UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒ Filed by a party other than the Registrant ☐
Check the appropriate box:
☐ | ||
Preliminary Proxy Statement | ||
☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
☒ | Definitive Proxy Statement | |
☐ | Definitive Additional Materials | |
☐ | Soliciting Material Pursuant to §240.14a-12 |
ADVANCED DRAINAGE SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
☒ | |||||||
No fee required. | |||||||
☐ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | ||||||
(1) | Title of each class of securities to which transaction applies:
| ||||||
| |||||||
(2) | Aggregate number of securities to which transaction applies:
| ||||||
| |||||||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
| ||||||
| |||||||
(4) | Proposed maximum aggregate value of transaction:
| ||||||
| |||||||
(5) | Total fee paid:
| ||||||
| |||||||
☐ | Fee paid previously with preliminary materials. | ||||||
☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | ||||||
(1) | Amount previously paid:
| ||||||
| |||||||
(2) | Form, Schedule or Registration Statement No.:
| ||||||
| |||||||
(3) | Filing party:
| ||||||
| |||||||
(4) | Date Filed:
| ||||||
|
June 8, 201811, 2020
Dear Stockholder:
I cordially invite you to attend via webcast the 20182020 Annual Meeting of Stockholders of Advanced Drainage Systems, Inc. (the “Company,” “we” or “our”), which will be held on Tuesday,Thursday, July 24, 201823, 2020 at 10:00 a.m., Eastern Time. This year’s Annual Meeting will be a virtual meeting of stockholders, which means that you will be able to participate in the Annual Meeting, vote and submit your questions during the Annual Meeting via live webcast by visitingwww.virtualshareholdermeeting.com/WMS2018WMS2020. You willnot be able to attend the Annual Meeting in person.
Details of the business to be conducted at the Annual Meeting are provided in the accompanying Notice of Annual Meeting of Stockholders and Proxy Statement, which you are urged to read carefully. If you participate in the Annual Meeting via the live webcast at www.virtualshareholdermeeting.com/WMS2018WMS2020, you may revoke your proxy and vote during the Annual Meeting, even if you have previously submitted a proxy.
We have elected to take advantage of Securities and Exchange Commission (“SEC”) rules that allow us to furnish proxy materials to certain stockholders on the Internet. On or about the date of this letter, we began mailing a Notice of Internet Availability of Proxy Materials (the “Notice”) to stockholders of record at the close of business on May 31, 2018.29, 2020. At the same time, we provided those stockholders with access to our online proxy materials and filed our proxy materials with the SEC. We believe furnishing proxy materials to our stockholders on the Internet will allow us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of the Annual Meeting. If you have received the Notice, you will not receive a printed copy of the proxy materials unless you request it by following the instructions for requesting such materials contained in the Notice.
Stockholders of record at the close of business on May 31, 201829, 2020 are entitled to vote at the 20182020 Annual Meeting. Regardless of the number of shares you own, your vote is important. I urge you to vote as soon as possible by telephone, the Internet or by signing, dating and returning the enclosed proxy card by mail, even if you plan to attend the meeting via webcast.
Your continuing interest in our Company is greatly appreciated.
Very truly yours, | ||
D. Scott Barbour | ||
President and Chief Executive Officer |
- i -
ADVANCED DRAINAGE SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on July 24, 201823, 2020
The Annual Meeting of Stockholders of Advanced Drainage Systems, Inc. (the “Company”) will be held on Tuesday,Thursday, July 24, 201823, 2020 at 10:00 a.m., Eastern Time. This year’s Annual Meeting will be a virtual meeting of stockholders.
The purposes of the meeting are:
1. To elect, three directors,as described in the proxy statement, four Class I directors nominated for a term to expire at the 2023 Annual Meeting and one Class II director nominated for a term to expire at the 2021 Annual Meeting;
2. To hold a non-binding advisory vote on the compensation for the Company’s named executive officers, as disclosed in the proxy statement;
3. To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending on March 31, 2019;2021;
3.4. To hold a non-binding advisory vote on the compensation forapprove amendments to the Company’s named executive officers, as disclosed inAmended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to declassify the proxy statement;Board of Directors (the “Board”) over a three-year period and provide that directors elected on or after the 2021 Annual Meeting serve for one-year terms;
5. To approve amendments to the Company’s Certificate of Incorporation to eliminate provisions requiring supermajority stockholder approval to amend certain provisions of the Certificate of Incorporation and to amend the Bylaws; and
4.6. To consider and act upon such other matters as may properly be brought before the meeting, or any adjournment or postponement thereof.
These matters are more fully described in the proxy statement. The Board of Directors recommends that you vote “FOR ALL” of the nominated directors, “FOR” the ratification of the Company’s independent registered public accounting firm, and “FOR” the proposal to approve, on an advisory basis, the compensation of the Company’s named executive officers.officers, “FOR” the ratification of the Company’s independent registered public accounting firm, “FOR” the proposal to amend the Company’s Certificate of Incorporation to declassify the Board and “FOR” the proposal to amend the Company’s Certificate of Incorporation to eliminate provisions requiring supermajority stockholder approval to amend certain provisions of the Certificate of Incorporation and to amend the Bylaws. The Board of Directors knows of no other matters at this time that may be properly brought before the meeting.
Stockholders of record at the close of business on May 31, 201829, 2020 are entitled to notice of, and to vote at the Annual Meeting and any subsequent adjournments or postponements. A list of these stockholders will be available for inspection for 10 days preceding the Annual Meeting at our corporate headquarters, 4640 Trueman Boulevard, Hilliard, Ohio 43026. We will begin mailing a Notice of Internet Availability of Proxy Materials (the “Notice”) on or about June 11, 20182020 to stockholders of record at the close of business on May 31, 2018.29, 2020. The Notice contains instructions on how to access our proxy statement, our fiscal year 20182020 Annual Report to Stockholders and the form of proxy on the Internet, as well as instructions on how to request a paper copy of the proxy materials.
It is important that your common shares be represented at the Annual Meeting whether or not you are personally able to attend via webcast. Our proxy tabulator, Broadridge Financial Solutions, Inc., must receive your proxy card no later than 11:59 p.m., Eastern Time on July 23, 2018.22, 2020.
Please read carefully the sections in the proxy statement on attending via webcast and voting at the Annual Meeting to ensure that you comply with these requirements.
Important Notice Regarding the Availability of Proxy Materials for Stockholder Meeting to be held on July 24, 201823, 2020: The proxy statement and our annual report on Form 10-K for fiscal year 20182020 are available atwww.proxyvote.com.
By Order of the Board of Directors | ||
Scott A. Cottrill | ||
Corporate Secretary |
Hilliard, Ohio
June 8, 201811, 2020
- ii -
TABLE OF CONTENTS
Page | ||
ii | ||
iii | ||
1 | ||
Questions and Answers About This Proxy Statement and the Annual Meeting | 2 | |
5 | ||
5 | ||
5 | ||
5 | ||
7 | ||
7 | ||
7 | ||
10 | ||
11 | ||
11 | ||
12 | ||
12 | ||
13 | ||
13 | ||
13 | ||
13 | ||
16 | ||
16 | ||
17 | ||
17 | ||
18 | ||
18 | ||
18 | ||
19 | ||
19 | ||
19 | ||
19 | ||
21 | ||
21 | ||
22 | ||
25 | ||
25 | ||
36 | ||
37 | ||
38 | ||
38 | ||
39 | ||
51 | ||
52 | ||
52 | ||
Other Independent Registered Public Accounting Firm Information | 52 | |
53 | ||
54 | ||
Security Ownership of Certain Beneficial Owners and Management | 54 | |
55 | ||
56 | ||
56 | ||
56 | ||
56 | ||
59 | ||
62 | ||
63 | ||
64 |
- iii -
Advanced Drainage Systems, Inc. (which we refer to as “we,” “us,” “our,” “ADS” or the “Company”) is furnishing this proxy statement in connection with the solicitation by our Board of Directors (our “Board”) of proxies to vote at the Annual Meeting of Stockholders, to be held via webcast on July 24, 201823, 2020 (the “Annual Meeting” or the “2018“2020 Annual Meeting”), or at any adjournment or postponement thereof. A copy of this proxy statement, the proxy card and our Annual Report for the fiscal year ended March 31, 20182020 can be found at the web address www.proxyvote.com. We will begin mailing a Notice of Internet Availability of Proxy Materials (the “Notice”) on or about June 11, 20182020 to stockholders of record at the close of business on May 31, 2018.29, 2020. The Notice contains instructions on how to access our proxy statement, our fiscal year 20182020 Annual Report to Stockholders and the form of proxy on the Internet, as well as instructions on how to request a paper copy of the proxy materials. We first sent these proxy materials to our stockholders on or about June 11, 2018.2020.
References in this proxy statement to the Company’s “2019“2021 Annual Meeting,” “2020“2022 Annual Meeting,” and “2021“2023 Annual Meeting” shall mean the annual meeting of stockholders to occur following each of the fiscal years ended March 31, 2019, 20202021, 2022 and 2021,2023, respectively.
- 1 -
THIS PROXY STATEMENT AND THE ANNUAL MEETING
Who is soliciting my proxy with this Proxy Statement?
The Company is soliciting your proxy in connection with the Company’s 20182020 Annual Meeting.
Where and when will the meeting be held?
This year’s meeting will be held on July 24, 201823, 2020 and will begin at 10:00 a.m. (Eastern Time). The 20182020 Annual Meeting will be held only by means of a live webcast.
What if I wish to attend the meeting?
We will be hosting the Annual Meeting live via the Internet. You willnot be able to attend the Annual Meeting in person. Any stockholder can listen to and participate in the Annual Meeting live via the Internet atwww.virtualshareholdermeeting.com/WMS2018WMS2020. The webcast will start at 10:00 a.m. (Eastern Time), on July 24, 2018.23, 2020. Stockholders may vote and submit questions while connected to the Annual Meeting on the Internet.
Instructions on how to connect and participate in the Annual Meeting, including how to demonstrate proof of ownership of our common shares, are posted atwww.virtualshareholdermeeting.com/WMS2018WMS2020.If you do not have your 16-digit control number that is printed in the box marked by the arrow on your Notice of Internet Availability of Proxy Materials or your proxy card (if you received a printed copy of the proxy materials), you will only be able to listen to the Annual Meeting.
What will be voted on at the meeting?
At the Annual Meeting, stockholders will be asked to approve (i) the election of three(a) four Class I directors (Messrs. Barbour, Coleman and Nelson and Ms. Fratto) nominated for terms expiringto expire at the 2023 Annual Meeting and (b) one Class II director (Ms. Chaibi) nominated for a term to expire at the 2021 Annual Meeting, (ii) in a non-binding advisory capacity, the Company’s named executive officer compensation, (iii) the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal year ending March 31, 2019, (iii)2021, (iv) an amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to declassify the Board over a three-year period, (v) an amendment to the Company’s Certificate of Incorporation to eliminate provisions requiring supermajority stockholder approval to amend certain provisions of the Certificate of Incorporation and to amend the Bylaws, and (vi) to transact such other business as may properly come before the 2020 Annual Meeting or any adjournment or postponement thereof.
Proposals four and five (the “Amendment Proposals”) involve changes to the Company’s Certificate of Incorporation. Each such Amendment Proposal is separate from, and is not conditioned on, the approval of any other Amendment Proposal. A stockholder’s vote on any Amendment Proposal does not affect their vote on any other Amendment Proposal, and a stockholder can vote “FOR,” “AGAINST,” or “ABSTAIN” from voting on any of the Amendment Proposals. If all of the Amendment Proposals are approved by the stockholders, promptly following the Annual Meeting, the Company will file a Certificate of Amendment to the Company’s Certificate of Incorporation, substantially in the form attached as Appendix A (the “Certificate of Amendment”), with the Secretary of State of the State of Delaware. If only some of the Amendment Proposals are approved by the stockholders, the Company will revise the Certificate of Amendment accordingly before filing it with the Secretary of State of the State of Delaware. If none of the Amendment Proposals are approved, the Company will not file the Certificate of Amendment. Promptly following the Annual Meeting, certain provisions of the Company’s Second Amended and Restated Bylaws (the “Bylaws”) will also be amended to reflect the Amendment Proposals that are approved by the stockholders and to reflect majority voting in the election of directors as described below.
What vote standard is required to approve the proposals?
For the proposal to elect four Class I directors and one Class II director, directors are elected by a plurality of the votes cast, which means that the nominees who receive the most “FOR” votes will be elected as directors. Upon completion of the Annual Meeting, the Company’s Bylaws will be amended to provide for majority voting in the election of directors, as more fully described on page 19, effective immediately following the Annual Meeting.
The proposal to approve, in a non-binding advisory capacity, the Company’s named executive officer compensation, and the proposal to transact such other businessratify the appointment of Deloitte & Touche LLP as may properly come beforeCompany’s independent registered public accounting
- 2 -
firm for fiscal year ending March 31, 2021, each require the 2018affirmative vote of a majority of the shares present or participating by proxy and entitled to vote at the Annual Meeting or any adjournment or postponement thereof.Meeting.
The Amendment Proposals each require the affirmative vote of at least three-fourths of the outstanding shares of the Company’s capital stock entitled to vote in the election of directors.
Who is entitled to vote at the meeting?
The record date for this meeting is May 31, 2018.29, 2020. On that date, the Company had 56,754,28169,736,654 shares of common stock (“Common Stock”) outstanding and 23,298,40521,561,296 shares of redeemable convertible preferred stock (the “ESOP Preferred Stock”) outstanding. Holders of our Common Stock and ESOP Preferred Stock are entitled to one vote for each share held as of the May 31, 201829, 2020 record date. Holders of our Common Stock and ESOP Preferred Stock will vote as a single class on all matters described in this proxy statement. Stockholders may not cumulate votes in the election of directors.
