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2017 Pay Component
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Compensation Decision
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Base Salary
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A review of competitive position of base salaries against the external market, and the company's financial position, were considered when determining base salary changes for 2017. For 2017, the Compensation Committee increased the annual base
salaries for each of the Named Executive Officers as set forth below in the "Components of Executive Compensation" section.
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Annual Incentive Program ("AIP")
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Design
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The design for the 2017 program remained generally consistent with the 2016 program, with awards tied to pre-established EBITDA (as defined below) targets. For information regarding EBITDA targets and amounts paid to the Named Executive Officers for
2017 performance, see the "Components of Executive Compensation" section.
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2017 Pay Component
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Compensation Decision
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Target Values
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2017 performance-based cash award target values (as a percentage of base salary) were held constant year-over-year for the Named Executive Officers who were Named Executive Officers for 2016 and were increased for Mr. Kessinger in accordance
with the increased job responsibilities in connection with his designation as a Named Executive Officer in 2017.
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Long-Term Incentive Awards
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Design
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The Committee maintained the weighting of approximately 50% stock options and 50% restricted stock units for awards to the Named Executive Officers.
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Target Values
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Target values for 2017 long-term incentive awards increased year-over-year for Named Executive Officers as more particularly shown in the "Summary Compensation Table."
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COMPENSATION POLICIES AND OBJECTIVES
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The
Compensation Committee believes that compensation for Named Executive Officers should be determined according to a competitive framework, taking into account the financial
performance of the Company, individual contributions and the external market in which the Company competes for executive talent. In determining the compensation of the Company's Named Executive
Officers, the Compensation Committee seeks to achieve the following objectives through a combination of fixed and variable compensation.
Pay Competitively
A total compensation package should be competitive. For Named Executive Officers, including the Company's CEO, the Compensation Committee
considers the level of compensation paid to individuals in comparable executive positions in the Company's peer group in order to recruit and retain executive talent.
Pay for Performance
Our compensation practices are designed to create a direct link between the aggregate compensation paid to each Named Executive Officer and
the financial performance of the Company. In order to accomplish this, the Compensation Committee considers the individual performance of each Named Executive Officer by reviewing, among other
factors, the achievement of pre-established corporate objectives as well as the recommendations of the CEO. The amount of each component of a Named Executive Officer's compensation is based in part on
the Compensation Committee's assessment of that individual's performance as well as the other factors discussed in this section.
Executives as Stockholders
Our compensation practices are also designed to link a portion of each Named Executive Officer's compensation opportunity directly to the
value of the Company's Common Stock through the use of stock-based awards.
To
accomplish its compensation objectives and philosophy, the Compensation Committee relies on the following elements of compensation, each of which is discussed in more detail
below:
-
-
Base salary;
-
-
Eligibility to receive annual performance-based cash awards; and
-
-
Long-term incentive compensation (in the form of stock options and restricted stock units).
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When
approving the compensation of the Company's Named Executive Officers, the Compensation Committee reviews all of the elements of the Company's executive compensation program. Each component of
executive compensation is designed for a specific purpose. For example, salaries are a significant component of cash-based annual compensation. Salaries are set to compensate each executive based on
that executive's employment and salary history and position within the Company and comparable competitive salaries at companies included in our peer group and the survey data. With regard to the
variable components of the compensation package, annual performance-based cash awards are tied generally to the Company's short-term financial performance, while equity-based compensation is directed
towards the Company's successful results over a longer period. The purpose of the combination of salary, annual cash awards, and equity awards is to provide the appropriate level of total annual cash
compensation and long-term incentives, combined with an appropriate performance-based component. The Compensation Committee places the greatest emphasis on performance-based compensation through
annual cash awards and long-term equity-based awards, which together comprise the largest portion of Named Executive Officer compensation. The Compensation Committee believes that the Company's
executive compensation package, consisting of these components, is comparable to the compensation provided in the market in which the Company competes for executive talent and is critical to
accomplishing its recruitment and retention aims.
