| Corporate Social Responsibility
Corporate Social Responsibility
PetIQ strives to develop products that are safe, innovative, effective, and environmentally friendly. PetIQ is committed to managing its safety, health, security, and environmental protection programs to reduce energy consumption from non-renewable sources, reduce workplace risk, minimize employee hazards, product losses, and community exposure to hazardous substances. Internal and external resources, extensive and ongoing training and feedback, and crisis and emergency preparedness are used to achieve these objectives. In 2021 PetIQ has implemented a new Diversity, Equity and Inclusion Team and made updates to various policies to better support our mission of providing the highest quality products and services to our customers while remaining committed to our environmental, social, and safety policies.
Environmental, Social, and Governance Improvement Highlights
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Included in this Proxy Statement, we believe it is in the best interest of the Company and its stockholders to amend our Certificate of Incorporation to declassify our Board of Directors. See Proposal 6.
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Included in this Proxy Statement, we believe it is in the best interest of the Company and its stockholders to amend our Certificate of Incorporation to eliminate supermajority provisions. See Proposal 5.
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We updated our Board’s Corporate Governance Guidelines to include an annual individual performance evaluation of each Director.
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We believe transparency is important, as such we published a variety of policies related to our efforts to become better stewards of our resources. You can find our policies here: http://ir.petiq.com/.
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We added a member of our C-Suite as the person responsible for oversight for our anti-bribery and anti-corruption program.
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We updated our Insider Trading Policy to prohibit the hedging of Company stock.
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We updated our Audit Committee Charter to include oversight of cybersecurity.
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Formed the Diversity Equity and Inclusion Team.
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PetIQ’s response to the COVID-19 Pandemic. The health and well-being of our employees has always been and continues to be our top priority. Over the past few years, we have made investments and updates to our policies to strengthen our safety practices, which investments and updated policies benefited us during the unprecedented COVID-19 pandemic. These investments include supplying sanitizers and disinfectants at all of our locations, employee wellness protocols, and improved handwashing requirements. In addition, we implemented the COVID-19 recommendations of the CDC and local health departments, including social distancing and wearing face masks. Collectively, these efforts give our employees confidence that PetIQ is committed to keeping them safe at all times. To ensure the health and well-being of all of our employees, we also provided up to 80 hours of paid sick leave for employees to self-isolate, obtain medical diagnosis or care, or to comply with recommendations or orders of a public official or a healthcare provider.
Corporate Governance Highlights
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Board independence (6 of 7 directors are independent)
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All of our Audit, Compensation, and Nominating and Corporate Governance Committee members are 100% independent
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Excellent track record of attendance at all Board and committee meetings in 2021
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Risk oversight by full Board and committees
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Comprehensive Corporate Governance Guidelines
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Strong Lead Independent Director
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Annual review of committee charters and Corporate Governance Guidelines
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Independent directors, led by Lead Independent Director, meet in executive sessions without management present
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Annual Board and committee self-evaluations
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Added annual self-evaluation of each director in 2022
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Adopted majority voting for the election of directors in uncontested elections in 2021
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Added two female directors in 2021
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Added a racially diverse director in 2021
Corporate Social Responsibility
Executive Compensation Highlights
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Independent compensation consultant for the Compensation Committee
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Clawback policy applicable to incentive compensation
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Updated our Insider Trading Policy to prohibit hedging or pledging of Company stock by insiders
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No single-trigger change-in-control severance or vesting of equity awards
We believe disclosure of our impact on the environment is important to further PetIQ’s commitment to excellence in Environmental, Health and Safety performance. PetIQ will manage its operations in accordance with our Environmental, Health and Safety principals and beliefs in a manner that helps to control occupational safety and health risks, protects the environment, while fully complying with applicable laws and regulations. In 2021, our efforts resulted in:
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Water usage for 2021: 10,559,616 gallons; and
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Hazardous waste produced in 2021: 7,053 pounds.
PetIQ strives to provide our employees, customers, vendors, and visitors with a safe and healthy work environment. All locations must remain in compliance with the Occupational Safety and Health Act (OSHA) and other applicable state and federal regulatory safety requirements. Safety issues and violations of regulatory requirements are promptly addressed. In fiscal year 2021, our continued commitment to safety resulted in:
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OSHA near misses, 39 and
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OSHA recordable injuries, 16
Throughout the year PetIQ supported the more vulnerable in our communities through charitable donations and employee engagement. We partnered with local food banks and worked with organizations that support our mission of bettering pet and pet parent’s lives.
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In 2021 PetIQ supported charitable interests by donating $224,221 to various charitable groups.
PetIQ aims to ensure transparency of the Company’s practices and procedures regarding political activities.
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PetIQ spent $151,388 on lobbying and advocacy groups in 2021.
Diversity Equity & Inclusion
PetIQ is committed to the continued growth of our organization by including people with different backgrounds and perspectives, leading to better decision making, greater innovation, and higher engagement in the workplace.
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Our Board of Directors includes two women and one racially diverse member.
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Employee demographics: 74.86% women and 35.62% minorities.
PetIQ started an internship program that seeks to attract individuals with varying backgrounds and diverse perspectives.
In September 2021, PetIQ formed the Diversity Equity and Inclusion Team (“DEI Team”) that includes membership from various areas of the business and support functions. The DEI Team will advise and support the Senior Leadership Team in further developing a workplace and organizational culture, including structure and policies, that value diversity of thought and perspective delivered by a diverse
workforce operating within an inclusive organization. The DEI Team will work to incorporate PetIQ values and help the Senior Leadership Team to further develop an inclusive and equitable organizational culture that is visible to all PetIQ employees.
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Our Board of Directors, Executive Officers and Senior Leadership Team will undergo DEI training with the goal of enhancing the performance and effectiveness of our leaders to help them further recognize and resolve targeted and root level challenges to promote a more inclusive culture.
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The DEI Team sent out a company-wide survey to gauge employee perspectives on diversity, inclusion, and equity.
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The DEI Team meets regularly and has created various sub-committees to further its mission including: the Events Committee; Content and Communications Committee; Education Committee; and Analytics Committee.
DIRECTOR COMPENSATION
Summary of Director Compensation Arrangements
The Company’s director compensation program consists of the following components, which originally became effective January 1, 2020:
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Annual Cash Retainer — for 2021, each non-employee director was entitled to receive an annual cash retainer of $60,000 in consideration for his or her service on the Board.
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Committee Chair Retainers — in addition, for 2021, each non-employee director serving as the chairman of a committee of the Board received a cash fee, as applicable, of $10,000 (for the chairs of
the Compensation and Nominating and Corporate Governance Committees) or $20,000 (for the chair of the Audit Committee).
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Equity Grants — finally, each non-employee director received an annual restricted stock unit award in 2021 with a grant date fair value of $90,000 (rounded up to the nearest whole share), vesting on the one-year anniversary of the date of grant based on continued service as a director through such date.
2021 Director Compensation
The following table presents information regarding the compensation earned or paid during 2021 to our non-employee directors who served on the Board during the year. Employee directors do not receive compensation for their service as members of the Board.
| Name | | | Fees Earned or Paid in Cash ($) | | | Stock Awards ($)(1) | | | Total ($) | | | Mark First(2) | | | | | 70,000 | | | | | | 90,002 | | | | | | 160,002 | | | | Ronald Kennedy(3) | | | | | 45,000 | | | | | | 90,002 | | | | | | 135,002 | | | | Larry Bird | | | | | 80,000 | | | | | | 90,002 | | | | | | 170,002 | | | | Scott Huff | | | | | 60,000 | | | | | | 90,002 | | | | | | 150,002 | | | | Kimberly Lefko(4) | | | | | 50,000 | | | | | | 130,512 | | | | | | 180,512 | | | | Sheryl Oloughlin(4) | | | | | 50,000 | | | | | | 130,512 | | | | | | 180,512 | | |
(1)
The amounts reported in this column represent (i) for each non-employee director, the grant date fair value of the annual restricted stock unit award granted to each non-employee director on June 29, 2021 and (ii) for Mss. Lefko and Oloughlin, the grant date fair value of their prorated restricted stock unit award granted on March 1, 2021 in recognition of each director’s partial-year board service. All such awards vest on the first anniversary of the grant date, provided that the applicable director continues to serve as a director through such date. The grant date fair value of each award was calculated in accordance with FASB ASC Topic 718. For a discussion of the assumptions and methodologies used in calculating the grant date fair value of the restricted stock unit awards, please see Note 9 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. As of December 31, 2021, the following non-employee directors held outstanding equity awards: (i) Mr. First — 2,245 unvested restricted stock units; (ii) Mr. Bird — 2,245 unvested restricted stock units; (iii) Mr. Huff — 2,725 unvested restricted stock units; (iv) Ms. Lefko — 2,245 unvested restricted stock units; and (v) Ms. Oloughlin — 2,245 unvested restricted stock units. In connection with Mr. Kennedy’s resignation from the Board, effective July 29,2021, the Board approved the vesting of his 2,245 unvested restricted stock units. As such, Mr. Kennedy did not hold any outstanding equity awards as of December 31, 2021.
(2)
The cash fees owed to Mr. First were paid to an affiliate of the Eos Funds.
(3)
As previously disclosed, the Company accepted Mr. Kennedy’s resignation from the Board effective July 29, 2021.
(4)
Mss. Lefko and Oloughlin began serving on the Board effective March 2, 2021.
Security Ownership of Certain Beneficial Owners and Management
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our Common Stock as of March 31, 2022 by:
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each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our Common Stock, on an as-converted basis;
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each of our named executive officers;
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each of our directors and director nominees; and
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all of our executive officers and directors as a group.
We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the
exercise of stock options that are either immediately exercisable or exercisable within 60 days of April 25, 2022. These shares are deemed to be outstanding and beneficially owned by the person holding the applicable options for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them. The percentage of shares beneficially owned shown in the table below is based upon 29,486,966 shares of Common Stock outstanding as of April 25, 2022, comprised of 29,234,426 shares of Class A Common Stock and 252,540 shares of Class B Common Stock.
Except as otherwise noted below, the address for persons listed in the table is c/o PetIQ, Inc., 230 East Riverside Drive, Eagle, Idaho 83616.
| | | | Shares of Class A Common Stock Beneficially Owned | | | Shares of Class B Common Stock Beneficially Owned | | | Combined Voting Power | | | | | | Number | | | Percentage | | | Number | | | Percentage | | | 5% Stockholders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Macquarie Group Limited(2) | | | | | 2,799,594 | | | | | | 9.6% | | | | | | — | | | | | | — | | | | | | 9.5% | | | | BlackRock, Inc.(4) | | | | | 2,481,290 | | | | | | 8.5% | | | | | | — | | | | | | — | | | | | | 8.4% | | | | Eos Funds(1) | | | | | 1,972,687 | | | | | | 6.7% | | | | | | — | | | | | | — | | | | | | 6.7% | | | | James Nathan Clarke(3) | | | | | 1,690,802 | | | | | | 5.8% | | | | | | — | | | | | | — | | | | | | 5.7% | | | | Named Executive Officers and Directors | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Larry Bird | | | | | 6,863 | | | | | | * | | | | | | — | | | | | | — | | | | | | * | | | | McCord Christensen(5) | | | | | 67,545 | | | | | | * | | | | | | 114,027 | | | | | | 45.2% | | | | | | * | | | | Mark First(1) | | | | | 1,977,548 | | | | | | 6.8% | | | | | | — | | | | | | — | | | | | | 6.7% | | | | Scott Huff | | | | | 4,028 | | | | | | * | | | | | | — | | | | | | — | | | | | | * | | | | Kimberly Lefko | | | | | 1,136 | | | | | | * | | | | | | — | | | | | | — | | | | | | * | | | | Sheryl Oloughlin | | | | | 1,136 | | | | | | * | | | | | | — | | | | | | — | | | | | | * | | | | Kenneth Walker | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | Zvi Glasman | | | | | 4,000 | | | | | | * | | | | | | — | | | | | | — | | | | | | * | | | | R. Michael Herrman | | | | | 7,674 | | | | | | * | | | | | | — | | | | | | — | | | | | | * | | | | Susan Sholtis | | | | | 12,476 | | | | | | * | | | | | | — | | | | | | — | | | | | | * | | | | Michael Smith | | | | | 16,196 | | | | | | * | | | | | | — | | | | | | — | | | | | | * | | | | Total Executive Officers and Directors as a Group (11 Persons) | | | | | 2,103,463 | | | | | | 7.2% | | | | | | 114,027 | | | | | | 45.2% | | | | | | 7.5% | | |
*
less than 1%
(1)
Includes 1,660,344 shares of Class A Common Stock held by Eos Helios Partners IV, L.P. and 312,343 shares of Class A Common Stock held by Eos Partners, L.P. (collectively, the “Eos Funds”), which are affiliates of Eos Management, L.P. As Managing Director of Eos Management, L.P.,
Security Ownership of Certain Beneficial Owners and Management
Mr. First has voting and investment control over and may be considered the beneficial owner of the Class A Common Stock owned by the Eos Funds. Mr. First disclaims any beneficial ownership of the Class A Common Stock owned by the Eos Funds. The principal business address for the Eos Funds is 437 Madison Avenue, New York, NY 10022. Information contained in the table above and this footnote is based solely on a report on Schedule 13G/A filed with the SEC on February 14, 2022.
(2)
These securities are beneficially owned by Macquarie Group Limited (“Macquarie”) due to its ownership of Macquarie Management Holdings Inc., Macquarie Investment Management Business Trust, Macquarie Investment Management Global Limited and Ivy Investment Management Company. The principal business address for Macquarie is 50 Martin Place Sydney, New South Wales, Australia. Information contained in the table above and this footnote is based solely on a report on Schedule 13G filed with the SEC on February 14, 2022.
(3)
Includes 353,703 shares of Class A Common Stock held by Labore et Honore LLC and 71,022 shares of Class A Common Stock held by Clarke Capital Partners LLC (collectively, the “Clarke Capital Entities”). Mr. Clarke is the Manager of the Clarke Capital Entities and has voting and investment control over and may be deemed to be the beneficial owner of the shares of Class A Common Stock held by the Clarke Capital Entities. Also includes 239,916 shares of Class A Common Stock owned by the James N. Clarke Irrevocable Trust, the trustee of which is Mr. Clarke’s spouse, Andrea M. Clarke, 924,673 shares of Class A Common Stock held by the JNC 101 Trust, the trustee of which is Mrs. Clarke, and 101,488 shares of Class A Common Stock held by the Andrea M. Clarke Irrevocable Trust, dated December 27, 2012, of which Mr. Clarke is the trustee. Information contained in the table above and this footnote is based solely on a report on Schedule 13G/A filed with the SEC on February 14, 2020.
(4)
The principal business address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. Information contained in the table above and this footnote is based solely on a report on Schedule 13/A filed with the SEC on February 11, 2022.
(5)
Shares of Class B Common Stock held by Christensen Ventures, LLC (“Ventures”). Mr. Christensen is the manager of Ventures and exercises voting and investment control over all shares held by Ventures.
Section 16(a) Beneficial Ownership Reporting Compliance
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of securities ownership and changes in such ownership with the SEC. Officers, directors and greater than ten percent stockholders are also required by SEC rules to furnish us with copies of all Section 16(a) forms they file.
Based solely on a review of the reports furnished to the Company and written representations from reporting persons that all reportable transaction were reported, the Company believes that during the fiscal year ended December 31, 2021 the Company’s officers, directors and
greater than ten percent owners timely filed all reports they were required to file under Section 16(a) of the Exchange Act, except: a Form 4 for Ronald Kennedy filed on February 8, 2021 with respect to a transaction that occurred on January 31, 2021; a Form 4 for Mark First filed on August 9, 2021 with respect to a transaction that occurred on June 18, 2021; a Form 4 for Larry Bird filed on August 9, 2021 with respect to a transaction that occurred on June 18, 2021; a Form 4 for Scott Huff filed on August 9, 2021 with respect to a transaction that occurred on June 18, 2021. All aforementioned parties have subsequently filed the applicable Form 3 or Form 4 reports.
Certain Relationships and Related Party Transactions
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies and Procedures for Related Party Transactions
Our Board has a written related party transaction policy setting forth the policies and procedures for the review and approval or ratification of related person transactions. The policy covers any transactions, arrangements or relationships, or any series of similar transactions, arrangements or relationships, in which we are to be a participant and our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our Common Stock and any members of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, as determined by the Audit Committee. Related party transactions include, without limitation, purchases of goods or services by or from the related person or entities in which the related party has a material interest, and
indebtedness, guarantees of indebtedness or employment by us of a related party. All related party transactions must be presented to our Audit Committee for review, consideration, and approval. In approving or rejecting any such proposal, our Audit Committee is to consider the material facts of the transaction, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances as well as the extent of the related party’s interest in the transaction.
All related party transactions described in this section occurred prior to adoption of this policy and as such, these transactions were not subject to the approval and review procedures set forth in the policy.
Related Party Transactions
Chris Christensen, the brother of CEO, McCord Christensen, acts as the Company’s agent at Moreton Insurance (“Moreton”), which acts as a broker for a number of the Company’s insurance policies. The Company’s annual premium expense, which is paid at a variety of times throughout the year, and is generally paid directly to the relevant insurance company, amounted to $6.9 million in 2021. Amounts paid to Moreton and subsequently transferred to insurance providers, was $2.8 million and $2.3 million in 2020 and 2019. Mr. Chris Christensen was paid a Commission of approximately $0.1 million each year by Moreton for the sale of such insurance policies to the Company.
In August 2021, the Company sold its prior corporate office in Eagle, Idaho for $4.8 million. The Company utilized
Colliers International (“Colliers”) as a broker with Mike Christensen, the brother of CEO, McCord Christensen, as agent. The Company paid approximately $0.1 million in commissions to Colliers as a result of the sale. In December 2021, the Company purchased a parcel of land for $2.5 million. Total commission paid to Colliers was approximately $0.1 million as a result of this purchase.
Katie Turner, the spouse of CEO, McCord Christensen, is the owner of Acadia Investor Relations LLC, (“Acadia”) which acts as the Company’s investor relations consultant. Acadia has been paid $0.2 million for the year ending December 31, 2021.
Pursuant to the HoldCo LLC Agreement, the Company has accrued tax distributions that are payable to certain HoldCo members to facilitate such members’ periodic estimated tax obligations. At December 31, 2021, the Company had
paid $90,000 in advance for estimated tax distributions, which are included in accounts payable on the Company’s consolidated balance sheets.
The Audit Committee serves as the representative of the Board with respect to its oversight of:
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the integrity of the Company’s financial statements
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our accounting and financial reporting processes;
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audits of the Company’s financial statements;
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the integrity of our consolidated financial statements;
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systems of internal control over financial reporting;
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compliance with legal and regulatory financial accounting requirements;
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our systems and policies to monitor and manage business risk;
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the independent registered public accounting firm’s appointment, qualifications, independence and compensation; and
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the performance of our internal audit function.
The Audit Committee also reviews the performance of our independent registered public accounting firm, KPMG, including the selection and performance of the lead audit engagement partner, in the annual audit of our consolidated financial statements and in assignments unrelated to the audit, and reviews the independent registered public accounting firm’s fees. In selecting and evaluating an independent registered public accounting firm, the Audit Committee considers such factors as the quality and efficiency of the services provided by the auditor, the auditor’s capabilities and the auditor’s technical expertise and knowledge of the Company’s operations and industry. Each year, the Audit Committee will evaluate the qualifications, performance, tenure, and independence of the Company’s independent auditor and determine, after also considering the impact of a change in auditor, whether to re-engage the current independent auditor. KPMG has audited our financial statements since 2014.
The Audit Committee is currently composed of three independent directors, Messrs. Bird and Walker and Ms. Lefko, each of which qualifies as an “audit committee financial expert” under the SEC rules.
The Audit Committee provides our Board such information and materials as it may deem necessary to make our Board aware of financial matters requiring the attention of our Board. The Audit Committee reviews our financial disclosures and meets privately, outside the presence of our management, with our independent registered public accounting firm. In fulfilling its oversight responsibilities, the
Audit Committee reviewed and discussed the audited consolidated financial statements in our 2021 Annual Report with management, including a discussion of accounting principles, the reasonableness of significant judgments made in connection with the audited consolidated financial statements, and disclosures in the consolidated financial statements. The Audit Committee reports on these meetings to our Board.
Our management has primary responsibility for preparing our consolidated financial statements and for our financial reporting processes. In addition, our management is responsible for establishing and maintaining adequate internal control over financial reporting.
The Audit Committee reports as follows:
(1)
The Audit Committee has reviewed and discussed the audited consolidated financial statements for fiscal year 2021 with our management.
(2)
The Audit Committee has discussed with KPMG, our independent registered public accounting firm for fiscal year 2021, the matters required to be discussed under the Public Company Accounting Oversight Board standards.
(3)
The Audit Committee has received the written disclosures and the letter from KPMG pursuant to Rule 3526 of the Public Company Accounting Oversight Board, and has discussed with KPMG its independence, including whether the provision of non-audit services to us is compatible with its independence.
The Audit Committee has adopted a policy that requires pre-approval of all audit, audit-related, tax services, and other services performed by the independent registered public accounting firm. The policy provides for pre-approval by the Audit Committee (or by one or more members of the Audit Committee pursuant to any delegated authority) of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that fiscal year, the Audit Committee (or any member or members of the Audit Committee with such delegated authority) must approve the specific service before the independent registered public accounting firm is engaged to perform such services for us.
