Filed by the
Registrant: ☒ Filed by a Party other than the
Registrant: ☐
PROPOSAL 1
ELECTION OF DIRECTORS
The
Companys Certificate of Incorporation requires that the Board of Directors be divided into three classes that are elected to the Board on a staggered basis for three-year terms. At the Annual Meeting, the terms of three directors will
terminate and stockholders will be voting on nominees to fill these three positions on the Board. Accordingly, the Board of Directors, upon recommendations made by the Corporate Governance and Nominating Committee, has nominated Michael N.
Christodolou, W. Thomas Jagodinski and David B. Rayburn to serve as directors for terms ending in 2020. Messrs. Christodolou, Jagodinski and Rayburn are current directors of the Company serving for terms expiring as of the date of the Annual
Meeting. Each of Messrs. Christodolou, Jagodinski and Rayburn has expressed an intention to serve, if elected. The Board of Directors knows of no reason why any of them might be unavailable to continue to serve, if elected. There are no arrangements
or understandings between Messrs. Christodolou, Jagodinski or Rayburn and any other person pursuant to which they were nominated to serve on the Board of Directors.
The election of a director requires the affirmative vote of a plurality of the votes cast in person or by proxy by persons entitled to vote at
the Annual Meeting. Consequently, votes withheld and broker non-votes with respect to the election of directors will have no impact on the election of directors. If any of Messrs. Christodolou, Jagodinski or Rayburn is unable to serve, the shares
represented by all valid proxies will be voted for the election of such substitute nominee as the Corporate Governance and Nominating Committee may recommend to the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
FOR
THE ELECTION OF MESSRS. CHRISTODOLOU, JAGODINSKI AND
RAYBURN AS DIRECTORS OF THE COMPANY WITH TERMS ENDING IN 2020.
Board of Directors and Committees
The following sets forth certain information regarding the directors of the Company, including the three directors who have been nominated to
serve for new terms expiring in 2020. Information is also provided concerning each directors specific experience, qualifications, attributes or skills that led the Board of Directors to conclude that each of them should serve as a director of
the Company. The Board of Directors has determined that each of Messrs. Brunner, Christodolou, Jagodinski, Nahl, Rayburn, Welsh and Walter are independent directors of the Company under the listing standards adopted by the New York Stock
Exchange (NYSE).
NOMINEES FOR ELECTIONTerms to expire in 2020
Michael N. Christodolou
, age 55, is the Manager of Inwood Capital Management, LLC, an investment management firm he founded in
2000. From 1988 to 1999, Mr. Christodolou was employed by Bass Brothers/Taylor & Company, an investment firm associated with the Bass family of Fort Worth, Texas. Since June 2016, Mr. Christodolou has served on the Board of
Directors of Omega Protein Corporation, a nutritional products company. From 2015 to 2016, Mr. Christodolou served on the Board of Directors of Farmland Partners, Inc., a publicly-traded REIT that acquires and owns high-quality North American
farmland. Mr. Christodolou also previously served on the Board of Directors of XTRA Corporation from 1998 until 2001 when it was acquired by Berkshire Hathaway Inc. Mr. Christodolou has been a director of the Company since 1999 and served
as Chairman of the Board from 2003 to January 2015. He currently serves as a member of each of the Companys Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee. Mr. Christodolou has over 30 years of
experience in investment management and working with the management teams and boards of public companies on matters including corporate strategy, capital structure and mergers and acquisitions. His knowledge of the investment and capital markets and
his experience as a director of public companies provide him with the relevant experience to serve on the Companys Board of Directors. These
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experiences have given Mr. Christodolou an understanding of accounting principles, internal controls and audit committee functions; as a result the Board has determined that he qualifies as
an audit committee financial expert.
W. Thomas Jagodinski
, age 60, is the retired President and Chief Executive Officer of
Delta and Pine Land Company, a leader in the cotton seed industry. Mr. Jagodinski was President, Chief Executive Officer and Director of Delta and Pine Land Company from September 2002 until June 2007 when the company was acquired by another
company. From 1991 to 2002, he served in various executive roles at Delta and Pine Land Company including Senior Vice President, Chief Financial Officer and Treasurer. Mr. Jagodinski currently serves on the Board of Directors of Centrus Energy
Corp., a publicly-traded company that supplies enriched uranium fuel for international and domestic commercial nuclear power plants, and Quinpario Acquisition Corp 2, a blank check company formed in 2014 for the purpose of effecting a business
combination. Mr. Jagodinski has previously served on the Board of Directors of Solutia Inc., Phosphate Holdings, Inc. and Quinpario Acquisition Corp. Mr. Jagodinski has been a director of the Company since 2008 and he is also the Chairman
of the Companys Audit Committee. Mr. Jagodinskis experience in public accounting and as a chief executive officer, chief financial officer and director of public companies, along with his experience in risk management and compliance
oversight, provide him with the relevant experience to serve on the Companys Board of Directors. These experiences have given Mr. Jagodinski an understanding of accounting principles, internal controls and audit committee functions; as a
result the Board has determined that he qualifies as an audit committee financial expert.
David B. Rayburn
, age 68, is the
retired President and Chief Executive Officer of Modine Manufacturing Company, a publicly-traded thermal management company that designs, manufactures and tests heat transfer products. Mr. Rayburn was the President and Chief Executive Officer
and a Director of Modine Manufacturing Company from January 2003 until March 2008 when Mr. Rayburn retired. From 2002 to January 2003 Mr. Rayburn served as the President and Chief Operating Officer of Modine Manufacturing Company. From
1991 to 2002, he served in various executive roles at Modine Manufacturing Company including Executive Vice President, Vice President and General Manager. Mr. Rayburn currently serves as Chairman of the Board of Directors of Twin Disc, Inc., a
publicly-traded company that designs and manufactures marine and heavy duty, off-highway power transmission equipment, and as a member of the Board of Directors of Creative Foam Corporation, a privately-held company that designs and manufactures
cellular and non-cellular foams and plastics. Mr. Rayburn previously served on the Board of Directors of Jason, Inc. from 2001 to 2010 and on the Board of Directors of Unico, Inc., from 2008 to 2010. Mr. Rayburn has been a director of the
Company since 2014 and he is also a member of each of the Companys Audit Committee and Compensation Committee. Mr. Rayburns strong background in manufacturing, international markets and acquisitions, combined with his corporate
governance experience serving on public company boards, provide him with the relevant experience to serve on the Companys Board of Directors. These experiences have given Mr. Rayburn an understanding of accounting principles, internal
controls and audit committee functions; as a result the Board has determined that he qualifies as an audit committee financial expert.
DIRECTORS CONTINUING IN OFFICE
Robert E. Brunner
, age 59 (current term to expire in 2018), was an Executive Vice President of Illinois Tools Works, Inc., a
diversified manufacturer of advanced industrial technology, from 2006 until his retirement in 2012. Prior to that position, Mr. Brunner was President, Global Automotive Fasteners from 2005 to 2006 and President, North American Automotive
Fasteners from 2003 to 2005. Prior to that, Mr. Brunner held a variety of positions within Illinois Tools Works, Inc. including general management, operations management and sales & marketing. Mr. Brunner currently serves on the
Board of Directors of Leggett & Platt, Inc. and NN, Inc. Mr. Brunner has been a director of the Company since 2013 and also serves as the Chairman of the Companys Compensation Committee, and he is also a member of the
Companys Audit Committee. Mr. Brunners extensive experience in business management and development, international operations and mergers and acquisitions provide him with the relevant experience to serve on the Companys Board
of Directors. These experiences have
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given Mr. Brunner an understanding of accounting principles, internal controls and audit committee functions; as a result the Board has determined that he qualifies as an audit committee
financial expert.
Michael C. Nahl
, age 74 (current term to expire in 2019), is the retired Executive Vice President and
Chief Financial Officer of Albany International Corp., the worlds largest manufacturer of custom-designed engineered fabrics called paper machine clothing. Mr. Nahl joined Albany International Corp. in 1981 as Group Vice President,
Corporate, served as Senior Vice President and Chief Financial Officer from 1983 to 2005 and was appointed as Executive Vice President in 2005. Mr. Nahl retired as Executive Vice President and Chief Financial Officer of Albany International
Corp. in September 2009. Mr. Nahl currently serves as a director of Trans World Entertainment Corporation and serves on its Audit Committee (of which he was Chairman until 2015), Compensation Committee, and Nominating and Corporate Governance
Committee. Mr. Nahl previously served on the Board of Directors of Graftech International Ltd. from 1999 until 2013, and also served as Chairman of its Audit Committee. Mr. Nahl has been a director of the Company since 2003 and has served
as the Chairman of the Board of Directors since January 2015. He is also a member of the Companys Audit Committee. Mr. Nahls experience as a senior financial executive of a multinational public company and previously as Chairman of
the Audit Committee of public companies, along with his knowledge of international operations and foreign currency exchange rate risks, provide him with the relevant experience to serve on the Companys Board of Directors. These experiences
have given Mr. Nahl an understanding of accounting principles, internal controls and audit committee functions; as a result the Board has determined that he qualifies as an audit committee financial expert.