The
Company does not have employment agreements with any of the Named Executive Officers or other executive officers. Historically, including through December 31, 2017, the
Company did not have severance agreements with any of the Named Executive Officers or other executive officers. As of March 23, 2018, the Company had entered into Change in Control Severance
Agreements (collectively, the "Severance Agreements") with each of our executive officers, except Roger W. Stone and Matthew Kaplan, in connection with the Transaction (as defined in "Components of
Executive Compensation2017 Awards" below). Each Severance Agreement provides the recipient the right to receive a lump-sum cash severance amount and certain healthcare benefits for a
specified post-employment period upon a qualifying termination of employment during the 12-month period after the Transaction, subject to certain conditions. The severance benefits payable to each of
our Named Executive Officers pursuant to their respective Severance Agreements upon a qualifying termination of employment are as set forth below:
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Executive Officer
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Cash Severance
Amount ($)
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Value of Health
Benefits ($)
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Roger W. Stone
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$
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$
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Matthew Kaplan
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$
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$
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Randy J. Nebel
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$1,028,000
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$19,872
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Andrea K. Tarbox
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$850,000
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$5,499
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Wilbur G. Kessinger, Jr.
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$558,000
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$19,872
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OVERVIEW OF COMPENSATION PROGRAM AND PROCESS
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Role of Compensation Committee
The Compensation Committee is responsible for reviewing and approving the base salaries, annual performance-based cash awards, and long-term
incentive compensation for the Company's Named Executive Officers.
Role of Management
Management assists the Compensation Committee in fulfilling its responsibilities with respect to evaluating executive performance, proposing
appropriate performance targets for the annual and long-term incentive plans and developing recommendations as to appropriate salary levels and award amounts. For 2017, the Company's CEO,
Mr. Kaplan, provided to the Compensation Committee his recommendations
with respect to potential compensation of the other Named Executive Officers. The Compensation Committee reviewed and gave considerable weight to
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these
recommendations because of Mr. Kaplan's direct knowledge of the other executives' performance and contributions. With respect to those officers, the Compensation Committee ultimately used
its collective judgment to determine the compensation levels, including base salaries, annual performance-based cash awards and long-term equity award grants.
Role of Compensation Consultant
As part of its process, the Compensation Committee utilized the assistance of Frederic W. Cook & Co., an executive compensation
consulting company ("Cook"), to assist in evaluating executive compensation programs and in evaluating Named Executive Officers' compensation compared to an established peer group of similar
companies. Cook was engaged by and communicated directly with the Compensation Committee. In determining compensation for 2017, the Compensation Committee considered a market analysis prepared by Cook
in early 2017, which compared our compensation program to third-party industry compensation surveys and a peer group of eighteen companies. The companies included in the peer group are set forth in
this Compensation Discussion and Analysis under the heading "Benchmarking." In addition, at the request of the Nominating and Governance Committee, Cook also performed a review of director
compensation.
Other
than as described herein, Cook did not provide any other services to the Company or the Compensation Committee in 2017. The Compensation Committee has considered the independence of Cook in
light of SEC rules and NYSE listing standards. In connection with this process, the Compensation Committee has reviewed, among other items, a letter from Cook addressing the independence of Cook and
the members of the consulting team serving the Compensation Committee, including the following factors: (i) other services provided to us by Cook; (ii) fees paid by us as a percentage of
Cook's total revenue; (iii) policies or procedures of Cook that are designed to prevent conflicts of interest; (iv) any business or personal relationships between the senior advisor of
the consulting team with a member of the Compensation Committee; (v) any Company stock owned by the senior advisor or any immediate family member; and (vi) any business or personal
relationships between our executive officers and the senior advisor. The Compensation Committee discussed these considerations and concluded that the work performed by Cook and its senior advisor
involved in the engagement did not raise any conflict of interest.
Results of Advisory Votes
At the 2017 Annual Meeting of Stockholders, the Company's stockholders approved, on a non-binding advisory basis, the overall compensation of
the Company's Named Executive Officers as presented in the Proxy Statement for that meeting, with approximately 98% of the votes cast in favor. Given the high level of stockholder support, the
Compensation Committee did not make any changes to the Company's executive compensation philosophy, principles, and elements in response to the vote.
