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Section 1: DEF 14A

 

 

 

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. )

 

Filed by the Registrant [X]
   
Filed by a Party other than the Registrant [  ]

 

Check the appropriate box:

 

  [  ] Preliminary Proxy Statement
     
  [  ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6 (e)(2))
     
  [X] Definitive Proxy Statement
     
  [  ] Definitive Additional Materials
     
  [  ] Soliciting Material Pursuant to §240.14a-12

 

Monmouth Real Estate Investment Corporation

(Name of Registrant as Specified in Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

[X] No fee required.
   
[  ] Fee computed on table below per Exchange Act rules 14a-6(i)(1) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:
     
  (2) Aggregate number of securities to which transaction applies:
     
  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
     
  (4) Proposed maximum aggregate value of transaction:
     
  (5) Total fee paid:

 

[  ] Fee paid previously with preliminary materials.
   
[  ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing

 

  (1) Amount previously paid:
     
  (2) Form, Schedule or Registration Statement No.:
     
  (3) Filing Party:
     
  (4) Date Filed:

 

 

 

   
   

 

A Public REIT Since 1968

 

 

Monmouth Real Estate Investment Corporation

Juniper Business Plaza, 3499 Route 9 North, Suite 3-D

Freehold, New Jersey 07728

 

 

Notice of 2017 Annual Meeting of Shareholders

May 18, 2017

4:00 p.m. Eastern Time

 

 

Notice is hereby given that the 2017 Annual Meeting of Shareholders (the “2017 Annual Meeting”) of Monmouth Real Estate Investment Corporation, a Maryland corporation (the “Company”) will be held on Thursday, May 18, 2017, at 4:00 p.m., Eastern Time, at Juniper Business Plaza, 3499 Route 9 North, Suite 3-D, Freehold, New Jersey, to consider and vote on the following matters, each as more fully described in the accompanying proxy statement:

 

Items of Business

 

  1. The election of four Class II directors, each to hold office until the Company’s annual meeting of shareholders in 2020 and until his successor is duly elected and qualifies;
     
  2. The ratification of the appointment of PKF O’Connor Davies, LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2017;
     
  3. The amendment and restatement of the Company’s 2007 Stock Option and Stock Award Plan, as amended;
     
  4. An advisory resolution to approve the compensation of the Company’s executive officers for the fiscal year ended September 30, 2016;
     
  5. The advisory approval of the frequency of advisory votes on executive compensation; and
     
  6. Such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof.

 

Record Date

 

The Board of Directors of the Company has fixed the close of business on March 14, 2017, as the record date for the determination of shareholders entitled to notice of, and to vote at, the 2017 Annual Meeting and any adjournments or postponements thereof.

 

EVEN IF YOU PLAN TO BE PRESENT IN PERSON, YOU SHOULD AUTHORIZE A PROXY TO VOTE YOUR SHARES PRIOR TO THE MEETING USING THE METHODS DETAILED ON PAGE 14 OF THIS PROXY STATEMENT.

 

  BY ORDER OF THE BOARD OF DIRECTORS
   
  Michael D. Prashad
  In-House Counsel and Secretary

 

March 31, 2017

YOUR VOTE IS IMPORTANT. PLEASE VOTE.

 

 
   

 

A Public REIT Since 1968

 

 

Monmouth Real Estate Investment Corporation

Juniper Business Plaza, 3499 Route 9 North, Suite 3-D

Freehold, New Jersey 07728

 

 

PROXY STATEMENT

2017 Annual Meeting of Shareholders

May 18, 2017, 4:00 p.m. Eastern Time

 

 

SOLICITATION OF PROXIES

 

 

This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Monmouth Real Estate Investment Corporation, a Maryland corporation (the “Company”), of proxies to be voted at the 2017 Annual Meeting of Shareholders of the Company (the “Annual Meeting”) to be held on Thursday, May 18, 2017, at 4:00 p.m., Eastern Time, at the offices of the Company at Juniper Business Plaza, 3499 Route 9 North, Suite 3-D, Freehold, New Jersey 07728, and at any adjournments or postponements thereof, for the purposes listed in the preceding Notice of Annual Meeting of Shareholders. This Proxy Statement and the accompanying Proxy Card are being distributed on or about March 31, 2017, to shareholders of record as of the close of business on March 14, 2017. Unless the context requires otherwise, references in this Proxy Statement to “Monmouth”, “we”, “our”, “us” and the “Company” refer to Monmouth Real Estate Investment Corporation and its consolidated subsidiaries.

 

A copy of the Company’s annual report, including financial statements, was mailed to all shareholders of record on or about February 14, 2017, and is available on the Company’s website at www.mreic.reit.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON MAY 18, 2017

 

Under rules adopted by the U.S. Securities and Exchange Commission (the “SEC”), you are able to obtain proxy materials via the Internet, instead of being mailed printed copies of those materials. This will expedite shareholders’ receipt of proxy materials, lower the cost of the annual meeting, and help conserve natural resources. Please visit the website www.proxyvote.com to view electronic versions of proxy materials and the Company’s 2016 Annual Report, and to request electronic delivery of future proxy materials. Have your Proxy Card or Notice of Internet Availability in hand when you access the website and follow the instructions. You will need your 12-digit Control Number, which is located on your Proxy Card or Notice of Internet Availability. Shareholders also may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.

 

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Proxy Statement Summary

 

This summary highlights the proposals to be voted upon, as well as financial performance, equity compensation plan, executive compensation, and corporate governance information described in more detail elsewhere in this Proxy Statement.

 

Annual Meeting Proposals

 

  Proposal   Recommendation of
the Board
       
       
  1. Election of Directors   FOR each of the nominees
       
       
  2. Ratification of Independent Registered Public Accounting Firm   FOR
       
       
  3. Approval of the Amended and Restated 2007 Incentive Award Plan   FOR
       
       
  4. Say-on-Pay:
   Advisory Vote to Approve 2016 Executive Compensation
  FOR
       
       
  5. Say-on-Frequency:
   Advisory Vote on Frequency of Say-on-Pay Votes
  1 Year
       

 

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Financial Performance Highlights

 

Fiscal year ended September 30, 2016 was another excellent year for Monmouth. Our industrial property portfolio performed exceptionally well, achieving a 99.6% occupancy rate and a 100% tenant retention rate. We believe that this past year represented one of the most productive years ever in our long history as a public REIT. To highlight some of our many accomplishments, the Company:

 

       
  Increased the Company’s quarterly common stock dividend by 6.7%, to $0.16 per share from $0.15 per share, representing an annualized dividend rate of $0.64 per share, resulting in the Company maintaining or increasing its cash dividend for twenty-five consecutive years  
       
  Achieved $1.8 billion in total market capitalization as of September 30, 2016 resulting in year over year growth of 53% in fiscal 2016  
       
  Achieved a 55% total shareholder return for fiscal 2016  
       
  Achieved 15% year over year growth in gross leasable area with over 16.0 million total rentable square feet in fiscal 2016  
       
  Generated 6.9% year over year, per diluted share growth in Net Income Attributable to Common Shareholders in fiscal 2016  
       
  Generated 23% year over year growth in adjusted funds from operation (“AFFO”) per diluted share in fiscal 2016. AFFO per diluted share growth has been over 10% per year for three consecutive years. See Financial Information for a discussion of our non-GAAP performance measures.  
       
  Located and acquired eight, brand new, Class A industrial properties totaling approximately 1,830,000 square feet as per its investment strategy without placing undue burden on liquidity  
       
  During the fiscal years ended September 30, 2014, 2015 and 2016, completed fifteen property expansions totaling $52.5 million, generating over $5.2 million in additional rental revenue and, subsequent to fiscal yearend, on October 1, 2016, completed one additional property expansion for $5.0 million, which will generate additional rental revenue of approximately $500,000  
       
  Entered into commitments to acquire nine industrial properties in fiscal 2017 and fiscal 2018, of which two were acquired subsequent to fiscal yearend  
       
  On September 13, 2016, closed an offering of the Company’s 6.125% Series C Cumulative Redeemable Preferred Stock, raising $135 million in gross proceeds  
       
  Raised approximately $72.2 million through the Company’s Dividend Reinvestment and Stock Purchase Plan (the “DRIP”) during fiscal 2016  
       
  Renewed all three leases that were scheduled to expire in fiscal 2016, resulting in a 100% tenant retention rate and on terms resulting in an increase in the weighted average lease rate of 5.3% on a U.S. GAAP basis  
       
  Achieved 99.6% occupancy as of September 30, 2016, increasing to 100% currently  
       
  Increased and extended the unsecured revolving credit facility from $130 million to $200 million with a $100 million accordion feature, bringing the total potential availability to $300 million  
       

 

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Equity Compensation Plan Highlights

 

Shareholder Approval of Company’s Amended and Restated 2007 Incentive Award Plan

 

On March 13, 2017, the Company’s Board of Directors approved an amendment and restatement to the Company’s 2007 Stock Option and Stock Award Plan, as amended (the “Original Plan”), conditioned upon shareholder approval. The Board recommends shareholders vote FOR the proposal to approve the Plan. The amendment and restatement of the Original Plan, which changes the name of the plan to the Amended and Restated 2007 Incentive Award Plan (the “Plan”), extends the term of the Original Plan for an additional ten years, adds 1.6 million shares of our Common Shares to the share reserve, expands the types of awards available for grant under the Plan and makes other improvements to the Original Plan. The Plan is intended to, among other things, promote the success and enhance the value of the Company by linking the individual interests of its Directors, Employees, and Consultants (as defined in the Plan) to those of Company shareholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company shareholders.

 

The Plan includes provisions that are designed to protect our shareholders’ interests and to reflect corporate governance best practices, including:

 

  Repricing not allowed without shareholder approval
  Shareholder approval required for additional shares
  Minimum vesting provision
  No discounted stock options or stock appreciation rights
  Reasonable share counting provisions
  Limits on compensation
  Size of share reserve request is reasonable

 

Since the approval of the Original Plan in 2007, the Company has generated a 10-year total shareholder return of approximately 257%, outperforming the S&P 500 and the MSCI US REIT Index by a wide margin.

 

 

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The Company’s equity market capitalization has also grown substantially, from approximately $201.6 million, as of September 30, 2007, to approximately $1 billion as of March 14, 2017. In addition, over the last 5-year period, the Company’s total market capitalization has grown approximately 119% from 2012 through 2016 fiscal yearend.

 

 

As of the close of business on March 14, 2017, the Company had 71,430,729 Common Shares outstanding and, when the Original Plan expired on March 26, 2017, 164,878 Common Shares remained available for grant under the Original Plan. The Plan, if approved by the Company’s shareholders, will provide an additional 1,600,000 shares, for a total of 1,764,878 Common Shares available for future grant of stock options, restricted stock, or other equity based awards, plus any shares subject to outstanding options that expire or are forfeited without being exercised. The additional Common Shares under the Plan represent approximately 2.24% of the Company’s total outstanding Common Shares as of March 14, 2017.

 

To further the success and growth of the Company attributable, in part, to the Original Plan, the Board recommends that the Company’s shareholders vote FOR the proposal to approve the Plan.

 

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Say-on-Pay: Executive Compensation Highlights

 

At the Annual Meeting, the Company’s shareholders will have the opportunity to consider and vote on an advisory say-on-pay proposal, to approve the compensation of our executive officers for the fiscal year ended September 30, 2016, as described more fully in this Proxy Statement. Our executive compensation program is designed to be simple, effective, and link pay to performance, while reflecting the size, scope, and success of Monmouth’s business, as well as the responsibilities of our executive officers. While there are many factors that our shareholders consider in executive compensation, ultimately our shareholders value economic performance.

 

Pay for Performance: Total Shareholder Return

 

Since 1968, Monmouth has delivered consistent and reliable returns for its shareholders. Over the last 10 years, Monmouth has outperformed the MSCI US REIT Index by a wide margin of over three times. Our total shareholder return (“TSR”) over the last 10 fiscal years was 255.6%. TSR includes both dividends reinvested and stock price appreciation. Historically, REIT dividends have accounted for approximately 65% of total shareholder return. We believe that it is essential that dividends be factored into evaluating a REIT’s economic performance. Our dividend has proven to be very reliable because our industrial properties are predominantly subject to long-term net leases to investment-grade tenants or their subsidiaries. We are proud to report that we have maintained or increased our dividend for 25 consecutive years. We are one of few REITs that maintained its dividend throughout the Global Financial Crisis. We are also one of the few REITs that is paying out a higher per share dividend today than prior to the Global Financial Crisis.

 

Comparable REITs

 

In order to help our shareholders fairly evaluate the Company’s executive compensation program in light of our relative economic performance, our management has identified a group of REITs with similar equity market capitalization, ranging between $750 million and $2.5 billion, and/or REITs that operate within the industrial REIT sector and with whom we compete for talent. These REITs (the “Comparable REITs”) are:

 

  Agree Realty Corporation
  EastGroup Properties, Inc.
  Getty Realty Corporation
  Rexford Industrial Realty, Inc.
  Stag Industrial, Inc.
  Terreno Realty Corporation
  Urstadt Biddle Properties, Inc.

 

Information about the Comparable REITs is presented here solely to assist the shareholders in evaluating the Company’s performance and compensation programs in connection with the say-on-pay vote, and the Comparable REITs were not identified or used by our Compensation Committee in setting or evaluating the compensation of our named executive officers.

 

The following charts illustrate the Company’s strong outperformance over the 1, 3, 5 and 10 year periods as compared to the Comparable REITs and the MSCI US REIT Index. Total Return Performance is calculated based on the Company’s 2016 fiscal year ending September 30.

 

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   Total Return Performance 
   1 Year   3 Year   5 Year   10 Year 
MNR   54.78%   87.33%   141.48%   255.61%
Comparable REITs   49.18%   54.08%   152.88%   128.20%
RMS   19.83%   48.58%   108.10%   82.79%

 

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Getting More for Less

 

While Monmouth has outperformed its peers and delivered exceptional results for its shareholders, its Chief Executive Officer’s total compensation for 2016 was less than 50% of the average total compensation of chief executive officers of the Comparable REITs.

 

2016 Monmouth CEO Total Compensation vs. Average CEO Total Compensation of Comparable REITs*

 

 

 

*The compensation data used for comparison purposes was obtained from the most recent filings for the Comparable REITs. For Comparable REITs that employed two chief executive officers, the Company used the compensation data of only one chief executive officer for the applicable Comparable REIT(s).

 

Total executive compensation of the Company also fell in the lowest range (25th percentile) within the REIT industry based upon the 2016 Compensation Survey published by NAREIT.

 

The Company continues to efficiently manage its general and administrative expenses. General and administrative expenses, as a percentage of gross revenue, (which includes rental revenue, reimbursement revenue and dividend and interest income), remains low, at only 8% for fiscal years 2016 and 2015, as does general and administrative expenses, as a percentage of undepreciated assets (which is the Company’s total assets excluding accumulated depreciation), at a very reasonable 58 basis points and 61 basis points for the fiscal years 2016 and 2015, respectively.

 

In light of the above, as well as other information provided in this Proxy Statement, the Board recommends the Company’s shareholders vote FOR the Say-on-Pay proposal.

 

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Corporate Governance Highlights

 

Publicly traded since 1968, Monmouth Real Estate Investment Corporation is one of the oldest publicly-traded equity REITs in the world. Our longevity is the direct result of being patient and conservative stewards of capital. The Board’s decision-making process is guided by an appreciation for all that has been built in the past and a focus on continuing to create sustainable long-term value for the Company and its shareholders for many years to come.

 

Our Board believes that effective corporate governance should include regular constructive discussions with our shareholders. We have a proactive engagement process that encourages feedback from our shareholders. This feedback helps shape our governance practices.

 

Some corporate governance highlights are as follows:

 

  Lead Independent Director: Our Board of Directors has identified a lead independent director.
     
  Independent Board of Directors: A majority of the Company’s directors are independent within the meaning of SEC rules and the listing standards of the New York Stock Exchange. At least one of the Company’s directors qualifies as an “audit committee financial expert” under applicable SEC rules and all committee members are independent under applicable NYSE and SEC rules for committee membership. The Company’s independent directors meet in executive session at least annually.
     
  Substantial Insider Ownership: Management’s Interests Are Aligned with Shareholder Interests. The aggregate stock ownership of Company directors and executive officers represents approximately 5.3% of the Company’s shares, which currently represents the third largest block of shareholders behind two institutional investors and helps align our management’s interests with our shareholders’ interests.
     
  CEO Stock Ownership Requirements. The Chief Executive Officer of the Company is required to own Common Shares having a value equal to at least six times his base salary and is well within compliance with these requirements, currently owning in excess of 2.5 times the ownership requirement as of fiscal yearend.
     
  Annual Assessment of Compensation. The Company annually assesses its compensation policies to determine whether such policies encourage excessive risk taking.
     
  Annual Say-on-Pay Frequency. The Board, on the recommendation of its Nominating Committee, recommends that the frequency of future non-binding votes on executive compensation take place on an annual basis.
     
  Anti-Hedging Policy. The Company prohibits the purchase or sale of puts, calls, options or other derivative securities based on the Company’s securities by directors, officers or employees. Our policy also prohibits hedging or monetization transactions, such as forward sale contracts, in which the shareholder continues to own the underlying Company security without all the risks or rewards of ownership.
     
  No Poison Pill: We have not adopted a shareholder rights plan.
     
  Shareholder Consent Requirements for Amendments to Incentive Awards. The Plan approved by the Board of Directors and proposed for approval by shareholders at the Annual Meeting prohibits the repricing or buyout of options and stock appreciation rights without shareholder consent.

 

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FREQUENTLY ASKED QUESTIONS ABOUT THE ANNUAL MEETING

 

Why am I receiving this Proxy Statement?

 

You are receiving these materials because you owned shares of our Company’s common stock (sometimes referred to herein as “Common Shares”) as a “registered” shareholder or you held Common Shares in “street name” at the close of business on March 14, 2017, the record date for the Annual Meeting, and that entitles you to vote at our Annual Meeting to be held at 4:00 p.m., local time, on Thursday, May 18, 2017, at the offices of the Company at Juniper Business Plaza, 3499 Route 9 North, Suite 3-D, Freehold, New Jersey 07728, or any postponements or adjournments of such meeting, for the purposes set forth in the Notice of 2017 Annual Meeting of Shareholders. This Proxy Statement contains information related to the solicitation of proxies for use at the Annual Meeting.

