VECTOR GROUP LTD.
Any stockholder who has given a proxy has the power to revoke the proxy prior to its exercise. A proxy can be revoked by an instrument of revocation delivered at, or prior to the annual meeting, to Marc N. Bell, the secretary of the Company, by a duly executed proxy bearing a date or time later than the date or time of the proxy being revoked, or at the annual meeting if the stockholder is present and elects to vote in person. Mere attendance at the annual meeting will not serve to revoke a proxy. A stockholder whose shares are held in a brokerage or bank account will need to obtain a legal proxy from the broker, bank or other intermediary in order to vote at the meeting.
The presence, in person or represented by proxy, of the holders of a majority of the issued and outstanding shares of Common Stock will constitute a quorum for the transaction of business at the annual meeting. The affirmative vote of holders of a plurality of the shares represented and entitled to vote is required for the election of each director. The affirmative vote of the holders of a majority of the shares represented and entitled to vote at the meeting is required for the advisory approval of the say on pay vote, and for the ratification of the appointment of PricewaterhouseCoopersDeloitte & Touche LLP as the Company’s independent registered certified public accounting firm. Abstentionsfirm and the stockholder's non-binding proposal, and abstentions will have the effect of votes against the advisory say on pay proposal and the ratification of the appointment of our auditors.each such matter.
Except for the ratification of the auditors, shares that are held by brokers in retail accounts may only be voted if the broker receives voting instructions from the beneficial owner of the shares. Otherwise, the “broker non-votes” may only be counted toward a quorum and, in the broker’s discretion, voted regarding the ratification of auditors. Broker non-votes will have no effect on any of the other matters presented at the annual meeting.
The following table sets forth, as of the record date, the beneficial ownership of the Company’s Common Stock, the only class of voting securities, by:
each person known to the Company to own beneficially more than five percent of the Common Stock;
each of the Company’s named executive officers shown in the Summary Compensation Table below; and
all directors and executive officers as a group.
Unless otherwise indicated, each person possesses sole voting and investment power with respect to the shares indicated as beneficially owned.
The by-laws of the Company provide, among other things, that the board, from time to time, shall determine the number of directors of the Company. The size of the board is presently set at seven.nine. The present term of office of all directors will expire at the 20152018 annual meeting. SevenNine directors are to be elected at the 20152018 annual meeting to serve until the next annual meeting of stockholders and until their respective successors are duly elected and qualified or until their earlier resignation or removal.
The affirmative vote of the holders of a plurality of the shares represented at the annual meeting and entitled to vote on the election of directors is required to elect each director.
The Board of Directors recommends that stockholders vote “FOR” election of the nominees named below.
The following table sets forth certain information, as of the record date, with respect to each of the nominees. Each nominee is a citizen of the United States.
The Company believes that the combination of the various qualifications, skills and experiences of its directors contribute to an effective and well-functioning board and that individually and, as a whole, the directors possess the necessary qualifications to provide effective oversight of the business, and provide quality advice to the Company’s management. Details regarding the experience and qualifications of the directors are set forth below.
Bennett S. LeBow is the Chairman of the Company’s Board of Directors and has been a director of the Company since October 1986. Mr. LeBow, currently a private investor, served as the Company's Chairman and Chief Executive Officer from June 1990 to December 2005 and Executive Chairman from January 2006 until his retirement on December 30, 2008. He has served as Chairman of the Board of Signal Genetics Inc. (NASDAQ: SGNL) sincefrom January 2010.2010 to February 2017, when it was acquired by Miragen Therapeutics, Inc. (NASDAQ: MGEN). Mr. LeBow served as Chairman of the Board of Directors of Borders Group Inc. from May 2010 until January 2012 and, from June 2010 until January 2012, as Chief Executive Officer of Borders Group Inc., which filed for protection under Chapter 11 of Title 11 of the United States Bankruptcy Code in February 2011. Mr. LeBow was Chairman of the Board of New Valley Corporation (“New Valley”) from January 1988 to December 2005 and served as its Chief Executive Officer from November 1994 to December 2005. New Valley Corporation was a majority-owned subsidiary of the Company until December 2005, when the Company acquired the remaining minority interest, became engaged in the real estate business and began seeking to acquire additional operating companies and real estate properties. Mr. LeBow’s pertinent experience, qualifications, attributes and skills include his decades of experience as an investor and the knowledge and experience in the cigarette industry he has attained through his service as the Company's Chief Executive Officer from 1990 to 2005 and as Chairman of the Board since 1990.
Howard M. Lorber has been President and Chief Executive Officer of the Company since January 2006. He served as President and Chief Operating Officer of the Company from January 2001 to December 2005 and has served as a director of the Company since January 2001. He has also served as Chairman of the Board of Directors since 1987 and Chief Executive Officer from November 1993 to December 2006 of Nathan’s Famous, Inc. (NASDAQ: NATH), a chain of fast food restaurants; Chairman of the Board of Ladenburg Thalmann Financial Services (NYSE MKT:American: LTS) from May 2001 to July 2006 and Vice Chairman since July 20062006; and as a director of Clipper Realty Inc. (NYSE: CLPR) since July 2015. Mr. Lorber was a member of the Board of Directors of Morgans Hotel Group Co. (NASDAQ: MHGC) sincefrom March 2015. Mr. Lorber was a Director of Borders Group Inc.2015 until November 2016 and served as Chairman from May 2010 until January 2012 and has been a director since 1991 of United Capital Corp., a real estate investment and diversified manufacturing company, which ceased2015 to be a public reporting company in 2011.November 2016. From November 1994 to December 2005, Mr. Lorber served as President and Chief Operating Officer of New Valley, where he also served as a director. Mr. Lorber was Chairman of the Board of Hallman & Lorber Assoc., Inc., consultants and actuaries of qualified pension and profit sharing plans, and various of its affiliates from 1975 to December 2004 and has been a consultant to these entities since January 2005. He is also a trustee of Long Island University. Mr. Lorber's pertinent experience, qualifications, attributes and skills include the knowledge and experience in the real estate and cigarette industry he has attained through his service as our President and a member of our Board of Directors since 2001 as well as his service as a director of other publicly-traded corporations.
Ronald J. Bernstein has served as President and Chief Executive Officer of Liggett Group LLC, an indirect subsidiary of the Company, since September 1, 2000 and of Liggett Vector Brands LLC, an indirect subsidiary of the Company, since March 2002 and has been a director of the Company since March 2004. From July 1996 to December 1999, Mr. Bernstein served as General Director and, from December 1999 to September 2000, as Chairman of Liggett-Ducat Ltd., the Company’s former Russian tobacco business sold in 2000. Prior to that time, Mr. Bernstein served in various positions with Liggett commencing in 1991, including Executive Vice President and Chief Financial Officer. Mr. Bernstein’s pertinent experience, qualifications, attributes and skills include the knowledge and experience in the cigarette industry, which is the primary contributor to the Company's earnings, he has attained through his employment by our tobacco and real estate subsidiaries since 1991.
Stanley S. Arkin has been a director since November 2011. Mr. Arkin is the founding member and the senior partner of the law firm of Arkin Solbakken LLP and is Chairman of The Arkin Group, a private intelligence agency. Mr. Arkin was a member of the Board of Directors of Authentic Fitness Corp, a fitness apparel company that ceased to be publicly traded in 1999, from 1995 to 1998. He is a member of the Council on Foreign Relations, and has served on or chaired numerous committees in other professional organizations, such as the American College of Trial Lawyers, the Judicial Conference of the State of New York, the Association of the Bar of the City of New York, the American Bar Association, the New York State Bar Association, and the New York County Lawyers Association. Mr. Arkin’s pertinent experience, qualifications, attributes and skills include his managerial experience, financial literacy and the knowledge and experience he has attained through his career in the legal profession as well as his service as a director of a publicly-traded corporation.
Henry C. Beinstein has been a director of the Company since March 2004. Since January 2005, Mr. Beinstein has been a partner of Gagnon Securities LLC, a broker-dealer and FINRA member firm, and has been a money manager and registered representative at such firm since August 2002. He retired in August 2002 as the Executive Director of Schulte Roth & Zabel LLP, a New York-based law firm, a position he had held since August 1997. Before that, Mr. Beinstein had served as the Managing Director of Milbank, Tweed, Hadley & McCloy LLP, a New York-based law firm, commencing November 1995. Mr. Beinstein was the Executive Director of Proskauer Rose LLP, a New York-based law firm, from April 1985 through October 1995. Mr. Beinstein is a certified public accountant in New York and New Jersey and prior to joining Proskauer was a partner and National Director of Finance and Administration at Coopers & Lybrand. He also holds the designation of Chartered Global Management Accountant from the American Institute of Certified Public Accountants. Mr. Beinstein also serves as a director of Ladenburg Thalmann Financial Services Inc. (NYSE MKT:American: LTS) and Castle Brands Inc. (NYSE MKT:American: ROX) (“Castle”). Mr. Beinstein has been licensed as a Certified Public Accountant in the state of New York since 1968. Mr. Beinstein’s pertinent experience, qualifications, attributes and skills include financial literacy and expertise, managerial experience through his years at Coopers & Lybrand, Proskauer Rose LLP, Milbank, Tweed, Hadley & McCloy LLP and Schulte Roth & Zabel LLP, and the knowledge and experience he has attained through his service as a director of the Company and other publicly-traded corporations.
Paul V. Carlucci has been a director of the Company since March 2018 and was the Chairman and Chief Executive Officer of News America Marketing, a subsidiary of News Corporation (NASDAQ: NWSA) and a single-source provider of consumer advertising and promotional services, from October 1997 until his retirement in June 2014. He also served as publisher of the New York Post from September 2005 to September 2012 and was a member of the Executive Committee of News Corporation from October 1996 until his retirement in June 2014. He continued to consult to News Corporation until June 2017. He was also President and CEO of News America Publishing, Inc. (the parent company of TV Guide, Weekly Standard and News America New Media), and has held executive positions in Caldor, Inc., a 175-store general merchandise chain, RH Macy’s and the New York Daily News. He has also served on the Boards of Directors of Herald Media, Inc., the American Jewish Committee, the Children’s Miracle Network and the Guardian Angels. Mr. Carlucci holds a Bachelor of Science degree in Marketing from Fordham University. Mr. Carlucci’s pertinent experience, qualifications, attributes and skills include managerial experience and the knowledge and experience he has attained through his service as an executive officer of large media corporations and his expertise in marketing and communications involving various industries, including the U.S. tobacco industry and the New York metropolitan area real estate market.
Jeffrey S. Podell has been a director of the Company since November 1993 and is a private investor. Mr. Podell also serves as a director of Ladenburg Thalmann Financial Services Inc. (NYSE MKT:American: LTS). Mr. Podell was a member of the New York State Bar Association from 1965 until March 2010. Mr. Podell’s pertinent experience, qualifications, attributes and skills include managerial experience and the knowledge and experience he has attained through his service as a director of the Company and other publicly-traded corporations.
Jean E. Sharpe has been a director of the Company since May 1998. Ms. Sharpe is a private investor and has engaged in various philanthropic activities since her retirement in September 1993 as Executive Vice President and Secretary of the Company and as an officer of various of its subsidiaries. Ms. Sharpe previously served as a director of the Company from July 1990 until September 1993. Ms. Sharpe has been a member of the New York State Bar Association since 1979. Ms. Sharpe’s pertinent experience, qualifications, attributes and skills include the knowledge and managerial experience she has attained as serving as our general counsel from 1988 until 1993 and her service as a director of the Company.
Barry Watkins has been a director of the Company since March 2018 and is currently Of Counsel to DKC, a full-service public relations, marketing and government affairs firm. He also serves as a senior advisor to the Madison Square Garden Company (NYSE: MSG). From 1997 to November 2017, Mr. Watkins was head of communications for Madison Square Garden L.P., Madison Square Garden Company and MSG Networks Inc. (NYSE: MSGN) and served as Executive Vice President and Chief Communications Officer from 2010 until November 2017. In his role, Mr. Watkins oversaw MSG's communications and government relations activities, as well as its extensive philanthropic efforts, and, from 2010 to 2014, the human resources department of the MSG companies. Since 2014, Mr. Watkins has also served as Chairman of the Garden of Dreams Foundation, a non-profit organization that works with the MSG companies to positively impact the lives of children facing obstacles. Mr. Watkins is a graduate of St. John’s University. The pertinent experience, qualifications, attributes and skills of Mr. Watkins include his managerial experience as well as the knowledge and experience in communications, government relations and human resources that he attained through his service as an executive officer of publicly-traded corporations.
Board of Directors and Committees
The board of directors, which held eightfive meetings in 20142017, currently has nine members, but had seven members.members during 2017. Each director attended at least 75% of the aggregate number of meetings of the board and of each committee on which the director served as a member during such period. To ensure free and open discussion and communication among the independent directors of the board, the independent directors meet in executive sessions periodically, with no members of management present. The chair of the corporate governance and nominating committee presides at the executive sessions.
The Company’s Corporate Governance Guidelines provide that the board shall be free to choose its chair in any way it deems best for the Company at any time. The board believes that it is desirable to have the flexibility to decide whether the roles of Chairman of the Board and Chief Executive Officer should be combined or separate in light of the Company’s circumstances from time to time. The roles of Chief Executive Officer and Chairman of the Board are presently held by two different directors. The Chief Executive Officer is responsible for setting the strategic direction of the Company and the day-to-day leadership and performance of the Company, while the Chairman of the Board provides guidance to the Chief Executive Officer, reviews the agenda for board meetings and presides over meetings of the full board.
The board of directors oversees the risks that could affect the Company through its committees and reports offrom officers responsible for particular risks within the Company.
The board of directors has four committees established in accordance with the Company’s bylaws: an executive committee, an audit committee, a compensation committee, and a corporate governance and nominating committee. The board has determined that the Company’s non-employee directors (Stanley S. Arkin, Henry C. Beinstein, Paul V. Carlucci, Bennett S. LeBow, Jeffrey S. Podell, and Jean E. Sharpe)Sharpe and Barry Watkins) have no material relationship with the Company and meet the New York Stock Exchange listing standards for independence. Each of the members of the audit committee, compensation committee, and corporate governance and nominating committee meets the New York Stock Exchange listing standards for independence.