Based on the reviews and discussions described above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in PetIQ’s Annual Report on Form 10-K, for the fiscal year ended December 31, 2021, for filing with the SEC.
The foregoing report was submitted by the Audit Committee of the Board and shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A promulgated by the SEC or Section 18 of the Exchange Act, and shall not be deemed incorporated by reference into any prior or subsequent filing by us under the Securities Act or the Exchange Act.
Respectfully submitted on April 29, 2022, by the following members of the Audit Committee of the Board:
Larry Bird (Chair)
Kimberly Lefko
Kenneth Walker
Proposal 2: Ratification of the Appointment of the Company’s Independent Auditors
PROPOSAL TWO:
RATIFICATION OF THE APPOINTMENT OF THE COMPANY’S INDEPENDENT AUDITORS
The Audit Committee has selected KPMG as the Company’s independent accountants for fiscal year 2022, and the Board is asking stockholders to ratify that selection. Although current law, rules, and regulations, as well as the charter of the Audit Committee, require the Audit Committee to engage, retain, and supervise the independent accountants, the Board considers the selection of the independent accountants to be an
important matter of stockholder concern and is submitting the selection of KPMG for ratification by stockholders as a matter of good corporate practice. The affirmative vote of holders of a majority of the shares of Common Stock represented at the meeting and entitled to vote on the proposal is required to ratify the selection of KPMG as the Company’s independent accountant for the current fiscal year.
Fees Paid to Independent Accountants
The following table sets forth the aggregate fees billed for various professional services rendered by KPMG:
| | | | 2021 | | | 2019 | | | Audit Fees(1) | | | | $ | 2,081,254 | | | | | $ | 2,927,983 | | | | Audit-Related Fees(2) | | | | $ | — | | | | | $ | 113,429 | | | | Tax Fees(3) | | | | $ | — | | | | | $ | 10,178 | | | | Total Fees | | | | $ | 2,081,254 | | | | | $ | 3,051,590 | | |
(1)
Audit fees include fees associated with the annual audit of our consolidated financial statements and reviews of the Company’s quarterly reports on Form 10-Q and other services that are normally provided by the independent accountants in connection with our regulatory filings.
(2)
Audit-related fees relate to acquisition related due diligence services, comfort letters, and reimbursement for litigation related costs.
(3)
Tax fees include services related to tax compliance, and tax advice.
All services listed in the above table were approved by the Audit Committee.
We expect representatives of KPMG to be available at the Annual Meeting. They will have the opportunity to make a statement at the Annual Meeting if they desire to do so and will be available to respond to appropriate questions.
| Recommendation of the Board | | The Board recommends that stockholders vote “FOR” the ratification of the Company’s independent auditors. | | | | | The Board recommends that stockholders vote “FOR” the ratification of the Company’s independent auditors. | | |
The Audit Committee has selected KPMG as the Company’s independent accountants for fiscal year 2023, and the Board is asking stockholders to ratify that selection. Although current law, rules, and regulations, as well as the charter of the Audit Committee, require the Audit Committee to engage, retain, and supervise the independent accountants, the Board considers the selection of the independent accountants to be an important matter of stockholder concern and is submitting the selection of KPMG for ratification by stockholders as a matter of good corporate practice. The affirmative vote of holders of a majority of the shares of Common Stock represented at the meeting and entitled to vote on the proposal is required to ratify the selection of KPMG as the Company’s independent accountant for the current fiscal year. Fees Paid to Independent Accountants The following table sets forth the aggregate fees billed for various professional services rendered by KPMG: | | | | 2022 | | | 2021 | | | Audit Fees(1) | | | | $ | 2,195,000 | | | | | $ | 2,081,254 | | | | Audit-Related Fees(2) | | | | $ | 1,053,700 | | | | | $ | — | | | | Tax Fees(3) | | | | $ | — | | | | | $ | — | | | | All Other Fees(4) | | | | $ | — | | | | | $ | — | | | | Total Fees | | | | $ | 3,248,700 | | | | | $ | 2,081,254 | | |
(1)
Audit fees include fees associated with the annual audit of our consolidated financial statements and reviews of the Company’s quarterly reports on Form 10-Q and other services that are normally provided by the independent accountants in connection with our regulatory filings. (2)
Audit-related fees relate to acquisition related due diligence services. (3)
Tax fees include services related to tax compliance, and tax advice. (4)
All other fees include fees for all other services that are not reported above and are primarily related to financial due diligence services. All services listed in the above table were approved by the Audit Committee. We expect representatives of KPMG to be available at the Annual Meeting. They will have the opportunity to make a statement at the Annual Meeting if they desire to do so and will be available to respond to appropriate questions.
COMPENSATION DISCUSSION AND ANALYSIS Overview of Compensation Program The Compensation Committee of our Board of Directors, which we refer to herein as the “Committee,” is responsible for establishing, implementing and continually monitoring adherence with our compensation philosophy and executive compensation programs. The Committee strives to ensure that the total compensation paid to our executive officers is fair, reasonable and competitive. Generally, the types of compensation and benefits provided to our executive officers, including the named executive officers, are similar to those provided to executive officers at comparable companies in similarly situated positions. Named Executive Officers For 2022, our named executive officers and their respective titles are as follows: •
McCord Christensen, Chief Executive Officer •
Zvi Glasman, Chief Financial Officer •
Michael Smith, President and Chief Operating Officer •
R. Michael Herrman, Executive Vice President, General Counsel & Corporate Secretary •
Susan Sholtis, Former President Ms. Sholtis retired as the Company’s President effective May 27, 2022. Ms. Sholtis entered into a transition support agreement with the Company, dated May 4, 2022, pursuant to which she agreed to remain available to the Company on an as needed basis through September 30, 2022. A description of the compensation arrangement with Ms. Sholtis in connection with the transition can be found under the heading “Retirement of Susan Sholtis.” The Board promoted Mr. Smith to the titles of President and Chief Operating Officer effective June 1, 2022. Mr. Smith previously served as the Company’s Executive Vice President — Products. Compensation Philosophy and Objectives The Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of our specific annual, long-term and strategic goals, and which aligns executives’ interests with those of our stockholders by rewarding performance above established goals, with the ultimate objective of improving stockholder value. The Committee evaluates both performance and compensation to ensure that we maintain our ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives at companies with, among other things as discussed in greater detail below, similarly sized revenues. To that end, the Committee believes that executive compensation packages provided by us to our executives, including to our named executive officers, should include both cash and equity-based compensation that rewards performance as measured against established goals. Role of Executive Officers in Compensation Decisions Our Chief Executive Officer annually reviews the performance of each of our named executive officers (other than the Chief Executive Officer, whose performance is reviewed by the Committee). The conclusions reached and recommendations based on these reviews, including with respect to salary adjustments and annual incentive award target and actual payout amounts, are presented to the Committee, which has the discretion to modify any recommended adjustments or awards to executives. The Committee has final approval over all compensation decisions for our named executive officers and approves recommendations regarding cash and equity awards to all of our executive officers.
COMPENSATION DISCUSSION AND ANALYSIS
Stockholder Feedback At our 2022 annual meeting of stockholders, a strong majority of our stockholders approved our executive compensation structure in a “say-on-pay” advisory vote, with over 86% voting in favor of our executive compensation structure. As a result of the 2022 vote, the Committee determined to continue its pay philosophy and practices. Setting Executive Compensation Based on the foregoing objectives, the Committee has structured our executive compensation programs to motivate our executives to achieve the business goals set by us and to reward the executives for achieving these goals. In evaluating executive compensation, the Committee considers a variety of factors, including market demands, internal equity and external surveys which provide insight into and guidance on the pay practices of similar companies. While survey data provides us with a helpful guideline, we do not make compensation decisions based on any single factor. Executive Compensation Components The principal components of compensation for our named executive officers are: •
base salary; •
annual incentives; and •
long-term incentive awards. Base Salary We provide our named executive officers and other employees with base salary to compensate them for services rendered during the fiscal year. Base salaries established for our named executive officers are intended to reflect each individual’s responsibilities, experience, historical performance and other discretionary factors deemed relevant by the Committee and have generally been set at levels deemed necessary to attract and retain individuals with superior talent. Base salaries are also designed to provide our named executive officers with steady cash flow during the course of the fiscal year that is not contingent on short-term variations in the Company’s operating performance. The initial base salary for our named executive officers is established in their employment agreements. Salary levels are reviewed annually as part of our performance review process as well as upon a promotion or other material change in job responsibility. Merit-based increases to salaries of the executives, including our named executive officers, are based on the Committee’s assessment of the individual’s performance. In reviewing base salaries of our executives, the Committee primarily considers: •
historical base salary levels; •
scope and/or changes in individual responsibility; •
internal analysis of the executive’s compensation, both individually and relative to other officers; and •
individual performance of the executive. The Committee reviews these criteria collectively but does not assign a weight to any criterion when setting base salaries. Each base salary adjustment is made by the Committee subjectively based upon the foregoing. In October 2021, the Committee approved a base salary increase of 5% for each then-serving named executive officer, effective January 1, 2022, to reflect cost of living adjustments and inflation. In April 2022, the Committee approved an additional base salary increase for each of Messrs. Smith and Herrman, effective June 1, 2022. Mr. Smith’s additional increase was intended to reflect the significant expansion of his responsibilities in connection with his promotion to President and Chief Operating Officer on June 1,
COMPENSATION DISCUSSION AND ANALYSIS
2022, and Mr. Herrman’s additional increase was in recognition of the broad expansion of his managerial role in June 2022 from overseeing solely the Company’s legal department to also overseeing the Company’s quality and regulatory departments. The following table sets forth the 2021 and 2022 annual base salary rates for the named executive officers. | Name | | | 2021 Base Salary Rate ($) | | | 2022 Base Salary Rate ($) | | | Percentage Increase | | | McCord Christensen | | | | | 950,000 | | | | | | 997,500 | | | | | | 5.0% | | | | Zvi Glasman(1) | | | | | — | | | | | | 525,000 | | | | | | — | | | | Michael Smith | | | | | 500,000 | | | | | | 700,000 | | | | | | 40.0% | | | | R. Michael Herrman | | | | | 400,000 | | | | | | 450,000 | | | | | | 12.5% | | | | Susan Sholtis | | | | | 550,000 | | | | | | 577,500 | | | | | | 5.0% | | |
(1)
Mr. Glasman joined the Company in January 2022. Annual Incentives Our named executive officers are eligible for annual cash bonuses based on Company performance and individual performance, with payment amounts determined by the Committee based on the Committee’s assessment of performance for the applicable year. The annual incentive plan is intended to focus the entire organization on meeting or exceeding the annual performance goals that are set during the early part of each year and approved by the Committee, while also providing significant opportunity to reward individual contributions. Each named executive officer is assigned an annual target bonus opportunity for an annual cash bonus expressed as a percentage of such executive’s base salary. An executive’s target annual incentive percentage generally increases as his or her ability to affect the Company’s performance increases. Consequently, as an executive’s responsibilities increase, his or her variable compensation in the form of an annual cash bonus also increases, generally making up a larger portion of the executive’s total compensation. Our Chief Executive Officer’s annual cash bonus is 100% based on the Company’s achievement of performance against predetermined goals. For each of our other named executive officers, their annual cash bonuses are 50% dependent on the Company’s achievement of performance against predetermined goals and 50% dependent on an individual’s performance, the achievement of which is determined at the discretion of the Committee. Our named executive officers (other than the Chief Executive Officer) may be eligible for an annual cash bonus in excess of target based on outstanding individual performance, but in no event may such bonus exceed 150% of the executive’s annual target bonus opportunity. The following table sets forth the 2022 annual target bonus opportunities for the named executive officers. | Name | | | Target Bonus as % of Base Salary | | | Target Bonus ($) | | | McCord Christensen | | | | | 100% | | | | | | 997,500 | | | | Zvi Glasman | | | | | 100% | | | | | | 525,000 | | | | Michael Smith | | | | | 100% | | | | | | 700,000 | | | | R. Michael Herrman | | | | | 100% | | | | | | 450,000 | | | | Susan Sholtis(1) | | | | | 100% | | | | | | 577,500 | | |
(1)
Ms. Sholtis retired in May 2022 and thus was not eligible to receive a 2022 annual cash bonus. For 2022, the Committee determined to use Segment Adjusted EBITDA (the same measure referred to as Adjusted EBITDA in prior periods) as the sole annual incentive performance measure because it is the primary measure used to evaluate the effectiveness of the management team’s business strategies and it allows for improved comparability over prior periods due to significant growth in the Company’s new wellness centers. Segment Adjusted EBITDA is utilized solely for determining incentive compensation and is defined as Adjusted EBITDA, a non-GAAP financial measure (see Appendix A, “Reconciliation of non-GAAP Financial Measures” for information regarding Adjusted EBITDA and a reconciliation to net income, the most directly comparable GAAP measure), as further adjusted to include non same-store operating results related to the Services segment wellness centers with less than six full quarters of operating results, and pre-opening expenses.
COMPENSATION DISCUSSION AND ANALYSIS
In February 2022, the Committee set a Segment Adjusted EBITDA target for 2022 of $100 million, and the Committee determined that the 2022 annual cash bonuses would be payable based on Segment Adjusted EBITDA reaching the performance levels set forth in the table below, with linear interpolation being used between the specified performance levels to determine the bonus payout percentage. | Level of Achievement of Segment Adjusted EBITDA Target | | | Bonus Payout Percentage | | | 85% or less | | | | | 0% | | | | 100% | | | | | 100% | | | | 115% or above | | | | | 150% | | |
In July 2022, after considering the Company’s revised outlook for 2022 in light of slowing overall category growth and changes in consumer spending given the macroeconomic climate, the Committee determined to exercise its discretion to revise the Segment Adjusted EBITDA target for 2022 to $94 million. Segment Adjusted EBITDA achieved by the Company for 2022 was $94.1 million, which resulted in performance results of approximately 100% of the Segment Adjusted EBITDA target. With respect to the individual performance component, after considering each eligible named executive officer’s contribution to the Company’s 2022 performance, particularly in light of industry headwinds and macroeconomic conditions, the Committee determined that each eligible named executive officer (other than the Chief Executive Officer, whose 2022 annual cash bonus was 100% based on the Company’s achievement of the Segment Adjusted EBITDA target) earned 100% of the individual performance component of their respective 2022 annual cash bonuses. The following table sets forth the 2022 annual cash bonuses earned by the named executive officers included therein. | Name | | | 2022 Annual Incentive Payout Percentage (% of Target) | | | 2022 Annual Bonus ($) | | | McCord Christensen | | | | | 100% | | | | | | 997,500 | | | | Zvi Glasman | | | | | 100% | | | | | | 525,000 | | | | Michael Smith | | | | | 100% | | | | | | 700,000 | | | | R. Michael Herrman | | | | | 100% | | | | | | 450,000 | | |
Long-Term Incentive Awards We established the Amended and Restated 2017 Omnibus Incentive Plan (as subsequently amended, the “Omnibus Plan”) in connection with our initial public offering in 2017, pursuant to which cash and equity-based incentives (including through an annual incentive program) may be granted to participating employees, directors and consultants. The principal purposes of the Omnibus Plan are to encourage profitability and growth through short-term and long-term incentives that are consistent with our objectives; to give participants an incentive for excellence in individual performance; to promote teamwork among participants; and to give us a significant advantage in attracting and retaining key employees, directors and consultants. Our Omnibus Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, nonqualified stock options, stock appreciation rights, restricted shares, restricted stock units, performance-based awards (including performance-based restricted shares and performance units), and other stock or cash-based awards. In August 2018, the Committee adopted a long-term incentive award program (the “LTI Program”) under the Omnibus Plan, pursuant to which equity awards are made on an annual basis to certain employees of the Company, including our named executive officers. Each participant has an LTI target representing a percentage of base salary that is used to determine the total grant date value of the participant’s LTI Program award. Whether a participant receives 100% of their LTI Program target is determined as follows at the beginning of each fiscal year: (1) 50% of a participant’s LTI award will be awarded at target if the participant remains employed by the Company on the grant date (“Service-Based Condition”) and (2) 50% of a participant’s LTI award will be awarded at predetermined threshold, target or maximum performance levels based on the level of Segment Adjusted EBITDA achieved by the Company in the
COMPENSATION DISCUSSION AND ANALYSIS
year prior to the year of grant, as compared to the Segment Adjusted EBITDA budget set for each year by the Committee (“Performance-Based Condition”). The Committee determined that the amount of an eligible named executive officer’s 2022 LTI award subject to the Performance-Based Condition would be based on Segment Adjusted EBITDA reaching the performance levels set forth in the table below, with linear interpolation being used between the specified performance levels to determine such amount. | Performance Level | | | Level of Achievement of Segment Adjusted EBITDA Based Against Budget | | | Percentage of Performance-LTI Target Awarded | | | Threshold | | | More than 85% | | | | | 50% | | | | Target | | | 100% | | | | | 100% | | | | Maximum | | | 115% or above | | | | | 115% | | |
The Segment Adjusted EBITDA budget set by the Committee for 2021 was $98 million. In determining the amount of the performance-based portion of the 2022 LTI awards, consistent with our pay-for-performance philosophy of providing incentive awards for delivering operating results, the Committee deemed it appropriate to exclude from the Company’s financial performance results (i) a portion of the estimated impact of the COVID-19 pandemic, (ii) the impact of the loss of certain distribution rights and (iii) the payment of an R&D milestone payment, as each constituted a significant unplanned, unbudgeted item. Factoring in such exclusions, the Segment Adjusted EBITDA achieved by the Company in 2021 was $109.9 million, which resulted in performance results of approximately 112% of target. Despite the above-target performance on an as adjusted basis, the Committee determined to exercise negative discretion and limit the amount of each 2022 LTI award based on the Performance-Based Condition to 100% of target. The following table sets forth the 2022 LTI award opportunities for the named executive officers. Since the Service-Based Condition and the Performance-Based Condition were both achieved at target for the named executive officers, they were eligible to receive 100% of their respective 2022 LTI award opportunities:
TABLE OF CONTENTS | Name | | Compensation Discussion and Analysis
COMPENSATION DISCUSSION AND ANALYSIS
Overview
| 2022 LTI Award Opportunity (% of Compensation ProgramThe Compensation Committee of our Board of Directors, which we refer to herein as the “Committee,” is responsible for establishing, implementing and continually monitoring adherence with our compensation philosophy and executive compensation programs. The Committee strives to ensure that the total compensation paid to our
executive officers is fair, reasonable and competitive. Generally, the types of compensation and benefits provided to our executive officers, including the named executive officers, are similar to those provided to executive officers at comparable companies in similarly situated positions.
For 2021 our named executive officers and their respective titles are as follows:
•
Base Salary) | | | McCord Christensen Chief Executive Officer | •
John Newland, Former Chief Financial Officer
| •
Susan Sholtis, President
| •
| | 200% | | | | Zvi Glasman(1) | | | | | — | | | | Michael Smith Executive Vice President, Product Division | •
| | | | 100% | | | | R. Michael Herrman Executive Vice President, General Counsel & Corporate Secretary | | | | | 100% | | | | Susan Sholtis | | | | | 100% | | |
(1)
Mr. Glasman joined the Company in January 2022 and thus was not eligible to receive a 2022 LTI award. The 2022 LTI awards granted to the Company’s named executive officers in February 2022 consisted solely of restricted stock units, which vest ratably in annual installments over four years from the date of grant, generally based on a participant’s continued employment with the Company through each vesting date. For the 2022 LTI awards, the Committee determined to eliminate nonqualified stock options from the grant mix in favor of restricted stock units to better manage the dilutive effect of our LTI program and to provide additional retention incentive. In addition, prior to the 2022 LTI awards being granted, the Committee determined to reduce the amount of each 2022 LTI award after considering the impact of our then-current stock price on our share availability and usage.
COMPENSATION DISCUSSION AND ANALYSIS
Based on their respective 2022 LTI award opportunities, each named executive officer received a grant of restricted stock units pursuant to the LTI Program in 2022 in the amount set forth below: Messrs.
| Name | | | Restricted Stock Units (#) | | | McCord Christensen and Newland are named executive officers for 2021 based on their positions with us as principal executive officer and principal financial officer during 2021. Ms. Sholtis and Messrs. Smith and Herrman are named executive officers based on being the three highest paid executive officers of the Company, other than theprincipal executive officer and principal financial officer, during 2021.
| As previously disclosed, the Company announced on August 3, 2021 that Mr. Newland would retire as the Company’s Chief Financial Officer, which retirement became effective March 31, 2022 (“Retirement Date”). On December 6, 2021, the Company appointed
| | | | 90,476 | | | | Zvi Glasman to be the Company’s new Chief Financial Officer, effective January 3, 2022. Prior to Mr. Glasman’s appointment, Mr. Newland entered into a transition services agreement providing that he would serve as an executive advisor to the Company through his Retirement Date. A description of the compensation arrangement with Mr. Newland in connection with the transition can be found under the heading “— Executive Employment Arrangements” following the Summary Compensation Table below.(1) | Compensation Philosophy and Objectives
| The Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of our specific annual, long-term and strategic goals, and which aligns executives’ interests with those of our stockholders by rewarding performance above established goals, with the ultimate objective of improving stockholder value. The Committee evaluates both performance and compensation to ensure that we maintain our ability to attract and retain superior employees in key positions and that compensation provided to key
employees remains competitive relative to the compensation paid to similarly situated executives at companies with, among other things as discussed in greater detail below, similarly sized revenues. To that end, the Committee believes that executive compensation packages provided by us to our executives, including to our named executive officers, should include both cash and equity-based compensation that rewards performance as measured against established goals.
| Role of Executive Officers in Compensation Decisions
| Our Chief Executive Officer annually reviews the performance of each of our named executive officers (other than the Chief Executive Officer, whose performance is reviewed by the Committee). The conclusions reached
and recommendations based on these reviews, including with respect to salary adjustments and annual incentive award target and actual payout amounts, are presented to the Committee, which has the discretion to modify any
| — |
| | Compensation Discussion and Analysis
recommended adjustments or awards to executives.