Richard W. Parod
, age 63 (current term to expire in 2018), is the President and Chief Executive Officer of the Company, a
position he has held since April 2000. Prior to joining the Company, Mr. Parod served as the Vice President and General Manager of Toro Irrigation, a division of The Toro Company, from 1997 to March 2000. From 1993 to 1997, he was an executive
officer of James Hardie Irrigation, serving as President of that company from 1994 to 1997. Mr. Parod has also been a director of the Company since 2000 and is the only executive officer of the Company serving on the Board of Directors. As the
Companys chief executive for the past 16 years, Mr. Parod has gained an extensive knowledge of the Companys operations and lines of business, its long-term strategies and domestic and international growth opportunities which provide
him with the relevant experience to serve on the Companys Board of Directors.
Michael D. Walter
, age 67 (current term
to expire in 2018), is the President of Mike Walter & Associates, a risk management consulting firm providing strategic guidance in general business and economic trends. Prior to forming Mike Walter & Associates in 2006,
Mr. Walter served in various leadership positions, most recently as Senior Vice President, Economic & Commercial Affairs, with ConAgra Foods, a large agribusiness conglomerate. Mr. Walter currently serves on the Board of Directors
of Richardson International. Mr. Walter previously served on the Board of Directors of AgroTech Foods from 2006 until 2016 and on the Board of Directors of the Chicago Board of Trade from 2000 until 2007. Mr. Walter has been a director of
the Company since 2009 and also serves as the Chairman of the Companys Corporate Governance and Nominating Committee, and he is also a member of the Companys Compensation Committee. Through his experience as a senior executive at ConAgra
Foods and as a director of various companies in the agribusiness and commodities markets, Mr. Walter has gained significant experience in risk management oversight, strategic development and management of public and governmental affairs, all of
which provide him with the relevant experience to serve on the Companys Board of Directors.
William F. Welsh II
, age
75 (current term to expire in 2019), is the retired Chairman of Election Systems & Software, Inc., a provider of specialized election equipment and software. Mr. Welsh served as President and Chief Executive Officer of Election
Systems & Software, Inc. from 1995 to 2002. From 2000 to 2003, Mr. Welsh served as Chairman of the Board of Directors of Election Systems & Software. Mr. Welsh has also previously served on the Board of Directors of
Ballantyne Strong Inc., a publicly-traded company that provides technology solutions primarily for applications in digital projection and digital signage. Mr. Welsh has been a director of the Company since 2001 and currently serves on the
Compensation Committee and the Corporate Governance and
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Nominating Committee. Mr. Welshs prior executive level leadership experience and chief executive officer experience, along with his extensive knowledge of the irrigation and
infrastructure markets, provide him with the relevant experience to serve on the Companys Board of Directors.
Information regarding
executive officers of the Company is found in the Companys Annual Report which has been supplied with this Proxy Statement.
Corporate Governance
The Board of Directors operates pursuant to the provisions of the Companys Certificate of Incorporation
and Bylaws as well as a set of Corporate Governance Principles which address a number of items, including the qualifications for serving as a director, the responsibilities of directors and board committees and the compensation of directors. The
Company has adopted a Code of Ethical Conduct that applies to the Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Corporate Controller, as required by Section 406 of the Sarbanes-Oxley Act of 2002.
Additionally, the Company maintains a Code of Business Conduct and Ethics for all persons associated with the Company, including its directors, officers and employees, which complies with the listing standards adopted by the New York Stock Exchange.
Both of these codes and the Companys Corporate Governance Principles are available on the Companys website at
http://www.lindsay.com
under the Investor Relations tab and are available in print to any stockholder who submits a
request in writing to the Secretary of the Company.
The Board of Directors conducts its business through meetings and actions taken by
written consent in lieu of meetings. During the fiscal year ended August 31, 2016, the Board of Directors held seven meetings. During fiscal 2016, each director attended at least 75% of the aggregate of (i) the total number of meetings of
the Board of Directors held during the period of such members service and (ii) the total number of meetings of the committees of the Board of Directors on which he served held during the period of such members service.
The Companys independent directors normally meet in executive session at each regularly scheduled Board meeting. The Chairman of the
Board, currently Mr.
Nahl, an independent director, serves as the presiding director at each executive session of the independent directors.
Board
Leadership Structure
The Companys Corporate Governance Principles provide that the position of Chairman of the Board of
Directors be held by an independent director and, accordingly, the same individual cannot serve as both the Chairman of the Board and as the Companys Chief Executive Officer. This policy is designed to facilitate the ability of the Board of
Directors to perform the important functions of providing independent oversight of management and to address risks faced by the Company. This policy also allows the Chairman to convene executive sessions with independent directors without the need
for a separate director to discharge the role of a presiding director.
Boards Role in Risk Oversight
Management has the primary responsibility for identifying and managing the risks to which the Company is subject, under the oversight of the
Board of Directors. Among other things, the Board of Directors considers risks presented by business strategy, competition, regulation, compensation plans, global economic conditions, general industry trends including the disruptive impact of
technological change, capital structure and allocation, and mergers and acquisitions. The Board of Directors as a whole has the primary responsibility for performing this oversight function. The Companys three standing committees are also
responsible for the assessment of risks associated with the general subject matters for which those standing committees have responsibility. The Boards risk oversight process includes close interaction with the Companys internal auditors
and is facilitated by an annual risk assessment prepared by management. The Company has engaged the accounting firm of Deloitte &
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Touche LLP to design, execute and prepare reports with respect to the Companys overall internal audit plan and to perform certain other internal audit services with the assistance of the
Companys internal auditors. Deloitte & Touche LLP provides regular updates to the Audit Committee regarding its services and testing results. The goal of the Boards risk evaluation process is to identify any activities that
create risks that may not be appropriate for the Company, quantify the magnitude of these risks and work with management to develop a plan to mitigate these risks.
Committees of the Board of Directors
The Board of Directors has established an Audit Committee, a Compensation Committee and a Corporate Governance and Nominating Committee.
Audit Committee
. The primary purpose of the Audit Committee is to assist the Board of Directors in the oversight of (i) the
integrity of the Companys financial statements, (ii) the Companys compliance with legal and regulatory requirements, (iii) the independent auditors qualifications and independence, and (iv) the performance of the
Companys internal audit function. The Audit Committee is responsible for selecting, compensating and evaluating the Companys independent auditor. Specific functions performed by the Audit Committee include reviewing periodically with the
independent auditor the performance of the services for which they are engaged, reviewing the scope of the annual audit and its results, reviewing the Companys annual financial statements and quarterly financial statements with management and
the independent auditor, reviewing the scope and results of the Companys internal audit function, and reviewing the adequacy of the Companys internal accounting controls with management and the independent auditor. The Audit Committee
operates under a written charter adopted by the Board of Directors which is available on the Companys website at
http://www.lindsay.com
under the Investor Relations tab and is available in print to any stockholder who submits a request
in writing to the Secretary of the Company. The charter meets the requirements of the listing standards adopted by the New York Stock Exchange.
The Audit Committee is comprised of Directors Jagodinski (Chairman), Brunner, Christodolou, Nahl and Rayburn, each of whom has been determined
to be independent by the Board of Directors under the rules of the Securities and Exchange Commission and under the listing standards adopted by the New York Stock Exchange. In addition, the Board of Directors has determined that each of Messrs.
Brunner, Christodolou, Jagodinski, Nahl and Rayburn qualify as an audit committee financial expert under the rules of the Securities and Exchange Commission. The Committee held six meetings during fiscal 2016.
Compensation Committee
. The Compensation Committee reviews and approves the Companys compensation policies, benefit plans,
employment agreements, salary levels, bonus payments, and awards pursuant to the Companys management incentive plans for its executive officers and other elected officers. The Compensation Committee approves all individual grants and awards
under the Companys long-term equity incentive plans. It also reviews compensation for non-employee directors and recommends changes in such compensation to the Board of Directors. The Compensation Committee is specifically responsible for
determining the compensation of the Companys Chief Executive Officer and conducts an annual performance evaluation of the Chief Executive Officer. The Companys Chief Executive Officer makes recommendations to the Compensation Committee
regarding the compensation paid to executive officers and other elected officers. However, the final authority for setting executive officer compensation rests with the Compensation Committee. The Compensation Committee has the discretion to
delegate specific responsibilities to the Committee Chair, any other Committee member(s) or subcommittees as the Compensation Committee may establish from time to time.