 

Who is soliciting my proxy?

 

This solicitation of proxies is made by and on behalf of our Board of Directors. We will pay the costs of soliciting proxies, which will consist primarily of the cost of printing, postage and handling. In addition to soliciting proxies by mail, our officers, directors and other employees, without additional compensation, may solicit proxies personally or by other appropriate means. It is anticipated that banks, brokers, fiduciaries, custodians and nominees will forward proxy soliciting materials to their principals, and that we will reimburse these persons’ out-of-pocket expenses.

 

The Company has also retained Okapi Partners LLC (“Okapi”), a proxy solicitation firm, to assist in the distribution of proxy materials and the solicitation of proxies from brokerage firms, banks, broker-dealers, and other similar organizations representing beneficial owners of shares for the Annual Meeting. We have agreed to pay Okapi a fee of approximately $25,000, plus out-of-pocket expenses. You may contact Okapi at (877)-629-6355.

 

What is the difference between a “registered” shareholder and a shareholder holding shares in “street name?”

 

If your Common Shares are registered directly in your name with American Stock Transfer & Trust Company, LLC (“AST”), our transfer agent, you are a “registered” shareholder. If you own Common Shares through a broker, bank, trust or other nominee rather than in your own name, you are the beneficial owner of the Common Shares, but considered to be holding the Common Shares in “street name.”

 

Who can attend the Annual Meeting?

 

All of our common shareholders of record as of the close of business on March 14, 2017, the record date for the Annual Meeting, or individuals holding their duly authorized proxies, may attend the Annual Meeting. You should be prepared to present photo identification for admittance. Appointing a proxy in response to this solicitation will not affect a shareholder’s right to attend the Annual Meeting and to vote in person. Please note that if you hold your Common Shares in “street name” (that is, through a broker, bank or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the close of business on March 14, 2017, the record date for the Annual Meeting, to gain admittance to the Annual Meeting.

 

Who may vote?

 

You may vote if you owned Common Shares at the close of business on March 14, 2017, which is the record date for the Annual Meeting. You are entitled to cast one vote for as many individuals as there are directors to be elected at the Annual Meeting and to cast one vote on each other matter presented at the Annual Meeting for each Common Share that you owned as of the record date. Cumulative voting is not permitted in the election of directors. 

 

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What is a quorum for the Annual Meeting?

 

As of the close of business on March 14, 2017, we had 71,430,729 Common Shares outstanding. In order to conduct a meeting, shareholders entitled to cast a majority of the votes entitled to be cast at the Annual Meeting must be present in person or by proxy. No business may be conducted at the Annual Meeting if a quorum is not present. If you submit a properly executed Proxy Card or authorize a proxy by telephone or via the Internet, you will be considered part of the quorum. Abstentions and broker “non-votes” will be counted as present and entitled to vote for purposes of determining a quorum. A broker “non-vote” results when a bank, broker or other nominee who holds shares for another person has not received voting instructions from the owner of the shares and, under the applicable rules, does not have discretionary authority to vote on a matter.

 

What am I voting on?

 

At the Annual Meeting, you may consider and vote on:

 

  1. The election of four Class II directors, each to serve until the 2020 annual meeting of shareholders and until his respective successor is duly elected and qualifies;
     
  2. A proposal to ratify the appointment of PKF O’Connor Davies, LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2017;
     
  3. A proposal to approve the Amended and Restated 2007 Incentive Award Plan;
     
  4. A proposal to approve the following resolution (the “Say-on-Pay” proposal):
     
    RESOLVED, that the shareholders approve, on an advisory basis, the compensation of the Corporation’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation, Discussion and Analysis, the compensation tables and narrative discussion in the Proxy Statement;
     
  5. A proposal to approve, on an advisory basis, the frequency of future Say-on-Pay proposals; and
     
  6. Any other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

 

We are not aware of any other business, other than procedural matters relating to the Annual Meeting or the proposals listed above, that may properly be brought before the Annual Meeting. Once the business of the Annual Meeting is concluded, members of management will respond to questions raised by shareholders, as time permits.

 

What are the Board’s recommendations?

 

The Board recommends a vote:

 

  FOR the election of each nominee named in this Proxy Statement for election as a Class II director (Proposal No. 1);
     
  FOR the ratification of the appointment of PKF O’Connor Davies, LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2017 (Proposal No. 2);
     
  FOR the approval of the Amended and Restated 2007 Incentive Award Plan (Proposal No. 3);

 

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  FOR the approval of the Say-on-Pay proposal (Proposal No. 4);
     
  FOR ONE-YEAR as the frequency of future Say-on-Pay proposals (Proposal No. 5).

 

Unless you give other instructions on your Proxy Card, the persons named as proxy holders on the Proxy Card will vote in accordance with the recommendations of the Board.

 

How many votes are needed to approve each of the proposals assuming that a quorum is present at the Annual Meeting?

 

Proposal 1: Election of Directors: The election of a director nominee must be approved by a plurality of the votes cast in the election of directors.

 

Proposal 2: Approval of the ratification of the appointment of PKF O’Connor Davies, LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2017 requires the affirmative vote of a majority of the votes cast on the proposal.

 

Proposal 3: Approval of the Amended and Restated 2007 Incentive Award Plan requires the affirmative vote of a majority of the votes cast on the proposal.

 

Proposal 4: Approval of the Say-on-Pay proposal requires the affirmative vote of a majority of the votes cast on the proposal.

 

Proposal 5: The frequency of “one year”, “two years” or “three years” that receives the greatest number of votes with respect to the frequency of future Say-on-Pay proposals will indicate the shareholders’ preference.

 

If you are a shareholder of record as of the record date for the Annual Meeting and you authorize a proxy (whether by Internet, telephone or mail) without specifying voting instructions on any matter to be considered at this Annual Meeting, the proxy holders will vote your shares according to the Board’s recommendation on that matter and in their discretion on any other matter that may properly come before the Annual Meeting.

 

If you are a shareholder of record as of the record date for the Annual Meeting and you fail to authorize a proxy or attend the meeting and vote in person, assuming that a quorum is present at the Annual Meeting, it will have no effect on the result of the vote on any of the matters to be considered at the Annual Meeting.

 

If you hold your shares through a broker, bank or other nominee, under the rules of the New York Stock Exchange (“NYSE”), your broker or other nominee may not vote with respect to certain proposals unless you have provided voting instructions with respect to that proposal. As noted above, this is referred to as a broker “non-vote.” A broker non-vote is not considered a vote cast on a proposal and broker non-votes will have no effect on the vote on any of the matters to be considered at the Annual Meeting. If you hold your shares in a brokerage account, then, under NYSE rules and Maryland law, your broker is entitled to vote your shares on Proposal No. 2 (Ratification of Independent Registered Public Accounting Firm) if no instructions are received from you, but your broker is not entitled to vote on Proposal No. 1 (Election of Directors), Proposal No. 3 (Approval of Equity Compensation Plan), Proposal No. 4 (Say-on-Pay), and Proposal No. 5 (Say-on-Frequency), without specific instructions from you. If you instruct your proxy or broker to “abstain” on any matter, it will have no effect on the approval of any of the matters to be considered at the Annual Meeting.

 

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How do I vote?

 

If you plan to attend the Annual Meeting and wish to vote in person, we will give you a ballot at the Annual Meeting. However, if your Common Shares are held in the name of your broker, bank or other nominee, and you want to vote in person, you will need to obtain a legal proxy from the institution that holds your Common Shares.

 

If your Common Shares are held of record in your name, there are three ways for you to authorize a proxy:

 

  By Telephone or on the Internet – You can authorize a proxy by calling the toll-free telephone number on your Proxy Card or Notice of Internet Availability. Please have your Proxy Card or Notice of Internet Availability in hand when you call. Easy-to-follow voice prompts allow you to authorize a proxy to vote your shares and confirm that your instructions have been properly recorded. The website for Internet voting is www.proxyvote.com. Please have your Proxy Card or Notice of Internet Availability handy when you go online. As with telephone voting, you can confirm that your instructions have been properly recorded. Telephone and Internet voting facilities for shareholders of record will be available 24 hours a day, and will close at 11:59 p.m., Eastern Time, on May 17, 2017. The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker, bank or other holder of record. Therefore, the Company recommends that you follow the voting instructions in the materials you receive. If you vote by telephone or on the Internet, you do not have to return your Proxy Card.
     
  By Mail – If you received your Annual Meeting materials by mail, you may complete, sign and date the Proxy Card and return it in the prepaid envelope. If you are a shareholder of record and you return your signed Proxy Card but do not indicate your voting preferences, the persons named in the Proxy Card will vote the shares represented by that proxy as recommended by the Board of Directors on each matter listed in this Proxy Statement and in their discretion on any other matter properly brought before the Annual Meeting.
     
  In Person at the Annual Meeting – All shareholders of record may vote in person at the Annual Meeting. You may also be represented by another person at the Annual Meeting by executing a proper proxy designating that person. Even if you plan to attend the Annual Meeting, we request that you authorize a proxy in advance as described above so that your vote will be counted if you later decide not to attend the Annual Meeting.

 

If you mail us your properly completed and signed Proxy Card, or authorize a proxy to vote your shares by telephone or Internet, your votes will be cast according to the choices that you specify. Unless you indicate otherwise on your Proxy Card, the persons named as your proxies will cast your votes: FOR all of the nominees for election as directors named in this Proxy Statement; FOR the ratification of the appointment of PKF O’Connor Davies, LLP as our independent registered public accounting firm; FOR the approval of the Amended and Restated 2007 Incentive Award Plan; FOR the approval of the Say-on-Pay proposal; FOR ONE-YEAR as the frequency of future Say-on-Pay proposals, and in their discretion on any additional matters properly brought before the Annual Meeting.

 

If your Common Shares are held in the name of your broker, bank or other nominee, you should receive separate instructions from the holder of your Common Shares describing how to provide voting instructions.

 

14
 

 

Can I revoke my proxy?

 

Yes, if your Common Shares are held in your name, you can revoke your proxy by:

 

  Filing written notice of revocation before our Annual Meeting with our Secretary at the address shown on the front of this Proxy Statement;
     
  Signing a proxy bearing a later date; or
     
  Voting in person at the Annual Meeting.

 

Attendance at the Annual Meeting will not, by itself, revoke a properly executed proxy. If your Common Shares are held in the name of your broker, bank or other nominee, please follow the voting instructions provided by the holder of your Common Shares regarding how to revoke your instructions.

 

15
 

 

PROPOSAL 1

 

ELECTION OF DIRECTORS

 

The Company’s charter and bylaws provide for a classified board of directors comprised of Class I, II, and III directors. Four Class II directors are up for election at the Annual Meeting, to serve until the Company’s annual meeting of shareholders in 2020 and until their successors are duly elected and qualify. The four nominees for election as Class II directors are set forth below. Unless instructed otherwise, the proxy holders will vote all proxies received by them for the nominees listed below or, if any such nominee is unwilling or unable to serve, for any other nominee designated by the Company’s Board of Directors. As of the date of this Proxy Statement, the Company’s Board of Directors is not aware of any other individual who may properly be nominated for election as a Class II director at the Annual Meeting or of any nominee who is unable or unwilling to serve as director, if elected. The nominees listed below are currently each serving as a director of the Company and each has consented, if elected as a director, to serve until his term expires.

 

The Company’s Board of Directors currently consists of eleven directors, four of whom have terms expiring at the Annual Meeting and when their successors are duly elected and qualify.

 

 

 

[Information Regarding Director Nominees are on the Following Page]

 

16
 

 

INFORMATION REGARDING DIRECTOR NOMINEES

 

The following information concerning the principal occupation, other affiliations and business experience of each of the four Class II Director nominees during the last five years has been furnished to the Company by such nominee:

 

Nominee   Age  

Present Position with the Company; Business Experience

During Past Five Years; Other Directorships

  Director
Since
             
Brian H. Haimm   47   Independent Director. Chief Financial Officer and Chief Operating Officer (2006 to present) of Ascend Capital Group International, LLC, a private equity firm. Mr. Haimm’s extensive experience in accounting, finance and the real estate industry is the primary reason, among others, why Mr. Haimm was selected to serve on our Board and has been nominated for re-election as a Class II Director.   2013
             
Neal Herstik   58   Independent Director. Attorney at Law, Gross, Truss & Herstik, PC (1997 to present). Mr. Herstik’s extensive legal experience and experience in the real estate industry is the primary reason, among others, why Mr. Herstik was selected to serve on our Board and has been nominated for re-election as a Class II Director.   2004
             
Matthew I. Hirsch   57  

Independent Director. Attorney at Law (1985 to present), Law Office of Matthew I. Hirsch; Adjunct Professor of Law, Delaware Law School of Widener University (1993 to present).

 

For UMH Properties, Inc. (“UMH”), a related company, Director (2013 to present).

 

Mr. Hirsch’s experience with real estate transactions, legal issues relating to real estate and the real estate industry is the primary reason, among others, why Mr. Hirsch was selected to serve on our Board and has been nominated for re-election as a Class II Director.

  2000
             
Stephen B. Wolgin   62  

Lead Independent Director. Managing Director of U.S. Real Estate Advisors, Inc. (2000 to present), a real estate advisory services group based in New Jersey. Partner with the Logan Asset Backed Fund, LP (2007 to present). Prior affiliations with J.P. Morgan, Odyssey Associates, The Prudential Realty Group, Standard & Poor’s Corporation, and Grubb and Ellis.

 

For UMH Properties, Inc., a related company, Director (2007 to present).

 

Mr. Wolgin’s extensive experience as a real estate and finance consultant and experience in the real estate industry are the primary reasons, among others, why Mr. Wolgin was selected to serve on our Board and has been nominated for re-election as a Class II Director.

  2003

 

Vote Required:

 

At the Annual Meeting, the shareholders of the Company will be requested to elect four Class II Directors. A plurality of the votes cast in person or by proxy at the Annual Meeting, assuming a quorum is present, is required to elect a nominee.

 

Board Recommendation:

 

THE COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS YOU VOTE “FOR” THE ELECTION OF THE FOUR NOMINEES NAMED ABOVE

 

17
 

 

INFORMATION CONCERNING CONTINUING DIRECTORS AND EXECUTIVE OFFICERS

 

Class III Directors with Terms Expiring in 2018

 

Director   Age  

Present Position with the Company; Business Experience

During Past Five Years; Other Directorships

  Director
Since
             
Catherine B. Elflein   56   Independent Director. Certified Public Accountant. Senior Director – Risk Management (2006 to present) at Celgene Corporation, a biopharmaceutical company; Controller of Captive Insurance Companies (2004 to 2006) and Director – Treasury Operations (1998 to 2004) at Celanese Corporation. Ms. Elflein’s extensive experience in accounting, finance and risk management is the primary reason, among others, why Ms. Elflein was selected to serve on our Board.   2007
             
Eugene W. Landy   83  

Founder and Chairman of the Board (1968 to present), President and Chief Executive Officer (1968 to April 2013) and Director. Attorney at Law. Partner of the Law Firm of Landy & Landy; Chairman of the Board (1995 to present).

 

For UMH Properties, Inc., a related company, Founder and Chairman of the Board, Director (1969 to present) and President (1969 to 1995).

 

As our Founder and Chairman, Mr. Landy’s unparalleled experience in real estate investing is the primary reason, among others, why Mr. Landy was selected to serve on our Board.

  1968
             
Michael P. Landy   55  

President and Chief Executive Officer (April 2013 to present) and Director. Chief Operating Officer (2011 to April 2013), Executive Vice President (2009 to 2010), Executive Vice President-Investments (2006 to 2009), and Vice President-Investments (2001 to 2006). Member of New York University’s REIT Center Board of Advisors (2013 to present).

 

For UMH Properties, Inc., a related company, Director (2011 to present) and Executive Vice President (2010 to 2012).

 

Mr. Landy’s role as our President and Chief Executive Officer and extensive experience in real estate finance, investment, capital markets and operations management are the primary reasons, among others, why Mr. Landy was selected to serve on our Board.

  2007
             
Samuel A. Landy   56  

Director. Attorney at Law (1985 to present), Partner of the Law Firm of Landy & Landy.

 

For UMH Properties, Inc., a related company, President and Chief Executive Officer (1995 to present), Vice President (1991 to 1995) and Director (1992 to present).

 

Mr. Landy’s extensive experience in real estate investment and REIT leadership is the primary reason, among others, why Mr. Landy was selected to serve on our Board.

  1989

 

18
 

 

Class I Directors with Terms Expiring in 2019

 

Director   Age  

Present Position with the Company; Business Experience

During Past Five Years; Other Directorships

  Director
Since
             
Anna T. Chew   58  

Director. Interim Chief Financial Officer (March 2012 to July 2012). Chief Financial Officer (1991 to 2010).

 

For UMH Properties, Inc., a related company, Vice President and Chief Financial Officer (1995 to present) and Director (1995 to present).

 

Ms. Chew is a Certified Public Accountant. Ms. Chew’s extensive public accounting, finance and real estate industry experience is the primary reason, among others, why Ms. Chew was selected to serve on our Board.

  2007
             
Daniel D. Cronheim   62   Director. Attorney at Law (1979 to present). Certified Property Manager (2010 to present). President (2000 to present) of David Cronheim Mortgage Company, a privately-owned real estate investment bank. Executive Vice President (1997 to present) of Cronheim Management Services, Inc., a real estate management firm. Executive Vice President (1989 to present) and General Counsel (1983 to present) of David Cronheim Company, a real estate brokerage firm. Executive Committee (2012 to present), Secretary-Treasurer (2013 to 2015), Vice-President (2015 to 2016) and President (2016 to present) of The Institute of Real Estate Management (IREM) Chapter One (New Jersey). Member and instructor (2014 to present) of the New Jersey State Bar Association Land Use Committee. Member (1986 to 1993) and Chairman (1994 to present) of Borough of Watchung Zoning Board. Mr. Cronheim’s extensive experience in real estate management and the mortgage industry is the primary reason, among others, why Mr. Cronheim was selected to serve on our Board.   1989
             
Scott L. Robinson   46   Independent Director. Managing Director, Oberon Securities (2013 to Present); Clinical Professor of Finance and Director of The REIT Center at New York University (2008 to Present); Managing Partner, Cadence Capital Group (2009 to 2013); Vice President, Citigroup (2006 to 2008); Senior REIT and CMBS analyst (1998 to 2006), Standard & Poor’s. Mr. Robinson’s extensive experience in real estate finance and investment is the primary reason, among others, why Mr. Robinson was selected to serve on our Board.   2005

 

Six of the Company’s directors are also directors of UMH, a publicly-owned affiliate of the Company, which primarily engages in manufactured housing related real estate transactions.