The Committee has final approval over all compensation decisions for our named executive officers and approves recommendations regarding cash and equity awards to all of our officers.
At our 2021 annual meeting of stockholders, a significant majority of our stockholders approved our executive compensation structure in a “say-on-pay” advisory vote, with over 90% voting in favor of our executive compensation structure. As a result of the 2021 vote, the Committee determined to continue its pay philosophy or practices.
Also at our annual meeting in 2021, our stockholders approved an advisory “say-on-pay frequency” proposal to
hold “say-on-pay” advisory votes every year and, therefore, we elected to submit the advisory “say-on-pay” proposal to our stockholders on an annual basis. We will hold another advisory “say-on-pay frequency” vote at this year’s annual meeting.
Setting Executive Compensation
Based on the foregoing objectives, the Committee has structured our executive compensation programs to motivate our executives to achieve the business goals set by us and to reward the executives for achieving these goals. In evaluating executive compensation, the Committee considers a variety of factors including market demands,
internal equity and external surveys which provide insight into and guidance on the pay practices of similar companies. While survey data provides us with a helpful guideline, we do not make compensation decisions based on any single factor.
Executive Compensation Components
The principal components of compensation for our named executive officers are:
•
base salary;
•
annual incentives; and
•
long-term incentive awards.
We provide our named executive officers and other employees with base salary to compensate them for services rendered during the fiscal year. Base salaries established for our named executive officers are intended to reflect each individual’s responsibilities, experience, historical performance and other discretionary factors deemed relevant by the Committee and have generally been set at levels deemed necessary to attract and retain individuals with superior talent. Base salaries are also designed to provide our named executive officers with steady cash flow during the course of the fiscal year that is not contingent on short-term variations in the Company’s operating performance. The initial base salary for our named executive officers is established in their employment agreements.
Salary levels are reviewed annually as part of our performance review process as well as upon a promotion
or other material change in job responsibility. Merit-based increases to salaries of the executives, including our named executive officers, are based on the Committee’s assessment of the individual’s performance.
In reviewing base salaries of our executives, the Committee primarily considers:
•
scope and/or changes in individual responsibility;
•
internal analysis of the executive’s compensation, both individually and relative to other officers; and
•
individual performance of the executive.
The Committee reviews these criteria collectively but does not assign a weight to any criterion when setting base salaries. Each base salary adjustment is made by the Committee subjectively based upon the foregoing.
Compensation Discussion and Analysis
Our named executive officers are entitled to the following annual base salaries:
| Name | | | 2020 Base Salary Rate ($) (Effective January 1, 2020) | | | 2021 Base Salary Rate ($) (Effective January 1, 2021) | | | McCord Christensen | | | | | 800,000 | | | | | | 950,000 | | | | John Newland | | | | | 425,000 | | | | | | 500,000 | | | | Susan Sholtis | | | | | 450,000 | | | | | | 550,000 | | | | Michael Smith | | | | | 415,000 | | | | | | 500,000 | | | | R. Michael Herrman | | | | | 315,000 | | | | | | 400,000 | | |
In October 2020, the Board approved base salary increases for each named executive officer, effective January 1, 2021 to reflect individual performance and to recognize
the contributions of such named executive officers within their respective roles.
Our named executive officers are eligible for annual bonuses based on Company performance and individual performance, with payment amounts determined by the Committee based on the Committee’s assessment of performance for the applicable year. The annual incentive plan is intended to focus the entire organization on meeting or exceeding the annual performance goals that are set during the early part of each year and approved by the Committee, while also providing significant opportunity to reward individual contributions.
Each named executive officer is assigned an annual target opportunity for an annual bonus expressed as a percentage of such executive’s base salary. An executive’s target annual incentive percentage generally increases as his or her ability to affect the Company’s performance increases. Consequently, as an executive’s responsibilities increase, his or her variable compensation in the form of an annual
cash bonus also increases, generally making up a larger portion of the executive’s total compensation. Our Chief Executive Officer’s annual cash bonus is 100% based on Company performance. For each of our other named executive officers, their annual cash bonuses are 50% dependent on the Company’s achievement of performance against predetermined goals and 50% dependent on an individual’s performance, the achievement of which is determined at the discretion of the Committee. Our named executive officers (other than the Chief Executive Officer) may be eligible for an annual bonus in excess of target based on outstanding individual performance.
In October 2020, the Board approved increases to Messrs. Smith and Herrman’s annual bonus target opportunity for each officer’s annual bonus from 75% of base salary to 100% of base salary.
The 2021 annual bonus target opportunities for our named executive officers are set forth in the following table:
| Name | | | Target Bonus as % of Base Salary | | | Target Bonus ($) | | | McCord Christensen | | | | | 100% | | | | | | 950,000 | | | | John Newland | | | | | 100% | | | | | | 500,000 | | | | Susan Sholtis | | | | | 100% | | | | | | 550,000 | | | | Michael Smith | | | | | 100% | | | | | | 500,000 | | | | R. Michael Herrman | | | | | 100% | | | | | | 400,000 | | |
For 2021, the Committee determined to use Adjusted EBITDA as the sole annual incentive performance measure (for more information regarding Adjusted EBITDA and a reconciliation to net income, the most directly comparable GAAP measure, see Appendix A, “Reconciliation of Non-GAAP Financial Measures”). The Board set an Adjusted EBITDA target for 2021 of $98.0 million (as adjusted to exclude bonus expenses), and the Committee determined
that no bonuses would be earned if actual Adjusted EBITDA was achieved at or below 85%. However, if actual Adjusted EBITDA was achieved at Threshold (85.1%), Target (100%) or Maximum (115%), then bonuses would be earned at 50%, 100% or 150% of target, respectively, with linear interpolation for performance between the specified goals. In determining the payouts of the 2021 annual
Compensation Discussion and Analysis
cash bonus program, consistent with our pay-for-performance philosophy of providing incentive payouts for delivering operating results, the Committee deemed it appropriate to exclude a portion of the estimated impact of the COVID-19 pandemic, from the Company’s financial performance results as a significant unplanned, unbudgeted item. Factoring in such exclusions, the Adjusted EBITDA (as adjusted to exclude bonus expenses) achieved by the Company for 2021 was $109.9 million, which resulted in performance results of approximately 112% of target. Despite the above-target performance on
an as adjusted basis, the Committee determined to exercise negative discretion to cap payouts for the Company performance component of the 2021 annual cash bonus at 100% of target. With respect to the individual performance component, our eligible named executive officers, other than the Chief Executive Officer, earned the individual performance component of their 2021 annual cash bonuses as follows: 100% of target for Messrs. Newland and Herrman, 136% of target for Ms. Sholtis and 195% of target for Mr. Smith.
The annual bonuses earned by our named executive officers for 2021 are set forth in the following table:
| Name | | | 2021 Annual Incentive Payout Percentage (% of Target) | | | 2021 Annual Bonus ($) | | | McCord Christensen | | | | | 100% | | | | | | 950,000 | | | | John Newland | | | | | 100% | | | | | | 500,000 | | | | Susan Sholtis | | | | | 118% | | | | | | 650,000 | | | | Michael Smith | | | | | 145% | | | | | | 725,000 | | | | R. Michael Herrman | | | | | 100% | | | | | | 400,000 | | |
Long-Term Incentive Awards
We established the Omnibus Plan in connection with our initial public offering in 2017, pursuant to which cash and equity-based incentives (including through an annual incentive program) may be granted to participating employees, directors and consultants. The principal purposes of the Omnibus Plan, as amended, are to encourage profitability and growth through short-term and long-term incentives that are consistent with our objectives; to give participants an incentive for excellence in individual performance; to promote teamwork among participants; and to give us a significant advantage in attracting and retaining key employees, directors and consultants. Our Omnibus Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, nonqualified stock options, stock appreciation rights, restricted shares, restricted stock units, performance-based awards (including performance-based restricted shares and performance units), and other stock or cash-based awards.
In August 2018, the Committee adopted a long-term incentive award program (the “LTI Program”) under the Omnibus Plan, pursuant to which equity awards are made on an annual basis to certain employees of the Company, including our named executive officers. Each participant has an LTI target representing a percentage of base salary that is used to determine the total grant date value of the participant’s LTI Program award. Whether a participant receives 100% of their LTI Program target is determined as follows at the beginning of each fiscal year: (1) 50% of a participant’s LTI award will be awarded at target if the participant remains employed by the Company on the grant date (“Service-Based Condition”) and (2) 50% of a participant’s LTI award will be awarded at threshold, target or maximum based on the level of Adjusted EBITDA achieved by the Company in the year prior to the year of grant, as compared to the Adjusted EBITDA budget set for each year by the Board (“Performance-Based Condition”). For more information regarding Adjusted EBITDA and a reconciliation to net income, the most directly comparable GAAP measure, see Appendix A, “Reconciliation of Non-GAAP Financial Measures”).
Compensation Discussion and Analysis
The Service-Based Condition was met for each named executive officer. The amount of the LTI award based on the Performance-Based Condition will vary as follows:
| Threshold/Target/Maximum | | | Level of Achievement of Adjusted EBITDA Against Budget | | | Percentage of Performance-Based LTI Target Awarded | | | Threshold | | | 85.1% | | | | | 50% | | | | Target | | | 100% | | | | | 100% | | | | Maximum | | | 115% or above | | | | | 115% | | |
If the level of achievement of Adjusted EBITDA is above Threshold (85%) but below Target (100%), or above Target (100%) but below Maximum (115%), the amount of the LTI award that will be awarded based on the Performance-Based Condition will be determined using straight-line interpolation.
The adjusted EBITDA budget set by the Board for 2020 was $77.0 million (as adjusted to exclude bonus expenses). In determining the percentage of the Performance-Based LTI Target to be awarded in 2021, consistent with our pay-for-performance philosophy of providing incentive awards for delivering operating results, the Committee deemed it
appropriate to exclude a portion of the estimated impact of the COVID-19 pandemic, from the Company’s financial performance results as a significant unplanned, unbudgeted item. Factoring in such exclusions, the Adjusted EBITDA (as adjusted to exclude bonus expenses) achieved by the Company for 2021 was $83.2 million, which resulted in performance results of approximately 108% of target. Despite the above-target performance on an as adjusted basis, the Committee determined to exercise negative discretion and limit the amount of the 2021 LTI award that will be awarded based on the Performance-Based Condition to Target (100%).
The 2021 LTI award opportunities for our named executive officers are set forth in the following table. Since the Service-Based Condition and the Performance-Based Condition were both achieved at target, the named executive officers were eligible to receive 100% of their LTI award opportunities:
| Name | | | 2021 LTI Award Opportunity (% of Base Salary) | | | 2021 Grant Date Fair Value of LTI Award ($) | | | McCord Christensen(1) | | | | | 200% | | | | | | 1,900,000 | | | | John Newland | | | | | 100% | | | | | | 500,000 | | | | Susan Sholtis | | | | | 100% | | | | | | 550,000 | | | | Michael Smith | | | | | 100% | | | | | | 500,000 | | | | R. Michael Herrman | | | | | 100% | | | | | | 400,000 | | |
(1)
In October 2020, the Board approved an increase to Mr. Christensen’s LTI target from 150% of base salary to 200% of base salary.
The mix of equity awards granted to the Company’s named executive officers under the LTI Program on March 1, 2021 consisted of nonqualified stock options (weighted 50%) and restricted stock units (weighted 50%),
which will vest ratably in annual installments over four years from the date of grant, generally based on a participant’s continued employment with the Company through each vesting date.
Based on our named executive officer’s 2021 LTI award opportunities, each received the grants of nonqualified stock options and restricted stock units for pursuant to the LTI Program in 2021 as set forth in the following table:
| Name | | | Nonqualified Stock Options (#) | | | Restricted Stock Units (#) | | | McCord Christensen | | | | | 53,281 | | | | | | 26,640 | | | | John Newland | | | | | 14,021 | | | | | | 7,011 | | | | Susan Sholtis | | | | | 15,423 | | | | | | 7,712 | | | | Michael Smith | | | | | 14,021 | | | | | | 7,011 | | | | R. Michael Herrman | | | | | 11,217 | | | | | | 5,609 | | |
Compensation Discussion and Analysis
In addition, in 2021, the Committee determined it was advisable to provide Ms. Sholtis and Mr. Smith with special retention awards of 50,000 restricted stock units and 25,000 restricted stock units, respectively, on May 7, 2021, which vest in approximately equal installments on each of the first four anniversaries of the grant date, subject to each officer’s continued service with the Company through each applicable vesting date. The primary purpose of
these special retention awards was to enhance and protect stockholder value by ensuring the continuity and stability of key members of our management team, while also incentivizing those team members to pursue the most advantageous opportunities to maximize stockholder value. To ensure the awards do not unjustly reward the officers, the RSUs require continued service through each anniversary date to vest.
Effective February 1, 2019, we adopted a qualified defined contribution 401(k) plan in which all of our eligible employees, including our named executive officers, may
participate. The Company will match 100% of up to the first 3% of a participant’s deferral per year under the 401(k) plan.
We provide named executive officers with limited perquisites that we and the Committee believe are reasonable and consistent with our overall compensation
program to better enable us to attract and retain superior employees for key positions.
Employment Agreements and Severance Benefits
We provide our named executive officers with certain severance protections in their employment agreements in order to attract and retain an appropriate caliber of talent for such positions. Our employment agreements with the named executive officers and the severance
provisions set forth therein are summarized below under “— Executive Employment Arrangements” and “— Potential Payments upon Termination or Change in Control.” We intend to periodically review the level of the benefits in these agreements.
Hedging and Pledging Disclosure
The Company’s Insider Trading Policy (the “Policy”) prohibits directors and officers designated as “officers” for purposes of Section 16 under the Securities Exchange Act of 1934, as amended (together, the “Section 16 Reporting Persons”) from (i) entering into hedging or monetization transactions involving our Company stock and (ii) holding our Company stock in a margin account or pledging our Company stock as collateral for a loan. An excerpt from the Policy is set forth below:
Margin Accounts and Pledges. Section 16 Reporting Persons may not pledge any Company securities as collateral for a loan and such person may not hold Company securities as collateral in a margin account. Such persons may not have control over these transactions as the securities may be sold at certain times without such person’s consent. A margin or foreclosure sale that occurs
when a person subject to this policy is aware of material, nonpublic information may, under some circumstances, result in unlawful insider trading. This provision shall not apply with respect to members of the Company’s Board of Directors who may indirectly engage in such transactions in a professional capacity.
Hedges and Monetization Transactions. Section 16 Reporting Persons may not engage in hedging or monetization transactions, through transactions in Company securities or through the use of financial instruments designed for such purpose. Such hedging and monetization transactions may permit a person to own Company securities, but without the full risks and rewards of ownership. When that occurs, the person may no longer have the same objectives as the Company’s stockholders generally.
The Company maintains a formal clawback policy (the “Clawback Policy”) that applies to all “Incentive-Based Compensation” granted to any “Executive Officer”, in each case as such term is defined in rules or regulations issued
by the U.S. Securities and Exchange Commission or any national securities exchange or national securities association on which shares of the common stock of the Company may be traded, in connection with Section 10D of
Compensation Discussion and Analysis
the Exchange Act, as added by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended.
In the event that the Company is required by applicable U.S. federal securities laws to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under such securities laws, the Company will recover from such Executive Officer who received Incentive-Based Compensation during the three-year period preceding the date on which the Company is required to prepare an accounting restatement, based on the erroneous data, the amount, if any, in excess of what would have been paid to the Executive Officer under the accounting restatement. If the Compensation Committee cannot determine the amount of excess Incentive-Based Compensation received by an Executive Officer directly from the information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect of restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement and will determine, in its sole
discretion, the method for recouping Incentive-Based Compensation. In determining what actions to take, the Compensation Committee shall take into account all relevant factors, including whether the Executive Officer engaged in fraud, misconduct or other bad-faith action that caused or partially caused the need for the restatement. In addition, the Compensation Committee may dismiss the Executive Officer, authorize legal action, or take such other action to enforce the Executive Officer’s obligations to the Company as it may deem appropriate in view of all the facts surrounding the particular case.
The Clawback Policy is administered by the Compensation Committee, which has the sole discretion in making all determinations under the Clawback Policy, which shall be binding on all individuals. The Clawback Policy will be interpreted and administered (and, as necessary, amended to be) consistent with the applicable requirements of Section 10D of the Exchange Act and any applicable rules or regulations issued by the U.S. Securities and Exchange Commission or any national securities exchange or national securities association on which shares of the common stock of the Company may be traded.
In October 2021, the Board approved a base salary increase of 5% for each named executive officer, effective January 1, 2022 to reflect cost of living adjustments and inflation. In addition, when determining the grant mix to be
made under the March 2021 LTI Program, the Board determined to provide our named executive officers with restricted stock units in lieu of a mix of nonqualified stock options and restricted stock units.
Tax and Accounting Implications
One of the factors the Committee considers when determining executive compensation is the anticipated tax treatment to the Company and to the executives of the various payments and benefits. Section 162(m) of the Internal Revenue Code (“Section 162(m)”) generally provides that a publicly held company may not deduct compensation paid to certain covered executive officers to the extent that such compensation exceeds $1,000,000 per executive officer in any year. While the Committee generally considers this limit when determining
compensation, there are instances in which the Committee has concluded, and reserves the discretion to conclude in the future, that it is appropriate to exceed the limitation on deductibility under Section 162(m) to ensure that executive officers are compensated in a manner that it believes to be consistent with the Company’s best interests and those of its stockholders. The Committee also considers the accounting treatment of the cash and equity awards in making decisions about the awards that it grants and maintains.
Compensation Committee Report
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Respectfully submitted by:
THE COMPENSATION COMMITTEE
Mark First, Chairman
Scott Huff
Sheryl Oloughlin
Summary Compensation Table
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table discloses the compensation information for fiscal years 2019 through 2021 for our principal executive officer (“PEO”), principal financial officer (“PFO”) and the three most highly compensated executive officers other than the PEO and PFO who were serving as executive officers at the end of the last completed fiscal year (collectively, the “named executive officers”).
| Name and Principal Position | | | Year | | | Salary ($) | | | Bonus ($)(1) | | | Stock Awards ($)(2) | | | Option Awards ($)(3) | | | Non-Equity Incentive Plan Compensation ($)(4) | | | All Other Compensation ($)(5) | | | Total ($) | | | McCord Christensen Chief Executive Officer | | | | | 2021 | | | | | | 950,000 | | | | | | — | | | | | | 949,982 | | | | | | 660,009 | | | | | | 950,000 | | | | | | 11,300 | | | | | | 3,521,291 | | | | | | 2020 | | | | | | 817,808 | | | | | | — | | | | | | 442,754 | | | | | | 314,220 | | | | | | 800,000 | | | | | | 23,328 | | | | | | 2,398,110 | | | | | | 2019 | | | | | | 516,026 | | | | | | 747,337 | | | | | | 225,001 | | | | | | 409,649 | | | | | | — | | | | | | — | | | | | | 1,898,013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | John Newland Former Chief Financial Officer | | | | | 2021 | | | | | | 500,000 | | | | | | — | | | | | | 250,012 | | | | | | 173,683 | | | | | | 500,000 | | | | | | 4,444 | | | | | | 1,428,139 | | | | | | 2020 | | | | | | 439,855 | | | | | | — | | | | | | 221,387 | | | | | | 152,106 | | | | | | 425,000 | | | | | | 7,886 | | | | | | 1,246,234 | | | | | | 2019 | | | | | | 387,019 | | | | | | 560,502 | | | | | | 112,501 | | | | | | 204,830 | | | | | | — | | | | | | 8,400 | | | | | | 1,273,252 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Susan Sholtis President | | | | | 2021 | | | | | | 550,000 | | | | | | — | | | | | | 2,421,010 | | | | | | 191,050 | | | | | | 650,000 | | | | | | 4,719 | | | | | | 3,816,779 | | | | | | 2020 | | | | | | 465,385 | | | | | | — | | | | | | 229,534 | | | | | | 157,717 | | | | | | 450,000 | | | | | | 8,206 | | | | | | 1,310,842 | | | | | | 2019 | | | | | | 400,000 | | | | | | — | | | | | | — | | | | | | — | | | | | | 581,158 | | | | | | 6,423 | | | | | | 987,581 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael Smith Executive Vice President, Product Division | | | | | 2021 | | | | | | 500,000 | | | | | | — | | | | | | 1,323,012 | | | | | | 173,683 | | | | | | 725,000 | | | | | | 5,192 | | | | | | 2,726,887 | | | | | | 2020 | | | | | | 430,385 | | | | | | — | | | | | | 123,196 | | | | | | 84,654 | | | | | | 311,250 | | | | | | 28,958 | | | | | | 838,952 | | | | | | 2019 | | | | | | 216,154 | | | | | | 733,949 | | | | | | 409,566 | | | | | | 996,714 | | | | | | — | | | | | | 20,852 | | | | | | 2,376,312 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | R. Michael Herrman (6) Executive Vice President, General Counsel and Corporate Secretary | | | | | 2021 | | | | | | 400,000 | | | | | | — | | | | | | 200,017 | | | | | | 138,949 | | | | | | 400,000 | | | | | | — | | | | | | 1,138,966 | | | | | | 2020 | | | | | | 326,346 | | | | | | — | | | | | | 142,998 | | | | | | 98,260 | | | | | | 236,250 | | | | | | — | | | | | | 803,854 | | |
(1)
The amounts reported in the “Bonus” column for 2019 represent (i) for Messrs. Christensen and Newland, discretionary bonuses paid to the executives in 2020 with respect to services provided in 2019, and (ii) for Mr. Smith, a sign-on bonus of $500,000 paid in connection with the commencement of his employment with the Company, and a discretionary bonus of $233,949 paid in 2020 with respect to services provided in 2019.
