Proxy Statement (definitive) (def 14a)

Date : 01/23/2020 @ 11:06AM
Source : Edgar (US Regulatory)
Stock : Cabot Microelectronics Corporation (CCMP)
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Proxy Statement (definitive) (def 14a)

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

Filed by Registrant ☑

Filed by a Party other than the Registrant ☐

Check the appropriate box:

 

  Preliminary Proxy Statement     Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)).
  Definitive Proxy Statement    
  Definitive Additional Materials    
  Soliciting Materials Pursuant to Section 240.14a-11(c) or Section 240.14a-12


CABOT MICROELECTRONICS CORPORATION

(Exact name of Registrant as Specified in Its Charter)

 

Payment of Filing Fee (Check the appropriate box):
    No fee required.
    Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
    (1)  

Title of each class of securities to which transaction applies:

 

    (2)  

Aggregate number of securities to which transaction applies:

 

    (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

    (4)  

Proposed maximum aggregate value of transaction:

 

  (5)   Total fee paid:
            


Table of Contents

LOGO

CABOT MICROELECTRONICS CORPORATION

870 NORTH COMMONS DRIVE

AURORA, ILLINOIS 60504

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To be held March 4, 2020

To our Stockholders:

We are notifying you that the 2020 annual meeting of stockholders of Cabot Microelectronics Corporation will be held on Wednesday, March 4, 2020 at 8:00 a.m. local time at our corporate headquarters located at 870 North Commons Drive, Aurora, Illinois 60504 for the following purposes:

 

  1.

To elect two directors, each for a term of three years;

 

  2.

To hold a non-binding stockholder advisory vote to approve our named executive officer compensation;

 

  3.

To ratify the selection of PricewaterhouseCoopers LLP, an independent registered public accounting firm, as our independent auditors for fiscal year 2020; and

 

  4.

To transact other business properly coming before the meeting.

Each of these matters is described in further detail in the accompanying proxy statement. We also have included a copy of our 2019 Annual Report. Only stockholders of record at the close of business on January 9, 2020 are entitled to vote at the meeting or any postponements or adjournments of the meeting. A complete list of these stockholders will be available at our principal executive offices prior to the meeting.

We are delivering our proxy statement and 2019 Annual Report under the United States Securities and Exchange Commission rules that allow companies to furnish proxy materials to their stockholders over the internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials to our stockholders, which is designed to reduce our printing and mailing costs and the environmental impact of the proxy materials and our 2019 Annual Report (collectively, the “Proxy Materials”). A paper copy of our Proxy Materials may be requested through one of the methods described in the Notice of Internet Availability of Proxy Materials.

Please use this opportunity to take part in our affairs by voting your shares. You are cordially invited to attend the meeting in person. If you wish to attend the meeting in person, please bring a valid form of photo identification to the meeting. If your stock is not registered in your own name and you plan to attend the meeting and vote in person, you should contact your broker or agent in whose name your stock is registered to obtain a broker’s proxy and bring it to the meeting in order to vote at the meeting.

Whether or not you plan to attend the meeting, your vote is important. Please promptly submit your proxy by telephone, internet or mail by following the instructions found on your Notice of Internet Availability of Proxy Materials or proxy card. Your proxy can be withdrawn by you at any time before it is voted.

By order of the Board of Directors,

 

 

LOGO

William P. Noglows

Chairman of the Board

Aurora, Illinois

This proxy statement is dated January 23, 2020, and is first being made available to stockholders electronically via the internet on or about January 23, 2020.


Table of Contents

Table Of Contents

 

     Page  

ABOUT THE MEETING

     1  

What is the purpose of the annual meeting?

     1  

What is the Notice of Internet Availability of Proxy Materials?

     1  

How does the board recommend I vote?

     1  

Who is entitled to vote?

     2  

What is the difference between holding shares as a record holder and as a beneficial owner?

     2  

What constitutes a quorum?

     2  

How do I vote, and can I vote by telephone or through the internet?

     2  

What if I do not specify how my shares are to be voted?

     3  

Can I revoke my proxy or change my vote after I return my proxy card or after I vote electronically via the internet or by telephone?

     3  

What vote is required to approve each matter that comes before the meeting?

     3  

What happens if additional proposals are presented at the meeting?

     3  

Who will bear the costs of soliciting votes for the meeting?

     4  

2020 PROXY STATEMENT – SUMMARY

     5  

STOCK OWNERSHIP

     7  

Security Ownership of Certain Beneficial Owners and Management

     7  

ELECTION OF DIRECTORS

     10  

BOARD STRUCTURE AND COMPENSATION

     12  

Board of Directors and Board Committees

     12  

Criteria for Nominating Directors

     17  

Compensation of Directors

     18  

Compensation Committee Interlocks and Insider Participation

     21  

SUSTAINABILITY AND RESPONSIBLE CARE—ENVIRONMENTAL HEALTH AND SAFETY

     21  

FEES OF INDEPENDENT AUDITORS AND AUDIT COMMITTEE REPORT

     22  

Fees Billed by Independent Auditors

     22  

Report of the Audit Committee

     23  

COMPENSATION DISCUSSION AND ANALYSIS

     24  

Fiscal Year 2019 Executive Compensation Summary

     24  

Overview

     26  

Elements of Compensation

     29  

CEO Compensation

     39  

Regulatory and Other Factors

     40  

COMPENSATION AND RISK

     41  

COMPENSATION COMMITTEE REPORT

     41  

EXECUTIVE COMPENSATION

     42  

SUMMARY COMPENSATION TABLE

     42  

Employment Letter with Mr. Li

     45  

Standard Employee Benefits

     45  

2019 GRANTS OF PLAN-BASED AWARDS

     46  

Executive Officer Deposit Share Program

     47  

OUTSTANDING EQUITY AWARDS AT 2019 FISCAL YEAR-END

     48  

2019 OPTION EXERCISES AND STOCK VESTED

     50  

PENSION BENEFITS

     51  

2019 NONQUALIFIED DEFERRED COMPENSATION

     51  

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

     52  

Employment Letter with Mr. Li

     55  

Change in Control Severance Protection Agreements

     55  

Treatment of Equity Awards

     57  

CEO PAY RATIO

     59  

DIRECTOR, EXECUTIVE OFFICER, AND KEY EMPLOYEE HEDGING

     60  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     60  

Certain Relationships

     60  

Related Party Transactions

     60  

Indemnification

     60  

NON-BINDING ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

     61  

RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS

     61  

2021 ANNUAL MEETING OF STOCKHOLDERS

     62  

“HOUSEHOLDING” OF PROXY MATERIALS

     62  

VOTING THROUGH THE INTERNET OR BY TELEPHONE

     62  

APPENDIX A USE OF CERTAIN NON-GAAP FINANCIAL INFORMATION

     A-1  

 

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CABOT MICROELECTRONICS CORPORATION

870 North Commons Drive

Aurora, Illinois 60504

 

 

 

 

 

PROXY STATEMENT

 

 

The Board of Directors of Cabot Microelectronics Corporation is asking for your proxy for use at the annual meeting of our stockholders to be held on Wednesday, March 4, 2020 at 8:00 a.m. local time, at our corporate headquarters located at 870 North Commons Drive, Aurora, Illinois 60504 and at any postponements or adjournments of the meeting.

In accordance with and pursuant to the rules and regulations adopted by the United States Securities and Exchange Commission (“SEC”), we are providing our stockholders with access to our Proxy Materials over the internet rather than in paper form. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials, rather than a printed copy of the Proxy Materials, to our stockholders of record as of January 9, 2020. We expect to mail the Notice of Internet Availability of Proxy Materials to stockholders entitled to vote at our annual meeting on or about January 23, 2020.

ABOUT THE MEETING

What is the purpose of the annual meeting?

At our annual meeting, stockholders will act upon the matters outlined in the accompanying notice of meeting, including:

 

  1.

the election of two directors;

 

  2.

the non-binding stockholder advisory vote to approve our named executive officer compensation;

 

  3.

the ratification of the selection of our independent auditors; and

 

  4.

any other business properly coming before the meeting.

In addition, our management will report generally on the fiscal year ended September 30, 2019 and respond to questions from stockholders.

What is the Notice of Internet Availability of Proxy Materials?

The Notice of Internet Availability of Proxy Materials will instruct you as to how you may access and review the Proxy Materials and submit your proxy via the internet or phone. If you would like to receive a printed copy of the Proxy Materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials for requesting printed materials.

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on March 4, 2020:

 

   

The proxy statement and our 2019 Annual Report are available at www.cabotcmp.com and www.proxyvote.com.

How does the board recommend I vote?

Our board of directors unanimously recommends that you vote your shares:

 

  1.

FOR” the election of the nominees named below under “ELECTION OF DIRECTORS”;

 

  2.

FOR” non-binding advisory approval of our named executive officer compensation; and

 

  3.

FOR” the ratification of the selection of our independent auditors.

 

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Who is entitled to vote?

Only stockholders of record at the close of business on the record date, January 9, 2020, are entitled to receive notice and vote at the annual meeting. Each outstanding share of common stock entitles its holder to cast one vote, without cumulation, on each matter to be voted on. As of the record date, we had approximately 29,215,518 shares of common stock outstanding and entitled to vote.

What is the difference between holding shares as a record holder and as a beneficial owner?

Record Holder.    You are a record holder of our common stock if at the close of business on the record date your shares were registered directly in your name with Computershare Trust Company, N.A., P.O. Box 43078, Providence, Rhode Island 02940-3078, our stock transfer agent.

Beneficial Owner.    You are a beneficial owner if at the close of business on the record date your shares were held by a broker, bank, custodian, nominee or other record holder of our common stock and not in your name. Being a beneficial owner means that, like most of our stockholders, your shares are held in “street name.” As the beneficial owner, you have the right to direct your broker or nominee how to vote your shares by following the voting instructions your broker or other nominee provides. If you do not provide your broker or nominee with instructions on how to vote your shares, your broker or nominee will be able to vote your shares with respect to some of the proposals, but not all. Please see “What if I did not specify how my shares are to be voted?” for additional information.

What constitutes a quorum?

If a majority of the shares outstanding on the record date are present at the annual meeting, either in person or by proxy, we will have a quorum at the meeting permitting the conduct of business at the meeting. As of the record date, we had approximately 29,215,518 shares of common stock outstanding and entitled to vote. Any shares represented by proxies that are marked to abstain from voting on a proposal will be counted as present for purposes of determining whether we have a quorum. If a broker, bank, custodian, nominee or other record holder of our common stock indicates on a proxy that it does not have discretionary authority to vote certain shares on a particular matter, the shares held by that record holder (referred to as “broker non-votes”) will also be counted as present in determining whether we have a quorum.

How do I vote, and can I vote by telephone or through the internet?

You may vote in person at the annual meeting or you may vote by proxy. If your stock is registered in your own name, you may vote in person by attending the meeting, presenting a valid form of photo identification and delivering your completed proxy card in person. If your stock is not registered in your own name and you plan to attend the meeting and vote in person, you should contact your broker or agent in whose name your stock is registered to obtain a broker’s proxy and bring it to the meeting along with a valid form of photo identification. You may vote by proxy by signing, dating and mailing a proxy card. In addition, you may vote by telephone or through the internet by following the instructions below or those included in the Notice of Internet Availability of Proxy Materials. Telephone and internet voting facilities for stockholders of record will be available 24 hours a day. You may vote over the telephone or via the internet until 11:59 p.m. ET on March 3, 2020 for shares held directly or 11:59 p.m. ET on March 1, 2020 for shares held in a plan.

To vote by telephone, if you are a record holder of our common stock, call toll free 1-800-690-6903 and follow the instructions provided by the recorded message. To vote by telephone if you are a beneficial owner of our common stock, call the toll free number listed in the proxy card or follow the instructions provided by your broker. For all holders of our common stock (whether record or beneficial), to vote through the internet, go to www.proxyvote.com and follow the steps on the secure website. You also may access the proxyvote website (www.proxyvote.com) or view our Proxy Materials by going to our website, www.cabotcmp.com, selecting “Investor Relations” on our Homepage, and then selecting “Annual Meeting/Proxy” from the drop down menu. Where used in this proxy statement, our website address is included for reference only. The information contained on our website is not incorporated by reference into this proxy statement.

If you vote by proxy, the individuals named on the proxy card as proxy holders will vote your shares in the manner you indicate.

 

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What if I do not specify how my shares are to be voted?

Record Holder.    If you are a record holder of our common stock and you sign and return the proxy card without indicating your instructions, your shares will be voted “FOR”:

 

  1.

the election of the nominees for director named below under “ELECTION OF DIRECTORS”;

 

  2.

the non-binding advisory approval of our named executive officer compensation; and

 

  3.

the ratification of the selection of our independent auditors.

Beneficial Owners.    If you are a beneficial owner and you do not provide the broker, bank, custodian, nominee or other record holder that holds your shares with voting instructions, such person will determine if it has the discretionary authority to vote on the particular matter. Under applicable rules, such person has the discretion to vote on routine matters such as the ratification of our independent auditors, but does not have discretion to vote on non-routine matters such as the election of a director, and the non-binding stockholder advisory vote to approve our named executive officer compensation.

Can I revoke my proxy or change my vote after I return my proxy card or after I vote electronically via the internet or by telephone?

Yes. Even after you have submitted your proxy, you may revoke your proxy or change your vote at any time before the proxy is voted at the annual meeting by delivering to our Secretary a written notice of revocation or a properly signed proxy bearing a later date, or by attending the annual meeting and voting in person. (Attendance at the meeting will not cause your previously granted proxy to be revoked unless you specifically so request.) To revoke a proxy previously submitted electronically through the internet or by telephone, you may simply vote again at a later date, using the same procedures, in which case the later submitted vote will be recorded and the earlier vote revoked.

What vote is required to approve each matter that comes before the meeting?

The number of votes required to approve each of the proposals scheduled to be presented at the annual meeting are as follows. Abstentions and broker non-votes will not be counted for purposes of determining whether an item has received the requisite number of votes for approval.

 

Proposal

 

      

Required Vote

 

   1.   Election of Directors

     For each nominee, a plurality of the votes cast are “FOR” such nominee (i.e., the nominees for director with the most votes will be elected).*
   

   2.   Advisory vote to approve named executive officer compensation

     A majority of the votes cast are “FOR” the proposal.
   

   3.   Ratification of the selection of our independent auditors

     A majority of the votes cast are “FOR” the ratification.

 

* 

Our Corporate Governance Guidelines provide that in an uncontested election, any director nominee who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall promptly tender his or her resignation to be considered by our nominating and corporate governance committee and our board of directors as outlined in the Corporate Governance Guidelines.

What happens if additional proposals are presented at the meeting?

Other than the matters described in this proxy statement, we do not expect any additional matters to be presented for a vote at the annual meeting. If you vote by proxy, your proxy grants the persons named as proxy holders the discretion to vote your shares on any additional matters properly presented for a vote at the meeting.

 

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Who will bear the costs of soliciting votes for the meeting?

We will bear all costs of solicitation. Certain directors, officers and employees, who will not receive any additional compensation for such activities, may solicit proxies by personal interview, mail, telephone or electronic communication. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to our stockholders. In addition to the mailing of these Proxy Materials, we have hired the firm of D.F. King & Co., Inc. to assist in the solicitation of proxies at an estimated cost of approximately $10,000.

 

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2020 PROXY STATEMENT – SUMMARY

This summary highlights information contained elsewhere in the proxy statement. This summary does not contain all the information that you should consider, and you should read the entire proxy statement before voting.

 

 

 

ANNUAL MEETING OF STOCKHOLDERS

 

 

 

 

Date: March 4, 2020

Time: 8:00 a.m. local time

Location: Cabot Microelectronics Corporation, 870 North Commons Drive, Aurora, IL 60504

Record Date: January 9, 2020

 

 

GENERAL INFORMATION

 

 

Stock Symbol: CCMP

Exchange: NASDAQ

Registrar and Transfer Agent: Computershare

Principal Executive Offices: 870 North Commons Drive, Aurora, Illinois 60504

Corporate Website: cabotcmp.com

Investor Relations Website: ir.cabotcmp.com

 

 

FISCAL YEAR 2019 FINANCIAL HIGHLIGHTS

 

 

LOGO

 

*   Adjusted EBITDA and adjusted EBITDA margin are considered non-GAAP financial measures by the SEC. See Appendix A below for more information about these non-GAAP financial measures and for reconciliations from the most comparable GAAP financial measures.

 

 

 

STOCKHOLDER VOTING MATTERS

 

 

Our board of directors unanimously recommends that you vote your shares:

 

FOR” the election of each of the nominees named below under “ELECTION OF DIRECTORS” on p. 10;

 

FOR” non-binding advisory approval of our named executive officer compensation on p. 61; and,

 

FOR” the ratification of the selection of our independent auditors on p. 61.

 

 

CORPORATE GOVERNANCE

 

 

Board of Director Composition: 7 Directors

Director Term: 3 Classes with Staggered 3-Year Terms

 

Director Nominees: Class II (2 Directors)

Paul J. Reilly

Geoffrey Wild

 

Board Meetings in Fiscal Year 2019: 14 (6 since) Executive Sessions: 12 (4 since)

 

Board Committee Meetings in Fiscal Year 2019:

Audit: 8 (3 since)

Compensation: 6 (3 since)

Nominating and Corporate Governance: 3 (1 since)

 

 

 

 

 

 

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SUSTAINABILITY AND RESPONSIBLE CARE —
ENVIRONMENTAL, HEALTH AND SAFETY

 

 

It is our policy to operate worldwide in a safe, responsible manner that respects the environment and protects the safety and health of our employees, our customers and the communities where we operate. We are committed to conducting our business operations in a manner that preserves the environment, which includes minimizing waste, conserving energy and preventing pollution. Our commitment goes beyond regulatory compliance and ISO certifications. Some of our key environmental health and safety (EHS) initiatives include:

 

•   Our Environmental, Health & Safety Management Systems meets International Organization of Standardization 14001 and Occupational Health & Safety Assessment Series 18001 for Environmental Management, 45001 for Health and Safety Management and Responsible Care.

•   We adhere to the principles of the Responsible Business Alliance Code of Conduct.

•   We have adopted a Safety, Health & Environmental Policy reviewed, endorsed and signed by management.

•   We participate broadly in trade organizations, advocacy groups, local community organizations around the globe.

•   We provide transparency through the publication of our Environmental, Health and Safety Performance Report and Human Rights Transparency Report, which are available on our website.

•   We strive to reduce electricity and water consumption and solid waste by establishing annual goals available on our website.

•   We work to identify, evaluate and control hazards in support of our global safety program.

•   We create a ‘Caring Culture’ for employee safety and the environment

 

 

 

SUSTAINABILITY AND RESPONSIBLE CARE —
ENVIRONMENTAL, HEALTH AND SAFETY

 

 

For fiscal year 2019, CMC achieved:

 

•   >80% of our solid waste generated either was re-used or recycled rather than going to a landfill.

•   Drove sustainability through global reduction in electricity (17% reduction annually), water (15% reduction annually) and solid waste (10% reduction annually).

•   Completion of 95 ergonomic improvement projects to improve employee safety.

•   Several EHS site locations have been recipients of recognition awards from government bodies and customers.