The Compensation Committee has periodically retained external compensation consulting firms to assist and advise it on particular matters.
During fiscal 2016, the Company received independent compensation consulting services from Meridian Compensation Partners, LLC (Meridian). Meridian was engaged directly by the Compensation Committee, but its fees were paid by the
Company. The nature and scope of Meridians
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engagement with respect to the Compensation Committees decisions regarding fiscal 2016 executive and director compensation are described under Compensation Discussion and
Analysis found later in this Proxy Statement.
The Compensation Committee operates under a written charter adopted by the Board of
Directors which is available on the Companys website at
http://www.lindsay.com
under the Investor Relations tab and is available in print to any stockholder who submits a request in writing to the Secretary of the Company. The charter
meets the requirements of the listing standards adopted by the New York Stock Exchange. The Compensation Committee is comprised of Directors Brunner (Chairman), Christodolou, Rayburn, Walter and Welsh, each of whom has been determined to be
independent by the Board of Directors under the listing standards adopted by the New York Stock Exchange. The Committee held seven meetings during fiscal 2016.
Corporate Governance and Nominating Committee
. The Corporate Governance and Nominating Committee is responsible for making
recommendations to the Board of Directors of persons to serve as directors of the Company and as chairmen and members of committees of the Board of Directors and for reviewing and recommending changes in the general Corporate Governance Principles
of the Company. It also oversees the annual evaluation by the Board of Directors to determine whether the Board and its committees are functioning effectively. The Corporate Governance and Nominating Committee operates under a written charter
adopted by the Board of Directors which is available on the Companys website at
http://www.lindsay.com
under the Investor Relations tab and is available in print to any stockholder who submits a request in writing to the Secretary of
the Company. The charter meets the requirements of the listing standards adopted by the New York Stock Exchange.
The Corporate Governance
and Nominating Committee identifies nominees to serve as a director of the Company through a combination of suggestions made by independent search firms, directors and stockholders. The Corporate Governance and Nominating Committee will consider
director nominees for the 2018 Annual Meeting recommended by stockholders which are submitted in writing, complete with biographical and business experience information regarding the nominee, to the Secretary of the Company by August 23, 2017.
Candidates for directors are evaluated based on their independence, character, judgment, diversity of experience, financial or business acumen, ability to represent and act on behalf of all stockholders, and the needs of the Board. The Corporate
Governance and Nominating Committee does not have a formal policy on diversity with regard to consideration of director nominees, but the Corporate Governance and Nominating Committee considers diversity in its selection of nominees and seeks to
have a Board that reflects a diverse range of views, backgrounds and experience. The Corporate Governance and Nominating Committee uses the same criteria to evaluate its own nominees for director as it does for persons nominated by Company
stockholders.
The Corporate Governance and Nominating Committee is comprised of Directors Walter (Chairman), Christodolou and Welsh, each
of whom has been determined to be independent by the Board of Directors under the listing standards adopted by the New York Stock Exchange. Howard G. Buffett served on the Committee until his term as a director expired on January 25, 2016. The
Committee held six meetings during fiscal 2016.
Related Party Transactions
The Board of Directors has adopted a written policy regarding the review, approval or ratification of related party transactions. Under the
policy, all such related party transactions must be pre-approved by the Audit Committee or ratified by the Audit Committee if pre-approval is impracticable. Under the policy, certain transactions are excluded from the definition of related party
transaction, including (i) transactions available to all employees generally, (ii) director and officer compensation approved by the Compensation Committee and/or Board of Directors, as applicable, (iii) transactions in the ordinary
course of the Companys business that are on substantially the same terms as those prevailing at the time for comparable products and services to unrelated third parties, and (iv) certain transactions with other companies where the related
partys only relationship is as an employee (other than an executive officer), director or beneficial owner of less than 5% of that companys shares, if the aggregate amount involved during the fiscal year does not exceed the greater of
$1,000,000 or 2%
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of that companys total annual revenues. In determining whether to approve or ratify a related party transaction, the Audit Committee will consider, among other factors, whether the terms of
the transaction are fair to the Company, whether the transaction would present an improper conflict of interest for any director, officer or other related party, or whether the transaction would impair the independence of an outside director. Any
Audit Committee member who has an interest in a transaction under discussion must abstain from voting on the proposed transaction.
Howard
G. Buffett retired from the Board effective January 25, 2016. During fiscal 2016, The Howard G. Buffett Foundation, a private charitable foundation of which Mr. Buffett is Chairman and Chief Executive Officer, and the Nature Conservation
Trust, a South African charitable organization of which Mr. Buffett is a trustee, purchased an aggregate of $289,523 of irrigation equipment, ancillary equipment and services from the Company. These transactions were at prices in accordance
with the Companys pricing policy for qualifying charitable, nonprofit, educational and research organizations.
Compensation Discussion and Analysis
Compensation Philosophy and Overview.
The overall goal of the Companys compensation policy is to maximize stockholder value
by attracting, retaining and motivating the executive officers that are critical to its long-term success. The Boards Compensation Committee (the Committee) believes that executive compensation should be designed to promote both
the short-term and long-term economic goals of the Company. Accordingly, an important component of the Committees compensation philosophy is to closely align the financial interests of the Companys executive officers with those of the
Companys stockholders. The Board of Directors and the Committee take several measures to monitor this degree of alignment, which include conducting a non-binding say on pay vote at each annual meeting of the Companys
stockholders. Stockholders have approved the non-binding say on pay resolution by a vote of more than 90% of the votes cast on this proposal at each of the Companys six annual meetings at which such a vote was held. While the
Committee considered the say on pay voting results in establishing fiscal 2016 and fiscal 2017 compensation, no specific actions were deemed necessary as the Committee believed the results of the say on pay votes were a
confirmation that stockholders were in general agreement with the Committees compensation philosophy. The Committee will continue to consider the say on pay voting results and other feedback provided from the Companys
stockholders when making future compensation decisions concerning the Companys executive officers.
In order to implement its
compensation philosophy, the Committee has determined that the total compensation program for executive officers should consist of the following components:
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Base salaries to reflect responsibility, experience, tenure and performance of key executives, as well as the scarcity of qualified executives for key positions;
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Annual cash incentive awards to reward performance against short-term corporate, business unit and/or individual objectives;
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Long-term equity incentive compensation to emphasize longer-term strategic objectives and align the interests of executives with those of stockholders; and
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Other benefits as appropriate to be competitive in the market place.
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Compensation-Related Risk Assessment.
The Committee has assessed the risks that could arise from the Companys compensation
program and does not believe that the terms of this program encourage excessive risk-taking that is reasonably likely to have a material adverse effect on the Company. For example, the Companys compensation program: (i) focuses on both
short-term and long-term financial goals; (ii) utilizes a mix of financial performance goals so as to avoid over-emphasis on any one metric; (iii) is subject to a clawback policy in the event of restatements of the Companys financial
results; (iv) includes long-term incentives with a three-year vesting period; (v) contains caps on the maximum incentive payouts; and (vi) requires management to meet robust stock ownership guidelines.
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The Committees Independent Compensation Consultant.
The Committee engaged
Meridian Compensation Partners, LLC in fiscal 2016 to provide a competitive assessment of the Companys executive compensation program and to evaluate the compensation of the Named Executive Officers in comparison to peer group proxy data and
relevant survey data. Meridian was engaged directly by the Compensation Committee, but its fees were paid by the Company. The Committee has adopted a pre-approval policy for certain compensation consulting services to be provided by Meridian to
management of the Company, but has determined that the scope of services and annual limit on fees set forth in the pre-approval policy will not impair Meridians independence from management.
Market Alignment of our Executive Compensation.
It has been the intent of the Committee that executive salaries, target annual
incentive opportunities and target long-term incentive values be aimed at the median of manufacturing and general industry companies of similar size (measured by annual revenues) and complexity (measured primarily by number of distinct business
lines and scope of international focus) to the Company for comparable positions, based on available peer group and survey data, with variation due to differences in executive skill levels and experience, the executives role, individual
performance, organizational hierarchy and internal fairness with other positions and roles within the Company.
The Committee annually
compares the Named Executive Officers general compensation levels against available market data and then also performs an in-depth review of the entire compensation program approximately every three years in order to comprehensively review the
Companys short and long-term compensation strategies, award mixes and performance metrics.