(2)
The amounts reported in the “Stock Awards” column for 2021 represent the grant date fair value of the restricted stock unit awards granted to the named executive officers, calculated in accordance with FASB ASC Topic 718. For a discussion of the assumptions and methodologies used in calculating the grant date fair value of the restricted stock unit awards, please see Note 9 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
(3)
The amounts reported in the “Option Awards” column for 2021 represent the grant date fair value of the stock option awards granted to the named executive officers, calculated in accordance with FASB ASC Topic 718. For a discussion of the assumptions and methodologies used in calculating the grant date fair value of the stock option awards, please see Note 9 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
(4)
The amounts reported in the “Non-Equity Incentive Plan Compensation” column for 2021 represent the amounts earned under the Company’s 2021 annual incentive program based on achievement of the applicable Adjusted EBITDA target, as described above in the Compensation Discussion and Analysis under the heading, “Annual Incentives.”
(5)
The amounts reported in the “All Other Compensation” column for 2021 represent employer matching contributions under the Company’s 401(k) plan, except for amounts reported for Mr. Christensen, who received reimbursements of $11,300 related to club membership dues.
(6)
Because Mr. Herrman was not a named executive officer prior to 2020, only his 2020 and 2021 compensation is reported in this table.
Summary Compensation Table
Executive Employment Arrangements
A summary of our current at-will employment agreements with our named executive officers is set forth below. For a description of the severance provisions of the employment agreements, see “— Potential Payments upon Termination or Change in Control” below.
McCord Christensen. Effective May 31, 2012, Mr. Christensen entered into an employment agreement with the Company, which was amended and restated effective May 9, 2019. Under the amended agreement, Mr. Christensen will continue to serve as Chief Executive Officer for a term of three years, plus automatic one-year renewals thereafter unless any party provides notice of intent not to renew the agreement. The amended agreement provides for an initial base salary of $515,000 per year and eligibility to receive annual cash bonuses in the discretion of the Board with a target bonus equal to 100% of his annual base salary. Mr. Christensen is also eligible to participate in and receive awards under the PetIQ, Inc. Amended and Restated 2017 Omnibus Incentive Plan (the “Omnibus Plan”), as determined by the Committee in its discretion.
Mr. Christensen is subject to certain restrictive covenants, including provisions regarding non-competition and non-solicitation of employees, independent contractors, clients, customers or suppliers, while employed by the Company and for a period three years following the termination of employment.
John Newland. Effective May 9, 2019, Mr. Newland entered into an employment and non-competition agreement with the Company, which supersedes the terms of Mr. Newland’s offer letter, dated March 6, 2014. Pursuant to the agreement, Mr. Newland will continue to serve as Chief Financial Officer for a term of one year, plus automatic one-year renewals thereafter unless any party provides notice of intent not to renew the agreement. The agreement provides for an initial base salary of $386,250 per year and eligibility to receive annual cash bonuses in the discretion of the Board with a target bonus of 100% of his annual base salary. Mr. Newland is also eligible to participate in and receive awards under the Omnibus Plan, as determined by the Committee in its discretion. Mr. Newland is subject to certain restrictive covenants, including provisions regarding non-competition and non-solicitation of employees, independent contractors, clients, customers or suppliers, while employed by the Company and for a period following the termination of employment of one year.
As previously disclosed, effective March 31, 2022, Mr. Newland retired from the Company. In connection with his retirement announcement in August 2021, the Company and Mr. Newland entered into a Transition
Support Agreement and General Release (the “Transition Agreement”) on August 3, 2021, which provided that in addition to Mr. Newland’s current duties, he would also provide leadership transition services until his retirement date. In exchange for entering into the Transition Agreement, extending the restrictive period of his restrictive covenants from one year to two years and his execution and non-revocation of a general release in favor of the Company following his retirement, Mr. Newland was eligible to receive the following additional benefits (i) salary continuation for 24 months; (ii) up to 24 months of COBRA premiums for himself and his eligible dependents; (iii) eligibility to receive equity incentive awards in March 2022 with an aggregate value equal to 100% of Mr. Newland’s then-current base salary and (iv) accelerated vesting of all unvested equity incentive awards (including the March 2022 grants) on Mr. Newland’s retirement date and a modified exercise period for all outstanding options of 24 months following the date Mr. Newland can no longer revoke his release. All equity incentive awards and post-retirement benefits remain subject to cancellation, forfeiture and clawback in the event Mr. Newland breaches the Transition Agreement or any restrictive covenants.
Susan Sholtis. On September 17, 2018, Ms. Sholtis entered into an employment agreement with the Company, effective October 1, 2018, to serve as President of the Company. The agreement provides for an initial term of one year, plus automatic one-year renewals thereafter unless any party provides notice of intent not to renew the agreement, and an initial base salary of $400,000 peryear. In addition, Ms. Sholtis is eligible to receive annual cash bonuses in the discretion of the Board with a target bonus of 100% of her annual base salary. Ms. Sholtis is subject to certain restrictive covenants, including provisions regarding non-competition and non-solicitation of employees, independent contractors, clients, customers or suppliers, while employed by the Company and for a period of one year following the termination of her employment for any reason.
In connection with Ms. Sholtis’s commencement of employment, Ms. Sholtis received an option to purchase 100,000 shares of Class A Common Stock, vesting in equal installments on each of the first four anniversaries of the grant date, and 20,000 restricted stock units, vesting 50% on the first anniversary of the grant date and in equal installments on each of the second, third, and fourth anniversaries thereafter.
| Michael Smith. Effective May 28, 2019, Mr. Smith entered into an employment and non-competition agreement with the Company. Under the agreement, Mr. Smith will serve as the Executive Vice President, Product Division of the Company for an initial term of one year, plus automatic one-year renewals thereafter unless any party provides notice |
Summary Compensation Table
| of intent not to renew the agreement. The agreement provides for an initial base salary of $400,000 per year and a $500,000 sign-on bonus. In addition, Mr. Smith is eligible to receive annual cash bonuses in the discretion of the Board with a target bonus of 75% of his annual base salary (prorated for the 2019 fiscal year) and to participate in and receive awards under the Omnibus Plan, as determined by the Committee in its discretion, with a target opportunity equal to 100% of his annual base salary (prorated for the 2019 fiscal year). Mr. Smith is subject to certain restrictive covenants, including provisions regarding non-competition and non-solicitation of employees, independent contractors, clients, customers or suppliers, while employed by the Company and for a period following the termination of employment of one year.
In connection with the commencement of Mr. Smith’s employment, Mr. Smith received an option to purchase 100,000 shares of Class A Common Stock and an award of 15,508 restricted stock units, in each case, vesting in
substantially equal installments on each of the first four anniversaries of the grant date.
| | | 23,810 | | | | R. Michael Herrman. Effective May 9, 2019, Mr. Herrman entered into an employment and non-competition agreement with the Company. Pursuant to the agreement, Mr. Herrman will serve as General Counsel and Secretary of the Company for a term of one year, plus automatic one-year renewals thereafter unless any party provides notice of intent not to renew the agreement. The agreement provides for an initial base salary of $295,000 per year and eligibility to receive annual cash bonuses in the discretion of the Board with a target bonus of 50% of his annual base salary. Mr. Herrman is also eligible to participate in and receive awards under the Omnibus Plan, as determined by the Committee in its discretion. Mr. Herrman is subject to certain restrictive covenants, including provisions regarding non-competition and non-solicitation of employees, independent contractors, clients, customers or suppliers, while employed by the Company and for a period following the termination of employment of one year. | | | | | 19,048 | | | | Susan Sholtis | | | | | 26,190 | | |
(1)
Mr. Glasman joined the Company in January 2022 and thus was not eligible to receive a 2022 LTI award. Zvi Glasman New Hire Awards Mr. Glasman commenced serving as our Chief Financial Officer in January 2022. In connection with his hire, on January 3, 2022, Mr. Glasman received (1) a new hire grant of 36,513 restricted stock units and (2) a new hire grant of 36,513 non-qualified stock options, each of which vests ratably in annual installments over four years from the date of grant, generally subject to Mr. Glasman’s continued employment with the Company through each vesting date. Retirement of Susan Sholtis Ms. Sholtis retired from the Company effective May 27, 2022. In connection with her retirement, Ms. Sholtis entered into a transition support agreement and general release on May 6, 2022, which provided for Ms. Sholtis’s resignation from employment with the Company on May 27, 2022 and provided that she would remain available to the Company on an as needed basis to ensure a smooth transition through September 30, 2022. Following her retirement, Ms. Sholtis became entitled to receive the following benefits, pursuant to the transition support agreement, in exchange for entering into the transition support agreement, extending the restrictive period of her restrictive covenants from one year to two years and her execution and non-revocation of a general release in favor of the Company: (i) salary continuation for 12 months; (ii) up to 24 months of COBRA premiums for herself and her eligible dependents; (iii) continued vesting of all options and restricted stock units granted to Ms. Sholtis as if she were employed by the Company up to and including May 27, 2023; and (iv) an extended exercise period for all outstanding options through May 27, 2024. Retirement Plan We maintain a qualified defined contribution 401(k) plan in which all of our eligible employees, including our named executive officers, may participate. In 2022, the Company matched contributions up to the first 4% of a participant’s eligible deferred compensation under the 401(k) plan (increased from 3% in 2021). Limited Perquisites We provide named executive officers with limited perquisites that we and the Committee believe are reasonable and consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions. Employment Agreements and Severance Benefits We provide our named executive officers with certain severance protections in their employment agreements in order to attract and retain an appropriate caliber of talent for such positions. Our employment agreements with the named executive officers and the severance provisions set forth therein are summarized below under “— Executive Employment Arrangements” and “— Potential Payments upon Termination or Change in Control.” We intend to periodically review the level of the benefits in these agreements. Hedging and Pledging Disclosure The Company’s Insider Trading Policy (the “Policy”) prohibits directors and officers designated as “officers” for purposes of Section 16 under the Securities Exchange Act of 1934, as amended (together, the
COMPENSATION DISCUSSION AND ANALYSIS
“Section 16 Reporting Persons”) from (i) entering into hedging or monetization transactions involving our Company stock and (ii) holding our Company stock in a margin account or pledging our Company stock as collateral for a loan. An excerpt from the Policy is set forth below: Margin Accounts and Pledges. Section 16 Reporting Persons may not pledge any Company securities as collateral for a loan and such person may not hold Company securities as collateral in a margin account. Such persons may not have control over these transactions as the securities may be sold at certain times without such person’s consent. A margin or foreclosure sale that occurs when a person subject to this policy is aware of material, nonpublic information may, under some circumstances, result in unlawful insider trading. This provision shall not apply with respect to members of the Company’s Board of Directors who may indirectly engage in such transactions in a professional capacity. Hedges and Monetization Transactions. Section 16 Reporting Persons may not engage in hedging or monetization transactions, through transactions in Company securities or through the use of financial instruments designed for such purpose. Such hedging and monetization transactions may permit a person to own Company securities, but without the full risks and rewards of ownership. When that occurs, the person may no longer have the same objectives as the Company’s stockholders generally. Clawback Policy The Company maintains a formal clawback policy (the “Clawback Policy”) that applies to all “Incentive-Based Compensation” granted to any “Executive Officer”, in each case as such term is defined in rules or regulations issued by the U.S. Securities and Exchange Commission or any national securities exchange or national securities association on which shares of the common stock of the Company may be traded, in connection with Section 10D of the Exchange Act, as added by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended (the “Dodd-Frank Act”). In the event that the Company is required by applicable U.S. federal securities laws to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under such securities laws, the Company will recover from such Executive Officer who received Incentive-Based Compensation during the three-year period preceding the date on which the Company is required to prepare an accounting restatement, based on the erroneous data, the amount, if any, in excess of what would have been paid to the Executive Officer under the accounting restatement. If the Compensation Committee cannot determine the amount of excess Incentive-Based Compensation received by an Executive Officer directly from the information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect of restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement and will determine, in its sole discretion, the method for recouping Incentive-Based Compensation. In determining what actions to take, the Compensation Committee shall take into account all relevant factors, including whether the Executive Officer engaged in fraud, misconduct or other bad-faith action that caused or partially caused the need for the restatement. In addition, the Compensation Committee may dismiss the Executive Officer, authorize legal action, or take such other action to enforce the Executive Officer’s obligations to the Company as it may deem appropriate in view of all the facts surrounding the particular case. The Clawback Policy is administered by the Compensation Committee, which has the sole discretion in making all determinations under the Clawback Policy, which shall be binding on all individuals. The SEC recently adopted final rulemaking implementing the provisions of the Dodd-Frank Act relating to recoupment of incentive-based compensation that will require further rulemaking by Nasdaq. We will monitor the listing standards adopted by Nasdaq and amend the Clawback Policy as necessary to reflect the final Nasdaq listing rules during the required timeframe in compliance with those standards. Tax and Accounting Implications One of the factors the Committee considers when determining executive compensation is the anticipated tax treatment to the Company and to the executives of the various payments and benefits. Section 162(m)
COMPENSATION DISCUSSION AND ANALYSIS
of the Internal Revenue Code (“Section 162(m)”) generally provides that a publicly held company may not deduct compensation paid to certain covered executive officers to the extent that such compensation exceeds $1,000,000 per executive officer in any year. While the Committee generally considers this limit when determining compensation, there are instances in which the Committee has concluded, and reserves the discretion to conclude in the future, that it is appropriate to exceed the limitation on deductibility under Section 162(m) to ensure that executive officers are compensated in a manner that it believes to be consistent with the Company’s best interests and those of its stockholders. The Committee also considers the accounting treatment of the cash and equity awards in making decisions about the awards that it grants and maintains.
COMPENSATION COMMITTEE REPORT The Compensation Committee of the Board has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Respectfully submitted by: THE COMPENSATION COMMITTEE Mark First, Committee Chair Scott Huff Sheryl O’Loughlin
SUMMARY COMPENSATION TABLE The following Summary Compensation Table discloses the compensation information for fiscal years 2020 through 2022 for our principal executive officer (“PEO”), principal financial officer (“PFO”) and the three most highly compensated executive officers other than the PEO and PFO who were serving as executive officers at the end of the last completed fiscal year (collectively, the “named executive officers”). | Name and Principal Position | | | Year | | | Salary ($) | | | Stock Awards ($)(1) | | | Option Awards ($)(2) | | | Non-Equity Incentive Plan Compensation ($)(3) | | | All Other Compensation ($)(4) | | | Total ($) | | | McCord Christensen Chief Executive Officer | | | | | 2022 | | | | | | 997,500 | | | | | | 1,880,996 | | | | | | — | | | | | | 997,500 | | | | | | — | | | | | | 3,875,996 | | | | | | 2021 | | | | | | 950,000 | | | | | | 949,982 | | | | | | 660,009 | | | | | | 950,000 | | | | | | 11,300 | | | | | | 3,521,291 | | | | | | 2020 | | | | | | 817,808 | | | | | | 442,754 | | | | | | 314,220 | | | | | | 800,000 | | | | | | 23,328 | | | | | | 2,398,110 | | | | Zvi Glasman(5) Chief Financial Officer | | | | | | | | | | | | 2022 | | | | | | 525,000 | | | | | | 800,000 | | | | | | 333,749 | | | | | | 525,000 | | | | | | 11,048 | | | | | | 2,184,701 | | | | Michael Smith President and Chief Operating Officer(6) | | | | | 2022 | | | | | | 623.942 | | | | | | 495,010 | | | | | | — | | | | | | 700,000 | | | | | | 11,392 | | | | | | 1,830,345 | | | | | | 2021 | | | | | | 500,000 | | | | | | 1,323,012 | | | | | | 173,683 | | | | | | 725,000 | | | | | | 5,192 | | | | | | 2,726,887 | | | | | | 2020 | | | | | | 430,385 | | | | | | 123,196 | | | | | | 84,654 | | | | | | 311,250 | | | | | | 28,958 | | | | | | 978,443 | | | | R. Michael Herrman Executive Vice President, General Counsel and Secretary | | | | | 2022 | | | | | | 439,961 | | | | | | 396,008 | | | | | | — | | | | | | 450,000 | | | | | | 10,000 | | | | | | 1,295,969 | | | | | | 2021 | | | | | | 400,000 | | | | | | 200,017 | | | | | | 138,949 | | | | | | 400,000 | | | | | | — | | | | | | 1,138,966 | | | | | | 2020 | | | | | | 326,346 | | | | | | 142,998 | | | | | | 98,260 | | | | | | 236,250 | | | | | | — | | | | | | 803,854 | | | | Susan Sholtis(6) Former President | | | | | 2022 | | | | | | 222,115 | | | | | | 544,490 | | | | | | — | | | | | | — | | | | | | 362,492 | | | | | | 1,129,098 | | | | | | 2021 | | | | | | 550,000 | | | | | | 2,421,010 | | | | | | 191,050 | | | | | | 650,000 | | | | | | 4,719 | | | | | | 3,816,779 | | | | | | 2020 | | | | | | 465,385 | | | | | | 229,534 | | | | | | 157,717 | | | | | | 450,000 | | | | | | 8,206 | | | | | | 1,310,842 | | |
(1)
The amounts reported in the “Stock Awards” column for 2022 represent the grant date fair value of the restricted stock unit awards granted to the named executive officers, calculated in accordance with FASB ASC Topic 718. For a discussion of the assumptions and methodologies used in calculating the grant date fair value of the restricted stock unit awards, please see Note 9 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. (2)
The amounts reported in the “Option Awards” column for 2022 represent the grant date fair value of the stock option awards granted to the named executive officers, calculated in accordance with FASB ASC Topic 718. For a discussion of the assumptions and methodologies used in calculating the grant date fair value of the stock option awards, please see Note 9 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. (3)
The amounts reported in the “Non-Equity Incentive Plan Compensation” column for 2022 represent the amounts earned under the Company’s 2022 annual incentive program based on achievement of the applicable Segment Adjusted EBITDA target, as described above in the Compensation Discussion and Analysis under the heading, “Annual Incentives.” (4)
The amounts reported in the “All Other Compensation” column for 2022 represent employer matching contributions under the Company’s 401(k) plan, except for amounts reported for Mr. Herrman, who received compensation of $10,000 related to club membership initiation fees and membership dues and amounts reported for Ms. Sholtis, who received compensation of $355,385 in severance payments. (5)
Mr. Glasman became the Company’s Chief Financial Officer on January 3, 2022. Mr. Glasman was not a named executive officer in 2020 or 2021 and thus, only 2022 compensation information is shown for him in this table. (6)
Ms. Sholtis retired as the Company’s President on May 27, 2022. On June 1, 2022, the Company appointed Mr. Smith to be the Company’s new President and Chief Operating Officer, effective upon such date. Executive Employment Arrangements A summary of our current at-will employment agreements with our named executive officers is set forth below. For a description of the severance provisions of the employment agreements, see “— Potential Payments upon Termination or Change in Control” below. McCord Christensen Effective May 31, 2012, Mr. Christensen entered into an employment agreement with the Company, which was amended and restated effective May 9, 2019. Under the amended agreement, Mr. Christensen will
SUMMARY COMPENSATION TABLE
continue to serve as Chief Executive Officer for a term of three years, plus automatic one-year renewals thereafter unless any party provides notice of intent not to renew the agreement. The amended agreement provides for an initial base salary of $515,000 per year and eligibility to receive annual cash bonuses in the discretion of the Board with a target bonus equal to 100% of his annual base salary. Mr. Christensen is also eligible to participate in and receive awards under the 2017 Omnibus Incentive Plan (the “Omnibus Plan”), as determined by the Compensation Committee in its discretion. Mr. Christensen is subject to certain restrictive covenants, including provisions regarding non-competition and non- solicitation of employees, independent contractors, clients, customers or suppliers, while employed by the Company and for a period three years following the termination of employment. Zvi Glasman Effective January 3, 2022, Mr. Glasman entered into an employment and non-competition agreement with the Company. Pursuant to the agreement, Mr. Glasman will serve as Chief Financial Officer of the Company for a term of one year, plus automatic one-year renewals thereafter unless any party provides notice of intent not to renew the agreement. The agreement provides for an initial base salary of $525,000 per year and eligibility to receive annual cash bonuses in the discretion of the Compensation Committee of the Board with a target of 100% of his annual base salary, based upon personal performance and the Company meeting Company performance targets. Mr. Glasman is also eligible to participate in and receive awards under the Omnibus Plan or applicable successor plan, as determined by the Compensation Committee in its discretion. Mr. Glasman also received $400,000 of non-qualified stock options and $800,000 of restricted stock units, vesting on each of the first four anniversaries of the agreements effective date of January 3, 2022. Mr. Glasman is subject to certain restrictive covenants, including provisions regarding non-competition and non-solicitation of employees, independent contractors, clients, customers or suppliers, while employed by the Company and for a period following the termination of employment of twelve months. Michael Smith Effective May 28, 2019, Mr. Smith entered into an employment and non-competition agreement with the Company. Under the agreement, Mr. Smith will serve as the Executive Vice President, Product Division of the Company for an initial term of one year, plus automatic one- year renewals thereafter unless any party provides notice of intent not to renew the agreement. The agreement provides for an initial base salary of $400,000 per year and a $500,000 sign-on bonus. In addition, Mr. Smith is eligible to receive annual cash bonuses in the discretion of the Board with a target bonus of 75% of his annual base salary (prorated for the 2019 fiscal year) and to participate in and receive awards under the Omnibus Plan, as determined by the Committee in its discretion, with a target opportunity equal to 100% of his annual base salary (prorated for the 2019 fiscal year). Mr. Smith is subject to certain restrictive covenants, including provisions regarding non-competition and non-solicitation of employees, independent contractors, clients, customers or suppliers, while employed by the Company and for a period following the termination of employment of one year. In connection with the commencement of Mr. Smith’s employment, Mr. Smith received an option to purchase 100,000 shares of Class A Common Stock and an award of 15,508 restricted stock units, in each case, vesting in substantially equal installments on each of the first four anniversaries of the grant date. R. Michael Herrman Effective May 9, 2019, Mr. Herrman entered into an employment and non-competition agreement with the Company. Pursuant to the agreement, Mr. Herrman will serve as General Counsel and Secretary of the Company for a term of one year, plus automatic one- year renewals thereafter unless any party provides notice of intent not to renew the agreement. The agreement provides for an initial base salary of $295,000 per year and eligibility to receive annual cash bonuses in the discretion of the Compensation Committee with a target bonus of 50% of his annual base salary. Mr. Herrman is also eligible to participate in and receive awards under the Omnibus Plan, as determined by the Compensation Committee in its discretion. Mr. Herrman is subject to certain restrictive covenants, including provisions regarding non-competition
SUMMARY COMPENSATION TABLE
and non-solicitation of employees, independent contractors, clients, customers or suppliers, while employed by the Company and for a period following the termination of employment of one year.