The executive committee, whose members are presently Messrs. LeBow, chairman, and Lorber, did not meet in 20142017. The executive committee exercises, in the intervals between meetings of the board, all the powers of the board in the management and affairs of the Company, except for matters expressly reserved by law for board action.
The audit committee, whose members are presently Messrs. Beinstein, chairman, and Podell and Ms. Sharpe, met 1812 times in 20142017. The committee is governed by a written charter which requires that it discuss policies and guidelines to govern the process by which risk assessment and risk management are handled and that it meet periodically with management to review and assess the Company’s major financial risk exposures and the manner in which such risks are being monitored and controlled. Accordingly, in addition to its other duties, the audit committee periodically reviews the Company’s risk assessment and management, including in the areas of legal compliance, internal auditing and financial controls. In this role, the audit committee considers the nature of the material risks the Company faces, and the adequacy of the Company’s policies and procedures designed to respond to and mitigate these risks and receives reports from management and other advisors. Although the board’s primary risk oversight has been assigned to the audit committee, the full board also receives regular reports from members of senior management on areas of material risk to the Company, including operational, financial, competitive and legal risks. In addition to an ongoing compliance program, the board encourages management to promote a corporate culture that understands risk management and incorporates it into the overall corporate strategy and day-to-day business operations. The Company’s board of directors and its audit committee regularly discuss with management the Company’s major risk exposures, their potential financial impact on the Company, and the steps (both short-term and long-term) the Company takes to manage them. The audit committee oversees the Company’s financial statements, system of internal controls, and auditing, accounting and financial reporting processes and risks related thereto; the audit committee appoints, compensates, evaluates and, where appropriate, replaces the Company’s independent accountants; reviews annually the audit committee charter; and reviews and pre-approves audit and permissible non-audit services. See “Audit Committee Report.” Each of the members of the audit committee is financially literate as required of audit committee members by the New York Stock Exchange and independent as defined by the rules of the New York Stock Exchange and the Securities and Exchange Commission.SEC. The board of directors has determined that Mr. Beinstein is an “audit committee financial expert” as defined by the rules of the Securities and Exchange Commission.SEC.
The compensation committee, whose members are presently Messrs. Podell, chairman, and Beinstein,Arkin, and Ms. Sharpe, met 13four times in 20142017. The committee is governed by a written charter. The compensation committee is responsible for risks relating to employment policies and the Company’s compensation and benefits systems. To aid the compensation committee with its responsibilities, the compensation committee retains an independent consultant, as necessary, to understand the implications of compensation decisions being made. See “Compensation Discussion and Analysis” for a discussion of the consulting services provided to the compensation committee by GK Partners. The compensation committee has assessed the independence of GK Partners pursuant to Securities and Exchange CommissionSEC and New York Stock Exchange rules and concluded that GK Partners' work for the compensation committee does not raise any conflict of interest. The compensation committee reviews, approves and administers management compensation and executive compensation plans. The compensation committee also administers the Company’s 1998 Long-Term Incentive Plan, the Amended and Restated 1999 Long-Term Incentive Plan (the “1999 Plan”) and the Senior Executive Incentive Compensation Plan (the “Bonus Plan”) and the 2014 Management Incentive Plan (the “2014 Plan”). See “Compensation Discussion and Analysis.” In March 2009, the compensation committee formed a Performance-Based Compensation Subcommittee (the “Subcommittee”), consisting of Messrs. BeinsteinArkin and Podell, and delegated to the Subcommittee the authority to grant compensation to executive officers that is intended to qualify as “performance-based compensation” exempt from the $1,000,000 deduction limitation of Section 162(m) of the Internal Revenue Code.Code of 1986, as amended. The Subcommittee administers the participation of named executive officers in the Bonus Plan, the 1999 Plan and the 2014 Plan.
The corporate governance and nominating committee, whose members are presently Ms. Sharpe, chair, and Messrs. Arkin and Beinstein, met three timestwice in 2014.2017. The committee is governed by a written charter. This committee is responsible for the oversight of risks relating to the management and board succession planning. The committee assists the board of directors in identifying individuals qualified to become board members and recommends to the board the nominees for election as directors at the next annual meeting of stockholders, develops and recommends to the board the corporate governance guidelines applicable to the Company, and oversees the evaluation of the board and management. In recommending candidates for the board, the committee takes into consideration applicable to independence criteria and the following criteria established by the board in the Company’s corporate governance guidelines:
personal qualities and characteristics, accomplishments and reputation in the business community;
current knowledge and contacts in the communities in which the Company does business and in the Company’s industry or other industries relevant to the Company’s business;
ability and willingness to commit adequate time to board and committee matters;
the fit of the individual’s skills and personality with those of other directors and potential directors in building a board that is effective, collegial and responsive to the needs of the Company; and
diversity of viewpoints, background, experience and other demographics.
The committee also considers such other factors as it deems appropriate, including judgment, skill, diversity, experience with businesses and other organizations of comparable size, the interplay of the candidate’s experience with the experience of other board members, and the extent to which the candidate would be a desirable addition to the board and any committees of the
board. The committee does not assign specific weights to particular criteria and no particular criteria is necessarily applicable to all nominees. The Company believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the board to fulfill its responsibilities. In March 2018, the size of the board of directors was increased by two from seven members to nine, and Paul V. Carlucci and Barry Watkins were added as directors on the recommendation of the corporate governance and nominating committee. The new board members were introduced to the committee by the Company's chief executive officer who was familiar with them through their business and philanthropic activities. The committee will consider nominees recommended by stockholders, which nominations should be submitted by directing an appropriate letter and resume to Marc N. Bell, the secretary of the Company, 4400 Biscayne Boulevard, 10th Floor, Miami, Florida 33137. If the Company were to receive recommendations of candidates from the Company’s stockholders, the committee would consider such recommendations in the same manner as all other candidates.
Corporate Governance Materials
The Company’s Corporate Governance Guidelines, Codes of Business Conduct and Ethics, Equity Retention and Hedging Policy, Stock Ownership Guidelines, Executive Compensation Clawback Policy and current copies of the charters of the Company’s audit committee, compensation committee, and corporate governance and nominating committee are all available in the investor relations section of the Company’s website (http://www.vectorgroupltd.com/investor-relations/corporate-governance/) and are also available in print to any stockholder who requests them.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview
The Company designed its compensation program in 2017 with an intent to maximize stockholder returns and deliver compensation in a tax-efficient manner for the Company. Compensation for the Company's executives is largely at-risk and contingent upon the Company meeting various performance goals that are consistent with the Company's business plan. The Company's compensation committee recognizes, and its policies reflect, that Vector is a complex and diversified company that operates in two challenging industries - tobacco and real estate. Moreover, both of these industries are impacted by exogenous forces.
Vector’s board has overseen significant value creation for its stockholders. As reported below, the Company has consistently outperformed the S&P 500 index and relative peer groups by delivering robust total stockholder returns, and executive compensation is commensurate with Vector’s record of substantial value creation.
Beginning in 2016, Vector meaningfully enhanced its stockholder outreach program to expand the scope of its discussions with institutional investors beyond the traditional emphasis on Vector's Tobacco and Real Estate operations and engaged in productive dialogue on a variety of corporate and governance-related matters. These initiatives are discussed below in “Most Recent Say On Pay Vote Results.” The Company is committed to sound governance policies and practices, values stockholder input, and takes into consideration the views of its stockholders as it assesses and refines its means of most effectively incentivizing management to enhance stockholder value in a tax-efficient manner.
Compensation Objectives
The compensation committee's primary objectives of thefor our executive compensation committee of the board of directors with respect to executive compensationprogram are:
to base a meaningful portion of management’s pay on achievement of the Company’s goals;annual and long-term goals to ensure alignment of pay and performance;
to provide long and short-term incentives intended to enhance stockholder value;
to provide competitive levels of compensation;
to recognize individual initiative and achievement; and
to assist the Company in attracting talented executives to a challenging and demanding environment, and to retain such executivesthem for the benefit of the Company and its subsidiaries.
The Company strives to achieve these objectives through its compensation plansarrangements that put a substantial portion of the executives’ overall compensation at risk so that compensation is only paid if the Company's financial performance goals are met. While the compensation of the Company’s most senior executives is largely the result of negotiated agreements which(which are reviewed annually,annually), the Company’s overall compensation philosophy is intended to reward its executives with fully competitive compensation, while rewardingproviding opportunities to reward outstanding performance with above-average total compensation.
The Company's compensation committee has recognized that Vector is a complex and diversified company that operates in two challenging industries - tobacco and real estate. The compensation committee has also recognized that the Company's diversification creates difficulties in establishing appropriate “peer groups” permitting meaningful comparison to the Company. Due to the disparities in financial and operational characteristics between the Company and potential comparator companies, the compensation committee has chosen not to formally benchmark compensation levels for management relative to any specified group of comparable companies. The compensation committee has, however, reviewed and considered information provided by its compensation consultant concerning relevant market executive compensation practices and, as such believes that it is appropriately informed with regard to these practices as they pertain to the Company's business. In establishing levels of executive compensation, the compensation committee considers Vector's well-established record of consistently creating value for stockholders by achieving stockholder returns that exceed comparable indices in the tobacco and real estate segments. The compensation committee believes these above-market returns have been the result of the Company's strong operating performance in both the tobacco and real estate segments as well as an improvement in the market's knowledge and perception of the Company.
The Company has recently taken measuressignificant steps toward risk-mitigation and other long-term objectives to further align management and stockholders. Since 2013, the Company has implemented significant enhancements to discourage excessive risk-taking by adopting aan Executive Compensation Clawback Policy, and prohibition on hedging and has increased the long-term focus by adopting ana robust Equity Retention Policyand Hedging policy that prohibits hedging by executive officers and requires executive officers to retain at least 25% (after taxes and exercise costs) of the shares of common stock acquired under an incentive, equity or option award granted to them after January 1, 2013 and Stock Ownership Guidelines as well as by awardingrequiring each executive officer to hold the Company's common stock. In addition, over the past five years, the Company granted stock options with four-year cliff vesting as a substantial portion of 2013 and 2014 direct compensation.compensation in order to incentivize executives to focus on long-term strategic directives. Under the 2014 Plan, the Company is able to make vesting and payment of certain other equity awards are contingent upon achieving specified levels of long-term corporate performance.
IndependentThe compensation committee may from time-to-time retain independent compensation consultants may be retained by the compensation committee from time to time forrender advice and guidance in assessing whether our compensation program is reasonable and competitive. The compensation committee engaged GK Partners Inc. to render advice as to the award of optionsoption awards in 2013, 2014 and 2015 and awards ofthe restricted stock award in 2013 and 2014. The compensation committee also engaged GK Partners to render advice related to the drafting of the Vector Group Ltd. Equity Retention and Hedging Policy, which was adopted in January 2013, the amendment of the terms of Mr. Bernstein's employment agreement in October 2013 and the adoption of the 2014 Plan, as well as the Executive Compensation Clawback Policy and Stock Ownership Guidelines adopted in March 2014. See “Base Salary,” “Equity Compensation” and the policies described in “Prohibition on Hedging,” “Equity Retention Policy,” “Stock Ownership Guidelines” and “Executive Compensation Clawback Policy.” GK Partners is directed by and only provides services to the compensation committee.
Compensation Mix
Beginning in 2013, Vector’s executive compensation mix has become increasingly performance-based and consequently more clearly aligned with stockholder interests. The following charts illustrate the mix between direct compensation elements (base salary, annual cash and stock bonus, and long-term equity incentives) for Vector's Chief Executive Officer and other named executive officers and compare the years ended December 31, 2012 and 2017, respectively. These charts demonstrate how the Company's performance-based direct compensation has increased as a percentage of total direct compensation for these officers since the year ended December 31, 2012.
Most Recent Say on Pay Vote Results
At the 20142017 annual meeting of stockholders, the Company held its fourth stockholder advisory (sayseventh say on pay)pay vote on the compensation of its named executive officers and 61%approximately 60% of the Company's stockholders voted “For”“for” the compensation of the Company's named executive officers. The Company and its Compensation CommitteeCompany's compensation committee thoughtfully considered the result of the 20142017 vote in conducting itsthe ongoing review and administration of management compensation. In 2013 and 2014,The compensation committee has noted that because Vector is a diversified company, it is difficult to reference a single “peer group.” Moreover, as reflected in the charts on page 10, the Company undertook severalhas consistently outperformed indices of both segments in which it operates - real estate and tobacco companies. Consequently, the compensation committee continues to believe that its compensation model is appropriate and effective.
Meetings with Institutional Stockholders
In response to the 2016 say on pay vote, the Company enhanced efforts to solicit feedback from its stockholders to better understand their concerns by inviting representatives from the corporate governance initiatives summarized above. In 2014, senior membersdivisions of its 25 largest institutional stockholders to meet with a member of the Company's managementboard and management. Seven of the 25 institutional stockholders, who collectively hold approximately 17% of Vector’s common shares, accepted the invitation to speak with representatives of the Company in 2016. These meetings with the corporate governance divisions of the institutional stockholders were led by Jean E. Sharpe, board member and corporate governance and nominating committee chair, and J. Bryant Kirkland III, Chief Financial Officer. Ms. Sharpe, Mr. Kirkland and Henry C. Beinstein, audit committee chair, also metheld a meeting with current, formera proxy advisory firm to determine whether its views regarding Vector’s pay practices were similar to the views of the Company’s stockholders.
During these meetings, Ms. Sharpe and prospective stockholders to enhance its understanding of stockholder perspectives related to executive compensation. ManagementMr. Kirkland explained the Company's core compensation practices and sought candid stockholder feedback during these meetings related to key elements of the Company's compensation program. In response, representatives from the corporate governance divisions of all participating institutions were complimentary of the Company's enhanced scope of communication with the governance divisions of its institutional investors and the Company hopes they began to appreciate more fully the challenges faced by the Company in establishing compensation levels under its bifurcated business model. The corporate governance representatives also acknowledged they understood that the Company’s diversification creates difficulties in establishing executive compensation “peer groups,” making it difficult to establish an appropriate barometer to measure the Company's compensation package. The investors also stated they recognized the Company's existing contracts with named executive officers may not be easily modified and most were willing to consider the elements of compensation that resulted from legacy contracts. Many of the institutions also commended the Company and its leadership team for the outstanding long-term performance of the Company's common stock.