 

19
 

 

Other Named Executive Officers of the Company

 

Officer   Age  

Present Position with the Company; Business Experience

During Past Five Years; Other Directorships

  Director
Since
             
Kevin S. Miller   47   Chief Financial Officer (July 2012 to present) and Chief Accounting Officer (May 2012 to present). Certified Public Accountant. Assistant Controller and Assistant Vice-President (2005 to May 2012) of Forest City Ratner, a real estate developer, owner and operator and a wholly-owned subsidiary of a publicly-held company, Forest City Realty Trust, Inc.   N/A
             
Allison Nagelberg   52  

General Counsel (2000 to present). Attorney at Law (1989 to present). Ms. Nagelberg also has a Master of Business Administration in Finance.

 

For UMH Properties, Inc., a related company, General Counsel (2000 to 2013).

  N/A

 

20
 

 

CORPORATE GOVERNANCE AND BOARD MATTERS

 

Publicly traded since 1968, Monmouth Real Estate Investment Corporation is one of the oldest publicly traded equity REITs in the world. Our longevity is the direct result of being patient and conservative stewards of capital. The Board’s decision-making process is guided by an appreciation for all that has been built in the past and a focus on continuing to create sustainable long-term value for the Company and its shareholders for many years to come.

 

We are committed to maintaining sound corporate governance principles. The Board of Directors periodically updates and approves formal Corporate Governance Guidelines that address the qualifications and responsibilities of directors, director independence, committee structure and responsibilities, and interactions with management, among other matters. The Corporate Governance Guidelines are available on the Company’s website at www.mreic.reit. Together with the charter and bylaws of the Company and the charters of the Board’s committees, the Corporate Governance Guidelines provide the framework for the governance of the Company.

 

“Good Corporate Governance”

 

The goal of good corporate governance practices are fundamentally to ensure that the Company is maximizing shareholder value. As highlighted throughout this Proxy Statement, the Company has adopted numerous good corporate governance policies and procedures. We believe that the quality of any company’s corporate governance practices cannot properly be measured with a “one size fits all” approach. A fair analysis of the effectiveness of a company’s corporate governance should appropriately take into account economic performance and total shareholder return. This is particularly true for a company that operates within the real estate industry, and is therefore most effectively governed and managed with a focus on building long-term value.

 

The Company, during the 10-year period ended December 31, 2016, delivered its shareholders a total return of approximately 257% and outperformed both the S&P 500 by a wide margin of over 2.5 times and the MSCI US REIT Index by a wide margin of over 4 times.

 

 

21
 

 

Substantial Insider Ownership: Management’s Interests are Aligned with Shareholder Interests

 

The aggregate stock ownership of Company Directors and Executive Officers represents more than 5% of the Company’s Common Shares, and currently represents the third largest block of shareholders behind two institutional investors and helps align our management’s interests with our shareholders’ interests.

 

Board Leadership Structure and Role in Risk Oversight

 

Since the Company’s inception in 1968 through April 2013, the positions of Chief Executive Officer and Chairman of the Board of Directors were combined. For more than forty years, both positions were held by Eugene W. Landy. Effective April 9, 2013, as part of the Board’s succession planning strategy, Michael P. Landy was elected as the Company’s President and Chief Executive Officer. Mr. Michael P. Landy, who has been with the Company since 2001 and served as the Company’s Chief Operating Officer since 2011, continues to serve as a member of the Company’s Board of Directors. Mr. Eugene W. Landy continues to serve as Chairman of the Board of Directors. The Board of Directors has selected a Lead Independent Director, Stephen B. Wolgin, to preside at executive sessions of the non-management directors. The Board reviews the structure of the Board and Company leadership as part of the succession planning process. At present, our Board believes that this structure is appropriate and that it facilitates independent oversight of management.

 

The Board of Directors oversees the Company’s enterprise-wide approach to the major risks facing the Company and oversees the Company’s policies for assessing and managing its exposure to risk. The Board periodically reviews these risks and the Company’s risk management processes. The Board also considers risk in evaluating the Company’s strategy. The Board’s responsibilities include reviewing the Company’s practices with respect to risk assessment and risk management, and reviewing contingent liabilities and risks that may be material to the Company. The Audit Committee reviews the Company’s financial and compliance risks and major legislative and regulatory developments which could materially impact the Company. The Compensation Committee oversees management’s assessment of whether the Company’s compensation structure, policies and programs create risks that are reasonably likely to have a material adverse effect on the Company.

 

Board Independence

 

The Company’s Corporate Governance Guidelines include specific Director Independence Standards that comply with applicable rules of the SEC and the listing standards of the NYSE. The Board requires that at least a majority of its directors satisfy this definition of independence. The Board of Directors has considered business and other relationships between the Company and each of its directors, including information provided to the Company by the directors. Based upon its review, the Board of Directors has determined that all of its directors, other than Ms. Anna T. Chew and Messrs. Daniel D. Cronheim, Eugene W. Landy, Michael P. Landy, and Samuel A. Landy, are independent, consistent with the Corporate Governance Guidelines. The Corporate Governance Guidelines, which incorporate the NYSE Director Independence Standards, are available at the Company’s website located at www.mreic.reit and are available in print upon request.

 

Committees of the Board of Directors and Meeting Attendance

 

The Board of Directors had four meetings during the last fiscal year. No director attended fewer than 75% of the meetings of the Board of Directors and of meetings of the committees on which he or she served. The Company does not have a policy concerning directors’ attendance at the Annual Meeting of Shareholders. Three directors attended the Company’s 2016 Annual Meeting of Shareholders.

 

The Company has a standing Audit Committee, Compensation Committee and Nominating Committee of the Board of Directors. Each of these committees is composed exclusively of independent directors.

  

22
 

 

Name   Age as of
record date
  Director Since
(Calendar year)
  Audit
Committee
  Compensation
Committee
  Nominating
Committee
Anna T. Chew   58   2007            
Daniel D. Cronheim   62   1989            
Catherine B. Elflein   56   2007          
Brian H. Haimm   47   2013        
Neal Herstik   58   2004          
Matthew I. Hirsch   57   2000      

Eugene W. Landy

Chairman of the Board

  83   1968            

Michael P. Landy

Chief Executive Officer

  55   2007            
Samuel A. Landy   56   1989            
Scott L. Robinson   46   2005          

Stephen B. Wolgin

Lead Independent Director

  62   2003      
                Chair   Member

 

Audit Committee

 

The Audit Committee’s responsibilities include reviewing and overseeing financial reporting, policies and procedures and internal controls, retaining the independent registered public accounting firm, approving the audit fees, and monitoring the qualifications, independence and performance of the Company’s independent registered public accounting firm. It also oversees the internal audit function, legal and regulatory compliance, establishing procedures for complaints received regarding the Company’s accounting, internal accounting controls and auditing matters. In addition, the Audit Committee prepares the Audit Committee Report, which is included in the Company’s annual proxy statements. The Audit Committee had four meetings during the fiscal year ended September 30, 2016, including an executive session with the independent auditors, in which management did not attend. The Audit Committee operates under the Audit Committee Charter which is available on the Company’s website at www.mreic.reit.

 

The current members of the Company’s Audit Committee are Catherine B. Elflein, Brian H. Haimm (who serves as Chairman of the Audit Committee), Matthew I. Hirsch, Scott L. Robinson, and Stephen B. Wolgin. The Board has determined that the members of the Audit Committee are “independent” as defined by the rules of the SEC and the listing standards of the NYSE, and that each of them is able to read and understand fundamental financial statements, and is “financially literate” within the meaning of the rules of the NYSE. The Board has also determined that Catherine B. Elflein, Brian H. Haimm, Scott L. Robinson and Stephen B. Wolgin are “audit committee financial experts” within the meaning of the rules of the SEC.

 

23
 

 

Compensation Committee

 

The Compensation Committee’s responsibilities include (1) evaluating the Chief Executive Officer’s and other executive officers’ performance in light of the Company’s goals and objectives and determining the Chief Executive Officer’s and other executive officers’ compensation, which includes base salary and bonus; and (2) administering the Company’s 2007 Stock Option and Stock Award Incentive Award Plan, as Amended and Restated (the “Original Plan”). The Compensation Committee had at least one meeting during the fiscal year ended September 30, 2016. The current members of the Compensation Committee are Brian H. Haimm, Matthew I. Hirsch and Stephen B. Wolgin (who serves as the Chairman of the Compensation Committee). The Board has determined that the members of the Compensation Committee are “independent” as defined by the rules of the SEC and the listing standards of the NYSE. The Compensation Committee operates under the Compensation Committee Charter which can be found at the Company’s website at www.mreic.reit.

 

Nominating Committee

 

The Nominating Committee identifies, considers and recommends candidates to serve as members of the Board and makes recommendations regarding the structure and composition of the Board of Directors and Committees. The Nominating Committee had at least one meeting during the fiscal year ended September 30, 2016. The current members of the Nominating Committee are Neal Herstik, Matthew I. Hirsch (who serves as the Chairman of the Nominating Committee), and Stephen B. Wolgin. The Board of Directors has determined that each member of the Nominating Committee is “independent” as defined by the rules of the SEC and the listing standards of the NYSE. The Nominating Committee operates under the Nominating Committee Charter which can be found at the Company’s website at www.mreic.reit.

 

The principal function of the Nominating Committee is to review and recommend candidates for nomination to the Board of Directors. The Nominating Committee will consider for recommendation as nominees appropriate individuals whose names are submitted in writing by a shareholder, and will evaluate them using the same criteria as that used for other candidates. See “Shareholder Communications” below for more information.

 

The Nominating Committee has established a process for identifying and evaluating prospective nominees for director. The Nominating Committee will annually assess the qualifications, expertise, performance and willingness to serve of existing directors. If at this time or at any other time during the year the Board of Directors determines a need to add a new director with specific qualifications or to fill a vacancy on the Board, the Chair of the Nominating Committee will then initiate the search, seeking input from other directors and senior management, considering nominees previously submitted by shareholders, and, if the Nominating Committee deems necessary or appropriate, hiring a search firm. The Nominating Committee considers diversity of background and personal experience in identifying director candidates. An initial slate of candidates satisfying the specific qualifications, if any, and otherwise qualifying for membership on the Board, will then be identified and presented to the Nominating Committee by the Committee Chairman. The Nominating Committee will then prioritize the candidates and determine if the Nominating Committee members, other directors or senior management have relationships with the preferred candidates and can initiate contact with the candidate. To the extent feasible, all of the members of the Nominating Committee, the President and Chief Executive Officer and Chairman of the Board will interview the prospective candidate(s). Evaluations and recommendations of the interviewers are submitted to the Nominating Committee for final evaluation. The Nominating Committee will then meet to consider such recommendations and to select the final candidate(s) to recommend to the Board of Directors as nominees. The Nominating Committee will evaluate all potential nominees for director, including nominees recommended by a shareholder, on the same basis.

 

To date, there are no third parties being compensated for identifying and evaluating candidates.

 

24
 

 

Independent Director Meetings

 

The Company’s independent directors, as defined under the listing standards of the NYSE, have established a policy to meet separately from the other directors in a regularly scheduled executive session at least annually, and at such additional times as may be deemed appropriate by the Company’s independent directors. Any independent director may call an executive session of independent directors at any time. The independent directors had at least one meeting during the fiscal year ended September 30, 2016. The Board of Directors has selected a Lead Independent Director, Stephen B. Wolgin, to preside at executive sessions of the independent directors.

 

Shareholder Communications

 

Monmouth believes that effective corporate governance should include regular constructive discussions with our shareholders. We have a proactive engagement process that encourages feedback from our shareholders. This feedback helps shape our governance practices. Shareholders and other interested parties who desire to contact the Company’s Board of Directors may do so by writing to: Board of Directors, c/o Secretary, Monmouth Real Estate Investment Corporation, 3499 Route 9 North, Suite 3-D, Freehold, NJ 07728. Communications received will be distributed to the Chairperson of the appropriate committee of the Board depending on the facts and circumstances outlined in the communication. Shareholders and other interested parties also may direct communications solely to the independent directors of the Company by addressing such communications to the independent directors, c/o Secretary, at the address set forth above. In addition, the Board of Directors maintains special procedures for the receipt, retention and treatment of complaints that may be received by the Company regarding accounting, internal accounting controls or auditing matters and for the submission by employees of the Company, on a confidential and anonymous basis, of concerns regarding questionable accounting or auditing matters. Such communications may be made by writing to the Audit Committee of the Board of Directors, c/o Secretary, at the address set forth above. Any such communication marked “Confidential” will be forwarded by the Secretary, unopened, to the Chairman of the Audit Committee.

 

Code of Conduct

 

The Company has adopted a Code of Business Conduct and Ethics, which applies to all directors, officers, and employees of the Company, including its principal executive officer and principal financial officer. This code is posted on our website at www.mreic.reit. During fiscal 2016 and through the date of this Proxy Statement, no violations of the Code of Business Conduct and Ethics were reported nor were any waivers granted.

 

Anti-Hedging Policy

 

The Company considers it inappropriate for any director, officer or employee to enter into speculative transactions in Company securities. Such transactions, while allowing the holder to own Company securities without the full risks and rewards of ownership, potentially separate the holder’s interests from those of other Company shareholders. Therefore, the Company prohibits the purchase or sale of puts, calls, options or other derivative securities based on the Company’s securities by directors, officers or employees. Our policy also prohibits hedging or monetization transactions, such as forward sale contracts, in which the holder continues to own the underlying Company security without all the risks or rewards of ownership. The Anti-Hedging Policy is posted on our website at www.mreic.reit.

 

As of the date of this Proxy Statement, to the best of the Company’s knowledge, no director, officer or employee has entered into speculative transactions in Company securities.

 

25
 

 

CEO Stock Ownership Requirement Policy

 

The Chief Executive Officer of the Company is required to own Common Shares having a value equal to at least six times his or her base salary. The Chief Executive Officer serving, as of September 17, 2015, will have until September 17, 2020, to meet the minimum ownership requirements. Any subsequent Chief Executive Officer elected after the adoption of these requirements will have five years from the time he or she is elected to meet the minimum ownership requirements. The Chief Executive Officer’s stock ownership levels will be evaluated by or at the direction of the Company’s Chief Financial Officer in connection with the preparation of the Company’s Annual Report on Form 10-K or the Company’s proxy statement each year. The value of stock holdings will be calculated based on the closing price of a Common Share of the Company on the last trading day of the fiscal year ending prior to the annual review. If the Chief Executive Officer meets the ownership requirements at the time of the annual review, he or she will be in compliance with these requirements until the next annual review. Changes in the Company’s stock price or changes to base salary will not affect compliance status for the remainder of that year. The Nominating Committee has authority to administer and interpret these requirements.

 

The CEO Stock Ownership Requirement Policy requires that Mr. Michael P. Landy own Common Shares having a value of at least six times his base salary. As of September 30, 2016, Chief Executive Officer, Mr. Michael P. Landy had a base salary of $551,250. Therefore, Mr. Michael P. Landy would be required to own Common Shares with a value of at least $3,307,500. Mr. Michael P. Landy owned 580,781 Common Shares as of September 30, 2016. The closing price of a Common Share on the last trading day of the fiscal year ending September 30, 2016 was $14.27. Therefore, the Company’s Chief Executive Officer determined that Mr. Michael P. Landy owned $8,287,745, which is approximately 15 times his base salary and is also approximately 2.5 times the Company’s CEO stock ownership requirement.

 

26
 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table lists information with respect to the beneficial ownership of the Company’s equity securities as of March 14, 2017, by:

 

  each person known by the Company to beneficially own more than five percent of the Company’s outstanding Common Shares;
     
  the Company’s directors;
     
  the Company’s executive officers; and
     
  all of the Company’s executive officers and directors as a group.

 

Unless otherwise indicated, the address of the person or persons named below is c/o Monmouth Real Estate Investment Corporation, Juniper Business Plaza, 3499 Route 9 North, Suite 3-D, Freehold, New Jersey 07728. In determining the number and percentage of Common Shares beneficially owned by each person, Shares that may be acquired by that person under options exercisable within sixty (60) days of March 14, 2017 are deemed beneficially owned by that person and are deemed outstanding for purposes of determining the total number of outstanding Common Shares for that person and are not deemed outstanding for that purpose for all other shareholders.

 

   Common Shares   Series B Preferred Shares   Series C Preferred Shares 
Name and Address of Beneficial Owner 

Amount and Nature of Beneficial Ownership

(1)

  

Percentage of Shares Outstanding

(2)

  

Amount and Nature of Beneficial Ownership

(1)

  

Percentage of Shares Outstanding

(2)

  

Amount and Nature of Beneficial Ownership

(1)

  

Percentage of Shares Outstanding

(2)

 
The Vanguard Group, Inc.
100 Vanguard Boulevard
Malvern, PA 19355 (3)
   7,409,473    10.37%                

BlackRock Inc.

40 East 52nd Street

New York, NY 10022 (4)

   5,815,837    8.14%                    
Anna T. Chew (5)   363,140    *                     
Daniel D. Cronheim (6)   171,102    *                     
Catherine B. Elflein (7)   10,730    *                     
Brian H. Haimm (8)   11,570    *                     
Neal Herstik (9)   16,851    *              2,000    * 
Matthew I. Hirsch (10)   77,020    *                     
Eugene W. Landy (11)   2,046,400    2.85%                    
Michael P. Landy (12)   586,448    *                     
Samuel A. Landy (13)   344,266    *                     
Kevin S. Miller (14)   38,879    *                     
Allison Nagelberg (15)   71,488    *                     
Scott Robinson (16)   6,901    *                     
Katie Rytter (17)   8,374    *                     
Stephen B. Wolgin (18)   61,061    *              13,000    * 
                               
Directors and Officers as a group   3,814,230    5.31%             15,000    * 

 

*Less than 1%.