Grants of Plan-Based Awards
GRANTS OF PLAN-BASED AWARDS
The following table discloses the grants of plan-based awards made to our named executive officers in 2021.
| Name | | | Type of Award | | | Grant Date | | | Estimated Future Payouts Under Non- Equity Incentive Plan Awards(1) | | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | | All Other Option Awards: Number of Securities Underlying Options (#) | | | Exercise or Base Price of Option Awards ($/Sh) | | | Grant Date Fair Value of Stock and Option Awards ($)(2) | | | Threshold ($) | | | Target ($) | | | Maximum ($) | | | McCord Christensen | | | Annual Incentive | | | | | — | | | | | | 475,000 | | | | | | 950,000 | | | | | | 1,425,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU(3) | | | | | 3/1/2021 | | | | | | | | | | | | | | | | | | | | | | | | 26,640 | | | | | | | | | | | | | | | | | | 949,982 | | | | | | | Stock Option(4) | | | | | 3/1/2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 53,281 | | | | | | 35.66 | | | | | | 660,009 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | John Newland | | | Annual Incentive | | | | | — | | | | | | 250,000 | | | | | | 500,000 | | | | | | 750,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU(3) | | | | | 3/1/2021 | | | | | | | | | | | | | | | | | | | | | | | | 7,011 | | | | | | | | | | | | | | | | | | 250,012 | | | | | | | Stock Option(4) | | | | | 3/1/2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,021 | | | | | | 35.66 | | | | | | 173,683 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Susan Sholtis | | | Annual Incentive | | | | | — | | | | | | 275,000 | | | | | | 550,000 | | | | | | 825,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU(3) | | | | | 3/1/2021 | | | | | | | | | | | | | | | | | | | | | | | | 7,712 | | | | | | | | | | | | | | | | | | 275,010 | | | | | | | | | | | | 5/7/2021 | | | | | | | | | | | | | | | | | | | | | | | | 50,000 | | | | | | | | | | | | | | | | | | 2,146,000 | | | | | | | Stock Option(4) | | | | | 3/1/2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 15,423 | | | | | | 35.66 | | | | | | 191,050 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael Smith | | | Annual Incentive | | | | | — | | | | | | 250,000 | | | | | | 500,000 | | | | | | 750,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU(3) | | | | | 3/1/2021 | | | | | | | | | | | | | | | | | | | | | | | | 7,011 | | | | | | | | | | | | | | | | | | 250,012 | | | | | | | | | | | | 5/7/2021 | | | | | | | | | | | | | | | | | | | | | | | | 25,000 | | | | | | | | | | | | | | | | | | 1,073,000 | | | | | | | Stock Option(4) | | | | | 3/1/2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,021 | | | | | | 35.66 | | | | | | 173,683 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | R. Michael Herrman | | | Annual Incentive | | | | | — | | | | | | 200,000 | | | | | | 400,000 | | | | | | 600,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU(3) | | | | | 3/1/2021 | | | | | | | | | | | | | | | | | | | | | | | | 5,609 | | | | | | | | | | | | | | | | | | 200,017 | | | | | | | Stock Option(4) | | | | | 3/1/2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 11,217 | | | | | | 35.66 | | | | | | 138,949 | | |
(1)
The threshold, target, and maximum annual incentive amounts represent 50%, 100%, and 150%, respectively, of the total bonus opportunity for each named executive officer. If actual performance falls between threshold and target or between target and maximum, the award would be calculated using linear interpolation. The annual incentive awards are also based on a percentage of base salary, which is 100% for each of the named executive officers. The target amount is generally the named executive officer’s base salary multiplied by his or her respective target opportunity.
(2)
Please see Note 9 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for the assumptions made in determining values.
(3)
The restricted stock unit awards vest in approximately equal installments on each of the first four anniversaries of the applicable grant dates, subject to continued service with the Company through each such vesting date.
(4)
The stock option awards vest in approximately equal installments on each of the first four anniversaries of the applicable grant dates, subject to continued service with the Company through each such vesting date.
Annual Incentives
A summary of the Company’s annual incentive program is set forth above under the heading, “Compensation Discussion and Analysis — Executive Compensation Components — Annual Incentives.”
Long-Term Incentives
The stock options and restricted stock unit awards were all granted pursuant to the Omnibus Plan, a summary of which is set forth above under the heading, “Compensation Discussion and Analysis — Executive Compensation Components — Long-Term Incentive Awards.” In general, the stock options and restricted stock units vest in ratable annual installments on each of the first four anniversaries of the grant date, generally subject to continued service with the Company through each applicable vesting date. For a description of the effect of a termination of employment or change in control on the vesting of stock options and restricted stock units, please see “Executive Compensation — Potential Payments Upon Termination or Change in Control.”
Outstanding Awards and Fiscal Year End
OUTSTANDING AWARDS AT FISCAL YEAR END
The following table shows outstanding equity awards as of December 31, 2021 for each named executive officer.
| | | | Option Awards | | | Stock Awards | | | Name | | | Number of Securities Underlying Unexercised Options (#) Exercisable(1) | | | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | | | Option Exercise Price ($) | | | Option Expiration Date | | | Number of Shares or Units of Stock That Have Not Vested (#)(2) | | | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | | | McCord Christensen | | | | | — | | | | | | 53,281(4) | | | | | | 35.66 | | | | | | 3/1/2031 | | | | | | 26,640(4) | | | | | | 604,994 | | | | | | | | | 11,358 | | | | | | 34,077(5) | | | | | | 19.49 | | | | | | 3/12/2030 | | | | | | 17,038(5) | | | | | | 386,933 | | | | | | | | | 18,932 | | | | | | 18,933(6) | | | | | | 27.73 | | | | | | 3/13/2029 | | | | | | 4,057(6) | | | | | | 92,134 | | | | | | | | | 112,500 | | | | | | 37,500(7) | | | | | | 24.97 | | | | | | 3/15/2028 | | | | | | | | | | | | | | | | | | | | | 92,440 | | | | | | —(8) | | | | | | 16.00 | | | | | | 7/20/2027 | | | | | | | | | | | | | | | | John Newland | | | | | — | | | | | | 14,021(4) | | | | | | 35.66 | | | | | | 3/1/2031 | | | | | | 7,011(4) | | | | | | 159,220 | | | | | | | | | 5,679 | | | | | | 17,038(5) | | | | | | 19.49 | | | | | | 3/12/2030 | | | | | | 8,520(5) | | | | | | 193,489 | | | | | | | | | 9,466 | | | | | | 9,467(6) | | | | | | 27.73 | | | | | | 3/13/2029 | | | | | | 2,029(6) | | | | | | 46,079 | | | | | | | | | 56,250 | | | | | | 18,750(7) | | | | | | 24.97 | | | | | | 3/15/2028 | | | | | | | | | | | | | | | | | | | | | 143,554 | | | | | | —(8) | | | | | | 16.00 | | | | | | 7/20/2027 | | | | | | | | | | | | | | | | Susan Sholtis | | | | | — | | | | | | 15,423(4) | | | | | | 35.66 | | | | | | 3/1/2031 | | | | | | 7,712(4) | | | | | | 175,140 | | | | | | | | | 5,888 | | | | | | 17,666(5) | | | | | | 19.49 | | | | | | 3/12/2030 | | | | | | 50,000(11) | | | | | | 1,135,500 | | | | | | | | | 75,000 | | | | | | 25,000(9) | | | | | | 37.49 | | | | | | 10/1/2028 | | | | | | 8,833(5) | | | | | | 200,597 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,320(12) | | | | | | 75,397 | | | | Michael Smith | | | | | — | | | | | | 14,021(4) | | | | | | 35.66 | | | | | | 3/1/2031 | | | | | | 7,011(4) | | | | | | 159,220 | | | | | | | | | — | | | | | | 9,483(5) | | | | | | 19.49 | | | | | | 3/12/2030 | | | | | | 25,000(11) | | | | | | 567,750 | | | | | | | | | 11,530 | | | | | | 50,000(10) | | | | | | 26.76 | | | | | | 5/28/2029 | | | | | | 4,741(5) | | | | | | 107,668 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 7,754(10) | | | | | | 176,093 | | | | R. Michael Herrman | | | | | — | | | | | | 11,217(4) | | | | | | 35.66 | | | | | | 3/1/2031 | | | | | | 5,609(4) | | | | | | 127,380 | | | | | | | | | — | | | | | | 11,007(5) | | | | | | 19.49 | | | | | | 3/12/2030 | | | | | | 5,503(5) | | | | | | 124,973 | | | | | | | | | 6,311 | | | | | | 6,311(6) | | | | | | 27.73 | | | | | | 3/13/2029 | | | | | | 1,353(6) | | | | | | 30,727 | | | | | | | | | 25,000 | | | | | | 25,000(6) | | | | | | 27.73 | | | | | | 3/13/2029 | | | | | | | | | | | | | | |
(1)
These option awards vest and become exercisable in approximately equal installments on each of the first four anniversaries of the applicable grant date, subject to continued service with the Company through each such vesting date. The regular term of each option expires on the tenth anniversary of the applicable grant date.
(2)
Unless otherwise noted in the following footnotes, the restricted stock unit awards reported in this column vest in approximately equal installments on each of the first four anniversaries of the applicable grant dates, subject to continued service with the Company through each such vesting date.
(3)
The value of the unvested restricted stock units is shown assuming a market value of $22.71 per share, the closing market price of a share of Class A Common Stock on December 31, 2021.
(4)
Granted on March 1, 2021.
(5)
Granted on March 12, 2020.
(6)
Granted on March 13, 2019.
(7)
Granted on March 15, 2018.
(8)
Granted on July 20, 2017.
(9)
Granted on October 1, 2018.
(10)
Granted on May 28, 2019.
(11)
Granted on May 7, 2021.
(12)
Granted on October 1, 2018. The restricted stock unit award vests 50% on the first anniversary of the grant date, with the remainder vesting in approximately equal annual installments on each of the second, third, and fourth anniversaries thereafter, subject to continued service with the Company through each such vesting date.
Nonqualified Deferred Compensation
OPTION EXERCISES AND STOCK VESTED
The following table summarizes the vesting of restricted stock units held by our named executive officers during 2021.
| | | | Option Awards | | | Stock Awards | | | Name | | | Number of Shares Acquired on Exercise (#) | | | Value Realized on Exercise ($) | | | Number of Shares Acquired on Vesting (#)(1) | | | Value Realized on Vesting ($)(2) | | | McCord Christensen | | | | | 112,965 | | | | | | 2,711,162 | | | | | | 7,708 | | | | | | 283,797 | | | | John Newland | | | | | — | | | | | | — | | | | | | 3,853 | | | | | | 141,861 | | | | Susan Sholtis | | | | | — | | | | | | — | | | | | | 6,952 | | | | | | 217,870 | | | | Michael Smith | | | | | 41,630 | | | | | | 544,374 | | | | | | 5,457 | | | | | | 217,094 | | | | R. Michael Herrman | | | | | 34,979 | | | | | | 444,195 | | | | | | 2,510 | | | | | | 92,430 | | |
(1)
Represents the vesting of restricted stock unit awards granted in 2018, 2019 and 2020.
(2)
The value realized on vesting is equal to the number of shares, multiplied by the fair market value of the shares at the time of vesting.
PENSION BENEFITS
We do not maintain any defined benefit pension plans.
NONQUALIFIED DEFERRED COMPENSATION
We do not maintain any nonqualified deferred compensation arrangements.
Potential Payments Upon Termination or Change in Control
Potential Payments Upon Termination or Change in Control
The tables below show estimates of the compensation payable to each of our named executive officers upon their termination of employment with the Company, calculated as if the executive had terminated employment effective December 31, 2021. The actual amounts due to any one of the named executive officers upon termination of
employment can only be determined at the time of the termination. There can be no assurance that a termination or change in control would produce the same or similar results as those described below if it occurs on any other date or at any other stock price, or if any assumption is not, in fact, correct.
| Named Executive Officer and Triggering Event | | | Cash Severance ($)(1) | | | Accelerated Vesting of Stock Options and Restricted Stock Units ($)(2) | | | Total Payments ($) | | | | McCord Christensen | | | | | | | | | | | | | | | | | | | | | | Termination without Cause/Resignation for Good Reason | | | | | 3,800,000 | | | | | | 1,193,790 | | | | | | 4,993,790 | | | | | Termination for Cause/Resignation without Good Reason | | | | | — | | | | | | — | | | | | | — | | | | | Death/Disability | | | | | — | | | | | | — | | | | | | — | | | | | Qualified Retirement | | | | | — | | | | | | — | | | | | | — | | | | | Change in Control | | | | | — | | | | | | — | | | | | | — | | | | | Termination without Cause within 12 months following a Change in Control | | | | | 3,800,000 | | | | | | 1,193,790 | | | | | | 4,993,790 | | | | | John Newland | | | | | | | | | | | | | | | | | | | | | | | | Termination without Cause | | | | | 500,000 | | | | | | — | | | | | | 500,000 | | | | | Termination for Cause/Resignation with or without Good Reason | | | | | — | | | | | | — | | | | | | — | | | | | Death/Disability | | | | | — | | | | | | — | | | | | | — | | | | | Qualified Retirement | | | | | — | | | | | | — | | | | | | — | | | | | Change in Control | | | | | — | | | | | | — | | | | | | — | | | | | Termination without Cause within 12 months following a Change in Control | | | | | 500,000 | | | | | | 453,650 | | | | | | 953,650 | | | | | Susan Sholtis | | | | | | | | | | | | | | | | | | | | | | | | Termination without Cause | | | | | 550,000 | | | | | | — | | | | | | 550,000 | | | | | Termination for Cause/Resignation with or without Good Reason | | | | | — | | | | | | — | | | | | | — | | | | | Death/Disability | | | | | — | | | | | | — | | | | | | — | | | | | Qualified Retirement | | | | | — | | | | | | — | | | | | | — | | | | | Change in Control | | | | | — | | | | | | — | | | | | | — | | | | | Termination without Cause within 12 months following a Change in Control | | | | | 550,000 | | | | | | 1,643,522 | | | | | | 2,193,522 | | | | | Michael Smith | | | | | | | | | | | | | | | | | | | | | | Termination without Cause | | | | | 500,000 | | | | | | — | | | | | | 500,000 | | | | | Termination for Cause/Resignation with or without Good Reason | | | | | — | | | | | | — | | | | | | — | | | | | Death/Disability | | | | | — | | | | | | — | | | | | | — | | | | | Qualified Retirement | | | | | — | | | | | | — | | | | | | — | | | | | Change in Control | | | | | — | | | | | | — | | | | | | — | | | | | Termination without Cause within 12 months following a Change in Control | | | | | 500,000 | | | | | | 1,041,267 | | | | | | 1,541,267 | | | | | R. Michael Herrman | | | | | | | | | | | | | | | | | | | | | | | | Termination without Cause | | | | | 400,000 | | | | | | — | | | | | | 400,000 | | | | | Termination for Cause/Resignation with or without Good Reason | | | | | — | | | | | | — | | | | | | — | | | | | Death/Disability | | | | | — | | | | | | — | | | | | | — | | | | | Qualified Retirement | | | | | — | | | | | | — | | | | | | — | | | | | Change in Control | | | | | — | | | | | | — | | | | | | — | | | | | Termination without Cause within 12 months following a Change in Control | | | | | 400,000 | | | | | | 318,523 | | | | | | 718,523 | | | |
(1)
A description of the cash severance obligations under the employment agreements with the named executive officers is set forth under “Employment Agreements�� below.
(2)
Represents accelerated vesting of unvested RSUs and in-the-money, unvested stock options, valued based on the December 31, 2021 closing price of one share of the Company’s Class A Common Stock ($22.71), with the value reported for stock options representing the spread between such closing price and the stock option’s exercise price. The column does not reflect stock options where the exercise price exceeds such closing price (for information about those stock options, see the “Outstanding Awards at Fiscal Year End” table above). A description of the acceleration obligations with respect to equity awards in various termination contexts is set forth under “Employment Agreements” and “Equity Awards” below.
Potential Payments Upon Termination or Change in Control
Pursuant to their employment agreements, our named executive officers are entitled to receive severance payments and benefits, as described below and as set forth in the foregoing table, generally subject to each executive’s execution and non-revocation of a general release of claims in favor of the Company. To the extent any payments under any of the arrangements are determined to be deferred compensation subject to Code Section 409A, they shall be delayed by six months to the extent required by such provision.
McCord Christensen
In the event that Mr. Christensen’s employment is terminated by the Company without “Cause” or if he resigns for “Good Reason” (each as defined in the amended agreement), he would be entitled to receive severance compensation equal to the greater of (1) $2,000,000 or (2) two times the sum of Mr. Christensen’s (i) base salary and (ii) annual cash bonus for the year immediately prior to his termination of employment. In addition, Mr. Christensen would immediately vest in any outstanding equity-based awards. Mr. Christensen may resign his employment for any reason upon giving the Company no less than 30 days’ notice.
John Newland
In the event that Mr. Newland’s employment had been terminated by the Company without “Cause” (as defined in the agreement) as of December 31, 2021, he would be entitled to receive continued payment of his then-current annual base salary for a period of 12 months. A summary of
the payments and benefits Mr. Newland is eligible to receive pursuant to the terms of his Transition Agreement can be found above under the heading “— Executive Employment Arrangements” following the Summary Compensation Table above.
Susan Sholtis On September 17, 2018, Ms. Sholtis entered into an employment agreement with the Company, effective October 1, 2018, to serve as President of the Company. The agreement governed the terms of Ms. Sholtis’s employment with us until May 4, 2022, when we entered into a Transition Support Agreement and General Release (the “Sholtis Transition Agreement”) with Ms. Sholtis in connection with her retirement from the Company. The Sholtis Transition Agreement provides that, in addition to Ms. Sholtis’s then-current duties, she would also provide leadership transition services until her retirement date of May 27, 2022. In exchange for entering into the Sholtis Transition Agreement and her execution and non-revocation of a general release in favor of the Company following her retirement, Ms. Sholtis was eligible to receive the following additional benefits (i) base salary as severance for a period of twelve months; (ii) up to 24 months of COBRA premiums for herself and her eligible dependents; (iii) continued vesting of all unvested equity incentive awards as though Ms. Sholtis were employed by the Company up to and including May 27, 2023 and a modified exercise period for all outstanding options through May 27, 2024. Any stock awards that remain unexercised as of May 27, 2024 shall be forfeited by Ms. Sholtis in their entirety without payment or other consideration. All equity incentive awards and post-retirement benefits remain subject to cancellation, forfeiture and clawback in the event Ms. Sholtis breaches the Transition Agreement or any restrictive covenants.