•   A global recordable injury rate of 0.65, which is 66% below the industry average of 1.90.

 

For additional information on our environmental, health and safety initiatives, please visit our website at www.cabotcmp.com and navigate to the “EHS” tab.

 

 

EXECUTIVE COMPENSATION

 

Named Executive Officers:

•   David H. Li, President and Chief Executive Officer

•   Scott D. Beamer, Vice President and Chief Financial Officer

•   Daniel D. Woodland, Vice President and President, Electronic Materials

•   H. Carol Bernstein, Vice President, Secretary and General Counsel

•   Jeffrey M. Dysard, Vice President and President, Performance Materials

 

Pay Program Aligned with Performance (p. 29)

Clawback Policy (p. 38)

No Hedging/No Pledging (p. 38)

No Repricing or Backdating of Options (p. 36)

 

 

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STOCK OWNERSHIP

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding the beneficial ownership of our common stock as of January 9, 2020 (except as indicated below) by:

 

   

all persons known by us to own beneficially 5% or more of our outstanding common stock;

 

   

each of our directors;

 

   

each of the named executive officers in the Compensation Discussion and Analysis Section and the Summary Compensation Table included in this proxy statement; and

 

   

all our directors and executive officers as a group.

Unless otherwise indicated, each stockholder listed below has sole voting and investment power with respect to the shares of common stock beneficially owned by such stockholder.

Stock Ownership Table

 

 Name and Address   

Number of Shares

Beneficially

          Owned1          

    

Approximate

Percent of Class1

 
   

 

 Certain beneficial owners:

  

 

 

 

  

 

 

 

 

   

 

 1. BlackRock, Inc.

     55 East 52nd Street

     New York, New York 10055

  

 

 

 

4,328,3232   

 

 

  

 

 

 

14.8%

 

 

   

 

 2. The Vanguard Group, Inc.

     P.O. Box 2600

     Valley Forge, Pennsylvania 19482

  

 

 

 

3,096,6143   

 

 

  

 

 

 

10.6%

 

 

   

 

 Directors and executive officers:

  

 

 

 

  

 

 

 

 

   

 

 David H. Li

  

 

 

 

181,1524   

 

 

  

 

 

 

*

 

 

   

 

 William P. Noglows

  

 

 

 

161,2514 5 

 

 

  

 

 

 

*

 

 

   

 

 Richard S. Hill

  

 

 

 

14,2774   

 

 

  

 

 

 

*

 

 

   

 

 Barbara A. Klein

  

 

 

 

74,4184   

 

 

  

 

 

 

*

 

 

   

 

 Paul J. Reilly

  

 

 

 

15,6884   

 

 

  

 

 

 

*

 

 

   

 

 Susan M. Whitney

  

 

 

 

44,2264   

 

 

  

 

 

 

*

 

 

   

 

 Geoffrey Wild

  

 

 

 

44,2264   

 

 

  

 

 

 

*

 

 

   

 

 Scott D. Beamer

  

 

 

 

24,7364   

 

 

  

 

 

 

*

 

 

   

 

 Daniel D. Woodland

  

 

 

 

43,8484   

 

 

  

 

 

 

*

 

 

   

 

 H. Carol Bernstein

  

 

 

 

57,2734   

 

 

  

 

 

 

*

 

 

   

 

 Jeffrey M. Dysard

  

 

 

 

5,2574   

 

 

  

 

 

 

*

 

 

   

 

 All directors and executive officers as a group (14 persons)

  

 

 

 

693,7726   

 

 

  

 

 

 

2.4%

 

 

 

*

= less than 1%

1 

“Beneficial ownership” generally means any person who, directly or indirectly, has or shares voting or investment power with respect to a security or has the right to acquire such power within 60 days. Shares of

 

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  common stock subject to options, warrants or rights that are currently exercisable or exercisable within 60 days of January 9, 2020 are deemed outstanding for computing the ownership percentage of the person holding such options, warrants or rights, but are not deemed outstanding for computing the ownership percentage of any other person. The amounts and percentages are based upon 29,215,518 shares of our common stock outstanding as of January 9, 2020, unless otherwise indicated.
2

Of the shares reported as beneficially owned, BlackRock, Inc. exercises (a) sole power to vote 4,261,870 shares, (b) no power to vote 66,453 shares, and (c) sole investment power over 4,328,323 shares. The total number of shares reported as beneficially owned is 4,328,323, as of September 30, 2019. The number of shares indicated is based on information reported in Form 13F Holdings Report filed by BlackRock, Inc. on November 8, 2019.

3 

Of the shares reported as beneficially owned, The Vanguard Group, Inc. exercises (a) sole power to vote 62,638 shares, (b) shared power to vote 4,161 shares, (c) no power to vote 3,029,815 shares, (d) sole investment power over 3,033,859 shares, and (e) shared investment power over 62,755 shares. The total number of shares reported as beneficially owned is 3,096,614, as of September 30, 2019. The number of shares indicated is based on information reported in the Form 13F Holdings Report filed by The Vanguard Group, Inc. on November 14, 2019.

4

Includes shares of our common stock that such person has the right to acquire pursuant to stock options granted pursuant to the Second Amended and Restated Cabot Microelectronics Corporation 2000 Equity Incentive Plan, As Amended and Restated September 23, 2008 (“2000 Equity Incentive Plan”), and pursuant to the Cabot Microelectronics Corporation 2012 Omnibus Incentive Plan, as amended March 7, 2017 (“2012 Omnibus Incentive Plan”), exercisable within 60 days of January 9, 2020, as follows:

 

 Name

 

  

 

Upon Exercise

Shares Issuable

 

 
   

 

 Mr. Li

  

 

 

 

105,558    

 

 

   

 

 Mr. Noglows

  

 

 

 

88,306    

 

 

   

 

 Mr. Hill

  

 

 

 

6,357    

 

 

   

 

 Ms. Klein

  

 

 

 

44,806    

 

 

   

 

 Mr. Reilly

  

 

 

 

11,168    

 

 

   

 

 Ms. Whitney

  

 

 

 

34,306    

 

 

   

 

 Mr. Wild

  

 

 

 

34,306    

 

 

   

 

 Mr. Beamer

  

 

 

 

6,186    

 

 

   

 

 Dr. Woodland

  

 

 

 

27,982    

 

 

   

 

 Ms. Bernstein

  

 

 

 

13,986    

 

 

   

 

 Dr. Dysard

  

 

 

 

—    

 

 

Also includes restricted stock units awarded to such executive officer pursuant to the 2012 Omnibus Incentive Plan on December 5, 2016, December 5, 2017, January 16, 2018, December 6, 2018, and December 5, 2019, respectively, that are still subject to restrictions as of January 9, 2020, as set forth in the table below. On December 5, 2016, December 5, 2017, December 6, 2018, and December 5, 2019, as part of our annual equity incentive award program, we awarded restricted stock units to our executive officers with restrictions that lapse in equal increments upon each anniversary over four years. On January 16, 2018, as part of Mr. Beamer’s appointment as our Vice President and Chief Financial Officer, we awarded Mr. Beamer a sign-on award consisting of 13,128 restricted stock units and an annual equity incentive award consisting of 2,104 restricted stock units, in each case, with restrictions that lapse in equal increments upon each anniversary of the award over four years. The outstanding restricted stock unit awards have the same

 

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economic value as shares of common stock, are eligible to receive dividend equivalents, and may not be voted, sold or transferred, other than to immediate family members as provided in the 2012 Omnibus Incentive Plan.

 

     

 

Equity Incentive Program Restricted Stock Units

 

 
   

Name

 

  

12/05/16

 

    

12/05/17

 

    

1/16/18

 

    

1/16/18

 

    

12/6/18

 

    

12/5/19 

 

 
   

Mr. Li

     4,750        3,308                      5,148      6,212   
   

Mr. Beamer

                   9,846        1,578        1,854      1,720   
   

Dr. Woodland

     2,225        1,450                      1,968      1,832   
   

Ms. Bernstein

     2,225        1,150                      1,629      1,520   
   

Dr. Dysard

     725        938                      1,125        1,252   

Also includes restricted stock units awarded to such non-employee director pursuant to the 2012 Omnibus Incentive Plan that are still subject to restrictions as of January 9, 2020, as set forth in the table below. For annual equity awards to non-employee directors, restricted stock units are currently awarded with restrictions that lapse in full upon the first anniversary of the award. Initial equity awards of restricted stock units to non-employee directors are currently made with restrictions that lapse in equal annual increments over four years beginning on the first anniversary of the award. Outstanding restricted stock unit awards have the same economic value as shares of common stock, are eligible to receive dividend equivalents, and may not be voted, sold or transferred, other than to immediate family members as provided in the plan.

 

Name

 

  

Non-Employee Director

Restricted Stock Units

 

 
   

Mr. Noglows

     909        
   

Mr. Hill

     909        
   

Ms. Klein

     909        
   

Mr. Reilly

     1,585        
   

Ms. Whitney

     909        
   

Mr. Wild

     909        
5

Includes 41,125 shares of our common stock held in trust for the benefit of Mr. Noglows’ spouse, over which Mr. Noglows has no voting or investment power or ownership control.

6

Includes all individuals who were directors and executive officers as of January 9, 2020, and does not include individuals who ceased to be executive officers prior to such date, except for Mr. Noglows, who since January 1, 2016 has been a non-employee director. Includes 387,559 shares of our common stock that our directors and executive officers have the right to acquire pursuant to stock options exercisable within 60 days of January 9, 2020, and 66,073 restricted shares of our common stock or restricted stock units held by our executive officers still subject to restrictions as of January 9, 2020 (which include shares subject to restrictions or conditions pursuant to our Deposit Share Program). All current directors and executive officers beneficially own shares of our common stock; however, the percentage of our total outstanding shares of common stock owned by all directors and executive officers as a group has decreased in comparison to the percentage owned in the prior year due to a variety of factors, including: (i) our issuance in fiscal year 2019 of approximately three million additional shares as part of our acquisition of KMG Chemicals, Inc., a Texas corporation (“KMG”); (ii) the change in the mix of equity-based compensation awarded to executive officers in fiscal year 2018 to include performance share units, which are not reported as beneficially owned until the end of the relevant three-year performance period; and (iii) the recent refreshment of a number of directors and executive officers over the past few years.

 

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ELECTION OF DIRECTORS

Our board of directors is currently comprised of seven directors. The board of directors is divided into three classes: Class I, whose terms will expire at the annual meeting of stockholders to be held in 2022; Class II, who are nominees for election at this Annual Meeting and whose terms will expire at the annual meeting of stockholders to be held in 2023; and Class III, whose terms will expire at the annual meeting of stockholders to be held in 2021. Mr. Hill and Ms. Whitney are currently in Class I, Messrs. Reilly and Wild are currently in Class II, and Ms. Klein, and Messrs. Li and Noglows are currently in Class III.

At each annual meeting of stockholders, directors for the class of which term expires at the annual meeting will be elected to serve from the time of election and qualification until the third annual meeting following election. Our certificate of incorporation provides that the authorized number of directors may be changed only by resolution of the board of directors, and that the board of directors may increase or decrease the authorized number of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors. Our certificate of incorporation also provides that our board of directors may fill any vacancy created by the resignation of a director or the increase in the size of our board of directors.

Our board of directors unanimously recommends that you vote “FOR” the election to the board of the nominees named below.

Nominees for Director for a term that expires in 2023:

 

   

 

Paul J. Reilly, 63

   

Committee Membership:

•   Audit

•   Compensation

 

Mr. Reilly was elected a director of our company in March 2017. Mr. Reilly served as an executive vice president of Arrow Electronics, Inc. through his retirement in January 2017, and previously had served as its executive vice president, finance and operations, and chief financial officer from 2001 through May 2016, and head of global operations from 2009 through May 2016. Prior to joining Arrow in 1991, Mr. Reilly was a certified public accountant in the business assurance practice of the New York office of KPMG Peat Marwick. Mr. Reilly also serves as a director of Assurant, Inc., and previously served as a director of comScore, Inc. He has a B.S. in accounting from St. John’s University. Based upon Mr. Reilly’s management and director experience and his accounting and finance background discussed above, the board has concluded Mr. Reilly should serve as a director of our company.

 

   

 

Geoffrey Wild, 63

   

Committee

Membership:

•   Compensation

•   Nominating and
Corporate Governance

 

Mr. Wild was elected a director of our company in September 2015. Mr. Wild has served as the Chief Executive Officer of Atotech since March 2017, and previously was the Chief Executive Officer of AZ Electronic Materials from January 2010 until April 2015. Prior to that, he was President and Chief Executive Officer of Cascade Microtech, Inc., having previously served as Chief Executive Officer of Nikon Precision, Inc. Mr. Wild previously served as a director of Materion Corporation, and Axcelis Technologies, Inc. He received his B.S. in chemistry from the University of Bath, UK. Based upon Mr. Wild’s management and director experience and his technical background discussed above, the board has concluded Mr. Wild should serve as a director of our company.

 

 

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Directors whose terms continue until 2021:

 

   

 

Barbara A. Klein, 65

   

Committee

Membership:

•   Audit (Chair)

•   Nominating and Corporate Governance

 

Ms. Klein was elected a director of our company in April 2008. Ms. Klein also is a director of Ingredion, Inc. She retired in May 2008 as the Senior Vice President and Chief Financial Officer of CDW Corporation. Prior to that, Ms. Klein held a variety of senior finance positions including Vice President and Chief Financial Officer of Dean Foods Company, Vice President and Corporate Controller of Ameritech Corporation, and Vice President and Corporate Controller of Pillsbury Co. Ms. Klein received a B.S. in accounting and finance from Marquette University, and an M.B.A. from Loyola University. Based upon Ms. Klein’s management and director experience and her accounting and finance background discussed above, the board has concluded Ms. Klein should serve as a director of our company.

 

    David H. Li, 47
   

Committee

Membership:

•   None

 

Mr. Li was elected a director of our company in January 2015. Mr. Li has served as our President and Chief Executive Officer since January 2015. From June 2008 through December 2014, Mr. Li served as our Vice President of the Asia Pacific Region. Prior to that role, Mr. Li served in various leadership roles, including as our Managing Director of China and Korea, and our Global Business Director for Tungsten and Advanced Dielectrics. Prior to that, he held a variety of leadership positions in operations, sourcing and investor relations since joining us in 1998. Mr. Li received a B.S. in chemical engineering from Purdue University and an M.B.A. from Northwestern University. Based upon Mr. Li’s management experience, his knowledge of our company, its operations and customers, his knowledge of the chemical and semiconductor industries, and his Asia-focused, cross-border business experience, the board has concluded Mr. Li should serve as a director of our company.

 

    William P. Noglows, 61
   

Committee

Membership:

•   None

 

Mr. Noglows has served as our Chairman since 2003, and was our President and Chief Executive Officer from November 2003 through December 2014. Mr. Noglows also is a director of Aspen Aerogels, Inc. and Littelfuse, Inc. From 1984 through 2003, he served in various management positions at Cabot Corporation, culminating in serving as an executive vice president and general manager. Mr. Noglows had previously served as a director of our company from December 1999 until April 2002. Mr. Noglows received his B.S. in chemical engineering from the Georgia Institute of Technology. Based upon Mr. Noglows’ management experience, his knowledge of our company and its operations, and his knowledge of the chemical and semiconductor industries, the board has concluded Mr. Noglows should serve as a director of our company.

 

 

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Directors whose terms continue until 2022:

 

   

 

Richard S. Hill, 68

   

Committee

Membership:

•   Audit

•   Nominating and Corporate Governance (Chair)

 

Mr. Hill was elected a director of our company in June 2012. Mr. Hill retired as the Chairman and Chief Executive Officer of Novellus Systems, Inc. in June 2012 after serving in these positions since 1996, and since 1993 as CEO upon his joining Novellus. Prior to leading Novellus, Mr. Hill held various senior leadership and management positions with Tektronix, Inc., General Electric, Inc., Motorola, Inc., and Hughes Aircraft, Inc. Mr. Hill also serves as a director of Arrow Electronics, Inc., Xperi, Inc., and Marvell Technology Group Ltd. He also served as Interim Chief Executive Officer of Symantec, Inc. from May to November 2019, and had served as a director until December 2019. He received a B.S. in bioengineering from the University of Illinois and a M.B.A. from Syracuse University. Based upon Mr. Hill’s management and director experience and his technical background discussed above, the board has concluded Mr. Hill should serve as a director of our company.

 

   

 

Susan M. Whitney, 69

   

Committee

Membership:

•   Audit

•   Compensation (Chair)

 

Ms. Whitney was elected a director of our company in April 2015. Ms. Whitney, a 35-year veteran of the IBM Corporation, retired as the General Manager of IBM System X in 2007 after leading the IBM Server Group, and directing IBM’s global x86-based server division. Prior to that, she served in numerous executive leadership roles, including marketing and sales responsibilities for the IBM Asia Pacific and IBM Midwest organizations. Ms. Whitney also serves as a trustee of the College of Mt. St. Vincent, and served as a director of LSI Logic Corporation prior to its acquisition by Avago Technologies, Ltd. in 2014. She received her B.A. in mathematics and economics from the College of Mt. St. Vincent. Based upon Ms. Whitney’s management and director experience and her background in technology companies discussed above, the board has concluded Ms. Whitney should serve as a director of our company.

 

BOARD STRUCTURE AND COMPENSATION

Board of Directors and Board Committees

Board Leadership

Our independent directors hold regularly scheduled meetings in executive session, at which only independent directors are present. As provided in our Corporate Governance Guidelines, the Chairman of the nominating and governance committee, Mr. Hill, serves as chairman of the meetings of the independent directors in executive session and performs other responsibilities of a lead director such as working with the Chairman of the board of directors to plan and set the agenda for meetings of the board of directors. Mr. Noglows is the independent, non-executive Chairman of the board of directors and prior to January 1, 2015, also was the President and Chief Executive Officer of our company. Effective January 1, 2015, Mr. Li became our President and Chief Executive Officer, and Mr. Noglows continued as Chairman of the Board in an Executive capacity through December 2015. Thus, from and after January 1, 2015, our company has had a separate Chairman of the board of directors (Mr. Noglows) and a separate President and Chief Executive Officer (Mr. Li), an approach that our board believes has provided a smooth leadership transition and structure for our company.

Board’s Role in Risk Oversight

The board of directors has an oversight role, as a whole and at the committee level, in overseeing management of our risks. Our board focuses on our general risk management strategy, the most significant risks

 

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facing us, and oversees the implementation of risk mitigation strategies by management. The board regularly reviews information regarding our credit, liquidity, and operations, including the environmental, health and safety aspects of such, and risks associated with each, and along with the audit committee, compliance matters related to our business. The Board’s oversight of risk management matters related to environmental, health and safety includes consideration of sustainability and climate-related risks. The compensation committee of the board is responsible for overseeing the management of risks relating to our employee compensation plans, policies, and programs, as well as our annual report on executive compensation for inclusion in each proxy statement. The audit committee of the board oversees the management of financial risks. The nominating and corporate governance committee of the board is responsible for overseeing the management of risks related to corporate governance matters. While each committee is responsible for evaluating certain risks and overseeing management of such risks, the entire board is regularly informed through the committees about such risks, and reviews and discusses them in the context of our overall risk posture and risk management and mitigation strategies.