Related to specific pay practices, all seven institutional investors who participated in the calls expressed concerns about the Chief Executive Officer’s compensation. Issues raised included (i) large restricted stock awards to the CEO in consecutive years (2014 and 2015), (ii) the ratio of CEO pay to the pay of other named executive officers, (iii) the “catch-up” provision of Adjusted EBITDA contained in the 2014 and 2015 performance-based restricted stock awards and (iv) a lack of detailed disclosure explaining how the Company ties compensation to its long-term strategy. The institutional investors suggested that the Company's Compensation Disclosure and Analysis in its Proxy Statement should be more robust in tying executive compensation to the Company's long-term strategy. They also requested additional disclosure of the factors, including marketplace data, that the Company considers in designing its compensation programs and making decisions.
The Company had telephonic meetings with six institutional investors during the period it was soliciting proxies for the Company's 2017 Annual Meeting. Afterwards, while the Company did not seek additional meetings with the corporate governance divisions of its institutional investors, it continued to engage with stockholders who wished to have discussions. The Company had two additional calls with institutional investors in 2017 and many of the same themes from the earlier meetings were reiterated.
As of the date hereof, the Compensation Committee, with assistance from its compensation consultant, GK Partners, Inc., continues to thoughtfully consider the feedback received from its institutional investors. While specific changes to the Company's executive compensation program have not yet been implemented since many of the observations of the institutional investors pertain to past compensation decisions, the Compensation Committee expects to consider these concerns in the design of the Company's compensation program for 2018 and thereafter.
See the discussion of this year's say on pay vote at “Board Proposal 2 - Advisory Vote on Executive Compensation” for further discussion.
Compensation Components
The key components of the Company’s executive compensation program consist of a base salary, an annual performance-based bonus pursuant to the Bonus2014 Plan, equity awards under the 1999 Plan and the 2014 Plan and various benefits, including the Company’s Supplemental Retirement Plan, the Liggett Vector Brands Inc. Savings Plan (the “401(k) Plan ”) and the use of corporate aircraft by the President and Chief Executive Officer. The employment agreements with the Company’s named executive officers also provide for severance compensation in the event of termination other than for cause during the term of the agreement or, in certain cases, following a change in control of the Company during the term of the agreements.
Base Salary
Base salaries for the Company’s named executive officers are established based on their overall business experience and managerial competence in their respective executive roles, as well as their personal contributions to the Company and are intended to provide a competitive levellevels of fixed compensation. The compensation committee believes that executive base salaries should be targeted at competitive levels while rewarding long-term outstanding performance with above-average total compensation. Base salaries are reviewed annually, based on recommendations by the Company’s Chief Executive Officer with respect to the salaries of executive officers other than himself, and may be increased from time to time based on review of Companythe Company's results and individual executive performance. An automatic cost of living adjustment to base salary is included under the terms of Mr. Lorber's employment agreement. On October 29, 2013, Mr. Bernstein's employment agreement was amended to increase his base salary to $1,000,000 per annum and terminate the cost of living adjustment, effective January 1, 2014. Effective January 1, 2015,2018, as a result of thehis cost of living provision, Mr. Lorber's base salary was increased to $3,110,009.$3,248,391. The compensation committee did not adjust the salaries of the other named executive officers in 2015 as part of the annual compensation review process.2017.
Annual Incentive Bonus Awards
The Company's executive officers are eligible to participate each year in the Bonus Plan which was adopted by the board of directors in January 2011, and approved by the Company's stockholders at theearn annual meeting in May 2011. Following the May 2014 approval of the 2014 Plan by the Company's stockholders,cash incentive awards have been made under the 2014 Plan. The compensation committee has delegated to theits Performance-based Compensation Subcommittee, consisting of Messrs. BeinsteinArkin and Podell, the authority to grant compensation to executive officers under the Bonus Plan and the 2014 Plan that is intended to qualify as “performance-based
compensation” exempt from the $1,000,000 deduction limitation ofunder Section 162(m) of the Internal Revenue Code. Thus, with respect to these officers, the Subcommittee selects participants in the Bonus Plan and the 2014 Plan, determines the amount of their award opportunities, selects the performance criteria and the performance goals for each year, determines whether the performance goals have been met and administers and interprets the Bonus2014 Plan. An eligible executive may (but need not) be selected to participate in the Bonus Plan andannual incentive awards under the 2014 Plan each year.Plan.
In 20142017, each of the Company's named executive officers participated in the Bonusannual cash incentive program under the 2014 Plan. The Bonus Planannual incentive performance criteria for 20142017 varied among the participants depending upon the entity that employed the participant.participant after considering the differing regulatory and competitive landscapes. For Messrs. Lorber, Lampen, Kirkland and Bell, as in previous years, the criteria for 20142017 were based on: 37.5% onfor adjusted earnings before interest and taxes, or Adjusted EBIT, as defined in the 2014 Plan, of Liggett; 37.5% onfor distributions to stockholders of the Company; and 25% onfor adjusted earnings before interest, taxes and amortization, or Adjusted EBITA, as defined in the 2014 Plan, of Douglas Elliman Realty, LLC.LLC (“Douglas Elliman”). For Mr. Bernstein, 50% is based on Liggett Adjusted EBIT, as defined, and 50% is based on Liggett Volume. These measures were chosen because Adjusted EBIT is commonly used as ato measure of performance in the tobacco industry and Adjusted EBITA is commonly used to measure performance in the real estate brokerage industry and are, inindustry. In each case, these criteria are the principal drivers of the business performance and stockholder value in those industries.
Under the terms of their respective employment agreements, for 20142017, Messrs. Lorber, Lampen, Kirkland, Bell and Bernstein were eligible to receive a target bonusincentive opportunity of 100%, 50%, 25%33.33%, 25% and 100% of their respective base salaries.
Depending on the level of achievement of the performance criteria, the actual amounts of incentive bonusespayments could also exceed the target bonusannual incentive amounts for Messrs. Lorber, Lampen, Kirkland and Bell (see “Grants of Plan-Based Awards in 20142017”). The Subcommittee may exercise negative discretion with respect to any award to reduce any amount that would otherwise be payable under the Bonusannual incentive program granted under the 2014 Plan.
The 20142017 performance necessary for Messrs. Lorber, Lampen, Kirkland, Bell and Bernstein to receive bonusesannual incentive awards at the target level were set at levels which were believed to be rigorous, but reasonably achievable, based on internal corporate plans.
For Messrs. Lorber, Lampen, Kirkland and Bell, the performance necessary to achieve the minimum, target or maximum bonusawards in 20142017 was as follows:
percentages of the target bonuscash incentive opportunity based on Liggett Adjusted EBIT were $165,000,000$236,250,000 (50%), $195,000,000$256,250,000 (100%), and $200,000,000$261,250,000 and above (125%); the actual Liggett Adjusted EBIT for 20142017 were $201,755,000265,948,000;
percentages of the target bonuscash incentive opportunity based on cash dividends per share of the Company were $1.40 (50%), $1.60 (100%), and $1.80 and above (125%); the actual cash dividends paid in 20142017 were $1.60 per share; and,
percentages of the target bonuscash incentive opportunity based on Douglas Elliman Adjusted EBITA were $44,500,000$30,000,000 (50%), $52,000,000$40,000,000 (100%), and $57,500,000$45,000,000 and above (125%); the actual Douglas Elliman Adjusted EBITA for 20142017 were $58,139,000.$41,824,000.
Based on actual 20142017 results compared to the established performance criteria, bonusesannual cash incentive payments equal to 115.625%111.655% of target bonus amounts were achieved and awarded to Messrs. Lorber, Lampen, Kirkland and Bell, and they were awarded bonuses of 115.625% of their respective target bonus amounts.Bell.
For Mr. Bernstein, the performance necessary to achieve the minimum target or maximum bonusincentive award in 20142017 werewas as follows:
percentages of target bonuscash incentive opportunity based on Liggett Adjusted EBIT were $195,000,000$256,250,000 (50%) and $200,000,000$261,250,000 and above (100%); the actual Liggett Adjusted EBIT for 20142017 were $201,755,000265,948,000; and,
percentages of target bonus basedcash incentive opportunity on Liggett Volume of 9.07.5 billion units (50%) and 9.58.0 billion units (100%); the actual Liggett Volume for 20142017 was 8.99.15 billion units.
Based on actual 20142017 results compared to the established performance criteria, 50%100% of Mr. Bernstein’s target bonusincentive opportunity was achieved and awarded to him.
Bonus amounts for achieving performance criteria in between the amounts listed above are determined by linear interpolation between the higher and lower amounts. The actual performance-based bonusincentive payments made to the selected participants for the years ended December 31, 20122015, 20132016 and 20142017 are set forth in the column labeled “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table. Performance bonus awardsAnnual incentive compensation earned by named executive officers after February 26, 2014 areis subject to the Company's Executive Compensation Clawback Policy.
Long-Term Incentive Award
In January 2011, a long-term incentive award for the five-year period ending December 31, 2015 was made under the Bonus Plan to seven key members of Liggett's management, including Mr. Bernstein, to provide a significant incentive to achieve Liggett's five-year plan. The total pool will range from $10,000,000 (if the minimum Liggett Adjusted EBIT performance goal as defined in the long-term incentive award ($1.125 billion for the five-year period ending December 31, 2015) is achieved) to $20,000,000 (if the maximum Liggett Adjusted EBIT performance goal as defined in the long-term incentive award ($1.225 billion for the five-year period ending December 31, 2015) is achieved). Mr. Bernstein is eligible to be paid 50% of the amount earned by the selected group of Liggett executives under this long-term incentive award opportunity. Payments between the minimum and maximum Liggett Adjusted EBIT goals will be determined by linear interpolation. Awards will be paid in cash by March 15, 2016 provided that, at the option of the Subcommittee, up to 50% of the awards may be paid in shares of the Company's Common Stock valued at the average closing price for the 10 trading days preceding the payment date. GK Partners has provided its opinion that the long-term award was reasonable and appropriate in the context of current market practices. Management does not currently believe that any payments will be made under this award.
Equity Compensation
Long-term equity compensation is intended to provide a variable pay opportunity that rewards long-term performance by the Company as a whole and serves as a significant incentive to remain with the Company. TheIn establishing long-term equity compensation awards, the compensation committee obtains an opinion of GK Partners as tohas considered the reasonableness and competitiveness of each award to a named executive officer.above-market returns generated by the Company.
On February 24, 2015, the Subcommittee granted options to Messrs. Lorber (250,000 shares), Lampen (62,500 shares), Kirkland (37,500 shares) and Bell (37,500 shares) to recognize past and current performance and to serve as a means of incentivizing and retaining key employees. The options are non-qualified options with a ten-year term with cliff vesting on the fourth anniversary of grant and have an exercise price equal to the market price on the date of grant ($23.10). The options have dividend equivalent rights. GK Partners has reviewed the Company's dividend equivalent policy and has provided its opinion that equity grants that include dividend equivalents are a means of management compensation that are appropriate and consistent with the Company's strategy with respect to dividend policy (and the critical importance thereof). Shares received upon exercise of the February 24, 2015 option grants will be subject to the Company's Equity Retention and Hedging Policy. See “Equity Retention Policy.”
On July 23, 2014, the Subcommittee granted 1,050,000 shares of restricted stock (the “Award Shares”) to Mr. Lorber to recognize past and current performance and to serve as a means of providing a meaningful incentive for Mr. Lorber to continue to serve as CEO during the next seven years, even though he is eligible to retire now, and for him to enhance corporate value during that time. The maximum potential amount of the Award Shares reflects recognition of his contributions as CEO since January 1, 2006 and the value of his management and real estate expertise to the Company. The Award shares were issued pursuant to the terms of an agreement which provides that both a performance requirement and a continued employment requirement must be met during a stated performance period for the Award Shares to vest. The award will vest using the following schedule: 150,000 shares will vest on August 15, 2015 if the Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to June 30, 2015 exceeds $175 million, 300,000 shares minus shares previously vested will vest on July 1, 2016 if cumulative Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2015 exceeds $262.5 million, 450,000 shares minus shares previously vested will vest on July 1, 2017, if cumulative Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2016 exceeds $437.5 million, 600,000 shares minus shares previously vested will vest on July 1, 2018 if cumulative Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2017 exceeds $612.5 million, 750,000 shares minus shares previously vested will vest on July 1, 2019 if cumulative Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2018 exceeds $787.5 million, 900,000 shares minus shares previously vested will vest on July 1, 2020 if cumulative Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2019 exceeds $962.5 million; and 1,050,000 shares minus shares previously vested will vest on July 1,
2021 if cumulative Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2020 exceeds $1.138 billion. “Vector Group Ltd. Adjusted EBITDA” is defined in the Award Agreement to mean the Company’s Earnings Before Interest, Income Taxes, Depreciation and Amortization excluding litigation or claim judgments or settlements and non-operating items and expenses for restructuring, productivity initiatives and new business initiatives. Shares received upon vesting of the restricted stock grant will be subject to the Company's Equity Retention and Hedging Policy. See “Equity Retention Policy.”
On February 26, 2014, the Subcommittee granted options to Messrs. Lorber (262,500 shares), Lampen (65,625 shares), Kirkland (39,375 shares) and Bell (39,375 shares) to recognize past and current performance and to serve as a means of incentivizing and retaining these key employees. The options granted are ten-year non-qualified options with a ten-year term with cliff vesting on the fourth anniversary of grant and have an exercise price equal to the market price on May 16, 2014, which was the date the 2014 Plan was approvedof grant ($18.41)21.72). The options have dividend equivalent rights. GK Partners has reviewed the Company's dividend equivalent policy and has provided its opinion that equity grants that include dividend equivalents are a means of management compensation that are appropriate and consistent with the Company's strategy with respect to dividend policy (and the critical importance thereof). Shares received upon exercise of the February 26, 201423, 2017 option grants will be subject to the Company's Equity Retention and Hedging Policy. See “Equity Retention Policy.”