GRANTS OF PLAN-BASED AWARDS The following table discloses the grants of plan-based awards made to our named executive officers in 2022. | Name | | | Type of Award | | | Grant Date | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | | All Other Option Awards: Number of Securities Underlying Options (#) | | | Exercise or Base Price of Option Awards ($/Sh) | | | Grant Date Fair Value of Stock and Option Awards ($)(2) | | | Threshold ($) | | | Target ($) | | | Maximum ($) | | | McCord Christensen | | | Annual Incentive | | | | | — | | | | | | 498,750 | | | | | | 997,500 | | | | | | 1,496,250 | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU(3) | | | | | 2/25/2022 | | | | | | | | | | | | | | | | | | | | | | | | 90,476 | | | | | | | | | | | | | | | | | | 1,880,996 | | | | Zvi Glasman | | | Annual Incentive | | | | | — | | | | | | 262,500 | | | | | | 525,000 | | | | | | 787,500 | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU(3) | | | | | 1/3/2022 | | | | | | | | | | | | | | | | | | | | | | | | 36,513 | | | | | | | | | | | | | | | | | | 800,000 | | | | | | | Stock Option(4) | | | | | 1/3/2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 36,513 | | | | | | 21.91 | | | | | | 333,749 | | | | Michael Smith | | | Annual Incentive | | | | | — | | | | | | 350,000 | | | | | | 700,000 | | | | | | 1,050,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU(3) | | | | | 2/25/2022 | | | | | | | | | | | | | | | | | | | | | | | | 23,810 | | | | | | | | | | | | | | | | | | 495,010 | | | | R. Michael Herrman | | | Annual Incentive | | | | | — | | | | | | 225,000 | | | | | | 450,000 | | | | | | 675,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU(3) | | | | | 2/25/2022 | | | | | | | | | | | | | | | | | | | | | | | | 19,048 | | | | | | | | | | | | | | | | | | 396,008 | | | | Susan Sholtis(5) | | | RSU(3) | | | | | 2/25/2022 | | | | | | | | | | | | | | | | | | | | | | | | 26,190 | | | | | | | | | | | | | | | | | | 544,490 | | |
(1)
The threshold, target, and maximum annual incentive amounts represent 50%, 100%, and 150%, respectively, of the total bonus opportunity for each named executive officer. If actual performance falls between threshold and target or between target and maximum, the award would be calculated using linear interpolation. The annual incentive awards are also based on a percentage of base salary, which is 100% for each of the named executive officers. The target amount is generally the named executive officer’s base salary multiplied by his or her respective target opportunity. (2)
Please see Note 9 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for the assumptions made in determining values. (3)
The restricted stock unit awards vest in approximately equal installments on each of the first four anniversaries of the applicable grant dates, subject to continued service with the Company through each such vesting date. (4)
The stock option awards vest in approximately equal installments on each of the first four anniversaries of the applicable grant dates, subject to continued service with the Company through each such vesting date. (5)
In connection with the Sholtis Transition agreement, each outstanding grant of plan-based awards held by Ms. Sholtis was amended such that the exercise period for such outstanding awards were extended through May 27, 2024. All outstanding awards that remain unexercised as of May 27, 2024 shall be forfeited in their entirety without payment or other consideration. Annual Incentives A summary of the Company’s annual incentive program is set forth above under the heading, “Compensation Discussion and Analysis — Executive Compensation Components — Annual Incentives.” Long-Term Incentives The stock options and restricted stock unit awards were all granted pursuant to the Omnibus Plan, a summary of which is set forth above under the heading, “Compensation Discussion and Analysis — Executive Compensation Components — Long-Term Incentive Awards.” In general, the stock options and restricted stock units vest in ratable annual installments on each of the first four anniversaries of the grant date, generally subject to continued service with the Company through each applicable vesting date. For a description of the effect of a termination of employment or change in control on the vesting of stock options and restricted stock units, please see “Executive Compensation — Potential Payments Upon Termination or Change in Control.”
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END The following table shows outstanding equity awards as of December 31, 2022 for each named executive officer. | | | | Option Awards | | | Stock Awards | | | Name | | | Number of Securities Underlying Unexercised Options (#) Exercisable(1) | | | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | | | Option Exercise Price ($) | | | Option Expiration Date | | | Number of Shares or Units of Stock That Have Not Vested (#)(2) | | | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | | | McCord Christensen | | | | | 13,320 | | | | | | 39,961(4) | | | | | | 35.66 | | | | | | 3/1/2031 | | | | | | | | | | | | | | | | | | 22,717 | | | | | | 22,718(5) | | | | | | 19.49 | | | | | | 3/12/2030 | | | | | | | | | | | | | | | | | | 28,398 | | | | | | 9,467(6) | | | | | | 27.73 | | | | | | 3/13/2029 | | | | | | | | 150,000 | | | | | | —(7) | | | | | | 24.97 | | | | | | 3/15/2028 | | | | | | | | | | | | | | | | | | 92,440 | | | | | | —(8) | | | | | | 16.00 | | | | | | 7/20/2027 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 90,476(13) | | | | | | 834,188 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 19,980(5) | | | | | | 184,216 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 11,359(6) | | | | | | 104,730 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,029(7) | | | | | | 18,707 | | | | Zvi Glasman | | | | | — | | | | | | 36,513(14) | | | | | | 21.91 | | | | | | 1/3/2032 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 36,513(14) | | | | | | 336,650 | | | | Michael Smith | | | | | 3,505 | | | | | | 10,516(4) | | | | | | 35.66 | | | | | | 3/1/2031 | | | | | | | | | | | | | | | | | | 3,161 | | | | | | 6,322(5) | | | | | | 19.49 | | | | | | 3/12/2030 | | | | | | | | | | | | | | | | | | 36,530 | | | | | | 25,000(10) | | | | | | 26.76 | | | | | | 5/28/2029 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 23,810(13) | | | | | | 219,528 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 18,750(11) | | | | | | 172,875 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,259(4) | | | | | | 48,888 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,161(5) | | | | | | 29,144 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,877(10) | | | | | | 35,746 | | | | R. Michael Herrman | | | | | 2,804 | | | | | | 8,413(4) | | | | | | 35.66 | | | | | | 3/1/2031 | | | | | | | | | | | | | | | | | | 3,669 | | | | | | 7,338(5) | | | | | | 19.49 | | | | | | 3/12/2030 | | | | | | | | | | | | | | | | | | 15,655 | | | | | | 15,656(6) | | | | | | 27.73 | | | | | | 3/13/2029 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 19,048(13) | | | | | | 175,623 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,207(4) | | | | | | 38,789 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,669(5) | | | | | | 35,828 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 677(6) | | | | | | 6,242 | | | | Susan Sholtis | | | | | 3,855 | | | | | | 3,856(4) | | | | | | 35.66 | | | | | | 3/1/2031 | | | | | | | | | | | | | | | | | | 11,777 | | | | | | 5,889(5) | | | | | | 19.49 | | | | | | 3/12/2030 | | | | | | | | | | | | | | | | | | 100,000 | | | | | | —(9) | | | | | | 37.49 | | | | | | 10/1/2028 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 26,190(13) | | | | | | 241,472 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 37,500(11) | | | | | | 345,750 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,784(4) | | | | | | 53,328 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,889(5) | | | | | | 54,297 | | |
(1)
These option awards vest and become exercisable in approximately equal installments on each of the first four anniversaries of the applicable grant date, subject to continued service with the Company through each such vesting date. The regular term of each option expires on the tenth anniversary of the applicable grant date. (2)
Unless otherwise noted in the following footnotes, the restricted stock unit awards reported in this column vest in approximately equal installments on each of the first four anniversaries of the applicable grant dates, subject to continued service with the Company through each such vesting date. (3)
The value of the unvested restricted stock units is shown assuming a market value of $9.22 per share, the closing market price of a share of Class A Common Stock on December 30, 2022.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
(4)
Granted on March 1, 2021. (5)
Granted on March 12, 2020. (6)
Granted on March 13, 2019. (7)
Granted on March 15, 2018. (8)
Granted on July 20, 2017. (9)
Granted on October 1, 2018. (10)
Granted on May 28, 2019. (11)
Granted on May 7, 2021. (12)
Granted on October 1, 2018. The restricted stock unit award vests 50% on the first anniversary of the grant date, with the remainder vesting in approximately equal annual installments on each of the second, third, and fourth anniversaries thereafter, subject to continued service with the Company through each such vesting date. (13)
Granted on February 25, 2022 (14)
Granted on January 3, 2022
OPTION EXERCISES AND STOCK VESTED The following table summarizes the vesting of restricted stock units held by our named executive officers during 2022. | | | | Option Awards | | | Stock Awards | | | Name | | | Number of Shares Acquired on Exercise (#) | | | Value Realized on Exercise ($) | | | Number of Shares Acquired on Vesting (#)(1) | | | Value Realized on Vesting ($)(2) | | | McCord Christensen | | | | | — | | | | | | — | | | | | | 14,367 | | | | | | 298,897 | | | | Zvi Glasman | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | Michael Smith | | | | | — | | | | | | — | | | | | | 13,459 | | | | | | 237,135 | | | | R. Michael Herrman | | | | | — | | | | | | — | | | | | | 3,912 | | | | | | 83,300 | | | | Susan Sholtis | | | | | — | | | | | | — | | | | | | 20,692 | | | | | | 330,802 | | |
(1)
Represents the vesting of restricted stock unit awards granted in 2018, 2019, 2020 and 2021. (2)
The value realized on vesting is equal to the number of shares, multiplied by the fair market value of the shares at the time of vesting. PENSION BENEFITS We do not maintain any defined benefit pension plans. NONQUALIFIED DEFERRED COMPENSATION We do not maintain any nonqualified deferred compensation arrangements.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL The tables below show estimates of the compensation payable to each of our named executive officers (other than Ms. Sholtis) upon their termination of employment with the Company, calculated as if the executive had terminated employment effective December 31, 2022. The actual amounts due to any one of the named executive officers upon termination of employment can only be determined at the time of the termination. There can be no assurance that a termination or change in control would produce the same or similar results as those described below if it occurs on any other date or at any other stock price, or if any assumption is not, in fact, correct. Ms. Sholtis retired from the Company effective May 27, 2022 and as such, she is not included in the table below. The payments and benefits received in connection with Ms. Sholtis’s retirement is described under “Summary Compensation Table — Executive Employment Arrangements.” | Named Executive Officer and Triggering Event | | | Cash Severance ($)(1) | | | Accelerated Vesting of Stock Options and Restricted Stock Units ($)(2) | | | Total Payments ($) | | | McCord Christensen | | | | | | | | | | | | | | | | | | | | | Termination without Cause/Resignation for Good Reason | | | | | 5,756,992 | | | | | | 1,141,842 | | | | | | 6,898,834 | | | | Termination for Cause/Resignation without Good Reason | | | | | — | | | | | | — | | | | | | — | | | | Death/Disability | | | | | — | | | | | | — | | | | | | — | | | | Qualified Retirement | | | | | — | | | | | | — | | | | | | — | | | | Change in Control | | | | | — | | | | | | — | | | | | | — | | | | Termination without Cause within 12 months following a Change in Control | | | | | 5,756,992 | | | | | | 1,141,842 | | | | | | 6,898,834 | | | | | | | | | | | | | | | | | | | | | | | | | Zvi Glasman | | | | | | | | | | | | | | | | | | | | | Termination without Cause | | | | | 525,000 | | | | | | — | | | | | | 525,000 | | | | Termination for Cause/Resignation with or without Good Reason | | | | | — | | | | | | — | | | | | | — | | | | Death/Disability | | | | | — | | | | | | — | | | | | | — | | | | Qualified Retirement | | | | | — | | | | | | — | | | | | | — | | | | Change in Control | | | | | — | | | | | | — | | | | | | — | | | | Termination without Cause within 12 months following a Change in Control | | | | | 525,000 | | | | | | 336,650 | | | | | | 861,650 | | | | | | | | | | | | | | | | | | | | | | | | | Michael Smith | | | | | | | | | | | | | | | | | | | | | Termination without Cause | | | | | 700,000 | | | | | | — | | | | | | 700,000 | | | | Termination for Cause/Resignation with or without Good Reason | | | | | — | | | | | | — | | | | | | — | | | | Death/Disability | | | | | — | | | | | | — | | | | | | — | | | | Qualified Retirement | | | | | — | | | | | | — | | | | | | — | | | | Change in Control | | | | | — | | | | | | — | | | | | | — | | | | Termination without Cause within 12 months following a Change in Control | | | | | 700,000 | | | | | | 1,970,738 | | | | | | 2,670,738 | | | | | | | | | | | | | | | | | | | | | | | | | R. Michael Herrman | | | | | | | | | | | | | | | | | | | | | Termination without Cause | | | | | 450,000 | | | | | | — | | | | | | 450,000 | | | | Termination for Cause/Resignation with or without Good Reason | | | | | — | | | | | | — | | | | | | — | | | | Death/Disability | | | | | — | | | | | | — | | | | | | — | | |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
| Named Executive Officer and Triggering Event | | | Cash Severance ($)(1) | | | Accelerated Vesting of Stock Options and Restricted Stock Units ($)(2) | | | Total Payments ($) | | | Qualified Retirement | | | | | — | | | | | | — | | | | | | — | | | | Change in Control | | | | | — | | | | | | — | | | | | | — | | | | Termination without Cause within 12 months following a Change in Control | | | | | 450,000 | | | | | | 254,481 | | | | | | 704,481 | | |
(1)
A description of the cash severance obligations under the employment agreements with the named executive officers is set forth under “Employment Agreements” below. (2)
Represents accelerated vesting of unvested RSUs and in-the-money, unvested stock options, valued based on the December 31, 2022 closing price of one share of the Company’s Class A Common Stock ($9.22), with the value reported for stock options representing the spread between such closing price and the stock option’s exercise price. The column does not reflect stock options where the exercise price exceeds such closing price (for information about those stock options, see the “Outstanding Awards at Fiscal Year End” table above). A description of the acceleration obligations with respect to equity awards in various termination contexts is set forth under “Employment Agreements” and “Equity Awards” below.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Employment Agreements Pursuant to their employment agreements, our named executive officers are entitled to receive severance payments and benefits, as described below and as set forth in the foregoing table, generally subject to each executive’s execution and non-revocation of a general release of claims in favor of the Company. To the extent any payments under any of the arrangements are determined to be deferred compensation subject to Code Section 409A, they shall be delayed by six months to the extent required by such provision. McCord Christensen In the event that Ms. Sholtis’sMr. Christensen’s employment is terminated by the Company without “Cause” or if he resigns for “Good Reason” (each as defined in the amended agreement), he would be entitled to receive severance compensation equal to the greater of (1) $2,000,000 or (2) two times the sum of Mr. Christensen’s (i) base salary and (ii) annual cash bonus for the year immediately prior to his termination of employment. In addition, Mr. Christensen would immediately vest in any outstanding equity-based awards. Mr. Christensen may resign his employment for any reason upon giving the Company no less than 30 days’ notice. Zvi Glasman In the event that Mr. Glasman’s employment is terminated by the Company without “Cause” (as defined in the agreement), shehe would be entitled to receive continued payment of herhis then-current annual base salary for a period of 12 months. If Ms. Sholtis’s employment is terminated for any reason, other than by the Company for Cause, within one year following a change in control transaction, the non-competition provisions set forth in her employment agreement will not apply. Michael Smith In the event that Mr. Smith’s employment is terminated by the Company without “Cause” (as defined in the agreement), he would be entitled to receive continued payment of his then-current annual base salary for a period of 12 months. R. Michael Herrman In the event that Mr. Herrman’s employment is terminated by the Company without “Cause” (as defined in the agreement), he would be entitled to receive continued payment of his then-current annual base salary for a period of 12 months.
Pursuant to the Omnibus Plan, as participants under the plan,Omnibus Plan, the named executive officers are entitled to the following treatment of their outstanding stock options: •
if employment terminates for any reason other than for cause, retirement, death or disability, vested stock options shall remain exercisable through the earlier of (i) 90 days following the termination date or (ii) the option expiration date; •
if employment terminates for cause, all unexercised stock options, regardless of vesting status, shall expire on such termination date; and •
if employment terminates for retirement, disability or death, vested stock options shall remain exercisable through the earlier of (i) the date that is
one year following the termination date or (ii) the option expiration date. Pursuant to the award agreements evidencing their grants of stock options and restricted stock units, the named executive officers are entitled to accelerated vesting upon certain terminations, as described below. •
In the event that a named executive officer’s employment is terminated by the Company without Cause within 12 months following a Change in Control, any unvested stock options and restricted stock units held by the named executive officer will immediately vest in full as of the date of such termination. Compensation and Risk
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
•
In the event that a named executive officer’s employment terminates by reason of his or her Qualified Retirement, any unvested stock options and restricted stock units held by the named executive officer will immediately vest in full as of the date of such termination. A “Qualified •
Retirement” means a termination of employment other than for Cause or due to death or disability, on or after the named executive officer reaches the age of 55 with at least ten years of Service. None of our named executive officers was eligible for a Qualified Retirement as of December 31, 2021. 2022.
Our Committee strives to provide strong incentives to management for the long-term, while avoiding excessive risk-taking in the short-term. Historically, we haveIn the past, the Committee has utilized FW Cook, an independent third party, to advise the Committee on matters related to the compensation of our directors and chief executive officer. The Committee believes that the design of our compensation program and the level of oversight is sufficient to mitigate potential risks associated with our current policies and practices. Our compensation program is designed to provide a mix of both fixed and variable incentive compensation and to reward a mix of different performance measures. In its review of the Company’s compensation program and practices in 2021,2022, the Committee concluded that our compensation plans provide incentives that appropriately balance risk and reward to dissuade unnecessary and excessive risk; are compatible with effective controls and risk management; are supportive of strong governance, including active oversight by the Committee; and are not reasonably likely to have a material adverse effect on the Company. CEO PAY RATIO As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of McCord Christensen, our Chief Executive Officer in 2021.2022. For 2021,2022, our last completed fiscal year: •
The median of the annual total compensation of all employees of the Company (other than our Chief Executive Officer) was $30,422;$36,962; and •
The annual total compensation of our Chief Executive Officer was $3,521,291.$3,875,996. Based on this information, for 2021,2022, our Chief Executive Officer’s annual total compensation was approximately 116105 times that of the annual total compensation of the median employee (as determined below). This pay ratio is a reasonable estimate calculated in good faith, in a manner consistent with Item 402(u) of Regulation S-K, based on our payroll and employment records and the methodology described below. The U.S. Securities and Exchange CommissionSEC rules for identifying the “median employee” and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratios reported by other companies may not be comparable to the pay ratio set forth above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios. To identify the median of the annual total compensation of all of our employees, as well as to determine the annual total compensation of the “median employee,” the methodology and the material assumptions, adjustments and estimates that we used were as follows: 1.
We determined that, as of December 31, 2021,2022, our employee population consisted of approximately 1,9291,894 individuals working at the Company and its consolidated subsidiaries, with approximately 1,8901,850 of these individuals located in the United States and approximately 3944 of these individuals located outside of the United States. In determining the identity of our median employee, as permitted by the U.S. Securities and Exchange CommissionSEC rules, we excluded the 3944 individuals located outside of the United States, which in aggregate represent less than 5%
of our workforce. The countries and number of employees excluded are as follows: Slovenia (25(29 employees), Ireland (8(7 employees), the United Kingdom (3(5 employees) and China (3 employees). 2.
2.
We utilized 20212022 total compensation as our consistently applied compensation measure to identify the median employee from our employee population, which we applied to all employees included in our analysis. We did not make any cost of living adjustments in identifying the median employee. Using this methodology, we determined that the estimated median employee was an hourly employee located inside of the United States. 3.
With respect to the annual total compensation of the median employee, we identified and calculated the elements of such employee’s compensation for 20212022 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $30,422.$36,962. 4.
With respect to the annual total compensation of our Chief Executive Officer, we used the amount reported in the “Total” column of our 20212022 Summary Compensation Table included in this proxy statement and incorporated by reference under Item 11 of Part III of our 20212022 Annual Report on Form 10-K.
