DEF 14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. )

Filed by the Registrant  ☒  Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

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

SPECTRUM BRANDS HOLDINGS, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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LOGO

3001 Deming Way

Middleton, WI 53562

June 18, 2020

To Our Stockholders:

You are cordially invited to attend the Annual Meeting of Stockholders of Spectrum Brands Holdings, Inc., to be held on July 28, 2020, at 10:00 a.m., Eastern Time, at the principal office of Spectrum Brands Holdings, Inc., 3001 Deming Way, Middleton, WI 53562.

At the meeting, stockholders will be asked to consider matters contained in the enclosed Notice of Annual Meeting of Stockholders and proxy statement. We will also consider any additional business that may be properly brought before the Annual Meeting.

If you wish to attend the Annual Meeting in person, you must reserve your seat by July 3, 2020 by contacting our Investor Relations Department at investorrelations@spectrumbrands.com. Additional details regarding requirements for admission to the Annual Meeting are described in the proxy statement under the heading “How do I attend the Annual Meeting and do I need to do anything in advance to attend?”

If you have any questions concerning the Annual Meeting and you are the stockholder of record of your shares, please contact our Investor Relations Department at (608) 278-6148 or our proxy solicitor, Okapi Partners LLC, toll-free, at (855) 208-8902. If you are the stockholder of record of your shares and have questions regarding your stock ownership, please contact our transfer agent, American Stock Transfer & Trust, by telephone at (800) 937-5449 (within the U.S.) or (718) 921-8124 (International). If your shares are held by a broker or other nominee (that is, in “street name”), please contact your broker or other nominee for questions concerning the Annual Meeting or your stock ownership.

Stockholders of record can vote their shares by attending the Annual Meeting or by submitting a proxy through the mail, over the Internet, or by using a toll-free telephone number. Instructions for using these convenient services are provided on the proxy card. Please read the enclosed information carefully before voting your shares. You may also vote your shares by marking your votes on the enclosed proxy or following the enclosed voting instruction card. If you attend the Annual Meeting, you may withdraw your proxy and vote your shares in person. If your shares are held in street name, you should vote your shares in accordance with the instructions of your bank or brokerage firm or other nominee.

We appreciate your ongoing support of Spectrum Brands Holdings, Inc.

Sincerely,

 

LOGO

David M. Maura

Chief Executive Officer and Chairman of the Board


LOGO

3001 Deming Way

Middleton, WI 53562

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON July 28, 2020

June 18, 2020

To Our Stockholders:

We will hold the Annual Meeting of Stockholders (“Annual Meeting”) of Spectrum Brands Holdings, Inc., a Delaware corporation (the “Company,” “Spectrum Brands,” “we,” “us” or “our”), on July 28, 2020 at 10:00 a.m., Eastern Time, at our principal office, 3001 Deming Way, Middleton, WI 53562. We may, at any time prior to the Annual Meeting, elect to change the place of the meeting (including holding the meeting through a “virtual” or online method) and/or postpone or cancel the meeting in accordance with applicable law.

We are monitoring the emerging public health impact of the coronavirus (COVID-19). The health and well-being of our employees, stockholders, directors, officers and other stakeholders are paramount. If public health developments warrant, we may change the date or location of the annual meeting, including the possibility that we may hold the annual meeting through a “virtual” or online method. Any such change will be announced as promptly as practicable, through a press release and a filing with the Securities and Exchange Commission, as well as any other notification required by state law.

The purposes of the Annual Meeting are to:

1. elect two Class II directors;

2. ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2020;

3. approve, on an advisory basis, the compensation of the Company’s named executive officers; and

4. approve the Spectrum Brands Holdings, Inc. 2020 Omnibus Equity Plan.

Our Board of Directors recommends a vote FOR the nominees in Proposal 1 and FOR Proposals 2, 3, and 4. These proposals are described in the attached proxy statement, which you are encouraged to read fully. Stockholders will also consider any additional business that may be properly brought before the Annual Meeting or any adjournment or postponement thereof.

If you wish to attend the Annual Meeting in person, you must reserve your seat by July 3, 2020 by contacting our Investor Relations Department at investorrelations@spectrumbrands.com. Additional details regarding requirements for admission to the Annual Meeting are described in the attached proxy statement under the heading “How do I attend the Annual Meeting and do I need to do anything in advance to attend?”

Our Board of Directors has set the close of business on June 3, 2020 as the record date for the Annual Meeting (the “Record Date”). The stock transfer books of the Company will not be closed following the Record Date, but only stockholders of record at the close of business on the Record Date are entitled to notice of, and to vote at, the Annual Meeting and any adjournment or postponement thereof. A list of stockholders entitled to vote at the Annual Meeting will be available for inspection at the Annual Meeting and will also be available for twenty days prior to the Annual Meeting, during normal business hours, at the principal office of the Company, located at 3001 Deming Way, Middleton, WI 53562.

The vote of each eligible stockholder is important. Please vote as soon as possible to ensure that your vote is recorded promptly, even if you plan to attend the Annual Meeting.

By Order of the Board of Directors,

 

LOGO

Ehsan Zargar

Executive Vice President, General Counsel, and Corporate Secretary


LOGO

3001 DEMING WAY

MIDDLETON, WI 53562

PROXY STATEMENT

FOR THE 2020 ANNUAL MEETING OF STOCKHOLDERS


SPECTRUM BRANDS HOLDINGS, INC.

PROXY STATEMENT

FOR THE 2020 ANNUAL MEETING OF STOCKHOLDERS

TABLE OF CONTENTS

 

2020 ANNUAL MEETING INFORMATION

     6  
GENERAL INFORMATION ABOUT THE PROXY STATEMENT AND ANNUAL MEETING      7  

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

     14  

AUDIT COMMITTEE REPORT

     34  

COMPENSATION DISCUSSION AND ANALYSIS

     35  
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS      80  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     82  

PRINCIPAL ACCOUNTING FEES AND SERVICES

     85  

PROPOSAL 1

     86  

PROPOSAL 2

     87  

PROPOSAL 3

     88  

PROPOSAL 4

     89  

OTHER BUSINESS

     102  

POSSIBLE CHANGE IN ANNUAL MEETING

     102  

COMMUNICATIONS WITH OUR BOARD

     102  

FORWARD-LOOKING STATEMENTS

     103  


 
 

2020 ANNUAL MEETING INFORMATION

 

 
This summary highlights information you will find in this Proxy Statement. As it is only a summary, please review the complete proxy statement before you vote.
            
LOGO    LOGO    LOGO    LOGO
Date and Time:
July 28, 2020 at
10:00 a.m., Eastern Time
  

Location:

Principal office of the Company,
3001 Deming Way, Middleton, WI 53562

  

Record Date:

June 3, 2020

  

Proxy Mail Date:

On or about
June 18, 2020

            

How to Vote

 

   

By Internet:

Visit the website
listed

on your proxy card

     

By Phone:

Call the telephone
number on your
proxy card

     

By Mail:

Sign, date, and return
your proxy card in the
enclosed envelope

     

In Person:

Attend the Annual
Meeting in
Middleton, WI

   

Voting:

  

Each share of common stock is entitled to one vote for each director nominee and one vote for each of the other proposals to be voted on.

   

Admission:

  

Admission to the 2020 Annual Meeting is limited to shareholders as of the Record Date or their duly appointed proxies. If you attend, please note that you may be asked to present valid picture identification, such as a driver’s license or passport.

 

 

2020 Annual Meeting Agenda and Vote Recommendations:

 

Matter

      Board Vote
Recommendation
   Page    
Reference    
(for more    
details)
    
   
Proposal 1    Election of Directors    LOGO         FOR    86
Proposal 2    Ratification of Appointment of Independent Registered Public Accounting Firm   

 

LOGO     

   FOR    87
Proposal 3    Advisory Vote on Executive Compensation    LOGO         FOR    88
Proposal 4    Approval of the Spectrum Brands Holdings, Inc. 2020 Omnibus Equity Plan   

 

LOGO     

   FOR    89

We are monitoring the emerging public health impact of the coronavirus (COVID-19). The health and well-being of our employees, stockholders, directors, officers and other stakeholders are paramount. If public health developments warrant, we may change the date or location of the annual meeting, including the possibility that we may hold the annual meeting through a “virtual” or online method. Any such change will be announced as promptly as practicable, through a press release and a filing with the Securities and Exchange Commission (the “SEC”), as well as any other notification required by state law.

 

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GENERAL INFORMATION ABOUT THE PROXY STATEMENT

AND ANNUAL MEETING

Why am I receiving these materials?

This proxy statement, the accompanying Notice of Annual Meeting of Stockholders, and proxy card are being furnished to the stockholders of the Company by the Board of Directors (the “Board”) to solicit your proxy to vote at the 2020 Annual Meeting of Stockholders of the Company and any adjournments or postponements thereof (the “Annual Meeting”) to be held on July 28, 2020, at 10:00 a.m., Eastern Time, at the principal office of the Company, 3001 Deming Way, Middleton, WI 53562. The Board may, at any time prior to the Annual Meeting, elect to change the place of the meeting (including holding the meeting through a “virtual” or online method) and/or postpone or cancel the meeting in accordance with applicable law.

This proxy statement summarizes the information that holders of our shares, need to vote at the Annual Meeting. Unless stated otherwise herein or the context requires otherwise, references to “shares” means shares of our Common Stock, and “stockholder” means a holder of our Common Stock.

We will begin mailing this Proxy Statement, along with the proxy card and the other materials listed below, on or about June 18, 2020. To ensure that your proxy is voted at the Annual Meeting, your proxy should be received no later than 5:00 p.m., Eastern Time, on July 23, 2020 if given by mail, or by 11:59 p.m., Eastern Time, on July 27, 2020 if submitted by telephone or over the Internet.

We have requested that banks, brokerage firms and other nominees who hold shares on behalf of the beneficial owners of our shares (such stock is often referred to as being held in “street name”) as of the close of business on June 3, 2020 forward these materials, together with a proxy card or voting instruction card, to those beneficial owners. We have agreed to pay the reasonable expenses of the banks, brokerage firms and other nominees for forwarding these materials.

What materials am I receiving?

You are receiving:

1. this Proxy Statement for the Annual Meeting;

2. a proxy card or voting instruction form for the Annual Meeting; and

3. a report containing the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019 (“Fiscal 2019”), as filed with the SEC on November 15 2020, and Amendment No. 1 thereto, as filed with the SEC on January 28, 2020 (together, the “2019 Annual Report”).

What is the purpose of the Annual Meeting?

At the Annual Meeting, including any adjournment or postponement thereof, our stockholders will be asked to consider and vote upon four proposals to:

1. Elect Messrs. Ambrecht and Rovit as Class II directors;

2. Ratify the appointment of KPMG LLP (“KPMG”) as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2020 (“Fiscal 2020”);

3. Approve, on an advisory basis, the compensation of the Company’s named executive officers; and

4. Approve the Spectrum Brands Holdings, Inc. 2020 Omnibus Equity Plan (the “New 2020 Equity Plan”).

 

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You may also be asked to consider and vote to transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. Other than matters incident to the conduct of the Annual Meeting and those set forth in this Proxy Statement, we do not know of any business or proposals to be considered at the Annual Meeting. If any other business is proposed and properly presented at the Annual Meeting, the proxies received from our stockholders give the proxy holders the authority to vote on the matter at their discretion.

Who are the nominees for election and what would be the size and composition of the Board and its standing committees following their election?

The nominees for election as Class II directors at the Annual Meeting are Messrs. Ambrecht and Rovit. See “Directors, Executive Officers and Corporate Governance – Class II Director Nominees” for our nominees’ biographical information. Ms. James and Mr. Matthews will continue as Class I directors and Messrs. Maura and Polistina will continue as Class III directors.

As of the date hereof, Messrs. Ambrecht, Matthews, Polistina and Rovit, and Ms. James are “independent” directors under the applicable SEC rules, the New York Stock Exchange (the “NYSE”) Listed Company Manual and other rules (“NYSE Rules”) and the Company’s Corporate Governance Guidelines. As of the date hereof, our Audit Committee is comprised of Messrs. Polistina (Chairman), Ambrecht and Rovit. Each of Messrs. Polistina, Ambrecht, and Rovit qualifies as an “audit committee financial expert,” as defined by Item 407(d)(5)(ii) of Regulation S-K. As of the date hereof, our Compensation Committee is comprised of Messrs. Ambrecht (Chairman), Matthews, and Polistina. As of the date hereof, our Nominating and Corporate Governance Committee (our “NCG Committee”) is comprised of Messrs. Matthews (Chairman) and Ambrecht and Ms. James.

What does our Board recommend?

Our Board recommends that you vote FOR the nominees in Proposal 1 and FOR Proposals 2, 3, and 4.

Who can vote?

Our Board has fixed the close of business on June 3, 2020 as the date to determine the stockholders who are entitled to attend and vote at the Annual Meeting (the “Record Date”). On the Record Date, our outstanding capital stock consisted of 43,056,296 shares of Common Stock, which was held by approximately 1,280 holders of record including persons who hold shares for an indeterminate number of beneficial owners. Each share of Common Stock is entitled to one vote in the election of directors and on each matter submitted for stockholder approval.

Can I obtain a list of stockholders entitled to vote at the Annual Meeting?

At the Annual Meeting, and at least twenty days prior to the Annual Meeting, a complete list of stockholders entitled to vote at the meeting will be available at our principal office, 3001 Deming Way, Middleton, WI 53562, during regular business hours. Stockholders of record may inspect the list for proper purposes during normal business hours.

What is the difference between a stockholder of record and a beneficial owner of shares held in “street name”?

Stockholder of record. You are a stockholder of record if at the close of business on the Record Date your shares were registered directly in your name with the Company’s transfer agent, American Stock Transfer & Trust. Our proxy materials were sent directly to you by the Company and you can vote your shares as instructed on the accompanying proxy card.

 

8


Beneficial owner of shares held in “street name.” You are a beneficial owner if at the close of business on the Record Date your shares were held in the name of your bank, brokerage firm or other nominee. Being a beneficial owner means that your shares are held in “street name.” Our proxy materials were forwarded to you by that organization, and their instructions for voting your shares should accompany this Proxy Statement.

How do I attend the Annual Meeting, and do I need to do anything in advance to attend?

All stockholders at the close of business on the Record Date are invited to attend the Annual Meeting. All stockholders planning to attend the Annual Meeting in person must contact our Investor Relations Department at investorrelations@spectrumbrands.com by no later than July 3, 2020 to reserve a seat at the Annual Meeting. For admission, stockholders should come to the Annual Meeting check-in area no less than 15 minutes before the Annual Meeting is scheduled to begin. Stockholders of record should bring a form of photo identification so their share ownership can be verified. A beneficial owner holding shares in “street name” must also bring an account statement or letter from his or her bank or brokerage firm showing that he or she beneficially owns shares as of the close of business on the Record Date, along with a form of photo identification. Registration will begin at 9:30 a.m., Eastern Time and the Annual Meeting will begin at 10:00 a.m., Eastern Time. Please note that the use of cameras and other recording devices will not be allowed at the Annual Meeting.

If I am a stockholder of record, how do I vote and what are the voting deadlines?

Stockholders of record. If you are a stockholder of record, there are several ways for you to vote your shares:

 

   

By mail. If you received printed proxy materials, you may submit your vote by completing, signing and dating the proxy card received and returning it in the prepaid envelope by following the instructions that appear on the proxy card. Proxy cards submitted by mail must be received no later than 5:00 p.m., Eastern Time, on July 23, 2020 to be voted at the Annual Meeting.

 

   

By telephone or over the Internet. You may vote your shares by telephone or via the Internet by following the instructions provided in the proxy card. If you vote by telephone or via the Internet, you do not need to return a proxy card by mail. Internet and telephone voting are available 24 hours a day, 7 days a week. Votes submitted by telephone or through the Internet must be received by 11:59 p.m., Eastern Time, on July 27, 2020 to be voted at the Annual Meeting.

 

   

In person at the Annual Meeting. You may vote your shares in person at the Annual Meeting. Even if you plan to attend the Annual Meeting in person, we recommend that you also submit your proxy card or vote by telephone or via the Internet by the applicable deadline so that your vote will be counted if you later decide not to attend the meeting.

Details regarding requirements for admission to the Annual Meeting are described in this Proxy Statement under the heading “How do I attend the Annual Meeting, and do I need to do anything in advance to attend?”

I hold my shares in “street name,” how do I vote and what are the voting deadlines?

If you are a beneficial owner of your shares, you should have received voting instructions from the bank, brokerage firm or other nominee holding your shares. You should follow such instructions in order to instruct your bank, brokerage firm or other nominee on how to vote your shares. The availability of telephone and Internet voting will depend on the voting process of the bank, brokerage firm or other nominee holding your shares. Shares held beneficially may be voted in person at the Annual Meeting only if you obtain a legal proxy from the broker or nominee giving you the right to vote the shares. Details regarding requirements for admission to the Annual Meeting are described in this Proxy Statement under the heading “How do I attend the Annual Meeting and do I need to do anything in advance to attend?”

 

9


Can I revoke or change my vote after I submit my proxy?

Stockholders of record. If you are a stockholder of record, you may revoke your vote at any time before the final vote at the Annual Meeting by:

 

   

signing and returning a new proxy card with a later date, since only your latest proxy card received no later than 5:00 p.m., Eastern Time, on July 23, 2020 will be counted;

 

   

submitting a later-dated vote by telephone or via the Internet, since only your latest Internet or telephone vote received by 11:59 p.m., on July 27, 2020 will be counted;

 

   

attending the Annual Meeting in person and voting again; or

 

   

delivering a written revocation to Ehsan Zargar, Executive Vice President, General Counsel, and Corporate Secretary at Spectrum Brands Holdings, Inc., 3001 Deming Way, Middleton, WI 53562, no later than 5:00 p.m., Eastern Time, on July 27, 2020.

Beneficial owners of shares held in “street name.” If you are a beneficial owner of your shares, you must contact the broker or other nominee holding your shares and follow its instructions for changing your vote.

What is a “quorum”?

We may hold the Annual Meeting only if a “quorum” is present, either in person or by proxy. A “quorum” is a majority of our outstanding shares entitled to vote on the Record Date. Your shares will be counted towards establishing a quorum if you vote by mail, telephone, or over the Internet or if you vote in person at the Annual Meeting. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists. If a quorum is not present at the Annual Meeting, we may adjourn the meeting from time to time until we have established a quorum.

What if I do not give specific instructions?

Stockholder of record. If you are a record holder of shares and you do not give specific voting instructions, the proxy holders will vote your shares as recommended by our Board on all matters presented in this Proxy Statement, and as the proxy holders determine in their discretion with respect to any other matters properly presented for a vote at the Annual Meeting.

Beneficial owner of shares held in “street name.” If your shares are held in “street name” and you do not give specific voting instructions to your nominee, then, under the NYSE Rules, your nominee generally may vote on routine matters but cannot vote on non-routine matters. If you do not give instructions on how to vote your shares on a non-routine matter, your nominee will inform the inspector of election that it does not have the authority to vote on this matter with respect to your shares; this is referred to as a “broker non-vote.”

Which ballot measures are “routine” or “non-routine”?

Proposal 1 (election of directors), Proposal 3 (the approval, on an advisory basis, of the compensation of the Company’s named executive officers), and Proposal 4 (approval of the New 2020 Equity Plan) are considered non-routine matters under applicable rules. A brokerage firm or other nominee cannot vote without instructions on a non-routine matter. Therefore, if you hold your shares in street name, it is critical that you give instructions on how to cast your vote with respect to these matters if you want your votes to count. If you do not instruct your bank, brokerage firm or other nominee how to vote on these matters, no votes will be cast on your behalf.

Proposal 2 (the ratification of the appointment of KPMG as our independent registered public accounting firm for Fiscal 2020) is considered routine under applicable rules. A broker or other nominee generally may vote on routine matters, and therefore no broker non-votes are expected in connection with this matter.

 

10


What vote is required to approve the proposals?

Director nominees up for election in Proposal 1 will each be elected by a majority of the votes cast in person or by proxy.

We have adopted a majority voting policy for the election of directors, which is in line with current corporate governance best practices. Pursuant to this voting policy, which applies in the case of uncontested director elections, a director must be elected by a majority of the votes cast with respect to the election of such director. For purposes of this policy, a “majority of the votes cast” means that the number of shares voted “for” a director must exceed the number of shares voted “against” that director and abstentions and broker non-votes are not counted as “votes cast.” This voting policy provides that in the event that an incumbent director nominee receives a greater number of votes “against” than votes “for” his or her election, he or she must (within five business days following the final certification of the related election results) offer to tender his or her written resignation from our Board to our NCG Committee. Our NCG Committee will review such offer of resignation and will consider such factors and circumstances as it may deem relevant, and, within 90 days following the final certification of the election results, will make a recommendation to our Board concerning the acceptance or rejection of such tendered offer of resignation. The decision of our Board will be promptly publicly disclosed.

In the case of contested elections, the required voting standard to be elected as a director will be a plurality voting standard. Under such plurality voting standard, the nominees receiving the most votes “for” their election at a meeting of stockholders at which a quorum is present would be elected to our Board (despite the amount of “against” or “withhold” votes, abstentions or broker non-votes with respect to any nominee).

The affirmative vote of the holders of a majority of the votes represented at the Annual Meeting in person or by proxy is required to ratify the appointment of KPMG as our independent registered public accounting firm for Fiscal 2020 (Proposal 2), to approve, on an advisory basis, the compensation of our named executive officers (Proposal 3), and to approve the New 2020 Equity Plan (Proposal 4). With regards to Proposal 1 (election of directors), abstentions are not counted as either a vote cast “for” or “against” such director. With regards to Proposal 2 (ratification of KPMG’s appointment as auditor), Proposal 3 (advisory vote on executive compensation) and Proposal 4 (approval of the New 2020 Equity Plan), abstentions will be considered present in person or represented by proxy at the Annual Meeting and will have the effect of a vote against each of these proposals because approval of each of these proposals requires the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote.

How are broker “non-votes” and abstentions treated?

Broker “non-votes” and shares held as of the Record Date by holders who are present in person or represented by proxy at the Annual Meeting but who have abstained from voting or have not voted with respect to some or all of such shares on any proposal to be voted on at the Annual Meeting will be counted as present for purposes of establishing a quorum.

Broker “non-votes” and abstentions will: (i) have no effect on the outcome of the votes on Proposal 1 (election of directors) and (ii) have the effect of a vote against each of Proposal 2 (ratification of KPMG’s appointment as auditor), Proposal 3 (advisory vote on executive compensation) and Proposal 4 (approval of the New 2020 Equity Plan) because approval of each of these proposals requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote.

Who will count the votes and serve as the inspector of election?

The Company expects to engage Broadridge Financial Solutions, Inc. as the independent inspector of election to tabulate stockholder votes at the Annual Meeting. In the event Broadridge Financial Solutions, Inc. is not engaged, one or more persons appointed by the Company will serve as the inspector of election.

 

11


Who is making and paying for this proxy solicitation?

This proxy is solicited on behalf of our Board. Certain officers, directors and other employees may also solicit proxies on our behalf by mail, telephone, fax, Internet or in person. The Company is paying for the cost of preparing, assembling and mailing this proxy soliciting material. We have engaged Okapi Partners LLC (“Okapi Partners”) to assist us in the distribution of proxy materials and the solicitation of votes described above. We will bear the costs of the fees for the solicitation agent, which are not expected to exceed $20,000.00, excluding out-of-pocket expenses. Brokers, nominees, fiduciaries and other custodians have been requested to forward soliciting material to the beneficial owners of common shares held of record by them, and these custodians will be reimbursed for their reasonable charges and expenses to forward our proxy materials to their customers or principals.

What is the deadline to propose actions for consideration at the 2021 Annual Meeting of Stockholders?

We currently expect to hold our 2021 Annual Meeting of Stockholders in July 2021. Under Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for a stockholder’s proposal to be considered timely for inclusion in our proxy statement and form of proxy relating to the 2021 Annual Meeting of Stockholders, generally we must receive such proposal by the close of business on the 120th day prior to the first anniversary of the date of this Proxy Statement. However, if the date of the 2021 Annual Meeting of Stockholders is more than 30 days before or after the first anniversary of this year’s Annual Meeting, we must receive such proposal within a reasonable time prior to the Company beginning to print and distribute proxy materials for such meeting.

For a stockholder’s proposal to be considered timely under our Bylaws (and subject to all of the provisions fully set forth therein) for consideration at our 2021 Annual Meeting of Stockholders (without inclusion in the proxy statement for such meeting pursuant to Rule 14a-8), it generally must be received no later than the close of business on the 90th day (and no earlier than the close of business on the 120th day) prior to the first anniversary of this year’s Annual Meeting. However, if the date of the 2021 Annual Meeting of Stockholders is more than 30 days before (or more than 60 days after) the first anniversary of this year’s Annual Meeting, then notice by the stockholder must be received: (i) no earlier than the close of business on the 120th day prior to the 2021 Annual Meeting of Stockholders; and (ii) no later than the close of business on the later of: (a) the 90th day prior to such meeting and (b) the 10th day following the day on which we publicly announce the meeting date.

Where can I find voting results?

We will announce preliminary voting results at the Annual Meeting. We will publish the final voting results from the Annual Meeting in a Current Report on Form 8-K within four business days of the date of the Annual Meeting. You will also be able to find the results on our website at www.spectrumbrands.com.

What is our policy with respect to the attendance of our directors at Board and standing committee meetings and annual meetings of stockholders?

The Board held a total of 11 meetings during Fiscal 2019. Other standing committees of the Board, consisting of the Audit Committee, the Compensation Committee, and the NCG Committee, held an additional seven, eight, and three meetings, respectively, during Fiscal 2019. The Board and the directors recognize the importance of director attendance at Board and committee meetings. Attendance at Board and committee meetings was at least 75% for each director. The Company does not have a formal policy regarding the attendance of directors at annual meetings of stockholders, but we encourage all of our directors to attend. All of our directors attended the 2019 Annual Meeting of Stockholders.

 

12


How can stockholders communicate with our Board?

Stockholders may communicate with our Board by writing to the Board of Directors, Spectrum Brands Holdings, Inc., 3001 Deming Way, Middleton, WI 53562. Please see the additional information in the section captioned “Communications with our Board.”

I share an address with another stockholder, and we received only one paper copy of the proxy materials. How can I obtain an additional copy of the proxy materials?

The SEC allows us to deliver a single copy of proxy materials to an address shared by two or more stockholders, unless the stockholders instruct us to the contrary. This delivery method, referred to as “householding,” can result in significant cost savings for us. We will promptly provide you another copy of these materials, without charge, if you contact our proxy solicitor using the following contact information:

Okapi Partners LLC

1212 Avenue of the Americas, 24th Floor

New York, New York 10036

Banks and Brokers Call Collect: (212) 297-0720

All Others Call Toll Free: (855) 208-8902

Email: info@okapipartners.com

In addition, a copy of proxy materials, as well as the documents we file with the SEC, are available on our website at www.spectrumbrands.com; the materials furnished with this Proxy Statement include a copy of the Company’s 2019 Annual Report (but such material is not incorporated by reference into our proxy materials).

Stockholders of record sharing an address who receive multiple copies of proxy materials and wish to receive a single copy of such materials in the future should submit their request to us in the same manner. If you are the beneficial owner, but not the record holder, of our shares and wish to receive only one copy of the proxy statement related materials in the future, you need to contact your bank, brokerage firm or other nominee to request that only a single copy of each document be mailed to all stockholders at the shared address.

Where are the Company’s principal executive offices located and what is the Company’s main telephone number?

Our principal executive offices are located at 3001 Deming Way, Middleton, WI 53562. You may contact our Investor Relations Department by phone at (608) 278-6148 or by email at investorrelations@spectrumbrands.com.

Who can help answer my questions?

If you have any questions about the Annual Meeting or how to vote or revoke your proxy, you should contact our proxy solicitor:

Okapi Partners LLC

1212 Avenue of the Americas, 24th Floor

New York, New York 10036

Banks and Brokers Call Collect: (212) 297-0720

All Others Call Toll Free: (855) 208-8902

Email: info@okapipartners.com

 

13


DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our Board of Directors

Our directors are elected at each annual meeting of shareholders and hold office for staggered three-year terms. Our NCG Committee considers and chooses nominees for our Board with the primary goal of presenting a well-qualified slate of candidates who will serve the interests of our Company and our shareholders, taking into account the attributes of each candidate’s professional skillset and credentials, as well as gender, age, ethnicity, and personal background. In evaluating nominees, our NCG Committee reviews each candidate’s background and assesses each candidate’s independence, skills, experience and expertise based upon a number of factors. We seek directors with the highest professional and personal ethics, integrity, and character that have experience at the governance and policy-making level in their respective fields. Our NCG Committee reviews the professional background of each candidate to determine whether each candidate has the appropriate experience and the ability to effectively make important decisions as a member on our Board. Our NCG Committee also determines whether a candidate’s skills and experience complement and enhance the collective skills and experience of our existing Board members.

We are committed to ensuring that female and minority candidates are among the pool of individuals from which new Board nominees are selected. During Fiscal 2019, we made progress in advancing this objective by appointing to our Board a female candidate from a diverse background. We are committed to further progressing this objective in Fiscal 2020.

Our directors collectively represent a robust and diverse set of skills and experience, which we believe positions our Board and its committees well to effectively oversee the execution of our business strategy and to advance the interests of the Company and its stakeholders. The following table summarizes some of the key categories of skills and experience of our current directors:

 

Director Skills and Experience

 

100%: Risk Management

  

 

100%: Business Operations

   

100%: Corporate Strategy & Business Development

  

100%: Corporate Governance

   

83%: Mergers & Acquisitions

  

100%: Ethics/Corporate Social Responsibility

   

83%: Executive Leadership & Management

  

83%: Public Company Board Experience

   

83%: Finance/Capital Management & Allocation

  

83%: Human Resources & Compensation

   

67%: International Business Experience

  

83%: Marketing/Sales & Brand Management

   

67%: Accounting/Auditing

  

67%: Public Company Executive Experience

   

67%: Consumer Products

    

 

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In accordance with our Third Restated Bylaws, our Board currently consists of eight members. In accordance with our Amended and Restated Certificate of Incorporation (our “Charter”), our Board is divided into three classes (designated as Class I, Class II, and Class III, respectively). Two of the eight seats on the Board are currently vacant as we search for appropriate candidates to fill the recently created vacancies. Our Class II directors are nominated for re-election at the Annual Meeting. The names of our six current directors and their respective classes, ages, Board tenures and committee memberships are each set forth in the following table:

 

         
                      Committee Membership***

Name

   Class*   Age    Tenure**   A    C    NCG

Sherianne James

Independent Director

   I   51    2018        

Norman S. Matthews

Independent Director

   I   87    2018        

Kenneth C. Ambrecht

Independent Director

   II   74    2018        

Hugh R. Rovit

Independent Director

   II   59    2018          

David M. Maura

Executive Chairman

   III   47    2018          

Terry L. Polistina

Lead Independent Director

   III   56    2018          
*

The term of our Class I directors expires at our 2022 annual stockholders meeting, our Class II directors elected at our upcoming Annual Meeting expires at our 2023 annual stockholders meeting, and our Class III directors expires at our 2021 annual stockholders meeting.

**

Tenure represents service on the Board of the Company following the Merger (as defined below).

***

Committee membership: A = Audit Committee, C = Compensation Committee, NCG = NCG Committee;

indicates committee Chair, indicates committee member.

Director Biographies

Set forth below are biographies for each of our directors, accompanied by descriptions of some of their key skills and experiences. The absence of any given category of key skills or experiences from the list preceding a director’s biography does not necessarily signify a lack of qualification in any such category.

 

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Class II Director Nominees

 

Kenneth C. Ambrecht

 

Independent Director since July 2018

Age: 74

Race/Ethnicity: Caucasian

Gender: Male

 

    

Independence & Committees:

●   Independent Director

●   Chair of our Compensation Committee

●   Audit Committee

●   NCG Committee

  

Key Skills/Experience:

●   Accounting/Auditing

●   Business Operations

●   Corporate Governance

●   Corporate Strategy & Business Development

●   Ethics/Corporate Social Responsibility

●   Public Company Board Experience

●   Finance/Capital Management & Allocation

●   Human Resources & Compensation

●   International Business Experience

●   Marketing/Sales & Brand Management

●   Mergers & Acquisitions

●   Risk Management

 

Kenneth C. Ambrecht was appointed to our Board in July 2018. From June 2010 until July 2018, Mr. Ambrecht served as one of the directors of Spectrum Brands Legacy, Inc. (formerly known as Spectrum Brands Holdings, Inc.) (“SPB Legacy”). Prior to that time, he had served as a director of Spectrum Brands, Inc. (“SBI”) from August 2009 to June 2010. Since December 2005, Mr. Ambrecht has served as a principal of KCA Associates LLC, through which he provides advice on financial transactions. From July 2004 to December 2005, Mr. Ambrecht served as a Managing Director with the investment banking firm First Albany Capital, Inc. Prior to that, Mr. Ambrecht was a Managing Director with Royal Bank Canada Capital Markets. Prior to that post, Mr. Ambrecht worked with the investment bank Lehman Brothers as Managing Director with its capital market division. Mr. Ambrecht is also a member of the board of directors of American Financial Group, Inc. Mr. Ambrecht has also served as a director of Dominion Petroleum Ltd. and Fortescue Metals Group Limited. Mr. Ambrecht serves as the Chair of our Compensation Committee and is a member of our Audit and our NCG Committees.

