Item 5.02. Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
On February 16, 2021, Power Solutions International, Inc. (the "Company" or
"PSI) announced the appointment of Lance Arnett to serve as the Company's Chief
Executive Officer effective February 15, 2021 (the "Effective Date"). Mr. Arnett
will succeed John P. Miller, who has retired from his position as Chief
Executive Officer and President by mutual agreement with the Company effective
the Effective Date following a transition period. Mr. Miller has agreed to
transition his responsibilities pursuant to an agreement between Mr. Miller and
the Company as discussed below.
Mr. Arnett, age 50, has served as PSI's Chief Commercial Officer since
November 18, 2019. Mr. Arnett has more than 25 years of sales, business
development and operational experience. Prior to joining the Company, from
January 2009 to November 2019, he worked at Cummins Inc., a NYSE-listed global
company that designs, manufactures, distributes and services a broad portfolio
of power solutions. During his tenure at Cummins, he served in various
capacities for Cummins Central Region in Minnesota, most recently serving as
Director and Chief of Staff of their North American OEM Performance Cell. In
this capacity, he oversaw direct strategy for their North American business
including sales, engineering, assembly and upfit, pricing, marketing, and
customer support. His previous roles at Cummins Central Region include serving
as Interim President, Vice President of OEM Business, Vice President of OEM and
Customer Care and Executive Director of Operational Effectiveness. Prior
thereto, from 2006 to 2009, he worked as Business Development Manager for
PreVisor, Inc. and, from 2001 to 2006, he served as director, Franchise Sales
and Development at Mighty Distributing System of America. Earlier in his career,
he served in management and sales roles within the staffing industry.
Arnett Employment Agreement
In connection with Mr. Arnett's appointment as Chief Executive Officer,
Mr. Arnett and the Company entered into an Employment Agreement, effective the
Effective Date (the "Employment Agreement"), which supersedes Mr. Arnett's
previous employment agreement as Chief Commercial Officer. The Employment
Agreement provides that Mr. Arnett will receive (a) an annual salary of $400,000
per year, which will increase to $425,000 per year on August 15, 2021; (b) an
annual incentive bonus under the Company's Key Performance Indictor Plan ("KPI")
with a target 60% of his base salary or as generally determined by the Company;
(c) a bonus under the Company's Long Term Incentive ("LTI") plan with a target
of 60% of his base salary or as generally determined by the Company; (d) subject
to approval of the Compensation Committee of the Board of Directors (the
"Compensation Committee"), an award of 80,000 stock appreciation rights ("SARs")
pursuant to the Company's 2012 Incentive Compensation Plan, with a strike price
determined at the time of the Compensation Committee's approval, and with
vesting to occur in equal installments on each of the first four anniversaries
of the Effective Date, subject to his continued employment; (e) an automobile
allowance of $1,200 per month; (f) up to $20,000 in reasonable relocation
expenses if Mr. Arnett moves to the Chicagoland area; and (g) standard employee
benefits as are generally available to employees of the Company.
If the Company terminates Mr. Arnett without cause (as defined in the Employment
Agreement), in addition to payment of any accrued obligations, Mr. Arnett would
be eligible to receive severance, subject to his execution of a general release
of claims, consisting of: (i) any determined, but unpaid, KPI or LTI bonus
relating to the fiscal year prior to the fiscal year of termination;
(ii) accelerated vesting of any unvested SARs; (iii) a prorated KPI or LTI bonus
for the fiscal year in which his termination occurs; (iv) 12 months of salary
continuation payments; and (v) 12 months of health benefit continuation coverage
on the same terms as provided before Mr. Arnett's termination. Mr. Arnett will
be subject to non-competition and non-solicitation obligations for a period of
12 months following any termination of his employment.
There are no family relationships between Mr. Arnett and any of the directors or
executive officers of the Company, and there are no transactions in which
Mr. Arnett has an interest requiring disclosure under Item 404(a) of Regulation
S-K. There is no arrangement or understanding between Mr. Arnett and any other
person pursuant to which Mr. Arnett was appointed as an officer of the Company.
The foregoing description of the Employment Agreement is qualified in its
entirety by the full text of the Employment Agreement, which is attached hereto
as Exhibit 10.1 and incorporated by reference herein.
A press release announcing the matters described above is attached hereto as
Exhibit 99.1 and incorporated herein by reference.
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Miller Separation Agreement
In connection with Mr. Miller's retirement from the Company, Mr. Miller and the
Company entered into a Separation Agreement and Release, effective the Effective
Date (the "Separation Agreement"). Pursuant to the Separation Agreement and the
retirement of Mr. Miller, he is entitled to receive (a) a cash severance payment
of $360,000, payable within 14 days after the Effective Date, (b) subject to his
election to receive continued group health plan coverage under COBRA, continued
coverage at active-employee rates for up to 12 months after the Effective Date,
and (c) a cash payment of $36,000 under the LTI plan at the same time other LTI
participants are paid, but in no event later than December 31, 2021.