Dividend Equivalents
Under the terms of various equity awards made to the Company’s named executive officers under the Company’s stock plans, dividend equivalent payments and distributions are made to the executive officers with respect to the shares of Common Stock underlying the unexercised and unvested portion of the equity awards and the termsexercise prices of equity awardsstock options are adjusted to reflect stock dividends. These payments and distributions are made at the same rate as dividends and other distributions paid on shares of the Company’s issued and outstanding shares of Common Stock. GK Partners has reviewed the Company's dividend equivalent policy and has provided its opinion that equity grants that include dividend equivalents are a means of management compensation that are appropriate and consistent with the Company's strategy with respect to dividend policy (and the critical importance thereof). In 2014,2017, named executive officers earned cash dividend equivalent payments on unexercised stock options (in the case of Messrs. Lorber, Lampen, Kirkland and Bell) and unvested restricted stock (in the case of Mr. Bernstein) as follows: Mr. Lorber — $3,580,9375,422,138; Mr. Lampen —$628,9331,047,254; Mr. Kirkland — $345,854591,878; Mr. Bell — $303,329542,650; and Mr. Bernstein - $0.— $51,569. In accordance with the disclosure rules of the SEC, these amounts have not been separately reported in the Summary Compensation Table because the value of the dividend equivalent rights was included in the initial grant date fair value of the underlying optionsoption grants which is reported in the table.
Supplemental Retirement Plan
Retirement benefits are designed to reward long and continuous service by providing post-employment security and are an essential component of a competitive compensation package.
The Company’s named executive officers and certain other management employees are eligible to participate in the Supplemental Retirement Plan, which was adopted by the board of directors in January 2002 to promote retention of key executives and to provide them with financial security following retirement. As described more fully and quantified in “Pension Benefits at 20142017 Fiscal Year End,” the Supplemental Retirement Plan provides for the payment to a participant at his or her normal retirement date of a lump sum amount that is the actuarial equivalent of a single life annuity commencing on that date. The single life annuity amounts for the named executives were determined by the Company’s board of directors giving consideration to a variety of pertinent factors including (but not limited to) the executive’s level of annual compensation.
Other Benefits
The Company’s executive officers are eligible to participate in all of its employee benefit plans, such as medical, dental, vision, group life, disability and accidental death and dismemberment insurance and Liggett Vector Brandsthe 401(k) plan.Plan. These benefits are designed to provide a safety net of protection against the financial catastrophes that can result from illness, disability or death. The Company also provides vacation and other paid holidays to its executive officers, as well as certain other perquisites further described below and in the Summary Compensation Table.
Perquisites
The Company provides the perquisites or personal benefits to its named executive officers discussed below. The Company’s corporate aircraft are made available for the personal use of Mr. Lorber and other executive officers at Mr. Lorber’s discretion. The Company’s corporate aircraft policy permits personal use of corporate aircraft by executives, subject to an annual limit of $200,000 for personal use by Mr. Lorber. For purposes of determining the amounts allowable under thethis policy, the value of the personal usage is calculated using the applicable standard industry fare level formula established by the Internal Revenue Service (as distinguished from the aggregate incremental cost approach used for determining the value included in the Summary Compensation Table), and Mr. Lorber and any other executive officers pay income tax on such value. In addition, Mr. Lorber is entitled to a car and driver provided by the Company, a $7,500 per month allowance for lodging and related business expenses, and two club memberships. See the Summary Compensation Table for details regarding the value of perquisites received by the named executive officers.
Change in Control Provisions
The employment agreement entered into between the Company and Mr. Lorber contains change in control provisions. In the event of a change in control that results in a termination of employment without cause (a “double trigger” change in control provision), Mr. Lorber will receive severance benefits. The purpose of these provisions is to avoid the distraction and loss of key management personnel that may occur in connection with rumored or actual corporate transactions and/or other fundamental
corporate changes and to provide adequate protection to key management personnel in the event that their employment is terminated following a change of control. A change in control provision protects stockholder interests by enhancing employee focus during rumored or actual change in control activity through incentives to remain with the Company despite uncertainties while a transaction is under consideration or pending and by assurance of the payment of severance and benefits for terminated executives. A detailed summary of these provisions is set forth under the heading “Payments Made Upon a Change in Control.”
Inter-Relationship of Elements of Compensation Packages
The various elements of the compensation packages for the Company’s executive officers are not directly inter-related. For example, if it does not appear as though the target bonusannual cash incentive award will be achieved, the number of options that will be granted is not affected. If options that are granted in one year become underwater due to a decreasedecline in the Company’s stock price, the amount of the bonus amountannual cash incentive award or compensation to be paid the executive officer for the next year is not impacted. Similarly, if options become extremely valuable due to a rising stock price, the amount of compensation or bonusannual cash incentive award to be awarded for the next year is not affected. However, the compensation committee does evaluate the total value of executive remuneration when making decisions with respect to any particular element thereof.compensation element.
Prohibition on Hedging
Under the Company's Equity Retention and Hedging Policy, adopted in January 2013, ourthe Company's executive officers are prohibited from hedging ownership of shares of Common Stock acquired under an incentive equity or option award granted after January 1, 2013, (the “Equity Award Shares”), including by trading in publicly traded options, puts, calls or other derivative instruments related to the Company's Common Stock.
Equity Retention Policy
Under its Equity Retention and Hedging Policy, the Company formalized its long-standing practice of significant share retention by senior management. Until normal retirement age as defined in the the Company's Supplemental Executive Retirement Plan, each executive officer is required to retain at least 25% (after taxes and exercise costs) of Equity Award Shares.
Stock Ownership Guidelines
In March 2014, the Company formalized its long-standing practice of significant share ownership by senior management by adopting Stock Ownership Guidelines. These guidelines are applicable to all named executive officers and each non-employee member of the Board. Under the guidelines, which are phased in within the later of five years after the adoption of the guidelines or the date that a covered person becomes a named executive officer ofor member of the Board, the following ownership requirements exist.
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| | | | |
Title | | Value of Shares Owned |
| | | | |
Chief Executive Officer | | 3.0 | X | Base Salary |
Executive Vice Presidents | | 1.5 | X | Base Salary |
Other named executive officers | | 1.0 | X | Base Salary |
Non-employee directors | | 2.0 | X | Annual Retainer |
“Shares owned” for purposes of the policy include shares of the Company's stock owned outright, any shares held under an employee benefit plan, and restricted shares. The valuation of shares includes all shares held beneficially or directly by any covered person or the person's family members or trusts but excludes pledged shares. Compliance is tested on the last day of each quarter. As of December 31, 2017, all covered employees were in compliance with the guidelines.
Executive Compensation Clawback Policy
In March 2014, the Company adopted an Executive Compensation Clawback Policy (the “Clawback Policy”), which states as a condition to receiving areceive bonus andor incentive-based compensation from the Company, each named executive officer shallmust enter into an agreement with the Company providing that any performance-based compensation awarded, paid or payable by the Company or any of its subsidiaries subsequent to the date of adoption of the Clawback Policy shall be subject to recovery or “clawback” by the Company. Under the Clawback Policy, if the Company’s financial results are restated, the result of which is that any performance-based compensation would have been lower had it been calculated based on such restated results, the compensation committee shall review the performance-based compensation received by the named executive officers. If the compensation committee determines that the performance-based compensation would have been lower and that a named executive officer who received such compensation engaged in fraud, material financial or ethical misconduct or recklessness in the performance of the named executive officer's duties or intentional illegal conduct which materially contributed to the restatement, then the compensation committee may seek to recover the after-tax portion of the excess amount of performance-based compensation. Under the policy, the compensation committee has the discretion to determine to seek recovery of the performance-based compensation after notice and an opportunity to be heard is provided to the named executive officer.
Tax and Accounting Implications
Deductibility of Executive Compensation
The compensation committee and its Subcommittee review and consider the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), which generally providesimposes a $1,000,000 limit on the amount that no publicly-helda publicly-traded company may deduct on compensation in excess of $1,000,000 paid in any taxable year to its chief executive officer and chief financial officer or any of its three other highest compensated officers (other thanofficers. Prior to the Chief Financial Officer) at year-end unlessTax Cuts and Jobs Act of 2017, Section 162(m) included an exception to the compensation qualifies as “performance-based.”limit for “qualifying performance-based compensation”; however, the Tax Cuts and Jobs Act of 2017 eliminated this exception.
Determinations with respect to compensation intended to be deductible under Section 162(m) of the Code are made by the Subcommittee, which consists of Messrs. Podell and Beinstein,Arkin, who qualify as “outside directors” under Section 162(m). In certain situations, the compensation committee or the Subcommittee has in the past and may in the future approve compensation that will not meet these deductibility requirements in order to ensure appropriate and competitive levels of total compensation for the Company’s executive officers. In this regard, compensation paid to Messrs. Lorber and Lampennamed executive officers in excess of $1,000,000 from base salary and dividend equivalent rights in 20142017 was not deductible for federal income tax purposes under Section 162(m) of the Code.
Accounting for Stock-Based Compensation
The Company accounts for stock-based compensation, including stock option and restricted stock awards under the Plans, in accordance with the requirements of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”).
Compensation Committee Report
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with management and, based on such review and discussion, has recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.
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| |
| THE COMPENSATION COMMITTEE |
| |
| Jeffrey S. Podell, Chairman |
| Henry C. BeinsteinStanley S. Arkin |
| Jean E. Sharpe |
SUMMARY COMPENSATION TABLE FOR YEARS 20122015 — 20142017
The following table summarizes the compensation of the named executive officers for the years ended December 31, 20142017, 20132016 and 20122015. The named executive officers are the Company’s Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated executive officers ranked by their total compensation in the table below (not taking into account the amount in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column).