 

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Hugh R. Rovit

 

Independent Director since July 2018

Age: 59

Race/Ethnicity: Caucasian

Gender: Male

 

    

Independence & Committees:

●   Independent Director

●   Audit Committee

  

Key Skills/Experience:

●   Accounting/Auditing

●   Business Operations

●   Consumer Products

●   Corporate Governance

●   Corporate Strategy & Business Development

●   Ethics/Corporate Social Responsibility

●   Executive Leadership & Management

●   Public Company Board Experience

●   Supply Chain/Logistics

●   Finance/Capital Management & Allocation

●   Human Resources & Compensation

●   Marketing/Sales & Brand Management

●   Mergers & Acquisitions

●   Risk Management

 

Hugh R. Rovit was appointed to our Board on July 2018. From June 2010 until July 2018, Mr. Rovit served as one of the directors of SPB Legacy. Prior to that time, he had served as a director of SBI from August 2009 to June 2010. Mr. Rovit is currently Chief Executive Officer of S’well, Inc., a global manufacturer and marketer of reusable stainless-steel bottles and accessories. He previously served as Chief Executive Officer of Ellery Homestyles, a leading supplier of branded and private label home fashion products to major retailers, offering curtains, bedding, throws and specialty products, from May 2013 until its sale in September 2018 to a strategic competitor. Previously, Mr. Rovit served as Chief Executive Officer of Sure Fit Inc., a marketer and distributor of home furnishing products from 2006 through 2012 and was a Principal at turnaround management firm Masson & Company from 2001 through 2005. Previously, Mr. Rovit held the positions of Chief Financial Officer of Best Manufacturing, Inc., a manufacturer and distributor of institutional service apparel and textiles, from 1998 through 2001 and Chief Financial Officer of Royce Hosiery Mills, Inc., a manufacturer and distributor of men’s and women’s hosiery, from 1991 through 1998. Mr. Rovit is also a director of PlayPower, Inc., Laces Group Inc. and Xpress Retail and previously served as a director of Nellson Nutraceuticals, Inc., Kid Brands Inc., Atkins Nutritional, Inc., Oneida, Ltd., Cosmetic Essence, Inc. and Twin Star International. Mr. Rovit received his B.A. degree from Dartmouth College and has an MBA from Harvard Business School. Mr. Rovit is a member of our Audit Committee.

 

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Directors Continuing in Office:

Class I Directors

 

Sherianne James

 

Independent Director since October 2018

Age: 51

Race/Ethnicity: African American

Gender: Female

 

    

Independence & Committees:

●   Independent Director

●   Chair of our NCG Committee

  

Key Skills/Experience:

●   Business Operations

●   Consumer Products

●   Corporate Governance

●   Corporate Strategy & Business Development

●   Executive Leadership & Management

●   Ethics/Corporate Social Responsibility

●   International Business Experience

●   Marketing/Sales & Brand Management

●   Public Company Executive Experience

●   Risk Management

 

Sherianne James was appointed to our Board in October 2018. Ms. James has served as Chief Marketing Officer of Essilor of America since August 2017 and previously was Vice President, Consumer Marketing for the company since July 2016. From February 2011 to July 2016, she held positions of increasing responsibility in marketing and operations for Transitions Optical, a division of Essilor of America, culminating in her role as Vice President of Transitions Optical from April 2014 to July 2016. From July 2005 through December 2010, Ms. James was Senior Marketing Manager for Russell Hobbs/Applica. She previously held a number of key project manager, research manager and brand manager positions with Kraft Foods, Inc. and, later, Kraft/Nabisco Foods from June 1995 to June 2005. Ms. James earned a B.S. degree in chemical engineering from the University of Florida in 1994 and an MBA from Northwestern University’s Kellogg Graduate School of Management in 2002. Ms. James currently serves as the Chair of our NCG Committee.

 

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Norman S. Matthews

 

Independent Director since July 2018

Age: 87

Race/Ethnicity: Caucasian

Gender: Male

 

    

Independence & Committees:

●   Independent Director

●   NCG Committee

●   Compensation Committee

  

Key Skills/Experience:

●   Business Operations

●   Corporate Governance

●   Corporate Strategy & Business Development

●   Ethics/Corporate Social Responsibility

●   Executive Leadership & Management

●   Public Company Board Experience

●   Finance/Capital Management & Allocation

●   Human Resources & Compensation

●   International Business Experience

●   Marketing/Sales & Brand Management

●   Mergers & Acquisitions

●   Public Company Executive Experience

●   Risk Management

 

Norman S. Matthews was appointed to our Board on July 2018. From June 2010 to July 2018, Mr. Matthews served as one of the directors of SPB Legacy. Prior to that time, he had served as a director of Spectrum Brands, Inc., one of our subsidiaries (“SBI”), since August 2009. Mr. Matthews has over three decades of experience as a business leader in marketing and merchandising and is currently an independent business consultant. As former President of Federated Department Stores, he led the operations of one of the nation’s leading department store retailers with over 850 department stores, including those under the names of Bloomingdales, Burdines, Foley’s, Lazarus, and Rich’s, as well as various specialty store chains, discount chains and Ralph’s Grocery. In addition to his senior management roles at Federated Department Stores, Mr. Matthews also served as Senior Vice President and General Merchandise Manager at E.J. Korvette and Senior Vice President of Marketing and Corporate Development at Broyhill Furniture Industries. Mr. Matthews is a Princeton University graduate and earned his MBA from Harvard Business School. He also currently serves on the Boards of Directors of Grocery Outlet Holding Corp., Party City Holdco, Inc., and The Children’s Place Retail Stores, Inc., and previously served as a director of Henry Schein, Inc., Sunoco, The Progressive Corporation, Toys “R” Us, Duff & Phelps Corporation, and Federated Department Stores. He is a trustee emeritus at the American Museum of Natural History. Mr. Matthews is a member of our NCG Committee and is a member of our Compensation Committee.

 

19


Class III Directors

 

David M. Maura

 

Director since July 2018

Age: 47

Race/Ethnicity: Caucasian

Gender: Male

 

    

Independence & Committees:

●   None

  

Key Skills/Experience:

●   Accounting/Auditing

●   Business Operations

●   Consumer Products

●   Corporate Governance

●   Corporate Strategy & Business Development

●   Ethics/Corporate Social Responsibility

●   Executive Leadership & Management

●   Public Company Board Experience

●   Finance/Capital Management & Allocation

●   Human Resources & Compensation

●   Mergers & Acquisitions

●   Public Company Executive Experience

●   Risk Management

 

David M. Maura was appointed our Executive Chairman and our Chief Executive Officer on July 2018. Previously, he had served as the Executive Chairman, effective as of January 2016, and as Chief Executive Officer, effective as of April 2018, of SPB Legacy. Prior to such appointment, Mr. Maura served as non-executive Chairman of the board of directors of SPB Legacy since July 2011 and served as interim Chairman and as one of the directors of SPB Legacy since June 2010. Mr. Maura was a Managing Director and the Executive Vice President of Investments at HRG Group, Inc. (“HRG Legacy”) from October 2011 until November 2016 and had been a member of HRG Legacy’s board of directors from May 2011 until December 2017. Mr. Maura previously served as a Vice President and Director of Investments of Harbinger Capital Partners LLC (“Harbinger Capital”) from 2006 until 2012. Prior to joining Harbinger Capital in 2006, Mr. Maura was a Managing Director and Senior Research Analyst at First Albany Capital, Inc., where he focused on distressed debt and special situations, primarily in the consumer products and retail sectors. Prior to First Albany, Mr. Maura was a Director and Senior High Yield Research Analyst in Global High Yield Research at Merrill Lynch & Co. Previously, Mr. Maura was a Vice President and Senior Analyst in the High Yield Group at Wachovia Securities, where he covered various consumer product, service, and retail companies. Mr. Maura began his career at ZPR Investment Management as a Financial Analyst.

 

Mr. Maura served as Chairman, President and Chief Executive Officer of Mosaic Acquisition Corp., a special purpose acquisition company, from October 2017 to January 2020, when the company merged with Vivint Smart Home, Inc. (“Vivint”). Mr. Maura served as an outside director on Vivint’s board until March 2020 when he resigned from Vivint. He previously served on the boards of directors of Ferrous Resources, Ltd., Russell Hobbs and Applica. Mr. Maura received a B.S. degree in Business Administration from Stetson University and is a CFA charterholder.

 

20


Terry L. Polistina

 

Lead Independent Director since July 2018

Age: 56

Race/Ethnicity: Caucasian

Gender: Male

 

    

Independence & Committees:

●   Independent Director

●   Chair of our Audit Committee

●   Compensation Committee

  

Key Skills/Experience:

●   Accounting/Auditing

●   Business Operations

●   Consumer Products

●   Corporate Governance

●   Corporate Strategy & Business Development

●   Ethics/Corporate Social Responsibility

●   Executive Leadership & Management

●   Public Company Board Experience

●   Finance/Capital Management & Allocation

●   Human Resources & Compensation

●   International Business Experience

●   Marketing/Sales & Brand Management

●   Mergers & Acquisitions

●   Public Company Executive Experience

●   Risk Management

 

Terry L. Polistina was appointed to our Board on July 2018. From June 2010 until July 2018, Mr. Polistina served as one of the directors of SPB Legacy. Since July 2018, Mr. Polistina has also served as the Lead Independent Director of the Board. Prior to that, he served as a director of SBI from August 2009 to June 2010. Mr. Polistina served as the President, Small Appliances of SPB Legacy beginning in June 2010 and became President - Global Appliances of SPB Legacy in October 2010 until September 2013. Prior to that, Mr. Polistina served as the Chief Executive Officer and President of Russell Hobbs from 2007 until 2010. Mr. Polistina served as Chief Operating Officer at Applica from 2006 to 2007 and Chief Financial Officer from 2001 to 2007, at which time Applica combined with Russell Hobbs. Mr. Polistina is a director of privately held Entic, Inc. Mr. Polistina received an undergraduate degree in finance from the University of Florida and holds an MBA from the University of Miami. Mr. Polistina is the Chair of our Audit Committee, a member of our Compensation Committee and serves as the Lead Independent Director of the Board.

Our Executive Officers

Our executive officers serve at the discretion of our Board. Our Board selected each of our executive officers because his or her background provides each executive with the experience and skillset geared toward helping us succeed in our business strategy. Our management team is comprised of seasoned executives who all focus on the performance of our Company to drive long-term outcomes for us. We are committed to ensuring that female and minority candidates are among the pool of individuals from which new executive officers are selected. During Fiscal 2019, we made progress in advancing this objective by appointing to our executive team a woman and a candidate from a diverse background. We are committed to further progressing this objective in the future.

Included in the discussion below is information regarding our executive officers who do not serve as directors of our Company. See “Our Board of Directors” above for certain information regarding David Maura, our only director-employee.

 

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Randal Lewis
Executive Vice President, Chief Operating Officer since October 2018
Age: 53
Race/Ethnicity: Caucasian
Gender: Male

Randal Lewis was appointed our Chief Operating Officer in October 2018 and Executive Vice President in September 2019. He has direct responsibility for all operating divisions. Mr. Lewis previously led our former Pet, Home & Garden Division since November 2014. Prior to that, he was Senior Vice President and General Manager of our Home & Garden business since January 2011, where he led the restructuring of that business. From April 2005 to January 2011, Mr. Lewis served as our Home & Garden business’s Vice President, Manufacturing and Vice President, Operations. Prior to that, Mr. Lewis held various leadership roles from October 1997 to April 2005 with the former owners of United Industries Corporation, which is now owned by the Company, and from January 1989 to October 1997 Mr. Lewis worked at Unilever. Mr. Lewis earned a B.S. degree in mechanical engineering from the University of Illinois, Urbana-Champaign.

 

Rebeckah Long
Senior Vice President, Global Human Resources since September 2019
Age: 45
Race/Ethnicity: Caucasian
Gender: Female

Rebeckah Long was appointed our Senior Vice President, Global Human Resources in September 2019 and has direct responsibility for consistent delivery and execution of the Human Resource function globally. Ms. Long previously served as Vice President of Global Human Resources of Spectrum Brands since April 2019. Prior to that, she was Human Resource Business Partner for several business divisions within Spectrum Brands since March 2008, with a focus on talent strategy and organizational effectiveness. Prior to joining Spectrum Brands, she was the Regional Human Resources Manager for United Rentals, lnc. from June 2000 to February 2008 and was responsible for the integration of over 25 businesses into the United Rentals portfolio. Rebeckah holds a B.S. degree in Economics from Illinois State University.

 

Jeremy W. Smeltser
Executive Vice President, Chief Financial Officer since November 2019
Age: 45
Race/Ethnicity: Caucasian
Gender: Male

Jeremy W. Smeltser was appointed our Executive Vice President on October 1, 2019 and was appointed our Chief Financial Officer on November 17, 2019. He previously served as Vice President and Chief Financial Officer of SPX Flow, Inc. (“SPX Flow”). Prior to his role at SPX Flow, he served as Vice President and Chief Financial Officer of SPX Corporation, where he served in various roles, including as Vice President and Chief Financial Officer, Flow Technology, and became an officer of SPX Corporation in April 2009. Mr. Smeltser joined SPX Corporation in 2002 from Ernst & Young LLP, where he was an audit manager in Tampa, Florida. Prior to that, he held various positions with Arthur Andersen LLP, in Tampa, Florida, and Chicago, Illinois, focused primarily on assurance services for global manufacturing clients. Mr. Smeltser earned a B.S. degree in Accounting from Northern Illinois University.

 

22


Ehsan Zargar
Executive Vice President, General Counsel and Corporate Secretary since October 2018
Age: 43
Race/Ethnicity: Asian (Middle East)
Gender: Male

Ehsan Zargar was appointed our Executive Vice President, General Counsel and Corporate Secretary on October 1, 2018. Mr Zargar is responsible for the Company’s legal, insurance, and real estate functions. From June 2011 until July 2018, Mr. Zargar held a number of increasingly senior positions with HRG Legacy, including serving as its Executive Vice President and Chief Operating Officer from January 2017 until July 2018, as its General Counsel since April 2015, and as Corporate Secretary since February 2012. From August 2017 until July 2018, Mr. Zargar served as a director of SPB Legacy. From November 2006 to June 2011, Mr. Zargar worked in the New York office of Paul, Weiss, Rifkind, Wharton & Garrison LLP. Previously, Mr. Zargar practiced law at another major law firm focusing on general corporate matters. Mr. Zargar received a law degree from Faculty of Law at the University of Toronto and a B.A. from the University of Toronto.

Corporate Governance

The following table provides an overview of our corporate governance, including recent enhancements and existing practices.

 

Recent Enhancements        Existing Practices

✓  Increased diversity among Board and executive team

 

✓  Adopted majority voting and a director resignation policy

 

✓  Strengthened our stock ownership guidelines

 

✓  Strengthened our anti-hedging policy

 

✓  Adopted an anti-pledging policy

 

✓  Hired a new independent compensation consultant

 

✓  Completed our transition to a stand-alone independent company

    

✓  Independent lead director

 

✓  Majority of the Board comprised of independent directors

 

✓  All committees comprised entirely of independent directors

 

✓  Anti-hedging policy

 

✓  Robust clawback policy

 

✓  Independent compensation consultant

 

✓  All three members of our Audit Committee are financial experts

Board Structure

Lead Independent Director

Mr. Polistina was appointed to our Board, and as our Lead Independent Director in July 2018. In his capacity as our Lead Independent Director, Mr. Polistina:

 

   

presides at all meetings of the Board at which the Chairman of the Board is not present;

 

   

presides at all executive sessions of the independent members of the Board, and has the authority to call meetings of the independent members of the Board;

 

23


   

serves as liaison between the management and the independent members of the Board, and provides our Chief Executive Officer (“CEO”) and other members of management with feedback from executive sessions of the independent members of the Board;

 

   

reviews and approves the information to be provided to the Board;

 

   

reviews and approves meeting agendas and coordinates with management to develop such agendas;

 

   

approves meeting schedules to assure there is sufficient time for discussion of all agenda items;

 

   

if requested by major shareholders, ensures that he is available for consultation and direct communication;

 

   

interviews, along with the Chair of our NGC Committee, Board and senior management candidates and makes recommendations with respect to Board candidates and hiring of senior management;

 

   

consults with the Chair and other members of our Compensation Committee with respect to the performance review of our CEO and other member of our senior management team; and

 

   

performs such other functions and responsibilities as requested by the Board from time to time.

Mr. Maura serves as our Executive Chairman and our CEO. Given Mr. Maura’s broad experience in mergers and acquisitions, the consumer products and retail sectors, and finance and investments, as well as his role in SPB Legacy’s strategy and growth since 2010, our Board believes that it is in the best interest of the Company for Mr. Maura to concurrently serve as our Executive Chairman and CEO.

Director Independence

In accordance with the NYSE Rules and our Corporate Governance Guidelines, a majority of our Board is required to be comprised of independent directors. All of our directors, except for David Maura (our Chairman and CEO), qualify as independent directors. More specifically, our Board has affirmatively determined that none of the following directors has a material relationship with the Company (either directly or as a partner, stockholder, or officer of an organization that has a relationship with the Company): Kenneth C. Ambrecht, Sherianne James, Norman S. Matthews, Terry L. Polistina, and Hugh R. Rovit. Our Board has adopted the definition of “independent director” set forth under Section 303A.02 of the NYSE Rules to assist it in making determinations of independence. Our Board has determined that the directors referred to above currently meet these standards and qualify as independent.

Meetings of Independent Directors

The Company generally holds executive sessions at each Board and committee meeting. In his capacity as our Lead Independent Director, Mr. Polistina presides over executive sessions of the entire Board and the Chair of each committee presides over the executive sessions of that committee.

Committees Established by Our Board of Directors

Our Board has designated three principal standing committees: our Audit Committee, our Compensation Committee, and our NCG Committee, each of which has a written charter addressing each such committee’s purpose and responsibilities. Each such committee is comprised entirely of independent directors.

 

24


Audit Committee

Our Audit Committee has been established in accordance with Section 303A.06 of the NYSE Rules and Rule 10A-3 of the Exchange Act, for the purpose of overseeing the Company’s accounting and financial reporting processes and audits of our financial statements. Our Audit Committee is responsible for monitoring (i) the integrity of our financial statements, (ii) our independent registered public accounting firm’s qualifications and independence, (iii) the performance of our internal audit function and independent auditors, and (iv) our compliance with legal and regulatory requirements. The responsibilities and authority of our Audit Committee are described in further detail in the Charter of the Audit Committee, as adopted by our Board in July 2018, a copy of which is available at our website www.spectrumbrands.com under “Investor Relations-Corporate Governance Documents”.

The current members of our Audit Committee are Terry L. Polistina (Chair), Kenneth C. Ambrecht, and Hugh R. Rovit. Our Board has determined that each member of our Audit Committee qualifies as an “audit committee financial expert” as defined in the rules promulgated by the SEC in furtherance of Section 407 of the Sarbanes-Oxley Act of 2002. Our Board has determined that all of the members of our Audit Committee qualify as independent, as such term is defined in Section 303A.02 of the NYSE Rules, Section 10A(m)(3)(B) of the Exchange Act, and Exchange Act Rule 10A-3(b).

Compensation Committee

Our Compensation Committee is responsible for (i) overseeing our compensation and employee benefits plans and practices, including our executive compensation plans and our incentive-compensation and equity-based plans, (ii) evaluating and approving the performance of our Executive Chairman and CEO and other executive officers in light of those goals and objectives, and (iii) reviewing and discussing with management our compensation discussion and analysis disclosure and compensation committee reports in order to comply with our public reporting requirements. The responsibilities and authority of our Compensation Committee are described in further detail in the Charter of the Compensation Committee, as adopted by our Board in July 2018, a copy of which is available at our website www.spectrumbrands.com under “Investor Relations-Corporate Governance Documents”.

The current members of our Compensation Committee are Kenneth C. Ambrecht (Chair), Norman S. Matthews, and Terry L. Polistina. Our Board has determined that all of the members of our Compensation Committee qualify as independent, as such term is defined in Section 303A.02 of the NYSE Rules.

NCG Committee

Our NCG Committee is responsible for (i) identifying and recommending to our Board individuals qualified to serve as our directors and on our committees of our Board, (ii) advising our Board with respect to board composition, procedures and committees, (iii) developing and recommending to our Board a set of corporate governance principles applicable to the Company, and (iv) overseeing the evaluation process of our Board, the committees of the Board, the individual directors and our Executive Chairman and CEO. The responsibilities and authority of our NCG Committee are described in further detail in the Charter of the NCG Committee, as adopted by our Board in July 2018, a copy of which is available at our website www.spectrumbrands.com under “Investor Relations-Corporate Governance Documents”.

The current members of our NCG Committee are Sherianne James (Chair), Kenneth C. Ambrecht, and Norman S. Matthews. Ms. James was appointed as a member of the NCG Committee on January 28, 2020 and was appointed Chair of the NCG Committee on June 18, 2020. Our Board has determined that all of the members of our NCG Committee qualify as independent, as such term is defined in Section 303A.02 of the NYSE Rules.

 

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Board and Committee Activities

During Fiscal 2019, our Board held a total of 11 meetings, and acted by unanimous written consent on a total of 6 occasions. Our Audit Committee held a total of 7 meetings during Fiscal 2019. Our Compensation Committee held 8 meetings and acted by unanimous written consent on 2 occasions during Fiscal 2019. Our NCG Committee held 3 meetings during Fiscal 2019. During Fiscal 2019, all of our directors attended at least 75% of the meetings of the Board and committees on which they served.

Our Practices and Policies

Corporate Governance Guidelines and Code of Ethics and Business Conduct

Our Board has adopted our Corporate Governance Guidelines to assist it in the exercise of its responsibilities. These guidelines reflect our Board’s commitment to monitor the effectiveness of policy and decision-making both at our Board and management level, with a view to enhancing stockholder value over the long-term. Our Corporate Governance Guidelines address, among other things, our Board and Board committee composition and responsibilities, director qualifications standards and selection, and evaluation of our CEO. In addition, pursuant to these guidelines, our Board has a formalized a process by which our directors are assessed annually by our NCG Committee. The assessment includes a peer review process and evaluates the Board as a whole, the committees of the Board and the individual directors. In carrying out this assessment, we may retain an external evaluator to assist our Board and NCG Committee at least every three years. Our Board has adopted a Code of Business Conduct and Ethics Policy for directors, officers and employees and a Code of Ethics for the Principal Executive and Senior Financial Officers to provide guidance to our CEO, chief financial officer (“CFO”), principal accounting officer or controller, and our business segment chief financial officers or persons performing similar functions.

Majority Voting and Director Resignation Policy

During Fiscal 2019, our Board adopted a majority voting policy for the election of directors. Pursuant to this policy, which applies in the case of uncontested director elections, a director must be elected by a majority of the votes cast with respect to the election of such director. For purposes of this policy, a “majority of the votes cast” means that the number of shares voted “for” a director must exceed the number of shares voted “against” that director and abstentions and broker non-votes are not counted as “votes cast.” The policy also provides that in the event that an incumbent director nominee receives a greater number of votes “against” than votes “for” his or her election, he or she must (within five business days following the final certification of the related election results) offer to tender his or her written resignation from the Board to the NCG Committee. The NCG Committee will review such offer of resignation and will consider such factors and circumstances as it may deem relevant, and, within 90 days following the final certification of the election results, will make a recommendation to the Board concerning the acceptance or rejection of such tendered offer of resignation. The policy requires the decision of the Board to be promptly publicly disclosed.

Anti-Hedging Policy

The Company believes it is improper and inappropriate for our directors, officers and employees and certain of their family members (each, a “Subject Person”) to engage in hedging, short-term or speculative transactions involving the Company’s securities. Our anti-hedging policy, which we further strengthened during Fiscal 2019, applies to all Subject Persons. The Company prohibits Subject Persons from engaging in (i) derivative, speculative, hedging, or monetization transactions in Company securities (including, but not limited to, any trading on derivatives (such as swaps, forwards, and/or futures) of Company securities that allow a stockholder to lock in the value of Company securities in exchange for all or part of the potential upside appreciation in the value of such stock), (ii) short sales (i.e., selling stock the Subject Person does not own and borrowing shares to make delivery), and (iii) buying or selling puts, calls, options or other derivatives in respect of Company securities.

 

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Anti-Pledging Policy

In addition, the Company believes it is improper and inappropriate for any Subject Person to engage in pledging transactions involving the Company’s securities. During Fiscal 2019, we adopted a robust anti-pledging policy, which prohibits Subject Persons from pledging or encumbering Company securities as collateral for a loan or other indebtedness. This prohibition includes, but is not limited to, holding such shares in a margin account as collateral for a margin loan or borrowing against Company securities on margin. Any pledges (and any modifications or replacements of such pledges) that existed prior to the adoption of our policy are grandfathered unless otherwise prohibited by applicable law or Company policy and so long as any modification or replacement of any pre-existing pledge does not result in additional shares being pledged.

Securities Trading Policy

Our Company believes that it is appropriate to monitor and prohibit certain trading in the securities of our Company. Accordingly, trading of the Company’s securities by directors, executive officers and certain other employees who are so designated by the office of the Company’s General Counsel is subject to trading period limitations or must be conducted in accordance with a previously established trading plan that meets SEC requirements. At all times, including during approved trading periods, directors, executive officers and certain other employees notified by the office of the Company’s General Counsel are required to obtain preclearance from the Company’s General Counsel or his designee prior to entering into any transactions in Company securities, unless those transactions occur in accordance with a previously established trading plan that meets SEC requirements.

Transactions subject to our securities trading policy include, among others, purchases and sales of Company stock, bonds, options, puts and calls, derivative securities based on securities of the Company, gifts of Company securities, contributions of Company securities to a trust, sales of Company stock acquired upon the exercise of stock options, broker-assisted cashless exercises of stock options, market sales to raise cash to fund the exercise of stock options, and trades in Company’s stock made under an employee benefit plan.

Stock Ownership Guidelines

Our Board believes that our directors, named executive officers (“NEOs”) and certain of the Company’s other officers and employees should own and hold Company common stock to further align their interests with the interests of stockholders and to further promote the Company’s commitment to sound corporate governance.

To memorialize this commitment, effective January 29, 2013, our Board, upon the recommendation of our Compensation Committee, established stock ownership and retention guidelines (the “SOG”) applicable to the Company’s directors, NEOs and all other officers of the Company and its subsidiaries with a level of Vice President or above (such officers and our NEOs, our “Covered Officers”). Effective January 1, 2020, the Company improved and enhanced the SOG to further align it with best practices by: (i) increasing our directors’ and Covered Officers’ retention requirement from 25% to 50% of their net after-tax shares received under awards granted (other than equity awards granted pursuant to the annual cash bonus plan) until they reach their required stock ownership under the SOG; and (ii) extending the applicable time period for our directors and Covered Officers to achieve the minimum ownership requirements to five (5) years from the date of eligibility or promotion. Even when the required stock ownership is obtained, all employee incentive plan participants, including NEOs, are subject to an additional stock retention requirement requiring them to retain at least 25% of their net after-tax shares of Company stock received under awards for one year after date of vesting.

 

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Under the updated SOG, our directors are expected to achieve stock ownership with a value of at least five times their annual cash retainer. In addition, our Covered Officers are expected to achieve the levels of stock ownership indicated below (which equal a dollar value of stock based on a multiple of the Covered Officer’s base salary).

 

Position   $ Value of Stock to be
Retained (Multiple of Base
Salary or Cash Retainer)
          Years to 
Achieve
 

Board Members

  5x Cash Retainer       5 years  

Executive Chairman and CEO

  5x Base Salary       5 years  

Chief Operating Officer (“COO”), CFO, General Counsel, and Presidents of business units

  3x Base Salary       5 years  

Senior Vice Presidents

  2x Base Salary       5 years  

Vice Presidents

  1x Base Salary             5 years  

The stock ownership levels attained by a director or a Covered Officer are based on shares directly owned by the director or Covered Officer, whether through earned and vested restricted stock units (“RSU”) or performance stock units (“PSU”) or restricted stock grants or open market purchases. Unvested restricted shares, unvested RSUs and PSUs, and stock options do not count toward the ownership goals; provided, that, effective January 1, 2020, unvested time-based restricted stock and unvested time-based RSUs count toward the ownership goals. On an annual basis, our Compensation Committee reviews the progress of our directors and Covered Officers in meeting these guidelines. In some circumstances, failure to meet the guidelines by a director or a Covered Officer could result in additional retention requirements or other actions by our Compensation Committee.

Compensation Clawback Policy

We have adopted a Compensation Clawback Policy setting forth the conditions under which applicable incentive compensation provided to our executive officers may be subject to forfeiture, disgorgement, recoupment, or diminution (“clawback”). This policy provides that our Board or our Compensation Committee shall require the clawback or adjustment of incentive-based compensation to the Company in the following circumstances:

 

   

As required by Section 304 of the Sarbanes Oxley Act of 2002, which generally provides that if the Company is required to prepare an accounting restatement due to material noncompliance as a result of misconduct with financial reporting requirements under the securities laws, then the CEO and CFO must reimburse the Company for any incentive-based compensation or equity compensation and profits from the sale of the Company’s securities during the 12-month period following initial publication of the financial statements that had been restated;

 

   

As required by Section 954 of the Dodd-Frank Act and Rule 10D-1of the Exchange Act, which generally require that, in the event the Company is required to prepare an accounting restatement due to its material noncompliance with financial reporting requirements under the securities laws, the Company may recover from any of its current or former executive officers who received incentive compensation, including stock options, during the three-year period preceding the date on which the Company is required to prepare a restatement based on the erroneous financial reporting, any amount that exceeds what would have been paid to the executive officer after giving effect to the restatement; and

 

   

As required by any other applicable law, regulation, or regulatory requirement.

 

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Additionally, our Board or Compensation Committee in their discretion may require that any executive officer who has been awarded incentive-based compensation shall forfeit, disgorge, return, or adjust such compensation in the following circumstances:

 

   

If the Company suffers significant financial loss, reputational damage, or similar adverse impact as a result of actions taken or decisions made by the executive officer in circumstances constituting illegal or intentionally wrongful conduct or gross negligence; or

 

   

If the executive officer is awarded or is paid out under any incentive compensation plan of the Company on the basis of a material misstatement of financial calculations or information, or if events coming to light after the award disclose a material misstatement which would have significantly reduced the amount of the award or payout if known at the time of the award or payout.

The awards and incentive compensation subject to clawback under this policy include vested and unvested equity awards, shares acquired upon vesting or lapse of restrictions, short- and long-term incentive bonuses and similar compensation, discretionary bonuses, and any other awards or compensation under the Company’s equity plans, and any other incentive compensation plan of the Company. Any clawback under this policy may, in the discretion of our Board or Compensation Committee, be effectuated through the reduction, forfeiture, or cancellation of awards, the return of paid-out cash or exercised or released shares, adjustments to future incentive compensation opportunities, or in such other manner as our Board and Compensation Committee determine to be appropriate, except as otherwise required by law.

In addition, under the Company’s equity plans, any equity award granted may be cancelled by our Compensation Committee in its sole discretion, except as prohibited by applicable law, if the participant, without the consent of the Company, while employed by or providing services to the Company or any affiliate or after termination of such employment or service, violates a non-competition, non-solicitation, or non-disclosure covenant or agreement or otherwise engages in activity that is in conflict with or is adverse to the interests of the Company or any affiliate, including fraud or conduct contributing to any financial restatements or irregularities engaged in, as determined by our Compensation Committee in its sole discretion. Our Compensation Committee may also provide in any award agreement that the participant will forfeit any gain realized on the vesting or exercise of such award, and must repay the gain to the Company, in each case except as prohibited by applicable law, if (i) the participant engages in any activity referred to in the preceding sentence, or (ii) the amount of any such gain is in excess of what the participant should have received under the terms of the award for any reason (including without limitation by reason of a financial restatement, mistake in calculations, or other administrative error). Additionally, awards are subject to claw-back, forfeiture, or similar requirements to the extent required by applicable law (including without limitation Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Act). Equity awards issued have included these provisions.

Risk Oversight

The Company’s risk assessment and management function is led by the Company’s senior management, which is responsible for day-to-day management of the Company’s risk profile, with oversight from our Board and its committees. Central to our Board’s oversight function is our Audit Committee. In accordance with our Audit Committee Charter, our Audit Committee is responsible for the oversight of the financial reporting process and internal controls. In this capacity, our Audit Committee is responsible for reviewing and evaluating guidelines and policies governing the process by which senior management of the Company and the relevant departments of the Company, including the internal audit department, assess and manage the Company’s exposure to risk, as well as the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures.