 

27
 

 

  (1) Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the Company believes that the persons named in the table have sole voting and investment power with respect to all Common Shares listed.
  (2) Based on 71,430,729 Common Shares, 2,300,000 shares of the Company’s 7.875% Series B Cumulative Redeemable Preferred Stock, $0.01 par value per share (“Series B Preferred Shares”), and 8,400,000 shares of the Company’s 6.125% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share (“Series C Preferred Shares”) outstanding on March 14, 2017.
  (3) Based on Schedule 13G/A filed with the SEC on February 10, 2017, The Vanguard Group, Inc. owns 7,409,473 Common Shares as of December 31, 2016. The Vanguard Group has sole dispositive power over 7,234,825 Common Shares and sole voting power over 171,248 Common Shares. The Vanguard Group, Inc. has shared voting power over 89,900 Common Shares and shared dispositive power over 174,648 Common Shares.

  (4) Based on Schedule 13G/A filed with the SEC on January 25, 2017, BlackRock Inc. owns 5,815,837 Common Shares as of December 31, 2016. BlackRock Inc. has sole dispositive power over 5,815,837 Common Shares and sole voting power over 5,474,312 Common Shares.
  (5) Includes (a) 3,157 shares of unvested restricted stock; (b) 329,649 Common Shares owned jointly with Ms. Chew’s husband; and (c) 30,334 Common Shares held in the UMH 401(k) Plan for Ms. Chew’s benefit. Ms. Chew is a co-trustee of the UMH 401(k) Plan and has shared voting power, but no dispositive power, over the 169,451 Common Shares held by the UMH 401(k) Plan. She, however, disclaims beneficial ownership of all of the Common Shares held by the UMH 401(k) Plan, except for the 30,334 Common Shares held by the UMH 401(k) Plan for her benefit.
  (6) Includes (a) 1,126 shares of unvested restricted stock; (b) 80,000 Common Shares held in a trust for Mr. Cronheim’s two family members, to which he disclaims any beneficial interest but he has sole dispositive and voting power and (c) 79,499 Common Shares pledged in a margin account.
  (7) Includes (a) 1,126 shares of unvested restricted stock and (b) 3,500 Common Shares owned jointly with Ms. Elflein’s husband.
  (8) Includes 860 shares of unvested restricted stock.
  (9) Includes (a) 1,126 shares of unvested restricted stock; (b) 14,125 Common Shares owned jointly with Mr. Herstik’s wife; (c) 1,600 Common Shares owned by Mr. Herstik’s wife and (d) 2,000 shares of the Company’s Series C Preferred Stock.
  (10) Includes (a) 1,126 shares of unvested restricted stock (b) 73,053 Common Shares owned jointly with Mr. Hirsch’s wife; and (c) 2,841 Common Shares owned by Mr. Hirsch’s wife.
  (11) Includes (a) 50,583 shares of unvested restricted stock; (b) 97,914 Common Shares owned by Mr. Eugene Landy’s wife; (c) 225,427 Common Shares held in the Landy & Landy Employees’ Profit Sharing Plan of which Mr. Landy is a trustee and has shared voting and dispositive power; (d) 192,294 Common Shares held in the Landy & Landy Employees’ Pension Plan over which Mr. Landy has shared voting and dispositive power; (e) 13,048 Common Shares held in Landy Investments Ltd., over which Mr. Landy has shared voting and dispositive power; (f) 154,405 Common Shares held in the Eugene W. and Gloria Landy Family Foundation, a charitable trust, over which Mr. Landy has shared voting and dispositive power; (g) 34,841 Common Shares held by Juniper Plaza Associates, over which Mr. Landy has shared voting and dispositive power; (h) 27,521 Common Shares held by Windsor Industrial Park Associates, over which Mr. Landy has shared voting and dispositive power; (i) 443,951 Common Shares pledged in a margin account; and (j) 409,017 Common Shares pledged as security for loans. Includes 455,000 Common Shares issuable upon the exercise of stock options that are exercisable within 60 days of March 14, 2017. Excludes 65,000 Common Shares issuable upon the exercise of a stock option not exercisable within 60 days of March 14, 2017.
  (12) Includes (a) 16,873 shares of unvested restricted stock; (b) 32,253 Common Shares owned by Mr. Michael Landy’s wife; (c) 156,875 Common Shares held in custodial accounts for Mr. Landy’s children under the New Jersey Uniform Transfer to Minors Act in which he disclaims any beneficial interest but has power to vote; (d) 53,000 Common Shares held by EWL Grandchildren Fund, LLC, of which Mr. Landy is co-manager and over which Mr. Landy shares voting and dispositive power; (e) 20,973 Common Shares held in the UMH 401(k) Plan for Mr. Landy’s benefit; and (f) 157,650 Common Shares pledged in a margin account.
  (13) Includes (a) 1,126 shares of unvested restricted stock (b) 24,457 Common Shares owned by Mr. Samuel Landy’s wife; (c) 22,379 Common Shares held by the Samuel Landy Family Limited Partnership; (d) 53,000 Common Shares held in EWL Grandchildren Fund, LLC, of which Mr. Landy is co-manager and over which Mr. Landy shares voting and dispositive power; (e) 40,332 Common Shares pledged in a margin account; (f) 172,086 Common Shares pledged as security for a loan and (g) 65,840 Common Shares held in the UMH 401(k) Plan for Mr. Landy’s benefit. As a co-trustee of the UMH 401(k) Plan, Mr. Landy has shared voting power, but no dispositive power, over the 169,451 Common Shares held in the UMH 401(k) Plan. He, however, disclaims beneficial ownership of all of the Common Shares held by the UMH 401(k) Plan, except for the 65,840 Common Shares held by the UMH 401(k) Plan for his benefit.
  (14) Includes (a) 20,616 shares of unvested restricted stock and (b) 960 Common Shares held in the UMH 401(k) Plan for Mr. Miller’s benefit.
  (15) Includes (a) 6,389 shares of unvested restricted stock (b) 3,363 Common Shares owned by Ms. Nagelberg’s husband; (c) 1,657 Common Shares held in custodial accounts for Ms. Nagelberg’s children under the New Jersey Uniform Transfers to Minors Act with respect to which she disclaims any beneficial interest but she has sole dispositive and voting power and (d) 10,219 Common Shares held in the UMH 401(k) Plan for Ms. Nagelberg’s benefit.
  (16) Includes 1,126 shares of unvested restricted stock.
  (17) Includes (a) 2,679 shares of unvested restricted stock; (b) 332 Common Shares held in custodial accounts for Ms. Rytter’s son and nephew under the New Jersey Uniform Transfer to Minors Act in which she disclaims any beneficial interest but has power to vote; and (c) 680 Common Shares held in the UMH 401(k) Plan for Ms. Rytter’s benefit.
  (18) Includes (a) 1,126 shares of unvested restricted stock; (b) 2,883 Common Shares owned by Mr. Wolgin’s wife, and (c) 13,000 shares of the Company’s Series C Preferred Stock.

 

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PROPOSAL 2

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

At the Annual Meeting the Company’s common shareholders will be asked to consider and vote on a proposal to ratify the appointment of PKF O’Connor Davies, LLP (“PKF”) as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2017. The Company’s charter and bylaws do not require that its shareholders ratify the appointment of PKF as the Company’s independent registered public accounting firm. The Company is asking its common shareholders to ratify this appointment as a matter of good corporate practice. If the Company’s common shareholders do not ratify the appointment of PKF, the Company’s Audit Committee will reconsider whether to retain PKF as the Company’s independent registered public accounting firm, but may determine to do so. Even if the appointment of PKF is ratified by the Company’s common shareholders, the Audit Committee may change the appointment at any time during the year if it determines that a change would be in the best interests of the Company. The Company expects a representative of PKF to be present at the Annual Meeting, to make a statement if he or she desires to do so and to respond to appropriate questions.

 

Vote Required:

 

A majority of the votes cast in person or by proxy at the Annual Meeting, assuming a quorum is present, is required to ratify the appointment of PKF O’Connor Davies, LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2017.

 

Board Recommendation:

 

THE COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS YOU VOTE “FOR” THE PROPOSAL TO RATIFY THE APPOINTMENT OF PKF O’CONNOR DAVIES, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2017

 

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REPORT OF THE AUDIT COMMITTEE

 

The Audit Committee (the “Audit Committee”) of the Board of Directors (the “Board of Directors”) of Monmouth Real Estate Investment Corporation (the “Company”) operates under a written charter, which was amended in January 2013. The amended charter is available on the Company’s website at www.mreic.reit.

 

The Company has an Audit Committee consisting of five “independent” directors, as defined by the listing standards of the New York Stock Exchange. The Audit Committee’s role is to act on behalf of the Board of Directors in the oversight of all material aspects of the Company’s reporting, internal control and audit functions.

 

We have reviewed and discussed with management the Company’s audited financial statements as of and for the year ended September 30, 2016.

 

We have discussed with the independent registered public accounting firm the matters required to be discussed under by Auditing Standard No. 1301, “Communications with Audit Committees” issued by the Public Company Accounting Oversight Board (“PCAOB”).

 

We have received and reviewed the written disclosures and the letter from the independent registered public accounting firm required by PCAOB Ethics and Independence Rule 3526, “Communications with Audit Committees Concerning Independence”, and we have discussed with the independent registered public accounting firm, the independent registered public accounting firm’s independence.

 

Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2016.

 

  Audit Committee:  
  Catherine B. Elflein  
  Brian H. Haimm (Chairman)  
  Matthew I. Hirsch  
  Scott L. Robinson  
  Stephen B. Wolgin  

 

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Fees Billed by Independent Registered Public Accounting Firm

 

PKF O’Connor Davies, LLP served as the Company’s independent registered public accountants for the years ended September 30, 2016 and 2015. A representative from PKF is expected to be present at the Annual Meeting in order to be available to respond to possible inquiries from shareholders.

 

The following are fees billed by and accrued to PKF in connection with services rendered for the fiscal years ended September 30, 2016 and 2015:

 

   2016   2015 
Audit Fees  $210,400   $203,450 
Audit Related Fees   32,100    4,200 
Tax Fees   54,400    47,500 
All Other Fees   -0-    -0- 
Total Fees  $296,900   $255,150 

 

Audit fees include professional services rendered for the audit of the Company’s annual financial statements, management’s assessment of internal controls, and reviews of financial statements included in the Company’s quarterly reports on Form 10-Q.

 

Audit related fees include services that are normally provided by the Company’s independent auditors in connection with statutory and regulatory filings, such as consents and assistance with and review of documents filed with the Securities and Exchange Commission.

 

Tax fees include professional services rendered for the preparation of the Company’s federal and state corporate tax returns and supporting schedules as may be required by the Internal Revenue Service and applicable state taxing authorities. Tax fees also include other work directly affecting or supporting the payment of taxes, including planning and research of various tax issues.

 

All of the services performed by PKF for the Company during fiscal 2016 were either expressly pre-approved by the Audit Committee or were pre-approved in accordance with the Audit Committee Pre-Approval Policy, and the Audit Committee was provided with regular updates as to the nature of such services and fees paid for such services.

 

Audit Committee Pre-Approval Policy

 

The Audit Committee has adopted a policy for the pre-approval of audit and permitted non-audit services provided by the Company’s principal independent accountants. The policy requires that all services provided by our independent registered public accountants to the Company, including audit services, audit-related services, tax services and other services, must be pre-approved by the Audit Committee, and all have been so approved. The pre-approval requirements do not prohibit day-to-day normal tax consulting services, which matters will not exceed $10,000 in the aggregate.

 

The Audit Committee has determined that the provision of the non-audit services described above is compatible with maintaining PKF’s independence.

 

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PROPOSAL 3

 

Approval of the Amended and Restated 2007 Incentive Award Plan

 

At the Annual Meeting the Company’s common shareholders will be asked to consider and vote on a proposal to approve its Amended and Restated 2007 Incentive Award Plan, which we refer to as the “Plan”. The Plan is intended to promote the success and enhance the value of the Company by linking the individual interests of its directors, employees, consultants and advisors to those of Company shareholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company shareholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of directors, employees, consultants and advisors upon whose judgment, interest and special effort the successful conduct of the Company’s operation is largely dependent.

 

The Plan constitutes an amendment and restatement of the Company’s 2007 Stock Option and Stock Award Plan, which was initially approved by the Company’s shareholders on July 26, 2007, and was subsequently amended and restated and approved by the Company’s shareholders on May 6, 2010 (the “Original Plan”).

 

Shareholder Approval of Company’s Amended and Restated 2007 Incentive Award Plan (the “Plan”)

 

On March 13, 2017, the Board approved the Plan, conditioned upon shareholder approval. The Board recommends shareholders vote FOR the proposal to approve the Plan.

 

Since the approval of the Original Plan, the Company has generated a 10-year total shareholder return of approximately 257%, outperforming the S&P 500 by a wide margin of over 2.5 times and the MSCI US REIT Index by a wide margin of over 4 times.

 

 

 

The Company’s equity market capitalization has also grown substantially from approximately $201.6 million, as of September 30, 2007 to approximately $1 billion as of March 14, 2017.

 

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In addition, over the last 5-year period, the Company’s total market capitalization has grown approximately 119% from 2012 through 2016 fiscal yearend.

 

 

As of the close of business on March 14, 2017, the Company had 71,430,729 Common Shares outstanding and, when the Original Plan expired on March 26, 2017, 164,878 Common Shares remained available for grant under the Original Plan. The Plan, if approved by the Company’s shareholders, will provide an additional 1,600,000 shares, for a total of 1,764,878 Common Shares available for future grant of stock options, restricted stock, or other equity based awards, plus any shares subject to outstanding options that expire or are forfeited without being exercised. The additional Common Shares under the Plan represent approximately 2.24% of the Company’s total outstanding Common Shares as of March 14, 2017. Although equity compensation has not comprised a large component of the Company’s historical executive or director compensation, the Compensation Committee believes this additional share reserve is appropriate to provide the Company with the flexibility to award equity compensation to employees and directors in amounts that are more comparable to the Company’s competitors and peers.

 

The Plan Includes Compensation and Governance Best Practices

 

The Plan includes provisions that are designed to protect our shareholders’ interests and to reflect corporate governance best practices, including:

 

  Repricing not allowed without shareholder approval
  Shareholder approval required for additional shares
  Minimum vesting provision
  No discounted stock options or stock appreciation rights
  Reasonable share counting provisions
  Limits on compensation
  Size of share reserve request is reasonable

 

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Description of the Plan:

 

The following paragraphs provide a summary of the principal features of the Plan and its operation. The following summary is qualified in its entirety by reference to the Plan, a copy of which is attached as Annex B hereto.

 

SUMMARY OF THE COMPANY’S AMENDED AND RESTATED 2007 INCENTIVE AWARD PLAN

 

Administration of the Plan

 

The Company’s Amended and Restated 2007 Incentive Award Plan (the “Plan”) will generally be administered by the Compensation Committee of the Company’s Board of Directors, currently comprised of three directors of the Company, none of whom are officers or employees of the Company and all of whom are “non-employee directors” (within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended) and “outside directors” (as required by Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The members of the Company’s Compensation Committee are appointed from time to time by, and serve at the pleasure of, its Board of Directors. Currently, the Company’s Compensation Committee consists of Brian H. Haimm, Matthew I. Hirsch, and Stephen B. Wolgin (chairman).

 

The Company’s full Board of Directors will administer the Plan with respect to awards granted under the Plan to Non-Employee Directors.

 

The Compensation Committee, or, in the case of an award granted to a Non-Employee Director, the Company’s full Board of Directors, has the sole discretion to administer and construe the Plan in accordance with its provisions (each, respectively, the “Administrator”). The Administrator’s authority includes the power to:

 

  determine participants eligible for awards, participants who may receive awards, and the type and number of awards participants will receive;
  prescribe the terms, conditions and forms of the awards, which need not be identical for each participant;
  determine the time or times and conditions subject to which awards may be exercised or become vested, deliverable, exercisable, or as to which any restrictions may apply or lapse;
  accelerate the time at which all or any part of an option will become vested or exercisable or accelerate the time at which the restrictions on any restricted stock award will lapse;
  determine whether, to what extent, and under what circumstances, awards may be settled in, or the exercise price of an award may be paid in, cash, Common Shares, other awards or other property, or whether an award may be cancelled, forfeited or surrendered;
  amend or modify the terms and conditions of an award (with the consent of the participant if the participant is materially and adversely affected by the amendment or modification), except that repricing of options or SARs is not permitted without shareholder approval;
  interpret, construe and implement the Plan and awards;
  adopt, interpret, amend or revoke rules, policies and other procedures for administration, interpretation and application of the Plan consistent with the terms of the Plan; and
  make determinations that are necessary or advisable for the administration of the Plan and the awards granted thereunder.

 

The Plan will be interpreted, construed and administered in a manner consistent with the Company’s status as a REIT.

 

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Eligibility to Receive Awards

 

Non-employee directors, officers, other employees and consultants and advisors engaged to provide services to the Company or any of its subsidiaries (each, an “Eligible Individual”) will be eligible to receive one or more awards. Currently, there are approximately 23 individuals that the Company considers eligible to receive awards under to the Plan.

 

Share Reserve

 

If the Plan is approved, the maximum number of Common Shares that may be issued under the Plan is 3,100,000 (consisting of 1,500,000 Common Shares originally authorized for issuance under the Company’s 2007 Incentive Award Plan (sometimes referred to in this Proxy Statement as the “Original Plan”) and an additional 1,600,000 Common Shares that will be authorized for issuance if the Plan is approved), of which 1,335,122 shares have been issued or are the subject of outstanding options. There are currently options to purchase 735,000 Common Shares outstanding. Of the options currently outstanding, options to purchase 280,000 Common Shares are not currently exercisable and will become exercisable when they vest one year from the date of issuance, including options to purchase 215,000 Common Shares that will vest in December 2017 and options to purchase 65,000 Common Shares that will vest in January 2018. If the Plan is approved, 1,764,878 Common Shares will be available for future awards. This number includes 164,878 Common Shares originally authorized for issuance under the Original Plan that were not issued and are not the subject of an outstanding award granted under the Original Plan. If an award made under the Plan is forfeited, expires or is converted into shares of another entity in connection with a recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares or other similar event, or the award is settled in cash, the shares associated with the forfeited, expired, converted or settled award will become available for additional awards under the Plan.

 

Limitation on Awards

 

No participant may receive awards during any calendar year covering more than 200,000 Common Shares or more than $1,500,000. Regular annual awards granted to Non-Employee Directors as compensation for services as Non-Employee Directors during any fiscal year of the Company may not exceed $100,000, and the grant date value of any special or one-time award upon election or appointment to the Board of Directors may not exceed $200,000.