Corporate Governance

Our board of directors has adopted the Cabot Microelectronics Corporation Corporate Governance Guidelines, which are available on our website, www.cabotcmp.com, along with other corporate governance materials, such as board of directors’ committee charters and our Code of Business Conduct. Pursuant to the Corporate Governance Guidelines, committee charters and other corporate governance materials and practices, our board of directors and committees, particularly the audit committee, periodically review and provide oversight of the management of various risk factors that are relevant to our company. Our board of directors also reviews annually the functioning of the board.

Shareholder Engagement and Communications with Directors

Our company values the perspectives of our shareholders, and has a variety of means by which we engage with them. Also, stockholders and third parties may communicate with our board of directors, the non-employee directors or any individual director (including any committee chair) through the Chairman of the Board, c/o the Secretary of our company, at our offices at 870 North Commons Drive, Aurora, Illinois 60504. Depending on the nature of the communication and to whom it is directed, the Secretary of our company will: (a) forward any communication to the appropriate director or directors; (b) forward the communication to the relevant department within the company; or (c) attempt to handle the matter directly (for example, a communication dealing with a share ownership matter).

Independent Directors

The board of directors has determined that six of our seven current directors, including Messrs. Hill, Noglows, Reilly and Wild, and Ms. Klein and Ms. Whitney, are “independent” directors as defined in the National Association of Securities Dealers Automated Quotation (“NASDAQ”) Marketplace Rules and as defined in applicable rules by the SEC. In making its determinations of independence, in addition to consideration of the relevant SEC and NASDAQ rules (according to which the definition of “independent director” is set forth in our Corporate Governance Guidelines, a current copy of which is available on our website, www.cabotcmp.com), the board of directors considered factors for each director such as any other directorships, any employment or consulting arrangements, and any relationship with our company’s customers, suppliers or advisors. In particular, the board of directors determined that, effective January 1, 2019, Mr. Noglows qualified as an independent director under applicable rules considering, among other things, that it has been more than three years since he was an employee of our company.

Board Refreshment and Succession Planning

Our board of directors regularly reviews its own composition, and considers and plans for an orderly transition of the board, including with respect to planning for potential retirements and with respect to identifying potential candidates for service as new directors. As part of this process, the board of directors routinely evaluates the need for board refreshment and focuses on identifying individuals whose skills and experiences will enable them to make meaningful contributions to the shaping of the future of the company. The board of directors

 

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believes it has made considerable strides towards these goals in recent years. Underscoring these refreshment efforts, the board of directors has refreshed approximately 73% of its directors since 2015. Mr. Li joined the board of directors in January 2015 in connection with his appointment as the company’s president and chief executive officer. The company also added three new independent directors, Ms. Whitney in April 2015, Mr. Wild in September 2015, and Mr. Reilly in March 2017. The board of directors believes all these individuals have the relevant experience and expertise to complement that of our other directors, and to further contribute to the board’s ongoing guidance of our company; since 2015, the board has transitioned through the retirement of six long-serving directors. Over time, our board of directors expects to continue to focus on board refreshment and this transition process to inject relevant expertise, new skill sets, and diverse perspectives. The Board also has committed itself to carefully considering diversity when evaluating director candidates, giving strong consideration to candidates that would contribute to the board’s gender and other diversity, as evidenced by the fact that it has had female representation on the Board for more than a decade, and approximately 30% for the past 5 years.

Board and Committee Meeting Attendance

During fiscal year 2019, our board of directors held 14 meetings and took action by written consent two times. Each of our directors attended at least 75% of all the meetings of the board and those committees on which he or she served during fiscal year 2019, and all directors attended our annual meeting of stockholders in fiscal year 2019. We encourage directors to attend our stockholder annual meetings. Since the end of fiscal year 2019, the board of directors has met six times and has taken action by written consent two times. During fiscal year 2019, our independent directors met in executive session 12 times. Since fiscal year end, our independent directors have met in executive session four times.

Committees of the Board

The board has three standing committees: the audit committee, the compensation committee and the nominating and corporate governance committee. The following chart sets forth the directors who currently serve as members of each of the board committees.

 

 

Directors

 

 

 

Audit Committee

 

 

 

Compensation Committee

 

 

 

Nominating and Corporate

Governance Committee

 

 

 Richard S. Hill

 

 

X     

 

 

 

 

C     

 

 Barbara A. Klein

 

 

C     

 

 

 

 

X     

 

 Paul J. Reilly

 

 

X     

 

 

X     

   

 

 

 Susan M. Whitney

 

 

X     

 

 

C     

   

 

 

 Geoffrey Wild

   

 

 

 

X     

 

 

X     

 

“C” denotes member and chairman of committee

“X” denotes member of committee

Audit Committee.

The members of the audit committee are currently Messrs. Hill and Reilly, Ms. Klein (Chair) and Ms. Whitney. The board has determined that each of these audit committee members during fiscal year 2019 and currently are independent as defined by NASDAQ Marketplace Rules and under the applicable rules adopted by the SEC and that all such members are financially literate.

The functions of the audit committee include:

 

   

selecting, appointing, retaining, compensating and overseeing our independent auditors;

 

   

deciding upon and approving in advance the scope of audit and non-audit assignments and related fees;

 

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reviewing accounting principles we use in financial reporting;

 

   

reviewing our system of disclosure controls and procedures;

 

   

reviewing the adequacy of our internal control procedures, including the internal audit function; and,

 

   

reviewing general compliance matters and processes related to our operations, including those related to environmental, health and safety matters.

Our board of directors has determined that the audit committee has at least one member who qualifies as an Audit Committee Financial Expert, as defined by relevant SEC rules, and has designated Ms. Klein, the Chair of the audit committee, as such Audit Committee Financial Expert.

The audit committee operates under a written charter, a current copy of which is available on our website, www.cabotcmp.com. The audit committee reviews and reassesses the adequacy of the audit committee charter on an annual basis. The audit committee has established procedures for the receipt, retention, and treatment of complaints received regarding accounting, internal accounting controls or auditing matters, as well as for the pre-approval of services provided by our independent auditors, both of which are also available on our website, www.cabotcmp.com. As set forth in the audit committee charter, the audit committee is also responsible for the review and approval of any related party transaction in advance of the company entering into any such transaction; since April 2002, we have not been engaged in any related party transactions and none have been proposed to the audit committee for consideration.

The audit committee met eight times during fiscal year 2019 and did not take action by written consent, and has met three times since fiscal year end with respect to the audit of our fiscal year 2019 financial statements and related and other matters, and has not taken action by written consent. In fulfillment of the audit committee’s responsibilities for fiscal year 2019, Ms. Klein, the audit committee Chair, reviewed our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 (as did the other members of the committee and board of directors), and our Quarterly Reports on Form 10-Q before we filed them, and Ms. Klein and other members of the audit committee (and board of directors) also reviewed quarterly earnings announcements and related matters before we released them.

Compensation Committee.    The members of the compensation committee are currently Messrs. Reilly and Wild, and Ms. Whitney (Chair), each of whom the board determined was during fiscal year 2019 and is now an “independent” director as defined by NASDAQ Marketplace Rules and as defined in applicable rules adopted by the SEC. Further, the members of the compensation committee each satisfy the enhanced eligibility requirements applicable to compensation committee members of listed companies set forth in NASDAQ listing standards.

The functions of the compensation committee include:

 

   

reviewing and approving the compensation and benefits for our employees;

 

   

evaluating and deciding upon the compensation of our chief executive officer;

 

   

evaluating and deciding upon the compensation of our other executive officers, which is done following consultation with our chief executive officer;

 

   

monitoring the administration of our employee benefit plans;

 

   

authorizing and ratifying stock option grants, restricted stock and restricted stock unit awards, other equity awards (such as performance share unit awards), and other incentive arrangements;

 

   

authorizing employment and related agreements;

 

   

in concert with the nominating and corporate governance committee, reviewing and making recommendations to the board of directors regarding succession planning for our chief executive officer and other executive officers; and

 

   

periodically reviewing human capital matters affecting the company (for example, demographics, diversity and inclusion, talent development and employee retention initiatives).

 

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Our chief executive officer is neither present for voting or deliberation on, nor votes upon decisions relating to, his compensation. In addition, our chief executive officer does not vote upon decisions related to the compensation of our other executive officers. Also, our vice president of human resources and her staff support the compensation committee in its work by providing input and recommendations on the overall mix and forms of executive compensation as directed by the compensation committee. Our vice president of human resources and human resources staff do not make decisions regarding the amount of compensation for our named executive officers or other executive officers.

The compensation committee has engaged the services of an independent compensation consultant, which reports directly to the committee. Since April 2017, the committee has engaged Meridian Compensation Partners, LLC (“Meridian”) as its independent compensation consultant. The consultant has been engaged to advise the compensation committee on executive officer compensation and equity incentive matters and trends and to perform benchmark comparison analysis of compensation practices of peer companies. As part of the compensation committee’s ongoing and annual reviews of executive officer compensation matters, the consultant recommends specific ranges of compensation for our executive officers, including our named executive officers, based on information provided by the committee regarding different performance scenarios and desired positioning with respect to market compensation ranges. The consultant also advises the nominating and corporate governance committee on non-employee director compensation matters. The consultant provides no other services to our company. The compensation committee also has reviewed the independence of the consultant in light of SEC rules and NASDAQ listing standards regarding compensation consultants and has concluded that the consultant’s work for the committee and for the nominating and corporate governance committee is independent and does not raise any conflict of interest.

The compensation committee operates under a written charter that addresses compensation matters, a current copy of which is available on our website, www.cabotcmp.com. The compensation committee reviews and reassesses the adequacy of the compensation committee charter (including under NASDAQ listing standards) on an annual basis. The compensation committee met six times during fiscal year 2019 and took action by written consent two times, and has met three times since the fiscal year end with respect to 2019 annual cash incentive payouts, salary increases, equity awards (including stock option grants, and restricted stock unit and performance share unit awards), and other matters, and has not taken action by written consent.

Nominating and Corporate Governance Committee. The members of the nominating and corporate governance committee are currently Messrs. Hill (Chair) and Wild, and Ms. Klein, each of whom was during fiscal year 2019 and is now an “independent” director as defined by NASDAQ Marketplace Rules and as defined in applicable rules adopted by the SEC.

The functions of the nominating and corporate governance committee include:

 

   

reviewing and recommending a slate of nominees for the election of directors;

 

   

recommending changes in the number, classification and term of directors;

 

   

reviewing nominations by stockholders with regard to the nomination process;

 

   

reviewing and recommending compensation and other matters for our non-employee directors;

 

   

reviewing and recommending succession planning for the chief executive officer, and other executive officers, which may be done in concert with the compensation committee; and,

 

   

attending to general corporate governance matters, including Environmental, Social and Governance (ESG), such as sustainability and climate-related, matters and their impact on our stakeholders.

The nominating and corporate governance committee operates under a written charter that addresses the nominations process and such related matters as may be required under the federal securities laws and NASDAQ listing requirements, a current copy of which is available on our website, www.cabotcmp.com. The nominating and corporate governance committee reviews and reassesses the adequacy of the nominating and corporate governance charter on an annual basis. The nominating and corporate governance committee met three times

 

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during fiscal year 2019, did not take action by written consent, and has met once since fiscal year end and has not taken action by written consent. The nominating and corporate governance committee acted unanimously to recommend the nomination of the Class II director nominees to the board of directors, subject to stockholder approval, as discussed in “ELECTION OF DIRECTORS,” above.

Criteria for Nominating Directors

The nominating and corporate governance committee considers candidates to fill new directorships created by expansion and vacancies that may occur and makes recommendations to the board of directors with respect to such candidates. The nominating and corporate governance committee considers suggestions from many sources regarding possible candidates for director and will consider nominees recommended by stockholders. Any such stockholder nominations, together with appropriate biographical information, should be submitted to the Chairman of the nominating and corporate governance committee, c/o the Secretary of our company at our offices at 870 North Commons Drive, Aurora, Illinois 60504. To be included in the proxy statement, such nomination must be received by the Secretary of our company not later than the 120th day prior to the first anniversary of the date of the preceding year’s proxy statement.

In fiscal year 2019, we did not pay a fee to any third party to identify or evaluate potential director nominees; however, in the future we may pay a fee to a third party to identify or evaluate potential director nominees if the need arises, given the important role our directors play in guiding our strategic direction and overseeing the management of our company.

Board candidates are selected based upon various criteria including, but not limited to, their:

 

   

character and reputation;

 

   

relevant business experience and acumen;

 

   

relevant educational background;

 

   

experience in areas such as technology, manufacturing, marketing, finance, strategy, international business, and academia; and

 

   

geographic, cultural, experiential and other forms of diversity, such as gender.

The nominating and corporate governance committee and board of directors review these factors, including diversity, in considering candidates for board membership. Board members are expected to prepare for, attend and participate in all board of directors and applicable committee meetings, and our annual meetings of stockholders. The nominating and corporate governance committee considers a director’s past attendance record, participation and contribution to the board of directors in considering whether to recommend the reelection of such director.

 

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Compensation of Directors

The following table shows information concerning the compensation that the company’s non-employee directors earned during the last completed fiscal year ended September 30, 2019. A director who is also our employee receives no additional compensation for his or her services as a director.

Fiscal Year 2019 Director Compensation

 

Name

 

 

Fees Earned

or Paid

in Cash ($)1

 

   

Stock

Awards

($)2

 

   

Option

Awards

($)2

 

   

All Other

Compensation

($)

 

   

Total

($)

 

 

 

William P. Noglows

 

 

 

 

 

 

140,000

 

 

 

 

 

 

 

 

 

100,072

 

 

 

 

 

 

 

 

 

82,775

 

 

 

 

 

 

 

 

 

—        

 

 

 

 

 

 

 

 

 

322,846

 

 

 

 

 

Richard S. Hill

 

 

 

 

 

 

115,000

 

 

 

 

   

 

100,072

 

 

 

 

 

 

 

 

82,775

 

 

 

 

 

 

 

 

 

—        

 

 

 

 

 

 

 

 

 

297,846

 

 

 

 

 

Barbara A. Klein

 

 

 

 

 

 

115,000

 

 

 

 

   

 

100,072

 

 

 

 

 

 

 

 

82,775

 

 

 

 

 

 

 

 

 

—        

 

 

 

 

 

 

 

 

 

297,846

 

 

 

 

 

Paul J. Reilly

 

 

 

 

 

 

90,000

 

 

 

 

   

 

100,072

 

 

 

 

 

 

 

 

82,775

 

 

 

 

 

 

 

 

 

—        

 

 

 

 

 

 

 

 

 

272,846

 

 

 

 

 

Susan M. Whitney

 

   

 

115,000

 

 

 

   

 

100,072

 

 

 

 

 

 

 

 

82,775

 

 

 

 

 

 

 

 

 

—        

 

 

 

 

 

 

 

 

 

297,846

 

 

 

 

 

Geoffrey Wild

 

 

 

 

 

 

90,000

 

 

 

 

   

 

100,072

 

 

 

 

 

 

 

 

82,775

 

 

 

 

 

 

 

 

 

—        

 

 

 

 

 

 

 

 

 

272,846

 

 

 

 

 

1     Includes an annual retainer fee, and, as applicable, committee chairperson annual retainer fees, both earned quarterly, each as discussed in more detail below. Dollar amounts are comprised as follows:

 

Name

 

 

Annual

Retainer Fee

 

   

Committee

  Chair Fee  

 

   

Non-

Executive

Board

 Chair Fee 

 

 

 

Mr. Noglows

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,000

 

 

 

 

 

Mr. Hill*

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ms. Klein**

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Reilly

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ms. Whitney***

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Wild

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  *

Nominating and corporate governance committee chair

 

  **

Audit committee chair

 

  ***

Compensation committee chair

2     The amounts in the column headed “Stock Awards” represent the aggregate award date fair value of awards made in fiscal year 2019 computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation (“ASC 718”). For these restricted stock unit awards, the fair value is equal to the underlying value of the stock and is calculated using the closing price of our common stock on the award date. The actual value realized by a non-employee director related to restricted stock unit awards will depend on the market value of our common stock on the date the underlying stock is sold following vesting of the awards.

The amounts in the column headed “Option Awards” represent the aggregate grant date fair value of grants in fiscal year 2019 computed in accordance with ASC 718 (see Note 16 of Notes to Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for a description of the assumptions used in that computation). The actual value realized by a non-employee director related to option awards will depend on the difference between the market value of our common stock on the date the option is exercised and the exercise price of the option.

 

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The award date fair market value of each “Stock Award” and the grant date fair market value of each “Option Award” awarded or granted to our non-employee directors during fiscal year 2019, computed in accordance with ASC 718 (excluding the impact of estimated forfeitures for service-based vesting conditions), is as follows:

 

 Name

 

 

Award or

  Grant Date  

 

   

Number of

  Restricted Stock  

            Units             

 

   

  Award Date Fair  

        Value ($)        

 

   

  Number of  

    Options    

 

   

Grant Date

  Fair Value ($)  

 

 

 

 Mr. Noglows

 

 

 

 

 

 

3/6/19     

 

 

 

 

 

 

 

 

 

909         

 

 

 

 

 

 

 

 

 

100,072      

 

 

 

 

 

 

 

 

 

2,972    

 

 

 

 

 

 

 

 

 

82,775    

 

 

 

 

 

 Mr. Hill

 

 

 

 

 

 

3/6/19     

 

 

 

 

 

 

 

 

 

909         

 

 

 

 

 

 

 

 

 

100,072      

 

 

 

 

 

 

 

 

 

2,972    

 

 

 

 

 

 

 

 

 

82,775    

 

 

 

 

 

 Ms. Klein

 

 

 

 

 

 

3/6/19     

 

 

 

 

 

 

 

 

 

909         

 

 

 

 

 

 

 

 

 

100,072      

 

 

 

 

 

 

 

 

 

2,972    

 

 

 

 

 

 

 

 

 

82,775    

 

 

 

 

 

 Mr. Reilly

 

 

 

 

 

 

3/6/19     

 

 

 

 

 

 

 

 

 

909         

 

 

 

 

 

 

 

 

 

100,072      

 

 

 

 

 

 

 

 

 

2,972    

 

 

 

 

 

 

 

 

 

82,775    

 

 

 

 

 

 Ms. Whitney

 

 

 

 

 

 

3/6/19     

 

 

 

 

 

 

 

 

 

909         

 

 

 

 

 

 

 

 

 

100,072      

 

 

 

 

 

 

 

 

 

2,972    

 

 

 

 

 

 

 

 

 

82,775    

 

 

 

 

 

 Mr. Wild

 

 

 

 

 

 

3/6/19     

 

 

 

 

 

 

 

 

 

909         

 

 

 

 

 

 

 

 

 

100,072      

 

 

 

 

 

 

 

 

 

2,972    

 

 

 

 

 

 

 

 

 

82,775    

 

 

 

 

During fiscal year 2019, no stock awards held by any of our non-employee or other directors were modified or cancelled (forfeited).