If I am a stockholder of record of Common Stock, how do I vote?
If your shares of Common Stock are registered directly in your name with the Company’s transfer agent, Computershare Investor Services, LLC, you are considered the stockholder of record with respect to those shares and you may cast your vote by any one of the following ways:
By Telephone: Call 1-800-690-6903: You can use any touch-tone telephone. Have your proxy card or Notice of Internet Availability of Proxy Materials in hand when you call and follow the instructions.
|
Over the Internet: Go to www.proxyvote.com: You can use the Internet 24 hours a day to transmit your voting instructions. Have your proxy card or Notice of Internet Availability of Proxy Materials in hand when you access the web site and follow the instructions.
|
By Mail: If you received a printed copy of the proxy materials, you may submit your vote by completing, signing and dating your proxy card and returning it in the prepaid envelope to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New York 11717.
|
- 2 -
If I am a beneficial owner of shares of Common Stock held in street name, how do I vote?
If your shares of Common Stock are held in an account at a brokerage firm, bank, broker-dealer, or other similar organization, then you are the “beneficial owner” of shares held in “street name.” The organization holding your account is considered the stockholder of record for purposes of voting at the 20182020 Annual Meeting. As a beneficial owner, you have the right to instruct that organization on how to vote the shares held in your account. If you request printed copies of these proxy materials by mail, you will receive a voting instruction form.
If I am a participant in the Advanced Drainage Systems, Inc. Employee Stock Ownership Plan, how do I vote?
If you are a participant in the Advanced Drainage Systems, Inc. Employee Stock Ownership Plan and trust (the “ESOP”), you have the right to instruct Fifth Third Bank, as administrative trustee of the ESOP (the “ESOP Trustee”), to vote the shares of ESOP Preferred Stock allocated to your ESOP account. If no instructions are given or if your voting instructions are not received by the deadline shown on the enclosed proxy card, the ESOP Trustee will vote the uninstructed shares in the same proportion in which it has received voting instructions.its discretion.
Please note that participants in the ESOP may not vote in person at the meeting, as only the ESOP Trustee is authorized to vote the shares of ESOP Preferred Stock allocated to participants’ accounts.
What if I want to change my vote?
If you want to change your vote, you may revoke your proxy by:
Submitting your vote at a later time via the Internet or telephone prior to the 20182020 Annual Meeting;
Submitting a properly signed proxy card with a later date that is received at or prior to the Annual Meeting; or
Providing notice in writing before the meeting to: Secretary, Advanced Drainage Systems, Inc., 4640 Trueman Boulevard, Hilliard, Ohio 43026 USA.
- 3 -
What if I submit a proxy without giving specific voting instructions?
If you properly submit a proxy without giving specific voting instructions, the individuals named as proxies on the proxy card will vote your shares:
FOR the election of the threefive nominees for Director named on page 5.8.
FOR the approval, on an advisory basis, of the compensation of the Company’s named executive officers.
FOR the ratification of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal year ending March 31, 2019.2021.
FOR the amendment to the Company’s Certificate of Incorporation to declassify its Board of Directors over a three-year period.
FOR the amendment to the Company’s Certificate of Incorporation to eliminate provisions requiring supermajority stockholder approval on an advisory basis,to amend certain provisions of the compensationCertificate of Incorporation and to amend the Company’s named executive officers.Bylaws.
In accordance with the best judgment of the individuals named as proxies on the proxy card on any other matters properly brought before the Annual Meeting.
Will my shares be voted if I do not provide my proxy?
If you are a registered stockholder and do not submit a proxy, you must attend the meeting via webcast in order to vote your shares.
If you hold shares in “street name,” your shares may be voted on certain matters even if you do not provide voting instructions to your bank or broker. Banks and brokers have the authority under the rules of the New York Stock Exchange (“NYSE”) to vote shares for which their customers do not provide voting instructions on certain routine matters. The ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm is considered a routine matter for which banks and brokers may vote without specific instructions from their customers. You must provide voting instructions to your bank or broker for your shares to be voted on all other matters presented at the 20182020 Annual Meeting.
- 3 -
If you are a participant in the ESOP and do not instruct Fifth Third Bank, as ESOP Trustee, to vote the shares allocated to your ESOP account, or if your voting instructions are not received by the deadline shown on the enclosed voting instruction form, Fifth Third Bank will vote the uninstructed shares in the same proportion in which it has received voting instructions.its discretion.
What should I do if I have questions?
If you have any questions or require any assistance with voting your shares of Common Stock or with respect to instructing the trustee of the ESOP with respect to any shares of ESOP Preferred Stock, please contact Scott A. Cottrill, the Company’s corporate secretary, at (614) 658-0050.
- 4 -
BUSINESS PERFORMANCE/FISCAL YEAR ACHIEVEMENTS
The fiscal year ended March 31, 2020 was transformative for ADS. We achieved record financial performance; successfully executed on our commitments and growth strategy; returned over $100 million to stockholders; completed a large, highly strategic acquisition; implemented a new capital structure; and built a strong foundation for our Environmental, Social and Governance (ESG) program. We believe these accomplishments and our continued execution position us well for the future to deliver sustainable, long-term growth.
Additionally, we reaffirmed our commitment to return capital to stockholders by issuing a $75 million special dividend in June 2019. This special dividend enabled ADS to take an important step in winding down the ESOP, set to mature in 2023, at a time of robust growth and financial strength. Since going public in June of 2014, ADS has returned over $170 million to stockholders in the form of dividends and share repurchases through the end of Fiscal 2020.
On July 31, 2019, we completed the acquisition of Infiltrator Water Technologies (“Infiltrator”), a leading national provider of plastic leach field chambers and systems, septic tanks and accessories, primarily for use in residential applications. Infiltrator products are used in on-site water treatment systems in the United States and Canada.
This highly strategic acquisition was the natural evolution of more than 15 years of partnership, combining leaders in stormwater and on-site septic wastewater treatment. ADS and Infiltrator have highly complementary businesses with similar go-to-market distribution strategies, innovation and commitment to material science and recycling. Infiltrator operates as a wholly -owned subsidiary of ADS, under the leadership of Roy E. Moore, Jr. We believe Mr. Moore’s extensive experience and proven successes in the plastics industry, along with the strong Infiltrator leadership team and dedicated production workforce, will contribute to our goal of building the nation’s foremost water management solutions company.
We are committed to integrating quality environmental, social, and governance practices into our business, which we expect will increase the long-term sustainability and resiliency of our business model. In our daily operations, we are dedicated to promoting environmental stewardship through our products and solutions, creating a safe work environment for our employees, while making a positive impact in the communities we serve. We also adhere to strong corporate governance principles by adopting best practices to strengthen our accountability and relationship of trust with our stockholders.
We believe that a sound governance structure can serve as a solid foundation for a successful sustainability program. In fiscal year 2020, we took several key strategic initiatives to institutionalize our governance structure and our oversight of sustainability practices.
We are taking decisive action to improve our corporate governance practices, including several key provisions of our Certificate of Incorporation dealing with the rights of our stockholders, which are on the agenda of this meeting for your approval. These actions include the declassification of the Board to institute annual director elections and the removal of supermajority vote requirements for all but certain limited changes to the Certificate of Incorporation and Bylaws. We also intend to adopt a majority vote standard for uncontested director elections (with a plurality carve-out for contested elections), but that change is not before you for approval at this meeting because the Board may implement such change without stockholder approval. We believe that these changes will enhance our Board’s accountability and improve the rights of our stockholders, which will help us in our efforts to continue to create value over the long term.
In fiscal year 2020, we also made significant strides in building the foundation of our ESG program through:
the formation of a Board ESG sub-committee (under the auspices of the nominating and corporate governance committee) responsible for the oversight of sustainability practices;
the establishment of processes for collecting and regularly tracking data related to our environmental impacts;
- 5 -
our engagement with internal and external stakeholders (investors, customers, and employees) and third parties to assess the perception of our existing practices for the purposes of our ESG program development; and
the creation of platforms to increase ESG-related disclosures, including increased and improved transparency about our sustainability practices in our sustainability report and the renovation our website to better communicate our ESG efforts.
- 6 -
CORPORATE GOVERNANCE HIGHLIGHTS
PROPOSAL ONE: ELECTION OF DIRECTORS
Board CompositionDirector Election Process
Our business and affairs are managed under the direction of our board of directors.Board. We currently have ten directors. On May 20, 2020, the Board elected to expand the size of the Board to eleven directors.directors and nominated Anesa T. Chaibi to fill the newly created vacancy as a Class II director upon her election and qualification at the 2020 Annual Meeting. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal.
As previously disclosed, on August 17, 2017 we announced the retirement and resignation of Joseph A. Chlapaty as a director of the Company effective as of September 1, 2017. Mr. Chlapaty continues to serve theOur Board in the honorary role of Chairman Emeritus as a non-voting Board observer, and C. Robert Kidder has assumed the role of Chairman. The Board also appointed D. Scott Barbour to replace Mr. Chlapaty as the Company’s President and Chief Executive Officer as of September 1, 2017 and also appointed Mr. Barbour to serve as a Class I director to fill the vacancy created by the resignation of Mr. Chlapaty. On May 30, 2018, we disclosed that the Board expanded its size to eleven directors and appointed Michael B. Coleman as a Class I director and appointed Ross M. Jones as a Class III director, effective May 23, 2018.
Our board of directors is divided into three classes of directors serving staggered terms of three years each. Generally, at each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the class whose term is then expiring. Our directors are currently separated into the following classes:
Our Class I directors are D. Scott Barbour, Michael B. Coleman, Tanya Fratto and Carl A. Nelson, Jr.;
Our Class II directors are Robert M. Eversole, Alexander R. Fischer and M.A. (Mark) Haney; and
Our Class III directors are Ross M. Jones, C. Robert Kidder Richard A. Rosenthal and Abigail S. Wexner.Manuel J. Perez de la Mesa.
The terms of our Class I directors are set to expire upon the election and qualification of successor directors at our 2020 Annual Meeting. The terms of our Class II directors are set to expire upon the election and qualification of successor directors at the 20182021 Annual Meeting. The terms of our Class III directors are set to expire upon the election and qualification of successor directors at our 20192022 Annual Meeting. The terms
As more fully described under “Proposal Four: Amendment to the Company’s Certificate of our Class IIncorporation to Declassify the Board of Directors,” the Board has adopted, subject to stockholder approval, an amendment to the Company’s Certificate of Incorporation to declassify the Board over a period of three years (“Proposal Four”). If Proposal Four is approved by the stockholders, the directors areelected at the 2020 Annual Meeting will serve for a three-year term set to expire upon the election and qualification of successor directors at our 2020the 2023 Annual Meeting. At the 2021 Annual Meeting, the terms of the Class II directors will expire upon the election and qualification of successor directors who will serve one-year terms. At the 2022 Annual Meeting, the terms of the Class III directors and those elected at the 2021 Annual Meeting will expire upon the election and qualification of successor directors who will serve one-year terms. At the 2023 Annual Meeting, the terms of the Class I directors and all other directors will expire upon the election and qualification of successor directors who will serve one-year terms.
Any vacancies in our classified Board will be filled by the remaining directors and the elected person will serve the remainder of the term of the class to which he or she is appointed. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist
- 7 -
of one-third of the directors. If Proposal Four is approved by the stockholders, any persons elected to fill a vacancy in the Board left by any directors elected at the 2020 Annual Meeting will serve terms set to expire at the 2023 Annual Meeting. Directors elected by the Board to fill any other vacancies or any additional directorship resulting from an increase in the number of directors will serve a term set to expire at the next annual meeting.
When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable our Board to satisfy their oversight responsibilities effectively in light of our business and structure, our Board focused primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth below. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business. We also value the experience that our directors bring from their service on other boards.
2020 Nominees for Election to the Board of Directors
The Class III directors to be elected at the 20182020 Annual Meeting will serve a term that expires at the 2023 Annual Meeting. The Class II director to be elected at the 2020 Annual Meeting will serve a term that expires at the 2021 Annual Meeting. The Board has nominated (a) Messrs. Eversole, FischerBarbour, Coleman and HaneyNelson and Ms. Fratto for re-election as Class I directors at the 2020 Annual Meeting and (b) Ms. Chaibi for election as a Class II directors.director at the 2020 Annual Meeting. Ms. Chaibi's nomination as director was recommended by a third-party search firm. All of the nominees have indicated a willingness to stand for re-election and to serve if re-elected.
The following paragraphs describe the business experience and education of (a) Messrs. Eversole, FischerBarbour, Coleman and Haney,Nelson and Ms. Fratto, who have been nominated for terms expiring at the 2023 Annual Meeting and (b) Ms. Chaibi, who has been nominated for a term expiring at the 2021 Annual Meeting.