In conducting its review and analysis,
Meridian used a combination of proxy data from peer companies and survey composite data. Peer group data was used as the primary data source for establishing benchmark compensation levels for the Chief Executive Officer, Chief Financial Officer and
other positions where comparable position data was available, with general industry survey data used as a supplemental data source for these positions. General industry survey data was used as the primary data source for positions where comparable
position data was not sufficiently available. The composite data was obtained from the Equilar Executive Compensation Survey and included compensation information from over one thousand general industry companies with revenue between
one-third
($206 million) and three times ($1.85 billion) the Companys annual revenues.
During
2015, Meridian undertook an extensive review of the benchmarking peer group and utilized the following criteria: (i) U.S. based company listed on a major U.S. exchange with a market capitalization of between one-third ($330 million) and three
times ($2.97 billion) the Companys market capitalization; (ii) similar industry, with a qualitative assessment of business fit; (iii) revenue for the most recent fiscal year of between
one-third
and three times the Companys annual revenue; and (iv) similar business and organizational complexity, focusing on companies having international revenue in excess of 25% of total revenue
and having at least two distinct operating segments. The selected revenue range was broader than that used in the prior year (which was approximately
one-half
to two times the Companys revenue for its
most recently completed fiscal year), but similarly resulted in a peer group where the Companys revenue was within a reasonable range of the peer group median revenue. As a result of this extensive review by Meridian, the number of peer
companies used for fiscal 2016 was increased from 13 to 22, including significant overlap with the prior peer group. The resulting
22-company
peer group for fiscal 2016 includes the following companies:
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Alamo Group, Inc.
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EnPro Industries, Inc.
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Kadant Inc.
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Albany International Corp.
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ESCO Technologies Inc.
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LB Foster Co.
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Altra Industrial Motion Corp
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Federal Signal Corp.
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Lydall, Inc.
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Astec Industries Inc.
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Franklin Electric Co., Inc.
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Mueller Water Products, Inc.
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Blount International Inc.
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Gorman-Rupp Co.
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NN, Inc.
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CIRCOR International, Inc.
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Graco, Inc.
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Standex International Corporation
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CLARCOR Inc.
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John Bean Technologies Corp.
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Twin Disc Inc.
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Columbus McKinnon Corp.
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Based on its review and analysis, Meridian noted that in the aggregate, the Companys 2015
target total compensation levels were slightly below, but within a competitive range, of both proxy and Equilar survey data and recommended various minor changes to the Companys fiscal 2016 executive compensation program.
Role of Management in Setting Compensation.
In addition to reviewing the compensation of executive officers against the
competitive market, the Committee also considers recommendations from the Companys President and Chief Executive Officer regarding the total compensation for executive officers. Further, the Committee considered the historical compensation of
each executive officer, from both a total compensation and a component by component basis, in setting the fiscal 2016 compensation for the executive officers.
Recoupment Policy.
The Committee is of the view that awards of annual cash incentive and long-term incentive compensation
awarded to executive officers should be adjusted in the event of restatements of the Companys financial results. Accordingly, the Committee has adopted a policy that allows recoupment or repayment of annual cash incentive and long-term
incentive compensation payments made to executive officers during the three years preceding the restatement of Company financial statements to the extent such payments exceeded the amounts that would have been payable based on the restated financial
results. Conversely, the policy allows for additional payments to the extent the amounts paid as annual cash incentive and long-term incentive payments received in the three years preceding a restatement of Company financial statements were less
than the amounts that would have been payable based on the restated financial results.
2016 Executive Compensation Program.
The Companys fiscal 2016 compensation program for its executive officers, including the executive officers named in the Summary Compensation Table included in this Proxy Statement, consisted of four basic components, which are
(i) base salary, (ii) annual cash incentive awards, (iii) long-term incentive compensation and (iv) other employee benefits. The purposes of each of these components of executive compensation and the manner in which compensation
for fiscal 2016 under these components was determined by the Committee for executive officers are as follows:
Base Salary.
Base salaries are designed to provide executive officers with a competitive level of fixed compensation that is commensurate with the executive officers individual responsibility, experience, tenure and general performance of duties.
Base salary levels are also subject to competitive pressures faced by the Company for attracting and retaining qualified executives to fill key positions in the different geographic regions where the Companys executives reside. The Committee
considers peer group and compensation survey information regarding base salary levels for executive officers with comparable positions and responsibilities in similar companies in order to maintain base salaries at competitive levels. In general,
the Committee evaluates each executive officers base salary on an annual basis to determine if an increase from the prior years base salary is justified based on these criteria and considerations. In the case of Mr. Parod, base
salary was initially established by the terms of his employment agreement and is subject to annual increases as determined by the Committee.
In the first quarter of fiscal 2016, the Committee established the base salaries for each of the Named Executive Officers, except for
Mr. Ketcham whose base salary was established when he joined the Company in April 2016. In May 2016, Mr. Woods base salary was further adjusted in connection with his appointment as President Agricultural Irrigation. With
respect to the base salaries of Named Executive Officers other than Mr. Parod, the Committee considered Mr. Parods recommendations for salary adjustments (or the establishment of a base salary for Mr. Ketcham) and competitive
salary information included in Meridians report on executive compensation. Mr. Parod made his recommendations for salary adjustments primarily based on individual performance and the Meridian report. With respect to Mr. Parod, the
Committee considered the competitive salary information included in Meridians report on executive compensation, the Companys performance and Mr. Parods personal performance and concluded that an increase in his base salary
from $640,000 to $660,000 (or 3.1%) was appropriate. This increase brought Mr. Parods salary to approximately the median of the competitive market data.
Annual Cash Incentive Awards.
The Company paid annual cash incentive awards to its executive officers under a Management
Incentive Plan for fiscal 2016 (the 2016 MIP) that was adopted by the Committee
11
pursuant to the terms of the Companys 2014 Management Incentive Umbrella Plan which was approved by the stockholders at the Companys annual stockholder meeting in 2014. The Company
used annual cash payments under the 2016 MIP primarily to encourage its executive officers to achieve specific short-term financial goals of the Company generally and, in some cases, for achievement of the Companys financial results in certain
market segments. In addition, a portion of the annual cash incentives is designated to reward individual performance objectives of each executive officer participating in the 2016 MIP. The Committee adopted the 2016 MIP and established the financial
and individual goals for executive officers under the 2016 MIP during the first quarter of fiscal 2016.
The 2016 MIP established a target
cash incentive amount for each Named Executive Officer (each a Target Cash Incentive Award). The Target Cash Incentive Award for Mr. Parod was set at 90% of his base salary (which represented an increase of 10 percentage
points over his prior year target percentage of 80%). The Target Cash Incentive Award for each of Messrs. Downing, Wood and Raabe was set at 50% of his respective base salary (which was the same as each of their prior years target percentage,
with the exception of Mr. Wood who was promoted to President during fiscal 2016 and not included as a Named Executive Officer in fiscal 2015). The Committee approved the increase to Mr. Parods Target Cash Incentive Award to bring his
target cash incentive level closer to the median of the Meridian peer data. Mr. Ketcham did not participate in the 2016 MIP since he joined the Company in the second half of the year. In lieu of such participation, Mr. Ketcham received a
fixed bonus of $65,000 for the portion of fiscal 2016 during which he was employed by the Company. In each case, a Target Cash Incentive Award represents the total cash incentive a Named Executive Officer was entitled to receive if he had achieved
100% of the target levels under the financial performance component and individual performance component established for such Named Executive Officer under the 2016 MIP.
The financial performance component accounted for 80% of each Named Executive Officers potential annual cash incentive award. This
component consisted of three subcomponents: revenue, operating margin and economic profit. The Committee believed the use of revenue, operating margin and economic profit would provide a good balance of financial objectives to promote maximum
stockholder value. For each of Messrs. Parod and Raabe, the financial performance component was based 100% on consolidated Company financial performance. For each of Messrs. Downing (for the period he served as President Agricultural
Irrigation) and Wood, the financial performance component was split equally between consolidated Company financial performance and the financial performance (also based on revenue, operating margin and economic profit) of their respective business
units. For the remainder of the fiscal year following his appointment as Executive Vice President in May 2016, the financial performance component for Mr. Downing was based 100% on consolidated Company financial performance. For purposes of the
2016 MIP, (i) revenue was defined as the Companys fiscal 2016 operating revenues, (ii) operating margin was defined as the Companys fiscal 2016 operating income divided by fiscal 2016 operating revenues, and (iii) economic
profit was defined as the Companys fiscal 2016 net operating profit after taxes less an operating charge equal to the Companys fiscal 2016 average monthly net assets multiplied by the Companys weighted average cost of capital. Each
of the three subcomponents was calculated using the Companys Consolidated Statement of Operations for the year ended August 31, 2016. The Committee chose to use revenue, operating margin and economic profit as the financial performance
measures for determining annual cash incentive awards under the 2016 MIP because it believed that the Named Executive Officers had significant influence over these measures, that these measures align the interests of officers with the creation of
stockholder value and that these measures are well understood by management and stockholders. Accordingly, the revenue, operating margin and economic profit subcomponents were assigned weightings of 50%, 40% and 10%, respectively, by the Committee.