The
Compensation Committee reviews survey information of executive compensation payable by a designated peer group, both with respect to target and actual compensation data
available. The purpose of this review is to evaluate whether the Company's total executive compensation levels (including base salaries, annual cash awards, and equity awards) is viewed by the
Compensation Committee to be reasonable, competitive, and appropriate. One of the Company's objectives is to deliver compensation within the median market range. The Company considers compensation to
be within median market range with respect to salary if it is within 10% of the median, with respect to bonus if it is within 15% of the median, and with respect to long term incentive and total
compensation if it is within 20% of the median. The Compensation Committee considers executive compensation paid at the peer companies when setting executive compensation levels at the Company, but
the Compensation Committee does not attempt to maintain a specified target percentile within this peer group to determine executive compensation.
The
peer group of companies used to help determine 2017 compensation is comprised of eighteen firms that are similar to the Company in terms of business lines, market conditions, and size. The
Compensation Committee may reevaluate from time to time the composition of the designated peer group to ensure that the peer group remains appropriate in light of the Company's compensation
objectives. The comparison group of eighteen companies has a median revenue of approximately $3.5 billion.
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2017 Peer Group
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Bemis Company, Inc.
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Myers Industries, Inc.
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Boise Cascade LLC
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Neenah Paper, Inc.
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Clearwater Paper Corp.
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Norbord Inc.
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Domtar Corporation
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Packaging Corporation of America
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P.H. Glatfelter Company
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Resolute Forest Products, Inc.
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Graphic Packaging Holding Company
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Schweitzer-Mauduit International, Inc.
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Greif, Inc.
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Silgan Holdings Inc.
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Louisiana-Pacific Corporation
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Sonoco Products Company
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Mercer International Inc.
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WestRock Company
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In
looking ahead, the Compensation Committee reviewed the peer group of comparison companies that would be used to assist with setting 2018 target compensation. The Compensation Committee discussed
what actions should be taken relative to the makeup of the comparison peer group given the Company's current financial position. The Compensation Committee agreed to maintain the current group of
eighteen companies as the Company continues to maintain its ranking near the median of the comparison companies in terms of size.
COMPONENTS OF EXECUTIVE COMPENSATION
|
The
following provides an analysis of each element of compensation, what each is designed to reward, and why the Compensation Committee chose to include it as an element of the
Company's executive compensation.
Base Salary
Base salaries are reviewed annually in the context of the Compensation Committee's consideration of the effect of base compensation on
recruiting and retaining executive talent. Accordingly, the Compensation Committee considers the executive compensation of the peer group. In establishing each Named Executive Officer's base salary,
the Compensation Committee considers several factors, including individual job performance, salary history, competitive external market conditions for recruiting and retaining executive talent, the
scope of the executive's position and level of experience and changes in responsibilities.
In
March 2017, the base salaries of Named Executive Officers were established in accordance with the foregoing practices. Salaries for the Named Executive Officers were reviewed at that time, and
salary adjustments became effective retroactively to January 1, 2017. For 2017, the Compensation Committee increased the annual base salaries for each of our Named Executive Officers as
follows: Mr. Kaplan's salary was increased from $700,000 to $925,000; Mr. Stone's salary was increased from $700,000 to $780,000; Mr. Nebel's salary was increased from $430,000 to
$550,000; Ms. Tarbox's salary was increased from $430,000 to $500,000; and Mr. Kessinger's salary was increased from $232,832 to $360,000. The salaries for the Named Executive Officers
reflect the performance of the Company in 2016, including net sales; earnings per share; and earnings before interest, income taxes, depreciation and amortization ("EBITDA").
Eligibility to Receive Annual Performance-Based Cash Awards
The objective of the annual performance-based cash award element of compensation is to align the interests of the Named Executive Officers
with the Company's financial goals for the year. In setting financial and operating targets, which are established in the first calendar quarter, the Compensation Committee considers the Company's
annual budget and certain short-term operating and financial objectives.