| | | | Salary | Bonus | Stock Awards | | Option Awards | | Non-Equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | | Total | | Salary | Bonus | Stock Awards | | Option Awards | | Non-Equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | | Total |
Name and Principal Position | Year | ($)(1) | ($) | | ($) | | ($)(4) | ($)(5) | ($) | | ($) | Year | ($)(1) | ($) (2) | ($) (3) | | ($) (3) | | ($)(4) | ($)(5) | ($) | | ($) |
Howard M. Lorber | 2014 | $ | 3,100,398 |
| $ | 0 |
| $ | 20,780,000 |
| (2) | $ | 819,154 |
| (2) | $ | 3,584,835 |
| $ | 988,540 |
| $ | 363,712 |
| (6) | $ | 29,636,639 |
| 2017 | $ | 3,198,494 |
| — |
| — |
| | $ | 1,348,296 |
| | $ | 3,571,278 |
| $ | 2,044,565 |
| $ | 471,299 |
| (6) | $ | 10,633,932 |
|
President and Chief | 2013 | $ | 3,055,482 |
| $ | 0 |
| $ | 0 |
| | $ | 1,358,307 |
| (2) | $ | 3,532,901 |
| $ | 1,142,443 |
| $ | 355,675 |
| | $ | 9,444,808 |
| 2016 | $ | 3,132,401 |
| — |
| — |
| | $ | 1,272,384 |
| | $ | 3,457,562 |
| $ | 2,826,334 |
| $ | 370,426 |
| | $ | 11,059,107 |
|
Executive Officer | 2012 | $ | 2,992,344 |
| $ | 0 |
| $ | 288,456 |
| (3) | $ | 0 |
| | $ | 3,459,898 |
| $ | 2,764,549 |
| $ | 336,402 |
| | $ | 9,841,649 |
| 2015 | $ | 3,110,009 |
| — |
| $ | 28,374,000 |
| | $ | 1,617,199 |
| | $ | 3,484,376 |
| $ | 5,562,312 |
| $ | 393,834 |
| | $ | 42,541,730 |
|
Richard J. Lampen | 2014 | $ | 900,000 |
| $ | 0 |
| $ | 0 |
| | $ | 357,950 |
| (2) | $ | 520,313 |
| $ | 130,243 |
| $ | 7,800 |
| (7) | $ | 1,916,306 |
| 2017 | $ | 900,000 |
| — |
| — |
| | $ | 337,074 |
| | $ | 502,448 |
| $ | 241,836 |
| $ | 8,100 |
| (7) | $ | 1,989,458 |
|
Executive Vice | 2013 | $ | 900,000 |
| $ | 0 |
| $ | 0 |
| | $ | 597,821 |
| (2) | $ | 520,313 |
| $ | 323,844 |
| $ | 7,650 |
| | $ | 2,349,628 |
| 2016 | $ | 900,000 |
| — |
| — |
| | $ | 318,096 |
| | $ | 496,713 |
| $ | 334,305 |
| $ | 7,950 |
| | $ | 2,057,064 |
|
President | 2012 | $ | 900,000 |
| $ | 0 |
| $ | 0 |
| | $ | 0 |
| | $ | 520,313 |
| $ | 326,207 |
| $ | 7,500 |
| | $ | 1,754,020 |
| 2015 | $ | 900,000 |
| — |
| — |
| | $ | 404,300 |
| | $ | 504,169 |
| $ | 508,515 |
| $ | 7,950 |
| | $ | 2,324,934 |
|
J. Bryant Kirkland III | 2014 | $ | 425,000 |
| $ | 0 |
| $ | 0 |
| | $ | 274,611 |
| (2) | $ | 122,852 |
| $ | 110,975 |
| $ | 7,800 |
| (7) | $ | 941,238 |
| 2017 | $ | 500,000 |
| — |
| — |
| | $ | 306,343 |
| | $ | 186,073 |
| $ | 187,347 |
| $ | 8,100 |
| (7) | $ | 1,187,863 |
|
Vice President, Chief | 2013 | $ | 425,000 |
| $ | 0 |
| $ | 0 |
| | $ | 434,956 |
| | $ | 122,852 |
| $ | 86,931 |
| $ | 7,650 |
| | $ | 1,077,389 |
| |
Financial Officer and Treasurer | 2012 | $ | 425,000 |
| $ | 0 |
| $ | 0 |
| | $ | 0 |
| | $ | 122,852 |
| $ | 77,214 |
| $ | 7,500 |
| | $ | 632,566 |
| |
Senior Vice President, | | 2016 | $ | 500,000 |
| — |
| — |
| | $ | 258,186 |
| | $ | 183,949 |
| $ | 145,729 |
| $ | 7,950 |
| | $ | 1,095,814 |
|
Chief Financial Officer and Treasurer | | 2015 | $ | 425,000 |
| $ | 39,664 |
| — |
| | $ | 302,664 |
| | $ | 119,040 |
| $ | 13,757 |
| $ | 7,950 |
| | $ | 908,075 |
|
Marc N. Bell | 2014 | $ | 425,000 |
| $ | 0 |
| $ | 0 |
| | $ | 274,611 |
| (2) | $ | 122,852 |
| $ | 150,317 |
| $ | 7,800 |
| (7) | $ | 980,580 |
| 2017 | $ | 425,000 |
| — |
| — |
| | $ | 306,343 |
| | $ | 118,633 |
| $ | 343,770 |
| $ | 8,100 |
| (7) | $ | 1,201,846 |
|
Vice President, | 2013 | $ | 425,000 |
| $ | 0 |
| $ | 0 |
| | $ | 289,970 |
| (2) | $ | 122,852 |
| $ | 126,694 |
| $ | 7,650 |
| | $ | 972,166 |
| |
Senior Vice President, | | 2016 | $ | 425,000 |
| $ | 250,000 |
| — |
| | $ | 258,186 |
| | $ | 117,279 |
| $ | 267,403 |
| $ | 7,950 |
| | $ | 1,325,818 |
|
General Counsel and Secretary | 2012 | $ | 425,000 |
| $ | 0 |
| $ | 0 |
| | $ | 0 |
| | $ | 122,852 |
| $ | 118,636 |
| $ | 7,500 |
| | $ | 673,988 |
| 2015 | $ | 425,000 |
| $ | 250,000 |
| — |
| | $ | 302,664 |
| | $ | 119,040 |
| $ | 318,021 |
| $ | 7,950 |
| | $ | 1,422,675 |
|
Ronald J. Bernstein | 2014 | $ | 1,000,000 |
| $ | 0 |
| $ | 0 |
| | $ | 0 |
| | $ | 500,000 |
| $ | 234,733 |
| $ | 7,800 |
| (7) | $ | 1,742,533 |
| 2017 | $ | 1,000,000 |
| — |
| — |
| | — |
| | $ | 1,000,000 |
| $ | 280,744 |
| $ | 8,100 |
| (7) | $ | 2,288,844 |
|
President and Chief | 2013 | $ | 908,719 |
| $ | 0 |
| $ | 458,425 |
| (2) | $ | 0 |
| | $ | 855,514 |
| $ | 482,574 |
| $ | 7,650 |
| | $ | 2,712,882 |
| 2016 | $ | 1,000,000 |
| — |
| — |
| | — |
| | $ | 1,000,000 |
| $ | 261,187 |
| $ | 7,950 |
| | $ | 2,269,137 |
|
Executive Officer of Liggett Vector Brands and Liggett | 2012 | $ | 892,241 |
| $ | 0 |
| $ | 0 |
| | $ | 0 |
| | $ | 809,307 |
| $ | 511,226 |
| $ | 7,500 |
| | $ | 2,220,274 |
| 2015 | $ | 1,000,000 |
| — |
| — |
| | — |
| | $ | 1,000,000 |
| $ | 202,652 |
| $ | 7,950 |
| | $ | 2,210,602 |
|
___________________________
| |
(1) | Reflects actual base salary amounts paid for 20142017, 20132016 and 20122015. |
| |
(2) | Mr. Kirkland's bonus for 2015 related to his management of the Company's financial matters and Mr. Bell’s bonuses for 2015 and 2016 related to his management of the Company's litigation matters. |
| |
(3) | Represents the aggregate grant date fair value of stock or stock options granted under the 2014 Plan, and 1999 Plan, respectively, during the years ended December 31, 20142017, 2016 and December 31, 20132015 as determined in accordance with FASB ASC Topic 718, rather than an amount paid to or realized by the named executive officer. Assumptions used in the calculation of such amount are included in note 1314 to the Company’s audited financial statements for the year ended December 31, 20142017 included in its Annual Report on Form 10-K filed with the Securities and Exchange CommissionSEC on March 4, 2015. The1, 2018. These grants may be subject to certain continued service and performance conditions; consequently, FASB ASC Topic 718 amounts from these grantsincluded in the table may never be realized by the named executive officer. |
| |
(3) | Reflects amount related to the modified requisite service period as a result of the acceleration of vesting of 268,017 shares of restricted stock in December 2012. The shares were originally granted in 2009 and were scheduled to vest in equal installments in September 2013 and September 2014. See note 11 to the Company’s audited financial statements for the year ended December 31, 2012 included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2013. |
| |
(4) | These amounts reflect performance-based cash awards under the Bonus2014 Plan paid during 20152018, 20142017 and 20132016 in respect of service performed in 20142017, 20132016 and 20122015, respectively. This plan is discussed in further detail under the heading “Annual Incentive Bonus Awards.” |
| |
(5) | Amounts reported for 2014 represent the increase in the actuarial present value of benefits associated with the Company’s pension plans while amounts reported for 2013 and 2012 reflect the change in the pension value (and nonqualified deferred compensation earnings were equal to the pension expense).plans. Assumptions for 20142017 amounts are further described in “Pension Benefits at 20142017 Fiscal Year End.” The amounts reflect the increase in actuarial present value for the named executive officer’s benefits under the Supplemental Retirement Plan determined using interest rate, retirement date and mortality rate assumptions consistent with those used in the Company’s financial statements. No amount is payable from this plan before a participant attains age 60 during active service except in the case of death, disability or termination without cause. For Mr. Bernstein, the reported amount also includes $6,158a change of $5,542 in 20142017 in connection with Liggett Group Inc. Retirement Plan for Salaried Non-Bargaining Unit Employees. There can be no assurance that the amounts shown will ever be realized by the named executive officers. |
| |
(6) | Represents perquisites consisting of $265,912$373,199 for personal use of corporate aircraft in 20142017 and a $90,000 allowance paid for lodging and related business expenses in 20142017. Also includes $7,800$8,100 for 401(k) Plan matching contributions in 20142017. For purposes of determining the value of corporate aircraft use, the personal use is calculated based on the aggregate incremental cost to the Company. For flights on corporate aircraft, aggregate incremental cost for purposes of this table is calculated based on a cost-per-flight-mile charge developed from internal Company data. The charge reflects the direct |
For purposes of determining the value of corporate aircraft use, the personal use is calculated based on the aggregate incremental cost to the Company. For flights on corporate aircraft, aggregate incremental cost for purposes of this table is calculated based on a cost-per-flight-mile charge developed from internal Company data. The charge reflects the direct operating cost of the aircraft, including fuel, additives and lubricants, airport fees and catering. In addition, the charge also reflects an allocable allowance for maintenance and engine restorations.
| |
(7) | Represents 401(k) plan matching contributions. |
Employment Agreements and Severance Arrangements
Compensation arrangements, as reflected in the employment agreements with the Company’s executive officers, are usually negotiated on an individual basis between the Chief Executive Officer and each of the other executives. While the compensation committee has delegated to the Chief Executive Officer the responsibility of negotiating these employment agreements and his input is given significant consideration by the compensation committee, the compensation committee and the board have final authority over all compensation matters.
On January 27, 2006, the Company and Howard M. Lorber entered into an amended and restated employment agreement (the “Amended Lorber Agreement”), which replaced his prior employment agreements with the Company and with New Valley Corporation.Valley. The Amended Lorber Agreement had an initial term of three years effective as of January 1, 2006, with an automatic one-year extension on each anniversary of the effective date unless notice of non-extension is given by either party within 60 days before this date. Mr. Lorber’s salary is subject to an annual cost of living adjustment. As of January 1, 20152018, Mr. Lorber’s annual base salary was $3,110,0093,248,391. In addition, the Company’s board must periodically review his base salary and may increase but not decrease it from time to time in its sole discretion. Mr. Lorber is eligible on an annual basis to receive a target bonus of 100% of his base salary under the Company’s Bonus Plan.annual incentive bonus awards. During the period of his employment, Mr. Lorber is entitled to various benefits, including a Company-provided car and driver, a $7,500 per month allowance for lodging and related business expenses, two club memberships and dues, and use of corporate aircraft in accordance with the Company’s Corporate Aircraft Policy. Following termination of his employment by the Company without cause (as defined in the Amended Lorber Agreement), termination of his employment by him for certain reasons specified in the Amended Lorber Agreement or upon death or disability, he (or his beneficiary in the case of death) would continue to receive for a period of 36 months following the termination date his base salary and the bonus amount earned by him for the prior year (with such bonus amount limited to 100% of base salary). In addition, except as otherwise provided in an award agreement, all of Mr. Lorber’s outstanding equity awards would be vested and any stock options granted after January 27, 2006 would continue to be exercisable for no less than two years or the remainder of the original term if shorter. Following termination of his employment for any of the reasons described above (other than death or disability) within two years ofafter a change in control (as defined in the Amended Lorber Agreement), or before a change of control that actually occurs in anticipation of or at the request of a third party effectuating such change in control, he would receive a lump sum payment equal to 2.99 times the sum of his then current base salary and the bonus amount earned by him for the prior year (with such bonus amount limited to 100% of base salary). In addition, Mr. Lorber will be indemnified in the event that excise taxes are imposed on change-of-control payments under Section 4999 of the Code.
On January 27, 2006, the Company entered into employment agreements (the “Other Executive Agreements”) with Richard J. Lampen, the Company’s Executive Vice President, J. Bryant Kirkland III, the Company’s Senior Vice President and, effective April 1, 2006, Chief Financial Officer, and Marc N. Bell, the Company’s Senior Vice President, General Counsel and Secretary. The Other Executive Agreements replaced prior employment agreements with the Company or New Valley. The Other Executive Agreements had an initial term of two years effective as of January 1, 2006, with an automatic one-year extension on each anniversary of the effective date unless notice of non-extension is given by either party within 60 days before this date. As of January 1, 20152018, the annual base salaries provided for in these Other Executive Agreements were $900,000 for Mr. Lampen, $425,000$500,000 for Mr. Kirkland and $425,000 for Mr. Bell. In addition, the board must periodically review these base salaries and may increase but not decrease them from time to time in its sole discretion. These executives are eligible to receive a target bonus of 50% for Mr. Lampen, 33.33% for Mr. Kirkland and 25% for Messrs. Kirkland andMr. Bell, of their base salaries under the Company’s non-equity incentive bonus plan. Following termination of their employment by the Company without cause (as defined in the Other Executive Agreements), termination of their employment by the executives for certain reasons specified in the Other Executive Agreements or upon death or disability, they (or their beneficiaries in the case of death) would continue to receive for a period of 24 months following the termination date their base salary and the bonus amount earned by them for the prior year (with such bonus amount limited to 50% of base salary for Mr. Lampen, 33.33% of base salary for Mr. Kirkland and 25% of base salary for Messrs. Kirkland andMr. Bell).
On November 11, 2005, Liggett, a wholly-owned subsidiary of the Company, and Ronald J. Bernstein entered into an employment agreement (the “Bernstein Employment Agreement”), pursuant to which Mr. Bernstein serves as President and Chief Executive Officer of Liggett and affiliated companies. The Bernstein Employment Agreement had an initial term expiring December 31, 2008, with an automatic one-year extension on each anniversary of the effective date unless notice of non-extension is given by either party within six months before this date. On October 29, 2013, the Bernstein Employment Agreement was amended to increase Mr. Bernstein’s base salary, effective January 1, 2014, to $1,000,000 per annum and terminate a provision in Mr. Bernstein’s contract which granted him an automatic annual increase in base salary based on a cost of living adjustment.
Under the terms of the Bernstein Employment Agreement, Mr. Bernstein is eligible on an annual basis to receive a target bonus of up to 100% of his base salary under the Company’s non-equity incentive bonus plan if Liggett meets certain pre-established
operating goals. Following termination of his employment without cause, he would continue to receive his base salary for a period of 24 months. As of January 1, 20152018, Mr. Bernstein’s annual base salary was $1,000,000.
CEO Pay Ratio
Pursuant to Item 402(u) of Regulation S-K and Section 953(b) of the Dodd-Frank Act, presented below is the ratio of annual total compensation of the Company's CEO to the annual total compensation of the Company's median employee (excluding the CEO).
The ratio presented below is a reasonable estimate calculated in a manner consistent with Item 402(u). The SEC’s rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. As a result, the pay ratio reported by other companies may not be comparable to the pay ratio reported below because other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios.
In order to estimate the Company's CEO pay ratio, the Company first determined its employee population using a determination date of October 1, 2017. It identified the median employee using a compensation measure consisting of base salary or wages (as applicable), overtime pay, and any bonuses paid during the twelve-month period preceding the determination date. Conforming adjustments were made for employees who were hired during that period and did not receive pay for the full period. The median employee from the analysis had anomalous compensation characteristics, as permitted by SEC guidances, and was substituted with another employee with substantially similar compensation (based on the compensation measure described above).
The 2017 annual total compensation as determined under Item 402 of Regulation S-K for the Company's CEO was $10,633,932, as reported in the Summary Compensation Table of this proxy statement. The 2017 annual total compensation as determined under Item 402 of Regulation S-K for the median employee was $69,597. The ratio of the Company's CEO’s annual total compensation to the Company's median employee’s annual total compensation for fiscal year 2017 is 153 to 1.