 

Terms of Awards

 

The Administrator will determine the types of awards to be granted to Eligible Individuals and the terms and conditions of awards, including: (i) the number of Common Shares underlying the awards; (ii) restrictions and vesting requirements, which may be tied to some period of time and/or satisfaction of other conditions such as performance goals; (iii) the exercise price for stock options and stock appreciation rights; and (iv) where applicable, the expiration date of stock options and stock appreciation rights.

 

Minimum Vesting Period

 

Awards granted pursuant to the Plan may not vest until the first anniversary of the date the award was granted, provided, however, that up to 5% of the Common Shares available under the Plan may be awarded to any one or more Eligible Individuals without the minimum vesting period.

 

No Repricing

 

The Administrator may not, without approval of the shareholders of the Company: (i) reduce the exercise price of any option or stock appreciation right (SAR); (ii) exchange any option or SAR for another award when the price of the underlying Common Shares exceed the fair market value of such shares; (iii) reduce the exercise price per share of the shares underlying outstanding options or SARs; or (iv) cancel outstanding options or SARs in exchange for cash or other awards with an exercise price per share that is less than the exercise price per share of the original option or SAR.

 

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Claw-back of Awards

 

All awards granted pursuant to the Plan will be subject to the provisions of any claw-back policy adopted by the Company, including any claw-back policy adopted to comply with applicable law, such as the Dodd-Frank Wall Street Report and Consumer Protection Act and any rules or regulations promulgated thereunder, whether or not such claw-back policy was in place at the time of grant of an award to the extent set forth in such claw-back policy.

 

Stock Options

 

Stock options, including incentive stock options (as defined under Section 422 of the Code), may be granted to Eligible Individuals on such terms and conditions as the Administrator may determine. The exercise price per common share underlying each option will be set by the Administrator, but generally may not be less than 100% of the fair market value of a common share on the date such option is granted or, for incentive stock options, on the date such option is modified, extended or renewed for purposes of Section 424(h) of the Code. The options may be exercised as determined by the Administrator, but the term of any option may not be more than ten years from the date the option was granted, and the term for any incentive stock option granted to a shareholder of the Company who owns more than 10% of the total combined voting power of the Company or any of its subsidiaries may not be more than five years from the date the incentive stock option was granted. The Administrator will establish the vesting period for exercising option awards, subject to the minimum vesting requirements described above. If the award is intended to qualify as performance-based compensation (as described in Section 162(m)(4)(C) of the Code), the participant must be employed by the Company or one of its subsidiaries through the performance period established by the Administrator, and will be eligible to receive payment pursuant to such award only if and to the extent the performance goals have been met. No fractional Common Shares will be issued upon exercise of any option. The Administrator may establish a minimum number of shares to have vested before an option can be partially exercised.

 

Stock Appreciation Rights

 

Stock appreciation rights (“SARs”) may be granted to Eligible Individuals on such terms and conditions as the Administrator may determine. The exercise price per common share underlying each SAR will be set by the Administrator but generally may not be less than 100% of the fair market value of a common share on the date such SAR is granted. The SAR may be exercised as determined by the Administrator, but in no event may the term of any SAR be more than ten years from the date such SAR was granted. The Administrator will establish the vesting period for exercising SAR awards, subject to the minimum vesting requirements described above. If the award is intended to qualify as performance-based compensation, the participant must be employed by the Company or one of its subsidiaries through the performance period established by the Administrator, and will be eligible to receive payment pursuant to such award only if and to the extent the performance goals have been met. No fractional Common Shares will be issued upon exercise of any SAR. The Administrator may establish a minimum number of shares required to have vested before a SAR can be partially exercised.

 

Restricted Stock

 

Awards of restricted Common Shares may be granted to Eligible Individuals on such terms and conditions as the Administrator may determine, including whether a purchase price will be established, the form of payment for the restricted stock and the restrictions and vesting requirements, subject to the minimum vesting requirements described above. If no price was paid for the restricted stock and the employment or engagement of the participant is terminated, or in the case of a Non-Employee Director, the Non-Employee Director ceases to be a director of the Company, any unvested restricted stock award will lapse and the underlying Common Shares will be surrendered to the Company and cancelled. If a price was paid for the restricted stock, the Company may repurchase the unvested restricted stock at a cash price per share equal to the price paid by the participant or such other amount as may be specified by the Administrator. A participant will have all the rights of a common shareholder upon issuance of the restricted stock, including the right to receive all dividends and other distributions made with respect to Common Shares, subject to any restrictions imposed by the Administrator.

 

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Restricted Stock Units

 

Restricted stock units representing the right to receive Common Shares may be granted to Eligible Individuals on such terms and conditions as the Administrator may determine, including the purchase price, which may not be less than the par value of the underlying Common Shares, and the time period for vesting, which may be tied to duration of service to the Company or any of its subsidiaries, a specific date, individual performance or other specific criteria and the minimum vesting requirements described above. The maturity date of any awards of restricted stock units may not be earlier than the vesting date of the award and, subject to Section 409A of the Code, may not be after the later of: (i) the 15th day of the third month after the end of the calendar year in which the restricted stock unit vests; or (ii) the 15th day of the third month after the end of the Company’s fiscal year in which the restricted stock unit vests. Upon maturity, the Company will transfer to the participant one unrestricted, fully transferable common share for each matured restricted stock unit. Generally, an award of restricted stock units will be only be payable to an Eligible Individual while such person is an employee or consultant to the Company or a member of the Board of Directors.

 

Dividend Equivalents

 

Dividend equivalents, entitling Eligible Individuals holding such equivalents to participate in dividends paid on Common Shares during the period in which such Eligible Individual held dividend equivalents, may be granted on such terms and conditions as the Administrator may determine. For a dividend equivalent tied to a performance-based award on which dividends are paid prior to the vesting of the dividend-equivalent, the Company will only pay out the divided equivalent to the extent that the performance-based vesting conditions are subsequently satisfied and the award vests.

 

Other Stock or Cash Based Awards

 

The Administrator is authorized to grant other stock or cash based awards to Eligible Individuals on such terms and conditions as the Administrator may determine.

 

Performance-Based Awards

 

Under the Plan, the Administrator may grant equity and cash awards that will qualify as “performance-based compensation” (as defined in Section 162(m) of the Code) to “covered employees” (as defined in Section 162(m) of the Code) based on satisfaction of pre-existing performance goals established in accordance with Section 162(m) of the Code in order to preserve the deductibility of these awards for federal income tax purposes (see the additional discussion of deductibility requirements under “Federal Income Tax Consequences” below). Generally, for an award to qualify as performance-based compensation, the award must be issued to an employee of the Company or any of its subsidiaries who remains an employee through the entire performance period. Payment pursuant to a performance-based award will only be paid to the extent the performance goals for the established period are achieved.

 

The performance criteria used to establish the pre-existing performance goals are:

 

  net earnings or losses (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation, (D) amortization and (E) non-cash equity-based compensation expense);
  funds from operations or adjusted funds from operations;
  funds from operations or adjusted funds from operations per share;
  net cash provided by operating activities;
  gross or net revenue or revenue growth;
  net income (either before or after taxes);
  adjusted net income;

  operating earnings or profit (either before or after taxes);
  cash flow (including, but not limited to, operating cash flow and free cash flow);

 

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  return on assets;
  return on capital (or invested capital) and cost of capital;
  return on shareholders’ equity;
  total shareholder return;
  gross or net profit or operating margin;
  costs, reductions in costs and cost control measures;
  expenses;
  working capital;
  earnings or loss per share;
  adjusted earnings or loss per share;
  price per share or dividends per share (or appreciation in and/or maintenance of such price or dividends);
  leasing activity;
  implementation or completion of critical projects;
  market share;
  equity market capitalization; and
  economic value, any of which may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.

 

The Administrator may provide that one or more objectively determinable adjustments will be made to one or more performance goals, which include, but are not limited to:

 

  items related to a change in accounting principles;
  items relating to financing activities;
  expenses for restructuring or productivity initiatives;
  other non-operating items;
  items related to acquisitions;
  items attributable to the business operations of any entity acquired by the Company during the established period for which the performance goals have been established;
  items related to the sale or disposition of a business or segment of a business;
  items related to discontinued operations that do not qualify as a segment of a business under applicable accounting standards;
  items attributable to any stock dividend, stock split, combination or exchange of stock occurring during the performance period;
  any other items of significant income or expense which are determined to be appropriate adjustments;
  items relating to unusual or extraordinary corporate transactions, events or developments,
  items related to amortization of acquired intangible assets;
  items that are outside the scope of the Company’s core, on-going business activities;
  items related to acquired in-process research and development;
  items relating to changes in tax laws;
  items relating to major licensing or partnership arrangements;
  items relating to asset impairment charges;
  items relating to gains or losses for litigation, arbitration and contractual settlements;
  items attributable to expenses incurred in connection with a reduction in force or early retirement initiative;
  items relating to foreign exchange or currency transactions and/or fluctuations; or
  items relating to any other unusual or nonrepeating events or changes in applicable laws, accounting standards or business conditions.

 

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Determinations with respect to awards intended to qualify as performance-based compensation must be made in compliance with Section 162(m), but the Administrator may alter the intent of any award.

 

Restrictions on Transferability

 

Awards under the Plan generally cannot be sold, pledged, assigned or transferred in any manner other than (i) by will or the laws of descent and distribution or (ii) with the consent of the Administrator, pursuant to a “domestic relations order” (as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder), unless or until an award has been exercised or the underlying Common Shares have been issued. All issued Common Shares are subject to restrictions on transferability and ownership intended to assist the Company in preserving its status as a REIT, including a requirement that no person may own, or be deemed to own by virtue of the attribution rules of the Code, more than 9.8% in value or number of shares (whichever is more restrictive), of the Company’s outstanding stock (other than excess stock), subject to certain exceptions. During the lifetime of an Eligible Individual who has been granted an award, only that Eligible Individual may exercise any exercisable portion of such award unless the award has been disposed of by a domestic relations order.

 

Change in Control

 

The Plan does not provide for the automatic vesting of awards upon a change in control of the Company. If the Board of Directors determines that a change in control has occurred, the Board of Directors and the board of directors or other managing body of the surviving or acquiring entity may make appropriate provisions for the continuation or assumption of outstanding awards granted pursuant to the Plan, or may provide for the acceleration of vesting with respect to existing awards.

 

Adjustments and Substitute Awards

 

In the event of a stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of the assets of the Company to its shareholders or certain other changes affecting the shares or the share price of the Company’s stock, the award may be equitably adjusted with respect to: (i) the aggregate number and kind of shares that may be issued pursuant to the Plan; (ii) the number and kind of shares subject to outstanding awards; (iii) the terms and conditions of any outstanding awards; and (iv) the grant or exercise price per share for any outstanding awards.

 

Upon the occurrence of an equity transaction that affects the number or kind of shares or the price of Common Shares or other securities and causes a change in the per-share value of the Common Shares underlying any awards, the number and type of securities subject to such awards and the exercise price or grant price thereof may be equitably adjusted. The Administrator will have discretion to make any other equitable adjustments it deems appropriate to reflect such an event.

 

Corporate Transactions

 

In the event of a stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of the assets of the Company to its shareholders or any other change affecting the shares or the share price of the Company’s stock or any unusual or nonrepeating transactions or events affecting the Company or any of its subsidiaries, or the financial statements of the Company or any of its subsidiaries, or of changes in applicable law or accounting standards, the Administrator may, as appropriate to prevent dilution or enlargement of the benefits intended to be made available under the Plan or with respect to any award granted pursuant to the Plan, to facilitate such a transaction or event or to give effect to such changes in applicable law or accounting standards: (i) terminate any award in exchange for an amount of cash and/or other property equal in value to the amount the participant otherwise have realized under such award; (ii) provide for the assumption of any award by any successor or surviving entity or the substitution of such award for similar options, rights or awards covering the stock of any successor or surviving entity;

 

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(iii) adjust the number and type of shares subject to outstanding awards and/or the terms and conditions of, and criteria included in outstanding and future awards; (iv) provide that any award is exercisable or payable or fully vested with respect to all underlying shares of stock of the Company; (v) replace any award with other rights or property; and/or (vi) provide that any award cannot vest, be exercised or become payable after such an event.

 

While any of the corporate transactions described above are pending, the Administrator may refuse to permit the exercise of any award for 30 days before the consummation of such transaction.

 

Amendment and Termination

 

Generally, the Board of Directors may amend or terminate the Plan. Material amendments of the Plan will be subject to approval by the shareholders of the Company. Any amendment or termination of the Plan may not materially and adversely affect any rights or obligations under any awards already made, unless the award itself expressly states otherwise.

 

Subject to applicable law, the Administrator may amend, modify or terminate any outstanding award issued pursuant to the Plan, including substituting the award for a different award, changing the exercise date, or converting an incentive stock option to a non-qualified stock option. Any such amendment will require the consent of the participant if it would materially and adversely affect such participant and is not otherwise contemplated by the Plan.

 

Federal Income Tax Consequences

 

With respect to nonqualified stock options, the Company is generally entitled to deduct and the optionee recognizes taxable income in an amount equal to the difference between the option exercise price and the fair market value of the shares at the time of exercise. A participant receiving incentive stock options will not recognize taxable income upon grant. Additionally, if applicable holding period requirements are met, the participant will not recognize taxable income at the time of exercise. However, the excess of the fair market value of the Common Shares received over the option price is an item of tax preference income potentially subject to the alternative minimum tax. If stock acquired upon exercise of an incentive stock option is held for a minimum of two years from the date of grant and one year from the date of exercise, the gain or loss (in an amount equal to the difference between the fair market value on the date of sale and the exercise price) upon disposition of the stock will be treated as a long-term capital gain or loss, and the Company will not be entitled to any deduction. If the holding period requirements are not met, the incentive stock option will be treated as one which does not meet the requirements of the Internal Revenue Code for incentive stock options and the tax consequences described for nonqualified stock options will apply.

 

The current federal income tax consequences of other awards authorized under the Original Plan generally follow certain basic patterns: SARs are taxed and deductible in substantially the same manner as nonqualified stock options; nontransferable restricted stock subject to a substantial risk of forfeiture results in income recognition equal to the excess of the fair market value over the price paid, if any, only at the time the restrictions lapse (unless the recipient elects to accelerate recognition as of the date of grant); stock-based performance awards, dividend equivalents and other types of awards are generally subject to tax at the time of payment. Compensation otherwise effectively deferred is taxed when paid. In each of the foregoing cases, the Company will generally have a corresponding deduction at the time the participant recognizes income.

 

Certain Awards under the Original Plan, depending in part on particular Award terms and conditions, may be considered non-qualified deferred compensation subject to the requirements of Internal Revenue Code Section 409A. If the terms of such Awards do not meet the requirements of Section 409A, then the violation may result in an additional 20% tax obligation, plus penalties and interest for such participant.

 

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As of March 1, 2017, the closing market price of a share of Common Shares authorized for issuance under the Original Plan was $14.73 and the approximate number of employees and non-employee directors eligible to participate in the Original Plan was 23.

 

New Plan Benefits

 

The future benefits or amounts that would be received pursuant to the Plan are discretionary and are therefore not determinable at this time. Similarly, the benefits or amounts which would have been received by or allocated to the Company’s executive officers and other employees for the last completed fiscal year if the Plan had been in effect cannot be determined. The Company expects that future awards granted pursuant to the Plan will be granted in a manner substantially consistent with the historical grant of awards pursuant to the Original Plan. All awards granted in the last completed fiscal year pursuant to the Original Plan to Named Executive Officers are disclosed in the Summary Compensation Table. For information regarding the size and structure of these awards in the past, please see the disclosures in this Proxy Statement under “Grants of Plan-Based Awards” and “Outstanding Equity Awards at Fiscal Year End.”

 

Vote Required:

 

The affirmative vote of a majority of the votes cast on the proposal is required for approval of the Company’s Amended and Restated 2007 Incentive Award Plan.

 

Board Recommendation:

 

THE COMPANY’S BOARD OF DIRECTORS RECOMMENDS YOU VOTE “FOR” THE PROPOSAL TO APPROVE THE COMPANY’S AMENDED AND RESTATED 2007 INCENTIVE AWARD PLAN

 

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PROPOSAL 4

ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (as set forth in Section 14A of the Securities Exchange Act of 1934, as amended), we are providing our shareholders with the opportunity to cast a non-binding, advisory vote on the compensation that was paid to our Named Executive Officers in fiscal 2016 as described in the “Compensation Discussion and Analysis” set forth in this proxy statement, including the compensation tables and the narrative disclosures that accompany those tables.

 

Our executive compensation program is designed to attract and retain talented individuals who possess the skills and expertise necessary to lead the Company. The Company’s current equity compensation plan, or Original Plan, has been the primary vehicle for providing long-term incentive compensation to our Named Executive Officers. Executive compensation has been voted upon previously and approved by our shareholders.

 

Pay for Performance: Total Shareholder Return

 

Since 1968, Monmouth has delivered consistent and reliable returns for its shareholders. Over the last 10 years, Monmouth has outperformed the MSCI US REIT Index by a wide margin of over three times. Our total shareholder return (“TSR”) over the last 10 fiscal years was 255.6%. TSR includes both dividends reinvested and stock price appreciation. Historically, REIT dividends have accounted for approximately 65% of total shareholder return. We believe that it is essential that dividends be factored into evaluating a REIT’s economic performance. Our dividend has proven to be very reliable because our industrial properties are predominantly subject to long-term net leases to investment-grade tenants or their subsidiaries. We are proud to report that we have maintained or increased our dividend for 25 consecutive years. We are one of the few REITs that maintained its dividend throughout the Global Financial Crisis. We are also one of the few REITs that is paying out a higher per share dividend today than prior to the Global Financial Crisis.

 

Peer Group

 

In order to help our shareholders fairly evaluate the Company’s executive compensation in light of our relative economic performance, our management has identified a group of REITs with similar equity market capitalization, ranging between $750 million and $2.5 billion, and/or REITs that operate within the industrial REIT sector and with whom we compete for executive employees. These REITs (the “Comparable REITs”) are:

 

  Agree Realty Corporation
  EastGroup Properties, Inc.
  Getty Realty Corporation
  Rexford Industrial Realty, Inc.
  Stag Industrial, Inc.
  Terreno Realty Corporation
  Urstadt Biddle Properties, Inc.

 

Information about the Comparable REITs is presented here solely to assist the shareholders in evaluating the Company’s performance and compensation programs in connection with the say-on-pay vote, and the Comparable REITs were not identified or used by our Compensation Committee in setting or evaluating the compensation of our named executive officers.