 

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The Company has implemented an annual formalized risk assessment process. In accordance with this process, a governance risk and compliance committee of certain members of senior management has the responsibility to identify, assess and oversee the management of risk for the Company. This committee obtains input from other members of management and subject matter experts as needed. Management uses the collective input received to measure the potential likelihood and impact of key risks and to determine the adequacy of the Company’s risk management strategy. Periodically, representatives of this committee report to our Audit Committee on its activities and the Company’s risk exposure.

In Fiscal 2019, our management and our Audit Committee reviewed our reporting processes and took a number of actions to further enhance such processes. In connection with such efforts, we made changes to our internal control over financial reporting and successfully remediated the material weakness that we disclosed in our Annual Report on Form 10-K for Fiscal 2018. See Item 9A of our Annual Report Form 10-K for Fiscal 2019 for a detailed discussion of this remediation process.

Environmental, Social and Governance Matters

We are committed to sustainability and recognize the impact our business has on the world. We believe in making a positive difference in the communities in which we live and work and strive to discharge our corporate social responsibilities from a global perspective and throughout every aspect of our operations. Our Board recognizes the negative effect poor environmental practices and human capital management may have on us and our returns. Our Board carefully considers and balances the impact on the environment, people and the communities of which we are a part in deciding how to operate our business. Our Board receives periodic reports regarding our risk exposure and risk mitigation efforts in these areas.

While our corporate social responsibility commitments address many areas, we focus on four key priorities: product and content safety, environmental sustainability, human rights and ethical sourcing, and diversity and inclusion.

 

   

Product & Content Safety – Product safety is essential to upholding our consumers’ trust and expectations, and we embed quality and safety processes into every product we deliver. This includes embracing our responsibility to create safe, high quality products and marketing them responsibly. It’s an important part of how we uphold our commitments to all our consumers.

 

   

Environmental Sustainability We are passionate about protecting our planet and conserving natural resources for future generations, including pursuing innovative ways to reduce our environmental impacts across business. We drive our strategic environmental blueprint across our organization with the intention of reducing the environmental impacts of our products, minimizing the environmental footprint of our operations and processes, and encouraging our employees and partners to embrace and promote environmental responsibility.

 

   

Human Rights & Ethical Sourcing – Treating people with fairness, dignity and respect and operating ethically in our supply chain are our core values. We demonstrate these deep beliefs in the way we treat our employees and, in the expectations, and requirements we have of those with whom we do business. We work with our third-party factories and licensees to ensure all products are manufactured in safe and healthy environments and the human rights of workers in our supply chain are being upheld.

 

   

Diversity & Inclusion We believe that supporting gender equality and promoting inclusion across our business and society makes the world a better place for all. We know that the more inclusive we are as a company, the stronger our business will be. We support the personal and professional growth of our diverse worker base, with a goal of positively impacting their lives and well-being.

 

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Related Person Transactions Policy

Our Board has adopted a written policy for the review, approval and ratification of transactions that involve related persons and potential conflicts of interest. See “Certain Relationships and Related Transactions” for discussion of this policy and disclosure of our related person transactions.

Transfer of Our Shares of Common Stock

Our Company has substantial deferred tax assets related to net operating losses and tax credits (together, “Tax Attributes”) for U.S. federal and state income tax purposes. These Tax Attributes are an important asset of the Company because we expect to use these Tax Attributes to offset future taxable income. The Company’s ability to utilize or realize the carrying value of such Tax Attributes may be impacted if the Company experiences an “ownership change” or certain other events under applicable tax rules. If an “ownership change” were to occur, we could lose the ability to use a significant portion of its Tax Attributes, which could have a material adverse effect on the Company’s results of operations and financial condition.

Accordingly, we have adopted certain transfer restrictions designed to limit an “ownership change.” These transfer restrictions are subject to certain exceptions, including, among others, prior approval of a Prohibited Transfer by our Board. As previously disclosed, our Board has granted pre-approvals to certain large institutional investors and their affiliates. The foregoing description of the transfer restrictions contained within our Charter is not complete and is qualified in its entirety by reference to the full text of the Charter, which is incorporated by reference into this Proxy Statement.

Governance Documents Availability

We have posted our Corporate Governance Guidelines, Code of Business Conduct and Ethics for directors, officers and employees, Code of Ethics for the Principal Executive and Senior Financial Officers, Audit Committee Charter, Compensation Committee Charter, and NCG Committee Charter on our website www.spectrumbrands.com under “Investor Relations-Corporate Governance Documents”. We intend to disclose any amendments to, and, if applicable, any waivers of, these governance documents on that section of our website. These governance documents are also available in print without charge to any stockholder of record that makes a written request to the Company. Inquiries must be directed to the Investor Relations Department at Spectrum Brands Holdings, Inc., 3001 Deming Way, Middleton, WI 53562.

Director Compensation

Our Compensation Committee is responsible for approving, subject to review by our Board as a whole, compensation programs for our non-employee directors. In that function, our Compensation Committee considers market and peer company data regarding director compensation and annually evaluates the Company’s director compensation practices in light of that data and the characteristics of the Company as a whole, with the assistance of its independent compensation advisors. Under our director compensation program, at the beginning of each fiscal year, each non-employee director receives an annual grant of RSUs equal to that number of shares of the Company’s common stock with a value on the date of grant of $125,000. Additionally, each director is eligible to receive an annual cash retainer of $105,000 which is paid quarterly. In addition, the Lead Independent Director receives an additional annual cash retainer of $40,000 and an additional annual equity retainer amount of $20,000.

For Fiscal 2019, compensation for service on the standing committees of our Board, was paid in an annual amount as follows below. Mr. Maura, our only director who is an employee of the Company, does not receive compensation for his service as a director.

 

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Committee  

Chair

Annual

Retainer

    Member
Annual
Retainer

Audit

 

 

$    20,000

 

 

N/A

Compensation

 

 

$    15,000

 

 

N/A

NCG

 

 

$    15,000

 

 

N/A

Director Compensation Table for Fiscal 2019

The table set forth below, together with its footnotes, provides information regarding compensation paid to our directors in Fiscal 2019. In Fiscal 2019, Mr. Polistina (who was appointed Lead Independent Director in July 2018) received the $60,000 paid in cash for his service as Lead Independent Director in Fiscal 2019. Mr. Polistina also received an additional $11,500 representing the pro rata portion of these fees for his service in Fiscal 2018, which was not paid in Fiscal 2018. Directors are permitted to make an annual election to receive all of their director compensation (including for service on committees of our Board) in the form of Company stock in lieu of cash. For Fiscal 2019, the grants of RSUs were made on October 1, 2018 (except for Ms. James who became a director on October 23, 2018 and received a grant of RSUs on November 1, 2018). All such RSUs (including those awarded to Ms. James) vested on October 1, 2019.

 

Name(1)

  Fees Earned or
Paid in Cash(2)
  Stock
Awards(3)(4)
  All Other
Compensation(5)
  Total

Kenneth C. Ambrecht

   

$

-

   

$

244,122

   

$

    9,071

   

$

    253,193

David S. Harris(6)

   

$

-

   

$

229,157

   

$

5,171

   

$

234.328

Sherianne James

   

$

100,042

   

$

121,334

   

$

3,081

   

$

224,457

Norman S. Matthews

   

$

-

   

$

244,122

   

$

6,383

   

$

250,505

Terry L. Polistina

   

$

71,500

   

$

249,110

   

$

5,621

   

$

326,231

Hugh R. Rovit

   

$

-

   

$

229,157

   

$

5,705

   

$

234,862

Joseph S. Steinberg(2)(6)

   

$

-

   

$

229,157

   

$

5,171

   

$

234,328

 

(1)

This table includes only directors who received compensation during Fiscal 2019.

(2)

Amounts reflected in this column include the annual retainer fees and committee Chair fees paid in cash to the applicable director during Fiscal 2019.

(3)

Amounts in this column represent the aggregate grant date fair value of each award computed in accordance with FASB ASC Topic 718. The value was computed by multiplying the number of shares underlying the stock award by the closing price per share of the Company’s common stock on each grant date (or, as applicable, the last trading date immediately prior to the grant date if the grant date fell on a date when the NYSE was closed), which was $74.45 on October 1, 2018, and was $66.17 on November 1, 2018. The directors received RSUs on October 1, 2018, which vested on October 1, 2019 as follows: Mr. Ambrecht, 3,279; Mr. Harris, 3,078; Mr. Matthews, 3,279; Mr. Polistina, 3,346; Mr. Rovit, 3,079; and Mr. Steinberg, 3,078. In connection with her appointment to our Board on October 23, 2018, Ms. James received 1,834 RSUs on November 1, 2018, which vested on October 1, 2019.

(4)

As of September 30, 2019, Messrs. Ambrecht, Harris, Matthews, Polistina, Rovit and Steinberg held 3,279, 3,078, 4,103, 3,346, 3,078 and 3,078 outstanding unvested RSUs respectively, and Ms. James held 1,834 outstanding unvested RSUs.

(5)

Includes dividends paid on RSUs which were not factored into the grant date fair value of the RSUs. The amount of the dividends for Messrs. Ambrecht, Harris, Matthews, Polistina, Rovit and Steinberg was $5,509, $5,171, $5,509, $5,621, $5,171, $5,171, respectively and $3,081 for Ms. James.

(6)

In connection with the termination of the Company’s shareholder agreement with Jefferies Financial Group, Inc. (“Jefferies Financial”), Messrs. Joseph S. Steinberg and David S. Harris (each of whom had been appointed as Board designees of Jefferies Financial pursuant to such agreement) resigned from our Board.

 

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Compensation Committee Interlocks and Insider Participation

The current members of our Compensation Committee are Kenneth C. Ambrecht (Chair), Norman S. Matthews, and Terry L. Polistina. During Fiscal 2019, none of the members of our Compensation Committee was one of our officers or employees. In addition, during Fiscal 2019, none of our executive officers served as a member of the compensation committee of any other entity that has one or more executive officers serving on our Board or our Compensation Committee.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, officers, and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Based solely upon review of Forms 3, 4, and 5 (and amendments thereto) furnished to us during or in respect of Fiscal 2019 and written representations from certain reporting persons, we believe that all Section 16(a) filing requirements applicable to our directors, executive officers, and 10% stockholders were satisfied in a timely manner during Fiscal 2019 with respect to the Company.

 

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AUDIT COMMITTEE REPORT

Our Audit Committee consists of Terry L. Polistina, Kenneth C. Ambrecht, and Hugh R. Rovit. The Audit Committee operates under, and has the responsibility and authority set forth in, the written charter adopted by the Board, which can be viewed on our website, www.spectrumbrands.com, under “Investor Relations – Corporate Governance.”

The Audit Committee Charter adopted by the Board incorporates requirements mandated by the Sarbanes-Oxley Act of 2002 and the NYSE listing standards. All members of the Audit Committee are independent as defined by SEC rules and NYSE listing standards. At least one member of the Audit Committee is an “audit committee financial expert” as defined by SEC rules.

Management is responsible for our internal controls and the financial reporting process. Our independent registered public accounting firm, KPMG LLP, is responsible for performing an independent audit of our consolidated financial statements in accordance with generally accepted auditing standards in the United States of America and auditing the Company’s internal control over financial reporting and issuing their reports thereon. The Audit Committee’s responsibility is to monitor and oversee these processes.

In this context, the Audit Committee has reviewed and discussed with management and KPMG LLP the audited financial statements for the fiscal year ended September 30, 2019, management’s assessment of the effectiveness of the Company’s internal control over financial reporting, and KPMG LLP’s audit of the Company’s internal control over financial reporting. The Audit Committee also adopted a resolution stating that the Audit Committee must approve on an engagement by engagement basis any individual non-audit or tax engagement in any 12-month period. The Audit Committee has pre-approved other specified audit, or audit related services, provided that the fees incurred by KPMG LLP in connection with any individual engagement do not exceed $200,000 in any 12-month period. The Audit Committee has discussed with KPMG LLP the matters that are required to be discussed by Auditing Standard No. 16 (Communications with Audit Committees). In addition, KPMG LLP has provided the Audit Committee with the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and the Audit Committee has discussed with KPMG LLP their firm’s independence. The Audit Committee concluded that the provision of services by the independent auditors did not impair their independence.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements for the fiscal year ended September 30, 2019 be included in our Annual Report on Form 10-K filed with the SEC for that year. The Audit Committee also recommended to the Board that KPMG LLP be appointed as our independent registered public accounting firm for Fiscal 2020.

The foregoing report is furnished by the Audit Committee of the Board.

AUDIT COMMITTEE

Terry L. Polistina, Chairman

Kenneth C. Ambrecht

Hugh R. Rovit

 

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COMPENSATION DISCUSSION AND ANALYSIS

This section provides an overview and analysis of our compensation programs and policies, the material compensation decisions made under those programs and policies, and the material factors considered in making those decisions. The discussion below is intended to help you understand the detailed information provided in our executive compensation tables and put that information into context within our overall compensation philosophy.

The Transformation of Our Company:

In the past short while, we commenced or completed substantial and transformative changes at our Company and delivered on a number of important accomplishments. Some of these transformative changes and important accomplishments are summarized below under four broad categories: strategic and operational accomplishments; corporate governance and compensation practice changes; management team and Board member changes; and accomplishment of positive economic and financial Fiscal 2019 results. These transformative changes and initiatives are designed to provide significant and positive outcomes for the Company and our shareholders in the future.

Strategic & Operational Accomplishments

We began Fiscal 2019 by building on the completion of our merger with our previous majority stockholder, HRG Legacy (the “Merger”). The Merger was a significant achievement for the Company and its stockholders and was negotiated and completed over a significant period of time and consumed a substantial amount of our management’s and directors’ time and efforts. Among other things, the Merger enabled us to acquire certain Tax Attributes of HRG Legacy at a meaningful discount. In addition, the completion of the Merger allowed us to start the transformation of the corporate governance and compensation practices of the Company from those designed for a “controlled company” and a portfolio company of HRG Group to those designed for a widely-held public company and in-line with best practices. The Merger also increased the float and reduce the volatility in the trading of our common stock.

During and following the time that we were completing the Merger with HRG Legacy, we also sought and ran a process to dispose of three of our business segments: our global battery and lighting (“GBL”) business, our global auto care (“GAC”) business and our appliances business. On January 15, 2018, we announced the sale of the GBL business (the “GBL Sale”), which took over 12 months to consummate, to Energizer Holdings, Inc. (“Energizer”) and on November 5, 2018, we announced the sale of the GAC business (the “GAC Sale”), also to Energizer. Both sales were completed in January 2019, resulting in aggregate net proceeds of $2.9 billion to the Company, prior to purchase price adjustments. We ultimately retained our appliances business as part of our continuing operations. The sales process and related negotiation and completion (as applicable) of these three businesses was the source of a significant amount of time and effort for the Company, its management and employees, both domestically and abroad. In particular, the sale of our GBL business was completed only after a protracted and extended regulatory approval process, particularly in Europe.

Through the completion of the sales of our GBL and GAC businesses we streamlined our Company and our operational focus. We were able to effectively realize the benefits of having acquired HRG Legacy’s Tax Attributes in the Merger, sheltering the gains we realized on the completion of the GBL Sale and substantially reducing the taxes that would otherwise have been payable. The $2.9 billion in proceeds, prior to purchase price adjustments, that we received from the GBL Sale and GAC Sale has enabled us to aggressively pay down debt, materially reduce our leverage and strengthen our balance sheet. Our net leverage ratio was 5.2x at the end of Fiscal 2018 and was reduced to 3.1x at the end of Fiscal 2019. Our improved balance sheet will allow us to be more nimble and act strategically as opportunities arise, and also to better withstand any future downturns in the economy. In addition, as part of the respective asset sales, we acquired shares in Energizer so that we have indirectly retained potential upside in the value of our sold businesses.

 

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Following the completion of the asset sales, we commenced a thorough review of the Company’s operations with a view towards resetting our operating model and business strategies to lower costs, improve efficiencies and enable greater organic growth for each of our divisions. This assessment yielded key findings that we are using to overhaul our operating and strategy model, our commercial go-to-market plans, our sourcing and procurement processes, and our use of technology and automation to operate our business more efficiently. We are referring to this project as our Global Productivity Improvement Program and anticipate it will reduce our overall annualized operating costs by at least $100 million and that these savings will be at full run rate within the next twelve to fifteen months. These savings will place the Company on a positive trajectory in the future because we expect that a substantial portion of the savings will be reinvested in growth-enabling activities, including improved consumer insights and additional research and development and marketing.

We also undertook and completed a number of a complex and comprehensive operational projects, including consolidating certain of our distribution centers, which required a significant amount of time and resources. While we experienced some operational challenges with respect to certain of these projects, we took positive steps to address those challenges and, ultimately, were successful in reaching these milestones, which positions the Company well to achieve its goals for Fiscal 2020 and beyond.

The amount of time and effort required to operate our business (including achieving positive economic and financial results) alongside with pursuing these transformational strategic and operational initiatives (including the asset sales and the distribution center consolidation) created disruption and distraction for our employees and presented us with significant challenges in Fiscal 2019. Our management and employees devoted substantial additional time and effort to pursue or complete these initiatives, which were quite difficult to achieve particularly during the period of transformational challenges and uncertainty facing our Company.

As Fiscal 2019 ended, Jefferies Financial announced, and shortly thereafter completed, the distribution of its 14% stake in the Company to its stockholders. Following the distribution, the representative of Jefferies Financial left our Board, completing our Company’s transition from being a controlled company to a widely-held public stockholder constituency.

Management and Board Member Changes

We also made significant changes to our executive management team and our Board. Mr. Maura assumed the duties of CEO in April 2018. Since that time, we have hired a new CFO and a new General Counsel, promoted one of our executives to be our COO and another one of our executives to be the global head of HR. Following these changes, we have changed the entire senior executive team of the Company. We also made changes to the senior management team at our business units in order to align our business unit senior management team with our new operating model and business strategy.

Equally importantly, we also made changes to our Board composition by having representatives of our controlling stockholder and Jefferies Financial leave our Board, appointing new members to our Board and reviewing the skillset and strengths of our individual Board members to make changes to our Committee memberships.

We made these changes in order to align the skillset of our senior management team and our Board with our new operating model and go-forward business strategy. These changes are also designed to provide fresh new ideas and build on our success for the future. We are also proud that in making these changes we have advanced on our aim of promoting diversity and inclusion and are committed to further enhance diversity presence at our Company (including our Board members) going forward.

 

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Corporate Governance & Compensation Practice Changes

While completing the transformative strategic, operational and personnel changes discussed above, we significantly modified the corporate governance and compensation practices of the Company. Prior to the Merger, the Company was a “controlled company” and a majority-owned subsidiary of HRG Group. Following the Merger, the Company evolved into a widely-held public company and we determined that its corporate governance and compensation practices should be updated to reflect its position as a widely-held company and should come in line with corporate governance and compensation best practices.

Accordingly, we made improvements to our corporate governance policies, including appointing a lead independent director, adopting a robust anti-pledging policy and strengthening our anti-hedging policy. We also added a majority voting and director resignation policy. In addition, we increased the required retention of net after-tax shares by our directors, NEOs and other executives to 50% until they satisfy our stock ownership guidelines. See “Directors, Executive Officers and Corporate Governance-Corporate Governance-Our Practices and Policies” for more information on these policies. Furthermore, we eliminated certain perquisites including any related tax equalization. We also increased diversity of our Board and executive and senior management ranks and are committed to promoting these values further in the future.

With respect to enhancements to our compensation practices, we transitioned away from annual Equity Incentive Program (“EIP”) grants with one-year performance periods and our two-year stretch Spectrum 3B Plan (“S3B Plan”) to a new program with cliff vesting following a three-year cumulative performance period. This transition to a three-year cliff vesting performance and service period under the new long term incentive program (“LTIP”) created a “gap” in our employees’ compensation opportunity, in that, under this new plan, there would be no long-term incentive vesting opportunity until September 30, 2021. The lack of any potential vesting or payout of long-term compensation opportunities during this gap period, which represents a significant portion of overall compensation, raised retention concerns. To address this gap, our Compensation Committee granted our NEOs and other selected employees special “Bridge Grants” (which are one-time grants and will not be part of ongoing compensation) comprised of RSUs and PSUs that were primarily designed to: (i) provide annual vesting opportunities until the first of the new, annually granted long-term incentive awards would potentially vest after September 30, 2021, and (ii) address the related potential retention concerns. As explained further on page 57, the Bridge Grants were not additive compensation to our employees and were made at a roughly 15% discount to the compensation opportunities that would have been available under the EIP and S3B Plan.

These Bridge Grants were granted at the beginning of Fiscal 2019 and were designed as two grants to cover two performance cycles, namely the Fiscal 2019 compensation cycle and the Fiscal 2020 compensation cycle. The vesting criteria applicable for the Bridge Grants are:

 

   

Fiscal 2019 Bridge Grant: (i) 60% of the Fiscal 2019 Bridge Grant were not guaranteed and were only eligible to vest based on established performance metrics and targets for Fiscal 2019; and 40% of the Fiscal 2019 Bridge Grant was eligible to vest based on continued service through November 21, 2019.

 

   

Fiscal 2020 Bridge Grant: (i) 60% of the Fiscal 2020 Bridge Grant were not guaranteed and were only eligible to vest based on established performance metrics and targets for Fiscal 2020; and (ii) 40% of the Fiscal 2020 Bridge Grant was eligible to vest based on continued service through November 21, 2020.

In addition, in recognition of the additional work and completion of the sales, we rewarded our NEOs with special transaction success bonuses (which represented in the aggregate 0.22% of the $2.9 billion net proceeds, prior to purchase price adjustments, received from the sales). No amounts would have been paid if the sales were not consummated. Because of the special circumstances surrounding the sale of our GBL and GAC businesses and our transition to a new long-term equity plan noted above, we do not believe that the Bridge Grants and the transaction success bonuses are indicative of our regular, ongoing annual compensation.

 

37


In approving the Bridge Grants and the transaction success bonuses, our Compensation Committee was advised by an independent compensation consultant and outside counsel and considered a number of factors. These factors included, among other things, that at the time of these determinations, which was in fall of 2018 and January of 2019, the Company was making significant changes to its corporate governance and compensation practices as it transitioned away from being a “controlled company,” the Company was facing fierce competition to secure talent in the labor market and was facing significant retention concerns and uncertainty in connection with changing the Company’s asset composition in the context of the asset sales, changing the Company’s ownership structure in conjunction with the Merger and the distribution by Jefferies Financial of its shares of the Company, changing the Company’s business strategy and making changes to the Company’s senior management and Board members. Accordingly, the Bridge Grants and the transaction success bonuses are one-time in nature and are designed to facilitate the Company’s transition through these significant amount of changes.

In conjunction with these decisions, we made further enhancements to our executive compensation programs by introducing for Fiscal 2020 a third performance metric (Adjusted Return on Equity) that will be weighted equally with Adjusted EBITDA and Adjusted Free Cash Flow for purposes of our equity performance programs; eliminating tax equalization on our financial and tax planning benefit, automobile allowance, and life insurance for all executives in Fiscal 2020; our CEO voluntarily agreeing to eliminate, commencing in Fiscal 2020, his tax planning and financial assistance benefit (including tax equalization) and his executive automobile allowance.

Finally, in connection with our Annual Meeting, we have asked our stockholders to approve the New 2020 Equity Plan. Our New 2020 Equity Plan includes important best practice enhancements, including double-trigger vesting on a change in control, a one-year minimum vesting requirement, and an explicit prohibition on dividend payments on unvested awards. See page 89 for more details.

Our Fiscal 2019 Results

Alongside all of the transformational activities, operational and management changes, and additional demands placed on our team, we attained positive financial results in Fiscal 2019, including those discussed below.

 

   

We increased or maintained our market positions, which includes our #1 position in the U.S. with residential and luxury locksets, outdoor insect control, grills, toaster ovens, indoor grills and our #1 global position with aquatics and rawhide chews.

 

   

Our efforts with respect to our transformational and strategic initiatives are being recognized by the market, as our stock has increased 52.2% in price in calendar 2019, and has returned 56.7% in calendar 2019, including dividends.

 

   

Revenue of $3,802.1 million and net loss from continuing operations of $186.7 million, including $151.4 million of non-cash impairment charges.

 

   

Adjusted EBITDA of $567 million.

 

   

Adjusted EBITDA stabilized and in line with guidance with increased investments across the divisions.

 

   

Reduced total debt by $2.4 billion with proceeds from divestitures of the GBL and GAC businesses.

 

   

Increased liquidity (cash and cash equivalent plus available credit under our revolving credit facility) by 5.7% to $1.4 billion.

 

   

Reduced net leverage (net debt to Adjusted EBITDA) to 3.1x from 5.2x.

 

   

Launched our Global Productivity Improvement Plan, expecting to improve overall annualized operating costs by approximately $100 million within the next 12 to 15 months.

 

38


   

In Fiscal 2019, we returned over $355 million to our shareholders through share repurchases of $269 million and $86 million in dividends.

 

   

In Fiscal 2020, we have repurchased $355 million worth of shares as of June 3, 2020.

 

   

Issued $300 million in 5.00% 10-year senior notes and retired all $570 million of our 6.625% senior notes.

 

   

Incurred $60 million of cash tariffs in Fiscal 2019 that were mostly offset with pricing and productivity.

Summary of Highlights:

A summary of our highlights discussed above include:

 

   

●   We continued our momentum after completing the merger with HRG Legacy in Fiscal 2018.

 

●   We streamlined our business focus by completing the sales of our GBL business and our GAC business.

 

●   We no longer have a controlling stockholder, and have significantly transformed our corporate governance practices.

 

●   We significantly transformed our compensation practices, including by simplifying and streamlining our overall compensation structure, focusing our ongoing program on a combination of an annual bonus and a single long-term equity program with a three-year performance period.

 

●   We made changes to our executive team, including the hiring of a new CFO, General Counsel, and the promotion of individuals to COO and head of HR positions.

 

●   We made changes to our senior operating team in our businesses to align with our new business strategy.

 

●   We added diversity to our Board and to our executive team.

 

●   We hired a second compensation consulting firm to review Company practices.

 

●   Our New 2020 Equity Plan includes certain best practice enhancements, including double-trigger vesting on a change in control, a one-year minimum vesting requirement and an explicit prohibition on dividend payments on unvested awards.

    

●   We maintained our global market positions as the #1 leading market position with a number of our products.

 

●   Despite foreign exchange headwinds and a reported sales decrease of 0.2%, we delivered organic sales growth of 1.4%.

 

●   We significantly improved our capital structure as net debt (outstanding debt less cash) declined from 5.2 to 3.1 times adjusted EBITDA at the end of 2019. We reduced total debt by $2.4 billion during Fiscal 2019.

 

●   We returned over $350 million to our shareholders in Fiscal 2019 through dividends and share repurchases.

 

●   We have repurchased $355 million worth of shares as of June 3, 2020.

 

●   We delivered our Fiscal 2019 adjusted EBITDA results within our guidance despite incurring $60 million of cash tariff headwinds.

 

●   We implemented a Global Productivity Improvement Plan, which is expected to improve our overall annualized operating costs by $100 million in the next 12-15 months.

 

●   We achieved and exceeded our Fiscal 2019 annual operating plan.

 

●   We engaged in a thorough and complete review of the Company’s operations and made significant changes to our business strategy.

 

Note:

See Appendix A for information regarding Non-GAAP financial measures.

 

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The following charts illustrate our decreased leverage, repayment of debt and the return of cash to our shareholders through dividends and share repurchases:

 

LOGO

Fiscal 2019 Named Executive Officers

The following individuals were our NEOs for Fiscal 2019:

 

David M. Maura

 

our Chief Executive Officer and Executive Chairman

Douglas L. Martin(1)

 

our former Executive Vice President and Chief Financial Officer

Randal D. Lewis

 

our Executive Vice President and Chief Operating Officer

Ehsan Zargar

 

our Executive Vice President, General Counsel and Corporate Secretary

Rebeckah Long

 

our Senior Vice President, Global Human Resources

Nathan E. Fagre(2)

 

our former Senior Vice President, General Counsel and Corporate Secretary

 

 

 

(1)

Mr. Martin ceased to serve as our CFO on November 17, 2019. His employment with the Company ended on December 20, 2019. Jeremy W. Smeltser became our Executive Vice President and CFO on November 17, 2019.

(2)

Mr. Fagre ceased to be our General Counsel as of October 1, 2018. He continued as a non-executive employee and provided transitional services until May 3, 2019. Mr. Zargar became our Executive Vice President, General Counsel and Corporate Secretary on October 1, 2018.

 

40


Fiscal 2019 Executive Compensation Overview

Highlights of developments involving our ongoing executive compensation program in Fiscal 2019, and other post-fiscal year-end executive team developments, included the following:

 

✓97.81% of our stockholders approved our executive compensation program in last year’s Say on Pay vote.

 

✓We modified our long-term incentive program:

 

●  As described below, we combined our one-year EIP and our two-year stretch performance plan (most recently, the S3B Plan) into a new single long-term incentive program that will payout in a cliff only at the end of a three-year cumulative performance period, with 70% based on performance and 30% based on continued service.

 

●   We eliminated our EIP and S3B compensation plans, which provided for one-year and two-year performance periods, respectively.

 

●   We introduced in Fiscal 2020 a third performance metric (Adjusted Return on Equity), which will be weighted equally with Adjusted EBITDA and Adjusted Free Cash Flow for purposes of our equity performance programs.

 

✓We proposed a new equity plan for Fiscal 2020, which includes the following best practices:

 

●   Double-trigger vesting on a change in control.

 

●   A minimum vesting requirement.

 

●   No dividend payments on unvested awards.

 

✓We made significant changes to our executive team and business unit senior management team:

 

●   We hired a new CEO and CFO.

 

●   We created the position of COO and further promoted our COO to be an Executive Vice President.

 

●   We hired a new General Counsel.

 

●   We appointed a new head of global HR, which completed the transition of our executive team.

 

●   We made changes to the senior management team at our business units in order to align our business unit senior management team with our operating model and business strategy, as well as introduce new ideas and bring fresh perspectives to our businesses.

 

✓In Fiscal 2019, NEO salary and bonuses only changed in connection with merit-based promotions.

 

●   Our NEO salaries and annual bonus targets did not change in Fiscal 2019, except for Mr. Lewis and Ms. Long, whose increases were in connection with their merit-based promotions and increased responsibilities.

 

✓In Fiscal 2020, our NEOs’ base salaries and annual bonus targets will remain the same as in Fiscal 2019.

 

✓We further enhanced our compensation program:

 

●   We adopted a robust anti-pledging policy.

 

●   We strengthened our existing anti-hedging policy.

 

●   We strengthened our stock ownership guidelines by increasing, as of January 1, 2020, to 50% the net after-tax portion of our directors’, NEOs’ and other Covered Officers’ shares that they must retain to satisfy our stock ownership requirements.

 

✓We eliminated certain executive perquisites:

 

●   Commencing in Fiscal 2020, our CEO voluntarily eliminated his tax planning and financial assistance benefit (and any related tax equalization) and his executive automobile allowance.

 

●   We eliminated the tax equalization on our financial and tax planning benefit, automobile allowance, and life insurance for all executives in Fiscal 2020.

 

41


Our Compensation Governance Best Practices

We have adopted significant policies with respect to our executive compensation programs, which help to further align our executives’ interests with those of our stockholders.

 

What We Do

✓  We maintain an independent Compensation Committee with an ongoing review of our compensation philosophy and practices.

 

✓  We strongly align pay and performance by placing 87.9% of our CEO’s ongoing compensation opportunity and 78.7% (on average) of our other current NEOs’ ongoing compensation opportunities at risk and earned on the basis of Company performance.

   

✓  We retained independent compensation consultants, including the hiring of an additional independent compensation consulting firm in Fiscal 2019, reporting to the Compensation Committee.

 

✓  We have a robust clawback policy, described in greater detail under the section titled “Compensation Clawback Policy.”

   

✓  We consider stockholder advisory votes and views. Our Compensation Committee considers the voting results of our advisory vote on executive compensation (in the most recent annual advisory vote, 97.81% voted in favor).

 

✓  For new employment agreements entered into during Fiscal 2019, we have provided that upon termination of employment any performance-based awards are forfeited.

   

✓  We annually assess our compensation program and have determined that the risks associated with our compensation policies are not reasonably likely to result in a material adverse effect on the Company and its subsidiaries taken as a whole.

 

✓  70% of our regular equity based awards are based on achievement of performance, and overall 74% to 80% of our regular incentive compensation is fully performance-based with the remainder being time-based equity that is still subject to market risk.