In general, the Committee seeks to establish target levels for financial performance goals based on the Companys annual budget for
the relevant fiscal year as approved by the Board of Directors. The targets established for specific business units also correspond to the fiscal 2016 operating budget. Each target would have excluded the effect of any acquisitions made during
fiscal 2016, but there were none. The Committee took into consideration the cyclical downturn in the agricultural markets in establishing these target levels,
12
acknowledging that the revenue, operating margin and economic profit targets for fiscal 2016 were set less than the Companys target levels for fiscal 2015, but set higher than the fiscal
2015 actual results.
Under the 2016 MIP, a Named Executive Officer could earn a portion of his Target Cash Incentive Award if he achieved
at least a threshold level of performance for any of the financial or individual performance components. Separate calculations were performed to determine the payout earned under the financial performance component and the individual performance
component, and those two components were then added together to determine the final cash incentive awarded to a Named Executive Officer. The financial performance subcomponents are calculated according to a scale that provides varying percentage
payouts for threshold, intermediate, target and maximum performance levels. If the Company fails to meet the threshold performance level for a specific financial performance subcomponent,
then the Named Executive Officer will receive no payout under that specific subcomponent. Percentage payouts between the threshold, intermediate, target and maximum levels are linearly interpolated for each financial performance subcomponent.
For fiscal 2016, the following performance levels trigger the following percentage awards (calculated as a percentage of the Target Cash
Incentive Award available under the overall Company financial performance component):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (50%)
|
|
|
Average
Operating
Margin (40%)
|
|
|
Economic
Profit (10%)
|
|
|
Target Cash Incentive
Award Available for Financial
Performance Subcomponent
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
$
|
899.5 million
|
|
|
|
11.6
|
%
|
|
$
|
3.4 million
|
|
|
|
200
|
%
|
Target
|
|
$
|
599.7 million
|
|
|
|
10.1
|
%
|
|
$
|
2.2 million
|
|
|
|
100
|
%
|
Intermediate
|
|
$
|
449.7 million
|
|
|
|
7.6
|
%
|
|
$
|
1.7 million
|
|
|
|
75
|
%
|
Threshold
|
|
$
|
299.8 million
|
|
|
|
5.1
|
%
|
|
$
|
1.1 million
|
|
|
|
15
|
%
|
Below Threshold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
The Committee also approved the use of individual performance objectives to determine 20% of the annual cash
incentives under the 2016 MIP for each Named Executive Officer. The individual performance objectives were designed to focus on goals or initiatives that will create longer-term value for the Company. Depending on the officer, these performance
objectives relate to areas such as strategic acquisitions, market development, market share growth and product development. Some of these individual performance objectives are objective and depend upon the accomplishment of specific, measurable
goals such as increased sales, introduction of new products or cost reductions. Others are subjective in nature, such as performance objectives tied to customer service, marketing, process improvements, or the strengthening of operational and sales
capabilities.
The cash incentive awarded under the individual performance component is calculated according to a scale providing the
following percentage awards (calculated as a percentage of the Target Cash Incentive Award available under the individual performance component):
|
|
|
|
|
Performance Level
|
|
Percentage of Target Cash Incentive Award
Available for Individual Component
|
|
|
Significantly exceeds objectives
|
|
|
200
|
%
|
Exceeds objectives
|
|
|
150
|
%
|
Meets all objectives
|
|
|
100
|
%
|
Meets most objectives
|
|
|
75
|
%
|
Meets some objectives
|
|
|
50
|
%
|
Does not meet objectives
|
|
|
0
|
%
|
Both the financial and individual performance component calculations offer a range of payouts for performance
that exceeds or falls short of the target level. The Committee believes that this not only provides an incentive to executives to achieve performance that exceeds expectations, but it also provides constant motivation during down cycles. By
rewarding a range of performance, the Committee hoped to partially
13
counteract the cyclical nature of the Companys business. Likewise, the receipt of an award under one component or subcomponent is not contingent upon meeting a certain performance standard
under the other component or subcomponents. For example, an executive who has met all of his individual performance objectives would still receive a payout under the individual component even if the Company failed to meet the threshold financial
performance objectives. Similarly, an executive may receive a payout if the threshold level is met for a specific financial performance subcomponent even if the executive failed to meet his or her individual performance objectives and/or the Company
failed to meet the threshold levels for the other financial performance subcomponents. If any sort of unplanned event should arise, the 2016 MIP gives the Committee the discretion to reduce (but not increase) the incentive payouts under the plan.
The following example demonstrates how a hypothetical executive officers annual cash incentive payment was calculated under the 2016 MIP:
An officer receiving a base salary of $300,000 (with a target incentive percentage of 50% of his base salary)
would be eligible for a Target Cash Incentive Award of $150,000. $120,000 of that amount would be attributable to the Companys financial performance component (80% of the Target Cash Incentive Award), whereas $30,000 of that amount would be
attributable to the officers individual performance component (20% of the Target Cash Incentive Award). If the Company generated revenues of $599.7 million, operating margin of 7.6%, economic profit of $3.4 million, and the officer met
all of his individual performance objectives, he would receive a total cash incentive payout of $150,000, calculated as follows:
Company Financial Performance Component: $60,000
A
+ $36,000
B
+ $24,000
C
= $120,000
A
Revenue Subcomponent: $120,000 x 50% x 100% performance multiplier
B
Operating Margin Subcomponent: $120,000 x 40% x 75% performance multiplier
C
Economic Profit Subcomponent: $120,000 x 10% x 200% performance multiplier
Individual Performance Component: $30,000 x 100% performance multiplier = $30,000
Total Cash Incentive Awarded: $120,000 + $30,000 = $150,000
During fiscal 2016, for purposes of the 2016 MIP, the Company recorded revenue of $516.4 million, operating margin of 6.7% and economic profit
(loss) of $(14.0) million. Based on these results, the overall Company Financial Performance Component payout percentage was 64% based on subcomponent payout percentages of 86%, 53% and 0% for each of the revenue (50%), operating margin
(40%) and economic profit (10%) subcomponents, respectively. The payout percentage for certain market financial performance components for Named Executive Officers ranged from 65% to 142%. At a meeting in October 2016, the Committee verified
the attainment of these measures used for the Financial Performance Component of the 2016 MIP. In addition, after the conclusion of fiscal 2016, Mr. Parod recommended scores to the Committee for each Named Executive Officer (including himself)
under the Individual Performance Component of the 2016 MIP. The Committee then discussed and approved those scores, determining that the Named Executive Officers were entitled to performance multipliers under the Individual Performance Component of
the 2016 MIP ranging from 92% to 105%.
Long-Term Incentive Compensation.
Long-term incentive compensation is designed to
reward the achievement of longer-term strategic objectives and align the financial interests of the Companys executive officers with those of the Companys stockholders. For fiscal 2016, the Committee approved a target dollar amount for
the long-term incentive award for each of the Companys Named Executive Officers and allocated as follows:
|
|
|
one third of that award in the form of performance stock units (PSUs),
|
|
|
|
one third in the form of restricted stock units (RSUs) and
|
|
|
|
one third in the form of nonqualified stock options.
|
14
Consistent with the Companys policy regarding PSUs and RSUs awarded to new hires, Mr. Ketcham was only
awarded RSUs upon his start date in April 2016. The PSUs, RSUs and stock options were granted pursuant to the Companys 2015 Long-Term Incentive Plan, which was approved by the stockholders at the Companys annual stockholder meeting in
January 2015. The Committee believes that this mix of PSUs, RSUs and stock options will continue to promote sustained long-term performance, goal alignment and retention.
In determining the number of PSUs, RSUs and stock options granted to the Named Executive Officers (other than the start date grant of RSUs to
Mr. Ketcham) as part of their long term incentive compensation for fiscal 2016, the Committee first established a dollar value of the total long-term incentive awards to be awarded to each Named Executive Officer assuming they achieved target
performance levels for the PSUs. Based primarily on Meridians compensation assessment, the Committee established total long-term incentive award amounts as follows for fiscal 2016:
|
|
|
|
|
Mr. Parod
|
|
$
|
1,100,000
|
|
Mr. Downing
|
|
$
|
300,000
|
|
Mr. Wood
|
|
$
|
180,000
|
|
Mr. Raabe
|
|
$
|
385,000
|
|
The dollar value of the total long-term incentive awards for each Named Executive Officer above is approximately at the median
level indicated in the Meridian competitive market data for that officer with adjustments to reflect the relative size and scope of responsibilities and other internal pay equity reasons. The long-term incentive award for Mr. Wood was made
prior to Mr. Woods promotion to President Agricultural Irrigation in May 2016.