 

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The following table demonstrates the Company’s strong outperformance over 1, 3, 5 and 10 year periods compared to the Comparable REITs and the MSCI US REIT Index Total Return Performance is calculated based on the Company’s 2016 fiscal year ending September 30.

 

   Total Return Performance 
   1 Year   3 Year   5 Year   10 Year 
MNR   54.78%   87.33%   141.48%   255.61%
Comparable REITS   49.18%   54.08%   152.88%   128.20%
RMS   19.83%   48.58%   108.10%   82.79%

 

Getting More for Less

 

While Monmouth has outperformed its peers and delivered substantial results for its shareholders, its Chief Executive Officer’s total compensation for 2016 was less than 50% of the average total compensation of chief executive officers of the Comparable REITs.

 

2016 Monmouth CEO Total Compensation vs. Average CEO Total Compensation of Comparable REITs*

 

 

*The compensation data used for comparison purposes was obtained from the most recent filings for the Comparable REITs. For Comparable REITs that employed two chief executive officers, the Company used the compensation data of only one chief executive officer for the applicable Comparable REIT(s).

 

Total executive compensation of the Company also fell in the lowest range (25th percentile) within the REIT industry based upon the 2016 Compensation Survey published by NAREIT.

 

As set forth in more detail under the headings Financial Highlights and Compensation Discussion and Analysis in this Proxy Statement, Monmouth delivered another year of strong financial results in fiscal 2016, including 53% growth in total market capitalization, 23% increase in adjusted funds from operations per diluted share and a dividend increase of 6.7%. See Financial Information for a discussion of our non-GAAP performance measures. Our best-in-class industrial property portfolio performed exceptionally well, achieving a 100% tenant retention rate, and also achieving a 100% occupancy rate subsequent to 2016 fiscal yearend. Monmouth has maintained or increased its dividend for 25 consecutive years and was one of the only REITs that maintained its dividend throughout the Great Recession. We believe our Named Executive Officers, as well as the entire employee base, played an integral role in delivering these Company achievements.

 

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The Compensation Committee regularly reviews all elements of the compensation paid to our Named Executive Officers. The Committee believes that the Company’s present compensation programs, as presented in the Compensation Discussion and Analysis section and the accompanying tables in this Proxy Statement, promote in the best manner possible our business objectives while aligning the interests of the Named Executive Officers with those of our shareholders to ensure positive financial results. Accordingly, the Board requests your vote “FOR” the following resolution:

 

RESOLVED, that the shareholders approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and narrative discussion in the Proxy Statement.

 

Vote Required:

 

The affirmative vote of a majority of the votes cast on this proposal at the Annual Meeting will be required to approve the advisory resolution on executive compensation. The results of this advisory vote are not binding on the Compensation Committee, the Company or our Board of Directors. Nevertheless, the Board of Directors values input from our shareholders and will consider carefully the results of this vote when making future decisions concerning executive compensation.

 

Board Recommendation:

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THE COMPENSATION DISCUSSION AND ANALYSIS SECTION AND THE ACCOMPANYING COMPENSATION TABLES AND DISCLOSURES IN THIS PROXY STATEMENT.

 

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PROPOSAL 5

ADVISORY VOTE ON THE FREQUENCY OF

FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION

 

In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (as set forth in Section 14A of the Securities Exchange Act of 1934, as amended), we are also providing our shareholders with the opportunity to vote, on a non-binding, advisory basis, on the frequency of future advisory votes on the compensation of our Named Executive Officers, such as Proposal 4 included in this Proxy Statement. By voting on this Proposal 5, shareholders may recommend whether future advisory votes on executive compensation should be conducted every “one year,” “two years” or “three years.”

 

After consideration of this Proposal, the Board of Directors recommends that a vote on the compensation of our Named Executive Officers take place on an annual basis, or every year.

 

Vote Required:

 

The selection of “one year”, “two years” or “three years” that receives the greatest number of votes cast on this proposal at the Annual Meeting will indicate the shareholders’ preference for the frequency of future votes on the compensation of our Named Executive Officers and the Board of Directors encourages this input from the shareholders. However, since this vote is not binding on the Board of Directors, the Compensation Committee or the Company, the Board of Directors may decide that it is in the best interest of the Company and the shareholders to hold future advisory votes on the compensation of our Named Executive Officers more or less frequently than as indicated by the shareholder vote on this Proposal 5.

 

Board Recommendation:

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR “ONE YEAR” AS THE FREQUENCY FOR FUTURE NON-BINDING ADVISORY VOTES ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.

 

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EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Overview of Compensation Program

 

The Compensation Committee (for purposes of this analysis, the “Committee”) of the Board has been appointed to implement the Board’s responsibilities relating to the compensation of the Company’s executive officers. The Committee has the overall responsibility for approving and evaluating the executive compensation plan, policies and programs of the Company. The Committee’s primary objectives include serving as an independent and objective party to review such compensation plan, policies and programs. The Compensation Committee has not retained or obtained the advice of a compensation committee consultant for determining or recommending the amount of executive or director compensation.

 

Throughout this Proxy Statement, the individuals who served as the Company’s Chairman of the Board and the President and Chief Executive Officer and other Officers during fiscal 2016 included in the Summary Compensation Table presented below in this Proxy Statement, are sometimes referred to in this Proxy Statement as the Named Executive Officers.

 

Compensation Philosophy and Objectives

 

The Committee believes that a well-designed compensation program should align the goals of the President and Chief Executive Officer with the goals of the shareholders, and that a significant part of the executives’ compensation, over the long term, should be dependent upon the value created for shareholders. In addition, all executives should be held accountable through their compensation for the performance of the Company, and compensation levels should also reflect the executives’ individual performance in an effort to encourage increased individual contributions to the Company’s performance. The compensation philosophy, as reflected in the Company’s employment agreements with its executives, is designed to motivate executives to focus on operating results and create long-term shareholder value by:

 

  establishing a plan that attracts, retains and motivates executives through compensation that is competitive with a peer group of other publicly-traded real estate investment trusts, or REITs;
  ●  rewarding executives for individual accomplishments and achievements;
  ●  linking a portion of each executive’s compensation to the achievement of the Company’s business plan by using measurements of the Company’s operating results and shareholder return; and
  ●  building a pay-for-performance system that encourages and rewards successful initiatives within a team environment.

 

The salaries and bonuses in the Company’s recently executed executive employment agreements are consistent with the Committee’s philosophy and objectives.

 

The Committee believes that each of the above factors is important when determining compensation levels for named executive officers. The Committee reviews and approves the employment contracts for the Chairman of the Board and the President and Chief Executive Officer, and other named executive officers, including performance goals and objectives. The Committee annually evaluates performance of the executive officers in light of those goals and objectives. The Committee considers the Company’s performance, relative shareholder return, the total compensation provided to comparable officers at similarly-situated companies, and compensation given to the named executive officers in prior years. The Company uses the annual Compensation Survey published by NAREIT (the “Survey”) as a guide to setting compensation levels. Participant company data is not presented in a manner that specifically identifies any named individual or company. This Survey details compensation by position type and company size with statistical salary and bonus information for each position. The sub-sets presented in the Survey used by the Committee for comparison are the industrial property sector, entities with less than $1.5 billion in equity market capitalization and entities with less than 75 full-time employees. The Compensation Committee compares the Company’s salary and bonus amounts to the ranges presented for reasonableness. The Committee believes executive compensation packages provided by the Company to its

 

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executive officers should include both base salaries and annual bonus awards that reward corporate and individual performance, as well as give incentives to executives to meet or exceed established goals. As a result, an important portion of the Company’s compensation program is comprised of discretionary bonuses and equity awards as determined by the Committee in recognition of individual accomplishments and achievements.

 

Role of Executive Officers in Compensation Decisions

 

The Committee makes all final compensation decisions for the Company’s named executive officers. The Chairman of the Board and the President and Chief Executive Officer review the performance of the other named executive officers and then present their conclusions and recommendations to the Committee with respect to base salary adjustments and annual cash bonus and stock option or restricted stock awards. The Committee exercises its own discretion in modifying any recommended adjustments or awards, but does consider the recommendations from management who work closely with the other named executive officers.

 

Role of Grants of Stock Options and Restricted Stock in Compensation Analysis

 

The Committee views the grant of stock options and restricted stock awards as a form of long-term compensation. The Committee believes that such grants promote the Company’s goal of retaining key employees, and align the key employees’ interests with those of the Company’s shareholders from a long-term perspective. The number of options or shares of restricted stock granted to each employee is determined by consideration of various factors including but not limited to the employees’ contribution, title, responsibilities, and years of service.

 

Role of Employment Agreements in Determining Executive Compensation

 

Each of the Company’s currently employed named executive officers is a party to an employment agreement. These agreements provide for base salaries, bonuses and customary fringe benefits. The key elements of the Company’s compensation program for the named executive officers are base salary, bonuses, stock options and other benefits, including those provided for under the employment agreements and additional discretionary bonuses awarded by the Committee in recognition of individual accomplishments and achievements. Each of these is addressed separately below. In determining initial compensation, the Committee considers all elements of a named executive officer’s total compensation package in comparison to current market practices and other benefits.

 

Shareholder Advisory Vote

 

One way to determine if the Company’s compensation program reflects the interests of shareholders is through their non-binding vote. At the Annual Meeting of Shareholders held on May 13, 2014, the Company’s shareholders approved by their advisory vote the compensation of the named executive officers.

 

Base Salaries

 

Base salaries are paid for ongoing performance throughout the year. In order to compete for and retain talented executives who are critical to the Company’s long-term success, the Committee has determined that the base salaries of named executive officers should approximate those of executives of other equity REITs that compete with the Company for employees, investors and business, while also taking into account the named executive officers’ performance and tenure, and the Company’s performance relative to the performance reported for companies in the industrial property sector, entities with less than $1.5 billion in equity market capitalization and entities with less than 75 full-time employees within the REIT industry in the Survey described above.

 

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Bonuses

 

In addition to the provisions for base salaries under the terms of their employment agreements and discretionary cash bonuses awarded by the Committee in recognition of individual accomplishments and achievements, the Chairman of the Board, and the President and Chief Executive Officer, are entitled to receive annual cash bonuses for each year during the terms of each respective agreement provided certain performance goals set by the Committee as described below are achieved.

 

For the Chairman of the Board:

 

Growth in market cap   7.5%   12.5%   20%
Bonus  $20,000   $45,000   $90,000 
Growth in FFO/share   7.5%   12.5%   20%
Bonus  $20,000   $45,000   $90,000 
Growth in dividend/share   5%   10%   15%
Bonus  $30,000   $60,000   $120,000 
Maximum Bonus Potential  $300,000           

 

For the President and Chief Executive Officer (effective through September 30, 2016):

 

Growth in market cap   10%   15%   20%
Bonus  $20,000   $40,000   $60,000 
Growth in AFFO/share   15%   20%   25%
Bonus (1)  $20,000   $45,000   $90,000 
Growth in dividend/share   5%   10%   15%
Bonus  $30,000   $60,000   $120,000 
Maximum Bonus Potential  $270,000           

 

(1) Provided that FFO is in excess of the dividend

 

For the President and Chief Executive Officer (effective October 1, 2016):

 

Growth in market cap        10%   15%   20%
Bonus       $40,000   $60,000   $80,000 
Growth in AFFO/share   5%   10%   15%   20%
Bonus (2)  $50,000   $75,000   $100,000   $150,000 
Growth in dividend/share   5%   10%   15%     
Bonus  $150,000   $200,000   $250,000      
Maximum Bonus Potential  $480,000                

 

(2) Provided that FFO is equal or in excess of the dividend

 

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Based on meeting the performance targets set forth above, a $210,000 cash bonus for the Chairman of the Board was accrued as of September 30, 2016, which was paid in October 2016 and based on meeting the performance targets set forth above, a $135,000 cash bonus was accrued for the President and Chief Executive Officer as of September 30, 2016, which was paid in October 2016.

 

In addition to its determination of the executives’ individual performance levels for 2016, the Committee compared the executives’ total compensation for 2016 to that of similarly-situated personnel of other comparably sized REIT’s. Furthermore, the Committee compared the executives’ total compensation for 2016 to that within the REIT industry in the Survey described above. For fiscal 2016, the Company’s total compensation fell in the lowest range (25th percentile) within the REIT industry in the Survey described above.

 

The Committee considers and approves discretionary cash bonuses to be awarded to the Chairman of the Board and the President and Chief Executive Officer. Discretionary cash bonuses awarded to the other named executive officers are recommended by the Chairman of the Board and the President and Chief Executive Officer and are approved by the Committee. The Committee believes that short-term rewards in the form of discretionary cash bonuses to senior executives generally should reflect short-term results and should take into consideration both the profitability and performance of the Company and the performance of the individual, which may include comparing such individual’s performance to the preceding year, reviewing the breadth and nature of the senior executives’ responsibilities and valuing special contributions by each such individual. In evaluating the performance of the Company annually, the Committee considers a variety of factors, including, among others, Funds From Operations (FFO), Adjusted Funds From Operations (AFFO), net income, growth in asset size, amount of space under lease and total return to shareholders. The Company considers FFO to be an important measure of an equity REIT’s operating performance and has adopted the definition suggested by NAREIT, which defines FFO to mean net income computed in accordance with U.S. GAAP, excluding gains or losses from sales of property, plus real estate related depreciation and amortization. The Company defines AFFO as FFO plus acquisition costs and costs associated with the Redemption of Preferred Stock less recurring capital expenditures and excluding the following: lease termination income, gains or losses on securities transactions, stock compensation expense, amortization of financing and leasing costs, depreciation of corporate office tenant improvements, straight-line rent adjustments and non-recurring other expense. The Company considers FFO and AFFO to be meaningful additional measures of operating performance, primarily because they exclude the assumption that the value of its real estate assets diminishes predictably over time and because industry analysts have accepted these as performance measures.

 

Other factors considered include the employee’s title and years of service. The employee’s title generally reflects the employee’s responsibilities and the employee’s years of service may be considered in determining the level of discretionary cash bonus in comparison to base salary. The Committee has declined to use specific performance formulas with respect to the other named executive officers, believing that with respect to Company performance, such formulas do not adequately account for many factors, including, among others, the relative performance of the Company compared to its competitors during variations in the economic cycle, and that with respect to individual performance, such formulas are not a substitute for the subjective evaluation by the Committee of a wide range of management and leadership skills of each of the senior executives.

 

In fiscal 2016, the Committee considered the performance of the Chairman of the Board and the President and Chief Executive Officer and received the recommendations from the Chairman of the Board and the President and Chief Executive Officer for the discretionary cash bonuses to be awarded to the other named executive officers. The factors that were considered in awarding the discretionary cash bonuses included the progress in the following areas that was made by the Company due to the efforts of management:

 

  On October 1, 2015, the Company’s Board of Directors approved a 6.7% increase in the Company’s quarterly common stock dividend, raising it to $0.16 per share from $0.15 per share, representing an annualized dividend rate of $0.64 per share resulting in the Company being able to maintain or increase its cash dividend for twenty-five consecutive years;

 

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  Growth in total market capitalization, achieving $1.8 billion in total market capitalization at September 30, 2016, resulting in year over year growth of 53% in fiscal 2016;
     
  Total shareholder return, achieving a 55% total shareholder return for fiscal 2016;
     
  Growth in gross leasable area, achieving 15% year over year growth in fiscal 2016 with over 16.0 million total rentable square feet in fiscal 2016;
     
  Growth in AFFO per diluted share*, which achieved 23% year-over-year growth in fiscal 2016 and has been over 10% for three consecutive years;
     
    Location and acquisition of new, Class A industrial properties consistent with the Company’s investment strategy without placing undue burden on liquidity; eight were acquired in fiscal 2016;
     
  Completion of property expansions; during the fiscal years ended September 30, 2014, 2015 and 2016, fifteen property expansions were completed, totaling $52.5 million, generating over $5.2 million in additional rental revenue, and, on October 1, 2016, one additional property expansion was completed for $5.0 million, which will generate additional rental revenue of approximately $500,000;
     
  Entering into commitments to acquire industrial properties in future years; nine were entered into for acquisitions in fiscal 2017 and fiscal 2018 of which two were acquired subsequent to the fiscal year end;
     
  On September 13, 2016, closing of a new Series C Perpetual Preferred offering at 6.125%, raising $135 million in gross proceeds;
     
  Fundraising through the DRIP, which totaled approximately $72.2 million during fiscal 2016;
     
  Retention of tenants; all three leases that were scheduled to expire in fiscal 2016 were renewed, resulting in a 100% tenant retention rate and on terms resulting in an increase in the weighted average lease rate of 5.3% on a U.S. GAAP basis;
     
  Maintaining occupancy rate; 99.6% occupancy as of September 30, 2016, increasing to 100% currently;
     
  Increasing and extending the unsecured revolving credit facility from $130 million to $200 million with a $100 million accordion feature, bringing the total potential availability to $300 million; and
     
  Managing general and administrative costs to an appropriate level.

 

* This is a non-GAAP performance measure. See Financial Information for a discussion of our non-GAAP performance measures.

 

After considering the performance of the Chairman of the Board and the President and Chief Executive Officer and the recommendations of the Chairman of the Board and the President and Chief Executive Officer as to the other named executive officers, the Committee allocated the individual discretionary cash bonus to the named executive officers based on the named executive officers’ individual contributions to these accomplishments. Other factors considered in this allocation included the named executive officers’ responsibilities and years of service. During fiscal 2016, the Chairman of the Board received a discretionary cash bonus of $65,769. During fiscal 2016, the President and Chief Executive Officer received discretionary cash bonuses of $501,202 which includes a $400,000 cash signing bonus in accordance with his amended and restated Employment Agreement entered into on January 11, 2016.

 

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Stock Options and Restricted Stock

 

The employment agreement for the Chairman of the Board states that he will receive stock options to purchase 65,000 shares annually. The employment agreement for the President and Chief Executive Officer states that he will be entitled to equity awards of up to 25,000 shares of restricted stock each year based on achievement of performance objectives as determined by the Compensation Committee. In addition, the Compensation Committee has the discretion to make additional awards of stock options and restricted stock for outstanding performance. In recognition of Mr. Eugene Landy’s extraordinary contributions to the Company over the last five decades and, in particular, over the last year, on September 14, 2016, the Compensation Committee approved and granted a discretionary award of 40,000 shares of restricted common stock. The stock, which will vest in equal annual instalments over the next five years, has a grant date fair value of $13.64 per share, for a total grant date fair value of $545,600. When awarding these shares of restricted stock, the Compensation Committee took into account Mr. Eugene Landy’s recent contributions towards the progress that the Company made considered by the Committee in awarding discretionary cash bonuses, as further detailed above, under the heading “Bonuses”.