The aggregate number of stock awards and the aggregate number of stock option awards held by each non-employee director that were outstanding as of the end of fiscal year 2019 are as follows:

 

    

Aggregate Number of Awards

  Outstanding as of September 30,  

                             2019                            

 

 

 Name

 

 

  Stock Awards*  

 

   

  Option Awards  

 

 

 

 Mr. Noglows

 

 

 

 

 

 

909      

 

 

 

 

 

 

 

 

 

88,306      

 

 

 

 

 

 Mr. Hill

 

 

 

 

 

 

909      

 

 

 

 

 

 

 

 

 

6,357      

 

 

 

 

   

 

 Ms. Klein

 

 

 

 

 

 

909      

 

 

 

 

 

 

 

 

 

44,806      

 

 

 

 

 

 Mr. Reilly

 

 

 

 

 

 

1,585      

 

 

 

 

 

 

 

 

 

11,168      

 

 

 

 

 

 Ms. Whitney

 

 

 

 

 

 

909      

 

 

 

 

 

 

 

 

 

34,306      

 

 

 

 

 

 Mr. Wild

 

 

 

 

 

 

909      

 

 

 

 

 

 

 

 

 

34,306      

 

 

 

 

 

  *

Restricted Stock Units.

Our non-employee directors received an aggregate of 17,832 stock options and 5,454 restricted stock units in fiscal year 2019.

As provided in our Corporate Governance Guidelines and the nominating and corporate governance committee charter, the nominating and corporate governance committee is responsible for reviewing and recommending to the board of directors compensation (cash and equity) for non-employee directors. The committee does this through review of director compensation benchmark information and analysis and recommendation provided by the independent non-employee director compensation consultant to the committee, which since April 2017 is Meridian.

 

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As previously disclosed, the board of directors approved our current non-employee director compensation program effective at the time of our annual meeting in March 2016, with the objective of continuing our company’s ability to attract high caliber and experienced individuals to serve as directors. Our non-employee director compensation program consists of the following elements:

 

Description of Director Compensation, Effective March 2016

 

 

  Amount/Value  

 

 

 

Annual Retainer Fee1

 

 

 

 

 

 

$90,000    

 

 

 

 

 

Committee Chair Annual Retainer Fees1:

 

   

 

Audit committee chairperson

 

 

 

 

 

 

$25,000    

 

 

 

 

 

Compensation committee chairperson

 

 

 

 

 

 

$25,000    

 

 

 

 

 

Nominating and corporate governance committee chairperson

 

 

 

 

 

 

$25,000    

 

 

 

 

 

No Standing Committee or Board Meeting Fees2

 

 

 

 

 

 

—    

 

 

 

 

 

Non-Executive Board Chair Fee3

 

 

 

 

 

 

$50,000    

 

 

 

 

 

Annual Non-qualified Stock Option Grant4

 

 

 

 

 

 

$90,000    

 

 

 

 

 

Annual Restricted Stock Unit Award4

 

 

 

 

 

 

$90,000    

 

 

 

 

 

Initial Restricted Stock Unit Award5

 

 

 

 

 

 

$90,000    

 

 

 

 

 

1 

Paid quarterly beginning with the quarter end following the effective date of appointment, and subsequently, beginning with the quarter end following our annual meeting. Directors do not receive additional compensation for serving as committee members.

 

2 

To the extent a special committee is established by board of directors to address a unique matter, a committee meeting fee of $1,500 will be provided.

 

3 

If a non-executive serves as Chair of the Board, he or she will receive a retainer amount in addition to the annual retainer fee.

 

4 

Made at the time of our annual meeting (or initial appointment to the board of directors, on a pro-rata basis according to the number of days left until the subsequent annual meeting from the initial date of election) based on a fixed dollar value, with 100% vesting occurring on the first anniversary of the grant/award date. All equity awards made under our 2012 Omnibus Incentive Plan are subject to a per-participant annual limit. Number of units are calculated consistent with methodology used to calculate employee awards, using multiple-day average stock price in advance of award date (annual meeting), and Black-Scholes value of option grants, as applicable.

 

5 

New directors receive initial restricted stock unit awards, based on a fixed dollar value. Each award vests 25% per year on the first four anniversaries of the award date.

Upon a non-employee director’s termination of service as a director of the company for reason of Death, Disability or a Change in Control, as defined in the 2012 Omnibus Incentive Plan and/or an award agreement, each grant or award of non-qualified stock options and restricted stock units held by the director will vest in full. In addition, if at the time of termination of service for any reason other than by reason of Cause, Death, Disability or a Change in Control, as defined in the 2012 Omnibus Incentive Plan and/or an award agreement, the non-employee director has completed at least two full terms as a director, as defined in our bylaws, each grant or award of non-qualified stock options and restricted stock units held by the director will vest in full.

Under our Directors’ Cash Compensation Umbrella Program, which only applies to non-employee directors and is filed as an exhibit to our Annual Report on Form 10-K filed with the SEC on December 10, 2003, each non-employee director may choose to receive his or her compensation either in cash, in fully vested restricted stock under our 2012 Omnibus Incentive Plan (as of the date the fees are earned, the fees would be converted into the equivalent number of fully vested restricted shares, which would be beneficially owned and reported on Form 4 filings), or as deferred compensation under our Directors’ Deferred Compensation Plan, as amended September 23, 2008, which first became effective in March 2001, and is filed as an exhibit to our Annual Report on Form 10-K filed with the SEC on November 25, 2008. Under the Directors’ Deferred Compensation Plan,

 

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deferred amounts are payable only in the form of our common shares. A participating director is required to elect a date on which deferred compensation will begin to be distributed, which date generally must be at least two years after the end of the year deferrals are made and no later than the date of termination. As of the date the compensation is earned, the fees are converted into the right to acquire the equivalent number of shares of common stock at the end of the deferral period. These rights to acquire shares under the Directors’ Deferred Compensation Plan are reported as beneficially owned on Form 4 filings for each participating director; however, no non-employee directors currently participate in, and no amounts are deferred under, the Directors’ Deferred Compensation Plan. At present, non-employee directors receive their annual retainer and committee chair fees on a quarterly basis. Non-employee directors also are eligible for reimbursement of travel and other out-of-pocket costs incurred in attending meetings. Non-employee directors are not eligible for any other compensation arrangement.

Compensation Committee Interlocks and Insider Participation

None of the current or former members of the compensation committee are or have been our employees.

SUSTAINABILITY AND RESPONSIBLE CARE—ENVIRONMENTAL HEALTH AND SAFETY

It is our policy to operate worldwide in a safe, responsible manner that respects the environment and protects the safety and health of our employees, our customers and the communities where we operate. We are committed to conducting our business operations in a manner that preserves the environment, which includes minimizing waste, conserving energy and preventing pollution. Our commitment goes beyond regulatory compliance and ISO certifications. Some of our key environmental health and safety (EHS) initiatives include:

 

   

Our Environmental, Health & Safety Management Systems meets International Organization of Standardization 14001 and Occupational Health & Safety Assessment Series 18001 for Environmental Management, 45001 for Health and Safety Management and Responsible Care.

 

   

We adhere to the principles of the Responsible Business Alliance Code of Conduct.

 

   

We have adopted a Safety, Health & Environmental Policy reviewed, endorsed and signed by management.

 

   

We participate broadly in trade organizations, advocacy groups, local community organizations around the globe.

 

   

We provide transparency through the publication of our Environmental, Health and Safety Performance Report and Human Rights Transparency Report, which are available on our website.

 

   

We strive to reduce electricity and water consumption and solid waste by establishing annual goals available on our website.

 

   

We work to identify, evaluate and control hazards in support of our global safety program

 

   

We create a ‘Caring Culture’ for employee safety and the environment.

For fiscal year 2019, CMC achieved:

 

   

>80% of our solid waste generated either was re-used or recycled rather than going to a landfill.

 

   

Drove sustainability through global reduction in electricity (17% reduction annually), water (15% reduction annually) and solid waste (10% reduction annually).

 

   

Completion of 95 ergonomic improvement projects to improve employee safety.

 

   

Several EHS site locations have been recipients of recognition awards from government bodies and customers.

 

   

A global recordable injury rate of 0.65, which is 66% below the industry average of 1.90.

For additional information on our environmental, health and safety initiatives, please visit our website at www.cabotcmp.com and navigate to the “EHS” tab.

 

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FEES OF INDEPENDENT AUDITORS AND AUDIT COMMITTEE REPORT

Fees Billed by Independent Auditors

During fiscal years 2019 and 2018, the audit committee pre-approved 100% of all audit and non-audit services provided by our independent auditors, PricewaterhouseCoopers LLP, an independent registered public accounting firm. For such pre-approval of services, the audit committee follows its policy for the pre-approval of services provided by our independent auditors, a current copy of which is available on our web-site, www.cabotcmp.com. The policy requires advance approval of all audit, audit-related, tax services and other services performed by the independent auditor. This policy provides for pre-approval by the audit committee of permitted services before the independent auditor is engaged to perform them. The audit committee has delegated to the chair of the audit committee authority to approve permitted services. The following table presents fees for audit services rendered by PricewaterhouseCoopers LLP for the audit of our annual financial statements for the fiscal year ended September 30, 2019, and September 30, 2018, and fees billed for other services rendered by PricewaterhouseCoopers LLP during those periods.

 

 Fees

 

 

Fiscal Year Ended
September 30, 2019 ($)  

 

   

Fiscal Year Ended
September 30, 2018 ($)  

 

 

 

 Audit Fees1

 

 

 

 

 

 

5,112,583

 

 

 

 

 

 

 

 

 

2,107,944

 

 

 

 

 

 Audit-Related Fees2

 

 

 

 

 

 

207,000

 

 

 

 

 

 

 

 

 

464,085

 

 

 

 

 

 Tax Fees3

 

 

 

 

 

 

343,209

 

 

 

 

 

 

 

 

 

357,151

 

 

 

 

 

 All Other Fees4

 

 

 

 

4,500

 

 

 

 

 

 

6,225

 

 

   

 

 

   

 

 

 

 

Total

 

 

 

 

 

 

    5,667,292

 

 

 

 

 

 

 

 

 

    2,935,405

 

 

 

 

 

1 

Audit Fees include fees for professional services rendered by PricewaterhouseCoopers LLP for the audit of our annual financial statements and internal control over financial reporting and review of financial statements included in our Form 10-Q and for services that normally would be provided by PricewaterhouseCoopers LLP in connection with statutory and regulatory filings or engagements. In addition to including fees for services necessary to perform an audit or review in accordance with generally accepted auditing standards, this category also may include services that generally only PricewaterhouseCoopers LLP reasonably can provide, such as comfort letters, statutory audits, attest services, consents and assistance with and review of documents filed with the SEC. For fiscal year 2018, includes Audit Fees incurred in connection with the preparation of our registration statement on Form S-4 related to the acquisition (the “Acquisition”) of KMG. The increase in Audit Fees in fiscal year 2019 compared to the prior year is primarily attributable to audit services performed in connection with the addition and the company’s integration of KMG.

 

2 

Audit-Related Fees include assurance and related services traditionally performed by PricewaterhouseCoopers LLP that are reasonably related to the performance of the audit or review of our financial statements and not reported under the “Audit Fee” heading, including any employee benefit plan audits, due diligence related to mergers and acquisitions, internal control reviews, attest services that are not required by statute or regulation and consultation concerning financial accounting and reporting standards. For fiscal year 2019, PricewaterhouseCoopers LLP provided certain accounting consultation services and services in connection with the Acquisition.

 

3 

Tax Fees include all services performed by professional staff in PricewaterhouseCoopers LLP’s and its foreign affiliates’ tax divisions except those services related to the audit, and include fees for tax compliance, tax planning, and tax advice. Tax compliance generally involves preparation of original and amended tax returns, and claims for refund. Tax planning and tax advice encompass a diverse range of services, including assistance with tax audits and appeals, tax advice related to mergers and acquisitions, employee benefit plans and requests for rulings or technical advice from taxing authorities. For fiscal year 2019, $146,375 of Tax Fees of $343,209 was for tax compliance services. For fiscal year 2018, $46,763 of Tax Fees of $357,151 was for tax compliance services.

 

4 

All Other Fees include fees for fiscal years 2019 and 2018 primarily related to access to on-line software tools.

 

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Report of the Audit Committee

The following report of the audit committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate this report by reference therein.

The audit committee of the board of directors is responsible for providing independent, objective oversight of our accounting and system of internal controls, the quality and integrity of our financial reports, and the independence and the selection, appointment, retention, compensation and oversight of the performance of our independent auditors. The audit committee is composed of independent directors and operates under a written charter, a current copy of which is available on our website, www.cabotcmp.com. The audit committee reviews and reassesses the adequacy of the audit committee charter on an annual basis. Our board of directors has determined that the audit committee has at least one member who qualifies as an Audit Committee Financial Expert, as defined by relevant SEC rules, and has designated Ms. Klein, the Chair of the committee, as such Audit Committee Financial Expert.

Management is responsible for our internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of our financial statements in accordance with generally accepted auditing standards and issuing a report on those financial statements. The audit committee monitors and oversees these processes.

In this context, the audit committee reviewed and discussed the audited financial statements for fiscal year 2019 with management and with the independent auditors. Specifically, the audit committee has discussed with the independent auditors the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC, and which include, among other things:

 

   

methods used to account for any significant and unusual transactions;

 

   

the effect of any significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus;

 

   

the process used by management in formulating any particularly sensitive accounting estimates and the basis for the independent auditors’ conclusions regarding the reasonableness of those estimates; and

 

   

any disagreements with management over the application of accounting principles, the basis for management’s accounting estimates, and the disclosures in the financial statements.

The audit committee believes strongly in the principles underlying the requirement that independent auditors maintain their independence in strict compliance with applicable independence rules. The audit committee has received the written disclosures and the letter from the independent auditors required by the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with the independent auditors the issue of the independent auditors’ independence from the company and management. In addition, in accordance with the SEC’s auditor independence requirements, the audit committee has considered whether the independent auditors’ provision of non-audit services to the company is compatible with maintaining the independence of the independent auditors and has concluded that it is.

Based on its review of the audited financial statements and the various discussions noted above, the audit committee recommended to the board of directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

Respectfully submitted by the audit committee,

Richard S. Hill

Barbara A. Klein, Chair

Paul J. Reilly

Susan M. Whitney

 

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COMPENSATION DISCUSSION AND ANALYSIS

In this section, we discuss and analyze our executive officer compensation program and how we compensated each of our named executive officers identified in the following table in fiscal year 2019. The individuals listed below include our chief executive officer, chief financial officer, and our three other most highly compensated executive officers based on total compensation.

 

  Name   Title
   

 David H. Li

  President and Chief Executive Officer
   

 Scott D. Beamer

  Vice President and Chief Financial Officer
   

 Daniel D. Woodland

  Vice President and President, Electronic Materials
   

 H. Carol Bernstein

  Vice President, Secretary and General Counsel
   

 Jeffrey M. Dysard

  Vice President and President, Performance Materials

Fiscal Year 2019 Executive Compensation Summary

Our executive compensation program is structured to align our named executive officers’ interests with those of our stockholders, by linking compensation to business objectives and performance, and to attract and retain talented executives. In general, our executive officers, including David H. Li, our President and Chief Executive Officer, and our other named executive officers, are eligible for, and participate in, our compensation and benefits programs according to the same terms as those available to all our employees. Our executive compensation program is administered by the compensation committee of our board of directors, which is composed solely of independent directors. The key elements of our executive compensation program are base salary, annual cash incentives pursuant to our Short-Term Incentive Program (“STIP”), and long-term equity incentives. The compensation committee is responsible for determining the level of compensation awarded to our named executive officers and our other executive officers. The compensation committee targets compensation levels that take into account current market practices and believes that offering market-comparable pay opportunities allows our company to maintain a successful and stable executive team.

Fiscal year 2019 was a transformative year for our company. In November 2018, we completed the acquisition of KMG, which nearly doubled our revenue and number of employees, as well as significantly broadened our product portfolio, industry participation, and geographic reach. The acquisition, the largest in our company’s history, helped drive another year of record results as it was the primary driver for our fourth consecutive year of record revenue growth, albeit within a challenging semiconductor industry environment. With the acquisition, the completion and integration of which was driven by our executive officers, including our named executive officers, we broadened our portfolio of specialty materials and strengthened our position as a premier materials supplier to the semiconductor industry. The addition of KMG’s electronic chemicals offerings, which includes high-purity acids, solvents, and blends, has expanded our portfolio of electronic materials and customer solutions beyond the CMP process, and into adjacent integrated circuit manufacturing steps. In addition, the acquired performance materials business has provided opportunities to expand our addressable market by supplying critical materials that enhance the efficiency of pipeline operations and protect vital infrastructure, and this aspect of our business delivered record revenue in fiscal year 2019.

These results reflect the efforts of our global workforce, led by Mr. Li and our other executive officers, including our named executive officers.

Key aspects of the 2019 fiscal year included:

 

   

Record Revenue of $1,037.7 million (increase of approximately $447.6 million, or 75.8%, over fiscal year 2018);

 

   

Net Income of $39.2 million ($70.8 million, or 64.4%, lower than fiscal year 2018);

 

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Adjusted EBITDA of $333.4 Million ($143.5 million, or 75.6%, higher than fiscal year 2018);1

 

   

Adjusted EBITDA Margin of 32.1% (essentially flat to 32.2% for fiscal year 2018);1

 

   

Synergies from the KMG acquisition on a run-rate basis of approximately $26 million within the first fiscal year of the KMG acquisition, which exceeded our goal of $25 million on a run-rate basis over the first two years following the acquisition;

 

   

Earnings Accretion of approximately $1.60 per share from the KMG acquisition since the November 2018 close;

 

   

Operating Cash Flow of $175.0 million ($6.1 million, or 3.6%, higher than fiscal year 2018);

 

   

Cash Dividends distributed to our stockholders of $46.3 million ($15.6 million, or 50.8% higher than fiscal year 2018); and

 

   

Deleveraging our balance sheet within the first fiscal year following the KMG acquisition with prepayment of approximately $100 million of debt.

The highlights of our fiscal year 2019 executive compensation program resulting from our fiscal year 2019 company financial performance were:

 

   

The compensation committee of our board of directors established challenging performance goals for our company for fiscal year 2019 to help drive our efforts to achieve our strategic initiatives both for the year and as part of the achievement of our long-range strategy, which include enhanced performance from that of the prior year, and successful integration of the KMG acquisition. Although these goals were difficult, especially in light of challenging semiconductor industry conditions, which affect the vast majority of our business, the company’s fiscal year 2019 performance for a synergy measure related to the KMG acquisition exceeded the “stretch” level, adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) (expressed as a percentage of revenue) exceeded the “target” level, and revenue exceeded the “threshold” level.

 

   

As described in greater detail below, based on the methodology for determining awards under our STIP, our executive officers, including Mr. Li and our other named executive officers, earned annual cash incentive payouts under the STIP that exceeded the “target” level overall, at an achievement level of 106%.

 

   

Long-term incentive awards for fiscal year 2019 (granted in December 2018) to our named executive officers and other executive officers under our 2012 Omnibus Incentive Plan were solely in the form of equity—performance share units (spanning a three-year performance period), non-qualified stock options and restricted stock units—to further link the interests of our executive officers with those of our stockholders. Fiscal year 2019 award values were again aligned with the target range for comparable benchmark positions. The performance share units, non-qualified stock options and restricted stock unit awards reflected a methodology and terms and conditions generally consistent with annual award cycles of the past few years, as described more fully below. For these fiscal year 2019 awards granted in December 2018, to reflect market practices, executive officers (other than Mr. Li), received 40% of the value of their long-term equity incentive awards as performance share units, 30% as time-based restricted stock units, and 30% as non-qualified stock options; the value received by Mr. Li was comprised of 50% performance share units, 25% time-based restricted stock units and 25% non-qualified stock options.