The dollar values allocated to PSUs and
RSUs were divided by the closing sale price of the Companys common stock on the grant date ($67.68 as of October 23, 2015) to convert those dollar values into total numbers of stock units initially awarded to each Named Executive Officer
other than Mr. Ketcham. While the dollar value of PSUs was based upon a payout ratio of 100%, the actual PSU payout ratio may be as low as 0% if the Company fails to meet the threshold performance level for both performance measures.
Alternatively, the PSU payout ratio may be as high as 200% if the Company meets or exceeds the maximum performance level for both performance measures. The dollar values allocated to stock options were converted to a number of stock options by using
the Black-Scholes option pricing formula on the grant date. On April 11, 2016, the Committee granted Mr. Ketcham an award of RSUs with an initial value of $100,000 which was converted into 1,463 RSUs based on the closing sale price of the
Companys common stock on that date ($68.31). These RSUs granted to Mr. Ketcham were issued as a recruiting inducement and to align his financial interests with those of the Companys stockholders.
Under the terms of the individual award agreements, both the PSUs and RSUs awarded to Named Executive Officers for fiscal 2016 are payable in
common stock and provide the Named Executive Officers with special cash dividend equivalents which entitle them to receive any special cash dividend paid by the Company while the PSUs and RSUs are outstanding; provided, however, that any special
cash dividend equivalents will be converted into additional units and will not be payable until all applicable vesting and performance conditions have been met. No cash payment or dividend equivalent will be payable in connection with any regular
quarterly dividends. In addition, awards under the PSUs, RSUs and stock options are subject to certain anti-dilution adjustments in the event of a stock split, stock dividend, merger or other similar corporate transaction. The Committee has adopted
a policy regarding the timing of grants of PSUs, RSUs and stock options to employees which generally provides that such grants will be made on an annual basis during the first quarter or at the beginning of the second quarter of the fiscal year and
at least two business days after the Company has issued its full-year earnings release for the prior fiscal year.
Each of the PSUs and
RSUs has a three-year vesting period. The PSUs awarded during fiscal 2016 are subject to cliff vesting and will not become realizable until fiscal 2019. At that point, depending upon the
15
Companys performance over the three-year period, the PSUs will either convert into a specified number of shares of the Companys common stock or become worthless. The Committee
selected a three-year performance period because measuring performance over a long period would be less affected by cyclical variations in the Companys business and one-time events. The Committee felt that a three-year period was commonly used
by similar companies for this reason. The RSUs awarded during fiscal 2016 will ratably vest over the same three-year period, with one third of the RSUs converting into Company common stock on November 1 in each fiscal year following the grant
date, provided that the Named Executive Officer continues his employment with the Company. Nonqualified stock options vest ratably over a four-year period, provided that the Named Executive Officer continues his employment with the Company, and
expire 10 years after the grant date.
The specific terms of the PSU, RSU and stock option grants made to the Named Executive Officers for
fiscal 2016 are as follows:
Performance Stock Unit (PSU) Awards.
PSUs represent a right to receive a certain target number
of shares of the Companys common stock at a specified time in the future if certain performance objectives have been met during the specified performance period leading up to the payout of the PSU. PSUs are, therefore, designed to reward
achievement of specific performance objectives over this period. Historically, the Compensation Committee has awarded PSUs with a threshold payout of 50% of the target number and a maximum payout of 200% of the target number. In addition to
requiring satisfaction of the applicable threshold performance levels, PSUs are only payable if the recipient remains employed with the Company until payout occurs after the end of the performance period (or under certain circumstances involving a
change in control, death or complete disability, as discussed in the Termination Payments section below).
Each PSU awarded in
fiscal 2016 has a three-year performance period running through the end of fiscal 2018 (i.e. August 31, 2018) and will vest on November 1, 2018. Consistent with prior years, the Committee chose Revenue Growth and Return on Net Assets
(RONA), each equally weighted, as the performance measures to be used to determine PSU payouts for the three-year performance period. The Committee previously considered several performance measures, including measures that were tied to
the Companys stock price or the accomplishment of specific performance objectives, but decided against using stock price as a performance measure because it felt that such a plan would be susceptible to distortion from the cyclical nature of
the Companys business. Likewise, the Committee decided against the use of other performance objectives because of the difficulty in correlating such objectives to stockholder value. While revenue is also used as a component of the
Companys annual cash incentive award, the Committee believed that top line revenue is an appropriate metric for both short-term and long-term performance. The annual cash incentive program is based on performance against the Companys
annual budget, while PSUs are focused on cumulative revenue growth over a three-year period. Considering the cyclical nature of the Companys business, the Committee believed this mix of short-term and long-term targets provides a balanced
focus on top-line revenue growth. Additionally, each of the annual cash incentive and long-term incentive programs utilize other performance measures that incentivize profitability, with revenue only accounting for a 40% weighting for the annual
cash incentive program (50% of the financial performance component which accounts for 80% of total annual cash incentive award) and Revenue Growth only accounting for a 50% weighting for the PSU awards.
Ultimately, the Committee chose to base PSU payouts on Revenue Growth and RONA because it determined that there was a reasonable relationship
between these performance measures and stockholder value. Additionally, these performance measures could be easily quantified and calculated for the purposes of determining whether the Company had met the necessary performance requirements. The
Committee assigned equal weighting to Revenue Growth and RONA for purposes of determining PSU payouts in order to drive profitable growth and focus on appropriate asset management. Additionally, the Committee was concerned that considering RONA
alone could create an incentive for Named Executive Officers to unnecessarily dispose of assets in order to manage the denominator and inflate the Companys RONA and thereby increase their PSU payout. To prevent such an occurrence, the
Committee decided to use both RONA and Revenue Growth as performance measures and to weight them equally. Although the Committee feels that Revenue Growth and
16
RONA reasonably approximate the connection between executive performance and stockholder value, future developments could possibly prompt the Committee to make subsequent PSU awards according to
different performance measures.
Revenue Growth is calculated according to cumulative revenue growth as opposed to average
annual revenue growth in order to minimize the year-to-year distortion that can result from short-term cyclical changes in revenue growth. For purposes of measuring performance, the target annual Revenue Growth rate is converted into a cumulative
revenue amount which will be computed as the sum of all revenue generated during the three-year performance period assuming the target annual growth rate. Actual performance will be calculated as the sum of the Companys actual consolidated
operating revenues during the three-year performance period in comparison to the target amount of cumulative revenue.
RONA is
calculated in the following manner:
Net Income
(Average*Total
Assets Average*Current Liabilities + Average*Current Portion of Long-Term Debt)
* - These averages will be
computed using the beginning and ending amounts of Total Assets, Current Liabilities, and Current Portion of Long-Term Debt for the applicable fiscal year.
For the purposes of calculating Revenue Growth and RONA, any acquisitions made by the Company and revenues, expenses or assets associated with such
acquisitions are excluded in the fiscal year of the acquisition, but will be fully included during every year thereafter.
The Committee
has established the following three-year average performance measures for Revenue Growth and RONA for the PSUs awarded in fiscal 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Revenue
Growth
(50%
weight)
|
|
|
RONA
(50%
weight)
|
|
|
Cumulative
Payout as
% of
Target
|
|
Maximum
|
|
|
15
|
%
|
|
|
12
|
%
|
|
|
200
|
%
|
Target
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
100
|
%
|
Threshold
|
|
|
6
|
%
|
|
|
8
|
%
|
|
|
50
|
%
|
Below Threshold
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
The Committee selected target performance measures that were within the range of the long-term target
financial performance goals communicated from Lindsay to the stockholders by Mr. Parod in the 2015 Annual Report. The Committee attempted to establish maximum and threshold performance levels that would appropriately reward the Named Executive
Officers for exceptional performance, while also providing them with continued motivation in the event that market factors or down periods make it impossible to meet target performance levels. A partial PSU payout can be earned by the Named
Executive Officers as long as the Company achieves the threshold performance for one of the performance factors even if the Company does not achieve threshold performance for the other performance factor.
The Committee is also entitled to adjust the conversion calculation in order to reduce (but not increase) the amount of stock awarded to take
into account any unanticipated events including, but not limited to, extraordinary or nonrecurring items, changes in tax laws, changes in generally accepted accounting principles, impacts of discontinued operations and restatements of prior period
financial results.
17
The following is an example of how the payout of PSUs would be calculated for a hypothetical
executive officer who received a total award of 1,000 PSUs in fiscal 2016.