 

For the other senior executives, the Chairman of the Board and the President and Chief Executive Officer make a recommendation to the Committee of specific stock option or restricted stock grants. In making its decisions, the Committee does not use an established formula or focus on a specific performance target. The Committee recognizes that often outside forces beyond the control of management, such as economic conditions, changing leasing and real estate markets and other factors, may contribute to less favorable near term results even when sound strategic decisions have been made by the senior executives to position the Company for longer term profitability. Thus, the Committee also attempts to identify whether the senior executives are exercising the kind of judgment and making the types of decisions that will lead to future growth and enhanced asset value, even if the same are difficult to measure on a current basis. For example, in determining appropriate stock option and restricted stock awards, the Committee considers, among other matters, whether the senior executives have executed strategies that will provide adequate funding or appropriate borrowing capacity for future growth, whether acquisition and leasing strategies have been developed to ensure a future stream of reliable and increasing revenues for the Company, whether the selection of properties, tenants and tenant mix evidence appropriate risk management, including risks associated with real estate markets and tenant credit, and whether the administration of staff size and compensation appropriately balances the current and projected operating requirements of the Company with the need to effectively control overhead costs, while continuing to grow the enterprise. No equity awards were made to other named executive officers during fiscal 2016.

 

Other Personal Benefits

 

The Company’s employment agreements provide the named executive officers with other personal benefits that the Company and the Committee believe are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain superior employees for key positions. The Committee periodically reviews the levels of other personal benefits provided to the named executive officers.

 

The named executive officers are provided the following benefits under the terms of their employment agreements: an allotted number of paid vacation weeks; eligibility for the executive, as well as spouse and dependents where applicable, in all Company sponsored employee benefits plans, including 401(k) plan, group health, accident, and life insurance, on terms no less favorable than applicable to any other executive; and supplemental disability insurance, at the Company’s cost, as agreed to by the Company and the named executive officer. Attributed costs of the personal benefits described above for the named executive officers for the fiscal year ended September 30, 2016, are included in “All Other Compensation” of the Summary Compensation Table provided in this Proxy Statement.

 

Payments upon Termination or Change in Control

 

In addition, the named executive officers’ employment agreements each contain provisions relating to change in control events. The employment agreements also contain severance or continuation of salary payments upon any termination of the named executive officers’ employment, except in the case of Mr. Miller or Ms. Nagelberg, whose

 

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severance payments are for events other than for cause (as defined under the terms of the employment agreements). These change in control and severance terms have been deemed reasonable by the Compensation Committee. Information regarding these provisions is included in “Employment Agreements” provided in this Proxy Statement. There are no other agreements or arrangements governing change in control payments.

 

Evaluation

 

Mr. Eugene Landy is employed under an Amended Employment Agreement with the Company. In January 2016, based on the Committee’s evaluation of his performance, his base compensation under his amended contract was increased from $410,000 to $430,500 per year.

 

In evaluating Mr. Eugene Landy’s eligibility for an annual bonus, the Committee used the bonus schedule included in Mr. Eugene Landy’s Amended Employment Agreement as a guide.

 

In recognition of Mr. Eugene Landy’s extraordinary contributions to the Company over the last five decades and, in particular, over the last year, as well as his contributions toward the Company’s progress as further detailed above, under the heading “Bonuses”, on September 14, 2016, the Compensation Committee determined to grant to Mr. Landy 40,000 shares of restricted common stock. The restricted stock, which will vest in equal annual installments over the next five years, has a grant date fair value of $13.64 per share, for a total grant date fair value of $545,600. In evaluating Mr. Eugene Landy’s eligibility for an annual bonus, the Compensation Committee used the bonus schedule included in Mr. Eugene Landy’s employment agreement as a guide and, in addition, considered the factors as further detailed above, under the heading “Bonuses” in considering Mr. Eugene Landy’s eligibility for a discretionary cash bonus.

 

The Compensation Committee also reviewed the progress made by Mr. Michael P. Landy, President and Chief Executive Officer, as well as his contributions toward the progress that the Company has made that enabled the Company to reach the milestones, as further detailed above, under the heading “Bonuses”. Mr. Landy is employed under an employment agreement with the Company. His base compensation under this contract was $551,250 for fiscal 2016. Effective October 1, 2016, Mr. Landy’s annual base compensation was increased to $750,000 and will increase by 5% each year through fiscal 2021. The amended employment agreement has an initial term of five years, and is renewed automatically for a new five-year term on the first day of each calendar quarter after the effective date unless otherwise terminated, and contains provisions for continuation of salary payments through the expiration of the term of the agreement upon any termination of Mr. Landy’s employment. Upon execution of the amended employment agreement, Mr. Landy received a cash signing bonus of $400,000 in recognition of the substantial progress that the Company has made under his leadership. In considering the new employment agreement and signing bonus, the Compensation Committee took into account the transformative changes that Company has enjoyed over the past several years, which include the Company’s total market capitalization growing more than three-fold since fiscal 2010, and the company’s total assets nearly tripling as well since that time, while the Company’s general and administrative expenses only doubled over this period. In evaluating Mr. Landy’s eligibility for an annual bonus, the Compensation Committee used the bonus schedule included in Mr. Landy’s employment agreement as a guide and, in addition, considered the factors discussed above, under the heading “Bonuses” in considering Mr. Landy’s eligibility for a discretionary cash bonus.

 

The Committee has also approved the recommendations of the Chairman of the Board and the President and Chief Executive Officer concerning the other named executive officers’ annual salaries, bonuses, and fringe benefits.

 

Effective January 1, 2016, Mr. Miller’s annual base compensation was increased from $242,550 to $360,000 for the calendar year ended December 31, 2016, and will increase by 5% each calendar year through December 31, 2018. Mr. Miller’s employment agreement was also amended to provide that, upon a change of control of the Company, Mr. Miller may extend and renew the amended employment agreement for three years from the date of the change of control, or, alternatively, terminate the amended employment agreement and receive the greater of the base salary due under the remaining term of the agreement or one year’s base salary at the date of termination. Mr. Miller was awarded his new amended employment agreement because of the many contributions he has made towards the Company’s progress, as further detailed above, under the heading “Bonuses”.

 

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Compensation Committee Report

 

The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the board that the Compensation Discussion and Analysis be included in this report.

 

     

Compensation Committee:

   
           
      Stephen B. Wolgin (Chairman)    
      Brian H. Haimm    
      Matthew I. Hirsch    

 

Summary Compensation Table

 

The following Summary Compensation Table shows compensation paid or accrued by the Company for services rendered during the fiscal years ended September 30, 2016, 2015, and 2014 to the named executive officers. There were no other executive officers whose aggregate compensation allocated to the Company for fiscal 2016 exceeded $100,000.

 

Name and
Principal Position
   Fiscal
Year
  Salary
($)
  Bonus
($)
  Restricted
Stock
Awards (4)
  Option
Awards
($) (5)
  Non-Equity Incentive Plan Compensation
($)
  Change in
Pension Value
And Nonqualified
Deferred Compensation
Earnings
($)
  All Other
Compensation ($)
  Total ($)
Eugene W. Landy     2016   $425,375   $65,769   $545,600   $48,340   $210,000    $16,601(1)  $49,500(2)   $1,361,185 
Chairman of the Board     2015    403,750    24,808    59,320    60,315    -0-    19,075(1)  47,000(2)    614,268 
      2014    357,500    27,500    -0-    34,549    90,000    30,625(1)  42,000(2)    582,174 
                                                
Michael P. Landy     2016   $551,250   $501,202   $-0-   $-0-   $135,000   $-0-   $63,100(3)   $1,250,552 
President and Chief     2015    525,000    100,192    158,920    -0-    -0-    -0-   60,400(3)    844,512 
Executive Officer     2014    500,000    82,500    -0-    -0-    60,000    -0-   55,200(3)    697,700 
                                                
Kevin S. Miller     2016   $330,637   $74,329   $-0-   $-0-   $-0-   $-0-   $10,600(7)   $415,567 
Chief Financial and     2015    239,663    73,885    99,600    -0-    -0-    -0-   10,400(7)    423,548 
Accounting Officer     2014    228,250    67,500    101,900    -0-    -0-    -0-   9,460(7)    407,110 
                                                
Allison Nagelberg     2016   $337,188   $62,500   $-0-   $-0-   $-0-   $-0-   $10,600(7)   $410,288 
General Counsel     2015    312,656    60,601    49,800    -0-    -0-    -0-   10,400(7)    433,457 
      2014    252,656(6)    52,500    -0-    -0-    -0-    -0-   7,140(7)    312,296 

 

Notes:

 

  (1) Accrual for pension and other benefits of $16,601, $19,075 and $30,625 for fiscal 2016, 2015 and 2014, respectively, in accordance with Mr. Landy’s employment agreement.
  (2) Represents Director’s annual board cash retainer fee of $33,500, $31,000 and $26,000 for fiscal 2016, 2015 and 2014, respectively, and Director’s meeting fees of $16,000, $16,000 and $16,000 for fiscal 2016, 2015 and 2014, respectively.
  (3) Represents Director’s annual board cash retainer fee of $33,500, $31,000 and $26,000 for fiscal 2016, 2015 and 2014, respectively, and Director’s meeting fees of $16,000, $16,000 and $16,000 for fiscal 2016, 2015 and 2014, respectively, and fringe benefits and discretionary contributions by the Company to the Company’s 401(k) Plan allocated to an account of the named executive officer and reimbursement of a disability policy.
  (4) The values were established based on the number of shares granted as follows, for fiscal 2016, 9/14/16-$13.64 (see table below for detail), for fiscal 2015, 7/5/15 - $9.96 and 9/17/15 – $9.52 and for fiscal 2014, 7/5/14 - $10.19.
  (5) The fair value of the stock option grant was based on the Black-Scholes valuation model. See Note 9 to the Consolidated Financial Statements for assumptions used in the model. The actual value of the options will depend upon the performance of the Company during the period of time the options are outstanding and the price of a Common Share on the date of exercise.

 

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  (6) Allison Nagelberg, the Company’s General Counsel, was an employee of UMH through December 31, 2013. During the 1st quarter of fiscal 2014, approximately 70% of her salary compensation cost was allocated to and reimbursed by the Company for her services, pursuant to a cost sharing arrangement between the Company and UMH. Effective January 1, 2014, Ms. Nagelberg became an employee of the Company and her salary is no longer allocated between UMH and the Company.
  (7) Consists of fringe benefits and discretionary contributions by the Company to the Company’s 401(k) Plan allocated to an account of the named executive officer.

 

Equity Compensation Plan Information

 

On July 26, 2007, the 2007 Stock Option and Stock Award Plan (the Original Plan) was approved by the Company’s shareholders authorizing the grant to officers, directors and key employees, of options to purchase up to 1,500,000 Common Shares. On May 6, 2010, the Company’s shareholders approved an amendment and restatement of the Original Plan. The amendment and restatement made two significant changes: (1) the inclusion of directors as participants in the Original Plan and (2) the ability to grant restricted stock to Directors, officers and key employees. The amendment and restatement also made other conforming, technical and minor changes. The amendment also makes certain modifications and clarifications, including concerning administration and compliance with applicable tax rules, such as Section 162(m) of the Internal Revenue Code.

 

Options to purchase 65,000 shares were granted in fiscal 2016 and options to purchase 245,000 shares were exercised during fiscal 2016. In addition, during fiscal 2016, 40,000 shares of restricted common stock were granted at a grant date fair value of $13.64 per share. As of September 30, 2016, the number of shares remaining for future grant of stock options or restricted stock under the Original Plan is 444,878.

 

Options may be granted under the Original Plan any time as determined by the Compensation Committee up through March 26, 2017. No option granted under the Original Plan shall be available for exercise beyond ten years. All options are exercisable after one year from the date of grant. The option price under the Original Plan may not be below the fair market value at date of grant. Canceled or expired options are added back to the “pool” of shares available under the Original Plan.

 

Under the Original Plan, the Compensation Committee determines the recipients of restricted stock awards; the number of restricted shares to be awarded; the length of the restricted period of the award; the restrictions applicable to the award including, without limitation, the employment or retirement status of the participant; rules governing forfeiture and restrictions applicable to any sale, assignment, transfer, pledge or other encumbrance of the restricted stock during the restricted period; and the eligibility to share in dividends and other distributions paid to the Company’s shareholders during the restricted period. The maximum number of shares underlying restricted stock awards that may be granted in any one fiscal year to a participant is 100,000.

 

After September 30, 2016, the Company has granted additional options to purchase 215,000 Common Shares. No other awards of restricted stock were made and no options to purchase shares were exercised. As of March 14, 2017, 164,878 shares remained available for grant under the Original Plan, and the Original Plan expired on March 26, 2017.

 

Grants of Plan-Based Awards

 

All restricted stock awards granted during fiscal year 2016 vest 1/5th per year over a five year period and all dividends paid are reinvested in restricted stock. The following table sets forth, for the executive officers named in the Summary Compensation Table, information regarding individual grants of restricted stock and individual grants of stock options made under the Original Plan during the fiscal year ended September 30, 2016:

 

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Name    Grant Date  Number of
Shares of
Restricted Stock
  Number of Shares
Underlying
Options
  Exercise Price of Option Award or Fair Value
Per Share at Grant Date
of Restricted Stock Award
  Grant Date
Fair Value
Eugene W. Landy    01/05/16   -0-    65,000 (1)   $10.37    $48,100(2) 
Eugene W. Landy    09/14/16   40,000    -0-    13.64    545,600 

 

  (1) These options expire 8 years from grant date.
  (2) This value was established using the Black-Scholes stock option valuation model. The following weighted-average assumptions were used in the model: expected volatility of 20.20%; risk-free interest rate of 2.09%; dividend yield of 6.17%; expected life of options of 8 years; and -0- estimated forfeitures. The fair value per share granted was $0.74. The actual value of the options will depend upon the performance of the Company during the period of time the options are outstanding and the price of a Common Share on the date of exercise.

 

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

 

Our executive compensation policies and practices, pursuant to which the compensation set forth in the Summary Compensation Table and the Grants of Plan-Based Awards Table was paid or awarded to our named executive officers, are described above under “Compensation Discussion and Analysis” and below under “Employment Agreements.”

 

Option Exercises and Stock Vested

 

The following table sets forth summary information concerning option exercises and vesting of restricted stock awards for each of the named executive officers during the fiscal year ended September 30, 2016:

 

Fiscal Year Ended September 30, 2016
   Option Awards  Restricted Stock Awards
Name  Number of Shares
Acquired on Exercise
(#)
  Value Realized on
Exercise (1)
($)
  Number of Shares
Acquired on Vesting
(#)
  Value realized on
Vesting
($)
Eugene W. Landy   130,000   $570,050    11,003   $153,058(2)
Michael P. Landy   50,000    131,250    9,250    127,270(3)
Kevin S. Miller   -0-    -0-    6,805    91,255(4)
Allison Nagelberg   -0-    -0-    5,106    70,844(5)

 

(1) Value realized based on the difference between the closing price of the shares on the NYSE as of the date of exercise less the exercise price of the stock option.
(2) Value realized based on the closing price of the shares on the NYSE as of the date of vesting made up of 6,080 shares vested on 7/5/16 at $13.41 per share; 4,458 shares vested on 9/6/16 at $14.62 per share and 465 shares vested on 9/14/16 at $13.64 per share.
(3) Value realized based on the closing price of the shares on the NYSE as of the date of vesting made up of 6,208 shares vested on 7/5/16 at $13.41 per share; 2,577 shares vested on 9/6/16 at $14.62 per share and 465 shares vested on 9/14/16 at $13.64 per share.
(4) Value realized based on the closing price of the shares on the NYSE as of the date of vesting made up of 6,805 shares vested on 7/5/16 at $13.41 per share.
(5) Value realized based on the closing price of the shares on the NYSE as of the date of vesting made up of 3,147 shares vested on 7/5/16 at $13.41 per share and 1,959 shares vested on 9/6/16 at $14.62 per share.

 

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Outstanding Equity Awards at Fiscal Year End

 

The following table sets forth for the executive officers named in the Summary Compensation Table, information regarding stock options and restricted stock outstanding at September 30, 2016:

 

Fiscal Year Ended September 30, 2016
     Option Awards  Restricted Stock Awards
Name    Number of
Securities
Underlying
Unexercised
Options
Exercisable
  Number of
Securities
Underlying
Unexercised
Options
Unexercisable
  Option
exercise
price ($)
  Option
expiration
date
  Number of
Shares That
Have Not Vested
  Market Value
Of Shares that Have
Not Vested (2)
Eugene W. Landy (1)                        49,989 (3)  $713,343 
      -0-    65,000   $10.37    01/05/24         
      65,000    -0-    11.16    01/05/23         
      65,000    -0-    8.94    01/03/22         
      65,000    -0-    10.46    01/03/21         
      65,000    -0-    9.33    01/03/20         
      65,000    -0-    8.72    01/03/19         
      65,000    -0-    7.22    01/05/18         
Michael P. Landy     -0-    -0-   $-0-    -     16,675 (4)  $237,952 
Kevin S. Miller     -0-    -0-   $-0-    -     20,374 (5)  $290,737 
Allison Nagelberg     -0-    -0-   $-0-    -     6,315 (6)  $90,115 

 

  (1) These options will become exercisable on January 5, 2017.
  (2) Based on the closing price of a Common Share on September 30, 2016 of $14.27. Restricted stock awards vest over 5 years.
  (3) 4,568 shares vest on September 6, 2017; 264 shares vest on September 14, 2017; 4,308 shares vest 1/4 on September 17th over the next 4 years; 849 shares vest 1/4 on September 14th over the next 4 years and 40,000 shares vest 1/5th on September 14th over the next 5 years.

  (4) 2,641 shares vest on September 6, 2017; 264 shares vest September 14, 2017; 12,920 shares vest 1/4 on July 5th over the next 4 years; and 850 shares vest 1/4th on September 14th over the next 4 years.
  (5) 4,899 shares vest 1/2 on July 5th over the next 2 years; 6,861 shares vest 1/3th on July 5th over the next 3 years and 8,614 shares vest 1/4th on July 5th over the next 4 years.
  (6) 2,007 shares vest on September 6, 2017 and 4,308 shares vest 1/4th on July 5th over the next 4 years.