   

✓  We have robust stock ownership and retention guidelines for our directors, NEOs and certain other officers, and, effective January 1, 2020, we have increased the requirement to retain 50% of net after-tax shares (up from 25%).

 

✓  We have strengthened our anti-hedging policy and adopted a robust anti-pledging policy.

   

✓  We continue to engage in rigorous stockholder outreach to understand stockholder feedback and input on a variety of matters, including business strategy, compensation programs and corporate governance.

 

✓  We provide reasonable post-employment provisions and have post-employment restrictive and executive cooperation covenants.

 

42


What We Don’t Do

X  We do not provide any gross-ups for golden parachutes or for other compensation in the future.

 

X  We do not provide for accelerated vesting of equity upon retirement for our NEOs.

   

X  We do not make loans to executive officers or directors.

 

X  We do not provide for single trigger vesting of equity. Our New 2020 Equity Plan further enhances this practice by providing for double-trigger vesting on a change in control.

   

X  We do not allow our NEOs to purchase stock of the Company on margin, enter into short sales or buy or sell derivatives in respect of securities of the Company.

 

X  We do not provide excessive perquisites and our NEOs do not participate in defined benefit pension plans or nonqualified deferred compensation plans.

   

X  We do not provide immediate vesting on equity based awards. Our New 2020 Equity Plan further enhances this practice by providing for a one-year minimum vesting requirement for all awards granted under the New 2020 Equity Plan, subject to limited exceptions.

 

X  We do not guarantee minimum bonuses to our NEOs.

   

X  We do not grant discounted options and we do not reprice stock options without stockholder approval.

 

X  We do not pay any dividends on unearned and unvested equity awards, unless and until earned and vested. Our New 2020 Equity Plan further enhances this practice by explicitly prohibiting the payment of dividends on unvested equity awards.

Stockholder Engagement

Our Board takes its management oversight responsibilities seriously. As confirmed by the over 97% of shareholder approval of our previous year’s executive compensation, our key values are predicated on strong and effective governance, independent thought and decision making and a commitment to driving shareholder value.

What we learn through our ongoing engagements is regularly shared with our Board and incorporated into our disclosures, plans and practices, as deemed appropriate.

 

43


In addition to our ongoing discussions with our stockholders, during Fiscal 2019, we invited stockholders representing nearly 46% of our outstanding shares to discuss their views with our Board regarding our business strategy, corporate governance and executive compensation programs. Partially in response to such feedback, as well as input from a proxy advisory firm, we made the following changes:

 

What We Heard   How We Responded

●   Shareholders raised concern on the use of one-year and two-year performance periods in our EIP and S3B Plan.

 

✓  We combined our one-year EIP and our two-year stretch performance plan (mostly recently, the S3B Plan) into a new single long-term incentive program that will payout in a cliff only at the end of a three-year performance period ending September 30, 2021, with 70% based on performance and 30% based on continued service.

 

✓  We eliminated our EIP and our S3B Plan, which provided for one-year and two-year performance periods, respectively.

   

●   Shareholders raised concern on our use of adjusted EBITDA and Adjusted Cash Flow on both STI and LTI programs.

 

✓  We introduced in Fiscal 2020 a third performance metric (Adjusted Return on Equity), which will be weighted equally with Adjusted EBITDA and Adjusted Free Cash Flow for purposes of our equity performance programs.

   

●   Shareholders told us that the size of our NEO salaries and annual bonus targets were appropriate.

 

✓  Our NEO salaries and annual bonus targets did not change in Fiscal 2019, except for Mr. Lewis and Ms. Long, whose increases were in connection with their promotions and increased responsibilities. In Fiscal 2020, our NEOs’ base salaries and annual bonus targets will remain the same as in Fiscal 2019.

   

●   Shareholders asked us to enhance our stock ownership guidelines.

 

✓  We strengthened our stock ownership guidelines by increasing, as of January 1, 2020, to 50% the net after-tax portion of our directors’, NEOs’, and other Covered Officers’ shares that they must retain to satisfy our stock ownership requirements.

   

●   Shareholders did not express concern with our perquisites program and other compensation practices

 

✓  Nonetheless, at our own initiative, we eliminated the tax equalization on our financial and tax planning benefit, life insurance, and automobile allowance for all executives in Fiscal 2020. In addition, commencing in Fiscal 2020, our CEO voluntarily eliminated his tax planning and financial assistance benefit (and any related tax equalization) and his executive automobile allowance.

 

✓  In reaction to concerns raised by a proxy advisory firm, we further strengthened our anti-hedging policy.

 

✓  In addition, on our initiative, we adopted a robust policy prohibiting the pledging of our stock.

 

44


In light of our values and to reinforce shareholder confidence in our executive compensation programs, we have also made the following enhancements:

 

   

We engaged Willis Towers Watson as a new independent compensation consultant for going forward Fiscal 2020 compensation decisions to ensure that we are responsive to shareholder concerns, address recent trends and any residual practices that may be disfavored by shareholders and stay competitive in the executive and employee compensation market.

 

   

We engaged the proxy solicitation firm, Okapi Partners, in Fiscal 2020 to (i) assist in a robust shareholder outreach process to further align our going forward compensation programs with shareholder needs and (ii) facilitate the opportunity for shareholders to individually and directly engage with certain members of management.

 

   

We engaged in discussions with a major proxy advisory firm to understand their perspective on our compensation programs and best practices generally in executive compensation programs.

 

   

We reached out to shareholders representing 77.69% of the votes to discuss and engage in dialogue with our stockholders with respect to our Company, including our corporate governance and compensation practices.

 

   

In advance of our annual meeting, our General Counsel, CFO and other Company representatives have engaged with nine of our largest shareholders representing 40% of our shares outstanding, including our top three institutional investors, and expect to engage in dialogue with a number of our other shareholders.

 

   

During our dialogue with shareholders in 2020, we received the following feedback:

 

  o

Shareholders were supportive of the changes to our compensation structure (as discussed on page 42 in more detail).

 

 

Specifically, shareholders were supportive of our transition to three-year cliff vesting for our long term incentive program, based on a cumulative three-year performance period.

 

  o

Shareholders generally appreciated that the Bridge Grants and transaction success bonuses were one time awards related to a transition period.

 

 

Shareholders asked whether the Bridge Grants and transaction success bonuses were one time-awards and we confirmed that they will not occur again.

 

  o

Shareholders noted that they have no concerns about our underlying compensation structure from a governance perspective.

 

 

Shareholders were generally supportive of our compensation structure because of our pay and performance alignment.

 

  o

Shareholders asked about our equity run rate analysis, and we explained that our increased equity run rate in Fiscal 2019 related to the one-time Bridge Grants. Current projections for Fiscal 2020 indicate that our run rate will decrease to near Fiscal 2018 level.

 

  o

Shareholders commended us on deleveraging our balance sheet and noted that they would prefer we continue to operate with less leverage.

 

 

We explained to shareholders that our long-term leverage target is 3.5x – 4.0x net debt to EBITDA and that we will continue to work to achieve this range over time.

 

45


  o

Shareholders asked us about our plans to declassify our Board, as well as our director onboarding process and how we look at board refreshment.

 

 

We explained to shareholders that given the volatility in the market, we postponed our plans to consider declassifying the board in 2020. However, the Company is committed to enhancing its corporate governance processes and to reviewing declassifying the board in the next 12 to 24 months.

 

 

In addition, we told shareholders that we are in the process of expanding the size of the Board and are actively seeking out diverse candidate to add to the board.

 

  o

Shareholders noted that they focus on the materiality of our ESG disclosure and that would welcome continued discussion relating to ESG.

 

 

We are committed to enhancing our ESG disclosure and told shareholders that we will be providing additional disclosure over the next 12 to 24 months with respect to ESG metrics.

 

  o

Shareholders asked how we are handling labor and supply chain issues with respect to COVID-19.

 

 

We explained that in the back half of our fiscal year, we will seek to weather the COVID-19 pandemic by realigning our supply chain to better reflect and accommodate new demand patterns, we will continue to execute on our Global Productivity Improvement Plan with at least $100 million of run rate savings, and our team will continue to embrace a more consumer-driven mindset as we increase investment in our new commercial operations group.

Through Fiscal 2020, we will continue to engage in rigorous stockholder outreach to understand shareholder feedback and input on a variety of matters, including business strategy, compensation programs and corporate governance.

Compensation Overview and Philosophy

Our compensation programs are administered by our Compensation Committee. In Fiscal 2019, these programs were based on our “pay-for-performance” philosophy in which variable compensation represents a majority of an executive’s potential compensation. The variable incentive compensation programs continued our focus on the Company-wide goals of increasing growth and earnings, maximizing free cash flow generation, and building for superior long-term stockholder returns. Each year, the Compensation Committee and the Company, along with the assistance of independent compensation consultants, go through a thoughtful process to review risks and opportunities applicable to the Company. As noted above, Fiscal 2019 was a year of transition and uncertainty.

In establishing our compensation programs for Fiscal 2019, our Compensation Committee obtained the advice of two independent compensation consultants, (i) Lyons, Benenson & Company Inc. (“LB & Co.”), and (ii) Pearl Meyer & Partners (“Pearl Meyer”), and evaluated the compensation programs with reference to a peer group of 14 companies, as outlined in the section below entitled “Role of Committee-Retained Consultants”.

Background on Compensation Considerations

Our Compensation Committee pursued several objectives in determining our executive compensation programs for Fiscal 2019:

 

   

To attract and retain highly qualified executives for the Company, each of our business segments and our overall corporate objectives.

 

46


   

To align the compensation paid to our executives with our overall corporate business strategies while leaving the flexibility necessary to respond to changing business priorities and circumstances.

 

   

To address the compensation opportunity gap and retention concerns created by adopting our new compensation plan and to recognize and reward the significant amount of additional time and effort expended by our management team and employees to pursue a number of strategic initiatives and activities, which are further described in “Compensation Discussion and Analysis-Fiscal 2019 Business Highlights”.

 

   

To align the interests of our executives with those of our stockholders and to reward our executives when they perform in a manner that creates value for our stockholders.

In order to pursue these objectives, our Compensation Committee:

 

   

Considered the advice of our independent compensation consultants on executive compensation issues and program design, including advice on the corporate compensation program as it compared to our peer group companies.

 

   

Conducted an annual review of total compensation for each NEO, including the compensation and benefit values offered to each executive and other compensation factors.

 

   

Consulted with our CEO and other members of senior management with regard to compensation matters and met in executive session without management to evaluate management’s input.

 

   

Solicited comments and concurrence from other Board members regarding its recommendations and actions.

Philosophy on Performance-Based Compensation

Our Compensation Committee designed the Fiscal 2019 executive compensation programs so that, at target levels of performance, a significant portion of the value of each NEO’s annual compensation (which varies by individual) would be based on the achievement of Company-wide Fiscal 2019 performance objectives. Our Compensation Committee concluded that a combination of annual fixed base pay and incentive-based pay provided our NEOs with an appropriate mix of cash compensation and equity-based compensation.

For Fiscal 2019, the percentage of ongoing target annual compensation that was fixed (base salary) for our CEO was 12.1% and for the other current NEOs was 21.3% as a group. The chart below sets forth the percentage of compensation that was fixed compared to at risk at target for the CEO and the other current NEOs as a group. The chart below excludes the Bridge Grants and transaction success bonuses as these are not a regular part of our ongoing compensation programs.

 

 

LOGO

In addition, to highlight the alignment of the incentive plans with stockholder interests, our ongoing annual and long-term incentive programs (whether equity or cash-based) in Fiscal 2019 were predominantly performance-based with (i) the Management Incentive Plan (“MIP”) being 100% performance-based and (ii) the three-year long-term equity incentive program being 70% performance-based.

 

47


The remainder of each executive’s compensation was made up of amounts that did not vary based on performance. For each of our NEOs, these non-performance-based amounts are set forth in agreements with the executives as described in “—Executive Compensation TablesTermination and Change in Control ProvisionsExecutive-Specific Provisions regarding Employment, Termination and Change in ControlAgreements with NEOs,” and are subject to annual review and potential increase by our Compensation Committee. These amounts are determined by our Compensation Committee considering the executive’s performance, current market conditions, the Company’s financial condition at the time such compensation levels are determined, compensation levels for similarly situated executives with other companies, experience level and the duties and responsibilities of such executive’s position.

Our Compensation Decision Making Process

Our Compensation Committee engages in a robust process in making compensation decisions. In Fiscal 2019, our Compensation Committee continued to retain outside consultants, LB & Co. and hired a new firm, Pearl Meyer, to assist in formulating and evaluating executive and director compensation programs. In addition, our Compensation Committee consulted with our CEO regarding the Company’s compensation plans and performance targets, however, our CEO did not participate in any discussions with respect to his own compensation. From time to time, our Compensation Committee also consulted with other senior executives of our Company and outside counsel.

Our consultants provided advice on the implications of changes to our business (including the lengthy asset sale processes, our Global Productivity Improvement Plan, the consolidation of our distribution centers and the streamlining of our business and operational focus), our corporate governance and compensation structure and the philosophy of our executive compensation plans. During the past year, our Compensation Committee periodically requested LB & Co and/or Pearl Meyer to:

 

   

Provide comparative market data for our peer group, and other groups on request, with respect to compensation matters.

 

   

Analyze our compensation and benefit programs relative to our peer group, including our mix of performance-based compensation, non-variable compensation and the retentive features of our compensation plans in light of the Company’s strategies and prospects.

 

   

Review the plan designs, including the performance metrics selected, for our various incentive plans and make recommendations to our Compensation Committee on appropriate plan designs to support the overall corporate strategic objectives, including the extensive work performed and benefits obtained from the efforts of our NEOs and other employees in carrying out the Company’s transformative M&A transactions and transformative strategic transactions.

 

   

Advise our Compensation Committee on compensation matters and management proposals with respect to compensation matters.

 

   

Assist in the preparation of our Compensation Discussion and Analysis disclosure and related matters.

 

   

On request, participate in meetings of our Compensation Committee.

In order to encourage an independent viewpoint, our Compensation Committee and its members (i) had access to LB & Co. and Pearl Meyer at any time without management present; and (ii) consulted from time to time with each other, other non-management members of our Board and LB & Co. and Pearl Meyer without management present.

LB & Co., with input from management and our Compensation Committee, developed a peer group of companies based on a variety of criteria, including type of business, revenue, assets and market capitalization. The composition of this peer group is reviewed annually and, if appropriate, revised, based on changes in business orientation of peer group companies, changes in financial size or performance of the Company and the

 

48


peer group companies, and any mergers, acquisitions, spin-offs or bankruptcies of the companies in the peer group or changes at our Company. At the end of Fiscal 2019, the peer group utilized consisted of the following 14 companies:

 

     
✓Central Garden and Pet Company   ✓Fortune Brands Home & Security, Inc.   ✓Nu Skin Enterprises, Inc.,
   
✓Church & Dwight Co., Inc.   ✓Hanesbrands, Inc.   ✓The Scotts Miracle-Gro Company
   
✓The Clorox Company   ✓Hasbro, Inc.   ✓Mattel, Inc.
   
✓Edgewell Personal Care Company   ✓Helen of Troy Limited   ✓Tupperware Brands Corporation
   
✓Energizer Holdings, Inc.   ✓Newell Brands, Inc.    

For Fiscal 2019, our Compensation Committee determined to remove Stanley Black & Decker, Inc. from the compensation peer group given its revenue, assets and market capitalization size. No further changes were made to the compensation peer group in Fiscal 2019.

Our Compensation Committee reviews market data as part of assessing the appropriateness and reasonableness of our compensation levels and mix of pay. Although our Compensation Committee does not target a particular range for total compensation as compared to our peer group, it does take this information into account when establishing our compensation programs.

No fees were paid to LB & Co. or Pearl Meyer for services other than executive and director compensation consulting during Fiscal 2019. In accordance with SEC rules, our Compensation Committee considered the independence of LB & Co., and Pearl Meyer including an assessment of the following factors: (i) other services provided to the Company by each consultant, (ii) fees paid by the Company as a percentage of the consulting firm’s total revenue, (iii) policies or procedures maintained by LB & Co. or Pearl Meyer that are designed to prevent conflicts of interest, (iv) any business or personal relationships between the individual consultants involved in the engagement and any member of our Compensation Committee, (v) any Company stock owned by individual consultants involved in the engagement, and (vi) any business or personal relationships between our executive officers and the consultants or the individual consultants involved in the engagement. Our Compensation Committee has concluded that no conflicts of interest prevented LB & Co. or Pearl Meyer from independently advising our Compensation Committee during Fiscal 2019.

Compensation Elements

In Fiscal 2019, our ongoing annual compensation for our NEOs included the following elements:

 

Element   Purpose   Operation   Performance Measures
Base Salary  

●   Forms basis for competitive compensation package

 

●   Base salary reflects competitive market conditions, individual performance, and internal parity

 

●   Performance of the individual is considered by the Compensation Committee, which is advised by its independent compensation consultant, when setting and reviewing base salary levels and continued employment

 

49


Element   Purpose   Operation   Performance Measures
Annual MIP Bonus  

●   Motivate achievement of strategic priorities relating to key annual financial metrics

 

●   Target bonus opportunities are determined by competitive market practices and internal parity.

 

●   Actual bonus payouts, which can range from 0-250%of target for the CEO and 0-200%of target for our other NEOs are determined based on achievement of financial metrics established at the beginning of the performance period

 

●   Equally weighted between Adjusted EBITDA and Adjusted Free Cash Flow

   
Restricted Stock Units (majority is performance-based and remainder is time-based)  

●   Align compensation with key drivers of the business

 

●   Encourage focus on long-term shareholder value creation

 

●   Size of award determined by competitive market practices, corporate and individual performance and internal parity and retention considerations

 

●   Long-term incentive awards focusing on cumulative performance over three-year period ending Fiscal 2021, based on Adjusted EBITDA and Adjusted Free Cash Flow. For Fiscal 2020 grants, a third performance metric, Adjusted Return on Equity, is included (and equally weighted with the other two metrics).

 

●   The majority of each of the new long-term incentive awards (70%) are performance-based

In addition to the foregoing, our NEOs received special Bridge Grants and transaction success bonuses that are described further below.

Base Salaries

The annual base salaries for our NEOs were initially set forth in each executive’s employment agreement or separate letter agreement and such salaries may be increased from time to time by our Compensation Committee.

 

50


In determining the initial annual base salary for each NEO or in making any subsequent increases, our Compensation Committee considered the market conditions at the time such compensation levels were determined, the Company’s financial condition at the time such compensation levels were determined, compensation levels for similarly situated executives at other companies, experience level, and the duties and responsibilities of such executive’s position.

Base salary levels are subject to evaluation from time to time by our Compensation Committee to determine whether increases are appropriate. Our Compensation Committee reviewed the current salaries of our NEOs during Fiscal 2019 and increased the salaries for Mr. Lewis and Ms. Long in connection with their promotions and increased responsibilities. In Fiscal 2019, our other NEO salaries did not increase. In Fiscal 2020, our NEOs’ base salaries will remain the same as in Fiscal 2019.

Annual Bonus

Our management personnel, including our NEOs, participate in our annual MIP cash bonus program, which is designed to compensate executives and other managers based on achievement of annual corporate, business segment, and/or divisional financial goals. Under the MIP bonus plan, 100% of the annual bonus is performance-based and no bonus is paid if the relevant performance metrics are not achieved. Although the MIP is a cash bonus program, our Compensation Committee may elect to pay such bonuses in the form of equity. In Fiscal 2019, MIP bonus targets increased for Mr. Lewis and Ms. Long in connection with their promotions and increased responsibilities. Our other NEO MIP bonus targets did not increase. In Fiscal 2020, our NEOs’ MIP bonus targets will remain the same as their MIP bonus targets in Fiscal 2019.

For Fiscal 2019, based on our Adjusted EBITDA and Adjusted Free Cash Flow performance, the MIP payout was achieved at 113.70% of target. After consultation with certain of our shareholders and considering the number of transformative changes the Company was engaged in, our Compensation Committee determined to eliminate Net Sales as a metric for the MIP because we think Adjusted EBITDA and Adjusted Free Cash Flow performance are better drivers of overall long-term Company performance than Net Sales.

Under the MIP, each participant has the opportunity to earn a threshold, target, or maximum bonus amount that is 100% contingent upon achieving the annual performance goals set by our Compensation Committee and reviewed by our Board. Particular performance goals are established during the first quarter of the relevant fiscal year and reflect our Compensation Committee’s views of the critical indicators of corporate success in light of primary business priorities. The specific financial targets with respect to performance goals are then set by our Compensation Committee based on our annual operating plan, as approved by our Board, during the first quarter of the relevant fiscal year. The annual operating plan includes performance targets for the Company as a whole as well as for each business segment.

The Fiscal 2019 MIP design included a minimum financial threshold level for each of Adjusted EBITDA and Adjusted Free Cash Flow, below which no payout would be earned with respect to that objective. The achievement of the goals of Adjusted EBITDA and Adjusted Free Cash Flow is determined and earned independently of one another.

Our Compensation Committee decreased the MIP performance targets (Adjusted EBITDA and Adjusted Free Cash Flow) for Fiscal 2019 by approximately 35% from Fiscal 2018 because of the GBL Sale and the GAC Sale, and the resulting decrease in Adjusted EBITDA and Free Cash Flow attributable to each sold business unit. As a result of the decrease in the MIP performance targets for Fiscal 2019, the resulting threshold levels, target levels and maximum levels for each of Adjusted EBITDA and Adjusted Free Cash Flow for Fiscal 2019 were lower than the threshold levels, target levels and maximum levels for Fiscal 2018.

 

51


For the purposes of our MIP and LTIP, Adjusted EBITDA and Adjusted Free Cash Flow have the following meanings:

“Adjusted EBITDA” means net earnings before interest, taxes, depreciation and amortization, but excluding restructuring, acquisition and integration charges, and other one-time charges. The result of the formula in the preceding sentence is then adjusted by the Compensation Committee in good faith so as to negate the effects of any dispositions; provided, however, that Adjusted EBITDA resulting from businesses or products lines acquired (in Board approved transactions) during the applicable fiscal year will, to the extent reasonably and in good faith determined by the Compensation Committee to be appropriate, be included in the calculation from the date of acquisition.

“Adjusted Free Cash Flow” means Adjusted EBITDA, plus or minus changes in current and long-term assets and liabilities, less cash payments for taxes, restructuring and interest. Any reductions in Adjusted Free Cash Flow resulting from transaction costs or financing fees incurred in connection with any Board approved acquisition or refinancing (in each case during the applicable fiscal year) are added back to Adjusted Free Cash Flow, subject to the approval of the Compensation Committee, reasonably and in good faith. The result of the formula in the preceding sentences is then adjusted by the Compensation Committee reasonably and in good faith so as to negate the effects of any dispositions; provided, however, that Adjusted Free Cash Flow resulting from businesses or products lines acquired (in Board approved transactions) during the fiscal year will, to the extent reasonably and in good faith determined by the Compensation Committee to be appropriate, be included in the calculation from the date of acquisition.

Long-Term Equity Program

In Fiscal 2019, we eliminated our EIP that had provided annual equity grants with only a one-year performance period and our longer-term S3B Plan with a two-year stretch performance period. By simplifying and streamlining our compensation program to a single LTIP with performance measured over three years, we are able to effectively focus on the achievement of significant and sustained improvements in performance and strategic initiatives over the long-term. For Fiscal 2019, we provided our LTIP grants in the form of time-based RSUs and performance-based PSUs that will be eligible to vest after the three-year period commencing October 1, 2018 and ending September 30, 2021. These awards have the features described below.

 

   

70% of the award vests in a cliff based on three-year cumulative performance against Adjusted EBITDA and Adjusted Free Cash Flow measures. The relatively large performance component of these awards is believed to serve as a valuable incentive to drive outcomes over the long-term for our Company and stockholders.

 

   

30% will vest in a cliff at the end of the three-year service period. The relatively small time-based component of these awards as part of our overall compensation mix is believed to serve as an important long-term retention and risk mitigation feature. See “-Fiscal 2019 Compensation Component Pay-Outs-LTIP.”

 

   

In addition, there is an opportunity to earn additional PSUs under the LTIP (subject to a cap of 125% of target PSUs) if superior performance is achieved.

 

   

As noted above, for Fiscal 2020, we have added Adjusted Return on Equity as a third performance metric (equally weighted).

Special Awards

As noted above, Fiscal 2019 was a transformative year as we, among other things, launched a sale process for three of our business units and completed the sale of GBL and GAC businesses, resulting in net proceeds of

 

52


$2.9 billion (prior to purchase price adjustments), substantially reduced our debt and strengthened our balance sheet, transitioned to an independent company with greater liquidity and less volatility in trading of our stock, significantly enhanced our executive management team and implemented a Global Productivity Improvement Plan and a new long-term equity plan. In recognition of the special circumstances created by these initiatives, our Compensation Committee determined, with the advice of its independent compensation consultant, to make special Bridge Grants and transaction success bonuses, each of which is described herein.

As explained in further detail on page 53, the Bridge Grants, as part of our transition to a new single long-term incentive program that will payout in a cliff only at the end of a three-year performance period ending September 30, 2021, were made at a roughly 15% discount from the compensation opportunities that would have been available under the EIP and S3B Plan during Fiscal 2019 and Fiscal 2020. During our dialogue with shareholders in Fiscal 2020, shareholders generally appreciated that the Bridge Grants and transaction success bonuses were one-time awards related to a transition period. For more information regarding the Bridge Grants and the transaction success bonuses, see “-Fiscal 2019 Business Highlights.” Because of the special circumstances surrounding the sale of our GBL and GAC businesses and our transition to a new long-term equity plan noted above, we do not believe that the Bridge Grants and the transaction success bonuses are indicative of our regular, ongoing annual compensation.

Analysis of our CEO’s Fiscal 2019 Compensation

Mr. Maura’s total Fiscal 2019 compensation is reported in the Summary Compensation Table. Because of the special circumstances surrounding the sale of our GBL and GAC businesses and our transition to a new long-term equity plan, we do not believe the Bridge Grants and transaction success awards included in Mr. Maura’s Fiscal 2019 compensation are indicative of his regular, ongoing annual compensation levels.

 

   

Mr. Maura’s annual compensation opportunity breaks down as follows: 12% fixed (base salary) and 88% variable (annual and long-term incentives).

 

   

Mr. Maura’s ongoing target direct compensation (base salary, MIP bonus, and target annual LTIP award grant date value) is $7,425,000.

 

   

Mr. Maura’s variable compensation is made up of 25% time-based RSUs that will cliff vest at the conclusion of a three-year service period and are subject to market risk, and 75% performance-based annual incentives (under the MIP) and PSUs (under the LTIP), which are only eligible to be earned on the basis of Company performance relative to pre-established goals. These performance-based incentives will not pay out if pre-established goals are not satisfied.

As discussed earlier in this Proxy Statement, there are two special compensation items that impacted Mr. Maura’s Fiscal 2019 compensation as reported in the Summary Compensation Table below: (i) his Bridge Grant of RSUs and PSUs valued at $5,972,190, a portion of which vested based on time and performance through November 21, 2019 and the remainder of which may vest based on service through November 2020 and (ii) his transaction success bonus of $5,000,000. Neither of these are part of his regular compensation package. Further, SEC disclosure rules require that the Fiscal 2020 RSU portion of the Bridge Grant (which relates to service through November 21, 2020) is required to be included in the Fiscal 2019 compensation tables. Each of these compensation items were approved by our Compensation Committee, with the advice of its independent compensation consultant.

 

   

As noted above, the Bridge Grant to Mr. Maura (and to the other NEOs and employees) was awarded in recognition of the fact that following the adoption of our new, three-year, cliff vesting long-term incentive plan there would be a “gap” in the compensation opportunity for our CEO and all long-term incentive participants (Fiscal 2019 and Fiscal 2020) during which time there would be no awards that could potentially vest; or in other words, under this new plan, there would be no long-term incentive vesting opportunity until the conclusion of Fiscal 2021. These Bridge Grants

 

53


 

were designed as two grants to cover two performance cycles, namely the Fiscal 2019 compensation cycle and the Fiscal 2020 compensation cycle. As explained further on page 57, the Bridge Grants were not additive compensation to our employees and were made at a roughly 15% discount to the compensation opportunities that would have been available under the EIP and S3B Plan.

 

   

As noted above, a transaction success bonus was awarded to Mr. Maura (and to other NEOs) in recognition of his key role in conceiving, guiding and completing the GBL Sale and the GAC Sale, which were important to the Company as they (i) enable us to focus on the core business of the Company, (ii) reduce our leverage and (iii) improve liquidity so that we remain nimble and ready for Fiscal 2020 and beyond. The award was based on the completion of the transactions following a challenging transition period (the GBL Sale process and various regulatory approvals lasted more than one year). These awards were designed to recognize Mr. Maura’s efforts in successfully completing these two separate sales that took place over a lengthy period of uncertainty and required significant additional time and effort to complete, which were in addition to performing regular roles and duties. Neither Mr. Maura nor any other NEOs would have received any payment if the Company did not successfully complete the transactions.

Fiscal 2019 Compensation Component Pay-Outs

Base Salary

The annual base salaries at the end of Fiscal 2019 for our NEOs are set forth below:

 

Named Executive

  Annual Base Salary
at end of Fiscal 2019

David M. Maura

  $ 900,000

Douglas L. Martin

  $ 550,000

Randal D. Lewis

  $ 550,000*

Ehsan Zargar

  $ 400,000

Rebeckah Long

  $ 300,000*

Nathan E. Fagre

  $18,500/month*

 

*

Mr. Lewis’s salary was increased in October 2018 from $375,000 to $450,000 when he was promoted to COO and in September 2019 to $550,000 when he was promoted to Executive Vice President. Ms. Long’s salary was increased from $250,000 to $300,000 in September 2019 when she was promoted to Senior Vice President, Global Human Resources. Mr. Fagre continued as a non-executive employee (at the rate of $10,000 per month from October 1, 2018 to December 2018 and $18,500 per month from January 2019 to May 2019), during which he provided transitional consulting services until his departure on May 3, 2019.

Management Incentive Plan

For Fiscal 2019, our MIP award levels achievable at target for each participating NEO were as follows:

 

Named Executive

  MIP Target as % of

Annual Base

David M. Maura

  125%

Douglas L. Martin

  90%

Randal D. Lewis

  80%

Ehsan Zargar

  60%

Rebeckah Long

  40%

Nathan E. Fagre

  0%

 

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The Fiscal 2019 MIP program generally followed the plan design from prior years with the corporate goals of increasing Adjusted EBITDA and Adjusted Free Cash Flow. Our Compensation Committee established the weightings with Adjusted EBITDA having a weighting of 50%, and Adjusted Free Cash Flow having a weighting of 50%. After consultation with certain of our shareholders and considering the number of transformative changes the Company was engaged in, our Compensation Committee determined to eliminate Net Sales as a metric for the MIP because we think Adjusted EBITDA and Adjusted Free Cash Flow performance are better drivers of overall long-term Company performance than Net Sales. The performance targets for each of our NEOs were equal to those established for the Company as a whole.

Following the completion of the GBL Sale and the GAC Sale, our Compensation Committee decreased the MIP performance targets (Adjusted EBITDA and Adjusted Free Cash Flow) for Fiscal 2019 by approximately 35% from Fiscal 2018, which reflected the Company’s reduced earning power following the sales. As a result of this reduction, the performance targets (including threshold levels, target levels and maximum levels) under our Fiscal 2019 MIP program are not the same as the performance target for our Fiscal 2018 MIP program.

The table below shows the two performance metrics for our NEOs and the applicable levels of performance required to achieve threshold, target and maximum payouts. The maximum MIP bonus payable is 250% of target for Mr. Maura, which was increased in connection with his promotion to CEO in April 2018, and 200% for our other NEOs. As described in the table below, we achieved performance of 127.39% of Adjusted EBITDA and 100% of Adjusted Free Cash Flow.

 

    

Performance Required to Achieve Bonus % as Indicated ($ in millions)

      
    

Performance Metric

  Weight (% of
Target
Bonus)
  Threshold
(50%)
    Target
(100%)
    Maximum
(200%/250%)
    Actual     Calculated
2019 Payout
Factor (% of
Target
Bonus)
      
   

Adjusted EBITDA

  50%   $ 531.34     $ 559.30     $ 587.27     $ 567       127.39    
   

Adjusted Free Cash Flow

  50%   $ 131.96     $ 138.90     $ 145.85     $ 125       100    

During any fiscal year, we engage in a number of strategies to maintain our liquidity and manage our cash position. These strategies have costs associated with them, which are included in our annual operating plans and targets. In Fiscal 2019 we did not need to engage in these cash management strategies because we had reduced debt borrowings and received the proceeds from the GBL Sale and the GAC Sale. As a result, our NEOs voluntarily recommended to our Board that the Company reduce such cash management strategies even though such reduction would have had a negative impact on our NEOs’ achievement of maximum bonuses. For Fiscal 2019, if the Company had engaged in its typical cash management strategies, it would have achieved the maximum payout under the Adjusted Free Cash Flow metric (250% for the CEO and 200% for the other NEOs) under the MIP bonus program and the Bridge Grants, and without them, absent a corresponding adjustment, it would achieve performance less than the amount required to receive a payment under such programs. The Compensation Committee, based on our NEOs’ recommendations, determined that it would be in the best interests of the Company to reduce such cash management strategies and to pay at 100% (as opposed to 250% for the CEO and 200% for the other NEOs, which otherwise would have been earned for Fiscal 2019) with respect to the Adjusted Free Cash Flow measure under the MIP bonus plan and the achievement of the Adjusted Free Cash Flow under the Bridge Grant for Fiscal 2019. This change, which came at the request of our NEOs, resulted in a reduction of compensation paid to our employees of approximately $1.43 million; a lower actual payout of approximately $2.62 million as opposed to the higher payout of approximately $4.06 million that could have been otherwise earned.