Assume that the Company achieves (i) cumulative revenue for the three-year performance period equal to
the cumulative revenue that would have been generated at a target annual revenue growth rate of 10%, and (ii) three-year average RONA at the 8% threshold level. Accordingly, the executives 1,000 PSUs will convert into 750 shares of common
stock on the vesting date of November 1, 2018, calculated as follows:
PSU Payout Calculation: 500 shares
A
+ 250 shares
B
= 750 shares
A
Revenue Growth Subcomponent: 1,000 PSUs x 50% weighting x 100% performance multiplier (target)
B
RONA Subcomponent: 1,000 PSUs x 50% weighting x 50% performance
multiplier (threshold)
In the event of a change in control of the Company, the PSUs will convert into an amount of Company common
stock that is prorated to account for the amount of time the Named Executive Officers held the PSUs prior to the change of control transaction and will be paid out based on the probable or expected level of Revenue Growth and RONA at the time of the
change in control. If any of the Companys financial statements are restated before the payout of PSUs as the result of errors, omissions or fraud, for any fiscal year during the three-year performance period, such restated results will be used
to recalculate any PSU conversions made at the expiration of the performance period.
Fiscal 2014-2016 Performance.
The end
of fiscal 2016 marked the end of the three-year performance period for the PSUs awarded in fiscal 2014. For this performance period, the Company achieved three-year cumulative revenue of $1,676.1 million and three-year average RONA of 8.2% which
equated to a cumulative payout percentage of 0% of target. Since the threshold level was not met for either performance measure, no shares of common stock were issued to any Named Executive Officers with respect to this tranche of PSUs. No payouts
have yet been earned with respect to the PSUs awarded in fiscal 2015 and fiscal 2016 which have three-year performance periods ending at the end of fiscal 2017 and fiscal 2018, respectively.
Restricted Stock Unit (RSU) Awards.
For the previously discussed reasons, the Committee determined that one third of each Named
Executive Officers long-term incentive award should consist of RSUs, except that Mr. Ketcham received 100% of his start date award in the form of RSUs. RSUs represent a right to receive a certain number of shares of the Companys
common stock at a specified time in the future, but are not conditioned upon achieving any specific performance objectives, and are only payable if the recipient remains employed by the Company at the end of the vesting period leading up to the
payout of the RSU (or under certain circumstances involving a change in control, death or complete disability, as discussed in the Termination Payments section below). RSUs are designed primarily to encourage retention of executive
officers and key employees.
The RSUs awarded in fiscal 2016 vest according to a three-year schedule, with one-third of the RSUs vesting
on November 1 of each fiscal year following the fiscal year of their award contingent upon the Named Executive Officers continued employment with the Company. Upon vesting, each RSU converts into a share of the Companys common
stock. There will be no acceleration of vesting of these RSUs upon a change in control unless (i) such awards are not assumed or substituted by the acquirer or (ii) the acquirers securities are not publicly traded in the United
States, in which case, vesting would be fully accelerated.
Nonqualified Stock Option Awards.
Nonqualified stock options
represent an option to purchase shares of the Companys common stock at an option price equal to the closing price on the New York Stock Exchange of the Companys common stock on the grant date. Stock options have a 10-year term and will
vest ratably (one-fourth each year) on November 1 of the next four calendar years following the grant date (or under certain circumstances involving a change in control, death or complete disability, as discussed in the Termination
18
Payments section below). The stock options are designed to motivate executives to increase stockholder value as the stock options will only have value if our stockholders also benefit from
increasing stock prices.
The nonqualified stock options awarded in fiscal 2016 have an option price of $67.68 (which is equal to the
closing price on the New York Stock Exchange of the Companys common stock on the grant date) and will vest ratably (one-fourth each year) on November 1 of the next four calendar years following the grant date. Vesting is contingent upon
the Named Executive Officers continued employment with the Company. No stock option may be exercised more than 10 years from the date of grant. There will be no acceleration of vesting of these stock options upon a change in control
unless (i) such awards are not assumed or substituted by the acquirer or (ii) the acquirers securities are not publicly traded in the United States, in which case, vesting would be fully accelerated.
Committees View on Executive Stock Ownership.
The Committee intends that annual grants of long-term incentive awards will
create a layering effect that will provide constant motivation and alignment of executive and stockholder interests extending into the future and will support executive retention. In December 2014, the Board adopted formal stock ownership guidelines
applicable to all members of senior management. Each Named Executive Officer is expected to reach his respective ownership requirement within seven years after the date of his appointment as an officer. In addition to shares owned by the executive,
outstanding RSUs and in-the-money stock options, net of taxes and exercise price, are counted toward the ownership requirement. PSUs are not counted toward the ownership requirement until they are earned, vested and distributed to the executive. The
following table sets forth the applicable stock ownership guideline for each Named Executive Officer and the current ownership multiple for such officer as of December 1, 2016. Mr. Raabe has been intentionally omitted due to his
retirement.
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Stock
Ownership
Guideline
(multiple
of Salary)
|
|
|
Current
Ownership
(multiple
of Salary)
(1)
|
|
Mr. Parod
|
|
|
5x
|
|
|
|
24.1x
|
|
Mr. Ketcham
(2)
|
|
|
3x
|
|
|
|
0.8x
|
|
Mr. Downing
|
|
|
2x
|
|
|
|
6.8x
|
|
Mr. Wood
(3)
|
|
|
2x
|
|
|
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1.6x
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(1)
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Based on the 200-day average daily closing price of a share of our common stock on the NYSE ending on December 2, 2016 ($85.37) and executive salaries in effect on December 2, 2016.
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(2)
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Mr. Ketcham joined the Company in April 2016.
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(3)
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Mr. Wood has been employed by the Company since March 2008, but has only served as an officer since he was appointed as President Agricultural Irrigation in May 2016.
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Anti-Pledging/Hedging Policy.
The Board has adopted a policy prohibiting directors and executive officers from pledging Company
securities as collateral for any outstanding obligation or entering into any transactions designed to hedge or offset any decrease in the market value of Company securities.
Other Employee Benefits.
The Company also provides certain other benefits to its Named Executive Officers in the normal course
of business as appropriate to be competitive with market practice. In addition to this standard benefits package, Named Executive Officers are provided supplemental life insurance coverage and offered participation in a concierge executive health
program. Also, during fiscal 2016, Mr. Parod received a taxable car allowance of $2,000 per month according to the terms of his employment agreement. Other benefits provided to the Named Executive Officers are generally those which are
available to all employees of the Company, such as participation in Company sponsored health and dental insurance, life insurance and disability benefits. The Company and employee participants share in the cost of these programs. The Company also
maintains a qualified 401(k) retirement plan to which the Company makes matching contributions corresponding to employee contributions. The Companys Named Executive Officers are eligible to participate in each of these employee benefit plans.
19
Termination Payments
. The Company is party to arrangements with its Named Executive
Officers that provide for termination payments under several possible scenarios, including payments that are triggered by a change in control of the Company. All outstanding equity awards issued to the Named Executive Officers prior to the end of
fiscal 2015 would be treated as follows in the event of a change in control:
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|
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All stock options issued to the Named Executive Officers, as well as to other employees of the Company, are subject to immediate vesting in connection with a change in control transaction.
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In the event of a change in control of the Company, outstanding PSUs will convert into an amount of Company common stock that is prorated to account for the amount of time the Named Executive Officers held the PSUs
prior to the change in control transaction and will be paid out based on the probable or expected level of Revenue Growth and RONA at the time of the change in control.
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Any outstanding RSUs will fully vest upon a change in control.
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For all equity awards issued
and outstanding under the Companys new 2015 Long-Term Incentive Plan (i.e., all outstanding equity awards issued during fiscal 2016), there will be no acceleration of vesting of RSUs and options upon a change in control unless (i) such
awards are not assumed or substituted by the acquirer or (ii) the acquirers securities are not publicly traded in the United States, in which case, vesting would be fully accelerated.