D. Scott Barbour. D. Scott Barbour joined us as a director, Chief Executive Officer and President in 2017. Mr. Barbour has over 25 years of experience in the industrials sector. From 1989 until 2016, he worked for Emerson Electric, a global technology and engineering company that provides solutions for customers in industrial, residential and commercial markets as President and CEO of its $4.5 billion Network Power business. Mr. Barbour was responsible for managing major multi-million dollar contract negotiations, leading and implementing a global profitability optimization program, expanding Emerson’s geographic footprint, introducing new product lines, and managing the spin-off and subsequent sale of the Network Power business, now Vertiv. During his tenure at Emerson, Mr. Barbour also held several leadership positions including Group Vice President of Emerson Climate Technologies Group, President, Emerson Climate Technologies Asia Pacific Division, and President, Emerson Climate Technologies Air Conditioning Division. In these roles, Mr. Barbour drove significant technology initiatives, increased profitability and led new product development. Mr. Barbour began his career at Colt Industries, where he worked as a product engineer. Mr. Barbour is a board member of Recreation Unlimited Farm and Fun (Recreation Unlimited) a 501(c)(3) not-for profit organization serving individuals with physical and developmental disabilities and health concerns. Mr. Barbour received his Bachelor of Science in Mechanical Engineering from Southern Methodist University and his Master of Business Administration from the Owen Graduate School of Management, Vanderbilt University. We believe that Mr. Barbour’s extensive leadership experience and substantial business qualifications make him qualified to serve as a member of our Board.
Anesa T. Chaibi. Anesa T. Chaibi is a director nominee in 2020. Since November 2019, Ms. Chaibi has been an industry advisor in the Industrial and Business Services Group with Warburg Pincus, a leading global private equity firm focused on growth investing. Prior to that role, Ms. Chaibi was the Chief Executive Officer and Director of Optimas OE Solutions, LLC (a global provider of integrated supply chain solutions and engineering support), from 2016 to 2019. Previously, Ms. Chaibi served as President and Chief Executive Officer of HD Supply Facilities Maintenance, a division of HD Supply Holdings, Inc. (an industrial supplier), from 2005 to 2015. Prior to this role, Ms. Chaibi held a variety of roles of increasing responsibility within several business units at General Electric from 1989 to 2005. Ms. Chaibi has a B.S. in Chemical Engineering from West Virginia University and an M.B.A. from the Duke University Fuqua School of Business. Additionally, Ms. Chaibi is an NACD Board Leadership Fellow. We believe that Ms. Chaibi's executive leadership experience, experience in manufacturing and corporate governance knowledge make her qualified to serve as a member of our Board.
Michael B. Coleman. Michael B. Coleman became a director in 2018. Mr. Coleman is a partner at Ice Miller and serves as Partner in Charge of the firm's Government Law Group. Mr. Coleman served as Mayor of Columbus, Ohio from 2000 to 2015, the first African-American mayor and the longest-serving mayor in Columbus history. Mr. Coleman’s 25 plus years of experience in public service also includes serving as City Council President for Columbus, Ohio from 1997 to 1999
- 8 -
and as a member of City Council from 1992 to 1999. Prior to his term as Mayor, Mr. Coleman was a partner with the law firm of Schottenstein Zox & Dunn LLP. Mr. Coleman has received numerous national awards and is a frequent public speaker on issues involving economic development, neighborhood revitalization and environmental stewardship. Mr. Coleman has a B.S. in Political Science from the University of Cincinnati and a J.D. from the University of Dayton School of Law. We believe that Mr. Coleman’s significant legal background, his knowledge of economic development, familiarity with state and local contracting matters and his extensive involvement in the public policy sectors make him qualified to serve as a member of our Board.
Tanya D. Fratto. Tanya D. Fratto became a director in 2013. Prior to that, Ms. Fratto spent over 30 years with global industrial companies and private equity. She was Chief Executive Officer of Diamond Innovations, Inc., a world-leading manufacturer of industrial diamonds and cubic boron nitride used in oil and gas, infrastructure, automotive, aerospace, and electronics industries. In addition, she enjoyed a successful 20-year career with General Electric. Her experience has ranged from profit and loss ownership, product management and operations, to Six Sigma and supply chain management, spending time in GE Aerospace, GE Plastics, Corporate Sourcing, GE Appliances, and GE Consumer Service. Ms. Fratto holds a BS in Electrical Engineering from the University of South Alabama. She currently sits on the board of Smiths Global Plc, a global technology company; Mondi Group Plc, an international paper and packaging company; and Ashtead Group Plc, an international equipment rental company. We believe that Ms. Fratto’s extensive executive and management experience as well as her experience managing global operations and the insights gained from those experiences make her qualified to serve as a member of our Board.
Carl A. Nelson, Jr. Carl A. Nelson was appointed as a director on August 4, 2016. Mr. Nelson serves on the board of Worthington Industries, a $3 billion diversified metal processing company, where he has been the audit committee chair since 2004 and a member of the executive committee. Mr. Nelson became a director of ADS in 2016 and chairs the Compensation Committee. Mr. Nelson served on the board of Star Leasing Company, a $115 million ESOP owned company that leases semi trailers through nine facilities across seven states. His term of service on that board ended on March 19, 2018. Prior to his retirement in 2002 after 31 years of service, Mr. Nelson was a partner with Arthur Andersen, LLP, where he served as Managing Partner of the Columbus, Ohio office and was the leader of the firm’s consulting services for the products industry in the United States. Mr. Nelson has taught in the MBA and executive education programs at The Ohio State University and is a member of the Dean’s Advisory Council for the Fisher College of Business at The Ohio State University. Mr. Nelson received his B.S. in Accounting from The Ohio State University and a Masters of Business Administration from the University of Wisconsin and is a Certified Public Accountant (retired). We believe that Mr. Nelson’s public company accounting expertise and his years of experience as a business consultant on a variety of projects involving strategic planning, acquisitions, financial matters and executive coaching make him qualified to serve as a member of our Board.
Although it is anticipated that each nominee will be available to serve as a director, should any nominee be unable to serve, the proxies will be voted by the proxy holders in their discretion for another person properly designated. Each nominee recommended by the Board to stockholders was recommended to the Board by the nominating and corporate governance committee.
Recommendation of the Board
The Board unanimously recommends that you vote “FOR” the election of each of Messrs. Barbour, Coleman and Nelson and Mses. Fratto and Chaibi.
Vote Required
The election of directors is by plurality vote of holders of our Common Stock and our ESOP Preferred Stock, voting together as a single class present in person or by proxy at the Annual Meeting and entitled to vote thereon, with the nominees receiving the highest vote totals to be elected as directors. Brokers non-votes and abstentions are not counted toward the election of directors or toward the election of individual nominees specified on the proxy and therefore, broker non-votes and abstentions shall have no effect on this proposal.
If you return a proxy card without giving specific voting instructions, then your shares will be voted “FOR” the election of Messrs. Barbour, Coleman and Nelson and Mses. Fratto and Chaibi.
If you hold your shares in “street name” and do not provide specific voting instructions to the bank or broker or do not obtain a proxy from such bank or broker to vote those shares, then your shares will not be voted in the election of Directors.
- 9 -
DIRECTORS NOT UP FOR RE-ELECTION
The following paragraphs describe the business experience and education of our Class II and Class III directors (not standing for re-election).
Robert M. Eversole. Robert M. Eversole became a director in 2008. Mr. Eversole is a Managing Partner of Stonehenge Partners, Inc., a private investment capital firm and has been continuously employed as such since 2007. Prior to joining Stonehenge Partners, Mr. Eversole spent 22 years with Fifth Third Bank, most recently as President and Chief Executive Officer of Central Ohio, and additionally served as Regional President for Fifth Third Bancorp affiliate banks in Western Ohio, Central Florida and Ohio Valley. He also served as a member of the Fifth Third Bancorp Operating Committee. Mr. Eversole currently serves on the boards of directors for certain privately-held companies. Mr.
- 5 -
Eversole is a graduate of The Ohio State University and has completed a number of executive education programs. We believe that Mr. Eversole’s extensive background in private equity and commercial banking, his expertise on financial matters and his extensive leadership and management experience make him qualified to serve as a member of our Board.
Alexander R. Fischer. Alexander R. Fischer became a director in 2014. Mr. Fischer has been the President and CEO of the Columbus Partnership, an organization of CEOs focused on civic, philanthropic, education and economic development opportunities in Columbus, Ohio, since 2009. Prior to his role at the Columbus Partnership, Mr. Fischer worked at Battelle Memorial Institute, a science and technology company, from 2002 to 2009, where he served as Senior Vice President for Business and Economic Development, Vice President of Commercialization, and Director of Technology Transfer and Economic Development. Mr. Fischer has also worked in the public sector, as Commissioner of Economic Development, Deputy Governor and the Chief of Staff for the State of Tennessee from 1997 to 2002. In the past, he has served on the boards of directors for a variety of for-profit and not-for-profit organizations, and currently serves on the boards of Nationwide Children’s Hospital, The Ohio State University, and Columbus 2020.OneColumbus and White Oak Partners. Mr. Fischer graduated from the University of Tennessee with a B.S. in Economics and Public Administration and also received a Master’s of Science in Urban Planning and Economic Development from the University of Tennessee. We believe that Mr. Fischer’s executive management experience, his knowledge of economic development and commercialization and the knowledge he has gained from his extensive involvement in the public policy sectors make him qualified to serve as a member of our Board.
M.A. (Mark) Haney. M.A. (Mark) Haney became a director in 2014. Mr. Haney retired in December 2011 from Chevron Phillips Chemical Company LP, a chemical producer, where he served as Executive Vice President of Olefins and Polyolefins from January 2011 until his retirement. From 2008 to 2011, Mr. Haney served as Senior Vice President, Specialties, Aromatics and Styrenics. He also served as Vice President of Polyethylene and President of Performance Pipe. Prior to joining Chevron Phillips Chemical Company, Mr. Haney held numerous management positions with Phillips Petroleum Company. Mr. Haney currently serves on the board of directors of Phillips 66 Partners LP. Mr. Haney attended West Texas University and majored in chemistry. We believe that Mr. Haney’s extensive executive and management experience and his understanding of the petro-chemicals industry and the raw materials used in our products make him qualified to serve as a member of our Board.
Although it is anticipated that each nominee will be available to serve as a director, should any nominee be unable to serve, the proxies will be voted by the proxy holders in their discretion for another person properly designated. Each nominee recommended by the Board to stockholders was recommended to the Board by the nominating and corporate governance committee.
Directors Not Up for Re-Election
The following paragraphs describe the business experience and education of our Class I and Class III directors (not standing for re-election).
D. Scott Barbour.D. Scott Barbour joined us as a director, Chief Executive Officer and President in 2017. Mr. Barbour has over 25 years of experience in the industrials sector. Most recently, he worked for Emerson Electric, a global technology and engineering company that provides solutions for customers in industrial, residential and commercial markets as President and CEO of its $4.5 billion Network Power business. Mr. Barbour was responsible for managing major multi-million dollar contract negotiations, leading and implementing a global profitability optimization program, expanding Emerson’s geographic footprint, introducing new product lines, and managing the spin-off and subsequent sale of the Network Power business, now Vertiv. During his tenure at Emerson, Mr. Barbour also held several leadership positions including Group Vice President of Emerson Climate Technologies Group, President, Emerson Climate Technologies Asia Pacific Division, and President, Emerson Climate Technologies Air Conditioning Division. In these roles, Mr. Barbour drove significant technology initiatives, increased profitability and led new product development. Mr. Barbour began his career at Colt Industries, where he worked as a product engineer. Mr. Barbour received his Bachelor of Science in Mechanical Engineering from Southern Methodist University and his Master of Business Administration from the Owen Graduate School of Management, Vanderbilt University. We believe that Mr. Barbour’s extensive leadership experience and substantial business qualifications make him qualified to serve as a member of our Board.
Michael B. Coleman. Michael B. Coleman became a director in 2018. Mr. Coleman is a partner at Ice Miller in the Public Affairs and Government Law Group and serves as the firm’s Director of Business and Government Strategies.
- 6 -
Mr. Coleman served as Mayor of Columbus, Ohio from 2000 to 2015, the first African-American mayor and the longest-serving mayor in Columbus history. Mr. Coleman’s 25 plus years of experience in public service also includes serving as City Council President for Columbus, Ohio from 1997 to 1999 and as a member of City Council from 1992 to 1999. Prior to his term as Mayor, Mr. Coleman was a partner with the law firm of Schottenstein Zox & Dunn LLP. Mr. Coleman has received numerous national awards and is a frequent public speaker on issues involving economic development, neighborhood revitalization and environmental stewardship. Mr. Coleman has a B.S. in Political Science from the University of Cincinnati and a J.D. from the University of Dayton School of Law. We believe that Mr. Coleman’s significant legal background, his knowledge of economic development, familiarity with state and local contracting matters and his extensive involvement in the public policy sectors make him qualified to serve as a member of our Board.
Tanya Fratto. Tanya Fratto became a director in 2013. Prior to that, Ms. Fratto spent over 30 years with global industrial companies and private equity. She was Chief Executive Officer of Diamond Innovations, Inc., a world-leading manufacturer of industrial diamonds and cubic boron nitride used in oil and gas, infrastructure, automotive, aerospace, and electronics industries. In addition, she enjoyed a successful 20-year career with General Electric. Her experience has ranged from profit and loss ownership, product management and operations, to Six Sigma and supply chain management, spending time in GE Aerospace, GE Plastics, Corporate Sourcing, GE Appliances, and GE Consumer Service. Ms. Fratto holds a BS in Electrical Engineering from the University of South Alabama. She currently sits on the board of Smiths Global Plc, a global technology company. We believe that Ms. Fratto’s extensive executive and management experience as well as her experience managing global operations and the insights gained from those experiences make her qualified to serve as a member of our Board.