 

1 

Adjusted EBITDA is considered a non-GAAP financial measure by the SEC. Adjusted EBITDA excludes the impact of non-recurring acquisition and integration related costs, acquisition-related amortization expenses, the effect of the enactment of the Tax Cuts and Jobs Act in December 2017 in the United States (“tax act”) and the newly issued final regulations related to the tax act, the effect of asset impairment and restructuring charges related to the company’s wood treatment business (recorded in fourth quarter of fiscal 2019), and certain costs related to a warehouse fire at KMG-Bernuth in Tuscaloosa, Alabama (recorded in third and fourth quarters of fiscal 2019). See Appendix A below for more information about this non-GAAP financial measure and for a reconciliation from the most comparable GAAP financial measure.

 

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We maintain several compensation program features and corporate governance practices to provide both a strong link between executive pay, company performance and stockholder interests, and a competitive executive compensation program:

 

 

WHAT WE DO

 

 

Independent Compensation Committee Makes All Decisions Related to Executive Compensation (see pages 15, 26 and 27)

 

Pay Program Aligned with Performance and with Business Strategy (see page 27)

 

Link of Substantial Portion of Total Compensation to Company Performance

 

Performance-Based Equity Awards (see pages 29, 36)

 

Balanced Mix of Performance Measures in Short-Term and Long-Term Incentive Programs (see pages 32 through 36)

 

Caps on Short-Term Incentive Payouts as a Percentage of Target (see pages 34 and 35)

 

Annual Caps on Long-Term Incentive Awards (see page 20)

 

Market-Based Compensation (see pages 28 and 29)

 

Annual Compensation Risk Review (see page 41)

 

Cash and Equity Clawback Policy for Executive Officers (see pages 30, 35, 38)

 

Limited Perquisites and Personal Benefits

 

Hold Annual Say on Pay Vote (see page 27)

 

Independent Compensation Consultant for Compensation Committee (see pages 16 and 28)

 

 

WHAT WE DON’T DO

 

 

X  No Hedging or Pledging of Company Stock (see page 38)

 

X  No Repricing or Backdating of Stock Options (see page 36)

 

X  No Loans to Executive Officers

 

X  No Individual Benefit Plans for Executive Officers, Including Supplemental Executive Retirement Plans (see page 39)

 

X  No Current Payout of Dividend Equivalents on Unvested Equity Awards

 

X  No Defined Benefit Pension Plan (see page 51)

 

X  No Single-Trigger Change in Control Severance Benefits (see pages 52 through 54)

 

X  No Gross-Ups for 280G Excise Taxes Pursuant to Post-2008 Change in Control Severance Protection Agreements (see pages 55 and 56)

 

 

Overview

General.    Our executive compensation program is administered by the compensation committee of our board of directors, which is composed solely of independent directors. The compensation committee is responsible for determining the level of compensation paid to our named executive officers and our other executive officers, including determining awards under and administering the 2012 Omnibus Incentive Plan. The compensation committee is also responsible for reviewing and establishing all other executive officer compensation programs and plans that we may adopt from time to time. During, and for, fiscal year 2019, the

 

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compensation committee made all decisions pertaining to the compensation of our named executive officers and our other executive officers. The compensation committee also reviewed and approved the methodology used for compensation of our general employee population. Our chief executive officer is neither present for voting or deliberation on, nor votes upon decisions relating to, his compensation. In addition, our chief executive officer does not vote upon decisions related to the compensation of our other executive officers. Our chief executive officer evaluates the performance of our other executive officers, including the named executive officers, discusses the compensation and mix and forms of compensation of the other executive officers with the compensation committee’s independent compensation consultant and with the committee, and makes recommendations to the committee with respect to the compensation of the other executive officers. However, the committee makes all final decisions regarding the executive officers’ compensation. Also, our vice president of human resources and her human resources staff support the compensation committee in its work by providing input and recommendations on the overall mix and forms of executive officer compensation, and discuss such matters with the committee’s independent compensation consultant, as directed by the compensation committee. Our vice president of human resources and her human resources staff do not make decisions regarding the amount of compensation for our named executive officers or other executive officers, and are not present for voting or deliberation on, any such matters.

As part of its responsibilities pursuant to its charter, the compensation committee also authorizes and reviews the non-binding stockholder advisory vote to approve our named executive officer compensation, as described in our proxy statement. At our 2019 annual meeting of stockholders, our stockholders approved the company’s named executive officer compensation, as described in our 2019 proxy statement, with approximately 94% of the votes cast in favor of the matter. Our compensation committee and our board of directors met following the 2019 annual meeting to consider the results of such non-binding stockholder advisory vote and made no changes to the company’s executive compensation program as a result of such vote. The compensation committee has determined that the non-binding stockholder advisory vote to approve our named executive officer compensation should be submitted to our stockholders for approval annually, which our stockholders support, and has authorized and reviewed the 2019 non-binding stockholder advisory vote on such frequency.

Compensation Policy and Overall Objectives.

In determining the amount and composition of executive officer compensation, the committee’s goal is to provide compensation that will enable us to:

 

   

link the interests of our executive officers to the interests of our stockholders,

 

   

align compensation with business objectives and performance, and

 

   

attract and retain talented executives.

In general, executive officers, including our President and Chief Executive Officer and our other named executive officers, are eligible for, and participate in, our compensation and benefits programs according to the same terms as those available to all our employees. For example, the terms and conditions of our annual non-qualified stock option and restricted stock unit awards under the 2012 Omnibus Incentive Plan are the same for our executive officers as they are for our other employees. Similarly, the health and welfare benefit programs in the countries in which we operate are the same for all our employees, including our named executive officers and other executive officers; our executive officers participate in the same Employee Stock Purchase Plan, tax-qualified savings plan (the “401(k) Plan”) and non-qualified supplemental savings plan (the “Supplemental Plan”), according to the same terms, as our other employees. Aside from the change-in-control severance protection agreements with our named executive officers and other executive officers, and an employment agreement with Mr. Li, all of which are described in greater detail in the “Executive Compensation” section below, we do not have general post-termination of service agreements with our executive officers. Our executive officers are eligible to participate in our Executive Officer Deposit Share Program, as described in greater detail below in the section entitled “Executive Compensation.” Since December 2017, the mix of annual equity awards granted to Mr. Li and our other named executive officers has been weighted in favor of performance-based awards, which helps to

 

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more closely link long term incentives with company performance and the interests of our stockholders. Such awards are more fully described below.

Competitive Compensation and Benchmarking.

The compensation committee believes that each element of the compensation program should target compensation levels that take into account current market practices. Offering market-comparable pay opportunities allows us to maintain a successful and stable management team. Historically our direct competitors in our core business of developing, manufacturing, and selling CMP slurries and pads, and semiconductor consumables overall, are generally not stand-alone publicly-traded entities; therefore, our market for compensation comparison purposes is comprised of a group of companies that develop, manufacture, supply or use a variety of semiconductor products, equipment and processes, including companies that have similar levels of revenue, market capitalization, and employment, as well as comparable geographic presence. Following the acquisition of KMG, we have broadened our portfolio of specialty materials and strengthened our position as a premier materials supplier to the semiconductor industry by adding KMG’s electronic chemicals business to our portfolio, and also adding the performance materials businesses of KMG, which serve customers in several industries and generally relate to the broader specialty chemicals sector. The compensation committee considers changes to the composition of our peer group from time to time based on changes in our or others’ business, and last reviewed the group during fiscal year 2019 with analysis from the independent compensation consultant to the compensation committee, who as of April 2017 is Meridian. In view of the increase in the company’s size and diversification of our business following the acquisition of KMG, Meridian recommended the removal of Cohu, Inc., Phototronics, Inc., Veeco Instruments, Inc., and Xperi Corp. from the peer group, and recommended the addition of Element Solutions, Inc., Ingevity Corp., Innospec Inc., and W. & R. Grace Co. to the peer group. The compensation committee first used the current group for comparison purposes at the end of fiscal year 2019 to consider benchmarks for fiscal year 2019 annual cash incentives under our STIP, and to assist in its review and consideration of fiscal year 2020 base salaries, annual cash incentive targets, and long-term equity incentive awards. The peer group is now comprised of the following companies:

 

Advanced Energy Industries    Ingevity Corp.
Brooks Automation, Inc.    Innospec Inc.
Cognex Corporation    Integrated Device Technology, Inc.
Coherent, Inc.    Macom Technology Solutions
Element Solutions, Inc.    Rogers Corporation
Entegris, Inc.    Semtech Corporation
FormFactor, Inc.    Versum Materials, Inc.
II-VI, Inc.    W. & R. Grace Co.

In evaluating the comparison group for compensation purposes, the compensation committee, in consultation with Meridian, the independent compensation consultant hired by the committee, exercises its discretion and makes its judgment regarding executive officer compensation matters after considering all relevant factors. In general, the compensation committee targets total compensation for our named executive officers and our other executive officers at approximately the 50th percentile for comparable positions within the comparison group, with performance-based elements such as annual cash incentives under our STIP and long-term equity incentives affording a higher-level opportunity depending on the company’s and individual’s performance. A direct correlation may not always exist between the roles, responsibilities, experience and performance of each of our executive officers and those of the position that appears to best correspond to such individual at companies within the comparison group, and in these situations, the compensation committee also may use a comparison to another index, such as those for similarly-sized technology companies (collectively, “comparison group”). In addition, a direct correlation may not always exist between the relevant time period of evaluation given that the fiscal year end of companies within the comparison group is in most cases different from the company’s fiscal year end of September 30, thereby making direct or any comparison difficult, especially when significant macro-economic or semiconductor industry changes occur that materially affect business performance and therefore,

 

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compensation differently and in different reporting periods, for each the company and the companies within the comparison group.

Elements of Compensation

The key elements of our compensation program for our named executive officers and other executive officers, and the reasons we provide them, are set forth in the following table:

 

 

Element

 

 

Description

 

 

Reason Provided

Base Salary   Fixed amount paid in cash twice per month, as for all our employees.  

As for all our employees, provides named executive officers with a steady, predictable amount of fixed income with merit increases from time-to-time based on performance and market comparisons (if provided, usually effective on January 1 of the calendar year following such evaluation).

 

 

Annual Cash Incentives (Short-Term Incentive Program, pursuant to 2012 Omnibus Incentive Plan)

 

 

Cash payment made within 75 days following completion of fiscal year depending on company and individual performance, as for all our employees.

 

 

As for all our employees, aligns compensation with business objectives and performance by communicating goals and motivating individuals to achieve these goals, and rewarding performance actually achieved.

 

 

Long-Term Equity Incentives (currently, pursuant to 2012 Omnibus Incentive Plan)

 

 

Performance Share Units (Annual), Restricted Stock/Restricted Stock Unit Awards (Initial, Annual and Deposit Share Program) and Stock Option Grants (Initial, Annual).

 

 

As for all our employees who receive awards pursuant to our equity incentive plan, “at risk” and long-term performance goal-based nature of equity awards links interests with those of our stockholders; provides ongoing retention mechanism over vesting periods.

 

 

Change in Control Severance Protection Benefits for Executive Officers and other Key Employees (and Post-Termination Agreement for Chief Executive Officer)

 

 

Salary and other benefits paid if terminated within a certain period of time pursuant to a Change in Control of our company (three years’ salary and other benefits for Chief Executive Officer; two years’ for other Executive Officers other than Principal Accounting Officer; one year’s for Key Employees and Principal Accounting Officer).

 

 

Assures company of dedicated executive and key employee team, notwithstanding the possibility, threat or occurrence of a change in control; provides for continuity of executive management and key employees in the event of an actual or threatened change in control.

 

 

Retirement and Other Benefits

 

 

401(k) savings plan, Supplemental Plan, basic life and disability insurance and limited perquisites, as for all our employees.

 

 

Represents market practice and competitive factors; the Supplemental Plan is a broad-based program for all employees who exceed the federal 401(k) compensation limit.

 

Each of these elements is also addressed separately below. In determining compensation for executive officers, the compensation committee considers all elements of an executive officer’s total compensation package in comparison to current market practices, and ability to participate in savings plans and other benefits. On at least an annual basis, the compensation committee considers the base salary, annual cash incentive opportunity

 

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under our STIP, and long-term equity incentive elements, and balance among each of these elements, of each executive officer’s overall compensation.

The receipt and retention by executive officers of certain elements of compensation, such as annual cash incentive and equity-based compensation, are subject to our company’s Code of Business Conduct, and the terms and conditions of relevant program, plan, and grant and award agreements, all of which include provisions that provide that the company may rescind or recover (“clawback”) from an executive officer, including post-separation of service, annual cash incentives and/or equity-based incentives paid or awarded to such executive officer immediately under certain circumstances, including, but not limited to, actions by the individual constituting Cause, as determined by the company in its discretion and as otherwise enforceable under local law and violation of our Code of Business Conduct, including those provisions related to financial reporting (e.g., in the event of a restatement caused by certain factors) and as may be required by law. In the event of any such rescission or right of recovery, the individual must repay the amount in question to the company, and the company shall be entitled to set-off against such amount any amount owed to the individual by the company, including unvested equity awards.

Base Salaries.

The compensation committee regularly reviews each executive officer’s base salary. Base salaries for executive officers are initially determined by evaluating each executive officer’s level of responsibility, prior experience, breadth of knowledge, internal equity issues and external compensation practices, with particular reference to the comparison peer group of companies. Increases to base salaries are driven primarily by performance and current market practices, and are evaluated by the compensation committee based on sustained levels of contribution to the company in the context of our performance-based management process. In the past several years, this generally has meant base salaries around the 50th percentile of the salary ranges of similarly positioned executive officers in the comparison group. The factors the compensation committee considers in determining base salary levels are not assigned specific weights. Rather, the compensation committee reviews all factors and makes base pay determinations that reflect the compensation committee’s analysis of the aggregate impact of these factors.

Current market practices, as represented by a comparison to executive officer base salaries in the comparison peer group of companies continued to serve as the primary reference for the compensation committee with respect to deciding upon any changes to base salary for both fiscal year 2019 (effective as of January 1, 2019) and fiscal year 2020 (effective as of January 1, 2020), similar to fiscal year 2018 (effective as of January 1, 2018). For fiscal year 2019 increases, the compensation committee also considered the roles and scope each named executive officer and other executive officers would have following the company’s acquisition of KMG, which occurred in November 2018, at the beginning of fiscal year 2019. Over this period, the comparative data reflect the effects of macroeconomic and industry factors, set in the context of individual company performance.

 

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According to methodology consistent with the above, the resulting base salaries for 2019 and 2020 for each of the named executive officers are:

 

Name  

 

2019 Base Salary

(Effective

January 1,2019)

 

Increase Over FY 2018

and Reasoning

 

 

2020 Base Salary

(Effective 
January 1,2020)

 

Increase Over FY 2019

and Reasoning

 

David H. Li

 

 

$700,000

 

 

 

7.7%, in consideration of market comparables, especially in light of larger scope of responsibilities following KMG acquisition, and individual and company performance

 

 

 

$700,000

 

 

No increase; as described in more detail below, Mr. Li instead has received a greater portion of the increase in his FY 2020 compensation, which reflects market comparables as well as individual and company performance, in the form of equity (i.e., at-risk compensation), as well as an enhanced short-term cash incentive target of 105% of base salary (from 100%), in order to more closely align Mr. Li’s interests with those of our stockholders

 

 

Scott D. Beamer

 

 

 

$412,000

 

 

3%, in consideration of market comparables, especially in light of larger scope of responsibilities following KMG acquisition, and individual and company performance

 

 

 

$420,000

 

 

2%, in consideration of market comparables, and individual and company performance

 

Daniel D. Woodland

 

 

$425,600

 

 

12%, in consideration of market comparables, especially in light of larger scope of responsibilities following KMG acquisition, and individual and company performance

 

 

 

$475,000

 

 

11.6%, in consideration of market comparables, and individual and company performance

 

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Name  

 

2019 Base Salary

(Effective

January 1,2019)

 

Increase Over FY 2018

and Reasoning

 

 

2020 Base Salary

(Effective 
January 1,2020)

 

Increase Over FY 2019

and Reasoning

 

H. Carol Bernstein

 

 

$385,000

 

 

5.4%, in consideration of market comparables, especially in light of larger scope of responsibilities following KMG acquisition, and individual and company performance

 

 

 

$405,000

 

 

5.2%, in consideration of market comparables, and individual and company performance

 

Jeffrey M. Dysard

 

 

$350,000

 

 

12.9%, in consideration of market comparables in light of his promotion to his current position in January 2019 and the accompanying larger scope of responsibilities, and individual and company performance

 

 

 

$405,000

 

 

15.7%, in consideration of market comparables, his promotion to his current position in January 2019, and individual and company performance

 

Annual Cash Incentives Under Our Short-Term Incentive Program.

All the company’s employees are eligible to participate in the company’s annual cash incentive program, the STIP. This program is administered pursuant to our 2012 Omnibus Incentive Plan, with executive officer, including named executive officer, payouts, if any, determined by the compensation committee. As with all employees, executive officers’ opportunities to earn annual cash incentives correspond to the degree to which our company achieves the annually-established goals. The compensation committee believes that an annual cash incentive program allows us to communicate specific goals that are of primary importance during such year and motivates executive officers to achieve these goals.

Performance-Based Management Program and Company Performance Objectives: At the beginning of each fiscal year, the compensation committee and board of directors establish specific performance goals for the company in accordance with our performance-based management process. These objectives are set to reflect the key elements of our annual plan and budget, and provide a common platform for our initiatives for the year, which are set within the context of our focus on achievement of our longer-term strategic initiatives. Throughout the year, our senior management periodically reviews the company’s progress in achieving these goals with our board of directors and compensation committee. In January 2019, following the closing of our acquisition of KMG, and incorporation of the addition of KMG to our company into the setting of our annual plan and budget, the board of directors and compensation committee approved our Fiscal Year 2019 Company Performance Objectives, which also served as our Performance Goals for the purposes of our STIP. The fiscal year 2019 STIP Performance Goals were chosen to encourage a particular and enhanced focus on certain aspects of our company’s performance, business strategy and objectives for our named executive officers and other executive officers, and for which all our executive officers collectively have responsibility for influencing and driving.

The board of directors and compensation committee selected as our Fiscal Year 2019 Company Performance Objectives and STIP Performance Goals financial measures that are consistent with those used by the investment community to evaluate the performance of our company, and which would be appropriate goals by which to incent the ongoing balanced performance of the company and its executive officers, across all its operational units, within the industry environment anticipated in early fiscal year 2019. The Fiscal Year 2019

 

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Company Performance Objectives and STIP Performance Goals with corresponding Weighting, Measures for evaluating attainment of such, and corresponding Performance Targets were as follows:

 

 

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The KMG acquisition closed when fiscal year 2019 already was underway for both KMG and the company, and as a result thereof, the fiscal year 2019 STIP performance goals and measures for employees other than named executive officers and certain other members of senior management were tailored to align with the heritage business areas of the pre-acquisition company to which they are linked.