LTIP

Our Fiscal 2019 LTIP grants cover service and cumulative performance over the three-year period commencing October 1, 2018 and ending September 30, 2021. Of the total grant, 70% is in the form of PSUs and will vest

 

55


based on the achievement of cumulative Adjusted EBITDA and cumulative Adjusted Free Cash Flow over the three-year period. The remaining 30% is in the form of RSUs, which will vest based on continued service, with cliff vesting at the end of such three-year period. In addition, with respect to the PSU component of the LTIP, there is an opportunity to earn additional PSUs if superior performance is achieved (subject to a cap of 125% of the target PSUs).

For Fiscal 2019, there were two performance measures (Adjusted Free Cash Flow and Adjusted EBITDA). Our Compensation Committee used the same performance metrics for the MIP and the LTIP because (i) these same metrics apply to a broad employee base, not just management and (ii) keeping the metrics consistent for management and other employees aligns the interests of all employees with the interests of shareholders. The chart below sets forth the number of PSUs and RSUs each NEO was granted in Fiscal 2019 pursuant to the LTIP.

 

Name

  70% Performance-
Based
    30%
Time Based
    Potential Upside
Performance
Time-Based
 

David M. Maura

    83,573       35,817       20,893  

Douglas L. Martin

    42,560       18,240       10,640  

Randal D. Lewis

    23,215       9,949       5,804  

Ehsan Zargar

    24,763       10,612       6,191  

Rebekah Long

    3,869       1,658       967  

One-half of the PSUs are subject to achievement of cumulative Adjusted EBITDA performance goals and one-half are subject to achievement of cumulative Adjusted Free Cash Flow performance goals.

 

Performance Measure (in $ millions)

  Threshold
(50% of PSUs
vest)
    Target (100%
of PSUs vest)
    Maximum (125%
of
PSUs vest)
 

Adjusted EBITDA

    1,677.9       1,728.7       1,741.6  

Adjusted Free Cash Flow

    416.7       442.2       448.7  

Under the LTIP, the two performance goals may be earned independently of one another. The achievement of the performance goals for each of our NEOs will be measured on a consolidated Company-wide basis. Acquisitions by the Company are included in the Adjusted EBITDA and Adjusted Free Cash Flow calculations, subject to the negative discretion of our Compensation Committee. Awards for performance between threshold and target levels, and between target and maximum levels, will be determined based on linear interpolation. If neither threshold performance level is achieved, then no PSUs will be earned.

Adjusted EBITDA and Adjusted Free Cash Flow are fundamentally important to our business, as they are the critical drivers of long-term value creation for our stockholders, which is why we have historically used, and continue to use, both measures in both our short- and long-term incentive plans. Following discussions with its advisors and management, our Compensation Committee determined that the introduction of a return measure would both enhance our pay for performance orientation and further strengthen the alignment of interests between our executives and our stockholders. Accordingly, commencing with Fiscal 2020, the Compensation Committee approved the addition of Adjusted Return on Equity as the third performance measure under the LTIP. The three performance measures will be equally weighted and measured on a cumulative three-year basis.

Our Compensation Committee also provided in the award agreements for our NEOs that such officers are required to hold at least 50% of the net shares they receive (after any shares withheld by the Company for tax purposes) until such NEO achieves the required stock ownership. Thereafter they are required to hold 25% of the net after-tax shares they receive for at least one year following vesting. In addition, our NEOs, and all other officers at the Vice President level or higher, are subject to the share ownership and retention guidelines discussed above (see “Directors, Executive Officers and Corporate Governance-Corporate Governance-Our Practices and Policies-Stock Ownership Guidelines”).

 

56


Special Awards

As discussed above, as part of our transition to a new long-term incentive plan, in Fiscal 2019 we granted Bridge Grants that were designed as two grants to cover two performance cycles, namely the Fiscal 2019 compensation cycle and the Fiscal 2020 compensation cycle. As discussed previously, the Bridge Grants were made at approximately a 15% discount from the compensation opportunities that would have been available to the participant under the EIP and S3B Plan during Fiscal 2019 and Fiscal 2020.

The Bridge Grants are not additive compensation to our employees considered against the compensation rate and vesting of the EIP and S3B Plan for Fiscals 2019 and 2020 put together. The Bridge Grants were issued to transition to our LITP program and at a reduction to compensation otherwise attainable under our EIP and S3B Plan as demonstrated in the following hypothetical example with an individual that received a target grant of $1 million under each of the EIP and S3B Plan:

 

   

The individual would have received an average of $1.5 million per year under both the EIP and S3B Plan, comprised of a $1 million target grant under the EIP for each of Fiscal 2019 and 2020, and a $1 million target grant under the S3B Plan in Fiscal 2019, which vests over two years.

 

   

Under the new LTIP, the individual instead received a $1.5 million target grant, which will only vest after the three-year performance period in 2021. By transitioning to the new LTIP, the individual lost out on potential vesting of $3 million under the EIP and S3B Plan for Fiscals 2019 and 2020.

 

   

The Bridge Grants provided a vesting opportunity during Fiscal 2019 and Fiscal 2020 in order to make the individual whole for the $3 million lost vesting opportunity in Fiscals 2019 and 2020. However, the Bridge Grants were granted at a 15% discount, resulting in a $2.55 million target Bridge Grant.

60% of the total Fiscal 2019 Bridge Grant was eligible to vest based on established performance metrics and targets for Fiscal 2019 performance, with the remaining 40% of the Fiscal 2019 Bridge Grant being eligible to vest based on continued service through November 21, 2019; and 60% of the Fiscal 2020 Bridge Grant was eligible to vest based on established performance metrics and targets set in Fiscal 2020 for Fiscal 2020 performance, with the remaining 40% of the Fiscal 2020 Bridge Grant being eligible to vest based on continued service through November 21, 2020.

 

            Fiscal 2019 Bridge Grant     Fiscal 2020 Bridge Grant  

Name

      Total RSUs         30%
    Performance    
Nov. 2019
        20% Time    
Nov. 2019
    30%
    Performance    
Nov. 2020
         20% Time    
Nov. 2020
 

David M. Maura

    160,732       48,220       32,146       48,220        32,146  

Douglas L. Martin

    85,496       25,649       17,099       25,649        17,099  

Randal D. Lewis

    51,298       15,389       10,260       15,389        10,260  

Ehsan Zargar

    68,397       20,519       13,680       20,519        13,679  

Rebeckah Long

    1,710       513       342       513        342  

Ms. Long, prior to becoming an NEO, also received a cash-based Bridge Grant of $340,000 based on the same performance metrics and payable at the same times as set forth in the chart above.

The Bridge Grants were designed to address retention concerns at a time of heightened uncertainty for the Company and increased workload for our employees. As a result, with respect to the Fiscal 2019 Bridge Grant, half of its PSU component was eligible to vest if Adjusted EBITDA for Fiscal 2019 was $475.41 million or greater and half was eligible to vest if Adjusted Free Cash Flow for Fiscal 2019 was $118.07 million or greater,

 

57


in each case subject to continued employment through November 21, 2019, as set forth in the chart below. For a definition of Adjusted EBITDA and Adjusted Free Cash Flow, see “-Compensation Elements-Annual Bonus”.

 

Performance Measure for Fiscal 2019

  30% vest target for
Fiscal 2019
 

Adjusted EBITDA

  $     475.41 million  

Adjusted Free Cash Flow

  $         118.07 million  

With respect to the Fiscal 2020 Bridge Grant, the targets for the PSU component that will vest based on performance were set in Fiscal 2020. Half of this portion will vest if Adjusted EBITDA for Fiscal 2020 targets are met, and the other half will vest if Adjusted Free Cash Flow for Fiscal 2020 targets are met, in each case subject to continued employment through November 21, 2020.

As noted above in the discussion of our Fiscal 2019 MIP program, with respect to the Bridge Grants, the Compensation Committee determined to pay at 100% the Adjusted Free Cash Flow measure achieved for Fiscal 2019. For Fiscal 2019, our actual Adjusted EBITDA was $566.96 million. As a result, the Fiscal 2019 Bridge Grants were earned.

Our Compensation Committee, with the advice of its independent compensation consultant, and our Board approved special success-based transaction success bonuses outside of our regular ongoing compensation programs in connection with the GBL Sale and the GAC Sale. In approving the transaction success bonuses, our Compensation Committee considered (i) the transformative nature of the GBL Sale and the GAC Sale to the Company and its future positions and operations, (ii) the dedication of the executive team, and in particular our CEO, over a year-long process that included complex regulatory approval processes, (iii) heightened responsibilities on top of day-to-day duties and responsibilities and (iv) market practices for deal bonuses — see “-Fiscal 2019 Business Highlights.” In studying the market practices for deal bonuses, our Compensation Committee determined that success bonuses of less than 1% of deal price are not uncommon in transactions involving the sale of an entire business; here, the aggregate transaction success bonuses represented less than 0.23% of the $2.9 billion of proceeds. These Fiscal 2019 transaction success bonuses were $5,000,000 for Mr. Maura, and $500,000 for each of Mr. Martin, Mr. Lewis, and Mr. Zargar, with respect to the GBL Sale and the GAC Sale and $53,750 for Ms. Long. Of the total transaction success bonus, 60% was payable upon the closing of the GBL Sale and 40% was payable upon the closing of the GAC Sale, in each case subject to the executive’s continued employment on the date of such sales. No bonus would have been paid if the transactions did not close.

Deferral and Post-Termination Benefits

Retirement Benefits. Our Company maintains a 401(k) plan for our employees, including our NEOs.

Supplemental Executive Life Insurance Program. During Fiscal 2019, each of Messrs. Maura, Martin, Lewis, and Zargar participated in a program pursuant to which the Company, on behalf of each participant, made an annual contribution on October 1 equal to 15% of such participant’s base salary as of that date into a Company-owned executive life insurance policy for such participant. The investment options for each such policy are selected by the insurance provider.

Post-Termination Benefits. As described above, the Company had entered into agreements with our NEOs which govern, among other things, post-termination benefits payable to each such NEO should his or her employment with the Company terminate. In each case, the receipt of post-termination benefits subject to the NEO’s execution of a waiver and release agreement in favor of the Company and continued compliance with post-employment restrictive covenants and other executive cooperation.

 

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Perquisites and Benefits

The Company provides certain limited perquisites and other benefits to certain executives, including our NEOs. Among these benefits are financial and tax planning services, car allowances or leased car programs, executive medical exams, and executive life and disability insurance. Commencing with Fiscal 2020, Mr. Maura has voluntarily agreed to cease receiving any benefits for financial or tax planning services, automobile allowance and any gross-upon financial planning. We have also eliminated all gross-ups for our other NEOs.

Tax Payments

The Company has historically provided increases in payments to our NEOs and other management personnel to cover personal income tax due as a result of imputed income in connection with the provision of the following perquisites: company-leased car, financial planning and tax planning, executive life insurance, and NEO or other management personnel relocation. Beyond these tax payments, the Company does not make any other payments to our NEOs or other management personnel to cover personal income taxes. Commencing with Fiscal 2020, these additional payments will not be made to our NEOs.

Reported versus Realizable Pay

In connection with our most recent shareholder engagement in May 2020, we noted to our shareholders that our CEO’s realizable pay is substantially different than the compensation that is reported in the Summary Compensation Table. The primary reason for the differences between reported pay in the Summary Compensation Table and realizable pay is the method and timing used to value long-term equity awards. SEC rules require companies to report the grant date fair value of all equity awards in the Summary Compensation Table for the year in which they were granted. However, a substantial portion of our CEO’s total compensation is in the form of equity-based awards (in Fiscal 2019 approximately 87.9% of his compensation was received in the form of equity), which have had vesting terms of up to three years, precluding its immediate realization at the grant date and correlating its realizable value to our future stock performance.

We presented the table below to our shareholders during the May 2020 engagement. The table below shows the compensation realizable by our CEO as of May 8, 2020 using the closing price of our Common Stock as of such date. The stock awards for Fiscal 2017 and 2018 reflect forfeitures as a result of performance conditions not having been achieved. Additionally, we have done this on a pro forma basis, to remove the one-off Bridge Grants which are described under “Fiscal 2019 Compensation Component Pay-Outs—Special Awards” and the transaction success bonus, which we do not think are representative of his ongoing compensation.

 

Year of Compensation   Total Realizable Pay(1)  

Realizable Pay as a Percentage

of Reported Pay(2)

2019

  $7,257,942   83%

2018

  $1,308,104   29%

2017

  $1,644,966   22%

 

  (1)

For purposes of this comparison, “Realizable Pay” for each year is defined as (i) salary as reported in the Summary Compensation Table; (ii) the value of amounts paid under the MIP in Common Stock, adjusted using the closing price of our Common Stock as May 8, 2020; (iii) the value of vested and unvested long-term equity awards granted during such year as of May 8, 2020 using the closing price of our Common Stock as of such date; and (iv) all Other Compensation as reported in the Summary Compensation Table.

 

  (2)

Reported Pay as reported in the Summary Compensation Table, excluding the one off “bridge grants” which are described under “ Fiscal 2019 Compensation Component Pay-Outs—Special Awards” and the transaction success bonus, which we do not think are representative of his ongoing compensation.

 

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Important Compensation Policies and Guidelines

Anti-Hedging Policy

We have an anti-hedging policy, applicable to our officers and directors and certain other persons. See “Directors, Executive Officers and Corporate Governance-Corporate Governance-Our Practices and Policies-Anti-Hedging Policy” for more information.

Anti-Pledging Policy

We have an anti-pledging policy, applicable to our officers and directors and certain other persons. See “Directors, Executive Officers and Corporate Governance-Corporate Governance-Our Practices and Policies-Anti-Pledging Policy” for more information.

Securities Trading Policy

We have a securities trading policy, applicable to our officers and directors and certain other persons. See “Directors, Executive Officers and Corporate Governance-Corporate Governance-Our Practices and Policies-Securities Trading Policy” for more information.

Stock Ownership Guidelines

We have stock ownership guidelines, which are applicable to our directors, NEOs and certain of our other officers. See “Directors, Executive Officers and Corporate Governance-Corporate Governance-Our Practices and Policies-Stock Ownership Guidelines” for more information.

Compensation Clawback Policy

We have a compensation clawback policy, which is applicable to our executive officers. See “Directors, Executive Officers and Corporate Governance-Corporate Governance-Our Practices and Policies-Compensation Clawback Policy” for more information.

Timing and Pricing of Stock-Based Grants

The Company did not grant stock options to its employees during Fiscal 2019 and does not anticipate that it will use options as part of its compensation program going forward.

The Company does provide stock, restricted stock, RSUs and PSUs as part of the compensation program made available to directors, NEOs, and other employees. With respect to annual or special grants of stock or restricted stock, these are generally made on the date or as soon as practicable following the date on which such grants are approved by our Compensation Committee or our Board, or, if the award dictated a subsequent date or the achievement of a particular event prior to grant, as soon as practicable after such subsequent date or achievement of such event. The granting of stock, to the extent granted by the Company, will generally be granted on the second business day following the public dissemination of the Company’s financial results, or such other date as determined by the Company’s General Counsel, using that day’s NYSE adjusted market close price to convert to a round number of shares. For purposes of valuing awards made under our equity plans, the grant price is generally the closing sale price of the Company’s common stock on the exchange on which the Company’s shares are listed on the day prior to the grant date.

Impact of Tax and Accounting Considerations

We consider accounting and tax implications when we design our equity-based and cash compensation programs and when we make awards or grants. Section 162(m) of the Internal Revenue Code, as amended by the Tax Cuts

 

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and Jobs Act of 2017, generally limits the deductibility of certain compensation in excess of $1 million paid in any one year to any “covered employee.” A “covered employee” under Section 162(m) is any employee who has served as our CEO, CFO or other NEO for tax years after December 31, 2016. Prior to the amendment, qualified performance-based compensation was not subject to this deduction limit if certain requirements were met. Under the Tax Cuts and Jobs Act of 2017, the performance-based exception has been repealed, unless compensation paid to any “covered employee” qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. We do not expect the disallowance of a deduction for compensation paid to our NEOs in excess of $1 million, as a result of these changes to Section 162(m), to significantly alter our compensation programs. The overriding consideration when evaluating the pay level or design component of any portion of our executives’ compensation is the effectiveness of the pay component and the stockholder value that management and the Compensation Committee believe the pay component reinforces. In structuring the compensation for our NEOs, our Compensation Committee will review a variety of factors which may include the deductibility of such compensation under Section 162(m), to the extent applicable. However, this is not the driving or most influential factor, and the Compensation Committee has approved in the past and specifically reserves the right to pay or approve nondeductible compensation currently and in the future.

Executive Compensation Tables

The following tables and footnotes show the compensation earned for service in all capacities during Fiscal 2019, Fiscal 2018, and Fiscal 2017 by our NEOs. We refer you to the “Compensation Discussion and Analysis” and the “Termination and Change in Control Provisions” sections of this Proxy Statement as well as the corresponding footnotes to the tables for material factors necessary for an understanding of the compensation detailed in the tables entitled “Summary Compensation Table,” “All Other Compensation Table for Fiscal 2019” and “Grants of Plan-Based Awards Table for Fiscal 2019.”

Summary Compensation Table

 

Name and Principal Position(1)

  Year     Salary     Bonus     Stock Awards(3)     Non-Equity
Incentive
Plan
Compensation(4)
    All Other
Compensation(5)
    Total(*)  

David M. Maura(6)

    2019     $   900,000       -     $   12,309,411     $   6,279,000     $     199,711     $   19,688,122  

Executive Chairman and

    2018     $ 769,744       -     $ 3,200,000     $ 136,463     $ 417,421     $ 4,523,628  

Chief Executive Officer

    2017     $ 700,000       -     $ 6,000,011     $ 549,784     $ 326,273     $ 7,576,068  

Douglas L. Martin

    2019     $ 550,000       -     $ 6,403,943     $ 1,062,815     $ 178,371     $ 8,195,129  

Former Chief Financial

    2018     $ 540,128       -     $ 1,500,012     $ 60,044     $ 229,074     $ 2,329,258  

Officer

    2017     $ 550,000       -     $ 3,500,007     $ 311,021     $ 189,391     $ 4,550,419  

Randal D. Lewis

               

Executive Vice President and

Chief Operating Officer

    2019     $ 447,788       -     $ 3,666,342     $ 909,320     $ 145,954     $ 5,169,404  

Ehsan Zargar(2)

    2019     $ 400,000     $ -     $ 4,419,069     $ 772,880     $ 114,538     $ 5,706,487  

Executive Vice President and

    2018     $ 315,384     $     5,000,000       -       -     $ 165,582     $ 5,480,966  

General Counsel

    2017     $ 400,000     $ 3,000,000       -       -     $ 64,225     $ 3,464,225  

Rebeckah Long

Senior Vice President, Global

Human Resource

    2019     $ 231,607       -     $ 356,910     $ 323,046     $ 18,602     $ 930,165  

Nathan E. Fagre

    2019     $ 133,665       -       -     $ -     $ 727,390     $ 957,395  

Former Senior Vice

    2018     $ 368,269       -     $ 1,300,047     $ 225,000     $ 126,904     $ 2,020,220  

President, General Counsel and Secretary

    2017     $ 375,000       -     $ 2,049,992     $ 141,373     $ 101,826     $ 2,668,191  

 

(*)

As noted, the Summary Compensation Table includes the Bridge Grants and the transaction success bonuses in Fiscal 2019. Because of the special circumstances surrounding the sale of our GBL and GAC businesses and our transition to a new long-term equity plan, we do not believe that the Bridge Grants and the transaction success bonuses are indicative of our regular, ongoing annual compensation. If these amounts were excluded the totals for Fiscal 2019 would have been as follows: Mr. Maura ($8,715,932), Mr. Martin ($4,518,450), Mr. Lewis ($2,752,570), Mr. Zargar ($2,665,123) and Ms. Long ($763,499). See “Compensation Discussion and Analysis-Analysis of our CEO’s Fiscal 2019 Compensation” and “Compensation Discussion and Analysis-Compensation Elements-Special Awards” for more information.

 

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(1)

Mr. Martin ceased to be our CFO on November 17, 2019 and ceased to be an employee on December 20, 2019. Mr. Lewis became our COO on October 23, 2018 and became an Executive Vice President on September 9, 2019. Ms. Long became our Global Head of HR on September 9, 2019. Mr. Fagre ceased to be our General Counsel as of October 1, 2018. He continued as a non-executive employee and provided transitional services until May 3, 2019. Mr. Zargar became our General Counsel on October 1, 2018 and the compensation paid to him prior to that date was from HRG Legacy. Prior to the Merger, HRG Legacy was the parent company of Spectrum and had a completely different compensation program which was cash-based and designed for a company that was in the process of winding down.

(2)

For Mr. Zargar, this reflects amounts paid for Fiscal 2018 pursuant to his retention agreement with HRG Legacy. Prior to the Merger, HRG Legacy was the parent company of Spectrum and had a completely different compensation program, which was cash-based and designed for a company that was in the process of winding down.

(3)

This column reflects the aggregate grant date fair value of the awards computed in accordance with ASC Topic 718. For a discussion of the relevant ASC 718 valuation assumptions, see Note 2, Significant Accounting Policies and Practices, of the Notes to Consolidated Financial Statements, included in our Annual Report on Form 10-K for Fiscal 2019. For Fiscal 2019, this column reflects grants under the new LTIP and the Bridge Grants. For Fiscal 2018, this column reflects grants of performance-based restricted stock units under the 2018 EIP and grants under the S3B Plan. The 2018 EIP grants and the grants made under the S3B Plan which are represented this column did not meet the applicable performance criteria and were forfeited without payment. Accordingly, this table does not reflect what was paid or what was earned and, as noted, no payments were made with respect to those grants. For Fiscal 2017, this column reflects grants of performance-based restricted stock units under the 2017 EIP and grants under the S3B Plan. No payments were made under the S3B Plan. The performance-based restricted stock unit awards are subject to the achievement of performance and the values listed in this column with respect to such awards are based on the outcome of such grants at target as of the grant date. If the maximum performance was achieved then the value of the awards would have been as follows: Mr. Maura (2019 - $13,582,665; 2018 - $4,050,088; 2017 - $7,800,000); Mr. Martin (2019 - $7,054,072; 2018 - $2,025,044; 2017 - $4,525,000); Mr. Lewis (2019 - $4,023,098); Mr. Zargar (2019 - $3,516,301); Ms. Long (2019 - $413,237); and Mr. Fagre (2018 - $1,755,031; and 2017 - $2,692,500) in each case based on the stock price on the date of grant. At the lowest level of performance, the performance-based restricted stock unit awards are forfeited. The amounts shown in this column do not reflect the actual payout.

(4)

For Fiscal 2019, 2018 and 2017, this column represents amounts earned under the Company’s 2019, 2018, and 2017 MIP, as applicable. For additional detail on the 2019 MIP and the determination of the awards thereunder, please refer to the discussion under the heading “Compensation Discussion and Analysis-Fiscal 2019 Compensation Component Pay-Outs-Management Incentive Plan” and the table entitled “Grants of Plan-Based Awards Table for Fiscal 2019” and its accompanying footnotes. The cash incentive awards payable under the 2017, 2018 and 2019 MIP to our NEOs were settled in shares of common stock in lieu of cash on December 8, 2017, December 7, 2018 and December 6, 2019, respectively, as follows:Mr. Maura - 4,786 shares for the 2017 MIP, 2,748 shares for the 2018 MIP and 20,538 for the 2019 MIP; Mr. Martin - 2,707 shares for the 2017 MIP, 1,209 shares for the 2018 MIP and 9,037 for the 2019 MIP; Mr. Lewis - 6,572 shares for the 2019 MIP; Mr. Zargar - 4,382 shares for the 2019 MIP; Ms. Long - 6,572 shares for the 2019 MIP; Mr. Fagre - 1,231 shares for the 2017 MIP. For the 2018 MIP, Mr. Fagre received payment of his award in cash, as provided for in his separation agreement. For Fiscal 2019, this column includes the special transaction success bonuses as follows: Mr. Maura ($5,000,000), Mr. Martin ($500,000), Mr. Lewis ($500,000), Mr. Zargar ($500,000) and Ms. Long ($53,750).

(5)

Please see the following table for the details of the amounts that comprise the All Other Compensation column.

(6)

For his service as an HRG Legacy employee during Fiscal 2017, Mr. Maura also received compensation from HRG Legacy consisting of the following: (i) bonus of $2,150,000, (ii) option awards of $1,895,458, and (iii) all other compensation of $550,000 for a total of $4,595,458 (these amounts were earned in connection with Mr. Maura’s separation agreement from HRG Legacy in connection with the Maura Separation Agreement from November 2016). These amounts are not reflected in the summary compensation table above and relate to Mr. Maura’s prior service for HRG Legacy. For additional details please see the Summary Compensation Table of HRG Legacy’s Proxy Statement dated April 30, 2018.

All Other Compensation Table for Fiscal 2019

 

                     Name                

  Financial
Planning
Services
Provided to
Executive
    Life
Insurance
Premiums
Paid on
Executives
Behalf (2)
    Car
Allowance/
Personal
Use of
Company
Car (3)
    Tax
Equalization
Payments (4)
    Company
Contributions
to
Executive’s
Qualified
Retirement
Plan (5)
    Company
Contributions
to Executive’s
Supplemental
Life
Insurance
Policy
    Dividends(6)     Other(7)     Total  

David M. Maura (1)

  $   30,000     $ 6,937     $   24,762     $   21,697     $ 9,555     $   75,606     $ 31,154       -     $ 199,711  

Douglas L. Martin

  $ 20,000     $ 11,880     $ 16,257     $ 22,653     $ 9,500     $ 82,500     $ 15,580       -     $ 178,371  

Randal D. Lewis

  $ 20,000     $ 4,863     $ 13,170     $ 21,724     $ 10,908     $ 67,500     $ 7,788             $ 145,954  

Ehsan Zargar

  $ 20,000     $ 552     $ 17,654     $ 9,740     $ 6,592     $ 60,000       -             $ 114,538  

Rebeckah Long

  $ -     $ 213     $ 10,117     $ 100     $ 7,339       -     $ 833       -     $ 18,602  

Nathan E. Fagre

  $ 20,000     $   10,477     $ 10,754     $ 18,636     $     3,024       -     $   13,504     $   650,995     $   727,390  

 

(1)

Mr. Maura voluntarily eliminated his financial planning and car allowance and any tax equalization payments commencing in Fiscal 2020.

(2)

The amount represents the life insurance premium paid for Fiscal 2019. The Company provides life insurance coverage equal to three times (two times, for Ms. Long and Mr. Fagre) base salary for each executive officer.

 

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(3)

The Company sponsors a leased car or car allowance program. Under the leased car program, costs associated with using a vehicle are provided, which also include maintenance, insurance, and license and registration. Under the car allowance program, the executive receives a fixed monthly allowance. As noted above, beginning with Fiscal 2020, Mr. Maura has given up his car allowance.

(4)

Includes tax equalization payments for the financial benefits received for the following executive benefits and perquisites: financial planning, executive life insurance, and executive leased car program. As noted above, the Company will no longer provide tax equalization for these items beginning in Fiscal 2020.

(5)

Represents amounts contributed under the Company-sponsored 401(k) retirement plan.

(6)

Dividends paid on RSUs held by NEOs which were not factored into the grant date fair value of the RSUs.

(7)

This amount for Mr. Fagre represents: severance of $145,673, severance bonus of $500,000, and $5,322 for unused vacation days.

Grants of Plan-Based Awards Table for Fiscal 2019

The following table and footnotes provide information with respect to equity grants made to our NEOs indicated in the table during Fiscal 2019 as well as the range of future payouts under non-equity incentive plans for our NEOs indicated.

 

            Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
    Estimated Future Payouts Under
Equity Incentive Plan Awards
    All Other
Stock
Awards:
Number of
Shares of

Stock or
Units
#
    Grant Date
Fair Value of

Stock
Awards(5)
$
 

Name

  Grant Date     Threshold
$
    Target
$
    Maximum
$
    Threshold
#
    Target
#
    Maximum
#
 

David M. Maura

    10/01/2018 (1)    $     281,250     $     1,125,000     $     2,812,500              
      12/28/2018 (2)      $ 5,000,000                
      1/17/2019 (3)              48,219         64,293     $ 5,972,190  
      1/17/2019 (4)                              20,893       83,573       104,466       35,817     $ 6,337,221  

Douglas L. Martin

    10/01/2018 (1)    $ 123,750     $ 495,000     $ 990,000              
      12/28/2018 (2)      $ 500,000                
      1/17/2019 (3)              25,649         34,198     $     3,176,679  
      1/17/2019 (4)                              10,640       42,560       53,200       18,240     $ 3,227,264  

Randal D. Lewis

    10/01/2018 (1)    $ 90,000     $ 360,000     $ 720,000              
      12/28/2018 (2)      $ 500,000                
      1/17/2019 (3)              15,390         20,519     $ 1,905,997  
      1/17/2019 (4)            5,804       23,215       29,019       9,949     $ 1,760,345  

Ehsan Zargar

    10/01/2018 (1)    $ 60,000     $ 240,000     $ 480,000                                          
      12/28/2018 (2)      $ 500,000                
      1/17/2019 (3)              20,519         27,359     $ 2,541,364  
      1/17/2019 (4)                              6,191       24,763       30,954       10,612     $ 1,877,705  

Rebeckah Long

    10/01/2018 (1)    $ 30,000     $ 120,000     $ 240,000              
      1/17/2019 (3)              513         684     $ 63,537  
      1/17/2019 (4)            967       3,869       4,836       1,658     $ 293,373  
      1/17/2019 (6)            $ 340,000                                                  

Nathan E. Fagre

    10/01/2018 (1)    $ 56,250     $ 225,000     $ 450,000       -       -       -       -       -  

 

(1)

Represents the threshold, target, and maximum payouts under the Fiscal 2019 MIP. The actual amounts earned under the plan for Fiscal 2019 are disclosed in the Summary Compensation Table above as part of the column entitled “Non-Equity Incentive Plan Awards.” For Mr. Maura, the maximum payout for the disclosed awards is equal to 250% of target. For our other NEOs, the maximum payouts for the disclosed awards are equal to 200% of target. See “Compensation Discussion and Analysis-Fiscal2019 Compensation Component Pay-Outs-Management Incentive Plan” for a discussion of the terms of the Fiscal 2019 MIP.

(2)

Represents the Fiscal 2019 transaction success bonuses. See “Compensation Discussion and Analysis-Compensation Elements-Special Awards” for a discussion of the terms of these awards.

(3)

Represents the number of RSUs and PSUs awarded under the Bridge Grants, and shows (a) the number of PSUs underlying the performance-based portion of the award, and (b) the number of RSUs underlying the time-based portion of the award. See “Compensation Discussion and Analysis-Compensation Elements-Special Awards” for a discussion of the terms of these awards.

(4)

Represents the number of RSUs and PSUs awarded under the Fiscal 2019 LTIP grants, and shows (a) the threshold, target and maximum payouts, denominated in the number of shares of stock, in respect of PSUs, and (b) the number of shares of stock underlying the RSUs. See “Compensation Discussion and Analysis-Fiscal 2019 Compensation Components Pay-Outs-LTIP” for a discussion of the terms of these awards.

(5)

Except as otherwise noted, reflects the value at the grant date value based upon the probable outcome of the relevant performance conditions. This amount is consistent with the estimate of aggregate compensation costs to be recognized over the service period determined as of the grant date under FASB ASC Topic 718, excluding the effect of any estimated forfeitures.

(6)

Represents the cash portion of the Bridge Grant payable in cash which was made to Ms. Long prior to her becoming an NEO.

 

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Outstanding Equity Awards at the End of Fiscal 2019

The following table and footnotes set forth information regarding outstanding options and restricted stock and restricted stock unit awards as of September 30, 2019 for our NEOs. The market value of shares that have not vested was determined by multiplying $52.72, the closing market price of the Company’s stock on September 30, 2019, the last trading day of Fiscal 2019, by the number of shares.