Ross M. Jones. Ross M. Jones became a director in 2018. Mr. Jones, a Managing Director at Berkshire Partners since 2000, has over 25 years of private equity experience. During Mr. Jones’ career at Berkshire, he has worked with many companies across a wide range of industries, including advising the Company over a 10-year period prior to its public offering. His prior board experience also includes serving as Chairman of the Board and Nominating & Governance Committee at Bare Escentuals, Inc. and serving as Lead Director and Chairman of the Nominating & Governance and Compensation Committees at Carter’s, Inc., as well as current or former board positions on private companies Asurion Corp., Melissa & Doug and Torres Unidas. Before joining Berkshire Partners, Mr. Jones worked at a start-up merchant bank, Bain & Co. and in the Investment Banking Division of Morgan Stanley & Co. Mr. Jones has a B.A. from Dartmouth College and a M.B.A. from Stanford University Graduate School of Business. We believe that Mr. Jones’ substantial business experience and extensive knowledge of financial services make him qualified to serve as a member of our Board.
C. Robert Kidder. C. Robert Kidder became a director in 2014. Mr. Kidder also serves as the Chairman of our Board and from 2014 to 2017 served as the Lead Independent Director on our Board. Mr. Kidder served as Chairman and Chief Executive Officer of 3Stone Advisors LLC, a private investment firm, from 2006 to 2011, and as non-executive Chairman of the Board of Chrysler Group LLC from 2009 to 2011. He was a Principal at Stonehenge Partners, Inc., a private investment firm, from 2004 to 2006. Mr. Kidder served as President of Borden Capital, Inc., a company that provided financial and strategic advice to the Borden family of companies, from 2001 to 2003. He was Chairman of the Board from 1995 to 2004
- 10 -
and Chief Executive Officer from 1995 to 2002 of Borden Chemical, Inc. (formerly Borden, Inc.), a forest products and industrial chemicals company. Mr. Kidder was Chairman and Chief Executive Officer and President of Duracell International Inc. Prior to joining Duracell International Inc., Mr. Kidder worked in planning and development at Dart Industries and as a management consultant with McKinsey & Co. Mr. Kidder currently serves on the board of directors of Microvi Biotech Inc. and previously served on the boards of directors of Morgan Stanley from 1997 to 2015, Schering-Plough Corporation from 2005 to 2009 and Merck and Co., Inc. from 2005 to 2017. Mr. Kidder earned a B.S. in industrial engineering from the University of Michigan and a graduate degree in industrial economics from Iowa State University. We believe Mr. Kidder’s extensive financial and senior executive experience, including in business development, operations and strategic planning, as well as knowledge he has gained through his directorship service at other public companies, make him qualified to serve as a member of our Board.
Carl A. Nelson, JrManuel Perez de la Mesa. Carl A. Nelson, Jr.Manuel J. Perez de la Mesa became a director in 2016.2019. Mr. Nelson currentlyPerez de la Mesa was the President and Chief Executive Officer of Pool Corporation from 2001 until 2018, from 1999 to 2001 he served as the President and Chief Operating Officer. Pool Corporation is global wholesale distributor of swimming pool equipment, parts and supplies, and related outdoor living products. He now serves as Vice Chairman on the board of Star Leasing Company,directors. Prior to leading Pool Corporation, he gained extensive, financial and operations management experience with a $115 million ESOP-ownednumber of companies, including Watsco, Inc. from 1994 to 1999, Fresh Del Monte Produce B.V. from 1987 to 1994, International Business Machines Corporation from 1982 to 1987, and Sea-Land Service Inc./R.J. Reynolds, Inc. from 1977 to 1982. Mr. Perez de la Mesa is lead director of BCPE Empire Topco, Inc., the parent company that leases semi-trailers through nine facilities across seven states.of Imperial Dade; Chairman of Bution Holdings 1, LLC., the parent company of ORS Medco; and a board member of Hamilton HoldCo, LLC, the U.S. subsidiary of the Reece Group, a leading distributor of plumbing, waterworks and HVAC R products in Australia and New Zealand; and AEA TCBP Holdings LP, a distributor of glass and plastic rigid packaging in North America, parent company of TricorBraun. He also servesserved on theARC Document Solutions, Inc.'s board of Worthington Industries,directors from 2004 until 2018. Mr. Perez de la Mesa holds a $3 billion diversified metal processing company, where he has been the audit committee chair since 2004 and a member of the executive committee. Prior to his retirementB.A. in 2002 after 31 years of service, Mr. Nelson was a partner with Arthur Andersen, LLP, where he served as Managing Partner of the Columbus, Ohio office and was the leader of the firm’s consulting services for the products industry in the United States. Mr. Nelson has taught in the MBA and executive education programs at The Ohio State University and is a member of the Dean’s Advisory Council for the Fisher College of Business at The Ohio State University. Mr. Nelson
- 7 -
received his B.S. in AccountingAdministration from The Ohio StateFlorida International University and a MastersMaster of Business Administration from the University of Wisconsin and is a Certified Public Accountant.St. John's University. We believe that Mr. Nelson’s public company accounting expertise and his years of experience as a business consultant on a variety of projects involvingPerez de la Mesa's strong industrial distribution background, strategic planning, acquisitions,international operations and extensive general, financial matters and executive coachingmanagement experience make him qualified to serve as a member of our Board.
Richard A. Rosenthal. Richard A. Rosenthal becameBOARD OVERSIGHT RESPONSIBILITIES
The entire Board is engaged in risk management oversight. At the present time, our Board has not established a directorseparate committee to facilitate its risk oversight responsibilities. Our Board expects to continue to monitor and assess whether such a committee would be appropriate. The audit committee assists our Board in 1988. Mr. Rosenthal retiredits oversight of our risk management and the process established to identify, measure, monitor, and manage risks, in particular major financial risks. Our Board will receive regular reports from the University of Notre Dame du Lac in 1995 after successfully serving as Athletic Director for eight years. Prior to his service as athletic director and following a professional basketball career, Mr. Rosenthal held several leadership roles in banking, including as Executive Vice President of Indiana Bank & Trustmanagement, as well as serving over 25 years as Chairman and CEO of St. Joseph Bancorp. He formerly served on the boards of directors of LaCrosse Footwear, St. Joseph Capital Bank, Beck Corp., and two advisory boards of venture capital funds. Mr. Rosenthal holds a bachelor’s degree in Finance from the University of Notre Dame du Lac and is a former Chairman and current member of the Business Advisory Council of the University of Notre Dame du Lac Mendoza College of Business. We believe that Mr. Rosenthal’s extensive financial and senior executive experience, as well as knowledge he has gained through his directorship service with other companies, make him qualified to serve as a member of our Board.
Abigail S. Wexner. Abigail S. Wexner became a director in 2014. Mrs. Wexner is the CEO of Whitebarn Associates, a private investment company. She serves on the boards of LBrands, Inc., the KIPP Foundation, Harvard University’s Center for Public Leadership, The Ohio State University, Nationwide Children’s Hospital, the Columbus Downtown Development Corporation, the Columbus Partnership, Pelotonia, The Ohio State University Wexner Medical Center, The Wexner Foundation, The Wexner Center Foundationaudit committee, regarding relevant risks and the United States Equestrian Team Foundation. She is the founding board member and vice chair of the board for KIPP Columbus, founder and chair of the board for The Center for Family Safety and Healing and a past chair of the Governing Committee of the Columbus Foundation. Mrs. Wexner also held a presidential appointmentactions taken by management to The United States Holocaust Memorial Museum.
Recommendation of the Board
The Board unanimously recommends that you vote “FOR” the election of each of Messrs. Eversole, Fischer and Haney.
Vote Required
The election of directors is by plurality vote of holders of our Common Stock and our ESOP Preferred Stock, voting together as a single class present in person or by proxy at the Annual Meeting and entitled to vote thereon, with the nominees receiving the highest vote totals to be elected as directors. Brokers non-votes and abstentions are not counted toward the election of directors or toward the election of individual nominees specified on the proxy and therefore, broker non-votes and abstentions shall have no effect on this proposal.
If you return a proxy card without giving specific voting instructions, then your shares will be voted “FOR” the election of Messrs. Eversole, Fischer and Haney.
If you hold your shares in “street name” and do not provide specific voting instructions to the bank or broker or do not obtain a proxy from such bank or broker to voteaddress those shares, then your shares will not be voted in the election of Directors.
- 8 -
CORPORATE GOVERNANCE
Certain Information Regarding our Directors and Executive Officers
The name and age of each director, nominee and executive officer and the positions held by each of them as of the date of this proxy statement are as follows
|
|
|
| |||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
|
|
|
Executive Officers who are not Directors
Scott A. Cottrill joined us in November 2015 and serves as Executive Vice President, Chief Financial Officer and Secretary. Mr. Cottrill came to the Company with extensive financial reporting, accounting and corporate finance experience. He currently oversees our finance, business development, and information technology functions. From 2012 to November 2014, Mr. Cottrill served as Executive Vice President and Chief Financial Officer of Jeld-Wen, Inc., a leading global manufacturer of windows, doors and treated composite trim and panels, and from November 2014 to February 2015 as an Executive Vice President of Jeld-Wen, Inc. From 1998 to 2012, Mr. Cottrill held various finance and accounting positions with Goodrich Corporation, including from 2005 to 2012 the position of Vice President, Controller and Chief Accounting Officer and from 2002 to 2005 the position of Vice President, Internal Audit. Prior to joining Goodrich, Mr. Cottrill worked at PricewaterhouseCoopers LLP from 1987 to 1998 Mr. Cottrill holds a bachelor’s degree in Accounting from The Pennsylvania State University and is also a Certified Public Accountant (inactive).
Ronald R. Vitarelli joined us in November 1988 and has served as Executive Vice President, Engineering and Business Development since March 2018. From November 2011 until March 2018, Mr. Vitarelli served as Executive Vice President & Co-Chief Operating Officer. Mr. Vitarelli joined us as a Sales Representative and was promoted to Regional Sales Manager in December 1995. In July 2003, he was named General Manager of StormTech LLC, a manufacturer of underground storm water retention and detention systems that was a 50/50 joint venture of ours with Infiltrator Systems, Inc. Upon our acquisition of the remaining 50% interest in StormTech from Infiltrator in November 2009, Mr. Vitarelli rejoined us and continued to lead the StormTech business until March 2010, when he was named Vice President, Storm & Sanitary Markets. He currently oversees our product research, development, commercialization and product approval efforts.
Robert M. Klein joined us in June 1992 and has served as Executive Vice President, Sales since February 2006. Upon joining us, Mr. Klein held several leadership positions in operations including Manager, Regional Manufacturing, Manager, Distribution Yards, Director, Purchasing and was named Vice President, Manufacturing Services in January 1999. In July 2001, he was named Vice President, Sales and Marketing and began providing leadership to our field sales, corporate account sales, marketing, customer service, and market analysis functions. Prior to joining us, he spent seven years at The Gerstenslager Company in manufacturing management positions. Mr. Klein holds a bachelor’s degree in Business Administration from Ashland College.
- 9 -
Kevin C. Talley joined us in October 2011 and has served as Executive Vice President & Chief Administrative Officer since August 2016. Mr. Talley joined us as Vice President, Human Resources providing overall leadership to our compensation, benefit, and talent management programs. He currently oversees our human resources, legal, office services, aviation, and safety functions. Prior to joining us, he spent seventeen years at The Scotts Miracle-Gro Company in increasingly responsible human resources leadership positions, most recently as Vice President, Human Resources. Mr. Talley holds a bachelor’s degree in Employment Relations and Organizational Behavior from Miami University.
Ewout Leeuwenburg joined us in April 2001 and has served as Senior Vice President, International since November 2011. He began leading our international operations in December 2007 and was named Vice President, International in July 2008. Mr. Leeuwenburg joined us upon the completion of our acquisition of the Inline Drain & Drain Basin division of Nyloplast, USA in 2001. At the time of the acquisition, Mr. Leeuwenburg had been with Nyloplast, USA Inc. since July 1988 in various business development, operations, sales, and marketing manager positions, and had served as President, United States since July 1996. Upon joining us, he served as General Manager, Nyloplast and expanded his responsibilities to Director, Allied Products in September 2002. Mr. Leeuwenburg holds a bachelor’s degree in Mechanical Engineering from Hogeschool Rotterdam in the Netherlands.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines, which provide the framework for the governance of our Company. Our Board reviews our Corporate Governance Guidelines at least annually. From time to time, the Board may revise our Corporate Governance Guidelines to reflect new regulatory requirements and evolving corporate governance practices. A copy of our Corporate Governance Guidelines is available on our website atwww.ads-pipe.com.
Board Meetings and Attendance
During fiscal year 2018, the Board met four times. Each Director attended at least 75% of the total number of meetings of the Board and the committees on which he or she served. In accordance with the Company’s Corporate Governance Guidelines, the Directors are encouraged to attend the annual meetings of stockholders.
Director IndependenceBOARD INDEPENDENCE
Our common stock has been listed on the New York Stock Exchange, or NYSE, under the symbol “WMS” since July 25, 2014. Under the rules of the NYSE, independent directors must comprise a majority of our Board within a specified period after the completion of our initial public offering (“IPO”). In addition, the rules of the NYSE require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and governance committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Under the rules of the NYSE, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
In order to be considered to be independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, our Board, or any other board committee: (i) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or (ii) be an affiliated person of the listed company or any of its subsidiaries.
In fiscal year 2018,2020, our Board undertook a review of its composition, the composition of its committees, and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment, and affiliations, including family relationships, our Board has determined that none of our directors except for Mr. Barbour has a relationship that would interfere with the exercise of independent judgment in carrying
- 11 -
out the responsibilities of a director and that each of these directors, other than Mr. Barbour, is “independent” as that term is defined under the rules of the NYSE.
Except as otherwise described below, our Board has determined that those directors who serve on our audit committee, compensation and management development committee and nominating and corporate governance committee satisfy the independence standards for those committees established by the rules of the NYSE and (in the case of the audit committee) the applicable SEC rules. In making this determination, our Board considered the relationships that each non-employee director has with us and all other facts and circumstances our Board deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.