The Company has entered into employment agreements with each Named Executive Officer which do provide for certain additional compensation to
them if their employment with the Company is terminated without cause. In the case of Mr. Parod, he will be entitled to receive a lump sum payment equal to 3.2 times his annual salary if his employment is terminated without cause other than at
any time within two years following a change in control (or a prorated target bonus for the portion of the fiscal year in which his termination occurs and a lump sum payment equal to three times his annual salary and target bonus if his employment
is terminated without cause or if he terminates his employment for good reason within two years following a change in control). In the case of Messrs. Downing, Ketcham and Wood, each of them will be, and in the case of Mr. Raabe who retired
effective December 2, 2016, he would have been, entitled to receive a lump sum payment equal to one times his annual salary if his employment is terminated without cause other than at any time within one year following a change in control or
one times his annual salary plus target bonus if his employment is terminated without cause or if he terminates his employment for good reason within one year following a change in control. The termination provisions contained in
Mr. Parods employment agreement were specifically negotiated between the Company and Mr. Parod at the time he joined the Company and were considered necessary in order to attract and retain him. In fiscal 2010, the Company modified
the definition of separation payment under Mr. Parods employment agreement from two times annual salary and target bonus to 3.2 times annual salary (which is the economic equivalent of the prior arrangement) to avoid potential issues with
the deductibility of annual bonus payments under Section 162(m) of the Internal Revenue Code, as amended. All termination provisions are designed to provide these executive officers with cash to provide for their living expenses in situations
where their employment was not terminated voluntarily or for cause.
The following tables set forth the estimated amount of the benefits
that each of the Named Executive Officers would have received under a variety of hypothetical termination and change in control scenarios. All of the information presented in the following tables is provided for illustrative purposes only.
20
TERMINATION SCENARIOS NOT INVOLVING A CHANGE IN CONTROL
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Name
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Termination of NEOs
employment agreement by
the Company without
Cause occurring on August
31, 2016:
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Termination of NEOs employment
agreement by reason of the NEOs death
or disability occurring on August 31, 2016:
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Cash
Payment
($)
(1)
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Accelerated
Equity
Awards
($)
(2)
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Cash
Payment
($)
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Death/
Disability
Benefit
($)
(4)
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Accelerated
Equity
Awards
($)
(5)
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Richard W. Parod
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$
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2,112,000
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$
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594,000
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(3)
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$
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1,500,000
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$
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1,376,213
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Brian L. Ketcham
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$
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325,000
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$
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825,000
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$
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105,277
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David B. Downing
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$
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365,050
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$
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865,050
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$
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359,418
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Randy A. Wood
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$
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330,000
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$
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830,000
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$
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197,459
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James C. Raabe
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$
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349,860
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$
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849,860
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$
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505,474
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(1)
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These amounts represent the payments that the Named Executive Officers (NEOs) would receive under their employment agreements if the Company should terminate their employment without Cause prior to a Change
in Control (each as defined in the applicable employment agreement).
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(2)
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The NEOs RSU and PSU award agreements both require that an NEO must remain employed with the Company on the scheduled RSU and PSU vesting date. In this scenario, if an NEOs employment with the Company were
to terminate on August 31, 2016, then that NEO would automatically forfeit the entirety of his previously issued and outstanding RSUs and PSUs.
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(3)
|
In the event of Mr. Parods death or complete disability, his employment agreement entitles his estate or him to a prorated target bonus for the portion of
the fiscal year which he completed prior to his death or disability. The amount shown represents the amount which Mr. Parod or his estate would be entitled to receive if his employment was terminated as a result of his death or permanent
disability on August 31, 2016.
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(4)
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These amounts represent the amount of life insurance benefits that the NEOs designated beneficiaries would receive upon the NEOs death under life
insurance coverage provided by the Company. The amounts do not include any additional benefits which might be paid out under supplemental coverage purchased by the NEOs on their own accord through the Company. The Company also provides disability
insurance for the NEOs. In the event of a complete disability, the NEOs would first receive six months of short term disability benefits through regular payroll equal to 75% of their base salary. The disabled NEOs would then receive monthly long
term payments equal to 66.7% of their monthly base salary capped at $12,500 a month, continuing until they reach age 65.
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(5)
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These amounts represent (i) the value of PSU and RSU awards which would convert into shares of Company common stock, and (ii) the in-the-money value of
unvested stock options that would vest following the termination of an NEOs employment as a result of the NEOs death or complete disability. These amounts do not include the value of stock options that had already vested prior to the
triggering event. Following a termination as a result of death or complete disability, (a) unvested stock options will become fully vested, (b) outstanding RSUs will automatically convert into one share of Company common stock, and
(c) outstanding PSUs will convert into an amount of Company common stock that is prorated to account for the amount of time the NEOs held the PSUs prior to termination by reason of death or complete disability and will be paid out based on the
probable or expected level of Revenue Growth and RONA at the time of termination by reason of death or complete disability. For illustrative purposes, these amounts were calculated assuming that the Company would have achieved a target
level performance during the period prior to the termination by death or complete disability and that it would be probable and expected following the termination for the Company to continue that target performance for the remainder of
the PSUs award period. These amounts were calculated using the $71.96 closing price of the Companys common stock on the assumed date of termination by reason of death or complete disability of August 31, 2016.
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21
CHANGE IN CONTROL SCENARIOS
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Scenario 1
The Company
undergoes a Change in
Control on August 31,
2016, where (i) the
Company does
not
terminate the NEOs
employment without
Cause and (ii) the NEO
does not terminate his
employment with Good
Reason, and (iii) the
NEOs awards are
assumed or substituted by
an acquirer with securities
that
are publicly traded in
the United States.
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Scenario 2
The
Company undergoes a
Change in Control on
August 31, 2016, where
(i) the Company does not
terminate the
NEOs
employment without
Cause and (ii) the NEO
does not terminate his
employment with Good
Reason, and (iii)(a) the
NEOs equity awards are
not
assumed or substituted
by the acquirer and/or (b)
the
acquirers securities
are
not
publicly traded in
the United States.
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Scenario 3
The Company
undergoes a Change in Control
on August 31, 2016 and on
that same date the Company
either terminates the
NEOs
employment without Cause or
the NEO terminates his
employment with Good
Reason.
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Name
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Cash
Payment
($)
|
|
|
Accelerated
Equity
Awards
($)
(1)
|
|
|
Cash
Payment
($)
|
|
|
Accelerated
Equity
Awards
($)
(1)
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|
|
Cash
Payment
($)
(2)
|
|
|
Accelerated
Equity
Awards
($)
(1)
|
|
Richard W. Parod
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$
|
801,490
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|
|
|
|
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$
|
1,376,213
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|
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$
|
4,356,000
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$
|
1,376,213
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Brian L. Ketcham
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|
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$
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105,277
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$
|
487,500
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|
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$
|
105,277
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David B. Downing
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|
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$
|
202,711
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|
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$
|
359,418
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|
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$
|
547,575
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|
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$
|
359,418
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|
Randy A. Wood
|
|
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$
|
103,454
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$
|
197,459
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|
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$
|
495,000
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|
|
$
|
197,459
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|
James C. Raabe
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|
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$
|
304,319
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|
|
|
|
|
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$
|
505,474
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|
|
$
|
524,790
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|
|
$
|
505,474
|
|
(1)
|
These amounts represent (i) the value of PSU and RSU awards which would convert into shares of Company common stock, and (ii) the in-the-money value of unvested stock options that would vest upon a Change in
Control. These amounts do not include the value of stock options that had already vested prior to the triggering event. Following a Change in Control, with respect to (a) all equity awards issued prior to the end of fiscal 2015 and (b) all
equity awards issued under the Companys new 2015 Long-Term Incentive Plan that are not assumed or substituted by an acquirer or if an acquirers securities are not publicly traded in the United States: (I) unvested stock options will
become fully vested, (II) outstanding RSUs will automatically convert into one share of Company common stock, and (III) outstanding PSUs will convert into an amount of Company common stock that is prorated to account for the amount of time
the NEOs held the PSUs prior to the Change in Control transaction and will be paid out based on the probable or expected level of Revenue Growth and RONA at the time of the Change in Control. For illustrative purposes, these amounts were calculated
assuming that the Company would have achieved a target level performance during the period prior to the Change in Control and that it would be probable and expected following the Change in Control for the Company to continue that
target performance for the remainder of the PSUs award period. These amounts were calculated using the $71.96 closing price of the Companys common stock on the assumed Change in Control date of August 31, 2016.
|
(2)
|
These amounts represent the payments that each NEO would receive under his employment agreement if the Company should terminate his employment without Cause or if he should terminate his employment with Good Reason
(each as defined in the applicable employment agreement) within one year (or two years with respect to Mr. Parod) following a Change in Control.
|
Tax Considerations.
Section 162(m) of the Internal Revenue Code of 1986 imposes an annual, individual limit
of $1 million on the deductibility of the Companys compensation payments to the chief executive officer and to the three most highly compensated executive officers (other than the principal financial officer). Specified compensation is
excluded for this purpose, including performance-based compensation, provided that certain conditions are satisfied. The Committee has attempted to preserve, to the extent practicable, the deductibility of all compensation payments to the
Companys executive officers. With the exception of $58,980 of compensation
paid to Mr. Parod, all compensation paid to covered employees is expected to be deductible under Section 162(m) for fiscal 2016.
22