Restricted Stock and Option Awards
GRANTS OF PLAN-BASED AWARDS IN 20142017
The table below provides information with respect to incentive compensation granted to each of the named executive officers during the year ended December 31, 20142017.
| | | | | | | | | | All Other Stock Awards: Number of Shares of Stock (#) | | All Other Option Awards: Number of Shares of Securities Underlying Options (#) | | Exercise or Base Price of Option Awards ($) (3) | | Grant Date Fair Value of Stock and Option Awards ($) (4) | | | | | | | | All Other Stock Awards: Number of Shares of Stock (#) | | All Other Option Awards: Number of Shares of Securities Underlying Options (#) | | Exercise or Base Price of Option Awards ($) (2) | | Grant Date Fair Value of Stock and Option Awards ($) (3) |
| | Estimated Future Payouts Under Non- Equity Incentive Plan Awards(1) | | Estimated Future Payouts Under Equity Incentive Plan Awards | | | Estimated Future Payouts Under Non- Equity Incentive Plan Awards(1) | | Estimated Future Payouts Under Equity Incentive Plan Awards | |
| | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | |
Name | Grant Date | | ($) | | ($) | | ($) | | (#) | | (#) (4) | | (#) | | Grant Date | | ($) | | ($) | | ($) | | (#) | | (#) | | (#) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Howard M. Lorber | 5/16/2014 | | $ | — |
| | $ | 3,100,398 |
| | $ | 3,875,498 |
| | — | | — | | — | | — | | — |
| | $ | — |
| | $ | — |
| 2/23/2017 | | — |
| | — |
| | — |
| | — | | — | | — | | — | | 262,500 |
| | $ | 21.72 |
| | $ | 1,348,296 |
|
| 5/16/2014 | | $ | — |
| | $ | — |
| | $ | — |
| | — | | — | | — | | — | | 262,500 |
| | $ | 18.71 |
| | $ | 819,154 |
| 2/23/2017 | | — |
| | $ | 3,198,494 |
| | $ | 3,998,118 |
| | — | | — | | — | | — | | — |
| | — |
| | — |
|
| 7/23/2014 | | $ | — |
| | $ | — |
| | $ | — |
| | — | | 1,050,000 | | — | | — | | — |
| | $ | — |
| | $ | 20,780,000 |
| |
Richard J. Lampen | 5/16/2014 | | $ | — |
| | $ | 450,000 |
| | $ | 562,500 |
| | — | | — | | — | | — | | — |
| | $ | — |
| | $ | — |
| 2/23/2017 | | — |
| | — |
| | — |
| | — | | — | | — | | — | | 65,625 |
| | $ | 21.72 |
| | $ | 337,074 |
|
| 5/16/2014 | | $ | — |
| | $ | — |
| | $ | — |
| | — | | — | | — | | — | | 65,625 |
| | $ | 18.71 |
| | $ | 357,950 |
| 2/23/2017 | | — |
| | $ | 450,000 |
| | $ | 562,500 |
| | — | | — | | — | | — | | — |
| | — |
| | — |
|
J. Bryant Kirkland III | 5/16/2014 | | $ | — |
| | $ | 106,250 |
| | $ | 132,813 |
| | — | | — | | — | | — | | — |
| | $ | — |
| | $ | — |
| 2/23/2017 | | — |
| | — |
| | — |
| | — | | — | | — | | — | | 39,375 |
| | $ | 21.72 |
| | $ | 306,343 |
|
| 5/16/2014 | | $ | — |
| | $ | — |
| | $ | — |
| | — | | — | | — | | — | | 39,375 |
| | $ | 18.71 |
| | $ | 274,611 |
| 2/23/2017 | | — |
| | $ | 166,650 |
| | $ | 208,313 |
| | — | | — | | — | | — | | — |
| | — |
| | — |
|
Marc N. Bell | 5/16/2014 | | $ | — |
| | $ | 106,250 |
| | $ | 132,813 |
| | — | | — | | — | | — | | — |
| | $ | — |
| | $ | — |
| 2/23/2017 | | — |
| | — |
| | — |
| | — | | — | | — | | — | | 39,375 |
| | $ | 21.72 |
| | $ | 306,343 |
|
| 5/16/2014 | | $ | — |
| | $ | — |
| | $ | — |
| | — | | — | | — | | — | | 39,375 |
| | $ | 18.71 |
| | $ | 274,611 |
| 2/23/2017 | | — |
| | $ | 106,250 |
| | $ | 132,813 |
| | — | | — | | — | | — | | — |
| | — |
| | — |
|
Ronald J. Bernstein | 5/16/2014 | | $ | — |
| | $ | 1,000,000 |
| | $ | 1,000,000 |
| | — | | — | | — | | — | | — |
| | $ | — |
| | $ | — |
| 2/23/2017 | | — |
| | $ | 1,000,000 |
| | $ | 1,000,000 |
| | — | | — | | — | | — | | — |
| | — |
| | — |
|
___________________________
| |
(1) | Represents the awards made under the Bonus2014 Plan on May 16, 2014. TargetFebruary 23, 2017. In 2017, target levels arewere equal to 100% of base salary for Messrs. Lorber and Bernstein, 50% of base salary for Mr. Lampen, and 25%33.33% of base salary for Messrs.Mr. Kirkland and 25% for Mr. Bell. The maximum amount is 125% of the target amount for Messrs. Lorber, Lampen, Kirkland and Bell and 100% of the target amount for Mr. Bernstein. There is no minimum or threshold amount. The Subcommittee approved the performance criteria for determining the award opportunities for each named executive officer under the Bonus2014 Plan. The actual bonus amounts earned for 20142017 have been determined and paid in 20152018 and are reflected in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table. |
| |
(2) | Represents a grant of restricted stock to Mr. Lorber that will be earned only if both a performance requirement (Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2020) and a continued employment requirement are met. There is no minimum or threshold amount, and the award cannot be earned above the target number of shares. |
| |
(3) | Represents the closing market price of the Company's Common Stock on the date of stockholder approval under which the options were granted.granted on February 23, 2017. |
| |
(4)(3) | Represents the aggregate grant date fair value of stock or stock options granted under the 2014 Plan for the year ended December 31, 20142017 as determined in accordance with FASB ASC Topic 718, rather than an amount paid to or realized by the named executive officer. Assumptions used in the calculation of such amount are included in note 1314 to the Company’s auditedconsolidated financial statements for the year ended December 31, 20142017 included in its Annual Report on Form 10-K filed with the Securities and Exchange CommissionSEC on March 4, 2015. The1, 2018. These grants may be subject to certain continued service or performance conditions; consequently, FASB ASC Topic 718 amounts from these grantsincluded in the table may never be realized by the named executive officer. |
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 20142017
The table below provides information with respect to the outstanding equity awards of the named executive officers as of December 31, 20142017.
| | | Option Awards | | Stock Awards | Option Awards | | Stock Awards |
| Number of Securities Underlying Unexercised Options (#) | | Number of Securities Underlying Unexercised Options (#) | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned | | Option Exercise | | Option Expiration | | Number of Shares or Units of Stock That Have Not | | Market Value of Shares or Units of Stock That Have Not | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
Name | Exercisable | | Unexercisable | | Options (#) | | Price ($) | | Date | | Vested (#) | | Vested ($) | | Vested (#) | | Vested ($) | | | | | |
Howard M. Lorber | 1,021,025 |
| | — |
| | — | |
| $11.05 |
| | 12/3/2019 | | — |
| | — |
| | — | | — | 1,181,962 |
| | — |
| | — | |
| $9.55 |
| | 12/3/2019 | | — |
| | — |
| | — | | — |
| — |
| | 486,203 |
| (1) | — | |
| $14.20 |
| | 1/14/2021 | | — |
| | — |
| | — | | — | 562,838 |
| | — |
| | — | |
| $12.27 |
| | 1/14/2021 | | — |
| | — |
| | — | | — |
| — |
| | 551,250 |
| (2) | — | |
| $14.63 |
| | 2/26/2023 | | — |
| | — |
| | — | | — | 638,139 |
| | — |
| | — | |
| $12.64 |
| | 2/26/2023 | | — |
| | — |
| | — | | — |
| | | 262,500 |
| (3) | |
| $18.71 |
| | 5/16/2024 | | 1,050,000 |
| (4) | $ | 22,375,500 |
| | — | | — |
| | 303,876 |
| (1) | — | |
| $16.18 |
| | 2/26/2024 | | 694,575 |
| (5) | $ | 15,544,589 |
| | — | | — |
| | — |
| | 289,406 |
| (2) | — | |
| $19.97 |
| | 2/24/2025 | | 945,002 |
| (6) | $ | 21,149,145 |
| | — | | — |
| | — |
| | 275,625 |
| (3) | — | |
| $21.08 |
| | 2/29/2026 | | — |
| | — |
| | — | | — |
| | — |
| | 262,500 |
| (4) | — | |
| $21.72 |
| | 2/23/2027 | | — |
| | — |
| | — | | — |
Richard J. Lampen | 204,205 |
| | — |
| | — | |
| $11.05 |
| | 12/3/2019 | | — |
| | — |
| | — | | — | 236,391 |
| | — |
| | — | |
| $9.55 |
| | 12/3/2019 | | — |
| | — |
| | — | | — |
| | 159,533 |
| | — |
| | — | |
| $12.64 |
| | 2/26/2023 | | — |
| | — |
| | — | | — |
| | — |
| | 75,968 |
| (1) | — | |
| $16.18 |
| | 2/26/2024 | | — |
| | — |
| | — | | — |
| | — |
| | 72,351 |
| (2) | — | |
| $19.97 |
| | 2/24/2025 | | — |
| | — |
| | — | | — |
| — |
| | 137,812 |
| (2) | — | |
| $14.63 |
| | 2/26/2023 | | — |
| | — |
| | — | | — | — |
| | 68,906 |
| (3) | — | |
| $21.08 |
| | 2/29/2026 | | — |
| | — |
| | — | | — |
| | | 65,625 |
| (3) | |
| $18.71 |
| | 5/16/2024 | | | | | | | | 65,625 |
| (4) | — | |
| $21.72 |
| | 2/23/2027 | | — |
| | — |
| | — | | — |
J. Bryant Kirkland III | 102,102 |
| | — |
| | — | |
| $11.05 |
| | 12/3/2019 | | — |
| | — |
| | — | | — | 118,195 |
| | — |
| | — | |
| $9.55 |
| | 12/3/2019 | | — |
| | — |
| | — | | — |
| — |
| | 82,687 |
| (2) | — | |
| $14.63 |
| | 2/26/2023 | | — |
| | — |
| | — | | — | 95,720 |
| | — |
|
| — | |
| $12.64 |
| | 2/26/2023 | | — |
| | — |
| | — | | — |
| | | 39,375 |
| (3) | |
| $18.71 |
| | 5/16/2024 | | | | | | — |
| | 45,580 |
| (1) | — | |
| $16.18 |
| | 2/26/2024 | | — |
| | — |
| | — | | — |
| | — |
| | 43,410 |
| (2) | — | |
| $19.97 |
| | 2/24/2025 | | — |
| | — |
| | — | | — |
| | — |
| | 41,343 |
| (3) | — | |
| $21.08 |
| | 2/29/2026 | | — |
| | — |
| | — | | — |
| | — |
| | 39,375 |
| (4) | — | |
| $21.72 |
| | 2/23/2027 | | — |
| | — |
| | — | — |
| — |
Marc N. Bell | 102,102 |
| | — |
| | — | |
| $11.05 |
| | 12/3/2019 | | — |
| | — |
| | — | | — | 118,195 |
| | — |
| | — | |
| $9.55 |
| | 12/3/2019 | | — |
| | — |
| | — | | — |
| — |
| | 55,125 |
| (2) | — | |
| $14.63 |
| | 2/26/2023 | | — |
| | — |
| | — | | — | 63,813 |
| | — |
| | — | |
| $12.64 |
| | 2/26/2023 | | — |
| | — |
| | — | | — |
| | | 39,375 |
| (3) | |
| $18.71 |
| | 5/16/2024 | | | | | | — |
| | 45,580 |
| (1) | — | |
| $16.18 |
| | 2/26/2024 | | — |
| | — |
| | — | | — |
| | — |
| | 43,410 |
| (2) | — | |
| $19.97 |
| | 2/24/2025 | | — |
| | — |
| | — | | — |
| | — |
| | 41,343 |
| (3) | — | |
| $21.08 |
| | 2/29/2026 | | — |
| | — |
| | — | | — |
| | | | 39,375 |
| (4) | — | |
| $21.72 |
| | 2/23/2027 | | — |
| | — |
| | — | | — |
Ronald J. Bernstein | 66,595 |
| | — |
| | — | |
| $11.44 |
| | 8/16/2016 | | 28,875 |
| (5) | $ | 615,326 |
| | — | | — | — |
| | — |
| | — | | — |
| | 10/28/2023 | | 33,424 |
| (7) | $ | 748,029 |
| | — | | — |
___________________________
| |
(1) | ThisThese option grantgrants vested on January 14, 2015.February 26, 2018, the fourth anniversary of the grant date. |
| |
(2) | These option grants vest on February 26, 2017.24, 2019, the fourth anniversary of the grant date. |
| |
(3) | These option grants vest on February 26, 2018.29, 2020, the fourth anniversary of the grant date. |
| |
(4) | ThisThese option grants vest on February 23, 2021, the fourth anniversary of the grant date. |
| |
(5) | 173,644 shares of this restricted stock award vested on each of August 15, 2015, July 1, 2016 and July 1, 2017. The remaining 694,575 unvested shares will vest, subject to Mr. Lorber's continued service to the Company through the applicable vesting date, using the following schedule: 150,000173,644 shares will vest on August 15, 2015 if the Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to June 30, 2015 exceeds $175 million, 300,000 shares minus shares previously vested will vest on July 1, 2016 if cumulative Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2015 exceeds $262.5 million, 450,000 shares minus shares previously vested will vest on July 1, 2017 if cumulative Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2016 exceeds $437.5 million, 600,000 shares minus shares previously vested will vest on July 1, 2018 if cumulativebecause Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2017 exceedsexceeded $612.5 million, 750,000another 173,644 shares minus shares previously vested will vest on July 1, 2019 if cumulative Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2018 exceedsexceeded $787.5 million, 900,000520,932 shares minus shares previously vested will vest on July 1, 2020 if cumulative Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2019 exceeds $962.5 million; and 1,050,000million, 694,575 shares minus shares previously vested will vest on July 1, 2021 if cumulative Vector Group Ltd. Adjusted EBITDA from July 1, 2014 to December 31, 2020 exceeds $1.138 billion. “Vector Group Ltd. Adjusted EBITDA” is defined in the Award Agreement to mean the Company’s Earnings Before Interest, Income Taxes, Depreciation and Amortization excluding litigation or claim judgments or settlements and non-operating items and expenses for restructuring, productivity initiatives and new business initiatives. |
| |
(5)(6) | 189,000 shares of this restricted stock award vested on each of November 15, 2016 and July 1, 2017. The remaining 945,002 unvested shares will vest, subject to Mr. Lorber's continued service to the Company through the applicable vesting date, using the following schedule: 189,000 shares will vest on July 1, 2018 because cumulative Vector Group Ltd. Adjusted EBITDA from October 1, 2015 to December 31, 2017 exceeded $393.75 million, another 189,000 shares will vest on July 1, 2019 because cumulative Vector Group Ltd. Adjusted EBITDA from October 1, 2015 to December 31, 2018 exceeded $568.75 million, 567,000 shares minus shares previously |
vested will vest on July 1, 2020 if cumulative Vector Group Ltd. Adjusted EBITDA from October 1, 2015 to December 31, 2019 exceeds $743.75 million, 756,000 shares minus shares previously vested will vest on July 1, 2021 if cumulative Vector Group Ltd. Adjusted EBITDA from October 1, 2015 to December 31, 2020 exceeds $918.75 million, and 945,002 shares minus shares previously vested will vest on July 1, 2022 if cumulative Vector Group Ltd. Adjusted EBITDA from October 1, 2015 to December 31, 2021 exceeds $1.09375 billion. “Vector Group Ltd. Adjusted EBITDA” is defined in the Award Agreement to mean the Company’s Earnings Before Interest, Income Taxes, Depreciation and Amortization excluding litigation or claim judgments or settlements and non-operating items and expenses for restructuring, productivity initiatives and new business initiatives.