With
respect to the Company's EBITDA goal for 2017, the Committee established the following target payout levels:
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30% Payout
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100% Payout
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200% Payout
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EBITDA
|
|
$339,000,000
|
|
$424,000,000
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$475,000,000
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EBITDA
is defined as net earnings excluding interest, income taxes, depreciation and amortization, extraordinary items and the cumulative effect of accounting changes. This non-GAAP measure is the
same measure management uses internally to manage and to evaluate the business and performance of the Company. At the time it set the target EBITDA for the year and these target payout levels, the
Compensation Committee believed that, based on the Company's budget, it would be difficult for executives to achieve
payouts towards the high end of the target payout levels. In 2017, Messrs. Stone and Kaplan each had an approved target of 100% of his respective salary, or $780,000 and $925,000, respectively,
and a range of possible payment from 0-200% of his respective target, Mr. Nebel and Ms. Tarbox each had an approved target of 65% of his or her respective salary, or $550,000 and
$500,000, respectively, and a range of possible payment from 0-200% of his or her respective target, and Mr. Kessinger had an approved target of 50% of his salary, or $360,000, and a range of
possible payment from 0-200% of his target. The Company's EBITDA for 2017 used for incentive plan calculations was $437,155,000, or approximately 103% of the 2017 target EBITDA. The Named Executive
Officers received the following payments: Mr. Kaplan was paid $1,163,650; Mr. Stone was paid $981,240; Mr. Nebel was paid $449,735; Ms. Tarbox was paid $408,850; and
Mr. Kessinger was paid $294,372.
Long-Term Incentive Compensation
The Compensation Committee determines the awards of long-term compensation through equity incentives (in the form of stock options and
restricted stock units) granted to Named Executive Officers as well as other eligible employees. The Compensation Committee believes that including an equity component in executive compensation
closely aligns the interests of the executives and the Company's stockholders and rewards executives in line with stockholder gains. The practice of the Compensation Committee is to consider annual
equity grants to key employees, including the Named Executive Officers, at its regularly scheduled meeting in March. Equity grants at other times depend upon extraordinary circumstances such as
promotions, new hires, acquisitions, or retention needs.
The
Company's long-term incentive compensation for 2017 consisted of stock options and restricted stock units. This equity award allocation reflected the desire to maintain a strong long-term equity
component in executive compensation, and to reduce the number of restricted stock units required to provide such component.
Equity
grants made during 2017 to executive officers and senior management, including the Named Executive Officers, were determined by the Compensation Committee based upon the compensation objectives
of the Compensation Committee, as discussed above, and were informed by the evolving nature of executive compensation practices. In determining the size of the equity grants for the Named Executive
Officers, the Compensation Committee made an evaluation of a number of factors, including: competitive market practices; the level of responsibility of the individual; the individual's job performance
and ability to influence corporate results; and the cost to the Company and the related effect of equity grants on earnings per share dilution. The Compensation Committee's intention was to deliver
approximately the same economic value through the restricted stock unit component of the award as the stock option component. Accordingly, for annual awards granted in March 2017, restricted stock
units were awarded to the Named Executive Officers in a ratio of about 1 restricted stock unit for about every 2.85 stock options awarded to such Named Executive Officers. This allocation reflects the
relationship between the value of restricted stock units, which is based on the market value of the underlying Common Stock on the date of grant, and the fair market value of stock options on the date
of grant, which is determined by using the Black-Scholes option valuation method.
Stock
options produce value for executives and employees only if the Common Stock price increases over the exercise price, which is set at the closing price on the date of grant. Also, through vesting
and forfeiture
provisions, stock options and restricted stock units create incentives for executive officers and senior management to remain with the Company.
Prohibition on Repricing of Options Without Stockholder Approval
The 2016 Incentive Plan prohibits the repricing of options and stock appreciation rights ("SARs"), the cancellation of options and SARs in
exchange for a new option or SAR with a lower purchase or base price, and the cancellation of an underwater option or SAR in exchange for cash or another award, without stockholder approval.