Performance Goals, Cash Incentive Pool and Cash Incentive Calculation: As in prior years, in fiscal year 2019, the level of achievement of the noted three Fiscal Year 2019 STIP Performance Goals served as the mechanism by which the company determined the amount of funding for our STIP Pool, which is approved by the compensation committee for our named executive officers and other executive officers.

To determine the funding of the STIP Pool, the performance goals generally are weighted, based on their relative importance to achieving the company’s overall goals. Then, for each performance goal, “threshold”, “target” and “stretch” metrics, or levels, of performance are established. Because each year our performance goals are set to reflect the key objectives of our annual plan and budget, the “threshold”, “target” and “stretch” metrics for each goal are designed to reflect increasing levels of difficulty and motivation in achieving each level; even the “threshold” level requires demonstrated significant achievement against objectives. For fiscal year 2019, the company set challenging Performance Targets for the STIP Performance Goals to encourage focus on continuing to achieve our strategic initiatives, regardless of any difficult industry or macroeconomic conditions. As part of our senior management’s periodic review throughout the year of our progress in meeting our Company Performance Objectives and STIP Performance Goals with the compensation committee and board of directors, performance is discussed against a particular goal’s “threshold”, “target” and “stretch” levels.

 

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The “threshold” level of performance for a particular performance goal represents the lowest level of performance for which any cash incentive would be earned on that goal. The “stretch” level of performance represents the level for which the maximum cash incentive would be earned for that particular goal, and the “target” represents the target level of performance. The actual cash incentive earned, if any, attributable to each performance goal is calculated based on the actual performance compared to these “threshold”, “target” and “stretch” performance levels, and these are added together for all the performance goals to determine the funding of the STIP Pool. In turn, the STIP Pool is allocated for payment of annual cash incentives to executive officers, including our named executive officers. For fiscal year 2019, the cash incentive for a particular executive officer was calculated as follows:

 

 

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In addition, in certain years, in assessing the company’s overall performance and calculating the funding of the STIP Pool for our named executive officers and other executive officers, the compensation committee also may consider certain additional factors, such as, for example, acquisition activity or the impact of global or other events beyond the company’s control, that may have affected our company’s achievement of certain of the Performance Goals that the committee considered important in evaluating the company’s performance for the particular fiscal year, but that were not able to be known to the company at the time the year’s STIP Performance Goals and related metrics were established. Examples of additional factors that the compensation committee considered in fiscal year 2019, and primarily related to the acquisition of KMG, were acquisition-related and integration costs, the costs of a fire-related incident at a KMG facility, as well as certain impacts related to the implementation of the Tax Cuts and Jobs Act in the United States.

For employees other than our named executive officers and other executive officers, the fiscal year 2019 STIP performance goals and measures were tied to the legacy businesses (i.e., either legacy company or legacy KMG) to which such employees provided services in fiscal year 2019, and also included consideration of employees’ performance against their individual performance goals, rather than overall company goals.

Individual Executive Officer STIP Target Levels and Cash Incentives Earned Under Our STIP: The compensation committee, in consultation with its independent compensation consultant, has established an STIP award target for each executive officer, including each named executive officer, by evaluating factors such as external pay practices, with particular reference to the comparison group of companies (as described above, STIP award targets are established for each of our executive officers based on an individual’s role). In this regard, for fiscal year 2019, the compensation committee retained the STIP award target for Mr. Li at 100% and for Mr. Beamer and Dr. Woodland at 65%, but increased the STIP award target for Ms. Bernstein to 65%, from her STIP award target for fiscal year 2018. Dr. Dysard’s STIP award target was set at 65% for fiscal year 2019 at the time of his promotion to his current position. As described above, actual payouts for cash incentive awards to executive officers are determined by the level of performance of our company, which was strong overall, with performance for fiscal year 2019 exceeding the stretch level for the synergy measure related to the KMG acquisition, exceeding the target level for adjusted EBITDA, and exceeding the threshold level for revenue. The compensation committee determined that overall performance against the fiscal year 2019 STIP Performance Goals was achieved at 106% of target. Thus, for fiscal year 2019, the actual payouts for cash incentive awards for all executive officers, including the named executive officers, were greater than the established STIP target level

 

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payouts for each individual, given the performance relative to the pre-established goals. The STIP award targets and actual amounts earned for our named executive officers for fiscal year 2019 were as follows:

 

Name  

Fiscal Year 2019

STIP Target (as %
of Base Salary)

    Fiscal Year
2019
STIP Target ($)
   

Fiscal Year 2019

Actual Cash
Incentive Earned* ($)

 

 

David H. Li

 

 

 

 

 

 

100

 

 

 

 

 

$

 

 

700,000

 

 

 

 

 

 

$

 

 

742,000

 

 

 

 

Scott D. Beamer

 

 

 

 

 

 

65

 

 

 

 

 

$

 

 

267,800

 

 

 

 

 

 

$

 

 

283,900

 

 

 

 

Daniel D. Woodland

 

 

 

 

 

 

65

 

 

 

 

 

$

 

 

276,640

 

 

 

 

 

 

$

 

 

293,200

 

 

 

 

H. Carol Bernstein

 

 

 

 

 

 

65

 

 

 

 

 

$

 

 

250,250

 

 

 

 

 

 

$

 

 

265,300

 

 

 

 

Jeffrey M. Dysard**

 

 

 

 

 

 

65

 

 

 

 

 

$

 

 

227,500

 

 

 

 

 

 

$

 

 

221,200

 

 

 

 

*

In assessing our company’s and executive officers’ achievement of the noted Performance Goals for purposes of the multiplier described above, the compensation committee concluded that a performance factor of 106% had been achieved and the STIP pool was funded accordingly, with allocation to the executive officers according to this percentage achievement. In assessing each named executive officer’s individual performance for fiscal year 2019, and for purposes of the multiplier described above, the compensation committee pursuant to its ability to exercise negative discretion, ultimately decided upon a factor of 1.0 for each named executive officer that recognized the collective contributions of the executive officers to the company’s success for the year.

 

**

Dr. Dysard’s actual STIP incentive earned is a pro-rated amount that reflects his appointment as an executive officer in January 2019.

As discussed above, cash incentives awarded to our executive officers are subject to rescission and recovery (“clawback”) by the company in certain circumstances.

Fiscal Year 2020 STIP, Performance Goals and STIP Targets: In January 2020, the compensation committee and board of directors set our fiscal year 2020 STIP Performance Goals, generally using the process described above. Any amounts earned under this program will be paid under the 2012 Omnibus Incentive Plan. The Performance Goals approved for fiscal year 2020 for all executive officers and certain other senior management of the company are financial goals that include revenue and adjusted EBITDA. In addition, the compensation committee and board of directors approved and set the individual performance factor multiplier for each participant at the maximum level of 200%, and the compensation committee retained discretion to reduce this amount. In consideration of competitive market data, the compensation committee set Mr. Li’s STIP target for fiscal year 2020 at 105% of base salary, and the STIP targets for Mr. Beamer, Dr. Woodland, Ms. Bernstein and Dr. Dysard remained unchanged. All our named executive officers and other executive officers are eligible to participate in the STIP based on the achievement of these overall company objectives. All our employees, other than our named executive officers and other executive officers, are eligible to participate in the 2020 STIP subject to achievement of a combination of overall-company and specific business segment goals, as well as achievement of certain individual performance objectives.

Long-Term Equity Incentives.

Long-term equity incentives are provided to our named executive officers and other executive officers pursuant to the 2012 Omnibus Incentive Plan. All the company’s employees are eligible to participate in the 2012 Omnibus Incentive Plan, with the compensation committee determining all awards to executive officers, including named executive officers. The compensation committee believes that equity-based compensation is essential to our overall compensation program because it involves at-risk components of compensation that directly link our executive officers’ interests with those of our stockholders. The compensation committee, in consultation with its independent compensation consultant, evaluates the balance of equity-based compensation with cash compensation by considering factors such as the desired balance between the two elements, external compensation practices (particularly those practices of the comparison group of companies), and the financial

 

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impact of providing various kinds and amounts of equity-based compensation to our employees, including our executive officers.

Timing of Grants: Initial or “new-hire” equity grants may be awarded when employees, including our executive officers, join the company. Thereafter, equity grants may be awarded to employees, including each executive officer, annually or from time to time based on performance or certain other factors, such as promotion or retention awards. To enhance retention, equity grants awarded to all employees, including our executive officers, are subject to vesting restrictions that generally lapse over a four-year period, and performance-based awards are generally subject to three-year performance requirements. Our practice consistently has been to grant stock options with an exercise price that is the fair market value, as represented by the closing price on NASDAQ, of our stock on the applicable grant date, as approved by the compensation committee. It is not our practice to set a stock option’s grant date as a date prior to the date of approval by the compensation committee (i.e., “backdating”), and we have never done so. In addition, we do not make stock option grants while we are in possession, or in coordination with the release, of material non-public information regarding our company.

Allocation Among Award Types: As permitted by the 2012 Omnibus Incentive Plan, our compensation committee awards non-qualified stock options, restricted stock units and performance share units to employees selected to receive awards, including the named executive officers and other executive officers. The performance share units vest based on the company’s achievement of certain performance metrics (average annual revenue growth and cumulative earnings per share, with potential adjustment based on the total shareholder return (“TSR”) achieved by our company relative to the TSR of the S&P MidCap 400 Index for the fiscal year 2019 and fiscal year 2020 awards, and the S&P SmallCap 600 Index for the fiscal year 2018 award) over the respective three-year performance period (e.g., ending September 30, 2021, 2022, and 2020, respectively, for each of the fiscal year 2019, fiscal year 2020, and fiscal year 2018 awards), generally subject to continued employment through the end of the performance period. We believe that these awards help us to even more directly align our executive officers’ interests with those of our stockholders and further enhance the link between pay and performance. The compensation committee also approved non-qualified stock option and time-based restricted stock unit awards to the company’s named executive officers and other executive officers with terms and conditions that are generally consistent with the awards granted in prior years. All equity awards granted in fiscal year 2019 provide for accelerated vesting, either in full or on a prorated basis, upon the recipient’s “retirement,” defined as the termination of the recipient’s employment following the attainment of a combination of age and years of service of at least 70, with a minimum of 55 years of age, or upon an involuntary termination of employment due to a position elimination or reorganization of the company. For additional information regarding the fiscal year 2019 performance share unit awards, please see footnote 5 to the Grants of Plan-Based Awards table in the “Executive Compensation” section below.

In determining the allocation among award types for a particular fiscal year, our compensation committee considers a number of factors, including the overall number of units to be awarded pursuant to our annual equity incentive award program to all employees. The allocation of value for the fiscal year 2019 long-term equity incentive awards made to our named executive officers (other than Mr. Li) was 40% in the form of performance share units, 30% in the form of non-qualified stock options and 30% in the form of time-based restricted stock units, to reflect current market practices. As previously disclosed, upon the advice of the independent compensation consultant to the compensation committee, the compensation committee decided to award Mr. Li (as chief executive officer of our company) fiscal year 2019 long-term equity incentive awards with a value of 50% in the form of performance share units, 25% in the form of non-qualified stock options and 25% in the form of

 

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time-based restricted stock units. The breakdown of the allocation of long-term equity incentive awards, by award type, made to our named executive officers with respect to fiscal year 2019 is set forth in the charts below.

 

FY19 CEO EQUITY AWARD

ALLOCATION

 

  

FY19 OTHER NEO EQUITY AWARD

ALLOCATION

 

 

LOGO

  

 

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Our compensation committee believes that this mix of awards competitively balances the types of equity incentives being awarded to our employees, and also appropriately addresses the financial impact of the expensing of equity-based compensation required pursuant to an accounting standard issued by the Financial Accounting Standards Board (ASC 718).

The breakdown of the allocation of value for the fiscal year 2020 long-term equity incentive awards is the same as set forth above for fiscal year 2019 for Mr. Li and for our other named executive officers.

Size of Awards: When determining awards for individual executive officers under the 2012 Omnibus Incentive Plan, the compensation committee primarily considers compensation practices and equity values awarded by the comparison group of companies, as well as the executive officer’s level of current and potential future responsibility, and also considers performance in the prior year and the underlying economic value associated with equity incentive awards. In determining award sizes, the compensation committee does not assign specific weights to these factors. Rather, the factors are evaluated on an aggregate basis. On December 6, 2018 (for the stock options and time-based restricted stock units) and on January 17, 2019 (for the performance share units), the compensation committee, upon the advice of its independent compensation consultant, considered all these factors in deciding our fiscal year 2019 annual equity incentive awards, which for our named executive officers are shown in the following table:

 

Name

 

Fiscal Year 2019

Non-Qualified Stock

Option Grant (#)

 

Fiscal Year 2019

Restricted Stock Unit Award (#)

 

 

Target Performance Share Unit

Award (#) for the Fiscal Year
2019 through Fiscal Year 2021
Performance Period

 

David H. Li

  25,424   6,864   13,728

Scott D. Beamer

  9,152   2,472   3,295

Daniel D. Woodland

  9,708   2,624   3,494

H. Carol Bernstein

  8,044   2,172   2,895

Jeffrey M. Dysard(1)

  5,548   1,500   1,997

 

(1)

Dr. Dysard received equity awards in 2019, prior to his appointment as an executive officer.

 

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The compensation committee considered all the same factors described above in deciding our fiscal year 2020 annual equity incentive awards on December 5, 2019, which for our named executive officers are shown in the following table:

 

Name

 

 

Fiscal Year 2020
Non-Qualified Stock
Option Grant (#)

 

Fiscal Year 2020
Restricted Stock Unit Award (#)

 

 

Target Performance Share Unit
Award (#) for the Fiscal Year
2020 through Fiscal Year 2022
Performance Period

 

David H. Li

  23,612   6,212   12,420

Scott D. Beamer

  6,560   1,720   2,300

Daniel D. Woodland

  6,952   1,832   2,440

H. Carol Bernstein

  5,672   1,520   2,020

Jeffrey M. Dysard

  4,772   1,252   1,672

In general, the compensation committee has not considered any actual amounts that may have been realized from prior equity-based compensation awards in awarding subsequent equity-based compensation, or other elements of compensation. However, in considering awards under the 2012 Omnibus Incentive Plan to our employees, including executive officers, the compensation committee does consider whether equity-based awards that previously may have been made to them continue to fulfill the purposes of motivation and retention.

All our executive officers have meaningful equity ownership in our company through participation in various equity-based programs such as the Employee Stock Purchase Plan, Executive Officer Deposit Share Program, and our annual equity incentive award program, but we do not currently have equity-ownership requirements or guidelines for our executive officers.

Clawback Policy; Anti-Hedging or Anti-Pledging Policy: As discussed above, equity-based compensation awarded to our executive officers is subject to rescission and recovery (“clawback”) by the company in certain circumstances. In addition, all equity-based compensation is subject to all the terms of our 2012 Omnibus Incentive Plan, the respective grant and award agreements for particular grants and awards, our Code of Business Conduct, our Insider Trading and Non-Disclosure Policy, including Trading Guidelines for Directors, Executive Officers and Other Key Employees, and our Reporting Requirements and Trading Guidelines for Directors and Executive Officers Under Section 16 of the Securities and Exchange Act and Rule 144 Under the Securities Act of 1933; as applicable, noted policies and procedures apply to any and all equity in our company held by our executive officers. For example, our executive officers, as well as our directors and designated other key employees, observe various requirements, such as those related to quarterly trading and other “blackout” periods, and affirmative pre-clearance of any transactions in our company’s securities. Our executive officers and directors are prohibited from and do not hedge or pledge equity in our company.

Change in Control Severance Protection Benefits.

The terms and conditions of the change in control severance protection agreements with our named executive officers and the employment letter with Mr. Li are described in more detail in the section entitled “Executive Compensation,” below. The board of directors and compensation committee originally determined the terms and conditions of the change in control severance protection agreements, including the severance benefit payable, and the triggering events for the payment of such severance benefit, pursuant to such agreement, in consultation with their independent compensation consultant and our financial and other advisors, and considered external practices at similarly situated companies regarding change in control arrangements. The board of directors and compensation committee also review the costs and benefits of the change in control severance protection agreements periodically. As a result of the most recent review, the board of directors and compensation committee, with advice from an independent outside compensation consultant regarding market practices, determined that the design of such agreements remains competitive and reasonable. The agreements are described in more detail in the section entitled “Executive Compensation,” below.

 

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Retirement and Other Benefits.

We have adopted various employee benefit plans and arrangements for the purpose of providing employee benefits to our employees, including our executive officers. In general, the same terms apply to all our employees, including our executive officers. These plans and arrangements include our Employee Stock Purchase Plan, the 401(k) Plan, the Supplemental Plan, and the Cabot Microelectronics Health and Welfare Benefit Plan.

CEO Compensation

When Mr. Li became our President and Chief Executive Officer effective January 1, 2015, the compensation committee, in consultation with the committee’s independent compensation consultant at the time, considered the executive compensation practices described above to determine the terms of Mr. Li’s initial compensation, comprised of base salary, annual cash incentive under our STIP, and equity-based compensation elements, along with other terms, which are part of Mr. Li’s employment letter agreement with our company.

Upon completion of fiscal year 2019, the compensation committee, in consultation with the compensation committee’s independent compensation consultant, Meridian, considered the executive compensation practices described above, including the performance goals established by the committee, to determine Mr. Li’s total compensation, composed of an annual base salary, an annual cash incentive opportunity under our STIP for fiscal year 2019, and for fiscal year 2020 according to the annual equity incentive award cycle for which all employees were eligible, a non-qualified stock option grant, performance-share unit award, and restricted stock unit award. In addition, in setting both the cash-based and equity-based elements of Mr. Li’s compensation, the compensation committee made an overall assessment of Mr. Li’s leadership in achieving the company’s long-term and short-term strategic, operational and business goals. This included a favorable review of his performance in leading the company during another successful fiscal year, highlighted by our acquisition and integration of KMG, as well as in steering the company amid a challenging environment for the semiconductor industry. Fiscal year 2019, in which the company recorded record revenue and other strong financial results, including the significant overachievement of our synergy target with respect to the acquisition, followed consecutive successful years in fiscal years 2018 and 2017. Specifically related to the company’s long-term strategic initiatives, the compensation committee noted Mr. Li’s leadership with respect to the company’s acquisition of KMG, and ongoing implementation of plans to continue to grow the company profitably and faster than the industries that it serves. The compensation committee, using its discretion, also considered Mr. Li’s compensation with respect to chief executive officers among the comparison group of companies, as well as equitable and consistent treatment compared to our other executive officers. In addition to these factors, as described in greater detail above, Mr. Li’s cash incentive award for fiscal year 2019, which was paid under our STIP, reflected the company’s overall positive performance against the pre-established goals for fiscal year 2019.