| |
(7) | This restricted stock award will vest upon the earlier of March 15, 2019, if Liggett's adjusted EBIT for the five years ended December 31, 2018, is more than $1.15 billion, or October 31, 2020 if the performance target is not achieved. |
OPTION EXERCISES AND STOCK VESTED IN YEAR ENDED DECEMBER 31, 20142017
The table below provides information with respect to options that were exercised or stock awards that vested during 20142017, as well as the value realized on the exercise or vesting date, based on the average of the high and low of the Company's common stock on that date.
| | | | Option Awards | | Stock Awards | | Option Awards | | Stock Awards |
| | Number of Shares Acquired on | | Value Realized on Exercise | | Number of Shares Acquired | | Value Realized on Vesting | | Number of Shares Acquired on | | Value Realized on Exercise | | Number of Shares Acquired | | Value Realized on Vesting |
Name | | Exercise (#) | | ($) | | on Vesting | | ($) | | Exercise (#) | | ($) | | on Vesting | | ($) |
Howard M. Lorber | | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | — |
| | 362,643 |
| | $ | 8,583,659 |
|
Richard J. Lampen | | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | — |
| | — |
| | — |
|
J. Bryant Kirkland III | | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | — |
| | — |
| | — |
|
Marc N. Bell | | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | — |
| | — |
| | — |
|
Ronald J. Bernstein | | 236,150 |
| | $ | 2,026,259 |
| | — |
| | $ | — |
| | — |
| | — |
| | — |
| | — |
|
Retirement Benefits
PENSION BENEFITS AT 20142017 FISCAL YEAR END
The table below quantifies the benefits expected to be paid from the Company’s Supplemental Retirement Plan and, in the case of Mr. Bernstein, also from Liggett’s Qualified Plan. The terms of the plans are described below the table.
| | | | Number of Years of Credited | | Present Value of Accumulated | | Payments During | | Number of Years of Credited | | Present Value of Accumulated | | Payments During |
Name | | Plan Name | | Service (#)(1) | | Benefit ($)(2),(3) | | Last Fiscal Year ($) | | Plan Name | | Service (#)(1) | | Benefit ($)(2),(3) | | Last Fiscal Year ($) |
Howard M. Lorber | | Supplemental | | 13 | | $ | 27,323,936 |
| | $0 | | Supplemental | | 11 | | $ | 37,757,147 |
| | $0 |
| | Retirement Plan | | | | |
| | | | Retirement Plan | | | | |
| | |
Richard J. Lampen | | Supplemental | | 11 | | $ | 3,381,348 |
| | $0 | | Supplemental | | 10 | | $ | 4,466,004 |
| | $0 |
| | Retirement Plan | | | | |
| | | | Retirement Plan | | | | |
| | |
J. Bryant Kirkland III | | Supplemental | | 11 | | $ | 788,914 |
| | $0 | | Supplemental | | 14 | | $ | 1,135,747 |
| | $0 |
| | Retirement Plan | | | | |
| | | | Retirement Plan | | | | |
| | |
Marc N. Bell | | Supplemental | | 11 | | $ | 1,154,829 |
| | $0 | | Supplemental | | 14 | | $ | 2,084,023 |
| | $0 |
| | Retirement Plan | | | | |
| | | | Retirement Plan | | | | |
| | |
Ronald J. Bernstein | | Supplemental | | 13 | | $ | 5,934,265 |
| | $0 | | Supplemental | | 12 | | $ | 6,669,950 |
| | $0 |
| | Retirement Plan | | | | |
| | | | Retirement Plan | | | | |
| | |
| | Qualified Plan | | 2 | | $ | 54,817 |
| | $0 | | Qualified Plan | | 2 | | $ | 63,634 |
| | $0 |
___________________________
| |
(1) | Equals number of years of credited service as of December 31, 20142017. Credited service under the Supplemental Retirement Plan is based on a named executive officer’s period of full time continuous covered employment after commencing participation in the Supplemental Retirement Plan. Credited service under the Qualified Plan is based on service prior to January 1, 1994 when the Qualified Plan was frozen. |
participation in the Supplemental Retirement Plan. Credited service under the Qualified Plan is based on service prior to January 1, 1994 when the Qualified Plan was frozen.
| |
(2) | Represents actuarial present value in accordance with the same assumptions outlined in note 11 to the Company’s audited financial statements for the year ended December 31, 20142017 included in its Annual Report on Form 10-K filed with the Securities and Exchange CommissionSEC on March 4, 20151, 2018. |
| |
(3) | Includes amounts which the named executive officer is not currently entitled to receive because such amounts are not vested. |
Supplemental Retirement Plan
The Supplemental Retirement Plan provides for the payment to a participant at his normal retirement date of a lump sum amount that is the actuarial equivalent of a single life annuity commencing on that date. The “normal retirement date” under the Supplemental Retirement Plan is defined as the January 1st following attainment by a participant of the later of age 60 or the completion of eight years of employment following January 1, 2002 (in the case of Messrs. Lorber and Bernstein) or January 1, 2004 (in the case of Messrs. Lampen, Kirkland and Bell).
The following table sets forth for each named executive officer his hypothetical single life annuity, his normal retirement date and his projected lump sum payment at his normal retirement date.
|
| | | | | | | | | | |
| | Hypothetical | | Normal | | Lump-Sum |
Name | | Single Life Annuity | | Retirement Date | | Equivalent |
Howard M. Lorber | | $ | 1,051,875 |
| | January 1, 2010 | | $ | 10,855,666 |
|
| | $ | 735,682 |
| | January 1, 2013 | | $ | 7,121,988 |
|
Richard J. Lampen | | $ | 250,000 |
| | January 1, 2014 | | $ | 2,625,275 |
|
J. Bryant Kirkland III | | $ | 202,500 |
| | January 1, 2026 | | $ | 2,126,473 |
|
Marc N. Bell | | $ | 200,000 |
| | January 1, 2021 | | $ | 2,100,220 |
|
Ronald J. Bernstein | | $ | 438,750 |
| | January 1, 2014 | | $ | 4,607,358 |
|
No benefits are payable under the Supplemental Retirement Plan if a named executive officer resigns without good reason before attaining his normal retirement date. In the case of a participant who becomes disabled prior to his normal retirement date or whose service is terminated without cause, the participant’s benefit consists of a pro-rata portion of the full projected retirement benefit to which he would have been entitled had he remained employed through his normal retirement date, as actuarially discounted back to the date of payment. The beneficiary of a participant who dies while working for the Company or a subsidiary (and before becoming disabled or attaining his normal retirement date) will be paid an actuarially discounted equivalent of his projected retirement benefit; conversely, a participant who retires beyond his normal retirement date will receive an actuarially increased lump sum payment to reflect the delay in payment using a post-retirement interest rate of 7.5%. The lump sum amount under the Supplemental Retirement Plan is paid six months following the named executive officer’s retirement on or after his normal retirement date or termination of employment without cause, along with interest at the prime lending rate as published in the Wall Street Journal on the lump sum amount for this six-month period.
In April 2008, after consulting with GK Partners, the compensation committee of the board approved an amendment to the Supplemental Retirement Plan to provide Mr. Lorber with an additional benefit under the Supplemental Retirement Plan equal to a $735,682 lifetime annuity to provide an incentive for Mr. Lorber to remain with the Company past his then current retirement date under the Supplemental Retirement Plan, which was January 1, 2010. As a result of the additional benefit granted to him, Mr. Lorber was eligible to receive a total lump sum retirement benefit of $20,607,948 if he retired in 2013, an increase of $7,121,988 over the benefit he would have been entitled to receive under the Supplemental Retirement Plan prior to the amendment. AsBecause Messrs. Lorber, Lampen and Bernstein did not retire on their Normal Retirement Dates,normal retirement dates, their additional benefits are being increased by 7.5% per annum for each year they continue to be an employee of the Company after their Normal Retirement Datesnormal retirement dates listed in the table above.
In January 2006, the Company amended and restated the Supplemental Retirement Plan. The amendments to the Supplemental Retirement Plan were intended, among other things, to cause the plan to meet the applicable requirements of the “deferred compensation” provisions of Section 409A of the Code. The Supplemental Retirement Plan is intended to be unfunded for tax purposes, and payments under the Supplemental Retirement Plan will be made out of the Company’s general assets.
Qualified Plan
Liggett’s salaried employees are entitled to benefits payable under its Qualified Plan based on a formula that yields an annual amount payable over the participant’s life beginning at age 65. Liggett discontinued providing additional benefits under the Qualified Plan for service on and after January 1, 1994. As of December 31, 20142017, none of the named executive officers was eligible to receive any benefits under the Qualified Plan, except for Mr. Bernstein who is entitled to a monthly benefit of $372 beginning at age 65.
Potential Termination and Change in Control Payments
The compensation payable to named executive officers upon voluntary termination, involuntary termination without cause, termination for cause, termination following a change in control and in the event of disability or death of the executive is described below.
Payments Made Upon Termination
Regardless of the manner in which a named executive officer’s employment terminates, unless terminated for cause, he or she may be entitled to receive amounts earned during his or her term of employment. Such amounts include:
unpaid base salary through the date of termination;
any accrued and unused vacation pay;
any unpaid award under the Plans2014 Plan or bonus under the Bonus2014 Plan with respect to a completed performance period;
all accrued and vested benefits under the Company’s compensation and benefit programs, including the pension plan and the Supplemental Retirement Plan; and
with respect solely to Mr. Lorber, payment by the Company of a tax gross-up for any excise taxes and related income taxes on gross-ups for benefits received upon termination of employment.employment in connection with a change in control.
Payments Made Upon Involuntary Termination of Employment Without Cause or for Good Reason, Death or Disability
In the event of the termination of a named executive officer by the Company without cause or by the named executive officer for good reason, or upon the death or disability of a named executive officer, in addition to the benefits listed under the heading “Payments Made Upon Termination,” the named executive officer or his designated beneficiary upon his death will receive the following benefits:
with respect to the named executive officers, payments for a specified period of either 36 months for Mr. Lorber, or 24 months for the other named executive officers (the “Severance Period”) equal to 100% of the executive’s then-current base salary and (except for Mr. Bernstein) the most recent bonus paid to the executive (up to the amount of the executive’s target bonus under his employment agreement);
with respect to the named executive officers, continued participation, at the Company’s expense, during the Severance Period in all employee welfare and health benefit plans, including life insurance, health, medical, dental and disability plans which cover the executive and the executive’s eligible dependents (or, if such plans do not permit the executive and his eligible dependents to participate after his termination, the Company is required to pay an amount each quarter (not to exceed $35,000 per year in the case of Messrs. Lampen, Kirkland and Bell) to keep them in the same economic position on an after-tax basis as if they had continued in such plans);
with respect solely to Mr. Bernstein, a pro rata amount of any bonus award under the Bonus2014 Plan for which the performance period has not been completed based upon 100% of the target bonus amount for such period to the extent that Mr. Bernstein is terminated on or after July 1 of the applicable year and bonuses are otherwise paid to the management of Liggett for that year; and
acceleration of the vesting of his restricted shares and stock options upon death or disability.
Payments Made Upon a Change in Control
Howard M. Lorber
Mr. Lorber’s employment agreement has a “double-trigger” change in control provision: if his employment is terminated without cause or by the executiveMr. Lorber for good reason within two years ofafter a change in control (or before a change in control that actually occurs in anticipation of or at the request of a third party effectuating such a change in control), Mr. Lorber would be entitled to receive the following severance benefits:
a lump-sum cash payment equal to 2.99 times the sum of his base salary plus the last annual bonus earned by him up(up to 100% of base salary, (includingincluding any deferred amount) for the performance period immediately preceding the date of termination;
participation by Mr. Lorber and his eligible dependents in all welfare benefit plans in which they were participating on the date of termination until the earlier of (x) the end of the employment period under his employment agreement and (y) the date that he receives equivalent coverage and benefit under the plans and programs of a subsequent employer;
continued participation at the Company’s expense for 36 months in life, disability, accident, health and medical insurance benefits substantially similar to those received by Mr. Lorber and his eligible dependents prior to such termination, subject to reduction if comparable benefits are actually received from a subsequent employer;
full vesting of his outstanding equity awards; and
termination of certain restrictive covenants in his employment agreement, including covenants not to compete and non-solicitation covenants.