 

                     Name                    

  Number of
Securities
Underlying
Unexercised
Options
Exercisable
    Option Exercise
Price
    Option
Expiration
Date
    Number of
Shares or Units
of Stock That
Have Not
Vested(1)
    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(2)
 

David M. Maura

    70,294     $ 52.83       11/29/2022            
      64,142     $ 72.92       12/3/2023       -          
      26,743     $ 82.85       11/25/2024       -       -       -      
      1,164     $ 86.38       11/24/2025       -       -       -      
      51,309     $ 95.43       12/14/2026       -       -       -      
            64,293 (4)    $     3,389,516       48,219 (5)    $     2,542,106  
      -       -               35,817 (6)    $ 1,888,272       20,893 (7)    $ 1,101,492  

Douglas L. Martin

    -       -       -       34,198 (4)    $ 1,802,940       25,649 (5)    $ 1,352,205  
      -       -       -       18,240 (6)    $ 961,613       10,640 (7)    $ 560,941  

Randal D. Lewis

    -       -       -       20,519 (4)    $ 1,081,772       15,389 (5)    $ 811,308  
      -       -       -       9,949 (6)    $ 524,511       5,804 (7)    $ 305,974  

Ehsan Zargar

    3,958     $     72.92       11/29/2023            
      5,009     $ 82.86       11/25/2024       -       -       -      
      -       -       -       27,359 (4)    $ 1,442,366       20,519 (5)    $ 1,081,767  
      -       -       -       10,612 (6)    $ 559,465       6,191 (7)    $ 326,376  

Rebeckah Long

    -       -       -       684 (4)    $ 36,060       513 (5)    $ 27,045  
      -       -       -       1,658 (6)    $ 87,410       967 (7)    $ 50,993  

Nathan E. Fagre

    -       -       -       -       -       -       -  

 

(1)

This column shows the number of outstanding RSUs subject to time-based vesting.

(2)

The market value is based on the per share closing price of our common stock on September 30, 2019 ($52.72).

(3)

This column shows the number of Bridge Grant RSUs and Fiscal 2019 LTIP RSUs subject to performance-based vesting. In the case of the Fiscal 2019 LTIP grant, because none of the performance metrics have been satisfied as of the date of this Proxy Statement (even at the threshold level), we have shown in accordance with SEC rules only the number of RSUs that would be payable upon the lowest level of performance (which is 25%, assuming only one of the performance metrics were achieved at threshold level).

(4)

These include the Fiscal 2019 Bridge Grant RSUs, which vested on November 21, 2019, and the Fiscal 2020 Bridge Grant RSUs, which will vest on November 21, 2020, subject to continued employment.

(5)

These include the Fiscal 2019 Bridge Grant PSUs, which vested on November 21, 2019.

(6)

These Fiscal 2019 LTIP RSUs cliff vest on September 30, 2021, subject to continued employment.

(7)

These Fiscal 2019 LTIP PSUs cliff vest on September 30, 2021, subject to continued employment and achievement of the applicable performance metrics.

Stock Vested During Fiscal 2019

The following table and footnotes provide information regarding stock awards vesting during Fiscal 2019 for our NEOs.

 

     Stock Awards  

Name

  Number of Shares
Acquired on
Vesting
    Value Realized
on Vesting
 

David M. Maura

    9,272     $     457,851 (1) 

Douglas L. Martin

    4,637     $ 228,975 (2) 

Randal D. Lewis

    2,318     $ 114,463 (3) 

Ehsan Zargar

    0     $ 0  

Rebeckah Long

    248     $ 12,246 (4) 

Nathan E. Fagre

    4,019     $ 198,458 (5) 

 

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(1)

The amount for Mr. Maura in this column represents the value realized upon the vesting of 9,272 RSUs on December 1, 2018. The value was computed by multiplying the number of shares vested by the closing price per share of the Company’s common stock on each such vesting date, which was $49.38 on November 30, 2018 (the last trading day before December 1, 2018).

(2)

The amount for Mr. Martin in this column represents the value realized upon the vesting of 4,637 RSUs on December 1, 2018. The value was computed by multiplying the number of shares vested by the closing price per share of the Company’s common stock on each such vesting date, which was $49.38 on November 30, 2018 (the last trading day before December 1, 2018).

(3)

The amount for Mr. Lewis in this column represents the value realized upon the vesting of 2,318 RSUs on December 1, 2018. The value was computed by multiplying the number of shares vested by the closing price per share of the Company’s common stock on each such vesting date, which was $49.38 on November 30, 2018 (the last trading day before December 1, 2018).

(4)

The amount for Ms. Long in this column represents the value realized upon the vesting of 248 RSUs on December 1, 2018. The value was computed by multiplying the number of shares vested by the closing price per share of the Company’s common stock on each such vesting date, which was $49.38 on November 30, 2018 (the last trading day before December 1, 2018).

(5)

The amount for Mr. Fagre in this column represents the value realized upon the vesting of 4,019 RSUs on December 1, 2018. The value was computed by multiplying the number of shares vested by the closing price per share of the Company’s common stock on each such vesting date, which was $49.38 on November 30, 2018 (the last trading day before December 1, 2018).

Pension Benefits

None of our NEOs participated in any pension plans during, or as of the end of, Fiscal 2019.

Non-Qualified Deferred Compensation

None of our NEOs participated in any Company non-qualified deferred compensation programs during, or as of the end of, Fiscal 2019.

Termination and Change in Control Provisions

Awards under the Company Equity Plan

For purposes of these incentive plans, “change in control” generally means the occurrence of any of the events listed below and “Applicable Company” means the Company, or SPB Legacy with respect to the former equity plan of SPB Legacy which was assumed by the Company:

 

  (i)

the acquisition, by any individual, entity or group of beneficial ownership of more than 50% of the combined voting power of the Applicable Company’s then outstanding securities;

 

  (ii)

individuals who constituted our Board at the effective time of the plan and directors who are nominated and elected as their successors from time to time cease for any reason to constitute at least a majority of our Board;

 

  (iii)

consummation of a merger or consolidation of the Applicable Company or any direct or indirect subsidiary of the Applicable Company with any other entity, other than (A) a merger or consolidation which results in the voting securities of the Applicable Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) more than 50% of the combined voting power of the voting securities of the Applicable Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, (B) a merger or consolidation effected to implement a recapitalization of the Applicable Company (or similar transaction) in which no individual, entity or group is or becomes the beneficial owner, directly or indirectly, of voting securities of the Applicable Company (not including in the securities beneficially owned by such individual, entity or group any securities acquired directly from the Applicable Company or any of its direct or indirect subsidiaries) representing 50% or more of the combined voting power of the Applicable Company’s then outstanding voting securities or (C) a merger or

 

65


 

consolidation affecting the Applicable Company as a result of which a Designated Holder (as defined below) owns after such transaction more than 50% of the combined voting power of the voting securities of the Applicable Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or

 

  (iv)

approval by the stockholders of the Applicable Company of either a complete liquidation or dissolution of the Applicable Company or the sale or other disposition of all or substantially all of the assets of the Applicable Company, other than a sale or disposition by the Applicable Company of all or substantially all of the assets of the Applicable Company to an entity, more than 50% of the combined voting power of the voting securities of which are owned by stockholders of the Applicable Company in substantially the same proportions as their ownership of the Applicable Company immediately prior to such sale; provided that, in each case, it shall not be a change in control if, immediately following the occurrence of the event described above (i) the record holders of the common stock of the Applicable Company immediately prior to the event continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following the event, or (ii) the Harbinger Master Fund, the Harbinger Special Situations Fund, HRG, and their respective affiliates and subsidiaries (the “Designated Holders”) beneficially own, directly or indirectly, more than 50% of the combined voting power of the Applicable Company or any successor.

Executive-Specific Provisions Regarding Employment, Termination and Change in Control

Agreements with NEOs

Our Compensation Committee periodically evaluates the appropriateness of entering into employment agreements, severance agreements or other written agreements with the Company’s NEOs to govern compensation and other aspects of the employment relationship. During Fiscal 2019, the Company and/or its wholly owned subsidiary, SBI, had written employment agreements with its NEOs as follows: (i) an Employment Agreement, dated January 20, 2016, as amended and restated on dated April 25, 2018, with Mr. Maura (the “Maura Employment Agreement”); (ii) a Separation and Release Agreement, dated September 12, 2018, with Mr. Fagre (the “Fagre Separation Agreement”); (iii) a Severance Agreement dated as of February 1, 2016 with Mr. Lewis (the “Prior Lewis Severance Agreement”), as modified by an offer letter dated October 23, 2018, which were both superseded by an employment agreement dated September 9, 2019 (the “Lewis Employment Agreement”); (iv) a letter agreement with Ms. Long dated September 9, 2019 (the “Long Letter Agreement”), which was superseded by a severance agreement with Ms. Long dated September 9, 2019 (the “Long Severance Agreement”); (v) an Employment Agreement, as amended and restated on December 15, 2016, with Mr. Martin (the “Martin Employment Agreement”), which was superseded by a Separation Agreement with Mr. Martin dated as of September 9, 2019 (the “Martin Separation Agreement”); and (vi) an employment Agreement with Mr. Zargar dated October 1, 2018 (the “Zargar Employment Agreement”).

In addition, on September 9, 2019, the Company entered into an employment agreement with Mr. Smeltser who became the Company’s CFO on November 17, 2019.

Agreement with Mr. Maura

Pursuant to the Maura Employment Agreement, the initial term will be until April 24, 2021, subject to earlier termination, with automatic one-year renewals thereafter. The Maura Employment Agreement provides Mr. Maura with an annual base salary as Executive Chairman of $700,000 and an annual base salary of $200,000 for the duration of his services as CEO and he will be eligible to receive a performance-based MIP bonus for each fiscal year, based on a target of 125% of his total base salary, as may be applicable at the time (the “Target Amount”), paid during the applicable fiscal year during the term of the Maura Employment Agreement, provided

 

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the Company achieves certain annual performance goals as established by our Board and/or our Compensation Committee. If such performance goals are met, the MIP bonus will be payable in cash and/or stock. If Mr. Maura exceeds the performance targets, the bonus will be increased in accordance with the formula approved by the Compensation Committee no later than the close of the first quarter of the year following the applicable fiscal year; provided that the bonus will not exceed 250% of the Target Amount.

Under the terms of the Maura Employment Agreement, Mr. Maura was entitled to receive a performance-based EIP grant with a target value of $3.2 million for his service as Executive Chairman and CEO and a performance-based S3B grant with a target value of $3 million, each in accordance with those programs grant cycles. In Fiscal 2019, our Compensation Committee eliminated the EIP and S3B bonus programs and replaced them with our performance based LTIP bonus program. Based on the review of peer groups, Mr. Maura received an LTIP grant with target value of $5.4 million for Fiscal 2019. In addition, at the discretion of the Compensation Committee and/or the Board, Mr. Maura is also eligible to receive future grants and/or participate in future multi-year incentive programs.

The Maura Employment Agreement also provides Mr. Maura with, among other things: (i) four weeks of paid vacation for each full year; (ii) eligibility for Mr. Maura to participate in the Company’s executive auto lease program which Mr. Maura has waived beginning in Fiscal 2020; (iii) a stipend for income tax filings and returns preparation and advice and estate planning advice which Mr. Maura has waived beginning in Fiscal 2020; and (iv) eligibility for Mr. Maura to participate in any of the Company’s insurance plans and other benefits, if any, as the benefits are made available to other executive officers of the Company.

Under the Maura Employment Agreement, Mr. Maura is entitled to receive severance benefits if his employment is terminated under certain circumstances. In general, termination as Executive Chairman and as CEO is determined separately, so that termination from either position will generally provide for payments in respect only of that position, and a termination from both positions will provide for payments in respect of both positions.

In the event that Mr. Maura is terminated with “cause” or terminates his employment voluntarily, other than for “good reason,” from his role as Executive Chairman, or as CEO, or all his roles, Mr. Maura’s compensation (with respect to such roles) and other benefits (in the case where he is terminated from all his roles) provided under his employment agreement cease at the time of such termination and Mr. Maura is entitled to no further compensation under his employment agreement with respect to such role. Notwithstanding this, the Company would pay to Mr. Maura accrued compensation and benefits and continuation of Company medical benefits to the extent required by law.

If Mr. Maura’s role as CEO is terminated (without terminating his role as Executive Chairman), without “cause,” by the Company, by Mr. Maura for “good reason,” due to Mr. Maura’s death or disability, or upon a Company-initiated non-renewal or upon a change in control, Mr. Maura will be entitled to receive the following severance benefits: (i) the vesting of $250,000 of his outstanding time-based equity awards, based on grant-date value, as determined by the Compensation Committee; (ii) a cash payment of $500,000 ratably monthly in arrears over the 12-month period following such termination; and (iii) a pro rata portion, in cash, of the annual MIP bonus related to the base salary that Mr. Maura would have earned for the fiscal year in which termination occurs. Notwithstanding the foregoing, if Mr. Maura’s employment is terminated in a CIC Termination (as defined below) during the initial term of the Maura Employment Agreement, then instead of the payment in clause (ii) above, he will receive a cash payment equal to the greater of (x) a cash amount equal to $500,000, or (y) a cash amount equal to his then-current base salary times the number of months remaining in the initial term, with a pro rata amount being calculated for any partial month in that time period.

In addition to the payments above, if Mr. Maura’s employment (as Executive Chairman) is terminated by the Company without “cause,” by Mr. Maura for “good reason,” upon Mr. Maura’s death or disability, or upon a Company-initiated non-renewal of his employment agreement, the Company shall pay or provide for Mr. Maura: (i) (a) a cash payment equal to 1.5 times the base salary in effect immediately prior to his termination, plus (b) a

 

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cash payment equal to 1.0 times his target annual MIP bonus of 125% of his then-current base salary, each payable ratably on a monthly basis over the 18-month period immediately following his termination; (ii) the pro rata portion, in cash, of the annual MIP bonus (if any) he would have earned for the fiscal year in which such termination occurs if his employment had not ceased, to be paid at the same time such bonus would have been paid to Mr. Maura for such fiscal year if his employment had not terminated; (iii) for the 18-month period immediately following such termination, provide Mr. Maura and his dependents with medical insurance coverage and other employee benefits on a basis substantially similar to those provided to Mr. Maura and his dependents by the Company immediately prior to the date of termination at no greater cost to Mr. Maura or the Company than the cost to Mr. Maura and the Company immediately prior to such date; and (iv) payment of accrued vacation time pursuant to Company policy. In addition, all unvested outstanding time-based equity awards will promptly vest as provided in the applicable equity award agreements. Notwithstanding the foregoing, if Mr. Maura’s employment is terminated in a CIC Termination during the initial term of the Maura Employment Agreement, then instead of the payment in clause (i)(a) above, he will receive a cash payment equal to the greater of (x) a cash amount equal to 1.5 times his then-current base salary, or (y) a cash amount equal to his then-current base salary times the number of months remaining in the initial term, with a pro rata amount being calculated for any partial month in that time period.

If Mr. Maura’s employment is terminated by the Company without “cause” (and not due to death or disability) or by Mr. Maura for “good reason” during the period that begins 60 days prior to the occurrence of a change in control (or, in limited cases, earlier) and ends upon the first anniversary of the change in control (a “CIC Termination”), then Mr. Maura will receive all severance benefits available to him as if he terminated his employment for “good reason” and all of his outstanding and unvested performance-based equity awards will vest in full (at the target level).

The payment of the severance payments and vesting of equity awards described above with respect to a termination of Mr. Maura’s employment are conditioned upon Mr. Maura’s execution of a release of claims in favor of the Company and its controlled affiliates, and Mr. Maura’s compliance with the non-competition, non-solicitation, non-disparagement and confidentiality restrictions set forth in his employment agreement. The non-competition and non-solicitation provisions extend for 18 months following Mr. Maura’s termination, and confidentiality provisions extend for seven years following Mr. Maura’s termination.

Under the Maura Employment Agreement, (a) “good reason” is defined as the occurrence of any of the following events without Mr. Maura’s consent: (i) any reduction in Mr. Maura’s annual base salary or target MIP bonus opportunity then in effect; (ii) the required relocation of Mr. Maura’s office at which he is principally employed as of April 25, 2018 to a location more than 50 miles from such office, or the requirement by the Company that Mr. Maura be based at a location other than such office on an extended basis, except for required business travel; (iii) a substantial diminution or other substantive adverse change in the nature or scope of Mr. Maura’s responsibilities, authorities, powers, functions, or duties; (iv) a breach by the Company of any of its other material obligations under the Maura Employment Agreement; or (v) the failure of the Company to obtain the agreement of any successor to the Company to assume and agree to perform the Maura Employment Agreement; and (b) “cause” is defined, in general, as the occurrence of any of the following events: (i) the commission by Mr. Maura of any deliberate and premeditated act taken by Mr. Maura in bad faith against the interests of the Company that causes or is reasonably anticipated to cause material harm to the Company; (ii) Mr. Maura has been convicted of, or pleads nolo contendere with respect to, any felony, or of any lesser crime or offense having as its predicate element fraud, dishonesty, or misappropriation of the property of the Company that causes or is reasonably anticipated to cause material harm to the Company; (iii) the habitual drug addiction or intoxication of Mr. Maura which negatively impacts his job performance or Mr. Maura’s failure of a company-required drug test; (iv) the willful failure or refusal of Mr. Maura to perform his duties as set forth in the employment agreement or the willful failure or refusal to follow the direction of our Board, which is not cured after 30 calendar days’ notice; or (v) Mr. Maura materially breaches any of the terms of the Maura Employment Agreement or any other agreement between himself and the Company and the breach is not cured within 30 calendar days after written notice from the Company.

 

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Agreement with Mr. Fagre

On September 12, 2018, Mr. Fagre entered into the Fagre Separation Agreement pursuant to which his employment as an officer of the Company ceased on October 1, 2018. Pursuant to the Fagre Separation Agreement, Mr. Fagre was entitled to receive: (i) $375,000, representing 12 month’s base salary, which was payable over a period of 52 weeks after October 1, 2018; (ii) a severance cash bonus of $225,000, equal to the bonus which Mr. Fagre would have received if target performance goals were achieved in year of termination; (iii) an additional severance bonus of $500,000 in connection with an extended period of transitional services, payable in cash or Company stock (or a combination thereof), at the Company’s option on or prior to December 31, 2018; (iv) 12 months’ continuation of medical, dental, vision and prescription drug benefits; and (v) any earned but unpaid base salary and other accrued benefits.

In addition, Mr. Fagre’s previously granted equity awards were treated as follows: 4,018 restricted stock units from 2017 vested upon the earlier of the scheduled vesting date under the EIP award agreement or thirty days following the applicable separation date and all other units made as part of the 2017 EIP award were forfeited. In addition, the Fagre Separation Agreement provided that Mr. Fagre would continue to provide transition services as an employee until December 31, 2018 at a rate of $10,000 per month. Mr. Fagre continued to provide consulting services through May 2019 at a rate of $18,500 per month. Mr. Fagre’s entitlement to the foregoing remains subject to his continuing compliance with the terms of the Fagre Separation Agreement, which includes various restrictive covenants, including covenants relating to non-competition, non-solicitation, non-disparagement and confidentiality. The Fagre Separation Agreement also contains a customary release of potential claims by Mr. Fagre in favor of the Company.

Agreements with Mr. Lewis

Pursuant to the Prior Lewis Severance Agreement, if Mr. Lewis’ employment was terminated by the Company without cause or for death or disability, then he would be eligible to receive severance payments equal to one and one third times his base salary payable over 16 months, 40% of his base salary payable by December 31 of the year of termination and 16 months continued medical coverage at employee rates. Mr. Lewis would be subject to post employment restrictive covenants for such 16-month period. On October 23, 2018, Mr. Lewis was promoted to COO and his base salary increased from $375,000 to $450,000 and his annual bonus target was increased from 75% to 80%.

On September 9, 2019, Mr. Lewis was promoted to the office of Executive Vice President, and entered into the Lewis Employment Agreement, which superseded the Prior Lewis Severance Agreement. Pursuant to the Lewis Employment Agreement, the initial term will be until September 30, 2020, and thereafter is subject to automatic one-year renewals, subject to earlier termination. Pursuant to the Lewis Employment Agreement, Mr. Lewis will receive an annual base salary of $550,000, subject to periodic review and increase by the Compensation Committee, in its discretion. In addition, Mr. Lewis will receive a performance-based cash bonus under the MIP program for each fiscal year (commencing with Fiscal 2020) during the term of the agreement. The MIP bonus will be based on a target of 90% (and a maximum of 180%) of Mr. Lewis’s base salary paid during the applicable fiscal year, provided that the Company achieves certain annual performance goals as established by the Board and/or Compensation Committee. If such performance goals are met, the MIP bonus will be payable in cash or equity, provided that Mr. Lewis remains employed with the corporation on the date the bonus is paid.

The Lewis Employment Agreement provides that on or prior to December 31, 2019, Mr. Lewis shall receive an equity or equity based award with a grant date value of $2,200,000, and that for each subsequent fiscal year ending during the term (commencing with Fiscal 2021), he shall be eligible to receive an equity or equity based award with a target value of 400% of his base salary.

The Lewis Employment Agreement also provides Mr. Lewis with certain other compensation and benefits, including: (i) four weeks of paid vacation for each full year; (ii) eligibility to participate in any of the Company’s

 

69


insurance plans and other benefits, if any, as are made available to other executive officer of the Company; and (iii) eligibility for Mr. Lewis to participate in the Company’s executive auto lease program during the term of the employment agreement.

The Lewis Employment Agreement contains the following provisions applicable upon the termination of Mr. Lewis’s employment with the Company and/or in the event of a change in control of the Company.

In the event that Mr. Lewis is terminated with “cause” or terminates his employment voluntarily, other than for “good reason,” Mr. Lewis’s salary and other benefits provided under his employment agreement cease at the time of such termination and Mr. Lewis is entitled to no further compensation under his employment agreement. Notwithstanding this, Mr. Lewis would be entitled to continue to participate in the Company’s medical benefit plans to the extent required by law. Further, upon any such termination of employment, the Company would pay to Mr. Lewis accrued pay and benefits.

If the employment of Mr. Lewis with the Company is terminated by the Company without “cause,” by Mr. Lewis for “good reason,” or is terminated due to Mr. Lewis’s death or disability, Mr. Lewis is entitled to receive certain post-termination benefits, detailed below, contingent upon execution of a separation agreement with a release of claims agreeable to the Company and Mr. Lewis’s compliance with the non-competition, non-solicitation, non-disparagement and confidentiality restrictions set forth in his employment agreement. In such event the Company will: (i) pay Mr. Lewis (a) 1.5 times his base salary in effect immediately prior to his termination, plus (b) 1.0 times his target annual bonus award for the fiscal year in which such termination occurs, ratably over the 18-month period immediately following his termination; (ii) pay Mr. Lewis the pro rata portion of the annual bonus (if any) he would have earned pursuant to any annual bonus or incentive plan maintained by the Company with respect to the fiscal year in which such termination occurs if his employment had not ceased, to be paid at the same time such bonus would have been paid to Mr. Lewis for such fiscal year if his employment had not terminated; (iii) for the 18-month period immediately following such termination, arrange to provide Mr. Lewis and his dependents with medical and dental benefits on a basis substantially similar to those provided to Mr. Lewis and his dependents by the Company immediately prior to the date of termination, subject to his electing COBRA coverage; and (iv) pay Mr. Lewis his accrued vacation time pursuant to Company policy. In addition, and all unvested outstanding time-based equity awards will vest on a pro rata basis and all performance-based awards will be forfeited.

The non-competition and non-solicitation provisions extend for 18 months following Mr. Lewis’s termination, and confidentiality provisions extend for up to 7 years following Mr. Lewis’s termination. Mr. Lewis is also subject to a cooperation provision that extends for 6 years following Mr. Lewis’s termination.

The definitions of “good reason” and “cause” under the Lewis Employment Agreement were similar to the definitions of such terms in the Maura Employment Agreement.

Agreements with Ms. Long

On September 9, 2019, the Company entered into the Long Letter Agreement and the Long Severance Agreement with Rebeckah Long. Pursuant to the Long Letter Agreement, effective as of September 9, 2019, Ms. Long was promoted to Senior Vice President, Global Human Resources for the Company. Effective as of September 9, 2019, Ms. Long’s base salary was increased from $250,000 to $300,000 (pro-rated for Fiscal 2019). For Fiscal 2020, Ms. Long’s target bonus will be increased from 40% to 60% and her long-term incentive award for Fiscal 2020 will be $350,000.

Pursuant to the Long Severance Agreement, if Ms. Long’s employment is terminated by the Company without cause, she will receive as severance 52 weeks of base pay and (subject to her timely election of COBRA) 52 weeks of continued medical coverage. The receipt of severance benefits is conditioned upon her execution of an effective and irrevocable release of claims as well as continued compliance with her post employment restrictive covenants, including 12 month non-compete and non-solicit, a 5-year confidentiality provision, a 6-year cooperation provision and perpetual non-disparagement provisions.

 

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“Cause” for purposes of the Long Severance Agreement generally means: (i) the commission by Ms. Long of any theft, fraud, embezzlement or other material act of disloyalty or dishonesty with respect to the Company (including the unauthorized disclosure of confidential or proprietary information of the Company); (ii) Ms. Long’s conviction of, or plea of guilty or nolo contendere to, a felony or other crime of moral turpitude, disloyalty, or dishonesty; (iii) Ms. Long’s willful misconduct or gross neglect in the performance of Ms. Long’s job duties and responsibilities to the Company; (iv) the willful or intentional failure or refusal by Ms. Long to follow the written and specific, reasonable and lawful directives of Ms. Long’s supervisor or the Company’s senior management team, which failure or refusal to perform (to the extent curable) is not completely cured to the Company’s reasonable satisfaction within 15 days after receipt of a written notice from the Company detailing such failure or refusal to perform, provided that in no event shall the Company be required to provide more than one such notice or cure period (to the extent a cure period is applicable) within any 12-month period; (v) the failure or refusal by Ms. Long to perform her duties and responsibilities to the Company or any of its affiliates, which failure or refusal to perform (to the extent curable) is not completely cured to the Company’s reasonable satisfaction within 15 days after receipt of a written notice from the Company detailing such failure or refusal to perform, provided that in no event shall the Company be required to provide more than one such notice or cure period (to the extent a cure period is applicable) within any 12-month period; (vi) Ms. Long’s breach of any of the terms of this Agreement, any other agreement between Ms. Long and the Company, or any Company policy, which breach (to the extent curable) is not cured to the Company’s reasonable satisfaction within 15 days after receipt of a written notice from the Company to Ms. Long of such breach, provided that in no event shall the Company be required to provide more than one such notice or cure period (to the extent a cure period is applicable) within any 12-month period; (vii) Ms. Long engages in conduct that discriminates against or harasses any employee or other person providing services to the Company on the basis of any protected class such that it would harm the reputation of the Company or its affiliates if Ms. Long was retained as an employee, as determined by the Company in good faith after a reasonable inquiry; or (viii) Ms. Long engages in intentional, reckless, or negligent conduct that has or is reasonably likely to have an adverse effect on the Company’s business or reputation, as determined by the Company in good faith.

Agreements with Mr. Martin

The initial term of the Martin Employment Agreement was until March 1, 2016, and thereafter was subject to automatic one-year renewals, subject to earlier terminations. As noted below, the Martin Employment Agreement has been superseded by the Martin Separation Agreement.

Pursuant to the Martin Employment Agreement, Mr. Martin was entitled to receive an annual base salary of $550,000, subject to periodic review and increase by the Compensation Committee, in its discretion. In addition, Mr. Martin was entitled to receive a performance-based cash bonus under the MIP program for each fiscal year during the term of the agreement. The MIP bonus was based on a target of 90% of Mr. Martin’s base salary paid during the applicable fiscal year, provided that the Company achieved certain annual performance goals as established by the Board and/or Compensation Committee. If such performance goals were met, the MIP bonus was payable in cash or equity, provided that Mr. Martin remains employed with the corporation on the date the bonus is paid. Mr. Martin was also eligible to participate in future equity or multi-year equity award programs, at the discretion of the Compensation Committee and/or the Board.

The Martin Employment Agreement also provided Mr. Martin with certain other compensation and benefits, including the following: (i) a full executive physical on an annual basis; (ii) an annual net cash payment of $20,000 for tax, estate, and financial planning assistance; (iii) eligibility for Mr. Martin to participate in the Company’s executive auto lease program during the term of the employment agreement; and (iv) a Company-funded executive life and disability insurance policy.

The Martin Employment Agreement contained the following provisions applicable upon the termination of Mr. Martin’s employment with the Company and/or in the event of a change in control of the Company.

 

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In the event that Mr. Martin was terminated with “cause” or terminates his employment voluntarily, other than for “good reason,” Mr. Martin’s salary and other benefits provided under his employment agreement would cease at the time of such termination and Mr. Martin would be entitled to no further compensation under his employment agreement. Notwithstanding this, Mr. Martin would be entitled to continue to participate in the Company’s medical benefit plans to the extent required by law. Further, upon any such termination of employment, the Company would pay to Mr. Martin accrued pay and benefits.

If the employment of Mr. Martin with the Company was terminated by the Company without “cause,” by Mr. Martin for “good reason,” or was terminated due to Mr. Martin’s death or disability, Mr. Martin would be entitled to receive certain post-termination benefits, detailed below, contingent upon execution of a separation agreement with a release of claims agreeable to the Company and Mr. Martin’s compliance with the non-competition, non-solicitation, non-disparagement and confidentiality restrictions set forth in his employment agreement. In such event the Company would: (i) pay Mr. Martin (a) 1.5 times his base salary in effect immediately prior to his termination, plus (b) 1.0 times his target annual bonus award for the fiscal year in which such termination occurs, ratably over the 18-month period immediately following his termination; (ii) pay Mr. Martin the pro rata portion of the annual bonus (if any) he would have earned pursuant to any annual bonus or incentive plan maintained by the Company with respect to the fiscal year in which such termination occurs if his employment had not ceased, to be paid at the same time such bonus would have been paid to Mr. Martin for such fiscal year if his employment had not terminated; (iii) for the 18-month period immediately following such termination, arrange to provide Mr. Martin and his dependents with insurance and other benefits on a basis substantially similar to those provided to Mr. Martin and his dependents by the Company immediately prior to the date of termination at no greater cost to Mr. Martin or the Company than the cost to Mr. Martin and the Company immediately prior to such date; and (iv) pay Mr. Martin his accrued vacation time pursuant to Company policy. In addition, all unvested outstanding time-based equity awards will promptly vest as provided in the applicable equity award agreements.

If Mr. Martin’s employment was terminated in a CIC Termination, then Mr. Martin would receive all severance benefits available to him as if he terminated his employment for “good reason” (as described above), and all of his outstanding and unvested performance-based equity awards will vest in full (at the target level).

Pursuant to the Martin Employment Agreement, the non-competition and non-solicitation provisions extend for 18 months following Mr. Martin’s termination, and confidentiality provisions extend for seven years following Mr. Martin’s termination.

The definitions of “good reason” and “cause” under the Martin Employment Agreement were similar to the definitions of such terms in the Maura Employment Agreement.

Pursuant to the Martin Separation Agreement (which supersedes the Martin Employment Agreement), Mr. Martin’s employment with the Company and all of its subsidiaries and affiliates was required to end on December 20, 2019 or such earlier date as determined by the Company (the “Martin Separation Date”). Mr. Martin would continue to receive his compensation and benefits through the Martin Separation Date. Subject to Mr. Martin executing an effective and irrevocable release of claims, Mr. Martin will receive as severance eighteen (18) months base salary ($825,000) and one times his annual bonus of $495,000, in each case payable over an 18 month period. In addition, Mr. Martin will be eligible for a pro rata bonus for Fiscal 2020 based on actual performance for Fiscal 2020, but he will not receive any equity awards for Fiscal 2020. Mr. Martin will also continue to receive health insurance benefits during the 18-month severance period and will be permitted to purchase his Company leased vehicle for which he will be reimbursed up to $85,000. In addition, the Company will transfer his life insurance policy to Mr. Martin. Pursuant to the Martin Separation Agreement, Mr. Martin’s long-term equity-based award was forfeited without payment and his Bridge Grant is payable pro rata in accordance with the terms of his agreement (and any performance award component of the Bridge Grant shall be paid only to the extent performance is achieved). Mr. Martin will remain subject to post-employment restrictive covenants including an 18-month non-compete and non-solicitation, a 7-year confidentiality provision, as well as non-disparagement and cooperation provisions.