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2017 Awards
The Compensation Committee granted the following equity awards to the Named Executive Officers in 2017:
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Executive Officer
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Stock
Options
|
|
Restricted
Stock Units
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Roger W. Stone
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128,412
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45,055
|
Matthew Kaplan
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154,095
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54,066
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Randy J. Nebel
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44,944
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18,873
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Andrea K. Tarbox
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41,734
|
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17,465
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Wilbur G. Kessinger, Jr.
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24,077
|
|
10,011
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Each
of the stock options was granted by the Compensation Committee on March 7, 2017 with an exercise price of $22.195 per share.
All
stock options that were granted vest 50% on the second anniversary of the grant date and the remaining 50% on the third anniversary of the grant date, subject to the executive's continued
employment through the vesting dates. Restricted stock units granted to the Company's Named Executive Officers on March 7, 2017 will vest 100% on the third anniversary of the grant date,
subject to the executive's continued employment through the vesting date. Stock awards granted on April 2, 2017 of 3,104, 2,822 and 1,563 restricted stock units to Mr. Nebel,
Ms. Tarbox and Mr. Kessinger, respectively, were in the form of restricted stock units that vested 100% on the first anniversary of the grant date. Such stock awards were granted for
retention purposes. This one-year vesting, approved by the Compensation Committee on April 2, 2017, was a change from our historical practice of granting restricted stock units vesting on the
third anniversary of the grant date. All stock options and restricted stock units vest immediately upon the death, disability or retirement of a recipient who has attained the age of 65.
On
January 28, 2018, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with WestRock Company ("WestRock"), Whiskey Holdco, Inc. ("Holdco"), Kola Merger
Sub, Inc. and Whiskey Merger Sub, Inc. Pursuant to the Merger Agreement, and subject to the terms and conditions thereof, WestRock will acquire all of the outstanding shares of the
Company through a transaction in which WestRock and the Company will both become wholly owned subsidiaries of Holdco (the "Transaction"). Pursuant to the Merger Agreement and subject to certain other
terms and conditions, all stock options and restricted stock units that are outstanding as of the effective time of the Transaction and held by any executive officer at such time, including those
described above, will be converted at the effective time of the Transaction into stock options and restricted stock units of Holdco, on the same terms and conditions as were applicable to such stock
options and restricted stock units prior to the Transaction. Notwithstanding the foregoing, pursuant to the Merger Agreement all stock options and restricted stock units that were outstanding as of
the date of the Merger Agreement and held by executive officers were amended to provide that if, following the effective time of the Transaction, the employment of a holder thereof is terminated by
the Company or its affiliates without "Cause" or the award holder resigns employment for "Good Reason" (each as defined in the Merger Agreement), such stock options and restricted stock units will
immediately vest in full (such amendments, the "Equity Award Amendments"). With respect to the Company's 2018 annual equity grants made as of February 23, 2018 (which consisted entirely of
restricted stock units), two-thirds of each such award was made subject to the same vesting conditions described in the preceding sentence. The remaining one-third of each such award would be
forfeited upon any termination of employment prior to the normal vesting date.
Clawback of Compensation
Clawback provisions are included in all awards under the 2006 Incentive Plan, the 2014 Incentive Plan and the 2016 Incentive Plan
(collectively, the "Incentive Plans"). Pursuant to those provisions, the Board may require an employee, executive officer, or director who engaged in fraud or misconduct to immediately repay annual
performance-based cash awards and long-term incentive awards. In addition, the Board may terminate all vested and unvested options in the event that the grantee engages in fraud or misconduct.
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No Pledging of Stock
The Company's Insider Trading Policy prohibits its executive officers, employees and directors from pledging Company securities as collateral
for a loan or holding Company securities in a margin account. The 2014 Incentive Plan and the 2016 Incentive Plan allow the Company to terminate any long-term
incentive award issued under such Incentive Plans that is pledged and repurchase any pledged restricted stock units upon notice to the grantee.
No Hedging Transactions
The Company has enacted an anti-hedging policy regarding Company securities applicable to all executive officers and directors. The Company's
Insider Trading Policy prohibits all directors, employees, and officers from (i) engaging in short sales in Company securities (including "sales against the box"); (ii) engaging in any
zero-cost collars and forward sale contracts with respect to Company equity securities; or (iii) engaging in any transactions in puts, calls or other derivative securities, on an exchange or in
any other organized market with respect to Company equity securities.