DIRECTOR SKILLS, QUALIFICATIONS AND EXPERIENCE
In our process for assessing the composition of the Board, we strive to maintain a diverse and dynamic Board that combines an appropriate mix in business, strategic, and financial skills, as well as independence, integrity and time availability.
Our directors bring a wealth of knowledge and expertise to the Board, including skills and experiences that are relevant for our strategy development and long-term sustainable performance. As illustrated in the bios of our directors, many of them have extensive leadership experience, with several of having served as CEOs of public companies and experiences in mergers and acquisitions, strategic planning, and operations. Further, several of our Board members have direct knowledge and experience related in the industrial sector both in terms of technical knowledge and in relation to the markets we operate. Additional skills and backgrounds of our directors that bring significant value to our Board include legal expertise, audit and accounting, public policy and government contracting, and international operations.
The nominating and corporate governance committee considers Board diversity and Board renewal as two fundamental components for ensuring dynamism and quality in the composition of the Board. We believe that diversity of viewpoints, backgrounds, and experiences can improve the Board's ability to engage with management, while regular renewal and a balance of tenure at the Board can help revitalize this diversity. The nominating and corporate governance committee considers multiple dimensions of diversity among members, including professional skills and experiences, industry knowledge, subject matter expertise, gender, race, and age. The director nomination process allows for the Board to design recruitment procedures that meet the Board's and the Company's strategic priorities at a given point in time. Our annual Board self-evaluation process serves as an effective mechanism for monitoring the need for Board refreshment.
- 1012 -
BOARD AND DIRECTOR EVALUATION PROCESS
We believe that a robust Board Leadership Structureevaluation process is critical to maintaining an effective and dynamic Board. Our nominating and corporate governance committee authorizes our Board Chair to conduct an annual evaluation of the overall performance of the Board and each of its members. In addition, each committee conducts an annual performance evaluation. These performance evaluations, along with an assessment of the Board’s compliance with Corporate Governance principles as well as areas of potential improvement, are presented to the Board in a report annually.
Our Board’s annual self-evaluation process allows us to assess the effectiveness of the Board in fulfilling its duties and responsibilities related to strategy development, the review of business plans, and the monitoring of operational and financial performance and compliance with laws and regulations. In addition, the annual self-evaluation process gives the Board an opportunity to review the effectiveness of the administrative process, such as the number and duration of Board meetings, the amount, quality, and timing of information that directors receive, and the agenda and conduct at Board meetings. Further, the annual evaluation helps the Board assess its strategic needs related to Board size, Board composition, Board renewal, and relevant skills and expertise.
Our nominating and corporate governance committee maintains a rigorous director nomination process, which allows us to identify potential nominees based on a set of criteria developed in accordance with our strategic needs at the time of recruitment. In identifying and evaluating director candidates, the nominating and corporate governance committee first considers the Company’s developing needs and desired characteristics of a new director, as determined from time to time by the nominating and corporate governance committee.
In the recruitment process, the nominating and corporate governance committee, with the assistance of independent advisers as needed, assesses the strategic needs of the Board in terms of backgrounds and qualifications, including the following: business, strategic, and financial skills; independence, integrity, and time availability; diversity of gender, race, and other personal characteristics; and overall experience in the context of the Board’s needs. This process is supplemental to the annual Board evaluation process and helps our Board make recruitment and succession planning decisions that sustain and improve its capacity, diversity, and independence.
During fiscal year 2020, the Board met six times. Each Director attended at least 75% of the total number of meetings of the Board and the committees on which he or she served. In accordance with the Company’s Corporate Governance Guidelines, the Directors are encouraged to attend the annual meetings of stockholders. Nine directors as of the 2019 annual meeting of stockholders attended the meeting.
Our Board has established an audit committee, a compensation and management development committee, a nominating and corporate governance committee, an executive committee and a stock repurchase committee, each of which has the composition and responsibilities described below. Our Board has adopted written charters for the audit committee, the compensation and management development committee and the nominating and corporate governance committee that comply with current federal law and applicable NYSE rules relating to corporate governance matters, which charters are available on our website (www.ads-pipe.com). Our Board may also establish from time to time any other committees that it deems necessary or desirable.
Audit Committee
Our audit committee is comprised of Messrs. Coleman, Eversole, Fischer and Ms. Fratto, with Mr. Eversole serving as the chairperson of the audit committee. Our audit committee met seven times in fiscal year 2020. All of the members of the audit committee are financially literate and have accounting or related financial management expertise within the meaning of the rules of the NYSE. Our Board has determined that Mr. Eversole qualifies as an “audit committee financial expert,” as that term is defined under the Securities and Exchange Commission (“SEC”) rules implementing Section 407 of the Sarbanes-Oxley Act of 2002.
- 13 -
Our audit committee is responsible for, among other things:
reviewing and approving the selection of our independent auditors, and approving the audit and non-audit services to be performed by our independent auditors;
monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;
reviewing the adequacy and effectiveness of our internal control policies and procedures;
discussing the scope and results of the audit with the independent auditors and reviewing with management and the independent auditors our interim and year-end operating results; and
preparing the audit committee report that the SEC requires in our annual proxy statement.
Compensation and Management Development Committee
Our compensation and management development committee is comprised of Messrs. Haney, Kidder, Nelson and Perez de la Mesa and met five times in fiscal year 2020. Mr. Nelson is the chairperson of our compensation and management development committee. Our compensation and management development committee is responsible for, among other things:
overseeing our compensation policies, plans, and benefit programs;
reviewing and approving for our executive officers: the annual base salary, the annual incentive bonus, including the specific goals and amount, equity compensation, employment agreements, severance arrangements and change in control arrangements, and any other benefits, compensations or arrangements;
reviewing the succession planning for our executive officers;
preparing the compensation committee report that the SEC requires to be included in our annual proxy statement; and
administrating our equity compensation plans.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee is comprised of Messrs. Fischer, Jones and Kidder and Ms. Fratto and met six times in fiscal year 2020. Mr. Fischer is the chairperson of our nominating and corporate governance committee. Our nominating and corporate governance committee is responsible for, among other things:
assisting our Board in identifying prospective director nominees and recommending nominees for each annual meeting of stockholders to our Board;
reviewing developments in corporate governance practices and developing and recommending governance principles applicable to our Board;
overseeing the evaluation of our Board and management;
recommending members for each Board committee to our Board; and
overseeing a sub-committee focused on the Company’s ESG initiatives.
In identifying and evaluating director candidates, the nominating and corporate governance committee first considers the Company’s developing needs and desired characteristics of a new director, as determined from time to time by the nominating and corporate governance committee. The nominating and corporate governance committee then considers various candidate attributes, including the following: business, strategic, and financial skills; independence, integrity, and time availability; diversity of gender, race, and other personal characteristics; and overall experience in the context of the Board’s needs.
The nominating and corporate governance committee will also consider director candidates recommended by Company security holders. The nominating and corporate governance committee does not intend to alter the manner in which it evaluates a candidate for nomination to the Board based on whether or not the candidate was recommended by a Company security holder.
- 14 -
Security holders who wish to recommend individuals for consideration by the nominating and corporate governance committee to become nominees for election to the Board at an annual meeting of stockholders must do so by delivering not less than ninety nor more than one hundred twenty calendar days prior to the first anniversary date of the preceding year’s annual meeting a written recommendation to the nominating and corporate governance committee c/o Advanced Drainage Systems, Inc., 4640 Trueman Boulevard, Hilliard, OH 43026, Attn: Chief Executive Officer and must meet the deadlines and other requirements set forth in the Company’s Bylaws and the rules and regulations of the Securities and Exchange Commission. Based on the current date of the 2020 Annual Meeting, a proposal for the 2021 Annual Meeting must be delivered no earlier than March 25, 2021 or later than April 24, 2021 to be timely. Each written recommendation must set forth, among other information as described more fully in the Company’s Bylaws:
the name and address of the Company security holder(s) on whose behalf the recommendation is being made;
the class or series and number of shares of Company stock that are, directly or indirectly, owned of record or beneficially owned by such security holder(s) on whose behalf the recommendation is being made as of the date of the written recommendation;
the proposed director candidate’s full legal name, age, business address and residential address;
a description of the proposed director candidate’s principal occupation or employment and business experience for at least the previous five years;
complete biographical information for the proposed director candidate;
a description of the proposed candidate’s qualifications as a director;
the class and number of shares of Company stock that are beneficially owned by the proposed director candidate as of the date of the written recommendation; and
any other information relating to the proposed director candidate that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended.
Each submission must be accompanied by the written consent of the proposed candidate to be named as a nominee and to serve as a director if elected.
If a proposed director candidate is recommended by a security holder in accordance with the procedural requirements discussed above, the Chief Executive Officer will provide the foregoing information to the nominating and corporate governance committee. The nominating and corporate governance committee will evaluate the proposed director’s candidacy and recommend whether the Board should nominate the proposed director candidate for election by the Company’s stockholders.
Executive Committee
Our executive committee is comprised of the Chairman of the Board and the Chairperson of each of the audit, compensation and nominating and corporate governance committees. The executive committee meets between meetings of our Board, as needed, and has the power to exercise all the powers and authority of our Board with respect to matters delegated to the executive committee by our Board, except for the limitations under Section 141(c) of the Delaware General Corporation Law and/or applicable limitations under our organizational documents.
Stock Repurchase Committee
Our stock repurchase committee is comprised of Messrs. Kidder and Eversole. Our stock repurchase committee is responsible for, among other things:
administering the Company’s stock repurchase program (the “Repurchase Program”);
otherwise approving any repurchase under the Repurchase Program as so recommended by the Company’s Chief Executive Officer, or any other such officer designated by him in writing; and
taking such other actions with regard to the oversight of the Repurchase Program as the committee determines to be necessary, desirable or appropriate.
The stock repurchase committee did not meet in fiscal year 2020.
- 15 -
Our Board does not have a formal policy on whether the roles of Chairman of our Board and Chief Executive Officer of the Company should be separate or combined and has the flexibility to decide which structure is in the best interests of our stockholders. While the positions of the Chairman and Chief Executive Officer have historically been combined, we believe that our stockholders are best served by separate Chairman and CEO roles. D. Scott Barbour serves as the Chief Executive Officer, and C. Robert Kidder serves as the Chairman of the Board.
A number of factors support the separate leadership structure chosen by the Board. Separate Chairman and CEO roles promote balance between the Board’s independent authority to oversee the Company’s business and the CEO’s management team, which manages the business on a day-to-day basis. Separation of the Chairman and CEO roles allowallows Mr. Barbour to focus his time and energy on operating and managing the Company and leverageleverages the experience and perspectives of Mr. Kidder, who previously served as Lead Independent Director of the Board and currently presides over executive sessions of the Board. Separating the Chairman and CEO roles fosters accountability, creates an environment that is more conducive to objective evaluation of management’s performance and enhances the effectiveness of the Board as a whole. Separating these positions allows Mr. Kidder to focus on the general policy of the Company and lead the Board in its fundamental role of providing oversight and advice while also allowing Mr. Barbour to streamline his duties as CEO and attain a comprehensive focus on the Company’s day-to-day business operations. For these reasons, having two separate positions is the appropriate leadership structure for the Company at this time.
Our Board recognizes that depending on future circumstances, other leadership models may become more suitable in addressing the interests of our stockholders. Accordingly, our Board will periodically review its leadership structure.
Board’s RoleDIRECTOR COMPENSATION
In fiscal year 2020, with the assistance of Willis Towers Watson, we revised the structure of our Board compensation. Below is a summary of the new program design.
Cash Retainer
As part of the compensation program revision in Risk Oversightfiscal year 2020, the annual cash retainer paid to each non-employee director was increased from $75,000 to $85,000, while the program design related to compensating Board members separately for their membership on committees was eliminated.
The entire Board is engaged in risk management oversight. At the present time,chair of each committee of our Board has not established a separate committeecontinues to facilitate its risk oversight responsibilities. Our Board expects to continue to monitor and assess whether such a committee would be appropriate. The audit committee assists our Boardreceive an additional cash retainer. Beginning in its oversightfiscal year 2020, the chair of our risk management and the process established to identify, measure, monitor, and manage risks, in particular major financial risks. Our Board will receive regular reports from management, as well as from the audit committee, regarding relevant risks and the actions taken by management to address those risks.
Committees of the Board of Directors
Our Board has established an audit committee, a compensation and management development committee, a nominating and corporate governance committee, an executive committee and a stock repurchase committee, each of which has the composition and responsibilities described below. Our Board has adopted written charters for the audit committee, the compensation and management development committee and the chair of the nominating and corporate governance committee that comply with current federal laweach receives an annual cash retainer of $15,000 (increased from $13,500) and applicable NYSE rules relating to corporate governance matters, which charters are available on$10,000 (no change), respectively. The annual cash retainer for the chair of our website (www.ads-pipe.com). Our Board may also establish from time to time any other committees that it deems necessary or desirable.
Audit committee
Our audit committee is comprised of Messrs. Eversole, Fischer and Haney and Ms. Fratto, with Mr. Eversolefor serving in that capacity has remained $35,000. For his service as the chairpersonChairman of the audit committee. Our audit committee met four timesBoard and lead independent director during fiscal year 2020, Mr. Kidder was paid $90,000. None of our directors receive meeting fees in addition to these retainers.
