Daniel Herzog

About Daniel Herzog

Daniel R. Herzog, 60, is Clearfield’s Chief Financial Officer (CFO) since August 25, 2011 (served as Interim CFO from February 19, 2011) and previously Vice President of Administration and Comptroller/principal accounting officer; he holds a B.A. in Accounting from Gustavus Adolphus College (1986) and spent ~13 years as Controller/CFO at Americable before Clearfield’s 2003 acquisition . Compensation is meaningfully performance-based (68% of FY2024 target direct compensation “at-risk”), with cash incentives tied to consolidated GAAP net sales and gross profit, and PSUs tied to adjusted EBITDA; FY2024 results missed targets (net sales: $166.7M vs $207.0M target; gross profit: $28.9M vs $49.0M target), leading to zero formula bonus and zero PSU vesting, though the committee approved a discretionary cash bonus recognizing operational achievements (inventory reduction, cash flow, BABA readiness) . FY2024 business highlights included BABA self-certification, BEAD-ready cable infrastructure, new product introductions, and share repurchases of 1,164,190 shares for ~$33.06M, with year-end cash/investments of ~$155.5M and $2.2M debt .

Past Roles

External Roles

No public company directorships or external roles disclosed for Mr. Herzog in the latest proxy.

Fixed Compensation

• Base salary held flat for FY2024 at $340,000; the committee did not increase NEO base salaries given FY2023 market adjustments and industry challenges; CFO base salary cited as below peer group median .
• All other compensation includes company 401(k) match and insurance premiums; in FY2024, CFO received $13,905 (401k match), $51 (term life), and $860 (LTD) .

Multi-year compensation (Summary Compensation Table):

Performance Compensation

Annual Cash Incentive (FY2024 Bonus Program)

• Design: Two GAAP metrics with weights—Net Sales (75%), Gross Profit (25%); target and maximum levels set in November 2023; clawback applies under Compensation Recoupment Policy .
• CFO Bonus Opportunity: Target 60% of base; Maximum 100% of base .

• Committee rationale for discretionary cash bonuses (55% of target) included building BABA-compliant cable production, inventory reduction driving positive operating cash flow, and liquidity improvements .

Long-Term Equity Awards (FY2024 grants)

Option Awards (Outstanding and Vesting Schedules)

Equity Ownership & Alignment

• Beneficial Ownership and Option Status (as of Dec 30, 2024): | Item | Amount | |---|---| | Shares beneficially owned | 89,796 | | Percent of outstanding | <1% (“*”) | | Options exercisable within 60 days | 29,632 |

• Outstanding Equity Awards at FY-end (Sept 30, 2024; market values at $38.96/share): | Type | Unvested/Unearned Units | Market/Payout Value ($) | |---|---:|---:| | Time-vested Restricted Stock (11/16/2022 grant) | 374 | 14,558 | | Time-vested Restricted Stock (2023 grant) | 3,333 | 129,867 | | Time-vested Restricted Stock (2024 grant) | 9,549 | 372,029 | | PSUs (FY2024 Adjusted EBITDA) | 9,549 target | 372,029 target value |

• Ownership policies and alignment:

  • Stock ownership guidelines: CFO must hold 4x annual base salary; executives/directors with ≥5 years of service exceed guidelines; in-the-money options do not count toward ownership .
  • Hedging/pledging prohibited; insiders cannot pledge shares, hedge, short, or trade publicly traded options in Clearfield stock .

Employment Terms

• Agreement: Three-year term auto-renewing for successive one-year periods; minimum base salary floor $200,193; annual bonus target 20% of base, maximum 50% of base (agreement terms; bonus program may set different opportunities) .
• Termination provisions:
  • For cause / without good reason: only accrued pay/benefits .
  • Death/disability: accrued pay, prorated bonus at normal payout timing, employer-paid COBRA up to 1 year .
  • Without cause / good reason / non-renewal: accrued pay, prorated bonus, severance = 2x base salary, employer-paid COBRA up to 1 year; all unvested options and other unvested grants vest in full .
  • Change in control (single trigger): lump sum = 2x base salary at change in control; if terminated without cause or for good reason within 1 year post-CIC, also entitled to the above termination payments/benefits .

Potential payments (as of Sept 30, 2024):

• Clawback: SEC/Nasdaq-compliant mandatory recovery of erroneously awarded incentive-based compensation for 3-year lookback upon restatement; discretionary recovery for errors/detrimental conduct as well .
• Tax gross-ups: Not applicable to Mr. Herzog; Tax Gross Up Plan limited to CEO/COO under legacy agreements; no additions since January 2023 .

Compensation Structure Analysis

• Mix and risk: 68% of CFO FY2024 target direct compensation was performance-based (annual incentive + restricted stock + PSUs) .
• Shift toward PSUs: In response to shareholder feedback, 50% of FY2024 executive equity granted as PSUs tied to adjusted EBITDA; PSUs failed to vest due to performance miss, reinforcing pay-for-performance .
• Discretionary bonuses: Despite missing formula thresholds, committee awarded discretionary cash bonuses (CFO: $112,200) recognizing operational execution (inventory reduction, cash flow, BABA readiness) ; monitoring of such discretion vs. future targets is warranted.
• Payout caps and governance: Program included payout caps (maximum at 125% of target), clawback, overlapping multi-year vesting to mitigate risk .

Say-on-Pay & Shareholder Feedback

• FY2024 say-on-pay approval: 94%, up from 84% prior year; committee incorporated feedback via PSU introduction and enhanced disclosure .

Equity Compensation Plan Information

• As of Sept 30, 2024: 366,984 options outstanding (weighted average strike $33.83), 209,952 time-based restricted shares, and 47,745 PSUs; 943,982 shares remaining available under plans .

Investment Implications

• Alignment: Strong pay-for-performance framework with high at-risk pay and hard GAAP/adjusted EBITDA targets; PSU non-vesting in FY2024 supports discipline, while discretionary bonuses reward tangible operational improvements—net effect is balanced but watch discretionary use if performance remains weak .
• Retention and selling pressure: Substantial unvested restricted stock with scheduled one-third vesting over three years and options nearing 2025–2026 expirations could create event-driven selling but pledging/hedging prohibitions and ownership guidelines mitigate misalignment risk; Herzog exceeds ownership guidelines, supporting long-term alignment .
• Change-of-control economics: Single-trigger cash (2x base) at CIC plus double-trigger severance if terminated within one year increases transaction cost but not egregious (no tax gross-up for CFO); accelerated vesting of equity amplifies CIC payout sensitivity .
• Execution risk: FY2024 revenue and margin deterioration and net loss underscore cyclical demand risks; however, CFO-led inventory actions, liquidity strength (~$155.5M cash/investments; $2.2M debt), and BABA readiness position Clearfield for BEAD-cycle recovery—monitor PSU metrics and bonus plan calibration for FY2025 .