 

Employment Agreements

 

Eugene W. Landy, the Company’s Chairman of the Board, executed an Employment Agreement on December 9, 1994, which was amended on June 26, 1997 (the “First Amendment”), on November 5, 2003 (the “Second Amendment”), on April 1, 2008 (the “Third Amendment”), on July 1, 2010 (the “Fourth Amendment”), on April 25, 2013 (the “Fifth Amendment”), on December 20, 2013 (the “Sixth Amendment”), on December 18, 2014 (the “Seventh Amendment”) and on January 12, 2016 (the “Eighth Amendment”) – collectively, the “Amended Employment Agreement”. Pursuant to the Amended Employment Agreement, Mr. Eugene Landy’s base salary was $410,000 per year, effective January 1, 2015, and was increased pursuant to the Eighth Amendment to $430,500 per year, effective January 1, 2016. He is entitled to receive pension payments of $50,000 per year through 2020; in fiscal 2015, the Company accrued $19,075 in additional compensation expense related to the pension benefits. Mr. Eugene Landy’s incentive bonus schedule is detailed in the Fourth Amendment and is based on progress toward achieving certain target levels of growth in market capitalization, funds from operations and dividends per share. Pursuant to the Amended Employment Agreement, Mr. Eugene Landy will receive each year an option to purchase 65,000 Common Shares. Mr. Eugene Landy is entitled to five weeks paid vacation annually, and he is entitled to participate in the Company’s employee benefit plans.

 

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The Amended Employment Agreement provides for aggregate severance payments of $500,000, payable to Mr. Eugene Landy upon the termination of his employment for any reason in increments of $100,000 per year for five years. He is entitled to disability payments in the event of his disability (as defined in the Amended Employment Agreement) for a period of three years equal to his base salary. The Amended Employment Agreement provides for a death benefit of $500,000, payable to Mr. Eugene Landy’s designated beneficiary. Upon the termination of Mr. Eugene Landy’s employment, following, or as a result of, certain types of transactions that lead to a significant increase in the Company’s market capitalization, the Amended Employment Agreement provides that Mr. Eugene Landy will receive a grant of 35,000 to 65,000 Common Shares, depending on the amount of the increase in the Company’s market capitalization, all of his outstanding options to purchase Common Shares will become immediately vested, and he will be entitled to continue to receive benefits under the Company’s health insurance and similar plans for one year. In the event of a change in control of the Company, Eugene W. Landy shall receive a lump sum payment of $2,500,000, provided that the sale price of the Company is at least $10 per Common Share. A change of control is defined as the consummation of a reorganization, merger, share exchange, consolidation, or sale or disposition of all or substantially all of the assets of the Company. This change of control provision will not apply to any combination between the Company and UMH. Payment will be made simultaneously with the closing of the transaction, and only in the event that the transaction closes. The Amended Employment Agreement is terminable by the Company’s Board of Directors at any time by reason of Mr. Eugene Landy’s death or disability or for cause, which is defined in the Amended Employment Agreement as a termination of the agreement if the Company’s Board of Directors determines in good faith that Mr. Eugene Landy failed to substantially perform his duties to the Company (other than due to his death or disability), or has engaged in conduct the consequences of which are materially adverse to the Company, monetarily or otherwise. Upon termination of the Amended Employment Agreement, Mr. Eugene Landy will remain entitled to the disability, severance, death and pension benefits provided for in the Amended Employment Agreement.

 

Effective April 9, 2013, Michael P. Landy was appointed President and Chief Executive Officer. Prior to April 9, 2013, Mr. Landy was the Chief Operating Officer. Effective October 1, 2013, the Company and Michael P. Landy entered into a three-year employment agreement, under which Mr. Landy received an annual base salary of $500,000 for fiscal year 2014 with increases of 5% for each of fiscal years 2015 and 2016, plus bonuses and customary fringe benefits. Mr. Landy’s incentive bonus schedule is based on progress toward achieving certain target levels of growth in market capitalization, adjusted funds from operations and dividends per share. Mr. Landy also receives four weeks’ vacation, annually. The Company reimburses Mr. Landy for the cost of a disability insurance policy such that, in the event of Mr. Landy’s disability for a period of more than 90 days, Mr. Landy will receive benefits up to 60% of his then-current salary. In the event of a merger, sale or change of voting control of the Company, excluding transactions between the Company and UMH, Mr. Landy will have the right to extend and renew this employment agreement so that the expiration date will be three years from the date of merger, sale or change of voting control, or Mr. Landy may terminate the employment agreement and be entitled to receive one year’s compensation in accordance with the agreement. If there is a termination of employment by the Company or by Mr. Landy for any reason, either involuntary or voluntary, including the death of the employee, other than a termination for cause as defined by the agreement, Mr. Landy shall be entitled to the greater of the base salary due under the remaining term of the agreement or two years’ compensation at the date of termination, paid monthly over the remaining term or life of the agreement.

 

On January 11, 2016, the Company entered into an amended and restated Employment Agreement (“Employment Agreement”) with Michael P. Landy, which became effective October 1, 2016. Upon signing the Employment Agreement, Mr. Landy received a signing bonus of $400,000 in recognition of the substantial progress that the Company has made under his leadership. Effective October 1, 2016, Mr. Landy receives an annual base salary of $750,000 for fiscal year 2017 with increases of 5% for each of fiscal years 2018, 2019, 2020 and 2021, plus targeted bonuses and customary fringe benefits. The Employment Agreement has an initial term of five years, and is renewed automatically for a new five-year term on the first day of each calendar quarter after the effective date unless otherwise terminated. For fiscal years after 2021, Mr. Landy’s base salary shall be set by the Compensation Committee of the Company’s Board of Directors but will be no less than his base salary for the preceding year. Mr. Landy will receive annual cash bonuses based on the Company’s achievement of certain performance objectives as determined by the Compensation Committee: a) Growth in Market Cap of 10%, 15% or 20%, Mr. Landy will receive $40,000, $60,000 or $80,000, respectively; b) Growth in AFFO per share of 5%, 10%, 15%, or 20%, Mr. Landy will receive $50,000, $75,000, $100,000 or $150,000, respectively; and c) Growth in

 

57
 

 

Dividend per Share of 5%, 10% or 15%, Mr. Landy will receive $150,000, $200,000 or $250,000, respectively. Mr. Landy will also be entitled to equity awards of up to 25,000 shares of restricted stock each year based on achievement of performance objectives as determined by the Compensation Committee. Mr. Landy also receives four weeks’ vacation annually and he is entitled to customary fringe benefits including life insurance, health benefits and the right to participate in the Company’s 401(k) retirement plan. The Company reimburses Mr. Landy for the cost of a disability insurance policy such that, in the event of Mr. Landy’s disability for a period of more than 90 days, Mr. Landy will receive benefits up to 60% of his then-current salary. Under the Employment Agreement, if Mr. Landy’s employment is terminated for any reason, either voluntarily or involuntarily, including the death of Mr. Landy or termination for cause, Mr. Landy shall be entitled to the base salary plus base target bonuses due under the Employment Agreement for the remaining term of the Employment Agreement (as it has been renewed). The Employment Agreement also provides that, upon a change of control of the Company (as defined below), the Employment Agreement will automatically renew for five years from the date of the change in control and Mr. Landy shall have the right to terminate the Employment Agreement and continue to receive the base salary plus base target bonuses and restricted stock awards he would have been entitled to receive during the remaining term of the Employment Agreement. In addition, provided that Mr. Landy is actively employed by the Company as of the consummation of a change of control, Mr. Landy shall be entitled to a transaction bonus consistent with the terms of any applicable transaction bonus plan that the Company may adopt. The term “Change of Control” under Mr. Landy’s amended employment agreement means (i) a sale of substantially all of the Company’s assets, not in the ordinary course, to an unaffiliated third party, (ii) the transfer, in one transaction or a series of transactions, to an unaffiliated third party, of outstanding shares of the Company’s capital stock representing a majority of the then outstanding voting stock, (iii) a majority of the Company’s Directors ceasing to be individuals who either were members of the Board immediately following the Company’s 2014 Annual Meeting of Shareholders, or whose election as a director was approved by a majority of such incumbent directors or their approved successors, (iv) a merger or consolidation having the same effect as item (i), (ii) or (iii) above or (iv) any other event of a nature that would be required to be reported as a change of control in item 5.01 of Form 8-K under the Securities Exchange Act of 1934, as amended (or any successor provision thereto).

 

Effective January 1, 2013, the Company and Kevin S. Miller, Chief Financial and Accounting Officer, entered into a three-year employment agreement, under which Mr. Miller received an annual base salary of $220,000 for calendar year 2013 with increases of 5% for each of calendar years 2014 and 2015, plus bonuses and customary fringe benefits. Mr. Miller also received four weeks’ vacation, annually. The Company reimbursed Mr. Miller for the cost of a disability insurance policy such that, in the event of Mr. Miller’s disability for a period of more than 90 days, Mr. Miller will receive benefits up to 60% of his then-current salary. In the event of a merger, sale or change of voting control of the Company, excluding transactions between the Company and UMH, Mr. Miller would have had the right to extend and renew this employment agreement so that the expiration date would have been three years from the date of merger, sale or change of voting control, or Mr. Miller could terminate the employment agreement and be entitled to receive one year’s compensation in accordance with the agreement. If there were a termination of employment by the Company or by Mr. Miller for any reason, either involuntary or voluntary, including the death of the employee, other than a termination for cause as defined by the agreement, Mr. Miller was entitled to one year’s base salary at the date of termination, paid monthly over the remaining term or life of the agreement.

 

Effective January 1, 2016, the Company and Kevin S. Miller, entered into a new three-year employment agreement, under which Mr. Miller will receive an annual base salary of $360,000 for calendar year 2016 with increases of 5% for each of calendar years 2017 and 2018, plus bonuses and customary fringe benefits. Mr. Miller also receives four weeks’ vacation, annually. The Company reimburses Mr. Miller for the cost of a disability insurance policy such that, in the event of Mr. Miller’s disability for a period of more than 90 days, Mr. Miller will receive benefits up to 60% of his then-current salary. In the event of a merger, sale or change of voting control of the Company, excluding transactions between the Company and UMH, Mr. Miller will have the right to extend and renew the employment agreement so that the expiration date will be three years from the date of merger, sale or change of voting control, or Mr. Miller may terminate the employment agreement and be entitled to receive the greater of the base salary due under the remaining term of the agreement or one year’s base salary at the date of termination, paid monthly over the remaining term or life of the agreement. If there is a termination of employment by the Company or by Mr. Miller for any reason, either involuntary or voluntary, including the death of the employee, other than a termination for cause as defined by the agreement, Mr. Miller shall be entitled to the greater of the base salary due under the remaining term of the agreement or one year’s base salary at the date of termination, paid monthly over the remaining term or life of the agreement.

 

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Effective January 1, 2014, the Company and Allison Nagelberg, General Counsel, entered into a three-year employment agreement, under which Ms. Nagelberg received an annual base salary of $275,625 for calendar year 2014, $325,000 for calendar year 2015, and $341,250 for calendar year 2016, plus bonuses and customary fringe benefits. Effective January 1, 2017, the Company and Ms. Nagelberg entered into a new three-year employment agreement, under which Ms. Nagelberg receives an annual base salary of $358,313 for calendar year 2017, $376,228 for calendar year 2018, and $395,040 for calendar year 2019, plus bonuses and customary fringe benefits. Under both the former January 1, 2014 employment agreement and under the new January 1, 2017 employment agreement, Ms. Nagelberg receives the following benefits: Ms. Nagelberg receives four weeks’ vacation, annually. The Company reimburses Ms. Nagelberg for the cost of a disability insurance policy such that, in the event of Ms. Nagelberg’s disability for a period of more than 90 days, Ms. Nagelberg will receive benefits up to 60% of her then-current salary. In the event of a merger, sale or change of voting control of the Company, excluding transactions between the Company and UMH, Ms. Nagelberg will have the right to extend and renew this employment agreement so that the expiration date will be three years from the date of merger, sale or change of voting control, or Ms. Nagelberg may terminate the employment agreement and be entitled to receive one year’s compensation in accordance with the agreement. If there is a termination of employment by the Company or Ms. Nagelberg for any reason, either involuntary or voluntary, including the death of the employee, other than a termination for cause as defined by the agreement, Ms. Nagelberg shall be entitled to the greater of the base salary due under the remaining term of the agreement or one year’s compensation at the date of termination, paid monthly over the remaining term or life of the agreement.

 

Potential Payments upon Termination of Employment or Change-in-Control

 

Under the employment agreements with our President and Chief Executive Officer and the other named executive officers listed below, our President and Chief Executive Officer and such other named executive officers are entitled to receive the following estimated payments and benefits upon a termination of employment or voluntary resignation (with or without a change-in-control). These disclosed amounts are estimates only and do not necessarily reflect the actual amounts that would be paid to the named executive officers, which would only be known at the time that they become eligible for payment and would only be payable if a termination of employment, or voluntary resignation, were to occur. The table below reflects the amount that could be payable under the various arrangements assuming that the termination of employment had occurred at September 30, 2016. Each of the employees named in the table below have restricted stock awards and/or stock option awards which are listed in the “Outstanding Equity Awards at Fiscal Year End” table previously disclosed. Restricted Stock Awards vest upon the termination of an employee due to death or disability. In addition, restricted stock awards vest on the date of an involuntary termination of employment with the Company if the employee retires. If the termination of employment is for any other reason, including voluntary resignation, termination not for cause or good reason resignation, termination for cause, or termination not for cause or good reason (after a change in control), the restricted stock awards are forfeited. Regarding the stock option awards, if the termination is for any reason other than a termination for cause, the stock option awards may be exercised until three months after the termination of employment. If the termination is for cause, the stock option awards are forfeited.

 

59
 

 

    

Voluntary

Resignation

on

9/30/16

    

Termination

Not for Cause

Or

Good Reason

Resignation

on

9/30/16

    

 

Termination

For Cause

on

9/30/16

    

Termination

Not for Cause or Good

Reason Resignation

(After a Change-in-Control)

on

9/30/16

    

 

 

 

 

Disability/

Death on

9/30/16

 
Eugene W. Landy   $527,958 (3)    $527,958 (3)    $508,279 (2)    $3,027,959 (4)    $1,819,459 (5) 
Michael P. Landy   4,144,217 (6)    4,144,217 (6)    4,144,217 (6)    4,144,217 (6)    4,144,217 (6) 
Kevin S. Miller   864,900 (7)    864,900 (7)    6,923 (1)    864,900 (7)    864,900 (7) 
Allison Nagelberg   341,250 (8)    341,250 (8)    6,563 (1)    341,250 (8)    341,250 (8) 

 

  (1) Consists of accrued vacation time, which would be payable in a lump sum payment.
  (2) Consists of severance payments of $500,000, payable $100,000 per year for 5 years, and $8,279 of accrued vacation, which would be payable in a lump sum payment.
  (3) Consists of severance payments of $500,000, payable $100,000 per year for 5 years, plus the $19,680 estimated cost of continuation of benefits for one year following termination and $8,279 of accrued vacation, which would be payable in a lump sum payment.
  (4) Mr. Eugene W. Landy shall receive a lump-sum payment of $2,500,000 in the event of a change in control, provided that the sale price of the Company is at least $10 per Common Share. In addition, if Mr. Eugene W. Landy’s employment agreement is terminated, he receives severance payments of $500,000, which would be payable $100,000 per year for 5 years, continuation of benefits for one year following termination and accrued vacation.
  (5) In the event of a disability, as defined in the agreement, Mr. Eugene W. Landy shall receive disability payments equal to his base salary for a period of three years, continuation of benefits for one year following termination and accrued vacation. He has a death benefit of $500,000 payable in a lump sum to Mr. Eugene W. Landy’s beneficiary.
  (6) Payments are calculated based on Mr. Michael P. Landy’s amended and restated employment agreement, which became effective October 1, 2016, which is the base salary due under the remaining term of the agreement.
  (7) Payments are calculated based on Mr. Kevin S. Miller’s employment agreement, which is the greater of the base salary due under the remaining term of the agreement or one year’s base salary at the date of termination.
  (8) Payments are calculated based on Ms. Allison Nagelberg’s employment agreement (that was in effect as of September 30, 2016, which is her employment agreement effective January 1, 2014) which is the greater of the base salary due under the remaining term of the agreement or one year’s compensation at the date of termination.

 

The Company retains the discretion to compensate any officer upon any future termination of employment or a change-in-control. The Compensation Committee has assessed our compensation program for the purpose of viewing and considering any risks presented by our compensation policies and practices that are likely to have a material adverse effect on us. As part of that assessment, management reviewed the primary elements of our compensation program, including base salary, annual bonus opportunities, equity compensation and severance arrangements. Management’s risk assessment included a review of the overall design of each primary element of our compensation program, and an analysis of the various design features, controls and approval rights in place with respect to compensation paid to management and other employees that mitigate potential risks to us that could arise from our compensation program. Following the assessment, management determined that our compensation policies and practices did not create risks that were reasonably likely to have a material adverse effect on us and reported the results of the assessment to the Compensation Committee.

 

Director Compensation

 

Effective September 1, 2013, Directors received a fee of $4,000 for each Board meeting attended, $500 for each Board telephone meeting attended, and an additional fixed annual fee of $26,000 payable quarterly. Directors appointed to board committees receive $1,200 for each committee meeting attended. Effective January 1, 2015, the Directors’ annual fee increased from $26,000 to $31,000. Effective September 12, 2016, the Directors’ annual fee increased from $31,000 to $41,000. All other fees remained the same.

 

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The table below sets forth a summary of director compensation for the fiscal year ended September 30, 2016:

 

Director  Annual Board Cash
Retainer
  Meeting Fees  Committee Fees  Total Fees Earned or Paid in Cash
Anna T. Chew  $33,500   $16,000   $-0-   $49,500 
Daniel D. Cronheim   33,500    16,000    -0-    49,500 
Catherine B. Elflein (3)   33,500    16,000    4,800    54,300 
Brian H. Haimm (2)(3)(4)   33,500    16,000    6,500    56,000 
Neal Herstik (5)   33,500    16,000    -0-