Proposal 3: Advisory VotePAY VERSUS PERFORMANCE
As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation S-K, we are providing the following information about the relationship between executive compensation actually paid and certain financial performance and other of the Company. For further information concerning the Company’s variable pay-for-performance philosophy and how the Company’s aligns executive compensation with the Company’s performance, refer to Approvethe “Compensation Discussion and Analysis” above. Our Chief Executive CompensationOfficer is our principal executive officer, which we refer to as “PEO” in the tables below. The named executive officers are referred to as “NEOs” in the tables below. | Year | | | Summary Compensation Table Total for PEO(1) | | | Compensation Actually Paid to PEO(2) ($) | | | Average Summary Compensation Table Total for Non-PEO NEOs(3) ($) | | | Average Compensation Actually Paid to Non-PEO NEOs(4) ($) | | | Value of Initial Fixed $100 Investment Based on: | | | Net loss (thousands)(7) ($) | | | Company Selected Measure — Segment Adjusted EBITDA(8) ($) | | | Total Shareholder Return(5) ($) | | | Peer Group Total Shareholder Return(5)(6) ($) | | | 2022 | | | | | 3,875,966 | | | | | | 2,129,680 | | | | | | 1,610,028 | | | | | | 1,229,432 | | | | | | (63.2) | | | | | | 5.6 | | | | | | (48,620) | | | | | | 94,114 | | | | 2021 | | | | | 3,251,291 | | | | | | 776,669 | | | | | | 2,277,693 | | | | | | 1,087,697 | | | | | | (9.3) | | | | | | 34.6 | | | | | | (16,383) | | | | | | 92,892 | | | | 2020 | | | | | 2,398,110 | | | | | | 6,052,590 | | | | | | 1,084,843 | | | | | | 2,153,958 | | | | | | 53.5 | | | | | | 18.4 | | | | | | (85,727) | | | | | | 67,792 | | |
(1)
Represents amounts of total compensation reported for Mr. Christensen (our Chief Executive Officer) for each corresponding year in the “Total” column of the Summary Compensation Table. Refer to “Executive Compensation — Summary Compensation Table.” (2)
Represents the amount of “compensation actually paid” to Mr. Christensen, as computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual amount of compensation earned by or paid to Mr. Christensen during the applicable year. In accordance with the requirements of Item 402(v) of Regulation S-K, the following adjustments were made to Mr. Christensen’s total compensation for each year to determine the compensation actually paid: | Year | | | Reported Summary Compensation Table Total for PEO ($) | | | Reported Value of Equity Awards(a) ($) | | | Equity Award Adjustments(b) ($) | | | Compensation Actually Paid to PEO ($) | | | 2022 | | | | | 3,875,966 | | | | | | 1,880,996 | | | | | | 134,680 | | | | | | 2,129,680 | | | | 2021 | | | | | 3,251,291 | | | | | | 1,609,991 | | | | | | (864,631) | | | | | | 776,669 | | | | 2020 | | | | | 2,398,110 | | | | | | 756,974 | | | | | | 4,411,454 | | | | | | 6,052,590 | | |
(a)
The grant date fair value of equity awards represents the total of the amounts reported in the “Stock Awards” and “Option Awards” columns in the Summary Compensation Table for the applicable year. Refer to “Executive Compensation — Summary Compensation Table.” (b)
The equity award adjustments for each applicable year include the addition (or subtraction, as applicable) of the following: (i) the year-end fair value of any equity awards granted in the applicable year that are outstanding and unvested as of the end of the year; (ii) the amount of change as of the end of the applicable year (from the end of the prior fiscal year) in fair value of any awards granted in prior years that are outstanding and unvested as of the end of the applicable year; (iii) for awards that are granted and vest in same applicable year, the fair value as of the vesting date; (iv) for awards granted in prior years that vest in the applicable year, the amount equal to the change as of the vesting date (from the end of the prior fiscal year) in fair value; (v) for awards granted in prior years that are determined to fail to meet the applicable vesting conditions during the applicable year, a deduction for the amount equal to the fair value at the end of the prior fiscal year; and (vi) the dollar value of any dividends or other earnings paid on stock or option awards in the applicable year prior to the vesting date that are not otherwise reflected in the fair value of such award or included in any other component of total compensation for the applicable year. The amounts deducted or added in calculating the equity award adjustments are as follows:
| Year | | | Year End Fair Value of Equity Awards ($) | | | Year over Year Change in Fair Value of Outstanding and Unvested Equity Awards ($) | | | Fair Value as of Vesting Date of Equity Awards Granted and Vested in the Year ($) | | | Year over Year Change in Fair Value of Equity Awards Granted in Prior Years that Vested in the Year ($) | | | Fair Value at the End of the Prior Year of Equity Awards that Failed to Meet Vesting Conditions in the Year ($) | | | Value of Dividends or other Earnings Paid on Stock or Option Awards not Otherwise Reflected in Fair Value or Total Compensation ($) | | | Total Equity Award Adjustments ($) | | | 2022 | | | | | 834,189 | | | | | | (662,530) | | | | | | — | | | | | | (36,978) | | | | | | — | | | | | | — | | | | | | 134,680 | | | | 2021 | | | | | 604,994 | | | | | | (1,314,317) | | | | | | — | | | | | | (155,308) | | | | | | — | | | | | | — | | | | | | (864,631) | | | | 2020 | | | | | 1,884,511 | | | | | | 1,436,146 | | | | | | — | | | | | | 1,090,797 | | | | | | — | | | | | | — | | | | | | 4,411,454 | | |
(3)
Represent the average of the amounts reported for our named executive officers as a group (excluding Mr. Christensen, who is our Chief Executive Officer) in the “Total” column of the Summary Compensation Table in each applicable year. Refer to “Executive Compensation — Summary Compensation Table.” The names of each of the named executive officers (excluding Mr. Christensen) included for purposes of calculating the average amounts in each applicable year are as follows: (i) for 2022, Messrs. Glassman, Smith and Herrman and Ms. Sholtis, the Company’s former President; (ii) for 2021 and 2020, Messrs. Newland, the Company’s former Chief Financial Officer, Smith and Herrman and Ms. Sholtis. (4)
Represent the average amount of “compensation actually paid” to the named executive officers as a group (excluding Mr. Christensen), as computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual average amount of compensation earned by or paid to the named executive officers as a group (excluding Mr. Christensen) during the applicable year. In accordance with the requirements of Item 402(v) of Regulation S-K, the following adjustments were made to average total compensation for the named executive officers as a group (excluding Mr. Christensen) for each year to determine the compensation actually paid, using the same methodology described above in footnote 2: | Year | | | Average Reported Summary Compensation Table Total for Non-PEO NEOs ($) | | | Average Reported Value of Equity Awards ($) | | | Average Equity Award Adjustments(a) ($) | | | Average Compensation Actually Paid to Non-PEO NEOs ($) | | | 2022 | | | | | 1,610,028 | | | | | | 642,614 | | | | | | 261,717 | | | | | | 1,229,432 | | | | 2021 | | | | | 2,277,693 | | | | | | 1,217,854 | | | | | | 27,858 | | | | | | 1,087,697 | | | | 2020 | | | | | 1,049,971 | | | | | | 288,423 | | | | | | 1,406,450 | | | | | | 2,202,871 | | |
(a)
The amounts deducted or added in calculating the total average equity award adjustments are as follows: | Year | | | Average Year End Fair Value of Equity Awards ($) | | | Year over Year Average Change in Fair Value of Outstanding and Unvested Equity Awards ($) | | | Average Fair Value as of Vesting Date of Equity Awards Granted and Vested in the Year ($) | | | Year over Year Average Change in Fair Value of Equity Awards Granted in Prior Years that Vested in the Year ($) | | | Average Fair Value at the End of the Prior Year of Equity Awards that Failed to Meet Vesting Conditions in the Year ($) | | | Average Value of Dividends or other Earnings Paid on Stock or Option Awards not Otherwise Reflected in Fair Value or Total Compensation ($) | | | Total Average Equity Award Adjustments ($) | | | 2022 | | | | | 256,425 | | | | | | 83,337 | | | | | | — | | | | | | (78,044) | | | | | | — | | | | | | — | | | | | | 261,717 | | | | 2021 | | | | | 365,878 | | | | | | (243,164) | | | | | | — | | | | | | (94,855) | | | | | | — | | | | | | — | | | | | | 27,858 | | | | 2020 | | | | | 600,208 | | | | | | 775,365 | | | | | | — | | | | | | 30,875 | | | | | | — | | | | | | — | | | | | | 1,406,450 | | |
(5)
Cumulative TSR for each year reflects what the cumulative value of $100 would be, assuming reinvestment of dividends on the ex-dividend date (if any), if such amount were invested on December 31, 2019. (6)
Our TSR peer group is the Russell 2000 Index as reflected in our Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K for the year ended December 31, 2022.
(7)
The dollar amounts reported represent the amount of net income reflected in the Company’s audited financial statements for the applicable year. (8)
See “Compensation Discussion and Analysis” for a definition of Segment Adjusted EBITDA. Segment Adjusted EBITDA is the sole annual incentive performance measure used by the Committee because it is the primary measure that management uses to evaluate the effectiveness of its business strategies and it allows for improved comparability over prior periods due to significant growth in the Company’s new wellness centers. Analysis of the Information Presented in the Pay Versus Performance Table In accordance with Item 402(v) of Regulation S-K, the Company is providing the following descriptions of the relationships between information presented in the Pay versus Performance table. Compensation Actually Paid and Cumulative TSR The chart below shows the relationship between the compensation actually paid to Mr. Christensen and the average compensation actually paid to our other named executive officers (besides Mr. Christensen), on the one hand, to the Company's cumulative TSR over the three years presented in the table, on the other.
Compensation Actually Paid and Net Income The chart below shows the relationship between the compensation actually paid to Mr. Christensen and the average compensation actually paid to our other named executive officers (besides Mr. Christensen), on the one hand, to the Company's net income over the three years presented in the table, on the other. Compensation Actually Paid and Segment Adjusted EBITDA The chart below shows the relationship between the compensation actually paid to Mr. Christensen and the average compensation actually paid to our other named executive officers (besides Mr. Christensen), on the one hand, to the Company’s Segment Adjusted EBITDA over the three years presented in the table, on the other.
Cumulative TSR of the Company and Cumulative TSR of the Peer Group The chart below shows the relationship between the Company’s three-year cumulative TSR to the three-year cumulative TSR of the companies in the Russell 2000 Index. Tabular List of Most Important Performance Measures The following presents the performance measures that the Company considers to be the most important in linking compensation actually paid to our NEOs for 2022 to Company performance: •
Segment Adjusted EBITDA All information provided above under the “Pay Versus Performance” heading will not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, except to the extent the Company specifically incorporates such information by reference.
PROPOSAL THREE: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION SET FORTH IN THIS PROXY STATEMENT | | Recommendation of the Board | | | | | The Board recommends that stockholders vote “FOR” the advisory approval of executive compensation set forth in this Proxy Statement. | | |
Pursuant to Section 14A of the Exchange Act, we are seeking stockholder approval of the Company’s executive compensation program and practices as disclosed in this Proxy Statement. While this vote is advisory, and not binding on the Board, it will provide information to the Board and Compensation Committee regarding investor sentiment about our executive compensation programs and practices, which the Compensation Committee will carefully review when evaluating our executive compensation program. Stockholders are being asked to vote on the following advisory resolution: “RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation ofpaid to the Company’s named executive officers, as disclosed in the 2022 Proxy Statement pursuant to the compensation disclosure rulesItem 402 of the Securities and Exchange Commission,Regulation S-K, including the Compensation Discussion and Analysis, the 2021 Summary Compensation Table and the other relatedcompensation tables and disclosures.narrative discussion included in this Proxy Statement, is hereby APPROVED.” The Company is committed to maintaining executive compensation programs and practices that are aligned with the Company’s business strategy. As a result, the Company has a strong pay-for-performance philosophy that greatly impacts its decisions regarding executive compensation. Our executive compensation programs seek to align management’s interests with our stockholders’ interests to support long-term value creation and pay for performance. This philosophy and the compensation structure are essential to the Company’s ability to attract, retain and motivate individuals who can achieve superior financial results in the best interests of the Company and its stockholders. To that end, our program links pay to performance by delivering a significant majority of the total compensation opportunity of our named executive officers in variable or performance-based compensation programs (annual and long-term incentive plans). Performance measures used in the Company’s annual and long-term incentive plans support the Company’s annual operating plan and longer-term strategy and are tied to key Company measures of short and long-term performance. Our program also aligns the named executive officers’ financial interest with those of our stockholders by delivering a substantial portion of their total compensation in the form of equity awards and other long-term incentive vehicles. We urge our stockholders to read the “Compensation Discussion and Analysis” above,section of this Proxy Statement, which describes in detail how our executive compensation program and practices operate and are designed to achieve our compensation objectives, as well as the accompanying compensation tables which provide detailed information on the compensation of our named executive officers.
PROPOSAL THREE: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION SET FORTH IN THIS PROXY STATEMENT
The affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy and entitled to be voted on the proposal at the annual meetingAnnual Meeting is required for approval of this non-binding, advisory resolution.
Recommendation of the Board
| | The Board recommends that stockholders vote “FOR” the advisory approval of executive compensation set forth in this Proxy Statement. | | |
Proposal 4: Approval of Amended and Restated Omnibus Incentive Plan
PROPOSAL FOUR:
APPROVAL OF PETIQ, INC. AMENDED AND RESTATED 2017 OMNIBUS INCENTIVE PLAN
We are asking our stockholders to approve the PetIQ, Inc. Amended and Restated 2017 Omnibus Incentive Plan (the “Amended Plan”), which is an amendment and restatement of the PetIQ, Inc. Amended and Restated 2017 Omnibus Plan, as amended and restated as of May 29, 2019 (the “Prior Plan”). On April 15, 2022, the Compensation Committee of the Board of Directors (the “Committee”) approved the Amended Plan, subject to approval by our stockholders at the Annual Meeting. The adoption of the Amended Plan is necessary to allow us to continue to make our customary annual long-term incentive awards61
and other equity awards to attract, retain and motivate our officers, key employees and directors and to continue to link the interests of participants to those of the Company’s stockholders.
A summary of the Amended Plan is set forth below. This summary of the Amended Plan is qualified by reference to the full text of the Amended Plan, which has been included as Appendix B and is incorporated by reference herein.
As of March 31, 2022, approximately 27,588 shares of common stock remained available for issuance of future awards under the Prior Plan. As of March 31, 2022, 1,058,953 full value awards and 1,803,673 appreciation awards remain outstanding under the Prior Plan. As of March 31, 2022, the average weighted per share exercise price of all outstanding stock options was $26.42 and the weighted average remaining contractual term was 7.10 years. Based on past trends and current expectations for possible future awards, the Company is recommending that 1,890,000 shares of common stock be made available for issuance under the Amended Plan, together with any shares of common stock previously approved and available for grant under the Prior Plan on the date that the Amended Plan is approved by stockholders. The Company anticipates these shares will be sufficient to cover equity awards for the next several years. Despite this estimate, the duration of the share reserve may be shorter or longer depending on various factors such as stock price, aggregate equity needs, equity award type mix. On April 25, 2022, the closing price of a share of the Company’s common stock was $21.57.
Common measures for the use of stock incentive plans include the burn rate and the overhang rate. The burn rate measures the annual dilution from equity awards granted
during a particular year. The Company calculates this based on all full-value and appreciation awards granted under the Prior Plan in a given year as a percent of the weighted average shares of common stock outstanding in that year. The Company’s burn rates for 2019, 2020 and 2021 were approximately 2.41%, 3.15% and 2.20%, respectively. The burn rate may increase in future years as the number of Company employees who are eligible to receive equity awards grows, and if the Company continues to have equity awards as an important component of compensation for executives and other key employees to better align their interests with the interests of stockholders.
The overhang rate is a measure of potential dilution to stockholders. The Company calculates this based on all unissued shares under the Prior Plan plus outstanding full-value and appreciation awards as a percentage of the total number of shares of common stock outstanding. As of March 31, 2022, the Company’s overhang rate (excluding the impact of the new share request) was approximately 9.72%. The Company believes this is a reasonable level and provides the Company with the appropriate flexibility to ensure meaningful equity awards in future years to executives and other key employees to better align their interests with the interests of stockholders.
Key Aspects of the Amended Plan
Share Reserve Increase. The Prior Plan provides a range of incentive tools and sufficient flexibility to permit the Committee to implement it in ways that will make the most effective use of the shares of Class A Common Stock
that the Company’s stockholders authorize for incentive purposes. The Committee determined that increasing the shares of Class A Common Stock reserved for issuance under the Prior Plan was necessary for the Company to continue
Proposal 4: Approval of Amended and Restated Omnibus Incentive Plan
to offer a competitive equity incentive program, and thus, the Committee approved the Amended Plan, which increases by 1,890,000 the number of shares of Class A Common Stock that may be issued pursuant to awards thereunder, subject to approval by our stockholders at the Annual Meeting.
Extension of Plan Term. The Committee also approved an extension of the term of the Prior Plan so that it will now expire on June 22, 2032, the tenth anniversary of the date that stockholders approve the Amended Plan.
Other Changes to the Prior Plan. The Amended Plan makes certain other key changes, including (i) adding a minimum
one-year vesting requirement on all awards, subject to certain limited exceptions, explained in more detail below, (ii) removing certain per-participant, annual share and dollar limits on equity grants historically required to be included for compensation to qualify for the now-repealed performance-based exception to Code Section 162(m), (iii) clarifying that dividend and dividend equivalents will only be paid on vested awards, to the extent payable at all and (iv) further clarifying the default treatment of awards in connection with a change in control.
Description of the Amended Plan
We originally adopted the 2017 Omnibus Incentive Plan in connection with our initial public offering and subsequently amended and restated the 2017 Omnibus Incentive Plan as of May 29, 2019. Pursuant to the Amended Plan, cash and equity-based incentives (including through an annual incentive program) may be granted to participating employees, directors and consultants. The principal purposes of the Amended Plan are to encourage profitability and growth through short-term and long-term incentives that are consistent with our objectives; to give participants an incentive for excellence in individual performance; to promote teamwork among participants; and to give us a significant advantage in attracting and retaining key employees, directors, and consultants. The Amended Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), nonqualified stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units, performance-based awards (including performance shares, performance units and performance bonus awards), and other stock or cash-based awards.
Administration. The Amended Plan is administered by the Board or by a committee that the Board designates for this purpose (referred to below as the plan administrator). The plan administrator has the power to determine the terms of the awards granted under the Amended Plan (subject to the terms thereof), including the exercise price, the number of shares of Class A Common Stock subject to each award, and the exercisability of the awards. The plan administrator also has the full power to determine the persons to whom and the time or times at which awards will be made and to make all other determinations and take all other actions advisable for the administration of the Amended Plan.
Eligibility for Participation. Certain employees, consultants, and directors are eligible to be granted awards under the Amended Plan, other than incentive stock options, which may be granted only to employees. As of March 31, 2022, there were approximately 90 employees, 6 non-employee directors and 0 consultants who would potentially be eligible to receive awards under the Amended Plan.
Shares Available for Awards. Subject to adjustment as provided in the Amended Plan, the number of shares of Class A Common Stock reserved and available for issuance thereunder is equal to the sum of (i) 1,890,000 shares of Class A Common Stock, plus (ii) the number of shares of Class A Common Stock authorized and approved for issuance, but not awarded, under the Prior Plan, prior to June 22, 2022.
Non-Employee Director Compensation Limit. The aggregate grant date fair market value of shares of Class A Common Stock subject to awards granted during any fiscal year to any non-employee director, when taken together with the cash fees paid to such non-employee director during the fiscal year (in each case, with respect to his or her service as a non-employee director), shall not exceed $500,000.
Minimum Vesting Requirement. Except in the case of substitute awards, the delivery of shares of Class A Common Stock in lieu of fully vested cash-based award obligations, awards granted under the Amended Plan will be subject to a minimum vesting period of one year from the date of grant. Notwithstanding the foregoing, the plan administrator may provide for acceleration of vesting in the event of a participant’s death, disability, retirement or in connection with or following change in control in an award agreement, and the plan administrator may grant awards covering 5% or fewer of the shares of Class A Common Stock reserved for issuance under the Amended Plan without regard to the minimum vesting provision.
Proposal 4: Approval of Amended and Restated Omnibus Incentive Plan
Awards to non-employee directors will be deemed to satisfy this minimum vesting requirement to the extent that such awards vest on the earlier of the one-year anniversary of the date of grant and the date of the next annual meeting of the Company’s stockholders that is at least 50 weeks after the immediately preceding year’s annual meeting.
Stock Options. Under the Amended Plan, the plan administrator may grant participants incentive stock options, which qualify for special tax treatment in the United States, as well as non-qualified stock options. The maximum number of shares of Class A Common Stock issued pursuant to options intended to be incentive stock options shall not exceed 1,890,000 shares of Class A Common Stock. The plan administrator will establish the duration of each option at the time it is granted, with a maximum duration of 10 years from the grant date, and may also establish vesting performance requirements that must be met prior to the exercise of options. If on the date an outstanding option would expire, the exercise of the option would violate applicable securities laws or any insider trading policy maintained by the Company, the expiration date applicable to the option will be extended (except to the extent that such extension would violate Section 409A of the Code), to a date that is 30 calendar days after the date that the exercise of the option would no longer violate applicable securities laws or any such insider trading policy. Unless an award agreement provides otherwise (or if a participant directs otherwise in writing), each vested and exercisable option that remains outstanding on the last business day of the applicable term of the option, with an exercise price per share of Class A Common Stock that is less than the fair market value per share as of such date, will automatically be exercised on such date.
Stock option grants must have an exercise price per share that is equal to or greater than the fair market value of our Class A Common Stock on the date of grant. Stock option grants may include provisions that permit the option holder to exercise all or part of the holder’s vested options, or to satisfy withholding tax liabilities, by tendering shares of Class A Common Stock already owned by the option holder with a fair market value equal to the exercise price.
SARs. The plan administrator may also grant SARs, which will be exercisable upon the occurrence of certain contingent events. SARs entitle the holder upon exercise to receive an amount in any combination of cash and shares of the Company’s Class A Common Stock (as determined by the plan administrator) equal in value to the excess of the fair market value of the shares of Class A Common Stock covered by the SARs over the exercise price of the SAR.
Restricted Stock. The plan administrator may also grant restricted stock, which are awards of our shares of Class A Common Stock that vest in accordance with the terms and conditions established by the plan administrator. The participant generally will have the rights of a stockholder of the Company with respect to the shares of restricted stock and may be entitled to receive dividends or dividend equivalents on such shares if specified in the applicable award agreement, in which case such dividends or dividend equivalents will be accumulated while the award is unvested and paid only to the extent the award of restricted stock vests.
Restricted Stock Units. Restricted stock units represent the right to receive shares of the Company’s Class A Common Stock at a specified date in the future, subject to forfeiture of such right. If the restricted stock unit has not been forfeited, then on the date specified in the restricted stock unit award agreement, the Company will deliver to the holder of the restricted stock unit unrestricted shares of Class A Common Stock, which will be freely transferable. A participant will not have the rights of a stockholder of the Company with respect to their unvested restricted stock units, including no rights to receive dividends. The holder may be entitled to receive dividend equivalents on such shares if specified in the applicable award agreement, in which case such dividend equivalents will be accumulated while the award is unvested and paid only to the extent the award of restricted stock vests.