 

72


Agreement with Mr. Smeltser

On September 9, 2019, the Company entered into an employment agreement with Jeremy W. Smeltser. Pursuant to the Smeltser Employment Agreement, the initial term will be until September 30, 2020, and thereafter is subject to automatic one-year renewals, subject to earlier termination. Pursuant to the Smeltser Employment Agreement, Mr. Smeltser will receive an annual base salary of $500,000, subject to periodic review and increase by the Compensation Committee, in its discretion. In addition, Mr. Smeltser will receive a performance-based cash bonus under the MIP program for each fiscal year (commencing with Fiscal 2020) during the term of the agreement. The MIP bonus will be based on a target of 80% (and a maximum of 160%) of Mr. Smeltser’s base salary paid during the applicable fiscal year, provided that the Company achieves certain annual performance goals as established by the Board and/or Compensation Committee. If such performance goals are met, the MIP bonus will be payable in cash or equity, provided that Mr. Smeltser remains employed with the corporation on the date the bonus is paid.

The Smeltser Employment Agreement provides that on or prior to December 31, 2019, Mr. Smeltser will receive an equity or equity based award with a grant date value of $1,000,000, and that for each subsequent fiscal year ending during the term (commencing with Fiscal 2021), he shall be eligible to receive an equity or equity based award with a target value of 200% of his base salary.

The Smeltser Employment Agreement also provides Mr. Smeltser with certain other compensation and benefits, including: (i) relocation reimbursement of up to $75,000 as well as the use of a Company-funded apartment for up to 12 months; (ii) four weeks of paid vacation for each full year; (iii) eligibility to participate in any of the Company’s insurance plans and other benefits, if any, as are made available to other executive officer of the Company; and (iv) eligibility for Mr. Smeltser to participate in the Company’s executive auto lease program during the term of the employment agreement.

The Smeltser Employment Agreement contains the following provisions applicable upon the termination of Mr. Smeltser’s employment with the Company and/or in the event of a change in control of the Company.

In the event that Mr. Smeltser is terminated with “cause” or terminates his employment voluntarily, other than for “good reason,” Mr. Smeltser’s salary and other benefits provided under his employment agreement cease at the time of such termination and Mr. Smeltser is entitled to no further compensation under his employment agreement. Notwithstanding this, Mr. Smeltser would be entitled to continue to participate in the Company’s medical benefit plans to the extent required by law. Further, upon any such termination of employment, the Company would pay to Mr. Smeltser accrued pay and benefits.

If the employment of Mr. Smeltser with the Company is terminated by the Company without “cause,” by Mr. Smeltser for “good reason,” or is terminated due to Mr. Smeltser’s death or disability, Mr. Smeltser is entitled to receive certain post-termination benefits, detailed below, contingent upon execution of a separation agreement with a release of claims agreeable to the Company and Mr. Smeltser’s compliance with the non-competition, non-solicitation, non-disparagement and confidentiality restrictions set forth in his employment agreement. In such event the Company will: (i) pay Mr. Smeltser (a) 1.5 times his base salary in effect immediately prior to his termination, plus (b) 1.0 times his target annual bonus award for the fiscal year in which such termination occurs, ratably over the 18-month period immediately following his termination; (ii) pay Mr. Smeltser the pro rata portion of the annual bonus (if any) he would have earned pursuant to any annual bonus or incentive plan maintained by the Company with respect to the fiscal year in which such termination occurs if his employment had not ceased, to be paid at the same time such bonus would have been paid to Mr. Smeltser for such fiscal year if his employment had not terminated; (iii) for the 18-month period immediately following such termination, arrange to provide Mr. Smeltser and his dependents with medical and dental benefits on a basis substantially similar to those provided to Mr. Smeltser and his dependents by the Company immediately prior to the date of termination, subject to his electing COBRA coverage; and (iv) pay Mr. Smeltser his accrued vacation time pursuant to Company policy. In addition, all unvested outstanding time-based equity awards will vest on a pro rata basis and all performance-based awards will be forfeited.

 

73


The non-competition and non-solicitation provisions extend for 18 months following Mr. Smeltser’s termination, and confidentiality provisions extend for up to 7 years following Mr. Smeltser’s termination. Mr. Smeltser is also subject to a cooperation provision that extends for 6 years following Mr. Smeltser’s termination.

The definitions of “good reason” and “cause” under the Smeltser Employment Agreement are similar to the definitions of such terms in the Maura Employment Agreement.

Agreement with Mr. Zargar

On September 13, 2018, the Company and SBI and Mr. Zargar entered into an employment agreement which became effective as of October 1, 2018. The initial term of the Zargar Employment Agreement will extend until September 30, 2021, subject to earlier termination, with automatic one-year renewals thereafter. The Zargar Employment Agreement provides Mr. Zargar with an annual base salary of $400,000 and he will be eligible to receive a performance-based management incentive plan bonus for each fiscal year starting in Fiscal 2019, based on a target of at least 60% of the then-current base salary (the “Target Amount”) paid during the applicable fiscal year during the term, provided the Company achieves certain annual performance goals as established by the Board and/or the Compensation Committee. If such performance goals are met, the bonus will be payable in cash or stock. If Mr. Zargar exceeds the performance targets, the bonus will be increased in accordance with the formula approved by the Compensation Committee provided that the bonus will not exceed 200% of the Target Amount.

Mr. Zargar will receive equity awards in Fiscal 2019 for the performance periods, with the terms and conditions, and in such amounts as determined by the Compensation Committee. Mr. Zargar will also be eligible for future awards under the Company’s equity plan at the discretion of the Compensation Committee and/or Board and will be eligible to participate in future multi-year incentive programs as may be adopted from time to time. The Zargar Employment Agreement also provides Mr. Zargar with certain other compensation and benefits, including the following: (i) four weeks of paid vacation for each full year; (ii) eligibility for Mr. Zargar to participate in the Company’s executive auto lease program; (iii) a stipend for corporate apartment and income tax filings and returns preparation and advice and estate planning advice; and (iv) eligibility for Mr. Zargar to participate in any of the Company’s insurance plans and other benefits, if any, as the benefits are made available to other executive officers of the Company.

Under the Zargar Employment Agreement, Mr. Zargar is entitled to receive severance benefits if his employment is terminated under certain circumstances. In the event that Mr. Zargar is terminated with “cause” or terminates his employment voluntarily, other than for “good reason,” Mr. Zargar’s compensation and other benefits provided under his employment agreement cease at the time of such termination and Mr. Zargar is entitled to no further compensation under his employment agreement with respect to such role. Notwithstanding this, the Company would pay to Mr. Zargar accrued compensation and benefits and continuation of Company medical benefits to the extent required by law.

If Mr. Zargar’s employment is terminated by the Company without “cause,” by Mr. Zargar for “good reason” (as defined below), or by reason of death or by the Company for disability, or upon a Company-initiated non-renewal, he will be entitled to the following severance benefits: (i) a cash payment equal to 2.99 times his then-current base salary, (ii) a cash payment equal to 1.5 times his then-current target annual MIP bonus, each payable ratably on a monthly basis over the 18-month period following termination; (iii) a pro rata portion, in cash, of the annual bonus Mr. Zargar would have earned for the fiscal year in which termination occurs if his employment had not ceased; (iv) for the 18-month period following termination provide Mr. Zargar and his dependents with medical insurance coverage and other employee benefits on a basis substantially similar to those provided to Mr. Zargar and his dependents by the Company immediately prior to the date of termination at no greater cost to Mr. Zargar or the Company than the cost to Mr. Zargar or the Company immediately prior to such date; and (v) payment of accrued vacation time pursuant to Company policy. In addition, all unvested outstanding performance-based and time-based equity awards will immediately vest in full (at target) as provided in the applicable equity award agreements.

 

74


In the case of termination, severance payments and vesting are conditioned upon Mr. Zargar’s execution of a release of claims in favor of the Company and its affiliates and Mr. Zargar’s compliance with the non-solicitation, non-disparagement and confidentiality restrictions set forth in his employment agreement. The non-solicitation provisions extend for 18 months following Mr. Zargar’s termination, and the confidentiality provisions extend for seven years following Mr. Zargar’s termination. Mr. Zargar is also subject to a two-year cooperation provision.

The definitions of “good reason” and “cause” under the Zargar Employment Agreement are similar to the definitions of such terms in the Maura Employment Agreement.

Amounts Payable upon Termination or Change in Control

The following tables set forth the amounts that would have been payable at September 30, 2019 to each of our NEOs who were employed by the Company as NEOs on the last day of Fiscal 2019 under the various scenarios for termination of employment or a change in control of the Company had such scenarios occurred on September 30, 2019 (except for Mr. Fagre, whose employment terminated on May 3, 2019).

 

David Maura

  Termination Scenarios (Assumes Termination on 9/30/2019)  

Component

  Without Good
Reason
or For Cause
    With Good
Reason
or Without
Cause
    Upon Death
or Disability
    Change in
Control
& Termination
 

Cash Severance(1)

  $                     -     $ 2,471,986     $ 2,471,986     $ 2,471,986  

Annual Bonus(2)

  $ -     $ 1,279,125     $ 1,279,125     $ 1,279,125  

Equity Awards (Intrinsic Value)(3)

         

Unvested Restricted Stock

  $ -     $ 7,457,758 (4)    $ 7,457,758 (4)    $ 14,768,032 (5) 

Other Benefits

         

Health and Welfare(6)

  $ -     $ 10,453     $ 10,453     $ 10,453  

Car allowance(7)

  $ -     $ 24,000     $ 24,000     $ 24,000  

Accrued, Unused Vacation(8)

  $ -     $ 47,942     $ 47,942     $ 47,942  

Tax Gross-Up(9)

  $ -     $ -     $ -     $ -  

Total

  $ -     $ 11,291,265     $ 11,291,265     $ 18,601,538  

 

(1)

Reflects cash severance payment, under the applicable termination scenarios, of $500,000 for termination of the role of CEO, plus 1.5x Executive Chairman base salary and 1.0x the Fiscal 2019 Executive Chairman target bonus. Payments are to be made in monthly installments over 12 or 18 months (for the CEO and Executive Chairman payments, respectively) subject to the requirements of Section 409A of the Internal Revenue Code.

(2)

Reflects annual MIP bonus for Fiscal 2019 payable at 113.7% of target. Payment is subject to Section 409A of the Internal Revenue Code.

(3)

Reflects value of accelerated vesting of equity awards, if any, using a stock price of $52.72 which was Spectrum’s closing price on September 30, 2019.

(4)

Upon a termination without cause or due to death or disability, or for resignation with good reason, all time-based RSUs under the Fiscal 2019 LTIP, the Fiscal 2019 Bridge Grants and the Fiscal 2020 Bridge Grants would be payable. In addition, a pro rata portion of the Fiscal 2019 Bridge Grant PSUs would be payable, to the extent earned, prorated for the number of days employed during the performance period.

(5)

Upon a termination in connection with a change in control that occurs between 60 days prior to the change in control and the one-year anniversary of the change in control, all RSUs and PSUs granted under the Fiscal 2019 LTIP and the Bridge Grants would be subject to accelerated vesting at target.

(6)

Reflects 18 months of insurance and other benefits continuation for the Executive and any dependents.

(7)

Reflects 12 months of car allowance continuation.

(8)

Represents compensation for 110.8 hours of unused vacation time in Fiscal 2019.

(9)

The Company does not provide any tax gross-up payments to cover excise taxes.

 

75


Nathan E. Fagre(1)

Component

  With Good Reason
Or
Without Cause
 

Cash Severance(2)

  $     1,100,000  

Equity Awards (Intrinsic Value)(3)

   

Unvested Restricted Stock

  $ 195,154  

Other Benefits

Health and Welfare(5)

  $ 6,747  

Leased Car

  $ 14,250  

Accrued, Unused Vacation(6)

  $ 19,976  

Tax Gross-Up(7)

  $ -  

Total

  $ 1,336,127  

 

(1)

Based on actual termination on May, 5, 2019. Mr. Fagre’s employment with the Company ended on October 1, 2018, at which time Mr. Fagre was eligible to receive certain benefits in connection with his termination pursuant to his Separation Agreement And Release, which included the following: (i) the sum of his base salary ($375,000) plus target bonus ($225,000) for Fiscal 2018, payable over 52 weeks (the “Severance Period”) following his separation which occurred in May 2019; (ii) an additional severance bonus of $500,000 in connection with an extended period of transitional services, payable in cash or Company stock (or a combination thereof), at the Company’s option on or prior to December 31, 2018; (iii) health benefits continuation through the end of the Severance Period with a total value of $6,747; (iv) 4,018 earned but undelivered RSUs pursuant to the Fiscal 2017 EIP (valued at $211,829 as of September 30, 2019); (v) auto-lease continuation for the duration of the Severance Period (value of $14,250); and, (vi) 110.8 hours of accrued, unused vacation ($19,976 in value).

(2)

Reflects cash severance payment, under the applicable termination scenarios, of 1.0x the sum of Executive’s current base salary and 1.0x the Fiscal 2018 target bonus. Payments are to be made in semi-monthly installments over 12 months, subject to the requirements of Section 409A of the Internal Revenue Code.

(3)

Reflects equity value using a stock price of $48.57, which was Spectrum’s closing price on December 3, 2019 (the date the shares were delivered).

(4)

Pursuant to the separation agreement, the earned, but unpaid, RSUs under the Fiscal 2017 EIP were paid out. The value shown reflects the 4,108 units at $48.57 per share.

(5)

Reflects 12 months of insurance and other benefits continuation for the Executive and any dependents.

(6)

Represents compensation for 110.8 hours of unused vacation time in Fiscal 2018.

(7)

The Company does not provide any tax gross-up payments to cover excise taxes.

 

Randal Lewis   Termination Scenarios (Assumes Termination on 9/30/2019)  

Component

  Without Good
Reason
or For Cause
    With Good
Reason
or Without
Cause
    Upon Death
or Disability
    Change in
Control &
Termination
 

Cash Severance(1)

  $                         -     $     1,265,000     $ 1,265,000     $ 1,265,000  

Annual Bonus(2)

  $ -     $ 409,320     $ 409,320     $ 409,320  

Equity Awards (Intrinsic Value)(3)

         

Unvested Restricted Stock

  $ -     $ 629,014 (4)    $ 629,014 (4)    $ 629,014 (4) 

Other Benefits
Health and Welfare(5)

  $ -     $ 10,453     $ 10,453     $ 10,453  

Car allowance(6)

  $ -     $ 15,372     $ 15,372     $ 15,372  

Accrued, Unused Vacation(7)

  $ -     $ 39,082     $ 39,082     $ 39,082  

Tax Gross-Up(8)

  $ -     $ -     $ -     $ -  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ -     $ 2,368,241     $     2,368,241     $     2,368,241  
   

 

 

   

 

 

   

 

 

   

 

 

 
                                 

 

(1)

Reflects cash severance payment, under the applicable termination scenarios, of 1.5x the Executive’s current base salary plus 1.0x the Fiscal 2019 target bonus. Payments are to be made in monthly installments over 18 months, subject to the requirements of Section 409A of the Internal Revenue Code.

(2)

Reflects annual MIP bonus for Fiscal 2019 payable at 113.7% of target. Payment is subject to the requirements of Section 409A of the Internal Revenue Code.

(3)

Reflects value of vested equity awards, if any, using a stock price of $52.72, which was Spectrum’s closing price on September 30, 2019.

 

76


(4)

Upon a termination without cause or due to death or disability, for resignation with good reason, or termination in connection with a change in control, all PSUs will be forfeited. In addition, RSUs under the Fiscal 2019 LTIP will vest pro rata based on days worked during the vesting period (October 1, 2018 through December 3, 2021). Furthermore, RSUs under both the Fiscal 2019 Bridge Grant and the Fiscal 2020 Bridge Grant will vest pro rata based on days worked during the 2019 and 2020 vesting periods (November 21, 2018 through November 21, 2019, and November 21, 2019 through November 21, 2020 respectively). For the purposes of these tables, performance has been assumed to be equal to target.

(5)

Reflects 18 months of insurance and other benefits continuation for the Executive and any dependents.

(6)

Reflects 12 months of car lease payment continuation.

(7)

Represents compensation for 147.8 hours of unused vacation time in Fiscal 2019.

(8)

The Company does not provide any tax gross-up payments to cover excise taxes.

 

Rebeckah Long

  Termination Scenarios (Assumes Termination on 9/30/2019)  

Component

 

Without Good
Reason
or For Cause

    With Good
Reason
or Without
Cause
    Upon Death
or Disability
    Change in
Control
and
Termination
 

Cash Severance(1)(2)

  $                             -     $     300,000     $     300,000     $     300,000  

Annual Bonus(3)

  $ -     $ -     $ -     $ -  

Equity Awards (Intrinsic Value)(4)

         

Unvested Restricted Stock

  $ -     $ 184,435 (5)    $ 184,435 (5)    $ 184,435 (5) 

Other Benefits Health and Welfare(6)

  $ -     $ 10,453     $ 10,453     $ 10,453  

Car allowance(7)

  $ -     $ 10,200     $ 10,200     $ 10,200  

Accrued, Unused Vacation(8)

  $ -     $ 9,433     $ 9,433     $ 9,433  

Tax Gross-Up(9)

  $ -     $ -     $ -     $ -  

Total

  $                              -     $     514,520     $     514,520     $     514,520  

 

(1)

Should the executive resign with good reason, the severance payment will not be payable.

(2)

Reflects cash severance payment, under the applicable termination scenarios, of 52 weeks of weekly salary.

(3)

No payment would be required under existing agreements.

(4)

Reflects value of vested equity awards, if any, using a stock price of $52.72, which was Spectrum’s closing price on September 30, 2019 and vested value of 2019 Bridge Cash award.

(5)

Upon a termination without cause or due to death or disability, for resignation with good reason, or termination in connection with a change in control, the Fiscal 2019 LTIP would be forfeited. In addition, a pro rata portion of the Fiscal 2019 Bridge Grant RSUs would be payable based on the number of days employed during the service period and a pro rata portion of the Fiscal 2019 Bridge Grant PSUs would be payable to the extent earned based on the number of days employed during the performance period. For the purposes of these tables, performance has been assumed to be equal to target.

(6)

Reflects 18 months of insurance and other benefits continuation for the Executive and any dependents.

(7)

Reflects 12 months of car allowance continuation.

(8)

Represents compensation for 65.4 hours of unused vacation time in Fiscal 2019.

(9)

The Company does not provide any tax gross-up payments to cover excise taxes.

 

77


Douglas L. Martin

   Termination Scenarios (Assumes Termination on 9/30/2019)  

Component

   Without Good
Reason
or For Cause
     With Good
Reason
or Without
Cause
    Upon Death
or Disability
    Change in
Control
& Termination
 

Cash Severance(1)(2)

   $                 -      $ 1,320,000     $ 1,320,000     $ 1,320,000  

Annual Bonus(3)

   $ -      $ 562,815     $ 562,815     $ 562,815  

Equity Awards (Intrinsic Value)(4)

           

Unvested Restricted Stock

   $ -      $ 1,932,603 (5)    $ 1,932,603 (5)    $ 1,932,603 (5) 

Other Benefits

           

Health and Welfare(6)

   $ -      $ 10,453     $ 10,453     $ 10,453  

Car allowance(7)

   $ -      $ 85,000     $ 85,000     $ 85,000  

Accrued, Unused Vacation(8)

   $ -      $ 29,298     $ 29,298     $ 29,298  

Tax Gross-Up(9)

   $ -      $ -     $ -     $ -  
    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ -      $     3,940,169     $     3,940,169     $     3,940,169  
    

 

 

    

 

 

   

 

 

   

 

 

 
    

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)

Mr. Martin’s employment terminated on December 20, 2019, and specific details of his agreed severance have been filed with the SEC. All details above, for consistency purposes, reflect a termination on September 30, 2019.

(2)

Reflects cash severance payment, under the applicable termination scenarios, of 1.5x the Executive’s current base salary plus 1.0x the Fiscal 2019 target bonus. Payments are to be made in monthly installments over 18 months, subject to the requirements of Section 409A of the Internal Revenue Code.

(3)

Reflects annual MIP bonus for Fiscal 2019 payable at 113.7% of target. Payment is subject to the requirements of Section 409A of the Internal Revenue Code.

(4)

Reflects value of vested equity awards, if any, using a stock price of $52.72, which was Spectrum’s closing price on September 30, 2019.

(5)

Upon a termination without cause or due to death or disability, for resignation with good reason, or termination in connection with a change in control, the Fiscal 2019 LTIP would be forfeited. In addition, a pro rata portion of the Fiscal 2019 Bridge Grant RSUs would be payable based on the number of days employed during the service period and a pro rata portion of the Fiscal 2019 Bridge Grant PSUs would be payable to the extent earned based on the number of days employed during the performance period. For the purposes of these tables, performance has been assumed to be equal to target.

(6)

Reflects 18 months of insurance and other benefits continuation for the Executive and any dependents.

(7)

Reflects maximum potential car lease payment continuation/buyout.

(8)

Represents compensation for 110.8 hours of unused vacation time in Fiscal 2019.

(9)

The Company does not provide any tax gross-up payments to cover excise taxes.

 

Ehsan Zargar

   Termination Scenarios (Assumes Termination on 9/30/2019)  

Component

   Without Good
Reason
or For Cause
     With Good
Reason or
Without
Cause
    Upon Death
or Disability
    Change in
Control
& Termination
 

Cash Severance(1)

   $                 -      $ 1,556,000     $ 1,556,000     $ 1,556,000  

Annual Bonus(2)

   $ -      $ 272,880     $ 272,880     $ 272,880  

Equity Awards (Intrinsic Value)(3)

           

Unvested Restricted Stock

   $ -      $ 5,470,860 (4)    $ 5,470,860 (4)    $ 5,470,860 (4) 

Other Benefits

           

Health and Welfare(5)

   $ -      $ 10,453     $ 10,453     $ 10,453  

Car allowance(6)

   $ -      $ 18,000     $ 18,000     $ 18,000  

Accrued, Unused Vacation(7)

   $ -      $ 21,308     $ 21,308     $ 21,308  

Tax Gross-Up(8)

   $ -      $ -     $ -     $ -  
    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ -      $     7,349,501     $     7,349,501     $     7,349,501  
    

 

 

    

 

 

   

 

 

   

 

 

 
                                

 

(1)

Reflects cash severance payment, under the applicable termination scenarios, of 2.99x the Executive’s current base salary plus 1.5x the Fiscal 2019 target bonus. Payments are to be made in monthly installments over 18 months, subject to the requirements of Section 409A of the Internal Revenue Code.

(2)

Reflects annual MIP bonus for Fiscal 2019 payable at 113.7% of target. Payment is subject to the requirements of Section 409A of the Internal Revenue Code.

(3)

Reflects value of vested equity awards, if any, using a stock price of $52.72, which was Spectrum’s closing price on September 30, 2019.

 

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(4)

Upon a termination without cause or in connection with a change in control, or for resignation with good reason, or for death or disability, all RSUs and PSUs granted under the Fiscal 2019 LTIP and the Bridge Grants would be subject to accelerated vesting at target.

(5)

Reflects 18 months of insurance and other benefits continuation for the Executive and any dependents.

(6)

Reflects 12 months of car allowance continuation.

(7)

Represents compensation for 110.8 hours of unused vacation time in Fiscal 2019.

(8)

The Company does not provide any tax gross-up payments to cover excise taxes.

Compensation Committee Report

Our Compensation Committee has reviewed and discussed the section of this Proxy Statement entitled “Compensation Discussion and Analysis” with management. Based on this review and discussion, the Committee has recommended to our Board that the Compensation Discussion and Analysis be included in this Form 10-K/A and the Company’s Annual Report on Form 10-K for Fiscal 2019.

Compensation Committee

Kenneth C. Ambrecht (Chair)

Norman S. Matthews

Terry L. Polistina

Fiscal 2019 CEO Pay Ratio

Under rules adopted by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), we are required to determine and disclose the ratio of the annual total compensation of our CEO to that of our global median employee.

To determine the median employee, we made a determination from our global employee population, excluding non-U.S. locations to the extent that the total employees excluded in these locations in aggregate did not exceed 5% of our total employee population at the time of the determination. We have excluded 527 employees in Cambodia out of our global employee population of approximately 12,833. We established a consistently applied compensation measure of annualized base pay, converted to U.S. dollars based on applicable exchange rates as of September 30, 2019. Our population was evaluated as of September 30, 2019 and reflects paid compensation for the entire fiscal year. Where allowed under the rule, we have annualized compensation for employees newly hired during Fiscal 2019.

Based on the above determination, the total compensation (using the same methodology as we use for our NEOs as set forth in the Summary Compensation Table in this Proxy Statement) for the median employee is $11,371. Using the CEO’s total compensation of $19,688,132 under the same methodology, the resulting ratio is 1,731:1. The pay ratio reported here is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above.

Alternative Fiscal 2019 CEO Pay Ratio

As discussed above, in Fiscal 2019, Mr. Maura received a special Bridge Grant and a special transaction success bonus. The Compensation Committee believes it is helpful in evaluating Mr. Maura’s compensation to exclude these special awards. When excluding these awards Mr. Maura’s adjusted compensation is $8,715,932 and the alternative ratio of CEO annual total compensation to the median employee for Fiscal 2019 is estimated to be 767:1. This alternative CEO pay ratio is not a substitute for the CEO pay ratio, but we believe it is helpful in fully evaluating the ratio of Mr. Maura’s annual total compensation to that of our median employee.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Beneficial Ownership Table

The following table sets forth information regarding beneficial ownership of our common stock, as of June 3, 2020, by:

 

   

each person who is known by us to beneficially own more than 5% of the outstanding shares of our common stock (each, a “5% Stockholder”);

 

   

our NEOs for Fiscal 2019;

 

   

each of our directors; and

 

   

all directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC. Determinations as to the identity of 5% Stockholders is based upon filings with the SEC and other publicly available information. Except as otherwise indicated, we believe, based on the information furnished or otherwise available to us, that each person or entity named in the table has sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to applicable community property laws. The percentage of beneficial ownership set forth below is based upon 43,056,296 shares of common stock issued and outstanding as of the close of business on June 3, 2020. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, shares of common stock that are subject to vested options, as well as options and RSUs held by that person that are currently expected to vest within 60 days of June 3, 2020, are all deemed outstanding. These shares are not, however, deemed outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o Spectrum Brands Holdings, Inc., 3001 Deming Way, Middleton, WI 53562.

 

Name and Address of Beneficial Owner

  Number of Shares
Beneficially
Owned
    Percent of Outstanding
Shares
 

5% Stockholders as of June 3, 2020

     

FMR LLC(1)

    7,237,429       16.8

Vanguard Group Inc. (2)

    4,424,192       10.3

Fortress Investment Group LLC(3)

    3,474,464       8.1
       

Our Directors and Named Executive Officers, each as of

    June 3, 2020

     

Kenneth C. Ambrecht

    32,833       *  

Nathan E. Fagre(4)

    53,949       *  

Sherianne James

    3,841       *  

Randal Lewis

    26,351       *  

Rebeckah Long(5)

    1,670       *  

Douglas L. Martin

    75,731       *  

Norman S. Matthews

    33,120       *  

David M. Maura(6)

    601,509       1.4

Terry L. Polistina

    32,989       *  

Hugh R. Rovit

    31,914       *  

Jeremy W. Smeltser(7)

    8,305       *  

Ehsan Zargar(8)

    50,780       *  

All Directors and Executive Officers as a Group

    952,992       2.2

 

* Indicates less than 1% of our outstanding common stock.

(1)

Based solely on a Schedule 13G/A, filed with the SEC on February 7, 2020. The address of FMR LLC is 245 Summer Street, Boston, Massachusetts 02210.

 

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(2)

Based solely on a Schedule 13G/A, filed with the SEC on February 12, 2020. The address of Vanguard Group Inc. is 100 Vanguard Blvd, Malvern, Pennsylvania 19355.

(3)

Based solely on a Schedule 13D/A, filed with the SEC on May 26, 2020. The address of Fortress Investment Group LLC is 1345 Avenue of the Americas, New York, New York 10105.

(4)

Mr. Fagre’s position as General Counsel ceased as of October 1, 2018.

(5)

Ms. Long was appointed Senior Vice President, Global Human Resources on September 9, 2019.

(6)

Includes shares of common stock underlying options that have vested for Mr. Maura totaling 213,652.

(7)

Mr. Smeltser was appointed CFO on November 17, 2019.

(8)

Includes shares of common stock underlying options that have vested for Mr. Zargar totaling 8,967.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Policies on Transactions with Related Persons

All of the Company’s executive officers, directors, and employees are required to disclose to the Company’s General Counsel all transactions which involve any actual, potential, or suspected activity or personal interest that creates or appears to create a conflict between the interests of the Company and the interests of their executive officers, directors, or employees. In cases involving executive officers, directors, or senior-level management, the Company’s General Counsel will investigate the proposed transaction for potential conflicts of interest and then refer the matter to the Company’s Audit Committee to make a full review and determination. In cases involving other employees, the Company’s General Counsel, in conjunction with the employee’s regional supervisor and the Company’s Director of Internal Audit, will review the proposed transaction. If they determine that no conflict of interest will result from engaging in the proposed transaction, then they will refer the matter to the Company’s CEO for final approval.

The Company’s legal department and financial accounting department monitor transactions for an evaluation and determination of potential related-person transactions that would need to be disclosed in the Company’s periodic reports or proxy materials under generally accepted accounting principles and applicable SEC rules and regulations.

In addition, under our Corporate Governance Guidelines, our directors are prohibited from taking for themselves opportunities related to the Company’s business that are presented to them in their capacity as a director for the Company’s benefit, from using our property, information or position for personal gain, or from competing with the Company for business opportunities if such opportunities were presented to them in their capacity as a director for the Company’s benefit. If the Company’s disinterested Board members determine that the Company will not pursue an opportunity that relates to our business, and consent to a director then personally pursuing the opportunity, then the director may do so. The Company has declined, and in the future may decline, such opportunities and our directors may pursue such opportunities.

For more information on the Company’s policies and procedures for review and approval of related-person transactions, please see the Company’s Code of Ethics for the Principal Executive Officer and Senior Financial Officers and the Spectrum Brands Code of Business Conduct and Ethics, each of which is posted on the Company’s website at www.spectrumbrands.com under “Investor Relations-Corporate Governance Documents.”

Transactions with Significant Stockholders

On April 4, 2019, Arlington Value Capital, LLC (“Arlington”) and the Company entered into an agreement (the “Arlington Agreement”) regarding Arlington’s ownership of our common stock. In connection with the execution of the Arlington Agreement, the Board has granted approvals under the Charter to exempt Arlington and certain investment advisory clients for whom Arlington manages assets that may be treated as beneficially owned by Arlington (the “Underlying Arlington Funds”) from the Charter’s transfer restrictions in certain circumstances where ownership of Arlington and the Underlying Arlington Funds would not substantially impair the current ability of the Company to utilize certain net operating loss carryforward and other tax benefits of the Company and its subsidiaries.

As of October 11, 2019, Jefferies Financial has ceased to be a 5% holder of our common stock, and both Jefferies Financial and Fortress Investment Group LLC (“Fortress”) have ceased to be affiliates of ours. The transactions described below were terminated or otherwise concluded subsequent to the end of Fiscal 2019.

On February 24, 2018, in connection with the Merger, Jefferies Financial and the Company entered into a shareholder agreement, which became effective as of July 13, 2018 (the “Merger Closing Date”). On November 19, 2018, the parties entered into an amendment to the shareholder agreement. Under the shareholder

 

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agreement, following the Merger Closing Date, Jefferies Financial received the right to designate one individual to be nominated as a member of our Board until the occurrence of certain events. In addition, Jefferies Financial had the right to designate an independent director. Jefferies Financial designated David S. Harris as such director, who served on our Board as an independent director until his resignation in January 2020. Jefferies Financial’s director nomination rights have since been terminated.

Pursuant to our Charter, Jefferies Financial and Fortress were subject to certain limitations on the transfer of common stock, provided that each was given a permitted cushion from these restrictions to transfer a portion of their common stock. Following the closing of the sale of the Company’s GBL business, the limitations on transfer are no longer applicable.

On February 24, 2018, Jefferies Financial, Fortress and the Company entered into a registration rights agreement, which became effective at the Merger Closing Date. Under this agreement, we were required to file a shelf registration statement and keep this registration statement effective so long as Fortress and Jefferies Financial (and their permitted assigns) owned shares of our common stock.

On October 7, 2015, FGL, a former subsidiary of HRG Legacy, entered into an engagement letter with Jefferies LLC (an affiliate of Jefferies Financial), pursuant to which Jefferies LLC agreed (on a non-exclusive basis) to provide financial advisory services to FGL in connection with a transaction involving a merger or other similar transaction with respect to at least a majority of the capital stock of FGL. HRG Legacy was also a party to the engagement letter. Under the engagement letter, Jefferies LLC was entitled to receive a fee which represented a percentage of the value of the transaction, plus reimbursement for all reasonable out-of-pocket expenses incurred by Jefferies LLC in connection with their engagement. FGL also agreed to indemnify Jefferies LLC for certain liabilities in connection with their engagement. HRG Legacy was required to reimburse FGL for compensation paid by FGL to Jefferies LLC under certain circumstances. On November 30, 2017, FGL ceased to be a subsidiary of HRG Legacy.