Based upon all this, the compensation committee awarded Mr. Li $742,000 as a cash incentive for fiscal year 2019. Mr. Li’s fiscal year 2019 cash incentive under our STIP of $742,000, together with his $687,500 base salary paid during fiscal year 2019, resulted in total cash compensation to Mr. Li for fiscal year 2019 of $1,429,500, which was a decrease of $515,500 from Mr. Li’s total cash compensation for fiscal year 2018 of $1,945,000, comprised of base salary paid in fiscal year 2018 of $645,000 and cash incentive under our STIP for fiscal year 2018 of $1,300,000. This decrease was primarily due to the company’s not meeting its target revenue goal, and only achieving between the threshold and target level of such goal, primarily due to weakness in the semiconductor industry that adversely affected demand for our CMP slurries. Mr. Li’s cash and equity compensation breakdown for fiscal year 2019, as reported in the Summary Compensation Table, and his target compensation allocation for fiscal year 2020 are set forth in the charts below.

 

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FY19 CEO Total Compensation

Allocation

 

 

LOGO

 

FY20 CEO Total Target Compensation

Allocation

 

 

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In addition, as noted above and as reported in Footnotes 2 and 3 to the 2019 Grants of Plan-Based Awards table that follows, on December 5, 2019, the compensation committee awarded Mr. Li equity-based compensation in the form of 23,612 non-qualified stock options, 6,212 restricted stock units, and 12,420 performance share units (at target). Aside from the number of non-qualified stock options, restricted stock units and performance share units awarded, the terms and conditions of these grants and awards are the same as those for grants and awards made to our other employees and executive officers, including provisions that unvested awards will be forfeited at the time of certain terminations of employment. Because these equity awards were made after the completion of fiscal year 2019, they are reported in the referenced footnote and not specifically reported in the compensation tables that follow. In addition, the compensation committee determined that to better align Mr. Li’s compensation with stockholder interests, it would keep his base salary for fiscal year 2020 at the same amount as for fiscal year 2019, but would adjust the overall amount of his at-risk compensation by increasing the size of Mr. Li’s equity grants. As a result, the equity grants made to Mr. Li reflect a greater percentage of his overall compensation package for fiscal year 2020.

As noted above, the compensation committee and the board of directors review on a periodic basis the hypothetical costs to the company of Mr. Li’s change-in-control severance protection agreement, and those of the company’s other executive officers and key employees who have such agreements.

Regulatory and Other Factors

Internal Revenue Code Section 162(m). As one of the factors in its review of compensation matters, the compensation committee considers the anticipated tax treatment to our company and to our executive officers of various payments and benefits. Section 162(m) of the Internal Revenue Code (“Section 162(m)”) generally places a $1 million limit on the amount of compensation payable to certain covered executive officers that a company may deduct in any one year. Limited exceptions to Section 162(m) apply with respect to “qualified performance-based compensation,” as defined in the Internal Revenue Code, as well as certain other items of compensation, in each case, that qualify for transition relief applicable to certain arrangements in place as of November 2, 2017. While the compensation committee generally considers this limit when structuring the company’s executive compensation program, there are instances in which the compensation committee has concluded, and reserves the discretion to conclude in the future, that it is appropriate to exceed the limitation on deductibility under Section 162(m) to ensure that executive officers are compensated in a manner that it believes to be consistent with the company’s best interests and those of its stockholders. The compensation committee also reserves the right to modify compensation that was initially intended to be exempt from Section 162(m) if it determines that such modifications are consistent with the company’s business needs. Furthermore, interpretations of and changes in the tax laws, and other factors beyond the compensation committee’s control, may also affect the deductibility of compensation. The compensation committee will consider various alternatives to preserving the deductibility of compensation payments and benefits to the extent consistent with its compensation objectives.

 

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Now that the performance-based compensation exception is no longer available, it is no longer necessary to include specific Section 162(m)-related limitations or provisions in our compensation plans and programs or to request stockholder approval for this purpose. The company will continue to seek stockholder approval of certain compensation plans as may be required by applicable laws, regulations, or the rules of the applicable exchange on which the company’s shares are listed.

Other Factors. As described above, our compensation committee uses awards of performance share units, restricted stock and restricted stock units in addition to grants of non-qualified stock options to, among other reasons, address the financial impact of the expensing of equity-based compensation required under FASB ASC Topic 718. In addition, the company has intended for its non-qualified deferred compensation plans and other plans, programs and agreements subject to the requirements of Internal Revenue Code Section 409A to be in compliance with such requirements.

COMPENSATION AND RISK

The company’s management, with a review by the audit committee and compensation committee of our board of directors and with support from the compensation committee’s independent compensation consultant, has assessed the risks associated with our compensation programs, policies and practices, and has determined that risks arising from them are not reasonably likely to have a material adverse effect on our company. In making this determination, our management considered the various elements of our compensation programs, policies and practices, such as the: mix of base salary, annual cash incentives under our STIP, and equity incentive program participations at various levels and throughout our company; balance between and among short-term and long-term compensation incentives in our programs; significant use of performance measures that are financial in nature such that they are readily measurable and verifiable, are regularly reviewed, and also are consistent with those that are publicly reported; use of performance measures that directly relate to the operations of our business such that they are readily measurable and verifiable, and are regularly reviewed; use of performance measures that relate to our business overall and avoid overdependence on one aspect of our business and its operations as opposed to another; multiple and cross-functional levels of review and verification prior to award approval; our system of internal controls and internal risk review and assessment processes; and, our general employment practices, policies and procedures.

COMPENSATION COMMITTEE REPORT

The following report of the compensation committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate this report by reference therein.

The compensation committee of the board of directors has reviewed and discussed the Compensation Discussion and Analysis with our company’s management, and based on the review and discussions, the compensation committee has recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement and the company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

Submitted by Messrs. Reilly and Wild and Ms. Whitney, being all the current members of the compensation committee,

Paul J. Reilly

Susan M. Whitney, Chair

Geoffrey Wild

 

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EXECUTIVE COMPENSATION

The following tables set forth certain compensation information for our Chief Executive Officer, current Chief Financial Officer, and three other most highly compensated executive officers of the company (collectively, the “named executive officers”) for the fiscal year ended September 30, 2019. Information for the fiscal years ended September 30, 2018 and September 30, 2017 is also presented for executive officers who were named executive officers during those years, or who had previously been named executive officers.

SUMMARY COMPENSATION TABLE

 

Name and Principal

Position

  Year    

Salary

($)

   

Bonus

($)1

   

Stock Awards

($)2

   

Option Awards

($)2

   

Non-Equity
Incentive

Plan
Compensation

($)3

   

All Other

Compen-

sation

($)4

   

Total Compen-

sation

($)

 
   

David H. Li

    2019       687,500             2,120,064       707,868       742,000       451,304       4,708,736  

President and Chief
Executive Officer

    2018       645,000             2,009,726       578,591       1,300,000       948,234       5,481,551  
    2017       622,500             1,145,130       1,291,648       1,110,690       370,488       4,540,456  
                 
   

Scott D. Beamer

    2019       409,000             583,744       254,815       283,900       46,919       1,578,378  

Vice President and

Chief Financial Officer

    2018       283,333       100,000       1,776,780       216,284       390,000       22,532       2,788,929  
                 
                 
   

Daniel D. Woodland

    2019       414,200             619,274       270,295       293,200       51,064       1,648,033  

Vice President and President, Electronic Materials

    2018       366,250             655,386       251,858       494,000       42,655       1,810,149  
    2017       314,550             536,403       266,137       315,100       27,053       1,459,243  
                 
                 
   

H. Carol Bernstein

    2019       380,075             512,889       227,023       265,300       54,950       1,440,237  

Vice President, Secretary and General Counsel

    2018       362,650             528,567       208,464       438,400       50,293       1,588,374  
    2017       350,475             536,403       266,137       343,900       41,474       1,538,389  
                 
   

Jeffrey M. Dysard

    2019       337,278             353,972       154,470       221,200       127,462       1,194,383  

Vice President and President, Performance Materials

                                                               

 

1

For Mr. Beamer, this amount represents a $100,000 sign-on bonus received in connection with the commencement of his employment with the company in January 2018. The sign-on bonus was subject to forfeiture on a pro rata basis in the event that his employment terminated under certain circumstances within 12 months of the date of his appointment, which forfeiture provision now has expired.

 

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2

The amounts in the column headed “Stock Awards” represent the aggregate grant date fair value of grants in fiscal years 2019, 2018 and 2017 computed in accordance with ASC 718. The actual value realized by a named executive officer related to stock or stock unit awards will depend on the market value of our common stock on the date the stock is sold. For restricted stock unit awards, the fair value is equal to the underlying value of the stock and is calculated using the closing price of our common stock on the award date. For performance share unit awards, the fair value is equal to the grant date fair value computed in accordance with ASC 718. The maximum potential value of the fiscal year 2019 performance share unit awards is shown below:

 

Name

 

  

Performance
Share

Units at
Maximum
Value

 

 

 

Mr. Li

  

 

$

 

2,768,663

 

 

 

Mr. Beamer

  

 

$

 

664,536

 

 

 

Dr. Woodland

  

 

$

 

704,670

 

 

 

Ms. Bernstein

  

 

$

 

583,864

 

 

 

Dr. Dysard

  

 

$

 

402,755

 

 

The amounts in the column headed “Option Awards” represent the aggregate grant date fair value of grants in fiscal years 2019, 2018 and 2017 computed in accordance with ASC 718 (see Note 16 of Notes to Consolidated Financial Statements included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for a description of the assumptions used in that computation). The actual value realized by a named executive officer related to option awards will depend on the difference between the market value of our common stock on the date the option is exercised and the exercise price of the option.

 

    

During fiscal years 2019, 2018 and 2017, no stock awards held by any of our named executive officers were modified or cancelled (forfeited).

 

3 

The amounts in the column headed “Non-Equity Incentive Plan Compensation” represent the amounts earned under the STIP for fiscal years 2019 and 2018. The amounts reported in this column for fiscal year 2017 were previously reported in the “Bonus” column.

 

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4 

The information in the column headed “All Other Compensation” predominantly reflects amounts that by nature generally recur each year, such as benefit costs we contribute on behalf of our named executive officers in the same manner in which we contribute such costs for all our employees. For example, the information in the column includes contributions (both “safe-harbor” and “matching”) made by us to our tax-qualified savings plan (the “401(k) Plan”) and accruals under our non-qualified supplemental savings plan (the “Supplemental Plan”) according to the standard terms of each of these plans as applied to all our employees, including our named executive officers and other executive officers. Under the 401(k) Plan in effect until December 31, 2019, we make an employer contribution on the employee’s behalf of 4% of each employee’s eligible compensation (up to the I.R.S. eligible compensation limit), regardless of whether the employee makes a contribution to the plan (“safe-harbor contribution”), and a matching contribution on the employee’s behalf of 100% of the first 4%, and 50% of the next 2%, that the employee contributes to the 401(k) Plan (“matching contribution”). With respect to the Supplemental Plan, which applies to all employees, including our named executive officers and other executive officers, at such time as they reach the I.R.S. eligible compensation limit, we continue to make the safe-harbor contribution of the equivalent of 4% of each employee’s eligible compensation (over the I.R.S. eligible compensation limit) to the Supplemental Plan on the employee’s behalf. Employees are presently not able to make contributions to the Supplemental Plan. For fiscal year 2019, contributions as such to the 401(k) Plan and the Supplemental Plan on behalf of the named executive officers were made in the following amounts:

 

Name

 

  

401(k) Plan

 

    

Supplemental Plan

 

 

 

Mr. Li

  

 

 

 

$25,317

 

 

  

 

 

 

$68,300    

 

 

Mr. Beamer

  

 

 

 

$25,200

 

 

  

 

 

 

$20,760    

 

 

Dr. Woodland

  

 

 

 

$25,200

 

 

  

 

 

 

$25,128    

 

 

Ms. Bernstein

  

 

 

 

$25,200

 

 

  

 

 

 

$21,498    

 

 

Dr. Dysard

  

 

 

 

$26,814

 

 

  

 

 

 

$12,400    

 

Similarly, the amounts in the column headed “All Other Compensation” include amounts we provided on behalf of each of our named executive officers for basic life insurance and accidental death and dismemberment insurance coverage in fiscal year 2019, which was provided on the same basis to all our employees. There is no cash surrender value associated with this insurance coverage. The value paid for this coverage in fiscal year 2019 attributable to each named executive officer is $252 for each of Mr. Li, Dr. Woodland, Ms. Bernstein, Mr. Beamer, and Dr. Dysard.

In addition, the figures in the column headed “All Other Compensation” for fiscal year 2019 reflect (i) for Mr. Beamer, airline club membership fees for fiscal year 2019 of $707, of which $207 is a tax reimbursement; and (ii) for Ms. Bernstein, a transportation allowance for fiscal year 2019 in the amount of $8,000.

The amounts in the column headed “All Other Compensation” for fiscal years 2019, 2018 and 2017 for Mr. Li include certain fees covered by his employment letter dated December 12, 2014. For fiscal year 2019, the amounts included housing-related expenses of $100,000, transportation expenses of $87,371 (paid in Chinese yuan or Singapore dollars and converted to U.S. dollars), tax equalization of $144,251, relocation fees of $21,329, club membership dues of $3,735 and tax preparation fees of $750.

 

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Employment Letter with Mr. Li

As described in the Compensation Discussion and Analysis and as previously disclosed, on December 12, 2014, we entered into an employment letter with Mr. Li in connection with his appointment as our President and Chief Executive Officer effective as of January 1, 2015. Pursuant to the employment letter, Mr. Li’s initial base salary was set at $550,000 for 2015, and his target bonus under our Annual Incentive Program (now the STIP) was set at 100% of his base salary. Mr. Li also received a non-qualified stock option grant covering 38,500 shares of our common stock and an award of 14,700 restricted shares of our common stock, each with an award date of January 2, 2015. The option and restricted shares vested upon each anniversary in 25% increments over four years, subject to Mr. Li’s continued service, and the options have an exercise price equal to $46.82, the closing price of our common stock on January 2, 2015.

Other than in a situation involving a change of control of our company, which would be addressed by Mr. Li’s Change in Control Severance Protection Agreement that had been previously entered into in 2008, in the event that Mr. Li’s employment is terminated by us without cause or by Mr. Li due to a material breach by us of the employment letter, (1) Mr. Li would be entitled to vesting of stock options and restricted shares held by him, including those described above, to the extent that such awards would have otherwise vested in accordance with their terms during the twelve-month period following the date of termination, (2) Mr. Li would continue to receive his base salary for twelve months and (3) to the extent applicable, we would maintain for 60 days the lease for Mr. Li’s Shanghai housing if such lease is then in effect. Receipt of severance and the accelerated vesting described above is subject to Mr. Li’s execution and non-revocation of a release of claims against us.

In the event of a termination of Mr. Li’s employment in connection with a change of control of our company, Mr. Li’s rights are set forth in his existing change in control agreement. As of January 1, 2015, the severance amount multiple pursuant thereto is three times, and the benefits continuation period is 36 months.

Mr. Li is eligible to participate in all employee benefit plans, programs and arrangements applicable to our employees and executive officers. Due to the significant amount of time Mr. Li is expected to spend in Asia (China until March 2019, and Singapore since then) and the United States, Mr. Li is also entitled to the continued provision of a car and driver in Singapore (China until March 2019) on the same basis as applied prior to January 1, 2015, a housing allowance of up to $100,000 per year to be used for housing expenses in Singapore (China until March 2019) and Aurora, Illinois, and a tax equalization benefit, on the same basis as applied prior to January 1, 2015. He also is able to utilize first class travel while he is employed by us.

Standard Employee Benefits

We have adopted various employee benefit plans and arrangements for the purpose of providing employee benefits to our employees, including our named executive officers and our other executive officers. In general, the same terms apply to all our employees, including our named executive officers and our other executive officers. These plans and arrangements include the Employee Stock Purchase Plan, the 401(k) Plan, the Supplemental Plan, and the Cabot Microelectronics Health and Welfare Benefit Plan.

 

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2019 GRANTS OF PLAN-BASED AWARDS

The following table shows all awards granted to the named executive officers during the fiscal year ended September 30, 2019 pursuant to the 2012 Omnibus Incentive Plan and the STIP.

 

Name   Type of
Award
  Grant
Date
   

 

Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards(1)

   

 

Estimated Possible
Payouts Under Equity
Incentive Plan Awards (#)(2)

    All Other
Stock
Awards:
Number
of Shares
of Stock
or
Units (#)(2)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)(3)
    Exercise
or Base
Price of
Option
Awards
($/Sh)(4)
    Grant Date
Fair Value
of Stock
and Option
Awards
($)(4)
 
  Threshold     Target     Maximum     Threshold     Target     Maximum  

 

David H. Li

 

 

PSU(5)

    1/17/19        —                         6,864           13,728         32,947         —             —             —        1,384,332  
    RSU(6)     12/6/18        —                         —           —         —         6,864             —             —        698,275  
    Option(6)     12/6/18        —                         —           —         —         —             25,424             101.73        707,868  
    STIP   

 

   

 

— 

 

 

 

   

 

$  0      

 

 

 

  $

 

700,000

 

 

 

  $

 

1,400,000

 

 

 

   

 

—    

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—      

 

 

   

 

—      

 

 

 

   

 

— 

 

 

 

   

 

 

 

 

 

Scott D. Beamer

 

 

PSU(5)

    1/17/19        —                         1,648           3,295         7,908         —             —             —        332,268  
    RSU(6)     12/6/18        —                         —           —         —         2,472             —             —        251,477  
    Option(6)     12/6/18              —           —         —         —             9,152             101.73        254,815  
    STIP   

 

   

 

— 

 

 

 

   

 

$  0      

 

 

 

  $

 

412,000

 

 

 

  $

 

824,000

 

 

 

   

 

—    

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—      

 

 

   

 

—      

 

 

   

 

— 

 

 

   

 

 

 

 

Daniel D. Woodland

 

 

PSU(5)

    1/17/19        —                         1,747           3,494         8,386         —             —             —        352,335  
    RSU(6)     12/6/18        —                         —           —         —         2,624             —             —        266,940  
    Option(6)     12/6/18        —                         —           —         —         —             9,708             101.73        270,295  
    STIP   

 

    —       

 

$  0      

 

 

 

  $

 

425,600

 

 

 

  $

 

851,200

 

 

 

   

 

—    

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—      

 

 

 

   

 

—      

 

 

 

   

 

— 

 

 

 

   

 

 

 

 

 

H. Carol Bernstein

 

 

PSU(5)

    1/17/19        —                         1,448           2,895         6,948         —             —             —        291,932  
    RSU(6)     12/6/18        —                         —           —         —         2,172             —             —        220,958  
    Option(6)     12/6/18        —                         —           —         —         —             8,044             101.73        227,023  
    STIP   

 

    —       

 

$  0      

 

 

 

  $

 

385,000

 

 

 

  $

 

770,000

 

 

 

   

 

—    

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—      

 

 

 

   

 

—      

 

 

 

   

 

— 

 

 

   

 

 

 

 

 

Jeffery M. Dysard

 

 

PSU(5)

    —        —                         999           1,997         4,793         —             —             —        201,377  
    RSU(6)     —        —                         —           —         —         1,500             —             —        152,595  
    Option(6)     —        —                         —           —         —         —             5,548             101.73        154,470  
    STIP   

 

    —       

 

$  0      

 

 

 

  $

 

350,000

 

 

 

  $

 

700,000

 

 

 

   

 

—    

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—      

 

 

 

   

 

—      

 

 

   

 

— 

 

 

 

   

 

 

 

 

1 

The amounts in these columns reflect the threshold (0%), target (100%) and maximum (200%) amounts that could be earned by each named executive officer pursuant to the STIP for fiscal year 2019. The target STIP opportunity for each named executive officer was based on a percentage of base salary, which was 100% for Mr. Li, and 65% for each of Mr. Beamer, Dr. Woodland, Ms. Bernstein and Dr. Dysard.