Performance-Based Awards. Performance-based awards are denominated in shares of our Class A Common Stock, stock units, or cash, and are linked to the satisfaction of performance criteria established by the plan administrator. The performance-based criteria applicable to such awards shall be determined by reference to any one or more of the following: earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; net operating profit after tax; cash flow; revenue; net revenues; sales; days sales outstanding; scrap rates; income; net income; operating income; net operating income; operating margin; earnings; earnings per share; return on equity; return on investment; return on capital; return on assets; return on net assets; total shareholder return; economic profit; market share; appreciation in the fair market value, book value or other measure of value of the Company’s Class A Common Stock; expense or cost control; working capital; volume or production; new products; customer satisfaction; brand development; employee retention or employee turnover; employee satisfaction or engagement; environmental, health or other safety goals; individual performance; strategic objective milestones; days inventory outstanding; any other criteria specified by the plan administrator in its sole discretion; and
Proposal 4: Approval of Amended and Restated Omnibus Incentive Plan
any combination of, or a specified increase or decrease in, any of the foregoing. The definition specified for any such performance criteria may provide for equitable adjustments thereto in recognition of unusual or non-recurring events affecting the Company or the financial statements thereof, in response to changes in applicable law, or to account for items of gain, loss or expense determined to be unusual in nature, infrequent in occurrence or unusual in nature and infrequent in occurrence or related to the disposal of a business segment or related to a change in accounting principles.
Change in Control Provisions. Subject to the Amended Plan’s minimum vesting requirement, the plan administrator may specify in an award agreement that an award will vest on an accelerated basis upon a participant’s termination of employment or service in connection with a change in control of the Company or upon the occurrence of any other event as set forth in the award agreement. If the Company is party to an agreement that is reasonably likely to result in a change in control, such agreement may provide for: (i) the continuation of any awards by the Company, if the Company is the surviving corporation; (ii) the assumption or substitution of equivalent awards for any awards by the surviving corporation or its parent or subsidiary; or (iii) the settlement of any awards for the fair market value of a share of Class A Common Stock upon a change in control (less, as applicable, the per share exercise or grant price), or, if the per share exercise or grant price exceeds the fair market value upon a change in control or if the plan administrator determines that an award cannot reasonably become vested pursuant to its terms, that such awards will terminate and be cancelled.
If the Company experiences a change in control without being party to an agreement that is reasonably likely to result in a change in control, or where such agreement is silent on the treatment of equity awards, then if upon a change in control the awards are not assumed or replaced in accordance with the terms of the Amended Plan: (i) all outstanding awards granted under the Amended Plan with time-based vesting conditions or restrictions shall become fully vested (and all options and SARs shall become exercisable) as of the time of the change in control; and (ii) all performance-based awards shall become earned and vested and the performance criteria shall be deemed to be achieved or fulfilled at the greater of (A) the performance level achieved or (B) the target level of performance applicable to the awards, but prorated based on the portion of the performance period that has elapsed as of the time of the change in control.
Amendment and Termination. The Board or the plan administrator may amend, alter or terminate the Amended Plan, but no amendment, alteration or termination of the Amended Plan may impair the rights of any participant with respect to outstanding awards without the participant’s consent. Stockholder approval of an amendment, alteration or termination will be obtained to increase the aggregate share limit and annual award limits (subject to adjustment as described above) and for any amendment that would require such approval to comply with any rules of the stock exchange(s) on which the shares of Class A Common Stock are traded or other applicable law.
Certain U.S. Federal Income Tax Effects
The following is a brief summary of the United States federal income tax treatment generally applicable to awards under the Amended Plan. The description is based on current federal tax laws, rules and regulations, which are subject to change, and does not purport to be a complete description of the federal income tax aspects of the Amended Plan. A participant may also be subject to state and local taxes.
Nonqualified Stock Options. An optionee subject to United States federal income tax will generally not recognize taxable income for United States federal income tax purposes upon the grant of a nonqualified stock option. Rather, at the time of exercise of the nonqualified stock option, the optionee will recognize ordinary income, and the Company will be entitled to a deduction, in an amount equal to the excess of the fair market value of the shares of Class A Common Stock on the date of exercise
over the exercise price. If the shares of Class A Common Stock acquired upon the exercise of a nonqualified stock option are later sold or exchanged, then the difference between the amount received upon such sale or exchange and the fair market value of such shares on the date of such exercise will generally be taxable as long-term or short-term capital gain or loss (if the shares are a capital asset of the optionee), depending upon the length of time such shares were held by the optionee.
Incentive Stock Options. An optionee subject to United States federal income tax will generally not recognize taxable income for United States federal income tax purposes upon the grant of an incentive stock option (within the meaning of Section 422 of the Code) and the Company will not be entitled to a deduction at that time. If the incentive stock option is exercised during employment or within 90 days following the termination thereof (or
Proposal 4: Approval of Amended and Restated Omnibus Incentive Plan
within one year following termination, in the case of a termination of employment due to retirement, death or disability, as such terms are defined in the Amended Plan), the optionee will not recognize any income and the Company will not be entitled to a deduction. The excess of the fair market value of the shares of Class A Common Stock on the exercise date over the exercise price, however, is includible in computing the optionee’s alternative minimum taxable income.
Generally, if an optionee disposes of shares acquired by exercising an incentive stock option either within two years after the date of grant or one year after the date of exercise, the optionee will recognize ordinary income, and the Company will be entitled to a deduction, in an amount equal to the excess of the fair market value of the shares on the date of exercise (or the sale price, if lower) over the exercise price. The balance of any gain or loss will generally be treated as a capital gain or loss to the optionee. If the shares of Class A Common Stock are disposed of after the two-year and one-year periods described above, the Company will not be entitled to any deduction, and the entire gain or loss for the optionee will be treated as a capital gain or loss.
SARs. A participant subject to United States federal income tax who is granted a SAR will not recognize ordinary income for United States federal income tax purposes upon receipt of the SAR. At the time of exercise, however, the participant will recognize ordinary income equal to the value of any cash received and the fair market value on the date of exercise of any shares of Class A Common Stock received. The Company will not be entitled to a deduction upon the grant of a SAR, but generally will be entitled to a deduction for the amount of income the participant recognizes upon the participant’s exercise of the SAR. The participant’s tax basis in any shares of Class A Common Stock received will be the fair market value on the date of exercise and, if the shares are later sold or exchanged, then the difference between the amount received upon such sale or exchange and the fair market value of the shares on the date of exercise will generally be taxable as long-term or short-term capital gain or loss (if the shares are a capital asset of the participant) depending upon the length of time such shares were held by the participant.
Restricted Stock. A participant subject to United States federal income tax generally will not be taxed upon the grant of a restricted stock award, but rather will recognize ordinary income for United States federal income tax purposes in an amount equal to the fair market value of the shares at the time the restricted stock is no longer
subject to a substantial risk of forfeiture (within the meaning of the Code). The Company generally will be entitled to a deduction at the time when, and in the amount that, the participant recognizes ordinary income on account of the lapse of the restrictions. A participant’s tax basis in the shares will equal the fair market value of those shares at the time the restrictions lapse, and the participant’s holding period for capital gains purposes will begin at that time. Any cash dividends paid on the shares before the restrictions lapse will be taxable to the participant as additional compensation (and not as dividend income). Under Section 83(b) of the Code, a participant may elect to recognize ordinary income at the time the restricted shares are awarded in an amount equal to their fair market value at that time, notwithstanding the fact that such shares are subject to restrictions and a substantial risk of forfeiture. If such an election is made, no additional taxable income will be recognized by such participant at the time the restrictions lapse, the participant will have a tax basis in the restricted shares equal to their fair market value on the date of their award, and the participant’s holding period for capital gains purposes will begin at that time. The Company generally will be entitled to a tax deduction at the time when, and to the extent that, ordinary income is recognized by such participant.
Restricted Stock Units. A participant subject to United States federal income tax who is granted a restricted stock unit will not recognize ordinary income for United States federal income tax purposes upon the receipt of the restricted stock unit, but rather will recognize ordinary income in an amount equal to the fair market value of the shares of Class A Common Stock at the time of settlement, and the Company will have a corresponding deduction at that time.
Other Stock-Based and Other Cash-Based Awards. In the case of other stock-based and other cash-based awards, depending on the form of the award, a participant subject to United States federal income tax will not be taxed upon the grant of such an award, but, rather, will recognize ordinary income for United States federal income tax purposes when such an award vests or otherwise is free of restrictions. In any event, the Company will be entitled to a deduction at the time when, and in the amount that, a participant recognizes ordinary income.
Deductibility Limit on Compensation in Excess of $1 Million. Section 162(m) of the Code generally limits the deductible amount of total annual compensation paid by a public company to each “covered employee” to no more than $1 million.
Proposal 4: Approval of Amended and Restated Omnibus Incentive Plan
New Plan Benefits
The benefits and amounts that will be received by or allocated to participants under the Amended Plan are not yet determinable because the types and amounts of awards, and selection of participants, are subject to the Committee’s future determination. Therefore, other than with respect to annual stock grants to our non-employee directors, it is not currently possible to determine the benefits or amounts that the persons or groups listed below may receive in the future pursuant to the Amended Plan. Grants under the Prior Plan made in 2021 to our named executive officers are shown in the 2021 Grants of Plan-Based Awards table above. Stock grants to be issued under the Amended Plan to our non-employee directors following the Annual Meeting in accordance with our director compensation program are shown in the table below.
| Name and
Principal Position | | | Dollar Value
($)(1)
| | | McCord Christensen
Chief Executive Officer | | | N/A | | | John Newland
Former Chief Financial Officer | | | N/A | | | Susan Sholtis
President | | | N/A | | | Michael Smith
Executive Vice President, Product Division | | | N/A | | | R. Michael Herrman
Executive Vice President, General Counsel and Corporate Secretary | | | N/A | | | Executive Officers as a Group | | | N/A | | | Non-Executive Directors as a Group | | | $540,000 | | | Non-Executive Officer Employees as a Group | | | N/A | |
(1)
The amount disclosed is equal to the total dollar value of all annual stock grants to be issued to our non-employee directors following the Annual Meeting. Share figures will be determined by dividing the dollar value by the average of the high and low stock prices on the date of the Annual Meeting.
Recommendation of the Board
| | The Board recommends that stockholders vote “FOR” the approval of PetIQ, Inc. Amended and Restated 2017 Omnibus Incentive Plan. | | |
Proposal 4: Approval of Amended and Restated Omnibus Incentive Plan
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information, as of December 31, 2021, concerning shares of our Class A Common Stock authorized for issuance under all of our equity compensation plans.
| | | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) (#) | | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (b) ($)(1) | | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) (#) | | | Equity compensation plans approved by stockholders(2) | | | | | 2,163,544 | | | | | | 26.70 | | | | | | 771,108 | | | | Equity compensation plans not approved by stockholders(3) | | | | | 64,650 | | | | | | 21.37 | | | | | | — | | | | Total | | | | | 2,228,194 | | | | | | 26.51 | | | | | | 771,108 | | |
(1)
Reflects the weighted average exercise price of outstanding stock options. Outstanding restricted stock units are not included as such awards do not have an exercise price.
(2)
Includes 1,704,071 outstanding stock options and 459,473 outstanding restricted stock units under the Omnibus Plan.
(3)
Includes 64,650 outstanding stock options granted under the PetIQ, Inc. 2018 Inducement and Retention Stock Plan for CVC Employees (the “Inducement Plan”). For a description of the Inducement Plan, please see Note 9 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Proposal 5: Amend Certificate of Incorporation to Eliminate Supermajority Provisions
PROPOSAL FIVE:
AMEND CERTIFICATE OF INCORPORATION TO ELIMINATE SUPERMAJORITY PROVISIONS
Our Certificate of Incorporation contains “supermajority voting provisions” requiring the affirmative vote of the holders of at least 66-2/3% of the outstanding shares of our common stock entitled to vote to amend certain sections of the Certificate of Incorporation, including the sections
relating to amendments to the Certificate of Incorporation. We are asking our stockholders to approve an amendment to the Certificate of Incorporation to eliminate these supermajority voting provisions.
Description of the Amendments
The Board has carefully considered the advantages and disadvantages of maintaining the supermajority voting provisions in our Certificate of Incorporation. While the supermajority voting provisions are designed to ensure that the interests of all shareholders are fully protected, the Board recognizes that there are different perspectives on this matter and, after weighing these considerations, has determined that it is in the best interests of the Company and its stockholders to amend our Certificate of Incorporation to eliminate the supermajority voting provisions (the “Supermajority Elimination Amendment”). The Board recommends that stockholders approve the Supermajority Elimination Amendment.
The description in this Proposal of the Supermajority Elimination Amendment to eliminate the supermajority provisions in the Certificate of Incorporation is qualified by reference to the full text of the Supermajority Elimination Amendment, which has been included as Appendix C and is incorporated by reference herein.
The affirmative vote of the holders of at least 66-2/3% of the outstanding shares of our common stock entitled to vote is required to approve this proposal.
If our stockholders approve the proposed Supermajority Elimination Amendment, we intend to file with the Secretary of State of the State of Delaware an Amended and Restated Certificate of Incorporation including the Supermajority Elimination Amendment, which will become effective upon filing. If our stockholders approve the proposed Supermajority Elimination Amendment and the Declassification Amendment described in Proposal 6, we intend to file with the Secretary of State of the State of Delaware an Amended and Restated Certificate of Incorporation including both the Supermajority Elimination Amendment and the Declassification Amendment, which has been included as Appendix C, which will become effective upon filing.
Recommendation of the Board
| | The Board recommends that stockholders vote “FOR” the amendments to the Certificate of Incorporation to eliminate supermajority provisions. | | |
Proposal 6: Amend Certificate of Incorporation to Declassify Board of Directors
PROPOSAL SIX:
AMEND CERTIFICATE OF INCORPORATION TO DECLASSIFY BOARD OF DIRECTORS
Our Restated Certificate of Incorporation provides for a staggered Board divided into three classes of directors, with each class elected for a three-year term. We are asking our stockholders to approve an amendment to the
Certificate of Incorporation to phase out the classified Board so that the Board is fully declassified by the 2025 annual meeting.
Description of the Amendments
Our Certificate of Incorporation provides for a staggered Board divided into three classes of directors, with each class elected for a three-year term. The Board believes it is advisable and in the best interests of the Company and its stockholders to amend our Certificate of Incorporation to phase out the classified Board so that the Board is fully declassified by the 2025 annual meeting of stockholders (the “Declassification Amendment”). The Board recommends that stockholders approve the Declassification Amendment.
The proposed Declassification Amendment will amend Article Six of our Restated Certificate of Incorporation to provide that our classified Board structure will be phased out beginning at the 2023 annual meeting of stockholders such that from and after the 2025 annual meeting of stockholders, all directors will be up for election at each annual meeting and will serve for a term of one year and until such directors’ successors are duly elected and qualified or until such directors’ earlier death, resignation or removal.
Pursuant to the Declassification Amendment, the phaseout of the classified Board commences with the 2023 annual meeting of stockholders, at which the Class III directors will be up for election and each such director will be elected for a one-year term. At the 2024 annual meeting of stockholders, the Class I and Class III directors will be up for election, and each such director will be elected for a one-year term. Finally, at the 2025 annual meeting of stockholders, all classes of directors will be up for election, and each director elected at the 2025 annual meeting of stockholders (and at all annual meetings thereafter) will be elected for a one-year term and until his or her successor is duly elected and qualified or until such director’s earlier death, resignation or removal. The phasing in of annual elections of directors over this period is designed so that the term of any incumbent director will not be shortened,
and to ensure a smooth transition to a system of annual elections of all our directors.
The Declassification Amendment also provides that directors elected to fill any vacancy on the Board, or to fill newly created director positions resulting from an increase in the number of directors, before the 2025 annual meeting of stockholders would serve the remainder of the term for the class to which they are elected. This description of the proposed Declassification Amendment is only a summary of the proposed amendments to our Certificate of Incorporation and is qualified by reference to the full text of the Declassification Amendment, which has been included as Appendix C and is incorporated by reference herein.
The affirmative vote of the holders of at least 66-2/3% of the outstanding shares of our common stock entitled to vote is required to approve this proposal.
If our stockholders approve the proposed Declassification Amendment, we intend to file with the Secretary of State of the State of Delaware an Amended and Restated Certificate of Incorporation setting forth the Declassification Amendment, which will become effective upon filing. If our stockholders approve the proposed Declassification Amendment and the Supermajority Elimination Amendment described in Proposal 5, we intend to file with the Secretary of State of the State of Delaware an Amended and Restated Certificate of Incorporation setting forth both the Supermajority Elimination Amendment and the Declassification Amendment, which has been included as Appendix C, which will become effective upon filing. The Declassification Amendment does not change the present number of directors or the Board’s authority to change that number and to fill any vacancies or newly created directorships. The Board has conditionally approved conforming amendments to our Bylaws, contingent upon stockholder approval of the Declassification Amendment.
Proposal 6: Amend Certificate of Incorporation to Declassify Board of Directors
Recommendation of the Board
| | The Board recommends that stockholders vote “FOR” the amendments to the Certificate of Incorporation to declassify the Board of Directors. | | |
Information About the Annual Meeting and Voting
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING | Record Date | | | If you were a stockholder of record on April 25, 2022,24, 2023, you are entitled to vote at the Annual Meeting. As of that date, there were 29,486,96629,369,827 shares of the Company’s Common Stock outstanding, comprised of 29,234,42629,125,287 shares of Class A Common Stock and 252,540244,540 shares of Class B Common Stock. Our Class A Common Stock and Class B Common Stock vote together on each of the matters set forth in this Proxy Statement. You are entitled to one (1) vote for each share of Common Stock you own, on each matter to be voted upon at the Annual Meeting. | | | Quorum | | | A majority of shares of Common Stock outstanding on the record date must be present in person or by proxy. | | | Matters to be Voted on at the Annual Meeting | | | 1.
To elect three Class IIthe directors named in this Proxy Statement, to serve until the third annual meeting next succeeding his electionof stockholders to be held in 2024 and until his or her successor is elected and qualified (Proposal One); | | | | | | 2.
To ratify the selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 20222023 (Proposal Two); | | | | | | 3.
To approve, on an advisory, non-binding basis, the compensation of our named executive officers (Proposal Three);
| | | | | | 4.
To approve the Amended and Restated Omnibus Plan (Proposal Four);
| | | | | | 5.
To approve the amendment and restatement of our Certificate of Incorporation to eliminate supermajority provisions (Proposal Five);
| | | | | | 6.
To approve the amendment and restatement of our Certificate of Incorporation to declassify the Board of Directors (Proposal Six); and
| | | | | | 7. 4.
To transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof. | | | | | | As of the date of this Proxy Statement, we do not know of any other matters to be presented at the Annual Meeting. If any other matters properly come before the Annual Meeting, however, the persons named as proxies will be authorized to vote or otherwise act in accordance with their judgment. | | | Board Voting Recommendations | | | The Board recommends that you vote: 1.
FOR the election of the Class II directors named in this Proxy Statement; and | | | | | | 2.
FOR the ratification of the selection of KPMG LLP as our independent registered public accounting firm for the year ended December 31, 2022;2023; and | | | | | | 3.
FOR the approval, on an advisory, non-binding basis, of our executive compensation;
| | | | | | 4.
FOR the Amended and Restated Omnibus Plan;
| | | | | | 5.
FOR the Amended and Restated Certificate of Incorporation to eliminate supermajority provisions; and
| | | | | | 6.
FOR the Amended and Restated Certificate of Incorporation to declassify our Board of Directors.compensation.
| | | How to Vote | | | Only votes cast in person at the Annual Meeting or received by proxy prior to the Annual Meeting will be counted at the Annual Meeting. The Board asks you to appoint McCord Christensen and Zvi Glasman as your proxy holders to vote your shares at the Annual Meeting. Giving us your proxy means you authorize us to vote your shares at the Annual Meeting in the manner you direct. If your shares are held in your name, you can vote by proxy in three convenient ways: •
By Internet:Internet: Go to www.proxyvote.com and follow the instructions. •
By Telephone:Telephone: Call toll-free 1-800-690-6903 and follow the instructions. | |
Information About the Annual Meeting and Voting
•
| | | | •
By Mail:Mail: If you requested a printed copy of the Proxy Statement, complete, sign, date, and return your proxy card in the envelope provided. | | | | | | Telephone and Internet voting facilities for stockholders of record will be available twenty-four (24) hours a day and will close at 12:00 a.m. Mountain Daylight Time on June 21, 2022.20, 2023. If your proxy is properly returned, the shares it represents will be voted at the Annual Meeting in accordance with your instructions. If you execute and return your proxy but do not give specific instructions, your shares will be voted as follows: | | | | | | 1.
1.
FOR the election of the Class II directors named in this Proxy Statement; | | | | | | 2.
FOR the ratification of the selection of KPMG LLP as our independent registered public accounting firm for the year ended December 31, 2022;2023; and | | | | | | 3.
FOR the approval, on an advisory, non-binding basis, of our executive compensation; andcompensation. | | | | | | 4.
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INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
FOR Amendment and Restatement of the Omnibus Plan.
| |