On October 16, 2017, HRG Legacy entered into an engagement letter with Jefferies LLC pursuant to which Jefferies LLC agreed to act as co-advisor to HRG Legacy (with the other co-advisors acting as lead financial advisor to HRG Legacy) with respect to HRG Legacy’s review of strategic alternatives. Under this engagement letter, Jefferies LLC was entitled to receive up to a $3.0 million transaction fee, which could be increased by another $1.0 million at the sole discretion of HRG Legacy, and reimbursement for all reasonable out-of-pocket expenses. In addition, HRG Legacy agreed to indemnify Jefferies LLC for certain liabilities in connection with such engagement. On July 13, 2018, in connection with the consummation of the Merger, Jefferies LLC received a total of $3.0 million in payments pursuant to such engagement letter.

FGL, a former subsidiary of HRG Legacy, invested in CLO securities issued by affiliates of Fortress. Such CLOs had an aggregate total carrying value of $176.3 million as of September 30, 2017. HRG Legacy’s net investment income from such securities was $11.6 million Fiscal 2017.

Other Transactions

As previously disclosed, during the first quarter of the Fiscal 2019, the Company repurchased 158,318 shares of common stock from David Maura, Executive Chairman and CEO of the Company, at an average repurchase price of $50.53 per share, the then-current market price of the Company’s stock. Also, as previously disclosed, on November 21, 2018, the Company repurchased 79,809 shares of common stock from Mr. Maura at a price of $50.12 per share, the closing price of our common stock on such date. The Company repurchased an additional 78,509 shares of common stock from Mr. Maura on November 26, 2018 at a price of $50.95 per share, the closing price of our common stock on such date.

On September 15, 2019, Mosaic Acquisition Corp. (“Mosaic”), a special purposes acquisition company where David Maura served as the Executive Chairman and Chief Executive Officer and President, entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Mosaic and other related Mosaic

 

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entities and Vivint Smart Home, Inc. (“Vivint”). The transaction was finalized and closed on January 17, 2020, following which Mosaic was merged out of existence and Vivint survived the transaction. David Maura served as outside director on the Vivint board from January 17, 2020 until March 26, 2020, the date he resigned from Vivint. Vivint has been, and is currently, a customer of the Company’s HHI segment with sales consisting of $20.9 million, $16.1 million and $20.6 million for the years ended September 30, 2019, 2018 and 2017. All transactions and agreements were executed at arms-length.

 

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PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table summarizes the fees KPMG LLP, our independent registered public accounting firm, billed to the Company, including SPB Legacy, SB/RH Holdings, LLC (“SB/RH”), FS Holdco II Ltd. (excluding FGL), HGI Energy, LLC and HGI Funding, LLC (FS Holdco II Ltd., HGI Energy, LLC and HGI Funding LLC were solely related to HRG Legacy).

 

(in millions)    2019      2018  

Audit Fees

   $         6.2      $ 7.9  

Audit-Related Fees

     2.6        6.1  

Tax Fees

     0.1        0.1  

All Other Fees

     -        0.1  

Total

   $ 8.9      $         14.2  

In the above table, in accordance with the SEC’s definition and rules, “Audit Fees” are fees paid to KPMG LLP for professional services for the audit of the Company and SB/RH, and our consolidated financial statements included in our Form 10-K and the review of our financial statements included in Form 10-Q, or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements, such as issuance of comfort letters and statutory audits required for certain of our foreign subsidiaries. “Audit-Related Fees” are fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements, including the due diligence activities relating to mergers and acquisitions, including the audit of standalone carve-out financial statements used as part of our divestiture of the Global Batteries and Lighting division and the planned sale of the Home and Personal Care division. “Tax Fees” are fees for tax compliance, tax advice, and tax planning. Such fees were attributable to services for tax compliance assistance and tax advice. “All Other Fees” are fees, if any, for any services not included in the first three categories.

Pre-Approval of Independent Auditors Services and Fees

The Audit Committee pre-approved the audit services engagement performed by KPMG LLP for the year ended September 30, 2019. In accordance with the Audit Committee’s Pre-Approval Policy, the Audit Committee has pre-approved other specified audit, or audit-related services, provided that the fees incurred by KPMG LLP in connection with any individual engagement do not exceed $200,000 in any 12-month period. The Audit Committee must approve for an engagement-by-engagement basis any individual non-audit or tax engagement in any 12-month period. The Audit Committee has delegated to its Chairman the authority to pre-approve any other specific audit or specific non-audit service which was not previously pre-approved by the Audit Committee, provided that any decision of the Chairman to pre-approve other audit or non-audit services shall be presented to the Audit Committee at its next scheduled meeting.

 

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PROPOSAL 1

ELECTION OF DIRECTORS

Our Charter provides for the division of our Board into three classes of as nearly equal number of directors as possible. As of the date hereof, each of Class I, Class II, and Class III consists of two directors.

The term of each class of directors is three years, with the term for one class expiring each year in rotation. As a result, one class of directors is elected at each annual stockholders meeting for a term of three years and to hold office until their successors are elected and qualified or until their earlier death, removal or resignation. The term of the current Class II directors expires at the Annual Meeting.

Our NCG Committee, composed entirely of independent directors under the NYSE Rules, proposes nominees for service to our Board and such nominees are reviewed and approved by the entirety of our Board. Our NCG Committee and our Board recommend that each nominee for director be elected at the Annual Meeting. The nominees for election at the Annual Meeting are Kenneth Ambrecht and Hugh R. Rovit. The nominees have consented to continue to serve as directors if elected. In accordance with our Charter, our Board may at any time increase the size of our Board by fixing the number of directors that constitute our whole Board. In addition, if a nominee becomes unavailable for any reason or should a vacancy occur before the election, which we do not anticipate, the proxies will be voted for the election, as director, of such other person as our Board may recommend. Proxies cannot be voted for a greater number of persons than are included in the class of directors – this year that number is two.

Vote Required

Director nominees up for election in Proposal 1 will each be elected by a majority of the votes cast in person or by proxy. For purposes of this proposal, a majority of votes cast means the number of votes cast “for” a director’s election exceeds the number of votes cast “against” such director’s election.

Our majority voting policy provides that in the event that an incumbent director nominee receives a greater number of votes “against” than votes “for” his or her election, he or she must (within five business days following the final certification of the related election results) offer to tender his or her written resignation from our Board to our NCG Committee. Our NCG Committee will review such offer of resignation and will consider such factors and circumstances as it may deem relevant, and, within 90 days following the final certification of the election results, will make a recommendation to our Board concerning the acceptance or rejection of such tendered offer of resignation. The decision of our Board will be promptly publicly disclosed.

OUR BOARD RECOMMENDS A VOTE “FOR” THE ELECTION OF THE NOMINEES FOR CLASS II DIRECTORS.

 

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PROPOSAL 2

RATIFICATION OF APPOINTMENT OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Our Audit Committee has approved the engagement of KPMG as the Company’s independent registered public accounting firm to audit our consolidated financial statements for Fiscal 2020. KPMG has served as the Company’s independent registered public accounting firm since January 2011. Our Audit Committee considers KPMG to be well qualified.

Although stockholder ratification of the appointment of KPMG as our independent registered public accounting firm is not required by any applicable law or regulation, stockholder views are being solicited and will be considered by our Audit Committee and our Board. This proposal will be ratified if the number of votes cast in favor of the action represents a majority of the votes represented at the Annual Meeting in person or by proxy. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the fiscal year if it is determined that such a change would be in the best interests of the Company and its stockholders. We expect that a representative of KPMG will be present at the Annual Meeting, with the opportunity to make a statement if he or she so desires and to be available to answer appropriate questions.

To the Company’s knowledge, neither KPMG nor any of its partners has any direct financial interest or any indirect financial interest in the Company other than as the Company’s independent registered public accounting firm.

For information about the professional services rendered by KPMG to us for Fiscal 2019, please see the section of this Proxy Statement captioned “Principal Accountant Fees and Services.”

Vote Required

The affirmative vote of the holders of a majority of the votes represented at the Annual Meeting in person or by proxy is required to ratify our appointment of KPMG as our independent registered public accounting firm for Fiscal 2020.

OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2020.

 

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PROPOSAL 3

ADVISORY VOTE ON EXECUTIVE COMPENSATION

In accordance with the Dodd-Frank Act and the related rules of the SEC, we are including in this Proxy Statement a separate resolution to enable our stockholders to approve, on an advisory and non-binding basis, the compensation of our named executive officers.

This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies, and practices described in this Proxy Statement. Accordingly, stockholders will be asked to vote on the following resolution at the Annual Meeting:

“Resolved, that the stockholders approve, on an advisory basis, the compensation of the Company’s named executive officers as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables, and the related narrative disclosure in the proxy statement for this meeting.”

This vote is advisory, and therefore nonbinding. In considering their vote, stockholders are encouraged to read the Compensation Discussion and Analysis, the accompanying compensation tables, and the related narrative disclosure included in this Proxy Statement. Our Board and our Compensation Committee expect to take into account the outcome of the vote when considering future executive compensation decisions to the extent they can determine the cause or causes of any significant negative voting results.

Vote Required

The affirmative vote of the holders of a majority of the votes represented at the Annual Meeting in person or by proxy is required to approve, on an advisory basis, the compensation of our named executive officers.

OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.

 

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PROPOSAL 4

APPROVAL OF THE SPECTRUM BRANDS HOLDINGS, INC.

2020 OMNIBUS EQUITY PLAN

Board Recommendation

At our Annual Meeting, we are asking you, our stockholders, to approve the New 2020 Equity Plan, which was adopted by our Board on June 1, 2020, following a recommendation by our Compensation Committee to approve the New 2020 Equity Plan on June 1, 2020. A copy of the New 2020 Equity Plan is attached as Annex A to this Proxy Statement.

Background

In connection with the design and adoption of the New 2020 Equity Plan, our Board and Compensation Committee carefully considered our anticipated future equity needs, our historical equity compensation practices and the advice of Willis Towers Watson. Under the Spectrum Brands Holdings, Inc. Amended & Restated 2011 Omnibus Equity Award Plan (formerly known as the Spectrum Brands, Legacy, Inc. Plan, the “Legacy Plan”), and the Spectrum Brands Holdings Inc. 2011 Omnibus Equity Award Plan (formerly known as the HRG Group Inc. 2011 Omnibus Equity Award Plan)(together with the Legacy Plan, the “Prior Plans”), the Company, as of June 3, 2020, has 1,079,274 shares available for grant.

The number of shares being requested for authorization under the New 2020 Equity Plan is 1,180,000 shares. If the New 2020 Equity Plan is approved by our stockholders, we will have, in the aggregate, 2,259,274 shares (which includes the number of shares remaining available for future grant under the Prior Plans) available for issuance. If the New 2020 Equity Plan is not approved by our stockholders, we will continue to grant equity incentive awards under the Prior Plans until each of the Prior Plans expire or there is no remaining capacity under such plans.

Below is a summary of awards outstanding and shares available for issuance under the Prior Plans as of June 3, 2020.

 

   

We had outstanding options to purchase 234,411 shares of our Common Stock, with a weighted average exercise price of $73.51 and a weighted average remaining term of 4.13 years;

 

   

We had outstanding unvested RSUs and PSUs with respect to 1,286,678 shares of our Common Stock, assuming target performance of PSUs; and

 

   

A total of 1,079,274 shares were available for grant.

Reasons Why You Should Vote in Favor of the Approval of the New 2020 Equity Plan

Our Board recommends a vote for the approval of the New 2020 Equity Plan because it believes the plan is in the best interests of the Company and its stockholders.

 

   

Aligns director, employee and stockholder interests. We currently provide long-term incentives by compensating participants with equity awards. For our senior leadership team, the vast majority of our equity awards vest upon the achievement of performance metrics. With your approval of the New 2020 Equity Plan, we will be able to continue to maintain this means of aligning the interests of key personnel with the interests of our stockholders.

 

   

Approval is necessary to continue an equity-based compensation program. If our stockholders do not approve the New 2020 Equity Plan, we may have to shift to a long term compensation program that is heavily paid in cash for both our employees and directors, which would less closely

 

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align with the interests of our shareholders and negatively impact our cash management. Based on the remaining capacity in our Prior Plans, we expect we may not have sufficient capacity to make our next cycle of equity awards.

 

   

Modest share usage and dilution. As described below, we have historically had moderate share usage under our equity plans, and even with the addition of share reserves under the New 2020 Equity Plan, the number of shares available for future issuance under our compensation plans will be modest.

 

   

Includes best corporate governance features. As described below, the New 2020 Equity Plan is based on our Legacy Plan, which was previously approved by our shareholders and has sound governance features. In addition to the Legacy Plan’s sound governance provisions, we have incorporated into the New 2020 Equity Plan additional “best practices” provisions, which align with current best practices, including providing “double trigger” rather than “single trigger” change of control vesting and “minimum vesting” provisions.

 

   

Attracts and retains talent. The New 2020 Equity Plan will be a critical tool to the continued success of the Company by continuing to attract, retain and motivate key personnel and providing participants with incentives directly related to increases in the value of the Company.

We believe that the benefits to our stockholders from equity award grants to our employees and directors outweigh the potential dilutive effect of grants under the New 2020 Equity Plan. The Company believes that paying a significant portion of annual variable compensation in the form of equity awards is an effective method of aligning the interests of the Company’s management and other employees with those of our stockholders, encouraging ownership in the Company, and retaining, attracting and rewarding talented individuals. We also believe that having a vehicle to pay a portion of compensation for our non-employee directors in stock awards is appropriate and consistent with market practices.

Considerations for the Approval of the New 2020 Equity Plan

The New 2020 Equity Plan has been designed to build upon the effectiveness of our Prior Plans and incorporates the current governance best practices and would result in modest dilution, which further align our equity compensation program with the interest of our stockholders.

 

   

Governance Best Practices. The New 2020 Equity Plan incorporates the following corporate governance best practices that protect the interests of our stockholders:

 

     

Double-trigger vesting upon a change in control. The New 2020 Equity Plan provides that upon a change in control, any acceleration of the vesting of outstanding awards may occur on a “double-trigger” basis rather than a “single trigger basis”—i.e., upon either (i) a participant’s qualifying termination of employment on or within 24 months following such change in control or (ii) the failure of the successor corporation to assume or continue the awards following such change in control.

 

     

Minimum vesting condition. The New 2020 Equity Plan provides that awards granted to participants under the plan will not vest (or have applicable restrictions lapse) prior to the one-year anniversary of the date of grant (the “Minimum Vesting Condition”), with only narrow exceptions, which we believe strengthen our employees’ interest in creating long term value with our shareholders.

 

     

No “evergreen” provision. The number of shares of our Common Stock available for issuance under the New 2020 Equity Plan is fixed and will not adjust based upon the number of shares outstanding.

 

     

Dividends subject to restrictions. Dividends, if any, paid on any equity award are subject to the same vesting requirements as the underlying award.

 

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Stock options and stock appreciation rights are not discounted. The New 2020 Equity Plan prohibits granting stock options with exercise prices and stock appreciation rights (“SARs”) with grant prices lower than the fair market value of a share of our Common Stock on the grant date, except in connection with the issuance or assumption of awards in connection with certain mergers, consolidations, acquisitions of property or stock or reorganizations.

 

     

No repricing or exchange without stockholder approval. The New 2020 Equity Plan prohibits the repricing of outstanding stock options or SARs without stockholder approval, except in connection with certain corporate transactions involving the Company.

 

     

Material amendments require stockholder approval. Material changes to the New 2020 Equity Plan, including increasing the number of shares authorized for issuance and repricing of stock options and SARs require stockholder approval.

 

     

No liberal share counting provisions. The following types of shares will not be available for issuance under the New 2020 Equity Plan once they have been used: (i) shares withheld to cover the exercise price or strike price of awards and (ii) shares withheld to cover the payment of taxes with respect to any award.

 

     

Clawback” provision. The New 2020 Equity Plan contains a “clawback” provision, which provides that the Compensation Committee may include in an award agreement, that if a participant is determined by the Compensation Committee to have violated a non-competition, non-solicitation or non-disclosure agreement or otherwise has engaged in or engages in activity that is in conflict with or adverse to the interests of the Company or any of its affiliates, all rights of the participant under the New 2020 Equity Plan and any agreements evidencing an award then held by the participant will terminate and be forfeited and the Compensation Committee may require the participant to surrender and return to the Company any shares received, and/or to repay any profits or any other economic value made or realized by the participant. To the extent required by applicable law (including without limitation Section 304 of the Sarbanes-Oxley Act of 2002 and Section 954 of the Dodd Frank Act), awards shall be subject to clawback, forfeiture or similar requirement. Awards to executive officers are also subject to the Company’s clawback policy, which requires the recoupment of certain excess incentive compensation in the event of a material restatement of the Company’s financial statements.

In addition, our Company has the following best practices with respect to our equity awards:

 

     

Stock ownership guidelines. Our directors’ and covered officers’ stock retention requirement has been increased to 50% of the net after-tax portion of shares received under equity awards. Our directors and covered officers are expected to achieve minimum stock ownership values, as described in page 27 of this Proxy Statement, within five years of eligibility or promotion.

 

     

No tax gross-ups. No participant is entitled to any tax gross-up payments for any excise tax pursuant to Sections 280G or 4999 of the Internal Revenue Code that may be incurred in connection with awards under the plan.

 

   

Modest Share Usage and Shareholder Dilution. Subject to adjustment, the maximum number of shares of our Common Stock authorized for issuance under the New 2020 Equity Plan is 1,180,000 shares. Shares withheld to satisfy tax withholding obligations on awards or to pay the exercise price of awards and any shares not issued or delivered as a result of a “net exercise” of a stock option will not become available for issuance as future award grants under the New 2020 Equity Plans.

 

     

Run Rate. When determining the number of shares authorized for issuance under the New 2020 Equity Plan, our Board and Compensation Committee carefully considered the potential dilution to our current stockholders as measured by our “run rate,” “overhang” and projected future share usage.

 

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Our modest three-year average run rate of 2.46% demonstrates our sound approach to the grant of equity incentive compensation and our commitment to aligning our equity compensation program with the interests of our stockholders. Generally, our run rate has tracked at just over 1%, and for 2020 we are on track for a similar run rate. The Fiscal 2019 run rate was higher due to the issuance of “bridge grants” which are described above under our “Compensation Discussion & Analysis.” Additionally, our run rate includes shares delivered in respect of our annual MIP bonus program.

 

Run Rate
Fiscal Year   Stock
Options
Granted
  Full-
Value
Awards
Granted
(RSUs)
  Performance
Units
Awarded(*)
  Total Awards
Granted
  Weighted
Average
Common
Shares
Outstanding
  Run Rate(**)

2019

  -   604,684   927,346   1,532,030   50,666,446   3.02%

2018

  -   208,741   236,816   445,557   36,947,122   1.21%

2017

  318,190   295,751   400,792   1,014,733   32,249,716   3.15%

Three-Year Average Run Rate

  2.46%

*Includes performance stock units at target.

**Run rate is calculated by dividing the number of awards granted by our weighted average common shares outstanding.

 

     

For Fiscal 2020, based on grants made under the Prior Plans to date and current projections for the remainder of the year, we project that our run rate will be 1.36%.

 

     

Overhang. We are committed to limiting shareholder dilution from our equity compensation programs. If the New 2020 Equity Plan is approved by our shareholders, our overhang would be 8.23% as set forth below. We calculate “overhang” as the total of (a) shares underlying outstanding awards at target plus shares available for issuance for future awards, divided by (b) the total number of shares outstanding, including shares underlying outstanding awards and shares available for issuance under future awards.

 

     Stock Options     
As of   Number
Outstanding
  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Term
(years)
  Total Full-
Value
Awards
Outstanding
  Shares
Available
  Total
Shares
Within
Plans
  Common
Shares
Outstanding
  Diluted
Common
Shares
Outstanding
  Total
Equity
Dilution

June 3, 2020

  234,411   $73.51   4.03   1,286,678   1,079,274   2,600,363   43,056,296   45,656,659   5.7%
Additional Shares Requested                   1,180,000   1,180,000            
June 3, 2020 (incl. additional shares requested)   234,411   $73.51   4.03   1,286,678   2,259,274   3,780,363   43,056,296   46,836,659   8.1%

 

     

Notably, the modest historical dilution to our shareholders as a result of our equity compensation program (as measured by our burn rate and overhang) has been entirely offset for Fiscal 2017 through Fiscal 2019 due to our open market share repurchase programs and exercise price settlement repurchases. In Fiscal 2019, we repurchased 5,067,435 shares or in excess of $250 million in connection with our open market repurchases and tax and exercise price settlement repurchases.

 

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Based on a reasonable expectation of future equity usage, we believe the number of shares being requested for authorization under the New 2020 Equity Plan will last for one to three years.

Summary of the New 2020 Equity Plan

The following summary of the material features of the New 2020 Equity Plan is qualified in its entirety by reference to the complete text of the New 2020 Equity Plan.

Effective Date. The New 2020 Equity Plan will expire on July 28, 2030, provided that the New 2020 Equity Plan is approved by stockholders.

Administration. Our Compensation Committee will administer the New 2020 Equity Plan. The Compensation Committee will have the authority to determine the terms and conditions of any agreements evidencing any awards granted under the New 2020 Equity Plan and to adopt, alter and repeal rules, guidelines and practices relating to the New 2020 Equity Plan. The Compensation Committee will have full discretion to administer and interpret the New 2020 Equity Plan and to adopt such rules, regulations and procedures as it deems necessary or advisable, or to comply with any applicable law and to determine, among other things, the time or times at which the awards may be exercised and whether and under what circumstances an award may be exercised.

Eligibility. Any employees, directors, officers or consultants of the Company or its affiliates will be eligible for awards under the New 2020 Equity Plan. The Compensation Committee has the sole and complete authority to determine who will be granted an award under the New 2020 Equity Plan. Additional employees of certain designated foreign subsidiaries of the Company are also eligible under separate “Sub Plans.”

Number of Shares Authorized. The New 2020 Equity Plan provides for an aggregate of 1,180,000 shares of our Common Stock (the “Share Reserve”); provided, that, the Share Reserve will be increased by the number of shares of Common Stock outstanding under any of the Prior Plans as of the effective date of the New 2020 Equity Plan that are thereafter forfeited, cancelled, expires, terminates, otherwise lapses or is settled in cash, in whole or in part, without the delivery of shares of Common Stock, unless such shares of Common Stock outstanding under any of the Prior Plans as of the effective date of the New 2020 Equity Plan that are forfeited, cancelled, expired, terminated, otherwise lapsed or settled in cash, in whole or in part, without the delivery of shares of Common Stock have been rolled into one of the Prior Plans. No more than 1,000,000 shares of our Common Stock may be issued with respect to incentive stock options under the New 2020 Equity Plan. Shares of our Common Stock subject to awards are generally unavailable for future grant; provided, in no event shall shares increase the number of shares of our Common Stock that may be delivered pursuant to incentive stock options granted under the New 2020 Equity Plan.

No non-employee director may be granted awards having an aggregate maximum value at the date of grant, together with any cash fees payable to such non-employee director, in excess of $1,000,000 with respect to the non-executive chairperson of the Board and $750,000 with respect to any other non-employee director. Shares of our Common Stock subject to awards are generally unavailable for future grant unless such awards are subsequently terminated, canceled or forfeited without the participant having benefited therefrom; provided that, in no event shall shares used in payment of the exercise price or strike price of an award or any taxes required to be withheld in respect of an award increase the number of shares of our Common Stock that may be delivered pursuant to incentive stock options granted under the New 2020 Equity Plan. If there is any change in our corporate capitalization (as discussed below), the Compensation Committee, in its sole discretion, may make substitutions or adjustments to (i) the number of shares reserved for issuance under the New 2020 Equity Plan, (ii) the number of shares covered by awards then outstanding under the New 2020 Equity Plan, (iii) the limitations on awards under the New 2020 Equity Plan, (iv) the exercise price or strike price of outstanding options or SARs, respectively, and (v) such other equitable substitution or adjustments as it may determine appropriate.

 

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Change in Capitalization. If there is a change in the Company’s corporate capitalization in the event of (a) a dividend (other than a regular cash dividend) or other distribution (whether in the form of cash, shares of our Common Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, split-off, spin-off, consolidation, repurchase or exchange of shares of our Common Stock or other securities of the Company, issuance of warrants or other rights to acquire shares of our Common Stock or other securities of the Company, or other similar corporate transaction or event (including, without limitation, a Change in Control (as defined in the New 2020 Equity Plan)) that affects the shares of our Common Stock, or (b) unusual or nonrecurring events (including, without limitation, a Change in Control) affecting the Company or any of its affiliates, or the financial statements of such entities, or changes in applicable rules, rulings or regulations or other requirements of any governmental body or securities exchange, accounting principles or laws, such that the Compensation Committee determines that an adjustment is necessary or appropriate, then the Compensation Committee can make adjustments in a manner that it deems equitable.

Awards Available for Grant. The Compensation Committee may grant awards of non-qualified stock options, incentive (qualified) stock options, SARs, restricted stock, RSUs and other stock based awards, or any combination of the foregoing. Awards may be granted under the New 2020 Equity Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by the Company (whether directly or indirectly) or with which the Company combines (“Substitute Awards”). All types of awards shall be subject to the terms and conditions established by the Compensation Committee and specified in an award agreement.

Stock Options. The Compensation Committee is authorized to grant options to purchase shares of our Common Stock that are either “qualified,” meaning they are intended to satisfy the requirements of Section 422 of the Internal Revenue Code for incentive stock options, or “non-qualified,” meaning they are not intended to satisfy the requirements of Section 422 of the Internal Revenue Code. All options granted under the New 2020 Equity Plan shall be non-qualified unless the applicable award agreement expressly states that the option is intended to be an “incentive stock option” and such option has been approved by the stockholders of the Company in a manner intended to comply with the stockholder approval requirements of Section 422(b)(1) of the Internal Revenue Code.

Under the terms of the New 2020 Equity Plan, the exercise price of the options will not be less than the fair market value of our Common Stock at the time of grant (except with respect to Substitute Awards, as provided for in the New 2020 Equity Plan). Options granted under the New 2020 Equity Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by the Compensation Committee and specified in the applicable award agreement. The maximum term of an option granted under the New 2020 Equity Plan will be ten years from the date of grant (or five years in the case of a qualified option granted to a 10% stockholder); provided that, if the term of a non-qualified option would expire at a time when trading in the shares of our Common Stock is prohibited by the Company’s insider trading policy, the option’s term shall be automatically extended until the 30th day following the expiration of such prohibition. Payment in respect of the exercise of an option may be made in cash, by check, by cash equivalent, and/or shares of our Common Stock valued at the fair market value at the time the option is exercised (provided that such shares are not subject to any pledge or other security interest or are Mature Shares (as defined under the New 2020 Equity Plan)), or by such other method as the Compensation Committee may permit in its sole discretion, including: (i) in other property having a fair market value on the date of exercise equal to the exercise price, (ii) if there is a public market for the shares of our Common Stock at such time, by means of a broker-assisted “cashless exercise,” or (iii) by means of a “net exercise” procedure effected by withholding the minimum number of shares otherwise deliverable in respect of an option that are needed to pay the exercise price and all applicable required withholding taxes. Any fractional shares of our Common Stock will be settled in cash.

SARs. The Compensation Committee is authorized to award SARs under the New 2020 Equity Plan. A SAR is a contractual right that allows a participant to receive, either in the form of cash, shares, or any combination of cash and shares, the appreciation, if any, in the value of a share over a certain period of time. An option granted under the New 2020 Equity Plan may include SARs and SARs may also be awarded to a participant independent of the grant of an option. SARs granted in connection with an option shall be subject to terms similar to the

 

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option corresponding to such SARs. Except as otherwise provided by the Compensation Committee (in the case of Substitute Awards or SARs granted in tandem with previously granted options), the strike price per share of our Common Stock for each SAR shall not be less than 100% of the fair market value of such share, determined as of the date of grant.

Restricted Stock. The Compensation Committee is authorized to award restricted stock under the New 2020 Equity Plan. Restricted stock constitutes an immediate transfer of the ownership of Common Shares to the participant in consideration of the performance of services, entitling such participant to dividend, voting and other ownership rights, subject to the substantial risk of forfeiture and restrictions on transfer determined by the Compensation Committee for a period of time determined by the Compensation Committee.

RSUs. The Compensation Committee is authorized to award RSUs. Awards of RSUs shall be subject to the terms and conditions established by the Compensation Committee and specified in an award agreement. Unless the Compensation Committee determines otherwise as specified in an award agreement, if the participant terminates employment or services during the period of time over which all or a portion of the RSUs are to be earned, then any unvested RSUs will be forfeited. Unless the Compensation Committee determines otherwise as specified in an award agreement, upon the expiration of the period of time over which the RSUs are to be earned, the participant will receive one share of our Common Stock for each outstanding RSU or, at the Compensation Committee’s election, an amount in cash equal to the fair market value of the aggregate number of shares of our Common Stock as of the expiration date of the period over which the units are to be earned or at a later date selected by the Compensation Committee, less an amount equal to any withholding taxes. To the extent provided in an award agreement, the holder of outstanding RSUs shall be entitled to be credited with dividend equivalent payments (upon the payment by the Company of dividends on shares of our Common Stock) either in cash or, at the sole discretion of the Compensation Committee, in shares of our Common Stock having a fair market value equal to the amount of such dividends (and interest may, at the sole discretion of the Compensation Committee, be credited on the amount of cash dividend equivalents at a rate and subject to such terms as determined by the Compensation Committee), which accumulated dividend equivalents (and interest thereon, if applicable) shall be payable at the same time as the underlying RSUs are settled following the release of restrictions on such RSUs and, if such RSUs are forfeited, the participant will have no right to such dividend equivalent payments.

Other Stock-Based Awards. The Compensation Committee is authorized to grant rights to receive grants of awards at a future date or other awards denominated in shares of our Common Stock under such terms and conditions as the Compensation Committee may determine and as set forth in the applicable award agreement.

Performance Compensation Awards. The Compensation Committee may grant any award under the New 2020 Equity Plan that is subject to the achievement of performance objectives selected by the Compensation Committee in its sole discretion, including without limitation, any one or more of (or any combination of) the following performance criteria for the Company (and/or one or more of its affiliates, divisions or operational and/or business units, product lines, brands, business segments, administrative departments, units, or any combination of the foregoing):

 

   

net earnings or net income (before or after taxes);

 

   

basic or diluted earnings per share (before or after taxes);

 

   

net revenue or net revenue growth;

 

   

gross revenue or gross revenue growth, gross profit or gross profit growth;

 

   

net operating profit (before or after taxes);

 

   

return measures (including, but not limited to, return on investment, assets, capital, gross revenue or gross revenue growth, invested capital, equity or sales);

 

   

cash flow measures (including, but not limited to, operating cash flow, Free Cash Flow and cash flow return on capital), which may but are not required to be measured on a per-share basis;

 

95


   

earnings before or after taxes, interest, depreciation, and amortization (including EBIT and EBITDA);

 

   

gross or net operating margins; productivity ratios; share price (including, but not limited to, growth measures and total stockholder return; expense targets or cost reduction goals, general and administrative expense savings; and operating efficiency);

 

   

objective measures of customer satisfaction;

 

   

working capital targets;

 

   

measures of economic value added or other “value creation” metrics;

 

   

inventory control;

 

   

enterprise value;

 

   

sales;

 

   

stockholder return;

 

   

client retention;

 

   

competitive market metrics;

 

   

employee retention;

 

   

timely completion of new product rollouts;

 

   

timely launch of new facilities;

 

   

objective measures of personal targets, goals or completion of projects (including but not limited to succession and hiring projects, completion of specific acquisitions, reorganizations or other corporate transactions or capital-raising transactions, expansions of specific business operations and meeting divisional project budgets);

 

   

system-wide revenues;

 

   

royalty income;

 

   

cost of capital, debt leverage year-end cash position or book value;

 

   

strategic objectives, development of new product lines and related revenue, sales and margin targets, or international operations;

 

   

environmental, sustainability or social governance targets; or

 

   

any combination of the foregoing.

Any of the performance criteria can be stated as a percentage of another performance criteria or used on an absolute, relative or adjusted basis to measure the performance of the Company and/or its affiliates or any divisions, operations or business units, divisions, product lines, asset classes, brands, or administrative departments or any combination thereof, as the Compensation Committee deems appropriate. Performance criteria may be compared to the performance of a group of comparator companies or a published or special index that the Compensation Committee deems appropriate or stock market indices. The performance criteria may also be subject to a threshold level of performance below which no payment will be made, levels of performance at which specified payments will be made, and a maximum level of performance above which no additional payment will be made. The Compensation Committee has the authority to make equitable adjustments to the performance criteria, as may be determined by the Compensation Committee at any time, in its sole discretion.

The Compensation Committee may also specify adjustments or modifications to be made to the calculation of the performance criteria for such performance period, based on and in order to appropriately reflect the following events: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; (iv) any reorganization and restructuring programs; (v) extraordinary nonrecurring items and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the