Stock Awards and Stock in Lieu of Cash Retainer
Beginning in fiscal year 2018. All2020, each non-employee director received shares of restricted stock in an amount equal to $100,000 (increased from $75,000) at the date of grant that will vest on the one-year anniversary of the membersgrant date, subject to cancellation and forfeiture of unvested shares upon termination of service with our Board (the “Director Stock Awards”). Such shares would be issued pursuant to the 2017 Omnibus Incentive Plan.
Each non-employee director is also provided the option to receive their annual cash retainer of $85,000 in the form of shares of restricted stock under the 2017 Omnibus Incentive Plan in an amount equal to $85,000 (“Stock in Lieu of Cash Awards”), subject to the same vesting parameters as the Director Stock Awards. For fiscal year 2020, Messrs. Nelson, Jones, Eversole and Perez de la Mesa elected to receive Stock in Lieu of Cash Awards.
Director Stock Awards and Stock in Lieu of Cash Awards are to be made on the date of the audit committee are financially literate and have accounting or related financial management expertise within the meaningannual meeting of the rulesCompany’s stockholders, are valued as of the NYSE. Our Board has determinedgrant date and are subject to forfeiture in the event that Mr. Eversole qualifiesthe Director ceases to serve as an “audit committee financial expert,” as that term is defined undera Director during the Securities and Exchange Commission (“SEC”) rules implementing Section 407 of the Sarbanes-Oxley Act of 2002.one-year vesting period.
Our audit committee is responsible for, among other things:- 16 -
reviewing
Non-employee directors will also continue to receive reimbursement of all reasonable travel and approving the selectionother expenses for attending meetings of our independent auditors, and approvingBoard or other Company-related functions.
Fiscal Year 2020 Director Compensation
The following table summarizes the audit and non-audit services to be performedtotal compensation earned by our independent auditors;
- 11 -
monitoring the integrityeach of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;directors for fiscal year 2020.
Name |
| Fees Earned or Paid in Cash ($) |
| Stock Awards ($)(9) |
| All Other Compensation ($) |
| Total ($) |
|
|
|
|
|
|
|
|
|
D. Scott Barbour |
| — |
| — |
| — |
| — |
Robert M. Eversole (1) |
| 35,000 |
| 185,006 |
| — |
| 220,006 |
Tanya Fratto (2) |
| 85,000 |
| 100,024 |
| — |
| 185,024 |
Richard A. Rosenthal (2)(7) |
| 35,147 |
| — |
| — |
| 35,147 |
Alexander R. Fischer (3) |
| 91,667 |
| 100,024 |
| — |
| 191,691 |
M.A. (Mark) Haney (2) |
| 85,000 |
| 100,024 |
| — |
| 185,024 |
C. Robert Kidder (4) |
| 175,000 |
| 130,012 |
| — |
| 305,012 |
Abigail S. Wexner (3)(7) |
| 39,583 |
| — |
| — |
| 39,583 |
Carl A. Nelson, Jr. (5) |
| 15,000 |
| 185,006 |
| — |
| 200,006 |
Michael B. Coleman (2) |
| 85,000 |
| 100,024 |
| — |
| 185,024 |
Ross M. Jones (2) |
| — |
| 185,006 |
| — |
| 185,006 |
Manuel J. Perez de la Mesa (2) |
| — |
| 185,006 |
| — |
| 185,006 |
reviewing the adequacy and effectiveness of our internal control policies and procedures;
(1) | Represents quarterly payments of annual retainer for membership on our Board as well as chairperson of the audit committee. |
(2) | Represents quarterly payments of annual retainer for membership on our Board. |
(3) | Represents quarterly payment of annual retainer for membership on our Board and for serving as chairperson of the nominating and corporate governance committee. |
(4) | Represents quarterly payment of annual retainer for serving as chairman and member of our Board and serving as our lead independent director. |
(5) | Represents quarterly payments of annual retainer for membership on our Board, as well as for serving as chairperson of compensation and management development committee. |
(6) | Each of Messrs. Rosenthal, Nelson, Jones, Perez de la Mesa, Eversole, and Mrs. Wexner elected to receive shares of restricted stock in lieu of their $85,000 annual retainer paid in cash for membership on our board of directors. See above under "— Stock Awards and Stock in Lieu of Cash Retainer." The number of shares of common stock granted in lieu of cash compensation will be based on the aggregate grant date fair value of our common stock computed in accordance with FASB ASC Topic 718, Compensation — Stock Compensation. These awards will be made on the date of the annual meeting of the Company's stockholders. The awards will be valued as of the grant date and will vest on the one-year anniversary of the grant date. |
(7) | Mr. Rosenthal and Ms. Wexner did not stand for re-election at the 2019 Annual Meeting, at which time their terms as directors expired. |
discussing the scopeCompensation Committee Interlocks and results of the audit with the independent auditors and reviewing with management and the independent auditors our interim and year-end operating results; and
preparing the audit committee report that the SEC requires in our annual proxy statement.
Compensation and management development committeeInsider Participation
Our compensation and management development committee is comprised of Messrs. Kidder, Nelson and Rosenthal and Mrs. Wexner and met six times in fiscal year 2018. Mr. Nelson is the chairpersonThere are no interlocking relationships between any member of our compensation and management development committee. Our compensationcommittee and management development committee is responsible for, among other things:any of our executive officers that require disclosure under the applicable rules promulgated under the federal securities laws.
overseeingDIRECTOR STOCK OWNERSHIP POLICY
To encourage equity ownership among non-employee directors, our compensation policies, plans,Board has adopted stock ownership guidelines applicable to all non-employee directors. Under the stock ownership guidelines, each non-employee director is expected to own Common Stock having a value of at least three times their annual cash retainer. The non-employee directors have five years from the later of the completion of our IPO or the date of their election to fulfill this ownership requirement. The stock ownership guidelines require each non-employee director to retain all shares received, net of shares sold for tax purposes, until the ownership requirements are met.
DIRECTORS' SERVICE ON OTHER PUBLIC BOARDS
After first becoming a director of the Company, without the specific approval from the Board, no director may accept an invitation to serve on another public company board or any committee thereof. No director may sit on the board of any competitor of the Company in its principal lines of business to the extent that any such service would constitute a violation of U.S. antitrust law.
- 17 -
As part of our annual Board evaluation process described above, we regularly review each director's ability to continue to contribute to the Board considering other commitments. Based on our assessment, we believe that our directors’ other commitments do not prevent them from sufficiently fulfilling their duties at our Board.
ENGAGEMENT WITH STOCKHOLDERS AND GOVERNANCE IMPROVEMENTS
Our commitment to good governance practices extends to building trusting relationships and benefit programs;
reviewingpartnerships with our stockholders through continued engagement and approvingaccountability.
Our engagement with our stockholders serves a crucial role in preserving a robust and effective corporate governance program that serves their long-term interests and positions us for sustainable growth. We engage with our executive officers:stockholders regularly to understand their perspective and to ensure that our practices are aligned with expectations. Over the annualpast year, we engaged with investors representing approximately 40 percent of our stockholder base salary,around the annual incentive bonus,effectiveness of our corporate governance program and our sustainability efforts.
As a result of our internal review of our governance practices and the feedback we receive during this outreach to investors, our Board approved enhancements to our corporate governance program that are up for a vote at this Annual meeting, including the specific goalsproposal to declassify the Board and amount, equity compensation, employment agreements, severance arrangementsthe reduction of the supermajority vote requirements for certain charter and bylaws changes. We also intend to adopt a majority vote standard for uncontested director elections (with a plurality carve-out for contested elections), but that change in control arrangements, and any other benefits, compensations or arrangements;
reviewingis not before the succession planningstockholders for our executive officers;
preparingapproval at this meeting because the compensation committee report thatBoard may implement such change without stockholder approval. We continue to value the SEC requires to be included in our annual proxy statement; and
administrating our equity compensation plans.
Nominating and corporate governance committee
Our nominating and corporate governance committee is comprised of Messrs. Kidder and Fischer and Mrs. Wexner and met two times in fiscal year 2018. Mrs. Wexner is the chairpersonviews of our nominating and corporate governance committee. Our nominating and corporate governance committee is responsiblestockholders as we strive for among other things:
assistingcontinuous improvement across our Board in identifying prospective director nominees and recommending nominees for each annual meeting of stockholders to our Board;
reviewing developments in corporate governance practices and developingprocesses.
In 2019, the Company established an informal sub-committee of the Nominating and recommendingCorporate Governance Committee that is referred to as the ESG sub-committee, chaired by Mr. Fischer and with participation from other members of the Board, including Messrs. Coleman and Barbour, to develop and review ADS’ corporate citizenship and sustainability programs as well as our environmental, employee health & safety, and business ethics policies. The ESG sub-committee periodically reviews the Company’s sustainability strategy and performance, including, but not limited to, material environmental, social, and governance principles applicable(ESG) trends and related long- and short-term Company impacts, as well as the Company’s ESG reporting and disclosure practices.
As discussed above, with the support and guidance of the ESG sub-committee, in the first few months of the committee’s existence, we took important steps to set the foundation for an effective oversight of our sustainability practices, including the establishment of processes for collecting and regularly tracking data related to our Board;
overseeing the evaluationenvironmental impacts, our review and selection of our Board and management; and
recommending members for each board committee to our Board.
In identifying and evaluating director candidates, the nominating and corporate governance committee first considers the Company’s developing needs and desired characteristics of a new director, as determined from time to time by the nominating and corporate governance committee. The nominating and corporate governance committee then considers various candidate attributes, including the following: business, strategic, and financial skills; independence, integrity, and time availability; diversity of gender, race, and other personal characteristics; and overall experience in the context of the board of director’s needs.
The nominating and corporate governance committee will also consider director candidates recommended by Company security holders. The nominating and corporate governance committee does not intend to alter the manner in which it evaluates a candidate for nomination to the Board based on whether or not the candidate was recommended by a Company security holder.
Security holders who wish to recommend individuals for consideration by the nominating and corporate governance committee to become nominees for election to the Board at an annual meeting of stockholders must do so by delivering not less than ninety nor more than one hundred twenty calendar days prior to the first anniversary date of the preceding year’s annual meeting a written recommendation to the nominating and corporate governance committee c/o Advanced Drainage Systems, Inc., 4640 Trueman Boulevard, Hilliard, OH 43026, Attn: Chief Executive Officer and must meet the deadlines and other requirements set forth in the Company’s Bylawssustainability reporting standards, and the rules and regulationscreation of the Securities and
- 12 -CERTAIN INFORMATION REGARDING OUR DIRECTORS AND NOMINEES
Exchange Commission. Based on the current date of the 2018 Annual Meeting, a proposal for the 2019 Annual Meeting must be delivered no earlier than March 26, 2019 or later than April 25, 2019 to be timely. Each written recommendation must set forth, among other information as described more fully in the Company’s Bylaws:
theThe name and addressage of each director and nominee and the Company security holder(s) on whose behalf the recommendation is being made;
the class or series and numberpositions held by each of shares of Company stock that are, directly or indirectly, owned of record or beneficially owned by such security holder(s) on whose behalf the recommendation is being madethem as of the date of the written recommendation;this proxy statement are as follows:
Name | Age | Class | Position(s) | |||
D. Scott Barbour | 58 | Class I | Director, President and Chief Executive Officer | |||
Anesa T. Chaibi1 | 54 | Class II | Director | |||
Michael B. Coleman | 65 | Class I | Director | |||
Robert M. Eversole | 58 | Class II | Director | |||
Alexander R. Fischer | 53 | Class II | Director | |||
Tanya Fratto | 59 | Class I | Director | |||
M.A. (Mark) Haney | 65 | Class II | Director | |||
Ross M. Jones | 55 | Class III | Director | |||
C. Robert Kidder | 75 | Class III | Chairman of the Board of Directors, Director | |||
Carl A. Nelson, Jr. | 75 | Class I | Director |
- 18 -
Name | Age | Class | Position(s) | |||
D. Scott Barbour | 58 | Class I | Director, President and Chief Executive Officer | |||
63 | Class III | Director |
(1)Ms. Chaibi is a nominee for election at the proposed director candidate’s full legal name, age, business addressAnnual Meeting and residential address;
is not a descriptioncurrent member of our Board.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines, which provide the framework for the governance of our Company. Our Board reviews our Corporate Governance Guidelines at least annually. From time to time, the Board may revise our Corporate Governance Guidelines to reflect new regulatory requirements and evolving corporate governance practices. A copy of our Corporate Governance Guidelines is available on our website at www.ads-pipe.com.
Majority Voting Standard for Directors
As described above, the Company’s directors are currently elected by plurality vote, which means that the nominees for election who receive the most “FOR” votes are elected to the Board until all of the proposedseats up for election are filled. The Company’s plurality voting structure allows stockholders to indicate their disapproval for one or more directors by voting “ABSTAIN” or “AGAINST” such director, candidate’s principal occupation or employment and business experiencebut, as a practical matter, this has no legal effect on the election of directors in an uncontested election (i.e., when there are an equal number of nominees as there are seats on the Board up for election), as long as such director receives at least one vote “FOR” his or her election.
In response to growing investor concern about the previous five years;
complete biographical informationlack of accountability inherent in plurality voting, and in an effort to increase the accountability of each director to the Company’s stockholders, the Company’s Bylaws will be amended to implement a majority voting standard for director elections effective immediately following the proposed2020 Annual Meeting. Following the 2020 Annual Meeting, in uncontested elections, an incumbent director candidate;
nominee that receives more votes “AGAINST” than “FOR” his or her election must promptly tender a descriptionresignation to the Board. Upon receipt of a tendered resignation, the proposed candidate’s qualifications as a director;
Board will decide whether to accept or reject the classresignation, and number of shares of Company stock that are beneficially owned by the proposed director candidate asmust publicly disclose its decision within ninety (90) days of the date of the written recommendation;election. If a director’s resignation is not accepted by the Board, such director will continue to serve on the Board until the next annual meeting and
any other information relating to until his or her successor is duly elected or until his or her earlier resignation, removal or death. Under the proposednew majority voting standard, a director candidatenominee in an uncontested election that is required tonot an incumbent director and that receives more “AGAINST” votes than “FOR” votes will not be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended.