The Separation Agreement also provides that Mr. Miller will assist with
transition services for the Company beginning on the Effective Date and
terminating 90 days thereafter unless earlier terminated pursuant to the
Separation Agreement (the "Transition Period"). Subject to his compliance with
the terms of the Separation Agreement, Mr. Miller is entitled to receive a
transition fee of $30,000 payable every 30 days during the Transition Period.
Mr. Miller has agreed to make himself available on an "as needed" basis during
the Transition Period to assist with transitioning his duties with the Company
and as reasonably directed by the Company's Chief Executive Officer. The
Separation Agreement contains a release of the Company by Mr. Miller and mutual
non-disparagement provisions. Mr. Miller also agreed that the confidentiality,
non-competition and non-solicitation provisions in his current employment
agreement with the Company will remain in effect. Finally, Mr. Miller agreed to
cooperate with, and make himself reasonably available to, the Company for a
period ending twelve months following termination of the Transition Period in
order to assist with the transition of his duties at a rate of $250 per hour
plus expenses.
The foregoing description of the Separation Agreement is qualified in its
entirety by the full text of the Separation Agreement, which is attached hereto
as Exhibit 10.2 and incorporated by reference herein.
Item 7.01 Regulation FD Disclosure.
On February 16, 2021, the Company issued a press release announcing the Chief
Executive Officer transition, which is attached as Exhibit 99.1 hereto.
The information contained in this Item 7.01 and Exhibit 99.1 hereto shall not be
deemed "filed" for purposes of Section 18 of the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or incorporated by reference in any
filing under the Securities Act of 1933 (the "Securities Act") or the Exchange
Act, except as shall be expressly set forth by reference in such a filing.
Caution Regarding Forward-Looking Statements
This Form 8-K contains forward-looking statements regarding the current
expectations of the Company about its prospects and opportunities. These
forward-looking statements are entitled to the safe-harbor provisions of
Section 21E of the Securities Exchange Act of 1934. The Company has tried to
identify these forward-looking statements by using words such as "anticipate,"
"believe," "budgeted," "contemplate," "estimate," "expect," "forecast,"
"guidance," "may," "outlook," "plan," "projection," "should," "target," "will,"
"would," or similar expressions, but these words are not the exclusive means for
identifying such statements. These statements are subject to a number of risks,
uncertainties, and assumptions that may cause actual results, performance or
achievements to be materially different from those expressed in, or implied by,
such statements. The Company cautions that the risks, uncertainties and other
factors that could cause its actual results to differ materially from those
expressed in, or implied by, the forward-looking statements, include, without
limitation: the impact the ongoing COVID-19pandemic could have on the Company's
business and financial results; the Company's ability to continue as a going
concern; the Company's ability to raise additional capital when needed and its
liquidity; uncertainties around the Company's ability to meet funding conditions
under its financing arrangements and access to capital thereunder; the timing of
completion of steps to address, and the inability to address and remedy,
material weaknesses; the identification of additional material weaknesses or
significant deficiencies; risks related to complying with the terms and
conditions of the settlements with the Securities and Exchange Commission (the
"SEC") and USAO; variances in non-recurring expenses; risks relating to the
substantial costs and diversion of personnel's attention and resources deployed
to address the internal control matters; the Company's obligations to indemnify
past and present directors and officers and certain current and former employees
with respect to the investigations conducted by the SEC and the criminal
division of the United States Attorney's Office for the Northern District of
Illinois (the "USAO"), which will be funded by the Company with its existing
cash resources due to the exhaustion of its historical primary directors' and
officers' insurance coverage; remedial recommendations; the ability of the
Company to accurately forecast sales, and the extent to which sales result in
recorded revenues; changes in customer demand for the Company's products;
volatility in oil and gas prices; the impact of U.S. tariffs on imports from
China on the Company's supply chain; any delays and challenges in recruiting key
employees consistent with the Company's plans; any negative impacts from
delisting of the Company's common stock
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from the NASDAQ Stock Market and any delays and challenges in obtaining a
re-listing on a stock exchange; and the risks and uncertainties described in
reports filed by the Company with the SEC, including without limitation its
Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and the
Company's subsequent filings with the SEC. The Company's forward-looking
statements are presented as of the date hereof. Except as required by law, the
Company expressly disclaims any intention or obligation to revise or update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. Description
10.1 Employment Agreement, dated as of February 15, 2021, between
the Company and Lance Arnett.
10.2 Separation Agreement and Release, dated as of February 15,
2021, between the Company and John P. Miller.
99.1 Press Release, dated February 16, 2021, announcing the Chief
Executive Officer transition.
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