Severance and Change-in-Control Benefits
Historically, including through December 31, 2017, the Company did not have severance agreements with any of the Named Executive
Officers or other executive officers. Effective as of February 28, 2018, the Company entered into the Severance Agreements with each of our executive officers, except Roger W. Stone and Matthew
Kaplan, in connection with the Transaction, as described above in the "Severance Agreements" section.
Additionally,
pursuant to the Merger Agreement and subject to certain other terms and conditions, all stock options and restricted stock units held by the Company's executive officers that are
outstanding as of the effective time of the Transaction will be converted at the effective time of the Transaction into stock options and restricted stock units of Holdco, on the same terms and
conditions as were applicable to such stock options and restricted stock units prior to the Transaction (but subject to certain accelerated vesting treatment pursuant to the Equity Award Amendments),
as described in the "Components of Executive Compensation2017 Awards" section. In connection with the closing of the Transaction, the Company may pay cash bonuses to the Named Executive
Officers other than Roger W. Stone and Matthew Kaplan. Also in connection with the closing of the Transaction, the Company would pay its annual performance-based cash award to the Named Executive
Officers on a pro-rated basis.
Perquisites and Personal Benefits
In general, the Company does not provide perquisites or personal benefits to the Named Executive Officers that are not available to other
employees.
Pension Benefits or Supplemental Retirement Benefits
In 2017, the Company provided retirement benefits to the Named Executive Officers consisting of the 401(k) plan with company matching
contributions and retirement savings account contributions. Pursuant to the 401(k) plan, the Company made a matching contribution equal to 100% of the first 4% of the employee's pay contributed to the
plan plus 50% of the next 4% of pay contributed, and an additional retirement savings account contribution based upon total earnings for the year subject to a maximum amount of $270,000 in accordance
with Internal Revenue Service regulations.
Health and Welfare Benefits
All full-time employees, including our Named Executive Officers, may participate in our health and welfare benefit programs, including
medical, dental and vision care coverage, disability insurance and life insurance.
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REGULATORY CONSIDERATIONS
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Section 162(m)
of the Internal Revenue Code generally denies a publicly traded company a Federal income tax deduction for compensation in excess of $1.0 million paid to
certain of its Named Executive Officers. Prior to the passage of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), performance-based compensation was exempt from the deduction limit, however, if
certain requirements are met. The Tax Act eliminated the performance-based compensation exemption, but certain compensation arrangements have been grandfathered. The Compensation Committee
historically generally structured compensation to take advantage of this exemption under Section 162(m) to the extent practicable, while satisfying the Company's compensation policies and
objectives. Because the Compensation Committee also recognized the need to retain flexibility to make compensation decisions that may not meet the standards of Section 162(m) when deemed
necessary to enable the Company to continue to attract, retain, and motivate highly-qualified executives, it reserved the authority to approve potentially non-deductible compensation.
NAMED EXECUTIVE OFFICER STOCK OWNERSHIP REQUIREMENTS
|
Our
Board has stock ownership requirements applicable to the Named Executive Officers based on a multiple of annual base salary. The Board created these requirements to further align
the interests of our Named Executive Officers with those of the Company's stockholders and encourage long-term stockholder value by requiring our Named Executive Officers to hold a significant equity
stake in the Company. The following table illustrates the current stock ownership requirements:
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Position
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|
Ownership
requirement
|
Named Executive Officers Serving on the Company's Board
|
|
6x base salary
|
Other Named Executive Officers
|
|
2x base salary
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Named
Executive Officers may aggregate their shareholdings to accomplish their ownership requirement, and restricted stock units and vested options count toward the ownership requirements. Shares that
are hedged or pledged, if any, would not count toward satisfaction of the minimum ownership requirements. Newly appointed Named Executive Officers have four years from their appointment to comply with
the requirements. The Board may, in its discretion, make exceptions to the policy in periods of volatile markets. As of April 24 2018, all Named Executive Officers had achieved the required
level of ownership.