Each submission must be accompanied by the written consent of the proposed candidate to be named as a nominee and to serveelected as a director if elected.of the Company (with abstentions and broker non-votes not counted as a vote cast either for or against that director’s election).
If a proposed director candidate is recommended by a security holder in accordance withIn contested elections, where the procedural requirements discussed above,number of nominees exceeds the Chief Executive Officer will provide the foregoing information to the nominating and corporate governance committee. The nominating and corporate governance committee will evaluate the proposed director’s candidacy and recommend whethernumber of seats on the Board should nominate the proposed director candidateup for election, by the Company’s stockholders.plurality voting standard will continue to apply and the nominees receiving the most “FOR” votes will be elected as directors.
Executive committee
Our executive committee is comprised of Messrs. Kidder and Rosenthal, meets between meetings of our Board, as needed, and has the power to exercise all the powers and authority of our Board with respect to matters delegated to the executive committee by our Board, except for the limitations under Section 141(c) of the Delaware General Corporation Law and/or applicable limitations under our organizational documents. Mr. Chlapaty served on the executive committee until his retirement effective September 1, 2017.
Stock repurchase committee
Our stock repurchase committee is comprised of Messrs. Kidder and Eversole and Mrs. Wexner. Our stock repurchase committee is responsible for, among other things:
administering the Company’s stock repurchase program (the “Repurchase Program”);
otherwise approving any repurchase under the Repurchase Program as so recommended by the Company’s Chief Executive Officer, or any other such officer designated by him in writing; and
taking such other actions with regard to the oversight of the Repurchase Program as the committee determines to be necessary, desirable or appropriate.
The stock repurchase committee did not meet in fiscal year 2018.
- 13 -
Codes of Business Conduct and Ethics
Our Board has established a Code of Ethics for Senior Executive and Financial Officers that applies to our senior executive and financial officers, including our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions. We also maintain a Code of Business Conduct and Ethics that governs all of our directors, officers and employees. A copy of the Code of Ethics for Senior Executive and Financial Officers and the Code of Business Conduct and Ethics are available on our website atwww.ads-pipe.com. We will promptly disclose any future amendments to these codes on our website, as well as any waivers from these codes for executive officers and directors. Copies of these codes will also be available in print from our Corporate Secretary, without charge, upon request.
Compensation Committee Interlocks and Insider Participation
There are no interlocking relationships between any member of our compensation and management development committee and any of our executive officers that require disclosure under the applicable rules promulgated under the federal securities laws.
How You May Communicate with Directors
Security holders and other interested parties wishing to communicate with the Board or an individual director may send a written communication to the Board or such director, c/o Advanced Drainage Systems, Inc., 4640 Trueman Boulevard, Hilliard, OH 43026, Attn: Chief Executive Officer.
- 19 -
Each communication will be screened by the Company’s Chief Executive Officer to determine whether it is appropriate for presentation to the Board or such director. Communications determined by the Company’s Chief Executive Officer to be appropriate for presentation to the Board or such director will be submitted to the Board or such director on a periodic basis. Any communications that concern questionable accounting or auditing matters involving the Company will be handled in accordance with the terms of the Company’s code of ethics.
- 1420 -
COMPENSATION DISCUSSION AND ANALYSIS
CERTAIN INFORMATION REGARDING OUR EXECUTIVE OFFICERS
The Compensation Discussionname and Analysis provides information regarding our compensation philosophyage of each non-director executive officer and the material elementspositions held by each of our fiscal year 2018 compensation program for our “named executive officers,” also referred tothem as of the “NEOs.” Our NEOs for fiscal year 2018 are:date of this proxy statement are as follows:
|
| |
|
| |
| ||
Scott A. Cottrill | 54 | Executive Vice President, Chief Financial Officer and Secretary |
|
| |
Ronald R. Vitarelli | 53 | Executive Vice President, Engineering and Business Development |
Robert M. Klein | 57 | Executive Vice President, Sales |
Roy E. Moore, Jr. | 63 | Executive Vice President |
Kevin C. Talley |
|
| ||
Darin S. Harvey | 50 | Executive Vice President, Supply Chain |
Executive Officers who are not Directors
Scott A. Cottrill joined us in November 2015 and serves as Executive Vice President, Chief Financial Officer and Secretary. Mr. Cottrill came to the Company with extensive financial reporting, accounting and corporate finance experience. He currently oversees our finance, business development, and information technology functions. From 2012 to November 2014, Mr. Cottrill served as Executive Vice President and Chief Financial Officer of Jeld-Wen, Inc., a leading global manufacturer of windows, doors and treated composite trim and panels, and from November 2014 to February 2015 as an Executive Vice President of Jeld-Wen, Inc. From 1998 to 2012, Mr. Cottrill held various finance and accounting positions with Goodrich Corporation, including from 2005 to 2012 the position of Vice President, Controller and Chief Accounting Officer and from 2002 to 2005 the position of Vice President, Internal Audit. Prior to joining Goodrich, Mr. Cottrill worked at PricewaterhouseCoopers LLP from 1987 to 1998. Mr. Cottrill holds a bachelor’s degree in Accounting from The Pennsylvania State University and is also a Certified Public Accountant (inactive).
Ronald R. Vitarelli joined us in November 1988 and has served as Executive Vice President, Engineering and Business Development since March 2018. From November 2011 until March 2018, Mr. Vitarelli served as Executive Vice President & Co-Chief Operating Officer. Mr. Vitarelli joined us as a Sales Representative and was promoted to Regional Sales Manager in December 1995. In July 2003, he was named General Manager of StormTech LLC, a manufacturer of underground storm water retention and detention systems that was a 50/50 joint venture of ours with Infiltrator Systems, Inc. Upon our acquisition of the remaining 50% interest in StormTech from Infiltrator in November 2009, Mr. Vitarelli rejoined us and continued to lead the StormTech business until March 2010, when he was named Vice President, Storm & Sanitary Markets. He currently oversees our product research, development, commercialization and product approval efforts. Mr. Vitarelli holds a bachelor's degree in Marketing from Providence College.
Robert M. Klein joined us in June 1992 and has served as Executive Vice President, Sales since February 2006. Upon joining us, Mr. Klein held several leadership positions in operations including Manager, Regional Manufacturing, Manager, Distribution Yards, Director, Purchasing and was named Vice President, Manufacturing Services in January 1999. In July 2001, he was named Vice President, Sales and Marketing and began providing leadership to our field sales, corporate account sales, marketing, customer service, and market analysis functions. Prior to joining us, he spent seven years at The Gerstenslager Company in manufacturing management positions. Mr. Klein holds a bachelor’s degree in Business Administration from Ashland College.
Roy E. Moore, Jr. joined us in August 2019 and serves as Executive Vice President. Mr. Moore came to the Company with 39 years’ experience in the plastics industry. From 2005 to 2019, Mr. Moore served as Chief Executive Officer of Infiltrator. He joined Infiltrator Water Technologies in 1987, and, during his 31 years at the company, he led, at various times, manufacturing, sales, marketing, engineering, research and development, and government affairs. Prior to his time at Infiltrator, Mr. Moore led the manufacturing operations of a major building products supplier and has specialized in the molding of plastic products since 1979. Mr. Moore attended Georgia Tech, majoring in Industrial Management with course work in Civil Engineering.
Kevin C. Talley joined us in October 2011 and has served as Executive Vice President & Chief Administrative Officer since August 2016. Mr. Talley joined us as Vice President, Human Resources providing overall leadership to our
- 21 -
compensation, benefit, and talent management programs. He currently oversees our human resources, legal, office services, aviation, and safety functions. Effective February 2019, Mr. Talley joined the Advisory Board for Kimball Midwest, a family-owned distributor of maintenance and repair operating supplies. Prior to joining us, he spent seventeen years at The Scotts Miracle-Gro Company in increasingly responsible human resources leadership positions, most recently as Vice President, Human Resources. Mr. Talley holds a bachelor’s degree in Employment Relations and Organizational Behavior from Miami University.
Darin S. Harvey joined us in October 2018 and serves as Executive Vice President, Supply Chain. Mr. Harvey came to the Company with over 20 years of experience in leading complex global supply chains, delivering results in continuous improvement, driving lean manufacturing and delivering change management. From 2014 to October 2018, Mr. Harvey served as Vice President of Integrated Supply Chain at Forum Energy Technologies, Inc., a Houston, Texas-based company that designs, manufactures and distributes equipment and solutions for the oil and gas industry. Prior to Mr. Harvey’s role at Forum, he held global supply chain leadership positions at Honeywell, Foster Wheeler and Danaher Corporation. He holds an MBA in Global Supply Chain from the University of Tennessee and a BS in Marketing and Supply Chain Management from Florida State University. He is also a Six Sigma Black Belt and Lean Expert.
EXECUTIVE SUMMARYCOMPENSATION HIGHLIGHTS – FISCAL YEAR 2020
Record Financial Performance Leads to Above Target Compensation in Fiscal Year 2020
We had aended Fiscal 2020 with $1.67 billion in revenue and $362 million of Adjusted EBITDA, up 21% and 56% year-over-year, respectively. Our domestic construction market sales outpaced the growth in their end markets by 600 basis points, driven by continued execution on our conversion strategy and our focus on growth in key states. We also saw sales in our domestic agriculture market increase by 35% as we capitalized on favorable industry dynamics by successfully implementing organizational changes, introducing new products and executing with greater focus. Adjusted EBITDA margin expanded 480 basis points to 21.6%, driven by the traditional ADS levers of strong finish to fiscal 2018, achieving our financial goals for the year throughsales growth, disciplined execution of our fundamentalspricing and favorable material and recycling costs as well as another successful year of conversion. From a top line perspective,the contribution from our recent Infiltrator acquisition.
Business Performance Highlights:
Total Net sales inincreased 20.9% to $1,673.8 million, driven by 8.8% organic growth and contribution from Infiltrator Water Technologies. Organic growth was driven by our core domestic construction markets grew 500 basis points faster than the market, with above-marketmaterial conversion and water management solutions strategies as well as growth in eachkey states.
Adjusted EBITDA increased 56.0% to $361.9 million, driven by 23.0% organic growth and contribution from Infiltrator Water Technologies. Organic growth was driven by traditional legacy ADS levers of our construction end markets. We also aggressively pursued actions to improve our profitabilitystrong sales growth, disciplined pricing, favorable resin and achieve better returnsrecycling costs.
Execution on our capital.
Not only did we achieve our financial objectives, we also transitionedworking capital initiatives, growth and improved profitability led to a new President & CEO. Scott Barbour was hired and appointed as President & CEO on September 1, 2017, replacing Joe Chlapaty who retired120.3% improvement in free cash flow generation to $238.5 million.
- 22 -
The following 37 years of company leadership. Upon joining, Mr. Barbour efficiently built his understanding of our strategies, operations, capabilities and business priorities. He accomplished this through constructive engagement with our Board of Directors, executive team, investors, customers, strategic partners, and employees. Mr. Barbour’s leadership and our disciplined execution were critical to drivingsummarizes our strong second halfperformance over the past several years.
* The information above includes Adjusted EBITDA, a non-GAAP financial performance.measure. Please refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2020 for more information on this non-GAAP measure, reconciliation to the most comparable GAAP measure, and the identification of notable items.
We believe our compensation practices and our overall level of executive compensation are competitive when compared to our peer group and reflect our commitment to performance-based pay. The compensation delivered to our executives in fiscal 20182020 is indicative of this orientation. Additionally, while receiving strong support from our shareholders through our “Say-on-Pay” resolution, we continued to enhance the design of our compensation programs to further align them to long-term shareholderstockholder value creation by approving changes thatcreation.
Acquisition of Infiltrator Water Technologies
On July 31, 2019, we completed the acquisition of Infiltrator, a leading national provider of plastic leach field chambers and systems, septic tanks and accessories, primarily for use in residential applications. Infiltrator products are used in on-site water treatment systems in the United States and Canada.
This highly strategic acquisition was the natural evolution of more than 15 years of partnership, combining leaders in stormwater and on-site septic wastewater treatment. ADS and Infiltrator have highly complementary businesses with similar go-to-market distribution strategies, innovation and commitment to material science and recycling. Infiltrator operates as a wholly -owned subsidiary of ADS, under the leadership of Roy E. Moore, Jr. We believe Mr. Moore’s extensive experience and proven successes in the plastics industry, along with the strong Infiltrator leadership team and dedicated production workforce, will go into effect in fiscal 2019.
Acquisition Related Adjustments Affecting Fiscal 2020 Compensation
- 15 -
The following identifies notable areas with respect to our performance and how those relate to our executive compensation program.actions were taken as a result of the Infiltrator acquisition:
Business Performance:Annual Incentive Plans
Maintained the existing Infiltrator annual performance-based cash incentive plan at the time of acquisition for the remainder of calendar 2019.
Implemented a transition performance-based cash incentive plan |
|
* The information above includes Adjusted EBITDA, a non-GAAP financial measure. Please refer to our Annual Report on Form 10-K for the fiscal 2020 fourth quarter to bridge participants to the ADS fiscal performance period beginning April 2020.
Business performance targets under the ADS Annual Incentive Plan were adjusted to reflect the consolidation of Infiltrator forecasted performance for fiscal year ended2020.