Richard J. Lampen, J. Bryant Kirkland III, Marc N. Bell and Ronald J. Bernstein
While their respective employment agreements do not contain any change of control provisions, in the event of the termination of Messrs. Lampen, Kirkland, Bell and Bernstein by the Company without cause or by the named executive officer for good reason upon a change of control, such named executive officers would receive pursuant to their employment agreements the same severance benefits described in the section titled “Payments Made Upon Termination” and “Payments Made Upon Involuntary Termination of Employment Without Cause or for Good Reason, Death or Disability,” above.
Definition of Change in Control
Pursuant to the employment agreement between the Company and Mr. Lorber, a “change in control” is deemed to occur if:
a person unaffiliated with the Company acquires more than 40 percent control over its voting securities;
the individuals who, as of January 1, 2006, are members of the Company’s board of directors (the “Incumbent Board”), cease to constitute at least two-thirds of the Incumbent Board; however, a newly-elected board member that was elected or nominated by two-thirds of the Incumbent Board shall be considered a member of the Incumbent Board;
the Company’s stockholders approve a merger, consolidation or reorganization with an unrelated entity, unless the Company’s stockholders would own at least 51 percent of the voting power of the surviving entity; the individuals who were members of the Incumbent Board constitute at least a majority of the members of the board of directors of the surviving entity; and no person (other than one of the Company’s affiliates) has beneficial ownership of 40 percent or more of the combined voting power of the surviving entity’s then outstanding voting securities;
the Company’s stockholders approve a plan of complete liquidation or dissolution of the Company; or
the Company’s stockholders approve the sale or disposition of all or substantially all of the Company’s assets.
Definition of Termination for Cause
Under each of the employment agreements with Messrs. Lorber, Lampen, Kirkland and Bell, termination by the Company for “cause” is defined as:as the executive:
the executive being convicted of or entering a plea of nolo contendere with respect to a criminal offense constituting a felony;
the executive committing in the performance of his duties under his employment agreement one or more acts or omissions constituting fraud, dishonesty or willful injury to the Company which results in a material adverse effect on the business, financial condition or results of operations of the Company;
the executive committing one or more acts constituting gross neglect or willful misconduct which results in a material adverse effect on the business, financial condition or results of operations of the Company;
the executive exposing the Company to criminal liability substantially and knowingly caused by the executive which results in a material adverse effect on the business, financial condition or results of operations of the Company; or
the executive failing to substantially perform his duties under his employment agreement (excluding any failure to meet any performance targets or to raise capital or any failure as a result of an approved absence or any mental or physical impairment that could reasonably be expected to result in a disability), after written warning from the board specifying in reasonable detail the breach(es) complained of.
Under the employment agreement between Liggett and Mr. Bernstein, “cause” is defined as:
a material breach by Mr. Bernstein of his duties and obligations under his employment agreement which breach is not remedied to the satisfaction of the board of directors of Liggett (“Liggett Board”), within 30 days after receipt by Mr. Bernstein of written notice of such breach from the Liggett Board;
Mr. Bernstein’s conviction or indictment for a felony;
an act or acts of personal dishonesty by Mr. Bernstein intended to result in personal enrichment of Mr. Bernstein at the expense of the Company or any of its affiliates or any other material breach or violation of Mr. Bernstein’s fiduciary duty owed to the Company or any of its affiliates;
material violation of any Company or Liggett policy or the Company’s Code of Business Conduct and Ethics; or
any grossly negligent act or omission or any willful and deliberate misconduct by Mr. Bernstein that results, or is likely to result, in material economic, or other harm, to the Company or any of its affiliates (other than any act or omission by Mr. Bernstein if it was taken or omitted to be done by Mr. Bernstein in good faith and with a reasonable belief that such action or omission was in the best interests of the Company).
Definition of Termination for Good Reason
Under each of the employment agreements with Messrs. Lorber, Lampen, Kirkland and Bell, termination by the executive for “good reason” is defined as:
a material diminution of the executive’s duties and responsibilities provided in his employment agreement, including, without limitation, the failure to elect or re-elect the executive to his position (including with respect solely to Mr. Lorber, his position as a member of the board) or the removal of the executive from any such position;
a reduction of the executive’s base salary or target bonus opportunity as a percentage of base salary or any other material breach of any material provision of his employment agreement by the Company;
relocation of the executive’s office from the Miami (or with respect solely to Mr. Lorber, Miami or New York City) metropolitan areas;
the change in the executive’s reporting relationship from direct reporting to the board, in the case of Mr. Lorber, to the Chairman and the Chief Executive Officer, in the case of Mr. Lampen, or to the Chairman, Chief Executive Officer or the Executive Vice President, in the case of Messrs. Kirkland and Bell; or
the failure of a successor to all or substantially all of the Company’s business or assets to promptly assume and continue his employment agreement obligations whether contractually or as a matter of law, within 15 days of such transaction.
Under the employment agreement with Mr. Bernstein, “good reason” exists if, without the prior written consent of Mr. Bernstein:
the Liggett Board removes Mr. Bernstein as President and Chief Executive Officer of Liggett, other than in connection with the termination of his employment;
Mr. Bernstein is not appointed as a member of the Liggett Board;
the Liggett Board reduces Mr. Bernstein’s rate of salary or bonus opportunity or materially reduces Mr. Bernstein’s welfare, perquisites or other benefits described in his employment agreement;
Mr. Bernstein’s duties and responsibilities at Liggett are significantly diminished or there are assigned to him duties and responsibilities materially inconsistent with his position;
Liggett fails to obtain a written agreement reasonably satisfactory to Mr. Bernstein from any successor of the Company to assume and perform his employment agreement; or
there occurs a change of control and Mr. Bernstein is required to relocate more than 50 miles from Mr. Bernstein’s current work location.
Assumptions Regarding Post-Termination Payment Tables
The following tables were prepared as though each named executive officer’s employment was terminated on December 31, 20142017 (the last business day of 2014) using the closing price of the Company’s Common Stock as of that day ($21.3122.38). The amounts under the columns which reflect a Change in Control assume that a change in control occurred on December 31, 20142017. However, the executives’ employment was not terminated on December 31, 20142017 and a change in control did not occur on that date. There can be no assurance that a termination of employment, a change in control or both would produce the same or similar results as those describedquantified below if either or both of themthese events occur on any other date or at any other price, or if any other assumption is not correctused in fact.
Tax Gross-Up Assumptions
Mr. Lorber was assumed to be subject to the maximum federal and state income and other payroll taxes, including excise taxes, aggregating to a net combined effective tax of approximately 62%, when calculating whether he would have been entitled to an excise tax gross-up.
Calculations for any tax gross-up arethese estimates changes based on Mr. Lorber’s taxable wages (Form W-2, Box 1) for the years 2009 through 2013.
No other named executive officer is entitled tofacts and circumstances at the time of an excise tax gross-up under the termsactual change in control or termination of his employment agreement.employment.
Equity-Based Assumptions
Stock options held by Messrs. Lorber, Lampen, Kirkland and Bell and restricted stock held by Mr.Messrs. Lorber and Bernstein would have vested on December 31, 20142017 with respect to a change in control or termination by him on death or disability.
No other named executive officer heldMr. Bernstein did not hold any unvested options at that date.
Stock options that become vested due to a change in control are valued based on their “spread” (i.e., the difference between the stock’s fair market value and the exercise price).
It is possible that in the case of Mr. Lorber's payments, IRS rules would require these items to be valued using a valuation method such as, with respect to stock options, the Black-Scholes model if theythe stock options were continued after a change in control. Using a Black-Scholes value in lieu of the “spread” would cause higher value for excise taxes and the related tax gross-up payment.
Incentive Plan Assumptions
All amounts under the Bonus2014 Plan were deemed to have been earned for 20142017 in full based on actual performance and are not treated as subject to the excise tax upon a change in control.
Retirement Benefit Assumptions
All benefits were assumed to be payable in a single lump sum at the participant’s assumed retirement date.
Howard M. Lorber
| | | Termination by Company without Cause or by Named Executive Officer with Good Reason | | Disability | | Death | | Termination by Company for Cause or Voluntary Termination by Named Executive Officer Without Good Reason | | Termination by Company without Cause or by Named Executive Officer with Good Reason upon a Change in Control | | Termination by Company without Cause or by Named Executive Officer with Good Reason | | Disability | | Death | | Termination by Company for Cause or Voluntary Termination by Named Executive Officer Without Good Reason | | Termination by Company without Cause or by Named Executive Officer with Good Reason upon a Change in Control | |
Cash Severance | $ | 18,467,640 |
| (1 | ) | $ | 18,467,640 |
| (1) | $ | 18,467,640 |
| (1) | — | | $ | 18,406,081 |
| (2) | $ | 18,992,685 |
| (1) | $ | 18,992,685 |
| (1) | $ | 18,992,685 |
| (1) | — | | $ | 18,929,376 |
| (2) |
Acceleration of Long Term Incentive Grants at Target | — |
| | — |
| | — |
| | — | | — |
| | |
Value of Accelerated Unvested Equity (3) | — |
| | $ | 30,197,253 |
| | $ | 30,197,253 |
| | — | | $ | 30,197,253 |
| | $ | 3,113,062 |
| | $ | 46,529,026 |
| | $ | 46,529,026 |
| | — | | $ | 46,529,026 |
| |
Benefits Continuation (4) | $ | 133,632 |
| | $ | 133,632 |
| | $ | 37,300 |
| | — | | $ | 133,632 |
| | $ | 112,238 |
| | $ | 112,238 |
| | $ | 24,345 |
| | — | | $ | 112,238 |
| |
Value of Supplemental Retirement Plan (5) | $ | 23,743,936 |
| | $ | 23,743,936 |
| | $ | 23,743,936 |
| | $23,743,936 | | $ | 23,743,936 |
| | $ | 29,497,018 |
| | $ | 29,497,018 |
| | $ | 29,497,018 |
| | $29,497,018 | | $ | 29,497,018 |
| |
Excise Tax and Gross-Up | — |
| | — |
| | — |
| | — | | — |
| | — |
| | — |
| | — |
| | — | | $ | 18,302,663 |
| (6) |
___________________________
| |
(1) | Reflects the value of the sum of Mr. Lorber’s 20142017 base salary ($3,100,3983,198,494) and last paid bonus limited to 100% of base salary ($3,055,4823,132,401) paid over a period of 36 months after termination. |
| |
(2) | Reflects the value of the sum of Mr. Lorber’s 20142017 base salary ($3,100,3983,198,494) and last paid bonus limited to 100% of base salary ($3,055,4823,132,401) for a period of 2.99 years paid in a lump-sum payment commencing after termination. |
| |
(3) | Reflects the value of any unvested stock options or restricted stock and related dividends that would have vested upon the event using the closing price of the Company’s Common Stock on December 31, 20142017 ($21.31)($22.38). See “Outstanding Equity Awards at December 31, 20142017.” |
| |
(4) | Reflects the value of premium payments for life insurance, medical, dental and disability plans for 36 months at the Company’s cost, based on 20142017 premiums. |
| |
(5) | This amount includes amounts that the named executive officer accrued under the Supplemental Retirement Plan as of December 31, 20142017, which are disclosed in “Pension Benefits at 20142017 Fiscal Year End.” |
| |
(6) | This payment was estimated using a 67% combined state, federal, payroll and excise tax marginal effective rate and multiple other assumptions, which will likely differ from the relevant facts at the time of any actual change in control. As a result, the actual amount of this payment (if any) that could actually be made in the event of a change of control may be materially different from this estimate. |
Richard J. Lampen
| | | Termination by Company without Cause or by Named Executive Officer with Good Reason | | Disability | | Death | | Termination by Company for Cause or Voluntary Termination by Named Executive Officer Without Good Reason | | Termination by Company without Cause or by Named Executive Officer with Good Reason upon a Change in Control | Termination by Company without Cause or by Named Executive Officer with Good Reason | | Disability | | Death | | Termination by Company for Cause or Voluntary Termination by Named Executive Officer Without Good Reason | | Termination by Company without Cause or by Named Executive Officer with Good Reason upon a Change in Control |
Cash Severance (1) | $ | 2,700,000 |
| | $ | 2,700,000 |
| | $ | 2,700,000 |
| | — |
| | $ | 2,700,000 |
| $ | 2,700,000 |
| | $ | 2,700,000 |
| | $ | 2,700,000 |
| | — |
| | $ | 2,700,000 |
|
Acceleration of Long Term Incentive Grants at Target | — |
| | — |
| | — |
| | — |
| | — |
| |
Value of Accelerated Unvested Equity (2) | — |
| | $ | 1,091,209 |
| | $ | 1,091,209 |
| | — |
| | $ | 1,091,209 |
| $ | 778,259 |
| | $ | 778,259 |
| | $ | 778,259 |
| | — |
| | $ | 778,259 |
|
Benefits Continuation (3) | $ | 93,845 |
| | $ | 93,845 |
| | $ | 47,940 |
| | — |
| | $ | 93,845 |
| $ | 54,795 |
| | $ | 54,795 |
| | $ | 16,230 |
| | — |
| | $ | 54,795 |
|
Value of Supplemental Retirement Plan (4) | $ | 2,816,268 |
| | $ | 2,816,268 |
| | $ | 2,816,268 |
| | $ | 2,816,268 |
| | $ | 2,816,268 |
| $ | 3,498,641 |
| | $ | 3,498,641 |
| | $ | 3,498,641 |
| | $ | 3,498,641 |
| | $ | 3,498,641 |
|
Excise Tax and Gross-Up | — |
| | — |
| | — |
| | — |
| | — |
| |
Excise Tax and Gross-Up (not applicable) | | — |
| | — |
| | — |
| | — |
| | — |
|
J. Bryant Kirkland III