 

2 

The amounts in these columns do not include restricted stock units and performance share units awarded to our named executive officers after the end of fiscal year 2019. On December 5, 2019, as part of our annual equity incentive award program, we awarded restricted stock units to our named executive officers with a fair market value based on the closing price of our stock on the award date of $127.48 per share that lapse in equal increments upon each anniversary over four years, and performance share units to our named executive officers for the performance period of fiscal year 2020 through fiscal year 2022, in the amounts set forth in the table below:

 

Name

 

  

Restricted Stock

Unit Award

 

    

Performance

Share

Unit Award

(Target)

 

 

 

Mr. Li

 

  

 

 

 

6,212     

 

  

 

 

 

12,420  

 

Mr. Beamer

 

  

 

 

 

1,720     

 

  

 

 

 

2,300  

 

Dr. Woodland

 

  

 

 

 

1,832     

 

  

 

 

 

2,440  

 

Ms. Bernstein

 

  

 

 

 

1,520     

 

  

 

 

 

2,020  

 

Dr. Dysard

  

 

 

 

1,252     

 

  

 

 

 

1,672  

 

 

3 

As with all other grants of stock options and stock awards to our named executive officers and other executive officers, other than the number of options or restricted stock or restricted stock units awarded, the terms and conditions of the stock option grants in this column are the same as those made to all other employees.

These amounts do not include options granted to our named executive officers after the end of fiscal year 2019. On December 5, 2019, as part of our annual equity incentive award program, we granted options to our named executive officers that have an exercise price of $127.48, which as with all our grants and awards to

 

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Table of Contents

date was the fair market value based on the closing price of our common stock on the date of grant, vest in equal increments upon each anniversary over four years and expire on December 5, 2029, in the amounts set forth in the table below:

 

Name

 

  

Securities Underlying Options

 

 

 

Mr. Li

  

 

 

 

23,612              

 

 

Mr. Beamer

  

 

 

 

6,560              

 

 

Dr. Woodland

  

 

 

 

6,952              

 

 

Ms. Bernstein

  

 

 

 

5,672              

 

 

Dr. Dysard

  

 

 

 

4,772              

 

 

4 

As with all our grants and stock awards to date, the exercise price was the fair market value based on the closing price of our stock on the date of grant.

The grant date fair value was estimated using the Black-Scholes option pricing formula on the basis of the following assumptions: expected volatility: 25.97%; risk free rate of return: 2.81%; annualized dividend yield: 1.57%; and expected time until exercise: 7.5 years for people who were retirement eligible at the date of grant or those who will become retirement eligible during the four-year vesting period, and 7.25 years for people who were not retirement eligible at the date of grant and who will not become retirement eligible during the four-year vesting period. The differing assumptions reflect the differing statistical likelihoods of the named executive officers satisfying the “Rule of 70” for retirement vesting, which is applicable to all option grants made in fiscal year 2019. The “Rule of 70” means that the employee or executive officer has achieved a combination of age and years of service of at least seventy (70), with a minimum of fifty-five (55) years of age. On the December 6, 2018 grant date, Ms. Bernstein was retirement eligible at the date of grant, and Mr. Li, Dr. Woodland, Mr. Beamer, and Dr. Dysard were not retirement eligible at the date of grant and will not become retirement eligible during the four-year vesting period.

During fiscal year 2019, no stock awards held by our named executive officers were modified or cancelled (forfeited).

 

5 

Payment of each performance share unit award is contingent on the company attaining certain levels of average annual revenue growth and cumulative earnings per share in the fiscal year 2019 through fiscal year 2021 performance period (weighted 50% each). If threshold, target, or stretch (maximum) performance goals are attained in the performance period, 50%, 100%, or 200% of the target amount, respectively, may be earned. If actual performance falls between the threshold and target goals or the target and stretch goals, the payout would be determined using linear interpolation. The shares initially earned based on performance against the performance metrics are subject to potential upward (+20%) or downward (-20%) adjustment based on the company’s relative TSR against a peer group during the performance period, resulting in a maximum payout of up to 240% of target.

 

6 

Each restricted stock unit award and stock option grant vests in 25% increments on each of the first four anniversaries of the grant date.

Executive Officer Deposit Share Program

Our executive officers are eligible to participate in the Executive Officer Deposit Share Program that our board of directors adopted in March 2000. Under this program, our executive officers are entitled to use all or a portion of their after-tax annual cash incentive compensation to purchase at fair market value shares of restricted stock awarded under the 2012 Omnibus Incentive Plan. These shares are retained on deposit with us until the third anniversary of the date of deposit (“deposit shares”), and our company matches the deposit with a restricted stock grant equal to 50% of the shares deposited by the participant (“award shares”). If the participant is employed by us on the third anniversary of the deposit date and the deposit shares have remained on deposit with us through such date, the restrictions on the award shares will lapse. As of January 9, 2020, Mr. Li, Mr. Beamer, and Dr. Dysard currently participate in the Executive Officer Deposit Share Program, with a total of 4,118 shares (including award shares) currently on deposit under that program. Mr. Li has 1,873 shares on deposit, with 936 corresponding award shares, under the program. Mr. Beamer has 145 shares on deposit, with 72 corresponding award shares, under the program. Dr. Dysard has 728 shares on deposit, with 364 corresponding award shares, under the program.

 

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Table of Contents

OUTSTANDING EQUITY AWARDS AT 2019 FISCAL YEAR-END

The following table shows outstanding equity awards as of September 30, 2019 for each named executive officer.

 

     Option Awards     Stock Awards  

Name

 

 

Number of
Securities
Underlying
Unexercised
Options

(#)

Exercisable(1)

 

   

Number of
Securities
Underlying
Unexercised
Options

(#)

Unexercisable(1)

 

   

Option
Exercise Price
($)

 

   

Option
Expiration
Date

 

   

Number of
Shares or Units
of Stock That
Have Not
Vested

(#)(2)

 

   

Market Value

of Shares or
Units of Stock

That Have Not
Vested

($)(2)

 

   

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units, or
Other
Rights
That
Have Not
Vested

(#)(3)

 

   

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units, or
Other
Rights
That Have
Not Vested

($)(3)

 

 

 

David H. Li

 

 

 

 

 

 

14,425     

 

 

 

 

 

 

 

 

 

14,425      

 

 

 

 

 

 

 

 

 

42.37      

 

 

 

 

 

 

 

 

 

12/3/2025 

 

 

 

 

         
   

 

 

 

 

39,550     

 

 

 

 

 

 

 

 

 

39,550      

 

 

 

 

 

 

 

 

 

60.27      

 

 

 

 

 

 

 

 

 

12/5/2026 

 

 

 

 

         
   

 

 

 

 

5,513     

 

 

 

 

 

 

 

 

 

16,541      

 

 

 

 

 

 

 

 

 

92.57      

 

 

 

 

 

 

 

 

 

12/5/2027 

 

 

 

 

         
   

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

25,424      

 

 

 

 

 

 

 

 

 

101.73      

 

 

 

 

 

 

 

 

 

12/6/2028 

 

 

 

 

   

 

26,826      

 

 

 

   

 

3,875,247 

 

 

 

   

 

53,920

 

 

 

   

 

7,712,320

 

 

Scott D. Beamer

 

 

 

 

 

 

1,949     

 

 

 

 

 

 

 

 

 

5,847      

 

 

 

 

 

 

 

 

 

97.89      

 

 

 

 

 

 

 

 

 

1/16/2028 

 

 

 

 

         
   

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

9,152      

 

 

 

 

 

 

 

 

 

101.73      

 

 

 

 

 

 

 

 

 

12/6/2028 

 

 

 

 

   

 

13,896      

 

 

 

   

 

1,999,030 

 

 

   

 

12,202

 

 

   

 

1,743,246

 

 

Daniel D. Woodland

 

 

 

 

 

 

1,055     

 

 

 

 

 

 

 

 

 

—      

 

 

 

 

 

 

 

 

 

46.45      

 

 

 

 

 

 

 

 

 

12/3/2024 

 

 

 

 

         
   

 

 

 

 

3,925     

 

 

 

 

 

 

 

 

 

3,925      

 

 

 

 

 

 

 

 

 

42.37      

 

 

 

 

 

 

 

 

 

12/3/2025 

 

 

 

 

         
   

 

 

 

 

7,900     

 

 

 

 

 

 

 

 

 

7,900      

 

 

 

 

 

 

 

 

 

60.27      

 

 

 

 

 

 

 

 

 

12/5/2026 

 

 

 

 

         
   

 

 

 

 

2,400     

 

 

 

 

 

 

 

 

 

7,200      

 

 

 

 

 

 

 

 

 

92.57      

 

 

 

 

 

 

 

 

 

12/5/2027 

 

 

 

 

         
   

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

9,708      

 

 

 

 

 

 

 

 

 

101.73      

 

 

 

 

 

 

 

 

 

12/6/2028 

 

 

 

   

 

10,749      

 

 

 

   

 

1,552,536 

 

 

   

 

14,588

 

 

   

 

2,087,630

 

 

 

H. Carol Bernstein

 

 

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

4,125      

 

 

 

 

 

 

 

 

 

42.37      

 

 

 

 

 

 

 

 

 

12/3/2025 

 

 

 

 

         
   

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

7,900      

 

 

 

 

 

 

 

 

 

60.27      

 

 

 

 

 

 

 

 

 

12/5/2026 

 

 

 

 

         
   

 

 

 

 

1,950     

 

 

 

 

 

 

 

 

 

5,850      

 

 

 

 

 

 

 

 

 

92.57      

 

 

 

 

 

 

 

 

 

12/5/2027 

 

 

 

 

         
   

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

8,044      

 

 

 

 

 

 

 

 

 

101.73      

 

 

 

 

 

 

 

 

 

12/6/2028 

 

 

 

 

   

 

9,922      

 

 

 

   

 

1,433,956 

 

 

   

 

11,990

 

 

   

 

1,715,728

 

 

 

Jeffrey M. Dysard

 

 

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

1,543      

 

 

 

 

 

 

 

 

 

42.37      

 

 

 

 

 

 

 

 

 

12/3/2025 

 

 

 

 

         
   

 

 

 

 

1,293     

 

 

 

 

 

 

 

 

 

2,585      

 

 

 

 

 

 

 

 

 

60.27      

 

 

 

 

 

 

 

 

 

12/5/2026 

 

 

 

 

         
   

 

 

 

 

1,564     

 

 

 

 

 

 

 

 

 

4,692      

 

 

 

 

 

 

 

 

 

92.57      

 

 

 

 

 

 

 

 

 

12/5/2027 

 

 

 

 

         
   

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

5,548      

 

 

 

 

 

 

 

 

 

101.73      

 

 

 

 

 

 

 

 

 

12/6/2028 

 

 

 

 

   

 

4,943      

 

 

 

   

 

712,931 

 

 

 

   

 

9,002

 

 

 

   

 

1,289,013

 

 

 

 

1 

These columns show the outstanding stock option awards that are classified as exercisable or unexercisable that were held by each named executive officer as of September 30, 2019. The option awards vest or vested over four years in equal increments upon each anniversary of the grant date, with a term expiring on the tenth anniversary of the grant date. Outstanding options that vested after September 30, 2019 are shown in the section entitled “Security Ownership of Certain Beneficial Ownership and Management” above.

 

2 

The restricted stock unit awards made to Mr. Li have the following vesting schedules: 6,684 units vest over four years in equal increments upon each anniversary of the December 6, 2018 award date, 4,962 units vest over three years in equal increments upon each anniversary of the December 5, 2017 award date, 9,500 units vest over two years in equal increments upon each anniversary of the December 5, 2016 award date, and 5,500 units vested on December 3, 2019 upon the anniversary of the December 3, 2015 award date. The restricted stock awards made to Mr. Li under the Deposit Share Program have the following vesting schedules: 541 shares vest on December 11, 2020 upon the third anniversary of the December 11, 2017 award date, and 395 shares vest on December 12, 2021 upon the third anniversary of the December 12, 2018 award date.

 

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The restricted stock unit awards made to Mr. Beamer have the following vesting schedules: 2,472 units vest over four years in equal increments upon each anniversary of the December 6, 2018 award date, 11,424 units vest over three years in equal increments upon each anniversary of the January 16, 2018 award date.

The restricted stock unit awards made to Dr. Woodland have the following vesting schedules: 2,624 units vest over four years in equal increments upon each anniversary of the December 6, 2018 award date, 2,175 units vest over three years in equal increments upon each anniversary of the December 5, 2017 award date, 4,450 units vest over two years in equal increments upon each anniversary of the December 5, 2016 award date, and 1,500 units vested on December 3, 2019 upon the anniversary of the December 3, 2015 award date.

The restricted stock unit awards made to Ms. Bernstein have the following vesting schedules: 2,172 units vest over four years in equal increments upon each anniversary of the December 6, 2018 award date, 1,725 units vest over three years in equal increments upon each anniversary of the December 5, 2017 award date, 4,450 units vest over two years in equal increments upon each anniversary of the December 5, 2016 award date, and 1,575 units vested on December 3, 2019 upon the anniversary of the December 3, 2015 award date.

The restricted stock unit awards made to Dr. Dysard have the following vesting schedules: 1,500 units vest over four years in equal increments upon each anniversary of the December 6, 2018 award date, 1,407 units vest over three years in equal increments upon each anniversary of the December 5, 2017 award date, 1,450 units vest over two years in equal increments upon each anniversary of the December 5, 2016 award date, and 586 units vested on December 3, 2019 upon the anniversary of the December 3, 2015 award date.

The value reported with respect to the stock awards held by each named executive officer equals the total number of unvested and unearned stock awards multiplied by $141.21, the closing market price of the company’s stock on the last business day of our fiscal year ending September 30, 2019, plus the following accrued dividend equivalents (which are not paid unless the underlying restricted stock units vest):

 

Name

 

 

  

Accrued Dividend Equivalents on
Outstanding Restricted Stock Unit
Awards ($)

 

 

Mr. Li

 

    

 

87,148                

 

 

Mr. Beamer

 

    

 

36,776                

 

 

Dr. Woodland

 

    

 

34,669                

 

 

Ms. Bernstein

 

    

 

32,871                

 

 

Dr. Dysard

 

    

 

14,930                

 

 

 

3 

The total amounts and values in these columns equal the total number of performance share units, at the maximum level for the 2018-2020 performance period and at the target level for the 2019-2021 performance period, held by each named executive officer and multiplied by the market price of company common stock at the close of the last trading day in fiscal year 2019, which was $141.21 per share. In calculating the number of performance share units and their value, we are required by SEC rules to compare our performance through the end of fiscal year 2019 under the performance share unit grants against the threshold, target and maximum performance levels for the grant and report in these columns the applicable potential share number and payout amount. If the performance is between levels, we are required to report the potential payout at the next highest level. For example, if performance through the previous year exceeded target, even by only a modest amount, and even if it is unlikely that we will achieve the results that would dictate the payment of the maximum amount, we are required by SEC rules to report the maximum potential payouts. For the second year of the fiscal year 2018 through fiscal year 2020 performance period, we exceeded target levels of average annual revenue growth and cumulative earnings per share and have accordingly reported the performance share units at the maximum award level for this performance period (i.e., 200% of target). For the first year of the fiscal year 2019 through fiscal year 2021 performance period, we exceeded threshold levels of average annual revenue growth and cumulative earnings per share and have accordingly reported the performance share units at the target award level for this performance period (i.e., 100% of target). Such numbers are further subject to potential upward (+20%) or downward (-20%) adjustment based on the application of the company’s relative TSR modifier, which will be applied following the completion of each performance period. The total value reported with respect to the performance share units held by each named

 

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  executive officer includes the following accrued dividend equivalents with respect to each performance period, at the maximum and target levels, respectively (which are not paid unless the performance goals are met with respect to the underlying performance share units):

 

Name   Number of Fiscal
Year 2018 through
Fiscal Year 2020
Performance Shares
(Maximum)
    Number of Fiscal
Year 2019 through
Fiscal Year 2021
Performance Shares
(Target)
   

Fiscal Year 2018 through

Fiscal Year
2020 Performance
Share Unit

Accrued Dividend
Equivalents ($)

   

Fiscal Year 2019 through

Fiscal Year
2021 Performance

Share Unit

Accrued Dividend
Equivalents ($)

 

Mr. Li

 

   

 

26,464        

 

 

 

   

 

13,728        

 

 

 

   

 

80,980        

 

 

 

   

 

17,297        

 

 

 

Mr. Beamer

 

   

 

5,612        

 

 

 

   

 

3,295        

 

 

 

   

 

16,050        

 

 

 

   

 

4,152        

 

 

 

Dr. Woodland

 

   

 

7,600        

 

 

 

   

 

3,494        

 

 

 

   

 

23,256        

 

 

 

   

 

4,402        

 

 

 

Ms. Bernstein

 

   

 

6,200        

 

 

 

   

 

2,895        

 

 

 

   

 

18,972        

 

 

 

   

 

3,648        

 

 

Dr. Dysard

    5,008               1,997               15,324               2,516        

2019 OPTION EXERCISES AND STOCK VESTED

The following table sets forth certain information regarding stock options exercised during fiscal year 2019 and stock awards vested during fiscal year 2019 for the named executive officers.

 

Name

 

  

Option Awards

 

    

Stock Awards

 

 
  

Number

of Shares

Acquired

on

Exercise

(#)

 

    

Value

Realized

on

Exercise

($)1

 

    

Number

of Shares

Acquired

on

Vesting

(#)

 

    

Value

Realized

on

Vesting

($)2

 

 

 

David H. Li

 

  

 

 

 

 

27,425

 

 

 

 

  

 

 

 

 

1,915,561

 

 

 

 

  

 

 

 

 

16,879

 

 

 

 

  

 

 

 

 

1,814,545

 

 

 

 

Scott D. Beamer

 

    

 

 

 

 

    

 

 

 

 

    

 

3,808

 

 

 

    

 

388,530

 

 

 

Daniel D. Woodland

 

    

 

 

 

 

    

 

 

 

 

    

 

4,840

 

 

 

    

 

533,282

 

 

 

H. Carol Bernstein

 

    

 

11,225

 

 

 

    

 

771,180

 

 

 

    

 

5,575

 

 

 

    

 

614,242

 

 

 

Jeffrey M. Dysard

     2,756        167,470        2,229        245,054  

 

1 

For option awards, the value realized on exercise is equal to the aggregate difference between the exercise price of the options and the fair market value of the shares on the date of exercise.

 

2 

For stock awards, the value realized is the number of shares vested multiplied by the fair market value of the shares at the time of vesting plus payout of any accrued dividend equivalents.

 

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PENSION BENEFITS

The company does not maintain a defined benefit pension program.

2019 NONQUALIFIED DEFERRED COMPENSATION