- 23 -
At the time of acquisition, implemented an equity-based retention program for the Infiltrator executive management team consisting of performance-based awards and restricted stock.
Business performance targets under the ADS Long-Term Incentive Plan were adjusted to reflect the acquisition of Infiltrator for the open three year performance periods ending March 31, 20182021 and 2022.
Other General Actions
Based upon compensation delivered to Mr. Moore during fiscal year 2020, he joined the Named Executive Officer group for more informationthe reported period.
With Mr. Moore being compensated pursuant to different incentive plan designs during fiscal 2020, we have added a section specifically for the Infiltrator plan designs, and his earnings under these programs, after the “Long-Term Incentive Plan - Performance Based Awards” area of the CD&A. This approach allows for the traditional ADS legacy incentive plan description and outcome sections to cover the other four Named Executive Officers who participate in our common programs.
Stockholder Feedback:
Other Executive Compensation Highlights:
ADS NEO base salaries increased by an average of approximately 3%, effective June 1, 2019.
Strong consolidated financial performance led to earned payouts under the ADS Annual Incentive Plan that averaged 190% of target.
Annual grant of equity, including a performance-based long-term award, was executed in late May 2019 under the 2017 Omnibus Incentive Plan.
Compensation Program Enhancements:
Maximum payout opportunity for the Annual Incentive Plan design was decreased to 200% from 250% to better align with prevalent market practices.
COVID-19 Mitigation Actions:
Faced with the growing pandemic and related economic uncertainty, we implemented reasoned and proportionate budgeting and spending measures to protect our company's profitability and cash position, two key measures we've focused on this non-GAAP measure, reconciliationover the past two years of economic expansion.
While contingency decisions are difficult, the current market environment necessitated action. As part of other cost containment programs implemented throughout our business, on April 1, 2020, we executed broad, temporary compensation mitigation actions from the Board to our hourly workforce. These measures included:
25% reduction in the cash compensation provided to the most comparable GAAP measure,Board;
10% salary reduction for 24 members of the ADS and Infiltrator Water Technologies executive team;
Deferral of a portion of the earned cash incentive payment from FY20 for Mr. Barbour and all Executive Vice Presidents to the extent that such payment would exceed the amount to be received at target level performance (with the excess being paid at a later time);
Elimination of annual salary adjustments for executive and salaried employees in fiscal year 2021; and
Six month deferral of annual wage adjustments for our hourly employees.
We purposely cascaded the financial impact down through our organization with the largest impact to our Board and Senior Management Team. It was simply the right thing to do. Although we know more than we did in the fourth quarter of fiscal
- 24 -
2020, there remains uncertainty about when and how the current economic situation will improve. We will continue to be diligent and decisive as stewards to all our stockholders inside and outside our strong organization.
The Compensation Discussion and Analysis provides information regarding our compensation philosophy and the identificationmaterial elements of notable items.
Shareholder Feedback:our fiscal year 2020 compensation program for our “named executive officers,” also referred to as the “NEOs.” Our NEOs for fiscal year 2020 are:
|
|
Executive Compensation Highlights:NEO Name
| Primary Position |
|
D. Scott Barbour
| President & |
|
|
Compensation Program Enhancements:Chief Executive Officer
|
Scott A. Cottrill
Executive | |||
Ronald R. Vitarelli | Executive Vice President, Engineering and | ||
Robert M. Klein | Executive Vice President, Sales | ||
Roy E. Moore, Jr. | Executive Vice President |
- 16 -
EXECUTIVE COMPENSATION PROGRAM OVERVIEW
The following pages summarize the design and components of the legacy ADS executive compensation program at ADSprograms. As mentioned previously, the Infiltrator plan designs applicable to only Mr. Moore will be covered in a separate section which begins on page 34.
Linking Pay to Stockholder Value Creation
Aligning executive compensation to stockholder value creation as well as attracting and retaining top talent are core to the design of our executive pay programs. Through our short-term and long-term compensation plans, the Compensation Committee strives to achieve these objectives. We believe that stockholder value is foundationally created by sales and profitability growth as well as delivering strong free cash flow and returns on invested capital through the leadership of our NEO’s. Accordingly, our incentive compensation programs for fiscal year 2020 continued the combined use of these metrics, directly linking the pay of our executive team to these critical drivers of stockholder value creation over both the short-term and long-term. Our NEO’s are therefore aligned and invested in the delivery of the endsuccess of fiscal year 2018.the business, as the majority of their compensation is impacted in a similar manner to which stockholders are impacted through their return on investment.
Executive Compensation Philosophy &and Objectives
The collective dedication and commitment of all our employees to the core values of our organization enable us to achieve our business objectives. Our core values consist of the following:
|
|
The Committee and our management believe that fostering these core values requires a strong performance culture. We have compensation programs that align our executives’ interests with those of all of our shareholders by rewarding performance that meets or exceeds the goals established by the Committee and our Board.
Our executive compensation programs are designed to achieve the following objectives.
|
|
In order to achieve these objectives, we are guided by these important principles.
|
•Place greater emphasis on variable pay versus fixed pay •Performance should predominantly drive compensation •In establishing compensation levels, we consider the
|
- 25 -
- 17 -
Objectives |
•Attract, retain, and motivate top talent •Drive the performance culture as well as Company values •Reward sustained performance •Align compensation with stockholders’ interests •Link compensation to company, functional, and individual accomplishment |
Key Groups in Determining Executive Compensation
The following key groups are involved in making executive compensation decisions:
Compensation & Management Development Committee
|
|
Outside Executive Compensation Consultant
|
Willis Towers Watson
|
- 26 -
ADS Management
|
|
- 18 -
Executive Compensation Benchmarking Peer Group
The Company uses a customized compensation peer group, developed in collaboration with its executive compensation consultant, to provide insight into prevalent program design and compensation levels. Each year, the peer group is reviewed by the Committee. For fiscal year 2018,2020, the Committee determined that ouran update to the peer group did not needwas appropriate to be adjusted. Ouraccount for the Company’s acquisition of Infiltrator, along with ongoing mergers and acquisitions in our sector to recalibrate the range of sizes (revenue, assets and enterprise value) represented among the peers.
Tables below summarize our updated customized peer group contains the following companies:group.
• •American Woodmark Corporation [NEW] •Apogee Enterprises, Inc. •Armstrong World Industries, Inc. • •Cornerstone Building Brands, Inc. [NEW] •Forterra, Inc. •Graco Inc. [NEW] •Griffon Corporation •JELD-WEN Holding, Inc.
|
|
• •Masonite International Corporation •Mueller Water Products, Inc. •
•
•Summit Materials, Inc. [NEW] •Trex Company, Inc. •U.S. Concrete, Inc. •Watts Water Technologies, Inc. |
In general, these companies come from the building products, machinery, or construction materials industryindustries and are likely to be attracting and retaining talent with similar experience and skills to that of our Company. The median annual revenue of these companies ($1.7 billion) approximates our new consolidated annual revenue after the Infiltrator acquisition and reflects a range of $500 million$0.8 to $3.7$4.8 billion. Four companies were removed from the custom peer group in fiscal year 2020 including Eagle Materials Inc., Gibraltar Industries, Inc., Quanex Building Products Corporation and Lindsay Corporation.
Components of Executive Compensation – Fiscal Year 20182020
The Committee has responsibility for determining all elements of compensation granted to the NEOs and reviews each element of compensation, as well as the relative mix and weighting of elements, on an annual basis.
- 27 -
Key Executive Pay Elements – Fiscal Year 20182020
The chart below summarizes the key pay elements for our NEOs during fiscal year 2018.2020. Each element is described in further detail below on the following pages.
- 19 -
Base Pay
The base salary element of our compensation program is designed to be competitive with compensation paid to similarly-situated, competent, and skilled executives. This element of pay serves as the foundation for the executive compensation program. Our NEOs are covered by employment agreements and, accordingly, we pay annual base salaries initially as set forth in these agreements as thereby adjusted.agreements.
On an annual basis, the Committee reviews base salaries for the NEOs using the following factors in its determination of changes:
Performance relative to the pre-established goals and objectives in the executive’s areas of responsibility
|
Competitive base salary levels of similar positions in the compensation peer group
|
Trends in base salary increases in the compensation peer group
|
Executive’s overall contribution to the business strategy and our growth objectives, individual performance and potential for future contributions
|
Current economic environment.
|
The CEO, with input from the human resources department, proposes base salary increases, if any, for all NEOs, excluding himself, based on the above criteria. His proposal is subject to review and approval (with or without modifications) by the Committee. Changes to the CEO’s base salary are initiated and approved by the Committee directly, subject to the review and final approval of our Board of Directors.Board.
The Board and the Committee approved base salary adjustments for each of the NEOs for fiscal year 2018.2020, which became effective June 1, 2019. The following table shows the base salary of each NEO as of March 31, 2018:
Named Executive Officer | Annual Salary March 31, 2017 | Annual Salary March 31, 2018 | Annual Salary Increase ($) | Annual Salary Increase (%) | ||||
D. Scott Barbour1
| --
| $800,000
| --
| --
| ||||
Joseph A. Chlapaty
| $710,000
| --
| --
| --
| ||||
Scott A. Cottrill
| $455,000
| $485,000
| $30,000
| 7%
| ||||
Thomas M. Fussner
| $370,000
| $375,000
| $5,000
| 1%
| ||||
Ronald R. Vitarelli
| $350,000
| $365,000
| $15,000
| 4%
| ||||
Robert M. Klein
| $330,000
| $345,000
| $15,000
| 5%
|
1Mr. Barbour was appointed to the role of President & CEO on September 1, 2017. The annual base salary above reflects his full year base salary. His actual base pay earnings for fiscal year 2018 were less than the amount listed above. See Summary Compensation Table for actual base salary earnings for fiscal year 2018.
- 2028 -
| Annual Salary March 31, 2019 |
| Annual Salary March 31, 2020 |
| Annual Salary Increase ($) |
| Annual Salary Increase (%) | |
|
|
|
|
|
|
|
|
|
D. Scott Barbour |
| $ 825,000 |
| $ 870,000 |
| $ 45,000 |
| 6% |
|
|
|
|
|
|
|
|
|
Scott A. Cottrill |
| $ 500,000 |
| $ 520,000 |
| $ 20,000 |
| 4% |
|
|
|
|
|
|
|
|
|
Ronald R. Vitarelli |
| $ 375,000 |
| $ 385,000 |
| $ 10,000 |
| 3% |
|
|
|
|
|
|
|
|
|
Robert M. Klein |
| $ 375,000 |
| $ 385,000 |
| $ 10,000 |
| 3% |
Annual Incentive Compensation
Our annual incentive program provides cash incentive opportunities for our NEOs based on the Company’s financial performance as well as individual performance. The Committee believes the following measures and weighting reflect key value drivers for purposes of establishing payouts under the Annual Incentive Plan:
Adjusted EBITDA - EBITDA before stock based compensation expense, non-cash charges and certain other expenses
Total Net Sales - Sales after cash discounts, product returns, and freight rebills
Individual Performance - Performance of the executives in relation to their annual performance objectives and demonstrated leadership
By tying a significant portion of the executive’s total annual cash compensation to annual variable pay we believe we are further reinforcing our pay for performance culture and focusing our executives on critical short-term financial and operational objectives, which also supports our long-term financial goals.
Establishing Annual Incentive Target Payouts
Under the CashAnnual Incentive Plan, target payouts for each NEO are reviewed on an annual basis and compared against the compensation peer group. The CEO, with input from the human resources department, proposes annual target payout adjustments, if any,targets for all NEOs, excluding himself, based on the performance measures. His proposal is subject to review and approval (with or without modifications) by the Committee. Changes to Mr. Barbour’s targeted payout from the CashAnnual Incentive Plan are initiated and approved by the Committee directly, subject to the review and final approval of our Board.
- 29 -
- 21 -
Our established targets enhance the alignment of our pay-for-performance and shareholderstockholder alignment principles. The annual cash incentiveAnnual Incentive targets for fiscal year 20182020 as a percentage of salary were unchanged and remained as follows:
Named Executive Officer | Target Incentive Opportunity (% of Base Salary) | ||
| |||
D. Scott Barbour |
| 100% | |
|
| ||
|
| 75% | |
| |||
|
| 75% | |
| |||
| |||
| |||
Robert M. Klein |
| 65% |
Historically, Mr. Chlapaty’s compensation mix consisted of a base salary below market and annual incentive opportunity above market. With Mr. Barbour’s appointment as President & CEO, his mix of compensation was more market-based.
Business Performance Levels in Annual Incentive
As reflected inThe Committee assessed the table below, threshold,financial performance targets for fiscal 2020 considering the acquisition of Infiltrator Water Technologies. The evaluation led the Committee to approve raising the financial targets for both business performance measures (Total net sales & Adjusted EBITDA) to incorporate the updated fiscal year 2020 financial forecast of the new consolidated Company.
In addition to the performance target andadjustment related to the acquisition, the Committee also approved the modification of the incentive payout percentages under the plan to reflect a range more aligned with market practices; lowering the payout percentage for achieving maximum performance levels were established based onto 200% from 250% for both business and individual performance metrics.
The Committee continues to believe the Committee’s assessmentTotal net sales & Adjusted EBITDA performance measures are appropriate and the practice of establishing threshold performance targets that appropriately driveat prior year actual results drives and rewardrewards the achievement of growth versus ourthe prior year performance levels.fiscal year. The table below reflects the Annual Incentive Plan threshold, target, and maximum business performance levels established for the non-individual metricsnew consolidated Company in place for the Cash Incentive Plan forNEOs at the end of fiscal year 2018 were as follows:2020.