ||||||||||||||||
Executive Vice President, CFO and Secretary | — | $ | — | 7,500 | $ | 183,375 | ||||||||||
Daniel B. Steadman | ||||||||||||||||
Executive Vice President and Chief Compliance Officer | — | $ | — | 6,250 | $ | 152,375 |
(1) | Stock awards are units of restricted stock with a zero exercise price. The units vest at a rate of 25% per year over four years. Restricted stock units do not earn dividends or dividends equivalents. The market value of restricted stock units that have vested are calculated as the number of vested units times the fair market value of $24.80 per share at 9/16/ |
Potential Payments Upon Termination or Change-In-Control
Neil J. HennessyChange of Control
TheUnder the terms of the restricted stock unit award agreements between the company and each of our executive officers, the employment agreement with Neil J. Hennessy statesand the bonus agreements with Teresa M. Nilsen and Daniel B. Steadman, our executive officers are entitled to certain compensation in the event of a termination of employment or a change of control of the company. The amount of compensation payable to each executive officer upon the occurrence of certain specified events is set forth in the tables below.
Neil J. Hennessy.The following table sets forth potential payments upon a termination of employment of Neil J. Hennessy or change of control of the company.
Resignation by | ||||||||||||||||||||||||||||
Resignation by | Executive | Without Cause | For Cause | |||||||||||||||||||||||||
Executive for | Without Good | Termination by | Termination by | Change of | ||||||||||||||||||||||||
Good Reason | Reason | the Company | the Company | Death | Disability | Control | ||||||||||||||||||||||
Neil J. Hennessy | ||||||||||||||||||||||||||||
Base Salary | $ | 1,188,082 | $ | — | $ | 1,188,082 | $ | — | $ | — | $ | 13,462 | $ | — | ||||||||||||||
Bonus | $ | 4,678,955 | $ | — | $ | 4,678,955 | $ | — | $ | 378,247 | $ | 378,247 | $ | — | ||||||||||||||
Restricted Stock Units (1) | $ | 741,563 | $ | 741,563 | $ | 741,563 | $ | — | $ | 741,563 | $ | 741,563 | $ | 741,563 | ||||||||||||||
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Total | $ | 6,608,600 | $ | 741,563 | $ | 6,608,600 | $ | — | $ | 1,119,810 | $ | 1,133,272 | $ | 741,563 |
(1) | The values in this row are based on the closing price of our common stock on 9/30/15, which was $23.73. |
Employment Agreement
At the time of our initial public offering, we entered into an employment agreement with Mr. Hennessy. On February 21, 2014, we amended and restated the employment agreement, which provides for Mr. Hennessy’s continued service as the chairman of the board of directors, chief executive officer and president of the company and chief investment officer and portfolio manager for our mutual funds through February 21, 2019, with automatic one-year renewals unless either party gives written notice to the other at least 60 days prior to the expiration of the then-current term.
Under the terms of his employment agreement, Mr. Hennessy is entitled to (1) an annual base salary of $350,000, which amount may be increased in the board of directors’ sole discretion at the start of each calendar year, (2) certain performance-based incentive awards (as described above) and (3) participate in our benefit plans. In the event that termination(A) Mr. Hennessy’s employment is terminated by usthe company without cause (where cause is defined as felony convictions, willful or gross misconduct, or a material breach of the employment agreement; but not death or disability) or termination by(B) Mr. Hennessy terminates his employment with the company for good reason, (whichMr. Hennessy is definedentitled to receive alump-sum payment within 30 days of the termination date (except to the extent payment is required to be delayed pursuant to Section 409A of the Internal Revenue Code of 1986, as a material change in position or alteration of duties) entitles Mr. Hennessyamended) equal to the greater of (i) the sum of his full base salary and 75% of the average annual bonus (annualized with respect to any partial period bonus) actually paid to Mr. Hennessy for each year or partial year of service during the term of his most recent employment foragreement, multiplied by the number of years (or portion thereof) left in the remaining term inof the contractagreement and (ii) one year’s full base salary and an allocable75% of the average annual bonus (as measured above).(annualized with respect to any partial period bonus) actually paid to Mr. Hennessy for each year or partial year of service during the term of his most recent employment agreement. In the event Mr. Hennessy is terminated for cause or voluntarily terminates his employment with the company without good reason, no severance will be payable.
If the employment agreement terminates as a changeresult of control occurs (defineddeath or disability, Mr. Hennessy is entitled to all bonuses earned or accrued as of the date of termination. Furthermore, in the case of disability, Mr. Hennessy is also entitled to continue receiving his base salary and benefits until the date he begins receiving benefits under a disability plan or policy, but in no event greater than three months.
In the event of a sale, transfer or other disposition of all or substantially all of our assets or business, whether by merger, consolidation or otherwise),otherwise, we may assign the employment agreement and its rights, provided that the assigneesuccessor assumes all of our obligations.
The employment agreement defines the terms listed below as follows:
Teresa M. Nilsen
Agreements
provided, in either case, that (1) Mr. Hennessy provides notice to the company of the existence of the condition constituting good reason within 90 days of its initial existence and (2) allows the company 30 days to remedy the condition.
Restricted Stock Unit Award Agreements
The restricted stock unit award agreements between the company and each of our executive vice president, chief financialofficers provide that all restricted stock units held by an executive officer and chief operatingwill immediately vest in full (1) if the executive officer’s employment terminates as a result of death, disability or retirement at a time when the company would not be able to terminate the executive officer and Daniel B. Steadman, executive vice president and chief compliance officer, definefor cause or (2) upon a change of control of the company.
The Amended and Restated 2013 Omnibus Incentive Plan, under which the restricted stock unit award agreements are issued, defines the terms listed below as follows: